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Dov Charney Signs Three-Year CEO Contract

Founder of debt-laden specialty retailer American Apparel will receive a minimum base salary of $800,000 a year.

Dov Charney has signed a new three-year employment agreement with American Apparel Inc.

The founder, chairman and chief executive officer of the debt-laden specialty retailer will receive a minimum base salary of $800,000 a year, subject to annual increases by the compensation committee, for a three-year term that begins April 1. Charney is eligible to receive incentive bonuses with a target of 150 percent of his base salary, tied to a number of metrics, including total sales; earnings before interest, taxes, depreciation and amortization (EBITDA); net debt, and inventory levels.

 

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The ceo is also eligible to receive 7.5 million additional shares of American Apparel stock if certain EBITDA goals are reached over the next three years. Those targets are $32.3 million of EBITDA in 2012, $53.3 million in 2013 and $68.2 million in 2014.

On March 14, American Apparel issued 2012 guidance projecting $32 million to $40 million in EBITDA, assuming total sales of $552 million to $559 million. The day prior, the company revealed $80 million in new financing by the George Soros-backed investment fund Crystal Financial LLC, allowing it to retire $50 million of debt with Bank of America that was set to become due.

Under the new employment agreement, Charney’s EBITDA goals for his share awards are significantly lowered if he can refinance American Apparel’s $116 million in debt with London-based Lion Capital, which is ballooning at 18 percent per year. Like Charney’s compensation awards, American Apparel’s ability to refinance its crushing Lion Capital debt is closely tied to increasing its EBITDA.