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Crown Crafts in Board Brawl

Now that it's back on its feet making money, and has its stock price climbing after a restructuring and recapitalization, Crown Crafts Inc. is facing an untidy and unusually noisy proxy battle with a New York-based investment fund that wants to take control of two seats on the freshly successful company's board — and possibly force the sale of the company.

Wynnefield Partners Small Cap Value Fund, which has owned Crown Crafts stock for about eight years, and which is now the largest shareholder with a 14.6% stake, says it wants to take two of the three of the directors' chairs coming up for grabs at next month's shareholders meeting — a move that Crown Crafts opposes.

At stake is Crown's continued independence, said chairman and ceo E. Randall Chestnut, the architect of Crown's turnaround, who charges in a letter to shareholders that Wynnefield really wants to engineer the sale of the company.

And that option, Chestnut makes clear, is D.O.A.

The immediate trigger for this boardroom drama is the upcoming election for three board seats now held by Chestnut, William Deyo, and Steven Fox. Wynnefield says it has no problem with Chestnut on the board, but wants the seats now held by Deyo and Fox — and has nominated Wynnefield principal Nelson Obus and his business associate Frederick Wasserman.

The contest heated up when Crown Crafts, staking out the company's position in defense of the two directors under siege, wooed shareholders with a letter claiming neither of the Wynnefield nominees "is right for Crown Crafts or possesses the necessary qualifications to effectively serve on your board of directors."

Crown went one step further, charging that Obus, along with another Wynnefield employee, "is a named defendant in an ongoing suit brought by the Securities and Exchange Commission in federal court for insider trading."

Crown quoted a further federal filing which said Obus and other defendants "knowingly or recklessly engaged in acts that violated the federal securities law," and "engaged in acts, practices or courses of business that have operated … as a fraud and deceit upon other persons."

Wynnefield responded with its own letter to shareholders, charging Crown with an "unjustified, inaccurate and diversionary personal attack" on Obus.

Wynnefield questioned a lack of succession planning at Crown, and threw a few jabs at 59-year-old Chestnut's age and health, saying, "no individual of Mr. Chestnut's age is immune from health problems or emergency medical procedures."

That dig at Chestnut took the proxy fight from a simmer to a near boil, prompting another feisty letter from Crown Crafts to shareholders.

In addition to everything else, Crown accuses the dissident slate of chutzpah, saying now they want Crown Crafts to pay for their campaign expenses, estimated at $325,000.

Chestnut noted that after an overhaul of the company's capital structure, and the elimination of its debt, Crown returned to profitability, and its stock price soared from $0.59 to $4.65 a share.

"Wynnefield has asserted that the company's principal publicly traded competitors trade at higher multiples, but the company does not have comparable publicly traded competitors, so who exactly is Wynnefield referring to?" Chestnut said. "And having been an investor in the company for several years, enjoying the company's increase in value, how can Wynnefield now complain about our stock price?"

The dissidents' ultimate goal, said Chestnut, is to force the sale of Crown Crafts. "Wynnefield has offered no plan to grow the company's business. Instead, Wynnefield only wants us to explore strategic alternatives for the company, which I believe means that Wynnefield wants us to hang a 'For Sale' sign on the company. Though there is no individual shareholder who stands to gain more from a sale of the company that I do, any suggestion that we put our company 'in play' at this time is, in my opinion, ill-timed, ill-considered and misguided, and, if pursued, would seriously disrupt and harm our business and customer relationships and cause many of our key employees to leave the company."

Chestnut warned: "Do not underestimate the risk inherent in what Wynnefield wants us to do."

Chestnut told shareholders, "Despite Wynnefield's purported concern regarding my health history, the last time I had any type of medical problem was in the early 1990s, and I am pleased to report that you have a ceo who has recently checked out to be in good health."

The tag-team wrestlers in this intensifying grudge match will climb through the ropes and hit the mats on Aug. 14, during the annual shareholders meeting at the Gonzales, La., headquarters of Crown Crafts.

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