American Apparel Inc (NYSEMKT:APP) obtained an immediate financial support from Standard General and its founder, Dov Charney after reaching a Nomination, Standstill and Support Agreement. The hedge fund and Charney collectively own almost 44% of the outstanding stock of the retailer.
Terms of the deal
Under the agreement, American Apparel Inc (NYSEMKT:APP) will receive an immediate financial support of $25 million from Charney and Standard General. In exchange, the board of directors of the retailer will be reorganized. An independent board committee will be established to supervise the ongoing investigation on allegations that Charney committed misconduct.
According to American Apparel Inc (NYSEMKT:APP) five of seven current members of its board including Charney will voluntarily step down from their position as part of the reorganization. Standard General and the current board will jointly appoint two new directors. The hedge fund will solely name the remaining three new directors.
American Apparel Inc (NYSEMKT:AAP) emphasized that one of the new members will be appointed as an independent director and is not affiliated with Standard General or Charney. David Danzinger and Allan Mayer will continue to serve as co-chairman of the company.
Charney will not be nominated to the board. He will serve as a strategic consultant until the completion of the investigation regarding his alleged misconduct. The independent board committee responsible in supervising the investigation will determine whether it is appropriate for Charney to serve as CEO, an officer or employee of American Apparel Inc (NYSEMKT:AAP).
Agreement marks a new chapter in American Apparel’s story
In a statement, American Apparel co-chairman Allan Mayer said, “This truly marks the beginning of an important new chapter in the American Apparel story. With the support of Standard General, we are confident the company will finally be able to realize its true potential.”
Standard General asserted its support for the “sweatshop-free, Made in USA” manufacturing philosophy and commitment of American Apparel Inc (NYSEMKT:AAP) to maintain its headquarters in Los Angeles.
In addition, Charney and Standard General agreed to certain standstill and voting limitations until the 2015 annual meeting of the retailer. Under the standstill agreement the hedge fund and Charney are not allowed to acquire additional shares in American Apparel Inc (NYSEMKT:AAP) and their vote are limited (no more than one-third of the shares of the company on any issue pit to stockholders). Their remaining shares will be voted equally to the vote of other shareholders.