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American Apparel challenges default claim on $9.9 million loan

American Apparel received noticed from investment firm Lion Capital to pay back a $9.9 million loan. American Apparel is disputing Lion Capital's claim that American Apparel defaulted since ousting founder and CEO Dov Charney in June.

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Gary Friedman/Los Angeles Times/AP/File
Dov Charney, founder of American Apparel, is photographed at the company's factory in downtown Los Angeles, April 3, 2012. American Apparel received noticed from investment firm Lion Capital to pay back a $9.9 million loan, but American Apparel is disputing the default claim.
  • By Anne D'Innocenzio Associated Press

| New York

American Apparel Inc. has received a notice from investment firm Lion Capital demanding payment of a $9.9 million loan, according to a regulatory filing Tuesday.

Lion Capital is claiming that Los Angeles-based casual clothing chain defaulted under its credit agreement since it ousted its founder and CEO Dov Charney last month.

American Apparel said in the documents that it's disputing the claim, contesting the validity of the payment acceleration and has advised Lion that a default can't occur before July 19.

American Apparel's revolving credit line from other lenders doesn't currently allow the repayment of the Lion Capital loans. ButAmerican Apparel says it is seeking approval from those lenders and expects it will be able to repay the loan if that approval is granted.

On June, 18, the American Apparel's board fired Charney as chairman and suspended him as president and CEO. His contract requires a 30-day period before he can be terminated. The board cited "alleged misconduct."

In the meantime, American Apparel is in negotiations with investment firm Standard General to boost its finances and bring in new leadership.

Charney entered into a five-year loan agreement two weeks ago with Standard General to increase his stake in American Apparelto 43 percent, but the terms strip him of his rights to vote on those shares without Standard General's consent.

Standard General said Monday in a filing that it has "opened a constructive, detailed and substantive dialogue with members of the current board." According to the terms, Charney has agreed that he will not serve on the board nor play any leadership role in the company until the investigation is complete. And Charney will not serve a role at the company if he is deemed "unfit."

Charney has been the subject of several lawsuits alleging inappropriate sexual conduct with female employees. He has acknowledged having sexual relationships with workers, but said they were consensual.

Late last month, American Apparel said it had hired advisory firm Peter J. Solomon Co.

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