American Apparel Raises New Financing
Can Now Pay Off Looming $10M Loan
Top 40 supplier American Apparel (asi/35297) has reached an agreement with investment firm and hedge fund company Standard General that will result in the clothing maker receiving $25 million in financial backing from Standard General. The deal was agreed to by both sides yesterday. As part of the agreement, Standard General will be able to choose three new members for the American Apparel board of directors, and the two sides will mutually agree to two more spots on the board. American Apparel’s current co-chairmen, Allan Mayer and David Danziger, will remain on the board.
“This partnership represents a tremendous opportunity for both American Apparel and Standard General,” said Mayer. “We both think the company’s greatest days are still ahead of it.”
The transaction gives American Apparel the ability to pay off a looming $10 million loan from investor Lion Capital, which on Monday had officially demanded payment of the loan, according to a filing with the Securities & Exchange Commission. As part of the original loan deal, Lion was able to call in the entirety of the amount if American Apparel ever acted to remove Dov Charney from his role as CEO and chairman of the board.
That action happened on June 18, following the company’s annual meeting, when the American Apparel board voted to replace Charney, a member of the Counselor Power 50 since its inception in 2006, as chairman immediately and "notified him of its intent to terminate his employment as president and CEO for cause.” The company later said that Charney misused company funds, an allegation that Charney’s lawyer called baseless.
Now, Standard General will effectively take over control of American Apparel, and the investment firm hasn’t indicated whether it plans to include Charney in the company moving forward. Standard General currently owns 43% of the voting shares of the company, following a deal it made two weeks ago with Charney to acquire an additional 16% of the company. After his ouster by the American Apparel board, Charney had control of 27% of the voting shares of the company. He then struck a deal with Standard General to acquire the additional 16% of the shares to bring the Charney/Standard General group’s holdings to 43%. But as part of that deal, Charney had to give up his voting rights to all 43% of the shares to Standard General and agree that he wouldn’t seek a seat on the American Apparel board.
For its part, Standard General has launched an investigation into Charney’s conduct during his roles as founder, CEO, and chairman of American Apparel. Following the completion of yesterday’s deal, the company now says that Charney will serve as a strategic consultant for American Apparel until the investigation is finished. Standard General says it has made no commitment to officially hiring Charney back to American Apparel. “We gave him a promise that he would get a full and fair hearing, but we made no commitments about his future,” said David Glazek, a Standard General partner. “We need to let the investigation run its course.”