Bloomberg News

American Apparel Adds First Female Director in Shake-Up

July 24, 2014

American Apparel Inc. (APP:US), the controversial clothing chain that has battled sexual-harassment lawsuits, named the first woman to its board as part of a shake-up following the ouster of its founder last month.

Colleen Brown, 55, a longtime media executive who now serves as managing director of Newport Board Group, is one of four new directors named to American Apparel’s board, according to a regulatory filing yesterday. Joseph Magnacca, RadioShack Corp. (RSH:US)’s chief executive officer, also was appointed.

The move adds fresh perspectives to a company known for its racy advertising and sexually charged culture. American Apparel founder Dov Charney, who was replaced as CEO last month, has been sued for harassment and admitted to having consensual sexual relationships with staff.

American Apparel declined 0.9 percent to $1.08 at the close in New York. The shares have gained 69 percent since June 18, when Charney was ousted.

Brown has had a long career in the media industry. She served for eight years as CEO of Fisher Communications Inc., a group of television and radio stations, before selling the company to Sinclair Broadcast Group Inc. in 2013 for about $340 million.

Board Pact

American Apparel, already struggling to revive a business that lost $270 million since 2010, has been in turmoil since the board replaced Charney, setting off a battle for control of the company. The board reshuffling is part of an agreement with Standard General LP, a New York-based hedge fund that put together a rescue financing deal for the retailer. The two co-chairmen from the existing board are staying, while the other remaining directors are resigning.

Under the agreement, Standard General had the right to name three directors, including an employee who turned out to be one of its partners, David Glazek. The hedge fund also chose Thomas Sullivan, a long-time director who now serves on the board of Media General Inc. (MEG:US)

Standard General has other ties to Media General. Soohyung Kim, Standard General’s CEO, serves on Media General’s board, and the firm is the media company’s largest investor with a 30 percent stake (MEG:US). Standard General has the right to name one more director to American Apparel’s board, bringing the total to seven.

RadioShack CEO

Brown and Magnacca, 52, were jointly chosen by Standard General and the board. Magnacca, Brown and Sullivan were deemed independent directors in the filing. Standard General also has a connection to Magnacca. The fund is the largest investor (RSH:US) in RadioShack, the electronics chain he’s trying to turn around, with about a 10 percent stake.

Charney, meanwhile, has been fighting to get his job back, saying his termination was illegal and violated his contract. Though he forged an alliance with Standard General, the investment firm isn’t pushing for his return. His fate will be decided by a panel of three directors, who will make their decision about whether to reinstate him based on an investigation by FTI Consulting Inc. (FCN:US), which the board enlisted last month.

Charney, who also had served as the chain’s chairman, was suspended for misconduct on June 18. His alleged infractions included misusing company funds and assets and retaliating against a former employee who sued him for harassment, a person familiar with the situation has said. Charney’s lawyer has called the board’s reasons for his ouster baseless.

Funding Help

As part of the Standard General accord, the hedge fund committed as much as $25 million in capital, helping American Apparel pay off debt and improve its finances. Standard General already used $10 million of the money to buy a high-interest loan that was deemed in default by the lender.

Under Charney, the chain drew flak for ads showing half-dressed young women in alluring positions. One of the company’s New York stores recently featured mannequins with pubic hair.

The sexual imagery -- coupled with the company’s commitment to domestic manufacturing -- has set the chain apart from other brands, American Apparel Co-Chairman Allan Mayer said in a Bloomberg Businessweek interview.

“If you took out the sex, it would be kind of boring. And if you took out the idealistic component -- our commitment to the sweatshop-free, made-in-USA philosophy -- it would just be sleazy,” he said. “But you put them together, and you have something that’s interesting. It’s edgy, but it’s also strangely wholesome at the same time.”

SEC Letter

American Apparel was also questioned by the Securities and Exchange Commission over its disclosure practices. The regulator’s queries about its annual 10-K filing for 2013 included asking the retailer to say when it had deficient liquidity and how it would be improved, according to a letter from May 23.

The chain has struggled with its finances for years, forcing it to raise capital several times -- most recently in March. It also has sought amendments to credit agreements to avoid default.

American Apparel responded to the SEC on June 6, saying that it would address any material weakness to liquidity in future filings and a course of action to fix it. The SEC commented on six other topics ranging from how the chain defines an underperforming store to wanting better disclosures of when loan covenants are violated. The SEC completed the review on June 25.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net John Lear


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Companies Mentioned

  • APP
    (American Apparel Inc)
    • $1.07 USD
    • 0.07
    • 6.54%
  • RSH
    (RadioShack Corp)
    • $0.38 USD
    • 0.06
    • 15.05%
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