Adrenalina won't back down in fight for PacSun

ANAHEIM, Calif. and MIAMI In a statement issued on Dec. 15, retailer Adrenalina criticized Pacific Sunwear for refusing to engage in discussions about a possible merger. In October, Adrenalina had offered to buy Pacific Sunwear of California for $293 million.

"It is unfortunate that PacSun has not embraced our attempts, both public and private, to work cooperatively and engage in a constructive dialogue regarding a potential business combination. The Adrenalina Group is a shareholder of PacSun and intends to significantly increase its position in the near-term," Adrenalina said.

In response to Adrenalina's statement, Sally Frame Kasaks, chairman and ceo of Pacific Sunwear sent a letter to Ilia Lekach, chairman and ceo of Adrenalina, noting that in a letter sent to PacSun on Nov. 20, Adrenalina said it would withdraw its prior acquisition proposal, but also stated that it would "remain steadfastly determined in pursuing a strategic combination" with Pacific Sunwear.

Kasaks went on to comment that her company "strongly disagree with [Adrenalina's] claim that [its] proposed business combination would be supported by a vast majority of our shareholders," adding that recent communications with major shareholders did not indicate any support for a merger with Adrenalina.

"Your continuing pursuit of a business combination with Pacific Sunwear serves only to distract management and Pacific Sunwear's employees," said Kasaks.

Kasaks pointed to several factors as to why a merger with Adrenalina would not benefit PacSun shareholders:

1. Adrenalina currently operates three stores based in Florida and     generated sales of less than $3.5 million in 2007 and $4.0 million     in the first nine months of 2008.

2. Adrenalina reported a net loss of approximately $5.8 million in     2007 and approximately $6.2 million during the nine month period     ended September 30, 2008.

3. In Adrenalina's Report on Form 10-Q filed with the SEC on     November 10, 2008, the company stated:

    "Currently we do not believe that the company will be able to     generate any significant cash flow during the coming year to     fund our planned expansion or to fund our current operations.     However, under our current model of funding operations through     capital contributions and debt we believe that we can sustain     ourselves for the next twelve  months. Currently we are seeking     additional outside funding to keep the business operational beyond     2009; however there is no assurance additional debt or capital     will be available to us on acceptable terms."

4. Adrenalina's auditors have indicated that there is substantial     doubt as to the company's ability to continue as a going concern.     Note 2 to the financial statements included in Adrenalina's Report     on Form 10-Q for the quarter ended September 30, 2008 also states:     "The company continued to incur significant operating losses     through the nine months ended Sept. 30, which raise     substantial doubt about the company's ability to continue as a     going concern."

5. Adrenalina's market capitalization as of the date of this letter     is approximately $14 million, based on the closing trading price     of Adrenalina's stock on Dec. 12.