Mossimo and Cherokee in Battle Over Finders-Fees

By DEBORAH BELGUM
Staff Reporter

Struggling designer Mossimo Giannulli struck a licensing deal with Target Corp. two years ago that arguably saved his company, Mossimo Inc., from bankruptcy.

The deal was brokered by Mossimo's friend and card-playing buddy, Robert Margolis, whose own apparel company, Cherokee Inc. received a generous finders-fee in perpetuity for its services.

But Cherokee now claims that a rejuvenated Mossimo is trying to reduce the amount of money it pays Cherokee under the deal.

Neither side would comment, but Cherokee issued a statement last week saying it has not been paid its first quarter finder fees, which potentially total nearly $1 million. Mossimo has informed Cherokee that the designer won't be paying those fees until their dispute goes to arbitration in mid-October.

"Mossimo was at death's door and Cherokee saved him," said one industry source. "Mossimo is cooking his own goose."

Van Nuys-based Cherokee licenses its name for everything from blue jeans to footwear. Margolis, who is chairman and chief executive, used the exclusive licensing agreement with Target to bring new vitality to the once-troubled company. In the past year, Cherokee's stock has more than doubled.

Mossimo, based in Santa Monica, no longer makes clothes. Like Cherokee, it licenses its name to Target, which owns the exclusive U.S. rights to manufacture and sell clothes and accessories with the Mossimo label.

Mossimo's deal with Target took effect in November 2000. Under the finder's fee agreement, Mossimo pays Cherokee 15 percent of the licensing fees it gets from Target.

The Target account brought in $15.3 million of Mossimo's overall revenue of $16.7 million for 2001. Last year, the company had a net income of $9 million, versus a loss of $12.3 million in 2000. In the first quarter, Mossimo reported $5.6 million in revenues.

However, Cherokee still hasn't gotten its check. In April, Mossimo signed an amended deal with Target under which Giannulli's design services make up 45 percent of the revenues received from Target. Cherokee's 15 percent take comes out of the remaining 55 percent, which Mossimo counts as royalties.

Mossimo contends that the design fees should not be considered royalties under the original finder's fee agreement, according to documents filed by both companies with the Securities and Exchange Commission.

On May 2, Mossimo filed a claim for arbitration against Cherokee saying that Mossimo should be refunded a portion of the finders fees already paid to Cherokee.

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