Dov Charney tries to boost stake in American Apparel in comeback bid

Ousted American Apparel Inc. Chief Executive Dov Charney has reached a deal designed to boost his stake in the retailer, part of a vigorous effort to regain control of the company that booted him last week.

Charney, who owns a stake of about 27% in the Los Angeles retailer, has entered into an agreement with New York investment firm Standard General to buy additional shares of the company, according to Friday filings with the Securities and Exchange Commission.

If Standard General buys at least 10% of outstanding shares in the retailer, it will loan Charney the cash to buy those shares, the filings said. That would up Charney’s stake to at least 37%, potentially giving him a controlling interest in the company. The loan would carry an annual interest rate of 10%.

Charney declined to comment on the filing.

Charney’s lawyer Patricia Glaser this week filed a petition with the American Arbitration Assn. alleging wrongful termination, breach of contract and retaliation, among other issues.

The retailer’s board decided to replace Charney as chairman and terminate him as chief executive pending an investigation “into alleged misconduct.” The vote suspended Charney; a 30-day wait before termination is required under his contract.

The retailer has lost nearly $270 million in the last four years and has more than $200 million in debt, some at interest rates as high as 20%. The company has warned that firing Charney might trigger defaults on nearly $40 million in loans and force it into bankruptcy.

Lender Lion Capital has demanded repayment on a $10-million loan this week, according to the New York Post. That could trigger another default on a separate $30-million credit line with Capital One.

Allan Mayer, the retailer’s co-chairman, said the company is still talking with Lion Capital. “If that’s the decision they make, we have access to sufficient capital to handle it,” he said.

Lion Capital declined to comment.

A person familiar with the matter said the investigation found that Charney allegedly stayed in corporate apartments when he wasn’t on business and used company funds to book airline tickets for his parents.

An arbitrator also found that there was sufficient evidence to move forward with a defamation claim against Charney for not stopping the online posting of nude photographs of a former worker, Irene Morales, who was suing him, the person said. The company later paid her about $700,000.
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