American Apparel Inc. is in talks to raise new financing from
hedge fund Standard General that would allow the company to pay off
a loan that came due after it ousted founder Dov Charney, people
familiar with the matter said.
Bankers are still working out the terms of the financing from
Standard General, which effectively controls 43% of the company's
stock, and it is unclear what form it will take, a person familiar
with the situation said.
As part of the talks, the two sides also have reached an
agreement in principle to replace all of the company's
board--except for its two co-chairmen--with directors who have more
industry experience, though no formal agreement has been signed,
people familiar with the situation said.
Still unclear is what role Mr. Charney will play at the company
going forward. His fate depends on the outcome of an ongoing
investigation into his conduct, people familiar with the situation
said.
The moves are aimed at resolving a crisis at the company that
was set off last month when the board voted Mr. Charney out as
chairman and told him he would be fired as president and CEO once a
30-day waiting period called for in his contract has expired.
Critically, the new funds would let the maker of T-shirts,
leggings and other casual clothes pay off a $10 million loan to
Lion Capital, another investment firm, the people said. Lion had
the right to call in the loan if Mr. Charney was removed. The
company didn't repay the loan as requested by July 4, and Lion now
plans to formally demand repayment, one of the people said.
Additional financing from Standard General would help American
Apparel avert a default on a $50 million line of credit with
Capital One, which could be triggered if the Lion Capital loan
isn't repaid.
Lion Capital had been a reliable lender to American Apparel for
five years, an arrangement forged in part through a relationship
between Lyndon Lea, one of the fund's founding partners, and Mr.
Charney.
Standard General's role at American Apparel expanded late last
month when it loaned Mr. Charney funds to boost his stake in the
company to 43% from 27% and won voting control over the stock as
part of the bargain.
Standard General is awaiting the results of an investigation
into Mr. Charney's conduct by FTI Consulting before determining
what if any role the founder will play at the company in the
future, according to a letter Standard General sent to investors
that was reviewed by The Wall Street Journal. If no material
wrongdoing is found, Mr. Charney could remain with the company,
though perhaps not as CEO, the people said. But in the letter to
investors, Standard General said Mr. Charney would serve no role if
he is deemed unfit.
American Apparel's board moved to end Mr. Charney's roles
running the company over allegations he misused company funds,
failed to prevent the publication of naked photographs of a former
employee who had sued him for sexual harassment and other
actions.
Mr. Charney's lawyer has called the allegations baseless and has
filed an arbitration petition to block his dismissal.
American Apparel's board consists of five independent directors,
Mr. Charney, an inactive director and two seats controlled by Lion
Capital that have remained unfilled.
Write to Suzanne Kapner at suzanne.kapner@wsj.com
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