American Apparel Founder’s Loan Said to Cede Vote Rights

American Apparel Inc. (APP) founder Dov Charney agreed to give up voting rights in return for the loan used to boost his stake in the retailer, a person familiar with the situation said.

Standard General LP, the hedge fund that loaned Charney the money, pledged to push to maintain production of American Apparel clothing in the U.S., said the person, who asked not to be identified because the matter isn’t public.

Charney’s bigger stake in the company, which increased to 43 percent with the help of the Standard General loan, puts him within arm’s reach of making his return a reality through a plan to stock the board with directors sympathetic to him. Still, Standard General effectively controls his shares and is in talks with American Apparel about reshaping the board with independent directors who could choose a different CEO, the person said.

Standard General didn’t promise that it would seek Charney’s return as chief executive officer, and Charney, who also was chairman before his removal, agreed to not seek a board seat, the person said.

A new board would have to consider the results of the current directors’ investigation into Charney. The board had conducted a months-long probe into Charney’s actions before suspending with the intent to fire him for cause after 30 days. The company has since enlisted FTI Consulting Inc. (FCN) to ramp up the inquiry and plans to release findings to the public, a person familiar with the situation has said.

Photographer: Keith Bedford/Bloomberg

American Apparel Inc. Founder Dov Charney. Close

American Apparel Inc. Founder Dov Charney.

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Photographer: Keith Bedford/Bloomberg

American Apparel Inc. Founder Dov Charney.

Loan Terms

Standard General bought 27.4 million shares on June 27 for $19.5 million. Charney then took out a loan from the New York-based fund to buy the shares at about 71 cents apiece. Standard General has warrants to buy that stock back and purchase 10 percent of Charney’s original stake at that 71-cent price. If Charney defaults on the loan, Standard General gets all of Charney’s original stake, which was collateral for the loan.

American Apparel rose 4.8 percent to about 87 cents at the close in New York. The shares have gained 36 percent since Charney’s suspension on June 18.

Charney and a spokesman for Standard General declined to comment.

The New York Times reported the details of the loan deal earlier.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Kevin Orland at korland@bloomberg.net Ben Livesey

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