Burdens loom for American Apparel’s reconstituted board

August 19, 2014

Practitioner Insights thumbnail 2(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)

American Apparel Inc.’s newly-constituted board has several tasks ahead of it, including investigating allegations of misconduct by founder Dov Charney, and releasing its second-quarter financial statements, which the company stated will not be disclosed before the deadline for filing quarterly reports.

Five of the company’s seven directors resigned on July 23, pursuant to a July 9 agreement among the company, Charney and Standard General LP.

The open spots were filled quickly. Four new directors were appointed on August 2 and, on August 13, the company announced that it had appointed Laura A. Lee to fill its last remaining board seat. Lee, who is currently the head of East Coast content partnerships for Google/YouTube, previously served as vice president and head of business development and operations for MTV.

Under the terms of the agreement, Standard General was allowed to appoint Lee and two other directors unilaterally. One of these directors, David Glazek, is a partner at Standard General. The remaining directors were mutually agreed upon by Standard General and the company.

The agreement arose after the board of directors took steps to terminate Charney’s employment on June 26, responding to a litany of transgressions allegedly committed by the founder, including sexual harassment and misappropriation of company assets. In an effort to save his job, Charney agreed to borrow money from Standard General to increase his stake in the company from 27.2 percent to 43 percent. Under Charney’s agreement with the lender, however, Standard General controls the voting power of Charney’s shares.

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