American Apparel Inc. is out of crisis mode.American Apparel and Standard General — along with company founder Dov Charney —have reached an agreement that would give the retailer up to $25 million in funding, provide for a reconstituted board and give Charney the temporary title of strategic consultant.Standard General’s aid would help shore up the retailer’s finances, as well as pay the $10 million owed to Lion Capital.Under the terms of the “Standstill and Support” agreement, the New York-based hedge fund — along with Charney — also agreed not to acquire any additional shares in American Apparel and limit their vote to no more than one-third of the company’s shares on any issue put to stockholders. Their remaining shares would be voted proportionately to the vote of other shareholders. They also agreed not to solicit proxies in connection with the common stock or form or join any group with respect to the stock.The standstill agreement remains in effect until American Apparel’s 2015 annual meeting, according to a regulatory filing with the Securities and Exchange Commission Wednesday.Further, an independent board committee will be formed to oversee the continuing investigation into the alleged misconduct by Charney. The SEC filing said the committee members will include cochairman David Danziger, one Standard General designee and one joint designee. Charney will serve as consultant until the end of the investigation. His role after that will depend on the committee’s findings, and the committee will determine what capacity, if any, would be appropriate for Charney. In turn, the SEC filing said Charney has agreed not to “interfere with or attempt to influence the outcome of the investigation, or access the company’s computer system.” As consultant, he will continue to receive his base salary, but will have no supervisory authority over any employee of the company.The reconstituted board still comprises seven members, with cochairman Allan Mayer and Danziger staying on. The balance would consist of three members appointed by the hedge fund and the other two to be mutually agreed upon between Standard General and American Apparel. All but one of the board members are expected to be independent directors, as well as be unaffiliated with either Standard General or Charney. Charney will not serve as a board member. “This truly marks the beginning of an important new chapter in the American Apparel story,” said Mayer. “With the support of Standard General, we are confident the company will finally be able to realize its true potential.”Danziger said, “The last few weeks have been difficult ones for the company, and we are especially indebted to our special committee members Robert Greene, Marv Igelman and William Mauer, who have worked so tirelessly on the company’s behalf.”Danziger added that “Any success the company enjoys in the future will in large part be the result of their efforts.”Executives at Standard General did not return a call for comment. As part of the agreement reached with American Apparel, it has agreed to publicly affirm the company’s “sweatshop-free, ‘Made in the USA’” manufacturing philosophy and to maintain the manufacturing headquarters in Los Angeles, according to the SEC filing.Standard General last week teamed with ousted founder Charney. Charney was removed as chairman and chief executive officer pending an internal investigation of certain matters. Charney has taken the company to arbitration for what he said is a wrongful dismissal.The joining of the New York-based hedge fund and Charney has led to Standard General controlling 44 percent of American Apparel’s stock. Standard General acquired 27.4 million shares, and then loaned Charney nearly $20 million to acquire those shares. In protecting its stake, Charney can’t vote either the new shares or the 27.2 percent he initially owned without the hedge fund’s consent.While investors appeared to be in agreement with the new source of funding, it wasn’t immediately clear whether all lenders were on board.On Monday, American Apparel in a regulatory filing with the Securities and Exchange Commission said it received a notice of default from Lion in connection with a credit-loan agreement dated May 22, 2013. That agreement allows for the acceleration of the maturity of the loan and other outstanding obligations under the credit agreement. According to American Apparel, Lion Capital said the reason for the default was that Charney has ceased to be ceo of the company. American Apparel in the filing disputed Lion’s claim, and said it would contest the validity of the acceleration.The retailer already is in talks with its revolving credit lenders for approval to pay all amounts due to Lion. The terms of the revolving credit agreement do not currently permit the repayment of the loans to Lion.With the financial crunch stabilizing and Charney’s role temporarily resolved, financial sources said that Standard General’s presence will keep potential buyers who were kicking the tires at bay.When Charney was dismissed by the company he founded last month, there was immediate concern that American Apparel might need to file for bankruptcy or find a buyer, given that it has a debt load of about $250 million — not to mention what was then the uncertainty of whether Lion Capital would seek immediate repayment of its $10 million loan.Would be buyers who once considered acquiring the company — but walked away because they didn’t want Charney at the helm — began taking a second look. Investment sources said that even if Charney ultimately has no future role at the company as ceo, the presence of Standard General and the newly constituted board now has everyone on the sidelines likely through next year until the standstill agreement runs out.That’s good news for American Apparel. Without further distractions, the team there now, including John Luttrell, the company’s chief financial officer and also interim ceo, can get back to the business of fixing the chain. Shares of American Apparel closed up 1.1 percent to 85 cents in Big Board trading on rumblings a deal with Standard General was at hand, and then rose 3.6 percent to 88 cents in after-market trading following the SEC filing confirming the agreement.
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