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Mossimo Trading Halted on NYSE; Delisting Possible

Action comes as creditors try to force the Irvine firm into involuntary bankruptcy. Crucial Target deal is in jeopardy.

May 19, 2000|LESLIE EARNEST | TIMES STAFF WRITER

The New York Stock Exchange halted trading in Mossimo Inc.'s stock Thursday, a day after the apparel designer announced that three clothing manufacturers are trying to force the company into bankruptcy liquidation.

NYSE officials also said they are considering whether to delist the shares, partly because the company no longer meets some of the exchange's financial requirements.

The stock, which has lost nearly 90% of its value this year, fell $1.06 to 88 cents a share before trading was halted about two hours after the opening bell. At one point the shares hit 75 cents, a 52-week low.

Meanwhile, attorneys for the manufacturers who filed the bankruptcy petition said the Irvine designer owes their clients $650,000, money that has been due for months.

"This was not a rash decision," said one of the creditors' attorneys, Steve Gubner with Ezra, Brutzkus & Gubner LLP in Encino. "There were weeks of discussions with Mossimo."

One of the creditors, Pacific Apparel Resources Inc. in Los Angeles, has not been paid for clothing delivered to Mossimo as long as four months ago, attorney Mark Brutzkus said. The manufacturer also lost money when Mossimo canceled orders for clothing that Pacific was making, he said.

The other creditors are Caeco Enterprises Inc. of Montebello and Wilmar Concepts Inc. in Los Angeles.

Mossimo attorney Peter Gilhuly said the company was surprised by the filing, which "could well have been avoided."

"An involuntary bankruptcy petition is a pretty drastic move to take," said Gilhuly, a partner at Latham & Watkins in Los Angeles. "Normally, that [happens] when you determine no discussions are going to be had. And that's just not the case here."

Mossimo is currently evaluating the creditors' claims, Gilhuly said. "We will consider all options, but a liquidation is unlikely."

Mossimo has until June 7 to contest the petition. Otherwise, it can proceed with liquidation or file for reorganization under Chapter 11 of the bankruptcy code. No hearing has been set yet.

Gilhuly declined to comment on what the petition, filed Tuesday in U.S. Bankruptcy Court, will mean to a crucial licensing deal Mossimo struck recently with Target Stores.

Under that deal, Mossimo sportswear would be sold only in Target discount stores, starting next year. The apparel designer would be guaranteed royalties of about $27.8 million in the first three years, while founder Mossimo Giannulli would earn at least $8.5 million in the first year.

"The real question is whether Mossimo is important enough to Target that Target will step up and provide some financing and help Mossimo get out of this thing," said Marc Winthrop, a Newport Beach bankruptcy attorney who is not involved in the case.

Target would not comment on whether it would toss Mossimo a financial life raft.

"We are hopeful they will be able to resolve their issues without a bankruptcy proceeding," said Patty Morris, a spokeswoman for the Minneapolis-based chain. "We're committed to our partnership with Mossimo and we hope we'll have the opportunity to move forward as planned."

The Target deal has prompted a massive restructuring at Mossimo, which said this week it plans to lay off 90% of its workers and close its South Coast Plaza boutique and an outlet store in Ontario by the end of the year.

Mossimo, a former highflier that earlier had seen itself as becoming a brand on a par with Ralph Lauren or Tommy Hilfiger, has struggled in recent years after shifting from its beachwear roots to more fashion-oriented apparel. In halting trading in Mossimo's stock Thursday, NYSE officials said the company doesn't meet some financial requirements, such as having a total market capitalization of at least $50 million.

The Big Board also cited the bankruptcy petition and an accountant's recent opinion questioning Mossimo's ability to continue "as a going concern."

Spokesman Ray Pellecchia said the New York Stock Exchange was not notified of the bankruptcy filing in advance of Mossimo's news release on the subject, as is usually the case.

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