TRUE RELIGION APPAREL, INC. STOCK OPTION AGREEMENT R E C I T A L S :
EXHIBIT 99.2
TRUE RELIGION APPAREL, INC.
R E C I T A L S :
A. The Board has adopted the Plan for the purpose of retaining the services of selected
Employees, non-employee members of the Board or of the board of directors of any Parent or
Subsidiary and consultants and other independent advisors who provide services to the Corporation
(or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and
this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Corporation’s grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned to them in the
attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the Grant Date, an option
to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares
shall be purchasable from time to time during the option term specified in Paragraph 2 at the
Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10) years measured from the
Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless
sooner terminated in accordance with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable nor assignable by
Optionee other than by will or by the laws of descent and distribution following Optionee’s death
and may be exercised, during Optionee’s lifetime, only by Optionee. However, if this option is
designated a Non-Statutory Option in the Grant Notice, then this option may be assigned in whole or
in part during Optionee’s lifetime to one or more members of the Optionee’s family or to a trust
established for the exclusive benefit of one or more such family members or the Optionee’s former
spouse, to the extent such assignment is in connection with Optionee’s estate plan or pursuant to a
domestic relations order. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such assignment. The terms applicable
to the assigned portion shall be the same as those in effect for this option immediately prior to
such assignment. Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of this option and this option shall, in accordance
with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee’s death while holding this option. Such beneficiary or beneficiaries shall take the transferred option
subject to all the terms and conditions of this Agreement, including (without limitation) the
limited time period during which the option may be exercised following the Optionee’s death.
4. DATES OF EXERCISE. This option shall become exercisable for the Option Shares in one or
more installments as specified in the Grant Notice. As the option becomes exercisable for such
installments, those installments shall accumulate, and the option shall remain exercisable for the
accumulated installments until the Expiration Date or sooner termination of the option term under
Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this
option shall cease to be outstanding) prior to the Expiration Date should any of the following
provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other than death,
Disability or Misconduct) while this option is outstanding, then Optionee shall have a
period of three (3) months (commencing with the date of such cessation of Service) during
which to exercise this option, but in no event shall this option be exercisable at any time
after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then the personal
representative of Optionee’s estate or the person or persons to whom the option is
transferred pursuant to Optionee’s will or in accordance with the laws of descent and
distribution or any person or trust to whom all or a portion of this option is transferred
in accordance with Paragraph 3 hereof or the designated beneficiary or beneficiaries of this
option shall have the right to exercise this option. Such right shall lapse, and this option
shall cease to be outstanding, upon the earlier of (i) the expiration of the twelve
(12)-month period measured from the date of Optionee’s death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while this option is
outstanding, then Optionee shall have a period of twelve (12) months (commencing with the
date of such cessation of Service) during which to exercise this option. In no event shall
this option be exercisable at any time after the Expiration Date.
(d) During the limited period of post-Service exercisability, this option may not be
exercised in the aggregate for more than the number of vested Option Shares for which the
option is exercisable at the time of Optionee’s cessation of Service. Upon the expiration of
such limited exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for which the option has
not been exercised. However, this option shall, immediately upon Optionee’s cessation of
Service for any reason, terminate and cease to be outstanding with respect to any Option
Shares for which this option is not otherwise at that time exercisable.
(e) Should Optionee’s Service be terminated for Misconduct, then this option shall
terminate immediately and cease to remain outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option to the extent outstanding at the time of a Change in Control but not
otherwise fully exercisable, shall not become exercisable on an accelerated basis if and to
the extent: (i) this option is, in connection with the Change in Control, to be assumed by
the successor corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread existing at
the time of the Change in Control on the Option Shares for which this option is not
otherwise at that time exercisable (the excess of the Fair Market Value of those Option
Shares over the aggregate Exercise Price payable for such shares) and provides for
subsequent payout in accordance with the same option exercise/vesting schedule set forth in
the Grant Notice. However, if none of the foregoing conditions apply, an outstanding option
shall automatically accelerate so that each such option shall, immediately prior to the
effective date of the Change in Control, become exercisable for all the shares of Common
Stock at the time subject to that option and may be exercised for any or all of those shares
as fully vested shares of Common Stock.
(b) Immediately following the Change in Control, this option shall terminate and cease
to be outstanding, except to the extent this option is assumed by the successor corporation
(or Parent thereof) in connection with the Change in Control or is otherwise to continue in
full force and effect pursuant to the terms of the Change in Control transaction.
(c) If this option is assumed in connection with a Change in Control or is otherwise to
continue in full force and effect, then this option shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of securities
which would have been issuable to Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control, and appropriate
adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price
shall remain the same.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the Corporation’s receipt of
consideration, appropriate adjustments shall be made to (i) the total number and/or class of
securities subject to this option and (ii) the Exercise Price in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any stockholder rights with
respect to the Option Shares until such person shall have exercised the option, paid the Exercise
Price and become a holder of record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part of the Option
Shares for which this option is at the time exercisable, Optionee (or any other person or
persons exercising the option) must take the following actions:
(i) To the extent the option is exercised for vested Option Shares, execute and deliver
to the Corporation a Notice of Exercise for the Option Shares for which the option is
exercised. To the extent the option is exercised for unvested Option Shares, execute and
deliver to the Corporation a Purchase Agreement for those unvested Option Shares.
(ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the
following forms:
(A) cash or check made payable to the Corporation;
(B) a full-recourse, interest bearing promissory note payable to the
Corporation, but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 14;
(C) shares of Common Stock held by Optionee (or any other person or persons
exercising the option) for the requisite period necessary to avoid a charge to the
Corporation’s earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date; or
(D) to the extent the option is exercised for vested Option Shares, through a
special sale and remittance procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall concurrently provide irrevocable
instructions (I) to a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation by reason of
such exercise and (II) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized in
connection with the option exercise, payment of the Exercise Price must accompany
the Notice of Exercise delivered to the Corporation in connection with the option
exercise.
(iii) Furnish to the Corporation appropriate documentation that the person or persons
exercising the option (if other than Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or Parent or Subsidiary
employing or retaining Optionee) for the satisfaction of all Federal, state and
local income and employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the Corporation shall issue to or on
behalf of Optionee (or any other person or persons exercising this option) a certificate for
the purchased Option Shares, with the appropriate legends affixed thereto. To the extent
any such Option Shares are unvested, the certificates for those Option Shares shall be
endorsed with an appropriate legend evidencing the Corporation’s repurchase rights and may
be held in escrow with the Corporation until such shares vest.
(c) In no event may this option be exercised for any fractional shares.
10. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. In addition, this Agreement shall not in any way be construed or interpreted
so as to affect adversely or otherwise impair the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly
reserved by each, to terminate Optionee’s Service at any time for any reason, with or without
cause.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares upon such
exercise shall be subject to compliance by the Corporation and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of any Stock
Exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be
listed for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any regulatory body having
authority deemed by the Corporation to be necessary to the lawful issuance and sale of any
Common Stock pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the
provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation
and its successors and assigns and Optionee, Optionee’s assigns and the legal representatives,
heirs and legatees of Optionee’s estate.
13. NOTICES. Any notice required to be given or delivered to the Corporation under the terms
of this Agreement shall be in writing and addressed to the Corporation at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee’s signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage
prepaid and properly addressed to the party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute discretion and without any
obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by
delivering a full-recourse promissory note payable to the Corporation. The terms of any such
promissory note (including the interest rate, the requirements for collateral and the terms of
repayment) shall be established by the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are made and granted pursuant
to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions
of the Plan Administrator with respect to any question or issue arising under the Plan or this
Agreement shall be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California without resort to that State’s conflict-of-laws
rules.
17. EXCESS SHARES. If the Option Shares covered by this Agreement exceed, as of the Grant
Date, the number of shares of Common Stock which may without stockholder approval be issued under
the Plan, then this option shall be void with respect to those excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event this option is designated
an Incentive Option in the Grant Notice, the option is intended to be an incentive stock option as
described in Code Section 422, but the Corporation does not represent or warrant that the option
qualifies as such. The Optionee should consult with the Optionee’s own tax advisors regarding the
tax effects of this option and the requirements necessary to obtain favorable income tax treatment
under Code Section 422, including, but not limited to, holding period requirements with respect to
the Option Shares after exercise of this option. In addition, the following terms and conditions
shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment as an Incentive
Option if (and to the extent) this option is exercised for one or more Option Shares: (A)
more than three (3) months after the date Optionee ceases to be an Employee for any reason
other than death or Disability or (B) more than twelve (12) months after the date Optionee
ceases to be an Employee by reason of Disability.
(b) No installment under this option shall qualify for favorable tax treatment as an
Incentive Option if (and to the extent) the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of the respective date or
dates of grant) of the Common Stock or other securities for which this option or any other
Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any
other option plan of the Corporation or any Parent or Subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should such One Hundred Thousand Dollar ($100,000) limitation be exceeded in any
calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar year as a
Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon a Change in Control,
then this option shall qualify for favorable tax treatment as an Incentive Option only to
the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common
Stock for which this option first becomes exercisable in the calendar year in which the
Change in Control occurs does not, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock or other securities for which this
option or one or more other Incentive Options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should the applicable One Hundred Thousand
Dollar ($100,000) limitation be exceeded in the calendar year of such Change in Control, the
option may nevertheless be exercised for the excess shares in such calendar year as a
Non-Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more other options to
purchase Common Stock which become exercisable for the first time in the same calendar year
as this option, then the foregoing limitations on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such options are
granted.
EXHIBIT I
NOTICE OF EXERCISE
I
hereby notify True Religion Apparel, Inc. (the
“Corporation”) that I elect to purchase
shares of the Corporation’s Common Stock (the “Purchased Shares”) at the
option exercise price of
per share (the “Exercise Price”) pursuant to that certain
option (the “Option”) granted to me under the Corporation’s 2005 Stock Incentive Plan on
, 200___.
Concurrently with the delivery of this Notice of Exercise to the Corporation, I shall hereby
pay to the Corporation the Exercise Price for the Purchased Shares in accordance with the
provisions of my agreement with the Corporation (or other documents) evidencing the Option and
shall deliver whatever additional documents may be required by such agreement as a condition for
exercise. Alternatively, I may utilize the special broker-dealer sale and remittance procedure
specified in my agreement to effect payment of the Exercise Price.
, 200___
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Print name in exact manner it is to appear on the stock certificate: |
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Address to which certificate is to be sent, if
different from address above: |
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Social Security Number: |
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Employee Number |
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APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation’s Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected
through any of the following transactions:
(i) a stockholder-approved merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities
are transferred to a person or persons not related to the persons holding those securities
immediately prior to such transaction. For the purpose of this subsection, the persons are
“related” if one of them owns, directly or indirectly, at least fifty percent (50%) of the voting
capital stock of the other or a third person owns, directly or indirectly, at least fifty percent
(50%) of the voting capital stock of each of them;
(ii) a sale, transfer or other disposition of all or substantially all of the Corporation’s
assets to one or more persons that are not related, as defined in subsection 1 above, to the
Company immediately prior to the sale or transfer; or
(iii) the acquisition, directly or indirectly by any person or related group of persons (other
than the Corporation or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership (within the meaning of Rule
13d-3 of the ▇▇▇▇ ▇▇▇) of securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation’s stockholders which the Board recommends such stockholders
accept, other than a group of two or more persons not acting in concert for the purpose of
acquiring, holding or disposing of such stock. The acquisition of additional stock by any person
who immediately prior to such acquisition already is the beneficial owner of more than fifty
percent (50%) of the capital stock of the Company entitled to vote in the election of directors is
not a Change of Control.
D. COMMON STOCK shall mean shares of the Corporation’s common stock.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. CORPORATION shall mean True Religion Apparel, Inc., a Delaware corporation.
G. DISABILITY shall means a medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months and which: (1) renders the individual unable to engage in any substantial gainful activity;
or (2) results in the individual receiving income replacement benefits
for a period of not less than three months under any policy of long-term disability insurance
maintained by a Corporation for the benefit of its employees.
H. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or
Subsidiary), subject to the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been exercised in
accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per Option Share as specified in the Grant
Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant
Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the
Fair Market Value shall be the closing selling price per share of Common Stock on the date
in question, as the price is reported on the Nasdaq National Market. If there is no closing
selling price for the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair
Market Value shall be the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
▇. ▇▇▇▇▇ DATE shall mean the date of grant of the option as specified in the Grant Notice.
▇. ▇▇▇▇▇ NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement,
pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by
Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade
secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by
Optionee adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or
Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code
Section 422.
R. NOTICE OF EXERCISE shall mean the notice of exercise in the form attached hereto as
Exhibit I.
S. OPTION SHARES shall mean the number of shares of Common Stock subject to the option as
specified in the Grant Notice.
T. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant
Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation, provided each corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the True Religion Apparel, Inc. 2005 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its
capacity as administrator of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement (in form and substance
satisfactory to the Corporation) which grants the Corporation the right to repurchase, at the
Exercise Price, any and all unvested Option Shares held by Optionee at the time of Optionee’s
cessation of Board service and which precludes the sale, transfer or other disposition of any
purchased Option Shares while those shares are unvested and subject to such repurchase right.
Y. SERVICE shall mean the Optionee’s performance of services for the Corporation (or any
Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of
directors or a consultant or independent advisor.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, provided each corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.