From WWD Issue 03/28/2011
American Apparel Inc. chairman and chief executive officer Dov Charney has injected more of his own money into the cash-strapped company by purchasing six million shares, WWD has learned. The firm is expected to divulge the transaction in a regulatory filing with the Securities and Exchange Commission today.
In the purchase, Charney spent $2 million to buy 1.8 million shares at $1.11 each. Additionally, he has converted a $4.7 million personal loan he made to the company some years ago into another 4.2 million shares, relieving American Apparel of that debt obligation. Fifty percent of those shares have been issued immediately and the remaining 50 percent will be issued if and when the company’s stock price reaches $3.50. However, the price of the conversion will also be $1.11 per share.
On Friday, shares of American Apparel closed at 91 cents, down two cents.
The cash infusion will be used to fund the company’s ongoing operations.
In its most recent 10-Q filing, the company said it had $8.5 million in cash and $9.6 million available for additional borrowings as of Sept. 30. The company had negative cash flows for 2010 and expects to report an operating loss for the year, when it files its delayed year-end numbers on March 31. American Apparel previously warned investors that liquidity problems pose a threat to the viability of the company.
The stock buy will push Charney’s stake in American Apparel to just over 47 million shares. In a March 1 filing with the SEC, Charney previously outlined ownership of 41 million shares, or 51.8 percent of the company’s 79.1 million total outstanding shares.
London-based private equity firm Lion Capital, which rescued American Apparel from defaulting on its debt obligations in 2009, holds a 20.3 percent stake in the company, including warrants convertible to 16 million shares of common stock, also at the $1.11 share price.
Lyndon Lea, a founding partner of Lion Capital and a board member of American Apparel, expressed confidence in the company’s turnaround strategy in an interview with WWD last week. American Apparel has closed some stores, focused on improving the faltering productivity at its Los Angeles production facility and hired a new management team in recent months, including acting president Tom Casey, chief financial officer John Luttrell and chief business development officer Marty Staff, a former ceo of JA Apparel Corp. and Hugo Boss USA.
