Sources said American Apparel Inc. stockholders voted against a proposal that would have allowed the company try to raise more money by issuing additional shares.
The cash-strapped firm proposed doubling the number of shares outstanding to 460 million and said it would sell that stock to help fund operations and its turnaround. But shareholders at the annual meeting in Chicago Thursday morning were said to have voted down the proposal, while conducting other business, such as approving the appointment of an auditor and signing off on board members.
American Apparel has said if the proposal wasn’t approved that it could try to sell preferred stock, which has already been approved but never issued. Sources said that could be difficult since preferred shareholders generally get some sort of dividend.
Shares of the firm closed down 2 cents to 33 cents Thursday, giving the company a market capitalization of just $60.1 million.
Chief executive officer Paula Schneider has been working hard to turn around the firm, which ousted founder Dov Charney last year.
Charney for a time was allied with hedge fund Standard General LP as he sought to regain a place of influence at the company, but the two had a falling out and have since sued each other.
Standard General’s role at the company was said to have been a topic on the mind of shareholders at the meeting.
One source said shareholders asked whether the New York investor had a conflict of interest or, effectively, a short position in the company. The answer to both those questions was no.
Standard General had a hand in appointing most of the company’s board and also has a small equity stake. Additionally, the investor loaned the firm $15 million this spring to make an interest payment, is believed to own some of the firm’s $220 million in outstanding bonds and has an agreement that might see it purchase the company’s $34 million asset-backed revolving credit facility by Sept. 3. All of that could put Standard General in prime position in the event of a bankruptcy.
Now that the annual meeting has passed, both Standard General and Charney are released from the terms of their standstill agreement that said they couldn’t attempt to buyout the firm.
Representatives from the company could not immediately be reached. A spokeswoman for Standard General declined to comment.