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The Honolulu Advertiser

Posted on: Wednesday, September 12, 2001

Bankruptcy judge approves Crazy Shirts' proposal

By Andrew Gomes
Advertiser Staff Writer

A bankruptcy judge yesterday approved conditions to speed a sale of Crazy Shirts Inc. to California-based Big Dog Holdings Inc. and avert a possible shutdown of the financially troubled company, although the conditions could discourage rival bids for the business.

Crazy Shirts filed a Chapter 11 reorganization petition in bankruptcy court Monday, after reaching an agreement to sell all its assets to Big Dog for $10 million.

The local company, which noted it was in danger of running out of cash and ceasing operations as soon as next month, petitioned the court to approve $850,000 in emergency financing and special terms for considering rival bids to purchase the business.

U.S. Bankruptcy Judge Lloyd King set an Oct. 25 hearing date to consider a sale and approved a request by Crazy Shirts that any other prospective buyers make a $2 million deposit, bid at least $10.7 million and submit their proposals to the court by Oct. 18.

In addition, should an alternate bidder fail to complete a purchase, Big Dog would receive a $400,000 breakup fee from Crazy Shirts, which would have retained the $2 million deposit. Big Dog also has an option to beat any bids by $250,000.

U.S. Bankruptcy Trustee Curtis Ching said he was concerned that the minimum bid and deposit requirements might discourage additional bidding that would benefit creditors.

But King said that "given the transaction of this magnitude and urgency, I think it's important to get a demonstration that the bidder is sincerely interested and has the means to purchase the debtor's business."

Any purchase of Crazy Shirts, including Big Dog's proposal, is subject to approval of the court and creditors.

Still, observers don't expect anyone to make a more attractive and viable offer for the 40-year-old 'Aiea-based apparel manufacturer and retailer.

Under the proposed sale, Big Dog would continue operating Crazy Shirts as a brand and retain the vast majority of the company's 537 employees. Possibly four of 44 stores could be closed and millions of dollars of Crazy Shirts debt discharged.

Also, the largest secured creditor of Crazy Shirts, Congress Financial, would provide $850,000 in additional credit for an eight-week period.

Big Dog's offer of $10 million would be used to pay creditors under bankruptcy rules, which would distribute about $8 million in secured debt to Congress Financial and Bank of Hawaii before paying any other claims.

Crazy Shirts has roughly $23 million in debts owed to more than 1,000 creditors, according to court filings. That means many will wind up with little or nothing.

"I think it's not going to be a pretty picture," said Andrew Feshbach, Big Dog's chief executive officer.

Feshbach explained that the value of Crazy Shirts has been depressed by its poor financial shape as well as softness in the national economy, Hawai'i's shaky tourism industry and tough competition.

Crazy Shirts, according to court filings, projected that it would run out of cash to sustain operations beyond October or early November.

The company ran into financial difficulties in the '90s, first with the purchase of the 'Aiea Sugar Mill for $19 million and then as sales sank because of a slowdown in the Japanese economy following the Asian financial crisis.

Despite aggressive restructuring moves — including closing stores, selling noncore assets and laying off employees — the company continued to lose money. In January, Crazy Shirts hired investment banking firm Murphy Noell Capital LLC to analyze further options, including a sale.

Murphy Noell solicited 135 entities and received four serious bids from unidentified Mainland buyers. Big Dog was the only bidder that proposed to invest in and operate Crazy Shirts.

"We've probably, for all intents and purposes, performed the auction process," said Randy Yeager, Crazy Shirts chief executive officer. "Big Dog is exactly the right partner for us. This is exactly what we needed and wanted."

Big Dog, which operates about 200 stores retailing casual sportswear and other products nationwide, expects to improve Crazy Shirts by bringing an economy of scale to the business in sourcing materials, production and administration.

That gives it an advantage to being the successful bidder in bankruptcy court, according to local retail analyst Stephany Sofos.

"When you're losing money, what are you selling?" she said. "You have X amount of assets and a brand name, but you have no cash flow. It's a risky purchase.

"Will someone come in and try to buy (Crazy Shirts)? There's always that possibility, but I don't think so."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.