American Apparel Inc. (APP) rejected ousted Chief Executive Officer Dov Charney’s request for a special shareholder meeting as the board adopted a one-year rights plan aimed at preventing him from gaining control of the retailer.
The board turned down Charney’s June 27 move to hold a meeting of investors because he’d been suspended earlier, Los Angeles-based American Apparel said in a regulatory filing today. The board amended rules the next day to deny the ability for executives or shareholders to call a special meeting and extended the time needed to propose annual-meeting agenda items or director nominations.
Charney, who already owned 27 percent of the clothing retailer, entered a loan agreement with Standard General LP last week to help increase his stake while he contests his firing. American Apparel earlier this month said it replaced Charney after investigating his actions, and a person familiar with the matter has said the company found misconduct that ranged from sexual harassment and retaliation to misuse of corporate funds.
The shareholder plan contains rights that will be attached to all shares of common stock, with each right entitling the holder to purchase one ten-thousandth of a share of preferred stock at an exercise price of $2.75, the company said last week.
American Apparel fell 6.8 percent to 90 cents at the close in New York. The stock has declined 27 percent this year.
Charney declined to comment.
The rights may be separated from the shares on the occurrence of certain events that the company didn’t specify. The plan allows investors to accumulate as much as 15 percent of common stock and has no impact on a takeover proposal that is acceptable to a majority of investors, American Apparel said.
If a person or group already beneficially owns 15 percent or more of the common stock, the person won’t be deemed a so-called acquiring person unless an additional 1 percent of the company’s shares is purchased, American Apparel said.
Under the plan, Charney doesn’t beneficially own any of the American Apparel stock owned by Standard General “solely by reason of the letter agreement dated June 25,” the company said.
The retail chain, which started out selling U.S.-made T-shirts and became a byword for hip fashion, has racked up about $270 million in net losses since the beginning of 2010. The company avoided a cash crunch this year by selling stock.
Lion Capital LLP, a creditor to the chain, won’t grant a waiver request from the retailer to keep its $10 million loan from going into default and is demanding full repayment, according to two people familiar with the matter. Shona Prendergast, a spokeswoman for Lion Capital, declined to comment.
That decision threatens to trigger a default on a $50 million credit line with Capital One Financial Corp., under which $30 million is drawn, because of cross-default provisions in the agreements. A default also means American Apparel would lose access to $20 million available under that pact.
Capital One is holding its own talks with the company’s management and working to get Lion back on board with granting a waiver, according to one of the people.
Investors must submit director nominations or other annual-meeting agenda proposals 120 to 150 days before the meeting, rather than 60 to 90 days in advance, the company said today.
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