PROMISSORY NOTE

FOR VALUE RECEIVED, American Apparel (USA), LLC, a California limited liability company (the “ Maker ”), hereby promises to pay to the order of Dov Charney (the “ Payee ”), his successors and assigns, on or before the Maturity Date (as hereinafter defined), the principal sum of FOUR MILLION DOLLARS ($4,000,000) , in lawful money of the United States of America, together with accrued and unpaid interest hereon from the date hereof plus all other unpaid amounts to be paid or reimbursed by the Maker pursuant to this Note, in accordance with the terms hereinafter set forth.

1.            Interest Rate .  The outstanding principal amount of this Note, together with all accrued and unpaid interest hereon, shall bear interest at 6.00% per annum (the “ Base Rate ”).  Interest shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 2009.  Following the occurrence and during the continuance of an Event of Default, Maker further promises to pay interest on the outstanding balance under this Note at a rate of interest (the “ Default Rate ”) equal to the Base Rate plus two percent (2.0%) per annum, which amount shall accrue from the date of such Event of Default until the earlier of the date on which all amounts due under this Note shall have been paid in full or the date on which such Event of Default is cured or waived, and shall be paid in kind in accordance with the terms hereof (“ Default Interest ”).  Except as otherwise provided herein, interest shall be calculated on the basis of a 360-day year of twelve 30-day months.

All interest that accrues on this Note shall be paid in kind and added to the outstanding principal amount of this Note.  Interest that is paid in kind and added to the outstanding principal amount of this Note, together with any Default Interest accruing hereunder from time to time, is collectively referred to herein as “ Additional PIK Principal ”.  Additional PIK Principal shall be added to the principal amount of this Note, and shall be considered principal for all purposes under this Note, and without limiting the foregoing, shall bear interest at the Base Rate as provided herein, beginning on the date such interest is paid in kind and the Additional PIK Principal it reflects is added to the principal amount hereof.

2.            Maturity Date .  The principal amount of this Note (or, if less, the unpaid principal balance of such amount) together with all accrued and unpaid interest hereon plus all other unpaid amounts to be paid or reimbursed by the Maker hereunder shall be due and payable by the Maker in full on January 2, 2013 (the “ Maturity Date ”).

3.            Application of Payments; Overdue Payments .  Each payment on this Note shall be credited first to the payment of all fees, costs and expenses for which the Payee is entitled to reimbursement pursuant to Section 10 hereof, then to accrued but unpaid interest, and then to the principal.  All payments of the unpaid principal balance and interest will be made without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature, unless the withholding of such taxes or duties is required by law.

4.            Manner of Payment .  All payments hereunder shall be made in immediately available funds to the Payee or to such other payee or address as the Payee may designate from time to time.  If any payment of principal or interest on this Note is due on a day which is not a Business Day, as defined below, such payment shall be due on the next succeeding Business Day, and such extension of

5.            Prepayment .  Unless such prepayment is then prohibited to be made pursuant to the terms of the Second Amended and Restated Subordination Agreement, dated as of February 10, 2009 (as amended, restated, amended and restated, supplemented, modified or replaced from time to time, the “ BOA Subordination Agreement ”), among the Holder, Maker and Bank of America, N.A. (successor by merger to LaSalle Business Credit, LLC, as Agent for LaSalle Bank Midwest National Association, acting through its division, LaSalle Retail Finance), as Administrative Agent or the Subordination Agreement, dated as of February 10, 2009, (as amended, restated, amended and restated, supplemented, modified or replaced from time to time, the “ SOF Subordination Agreement ” and, together with the BOA Subordination Agreement, the “ Subordination Agreements ”), among the Holder, Maker and SOF Investments, L.P. – Private IV, the Maker shall have the right to prepay the principal amount hereof in full or in part, together with all accrued interest on the amount prepaid to the date of such prepayment, at any time and from time to time (the “ Prepayment Right ”).  Any prepayment amount received by the Payee in connection with the Prepayment Right shall be applied first to the payment of all fees, costs and expenses for which the Payee is entitled to reimbursement pursuant to Section 10 hereof, then to accrued but unpaid interest on this Note through the date of such prepayment, then to principal.  Any such prepayment shall be payable without any premium or penalty of any kind.

6.            Covenant .  The Maker agrees that, until this Note shall have been repaid in full, the Maker shall pay the principal amount of and interest on this Note on the dates and in the manner provided herein.

7.            Further Assurances .  At the Maker’s reasonable expense, the Maker shall do all acts, furnish to the Payee all agreements, consents, instruments or other documents, and do or cause to be done all such other things as the Payee may reasonably request from time to time in order to give full effect to the purpose and provisions of this Note.  If the Maker fails to perform any act r