This goes into more detail but backs what I’ve been saying for the last week. Standard has the resources to save American Apparel Inc (NYSEMKT:APP) and intends to use them to do so. Again, this isn’t due to any mystical prognosticating ability on my part, it is simply understanding incentives. Standard has every incentive to make sure whatever happens here, the equity retains and increases in value.
Charney is simply a spectator at this point and I think Standard all but signaled his departure from anything other than a non-management “advisory” role by what they said in the 1st bolded paragraph. I’m not sure Charney can make the case he fits that mold given the video of him dancing naked in front of female employees. At this point I think he is just watching out for the value of his shares or trying to “walk” away with some reputation in tact for a second act.
American Apparel: Standard General’s 13D/A filing
From the 13D/A Filing:
American Apparel – Standard General: The Letter Agreement
On June 25, 2014 Standard General, on behalf of one or more of the funds for which it serves as investment manager (collectively, “SG”), entered into a letter agreement (the “Letter Agreement”) with American Apparel Inc (NYSEMKT:APP)’s Mr. Charney. The Letter Agreement states that SG intends to purchase Common Stock of the Issuer. If SG, in its sole discretion, is able to purchase at least 10% of the outstanding shares of Common Stock of the Issuer (the “Condition Precedent”) then SG will loan Mr. Charney an amount equal to the SG Price (as defined below) times the number of shares purchased by SG. The number of shares and the SG Price shall be determined upon completion of SG’s purchases, and SG shall notify Mr. Charney upon completion of the purchases. Mr. Charney will use the proceeds of such loan to purchase such Common Stock from SG for the lowest price paid by SG for such common stock after the first purchase. Mr. Charney will enter into definitive loan documents which will provide for the following:
|(i)||The loan will bear interest at 10% per annum, which will be payable in kind.|
|(ii)||The loan will mature on July 15, 2019, but may be prepaid without penalty.|
|(iii)||The proceeds of the loan will be used solely to acquire the shares from SG.|
|(iv)||The loan will be collateralized by the Common Stock purchased by Mr. Charney from SG and Mr. Charney’s other shares of Common Stock.|
|(v)||Mr. Charney and SG will enter into warrant agreements granting SG a right to purchase (a) the shares sold to him by SG, and (b) 4,720,941 shares. The price to be paid for such shares pursuant to such warrant agreements will be the SG Price.|
|(vi)||Mr. Charney will not be able to vote the Original Shares or the Additional Shares (each as defined in the Letter Agreement) purchased from SG without SG’s consent other than pursuant to the Investment Voting Agreement dated March 13, 2009 between Mr. Charney and Lion Capital (Guernsey) II Limited. Mr. Charney also retains the right to vote the Original Shares in favor of his election to the Board, however, he has agreed not to seek a Board seat.|
The Condition Precedent has been satisfied and transactions contemplated by the Letter Agreement with respect to the transfer of shares and the related loan and grant of security interest took effect on June 27, 2014.
As a result of the Letter Agreement and the transactions effected thereunder, the Reporting Persons and Mr. Charney have formed a “group” within the meaning of Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Each of the Reporting Persons disclaims beneficial ownership of securities of the Issuer beneficially owned by the other Reporting Persons and Mr. Charney, except to the extent of any pecuniary interest that such Reporting Person may have with respect thereto.
American Apparel: Purpose of the Transaction
The Reporting Persons believe that the Issuer is a great company that is beset with difficult corporate governance issues and a fragile capital structure. We have established a voting agreement to control the founder’s shares and give us the opportunity to resolve this situation and restore the Issuer to health. Furthermore, we have opened a constructive, detailed and substantive dialogue with members of the current board of the Issuer so that we can find common grounds for an amicable and expeditious resolution.
Absent a consensual agreement with the Issuer, our plan is to bring before the Issuer’s stockholders a highly qualified slate of independent directors that will bring the requisite expertise in retail turnaround as well as institutional credibility.
The Reporting Persons expect the reconstituted board to be able to quickly identify and empower a strong management team that will allow the Issuer to fulfill its full potential. The Reporting Persons expect that the reconstituted board will also repair any corporate governance deficiencies and uphold best corporate practices. Strong corporate governance enables trust between a corporation and its stockholders. The current corporate governance difficulties of the Issuer undermine the Issuer’s operation and financial stability.
The Reporting Persons will only support initiatives that comply with the highest standards of governance, ethics, and corporate citizenship. We commend the actions of the existing board of directors to investigate any inkling of malfeasance, and we are committed to allowing this investigation to run its course. The founder has agreed that he will not serve on the board nor play any leadership role in the company until the process is complete, and he will serve no role if he is deemed unfit.
American Apparel: Reporting Persons structured investment
The Reporting Persons have structured this investment to gain control over the shares owned by the founder of American Apparel Inc (NYSEMKT:APP). This transaction is not about the founder, nor is it an endorsement of him. He is the largest shareholder, and the voting agreement allows us to control his block of shares, and the loan mechanism provides us with the additional protection of a collateral interest in all of his shares. He can no longer vote his shares without our consent.
Currently, the Issuer is threatened by defaults in various parts of its debt structure, that if not addressed in the near term, may result in a bankruptcy, and possibly, a liquidation of the company. The Reporting Persons believe that this would be an unfortunate outcome for a company with over 10,000 employees earning in excess of a living wage with subsidized, affordable health insurance and a socially conscious mission to manufacture in the USA. The Reporting Persons are prepared to lend their credibility and capital resources to prevent this avoidable outcome in what the Reporting Persons believe is otherwise a healthy business.
American Apparel: Discussions with the Issuer
As discussed above, the Reporting Persons have opened a constructive, detailed and substantive dialogue with members of the current board of the Issuer with a view to finding common ground for an amicable and expeditious resolution. No agreement has yet been reached and there can be no assurance that any such agreement will reached.
The Reporting Persons have engaged in and intend to continue to engage in discussions with the board and members of the Issuer’s management team concerning