Dov Charney is crashing the gates at American Apparel, and the company is scrambling to bolt the doors.
The ousted CEO of the embattled clothing retailer has called for a special shareholder meeting, looking to more than double the size of the board to 15 directors in a bid to regain control, the company disclosed in a Monday regulatory filing.
The Charney request to the board for the special meeting was received on Friday, the company said in the filing.
In retaliation, the board on Saturday raised the hurdles to call a special shareholder meeting, amending company bylaws to require lengthy advance notice, according to the filing with the Securities and Exchange Commission.
The dispute is likely to soon land the controversial executive and the embattled apparel maker in court with, perhaps, the future of the Los Angeles company hanging in the balance.
Charney on June 18 was stripped of his chairman role and suspended as CEO in a surprise coup by the board, which cited alleged misconduct as the reason for its move.
Such litigation could drag on for weeks, if not months, legal experts said.
Charney will likely accuse the board of breaching its fiduciary duties by amending the company’s bylaws, the experts said.
“These amended bylaws don’t necessarily do anything but slow the train,” said Randy Katz, a partner at law firm BakerHostetler in Los Angeles, which is not involved in the case.
But the board’s maneuver, along with an anti-takeover “poison pill” provision it adopted Saturday, could make it more difficult and expensive to seize majority control of the company’s stock, Katz noted.
Meanwhile, American Apparel is floundering without a CEO as it grapples with a liquidity crisis.
The company’s cash crunch is coming to a head, as Lion Capital has denied a waiver on a $10 million loan whose default was triggered by Charney’s ouster.
Charney, who owns 27 percent of American Apparel’s outstanding shares, disclosed in a Friday regulatory filing that he has partnered with Standard General, a New York investment firm, to amass a controlling stake in the company.
Charney’s idea is to form a bloc with more than 50 percent of American Apparel shares and then, at the special shareholders’ meeting add directors to the board who would then vote Charney back in as chairman and CEO.
The move on Saturday by American Apparel to drag out the process for a shake-up included requiring two 10-day notice requirements for stockholders seeking “written consent” for a shareholder meeting.
Also, the board lengthened the advance notice required to nominate directors at its annual meeting to between 120 and 150 days before the anniversary date of the last annual meeting, which was held June 18.
In the wake of the filing, American Apparel shares dipped 15 percent in Monday trading, to 82.1 cents in very heaving trading.