(Adds comments from Standard General in paragraphs 10-12)
July 9 Struggling apparel and accessories
retailer American Apparel Inc said on Wednesday it has
reached a deal with hedge fund Standard General LP and founder
Dov Charney to remake its board and bolster its finances.
As part of the deal, American Apparel gave Standard General
three seats on its seven-member board and received a $25 million
capital commitment from the shareholder, which could help it
tide over a rough financial patch.
The retailer said five of its board members, including
Charney, would step down and Standard General would nominate
three new members, while the company and the shareholder would
jointly pick the other two.
Co-chairmen Allan Mayer and David Danziger would continue to
lead the board, the company said in a filing with the U.S.
Securities and Exchange Commission.
Charney was ousted from the company for alleged misuse of
corporate funds and his role in disseminating nude photos of an
ex-employee. He is currently under investigation and, as part of
the deal, will not be allowed to serve on the board or be chief
executive until a committee of independent directors clears him.
He will, however, be entitled to receive his base salary as
a consultant to the company, American Apparel said in a filing.
"I'm assuming (Charney will) be back relatively soon,
probably as CEO or in some new position," said an American
Apparel shareholder who requested anonymity.
Standard General had acquired, in recent weeks, a 43 percent
stake in the company from Charney after American Apparel would
not negotiate with him following his ouster on June
The $25 million payment from Standard General would be used
to repay a $9.9 million loan from Lion Capital.
Standard General first took interest in American Apparel six
months ago because it "has a strong underlying brand, but was in
turmoil," said David Glazek, a partner at the hedge fund. "It
has a balance sheet problem that we can help fix."
Glazek said Standard General hopes to use its influence
first to stabilize the company and later to grow the business by
optimizing its e-commerce platform and pursuing domestic and
international expansion opportunities.
General expects to benefit from the equity upside through
the shares and warrants it owns, Glazek added.
The deal could herald a period of calm for the company,
which was making daily headlines as it raced to repay the Lion
Capital loan, which was originally not due until 2018.
(Reporting by Jeffrey Dastin and Sneha Banerjee, Sweta Singh in
Bangalore; Editing by Bernadette Baum, Joyjeet Das and Steve