NEW YORK (AP) — American Apparel has adopted a one-year shareholder rights plan a day after its ousted CEO and founder Dov Charney made a bid to increase his control of the clothing chain.
The Los Angeles-based retailer said early Saturday that the move, made by a special committee of its board of directors, is designed to limit the ability of any person or group, including Charney, "to seize control of the company without appropriately compensating all American Apparel stockholders."
The company said in a statement that the rights will be "attached to all shares of common stock." Each right will let the holder purchase one ten-thousandth of a share of preferred stock at an exercise price of $2.75.
American Apparel said the plan is similar to other arrangements adopted by publicly held companies and allows a person or group to acquire as much as 15 percent of common stock. The company said its plan is not aimed to prevent or deter takeover bids that offer fair treatment and value to all shareholders but rather protects shareholders from any threat of "creeping control."
"The special committee believes this plan is an important tool to ensure that all American Apparel stockholders are treated fairly," the statement said.
According to a regulatory filing Friday, Charney entered into a five-year loan agreement with investment firm Standard General LP to increase his stake. According to the terms, Standard General will lend Charney money to buy at least 10 percent of American Apparel's outstanding shares. The loan will use Charney's stock as collateral.
About two weeks ago, the board of American Apparel voted to oust Charney as chairman and notified him of its intent to remove him as president and chief executive. The move means Charney was suspended as president and CEO pending a contractually required 30-day period before he can be terminated. The board cited an "ongoing investigation into alleged misconduct."
The company has recorded annual losses since 2010. The company posted a loss of $106.3 million in 2013 on revenue of $633.9 million. That compared with a loss of $37.3 million on revenue of $617.3 million in 2012.
Charney currently holds a 27.2 percent stake in American Apparel, according to the filing.
American Apparel, which Charney founded in 1998, manufactures clothes and sells them in 249 of its own retail stores in 20 countries and has about 10,000 employees.
The company's shares are down 22 percent this year and closed at 96 cents on Friday.