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Adrenalina fires new missive

By Tiffany Montgomery
February 12, 2009 7:34 AM

Adrenalina is continuing its quest to become involved with PacSun.

Adrenalina, with three stores and a weak balance sheet, said it is nominating four candidates for the Pacific Sunwear's board of directors at the company's shareholder meeting. Adrenalina said in a press release it has acquired 3.2 percent of the outstanding shares of the Pacific Sunwear.

Adrenalina CEO Ilia Lekach also wrote another letter to PacSun CEO Sally Frame Kasaks. The letter demands Kasaks' resignation and criticizes her salary.

PacSun previously rejected all overtures from Adrenalina.

Here is the text of the letter:

February 12, 2009

Pacific Sunwear of California, Inc.
3450 East Miraloma Avenue
Anaheim, California 92806
Attn: Ms. Sally Frame Kasaks, Chairman & CEO

cc: Board of Directors

Dear Sally:

We have attempted to meet with you and the board of directors of Pacific Sunwear of California, Inc. ("the Company"), first as a potential acquirer, and then as a significant shareholder. Time and again, you have rejected all attempts to set up a meeting. As such, you have refused to listen to our ideas and strategies for turning around the Company and enhancing shareholder value. We cannot afford, nor can your shareholders afford, to sit idly by while the Company, under your command, continues to destroy shareholder value and cause its very existence to be threatened. We hereby demand your immediate resignation from Pacific Sunwear, which is imperative for the Company's survival.

It was incredibly cavalier of you to reject our offer of $5 a share. Since that time, the value of the Company's shares have plummeted further, to as low as $ 0.72 on January 26, 2009. Meanwhile, you have failed to take any effective corrective measures. We are not alone in our concerns. You must be aware of the grim outlook for the Company as a "retailer at risk" according to Howard Davidowitz, chairman of retail consultant and investment bank Davidowitz & Associates, in a recent article published on Forbes.com.

For a Company whose focus is on "cost reduction actions," we note that you continue to handsomely reward yourself with compensation. You conveniently say that the Company needs to "be prudent" in managing its costs. Why haven't you reduced your take-home salary significantly? We were not surprised to see management and the Board take such a self-serving position, considering the ease with which management has generated cost savings by eliminating a vast number of corporate positions while presumably leaving its own bloated compensation intact. As an example, we note that your compensation in 2007 was over $3 million, more than 60% of the estimated savings achieved by the Company's recent elimination of 47 positions at its Anaheim headquarters and 10 field management positions. This Board and management team collectively own just over 1% of the outstanding shares and therefore have no significant ownership stake. Clearly, while stockholders have suffered mightily, the wallets of this Board and management team with little "skin in the game" have gotten fatter.

What is it exactly that you are trying to achieve? By failing to institute meaningful change at the Company, one is only left to conclude that turning around the Company in the near term and enhancing its value for the benefit of all your shareholders do not appear to be your goals. Could it be that you don't care that you will ultimately drive the Company into seeking Chapter 11 protection? Either way, shareholders are inexcusably disserviced by your continued tenure at the Company.

As directors, the members of the Board have fiduciary duties, as you know, to take actions that are in the best interests of the shareholders. You have hijacked the Company from its shareholders and at best appear to have grossly neglected your duties to the Company. By failing to demand effective leadership for the Company and failing to hold management accountable, the Board is culpable in the deterioration of shareholder value.

We have spoken to the largest institutional shareholders, and they share our grave concerns about the Company's current condition and the failures of management and the Board. They support our plan. In addition, we have gained the support of pillars of the surf, skate, shoe and music industries.

Prompt action is required in order to protect what little remains of shareholder value and to give shareholders the best opportunity to maximize value moving forward. All Pacific Sunwear shareholders deserve capable new leadership with the vision and ability to restore value to their investment to ensure future growth. We, as well as the vast majority of shareholders we have heard from, do not have any confidence in the current Board or assurance that they are willing to take such action. Accordingly, enclosed herewith is a letter submitting four director nominees for election to the Company's 2009 Annual Meeting. We urge the Board to voluntarily agree to add our representatives now so that we can work immediately to restore shareholder value before it is too late.

On behalf of the best interest of all Pacific Sunwear shareholders, we must reserve all rights to take any action we deem necessary with respect to the Company to protect our investment in the Company. We intend to hold management accountable even if this Board does not.

Very truly yours,

Ilia Lekach


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