CREDIT AGREEMENT

Exhibit 10.1

CREDIT AGREEMENT

dated as of

March 13, 2009

among

AMERICAN APPAREL, INC.,

THE FACILITY GUARANTORS PARTY HERETO,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

and

LION CAPITAL LLP,

AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT

TABLE OF CONTENTS

 

 

- i -

 

- ii -

 

- iii -

EXHIBITS

 

 

- iv -

SCHEDULES

 

 

- v -

CREDIT AGREEMENT, dated as of March 13, 2009, among:

(a) AMERICAN APPAREL, INC. , a corporation organized under the laws of the State of Delaware, with its principal executive offices at 747 Warehouse Street, Los Angeles, California, for itself and as agent (in such capacity, the “ Borrower ”); and

(b) the FACILITY GUARANTORS now or hereafter party hereto;

(d) LION CAPITAL LLP, in its capacity as administrative agent and collateral agent hereunder; and

(d) the LENDERS from time to time party hereto;

in consideration of the mutual covenants herein contained and benefits to be derived herefrom, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01 Definitions .

As used in this Agreement, the following terms have the meanings specified below:

“ 59 ^th Street Facility ” means that certain facility located at 1020 E. 59 ^th Street, Los Angeles, California 90001.

“ Account(s) ” means “accounts” as defined in the UCC, and also means a right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, or (iii) arising out of the use of a credit or charge card or information contained on or for use with the card. The term “Account” does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.

“ Acquisition ” means (i) any purchase or acquisition of a Controlling interest in Capital Stock of a Person, (ii) a purchase or acquisition of all or substantially all of the assets or properties of a Person or of any business unit of a Person, or (iii) any merger or consolidation of any Person with any other Person or other transaction or series of transactions resulting in the acquisition of all or substantially all of the assets or a Controlling interest in the Capital Stock of any Person, in each case in any transaction or group of transactions which are part of a common plan.

“ Administrative Agent ” means Lion Capital LLP, in its capacity as administrative agent for Lenders under this Agreement and the other Loan Documents, together with any of its successors in such capacity.

 

- 1 -

“ Affiliate ” means, with respect to a specified Person, any Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with the Person specified.

“ Agents ” means, collectively, the Administrative Agent and the Collateral Agent.

“ Aggregate Exposure ” means, with respect to any Lender at any time, an amount equal to (i) until the Closing Date, the aggregate amount of such Lender’s Commitments then in effect and (ii) thereafter, the aggregate then unpaid principal amount of such Lender’s Loans, including PIK Interest added to the principal amount of such Loans, if any, and the PIK Fee added to the principal amount of such Loans.

“ Aggregate Exposure Percentage ” means, with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.

“ Agreement ” means this Credit Agreement, as amended, restated, supplemented or otherwise modified and in effect from time to time.

“ Agreement Value ” means for each Hedge Agreement, on any date of determination, an amount determined by the Administrative Agent equal to:

(a) In the case of a Hedge Agreement documented pursuant to an ISDA Master Agreement, the amount, if any, that would be payable by any Loan Party to its counterparty to such Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on such date of determination, (ii) such Loan Party was the sole “Affected Party” (as therein defined) and (iii) the Administrative Agent was the sole party determining such payment amount (with the Administrative Agent making such determination pursuant to the provisions of the form of ISDA Master Agreement);

(b) In the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party which is party to such Hedge Agreement, determined by the Administrative Agent based on the settlement price of such Hedge Agreement on such date of determination; or

(c) In all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party that is party to such Hedge Agreement determined by the Administrative Agent as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party exceeds (ii) the present value of the future cash flows to be received by such Loan Party, in each case pursuant to such Hedge Agreement.

“ American Apparel (USA) ” means American Apparel (USA), LLC, a California limited liability company.

“ Applicable Law ” means as to any Person: (i) all laws, statutes, rules, regulations, orders, codes, ordinances or other requirements having the force of law and (ii) all court orders, decrees, judgments, injunctions, notices, binding agreements and/or rulings, in each case of or by any Governmental Authority which has jurisdiction over such Person, or any property of such Person.

 

- 2 -

“ Applicable Lenders ” means the Required Lenders, all affected Lenders or all Lenders, as applicable.

“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Lender and an assignee (with, if applicable, the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.

“ Bankruptcy Code ” means Title 11, U.S.C., as now or hereafter in effect, or any successor thereto.

“ Board ” means the Board of Governors of the Federal Reserve System of the United States of America.

“ Borrower ” has the meaning set forth in the Preamble to this Agreement.

“ Borrowing ” means the incurrence of Loans on the Closing Date.

“ Borrowing Notice ” means a request by the Borrower for a borrowing of Loans delivered in accordance with Section 2.02(a).

“ Business Day ” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York are authorized or required by law to remain closed.

“ Canadian Affiliate ” means any Affiliate of the Borrower, whether now existing or hereafter created or acquired, organized under the laws of Canada.

“ Canadian Loan ” means the loans made to Canadian Subsidiaries under the Canadian Loan Agreement and any refinancing or replacement thereof (including successive refinancings or replacements).

“ Canadian Loan Agreement ” means that certain loan agreement, dated as of February 26, 2009, by and between The Toronto-Dominion Bank (and any other lender thereunder), and American Apparel Canada Wholesale, Inc./American Apparel Canada Grossiste Inc. (being the American and French names, respectively, of the same entity), as the borrower.

“ Canadian Subsidiaries ” means (i) each of American Apparel Canada Wholesale Inc. and American Apparel Canada Retail Inc., each a wholly-owned Subsidiary of the Borrower, and (ii) all other Subsidiaries of the Borrower organized under the laws of Canada or any political subdivision thereof. The term “Canadian Subsidiary” shall mean any one of the foregoing Persons.

“ Capital Expenditures ” means, with respect to any Person for any period, (i) the additions to property, plant and equipment and other capital expenditures of the Loan Parties and

 

- 3 -

their Subsidiaries that are (or would be) set forth on the Consolidated balance sheet of the Loan Parties and their Subsidiaries for such period prepared in accordance with GAAP and (ii) Capital Lease Obligations incurred by the Loan Parties and their Subsidiaries during such period, calculated, without duplication, for any items included in subsection (i) above; provided that the term “Capital Expenditures” shall not include (A) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed from insurance proceeds or condemnation awards paid on account of any casualty or condemnation event or (B) any expenditures that constitute Permitted Acquisitions.

“ Capital Lease Obligations ” means, with respect to any Person for any period, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP; for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“ Capital Stock ” means, as to any Person that is a corporation, the authorized shares of such Person’s capital stock, including all classes of common, preferred, voting and nonvoting capital stock, and, as to any Person that is not a corporation or an individual, the membership or other ownership interests in such Person, including, without limitation, the right to share in profits and losses, the right to receive distributions of cash and other property, and the right to receive allocations of items of income, gain, loss, deduction and credit and similar items from such Person, whether or not such interests include voting or similar rights entitling the holder thereof to exercise control over such Person, collectively with, in any such case, all warrants, options and other rights to purchase or otherwise acquire, and all other instruments convertible into or exchangeable for, any of the foregoing; provided that, notwithstanding the foregoing, Capital Stock shall not include Indebtedness convertible into or exchangeable for Capital Stock.

“ Cash Interest ” has the meaning provided in Section 2.04(a).

“ CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601 et seq .

“ Change of Control ” means, at any time:

(a) any “change in/of control” or similar event as defined in any Charter Document of any Loan Party or in any Material Agreement, or any document governing Material Indebtedness of any Loan Party thereof; or

(b) occupation of a majority of the seats (other than vacant seats) on the board of directors (or other body exercising similar management authority) of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower, (ii) appointed by directors so nominated nor (iii) approved in accordance with the Voting Agreement; or

(c) except with respect to the Permitted Holders, any person or “group” (within the meaning of the Securities and Exchange Act of 1934, as amended), is or becomes the beneficial owner (within the meaning of Rule 13d-3 or 13d-5 of the

 

- 4 -

Securities and Exchange Act of 1934, as amended, except that such person shall be deemed to have “beneficial ownership” of all Capital Stock that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) directly or indirectly of thirty-five percent (35%) or more (on a fully diluted basis) of the total then outstanding Capital Stock of the Borrower, whether as a result of the issuance of securities of the Borrower, a merger, consolidation, liquidation or dissolution of the Borrower, a direct or indirect transfers of securities or otherwise; or

(d) the Borrower fails at any time to own, directly or indirectly, one hundred percent (100%) of the Capital Stock of American Apparel (USA), free and clear of all Liens (other than the Liens in favor of the Collateral Agent, for its own benefit and the ratable benefit of the other Credit Parties and Permitted Encumbrances set forth in clause (m) of the definition of Permitted Encumbrances), except where such failure is a result of a merger or consolidation transaction between the Borrower and American Apparel (USA) permitted by Section 6.03.

“ Change of Control Offer ” has the meaning provided therefor in Section 2.08(b).

“ Change of Control Payment ” has the meaning provided therefor in Section 2.08(b).

“ Change of Control Payment Date ” has the meaning provided therefor in Section 2.08(b).

“ Change in Law ” means (i) the adoption of any law, rule or regulation after the Closing Date, (ii) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Closing Date or (iii) compliance by any Credit Party with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date.

“ Charges ” has the meaning provided therefor in Section 9.13.

“ Charter Document ” means as to any Person, its partnership agreement, certificate of incorporation, operating agreement, membership agreement or similar constitutive document or agreement, its by-laws and all shareholder or other equity holder agreements, voting trusts and similar arrangements to which such Person is a party or which is applicable to its Capital Stock, and all other arrangements relating to the Control or management of such Person.

“ Closing Date ” means March 13, 2009.

“ Code ” means the Internal Revenue Code of 1986 and the Treasury regulations promulgated thereunder, as amended from time to time.

“ Collateral ” means any and all “Collateral” or words of similar intent as defined in any applicable Security Document.

“ Collateral Agent ” means Lion Capital LLP, in its capacity as collateral agent for the Credit Parties under this Agreement and the other Loan Documents, together with any of its successors in such capacity.

 

- 5 -

“ Commitment ” means, with respect to each Lender, the aggregate commitment(s) of such Lender hereunder to make Loans to the Borrower in an amount not to exceed the amount set forth opposite its name on Schedule 1.02(a) hereto. As of the Closing Date, the aggregate amount of the Commitments is $75,000,000.

“ Compliance Certificate ” has the meaning provided in Section 5.01(d).

“ Consolidated ” means, when used to modify a financial term, test, statement, or report of a Person, the application or preparation of such term, test, statement or report (as applicable) based upon the consolidation, in accordance with GAAP, of the financial condition or operating results of such Person and its Subsidiaries.

“ Consolidated EBITDA ” means, with respect to any Person for any period, Consolidated Net Income for such period,

plus (a) without duplication and to the extent already deducted (and not added back) in arriving at such Consolidated Net Income for such period, the sum of

(i) depreciation and amortization expense,

(ii) provisions for Taxes,

(iii) Consolidated Interest Expense and non-cash or deferred interest financing costs,

(iv) any compensation expense incurred during such period with respect to the issuance of up to 2,710,000 shares of common stock pursuant to Section 5.31 of the Merger Agreement,

(v) any non-cash compensation expense incurred during such period including any such expenses related to the issuance of Capital Stock in connection therewith,

(vi) costs and expenses incurred in connection with entering into the Loan Documents and any amendments required under the First Lien Loan Documents relating thereto; provided that the amounts referred to in this clause (vi) shall not, in the aggregate, exceed $6,000,000 (excluding items covered by other clauses of this definition) during the term of this Agreement,

(vii) expenses or charges incurred in connection with any issuance of Indebtedness or any amendment of any instrument governing any Indebtedness; provided that the amounts referred to in this clause (vii) shall not, in the aggregate, exceed $500,000 in any Fiscal Quarter (excluding any items referred to in other clauses of this definition),

(viii) any unusual or nonrecurring non-cash expenses or charges (including, whether or not otherwise includable as a separate item in the statement of Consolidated Net Income for such period, non-cash losses on sales of assets outside the ordinary course of business),

(ix) non-cash charges relating to the accretion of debt discount and amortization of warrants and changes in derivatives liabilities,

 

- 6 -

(x) other non-cash charges, provided that the amounts referred to in this clause (ix) shall not, in the aggregate, exceed $500,000 (excluding any items referred to in other clauses of this definition) in any Fiscal Quarter, and

(xi) losses or charges for such period associated with the writedowns or impairment of assets or intangibles (including writedowns of goodwill or other assets pursuant to FASB 142 and 144, writedowns relating to discontinued operations pursuant to FASB 144 and charges pursuant to FASB 141),

minus (b) without duplication and to the extent included in arriving at such Consolidated Net Income for such period, the sum of

(i) interest income,

(ii) any unusual or nonrecurring non-cash gains increasing Consolidated Net Income for such period (including whether or not includable as a separate item in the Statement of Consolidated Net Income for such period, non-cash gain on sales of assets outside of the ordinary course of business),

(iii) income tax credits to the extent not netted from provisions for Taxes,

(iv) any other non-cash gains increasing Consolidated Net Income during any such period; provided that the amounts referred to in this clause (iv) shall not, in the aggregate, exceed $500,000 (excluding any items referred to in other clauses of this definition) in any Fiscal Quarter, and

(v) any cash payment made during such period in respect of items described in clauses (viii), (ix) or (x) above subsequent to the Fiscal Quarter in which the relevant non-cash expenses or losses were reflected as a charge in the statement of Consolidated Net Income for such period, all as determined on a Consolidated basis;

in each case, as determined on a Consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP.

For purposes of calculating Consolidated EBITDA for any period of four consecutive fiscal quarters (each a “ Reference Period ”) pursuant to any determination of the ratio of Total Debt to Consolidated EBITDA, (i) if at any time during such Reference Period the Borrower or any Subsidiary shall have made any Material Disposition, Consolidated EBITDA for such Reference Period shall be reduced by an amount equal tot the Consolidated EBITDA (if positive) attributable to the property that is the subject of such Material Disposition for such Reference Period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such Reference Period and (ii) if during such Reference Period the Borrower or any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material Acquisition occurred on the first day of such Reference Period. As used in this definition, “Material Disposition” means any sale, consignment, sale and leaseback, granting of an exclusive license, transfer or other disposition of property or series of such related transactions with respect to property that yields gross proceeds to the Borrower or any of its Subsidiaries in excess of $2,000,000; and “Material Acquisition” means any Acquisition or property or series of related Acquisitions of property for consideration by the Borrower and it Subsidiaries in excess of $2,000,000.

 

- 7 -

“ Consolidated Interest Expense ” means, with respect to any Person for any period, total interest expense (including that attributable to Capital Lease Obligations in accordance with GAAP) of such Person on a Consolidated basis with respect to all outstanding Indebtedness of such Person, including, without limitation, the Obligations and all commissions, discounts and other fees and charges owed with respect thereto and all net payments under interest rate Hedge Agreements in respect of Indebtedness of the Borrower and its Subsidiaries, but excluding any non-cash or deferred interest financing costs, all as determined on a Consolidated basis in accordance with GAAP.

“ Consolidated Net Income ” means, with respect to any Person for any period, the net income (or loss) of such Person on a Consolidated basis for such period taken as a single accounting period determined in accordance with GAAP; provided , however , that there shall be excluded (i) the income (or loss) of any Person (other than the Borrower or any of its Subsidiaries) in which any Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to such Person during such period, (ii) the income (or loss) of any Subsidiary of such Person accrued prior to the date it becomes a Subsidiary of such Person or any of such Person’s Subsidiaries or is merged into or consolidated with such Person or any of its Subsidiaries or substantially all of that Person’s assets are acquired by such Person or any of its Subsidiaries from a Person other than such Person or its Subsidiaries, (iii) the income of any direct or indirect Subsidiary of a Person to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its Charter Documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any extraordinary items for such period, (v) foreign currency translation gains and losses (as calculated in accordance with the Borrower’s public filings made with the SEC) and (vi) any adjustments resulting from the application of FASB No. 133.

“ Control ” means the possession, directly or indirectly, of the power (i) to vote 25% or more of the securities having ordinary voting power for the election of directors (or any similar governing body) of a Person, or (ii) to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Cost ” means the average cost of purchases, as reported on the Borrower’s stock ledger based upon the Borrower’s accounting practices, which practices are in effect on the Closing Date.

“ Credit Party ” means (i) the Lenders, (ii) the Agents and their Affiliates, (iii) the beneficiaries of each indemnification obligation undertaken by the Borrower and the other Loan Parties under any Loan Document, (iv) any other Person to whom Obligations under this Agreement and other Loan Documents are owing and (v) the successors and assigns of each of the foregoing.

 

- 8 -

“ Credit Party Expenses ” means, without limitation, (i) all reasonable out-of-pocket expenses incurred by the Agents, the Initial Lender and their respective Affiliates, including the reasonable fees, charges and disbursements of counsel for the Initial Lender and the Agents, outside consultants for the Initial Lender and the Agents (including, without limitation, commercial finance examiners), in connection with the negotiation, preparation and administration of the Loan Documents or any amendments, modifications, supplements or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all reasonable out-of-pocket expenses incurred by the Initial Lender and the Agents, including the reasonable fees, charges and disbursements of counsel and outside consultants for each of the Initial Lender and the Agents (including, without limitation, commercial finance examiners), in connection with the enforcement or protection of their rights in connection with the Loan Documents, or in connection with the Loans made hereunder, including all reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Obligations; provided that the Lenders who are not the Initial Lender and the Agents shall be entitled to reimbursement for no more than one counsel representing all such Lenders (absent a conflict of interest in which case the Lenders may engage and be reimbursed for additional counsel).

“ Default ” means any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would become an Event of Default.

“ Default Rate ” has the meaning provided in Section 2.05.

“ Delinquent Lender ” has the meaning provided in Section 8.15.

“ Disqualified Equity Interests ” means any Capital Stock which, by its terms (or by the terms of any security or other Capital Stock into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition, (i) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (ii) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (iii) provides for the scheduled payments of dividends in cash or (iv) is or becomes convertible into or exchangeable for Indebtedness or any other Capital Stock that would constitute Disqualified Equity Interests, in each case, prior to the date that is 180 days after the Maturity Date.

“ dollars ” or “ $ ” refers to lawful money of the United States of America.

“ Dov Charney Existing Notes ” means (i) the Promissory Note, dated December 19, 2008, issued by American Apparel (USA) in favor of Dov Charney in an original principal amount equal to $2,500,000 and (ii) the Promissory Note, dated February 10, 2009, issued by American Apparel (USA) in favor of Dov Charney in an original principal amount equal to $4,000,000.

 

- 9 -

“ Eligible Assignee ” means any assignee permitted by and consented to in accordance with Section 9.04(b); provided that in no event shall the Borrower or any of its Affiliates (other than the Initial Lender and its Affiliates) be Eligible Assignees.

“ Environmental Laws ” means all Applicable Laws issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the protection of human health or the environment, to the preservation or reclamation of natural resources, to the handling, treatment, storage, disposal of Hazardous Materials or to the assessment or remediation of any Release or threatened Release of any Hazardous Material or to the environment.

“ Environmental Liability ” means any liability, contingent or otherwise (including, without limitation, any liability for damages, natural resource damage, costs of environmental remediation, administrative oversight costs, fines, penalties or indemnities), of any Loan Party or one of their Subsidiaries directly or indirectly resulting from or based upon (i) violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (iii) exposure to any Hazardous Materials, (iv) the Release or threatened Release of any Hazardous Materials into the environment or (v) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ Equipment ” has the meaning set forth in the Security Documents.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time and the regulations promulgated and rulings issued thereunder.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ ERISA Event ” means (i) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30 day notice period is waived); (ii) the failure to meet the minimum funding standards with respect to any Plan under Section 412 or 430 of the Code or Section 302 of ERISA, whether or not waived; (iii) the filing, pursuant to Section 412 of the Code or Section 302 of ERISA, of an application for a waiver of the minimum funding standard with respect to any Plan; (iv) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (v) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vi) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (vi) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

 

- 10 -

“ Events of Default ” has the meaning assigned to such term in Section 7.01.

“ Exchange Rate ” has the meaning assigned to such term in Section 1.04.

“ Excluded Taxes ” means, with respect to the Agents, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (i) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (ii) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (iii) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.13(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) is attributable to such Foreign Lender’s failure to comply with Section 2.12(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.12(a).

“ Existing First Lien Credit Agreement ” means the Credit Agreement, dated as of July 2, 2007 as amended, among American Apparel (USA), the other borrowers from time to time party thereto, the facility guarantors from time to time party thereto, Bank of America, N.A., in its capacities as administrative agent and as collateral agent thereunder (together with its successors in such capacities), Wells Fargo Retail Finance, LLC, as collateral monitoring agent (together with its successors in such capacities), and the lenders from time to time party thereto.

“ Existing Second Lien Credit Agreement ” means the Credit Agreement, dated as of January 18, 2007, as amended, among American Apparel (USA), the facility guarantors from time to time party thereto, and SOF Investments, L.P. Private IV, as lender.

“ Facility Guarantors ” means (i) each of the Subsidiaries of the Borrower, whether now existing or hereafter created or acquired, other than any Foreign Subsidiaries, and (ii) any other Person required to become a Facility Guarantor hereunder.

“ Facility Guarantors’ Collateral Documents ” means all security agreements, mortgages, pledge agreements, deeds of trust, and other instruments, documents or agreements executed and delivered by the Facility Guarantors to secure the Facility Guaranty or the Obligations, as applicable.

“ Facility Guaranty ” means any Guarantee of the Obligations executed by the Facility Guarantors in favor of the Credit Parties.

“ Financial Officer ” means, with respect to any Loan Party, the chief financial officer, treasurer or controller of such Loan Party.

“ First Lien Agent ” means the administrative agent and/or collateral agent, as applicable, under the First Lien Credit Agreement.

 

- 11 -

“ First Lien Credit Agreement ” means (i) Existing First Lien Credit Agreement and (ii) any loan agreement or credit agreement which replaces or refinances the Existing First Lien Credit Agreement.

“ First Lien Loan Documents ” means the First Lien Credit Agreement and the other Loan Documents (as defined in the First Lien Credit Agreement).

“ Fiscal Month ” means any fiscal month of any Fiscal Year, which month shall generally end on the last day of each calendar month in accordance with the fiscal accounting calendar of the Borrower.

“ Fiscal Quarter ” means any fiscal quarter of any Fiscal Year, which quarters shall generally end on the last day of each March, June, September or December of such Fiscal Year in accordance with the fiscal accounting calendar of the Borrower.

“ Fiscal Year ” means any period of twelve consecutive months ending on December 31 of any calendar year.

“ Foreign Lender ” means any Lender that is organized under the laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia.

“ Foreign Subsidiary ” means any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia.

“ GAAP ” means principles which are consistent with those promulgated or adopted by the Financial Accounting Standards Board and its predecessors (or successors) in effect and applicable to that accounting period in respect of which reference to GAAP is being made.

“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Guarantee ” of or by any Person (the “ guarantor ”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof or (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation; provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.

 

- 12 -

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes, mold, fungi or similar bacteria, and all other substances or wastes of any nature regulated pursuant to any Environmental Law, including any material listed as a hazardous substance under Section 101(14) of CERCLA.

“ Hedge Agreement ” means any interest rate protection agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement designed to hedge against fluctuations in interest rates or foreign exchange rates.

“ Indebtedness ” of any Person means, without duplication:

(a) All obligations of such Person for borrowed money (including any obligations which are without recourse to the credit of such Person);

(b) All obligations of such Person evidenced by bonds, debentures, notes or similar instruments;

(c) All obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person;

(d) All obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business);

(e) All Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed;

(f) All Guarantees by such Person of Indebtedness of others;

(g) All Capital Lease Obligations of such Person;

(h) All obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty;

(i) All obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances;

(j) All Hedge Agreements;

(k) All Disqualified Equity Interests; and

 

- 13 -

(l) The principal and interest portions of all rental obligations of such Person under any Synthetic Lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.

The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“ Indemnified Taxes ” means Taxes other than Excluded Taxes.

“ Indemnitee ” has the meaning provided in Section 9.03(b).

“ Information ” has the meaning provided in Section 9.15(a).

“ Initial Lender ” means Lion Capital (Guernsey) II Limited or any Affiliate thereof to whom its Loans are assigned within the first three months after the Closing Date.

“ Intellectual Property ” has the meaning provided in Section 3.05(b).

“ Intellectual Property Security Agreement ” means the Intellectual Property Security Agreement, dated as of the date hereof, among the Loan Parties and the Collateral Agent, for its own benefit and for the benefit of the other Credit Parties, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“ Intercreditor Agreement ” means the Intercreditor Agreement, dated as of the date hereof, between the First Lien Agent and the Collateral Agent and acknowledged by the Borrower and the other Loan Parties, as amended, restated, supplemented or otherwise modified or replaced from time to time in accordance with the terms hereof and thereof.

“ Interest Election ” has the meaning provided in Section 2.04(a).

“ Interest Payment Date ” means the last day of each of March, June, September and December.

“ Interest Rate ” means a per annum rate equal to 15%.

“ Inventory ” has the meaning assigned to such term in the Security Agreement.

“ Investment ” means with respect to any Person:

(a) Any Capital Stock, evidence of Indebtedness or other security of another Person, including any option, warrant or right to acquire the same;

 

- 14 -

(b) Any loan, advance, contribution to capital, Guarantee of any obligation of another Person, extension of credit (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business) to another Person;

(c) Any Acquisition; and

(d) Any other investment or interest in any Person,

in all cases whether now existing or hereafter made.

“ Investment Agreement ” means the Investment Agreement, dated as of the date hereof, between the Borrower and Lion Capital (Guernsey) II Limited.

“ ISDA Master Agreement ” means any form entitled “Master Agreement (Multicurrency-Cross Border)” then currently published by the International Swap and Derivatives Association, Inc. (“ ISDA ”), or any successor to the ISDA.

“ Joinder Agreement ” means an agreement, in the form attached hereto as Exhibit C , pursuant to which, among other things, a Person becomes a party to, and bound by the terms of, this Agreement and/or the other Loan Documents in the same capacity and to the same extent as a Facility Guarantor.

“ Lease ” means any agreement, whether written or oral, no matter how styled or structured, pursuant to which a Loan Party or any Subsidiary thereof is entitled to the use or occupancy of any space in a structure, land, improvements or premises for any period of time (excluding any Lease constituting Indebtedness).

“ Lenders ” means the Initial Lender, the other Persons identified on Schedule 1.02(a) hereto, Lion Capital LLP, as the initial holder of Loans representing the PIK Fee, and each assignee that becomes a party to this Agreement as set forth in Section 9.04(b).

“ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of any Person under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset.

“ Loan Account ” has the meaning assigned to such term in Section 2.09(a).

“ Loan Documents ” means this Agreement, the Notes, the Security Documents, the Intercreditor Agreement and any other instrument or agreement now or hereafter executed and delivered in connection herewith, each as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“ Loan Party ” or “ Loan Parties ” means the Borrower and the Facility Guarantors.

“ Loans ” means all loans made pursuant to this Agreement pursuant to Section 2.01, all PIK Interest, if any, that has been added to the principal balance of the Loans on any Interest Payment Date pursuant to Section 2.04, and the PIK Fee that has been added to the principal balance of the Loans on the Closing Date pursuant to Section 2.01(c).

 

- 15 -

“ Margin Stock ” has the meaning assigned to such term in Regulation U.

“ Material Adverse Effect ” means any event, fact or circumstance, which has a material adverse effect on, (i) the business, performance, assets, financial condition or income of the Loan Parties and their Subsidiaries taken as a whole, (ii) the ability of the Loan Parties (taken as a whole) to perform their respective obligations under any Loan Document to which the Borrower or any of the Loan Parties is a party and (iv) the validity or enforceability of this Agreement or the other Loan Documents, taken as a whole, or any of the rights or remedies of the Credit Parties hereunder or thereunder.

“ Material Agreements ” means those agreements listed on Schedule 1.02(b) .

“ Material Indebtedness ” means Indebtedness (other than the Obligations) of the Loan Parties and their Subsidiaries in an aggregate principal amount exceeding $2,500,000. For purposes of determining the amount of Material Indebtedness at any time, the amount of the obligations in respect of any Hedge Agreement at such time shall be calculated at the Agreement Value thereof.

“ Maturity Date ” means December 31, 2013.

“ Maximum Rate ” has the meaning provided therefor in Section 9.13.

“ Merger Agreement ” means that certain Amended and Restated Agreement and Plan of Reorganization, dated as of November 7, 2007, by and among Endeavor, Merger Subsidiary, Borrower, American Apparel LLC, the Canadian Affiliates, Dov Charney, each of the stockholders of the Canadian Affiliates and Sang H. Lim.

“ Minority Lenders ” has the meaning provided therefor in Section 9.02(c).

“ Moody’s ” means Moody’s Investors Service, Inc. or any successor by merger or consolidation to its business.

“ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute.

“ Net Proceeds ” means, with respect to any event, (a) the cash proceeds received in respect of such event, including (i) any cash received in respect of any non-cash proceeds, but only as and when received, (ii) in the case of a casualty, insurance proceeds, and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, in each case net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses (including appraisals, and brokerage, legal, title and recording tax expenses and commissions) paid by any Loan Party or a Subsidiary to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale or other disposition of an asset (including pursuant to a casualty or condemnation), the amount of all payments required to be made by any Loan Party or a Subsidiary as a result of such

 

- 16 -

event to repay (or to establish an escrow for the repayment of) any Indebtedness (other than the Obligations and the Indebtedness incurred under clause (h) of the definition of Permitted Indebtedness) secured by such asset to the extent that the instrument creating such Indebtedness requires such Indebtedness to be repaid upon consummation of such event and such Indebtedness is actually so repaid (or an escrow is actually so established for such repayment) and (iii) all taxes paid or payable in connection with or relating to such event.

“ Notes ” means the notes in substantially the form as attached hereto as Exhibit B , as may be amended, supplemented or modified from time to time.

“ Obligations ” means (a) the due and punctual payment of (i) the principal of, and interest (including all interest that accrues after the commencement of any case or proceeding by or against the Borrower or any Facility Guarantor under the Bankruptcy Code or any state, federal or provincial bankruptcy, insolvency, receivership or similar law, whether or not allowed in such case or proceeding) on the Loans and Facility Guaranties as and when due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise, of the Loan Parties to the Credit Parties under this Agreement and the other Loan Documents, and (b) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each Loan Party under or pursuant to this Agreement and the other Loan Documents.

“ Other Taxes ” means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.

“ Participant ” has the meaning provided therefor in Section 9.04(e).

“ Participation Register ” has the meaning provided therefor in Section 9.04(e).

“ PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“ Permitted Acquisition ” means an Acquisition in which each of the following conditions are satisfied:

(a) no Default or Event of Default then exists or would arise from the consummation of such Acquisition;

(b) the Borrower would be in pro forma compliance (assuming the Acquisition had occurred at the beginning of the most recently completed period of four consecutive Fiscal Quarters for which financial statements of the Borrower are available) with the financial covenants in Section 6.11 if the Acquisition had occurred on the last day of the preceding Fiscal Quarter for which financial statements of the Borrower are available;

 

- 17 -

(c) such Acquisition shall not have been objected to by the Board of Directors of the Person (or similar governing body if such Person is not a corporation) which is the subject of such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition will violate Applicable Law;

(d) the Borrower shall have furnished the Agents with fifteen (15) days’ prior notice of such intended Acquisition and shall have furnished the Agents with a current draft of the acquisition agreement and other acquisition documents, a summary of any due diligence undertaken by the Borrower in connection with such Acquisition, appropriate financial statements of the Person which is the subject of such Acquisition, pro forma projected financial statements for the twelve (12) month period following such Acquisition after giving effect to such Acquisition (including balance sheets, cash flows and income statements by month for the acquired Person, individually, and on a Consolidated basis with all Loan Parties and the Subsidiaries thereof);

(e) after consummation of the Acquisition, if the Acquisition is an Acquisition of Capital Stock, the Borrower shall own directly or indirectly a majority of the Capital Stock in the Person being acquired, shall Control a majority of any voting interests, and/or shall otherwise Control the governance of the Person being acquired and such acquisition shall result in the issuer of such Capital Stock becoming a Subsidiary and, to the extent required by Section 5.11, a Facility Guarantor;

(f) any assets acquired shall be utilized in, and if the Acquisition involves a merger, consolidation or Capital Stock acquisition, the Person which is the subject of such Acquisition shall be engaged in, a business otherwise permitted to be engaged in by the Borrower and its Subsidiaries under this Agreement; and

(g) to the extent required by Sections 5.11 and 5.13, such Acquisition shall have resulted in the Collateral Agent, for the benefit of itself and the other Credit Parties, having received a second priority security and/or mortgage interest in the acquired Capital Stock, Inventory, Accounts, and other property of the same nature as constitutes collateral under the Security Documents in order to secure the Obligations.

“ Permitted Acquisition Consideration ” means in connection with any Permitted Acquisition, the aggregate amount of, without duplication: (i) the purchase consideration paid or payable in cash for such Permitted Acquisition, whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, and including any and all payments representing the purchase price and any assumptions of Indebtedness and/or Guarantees, “earn-outs” and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any person or business and (ii) the aggregate amount of Indebtedness incurred or assumed in connection with such Permitted Acquisition; provided in each case, that any such future payment that is subject to a contingency shall be considered Permitted Acquisition Consideration only to the extent of the reserve, if any, required under GAAP (as determined at the time of the consummation of such Permitted Acquisition) to be established in respect thereof by the Borrower.

 

- 18 -

“ Permitted Disposition ” means any of the following:

(a) non-exclusive licenses of Intellectual Property of a Loan Party or any of its Subsidiaries in the ordinary course of business;

(b) bulk sales or other dispositions of Inventory not in the ordinary course of business in an amount not to exceed (i) in any Fiscal Year of the Borrower and its Subsidiaries, 3.5% of the Cost of the “Eligible Inventory” (as defined in the First Lien Credit Agreement) of American Apparel (USA) (and the other borrowers thereunder) at the commencement of the immediately preceding Fiscal Year and (ii) in the aggregate from and after the Closing Date, 10% of the Cost of the “Eligible Inventory” (as defined in the First Lien Credit Agreement) of American Apparel (USA) (and the other borrowers thereunder) as of the Closing Date; provided that all sales of Inventory in connection with ten (10) or more Store closings (conducted collectively) shall be in accordance with liquidation agreements and with professional liquidators reasonably acceptable to the Initial Lender and the Agents;

(c) dispositions of (i) Equipment in the ordinary course of business that is substantially worn, damaged, obsolete or, in the judgment of a Loan Party, no longer best used or useful in its business or that of any Subsidiary and (ii) dispositions of cash and cash equivalents;

(d) sales, transfers and dispositions among the Loan Parties;

(e) sales, transfers and dispositions from Subsidiaries to any Loan Party or from any Foreign Subsidiary to any other Foreign Subsidiary;

(f) as long as no Default or Event of Default then exists or would arise therefrom, sales and transfers of Real Estate in an amount not to exceed $500,000 in the aggregate for all such sales, including sale-leaseback transactions involving any Real Estate; provided that, in the case of any such sale-leaseback transactions, if the First Lien Agent requests an intercreditor agreement to be executed by the purchaser/lessor of such Real Estate, the Agents shall also receive an intercreditor agreement on similar terms and conditions as agreed by the First Lien Agent (but subject to the priority rights of the First Lien Agent);

(g) as long as no Default or Event of Default then exists or would arise therefrom, sales and transfers of Equipment now or hereafter owned by any Loan Party or any Subsidiary thereof in an amount not to exceed $23,000,000 in the aggregate for all such sales, including sale-leaseback transactions involving such Equipment and the Scheduled Disposition; provided that, in the case of any such sale-leaseback transactions, if the First Lien Agent requests an intercreditor agreement to be executed by the purchaser/lessor of such Equipment, the Agents shall also receive an intercreditor agreement on similar terms and conditions as agreed by the First Lien Agent (but subject to the priority rights of the First Lien Agent); and

 

- 19 -

(h) dispositions, settlements and write-offs of accounts receivable in connection with the collection or compromise thereof in the ordinary course of business;

provided that all sales, transfers, leases and other dispositions permitted under clauses (f) and (g) shall be made at arm’s length, for fair value and not less than 75% of the consideration received in respect thereof shall be in the form of cash.

“ Permitted Dividends ” means:

(a) dividends with respect to Capital Stock payable solely in additional shares of or warrants to purchase common stock;

(b) stock splits or reclassifications of stock into additional or other shares of common stock;

(c) the declaration and payment of a dividend by (i) any Subsidiary of a Loan Party to a Loan Party and (ii) by any Subsidiary that is not a Loan Party to another Subsidiary that is not a Loan Party; and

(d) non-cash repurchases of Capital Stock deemed to occur upon the exercise of stock options or warrants if such Capital Stock represents a portion of the exercise price of such options or warrants.

“ Permitted Encumbrances ” means:

(a) Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 5.05;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in compliance with Section 5.05;

(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e) judgment Liens in respect of judgments that do not constitute an Event of Default under Section 7.01(k);

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of a Loan Party or any Subsidiary thereof;

 

- 20 -

(g) any Lien on any property or asset of any Loan Party set forth in Schedule 6.02 , so long as (i) such Lien shall not cover or extend to any other property or asset of any Loan Party or any Subsidiary thereof and (ii) such Lien shall secure only the Indebtedness that it secures as of the Closing Date (and extensions, modifications, refinancings, renewals and replacements thereof permitted under Section 6.01);

(h) (x) Liens on fixed or capital assets acquired by any Loan Party or any Subsidiary (and proceeds thereof and insurance proceeds relating thereto) which are permitted under clause (e)(i) of the definition of Permitted Indebtedness so long as (i) such Liens and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition or the completion of the construction or improvement thereof (other than refinancings thereof permitted hereunder), (ii) the Indebtedness secured thereby does not exceed 100% of the cost of acquisition of such fixed or capital assets, and (iii) such Liens shall not cover or extend to any other property or assets of the Loan Parties or any Subsidiary, and (y) Liens on Equipment securing Indebtedness permitted under clause (e)(ii) of the definition of Permitted Indebtedness or leases entered into pursuant to sale-leasebacks permitted under clause (g) of the definition of Permitted Disposition, so long as such Liens are limited to such Equipment, proceeds thereof and any insurance proceeds relating thereto;

(i) Liens created pursuant to the Loan Documents in favor of the Collateral Agent, for its own benefit and the benefit of the other Credit Parties, to secure the Obligations;

(j) landlords’ and lessors’ Liens in respect of rent not in default or being contested in good faith;

(k) possessory Liens in favor of brokers and dealers arising in connection with the acquisition or disposition of Investments owned as of the date hereof and Permitted Investments; provided that such Liens (i) attach only to such Investments and (ii) secure only obligations incurred in the ordinary course and arising in connection with the acquisition or disposition of such Investments and not any obligation in connection with margin financing;

(l) Liens arising solely by virtue of any statutory or common law provisions or customary provisions in account agreements relating to banker’s liens, liens in favor of securities intermediaries, rights of setoff or similar rights and remedies as to deposit accounts or securities accounts or other funds maintained with depository institutions or securities intermediaries;

(m) Liens in favor of the First Lien Agents securing the “Obligations” (as defined in the First Lien Credit Agreement) of the American Apparel (USA) and the other Loan Parties (as defined in the First Lien Credit Agreement);

 

- 21 -

(n) Liens securing the obligations of American Apparel Canada Wholesale Inc. and American Apparel Canada Retail Inc. (and any other Canadian Subsidiary) under the Canadian Loan;

(o) Liens securing Indebtedness permitted under clause (v) of the definition of Permitted Indebtedness;

(p) Liens of customs authorities relating to importation of goods;

(q) Liens arising out of conditional sale, title retention, consignments or similar arrangements;

(r) non-exclusive licenses of Intellectual Property permitted under clause (a) of the definition of Permitted Dispositions; and

(s) Liens on assets of Persons acquired in Acquisitions which were not incurred in contemplation of such Acquisition and which do not extend to assets of any other Person.

“ Permitted Holders ” means (i) Dov Charney, (ii) the spouse or a family member, estate or heir of Dov Charney, (iii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest (or beneficial interest, in the case of a trust) of which consist of Dov Charney and/or such other Persons referred to in clause (ii) above or any combination thereof, and (iv) Lion Capital LLP or any of its Affiliates.

“ Permitted Indebtedness ” means each of the following:

(a) Indebtedness created under the Loan Documents;

(b) Indebtedness set forth in Schedule 6.01 and extensions, modifications, renewals and replacements of any such Indebtedness, so long as after giving effect thereto (i) the principal amount of the Indebtedness outstanding at such time is not increased, (ii) the result of such extension, renewal or replacement shall not be an earlier maturity date or decreased weighted average life to maturity, (iii) the terms and conditions (including, if applicable, as to collateral and subordination, but excluding interest rates) of such extended, renewed or replaced Indebtedness are not materially less favorable to the Lenders than the terms and conditions of the Indebtedness being extended, renewed or replaced and (iv) the direct and contingent obligors with respect to such Indebtedness are not changed;

(c) Indebtedness of any Loan Party to any other Loan Party; provided that such Indebtedness (i) has a maturity which extends beyond the Maturity Date, (ii) does not require the payment of principal in cash prior to the Maturity Date (iii) is subordinated to the Obligations on terms reasonably acceptable to the Initial Lender and the Agents and (iv) is represented by a promissory note and pledged to the Collateral Agent (or any agent thereof, including, if applicable, the First Lien Agent) as Collateral for the Obligations;

 

- 22 -

(d) (i) Guarantees by any Loan Party of Indebtedness of any other Loan Party and (ii) Guarantees by any Foreign Subsidiary of Indebtedness of another Foreign Subsidiary;

(e) (i) purchase money Indebtedness of any Loan Party or their Subsidiaries to finance the acquisition of any fixed or capital assets, including Capital Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof (and not incurred in contemplation of such acquisition) and extensions, renewals, refinancings and replacements of any such Indebtedness that (w) do not increase the outstanding principal amount thereof or (x) result in an earlier maturity date or decreased weighted average life to maturity thereof, and (ii) Indebtedness incurred with respect to any financing of or secured by Equipment now or hereafter owned by any Loan Party (including without limitation any sale-leaseback transaction with respect to such equipment) and extensions, renewals, refinancings and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life to maturity thereof; provided that (x) with respect to extensions, renewals, refinancings or replacements of such Indebtedness under either clause (i) or (ii) above, (A) the terms and conditions (including, if applicable as to collateral and subordination, but excluding interest rates) of such extended, renewed or replaced Indebtedness are not materially less favorable to the Lenders than the terms and conditions of the Indebtedness being extended, renewed or replaced and (B) the direct and contingent obligors with respect to such Indebtedness are not changed, (y) in the case of any Indebtedness incurred with respect to any financing of, or secured by, Equipment in connection with a sale-leaseback transaction permitted hereunder (including the Scheduled Disposition), if the First Lien Agent requests an intercreditor agreement to be executed by the purchaser/lessor of such Equipment, the Agents shall also receive an intercreditor agreement on similar terms and conditions as agreed by the First Lien Agent (but subject to the priority rights of the First Lien Agent), and (z) the aggregate principal amount of Indebtedness permitted by this clause (e) and shall not exceed $25,000,000 at any time outstanding;

(f) Indebtedness under Hedge Agreements and guarantees thereof, entered into in the ordinary course of business and not for speculative purposes;

(g) contingent liabilities under surety bonds or similar instruments incurred in the ordinary course of business in connection with the construction or improvement of retail stores;

(h) Indebtedness under the First Lien Loan Documents; provided that in no event shall the principal amount of such Indebtedness at any time outstanding exceed $75,000,000 less the amount of any permanent repayments, permanent prepayments or commitment reductions thereunder; provided , further , that such limitation shall not apply to protective advances made pursuant to the First Lien Credit Agreement so long as the principal amount of all such Indebtedness at any time outstanding does not exceed $85,000,000 less the amount of any permanent repayments, permanent prepayments or commitment reductions thereunder;

 

- 23 -

(i) Indebtedness with respect to the deferred purchase price for any Permitted Acquisition; provided that such Indebtedness (i) does not require the payment of principal or interest in cash prior to the Maturity Date, (ii) has a maturity which extends beyond the Maturity Date, and (iii) is subordinated to the Obligations on substantially the same terms as those set forth in Exhibit E or on subordination terms reasonably acceptable to the Initial Lender and the Agents; provided , further , that in no event shall such Indebtedness exceed $5,000,000 at any time outstanding;

(j) Indebtedness of any Loan Party owing to any Foreign Subsidiary; provided that such Indebtedness (i) has a maturity which extends beyond the Maturity Date, (ii) does not require the payment of principal in cash prior to the Maturity Date, and (iii) is subordinated to the Obligations on substantially the terms set forth on Exhibit E or on subordination terms reasonably acceptable to Initial Lender and the Agents.

(k) Indebtedness under the Dov Charney Existing Notes; provided that in no event shall the aggregate principal amount of such Indebtedness at any time exceed $3,500,000 (after giving effect to the principal repayment to be made on the Closing Date) plus the amount of interest paid in kind thereon pursuant to the terms thereof (as such terms exist on the date hereof) and added to the principal amount of such Indebtedness;

(l) Indebtedness under the Canadian Loan Agreement and any documents executed in connection therewith, without duplication; provided that in no event shall the principal amount of such Indebtedness at any time outstanding exceed $5,000,000 less the amount of any permanent repayments, permanent prepayments or commitment reductions thereunder (excluding any repayments, prepayments or reductions relating to a refinancing or replacement of the Canadian Loan Document), and modifications, refinancings, refundings, renewals, replacements or extensions thereof ( provided that refinancing or replacements shall be permitted if the outstanding principal in the relevant currency is not increased, even if such refinancings or replacement results in the outstanding amounts thereof to exceed $5,000,000 because of fluctuations in the Exchange Rate for such currency after the date of original incurrence);

(m) [intentionally deleted];

(n) [intentionally deleted];

(o) Indebtedness of any Foreign Subsidiary to any other Foreign Subsidiary; and

(p) Indebtedness incurred by any Subsidiary owing to a Loan Party or any other Subsidiary to the extent that such Indebtedness is permitted pursuant to clauses (k) and (l) of the definition of “Permitted Investment”;

(q) Indebtedness in respect of trade payables more than 120 days past due incurred in the ordinary course of business in an aggregate amount not to exceed $5,000,000;

 

- 24 -

(r) [intentionally deleted];

(s) Indebtedness consisting of the financing of insurance premiums;

(t) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five Business Days of incurrence;

(u) Indemnification obligations or obligations in respect of purchase price or other similar adjustments incurred by any Loan Party pursuant to a Permitted Acquisition, any other Permitted Investment or Permitted Disposition hereunder; provided that such amount is not Indebtedness required to be reflected on the balance sheet of the Borrower or any of its Subsidiaries in accordance with GAAP (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this proviso);

(v) Indebtedness of Foreign Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at any time outstanding (it being understood that Indebtedness incurred under this clause (v) may be refinanced so long as the outstanding principal in the relevant currency is not increased, even if such refinancing results in the outstanding amounts thereof to exceed $10,000,000 because of fluctuations in the Exchange Rate for such currency after the date of original incurrence);

(w) Indebtedness of Persons acquired in Acquisitions not incurred in contemplation of such Acquisition so long as the aggregate amount of such Indebtedness outstanding at any time does not exceed $10,000,000; and

(x) other unsecured Indebtedness of the Loan Parties in an aggregate principal amount not to exceed $10,000,000 at any time outstanding; provided that such Indebtedness (i) has a maturity which extends beyond the Maturity Date, (ii) does not require the payment of principal or interest in cash prior to the Maturity Date and (iii) is subordinated to the Obligations on substantially the same terms as those set forth in Exhibit E or on subordination terms reasonably acceptable to the Initial Lender and the Agents.

“ Permitted Investments ” means each of the following:

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America) or any state or state agency thereof, in each case maturing within one (1) year from the date of acquisition thereof;

(b) Investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at the date of acquisition, the highest or next highest credit rating obtainable from S&P or from Moody’s;

 

- 25 -

(c) Investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof which are issued or guaranteed by, or placed with, and demand deposit and money market deposit accounts issued or offered by, any Lender or any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000;

(d) fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above (without regard to the limitation on maturity contained in such clause) and entered into with a financial institution satisfying the criteria described in clause (c) above or with any primary dealer;

(e) shares of any money market mutual fund that has substantially all of its assets invested in the types of investments referred to in clauses (a) through (d), above;

(f) Investments existing on the Closing Date;

(g) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(h) Loans or advances to employees including but not limited to advances for the purpose of travel, entertainment or relocation in the ordinary course of business; provided that no such loan to any individual shall exceed $50,000 at any time and all such loans to employees shall not exceed $500,000 in the aggregate at any time;

(i) as long as no Event of Default then exists or would arise therefrom, (i) Permitted Acquisitions of a Person which becomes a Loan Party or of assets which are acquired by a Loan Party and (ii) Permitted Acquisitions of a Person which does not become a Loan Party or of assets by a non-Loan Party so long as the aggregate amount of Permitted Acquisition Consideration of all Permitted Acquisitions consummated under this clause (ii) does not exceed, when combined with the aggregate amount of Investments made pursuant to clause (k) below, $35,000,000 in the aggregate plus an amount equal to any repayments, returns and distributions actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the fair market value of such Investment at the time such Investment was made);

(j) as long as no Event of Default then exists or would arise therefrom, other Investments in an amount not to exceed $2,000,000 in the aggregate plus an amount equal to any repayments, returns and distributions actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the fair market value of such Investment at the time such Investment was made);

(k) as long as no Event of Default then exists or would arise therefrom, Investments by a Loan Party in a Foreign Subsidiary to the extent that such Investments do not exceed, when combined with the aggregate amount of Permitted Acquisition

 

- 26 -

Consideration of all Permitted Acquisitions consummated pursuant to clause (i)(ii) above, $35,000,000 in the aggregate plus an amount equal to any repayments, returns and distributions actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the fair market value of such Investment at the time such Investment was made);

(l) Investments by a Loan Party in another Loan Party;

(m) Investments by a Foreign Subsidiary in another Foreign Subsidiary;

(n) Guarantees by any Loan Party of obligations in respect of Leases of any Foreign Subsidiary existing as of the Closing Date and described on Schedule 6.04 ; and

(o) Investments held by any Person acquired pursuant to an Acquisition and not made in contemplation thereof.

“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“ PIK Fee ” shall have the meaning provided in Section 2.01(c).

“ PIK Interest ” shall have the meaning provided in Section 2.04(a).

“ Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“ Pledge Agreement ” means the Ownership Interest Pledge and Security Agreement, dated as of the date hereof, among the Loan Parties party thereto and the Collateral Agent, for its own benefit and the benefit of the other Credit Parties, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“ Prepayment Event ” means any of the following events:

(a) except with respect to the Scheduled Disposition, any sale, transfer or other disposition pursuant to clause (f) or (g) of the definition of Permitted Disposition of any property or asset of a Loan Party or any Subsidiary of a Loan Party resulting in receipt of Net Proceeds in excess of $500,000; provided that the foregoing shall cease to be a Prepayment Event to the extent an amount equal to such Net Proceeds are utilized to acquire assets useful in the business of the Loan Parties and their Subsidiaries within six months after receipt of such Net Proceeds;

(b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of a Loan Party or any Subsidiary resulting in receipt of Net Proceeds in excess of $500,000; provided that the foregoing shall cease to be a Prepayment Event to the extent an amount equal to such Net Proceeds are utilized to acquire similar assets useful in the business of the Loan Parties and their Subsidiaries within six months after receipt of such Net Proceeds;

 

- 27 -

(c) the issuance by the Borrower of any Capital Stock, other than the Warrants, warrants issued to SOF Investments, L.P.. Private IV (and any Capital Stock issuable upon exercise thereof) or Capital Stock issued to management, employees or directors of the Borrower or any of its Subsidiaries pursuant to any stock option or stock appreciation rights plan or any management, director and/or employee stock ownership or incentive plan; or

(d) the incurrence by a Loan Party or any Subsidiary of a Loan Party of any Indebtedness other than Permitted Indebtedness.

“ Qualified Equity Interest ” means any Capital Stock that does not constitute a Disqualified Equity Interest.

“ Real Estate ” means all Leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Loan Party or any Subsidiary thereof, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.

“ Register ” has the meaning provided in Section 9.04(c).

“ Regulation U ” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“ Regulation X ” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“ Release ” has the meaning provided in Section 101(22) of CERCLA.

“ Reports ” has the meaning provided in Section 8.13(b).

“ Required Lenders ” means (i) if there are two or fewer Lenders who are not Delinquent Lenders, all Lenders who are not Delinquent Lenders or (ii) if there are three or more Lenders who are not Delinquent Lenders, at any time, Lenders (other than Delinquent Lenders) holding more than 50% of (A) until the Closing Date, the Commitments and (B) thereafter the aggregate unpaid principal amount of the Loans outstanding, including PIK Interest, if any, added to the principal amount of the Loans and the PIK Fee, in each case..

“ Restricted Payment ” means any dividend or other distribution (whether in cash, securities or other property) with respect to any class of Capital Stock of a Person, or any payment (whether in cash, securities or other property), including any sinking fund or similar

 

- 28 -

deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Capital Stock of a Person or any option, warrant or other right to acquire any Capital Stock of a Person; provided that “Restricted Payments” shall not include any dividends or distributions payable solely in Qualified Equity Interests of a Loan Party or a Subsidiary of a Loan Party.

“ S&P ” means Standard & Poor’s Ratings Service or any successor by merger or consolidation to its business.

“ Scheduled Disposition ” means any sale-leaseback transactions or other financings of the Equipment set forth on Schedule 6.05 .

“ SEC ” means the Securities and Exchange Commission or any successor agency thereto.

“ Security Agreement ” means the Security Agreement dated as of the date hereof, among the Loan Parties and the Collateral Agent, for its benefit and for the benefit of the other Credit Parties, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“ Security Documents ” means the Security Agreement, the Pledge Agreement, the Intellectual Property Security Agreement, the Facility Guaranty, the Facility Guarantors’ Collateral Documents, and each other security agreement or other instrument or document executed and delivered pursuant to this Agreement or any other Loan Document to secure any of the Obligations.

“ Senior Lenders ” means the lenders party to the First Lien Credit Agreement.

“ Settlement Date ” has the meaning provided in Section 2.11.

“ Solvent ” means, with respect to any Person on a particular date, that on such date (i) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (ii) the present fair saleable value of the properties and assets of such Person is not less than the amount that would be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (v) such Person is not engaged in a business or a transaction, and is not about to engage in a business or transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged.

“ Specified Financing Documentation ” means, collectively, the Existing First Lien Credit Agreement and the Security Agreement, Pledge Agreement, Intellectual Property Security Agreement and the Facility Guaranty (each as defined in the Existing First Lien Credit Agreement) and any similar agreement which replaces or refinances the Existing First Lien Credit Agreement, the Canadian Loan Agreement (and any similar agreement which replaces or refinances the Canadian Loan Agreement), the Dov Charney Existing Notes and all amendments, exhibits and schedules relating thereto.

 

- 29 -

“ Store ” means any retail store (which includes any real property, fixtures, equipment, inventory and other property related thereto) operated, or to be operated, by any Loan Party or Subsidiary thereof.

“ Subordinated Indebtedness ” means Indebtedness (including the Dov Charney Existing Notes) which is expressly subordinated in right of payment to the prior payment in full of the Obligations and which is in form and on terms approved in writing by the Initial Lender and the Agents.

“ Subsidiary ” means with respect to any Person (the “ parent ”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s Consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (i) of which Capital Stock representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (ii) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless the context otherwise requires, “Subsidiary” or “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“ Synthetic Lease ” means any lease or other agreement for the use or possession of property creating obligations which do not appear as Indebtedness on the balance sheet of the lessee thereunder but which, upon the insolvency or bankruptcy of such Person, may be characterized as Indebtedness of such lessee without regard to the accounting treatment.

“ Taxes ” means any and all current or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“ Total Commitment ” means $75,000,000.

“ Total Debt ” means, as of any date of determination, the outstanding principal amount of Indebtedness (not including Hedge Agreements and the undrawn portion of any Indebtedness described in clause (h) of the definition thereof) of the Loan Parties and their Subsidiaries on a Consolidated basis.

“ Total Debt to Consolidated EBITDA ” means, as of any date of determination, the ratio of (a) Total Debt outstanding as of such date of determination to (b) Consolidated EBITDA for the most recent four Fiscal Quarter period ended on or prior to such date of determination.

“ UCC ” means the Uniform Commercial Code as in effect from time to time in the State of New York.

“ Voting Agreement ” means the Investment Voting Agreement, dated as of March 13, 2009, between Dov Charney and Lion Capital (Guernsey) II Limited.

 

- 30 -

“ Unanimous Consent ” means the consent of Lenders (other than Disqualified Lenders) holding 100% of (i) until the Closing Date, the Commitments and (ii) thereafter, the aggregate unpaid principal amount of the Loans outstanding, including PIK Interest, if any, and the PIK Fee, in each case added to the principal amount of the Loans and (y) the aggregate Available Commitment then in effect.

“ Warrants ” means those certain Warrants to Purchase Shares of Common Stock of American Apparel, Inc. issued on March 13, 2009, and any other warrants issued to the Initial Lender after the date hereof.

“ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02 Terms Generally .

The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in the other Loan Documents), (b) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (f) all financial statements and other financial information provided by the Borrower to the Agents or any Lender shall be provided with reference to dollars, (g) all references to “$” or “dollars” or to amounts of money shall be deemed to be references to the lawful currency of the United States of America, and (h) this Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Borrower, the Initial Lender and the Agents and are the product of discussions and negotiations among all parties. Accordingly, this Agreement and the other Loan Documents are not intended to be construed against the Agents or any of the Lenders merely on account of the Agents’ or any Lender’s involvement in the preparation of such documents.

SECTION 1.03 Accounting Terms; GAAP .

Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect on the Closing Date; provided , however , that if the Borrower notifies the Administrative Agent that the Borrower requests an

 

- 31 -

amendment to any provision hereof to reflect the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such provision shall have been amended in accordance herewith.

SECTION 1.04 Currency Equivalents Generally .

For purposes of determining compliance with Section 6.01 with respect to any amount of Indebtedness in a currency other than dollars, compliance will be determined at the date of incurrence thereof using the dollar equivalent thereof at the Exchange Rate in effect at the date of such incurrence. For purposes of the foregoing, “ Exchange Rate ” means on any day with respect to any currency (other than dollars), the rate at which such currency may be exchanged into any other currency (including dollars), as set forth at approximately 11:00 a.m. (London time) on such day on the Reuters World Currency Page for such currency. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed by the Administrative Agent and the Borrower.

ARTICLE II

Amount and Terms of Credit

SECTION 2.01 Loans .

(a) Subject to the terms and conditions set forth herein, the Initial Lender agrees to make Loans on the Closing Date in an amount equal to $75,000,000. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed.

(b) The parties hereto hereby acknowledge and agree that the Loans made pursuant to Section 2.01(a) on the Closing Date, together with the Warrants, constitute an “investment unit” for Federal income tax purposes. The Borrower and Lion Capital LLP shall, as promptly as possible, but no later than thirty (30) days after the Closing Date, mutually determine, in consultation with a mutually agreeable accounting firm, an allocation of the $75,000,000 purchase price for such investment unit between the Loans made pursuant to Section 2.01(a) and the Warrants based on their respective relative fair market values.

(c) The Borrower agrees to pay to Lion Capital LLP, on the Closing Date a fee in amount equal to $5,000,000 (the “ PIK Fee ”). The PIK Fee shall be paid in full on the Closing Date by increasing the outstanding principal amount of Loans by the amount of the PIK Fee on the Closing Date. The PIK Fee so added to the principal amount of the Loans shall bear interest as provided in Section 2.04 beginning on the Closing Date. The obligation of the Borrower to pay the PIK Fee shall be automatically evidenced by this Agreement or, if applicable, any Notes issued pursuant to this Agreement.

 

- 32 -

SECTION 2.02 Making of Loans .

(a) The Borrower shall give the Initial Lender and the Administrative Agent irrevocable notice (which notice must be received by the Initial Lender prior to 6:00 p.m., New York City time, at least one Business Day prior to the Closing Date) requesting that the Initial Lender make the Loans on such dates and specifying the amount to be borrowed. Not later than 1:30 p.m., New York City time, on the Closing Date, the Initial Lender shall fund the amount of its Loans (as determined in accordance with Section 2.01) in immediately available funds to the Borrower by wire transfer of such funds in accordance with instructions provided to (and reasonably acceptable to) the Initial Lender.

(b) Each Lender may fulfill its Commitment with respect to any Loan by causing any lending office of such Lender to make such Loan; provided , however , that any such use of a lending office shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of the applicable Note. Each Lender shall, subject to its overall policy considerations, use reasonable efforts (but shall not be obligated) to select a lending office which will not result in the payment of increased costs by the Borrower pursuant to Section 2.06.

SECTION 2.03 Notes .

(a) The Loans made by each Lender shall be evidenced by Notes, upon request by such Lender, duly executed on behalf of the Borrower, dated the Closing Date, payable to the order of such Lender in an aggregate principal amount equal to such Lender’s Commitment or, in the case of Lion Capital LLP, in an aggregate principal amount equal to the PIK Fee.

(b) Each Lender is hereby authorized by the Borrower to endorse on a schedule attached to each Note delivered to such Lender (or on a continuation of such schedule attached to such Note and made a part thereof), or otherwise to record in such Lender’s internal records, an appropriate notation evidencing the date and amount of each Loan from such Lender, each payment and prepayment of principal of any such Loan, each payment of interest on any such Loan and the other information provided for on such schedule; provided , however , that the failure of any Lender to make such a notation or any error therein shall not affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms of this Agreement and the applicable Notes.

(c) Upon receipt of an affidavit of a Lender as to the loss, theft, destruction or mutilation of such Lender’s Note and upon cancellation of such Note, the Borrower will issue, in lieu thereof, a replacement Note in favor of such Lender, in the same principal amount thereof and otherwise of like tenor.

 

- 33 -

SECTION 2.04 Mandatory Principal and Interest Payments on Loans .

(a) The Borrower may, at its option (an “ Interest Election ”), elect to pay interest on the Loans on each Interest Payment Date (i) entirely in cash (“ Cash Interest ”), (ii) 50% in Cash Interest and 50% by increasing the outstanding principal amount of the Loans on the relevant Interest Payment Date by the amount of interest accrued from the effective date of any such Interest Election until such Interest Payment Date (“ PIK Interest ”) or (iii) 100% in PIK Interest, with such increases to the principal amount of the Loans allocated on a pro rata basis to the outstanding Loans of the Lenders in accordance with such Lenders Aggregate Exposure Percentages immediately prior to such allocation. Unless the context otherwise requires, for all purposes hereof, references to “principal amount” of the Loans refers to the face amount of the Loans and not gross proceeds funded hereunder and includes any interest so capitalized and added to the principal amount of the Loans from the date on which such interest has been so added.

(b) The Borrower must make an Interest Election by delivering a notice to the Administrative Agent no later than 10 Business Days prior to the effective date of any Interest Election, which notice shall specify (x) whether such Interest Election is made under clause (i), (ii) or (iii) of the immediately preceding paragraph and (y) the effective date of such Interest Election, which effective date must be the first Business Day after the preceding Interest Payment Date. An Interest Election shall remain in effect until the earlier of (i) next Interest Payment Date following the effective date of such Interest Election and (ii) the Maturity Date; provided that no more than one Interest Election may be given by the Borrower in any three-month period. The Administrative Agent shall promptly deliver a corresponding notice to each Lender. In the absence of such an election for any interest period, interest on the Loans shall be payable as PIK Interest.

(c) Subject to Section 2.05, each Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 (or 366 days, if applicable) at a rate per annum that shall be equal to the Interest Rate compounding quarterly.

(d) Cash Interest accrued on each Loan shall be payable on the Interest Payment Dates applicable to such Loan, except as otherwise provided in this Agreement. PIK Interest accrued on each Loan shall be payable by increasing the outstanding principal amount of the Loans by the amount of PIK Interest on the Interest Payment Date applicable to such Loan for such period and in such amounts as required by the relevant Interest Election(s). Any interest so added to the principal amount of the Loans shall bear interest as provided in this Section 2.04 from the date on which such interest has been so added. The obligation of the Borrower to pay PIK Interest shall be automatically evidenced by this Agreement or, if applicable, any Notes issued pursuant to this Agreement.

(e) All accrued and unpaid interest shall be paid in cash at maturity (whether by acceleration or otherwise), after such maturity on demand and upon any repayment or prepayment thereof (on the amount prepaid).

(f) In addition to interest payments required to be made hereunder, and subject to the rights of acceleration hereunder, the full unpaid principal balance of the Loans, including PIK Interest, if any, and the PIK Fee, in each case that has been added to the principal balance of the Loans, shall be payable in full on the Maturity Date.

 

- 34 -

SECTION 2.05 Default Interest .

After the occurrence of any Default which remains unremedied for twenty (20) days and at all times thereafter while such Default remains unremedied, interest shall accrue on all outstanding Loans including on PIK Interest, if any, and the PIK Fee, in each case that has been added to the principal amount of the Loan (after as well as before judgment, as and to the extent permitted by law) at a rate per annum (the “ Default Rate ”) equal to the Interest Rate in effect from time to time plus 2% per annum and such interest shall be payable in cash on each Interest Payment Date (or any earlier maturity of the Loans).

SECTION 2.06 Increased Costs .

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any holding company of any Lender; or

(ii) impose on any Lender any other condition affecting this Agreement or Loans made by such Lender;

and the result of any of the foregoing shall be to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

(b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section 2.06 and setting forth in reasonable detail the manner in which such amount or amounts were determined shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within fifteen (15) Business Days after receipt thereof.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.06 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that no compensation will be paid to any Lender with respect to any Change in Law that has occurred 180 days before such Lender has demanded compensation under this Section 2.06.

 

- 35 -

SECTION 2.07 Optional Prepayment of Loans; Reimbursement of Lenders .

(a) The Borrower shall have the right to prepay any outstanding Loans, in whole or part, upon at least two (2) Business Day’s prior written notice or facsimile notice to the Administrative Agent, prior to 5 p.m., New York time.

(b) [Intentionally Deleted.]

(c) Any prepayment made pursuant to this Section 2.07 shall be subject to the following limitations:

(i) All prepayments shall be paid to the Administrative Agent for application to the prepayment of outstanding Loans, including PIK Interest, if any, and the PIK Fee, together with any accrued and unpaid interest, ratably in accordance with each Lender’s Aggregate Exposure Percentage; and

(ii) Each notice of prepayment shall specify the prepayment date and the principal amount of the Loans to be prepa