Document:

EX-10.1

WARRANT PURCHASE AGREEMENT

This WARRANT PURCHASE AGREEMENT (this “Agreement”) is entered into as of February 3,
2011, by and between Allied World Assurance Company Holdings, Ltd, a company organized and existing
under the laws of Bermuda (the “Company”), and American International Group, Inc., a
Delaware corporation (“Seller”).

R E C I T A L S:

WHEREAS, Seller owns a warrant (the “Warrant”) that was originally issued by the
Company to Seller on November 21, 2001, entitling Seller to purchase a total of 2,000,000 common
shares, par value $0.03 per share, of the Company (such number reflects a 1 for 3 reverse stock
split effected on July 7, 2006 (the “Stock Combination”));

WHEREAS, in connection with a scheme of arrangement under Bermuda law by which the Company
became a direct, wholly-owned subsidiary of Allied World Assurance Company Holdings, AG, a Swiss
corporation (“Allied World Switzerland”) (the “Redomestication”), the Company,
pursuant to the terms of a Warrant Assignment and Assumption Agreement, dated December 1, 2010, by
and between Allied World Switzerland and the Company (the “Warrant Assumption Agreement”),
assigned, transferred, conveyed and delivered all of its rights and obligations under the Warrant
to Allied World Switzerland, and Allied World Switzerland agreed to assume and to pay and perform
all liabilities and obligations of the Company accruing under the Warrant;

WHEREAS, in accordance with the terms of the Warrant and the Warrant Assumption Agreement, the
Warrant is currently exercisable by Seller in exchange for 2,000,000 registered shares, par value
of CHF 15.00 per share, of Allied World Switzerland (the “Warrant Shares”), at an exercise
price of $34.20 (such price reflects the Stock Combination) for each Warrant Share purchased upon
exercise; and

WHEREAS, on the terms and subject to the conditions of this Agreement, the Company desires to
purchase from Seller the Warrant, and Seller desires to have purchased by the Company the Warrant,
for the consideration set forth below.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements
herein contained, and intending to be legally bound hereby, the Company and Seller hereby agree as
follows:

Article I.

PURCHASE OF THE WARRANT

1.1. Purchase. As of the Closing (as hereinafter defined), upon the terms and subject
to the conditions of this Agreement, Seller will sell, transfer, convey, assign and deliver to the
Company, and the Company will purchase, acquire and accept from Seller, the Warrant, free and clear
of any and all Liens (as hereinafter defined). Seller acknowledges and agrees that, at the
Closing, (i) Seller shall have no further rights under and shall not be able to exercise the
Warrant and (ii) Seller shall cease to be a party to, and shall no longer have any rights under,
the Registration Rights Agreement, dated as of July 17, 2006, by and among the Company, the Seller
and certain other shareholders of the Company (the “Registration Rights Agreement”), which
Registration Rights Agreement was assumed by Allied World Switzerland in connection with the
Redomestication pursuant to an Assignment and Assumption Agreement, dated December 1, 2010, by and
between Allied World Switzerland and the Company.

1.2. Closing. The closing of the purchase of the Warrant under this Agreement (the
“Closing”) shall take place simultaneously with the signing of this Agreement at the
offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, NY. At the Closing, (i) the
Company shall pay to Seller for the Warrant, an amount equal to the product of (a) 2,000,000
multiplied by (b) the difference between (x) U.S. $61.01 and (y) U.S. $34.20, or FIFTY THREE
MILLION SIX HUNDRED TWENTY THOUSAND DOLLARS ($53,620,000.00) (the “Sale Price”), by wire
transfer of immediately available funds to the account specified in writing in Schedule 1.2
hereto (the “Seller’s Account”) and (ii) upon receipt of confirmation that the Sale Price
is in the Seller’s Account, Seller shall deliver to the Company the original certificate
representing the Warrant being purchased hereunder duly endorsed for transfer or accompanied by an
appropriate transfer instrument duly executed in blank. The Company and Seller hereby agree that
the purchase of the Warrant by the Company in accordance with the terms of this Agreement fully
complies with the transfer provisions of the Warrant, to the extent applicable.

1.3 Transfer Taxes. Seller will pay, and will indemnify and hold harmless the Company
from and against, any and all stamp taxes, stock transfer taxes or other similar taxes, and any and
all penalties, additions to tax and interest attributable to any such taxes, imposed on the
purchase of the Warrant (collectively, “Transfer Taxes”), and any and all costs and
expenses with respect to the Transfer Taxes. Seller will prepare and timely file all necessary tax
returns and other documentation with respect to the Transfer Taxes and shall timely pay the
Transfer Taxes to the applicable taxing authorities.

Article II.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

As of the date hereof, the Company represents and warrants to Seller as follows:

2.1. Organization. The Company is an exempted company duly organized, validly
existing and in good standing under the laws of Bermuda.

2.2. Authorization. The Company has the absolute and unrestricted right, power,
capacity (legal or otherwise) to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action by the Company and no other corporate actions on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions contemplated hereby.

2.3. Validity. This Agreement has been duly and validly executed by the Company and
constitutes a valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.

2.4. No Violation. The execution, delivery and performance by the Company of this
Agreement do not, and the consummation by the Company of the transactions contemplated hereby will
not, (i) violate or conflict with any provision of the Company’s memorandum of association or
bye-laws; (ii) violate any provision of any statute, law, code, ordinance, treaty, policy,
judgment, order, injunction, decree, rule, consent, writ, determination, arbitration award, rule or
regulation (collectively, “Laws”) of or by any federal, state, foreign or other
governmental or public body, agency or authority, or subdivision thereof, instrumentality,
subdivision, court, administrative agency, commission, official or other authority of the United
States, Bermuda or any other country or any state, province, prefect, municipality, locality or
other government or political subdivision thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority
(collectively, “Governmental or Regulatory Entity”), applicable to the Company, Allied
World Switzerland or any of their respective properties or assets; or (iii) violate, conflict with,
result in a breach of or the loss of any benefit under, constitute (with due notice or lapse of
time or both) a default under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by or rights or obligations under, any of
the terms, conditions or provisions of any contract, note, bond, lease, loan agreement, mortgage,
security agreement, indenture, deed or trust, license, agreement or instrument to which the Company
or Allied World Switzerland is a party or by which it is bound or to which any of their respective
properties, assets or business is subject.

2.5. Approvals or Consents. No consents, authorizations, waivers, filings,
registrations or approvals are required in connection with the execution and delivery of this
Agreement by the Company, the consummation of the transactions contemplated hereby or the
performance by the Company of its obligations hereunder.

2.6. Disclosure. None of the officers of the Company identified on Schedule
2.6 hereto believes that he or she is in possession of any material non-public information
about the Company or Allied World Switzerland which has not otherwise been disclosed to Seller.

2.7. No Litigation. There is no action, suit, proceeding, judgment, claim or
investigation pending, or to the knowledge of the Company, threatened against the Company or Allied
World Switzerland which could reasonably be expected in any manner to challenge or seek to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this Agreement.

2.8. No Other Representations or Warranties. Except for the representations and
warranties contained in this Agreement, neither the Company nor any other person on behalf of the
Company makes any other express or implied representation or warranty with respect to the Company
or Allied World Switzerland or with respect to any other information provided by or on behalf of
the Company or Allied World Switzerland.

Article III.

REPRESENTATIONS AND WARRANTIES OF SELLER

As of the date hereof, Seller represents, warrants and agrees with the Company as follows:

3.1. Organization. Seller is duly organized, validly existing, and in good standing
under the laws of the State of Delaware.

3.2. Ownership of Warrant. Seller is the sole record, legal and beneficial owner of
the Warrant. The Warrant has not been exercised, in whole or in part. There are no (a) securities
convertible into or exchangeable for the Warrant (other than pursuant to the exercise of the
Warrant itself) or any of the Warrant Shares; (b) options, warrants or other rights to purchase or
subscribe for the Warrant or any of the Warrant Shares; or (c) contracts, commitments, agreements,
understandings or arrangements of any kind (contingent or otherwise) relating to the issuance, sale
or transfer of the Warrant or any of the Warrant Shares, other than the Registration Rights
Agreement.

3.3. Title. Seller has, and the Company will receive, good and marketable title to
the Warrant, free and clear of any and all liens, security interests, mortgages, rights of first
refusal, agreements, limitation on voting rights, restrictions, levies, claims, pledges, equities,
options, contracts assessments, conditional sale agreements, charges and other encumbrances or
interests of any nature whatsoever, including, without limitation, voting trusts or agreements or
proxies (collectively, “Liens”) excluding any Liens created by the Registration Rights
Agreement or applicable securities laws.

3.4. Authorization. Seller has the absolute and unrestricted right, power, capacity
(legal or otherwise) and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action by Seller and no other corporate actions on the part of Seller are
necessary to authorize, execute and deliver this Agreement or to consummate the transactions
contemplated hereby.

3.5. Validity. This Agreement has been duly and validly executed and delivered by
Seller and constitutes a valid and binding obligation of Seller, enforceable against it in
accordance with its terms.

3.6. No Violation. The execution, delivery and performance by Seller of this
Agreement does not, and the consummation by Seller of the transactions contemplated hereby will
not, (i) violate or conflict with any provision of Seller’s certificate of incorporation, by-laws
or any other organizational documents; (ii) violate any provision of any Laws of or by Governmental
or Regulatory Entity applicable to Seller or any of its properties or assets; or (iii) violate,
conflict with, result in a breach of or the loss of any benefit under, constitute (with due notice
or lapse of time or both) a default under, result in the termination of or a right of termination
or cancellation under, accelerate the performance required by or rights or obligations under, any
of the terms, conditions or provisions of any contract, note, bond, lease, loan agreement,
mortgage, security agreement, indenture, deed or trust, license, agreement or instrument to which
Seller or any of its affiliates is a party or by which it or any of its affiliates is bound or to
which any of its or its affiliates’ properties, assets or business is subject.

3.7. Approvals and Consents. No consents, authorizations, waivers, filings,
registrations or approvals are required in connection with the execution and delivery of this
Agreement by Seller, the consummation of the transactions contemplated hereby or the performance by
Seller of its obligations hereunder.

3.8. Information Concerning Allied World Switzerland. Pursuant to that certain
Confidentiality Agreement, dated as of January 25, 2011, by and between Allied World Switzerland
and Seller, Allied World Switzerland and the Company have made available certain information to
Seller and Seller has had the opportunity to discuss the plans, operations and financial condition
of Allied World Switzerland and its subsidiaries with its officers and have received all
information requested by Seller to enable Seller to evaluate the decision to sell the Warrant
(collectively, the “Provided Information”). Notwithstanding the foregoing, Seller
acknowledges that Allied World Switzerland and the Company may be in possession of material
non-public information about Allied World Switzerland and its subsidiaries not known to Seller
(“Excluded Information”). Seller hereby waives any and all claims and causes of
action now or hereafter arising against Allied World Switzerland, the Company and/or any of their
respective directors, officers, employees, partners, agents or affiliates based upon or relating to
any alleged non-disclosure of Excluded Information or the disclosure of the Provided Information
(other than claims based upon gross negligence, fraud or intentional malfeasance) and further
covenants not to assert any claims against or to sue Allied World Switzerland, the Company and/or
any of their respective directors, officers, employees, partners, agents or affiliates for any
loss, damage or liability arising from or relating to its sale of the Warrant pursuant to this
Agreement based upon or relating to any alleged non-disclosure of Excluded Information or the
disclosure of the Provided Information (other than claims based upon gross negligence, fraud or
intentional malfeasance). It is understood and agreed that neither Allied World Switzerland, the
Company nor Seller makes any representation or warranty to the other whatsoever with respect to the
business, condition (financial or otherwise), properties, prospects, creditworthiness, status or
affairs of Allied World Switzerland and its subsidiaries, or with respect to the value of the
Warrant or the Warrant Shares.

3.9. No Litigation. There is no action, suit, proceeding, judgment, claim or
investigation pending, or to the knowledge of the Seller, threatened against the Seller which could
reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement.

3.10. No Brokers or Finders. Seller has not retained, employed or used any broker or
finder in connection with the transactions provided for herein or in connection with the
negotiation thereof.

Article IV.

MISCELLANEOUS

4.1. Expenses. The Company and Seller shall each bear their own expenses incurred in
connection with this Agreement and the consummation of the transactions contemplated hereby.

4.2. Further Assurance. From time to time, at the Company’s request and without
further consideration, Seller will execute and deliver to the Company such documents and take such
other action as the Company may reasonably request in order to consummate the transactions
contemplated hereby.

4.3. Specific Performance. Nothing herein shall be construed to prevent the Company
or Seller from enforcing, by legal action or otherwise, the terms of this Agreement. The Company
and Seller hereby declare that it is impossible to measure in money the damages which will accrue
to either party or to such party’s successors or permitted assigns by reason of a failure to
perform any of the obligations under this Agreement and agree that either party shall be entitled
to a decree of specific performance of the terms of this Agreement, which right will be in addition
to any other remedies available to such party. If the Company or Seller or such party’s heirs,
personal representatives, or assigns institutes any action or proceeding to specifically enforce
the provisions hereof, any person against whom such action or proceeding is brought hereby waives
the claim or defense therein that such party or such personal representative has an adequate remedy
at law, and such person shall not offer in any such action or proceeding the claim or defense that
such remedy at law exists.

4.4. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the
Company and Seller and their respective successors and permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other person or entity any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

4.5. Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to either party upon any breach or default of the other party
hereto shall impair any such right, power or remedy, nor shall it be construed to be a waiver of
any such breach or default, or any acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of
any other breach or default theretofore or thereafter occurring.

4.6. Notices. All notices and other communications required hereunder shall be in
writing and sent by facsimile, delivered personally, delivered by a recognized next-day courier
service or mailed by registered or certified mail. All such notices and communications shall be
delivered as set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:

(a) if to the Company, to:

Allied World Assurance Company Holdings, Ltd

27 Richmond Road

Pembroke HM 08, Bermuda

Attention: Wesley D. Dupont

Facsimile: 441-295-5117

with a copy to:

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY 10019

Attention: Steven A. Seidman

Jeffrey Hochman

Facsimile: 212-728-8111

(b) if to Seller, to:

American International Group, Inc.

80 Pine Street

New York, New York 10005

Attention: General Counsel

Facsimile: 212-425-2175

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Ave

New York, New York 10153

Attention: Matthew J. Gilroy

Facsimile: 212-310-8007

4.7. Entire Agreement; Amendments. This Agreement contains the entire understanding
of the parties relating to the subject matter hereof. This Agreement may be amended only by a
written instrument duly signed by the Company and Seller.

4.8. Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the Company and Seller and their respective successors and permitted assigns.

4.9. Assignment. Neither the Company nor Seller shall transfer or assign this
Agreement or any of their rights, interests, or obligations hereunder, in whole or in part, whether
voluntarily, by operation of law or otherwise, without the prior written approval of the other
party.

4.10. Headings. The article and section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or interpretation of any
provision of this Agreement.

4.11. Severability. The invalidity of any term or terms of this Agreement will not
affect any other term of this Agreement, which will remain in full force and effect.

4.12. Governing Law, Jurisdiction; Waiver Of Jury Trial.

(a) This Agreement shall be construed, performed and enforced in
accordance with, and governed by, the laws of the State of New York, without
giving effect to the principles of conflicts of laws thereof. Each of the
parties hereto irrevocably elects as the sole judicial forums for the
adjudication of any matters arising under or in connection with this
Agreement, and consents to the jurisdictions of, the courts of the County of
New York, State of New York or the United States of America for the Southern
District of New York.

(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER,
(ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.12.

4.13. Public Announcements. The parties agree that no party shall make any press
release or public announcement concerning this transaction without the prior approval of the other
party, unless a press release or public announcement is required by law, judicial or administrative
process or by obligations pursuant to any listing agreement with any national securities exchange.
Before a party makes any such announcement or other disclosure, it agrees to give the other parties
reasonable prior notice and a reasonable opportunity to comment on the proposed disclosure.

4.14. Counterparts. This Agreement may be executed simultaneously in counterparts,
both of which shall be deemed an original, but all counterparts so executed will constitute one and
the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by
facsimile or by PDF file (portable document format file) shall be as effective as delivery of a
manually executed counterpart of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, this Agreement has been duly executed on behalf of each of the
parties hereto as of the day and year first above written.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

By:       /s/ Scott A. Carmilani      

Name: Scott A. Carmilani

Title: Chairman, President & Chief Executive Officer

AMERICAN INTERNATIONAL GROUP, INC.

By:       /s/ P. Nicholas Kourides       

Name: P. Nicholas Kourides

Title: Deputy General Counsel

[Signature Page — Warrant Purchase Agreement]ex10-1.htm

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, effective as of February 7, 2011 (the “Effective Date”), 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 deem it to be in their respective best interests to enter into an agreement providing for the Company’s employment of the Executive pursuant to the terms herein stated;

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 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 of the Board, the Chief Executive Officer, and the President  of the Company, (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 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:

(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 thirteen and one-half month period commencing on February 7, 2011 (the “Effective Date”) and ending on February 6, 2012, and shall be automatically extended without further action by either party for successive one-year periods as of each February 7 (beginning February 7, 2012) (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 $400,000.00 per annum.  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.”

  

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(b)           Performance Bonuses.

(i)           Subject to the Executive’s continuing employment with the Company through February 28, 2011, and the Executive’s delivery of a written budget for the Company 2011 fiscal year and a written strategic plan forecast for the Company covering fiscal years 2011 through 2013, both satisfactory to the Board by February 28, 2011, the Executive shall be entitled to a bonus of up to $25,000, payable as soon as reasonably practicable following February 28, 2011, but in no event later than March 30, 2011.

(ii)           The Executive will be eligible to receive an annual incentive compensation award in respect of each fiscal year of the Company during the Term, commencing with fiscal year 2011, 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 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 (21⁄2) months after the end of the applicable fiscal year for which the bonus is earned.

4.            Equity Awards.

(a)          Pursuant to the terms of the Company’s 2007 Performance Equity Plan and any successor plan thereto (collectively, the “Equity Plan”), the Board or the Compensation Committee shall grant to the Executive a stock option (the “Option”) covering 700,000 shares of the common stock of the Company  (“Common Stock”) (the “Option Shares”), with a per share exercise price equal to the fair market value of the Common Stock on the date of grant (as determined in accordance with the Equity Plan), as soon as reasonably practicable following the Company’s determination that it is (i) eligible to issue such shares of Common Stock under the Company’s Form S-8 Registration Statement covering shares of Common Stock issuable pursuant to the Equity Plan and (ii) the Company’s determination that it has adequate number of shares in the Equity Plan to effectuate such (as in effect from time to time, the “Form S-8”), to the Executive pursuant to the Company’s Form S-8 (the “S-8 Eligibility Date”).  Subject to the Executive’s continued employment with the Company, the Option shall vest and become exercisable as to twenty-five percent (25%) of the Option Shares on the grant

  

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date and thereafter on the grant date and thereafter on each of January 1, 1012, 2013 and 2014.  The Option shall be subject to such other terms and conditions specified by the Compensation Committee in accordance with the provisions of the Equity Plan and the form of award agreement to be approved by the Board (which award agreement shall be consistent with the Option terms set forth in this Agreement).

(b)          Pursuant to the terms of the Equity Plan, the Board or the Compensation Committee shall grant to the Executive a restricted stock award (the “RSA”) covering 350,000 shares of Common Stock (the “RSA Shares”) as soon as reasonably practicable (i) following the S-8 Eligibility Date and (ii) the Company’s determination that it has adequate number of shares in the Equity Plan to effectuate such.  Subject to the Executive’s continued employment with the Company, the RSA shall vest as to twenty-five percent (25%) of the RSA Shares on the grant date and thereafter on each of January 1, 2012, 2013 and 2014.  The RSA shall be subject to such other terms and conditions specified by the Compensation Committee in accordance with the provisions of the Equity Plan and the form of award agreement to be approved by the Board (which award agreement shall be consistent with the RSA terms set forth in this Agreement).

(c)          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 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.

(d)          In the event a successor corporation or a parent or subsidiary of a successor corporation to a transaction described in Section 10.2 of the Equity Plan refuses to assume or substitute for the Executive’s outstanding stock option or restricted stock awards, 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.

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.

  

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(b)          Relocation Expenses.  During the one-year period beginning on the Effective Date, the Company shall pay the Executive a cash stipend of $5,000 per month to cover transitional relocation expenses, such as housing (including apartment rental), travel and other similar expenses.  In addition, the Company shall pay or reimburse Executive for reasonable moving expenses incurred by Executive and his family during their relocation from Executive’s primary residence to the greater Los Angeles area, such reimbursement to be in accordance with the Company’s relocation policy.

(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.

  

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Subject to Section 17, 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).

(ii)           Termination for “Cause” shall mean termination by action of the Board 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 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; (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; (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), or (E) a material breach of the Company’s obligations under this Agreement; provided, however, that no event or circumstance shall be considered to constitute Good Reason within the meaning of this clause (iii) unless the Company 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 and the Company has failed to effect a cure thereof within 30 calendar days following the receipt of such notice.

(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

  

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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, which, in the case of a proposed resignation to which the 30-day cure period provided for in subsection (iii) above applies shall be no less than 31 days after the delivery of such notice to the Company, or, if no date is specified therein, 61 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, which release shall be consistent with the terms of this Agreement (the “Release”), within sixty (60) days following termination of employment, continued payment of the Executive’s then-current Salary for a period of twelve (12) months, payable in accordance with the Company’s usual payment practices; 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 (the “Continuation Period”); (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.

Except to the extent required pursuant to Section 22 hereof, during the Continuation Period, Salary payments to the Executive shall be payable in accordance with the payroll practices of the Company.

Subject to the Executive’s execution and delivery of 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 last day of the Continuation Period and (ii) such time as the Executive is entitled to comparable benefits provided by a subsequent employer.  Anything herein to the contrary notwithstanding, the Company shall have no obligation to continue to maintain during the Continuation Period 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

  

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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 Internal Revenue Code of 1986, as amended (the “Code”) or as set forth under Section 17, 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 or, if 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.

  

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(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.

 

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

  

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than in the performance of his 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. 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 A 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.

10.          Nonassignability; Binding Agreement.

Neither this Agreement nor any right, duty, obligation or interest

  

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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.

11.          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.

12.          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:  Glenn A. Weinman

	  	  	  	
Email: glenn@americanapparel.net

	  	  	  	  
	  	  	  	  
	  	
(b)

	
To the Executive:

	
John Luttrell

	  	  	  	
747 Warehouse Street

	  	  	  	
Los Angeles, California 90021

	  	  	  	
Attention:  John Luttrell

	  	  	  	
Email: Jluttrell@americanapparel.net

(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.

13.              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

  

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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.

14.          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 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.

  

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15.          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.

16.          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.

17.          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

  

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successors) may be made a party by reason of his 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. 

18.          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.

19.          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.

20.          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.

21.          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

  

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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.

22.          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.

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

	  	
American Apparel, Inc.

	  	  	  
	  	  	  
	  	
By:

	  /s/ Glenn Weinman
	  	  	
Glenn A. Weinman, General Counsel

	  	  	  
	  	  	  
	  	  	  /s/ John Luttrell
	  	  	
John Luttrell

  

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Exhibit A

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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