By  on December 3, 2010

In an incentive program to reward key employees, American Apparel has granted 6.5 million shares of company stock to about 70 executives, nonmanagement employees and consultants. The company paid the withholding and payroll taxes for the grants — and in an unconventional move, the cash-poor company financed those payments by selling 1.1 million treasury shares of its common stock to chairman and chief executive officer Dov Charney.

The employee grants were approved by the board on Nov. 26 and the stock sale to Charney was on Wednesday, with both acts divulged in a filing with the Securities and Exchange Commission Thursday.

Charney paid about $1.48 a share, for a total cost of $1.7 million. American Apparel shares closed at $1.45 on Thursday, up 2 cents.

The issuance of new shares from both the employee grants and treasury shares to Charney will boost the company’s total outstanding shares to 79.1 million from 71.5 million. Charney’s own holdings will grow from about 39.9 million shares to 41 million shares.

Among those employees receiving the stock rewards were high-performing store managers and production line workers, a source told WWD. The stock grants vest over the next four years, with 20 percent going to employees immediately and another 20 percent on each of the next four anniversaries of the grant date. Employees must remain with American Apparel through the next four years to receive the entire grant.

American Apparel expects to recognize compensation expense in the fourth quarter of 2010 of about $3.6 million related to the grants.

In its most recent third quarter, American Apparel posted a net loss of $9.5 million, or 13 cents a diluted share, versus net income of $4.2 million, or 5 cents, a year ago. Sales fell 10.5 percent, to $134.5 million from $150.3 million, and dropped 16 percent on a comparable-store basis.

The company is struggling to turn its financial performance around to remain in compliance with loan covenants with lender Lion Capital, which were renegotiated in October.

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