American Apparel Inc. doesn’t believe it will hit a required covenant under a credit agreement between the company and Lion Capital, which will mean that the Lion warrants to purchase American Apparel’s common stock at the exercise price of $1 per share will need to be adjusted.
According to the definitive proxy filed Monday with the Securities and Exchange Commission, American Apparel said it was still finalizing its financial statements for the first quarter ended March 31, but that information as of the filing of the proxy has the company believing it “will not achieve” the level required, which means that per an earlier agreement between American Apparel and Lion, the exercise price for each warrant will be reduced by 25 cents a share. The covenant has a defined ratio unique to the credit agreement and is for the trailing 12 month period ended March 31, according to the proxy.
In addition, chief executive officer Dov Charney’s base salary stayed essentially flat in 2011 from a year ago, but stock awards pushed his total compensation up by an additional $10.1 million.
Charney’s base salary was $750,000 last year, and his stock award was $10.1 million, which reflected antidilution rights granted under the April 27, 2011, purchase agreement between himself and American Apparel.
Former chief business development officer Martin Staff earned a base salary of $378,000 last year, with stock awards valued at $600,000. His total compensation reached nearly $1.6 million once $300,000 in severance and health insurance benefits for six months and a $300,000 cash payment in lieu of the restricted stock award granted in 2011 are added in. Staff joined American Apparel in March and left in October.
Because of vesting schedules and stock fluctuation, stock and option awards aren’t necessarily realized by the executives listed for them, but the Securities and Exchange Commission requires that they be reported at grant date fair value.