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Notes That As a Result Of Interest Payments In Stock, Possible Charney Default And Lender Status, Standard General Has Every Incentive To Hold Out On a Sale Of The Company

Cautions against Standard General-Dominated Board Failing to Capitalize on Acquisition Interest in American Apparel Contrary to the Best Interests of ALL Shareholders

New York, NY – January 23, 2015 – 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.



Michael Bigger

Bigger Capital Fund, LP

Bachelier, LLC


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