(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 18.
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 Orlofsky)