American Apparel update: The drama continues

New York -- American Apparel shareholders Bigger Capital Fund, Bachelier LLC and the Bigger Family, have sent a letter to the company's board seeking the resignation of co-chairmen David Danziger and Allan Mayer as board members.



The letter criticized the board’s "stealthily and abruptly ousting American Apparel's long-standing CEO and largest shareholder knowing that their actions will cause a near-imminent default under important contractual obligations of the company and cause it to default on nearly $10 million in loans."



The letter accused the two board members of making “seemingly arbitrary decisions taking reckless risks with our capital and jeopardizing our business with little regard for shareholder interests or the future of our company.”



Danziger and Mayer are expected to continue with their terms in the reconstituted American Apparel board. The new board is part of an agreement with Standard General whereby the investment firm would give the retailer up to $25 million in funding. Under the terms of the deal, founder and former CEO Dov Charney would have the temporary title of strategic consultant.



According to Reuters, Standard General, which owns an approximate 44% stake in the company, is leaving the decision of whether to allow Charney to return to the company up to the American Apparel board, following a third-party investigation by FTI Consulting.



Charney was dismissed as CEO on June 18 due to allegations of misconduct, which he has denied. Charney voluntarily stepped down from the company’s board as part of an agreement with Standard General where the firm will provide up to $25 million that will enable American Apparel to pay off a nearly $10 million loan from its longtime lender Lion Capital. Charney will remain as a strategic consultant with the company until an investigation into his alleged misconduct is concluded.