Urges Stockholders to Elect New, Highly Qualified Director Nominees
that have the Experience Necessary to Maximize Value for
Stockholders GREENWICH, Conn., March 31 /PRNewswire/ -- KarpReilly
LLC ("KarpReilly") announced today that it has sent a letter to the
stockholders of Charlotte Russe Holding, Inc. ("Charlotte Russe" or
the "Company") (NASDAQ:CHIC) urging stockholders to elect three
highly qualified and experienced director nominees, Allan Karp,
Hezy Shaked and Gabriel Bitton, at the Company's 2009 annual
meeting of stockholders on April 28, 2009. The KarpReilly group is
the largest stockholder of the Company and beneficially owns
approximately 8.9% of the outstanding shares of the Company's
common stock. The full text of the letter follows: March 31, 2009
SUPPORT KARPREILLY NOMINEES FOR CHARLOTTE RUSSE BOARD CURRENT
BOARD'S INTERESTS ARE NOT ALIGNED WITH STOCKHOLDERS Dear Fellow
Stockholders of Charlotte Russe Holding, Inc.: We are seeking your
support to elect three highly qualified and experienced retail /
apparel executives and business owners to the Board of Directors of
Charlotte Russe at the April 28, 2009 annual meeting. We are
increasingly alarmed by the actions taken by the Charlotte Russe
Board of Directors, which we believe have not been in the best
interests of stockholders. Contrary to arguments made by the
Company in its proxy statement, we are not seeking Board
representation out of opposition to the sale of the Company. In
fact, the Board only publicly announced the potential sale of the
Company after we nominated our slate of directors. Our nominees
will represent a minority of the Board and will therefore not have
the power to block a sale. We believe it is not in the best
interests of the stockholders to sell the Company at distressed
levels, and that our nominees' participation as Board members in
this process is critical to producing an outcome that is in the
best interests of all stockholders. In the event a sale is not
consummated in this difficult economic environment that has
produced very few completed deals, our nominees are committed to
implementing the strategic and operational changes we believe are
needed to maximize value by: -- Working to restore financial
discipline to the Company and right-sizing its overhead structure;
-- Actively overseeing and critically evaluating management rather
than delegating responsibility to outside consultants; and --
Calling upon our over 75 years of combined retailing experience to
recreate the success achieved by the Company during Allan Karp's
11-year tenure as a major stockholder and an active Board member.
It is imperative that the Board include stockholder representation
to re-establish a true ownership mentality at the Company. Our
interests are aligned with yours. THE CURRENT BOARD'S LACK OF A
COHERENT PLAN IS HURTING STOCKHOLDERS We believe the Charlotte
Russe directors have not only overseen a dramatic deterioration in
the value of our Company, but through their actions have helped to
cause it. The Board's recent stockholder letter clearly highlights
the absurd and haphazard approach to decision making and planning
this Board has exhibited, which, as far as we can tell, goes
something like this: FIRST: ALIENATE SENIOR MANAGEMENT, HIRE
INEXPERIENCED REPLACEMENTS AND PAY THEM A LOT OF MONEY In its
recent letter to stockholders, the Board stated: "Last July [2008],
in a difficult operating and economic environment, your Board moved
aggressively to position Charlotte Russe for future growth and
better long-term profitability." How did they do this? -- By asking
the Company's President and CEO to retire without, it appears, ever
devising a succession plan and without any regard to the effect
this action would have on other senior executives. What was the
result of this ill-conceived decision? The Company's Chief
Financial Officer and General Merchandising Manager resigned
because, according to their public statement, "we do not feel
comfortable with the level of collaboration with the Board of
Directors". A California administrative law judge went even further
in a ruling against the Company regarding the resignation of one of
these executives: "[Charlotte Russe] obtained a new chief executive
officer [Leonard Mogil] with little or no experience... The fashion
direction and business decisions were now being directed and
influenced by outside consultants, as directed by the Board of
Directors, who had no previous direct experience, with a retailer
in the fast fashion sector... The board heightened levels of
spending to solicit the advice from outside consultants...Decisions
were being made that affected the profitability of the company as
new expenses, including board travel, consultant fees, [and]
increased board compensation, [were] putting the company under
significant financial pressure in terms of additional spending.
This level of spending was unprecedented in the company's history.
These additional expenditures were not budgeted and did not have
the best interests of the shareholders in mind (emphasis added)..."
-- In just over two weeks, from the day prior to the announcement
of the CEO's "requested" retirement to the day after the
announcement of the resignations of the CFO and GMM, Charlotte
Russe suffered a 38% decline in its stock price. -- The Board's
response to the management upheaval it caused? Plan A was to name
one of its own, Leonard H. Mogil, a former Phillips-Van Heusen
executive who retired in 2001, as interim CEO and CFO (despite no
prior CEO experience) and pay him $678,000 in cash, stock and
perquisites for less than four months' work. While serving as
interim CEO and CFO, Mr. Mogil presided over the worst operating
profit performance in the Company's history. -- What was the
Board's Plan B? Hire, as the Company's top two executives,
individuals with minimal junior fast fashion experience, whose most
recent employers have filed for bankruptcy, and agree to pay them a
combined base salary of $1.5 million, almost $500,000 in signing
bonuses and over 500,000 shares in the form of stock awards. The
combined base salaries of these executives are 36% more than the
fiscal 2008 base salaries of the Company's former CEO and GMM and
20% more than the weighted average base salaries of the CEOs and
GMMs of the Company's peer group. Is this the Board's way of
positioning Charlotte Russe for "future growth and better long-term
profitability"? SECOND: HIRE EXPENSIVE CONSULTANTS TO DO THE JOB OF
MANAGEMENT The Board also states in its stockholder letter that it
determined that "the Company would benefit from more discipline
against basic retail operating metrics" and that "more aggressive
management was required to ensure that the Company continued to
grow and deliver value to shareholders." How did the Board
implement this "discipline" and "aggressive management"? By
deferring to expensive, outside consultants to come up with a
strategic plan. So far, the only results we've seen are: --
SG&A expense has grown 84% faster than revenues since Mr.
Karp's departure. -- A significant increase in marketing expenses,
including hiring a "brand ambassador" and "celebrity stylist". -- A
$65 million supply agreement with a premium denim brand to offer
jeans at almost 2 1/2 times the average price point for Charlotte
Russe jeans. We believe decisions such as these are wholly
inconsistent with the Company's value-oriented concept and
represent exactly the kind of strategic missteps that occur when an
inexperienced Board relies on consultants. THIRD: IGNORE BONA FIDE
ACQUISITION PROPOSALS AT HIGHER VALUATIONS, THEN LOOK TO SELL AT
LOWER VALUATIONS Consider the Board's response to previous
acquisition proposals made by KarpReilly: -- KarpReilly initially
made a private proposal to acquire 100% of the Company at a
"substantial premium to the recent trading range for the Company's
stock" on November 20, 2007. The stock closed at $14.41 that day.
The Board denied KarpReilly's request for due diligence without
engaging in a single conversation with KarpReilly. -- On November
12, 2008, KarpReilly submitted a non-binding, fully financed, all
cash proposal to the Board to acquire all of the outstanding shares
of the Company at a valuation range of between $9.00 and $9.50 per
share and requested a brief due diligence period. The offer
represented a premium of 31-38% over the $6.89 closing price of the
Company's shares on November 11, 2008, the trading day prior to the
announcement. -- The Board rejected KarpReilly's proposal on
November 19, 2008, again without engaging in a single discussion
with KarpReilly. The shares closed at $4.36 on November 20, 2008.
In its recent stockholder letter, the Board's stated reason for
rejecting this proposal was that it "would have deprived all
shareholders of potential value and the benefits of the turnaround
plan that were beginning to materialize." So what does the Board do
now? Put the Company up for sale! Apparently, this is the Board's
new "turnaround plan." We question whether a plan to sell the
Company at one of the lowest valuations in the Company's history,
during the worst economic environment since the Great Depression,
is in fact a "strategic plan" or rather another in a series of
haphazard and ill-conceived decisions this Board has made. Could
this be the Board's admission that they don't have an effective
turnaround plan and don't have confidence in the management team
they have assembled? BOARD COMPENSATION IS OUT OF CONTROL Given
this performance, do these Board members deserve the raises they
gave themselves last year? -- The directors who were on the Board
for the full year in fiscal 2007 and the full year in fiscal 2008
had their cash compensation more than triple. -- Most director fees
for 2008 were increased by 50%. -- For the first time, the
directors gave themselves restricted stock awards, in addition to
stock option grants. -- Jennifer Salopek herself received over
$300,000 in cash and stock in fiscal 2008. -- The total
compensation of $1.0 million awarded to the independent Board
members in fiscal 2008 represents a 135% increase over fiscal 2007
compensation levels, yet operating income declined 50% and the
stock lost 22%. We believe these spiraling Board expenses are
symptomatic of the loss of discipline at the Board level. Even
though our nominees, if elected, will represent only a minority of
the directors, we will propose a cap on director compensation. By
electing our nominees, you are sending a clear message to the Board
that they will be held responsible for these actions. DO NOT BE
MISLED BY THE BOARD Allan Karp, one of the KarpReilly nominees,
first became involved with Charlotte Russe through KarpReilly's
predecessor, Saunders Karp & Megrue, LLC ("SKM"), when SKM
bought the Company in 1996 in a private transaction. He was an
active member of its Board as the Company grew from a 35 store
regional chain with $71 million in revenue to an over 400 store
national chain with $741 million in revenue. When Mr. Karp resigned
from the Board on July 2, 2007, the stock price closed at $26.10
per share. Prior to the announcement of KarpReilly's nomination of
a slate of directors, the stock closed at $5.05. Yet the current
Board would have you believe that it is Mr. Karp who is responsible
for the Company's failures, because Mr. Karp somehow caused the
Company to over-expand its store base. If the Board was
uncomfortable with the pace of store development when Mr. Karp
departed in FY 2007, why did they allow the Company to increase the
number of new stores developed in FY 2008? The Board's claim that
the Company is now burdened with "over-sized stores in sub-par
locations" is also inconsistent with management's own statements as
recently as January, when the new CFO asserted that the Company was
"very fortunate" with respect to the store portfolio, adding that
"very few stores are cash flow negative." It is apparent to us that
the real problem at the Company is not the size of the store base,
but the lack of efficient and disciplined management of these
assets. Similarly, the Board's opposition to the nomination of the
extremely qualified Messrs. Shaked and Bitton is not only extremely
misleading, but almost comical. They apparently believe a Board
primarily comprised of consultants and retirees, relying on other
consultants, is a better governance model than having knowledgeable
CEOs with current and relevant experience. Do not be fooled by the
Company's claim that two of our nominees are competitors. Tilly's,
owned and run by Mr. Shaked, primarily sells branded surf and skate
apparel, including well-known brands such as Volcom, Quiksilver,
Roxy and Billabong. Buffalo David Bitton, a denim and apparel brand
co-founded by Mr. Bitton, offers a full line of apparel sold in
better department stores in the U.S. and in its own retail stores
in Canada. Buffalo has opening price points for its jeans of
approximately $79, more than double the average Charlotte Russe
price point, and is sold through an entirely different channel. If
the current Board believes Tilly's or Buffalo are Charlotte Russe's
direct competitors, they have lost sight of what Charlotte Russe
represents to its loyal customer base. But don't take our word for
it. The Company itself highlights its competitors in public filings
and conference calls and has never given a passing mention to
Tilly's or Buffalo. Independent third-party research also confirms
the lack of competition between these parties. According to an
annual survey conducted by a prominent market research firm, of
over 120 Charlotte Russe customers surveyed, not a single person
also listed Tilly's as a retailer where they had shopped in the
past year. (Buffalo was not addressed by this survey, because of
its lack of retail shops in the United States.) The Board's claim
of competition from KarpReilly nominees exemplifies its complete
lack of experience and knowledge of junior fast fashion. OUR
NOMINEES HAVE THE EXPERIENCE TO IMPROVE THE PERFORMANCE OF
CHARLOTTE RUSSE AND THEREFORE THE VALUE OF ITS STOCK Our nominees
have extensive experience in the apparel industry and in creating
and building value at the companies with which they have been
closely involved. -- Allan Karp co-founded KarpReilly, LLC, a
private equity firm, in 2006. Mr. Karp was previously co-CEO of
Apax Partners, L.P. and co-founder of SKM, the private equity firm
responsible for the original Charlotte Russe investment. Other
notable investments overseen by Mr. Karp while at SKM include:
Dollar Tree Stores (where Mr. Karp was previously a director),
which grew from less than 250 stores to 1,975 stores over SKM's
eight-year holding period; The Children's Place, which grew from 84
stores to over 1,000 stores over its eight-year holding period; and
Hibbett Sporting Goods, which grew from approximately 70 stores to
375 stores over its seven-year holding period. -- Hezy Shaked
co-founded and serves as the Chairman and Chief Executive Officer
of Tilly's, which primarily sells branded surf and skate apparel,
including well-known brands such as Volcom, Quiksilver, Roxy and
Billabong. Tilly's has 99 locations across seven states. Mr. Shaked
has over 27 years of experience in the retail apparel industry. --
Gabriel Bitton serves as President of Buffalo David Bitton, a
retailer and wholesaler of premium jeans and other men's and
womenswear selling through better department stores and
approximately 40 retail locations in Canada. Mr. Bitton co-founded
Buffalo in 1985 and has over 32 years of experience in the apparel
industry with expertise in sourcing, brand development, design and
vendor management. OUR NOMINEES HAVE A PLAN TO MAXIMIZE VALUE Our
nominees have a plan to improve the Company's operational and
financial performance. -- We will work to restore financial
discipline to the Company. Even as same store sales have fallen
significantly and new store growth has been curtailed, the current
Board has overseen a dramatic increase in SG&A expenses
resulting in the Company losing money in its 2009 fiscal first
quarter (including the holiday season) for the first time since it
went public. We will advocate right-sizing the Company's overhead
structure to be consistent with its current levels of store
performance, growth and profitability. These are actions every
responsible and experienced owner-operator of a business must take,
especially in today's economic climate. -- We will fulfill our
Board duty to oversee management rather than relying on outside
consulting firms. We believe a responsible Board must act to
oversee and work with management. The current Board's dysfunctional
relationship with past management led to Board-instigated
departures of key senior executives in July 2008, immediately prior
to the crucial back-to-school and holiday seasons, during which the
Company predictably produced dismal financial results. Our nominees
have the experience necessary to oversee senior management, truly
evaluate their capabilities and performance, and address any areas
for improvement. -- We believe our nominees will bring an ownership
mentality to the Board. We are collectively the largest stockholder
of Charlotte Russe, and our nominees bring vital, current retailing
experience to the Board. All three KarpReilly nominees have spent
the last 20 years investing their own capital to grow retail and
apparel businesses - Mr. Karp as a consumer-focused private equity
investor and Messrs. Shaked and Bitton as owners and operators of
successful retail/apparel brands. The current Board contains three
consultants (two from the same firm), a retiree with experience in
the movie theater industry, two management directors who previously
served as executives of bankrupt companies (Mervyn's and babystyle)
and a retiree who has been out of the business for much of the past
8 years (excluding the four months he served as Charlotte Russe's
CEO and CFO, for which he was paid over $678,000 in compensation).
As a group, these directors own less than 0.2% of the Company's
outstanding shares, and have purchased only 2,500 shares on the
open market. However, these same Board members had no problem
approving the use of $73.4 million of the Company's cash to buy
back 4,080,000 shares at $18.00 in April 2008. Yet when the stock
dipped to $4.00 per share eight months later, not a single one of
these directors risked a dime of their personal capital to buy
stock, even after rejecting our proposal at a premium because of
their belief in their "turnaround" plan. OUR NOMINEES WILL PUT
STOCKHOLDERS' INTERESTS FIRST IN THE EVENT OF A SALE OF CHARLOTTE
RUSSE We are not supportive of a sale of the Company at distressed
levels. To be clear, our nominees will constitute a minority of the
Board and will therefore not have the power to block Board approval
of a sale of the Company. KarpReilly has clearly stated that it is
not interested in participating in the sale process for Charlotte
Russe and therefore has no conflict of interest. In fact, as the
Company's largest stockholder, we have every incentive to see the
Company's equity monetized at an acceptable valuation. We are
concerned, however, about the motivation and ability of the current
Board in pursuing this sale process, at a time when the stock is
trading near historic lows, given that the current Board has no
meaningful ownership in the Company and has seemingly made one
strategic blunder after another. Whose interests is the current
Board seeking to protect, theirs or yours? Ask yourselves: Aren't
your interests better served by having the KarpReilly nominees on
the Board? We believe that, whether or not the Company is sold, the
answer is clearly YES. VOTE THE GOLD PROXY CARD TODAY AND PUT
PEOPLE ON THE CHARLOTTE RUSSE BOARD THAT ARE COMMITTED TO ACTING IN
YOUR BEST INTERESTS We urge all stockholders to elect our director
nominees on the enclosed GOLD proxy card today. Vote for much
needed change at Charlotte Russe by signing, dating and returning
the enclosed GOLD proxy card or you may vote by telephone or
Internet if you own through a bank or broker. We urge stockholders
to discard any proxy materials received from Charlotte Russe and to
vote only the GOLD proxy card. Thank you for your support, /s/
Allan W. Karp Allan W. Karp To elect the KarpReilly nominees, we
urge all stockholders to sign and return the GOLD Proxy whether or
not you have already returned a white proxy sent to you by the
Company. The KarpReilly Group urges all stockholders not to sign or
return any white proxy sent to you by the Company. Instead, the
KarpReilly Group recommends that you use the GOLD Proxy and vote by
mail or if you own your shares through a bank or a broker, you may
vote by telephone or Internet. If you have already returned the
white proxy, you can effectively revoke it by voting the GOLD
Proxy. Only your latest-dated proxy will be counted. If you have
any questions or need assistance in voting the GOLD Proxy, please
contact our proxy solicitor, Okapi Partners, at the toll-free
number or email address listed below. Call Toll-Free:
1-877-259-6290 Or Email: About KarpReilly LLC KarpReilly LLC is a
private investment firm focused on long-term investments in premier
consumer growth companies. KarpReilly and its predecessor firm
Saunders, Karp & Megrue have owned and helped to build such
successful national chains as Dollar Tree Stores, Hibbett Sporting
Goods, The Children's Place, Mimi's Cafe, Bob's Discount Furniture,
The Habit Burger Grill and Tommy Bahama. CERTAIN INFORMATION
CONCERNING PARTICIPANTS KarpReilly Capital Partners, L.P.
("KarpReilly LP"), together with the other participants named
herein, has made a definitive filing with the Securities and
Exchange Commission ("SEC") of a proxy statement and accompanying
GOLD proxy card to be used to solicit votes for the election of a
slate of director nominees at the 2009 annual meeting of
stockholders of Charlotte Russe Holding, Inc., a Delaware
corporation (the "Company"). KARPREILLY LP ADVISES ALL STOCKHOLDERS
OF THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY
MATERIALS IN CONNECTION WITH THE ANNUAL MEETING BECAUSE THEY
CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS ARE AVAILABLE
AT NO CHARGE ON THE SEC'S WEB SITE AT http://www.sec.gov/. IN
ADDITION, THE PARTICIPANTS IN THE SOLICITATION WILL PROVIDE COPIES
OF THE PROXY MATERIALS WITHOUT CHARGE UPON REQUEST. REQUESTS FOR
COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY SOLICITOR,
OKAPI PARTNERS, AT ITS TOLL-FREE NUMBER: 1-877-259-6290. The
participants in the proxy solicitation are KarpReilly LP,
KarpReilly GP I, LLC ("KarpReilly GP"), Allan W. Karp ("Mr. Karp"),
Christopher K. Reilly ("Mr. Reilly"), William P. Logan ("Mr.
Logan"), Hezy Shaked ("Mr. Shaked") and Gabriel Bitton ("Mr.
Bitton") (the "KarpReilly Group"). As of the date hereof,
KarpReilly LP beneficially owns 1,612,203 shares of common stock of
the Company. Each of KarpReilly GP, as the general partner of
KarpReilly LP, and Messrs. Karp and Reilly, as the managers of
KarpReilly GP, is deemed to beneficially own the 1,612,203 shares
beneficially owned by KarpReilly LP. In addition, as of the date
hereof, Mr. Karp directly owns 201,274 shares (including 1,500
shares held in trust for the benefit of certain family members),
Mr. Reilly directly owns 3,641 shares, Mr. Logan directly owns
1,085 shares, Mr. Bitton directly owns 50,000 shares and Mr. Shaked
does not directly own shares. Each member of the KarpReilly Group,
as a member of a "group" with the other KarpReilly Group members
for the purposes of Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended, is accordingly the beneficial owner of the
shares of common stock of the Company beneficially owned in the
aggregate by the other members of the KarpReilly Group. Each member
of the KarpReilly Group disclaims beneficial ownership of such
shares, except that KarpReilly GP and Messrs. Karp and Reilly do
not disclaim beneficial ownership of the shares owned by KarpReilly
LP. Contact: Okapi Partners LLC Steven C. Balet, 212-297-0720
DATASOURCE: KarpReilly LLC CONTACT: Steven C. Balet, Okapi Partners
LLC, +1-212-297-0720
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