Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

EMPLOYMENT AGREEMENT, effective as of July 14, 2014, by and between American
Apparel, Inc., a Delaware corporation (herein referred to as the “Company”), and
John Luttrell (herein referred to as the “Executive”) (the “Agreement”).

 

W I T N E S S E T H:

 

WHEREAS, the Company and the Executive were previously party to an employment
agreement dated February 7, 2011 (the “Prior Agreement”); and

 

WHEREAS, the Executive has been named, as of June 18, 2014 (the “Effective
Date”), the interim Chief Executive Officer of the Company in addition to his
other titles and duties; and

 

WHEREAS, the Company and the Executive deem it to be in their respective best
interests to enter into this Agreement providing for the Company’s employment of
the Executive pursuant to the revised terms herein stated, which Agreement shall
supersede the Prior Agreement;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto hereby agree as follows:

 

1.                                      Employment; Position and Duties;
Exclusive Services.

 

(a)                                 Employment.  The Company agrees to employ
the Executive, and the Executive agrees to be employed by the Company, for the
Term provided in Section 2 below and upon the other terms and conditions
hereinafter provided.

 

(b)                                 Position and Duties.  During the Term, the
Executive (i) agrees to serve as the interim Chief Executive Officer, Executive
Vice President and Chief Financial Officer of the Company and to perform such
reasonable duties as may be assigned to him from time to time by the Board of
Directors of the Company (the “Board”), (ii) shall report, as Chief Financial
Officer, only to the Board, the Chairman or Co-Chairmen of the Board, the Chief
Executive Officer, and the President of the Company, and as interim Chief
Executive Officer only to the Board and the Chairman of the Board, (iii) shall
be given such authority as is appropriate given the Executive’s position in a
company the nature and size of the Company to carry out the duties described
above, and (iv) agrees to serve, if elected, at no additional compensation in
the position of officer or director of any subsidiary or affiliate of the
Company.

 

(c)                                  Exclusive Services.  During the Term, and
except for illness or incapacity, the Executive shall devote all of his business
time, attention, skill and efforts exclusively to the business and affairs of
the Company and its subsidiaries and affiliates, shall not be engaged in any
other business activity, and shall perform and discharge the duties which may be
assigned to him from time to time by the Board, the Chairman of the Board or, as
Chief Financial Officer, by the Chief Executive Officer consistent with his
position; provided, however, that nothing in this Agreement shall preclude the
Executive from devoting time during reasonable periods required for:

 

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(i)                                     serving, in accordance with the
Company’s policies, as a director or member of a committee of any company or
organization involving no actual or potential conflict of interest with the
Company or any of its subsidiaries or affiliates,

 

(ii)                                  delivering lectures and fulfilling
speaking engagements,

 

(iii)                               engaging in charitable and community
activities, and

 

(iv)                              investing his personal assets in a Passive
Investment.  For purposes of this Agreement, a “Passive Investment” shall mean
an investment in a business or entity which does not require the Executive to
render any services in the operations or affairs of such business or entity and
which does not materially adversely affect or interfere with the performance of
the Executive’s duties and obligations to the Company or any of its subsidiaries
or affiliates.

 

(d)                                 Place of Employment.  The Executive shall
perform his duties out of the Company’s Los Angeles, California office (as same
may be relocated in the same metropolitan area from time to time) or at such
other location as shall be agreed to by the Company and the Executive.

 

2.                                      Term of Agreement.  The term of
employment under this Agreement shall initially be the period commencing on
June 18, 2014 and ending on February 6, 2015, and shall be automatically
extended without further action by either party for successive one-year periods
as of each February 7 (beginning February 7, 2015) (each, an “Extension Date”),
unless written notice of the Company’s intention to terminate this Agreement has
been given to the Executive at least 90 days prior to the expiration of the Term
(including any one-year extension thereof).  As used in this Agreement, the
“Term” shall mean the initial one year term plus any extensions thereof as
provided in this Section 2.

 

3.                                      Salary and Bonuses.  The Executive’s
cash compensation for all services to be rendered by him in any capacity
hereunder shall consist of base salary and other compensation as provided in
this Section.

 

(a)                                 Salary.  The Executive shall be paid a
minimum base salary at the rate of $62,500 per month for so long as the
Executive serves as interim Chief Executive Officer and $36,750 per month
following the commencement of employment of a new Chief Executive Officer and
the Executive’s relinquishment of such title; provided, however, that the
minimum base salary of $62,500 per month shall be in effect for no less than six
months.  The Salary shall be payable in accordance with the customary payroll
practices for executives of the Company.  The amount of the Executive’s Salary
will be reviewed not less often than annually by the Compensation Committee of
the Board (the “Compensation Committee”) and may be increased, but not decreased
below such amount, on the basis of such review.  The Executive’s annual base
salary, as in effect from time to time, is hereinafter referred to as the
“Salary.”

 

(b)                                 Performance Bonuses.  The Executive will be
eligible to receive an annual incentive compensation award in respect of each
fiscal year of the Company during the Term, with a target payment equal to 75%
(and a maximum payment of 100%) of Salary during each such fiscal year, subject
to the terms and conditions of the Company’s annual bonus plan, and

 

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further subject to sales, EBITDA, net debt and inventory goals, criteria or
targets, including, without limitation, the timely delivery of reviewed and
audited, as applicable, financial statements and timely required SEC filings,
reasonably determined by the Board or the Compensation Committee in its sole
discretion in respect of each such fiscal year (each such annual award under the
Company’s Form S-8 Registration Statement covering shares of Common Stock
issuable pursuant to the Equity Plan (as in effect from time to time, the
“Form S-8”) bonus, an “Annual Bonus”).  The Annual Bonus performance targets to
be applied to the Executive shall be no less favorable than the annual bonus
targets applied to other similarly situated senior executives of the
Company.  Any Annual Bonus earned shall be payable one hundred percent (100%) in
cash.  The Annual Bonus earned in respect of each fiscal year of the Company
during the Term, if any, shall be paid to the Executive in the fiscal year
immediately following the fiscal year for which the bonus is earned, but in all
events no later than two and one-half (2½) months after the end of the
applicable fiscal year for which the bonus is earned.  For purposes of
calculating the Executive’s Annual Bonus for the Company’s 2015 fiscal year
pursuant to this Section 3 (and any subsequent fiscal year(s) in which he serves
as interim Chief Executive officer for any portion of such year(s)), the
Executive’s Salary for such fiscal year shall be equal to the actual base salary
that the Executive receives during such fiscal year (including any increased
base salary that the Executive receives during any portion of such fiscal year
by reason of serving as the interim Chief Executive Officer during such fiscal
year).

 

4.                                      Equity Awards.

 

(a)                                 As of the Effective Date, the Executive
holds the equity awards set forth on Exhibit A.  As reflected on that Exhibit,
pursuant to the terms of the Company’s 2011 Omnibus Stock Plan ( the “Equity
Plan”), on the Effective Date the Compensation Committee granted to the
Executive 350,000 fully vested shares of the common stock of the
Company (“Common Stock”).

 

(b)                                 The Executive shall be permitted to satisfy
his tax withholding obligations that arise in connection with any stock option
or restricted stock award issued pursuant to the Equity Plan or any successor
thereto (including but not limited to the awards set forth on Exhibit A) with
shares of Common Stock, including shares of Common Stock exercised pursuant to
the stock option under which the tax withholding obligation arises or
unrestricted shares of Common Stock that vest pursuant to the restricted stock
award under which the tax withholding obligation arises.

 

(c)                                  In the event a successor corporation or a
parent or subsidiary of a successor corporation to a transaction refuses to
assume or substitute for the Executive’s outstanding stock option or restricted
stock awards (including but not limited to the awards set forth on Exhibit A) ,
the Executive shall (i) fully vest in and, have the right to exercise all of his
outstanding stock options, including shares as to which such stock options would
not otherwise be vested or exercisable, and (ii) fully vest in all of his
outstanding restricted stock awards.

 

5.                                      Pension and Welfare Benefits.  During
the Term, the Executive will participate in all pension and welfare plans,
programs and benefits that are applicable to executives of the Company.

 

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6.                                      Other Benefits.

 

(a)                                 Travel and Business-related
Expenses.  During the Term, the Executive shall be reimbursed in accordance with
the policies of the Company for traveling and other expenses incurred in the
performance of the business of the Company.

 

(b)                                 [reserved].

 

(c)                                  Vacation; Leaves of Absence.  During the
Term, the Executive shall be eligible to participate in the Company’s Time Away
policy.  The Company’s Time Away policy, as opposed to traditional vacation and
sick time accrual, requires that time off requests for any reason, must be
submitted in writing to and approved in writing by the Executive’s immediate
supervisor in advance of the days requested.  Approval is subject to
departmental and business needs and is purely at the discretion of your
supervisor.  The Executive shall be allowed time away with pay on the same basis
as the Company generally provides to other senior executive employees of the
Company.

 

7.                                      Termination of Employment.  Upon
termination of the Executive’s employment for any reason, the Executive agrees
to resign, as of the date of such termination and to the extent applicable, from
the Board (and any committees thereof) and the board of directors of any of the
Company’s affiliates and direct or indirect subsidiaries (and any committees
thereof), if applicable, and agrees to resign as an officer of the Company and
each of the Company’s affiliates and direct or indirect subsidiaries.

 

(a)                                 Termination for Cause; Resignation Without
Good Reason.

 

(i)                                     If the Executive’s employment is
terminated by the Company for Cause (as defined below in this Section) or if the
Executive resigns from his employment without Good Reason other than for death
or Disability (as defined below in Section 7(d)), prior to the expiration of the
Term, the Executive shall be entitled to receive:  (A) the Salary provided for
in Section 3(a) as accrued through the date of such resignation or termination;
and (B) any unreimbursed expenses.  The Executive shall not accrue or otherwise
be eligible to receive Salary payments or to participate in any plans, programs
or benefits described in Section 5 hereof with respect to periods after the date
of such termination or resignation and shall not be eligible to receive any
annual performance bonus or long term performance bonus in respect of the year
of such termination or resignation or any calendar year following the year in
which such termination or resignation occurs.  Any bonus earned in respect of a
year prior to the year in which such termination or resignation occurs shall be
payable at the same time and in the same manner as bonuses are paid to
participants in the applicable bonus plan.

 

Subject to Section 17 and Section 19, the Executive shall have no right under
this Agreement or otherwise to receive any other compensation, or to participate
in any other plan, arrangement or benefit, with respect to future periods after
such termination or resignation of employment (except to the extent provided for
under the terms of any such plan, arrangement or benefit).

 

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(ii)                                  Termination for “Cause” shall mean
termination by action of the Board, upon prior approval and recommendation by
the Committee (as defined below), because of:  (A) the Executive’s willful and
continued failure (other than by reason of the incapacity of the Executive due
to physical or mental illness) substantially to perform his duties hereunder;
(B) the conviction of the Executive or the Executive entering a plea of guilty
or nolo contendere to a crime that constitutes a felony or the perpetration by
the Executive of a serious and material dishonest act against the Company or any
of its affiliates or subsidiaries; (C) any willful misconduct by the Executive
that is materially injurious to the financial condition or business reputation
of the Company or any of its affiliates or subsidiaries; or (D) chronic
alcoholism or drug abuse which materially affects the Executive’s performance
hereunder, provided, however, that no event or circumstance shall be considered
to constitute Cause within the meaning of this clause (ii) unless the Executive
has been given written notice of the events or circumstances constituting Cause
and has failed to effect a cure thereof within 30 calendar days following the
receipt of such notice.

 

(iii)                               Resignation for “Good Reason” shall mean the
resignation of the Executive because of (A) a material reduction in the
Executive’s responsibilities, duties, authority, status or titles as described
in Section 1 above (provided, however, that a reduction by virtue of the
Executive no longer being interim Chief Executive Officer due to the
commencement of employment of a new Chief Executive Officer appointed by the
Board, upon prior approval and recommendation by the Committee, shall not
constitute Good Reason); (B) failure by the Company to pay or provide the
Executive when due any compensation, benefits or perquisites to which the
Executive is entitled pursuant to this Agreement or any other plan, contract or
arrangement in which the Executive participates or is entitled to participate;
(C) a material change in the Executive’s reporting structure (provided, however,
that such a change by virtue of no longer being interim Chief Executive Officer
due to the commencement of employment of a new Chief Executive Officer appointed
by the Board, upon prior approval and recommendation by the Committee, shall not
constitute Good Reason); (D) failure of any successor (whether direct or
indirect, by stock or asset purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company to assume the
Agreement (either by operation of law or in writing), (E) a material breach of
the Company’s obligations under this Agreement; or (F) the occurrence of a
“Change in Control” as that phrase is defined in the Equity Plan following the
Effective Date, or the execution and delivery of that certain Nomination,
Standstill and Support Agreement entered into between Standard General L.P., Dov
Charney, the Company and certain other persons as of July 9, 2014, which
execution and delivery occurred on July 9, 2014, and was a Change in Control for
purposes of this Agreement; provided, however, that no event or circumstance
shall be considered to constitute Good Reason within the meaning of this clause
(iii) unless (except with respect to clause (iii)(F)) the Board has been given
written notice of the events or circumstances constituting Good Reason by the
Executive within 60 days of the initial occurrence of such event or
circumstance; with respect to any event or circumstance described in clauses
(iii)(A) — (E), the Company has failed to effect a cure thereof within 30
calendar days following the receipt of such notice; and the Executive has given
notice of termination within 30 calendar days following the expiration of the
30-day cure period (in the case of clauses (iii)(A) — (E)) or within six

 

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months following the occurrence of the events or circumstances constituting Good
Reason (in the case of clause (iii)(F)).

 

(iv)                              The date of termination of employment by the
Company pursuant to this Section 7(a) shall be the date specified in a written
notice of termination from the Company to the Executive, which, in the case of a
proposed termination to which the 30-day cure period provided for in subsection
(ii) above applies shall be no less than 31 days after the delivery of such
notice to the Executive.  The date of a resignation by the Executive pursuant to
this Section 7(a) shall be the date specified in the written notice of
resignation from the Executive to the Company or, if no date is specified
therein, ten business days after receipt by the Company of the written notice of
resignation from the Executive.

 

(b)                                 Termination Without Cause, Resignation for
Good Reason.

 

(i)                                     If the Executive’s employment is
terminated by the Company without Cause or if the Executive should resign for
Good Reason, prior to the expiration of the Term, he shall be entitled to
receive: (A) the Salary provided for in Section 3(a) as accrued through the date
of such resignation or termination and, subject to the Executive’s execution and
delivery of a general release of all claims against the Company and its
affiliates and the expiration of any release revocation period, which release
shall be consistent with the terms of this Agreement and approved in form by the
Committee (the “Release”), in each case within sixty (60) days following
termination of employment, a payment equal to the Executive’s Salary for a
period of twelve (12) months (based on a $595,500 Salary rate), payable in a
lump sum to the extent permissible under Section 1.409A-1(b)(9)(iii) of the
regulations under Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), and payable in accordance with the Company’s usual payment
practices with respect to any other portion of the payment; provided that the
first payment shall be made on the sixtieth (60th) day following termination of
employment and shall include payment of any amounts that would otherwise be due
prior thereto, which twelve (12) months of Salary shall be placed in escrow
(which escrow shall be by its terms controlled solely by the Committee) promptly
following the Effective Date, with such escrowed Salary to be used by the
Company solely for the purpose of making the Salary payment described in this
Section 7(b)(i) (but subject to the claims of any Company creditors in the event
of the Company’s insolvency); such escrowed Salary will be released to the
Executive in a timely manner in accordance with the provisions of this
Section 7(b) and Section 23 promptly following the instruction of the Committee;
(B) any bonus earned but not yet paid in respect of any calendar year preceding
the year in which such termination or resignation occurs; and (C) any
unreimbursed expenses. Amounts set forth above that are not subject to the
Release shall be paid within thirty (30) days following termination of
employment.  In addition, subject to the Executive’s execution and delivery of
the Release as described in clause (A), the Executive shall (i) fully vest in
and have the right to exercise all of his outstanding stock options, including
shares as to which such stock options would not otherwise be vested or
exercisable (provided, however, that with respect to any portion of such stock
options which were unvested prior to the date of termination, such right to

 

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exercise will be effective as of the date on which the Release is no longer
revocable), and (ii) fully vest in all of his outstanding restricted stock
awards.

 

Subject to the Executive’s execution and delivery of the Release and the
expiration of any revocation period with respect to the Release within sixty
(60) days following termination of employment, the Executive (and those eligible
dependents who were participants in the applicable plans as of the termination
date) shall also be entitled to continued participation in the medical, dental
and insurance plans and arrangements described in Section 5, on the same terms
and conditions as are in effect immediately prior to such termination or
resignation, until the earlier to occur of (i) the first anniversary of the
termination of Executive’s employment with the Company, and (ii) such time as
the Executive is entitled to comparable benefits provided by a subsequent
employer (the “Continuation Period”).  Anything herein to the contrary
notwithstanding, the Company shall have no obligation to continue to maintain
any plan or program solely as a result of the provisions of this Agreement.  If,
during the Continuation Period, the Executive is precluded from participating in
a plan or program by its terms or applicable law or if the Company for any
reason ceases to maintain such plan or program, the Company shall provide the
Executive with compensation or benefits the aggregate value of which, in the
reasonable judgment of the Company, is no less than the aggregate value of the
compensation or benefits that the Executive would have received under such plan
or program had he been eligible to participate therein or had such plan or
program continued to be maintained by the Company.

 

(ii)                                  Except as may be provided under the terms
of any applicable grants to the Executive, under any plan or arrangement in
which the Executive participates or except as may be otherwise required by
applicable law, including, without limitation, the provisions of
Section 4980B(f) of the Code or as set forth under Section 17 and Section 19,
the Executive shall have no right under this Agreement or any other agreement to
receive any other compensation, or to participate in any other plan, arrangement
or benefit, with respect to future periods after such termination or resignation
of employment.  In the event of a termination or resignation pursuant to this
Section 7(b), the Executive shall have no duty of mitigation with respect to
amounts payable to him pursuant to this Section 7(b) or other benefits to which
he is entitled pursuant hereto, except as provided in the immediately preceding
paragraph.  Notwithstanding anything to the contrary in this Agreement, the
right of the Executive to receive payments provided for in this
Section 7(b) shall be subject to Section 8 of this Agreement.  In addition, the
Company’s obligation to pay the Executive the amounts provided and to make the
arrangements provided hereunder shall not be subject to set-off, counterclaim or
recoupment of amounts owed by the Executive to the Company or its affiliates.

 

(iii)                               The date of termination of employment by the
Company pursuant to this Section 7(b) shall be the date specified in the written
notice of termination from the Company to the Executive or, if no date is
specified therein, ten business days after receipt by the Executive of the
written notice of termination from the Company.  The date of a resignation by
the Executive pursuant to this Section 7(b) shall be the date specified in the
written notice of resignation from the Executive to the Company, which, in the

 

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case of a proposed resignation to which the 30-day cure period provided for in
subsection 7(a)(iii) above applies shall be no less than 31 days after the
delivery of such notice to the Company, and in case of a proposed resignation to
which the 30-day cure period does not apply and where no date is specified
therein, ten business days after receipt by the Company of the written notice of
resignation from the Executive.

 

(c)                                  Death.  If the Executive’s employment
hereunder terminates by reason of death prior to expiration of the Term, the
Executive’s beneficiary (or if no such beneficiary is designated, his estate)
shall be entitled to receive:  (i) the Salary provided for in Section 3(a) as
accrued through the date of the Executive’s death; (ii) any bonus earned but not
yet paid in respect of any calendar year preceding the year in which the
Executive’s death occurs; (iii) a bonus for the calendar year in which the
Executive’s death occurs equal to a pro rata portion of the Executive’s target
annual performance bonus, if any, for such year, determined on the basis of the
number of days in such year through the date of the Executive’s death; and
(iv) any unreimbursed expenses.  Bonus payments provided for in this
Section 7(c) shall be made at the same time and in the same manner as bonuses
are paid to participants in the applicable bonus plan.  As used in this Section,
the term “beneficiary” includes both the singular and the plural of such term,
as may be appropriate.

 

(d)                                 Disability.  If, the Executive is terminated
from employment by the Company as a result of the Executive’s Disability (as
defined below in this Section), the Executive, his conservator or guardian, as
the case may be, shall be entitled to receive:  (i) the Salary provided for in
Section 3(a) as accrued through the date of the Executive’s termination of
employment; (ii) any bonus earned but not yet paid in respect of any calendar
year preceding the year in which the Executive’s termination of employment
occurs; (iii) a bonus for the calendar year in which the Executive’s termination
of employment occurs equal to a pro rata portion of the Executive’s target
bonus, if any, for such year, determined on the basis of the number of days in
such year through the date of the Executive’s termination of employment; and
(iv) any unreimbursed expenses.  Bonus payments provided for in this
Section 7(d) shall be made at the same time and in the same manner as bonuses
are paid to participants in the applicable bonus plan.  For purposes of this
Agreement, “Disability” shall mean that the Executive is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to last for a continuous period of not
less than 12 months.  Any dispute as to whether or not the Executive is disabled
within the meaning of the preceding sentence shall be resolved by a physician
reasonably satisfactory to the Executive and the Company, and the determination
of such physician shall be final and binding upon both the Executive and the
Company.

 

(e)                                  Non-Renewal of the Term.  In the event the
Company elects not to extend the Term pursuant to Section 2, unless the
Executive’s employment is earlier terminated pursuant to paragraphs (a), (b),
(c) or (d) of this Section 7, the expiration of the Term and Executive’s
termination of employment hereunder shall be deemed to occur on the close of
business on the day immediately preceding the next scheduled Extension Date and
the Executive shall be entitled to receive the benefits set forth under
Section 7(b)(i)(A)-(C).  Following such termination of Executive’s employment
under this Section 7(e), except as set forth in this Section 7(e) and
Section 17, Executive shall have no further rights to any compensation or any
other benefits under this Agreement.

 

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(f)                                   Certain Definitions.  For purposes of this
Agreement:

 

(i)                                     “Affiliate” means, with respect to any
Person, any other Person directly or indirectly controlling, controlled by or
under common control with such first Person. As used in this definition,
“control” (including the terms “controlled by” and “under common control with”)
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management policies of a Person, whether through the
ownership of securities, partnership interests or by contract or otherwise.

 

(ii)                                  “Committee” means the Executive Succession
Committee established by the Board on the Effective Date, or, if such committee
no longer exists, the Suitability Committee established by the Board.  Any
approval, decision or recommendation by the Committee required under this
Agreement shall require the approval of at least a majority of the members of
the Committee constituting Independent Directors.

 

(iii)                               “Independent Directors” means the members of
the Board who are not Affiliates of or associated with, and were not appointed
or nominated by, any Specified Person, any Person or group that beneficially own
shares representing greater than 15% of the voting power of the outstanding
Voting Stock or any of their Affiliates.  Notwithstanding the foregoing, the
following persons shall be deemed to be Independent Directors: David Danziger,
Robert Greene, Marvin Igelman, Billy Mauer and Allan Mayer.

 

(iv)                              “Person” means any person or entity, whether
an individual, trustee, corporation, partnership, limited partnership, limited
liability company, trust, unincorporated organization, business association,
firm, joint venture or governmental entity.

 

(v)                                 “Specified Person” means any Person or group
of Persons as may be determined by the Committee from time to time.

 

(vi)                              “Voting Stock” means, securities of any class
or classes of capital stock of the Company (or options or warrants to acquire
capital stock of the Company) entitling the holders thereof (whether at all
times or only so long as no senior class of stock has voting power by reason of
any contingency) to vote in the election of the Board.

 

8.                                      Tax Withholding.  Payments to the
Executive of all compensation contemplated under this Agreement shall be subject
to all applicable legal requirements with respect to the withholding of taxes.

 

9.                                      Confidentiality and Proprietary Rights.

 

(a)                                 Confidentiality.  The Executive acknowledges
that as a result of his employment with the Company, the Executive will obtain
secret and confidential information concerning the business of the Company, and
its subsidiaries and affiliates (all of such entities referred to collectively
in this Section, as the “Company”).  Other than in the performance of his

 

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duties hereunder or if confidential information is required to be disclosed by
law, court order or other legal process (provided that the Executive shall give
prompt written notice to the Company of such requirement, disclose no more
information than is so required, and cooperate with any attempts by the Company
to obtain a protective order or similar treatment) or to the extent necessary to
enable the Executive to enforce (or defend) his rights under this Agreement or
any other agreement with the Company or any affiliate, the Executive agrees not
to disclose, either during the Term of his employment with the Company or at any
time thereafter, to any person, firm or corporation any confidential information
concerning the Company which is not in the public domain or known within the
relevant trade or industry (other than as a result of an unauthorized disclosure
by the Executive) including trade secrets, budgets, strategies, operating plans,
marketing plans, supplier lists, non-public company agreements, employee lists,
or the customer lists or similar confidential information of the Company.

 

(b)                                 Proprietary Rights.  All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company and/or its subsidiaries, which the Executive shall use
or prepare or come in contact with in the course of, or as a result of his
employment, or as a result of work performed by the Executive for the Company,
shall, as between the parties, remain the sole property of the Company.  Upon
termination of his employment with the Company, the Executive agrees to
immediately return all such materials and shall not thereafter cause removal
thereof from the premises of the Company.  Notwithstanding the foregoing, the
Executive will be allowed to keep any Company-provided laptop computer and the
Company-provided cell phone; provided, however, that the Executive shall permit
the Company’s IT department to delete any Company documents or information from
the laptop and cell phone on or before the Executive’s last day of employment,
and the Executive shall provide a certification that he has not retained any
hard copies or electronic copies of such documents (or any portions thereof). 
Further, the Executive agrees to disclose and assign, and does hereby assign, to
the Company as its exclusive property, all ideas, writings, inventions,
discoveries, improvements and technical or business innovations made or
conceived by the Executive, whether or not patentable or copyrightable, either
solely or jointly with others during the course of his employment with the
Company, relating directly to the business, work or investigations of the
Company or its subsidiaries (“Company Inventions”).

 

Notwithstanding the foregoing, the Executive understands that the provisions of
this Agreement requiring assignment of Company Inventions to the Company do not
apply to any invention that qualifies under the provisions of California Labor
Code Section 2870 (as set forth in Exhibit B hereto).  The Executive understands
that Company will keep in confidence and will not disclose to third parties
without the Executive’s consent any confidential information disclosed in
writing to Company relating to inventions that qualify under the provisions of
Section 2870 of the California Labor Code.

 

(c)                                  Except as may be required by applicable
law, without the Executive’s prior written consent, the Executive shall not be
subject to any restrictions on his activities following termination of
employment with the Company other than as expressly set forth in this Agreement
or the Equity Plan.

 

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10.                               Cooperation.   The Executive agrees that
following the date of termination of employment, he shall reasonably cooperate
with the Company, if so requested, with respect to the Company’s business
affairs, as well as any internal or external investigation, claims or litigation
(whether or not currently pending) involving the Company, including providing
information and assistance and making himself reasonably available for both
pre-trial discovery and trial proceedings. The Company shall promptly reimburse
Executive for any out-of-pocket expenses incurred by Executive in connection
with his cooperation with the Company pursuant to this Section 10, including,
without limitation, any reasonable attorneys’ fees incurred by the Executive.

 

11.                               Nonassignability; Binding Agreement.  Neither
this Agreement nor any right, duty, obligation or interest hereunder shall be
assignable or delegable by the Executive without the Company’s prior written
consent; provided, however, that nothing in this Section shall preclude the
Executive from designating any of his beneficiaries to receive any benefits
payable hereunder upon his death or disability, or his executors,
administrators, or other legal representatives, from assigning any rights
hereunder to the person or persons entitled thereto.  If the Executive should
die while any payment, benefit or entitlement is due to him pursuant to this
Agreement, such payment, benefit or entitlement shall be paid or provided to his
designated beneficiary (or, if there is no designated beneficiary, his
estate).  This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, any successors to or assigns of the Company and the Executive’s
heirs and the personal representatives of the Executive’s estate.

 

12.                               Amendment; Waiver.  This Agreement may not be
modified, amended or waived in any manner except by an instrument in writing
signed by the parties hereto.  The waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any provision of this Agreement, or of any subsequent breach by
such party of a provision of this Agreement.

 

13.                               Notices.  Any notice hereunder by either party
to the other shall be given in writing by personal delivery, email or certified
mail, return receipt requested, to the applicable address set forth below:

 

 

(a)                                 To the Company:

American Apparel, Inc.
747 Warehouse Street
Los Angeles, California 90021
Attention:  General Counsel

 

 

(b)                                 To the Executive:

John Luttrell
747 Warehouse Street
Los Angeles, California 90021
Attention:  John Luttrell
Email: [Redacted]

 

with a with a copy to:

 

J. Robert Shuman, Jr.

Shuman Snyder LLP

 

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525 Middlefield Road, Suite 140

Menlo Park, CA 94025

Email: shu@shusny.com

 

(or such other address as may from time to time be designated by notice by any
party hereto for such purpose).  Notice shall be deemed given, if by personal
delivery, on the date of such delivery or, if by email, on the business day
following receipt of confirmation or, if by certified mail, on the date shown on
the applicable return receipt.

 

14.                               California Law.  This Agreement is to be
governed by and interpreted in accordance with the laws of the State of
California, without giving effect to the choice-of-law provisions thereof.  If,
under such law, any portion of this Agreement is at any time deemed to be in
conflict with any applicable statute, rule, regulation or ordinance, such
portion shall be deemed to be modified or altered to conform thereto or, if that
is not possible, to be omitted from this Agreement, and the invalidity of any
such portion shall not affect the force, effect and validity of the remaining
portion hereof.

 

15.                               Arbitration.  The Company and the Executive
agree that any and all disputes based upon, relating to or arising out of this
Agreement, the Executive’s employment relationship with the Company or any of
its subsidiaries or affiliates and/or the termination of that relationship,
and/or any other dispute by and between the Executive and the Company or any of
its subsidiaries or affiliates, including any and all claims that the Executive
may at any time attempt to assert against the Company or any of its subsidiaries
or affiliates, shall be submitted to binding arbitration in Los Angeles County,
California, pursuant to the American Arbitration Association’s (“AAA”)
Employment Arbitration Rules and Mediation Procedures, including the Optional
Rules for Emergency Measures of Protection (the “Rules”); provided that the
arbitrator shall allow for discovery sufficient to adequately arbitrate any
asserted claims, including access to essential documents and witnesses, and
otherwise in accordance with California Code of Civil Procedure § 1283.05, and
provided, further, that the Rules shall be modified by the arbitrator to the
extent necessary to be consistent with applicable law. The arbitrator shall be a
retired judge of the California Superior Court, California Court of Appeal, or
United States District Court, to be mutually agreed upon by the parties.  If,
however, the parties are unable to agree upon an arbitrator, then an arbitrator,
who is a retired judge of the California Superior Court, California Court of
Appeal, or United States District Court, shall be selected by AAA in accordance
with the Rules.  The Company and the Executive further agree that each party
shall pay its own costs and attorneys’ fees, if any; provided, however, that if
either party prevails on a claim which affords the prevailing party an award of
attorneys’ fees, then the arbitrator may award reasonable attorneys’ fees to the
prevailing party, consistent with applicable law.  In any event, the Company
shall pay any expenses that the Executive would not otherwise have incurred if
the dispute had been adjudicated in a court of law, rather than through
arbitration, including the arbitrator’s fee, any administrative fee and any
filing fee in excess of the maximum court filing fee in the jurisdiction in
which the arbitration is commenced.  The Company and the Executive further agree
that any hearing must be transcribed by a certified shorthand reporter, and that
the arbitrator shall issue a written decision and award supported by essential
findings of fact and conclusions of law in order to facilitate judicial
review.  Said award and decision shall be issued within thirty (30) days of the
completion of the arbitration.  Judgment in a court of competent

 

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jurisdiction may be had on said decision and award of the arbitrator.  For these
purposes, the parties agree to submit to the jurisdiction of the state and
federal courts located in Los Angeles County, California.

 

16.                               Injunctive Relief.  The Executive acknowledges
and agrees that the services being rendered by the Executive to the Company
under this Agreement are of a special, unique and extraordinary character that
gives them peculiar value to the Company and/or its subsidiaries and affiliates,
the loss of which (in violation of this Agreement) would cause irreparable harm
to the Company and/or its subsidiaries and affiliates, for which the Company
and/or its subsidiaries and affiliates would have no adequate remedy at
law.  The Executive further acknowledges and agrees that the trade secrets and
confidential and related information referred to in this Agreement each are of
substantial value to the Company and/or its subsidiaries and affiliates and that
a breach of any of the terms and conditions of this Agreement relating to those
subjects would cause irreparable harm to the Company and/or its subsidiaries and
affiliates, for which the Company and/or its subsidiaries and affiliates would
have no adequate remedy at law. Therefore, in addition to any other remedies (in
law or in equity) that may be available to the Company and/or any of its
subsidiaries and affiliates under this Agreement or otherwise, the Company
and/or its subsidiaries and affiliates shall be entitled to obtain (pursuant to
the Rules) temporary restraining orders, preliminary and permanent injunctions
and/or other equitable relief (pursuant to the Rules) to specifically enforce
the Executive’s duties and obligations under this Agreement, or to enjoin any
breach of this Agreement, without the need to post a bond or other security and
without the need to demonstrate special damages.

 

17.                               Attorneys’ Fees.  The Company shall reimburse
Executive in full for any attorneys’ fees or other costs incurred by Executive
in the negotiations and documentation of this Agreement.

 

18.                               Counterparts.  This Agreement may be executed
by either of the parties hereto in counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.

 

19.                               Indemnification.  With respect to any acts or
omissions that may have occurred prior to termination of the Executive’s
employment, the Company will indemnify the Executive (and his legal
representatives or other successors) to the fullest extent permitted (including
payment of expenses in advance of final disposition of a proceeding) by the laws
of the State of California, as in effect at the time of the subject act or
omission, or by the Certificate of Incorporation and By-Laws of the Company, as
in effect at such time, or by the terms of any indemnification agreement between
the Company and the Executive, whichever affords greatest protection to the
Executive, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers (and to the extent the Company maintains such an
insurance policy or policies, the Executive shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any Company officer or director), against all costs,
charges and expenses whatsoever incurred or sustained by him or his legal
representatives at the time such costs, charges and expenses are incurred or
sustained (including any time following Executive’s termination of employment),
in connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his

 

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being or having been a director, officer or employee of the Company or any
subsidiary thereof, or his serving or having served any other enterprises as a
director, officer or employee at the request of the Company.

 

20.                               Cumulative Remedies.  Each and all of the
several rights and remedies provided in this Agreement, or by law or in equity,
shall be cumulative, and no one of them shall be exclusive of any other right or
remedy, and the exercise of any one of such rights or remedies shall not be
deemed a waiver of, or an election to exercise, any other such right or remedy.

 

21.                               Headings; Construction.  The section and other
headings contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning and interpretation of this Agreement.  In
construing this Agreement, no party hereto shall have any term or provision
construed against such party solely by reason of such party having drafted or
written such term or provision.

 

22.                               Survival.  Any provision of this Agreement
which imposes an obligation after termination or expiration of this Agreement
(including but not limited to the obligations set forth in Section 9 hereof)
shall, unless otherwise specified, survive the termination or expiration of this
Agreement and be binding on the Executive and the Company.

 

23.                               General 409A Compliance.  To the extent
applicable, it is intended that the Agreement comply with the provisions of
Section 409A of the Code, as amended.  This Agreement will be administered and
interpreted in a manner consistent with this intent, and any provision that
would cause this Agreement to fail to satisfy Section 409A of the Code will have
no force and effect until amended to comply therewith (which amendment may be
retroactive to the extent permitted by Section 409A of the
Code).  Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under
Section 409A, the Executive shall not be considered to have terminated
employment with the Company for purposes of this Agreement and no payments shall
be due to the Executive under this Agreement which are payable upon the
Executive’s termination of employment until the Executive would be considered to
have incurred a “separation from service” from the Company within the meaning of
Section 409A of the Code.  To the extent required in order to avoid accelerated
taxation and/or tax penalties under Section 409A of the Code, amounts that would
otherwise be payable and benefits that would otherwise be provided pursuant to
this Agreement during the six-month period immediately following the Executive’s
termination of employment shall instead be paid on the first business day after
the date that is six months following the Executive’s termination of employment
(or upon the Executive’s death, if earlier).  In addition, for purposes of the
Agreement, each amount to be paid or benefit to be provided to the Executive
pursuant to this Agreement shall be construed as a separate identified payment
for purposes of Section 409A of the Code.  With respect to expenses eligible for
reimbursement under the terms of the Agreement, (i) the amount of such expenses
eligible for reimbursement in any taxable year shall not affect the expenses
eligible for reimbursement in another taxable year and (ii) any reimbursements
of such expenses shall be made no later than the end of the calendar year
following the calendar year in which the related expenses were incurred, except,
in each case, to the extent that the right to reimbursement does not provide for
a “deferral of compensation” within the meaning of Section 409A of the Code.

 

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24.                               Preemption.  In the event there is a conflict
between any provision of this Agreement and any other agreement, plan, policy or
program of the Company, the provisions of this Agreement shall control.

 

15

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above, effective as of the Effective Date.

 

Dated:  July 14, 2014

 

 

 

American Apparel, Inc.

 

 

 

 

 

 

 

By:

/s/ Tobias Keller

 

 

Tobias Keller, Interim General Counsel

 

 

 

 

 

 

 

 

/s/ John Luttrell

 

 

John Luttrell

 

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Exhibit A

 

EQUITY AWARDS

 

Stock Options

 

700,000 stock options granted in 2011 (fully vested)

 

Restricted Stock

 

Number of shares

 

Grant

 

 

 

Date

 

Amount

 

Vested

 

 

 

 

 

 

 

10/10/2011

 

350,000

 

350,000

 

 

 

 

 

 

 

3/1/2012

 

75,000

 

50,000

 

 

 

 

 

 

 

3/8/2013

 

270,000

 

90,000

 

 

 

 

 

 

 

3/12/2014

 

120,000

 

—

 

 

 

 

 

 

 

6/18/2014

 

350,000

 

350,000

 

 

 

 

 

 

 

 

 

1,165,000

 

840,000

 

 

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Exhibit B

 

CALIFORNIA LABOR CODE SECTION 2870

 

EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS

 

“(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee developed
entirely on his or her own time without using the employer’s equipment,
supplies, facilities, or trade secret information except for those inventions
that either: (1) Relate at the time of conception or reduction to practice of
the invention to the employer’s business, or actual or demonstrably anticipated
research or development of the employer; or (2) Result from any work performed
by the employee for the employer. (b) To the extent a provision in an employment
agreement purports to require an employee to assign an invention otherwise
excluded from being required to be assigned under Subdivision (a), the provision
is against the public policy of this state and is unenforceable.”

 

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