**Exhibit 10.26**

**PROMISSORY NOTE**

 

FOR VALUE RECEIVED, American Apparel Canada Wholesale Inc., a corporation formed under the CanadaBusiness Corporations Act (the “Maker”), hereby promises to pay to the order of Dov Charney (the “Payee”), his successors and assigns, on or before the Maturity Date (as hereinafter defined), the principal sum of**TWO MILLION TWO HUNDRED THOUSAND DOLLARS ($2,200,000),** in lawful money of Canada, together with accrued and unpaid interest hereon from the date hereof plus all other unpaid amounts to be paid or reimbursed by the Maker pursuant to this Note,in accordance with the terms hereinafter set forth. 

1. Interest Rate. The outstanding principal amount of this Note, together withall accrued and unpaid interest hereon, shall bear interest at 6.00% per annum (the “Interest Rate”). Interest shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on December31,2007. 

Overdue amounts in respect of this Note shall bear interest at a rate per annum equal to the Interest Rate [+2.00%]. In no event,however, shall any interest exceed the legal maximum rate of interest permissible by law. Interest on this Note will accrue from December 11, 2007. Except as otherwise provided herein, interest shall be calculated on the basis of a 360-day year oftwelve 30-day months. 

2. Maturity Date. The principal amount of this Note (or, if less, the unpaid principal balance of suchamount) together with all accrued and unpaid interest hereon plus all other unpaid amounts to be paid or reimbursed by the Maker hereunder shall be due and payable by the Maker in full on December 10, 2012 (the “Maturity Date”).

3. Application of Payments; Overdue Payments. Each payment on this Note shall be credited first to the payment of all fees, costsand expenses for which the Payee is entitled to reimbursement pursuant to Section 10 hereof, then to accrued and unpaid interest, and then to the principal amount. All payments of the unpaid principal balance and interest will be made withoutwithholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature, unless the withholding of such taxes or duties is required by law. 

4. Manner of Payment. All payments hereunder shall be made in immediately available funds to the Payee or to such other payee or address as thePayee may designate from time to time. If any payment of principal or interest on this Note is due on a day which is not a Business Day, as defined below, such payment shall be due on the next succeeding Business Day, and such extension of timeshall not be taken into account in calculating the amount of interest payable under this Note. “Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions inMontreal are authorized or required by law, regulation or executive order to close. 

 

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5. Prepayment. The Maker shall have the right to prepay the principal amount hereof in full or inpart, together with all accrued interest on the amount prepaid to the date of such prepayment at any time and from time to time (the “Prepayment Right”). Any prepayment amount received by the Payee in connection with the PrepaymentRight shall be applied first to the payment of all fees, costs and expenses for which the Payee is entitled to reimbursement pursuant to Section 10 hereof, then to accrued but unpaid interest on this Note through the date of such prepayment,then to principal. Any such prepayment shall be payable without any premium or penalty of any kind. 

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

7. Further Assurances. At the Maker’s reasonable expense, the Maker shall do all acts, furnish to the Payee all agreements, consents,instruments or other documents, and do or cause to be done all such other things as the Payee may reasonably request from time to time in order to give full effect to the purpose and provisions of this Note. If the Maker fails to perform any actrequired by this Note, the Payee may perform, or cause performance of, such act, and the expenses of the Payee therewith shall be reimbursed upon demand by the Maker in accordance with Section 10 hereof. 

8. Events of Default. Each of the following events shall constitute an “Event of Default” hereunder (whether it shall bevoluntary or involuntary or occur or be effected by operation of law or otherwise): 

(a) a failure on the part of the Maker to make anypayment of principal when due under this Note; 

(b) a failure on the part of the Maker to make any payment of interest when due under thisNote and such failure shall continue for 30 days; 

(c) the Maker shall commence (or take any action for the purpose of commencing) anyproceeding under any bankruptcy, insolvency, readjustment of debt, moratorium or similar law or statute or make (or take any action for the purpose of making) a general assignment for the benefit of its creditors or shall admit in writing itsinability to pay its debts generally as they become due; 

(d) a proceeding shall be commenced against the Maker under any bankruptcy,insolvency, readjustment of debt, moratorium or similar law or statute and relief is ordered against it, or the proceeding is controverted but is not dismissed within thirty (30) days after the commencement thereof; 

(e) the Maker consents to or suffers the appointment of a receiver, trustee or custodian to any substantial part of its assets that is not vacated withinthirty (30) days after such appointment; or 

 

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(f) any event occurs in relation to the Maker which under the law of any relevant jurisdiction has ananalogous or equivalent effect to any of the events mentioned in clause (c), (d) or (e) of this Section 8. 

The Maker shall notify the Payee promptly (butin no event later than three (3) Business Days following the occurrence of any Event of Default) in writing of the occurrence of such Event of Default. 

9. Remedies. 

(a) If an Event of Default shall occur and be continuing, then the Payee may, by noticein writing to the Maker, (i) declare the principal of and accrued interest on this Note to be, and the same shall upon such notice forthwith become, immediately due and payable and (ii) in addition to all rights and remedies available to it at law,exercise any or all of its rights and remedies under this Note; provided, however, that when any Event of Default described in clause (c), (d), (e) or (f) of Section 8 has occurred and is continuing, then all amounts in respect ofprincipal and interest under this Note shall immediately become due and payable, without presentment, demand of payment, protest, notice of intent to accelerate, notice of acceleration or notice of any kind, all of which are hereby expressly waived.

(b) No failure or delay by the Payee in exercising any remedy, right, power or privilege under this Note shall operate as a waiver of suchremedy, right, power or privilege, nor shall any single or partial exercise of such remedy, right, power or privilege preclude any other or further exercise of such remedy, right, power or privilege. No remedy, right, power or privilege conferredupon or reserved to the Payee by this Note is intended to be exclusive of any other remedy, right, power or privilege provided or permitted by law, but each shall be cumulative and in addition to every other remedy, right, power or privilege soprovided or permitted and each may be exercised concurrently or independently from time to time and as often as may be deemed expedient by the Payee. 

10. Expenses. From time to time, the Maker shall reimburse the Payee upon demand for all reasonable fees, costs and expenses (including the fees, costs and expenses of counsel and court costs) incurred afterthe date of this Note in connection with (a) the collection of any outstanding principal and interest accrued hereunder (whether or not suit is filed to enforce the terms hereof) and (b) the enforcement of any rights or remedies provided forpursuant to this Note. The provisions of this Section 10 shall survive the termination of this Note. 

11. Waivers. The Maker herebywaives diligence, presentment, demand of payment, protest, notice of intent to accelerate, notice of acceleration and all other notices and demands whatsoever with respect to such liabilities and obligations or to any action under this Note, exceptas specifically provided for in this Note. The Maker further agrees that it shall remain liable for all amounts due hereunder notwithstanding any extension of time or any change in the terms of payment of this Note granted by the Payee or any delayor failure by the Payee to exercise any rights hereunder. 

 

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12. Governing Law; Severability. This Note shall be deemed to have been made in theProvince of Quebec and shall be governed and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada. Al1 claims and proceedings arising from or related to this Note, shall be adjudicated solely by a court orby a tribunal of competent jurisdiction in the Province of Quebec, in the judicial district of Montreal and the parties hereby attorn to the jurisdiction thereof. Whenever possible, each provision of this Note shall be interpreted in such manner asto be effective and valid under applicable law, but if any provision hereof is in conflict with any applicable law or is otherwise unenforceable for any reason whatsoever, then such invalidity, illegality or unenforceability shall not affect anyother provision hereof, and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 

13. Amendment; Waiver. No amendment to this Note shall be effective unless in writing signed by the Maker and the Payee. No waiver of any provision of this Note and no consent to any departure by the Maker hereunder shall beeffective unless in writing signed by the Payee. 

14. Registration. The Maker will maintain, at its principle place of business, aregister of the Payee(s) of this Note (the “Register”), and will update the Register to reflect any permitted assignments or transfers subsequent to the date hereof. The Maker will make payments of principal and interest asspecified hereunder to the Payee(s) named as such in the Register. The Payee shall notify the Maker in writing prior to any assignment, transfer or other disposition of this Note (or any portion hereof) or such Payee’s rights or interestshereunder, with such written notice to be delivered to the Maker not later than one (1) Business Day prior to any such assignment, transfer or disposition and which notice shall specify the principal amount hereunder that is the subject of suchassignment, transfer or disposition. Notwithstanding anything to the contrary herein, (i) the registered owner of this Note (or any portion hereof) as indicated on the Register shall be the party with the exclusive right to receive payment ofany principal amount and accrued and unpaid interest on this Note and (ii) payments required to be made hereunder shall not be subject to counter-claim or offset of any nature whatsoever. 

15. Loss, Mutilation, Etc. Upon notice from the Payee to the Maker of the loss, theft, destruction or mutilation of this Note, and upon receipt ofan indemnity reasonably satisfactory to the Maker from the Payee or, in the case of mutilation hereof, upon surrender of the mutilated Note, the Maker will make and deliver a new note of like tenor in lieu of this Note. 

16. Notices. All notices, consents, waivers or other communications required or permittedhereunder to be delivered to the Maker shall be in writing and shall be mailed by registered or certified mail, return receipt requested, postage prepaid or otherwise delivered by hand, by messenger or an internationally recognized courier (chargesprepaid) or facsimile transmission, addressed to the Maker at 350 rue de Louvain West, Montreal, Quebec, H2N 2E8. Each such notice, consent, waiver or other communication shall for all purposes hereunder be treated as effective or as having beengiven when delivered, if delivered by hand or by messenger (or internationally recognized courier), 24 hours after confirmed receipt if sent by facsimile transmission or at the earlier of its receipt or on the second (2nd) Business Day after mailing, if mailed, as aforesaid. 

 

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17. The parties hereto have required that this Note be drawn in the English language only. Les partiesont exigé que le présent billet à ordre soit rédigé en langue anglaise seulement. 

**IN WITNESS WHEREOF**, this Note has been executed and delivered by the undersigned on the 11th day of December, 2007. 

 
**AMERICAN APPAREL CANADA WHOLESALE INC.**
By:
 
/s/ Lorne Gold
Name: Lorne GoldTitle: Chief Financial Officer
 

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