American Apparel Inc. has its new board members in place, and that means Dov Charney’s future could be decided soon.
The four new designees, with different terms expiring in connection with annual shareholders meetings, are: David Glazek as a class A director whose term expires in 2017; Thomas J. Sullivan as a class B director, with his term expiring in 2015, and Colleen B. Brown and Joseph Magnacca as class C directors, with their terms ending in 2016. New York-based hedge fund Standard General has the ability to designate a fifth member but has not done so yet.
Glazek and Sullivan are Standard General designees, while Brown and Magnacca each are mutually agreed upon by the hedge fund and American Apparel. Standard General indicated in a regulatory filing Wednesday with the Securities and Exchange Commission that the designees, with the exception of Glazek, are not affiliated with the hedge fund, do not have any material relationship with Standard General and are not affiliated with nor have any relationship with Charney. Glazek is a partner at Standard General.
In the SEC filing that disclosed the board member designees, it was noted that even though Sullivan and Magnacca also know Soohyung Kim, the chief executive officer of Standard General, they still qualify as independent directors under the rules of the NYSE MKT LLC. Sullivan and Kim are board members of Media General. Magnacca is ceo of Radio Shack Corp., a company in which Standard General is the beneficial owner of 9.8 percent of the firm’s outstanding common stock. Whether Glazek qualifies as an independent director under the NYSE MKT rules has not yet been determined.
Brown is a director of outsource recruiting firm TrueBlue Inc., and before joining TrueBlue was president and ceo of Fischer Communications. Sullivan is a managing partner at Smallwood Partners, a financial advisory services firm. He previously was a managing director at private equity firm Investcorp International.
Of the new board member designees, Magnacca has past retail experience in marketing and merchandising. He was president of Daily Living Products and Solutions of Walgreen Co., from 2011 and 2013. According to the SEC filing, he led the Walgreens retail acquisition team that acquired Alliance Boots in 2012. He was also president of Duane Reade Holdings Inc. from July 2010 to March 2011, and was senior vice president and chief merchandising officer of Duane Reade Holdings from 2008 to 2010. Walgreen acquired Duane Reade in a deal valued at $1.1 billion in 2010.
It will take 10 days from Wednesday’s SEC filing before the board can be reconstituted and have its first meeting.
Cochairmen Allan Mayer and David Danziger will remain as independent directors and continue in their roles as cochairmen.
Charney, who has irrevocably resigned from the board, will not serve as a board member and cannot be nominated by the company or the hedge fund as a board member.
Once the board begins meeting, it can also form a new special committee, or Suitability Committee per the hedge fund’s standstill agreement with American Apparel, to continue the investigation into alleged misconduct by founder Charney. The members of the committee include Danziger, one Standard General designee and one of the joint designees. It will be this committee that will determine, from the findings of the probe, whether Charney should be reinstated as the company’s ceo or serve with the company in any capacity.
Charney was removed as chairman and ceo in June pending the findings of the internal investigation. Charney, still on suspension, has taken the company to arbitration for what he said is a wrongful dismissal. John Lutrell, executive vice president and chief financial officer, serves as interim ceo.
American Apparel and Standard General earlier this month inked an agreement — along with Charney — 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 has since acquired the obligations of the $10 million loan owed to Lion Capital, which had threatened American Apparel’s liquidity since a default also would have triggered violations of covenants in agreements with the retailer’s other lenders. Wednesday’s Form SC 14F1 filing indicated that Lion Capital holds warrants exercisable to purchase a total of 24.5 million shares of American Apparel common stock. The filing also disclosed that American Apparel and Standard General are in discussions to extend the maturity of the loan through Oct. 4, 2021, reduce the annual interest rate to 17 percent, and waive any default that may have resulted from Charney not being ceo, as well as eliminate that provision as an event of default in the future.
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.
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