American Apparel, Inc. (NYSE MKT: APP) today announced that a special committee of its Board of Directors has adopted a one-year stockholder rights plan after its ousted CEO and founder Dov Charney made a bid to increase his control of the clothing chain.
The Los Angeles-based retailer refers the decision to as a move to protect the Company’s stockholders.
Mr. Charney was suspended as CEO earlier by The Board of Directors and was cited an “ongoing investigation into alleged misconduct.”
The company’s “poison pill” provision comes under action once anyone purchases 15% or more of the company’s outstanding stock to ensure that the shareholders will be granted the right to purchase shares at $2.75.
“The special committee believes this plan is an important tool to ensure that all American Apparel stockholders are treated fairly,” the company 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.
The company has been facing bankruptcy since 2010. The company recorded a loss of $106.3 million in 2013 on revenue of $633.9 million. That compared to a loss of $37.3 million on revenue of $617.3 million in 2012.
According to the filing Charney currently holds a 27.2 percent stake in American Apparel.
Under the terms of the rights plan, Dov Charney will not be deemed to “beneficially own” any of the securities beneficially owned by Standard General L.P. (“SG”), as referenced in Amendment No. 13 to the Schedule 13D dated December 12, 2007, filed by Mr. Charney on June 27, 2014, solely by reason of the letter agreement dated June 25, 2014, between Dov Charney and SG (the “Letter Agreement”).
American Apparel manufacture clothes and is the retailer of branded fashion basic apparel based in downtown Los Angeles, California. The company was founded by Charney in 1998 and took the company public in 2005 at $8 per share.
Charney’s lawyer Patricia Glaser sent a letter to the company’s board of directors last week saying the company acted in “a manner that was not merely unconscionable but illegal.”
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.
The company’s shares are down 22 percent this year and closed at 96 cents on Friday.