NEW YORK, Jan. 23, 2015 /PRNewswire/ -- Bigger Capital
Fund, LP, Bachelier, LLC and the Bigger Family, significant
shareholders since 2011 of American Apparel, Inc. (NYSE: APP)
("American Apparel" or the "Company"), today announced that they
have delivered a letter to American Apparel's Board of
Directors. The full text of the letter is included below:
January 23,
2015
Board of Directors
American Apparel, Inc.
747 Warehouse Street
Los Angeles, California 90021
Dear Members of the Board of American Apparel:
The Bigger Capital Fund, LP, Bachelier, LLC and the Bigger
Family (together, "Bigger Capital") is a significant shareholder of
American Apparel, Inc. (NYSE: APP) ("American Apparel" or the
"Company"). We are a long-term investor in the Company and we
have followed closely and with great concern the haphazard
developments at American Apparel over the past years and the loss
of value that has resulted from them. We write to you today
to register our grave concerns over the serious conflicts of
interest between Standard General L.P. ("Standard General") on the
one hand, and the rest of the American Apparel shareholders, on the
other, which given Standard General's de facto control in the
boardroom may cause the Company's Board of Directors (the "Board")
to make decisions that are contrary to the best interests of all
American Apparel shareholders.
In July, Standard General negotiated the right to replace five
of the seven directors on the Board with three of its own designees
and two designees mutually agreed upon by Standard General and the
Company under a Nomination, Standstill and Support Agreement, dated
as of July 9, 2014, between Standard
General, Dov Charney and the Company
(the "Agreement"). This Board composition arrangement gives
disproportionate power to Standard General and for all practical
purposes, effective control over critical decisions for the Company
and all its shareholders.
Moreover, according to public filings, Standard General owns
1,540,000 shares of American Apparel and has a security interest in
an additional 74,560,813 shares owned by Dov Charney pursuant to their agreement dated
June 25, 2014 (the "Charney
Agreement"). Under the Charney Agreement, Standard General
purchased 27,351,407 shares of American Apparel and then sold them
to Mr. Charney after providing him with a loan to purchase such
shares, which bears an interest rate at 10% per annum, payable to
Standard General in American Apparel shares.
In short, the Charney Agreement is structured so that with the
passage of time, Standard General's ownership position increases
from the interest payments in shares and in the event of a default
by Dov Charney, Standard General
will become entitled to receive another sizable chunk of American
Apparel shares pledged under the Charney Agreement. Given Mr.
Charney's recent comments in the media that he is down to his last
$100,000 a default appear quite
possible if not likely. As a result, the Charney Agreement
creates every incentive for Standard General to resist any sale of
the Company regardless of the price offered at least until Standard
General has collected the full benefits of its deal with
Dov Charney. Needless to say,
it does not appear that Standard General will be a very motivated
seller.
While Standard General has no interest to sell out, not so for
the rest of American Apparel's embattled shareholders. Most
of us who have remained invested in the stock over the long-term
have seen our stakes diminish dramatically in value with the
tumultuous events over the past year or so. Uncertainty about
the Company's leadership and strategic direction as well as
questions about American Apparel's prospects as a standalone
business have significantly depressed the Company's stock
price. This undervaluation has made American Apparel a very
attractive acquisition target. For example, as reported on
December 18, 2014, Irving Place
Capital approached American Apparel regarding a potential
transaction valuing the Company at as much as $1.40 per share, a 103% premium from the previous
day's closing price of $0.69, causing
American Apparel shares to soar nearly 45%. We believe other
interested potential acquirors may emerge as well. It is
clear to us, that the timing is right to capitalize on the
acquisition interest in American Apparel and pursue a
value-maximizing transaction to unlock value for shareholders.
Not only are the interests of Standard General in conflict with
those of the other shareholders in terms of the upside to a prompt
sale of the Company, but also Standard General does not face the
same downside from missing value-maximizing opportunities as other
shareholder do. Standard General is also a lender to the
Company. On July 16, 2014,
Lion/Hollywood L.L.C. ("Lion") assigned its rights and obligations
as a lender under its Credit Agreement, dated as of May 22, 2013 with the Company to Standard
General. As disclosed in the Company's Quarterly Report filed on
November 10, 2014, nearly
$9.9 million was outstanding under
the Credit Agreement as of September
30, 2014. This means that even if the stock were to
become worthless, Standard General will have the right to be repaid
its loan in any liquidation or similar proceeding. This
effectively caps Standard General's downside risk from the loss of
value of American Apparel's stock.
These conflicting interests between Standard General and the
other American Apparel shareholders put the Standard
General-dominated Board in a delicate position but with only one
responsible course of action. The Standard General-dominated
Board must comply with its fiduciary duty to serve the bests
interests of all shareholders and must resist the temptation to do
what is best for Standard General alone to the detriment of other
shareholders. The coming days will be the true test to the
Board's fulfillment of its duties.
We will also closely monitor Standard General for any attempt to
inappropriately interfere with the governance of American Apparel
to extract unique benefits for itself that other shareholders do
not share. As a de facto controlling shareholder, Standard
General, too, has important duties and responsibilities to the
minority shareholders. Bigger Capital has every intention of
remaining alert and focused on the actions of the American
Apparel's Board, Standard General and its representatives on the
Board and will consider all actions it deems necessary to protect
the interests of the minority shareholders of American Apparel.
Sincerely,
Michael Bigger
Bigger Capital Fund, LP
Bachelier, LLC
631-987-0235
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SOURCE Bigger Capital Fund, LP