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Once the cream of the Nasdaq crop, dot-com companies have seen their fortunes sour recently. The value of the stock of many of the former darlings of Wall Street has nose-dived lately and traditional economics (as in no profits no future) might finally be applying to these once exempt sacred cows. As a sign of the times, struggling Internet retailer Craftshop.com filed for Chapter 11 protection in Delaware on May 22, the first in a possible tidal wave of dot-com petitions. Other indicators of a new era: A host of Internet retailers, including Peapod.com, CookExpress.com and Disney’s Toysmart.com, have already closed their doors and are considering filing Chapter 11 cases, industry experts say. Part of the problem is that many Internet start-ups have burned through operating cash reserves and face increasing losses, fierce competition from traditional retailers and tightening loan requirements from venture capital firms. With many dot-coms on the ropes, bankruptcy experts say that a strong likelihood exists that e-company restructurings might be the next big thing in the already hyper-active Delaware Chapter 11 practice. A LOT OF TALK “I think you are going to see a lot more of the dot-coms [filing], absolutely,” said Scott D. Cousins of Greenberg Traurig’s Wilmington, Del., office. “We’re involved in quite a few [discussions] and whether they’re going to actually file or not, but I think there’s going to be a lot of them coming.” Cousins sees the steady rise in interest rates and the poor performance of the stock market as the two main forces behind a likely shakeout among the dot-coms. If dot-coms do crumble, look for increasing activity in the third and especially fourth quarter of this year, according to Laura Davis Jones of the Wilmington office of Pachulski Stang Ziehl Young & Jones. “There is definitely a surge of rumors for [activity in the] third and fourth quarter of this year,” Jones said. “At this point a number of dot-coms are looking at alternatives and exploring their options.” Alternatives, Jones said, include “restructuring, whether to do out-of-court sale of assets, selling the stock of the company to someone else and trying to build from there or moving on to a new company.” LACK OF ASSETS While many dot-coms appear to be in trouble, their very lack of assets could make it hard to restructure. “The companies don’t really have assets you can loan against to get money to restructure,” Jones said. Instead some companies only have “revenues and the talent of their employees,” which traditionally aren’t used to secure loans. “There is value in new ideas, and usually a dot-com might have more brilliant ideas coming that” loans can be advanced on, Jones said. Other companies might have proprietary information, such as highly sophisticated demographic lists, which can support reorganization loans. “Other, smaller dot-coms won’t go through the expense of restructuring, but their key assets, which is employees, will go to new dot-coms and the assets will follow them,” Jones said, leaving the old company “to die on the vine.” Any increase in Chapter 11 filings could find Wilmington practitioners, already straining to handle the current volume of business, hard pressed to take on the new work. “There’s an awful lot of business, and everybody in the bankruptcy group is scrambling to find help,” Cousins said. But because his office is part of a nationwide practice, “if we get overloaded, we have 30 attorneys in other offices that can help out in an instant.” The strictly Delaware firms, however, could find themselves in more difficult circumstances. CRAFTSHOP.COM DETAILS Craftshop.com is a leading arts and crafts supplier seller over the World Wide Web that was backed by the high-profile venture capital firm of CMGI Inc. The East Norwalk, Conn.-based e-tailer listed $1.8 million in debts in its Chapter 11 petition. The company didn’t list any assets, saying it was uncertain whether it had any. Among Craftshop.com’s largest creditors were Internet marketer DoubleClick Inc., owed $170,520; giant Internet service provider America Online Inc., owed $159,281; and Ask Jeeves Inc., an Internet search service, owed $146,333, according to court papers. Craftshop.com is represented in its Chapter 11 case by Jillian K. Aylward of Curran Coffey & Moran in Boston and Charlene Davis Steven M. Yoder of The Bayard Firm in Wilmington, Del. The case is No. 00-2062.

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