The battle for American Apparel Inc. is heating up with both ousted founder Dov Charney and the board that deposed him angling for position.

This story first appeared in the June 30, 2014 issue of WWD. Subscribe Today.

But they are just the main combatants.

On the sidelines are a host of interested parties — from lenders such as Lion Capital, which is owed $10 million, to would-be investors licking their chops at a brand that they believe should be much bigger and profitable.

One financial player who took a look at American Apparel said there’s plenty of opportunity to improve the business. Inventories, for instance, could turn much quicker.

“Everyone sees the quality of the brand,” said the source, who described Charney was “a very, very talented merchant,” but said he had become a one-man band, personally overseeing the company’s 249 stores.

“American Apparel, as a brand, should be big abroad,” the source said, noting it could do that and maintain its U.S.-based production philosophy.

But how the brand develops from here depends on who’s in the driver’s seat.

The company scrambled over the weekend to set up a stockholder rights plan, or poison pill, to prevent ousted Charney from regaining control of the firm by accumulating more stock.

Charney — a lightening rod libertine who was sidelined as president, chief executive officer and chairman for alleged misconduct — already owns 27.2 percent of the company, or 47.2 million shares.

And on Wednesday he quietly inked a deal that would have Standard General buy at least 10 percent of the company’s stock and then loan Charney the money to acquire the stake.

The New York-based Standard focuses on “companies with complex capital structures that are undergoing dramatic change.” And American Apparel fits the bill, with roughly $280 million in debt, no permanent ceo and the raging fight for control.

More than 79 million American Apparel shares traded hands over the last three trading sessions as the stock shot up to 97 cents from 53 cents. What’s not clear is how much of many of those shares were bought by Standard and whether the investor was able to transfer them to Charney before a special committee of the company’s board established the poison pill in the wee hours Saturday morning.

The company said, “The rights plan is designed to limit the ability of any person or group, including Dov Charney, to seize control of the company without appropriately compensating all American Apparel stockholders.”

The plan doesn’t kick in until someone acquires 15 percent of the company — or in the case of Charney who already owns more than that, when he acquires an additional 1 percent of the firm.

The poison pill affixes a right to each share to buy one-ten-thousandth of a share of preferred stock for $2.75, making it prohibitively expensive to stage a hostile takeover.

American Apparel’s statement detailing the plan dove into the legal nitty-gritty of the situation — a signal that sooner or later a judge might have to wade in to sort it all out.

The company said Charney would not “beneficially own” stock held by Standard simply because the two have a “letter agreement.” However, the firm said Charney would trigger the stockholder rights plan if he executed the deal with Standard.

If the unusual stock power play does go through, it won’t come cheap.

At current prices, 10 percent of the company would cost nearly $17 million and the five-year loan to Charney bears interest of 10 percent annually, although that interest could be paid in stock. The loan is backed up by the rest of the founder’s stake in the company.

By all accounts, American Apparel isn’t a business to its founder as much as it is a cause and a passion.

Charney is widely regarded as an ambitious and savvy marketer who’s worked — and played — extremely hard while building the U.S. T-shirt maker into a distinctive brand.

American Apparel’s sex-infused marketing was crafted by Charney and is, at least in part, a reflection of his own lifestyle. The former ceo has been sued repeatedly for sexual harassment.

In firing him, the board alleged that Charney’s reputation made it difficult for the company to borrow money, that he bore some responsibility for blog posts defaming a former employee and that he signed off on significant severance packages for former employees to shield himself from personal liability.

Charney is contesting his termination in arbitration and is said to be seeking $23 million to $25 million for unfair dismissal.

The affair has pushed the founder into the role of activist shareholder.

He is now on the outside looking in and has said in regulatory filings that he might “consider, formulate, discuss and seek to cause [American Apparel] to implement various plans or proposals intended to enhance the value of his current or future investment…enhance stockholder value or enhance the value of the [company’s] assets, including plans or proposals that may involve extraordinary matters.”

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