On August 30, 2006, the Court entered the Order signed by U.S. District Judge Barry T. Moskowitz granting the motion for final approval of settlement. Further, the counsel was awarded $975,000 in attorney’s fees and $91,519.34 in reimbursement of expenses.
According to the Company’s FORM 10-Q For The Quarterly Period Ended June 24, 2006, on April 25, 2005, all three similar actions were consolidated into a single action. On October 31, 2005, the Company reached an agreement in principle (subject to final court approval) to settle the securities litigation pending against the Company and certain of the Company’s officers and directors for the sum of $3.9 million, paid mostly by the Company’s insurance carrier. In the fourth quarter of fiscal 2005, the Company incurred a pre-tax charge of approximately $600,000 associated with defense and settlement costs. On March 14, 2006, the court entered an order granting preliminary approval of the settlement. A final settlement hearing was held on June 8, 2006.
The original complaint charges Charlotte and certain of its officers with violations of the Securities Exchange Act of 1934. Charlotte is a mall-based specialty retailer of apparel and accessories targeting young women between the ages of 15 and 35. The Company has two distinct store concepts: Charlotte Russe and Rampage. More specifically, the complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the strategic repositioning of the Rampage stores was failing to produce tangible results; (2) that other measures, promoted by management, as actions designed to improve operations, were proving futile in both the merchandising and store organizations; and (3) that as a result of the above, the defendants' fiscal 2004 projections were lacking in any reasonable basis when made.
The complaint further alleges that on September 9, 2004, Charlotte reported revised guidance for the fourth quarter of fiscal 2004, which will end on September 25, 2004. News of this shocked the market. Shares of Charlotte fell $3.43 per share, or 23.44 percent, on September 9, 2004, to close at $11.20 per share. Then on December 6, 2004, Charlotte reported that Donna Desrosiers, Executive Vice President and GMM for the Charlotte Russe chain, had resigned for personal reasons. The Company also announced that, as a result of weaker than expected sales during the quarter to date, it was now forecasting that comparable stores sales would decline mid to high single-digits during the first quarter of fiscal 2005 ending on December 25, 2004. The Company had previously guided investors to expect a low single-digit comparable sales increase for the quarter. On this news shares of Charlotte fell $0.82 per share, or 7.52 percent, on December 7, 2004, to close at $10.09 per share.