American Apparel’s board has finally inked a deal to give control of the retailer to a New York hedge fund — and has given controversial founder Dov Charney a temporary job as a “consultant.”
In keeping with a preliminary Monday pact that was first reported by The Post, American Apparel said its board agreed Wednesday to hand the reins to Standard General LP, an investment firm that cut a deal with Charney last month to amass a 44-percent stake.
Standard General has agreed to provide up to $25 million in new financing to avoid the threat of a cash crunch for the retailer and preserve its “Made in USA” manufacturing, a strategy long insisted upon by Charney, the company said in a Wednesday statement.
But Charney, who was suspended as CEO in a surprise June 18 board coup that cited alleged misconduct, isn’t immediately getting his old job back. Instead, Charney has been tapped as a “strategic consultant,” according to the statement.
Charney will remain in a consulting role while an independent board committee is formed to complete an investigation into accusations that he misused company funds and allowed a blogger to post naked pictures of a former employee who had sued for sex harassment.
“Based on the findings of the investigation, the committee will determine if it is appropriate for Mr. Charney to serve as CEO or an officer or employee of American Apparel,” the company said.
When Charney was confronted by the board last month, he rejected a four-year, $1 million-a-year consulting contract in exchange for stepping down and forfeiting severance worth as much as $25 million. The matter has since landed in arbitration.
Standard General, which has gained voting control over the 44-percent stake it owns with Charney, told investors in a letter last week that Charney won’t return to the company if the investigation shows he is “unfit.”
The Wednesday agreement prohibits Standard General and Charney from acquiring any additional shares in American Apparel and limits their vote to no more than one third of the company’s shares on any issue put to stockholders, the company said.
Last month, American Apparel’s board had adopted an anti-takeover “poison pill” in response to reports that Standard General and Charney were building a large stake in the retailer.
Confirming the terms of Monday’s preliminary deal, the final agreement calls for a board reshuffle in which Charney and four other directors will leave the board, while co-chairmen Allan Mayer and David Danziger — who engineered the surprise coup — will keep their seats.
The other five directors for the new, seven-member board haven’t yet been disclosed, but three will be chosen by Standard General and two chosen jointly by the fund and American Apparel.
As reported by The Post, nominees are expected to include at least one woman — a first for the board since the sex-drenched clothing brand went public in 2007.
“This truly marks the beginning of an important new chapter in the American Apparel story,” Mayer said in the company’s statement. “With the support of Standard General, we are confident the company will finally be able to realize its true potential.”
As reported by The Post, American Apparel’s downtown factory in LA had come under threat in recent weeks as some bondholders agitated for a sale of the company with plans that could have moved manufacturing of the brand to China.
Standard General’s $25 million financing package may come in the form of a loan bearing an interest rate of around 10 percent, with part of it used to immediately pay off a $10 million loan from Lion Capital, which had carried an onerous rate of 20 percent.
British-based Lion, headed by shrewd, polo-playing financier Lyndon Lea, brought the liquidity crisis to a head on Monday when it demanded immediate repayment of the loan.
Lion, which has long been supportive of Charney, cited a so-called “key man” clause in the loan agreement that was thrown into default by Charney’s ouster.
In a Tuesday securities filing, American Apparel claimed the loan wasn’t in default because Charney was still technically CEO, though he had been suspended pending a 30-day cure period.
Indeed, Charney himself this week didn’t entirely seem to get the message that he wasn’t CEO.
On Tuesday, a shopper posted photos on Instagram of Charney inspecting an American Apparel store in Lower Manhattan, apparently flouting rules outlined in a June 18 termination letter that barred him from all company premises.