The Wynnefield Group, the largest stockholder in Crown Crafts, Inc.,
today sent the following letter to Crown Crafts stockholders in
connection with the Company's August 10, 2010 annual meeting of
WYNNEFIELD GROUP450 SEVENTH AVENUE, SUITE 509NEW
YORK, NY 10123
July 29, 2010
CROWN CRAFTS BOARD REACTS TO PRESSURE FROM WYNNEFIELD
DON’T BELIEVE “WINDOW DRESSING” BY CROWN CRAFTS’ BOARD AS IT REACTS
TO PRESSURE FROM WYNNEFIELD
VOTE THE GOLD PROXY CARD FOR TRUE AND LASTING CHANGE AT CROWN CRAFTS
Dear Fellow Crown Crafts Stockholder:
Over the past several weeks, we sent you materials outlining why, as
Crown Crafts’ largest stockholder with approximately 17% of the
Company’s outstanding shares, we are nominating two highly qualified
Jon C. Biro and Melvin L. Keating
, to the
Company’s Board of Directors. As you continue to review our proxy
we urge you to vote
GOLD proxy card for nominees who will work to build and
enhance value for all stockholders.
CROWN CRAFTS PROMISES CHANGE….JUST LIKE THEY DID IN 2007 AND 2008
WYNNEFIELD FEARS THE BOARD WILL REVERT TO THE STATUS QUO AS THEY HAVE
Now that the management controlled Board of
Crafts is in real danger of being unable to preserve the status quo
we have seen one press release after another announcing change at Crown
Crafts in order to get your vote. This is more total communication from
Crown Crafts on governance issues than we have seen in years.
BE FOOLED AGAIN!
Crown Crafts promised these changes in 2007 and
2008, but as soon as these elections were over the Board reverted back
to the status quo and worse for non-Board/management stockholders.
is clear to us that without the presence of our two nominees on the
Board history will repeat itself.
Before Wynnefield’s campaign Crown Crafts’ management controlled
Board ignored stockholder’s calls for:
a true strategic
examination effort – including an independent valuation of the Company,
attending more conferences to grow the stockholder base and increase
liquidity, enact corporate governance changes and the removal of the
Since our campaign began, only a month ago, Crown
Crafts has put out no less than 6 press releases purporting to address
these issues in order to save their jobs – THESE DESPARATE ATTEMPTS BY
THE BOARD SHOULD CONFIRM THE VALUE OF WYNNEFIELD’S EFFORTS AND REQUIRES
ITS CONTINUED PRESENCE!
Wynnefield’s nominees need to be on
This management controlled Board and management
itself have a long history of promising one thing when pressured by
stockholders in the heat of a proxy contest and then failing to deliver
after the election.
Examples from the 2008 campaign include:
The presence of our nominees on the
Board is necessary otherwise we are certain that there will be no
meaningful strategic change at Crown Crafts and a real risk that the
Board reverts to its status quo protection mentality, which has proven
to be no help to increasing stockholder value.
ENRICHMENT AND ENTRENCHMENT SCHEMES OF CURRENT BOARD AND MANAGEMENT
ARE DETRIMENTAL TO STOCKHOLDER VALUE
After signing a Standstill Agreement – freezing its largest
stockholder from pursuing a proxy contest in return for promises –
Board renewed the “poison pill” without stockholder approval – WILL
THIS HAPPEN AGAIN?
After promising to conduct a strategic review process, the Board
simply voted down the opportunity to undertake a complete strategic
examination - including a valuation of the Company.
After being compelled to implement a Stock Repurchase Plan, the
Board repurchased shares from the CEO… and then suspended the entire
After promising to address the liquidity problem in the stock, Crown
Craft’s sole action was to address a graduate student conference at a
local university -
the only conference they have attended for the
past 3 years!
Wynnefield’s nominees will work to rid the Company of its remaining
impediments to increasing stockholder value by eliminating the true
poison pill –
its excessive separation and golden parachute
agreements and its irresponsible change of control provisions.
Enrichment Policies Incentivize
Status Quo. Lavish
director and executive compensation incentivizes management and its
management-endorsed Board majority to maintain the
status quo, at
The payments to directors were doubled in 2008
as income from operations remained flat; one director took home
$104,126 in 2009; and executive compensation and severance plans
golden parachute and tax
gross-up payments that together could cost more than $5 million –
exceeding Crown Crafts’ annual net income. Crown Crafts’
closest peer group companies pay their Boards almost the same
compensation as Crown Crafts –
those competitors are nearly four to six times larger than Crown
Governance Schemes Entrench Management-Endorsed Board Majority.
Remember the management-endorsed Board majority has maintained a
series of old-style entrenchment devices –
elections, a “poison pill,” a combined Chairman/CEO position, lack of
a disclosed CEO succession plan and
change-in-control severance plans (which at a cost of almost $5
million are the real poison pill, chilling any potential strategic
transaction). Each of these schemes is contrary to best
practices endorsed by leading corporate governance experts and leading
proxy advisor firms. Removing the poison pill is one step in the right
direction but, unfortunately, without Wynnefield’s nominees on the
Board can we be sure that these corrections will remain?
No Announced CEO Succession Plan – for Either Emergency or
Non-Emergency. Wynnefield is concerned that there is no publicly
disclosed succession plan to address the possibility of the CEO being
unable to carry out his duties or obligations. No one is immune from
health problems or emergencies. Considering Mr. Chestnut’s history of
long non-publically explained absences from the Company, we believe
the Board’s refusal to provide reasonable details of its purported
succession plan to stockholders is evidence of the Board’s failure to
fulfill its fiduciary duties.
In fact, a Crown Craft Board member
has discussed with a Wynnefield principal Mr. Chestnut’s extremely
serious health conditions. The Board’s unwillingness to protect
stockholders and the future of the Company is, in our opinion,
inexcusable. Wynnefield’s nominees will work to ensure that proper
succession plans are in place and disclosed to the stockholders they
are meant to protect.
No real strategic review. The Company was forced to create a
Strategic Review Committee as part of the settlement to our threatened
proxy contest in 2008. However, for two years, the Board has been
silent as to the “work” of the so called strategic committee until our
recent proxy effort and further,
we have no reason to believe that
the Board ever conducted a full valuation of the Company – which is
what we believe most investors consider to be an integral part of any
A product line
extension is not a strategic plan! Without Wynnefield’s nominees on
the Board we believe certain this valuation will never be undertaken.
Stagnant Core Business Now Faces Major Risks. We believe Crown
Crafts’ core infant-toddler business has been declining for years due
to poor marketing, a failure of the Company to invest in and develop
new products, and a lack of a coherent growth strategy.
have actually declined by over $8 million since 2003 despite 17.8
million dollars spent on acquisitions. This cannot continue, but we
fear it will unless Wynnefield’s nominees, who possess Board level
turnaround experience, are elected to the Board.
Stock is Depressed and Illiquid.
Crafts has substantially underperformed its industry peer group over
one, two and three years – as of July 13, 2010, it had fallen 32% from
its ten-year high of $6.10 on February 6, 2007
the market for its shares are illiquid due to the Company’s failure to
undertake efforts to broaden its stockholder base. The
management-endorsed Board majority has done virtually nothing to
address these issues over the last three years. Now, a mere two weeks
before the Annual Meeting, the Company has announced that they will
attend a number of conferences…
after the Annual Meeting date!
Unless Wynnefield’s nominees are elected to the Board there is no
reason to believe things will change.
nominees will work to implement a true strategic plan including a
valuation of the Company and exploring all alternatives to maximizing
We simply do not believe the recent spate of
announced “changes” by the management controlled Board will stick and we
certainly do not believe that further necessary changes will take place
unless our nominees are present to truly represent stockholders and not
simply rubber stamp management.
WYNNEFIELD GROUP’S INDEPENDENT NOMINEES WILL WORK TO PROTECT YOUR
Jon C. Biro and Melvin L. Keating are committed to working
constructively with the rest of Board to increase value for all
stockholders. You can read further about their qualifications in our
proxy materials. We ask that you support the Wynnefield Group’s Nominees
to the Board by signing, dating and returning the GOLD proxy card today.