American Apparel Strikes Deal with Largest Shareholder, Charney To Be Kept off the Board

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After Dov Charney's abrupt dismissal from American Apparel, he attempted to take back control of the company, gathering a 43 percent stake very rapidly by joining forces with investment firm Standard General. To prevent Charney's take over, American Apparel issued a poison pill, a shareholders rights plan meant to prevent a hostile takeover, in which the company floods the market with inexpensive shares to dilute existing shares. Now, American Apparel has reached an agreement with Standard General to remake the board of directors, as well as the executive team, while keeping Charney at arm's length.

Though the deal has not been signed yet, both parties agreed to rework the board, executives and keep manufacturing within U.S. borders. Dov Charney has also agreed to the deal. In addition to a restructuring of the corporate ladder, the deal includes $25 million to assist American Apparel's struggling finances, including unfavorable loans. 

Charney's agreement to the deal is of particular interest, as it essentially prevents him from reclaiming his old title, but allows him to remain involved with American Apparel in some capacity. When he joined forces with Standard General to buy 27 million shares, bringing his stake to 43 percent, he agreed to relinquish his right to vote with his shares. He is only able to vote with the full approval of Standard General, leaving the investment firm essentially in control of the company. 

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Beyond not being able to vote, Charney cannot seek a spot on the reconstructed board. Only co-chairmen David Danziger and Allan Mayer will keep their seats in the new board. He may not even receive an executive role within the firm. Standard General "has made no commitments to him in terms of what kind of executive role, if any, he might have in the future."

Charney's future with American Apparel is largely dependent on an investigation into his conduct while leading the company, specifically accusations of sexual harassment and sexual misconduct leading to an unsafe work environment. 

This article is from the archive of our partner The Wire.