Exhibit 10.1

 

 

 

FIFTH AMENDMENT TO

CREDIT AGREEMENT

  BANK OF AMERICA, N.A.

 

 

 

Date:  December 19, 2008

THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this “Fifth Amendment”) is made to the
Credit Agreement (as amended, the “Credit Agreement”) dated as of July 2, 2007
by and among:

(a) AMERICAN APPAREL (USA), LLC (f/k/a AAI Acquisition LLC (successor-by-merger
to American Apparel, Inc.)), a corporation organized under the laws of the State
of California, with its principal executive offices at 747 Warehouse Street, Los
Angeles, California 90021, for itself and as agent (in such capacity, the “Lead
Borrower”) for the other Borrowers now or hereafter party to the Credit
Agreement; and

(b) the BORROWERS now or hereafter party to the Credit Agreement; and

(c) the FACILITY GUARANTORS now or hereafter party to the Credit Agreement; and

(d) 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), with offices at 100 Federal Street, 9th
Floor, Boston, Massachusetts 02110, as administrative agent (in such capacity,
the “Administrative Agent”) for its own benefit and the benefit of the other
Credit Parties; and

(e) 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), with offices at 100 Federal Street, 9th
Floor, Boston, Massachusetts 02110, as collateral agent (in such capacity, the
“Collateral Agent”, and together with the Administrative Agent, individually an
“Agent” and collectively, the “Agents”) for its own benefit and the benefit of
the other Credit Parties; and

(f) WELLS FARGO RETAIL FINANCE, LLC, with offices at One Boston Place, 19 th
Floor, Boston, Massachusetts 02108, as collateral monitoring agent (in such
capacity, the “Collateral Monitoring Agent”) for its own benefit and the benefit
of the other Credit Parties; and

(g) the LENDERS party to the Credit Agreement; and

 

-1-

--------------------------------------------------------------------------------

 

(h) BANK OF AMERICA, N.A. (successor by merger to LaSalle Bank National
Association), a national banking association with offices at 100 Federal Street,
9th Floor, Boston, Massachusetts 02110, as Issuing Bank;

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

Background:

A. Amendment. The parties hereto entered into that certain First Amendment to
Credit Agreement on October 11, 2007, that certain Second Amendment and Waiver
to Credit Agreement on November 26, 2007, that certain Third Amendment to Credit
Agreement on December 12, 2007, and that certain Fourth Amendment to Credit
Agreement on June 20, 2008. The parties hereto desire to further amend the
Credit Agreement on the terms and conditions set forth herein.

B. SOF Investments Loan. SOF Investments has requested that the Loan Parties
agree to certain modifications of the SOF Investments Loan. Pursuant to the
Credit Agreement and that certain Intercreditor Agreement dated as of July 2,
2007 (as amended, restated, supplemented or otherwise modified, the
“Intercreditor Agreement”) by and among the Agents (as “First Lien
Administrative Agent” thereunder) and SOF Investments (as “Second Lien
Administrative Agent” thereunder) and acknowledged by the Lead Borrower, certain
modifications of the SOF Investments Loan are subject to the consent and
approval of the Agents. The Loan Parties have requested that the Agents consent
to and approve the modifications set forth in the amendment to the SOF
Investments Loan attached hereto in the form of Exhibit A. The Agents are
willing to consent to such amendment, subject to the terms and conditions set
forth herein.

Accordingly, it is hereby agreed, as follows:

 

1. Amendment to Credit Agreement. Subject to satisfaction of each and all of the
Preconditions to Effectiveness set forth in Section 3 hereof, the Credit
Agreement is amended as follows:

 

  a. By deleting Exhibit K (Form of Compliance Certificate) to the Credit
Agreement in its entirety and substituting the attached Exhibit K in its stead.

 

  b. By deleting Exhibit M (Financial Performance Covenants) to the Credit
Agreement in its entirety and substituting the attached Exhibit M in its stead.

 

-2-

--------------------------------------------------------------------------------

 

 

  c. By adding to Section 1.01 the following new definitions in appropriate
alphabetical order:

 

       “ “Cash Flow Projections” means the projections demonstrating the Lead
Borrower’s and its Subsidiaries’ weekly cash flows (including an Availability
model) for the thirteen-week period commencing on or about the date of delivery
to the Administrative Agent of the initial Cash Flow Projections in accordance
with SECTION 5.01(j) hereof, together with a detailed description of any
assumptions made therein, in each case in form and substance satisfactory to the
Administrative Agent in the good faith exercise of its reasonable business
judgment, but in its sole discretion nonetheless.”

 

       “ “Deteriorating Lender” means any Delinquent Lender or any Lender as to
which (a) the Issuing Bank has a good faith belief that such Lender has
defaulted in fulfilling its obligations under one or more other syndicated
credit facilities as a result of such Lender’s financial condition, or (b) a
Person that Controls such Lender has been deemed insolvent or become the subject
of a bankruptcy, insolvency or similar proceeding.”

 

       “ “Fifth Amendment Fee Letter” means the Fee Letter dated as of
December 18, 2008 by and among the Lead Borrower and the Agents.”

 

       “ “Intercreditor Agreement” means that certain Intercreditor Agreement
dated as of the Closing Date by and among the Agents (as “First Lien
Administrative Agent” thereunder) and SOF Investments (as “Second Lien
Administrative Agent” thereunder) and acknowledged by the Lead Borrower, as
amended, restated, supplemented or otherwise modified from time to time.”

 

       “ “Richter” means Richter Consulting, Inc.”

 

       “ “Raw Materials Appraisal Percentage” means 60%.”

 

       “ “Warrants” means those certain Warrants to Purchase Shares of Common
Stock of American Apparel, Inc. issued to SOF Investments on December 18, 2008.”

 

       “ “Yearly Projections” shall mean the balance sheet, income statement,
and cash flow projections (including an Availability model) of the Lead Borrower
and its Subsidiaries, prepared on a monthly basis for the balance of the Fiscal
Year ending December 31, 2008 and the Fiscal Year ending December 31, 2009,
together with a detailed description of any assumptions made therein, in each
case in form and substance satisfactory to the Administrative Agent in the good
faith exercise of its reasonable business judgment, but in its sole discretion
nonetheless.”

 

  d. By deleting the definition of “Applicable Margin” in its entirety and
substituting the following definition in its stead:

 

       “Applicable Margin” means the following:

 

Applicable Margin for LIBO Loans

 

Applicable Margin for Prime Rate Loans

4.50%

  2.50%

 

-3-

--------------------------------------------------------------------------------

 

 

  a. By deleting clause (a) of the definition of “Borrowing Base” in its
entirety and substituting the following clause (a) in its stead:

 

       “(a) (i) the Raw Materials Appraisal Percentage of the Appraised
Inventory Liquidation Value with respect to Eligible Inventory consisting of raw
materials, and (ii) the Appraisal Percentage of the Appraised Inventory
Liquidation Value with respect to all other Eligible Inventory;”

 

 

b.

By amending the definition of “Equipment Reduction Amount” by deleting the
phrase “one-sixtieth (1/60 th)” in the second line thereof in its entirety and
substituting the phrase “one-thirtieth (1/30th)” in its stead.

 

  c. By amending the definition of “Permitted Disposition” by deleting the word
“and” at the end of clause (f) thereof and adding the following new clause
(g) immediately after clause (f) thereof:

 

       “(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 in an amount not to exceed $15,000,000 in the aggregate for all such
sales, including sale-leaseback transactions involving such equipment; provided
that (i) the Net Proceeds received by any Loan Party in connection therewith
shall be deposited into the Concentration Account for application to and
reduction of the Obligations in accordance with SECTION 2.16 hereof, and (ii) in
the case of any such sale-leaseback transactions, upon the request of the
Agents, the lessor(s) of any such equipment shall have entered into an
intercreditor agreement with the Agents, in form and substance satisfactory to
the Collateral Agent in the good faith exercise of its reasonable business
judgment, but in its sole discretion nonetheless;”

 

  d. By amending the definition of “Permitted Encumbrances” by deleting clause
(h) thereof and substituting the following new clause (h) in its stead:

 

       “(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 extend to any other property or assets of the Loan
Parties, and (y) Liens on

 

-4-

--------------------------------------------------------------------------------

 

 

       equipment securing Indebtedness permitted under clause (e)(ii) of the
definition of Permitted Indebtedness or leases entered into pursuant to
sale-leaseback transactions 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;”

 

  e. By amending the definition of “Permitted Indebtedness” by deleting clauses
(e), (k), (l) and (q) thereof in their entirety and substituting the following
new clauses (e), (k), (l) and (q) in their stead:

 

       “(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 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 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 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 thereof; provided that (x) with respect to
extensions, renewals, or replacements of such Indebtedness, the holders of such
Indebtedness are not afforded covenants, defaults, rights or remedies more
burdensome in any material respect to the obligor or obligors than those
contained in the Indebtedness being extended, renewed or replaced, (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,
upon request of the Agents, the lessor(s) of any such equipment shall have
entered into an intercreditor agreement with the Agents, in form and substance
satisfactory to the Collateral Agent in the good faith exercise of its
reasonable business judgment, but in its sole discretion nonetheless, and
(z) that the aggregate principal amount of Indebtedness permitted by this clause
(e) and clause (i) below shall not exceed $20,000,000 at any time outstanding;”

 

       “(k) [Intentionally Deleted.];”

 

       “(l) Subordinated Indebtedness not existing on the Closing Date, 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 terms reasonably
acceptable to the Agents;”

 

       “(q) other unsecured Indebtedness in an aggregate principal amount not
exceeding $25,000,000 at any time outstanding, provided that the terms of such
Indebtedness are reasonably acceptable to the Agents;”

 

-5-

--------------------------------------------------------------------------------

 

 

  f. By amending the definition of “Prepayment Event” by deleting clause
(d) thereof in its entirety and substituting the following new clause (d) in its
stead:

“(d) The incurrence by a Loan Party of any Indebtedness other than Permitted
Indebtedness (other than Permitted Indebtedness of the types described in
clauses (l) or (q) of the definition thereof).”

 

  g. By deleting the definition of “Prime Rate” in its entirety and substituting
the following definition in its stead:

“Prime Rate” means, for any day, the highest of: (a) the variable annual rate of
interest then most recently announced by the Administrative Agent as its “Prime
Rate”; (c) the one-month LIBO Rate plus two and one-half percent (2.50%) per
annum, which rate shall be determined on a daily basis; and (c) the Federal
Funds Effective Rate in effect on such day plus  1/2 of 1% (0.50%) per annum.
The Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate being charged to any customer. If for any reason the Administrative
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds Effective Rate
for any reason, including the inability or failure of the Administrative Agent
to obtain sufficient quotations thereof in accordance with the terms hereof, the
Prime Rate shall be determined without regard to clause (b) of the first
sentence of this definition, until the circumstances giving rise to such
inability no longer exist. Any change in the Prime Rate due to a change in the
Administrative Agent’s Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Administrative Agent’s
Prime Rate or the Federal Funds Effective Rate, respectively.”

 

  h. By deleting the definition of “SOF Investments” in its entirety and
substituting the following new definition in its stead:

“SOF Investments” means SOF Investments, L.P. – Private IV, or another lender
party to the Material Agreements in respect of the SOF Investments Loan.”

 

  i. By deleting the definition of “SOF Investments Loan” in its entirety and
substituting the following new definition in its stead:

“SOF Investments Loan” means the term loan in the aggregate principal amount of
$51,000,000 made by SOF Investments to the Borrowers, the terms of which are
satisfactory to the Administrative Agent, as such loan may be refinanced in
accordance with the terms of this Agreement and the Intercreditor Agreement or
otherwise on terms satisfactory to the Administrative Agent in the good faith
exercise of its reasonable business judgment, but in its sole discretion
nonetheless.”

 

-6-

--------------------------------------------------------------------------------

 

 

  j. By amending Section 2.05 (Swingline Loans) thereto as follows:

 

  i. By amending clause (a) thereof by adding the phrase “in its sole
discretion” immediately after the phrase “at any time” in the second line
thereof;

 

  ii. By amending clause (b) thereof by adding the phrase “in its sole
discretion” (i) immediately after the phrase “Swingline Loans may be made by
Swingline Lender” in the first line thereof, and (ii) immediately after the
phrase “continue to make Swingline Loans” in the third sentence thereof.

 

  k. By deleting Section 2.12(a) (Letters of Credit) thereto in its entirety and
substituting the following new Section 2.12(a) in its stead:

“(a) Upon the terms and subject to the conditions herein set forth, at any time
and from time to time after the date hereof and prior to the Termination Date,
the Lead Borrower, on behalf of the Borrowers, may request the Issuing Bank to
issue, and subject to the terms and conditions contained herein, the Issuing
Bank shall issue, for the account of the relevant Borrower, one or more Letters
of Credit; provided, however, that no Letter of Credit shall be issued (x) if
after giving effect to such issuance (i) the aggregate Letter of Credit
Outstandings shall exceed $10,000,000, or (ii) the aggregate Revolving Loan
Credit Extensions (including Swingline Loans) would exceed the limitation set
forth in SECTION 2.01(a)(i), and (y) without the prior consent of the
Administrative Agent if a default of any Revolving Credit Lender’s obligations
to fund under this SECTION 2.03 exists or any Revolving Credit Lender is at such
time a Delinquent Lender or Deteriorating Lender hereunder, unless the Issuing
Bank has entered into arrangements satisfactory to the Issuing Bank with the
Borrowers or such Revolving Credit Lender to eliminate the Issuing Bank’s risk
with respect to such Revolving Credit Lender.”

 

  l. By amending Section 2.17(b) (Fees) thereto by deleting the phrase “0.375%
per annum” therefrom in its entirety and substituting the phrase “0.50% per
annum” in its stead.

 

  m. By amending Section 5.01 (Financial Statements and Other Information)
thereof by deleting the word “and” at the end of clause (i) thereof,
re-lettering clause (j) thereof as clause (k), and inserting the following new
clause (j) therein:

“(j) in addition to the other documents and other information required to be
delivered pursuant to this SECTION 5.01, (i) from and after December 31, 2009,
on or before Wednesday of each calendar week, a comparison of projected to
actual performance for such period and a detailed explanation of any variances,
which comparison and explanation shall be certified by the chief financial
officer of the Lead Borrower; and (ii) upon request from the Administrative
Agent, updated Cash Flow Projections, in each case in form, scope and substance
satisfactory to the Agents in the good faith exercise of their reasonable
business judgment, but in their sole discretion nonetheless.”

 

-7-

--------------------------------------------------------------------------------

 

 

  n. By amending Section 5.08(b) (Books and Records; Inspection and Audit
Rights; Appraisals; Accountants) thereto as follows:

 

  i. By deleting the proviso in the second sentence in its entirety and
substituting the following new proviso in its stead:

“provided, that the Loan Parties shall be responsible only for the costs and
expenses of three (3) appraisals of Inventory, three (3) appraisals of
Equipment, and three (3) commercial finance examinations in any twelve month
period following the Closing Date, unless (x) an Event of Default shall have
occurred and be continuing, or (y) the Agents are required to obtain such
appraisals and/or commercial finance examinations pursuant to Applicable Law, in
either of which cases the Agents may undertake such additional appraisals and
commercial finance examinations as they deem appropriate, at the Loan Parties’
sole cost and expense.”

 

  ii. By adding the following new sentences at the end thereof.

“Each appraisal, commercial finance examination and other evaluation conducted
in accordance with this SECTION 5.08(b) shall be in form, scope and substance
satisfactory to the Agents in the good faith exercise of their reasonable
business judgment, but in their sole discretion nonetheless. Without limiting
their other obligations under this SECTION 5.08(b), the Loan Parties shall
cooperate with Richter in conducting an updated commercial finance examination,
which cooperation shall include (subject to customary confidentiality
undertakings by Richter), without limitation, (i) providing all financial
information and inventory data of the Loan Parties reasonably requested by
Richter, (ii) providing access to the books and records of the Loan Parties and
such other information as Richter may reasonably request, and (iii) making
officers of the Loan Parties available to discuss the affairs, finances and
accounts of the Loan Parties with Richter.”

 

  o. By amending Section 5.08(c) (Books and Records; Inspection and Audit
Rights; Appraisals; Accountants) thereof by adding the following new sentences
at the end thereof:

“Without limiting the generality of the foregoing, the Agents and the Lenders
shall retain Richter or another independent financial consultant, satisfactory
to the Agents in the good faith exercise of their reasonable business judgment,
but in their sole discretion nonetheless, to conduct a review of the initial
Cash Flow Projections and the Yearly Projections delivered to the Agents, which
review shall include an analysis of, among other things, whether the Loan
Parties’ assumptions made therein are reasonable. The

 

-8-

--------------------------------------------------------------------------------

 

Loan Parties shall cooperate with Richter in such review, which cooperation
shall include (subject to customary confidentiality undertakings by Richter),
among other things, (i) providing all financial information of the Loan Parties
reasonably requested by Richter, including all such information used in
preparing such initial Cash Flow Projections and Yearly Projections,
(ii) providing reasonable access to the books and records of the Loan Parties
and such other information as Richter may reasonably request, and (iii) making
officers of the Loan Parties available to discuss the affairs, finances and
accounts of the Loan Parties with Richter. Upon completion of such review by the
Agents and promptly following the Agents’ request therefor, the Loan Parties
shall deliver to the Agents any updated Cash Flow Projections and Yearly
Projections, each in form and substance satisfactory to the Agents in the good
faith exercise of their reasonable business judgment, but in their sole
discretion nonetheless.”

 

  p. By amending Section 5.09 (Physical Inventories) as follows:

 

  i. By amending clause (a) thereof by inserting the phrase “and/or their agents
or representatives” immediately following the phrase “The Agents” in the second
sentence thereof.

 

  ii. By adding the following new clause (c) at the end thereof:

“(c) Without limiting the generality of Section 5.09(a) or any of the Loan
Parties’ obligations therein, the Loan Parties, at their own expense, shall
cause a physical inventory (including, without limitation, with respect to
assets of the type included in the Borrowing Base (the “Borrowing Base
Collateral”) located at each warehouse and each other location containing any
Borrowing Base Collateral) to be commenced on or before January 15, 2009 and
concluded on or before January 31, 2009, conducted by such inventory takers as
are satisfactory to the Agents and following such methodology as is consistent
with the methodology used in the immediately preceding inventory or as otherwise
may be satisfactory to the Agents. Richter shall, and the Agents, the Lenders
and/or their respective agents or representatives may, participate in and/or
observe each such physical inventory, in each case at the expense of the Loan
Parties. The Borrowers, within ten (10) Business Days following the completion
of such inventory, shall provide the Agents with a reconciliation of the results
of such inventory (as well as of any other physical inventory undertaken by a
Loan Party) and shall post such results to the Loan Parties’ stock ledgers and
general ledgers, as applicable, which reconciliation and results shall have been
satisfactorily reviewed by Richter; provided if the Administrative Agent
determines in the good faith exercise of its reasonable business judgment, but
in its sole discretion nonetheless, that the failure of the Loan Parties to
comply with any covenant set forth in this clause (c) is not a result of the
Loan Parties’ action or inaction, the Administrative Agent may, in the good
faith exercise of its reasonable business judgment, but in its sole discretion
nonetheless, elect to provide a one-time extension of any deadline set forth in
this clause (c) for a period not to exceed two (2) weeks.”

 

-9-

--------------------------------------------------------------------------------

 

 

  q. By deleting Section 6.06 (Equity Issuances) thereto in its entirety and
substituting the following new Section 6.06 in its stead:

“SECTION 6.06 Equity Issuances. No Loan Party will, or will permit any
Subsidiary to, (i) issue any preferred stock or other Capital Stock (except for
preferred stock (x) all dividends in respect of which are to be paid (and all
other payments in respect of which are to be made) in additional shares of such
preferred stock, in lieu of cash until all Obligations are paid in full and all
Commitments terminated, (y) that is not subject to redemption other than
redemption at the option of the Loan Party issuing such preferred stock and
(z) all payments in respect of which are expressly subordinated to the
Obligations), (ii) except as permitted above, be or become liable in respect of
any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or
make any other payment in respect of (x) any shares of Capital Stock of any Loan
Party or (y) any option, warrant or other right to acquire any such shares of
Capital Stock of any Loan Party, or (iii) except as permitted above, issue any
additional shares of its Capital Stock; provided that notwithstanding anything
to the contrary contained herein, nothing in this SECTION 6.06 shall prohibit
(a) the issuance of Capital Stock by the Parent (other than preferred stock not
permitted to be issued under clause (i) above) so long as the Net Proceeds
thereof (if any) are deposited into the Concentration Account for application to
and reduction of the Obligations in accordance with SECTION 2.16 hereof; (b) the
issuance of options or stock awards, including, without limitation, issuances of
options or stock awards to employees of the Merger Subsidiary pursuant to the
Merger Agreement and expressly set forth therein so long as the Net Proceeds
thereof (if any) are deposited into the Concentration Account for application to
and reduction of the Obligations in accordance with SECTION 2.16 hereof, or
(c) the issuance of Capital Stock by Parent (other than preferred stock not
permitted to be issued under clause (i) above) with respect to the Warrants or
in connection with the issuance of options, warrants or stock awards, or in
connection with the exercise of options, warrants or stock awards, so long as
the Net Proceeds thereof (if any) are deposited into the Concentration Account
for application to and reduction of the Obligations in accordance with SECTION
2.16 hereof.”

 

  r. By amending Section 6.07(b) (Restricted Payments; Certain Payments of
Indebtedness) thereto as follows:

 

  i. By deleting clause (ii) thereof in its entirety and substituting the
following clause (ii) in its stead:

“(ii) mandatory payments of regularly scheduled interest and fees as and when
due in respect of the SOF Investments Loan;”

 

-10-

--------------------------------------------------------------------------------

 

 

  ii. By adding the phrase “and interest” after the phrase “any prepayments of
principal” in clause (vii) thereof;

 

  iii. By deleting clause (viii) in its entirety and substituting the following
new clauses (viii) and (ix) in its stead:

“(viii) conversions to equity of Indebtedness permitted pursuant to clauses
(l) or (q) of the definition of Permitted Indebtedness; and

(ix) payments on account of Permitted Indebtedness of any type other than that
described in any of clause (i) through (viii) hereof so long as the Payment
Conditions have been satisfied.”

 

  s. By amending Section 7.01(Events of Default) thereto as follows:

 

  i. By deleting clause (r) thereof in its entirety and substituting the
following new clause (r) in its stead:

“(r) A material breach by any Borrower, any other Loan Party or any other Person
under any of the Material Agreements, provided that such breach shall be deemed
continuing hereunder until the Agents or the Required Lenders have expressly
waived such breach in writing, notwithstanding the fact that such breach may
have been waived under the terms of the applicable Material Agreements;”

 

  ii. By adding the word “or” to the end of clause (v) thereof,

 

  iii. By adding the following new clause (w) thereto:

“(w) if, on or prior to April 1, 2009, the Loan Parties shall not have engaged
any of the “big four” independent accounting firms or another nationally
recognized independent accounting firm reasonably acceptable to the Agents, as
its auditor.”

 

  t. By deleting Section 8.15(a) (Delinquent Lender) thereto in its entirety and
substituting the following new Section 8.15(a) in its stead:

“(a) If for any reason any Lender shall have (i) failed or refused to abide by
its obligations under this Agreement, including without limitation its
obligation to make available to Administrative Agent its Revolving Credit
Commitment Percentage of any Revolving Credit Loans, expenses or setoff or
purchase its Revolving Credit Commitment Percentage of a participation interest
in the Swingline Loans, (ii) otherwise failed to pay over to the Administrative
Agent or any other Lender any other amount required to be paid by it hereunder
within one Business Day of the date when due, unless

 

-11-

--------------------------------------------------------------------------------

 

the subject of a good faith dispute, or (iii) been deemed insolvent or become
the subject of a bankruptcy, insolvency or similar proceeding (any such Lender,
a “Delinquent Lender”), then, in addition to the rights and remedies that may be
available to the other Credit Parties, the Loan Parties or any other party at
law or in equity, and not at limitation thereof, (x) such Delinquent Lender’s
right to participate in the administration of, or decision-making rights related
to, the Loans, this Agreement or the other Loan Documents shall be suspended
during the pendency of such failure, refusal or insolvency or similar
proceeding, and (y) a Delinquent Lender shall be deemed to have assigned any and
all payments due to it from the Loan Parties, whether on account of outstanding
Loans, interest, fees or otherwise, to the remaining non-delinquent Lenders for
application to, and reduction of, their proportionate shares of all outstanding
Obligations until, as a result of application of such assigned payments the
Lenders’ respective Commitment Percentages of all outstanding Obligations shall
have returned to those in effect immediately prior to such delinquency and
without giving effect to the nonpayment causing such delinquency. The Delinquent
Lender’s decision-making and participation rights and rights to payments as set
forth in clauses (x) and (y) hereinabove shall be restored only upon the payment
by the Delinquent Lender of its Commitment Percentage of any Obligations, any
participation obligation, or expenses as to which it is delinquent, together
with interest thereon at the rate set forth in SECTION 2.11 hereof from the date
when originally due until the date upon which any such amounts are actually
paid.”

 

  u. By amending Section 9.01 (Notices) thereto by deleting clauses (a) and
(b) thereof in their entirety and substituting the following new clauses (a) and
(b) in their stead:

“(a) if to any Loan Party, to it at American Apparel, Inc., 747 Warehouse St.,
Los Angeles, CA 90021, Attention: Adrian Kowalewski, (Telecopy No.
(213) 201-3062, E-Mail adrian@americanapparel.net), with a copy to Skadden,
Arps, Slate, Meagher & Flom LLP, Attention: David Reamer (Telecopy No.
(213) 621-5052; E-Mail: dreamer@skadden.com).

(b) if to the Administrative Agent, the Collateral Agent or the Swingline
Lender, to Bank of America, N.A. (successor by merger to LaSalle Business
Credit, LLC), 100 Federal Street, Boston, Massachusetts 02110, Attention:
Stephen J. Garvin (Telecopy No. (617) 434-6685, E-Mail
stephen.garvin@bankofamerica.com), with a copy to Riemer & Braunstein LLP, Three
Center Plaza, Boston, Massachusetts 02108, Attention: Donald E. Rothman, Esquire
(Telecopy No. (617) 880-3456, E-Mail drothman@riemerlaw.com); and”

 

2. Amendments to Loan Documents. Subject to (i) the provisions of Section 9.04
of the Credit Agreement, and (ii) the satisfaction of each and all of the
Preconditions to Effectiveness set forth in Section 3 hereof, each Loan Document
is amended as follows:

 

  a. any reference in any Loan Document to the “Administrative Agent” shall be
deemed to mean and refer to Bank of America, N.A. (successor by

 

-12-

--------------------------------------------------------------------------------

 

 

       merger to LaSalle Business Credit, LLC, as agent for LaSalle Bank Midwest
National Association, acting through its division, LaSalle Retail Finance), a
national banking association with offices at 100 Federal Street, 9th Floor,
Boston, Massachusetts 02110, as administrative agent for its own benefit of the
other Credit Parties;

 

  b. any reference in any Loan Document to the “Collateral Agent” shall be
deemed to mean and refer to 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), a national
banking association with offices at 100 Federal Street, 9th Floor, Boston,
Massachusetts 02110, as collateral agent for its own benefit of the other Credit
Parties;

 

  c. any reference in any Loan Document to the “Issuing Bank” shall be deemed to
mean and refer to Bank of America, N.A. (successor by merger to LaSalle Bank
National Association), a national banking association with offices at 100
Federal Street, 9th Floor, Boston, Massachusetts 02110, in its capacity as
issuer of Letters of Credit under the Credit Agreement; and

 

  d. any reference in any Loan Document to “LaSalle Business Credit, LLC, as
agent for LaSalle Bank Midwest National Association, acting through its
division, LaSalle Retail Finance”, in such Person’s capacity as a Lender or a
Secured Party, shall be deemed to mean and refer to 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), a national banking association with offices at 100 Federal Street, 9th
Floor, Boston, Massachusetts 02110, in its capacity as a Lender or a Secured
Party, as the case may be.

 

3. Preconditions to Effectiveness. This Fifth Amendment shall not take effect
unless and until each and all of the following items has been satisfied or
delivered, as the case may be, and in all events, to the satisfaction of the
Agents, in their sole and exclusive discretion exercised in good faith. The
willingness of the Agents and the Lenders to enter into this Fifth Amendment is
expressly conditioned upon the receipt by the Administrative Agent of the
following items:

 

  a.

On or prior to the date hereof, the Lead Borrower, the Borrowers, and the
Facility Guarantors shall have delivered to the Administrative Agent duly
executed copies of this Fifth Amendment and the Fifth Amendment Fee

 

-13-

--------------------------------------------------------------------------------

 

 

  Letter, including all exhibits to be replaced in accordance with the terms
hereof, and evidence that the Borrowers have obtained all necessary consents and
approvals to this Fifth Amendment, the Fifth Amendment Fee Letter and the
documents, agreements and instruments executed in connection herewith.

 

  b. Without limiting the generality of the foregoing, the Second Lien
Administrative Agent (as defined in the Intercreditor Agreement) shall have
delivered to the Administrative Agent an executed counterpart to this Fifth
Amendment, pursuant to which the Second Lien Administrative Agent shall have
consented to this Fifth Amendment.

 

  c. On or prior to the date hereof, (i) Dov Charney (“D. Charney”) shall have
made a loan to the Lead Borrower in the amount of $2,500,000.00, the Net
Proceeds of which shall have been deposited into the Concentration Account for
application to and reduction of the Obligations in accordance with SECTION 2.16
of the Credit Agreement, and (ii) the Loan Parties and D. Charney shall have
delivered to the Administrative Agent, in the form attached hereto as Exhibit B,
a duly executed copy of that certain Amended and Restated Subordination
Agreement by and between the Lead Borrower and D. Charney and acknowledged by
the Agents, pursuant to which D. Charney shall have agreed to subordinate
certain Liens and rights to payment in accordance with the terms thereof.

 

  d. The Loan Parties shall have delivered to the Administrative Agent a duly
executed copy of the Amendment No. 9 to the SOF Investments Loan, in the form
attached hereto as Exhibit A.

 

  e. The Lead Borrower, the Borrowers, and the Facility Guarantors shall have
delivered to the Administrative Agent such other and further documents as the
Administrative Agent reasonably may require and shall have identified prior to
the execution of this Fifth Amendment, in order to confirm and implement the
terms and conditions of this Fifth Amendment.

 

  f. On or prior to the date hereof, the Borrowers shall have paid to the
Administrative Agent, for the ratable benefit of the Lenders executing this
Fifth Amendment, an amendment fee in the amount of $750,000.00. In this regard,
the amendment fee shall be fully earned as of the date of execution of this
Fifth Amendment, and the Administrative Agent is hereby authorized to make a
Revolving Credit Loan under the Credit Agreement to pay the amendment fee.

 

-14-

--------------------------------------------------------------------------------

 

 

  g. On or prior to the date hereof, the Borrowers shall have paid the fees set
forth in the Fifth Amendment Fee Letter.

 

  h. No Default or Event of Default shall exist.

 

  i. Except as set forth on Schedule 3.06 to the Credit Agreement, there shall
not be pending any litigation or other proceeding, the result of which could
reasonably be expected to have a Material Adverse Effect.

 

  j. No default of any material contract or agreement of any Loan Party or any
Subsidiary of any Loan Party shall exist except where the existence of a
default, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.

 

4. Post-Closing Matters. On or prior to December 31, 2008, the Loan Parties
shall have delivered to the Administrative Agent the Cash Flow Projections and
the Yearly Projections.

 

5. Waiver. The Administrative Agent and the Lenders hereby waive the requirement
set forth in Section 5.01(a) of the Credit Agreement to deliver audited
financial statements for the Fiscal Year ending December 31, 2008 without a
“going concern” or like qualification; provided that the foregoing waiver shall
only apply in the event any such qualification results from the approaching
maturity of the Obligations and/or the SOF Investments Loan.

 

6. Ratification of Loan Documents. No Claims against any Lender.

 

  a. Except as provided herein, all terms and conditions of the Credit Agreement
and of each of the other Loan Documents remain in full force and effect. Each
Loan Party hereby ratifies, confirms, and re-affirms all terms and provisions of
the Loan Documents.

 

  b. Each Loan Party hereby makes all representations, warranties, and covenants
set forth in the Credit Agreement as of the date hereof (other than
representations, warranties and covenants that relate solely to an earlier
date). To the extent that any changes in any representations, warranties, and
covenants require any amendments to the schedules to the Credit Agreement, such
schedules are hereby updated, as evidenced by any supplemental schedules (if
any) annexed to this Fifth Amendment.

 

-15-

--------------------------------------------------------------------------------

 

 

  c. Each Loan Party represents and warrants to the Administrative Agent and
each Lender that as of the date of this Fifth Amendment, no Default or Event of
Default exists.

 

  d. Each Loan Party acknowledges and agrees that to its actual knowledge
(i) there is no basis nor set of facts on which any amount (or any portion
thereof) owed by any of the Loan Parties under any Loan Document could be
reduced, offset, waived, or forgiven, by rescission or otherwise; (ii) nor is
there any claim, counterclaim, off set, or defense (or other right, remedy, or
basis having a similar effect) available to any of the Loan Parties with regard
thereto; (iii) nor is there any basis on which the terms and conditions of any
of the Obligations could be claimed to be other than as stated on the written
instruments which evidence such Obligations.

 

  e. Each of the Loan Parties hereby acknowledges and agrees that it has no
offsets, defenses, claims, or counterclaims against the Agents, the Lenders, or
their respective parents, affiliates, predecessors, successors, or assigns, or
their officers, directors, employees, attorneys, or representatives, with
respect to the Obligations, or otherwise, and that if any of the Loan Parties
now has, or ever did have, any offsets, defenses, claims, or counterclaims
against such Persons, whether known or unknown, at law or in equity, from the
beginning of the world through this date and through the time of execution of
this Fifth Amendment, all of them are hereby expressly WAIVED, and each of the
Loan Parties hereby RELEASES such Persons from any liability therefor.

 

7. Acknowledgment of Obligations. The Loan Parties hereby acknowledge and agree
that the Loan Parties are unconditionally liable to the Credit Parties for the
following amounts which constitute a portion of the Obligations in accordance
with the terms of the Credit Agreement, as of the date hereof:

 

  a. For outstanding Credit Extensions:
                                         
                                                            $60,571,040.23

 

  b. For all amounts now due, or hereafter coming due, to any Agent, any Lender
or any of their respective Affiliates with respect to cash management, ACH,
depository, investment, banker’s acceptance, letter of credit, Hedge Agreement,
or other banking or financial services provided by any Agent, any Lender or any
such Affiliate to any Loan Party.

 

  c.

For all interest heretofore or hereafter accruing under the Loan Documents, for
all fees heretofore or hereafter accruing under the Loan Documents, and for all
Credit Party Expenses and other fees, costs,

 

-16-

--------------------------------------------------------------------------------

 

 

  expenses, and costs of collection heretofore or hereafter incurred by the
Lenders in connection with and pursuant to the terms of, and any other amounts
due under, the Loan Documents, including, without limitation, (i) all attorney’s
fees and expenses incurred in connection with the negotiation and preparation of
this Fifth Amendment, the Fifth Amendment Fee Letter and all documents,
instruments, and agreements incidental hereto or thereto, and (ii) all interest,
fees and expenses that accrue after the commencement of any case or proceeding
by or against any Loan Party 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.

 

8. Consent of Second Lien Administrative Agent. The Second Lien Administrative
Agent (as defined in the Intercreditor Agreement) hereby consents to the
amendments to the Loan Documents described in this Fifth Amendment.

 

9. Consent to Amendment to SOF Investment Loan. The Lenders and the Agents
consent to the terms of Amendment No. 9 to the SOF Investments Loan, in the form
annexed hereto as Exhibit A.

 

10. Miscellaneous.

 

  a. Terms used in this Fifth Amendment which are defined in the Credit
Agreement are used as so defined.

 

  b. This Fifth Amendment may be executed in counterparts, each of which when so
executed and delivered shall be an original, and all of which together shall
constitute one agreement.

 

  c. This Fifth Amendment expresses the entire understanding of the parties with
respect to the transactions contemplated hereby. No prior negotiations or
discussions shall limit, modify, or otherwise affect the provisions hereof.

 

  d. Any determination that any provision of this Fifth Amendment or any
application hereof is invalid, illegal, or unenforceable in any respect and in
any instance shall not affect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality, or enforceability of
any other provisions of this Fifth Amendment.

 

  e.

The Borrowers shall pay on demand all reasonable costs and expenses of the
Agents and the Lenders, including, without limitation, reasonable

 

-17-

--------------------------------------------------------------------------------

 

 

  attorneys’ fees incurred by the Agents in connection with the preparation,
negotiation, execution, and delivery of this Fifth Amendment. The Administrative
Agent is hereby authorized by the Borrowers to make one or more Revolving Credit
Loans to pay all such costs, expenses, and attorneys’ fees and expenses.

 

  f. In connection with the interpretation of this Fifth Amendment and all other
documents, instruments, and agreements incidental hereto:

 

  i. All rights and obligations hereunder and thereunder, including matters of
construction, validity, and performance, shall be governed by and construed in
accordance with the law of The Commonwealth of Massachusetts and are intended to
take effect as sealed instruments.

 

  ii. The captions of this Fifth Amendment are for convenience purposes only,
and shall not be used in construing the intent of the parties under this Fifth
Amendment.

 

  iii. In the event of any inconsistency between the provisions of this Fifth
Amendment and any of the other Loan Documents, the provisions of this Fifth
Amendment shall govern and control.

 

  g. Each Loan Party agrees that any suit for the enforcement of this Fifth
Amendment or any other Loan Document may be brought in the courts of the
Commonwealth of Massachusetts sitting in Boston, Massachusetts or any federal
court sitting therein as the Administrative Agent may elect in its sole
discretion and consents to the non-exclusive jurisdiction of such courts. Each
party to this Fifth Amendment hereby waives any objection which it may now or
hereafter have to the venue of any such suit or any such court or that such suit
is brought in an inconvenient forum and agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Fifth Amendment shall affect any right that any Credit Party may
otherwise have to bring any action or proceeding relating to this Fifth
Amendment against a Loan Party or its properties in the courts of any
jurisdiction.

 

  h.

Each Loan Party agrees that any action commenced by any Loan Party asserting any
claim or counterclaim arising under or in connection with this Fifth Amendment
or any other Loan Document shall be brought solely in a court of the
Commonwealth of Massachusetts sitting in Boston,

 

-18-

--------------------------------------------------------------------------------

 

 

  Massachusetts or any federal court sitting therein as the Administrative Agent
may elect in its sole discretion and consents to the exclusive jurisdiction of
such courts with respect to any such action

 

  i. The Agents, the Lenders, the Borrowers, and the Facility Guarantors have
prepared this Fifth Amendment and all documents, instruments, and agreements
incidental hereto with the aid and assistance of their respective counsel.
Accordingly, all of them shall be deemed to have been drafted by the Agents, the
Lenders, the Borrowers, and the Facility Guarantors and shall not be construed
against any party.

[Signatures Follow]

 

-19-

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned have caused this Fifth Amendment to be duly
executed under seal as of the date first set forth above.

 

AMERICAN APPAREL (USA), LLC (f/k/a AAI

Acquisition LLC (successor-by-merger to American Apparel, Inc.), as Lead
Borrower and as a Borrower

By:  

/s/    Dov Charney

Name:   Dov Charney Title:   Sole Manager

AMERICAN APPAREL RETAIL, INC.,

as a Borrower

By:  

/s/    Dov Charney

Name:   Dov Charney Title:   President

 

AMERICAN APPAREL DYEING & FINISHING, INC.,

as a Borrower

By:  

/s/    Dov Charney

Name:   Dov Charney Title:   President

 

KCL KNITTING, LLC,

as a Borrower

By:   American Apparel (USA), LLC, its sole member By:  

/s/    Dov Charney

Name:   Dov Charney Title:   Sole Member

Signature Page to Fifth Amendment to Credit Agreement

--------------------------------------------------------------------------------

 

 

AMERICAN APPAREL, LLC,

as a Facility Guarantor

By:   American Apparel (USA), LLC, its sole member By:  

/s/    Dov Charney

Name:   Dov Charney Title:   Sole Manager

FRESH AIR FREIGHT, INC.,

as a Facility Guarantor

By:  

/s/    Dov Charney

Name:   Dov Charney Title:   President AMERICAN APPAREL, INC. (f/k/a Endeavor
Acquisition Corp.), as a Facility Guarantor By:  

/s/    Dov Charney

Name:   Dov Charney Title:   Chairman of the Board

Signature Page to Fifth Amendment to Credit Agreement

--------------------------------------------------------------------------------

 

 

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, as Collateral Agent,
as Swingline Lender and as Lender By:  

/s/    David Vega        

Name:   David Vega Title:   Managing Director BANK OF AMERICA, N.A. (successor
by merger to LaSalle Bank National Association), as Issuing Bank By:  

/s/    David Vega        

Name:   David Vega Title:   Managing Director

Signature Page to Fifth Amendment to Credit Agreement

--------------------------------------------------------------------------------

 

 

WELLS FARGO RETAIL FINANCE, LLC, as

Collateral Monitoring Agent and as a Lender

By:

 

/s/    Emily Abrahamson

Name:   Emily Abrahamson Title:   Vice President/Account Executive

Signature Page to Fifth Amendment to Credit Agreement

--------------------------------------------------------------------------------

 

 

NATIONAL CITY BUSINESS CREDIT, INC.,

as a Lender

By:  

/s/    David Orourke

Name:   David Orourke Title:   Director

Signature Page to Fifth Amendment to Credit Agreement

 

--------------------------------------------------------------------------------

 

 

The foregoing is acknowledged, agreed and consented to:

SOF INVESTMENTS, L.P – PRIVATE IV,

as Second Lien Administrative Agent

By:  

/s/    Marc R. Lisker

Name:   Marc R. Lisker Title:   General Counsel

Signature Page to Fifth Amendment to Credit Agreement