"American Apparel, top shareholders find common ground" by Elizabeth A. Harris | New York Times July 10, 2014
NEW YORK — After three weeks of battle over the future of American Apparel, the retailer appears to have reached a deal in principle with its largest shareholders to remake the board of directors and bolster the company’s finances, while keeping manufacturing of its clothing in the United States.
The retailer and the New York investment firm Standard General have agreed on terms of the deal, said a person familiar with the negotiations. No documents had been signed.
Dov Charney, the company founder whose ousting last month from his job as chief executive brought on turmoil, is said to have agreed, as well.
The deal will include $25 million from Standard General to buttress American Apparel’s financial position and give it a cushion to pay off a $10 million loan that was called in Monday by one of its longtime lenders, Lion Capital. That loan came with a 20 percent interest rate.
Two weeks ago, Charney joined with Standard General to buy 27 million American Apparel shares, bringing his stake to 43 percent. But he had to essentially relinquish his right to vote his shares unless he got approval from Standard General — leaving ultimate control of that 43 percent with the investment firm. Another small batch of shares that Standard General owns brings its stake to about 44 percent.
Charney had few options. There was tremendous uncertainty after his ouster about where American Apparel might end up. Charney was concerned there might be a scavenger-like frenzy among bondholders, which hold about $210 million of the company’s debt.
As it stands, the deal between Standard General and American Apparel is said to call for a largely remade board, with only the current cochairmen, David Danziger and Allan Mayer, staying on.
The agreement also includes a statement from Standard General saying that it supports keeping manufacturing in the United States, bucking a longstanding industry practice of making garments overseas.
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The company’s US-made clothing has been as much a part of the brand’s identity as its sexually provocative marketing.
While greater stability may be in sight for American Apparel, Charney’s future at the company he founded is still unclear.
As part of his original deal with Standard General, he had to agree not to seek a seat on a reconstituted board, and the firm has made no commitments to him in terms of what kind of executive role, if any, he might have in the future.
Whether Charney will stay depends on the outcome of an investigation the board began into his personal and professional conduct. Once the investigation is complete, the new board will decide what role, if any, he should have, people with knowledge of the situation said.
For years, Charney has been trailed by accusations of sexual harassment and has been sued by employees who said he created an unsafe work environment rife with sexual misconduct.
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