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American Apparel battles former CEO

To combat a takeover bid by its former CEO and founder, Dov Charney, American Apparel announced a one-year shareholders' rights plan on June 28. The Los-Angeles based retailer was founded in 1998, employs 10,000, manufactures clothing which it sells in 20 countries and has stores throughout the world, including in the state of Minnesota.

In mid-June, the company board voted to force out Charney as chairman and stated that it intended to remove him as president and CEO. The move is actually a suspension pending a 30-day period before termination from these positions. The board said that there was an ongoing investigation into his alleged misconduct.

A special committee of the American Apparel board of directors made the plan to combat Charney or any other person or group from seizing control of the company, without making appropriation to the company's shareholders. It said that the plan protects shareholders from any potential creeping control and is not designed to prevent or deter fair takeover bids.

The company said that this plan allows a person or group to acquire up to 15 percent of common stock and is like other arrangements adopted by publicly held companies. American Apparel states that shareholder rights will attach to all shares of the company's common stock. Under this plan, the holder of each right will be able to purchase one ten-thousandth of a preferred stock share for $2.75.

According to a regulatory filing made one day earlier, Charney took steps to increase his stake by entering into a five-year loan agreement with investment firm Standard General LP. Under this agreement, the firm would make a loan to Charney to purchase at least 10 percent of American Apparel's outstanding shares. Charney's stock will be collateral for this loan. He now holds a 27.2 percent stake in American Apparel, according to the filing.

These types of shareholder disputes and battles for corporate control can have a major impact on the company's performance, shareholder rights and its employees. Knowledge of the myriad of laws governing stocks and employment disputes is essential.

Source: Chicago Sun Times, "American Apparel adopts stockholder rights plan," Anne D'Innocenzio, June 29, 2014

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