Following last week’s investment in American Apparel Inc. by a group of Canadian funds led by private investor Michael Serruya, controversial chief executive officer Dov Charney no longer holds a majority stake in the company he founded. However, the retailer said Tuesday the financing agreement stipulates that Charney has rights to three additional installments of shares beginning in 2013 if certain stock price benchmarks are reached, ranging from $3.25 to $5.25. If all the targets are met, Charney would receive another 39.7 million shares, regaining a majority stake in the company.

This story first appeared in the April 27, 2011 issue of WWD. Subscribe Today.

American Apparel shares stayed level on Tuesday on heavy trading, after soaring 27 percent a day earlier on news of last week’s financing package, which rescued the retailer from a potential bankruptcy. The shares ended the day unchanged at $1.58. Volume was about five times average.

“I think American Apparel is a tremendously strong brand and Dov is a remarkable visionary and entrepreneur,” Serruya told WWD of his rationale for the investment. “I think he is one of the top trend-setters in America today. I think given the proper resources, American Apparel has the ability to really deliver results.”

In last Thursday’s deal, American Apparel sold 15.8 million shares at 90 cents per share to the group, reaping $14.2 million. The price was a 27 percent discount to the day’s close for the investors, which include Delavaco Capital, Dynamic Power Hedge, Front St. Capital, Power One Capital Markets, Sentry Select Capital and EdgeHill Partners.

The investors also received warrants that give them the right to purchase up to 27.4 million shares at the same price within 180 days.

“I’m confident the warrants will be exercised and that will give the company an additional $30 million,” said Serruya, who two years ago put together a similar financing package for Jamba Juice, which has since returned over 100 percent to that investment group. “That means American Apparel will have $45 million in cash to open new stores and for capital expenditures and to pay off debt.”

As part of the deal, Charney also purchased 800,000 shares at 90 cents — bringing another $700,000 into American Apparel’s coffers — with additional warrants for another 1.6 million shares.

According to SEC filings, Charney owned 44.9 million shares out of 82.8 million outstanding shares, or 54.2 percent of American Apparel as of March 24. Last week’s deal diluted those shares to below 50 percent, said Serruya.

Serruya dismissed any possibility of Charney relinquishing his ceo position. “The big reason for our investment was Dov. He really embodies the soul of American Apparel,” he noted. Of Charney’s legal battles related to multiple alleged instances of sexual harassment Serruya added: “I think a lot of what he is going through is a shakedown. We’ve done due diligence. Obviously it’s in front of the courts but I think time will tell.”

In the overall market, Retail stocks failed to reach the breakeven point Tuesday while the three major U.S. indices — the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite — all established new 52-week highs on the strength of earnings reports and general economic data.

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