UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)

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Crown Crafts, Inc.

 

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

CROWN CRAFTS, INC.

916 South Burnside Avenue

Gonzales, Louisiana 70737

(225) 647-9100

 

July [ • ], 2010

 

Dear Crown Crafts Stockholder:

 

We cordially invite you to attend our 2010 annual meeting of stockholders to be held on Tuesday, August 10, 2010, at 10:00 a.m., Central Daylight Time, at the Company’s executive offices, located at 916 South Burnside Avenue, Third Floor, Gonzales, Louisiana. At the meeting, we will present a report on our operations, vote on the election of three Class I directors and one Class II director and the appointment of the Company’s independent auditor, as described in the accompanying notice of annual meeting and proxy statement, and discuss any other matters properly brought before the meeting.

 

Wynnefield Partners Small Cap Value, L.P., a stockholder of the Company, has advised the Company of its intention to nominate and solicit proxies for an opposition slate of two director nominees for election to our board of directors at the annual meeting. See “Voting Information — Possible Proxy Contest” in the accompanying proxy statement.

 

THE BOARD URGES STOCKHOLDERS TO VOTE FOR THE ELECTION OF THE BOARD’S NOMINEES NAMED IN THIS PROXY STATEMENT BY USING THE ENCLOSED WHITE PROXY CARD. INSTRUCTIONS FOR VOTING YOUR SHARES ARE PROVIDED IN THIS PROXY STATEMENT.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS NOT SUPPORT WYNNEFIELD’S NOMINEES SHOULD WYNNEFIELD PROCEED WITH ITS PLAN TO SOLICIT PROXIES.

 

Whether or not you attend in person, it is important that your shares be represented and voted at the meeting. I urge you to sign, date and return the enclosed WHITE proxy card, or vote via telephone or the Internet as directed on the proxy card, at your earliest convenience.

 

Sincerely,

 

 

E. Randall Chestnut
Chairman of the Board,
President and Chief Executive Officer

 

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

 

CROWN CRAFTS, INC.
916 South Burnside Avenue
Gonzales, Louisiana 70737
(225) 647-9100

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON AUGUST 10, 2010

 

 

 

To the Stockholders of Crown Crafts, Inc.:

 

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Crown Crafts, Inc. will be held at our executive offices, located at 916 South Burnside Avenue, Third Floor, Gonzales, Louisiana, on August 10, 2010, at 10:00 a.m., Central Daylight Time, for the following purposes:

 

(i) to elect three members to the board of directors to hold office for a three-year term and one member to the board of directors to hold office for a two-year term;

 

(ii) to ratify the appointment of KPMG LLP as our independent auditor for the fiscal year ending April 3, 2011; and

 

(iii) to transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.

 

These items of business are described in the attached proxy statement. The board of directors has fixed June 11, 2010 as the record date to determine the stockholders entitled to notice of and to vote at the annual meeting. Only those stockholders of record of Crown Crafts Series A common stock as of the close of business on that date will be entitled to vote at the annual meeting or at any adjournment or postponement thereof.

 

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, WE URGE YOU TO VOTE AND SUBMIT THE WHITE PROXY CARD PROVIDED WITH THIS PROXY STATEMENT BY INTERNET, TELEPHONE OR MAIL TO ENSURE THE PRESENCE OF A QUORUM. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO AT ANY TIME BEFORE THE VOTING BY DELIVERING TO US A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED WHITE PROXY CARD BEARING A LATER DATE OR BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON. IF YOU HOLD YOUR SHARES THROUGH AN ACCOUNT WITH A BROKERAGE FIRM, BANK OR OTHER NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS YOU RECEIVE FROM THEM TO VOTE YOUR SHARES.

 

WE ALSO URGE YOU NOT TO VOTE OR SUBMIT ANY PROXY CARD SENT TO YOU BY WYNNEFIELD PARTNERS SMALL CAP VALUE, L.P. OR ITS AFFILIATES. YOU CAN REVOKE ANY WYNNEFIELD PROXY CARD YOU MAY HAVE PREVIOUSLY SUBMITTED BY VOTING AND SUBMITTING THE ENCLOSED WHITE PROXY CARD.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING TO BE HELD ON AUGUST 10, 2010

 

This notice, the attached proxy statement, a form of proxy card and our Annual Report for the fiscal year ended March 28, 2010 are available free of charge at https://materials.proxyvote.com/228309.

 

TO OBTAIN DIRECTIONS TO ATTEND THE ANNUAL MEETING AND VOTE IN PERSON, PLEASE CONTACT OUR CORPORATE SECRETARY AT (225) 647-9100.

 

By Order of the Board of Directors,

 

Amy Vidrine Samson
Vice President, Chief Accounting Officer and
Secretary

 

Gonzales, Louisiana

July [ • ], 2010

 

TABLE OF CONTENTS

 

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

CROWN CRAFTS, INC.
916 South Burnside Avenue
Gonzales, Louisiana 70737

 

 

PROXY STATEMENT

FOR

ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON AUGUST 10, 2010

 

 

 

This proxy statement and the accompanying form of proxy (which were first sent or given to stockholders on or about July [ • ], 2010) are furnished to stockholders of Crown Crafts, Inc. (“Crown Crafts” or the “Company”) in connection with the solicitation by and on behalf of the board of directors of the Company of proxies for use at the annual meeting of the Company’s stockholders to be held at the Company’s executive offices, located at 916 South Burnside Avenue, Third Floor, Gonzales, Louisiana, on August 10, 2010, at 10:00 a.m., Central Daylight Time, and any adjournment or postponement thereof.

 

The annual meeting is being held for the following purposes:

 

(i) to elect three members to the board of directors to hold office for a three-year term and one member to the board of directors to hold office for a two-year term;

 

(ii) to ratify the appointment of KPMG LLP as the independent auditor of the Company for the fiscal year ending April 3, 2011; and

 

(iii) to transact any other business as may properly come before the annual meeting or any adjournment or postponement thereof.

 

Wynnefield Partners Small Cap Value, L.P., a stockholder of the Company, has advised Crown Crafts of its intention to nominate and solicit proxies for an opposition slate of two director nominees for election to our board of directors at the annual meeting. See “Voting Information — Possible Proxy Contest” below.

 

THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE FOR THE ELECTION OF THE BOARD’S NOMINEES NAMED IN THIS PROXY STATEMENT.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS NOT SUPPORT WYNNEFIELD’S NOMINEES SHOULD WYNNEFIELD PROCEED WITH ITS PLAN TO SOLICIT PROXIES.

 

Only holders of record of Crown Crafts Series A common stock at the close of business on the record date, June 11, 2010, are entitled to notice of and to vote at the annual meeting. As of the record date, there were 9,254,986 shares of Crown Crafts Series A common stock outstanding and entitled to vote at the annual meeting, held by approximately 310 holders of record. A list of the Company’s stockholders will be available for review at the Company’s executive offices during regular business hours for a period of ten days before the annual meeting. Each holder of Crown Crafts Series A common stock is entitled to one vote for each share of Crown Crafts Series A common stock he or she owned as of the record date.

 

A quorum of stockholders is necessary to transact business at the annual meeting. The presence, in person or by proxy, of shares of Crown Crafts Series A common stock representing a majority of shares of Crown Crafts Series A common stock outstanding and entitled to vote on the record date is necessary to constitute a quorum at the annual meeting. Abstentions and broker “non-votes,” discussed below, count as present for establishing a quorum.

 

Directors are elected by a plurality of the votes cast, meaning that the three Class I nominees receiving the most properly cast votes will be elected as Class I directors and the Class II nominee receiving the most properly cast votes will be elected as a Class II director. The affirmative vote of the holders of a majority of the shares of the Company’s Series A common stock present or represented by proxy at the annual meeting is required to ratify the appointment of KPMG LLP. Cumulative voting is not permitted. If a quorum is not present at the annual meeting, then it is expected that the annual meeting will be adjourned or postponed to solicit additional proxies.

 

As of the record date, the Company’s directors and executive officers as a group beneficially owned and were entitled to vote approximately 905,287 shares of Crown Crafts Series A common stock, or approximately 9.8% of the outstanding shares of Crown Crafts Series A common stock on that date. This amount excludes approximately 27,497 shares of the Crown Crafts Series A common stock held by members of the immediate families of certain officers and directors of Crown Crafts with respect to which such officers and directors disclaim beneficial ownership.

 

You may vote by proxy or in person at the annual meeting.

 

Voting in Person.  If you plan to attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the record holder of the shares authorizing you to vote at the annual meeting.

 

Voting by Proxy.  You should vote your proxy on the enclosed WHITE proxy card even if you plan to attend the annual meeting. You can always change your vote at the annual meeting. Your latest dated vote before the annual meeting will be the vote counted. Voting instructions are included on your WHITE proxy card. If you properly grant your proxy and submit it to the Company in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. If no instructions are indicated on a properly executed WHITE proxy card or voting instruction, the shares will be voted “for” the election of all of the director nominees and “for” the ratification of the appointment of the Company’s independent auditor. If other matters properly come before the annual meeting, the shares represented by proxies will be voted, or not voted, by the individuals named in the proxies in their discretion.

 

You may submit your proxy through the mail by completing your proxy card and signing, dating and returning it in the enclosed, pre-addressed, postage-paid envelope. To be valid, a returned proxy card must be signed and dated. You may also deliver your voting instructions by telephone or over the Internet. Instructions for voting by telephone or over the Internet may be found on your WHITE proxy card.

 

If you are not the record holder of your shares, you must provide the record holder of your shares with instructions on how to vote your shares. If your shares are held by a bank, broker or other nominee, that bank, broker or nominee may allow you to deliver your voting instructions by telephone. If your shares are held by a broker, you may also be allowed to deliver your voting instructions over the Internet. Stockholders whose shares are held by a bank, broker or other nominee should refer to the voting instruction card forwarded to them by that bank, broker or other nominee holding their shares.

 

A Crown Crafts stockholder, Wynnefield Partners Small Cap Value, L.P. (together with its affiliates, Wynnefield Partners Small Cap Value Offshore Fund, Ltd., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield Capital

Management, LLC, Wynnefield Capital, Inc., Channel Partnership II, L.P., Wynnefield Capital, Inc. Profit Sharing & Money Purchase Plan, Nelson Obus and Joshua Landes, “Wynnefield”), has advised the Company of its intention to nominate and solicit proxies in support of an opposition slate of two nominees for election to the board of directors at the annual meeting. As reported in a Schedule 13D report of beneficial ownership filed with the Securities and Exchange Commission (the “SEC”) by Wynnefield on June 28, 2010, Wynnefield intends to nominate Melvin L. Keating and Jon C. Biro for election to the Company’s board of directors at the annual meeting.

 

Pursuant to a Governance and Standstill Agreement dated July 1, 2008 entered into by the Company and Wynnefield (the “2008 Wynnefield Agreement”), Wynnefield agreed to cease efforts related to the proxy solicitation it was pursuing at that time, which was described in Wynnefield’s Schedule 13D filed with the SEC on June 30, 2008. In connection therewith, Crown Crafts appointed Joseph Kling as a director and agreed that Mr. Kling would be nominated for re-election as a director at the Company’s 2008 annual meeting of stockholders. Among other things, the Company also agreed to use its reasonable best efforts, upon the request of Wynnefield delivered to the Company on or before May 1, 2010, to obtain the resignation from the board of one director chosen by the Company other than Mr. Kling or a Class I director of the Company. Wynnefield delivered this request to the Company on April 30, 2010, and Sidney Kirschner, formerly a Class II director of the Company, resigned effective May 27, 2010 in accordance with Wynnefield’s request.

 

Prior to entering into the 2008 Wynnefield Agreement, the Company and Wynnefield were parties to an agreement dated November 4, 2005 pursuant to which Frederick G. Wasserman was given the right, on behalf of Wynnefield, to attend and participate in meetings of the Company’s board of directors in a non-voting observer capacity and to receive all information discussed with or provided to the Company’s directors in connection with such meetings. The Company terminated that agreement on June 28, 2007 in connection with the proxy solicitation conducted by Wynnefield in connection with the Company’s 2007 annual meeting of stockholders.

 

THE BOARD RECOMMENDS THAT STOCKHOLDERS NOT SUPPORT WYNNEFIELD’S NOMINEES SHOULD WYNNEFIELD PROCEED WITH ITS PLAN TO SOLICIT PROXIES. IF YOU HAVE ALREADY VOTED A PROXY CARD FROM WYNNEFIELD, YOU MAY REVOKE IT AND PROVIDE YOUR SUPPORT TO THE COMPANY’S NOMINEES BY VOTING THE ENCLOSED WHITE PROXY CARD IN THE MANNER DISCUSSED ABOVE. ONLY YOUR LATEST DATED PROXY WILL COUNT.

 

You may revoke your proxy at any time before it is voted at the annual meeting by (i) delivering to the secretary of Crown Crafts a signed notice of revocation, bearing a date later than the date of the proxy, stating that the proxy is revoked, (ii) granting a new proxy, relating to the same shares and bearing a later date, or (iii) attending the annual meeting and voting in person. Likewise, if you have already voted a proxy furnished by Wynnefield, you may REVOKE it and support the Company’s nominees through these same procedures.

 

Written notices of revocation and other communications with respect to the revocation of proxies should be addressed to Crown Crafts, Inc., P.O. Box 1028, Gonzales, Louisiana 70707, Attn.: Corporate Secretary.

 

If your shares are held in the name of a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so.

 

Shares of Crown Crafts Series A common stock held by persons attending the annual meeting but not voting, and shares of Crown Crafts Series A common stock for which the Company has received proxies but with respect to which holders of those shares have abstained from voting, will be counted as present at the annual meeting for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting. Because directors are elected by a plurality of votes cast, abstentions will not be counted in determining which nominees received the largest number of votes cast.

 

Under certain circumstances, brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned proxies to the brokers (so-called “broker non-votes”). In these cases, and in cases

where the stockholder abstains from voting on a matter, those shares will be counted for the purpose of determining if a quorum is present but will not be included in the vote totals with respect to those matters and, therefore, will have no effect on the vote. In addition, if a broker indicates on the proxy card that it does not have discretionary authority on other matters considered at the annual meeting, those shares will not be counted in determining the number of votes cast with respect to those matters.

 

Crown Crafts will bear the costs of printing and mailing this proxy statement, as well as all other costs incurred on behalf of the Company’s board of directors in connection with its solicitation of proxies from the holders of Crown Crafts Series A common stock. The Company has retained Georgeson Inc. to assist the Company and its board of directors in the solicitation of proxies and in the distribution of proxies and accompanying materials to brokerage houses and institutions for a fee of $15,000, plus expenses. This fee may be increased to as much as $50,000, plus additional service fees and expenses, should Wynnefield proceed with its plan to solicit proxies. The Company has agreed to indemnify Georgeson against certain liabilities arising out of or in connection with Georgeson’s engagement.

 

In addition, directors, officers and employees of Crown Crafts and its subsidiaries may solicit proxies by mail, personal interview, telephone, e-mail or facsimile transmission without additional compensation. Arrangements also will be made with brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries, who are record holders of the Company’s Series A common stock not beneficially owned by them, for forwarding these proxy materials to, and obtaining proxies from, the beneficial owners of such stock entitled to vote at the annual meeting. Crown Crafts will reimburse these persons for their reasonable expenses incurred in doing so.

 

Should Wynnefield proceed with its plan to solicit proxies, the Company’s expenses related to the solicitation of proxies from stockholders, in excess of those normally spent for an annual meeting, are expected to aggregate approximately $400,000, of which an immaterial amount has been spent to date.

 

The Company does not expect that any matter other than the proposals presented in this proxy statement will be brought before the annual meeting. However, if other matters are properly presented at the annual meeting or any adjournment or postponement of the annual meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

 

If you need assistance in completing your proxy card or have questions regarding the annual meeting, please contact Amy Vidrine Samson at (225) 647-9122 or write to Ms. Samson at the following address: P.O. Box 1028, Gonzales, Louisiana 70707.

 

Our board of directors is committed to maintaining sound and effective corporate governance principles and believes that strong corporate governance is critical to achieving our performance goals and to maintaining the trust and confidence of stockholders, employees, suppliers, customers and regulatory agencies. The board regularly reviews the Company’s corporate governance practices in light of proposed and adopted laws and regulations, the practices of other leading companies, the recommendations of various corporate governance authorities and the expectations of our stockholders.

 

The board of directors is responsible for establishing broad corporate policies of the Company, monitoring the Company’s overall performance and ensuring that the Company’s activities are conducted in a responsible and ethical manner. However, in accordance with well-established corporate legal principles, the board of directors is not involved in the Company’s day-to-day operating matters. Members of the board are kept informed about the

Company’s business by participating in board and committee meetings, by reviewing analyses and reports provided to them by the Company and through discussions with the chairman of the board and officers of the Company.

 

Each non-employee member of the board is “independent,” as defined for purposes of the rules of the SEC and the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”). For a director to be considered independent, the board must determine that the director does not have a relationship with the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the board will consider all relevant facts and circumstances, including any transactions or relationships between the director and the Company or its subsidiaries.

 

The Company has adopted a Code of Business Conduct and Ethics that is applicable to all directors and employees, including the Company’s chief executive officer and chief financial officer. The Code of Business Conduct and Ethics covers such topics as conflicts of interest, insider trading, competition and fair dealing, discrimination and harassment, health and safety, confidentiality, payments to governmental personnel and compliance procedures. The Code of Business Conduct and Ethics is posted on the Company’s website at www.crowncrafts.com. In addition, the Company has also adopted a Code of Conduct for Directors, which is also posted on the Company’s website at www.crowncrafts.com.

 

During fiscal year 2010, the Company’s board of directors had the following standing committees: audit committee; compensation committee; nominating and corporate governance committee; and capital committee. Committee membership and the responsibilities assigned by the board of directors to each of these committees are briefly described below.

 

The board of directors met seven times during fiscal year 2010. Each director attended 100% of the total number of meetings of the board and committees of which he was a member during fiscal year 2010. Seven directors attended the Company’s annual meeting held in 2009, and all members of the board have been requested to attend the 2010 annual meeting. Although the Company has no formal policy with respect to board members’ attendance at the Company’s annual meeting of stockholders, it is customary for all board members to attend.

 

Audit Committee

 

The audit committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is currently comprised of three members, none of whom is a current or former employee of the Company or any of its subsidiaries and all of whom are, in the opinion of the board, free from any relationship that would interfere with the exercise of their independent judgment in the discharge of the audit committee’s duties. See “Audit Committee Disclosure — Report of the Audit Committee.” The current members of the audit committee are Donald Ratajczak (Chairman), William T. Deyo, Jr. and Joseph Kling. The committee has adopted a formal, written charter, which has been approved by the full board and which specifies the scope of the committee’s responsibilities and how it should carry them out. The complete text of the audit committee charter is available on the Company’s website at www.crowncrafts.com.

 

The audit committee represents the board in discharging its responsibility relating to the accounting, reporting and financial practices of the Company and its subsidiaries. Its primary functions include monitoring the integrity of the Company’s financial statements and system of internal controls and the Company’s compliance with regulatory and legal requirements; monitoring the independence, qualifications and performance of the Company’s independent auditor; and providing an avenue of communication among the independent auditor, management and the board. The audit committee met six times during fiscal year 2010, including five meetings at which executive sessions were held with the Company’s independent auditor. In addition, the chairman of the audit committee met separately with the Company’s independent auditor once during that same period.

Compensation Committee

 

The compensation committee is currently comprised of three directors, Zenon S. Nie (Chairman), Joseph Kling and Frederick G. Wasserman, none of whom is a current or former employee of the Company or any of its subsidiaries and all of whom are, in the opinion of the board, free from any relationship that would interfere with the exercise of their independent judgment in the discharge of the compensation committee’s duties. Prior to his resignation from the board in May 2010, Sidney Kirschner served as a member of the compensation committee, and following Mr. Kirschner’s resignation, Mr. Kling was appointed to the committee. The committee has adopted a formal, written charter, which has been approved by the full board and which specifies the scope of the committee’s responsibilities and how it should carry them out. The complete text of the compensation committee charter is available on the Company’s website at www.crowncrafts.com. The duties of the compensation committee are generally to establish the compensation for the Company’s executive officers and to act on such other matters relating to compensation as it deems appropriate, including an annual evaluation of the Company’s chief executive officer and the design and oversight of all compensation and benefit programs in which the Company’s employees and officers are eligible to participate. The compensation committee met twice during fiscal year 2010.

 

Nominating and Corporate Governance Committee

 

The nominating and corporate governance committee is currently comprised of three directors, Zenon S. Nie (Chairman), William T. Deyo, Jr. and Donald Ratajczak, none of whom is a current or former employee of the Company or any of its subsidiaries and all of whom are, in the opinion of the board, free from any relationship that would interfere with the exercise of their independent judgment in the discharge of the nominating and corporate governance committee’s duties. The committee has adopted a formal, written charter, which has been approved by the full board and which specifies the scope of the committee’s responsibilities and how it should carry them out. The complete text of the nominating and corporate governance committee charter is available on the Company’s website at www.crowncrafts.com. The nominating and corporate governance committee met five times during fiscal year 2010.

 

The nominating and corporate governance committee has the general responsibility for overseeing the Company’s corporate governance practices and for identifying, reviewing and recommending to the board individuals to be nominated for election to the board. The committee will also consider any director candidate proposed in good faith by a stockholder of the Company. To do so, a stockholder should send the director candidate’s name, credentials, contact information and his or her consent to be considered as a candidate to the corporate secretary of the Company. The proposing stockholder should also include his or her contact information and a statement of his or her share ownership (how many shares of the Company owned and for how long), as well as any other information required by the Company’s bylaws.

 

Capital Committee

 

The capital committee is currently comprised of three directors, William T. Deyo, Jr. (Chairman), Zenon S. Nie and Frederick G. Wasserman, none of whom is a current or former employee of the Company or any of its subsidiaries and all of whom are, in the opinion of the board, free from any relationship that would interfere with the exercise of their independent judgment in the discharge of the capital committee’s duties. The capital committee is responsible for overseeing and making recommendations with respect to certain capital market transactions, including stock repurchases and dividend payments. The capital committee met twice during fiscal year 2010.

 

With respect to the nomination process, the nominating and corporate governance committee reviews the composition and size of the board to insure that it has the proper expertise and independence; determines the criteria for the selection of board members and board committee members; establishes criteria for qualifications as independent directors, consistent with applicable laws and listing standards; maintains a file of suitable candidates for consideration as nominees to the board; reviews board candidates recommended by stockholders in compliance with all director nomination procedures for stockholders; and recommends to the board the slate of nominees of directors to be elected by the stockholders and any directors to be elected by the board to fill vacancies.

The nominating and corporate governance committee will evaluate candidates for election to the board based on their financial literacy, business acumen and experience, “independence”, and willingness, ability and availability for service. This may include consideration of factors such as the following:

 

 

Additionally, with respect to an incumbent director whom the nominating and corporate governance committee is considering as a potential nominee for re-election, the committee will review and consider the incumbent director’s service during his or her term, including the number of meetings attended, level of participation and overall contribution to the Company. The manner in which the committee evaluates a potential nominee will not differ based on whether the potential nominee is recommended by a stockholder.

 

The nominating and corporate governance committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees, although the committee and the board are committed to a diversified membership. When identifying and recommending director nominees, the members of the committee generally view diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint and perspective, professional experience, education, skill and other qualities or attributes that together contribute to the functioning of the board.

 

The board of directors believes that having a single leader serving as chairman and chief executive officer, together with an experienced and engaged lead director, is the most appropriate leadership structure for the board at this time.

 

Combining the roles of chairman and chief executive officer makes clear that the person serving in these roles has primary responsibility for managing the Company’s business, subject to the oversight and review of the board. Under this structure, the chairman and chief executive officer chairs board meetings, where the board discusses strategic and business issues. The board believes that this approach is preferable because the chief executive officer is the individual with primary responsibility for implementing the Company’s strategy, directing the work of other officers and leading implementation of the Company’s strategic plans as approved by the board. This structure creates a single leader who is directly accountable to the board and, through the board, to stockholders, and enables the chief executive officer to act as the key link between the board and other members of management. In addition, Mr. Chestnut personally brings to the combined role of chairman and chief executive officer a long history with Crown Crafts.

 

Because the board also believes that strong, independent board leadership is a critical aspect of effective corporate governance, the board has established the position of lead director. The lead director, who must be independent, is elected by the independent directors. The lead director presides over executive sessions of the

independent directors, consults with the chairman of the board, oversees the flow of information to the board and acts as liaison between the non-employee directors and management. As the primary interface between the chief executive officer and the board, the lead director provides a valuable counterweight to the combined chairman and chief executive officer role. The lead director also serves as a focal point for the independent directors, thereby enhancing and clarifying the board’s independence from management. Zenon S. Nie currently serves as the lead director.

 

As noted above, the Company’s business and affairs are managed under the direction of its board of directors. This includes the board’s overseeing the types and amounts of risks undertaken by the Company. In discharging its oversight responsibilities, the board relies on a combination of the business experience of members of the board and the expertise and business experience of the Company’s officers and employees, as well as, from time to time, advice of various consultants and experts. An appropriate balancing of risks and potential rewards with the long-term goals of the Company is, and historically has been, implicit in the decisions and policies of the board. Because risk oversight is so thoroughly interwoven into the direction of the board, no special provision has been made for that oversight in the board’s leadership structure, except in connection with the role of the audit committee, which has responsibility for overseeing the Company’s risk management programs and policies.

 

The audit committee focuses on financial reporting risk, oversees the entire audit function and evaluates the effectiveness of internal and external audit efforts. It receives reports from management regularly regarding the Company’s assessment of risks and the adequacy and effectiveness of internal control systems. The audit committee reports regularly to the full board and is required by its charter to discuss at least annually with management and the Company’s independent auditor the adequacy of the Company’s risk management programs and policies, including any recommendations the committee may have for improvements in those areas.

 

The Company recognizes that transactions between the Company and any of its directors or executive officers can present potential or actual conflicts of interest. Accordingly, as a general matter and in accordance with the Company’s Code of Business Conduct and Ethics, it is the Company’s preference to avoid such transactions. Nevertheless, the Company recognizes that there are circumstances where such transactions may be in, or not inconsistent with, the best interests of the Company. The Company and the audit committee review all relationships and transactions in which the Company and such related persons are participants on a case-by-case basis. In performing such review, consideration is given to (i) the nature of the related person’s interest in the transaction, (ii) the material terms of the transaction, (iii) the significance of the transaction to the related person or the Company, and (iv) other matters deemed appropriate.

 

Crown Crafts Infant Products, Inc., a wholly-owned subsidiary of the Company (“CCIP”), employs Gary Freeman, who is the spouse of Nanci Freeman, the President and Chief Executive Officer of CCIP. Mr. Freeman serves as Vice President — Warehousing and Distribution of CCIP. Mr. Freeman’s base salary as of the end of fiscal year 2010 was $143,964, and he earned a bonus for fiscal year 2010 in the amount of $8,423. The compensation paid to Mr. Freeman is commensurate with that of his peers.

 

Any stockholder may communicate with the board by directing correspondence to the board, any of its committees or one or more individual members, in care of the corporate secretary, at Crown Crafts, Inc., P.O. Box 1028, Gonzales, Louisiana 70707.

 

The Company has a classified board currently consisting of three Class I directors (E. Randall Chestnut, William T. Deyo, Jr. and Frederick G. Wasserman), one Class II director (Zenon S. Nie) and two Class III directors (Donald Ratajczak and Joseph Kling). At each annual meeting of stockholders, directors are duly elected for a full term of three years to succeed those whose terms are expiring. The Class I directors currently serve until the 2010 annual meeting, and the Class III and Class II directors currently serve until the annual meetings of stockholders to be held in 2011 and 2012, respectively.

 

Pursuant to the Company’s bylaws, the board of directors has fixed its membership at seven directors. Currently, there is one vacancy on the Company’s board of directors, which resulted from the resignation on May 27, 2010 of Sidney Kirschner, formerly a Class II director. Mr. Kirschner’s resignation was in response to a request from Wynnefield delivered pursuant to the 2008 Wynnefield Agreement that a sitting director who would not otherwise be up for re-election at the Company’s 2010 annual meeting of stockholders resign in advance of such meeting. See “Voting Information — Possible Proxy Contest”.

 

At the 2010 annual meeting, three Class I directors will be elected to hold office until the 2013 annual meeting of stockholders and one Class II director will be elected to hold office until the 2012 annual meeting of stockholders. The board of directors has nominated E. Randall Chestnut, William T. Deyo, Jr. and Richard L. Solar as Class I nominees for election to the board of directors and Sidney Kirschner as the sole Class II nominee for election to the board of directors. As discussed above, Messrs. Chestnut and Deyo presently serve on the Company’s board, and Mr. Kirschner formerly served on the Company’s board.

 

The proxy holder intends to vote “for” the election of the named nominees unless you have specifically indicated by proper proxy on the WHITE proxy card that your shares should be withheld from voting for any or all of these nominees. If at the time of the annual meeting any nominee is unavailable or unwilling to serve as a director, the proxies will be voted for the remaining nominees and for any other person designated by the board of directors as a nominee. Proxies cannot be voted at the annual meeting for a greater number of persons than the number of nominees named.

 

The board of directors unanimously recommends a vote FOR each of the Class I and Class II nominees discussed below. Proxies will be voted FOR the election of these nominees unless otherwise specified.

 

The following persons are the nominees for Class I directorships with terms ending in 2013.

 

 

E. Randall Chestnut joined the Company in January 1995 as Vice President, Corporate Development. Since then, he has been an executive of the Company, and in July 2001 he was elected President, Chief Executive Officer and Chairman of the Board.

 

William T. Deyo, Jr. has been a principal of Goddard Investment Group, LLC, a real estate investment firm, since 1999. He was Executive Vice President of NAI/Brannen Goddard Company, a real estate brokerage firm, from 1999 to 2000. From 1966 to 1999, he held various positions with Wachovia Bank in Atlanta, Georgia, serving last as Executive Vice President. Mr. Deyo also is the former Chairman of the Board of the Fulton County (Georgia) Hospital Authority and a past member of the Board of Directors of the Center for Visually Impaired Foundation.

 

Richard L. Solar served as a director of Marvel Entertainment, Inc. from December 2002 to December 2009 when the company was sold to Walt Disney Co. During that time, he also served as Chairman of that board’s Audit

Committee. Since February 2003, Mr. Solar has been a management consultant and investor. From June 2002 to February 2003, Mr. Solar acted as a consultant for Gerber Childrenswear, Inc., a marketer of popular-priced licensed apparel sold under the Gerber name, as well as under licenses from Baby Looney Tunes, Wilson, Converse and Coca-Cola. From 1996 to June 2002 (when Gerber Childrenswear was acquired by the Kellwood Company), Mr. Solar was Senior Vice President, Director and Chief Financial Officer of Gerber Childrenswear. Mr. Solar is also Vice President, Treasurer and a director (and Chairman of the Executive Committee) of Barrington Stage Company, Inc., which produces plays, develops experimental musicals and provides a program for at-risk high school students in the Berkshires.

 

The following person is the sole nominee for a Class II directorship with a term ending in 2012.

 

 

Sidney Kirschner is currently a consultant and serves as Head of School at the Alfred & Adele Davis Academy. He previously served as a director of the Company from July 2001 to May 2010, when he resigned from the board (See “Voting Information — Possible Proxy Contest”). Mr. Kirschner previously served as Chairman of the Board, President and Chief Executive Officer of Northside Hospital, Atlanta, Georgia, from 1992 to 2004. From 1987 to 1992, he served as Chairman of the Board, Chief Executive Officer and President of National Service Industries, Inc., formerly a Fortune 500 company listed on the New York Stock Exchange. Mr. Kirschner has served on the board of directors of numerous community organizations. He is a member of the Board of Directors of Superior Uniform Group, Inc., Cleveland Group, Inc, Zyvax Corporation and Beaulieu Group, LLC.

 

The following persons are the Class II and Class III directors of the Company, with terms expiring as set forth below.

 

 

Zenon S. Nie is Chairman of the Board, President and Chief Executive Officer of the CEO Advisory Board LLC, a management consulting firm he founded in 2000, and has been an operating partner in Tri-Artisan Partners since 2001. From 1993 to 2000, he was Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer of Simmons Company, a manufacturer and distributor of mattresses. He is a member of the Board of Directors of Business Executives for National Security.

 

Joseph Kling is currently, and has been since 1989, a consultant to various companies in the toy industry and the infant and juvenile apparel industries, providing consulting and advisory services to companies in connection with mergers and acquisitions, as well as acquisitions of intellectual property licenses and rights. Since April 1991, Mr. Kling has served as president and chief executive officer of MLJ, Inc., his privately-held consulting company. From 1988 to 2007, Mr. Kling served as a member of the board of directors of Russ Berrie and Company, Inc. (now Kid Brands, Inc.), a New York Stock Exchange-listed company and a leader in the juvenile products industry. He also served as a member of the compensation committee and audit committee of the board of directors of Russ Berrie. From 1985 to 1989, Mr. Kling also served as Chief Executive Officer of View-Master-Ideal, a toy manufacturer.

 

Dr. Donald Ratajczak is a consulting economist and the former Chairman and Chief Executive Officer of Brainworks Ventures, Inc., an enterprise development company he founded in 2000. He is also Regent’s Professor

Emeritus of the Robinson College of Business at Georgia State University. From 1997 to 2000, he was Regent’s Professor of Economics at Georgia State University, and from 1973 to 1997, he was a Professor or Associate Professor in that department. He was also the founder, and from 1973 to 2000 the Director, of the Economic Forecasting Center at Georgia State University. He is a member of the Board of Directors of each of Ruby Tuesday, Inc., Assurance America Corporation and Citizens Bankshares Corporation.

 

The board believes that the combined business and professional experience of the Company’s directors, and their various areas of expertise, make them a valuable resource to management and qualify them for service on the board. Many of the Company’s current directors, including Messrs. Deyo, Nie and Ratajczak, have served on the board for over nine years, since the reorganization of Crown Crafts in 2001. Mr. Kirschner, the Company’s Class II nominee, also served on the board for almost nine years. Mr. Chestnut has been with the Company, including serving as a director, for over 15 years. During their tenures, these directors and nominees have gained considerable institutional knowledge about the Company, its operations and its industry, which has made them effective directors. Continuity of service and this development of institutional knowledge help make the Company’s board more efficient and effective at developing long-range plans than it would be if there were frequent turnover in board membership.

 

As noted above, Mr. Chestnut is the Company’s longest tenured director. His historical perspective of the Company’s progress and past challenges as both a director and an officer of the Company is essential when the board is evaluating issues and risks facing the Company. His knowledge and understanding of the industry and its key players, including suppliers and customers, make Mr. Chestnut a very effective resource for the board regarding issues facing the Company.

 

Mr. Deyo brings a broad spectrum of business experience to the board, with a particular emphasis on financial matters. He served more than 30 years in the banking industry, which gives him significant insight into issues faced by the Company that relate to lending and financing activities.

 

Mr. Nie is a key voice on the board for strategy and growth. During his varied career, he has gained valuable perspective on management matters, having served in top executive positions with other manufacturing companies.

 

Mr. Ratajczak is a leading economist who is regularly called on to provide expert consultation on financial and economic matters. His vast understanding and experience in these areas combine with his understanding of the Company’s operations to make him a significant contributor to the board.

 

Mr. Kirschner, who has been nominated by the Company as a Class II director to fill the vacancy resulting from his own resignation, as discussed above, brings to the Company a valuable understanding of its opportunities and the challenges it faces. During a successful and varied career, he has held top executive officer positions with a former Fortune 500 company and has served on the boards of other successful companies, including companies in the textile and manufacturing industries. While a director of the Company, he also served as chairman of the Company’s strategic review committee.

 

Mr. Solar, the Company’s nominee as a new Class I director to the Company, has extensive experience in the infant and toddler industry that the board believes will bring valuable insight and perspective to the Company. Having served as Chief Financial Officer of Gerber Childrenswear and Chairman of the Audit Committee of Marvel Entertainment, Mr. Solar also has a tremendous depth of expertise in the areas of finance and accounting that should only serve to strengthen the Company’s board. He is a Harvard graduate, and he also holds a MBA from Columbia Business School.

 

Mr. Kling was added to the board by the Company in 2008 in connection with the Company’s entering into the 2008 Wynnefield Agreement. See “Voting Information — Possible Proxy Contest”.

 

Executive officers of the Company are elected or appointed by the board of directors and hold office until their successors are elected or until their earlier death, resignation or removal, subject to the terms of applicable employment agreements. See “Employment, Severance and Compensation Arrangements.” The executive officers of the Company are as follows:

 

 

 

 

The compensation committee of the board of directors has overall responsibility for establishing, implementing and monitoring the compensation structure, policies and programs of the Company. The committee oversees the design and implementation of strategic compensation programs for our executive officers and is responsible for assessing and approving the total compensation paid to the Company’s chief executive officer and the chief executive officer’s compensation recommendations for other executive officers and for determining whether the compensation paid under the Company’s programs is fair, reasonable and competitive. The compensation committee’s chairman regularly reports to the board of directors on compensation committee actions and recommendations. The Company’s compensation committee has authority to retain (at the Company’s expense) outside counsel, compensation consultants and other advisors to assist as needed.

 

The individuals who served as the Company’s chief executive officer and chief financial officer during fiscal year 2010, as well as the other individual included in the Summary Compensation Table below, are referred to individually, as an “executive,” and collectively, as the “named executive officers.” With respect to the named executive officers, this Compensation Discussion and Analysis identifies the Company’s current compensation philosophy and objectives and describes the various methodologies, policies and practices for establishing and administering the compensation programs of the named executive officers.

 

The compensation committee believes that the most effective executive compensation programs are those that align the interests of our executive officers with those of the Company’s stockholders. The compensation committee believes that a properly structured compensation program will attract and retain talented individuals and motivate them to achieve specific short- and long-term strategic objectives and that a significant percentage of executive pay should be based on the principle of pay-for-performance. However, the compensation committee also recognizes that the Company must maintain its ability to attract highly talented executives. For this reason, an important objective of the compensation committee is to ensure the compensation programs of the named executive officers are competitive as compared to similar positions at peer-group companies (the “compensation peer group”).

The Company’s executive compensation programs are designed to provide:

 

 

In designing and administering its executive compensation programs, the compensation committee attempts to strike an appropriate balance among these various elements. The compensation committee considers the pay practices of the compensation peer group to determine the appropriate pay mix and compensation levels. With respect to performance-based pay, the compensation committee believes that executive compensation should be closely tied to the financial and operational performance of the Company, as well as to the individual performance and responsibility level of the named executive officers. The compensation committee also believes there should be a significant equity-based component because it best aligns the executives’ interests with those of the Company’s stockholders. For purposes of retention, the compensation committee believes that the equity-based compensation should have meaningful conditions to encourage valued employees to remain in the employ of the Company. Finally, the compensation committee also considers other forms of executive pay as a means to attract, retain and motivate highly qualified executives.

 

The compensation committee is comprised of three independent directors who satisfy the Nasdaq listing requirements and relevant SEC regulations. There are no interlocking relationships between any member of our compensation committee and any of our executive officers. None of the compensation committee members is an officer, employee or former officer or employee of the Company.

 

The compensation committee is responsible for all compensation decisions for the chief executive officer and other named executive officers. The chief executive officer annually reviews the performance of the other named executive officers, including consideration of market pay practices of the compensation peer group in conjunction with both Company and individual performance. The conclusions and recommendations of the chief executive officer are presented to the compensation committee for approval. The compensation committee has absolute discretion as to whether it approves the recommendations of the chief executive officer or makes adjustments, as it deems appropriate.

 

Total direct compensation includes cash, in the form of base salary and annual incentives, and long-term equity incentives. The compensation committee evaluates the mix between these three elements based on the pay practices of comparable companies. To ensure that compensation levels are reasonably competitive with market rates, the compensation committee has engaged Robert H. Kurisu, an executive compensation consultant, to provide an independent analysis of the Company’s executive compensation policies and practices and provide analyses on the pay practices of the compensation peer group. Mr. Kurisu reports directly to the compensation committee and the board of directors, and from time to time and with prior notice to the compensation committee, Mr. Kurisu also provides executive compensation analysis to management.

 

The companies included in the compensation peer group are selected primarily on the basis of their comparability to the Company based on size, as measured through annual revenue, market capitalization and other financial measures. Mr. Kurisu provides the compensation committee with compensation comparisons and the Company’s relative ranking in all pay categories and recommendations regarding program changes and refinements. Although the compensation committee also considers and reviews information from proxy statements and other relevant survey data, it particularly focuses on the practices of the compensation peer group in considering compensation levels for the chief executive officer and the other named executive officers. The compensation

committee considers the opinions and recommendations of the chief executive officer and various outside advisers and strives to be fully informed in its determination of the appropriate compensation mix and award levels for the named executive officers. All compensation decisions are made with consideration of the compensation committee’s guiding principles of fairness to employees, retention of talented executives and fostering improved Company performance, which it believes will ultimately benefit the Company’s stockholders. With respect to the named executive officers, the following describes in greater detail the objectives and policies behind the various elements of the compensation mix.

 

Base Salary

 

It is the Company’s philosophy that employees be paid a base salary that is competitive with the salaries paid by comparable organizations based on each employee’s experience, performance and geographic location. Generally, the Company has chosen to position cash compensation at close to market median levels in order to remain competitive in attracting and retaining executive talent. The allocation of total cash between base salary and incentive bonus awards is based on a variety of factors. The compensation committee considers a combination of the executive’s performance, the performance of the Company and the individual business or corporate function for which the executive is responsible, the nature and importance of the position and role within the Company, the scope of the executive’s responsibility, internal relationships or comparisons and the current compensation package in place for that executive, including the executive’s current annual salary and potential bonus awards under the Company’s short-time incentive plan.

 

The compensation committee generally evaluates executive salaries annually. An analysis of executive compensation indicated that base salaries for the named executive officers were generally positioned at the market median. For the 2010 fiscal year, based in part on consultation with its independent compensation consultant, and in part upon the compensation committee’s own assessment of the information and factors described above, the compensation committee determined not to increase the base salaries of the named executive officers.

 

Annual Incentive Bonus

 

The Company intends to continue its strategy of compensating the named executive officers through programs that emphasize performance-based incentive compensation. The Company’s short-term incentive compensation program is designed to recognize and reward executive officers and other employees who contribute meaningfully to the Company’s profitability and increase in stockholder value.

 

In general, the funding of the annual incentive bonus pool is dependent upon earnings before interest, taxes, depreciation and amortization (after deducting incentive compensation) of the Company and its subsidiaries. If the plan is fully funded, each named executive officer has the ability to receive the target bonus payout. The percentage of the target bonus actually paid to each named executive officer depends on the goal attainment levels. The threshold level of performance for funding the bonus pool is 90% of target, at which point the annual bonus pool is 5% funded.

 

For fiscal year 2010, the Company, CCIP and Hamco, Inc. achieved greater than the minimum level of the performance target, and the bonus pool was partially funded.

 

Long-Term Incentive Awards

 

Long-term incentive awards are the third component of the Company’s total compensation package. The compensation committee believes that equity-based compensation ensures that the Company’s officers have a continuing stake in the long-term success of the Company. The Company’s 2006 Omnibus Incentive Plan (the “omnibus plan”) provides for equity incentive awards, which include qualified and nonqualified stock options, restricted stock, stock appreciation rights, long-term incentive compensation units consisting of a combination of cash and common stock or any combination thereof within the limitations set forth in the omnibus plan. Awards may be granted under the omnibus plan from time to time for ten years from the omnibus plan’s effective date of June 13, 2006. The compensation committee approves all awards under the omnibus plan and acts as the administrator of the omnibus plan.

Award levels under the omnibus plan are determined based on the compensation practices of the compensation peer group. In general, long-term incentive awards are targeted at the median of the compensation peer group with appropriate adjustments for individual and Company performance, although past awards have generally been below market levels. The options are granted under the omnibus plan and, in accordance with terms of the Company’s existing option agreements with the named executive officers, vest and become exercisable in equal installments over a two-year period from the grant date. All stock options have been granted with a ten-year term and have an exercise price equal to the fair market value of the Company’s common stock on the date of grant. The restricted stock awards are granted under the omnibus plan and, in accordance with terms of the Company’s existing restricted stock agreements with the named executive officers, are subject to cliff vesting on the fourth anniversary of the date of grant. Shares of restricted stock are held by the Company’s transfer agent in escrow until restrictions lapse and the participant pays taxes on the shares. Participants are entitled to any dividends payable on their restricted stock and to vote their shares. Restricted stock cannot be sold or transferred until the shares vest. Should a named executive officer leave the Company prior to the completion of the applicable vesting schedule, the unvested portion of the grant is forfeited.

 

In an effort to provide the named executive officers with equity compensation that is consistent with the compensation peer group and to further strengthen retention efforts and commitment levels, the compensation committee approved grants of stock options to Ms. Elliott and Ms. Freeman in fiscal year 2010.

 

Broad-Based Benefits Programs

 

The named executive officers are entitled to participate in the benefits programs that are available to all full-time employees. These benefits include health, dental, vision and life insurance, paid vacation and company contributions to a 401(k) profit-sharing retirement plan. The Company’s 401(k) plan provides for matching contributions by the Company in an amount equal to 100% of the first 2% of employee compensation deferred, plus 50% of the next 1% of employee compensation deferred. All full-time employees age 21 and older are eligible to participate in the plan after six months of service.

 

Compensation of Chief Executive Officer

 

The compensation committee meets with the other independent directors each year in executive session to evaluate the performance of the chief executive officer. The compensation committee also consults with its independent consultant in setting the chief executive officer’s compensation. Neither the compensation committee nor its independent consultant confers with the chief executive officer or any other members of management when setting his base salary. The compensation committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the performance of the chief executive officer and the other named executive officers.

 

Compensation of Other Named Executive Officers

 

The chief executive officer met with the compensation committee to review his compensation recommendations for the other named executive officers. He described the findings of his performance evaluation of all such persons and provided the basis of his recommendations with the compensation committee, including the scope of each person’s duties, oversight responsibilities and individual objectives and goals against results achieved. In its analysis of the other named executive officers, the compensation committee applied the same rationale to this group as it applied when considering the chief executive officer’s base salary. The compensation committee also considered the pay practices of the compensation peer group and the analyses and recommendations provided by its compensation consultant.

 

Administrative Policies and Practices

 

To evaluate and administer the compensation programs of the chief executive officer and other named executive officers, the compensation committee meets periodically each year in conjunction with regularly scheduled board meetings. The compensation committee also holds special meetings and meets telephonically to discuss extraordinary items. Additionally, the compensation committee members regularly confer with its

compensation consultant on matters regarding the compensation of the chief executive officer and other named executive officers.

 

Timing of Grants of Options and Restricted Stock

 

In fiscal year 2010, the compensation committee approved stock option grants to the named executive officers in June 2009, effective August 2009.

 

Stock Ownership Guidelines

 

The board has implemented stock ownership guidelines for directors, the chief executive officer and the chief financial officer. Under those guidelines, by the end of 2012, (i) directors are expected to hold shares of the Company’s Series A common stock having a value equal to not less than three times their annual retainer amounts, (ii) the chief executive officer is expected to hold shares of the Company’s Series A common stock having a value equal to not less than two times his annual salary, and (iii) the chief financial officer is expected to hold shares of the Company’s Series A common stock having a value equal to not less than the amount of her annual salary. Neither the board nor the compensation committee has implemented stock ownership guidelines for other named executive officers. The compensation committee, however, continues to periodically review best practices and re-evaluate whether additional stock ownership guidelines are consistent with the compensation philosophy of the Company and with the interests of its stockholders.

 

The following table sets forth all compensation paid or accrued during fiscal years 2010 and 2009 to the named executive officers.

 

 

 

 

 

Crown Crafts has entered into employment agreements with each of the named executive officers. The Company has also entered into a severance protection agreement with Mr. Chestnut. A summary of the terms of these agreements is set forth below.

 

E. Randall Chestnut.  The Company entered into an employment agreement with Mr. Chestnut effective as of July 23, 2001, pursuant to which Mr. Chestnut has agreed to serve as President, Chief Executive Officer and Chairman of the Board of the Company. The original term of Mr. Chestnut’s employment agreement expired March 31, 2004; however, the agreement currently renews automatically on a monthly basis unless either party gives the other party one year’s advance notice of non-renewal.

 

Mr. Chestnut’s employment agreement provides for an annual salary, subject to annual review and upward adjustment, and cash bonuses based on the Company’s achievement of performance criteria established by the compensation committee, as well as other benefits under programs adopted by the Company from time to time. Mr. Chestnut’s employment agreement also contains one-year post-employment non-competition provisions.

 

The Company entered into an amended and restated severance protection agreement with Mr. Chestnut effective as of April 20, 2004. This agreement provides for a two-year term renewable annually (so as to always be effective for two years after each renewal date), unless either party notifies the other of non-renewal in a timely manner. Under Mr. Chestnut’s severance protection agreement, Mr. Chestnut is entitled to certain benefits upon the termination of his employment. These benefits are discussed in the section of this proxy statement entitled “Potential Payments Upon Termination or Change in Control.”

 

Olivia W. Elliott.  The Company entered into an employment agreement with Ms. Elliott effective as of November 6, 2008, pursuant to which Ms. Elliott has agreed to serve as Vice President and Chief Financial Officer of the Company. The initial term of Ms. Elliott’s employment agreement is one year; however, the employment agreement renews automatically on a daily basis unless and until either party gives the other party one year’s advance notice of non-renewal.

 

Ms. Elliott’s employment agreement provides for an annual salary, subject to annual review and upward adjustment, and cash bonuses based on the Company’s achievement of performance criteria established by its board of directors, as well as other benefits under programs adopted by the Company from time to time. Ms. Elliott’s employment agreement also contains one-year post-employment non-competition provisions.

 

Under Ms. Elliott’s employment agreement, Ms. Elliott is entitled to certain benefits upon the termination of her employment. These benefits are discussed in the section of this proxy statement entitled “Potential Payments Upon Termination or Change in Control.”

 

Nanci Freeman.  The Company entered into an amended and restated employment agreement with Ms. Freeman effective as of April 20, 2004, pursuant to which Ms. Freeman has agreed to serve as President and Chief Executive Officer of CCIP. The original term of Ms. Freeman’s employment agreement expired April 30, 2005;

however, the agreement currently renews automatically on a monthly basis unless either party gives the other party one year’s advance notice of non-renewal.

 

Ms. Freeman’s employment agreement provides for an annual salary, subject to annual review and upward adjustment, and cash bonuses based on the Company’s achievement of performance criteria established by the compensation committee, as well as other benefits under programs adopted by the Company from time to time. Ms. Freeman’s employment agreement also contains one-year post-employment non-competition provisions.

 

Under Ms. Freeman’s employment agreement, Ms. Freeman is entitled to certain benefits upon the termination of her employment. These benefits are discussed in the section of this proxy statement entitled “Potential Payments Upon Termination or Change in Control.”

 

The following table sets forth information regarding the outstanding equity awards held by the named executive officers at March 28, 2010, the last day of the Company’s 2010 fiscal year.

 

 

 

 

The following table sets forth information regarding option exercises by the named executive officers during fiscal year 2010.

 

 

 

 

Each of the employment agreements between the Company and the named executive officers requires the Company to make severance payments and provide severance benefits to the executive under certain circumstances if his or her employment with the Company is terminated other than for “Cause” or the executive’s death or disability. For these purposes, a termination of employment is generally for “Cause” if the executive has been convicted of a felony or if the termination is evidenced by a resolution adopted in good faith by two-thirds of the Company’s board that the executive (i) intentionally and continually failed substantially to perform his or her reasonably assigned duties for a period of at least thirty days after a written notice of demand for substantial performance has been delivered to the executive; or (ii) intentionally engaged in illegal conduct or gross misconduct which results in material economic harm to the Company. As required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), all of the named executive officers’ employment agreements have been modified to be in compliance with payment timing and other relevant requirements.

 

Under Mr. Chestnut’s employment agreement and severance protection agreement, if, during the two years following a “Change in Control,” he terminates his employment for “Good Reason” or for any reason during the 60-day period commencing 90 days after the occurrence of the Change in Control or if the Company terminates his employment other than for Cause, death or disability, he will be entitled to receive the following payments, benefits or rights: (i) payment of three times his annual base salary (based upon the highest rate in effect on certain dates as set forth in the employment agreement); (ii) payment of three times the bonus amount previously paid to him (based upon the highest amount previously paid during certain periods as set forth in the employment agreement); (iii) for a period of three years, or such longer period as may be provided by the terms of the appropriate program, practice or policy, continuation on behalf of Mr. Chestnut, his dependents and beneficiaries of life insurance, disability, medical, dental and hospitalization benefits; (iv) payment of the excess retirement benefit he would have received had he remained employed for three additional years; (v) all of Mr. Chestnut’s outstanding incentive awards shall become fully vested and, if applicable, fully exercisable; (vi) Mr. Chestnut may require the Company to purchase within five days following his termination any shares of stock or shares purchased upon exercise of any options at a price equal to the fair market value of such shares on the date of purchase by the Company; (vii) payment of outplacement services up to $30,000; and (viii) payment of reasonable moving expenses.

Under the employment agreements between the Company and each of Ms. Elliott and Ms. Freeman, if such executive’s employment is terminated by the Company without Cause or by the executive for Good Reason, then the executive is entitled to payment of (i) her salary, perquisites and all other compensation other than bonuses for the greater of the remaining term of her employment agreement and one year and (ii) a bonus, which is required to be an amount equal to the highest annual bonus paid or payable to her in respect of any of the preceding three full fiscal years. These benefits are also payable to Ms. Elliott or Ms. Freeman, as the case may be, if her respective employment agreement is not expressly assumed by any acquirer of the Company, whether by purchase, merger, consolidation or otherwise.

 

Under their respective employment agreements, Ms. Elliott and Ms. Freeman are each entitled to provide notice of termination of employment and receive the severance payments and benefits discussed in the immediately preceding paragraph under the following circumstances: (i) if there occurs a Change in Control, and if at the time of such Change in Control, E. Randall Chestnut is not employed by the Company or any of its affiliates; or (ii) if there occurs a Change in Control and if Mr. Chestnut is so employed at the time of such Change in Control and at any time during the 150-day period immediately following the occurrence of such Change in Control, Mr. Chestnut shall no longer be employed by the Company or any of its affiliates for whatever reason.

 

For these purposes, “Good Reason” generally means a good faith determination by the executive that, without the executive’s consent, any one or more of the following events or conditions has occurred:

 

 

“Change in Control” under the Company’s employment agreements with Ms. Elliott and Ms. Freeman generally means (i) any transaction, whether by merger, consolidation, asset sale, tender offer, reserve stock split or otherwise, which results in the acquisition of beneficial ownership by any person or entity or any group of persons or entities acting in concert of 25% or more of the outstanding shares of common stock of the Company; (ii) the sale of all or substantially all of the assets of the Company; or (iii) the liquidation of the Company.

“Change in Control” under the Company’s severance protection agreement with Mr. Chestnut generally means any of the following:

 

 

 

 

 

Based upon a hypothetical termination of each named executive officer on March 28, 2010, the last day of the Company’s 2010 fiscal year, by such executive for Good Reason or following a Change in Control or by the Company without Cause (except as set forth in the footnotes below with respect to certain stock and option awards), assuming the existence of the facts discussed above upon which the executives’ receipt of severance benefits is conditioned, estimated severance benefits payable to each named executive officer would be as follows:

 

 

 

 

 

Each non-employee director is paid an annual retainer of $40,000, with no additional board meeting fees paid. The Company’s lead director is paid an additional $20,000 (which amount was $10,000 prior to September 2009) for his service in that position. Additional annual retainers are paid to committee chairmen as follows: audit committee chairman, $10,000; compensation and nominating and corporate governance committee chairmen, $4,500; strategic review committee chairman, $4,500 (through August 2009); and capital committee chairman, $2,500. Each non-employee director receives a cash fee of $1,000 for each committee meeting attended, and each non-employee director also received a restricted stock grant in August 2009 of 5,000 shares of Crown Crafts Series A common stock. Directors who are employees of Crown Crafts or its subsidiaries do not receive any compensation for their service as directors.

 

The following table sets forth information regarding compensation paid to current and former non-employee directors of the Company for fiscal year 2010.

 

 

 

 

The audit committee of the Company’s board of directors is comprised of three directors, all of whom are independent, as defined by the listing standards of Nasdaq. The board has determined that Donald Ratajczak is an audit committee financial expert within the meaning of regulations adopted by the SEC as a result of his accounting and related financial management expertise and experience. The main function of the audit committee is to ensure that effective accounting policies are implemented and that internal controls are in place to deter fraud, anticipate financial risks and promote accurate and timely disclosure of financial and other material information to the public markets, the board and the Company’s stockholders. The audit committee also reviews and recommends to the board the approval of the annual financial statements and provides a forum, independent of management, where the Company’s independent public accountants can communicate any issues of concern. In performing all of these functions, the audit committee acts only in an oversight capacity and necessarily relies on the work and assurances of the Company’s management and independent public accountants, which, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles.

 

The audit committee has adopted a formal, written charter, which has been approved by the full board and which specifies the scope of the audit committee’s responsibilities and how it should carry them out. The complete text of the audit committee charter is available on the Company’s website at www.crowncrafts.com.

 

The audit committee has reviewed and discussed with the Company’s management the audited financial statements of the Company for the fiscal year ended March 28, 2010. The audit committee has discussed with KPMG LLP, the Company’s independent public accountants, the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The audit committee has also received the written disclosures and the letter from KPMG LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent public accountants’ communications with the audit committee concerning independence, and the audit committee has discussed with KPMG LLP its independence from management and the Company.

 

Based on the aforementioned review and discussions with management and the Company’s independent public accountants, and subject to the limitations on the role and responsibilities of the audit committee described above, the audit committee recommended to the board that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2010.

 

This report has been submitted by the audit committee.

 

Donald Ratajczak (Chairman)

William T. Deyo, Jr.

Joseph Kling

 

KPMG LLP currently serves as the Company’s independent public accountants and conducted the audit of the Company’s consolidated financial statements for fiscal years 2009 and 2010. Appointment of the independent public accountants of the Company is not required to be submitted to a vote of the stockholders of the Company for ratification under the laws of Delaware. However, the audit committee has recommended that the board of directors submit this matter to the stockholders of the Company as a matter of good corporate practice. If the stockholders fail to ratify the appointment, the audit committee of the Company’s board will reconsider whether to retain KPMG LLP and may retain that firm or another independent accounting firm without resubmitting the matter to the stockholders of the Company for their approval. Even if the appointment is ratified, the audit committee of the Company’s board may, in its discretion, direct the appointment of different independent accountants at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

Representatives of KPMG LLP are expected to be present at the annual meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

 

The board of directors unanimously recommends a vote FOR the ratification of the appointment of KPMG LLP as the Company’s independent auditor. Proxies will be voted FOR the appointment of the independent auditor unless otherwise specified.

 

Deloitte & Touche LLP audited the consolidated financial statements of the Company and its subsidiaries as of and for the fiscal years ended March 30, 2008 and April 1, 2007 (the “Financial Statements”). On September 24, 2008, the Company dismissed Deloitte & Touche LLP as its independent public accountants. The audit committee participated in and approved the decision to change independent public accountants. Deloitte & Touche LLP’s audit reports on the Financial Statements did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

 

In connection with Deloitte & Touche LLP’s audits for the two fiscal years ended March 30, 2008 and April 1, 2007, and the subsequent interim period through September 24, 2008, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused it to make reference to the subject matter of the disagreements in connection with its audit reports on the Financial Statements. Additionally, during the two fiscal years ended March 30, 2008 and April 1, 2007, and the subsequent interim period through September 24, 2008, there were no reportable events, as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

 

On September 24, 2008, the Company engaged KPMG LLP as the Company’s new independent public accountants to audit the Company’s consolidated financial statements for the fiscal year ending March 29, 2009. The audit committee approved the Company’s engagement of KPMG LLP.

 

During the two fiscal years ended March 30, 2008 and April 1, 2007, and the subsequent interim period through September 24, 2008, the Company did not consult with KPMG LLP regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that KPMG LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of either a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K or the related instructions thereto) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).

 

The following is a summary of the fees billed to the Company by KPMG LLP and Deloitte & Touche LLP for professional services rendered for the fiscal years ended March 28, 2010 and March 29, 2009:

 

 

 

Audit Fees.  Audit fees consist of fees billed for professional services rendered for the audit of the Company’s annual consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by principal accountants in connection with statutory and regulatory filings or engagements.

 

Audit-Related Fees.  Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.

 

Tax Fees.  Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and custom and duties tax planning.

 

All Other Fees.  Other fees consist of fees for products and services other than the services reported above. There were no fees paid to KPMG LLP or Deloitte & Touche LLP in fiscal 2010 or 2009 that are not included in the above classifications.

 

All services provided by the principal accountants are subject to pre-approval by the Company’s audit committee. Before granting any approval, the audit committee must receive: (i) a detailed description of the proposed service; (ii) a statement from management as to why they believe KPMG LLP is best qualified to perform the service; and (iii) an estimate of the fees to be incurred. Before granting any approval, the audit committee gives due consideration to whether approval of the proposed service will have a detrimental impact on the independence of the principal accountants.

 

All fees of KPMG LLP and Deloitte & Touche LLP in the preceding table were approved in accordance with the audit committee’s pre-approval policies and procedures.

 

The following table sets forth certain information, based upon publicly-filed documents, regarding the number and percentage of shares of Crown Crafts Series A common stock that are deemed to be “beneficially owned” under the rules of the SEC, as of the record date, by (i) each director of the Company, (ii) each nominee for election as a director, (iii) the current executive officers of the Company named in the Summary Compensation Table included elsewhere herein, (iv) all executive officers and directors as a group, and (v) all persons known to the Company who may be deemed beneficial owners of more than 5% of the outstanding shares of Crown Crafts Series A common stock. An asterisk indicates beneficial ownership of less than 1%. Unless otherwise specified in the footnotes, the stockholder has sole voting and dispositive power over the shares of Crown Crafts Series A common stock beneficially held.

 

 

 

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who own more than 10% of the common stock of the Company to file with the SEC initial reports of ownership and reports of changes in ownership of the common stock. They are also required to furnish the Company with copies of all Section 16(a) forms they file with the SEC.

 

Except as noted below, to the Company’s knowledge, based solely on its review of the copies of such reports furnished to it and written representations that no other reports were required, during the fiscal year ended March 28, 2010, all of the Company’s officers, directors and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements. In April 2010, it came to the Company’s attention that a Form 4 relating to an acquisition of shares of the Company’s common stock by Mr. Nie in October 2008 had not been reported. A Form 4 reporting such transaction was filed on April 2, 2010.

 

Identification of Participants

 

Under applicable SEC regulations, members of the board of Crown Crafts and other director nominees may be deemed to be “participants” with respect to the Company’s solicitation of proxies in connection with the 2010 annual meeting. Information concerning participants is provided below.

 

The following table sets forth the name, principal occupation and principal business address of each of the Company’s directors and director nominees:

 

 

Stock Ownership and Employment Agreements

 

Mr. Solar currently owns beneficially 5,000 shares of Crown Crafts Series A common stock. The number of shares beneficially owned by each other participant is as described in this proxy statement in the section entitled “Security Ownership of Certain Beneficial Owners and Management.” Except as otherwise disclosed in this proxy statement, each of the participants owns of record and beneficially the shares listed in that table opposite such participant’s name.

 

As described in this proxy statement in the section entitled “Executive Compensation — Employment, Severance and Compensation Arrangements,” the Company has entered into an employment agreement and a severance protection agreement with Mr. Chestnut.

 

Transactions in Company Securities by Participants

 

The following table sets forth information regarding the acquisition and disposition of securities of the Company by the participants since March 30, 2008. Unless otherwise indicated, all transactions were effected in the public market.

 

 

Additional Information Concerning Participants

 

To the Company’s knowledge, except as described elsewhere in this proxy statement:

 

 

 

 

 

 

The board does not contemplate bringing before the annual meeting any matter other than those specified in the accompanying Notice of Annual Meeting of Stockholders, nor does it have information that other matters will be presented at the annual meeting. If other matters come before the annual meeting, signed proxies will be voted upon such questions in accordance with the best judgment of the persons acting under the proxies.

 

The Report of the Audit Committee is not deemed filed with the SEC and shall not be deemed incorporated by reference into any prior or future filings made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates such information by reference. In addition, the website addresses contained in this proxy statement are intended to provide inactive, textual references only. The information on these websites is not part of this proxy statement.

 

Crown Crafts is delivering with this proxy statement a copy of its Annual Report on Form 10-K for the year ended March 28, 2010. Crown Crafts files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy these reports, statements or other information at the SEC’s Public Reference Room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The Company’s SEC filings are also

available to the public from commercial document retrieval services and at the website maintained by the SEC at http://www.sec.gov.

 

Upon receipt of a written request, the Company will, without charge, provide any stockholder a copy of the Company’s annual report, including financial statements and the footnotes thereto. Copies of exhibits to the annual report are also available upon specific request and payment of a reasonable charge for reproduction. Such requests should be directed to the corporate secretary of Crown Crafts at the following address: Crown Crafts, Inc., P.O. Box 1028, Gonzales, Louisiana 70707, Attn.: Corporate Secretary.

 

Under SEC rules, a stockholder who intends to present a proposal, including the nomination of directors, at the Company’s 2011 annual meeting of stockholders and who wishes to have the proposal included in the proxy statement for that meeting must submit the proposal to the Company’s corporate secretary. The proposal must be received no later than March [ • ], 2011 and must otherwise comply with applicable SEC rules for inclusion in the Company’s 2011 proxy statement.

 

Stockholders who wish to propose a matter for action at the 2011 annual meeting, including the nomination of directors, but who do not wish to have the proposal included in the proxy statement, must notify Crown Crafts in writing of the information required by the provisions of the Company’s bylaws relating to stockholder proposals. Under the Company’s bylaws, for proposed business to be considered at such meeting, a stockholder must notify the Company’s corporate secretary in writing not less than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting, of any proposals.

 

Stockholder proposals may be submitted to the corporate secretary of Crown Crafts at the following address: Crown Crafts, Inc., P.O. Box 1028, Gonzales, Louisiana 70707, Attn.: Corporate Secretary.

 

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies. It is anticipated that a number of brokers with account holders who are stockholders of the Company will be householding the Company’s proxy materials. If you receive notice from your broker that it will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, please notify your broker or notify us by sending a written request to Crown Crafts, Inc., P.O. Box 1028, Gonzales, Louisiana 70707, Attn.: Corporate Secretary.