NEW YORK — American Apparel Inc. announced Wednesday it had reached a deal with investment firm Standard General to receive an investment of up to $25 million to bolster the clothing chain's finances. The deal will also mean a shakeup in the board.
The deal will help pay off a $10 million loan from investment firm Lion Capital, which made a formal demand for payment Monday. Lion Capital said the Los Angeles-based chain defaulted under its credit agreement because it ousted its founder and CEO, Dov Charney.
As part of the shakeup of the board, five of its seven members, including Charney, will voluntarily step down. The departing directors will be replaced by two chosen jointly by Standard General and the current board, and three chosen by Standard General. All but one of the new directors are expected to be independent and not affiliated with the investment firm or Charney.
The board will continue to be led by its current co-chairmen, David Danziger and Allan Mayer.
American Apparel's board fired Charney as chairman June 18 and suspended him as president and CEO, citing "alleged misconduct." His contract required a 30-day period before he could be terminated. The new pact calls for an independent board committee to be formed to oversee the continuing investigation into the alleged misconduct.
The pact comes two weeks after Charney signed a five-year loan agreement with Standard General to increase his stake in American Apparel to 43 percent, but the terms stripped him of his rights to vote on those shares without Standard General's consent.
Under the terms of the loan, Charney agreed that he will not serve on the board or play any leadership role in the company until the investigation is completed. And Charney will not serve a role at the company if he is deemed "unfit."
Charney will serve as strategic consultant until the end of the investigation, the pact between Standard General and American Apparel says. Based on the findings of the investigation, the committee will determine if it is appropriate for Charney to serve as CEO, an officer or an employee of American Apparel.
American Apparel also said the agreement affirmed its commitment to maintaining its manufacturing headquarters in Los Angeles.
Shares rose nearly 4 percent, or 3 cents, to 88 cents in after-hours trading, after adding a penny to 85 cents in regular trading Wednesday. The deal was announced after regular trading hours.