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American Apparel Declines Dov Charney’s Request for Shareholder Meeting

Calls suggestion "invalid and improper" in light of founder’s suspension as chief executive.

The fireworks have clearly come early this year for American Apparel Inc. and its ousted founder Dov Charney — but the grand finale is still to come.

This story first appeared in the July 1, 2014 issue of WWD.  Subscribe Today.

The company, which sidelined the former president and chief executive officer for alleged misconduct, said in a regulatory filing that it shot down a request by Charney to hold a special shareholders’ meeting.

Charney ranks as the company’s largest shareholder with a 27.2 percent stake and called for the meeting to expand the size of the board to 15 directors, fill board vacancies and repeal a number of actions taken since 2010, when American Apparel amended its credit agreement with Lion Capital.

In its refusal, the company said Charney’s request for a special shareholders’ meeting was “invalid and improper” in part because “Mr. Charney previously has been suspended as ceo and relieved of all powers to act on behalf of the company.

“The company does not intend to comply with such a request to call a special meeting and intends to vigorously contest any action seeking to compel the company to do so,” the filing said.

The back and forth potentially steers the two sides closer to the court house, where a judge might have to sort out the legal intricacies.

Already, American Apparel is clashing with Charney on at least two other fronts.

The former ceo has filed for arbitration under the terms of his contract and is said to be seeking $23 million to $25 million for unfair dismissal.

He also signed a deal with Standard General, which agreed to buy at least 10 percent of American Apparel’s stock and lend the founder enough to buy the position.

Following that revelation on Friday, the company scrambled and in the wee hours Saturday adopted a “poison pill” provision designed to prevent Charney from gaining control of the company by acquiring more stock.

Lion is said to have requested payment of its $10 million loan after Charney was shown the door. On Monday, cochairman Allan Mayer said, “The talks with Lion are continuing, and if they do decide to call the loan, we have access to the capital that we’ll need to pay it off.”

The company is also continuing the investigation into allegations against Charney, who has been accused of sexual harassment on numerous occasions and was also accused of paying out significant severance payments to former employees to shield himself from personal liability.

American Apparel’s stock fell 7 cents to 90 cents Monday.

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