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 The board last week stripped Charney of his titles of chief
executive, chairman and president. Initially known for insisting on
manufacturing clothing in the United States, Charney eventually
became notorious for conduct like attending meetings in his
underwear.
American Apparel's board cited Charney's alleged misuse of company
funds and role in disseminating nude photos of an ex-employee who
had sued him.
Charney's lawyer demanded a meeting on Monday, and the board's
refusal to meet with and reinstate him makes a legal battle with the
ex-CEO, who still controls 27 percent of the company's stock, more
likely.
In the letter to the board, sent on Thursday, lawyer Patricia Glaser
said the company had failed to give Charney 21 days’ notice of his
severance package as required by law, making his dismissal “not only
unconscionable but illegal.”
A link to the letter, whose receipt the source familiar with the
matter confirmed, was provided in an article on the Wall Street
Journal's website.
The letter threatened legal action should 45-year-old Charney not
regain his executive positions.
The board sees no point in meeting with Charney at this time, the
person close to the matter said.
The board is expected to announce it is working with investment
boutique Peter J. Solomon imminently, the source said. An officer at
the bank declined to comment.
It remains unclear what role the boutique advisory firm would
perform for the retailer, which has a market value of $120 million
and has been struggling with weak sales and heavy debt. It could
provide financing alternatives, the source said.
The source denied an accusation by Glaser that the board gave
Charney an ultimatum on Wednesday: resign voluntarily to receive $1
million a year over four years as a consultant, or be terminated for
cause.
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Charney’s ouster takes effect on July 18. Before that time, the
board would not rule out an agreement with Charney should he promise
not to challenge the board’s leadership, the source close to the
matter said.
The New York Post reported on Sunday that Charney has decided to
pursue a lawsuit alleging wrongful dismissal in the coming days.
The management shakeup followed years of company stagnation, as the
company amassed more than $250 million in debt. Charney also faced
public scrutiny during a string of sexual harassment allegations.
Charney's lawyer at the time dismissed the claims, which ultimately
proceeded to arbitration.
The company’s second largest shareholder, FiveT Capital AG, has
withdrawn its support of Charney, making a coalition of investors
opposing the CEO’s removal unlikely, Bloomberg reported.
A spokesman for American Apparel declined to comment.
(Editing by Christian Plumb and Peter Henderson)
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