American Apparel has taken steps to keep its former CEO from getting control of the company.
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American Apparel continues to block efforts by it former CEO Dov Charney to regain control of the company which he founded. In a regulatory filing the firm made on Monday, it was revealed that the businessman is demanding a special meeting of the company’s shareholder at which he will attempt to double the its board’s size to as many as fifteen members.
Charney made the request for the new meeting on Friday.
American Apparel’s new SEC filing revealed that it has taken steps to block Charney’s moves. It took measures on Saturday to prevent any such special shareholder meeting by amending its bylaws to require long term advance notice before one can take place.
This action came at the same time that American Apparel adopted a poison pill strategy on Saturday in an effort to block Charney’s takeover bid. Under that maneuver, the firm will allow anyone with more than a 15% stake in it to purchase additional shares of the company’s common stock for $2.75 a share. This, it is hoped, will make it more difficult for Charney and his allies to buy up stock in the company.
All this came after Charney announced last Friday that the New York investment firm Standard General LP agreed to back him in the acquisition of more shares in American Apparel to increase his current 27% stake in the company.
Charney was fired from American Apparel for cause as its CEO on June 18th. The termination resulted from a scandal centered on nude pictures of a company employee that were posted online, as well as allegations that he misused corporate funds for his family and friends. The employee in question had accused Charney of using her as a sex slave.
British Based Lion Capital called in a $10 million loan from the company just after Charney’s termination because the former CEO’s continued affiliation with the company was part of the terms of the loan. The creditor gave American Apparel until July 4th to repay the money, which the company says that it can do.
But, according to The New York Post, American Apparel is in such financial disarray and in fear of defaulting that it is actually considering the return of Charney in order to appease Lion Capital.
It is hard to believe, however, that it would have trouble finding the funds to cover a simple $10 million in debt. The company has a reported $650 million in annual revenues.
But it will not be so easy for American Apparel to borrow the needed funds due to its current management turmoil. Issuing new stock to raise the capital would also be problematic. The company has already issued about 176 million of its 230 million authorized shares and any new shares at this point would need to offered at a discount and could be picked up by Charney and his allies.
Dov Charney first began making T shirts as a teenager and started the American Apparel brand name in 1991, while he was still a student at Tufts University in Boston, initially specializing in personalized screen printing.
The Canadian born entrepreneur moved with his company to the West Coast in 1997. Three years later American Apparel moved into a massive seven-story 800, 000-square-foot warehouse in downtown Los Angeles, as the company enjoyed continued growth as an importer and wholesaler, principally marketing in blank T-shirts to screen printers, uniform companies and fashion brands.