American Apparel has received a notice of default from its one of its lenders, Lion Capital.
The reason for the default is that Dov Charney has ceased to be chief executive officer of the company, according to a regulatory filing with the Securities and Exchange Commission today.
The agreement with Lion, dated, May 22, 2013, allows for the acceleration of the maturity of the loans and other outstanding obligations under the credit agreement. Lion initally loaned American Apparel $10 million.
American Apparel, in its SEC filing, disputed Lion’s claim regarding Charney’s position and said it is contesting the validity of the acceleration. American Apparel also reserved it rights against Lion for a claim of damages for asserting an invalid acceleration.
American Apparel also said its revolving credit facility does not currently permit the repayment of the loans under the credit agreement with Lion. It is seeking the consent of the lenders to permit the repayment of all amounts due to Lion.
If the lenders of the credit facility do not permit the repayment of the Lion credit agreement, then an event of default will exist under the revolving credit facility when Charney ceases to be ceo of the company.
Charney was removed as ceo pending an internal investigation of certain matters. Charney is contesting that, and has sought arbitration per an arbitration provision in his employment agreement.