Ousted
American Apparel Chief Executive Dov Charney is firing up the machinery to
retake control of the company that booted him nearly two weeks ago.
Charney plans to solicit the written consent from other
stockholders to expand the number of board members to 15 from seven, elect new
directors and amend company bylaws at a special shareholder meeting, according
to a Tuesday filing with the Securities and Exchange Commission.
This is
Charney's first indication that he intends to wage a "proxy fight,"
as it's known in corporate circles, by soliciting the right to vote other
stockholders' shares in support of his position.
On Monday, Charney revealed that he had significantly upped his
stake in the Los Angeles retailer to 43% from 27%. He spent $19.6 million to buy
an additional 27.4 million shares last week, according to security filings.
Both American Apparel and Charney have engaged in a series of
moves and countermoves since the board voted him out June 18.
Charney's
buying spree apparently came before American Apparel announced a shareholder
rights plan on Saturday. The one-year poison pill plan is designed to keep
Charney from regaining control of the retailer after he announced plans last
week to buy more shares in the company.
It is unclear whether Charney, the company's biggest
shareholder, can call a special meeting of shareholders.
In his filing Tuesday, Charney states that the law in Delaware,
where American Apparel is incorporated, allows him to take action to expand the
board and install his own directors in the new positions without a special
shareholders meeting if he is able to acquire the written consent of enough
shareholders. Charney said he intends to seek such consent.
Over the
weekend, a special committee of the board changed American Apparel's bylaws.
The amended bylaws now prohibit executives or shareholders from calling special
meetings, roughly doubles the time required to nominate directors and submit
stockholder proposals at annual meetings and emphasized that board directors
can be removed only "for cause." American Apparel said Monday that it
had rejected Charney's request last week for a stockholder meeting.
Regardless of the bylaws, analysts said that Charney's huge block of shares may
force the board to sit down with him. Charney now has the power to block any
big moves that the company may try to make, including a sale to an interested
buyer.
Charney bought his new shares on Friday after reaching a deal
with New York investment firm Standard General. The cooperative buying arrangement
stipulates that Standard General would buy American Apparel stock and then lend
Charney the money to buy the stock from the firm at an annual interest rate of
10%, a security filing said.
Late Monday, Standard General reported to the SEC that last week
it had bought 27.4 million shares, which it sold to Charney on Friday. It
bought an additional 1.5 million shares on Monday.
The board voted to replace Charney as chairman and terminate him
as CEO pending an investigation "into alleged misconduct." The vote
resulted in Charney's immediate suspension, but under his employment contract,
termination requires a 30-day delay.
The company has been working hard to counter attempts by Charney
to get back his job. His lawyer, Patricia Glaser, filed an arbitration petition
last week alleging wrongful termination, breach of contract and retaliation,
among other issues.
Aside from its difficulties with Charney, American Apparel is
struggling to overcome many hurdles.
The retailer has lost nearly $270 million in the last four years
and is more than $200 million in debt. The company has warned that firing
Charney could trigger defaults on nearly $40 million in loans and force it into
bankruptcy.
One lender, Lion Capital, which owns 12% of American Apparel's
stock, has demanded repayment on a $10-million loan this week, according to the
New York Post. That could trigger another default on a $30-million loan with
Capital One.
Allan Mayer, the retailer's co-chairman, said that the company
had sufficient capital to pay off the loan if Lion asks to be repaid right
away.
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