Charlotte Russe shareholder KarpReilly seeks board representation

By Lisa Kerner

Charlotte, N.C., March 31 - KarpReilly LLC asked fellow Charlotte Russe Holding, Inc. shareholders to elect its director nominees - Allan Karp, Hezy Shaked and Gabriel Bitton - to the company's board of directors at the annual meeting on April 28.

Karp co-founded KarpReilly and resigned from the Charlotte Russe board in July 2007. He co-founded Saunders Karp & Megrue, LLC, a private equity firm that bought Charlotte Russe in 1996.

Shaked is co-founder, chairman and chief executive officer of Tilly's, which sells branded surf and skate apparel.

Bitton is president of Buffalo David Bitton, a retailer and wholesaler of premium jeans.

According to KarpReilly, Charlotte Russe's current board includes three consultants, a retiree with experience in the movie theater industry, two management directors who previously held positions as executives of bankrupt companies and a retiree who has been out of the business for much of the past eight years.

"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," KarpReilly said in its March 31 letter to shareholders. "Our nominees will represent a minority of the board and will therefore not have the power to block a sale."

KarpReilly said it is "imperative that the board include stockholder representation to re-establish a true ownership mentality at the company."

Charlotte Russe's directors collectively own less than 0.2% of the company's outstanding shares and have purchased only 2,500 shares on the open market, said KarpReilly.

The KarpReilly group said it beneficially owns approximately 8.9% of the outstanding shares of the San Diego-based specialty retailer's common stock.

As previously reported, KarpReilly said it will not be a participant as a potential buyer in the company's recently announced sale process. In November, Charlotte Russe rejected an offer from KarpReilly to acquire the company for between $9.00 and $9.50 per share.

If a sale of Charlotte Russe is not completed, KarpReilly said its nominees are committed to implementing needed changes including right-sizing overhead and overseeing and evaluating management.

Shareholder criticizes board

In its letter, KarpReilly outlined what it believes is the board's "absurd and haphazard approach to decision making and planning" that includes:

• Alienating senior management, hiring inexperienced replacements and paying them a lot of money;

• Hiring expensive consultants to do the job of management; and

• Ignoring bona fide acquisition proposals at higher valuations, and then looking to sell at lower valuations.

KarpReilly also questioned the raises Charlotte Russe's board members gave themselves.

"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," KarpReilly said.

While total compensation awarded to the independent board members in fiscal 2008 totaled $1 million, a 135% increase over the prior yet, Charlotte Russe's operating income fell declined 50% and the stock lost 22%, said KarpReilly.

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