On the heels of the American Apparel board's vote to oust founder and former CEO, Dov Charney, late last month, he is fighting back. You may recall that via a letter from his attorney, Charney throated to the sue the board of American Apparel, for between $23 million and $25 million in severance pay, alleging that it “violated its legal and contractual obligations to Mr. Charney in numerous respects,” and that he has suffered “substantial professional, reputational and financial injuries” as a result. Now, Charney is pursuing other tactics, as well. In addition to filing a complaint with the Securities and Exchange Commission on June 23rd contesting his dismissal, Charney upped his ownership stake in the company … majorly.
As of June 27th, Charney spent $19.6 million to buy an additional 27.4 million shares in American Apparel, bringing his total stake in the company, which he launched in 1988, from 27 percent up to 43 percent. This means that Charney needs less than 10 percent to regain control of his company. Also on the 27th, Charney requested to schedule a special shareholder meeting as the board adopted a one-year rights plan aimed at preventing him from gaining control of the brand. He was shot down by the retailer, which cited his suspension as a basis in a regulatory filing on Monday.
And that's not all. The retailer is in financial trouble. According to Bloomberg, Lion Capital LLP, a creditor to the Los Angeles-based brand, won’t grant a waiver request from the retailer to keep its $10 million loan from going into default and is demanding full repayment. 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.