Current Report Filing (8-k)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 8-K

__________________

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 30, 2015

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American Apparel, Inc.

(Exact Name of Registrant as Specified in Charter)

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Delaware	001-32697	20-3200601
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)



747 Warehouse Street, Los Angeles, CA	90021-1106
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number, including area code: (213) 488-0226

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

_____________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Approval of Performance Targets under the Company’s Fiscal Year 2015 Executive Annual Incentive Plan (the “2015 AIP”)

On March 30, 2015, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of American Apparel, Inc. (the “Company”) approved performance targets under the 2015 AIP that will be used to determine the amount of cash bonus awards that may be earned by the participants in the 2015 AIP, including the Company’s executive officers. The amounts earned under the 2015 AIP will be determined based on achievement of an adjusted EBITDA goal and individual performance in fiscal year 2015. The target bonus amounts under the 2015 AIP for Paula Schneider, our Chief Executive Officer, Hassan Natha, our Chief Financial Officer, Chelsea Grayson, our General Counsel, and Martin Bailey, our Chief Manufacturing Officer, are 67%, 50%, 50% and 25% of each such executive officer’s annual base salary, respectively. The foregoing description of the 2015 AIP is qualified in its entirety by reference to the 2015 AIP, a copy of which is filed as Exhibit 10.1 to this filing and incorporated herein by reference.

Adoption of Amended Award Agreements under the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as amended and restated (the “2011 Plan”)

On March 30, 2015, the Compensation Committee approved amended forms of the Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (the “RSU Form”) and the Stock Option Grant Notice and Option Agreement (the “Option Form”) to be used for approved restricted stock unit and option awards under the 2011 Plan. The RSU Form and the Option Form are filed as Exhibits 10.2 and 10.3 to this filing and are incorporated herein by reference.

Equity Grants to Executive Officers

On March 30, 2015, the Compensation Committee approved annual grants of restricted stock units (“RSUs”) and stock options (“Options”) to the Company’s employees, including its executive officers, under the 2011 Plan. Each of Ms. Schneider, Mr. Natha, Ms. Grayson and Mr. Bailey were granted RSUs for 300,000, 150,000, 150,000 and 82,750 shares of the Company’s common stock, respectively, and Options for 300,000, 150,000, 150,000 and 82,750 shares of the Company’s common stock, respectively. The Options and RSUs will vest, subject to each executive officer’s continued service, over three years, with 1/3 of the total number of shares subject to each award vesting on the first anniversary of the date of grant. If the executive officer’s employment is terminated without Cause (as defined in the 2011 Plan) or the executive officer resigns for Good Reason (as defined in the 2011 Plan) in either case, immediately prior to, on, or within 12 months after a Change in Control (as defined in the 2011 Plan), and such termination is other than as a result of death or disability, and provided the executive officer signs, and does not revoke, the Company’s standard form of release of all claims within 60 days after termination, the awards will become fully vested. In addition, the Compensation Committee made a one-time RSU grant for 50,000 shares of the Company’s common stock to each of Ms. Schneider, Mr. Natha and Ms. Grayson, in recognition of each executive officer’s service to the Company since her or his date of hire. Such RSUs will vest, subject to each executive officer’s continued service, on April 15, 2015. Each of the RSUs and Options are subject to the terms of the RSU Form and Option Form.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No. Description

10.1 American Apparel, Inc. Fiscal Year 2015 Executive Annual Incentive Plan

10.2 Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement

under the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as

amended and restated

10.3 Form of Stock Option Grant Notice and Option Agreement under the American

Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as amended and restated

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



	AMERICAN APPAREL, INC.



Dated: April 3, 2015	By:	/s/ Chelsea A. Grayson
		Name:	Chelsea A. Grayson
		Title:	General Counsel, Executive Vice President and Secretary

EXHIBIT INDEX

Exhibit No. Description

10.1 American Apparel, Inc. Fiscal Year 2015 Executive Annual Incentive Plan

10.2 Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement

under the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as

amended and restated

10.3 Form of Stock Option Grant Notice and Option Agreement under the American

Apparel, Inc. 2011 Omnibus Stock Incentive Plan, as amended and restated

Exhibit 10.1

AMERICAN APPAREL, INC.

FISCAL YEAR 2015 EXECUTIVE ANNUAL INCENTIVE PLAN

PURPOSE AND ELIGIBILITY

American Apparel, Inc. (“AA” or the “Company”) has designed an annual cash-based incentive plan for its 2015 fiscal year (the “Performance Period”) for executive officers. This Fiscal Year 2015 Executive Annual Incentive Plan (“AIP”) is designed to drive revenue growth, encourage accountability, drive execution of short-term priorities tied to long-term strategy and annual operating plan objectives, and recognize and reward executives upon the achievement of our objectives. This AIP operates under, and is subject to the terms of, the American Apparel, Inc. 2011 Omnibus Stock Incentive Plan (the “2011 Plan”). Capitalized terms not defined herein have the meanings set forth in the 2011 Plan.

Eligibility

Eligible participants in this AIP include officers and key employees of the Company who (i) are specifically designated by the Committee, (ii) are employed (full time or part time) during the Performance Period, (iii) are at least director level and (iv) are regular employees of AA at the end of the Performance Period (the “Participants”). Participation in the AIP is at the discretion of the Committee, in consultation with Company management. The Committee will document the designation of employees as Participants through a Participation Notice in substantially the form attached here as Exhibit A, which the employee must promptly sign and return to be eligible to earn any bonus under this AIP.

Employment Status

If an executive officer is hired after the beginning of the Performance Period and the Committee determines that such executive officer should be eligible to participate in the AIP, the Participant’s Target Award (as defined below) will be calculated by reference to actual salary earned during the Performance Period. Unless the Committee explicitly determines otherwise in a manner that complies with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”) (in which case such determination shall govern), if a Participant’s salary and/or AIP annual bonus target percentage changes during the Performance Period, the Participant’s Target Award will be prorated as follows: the Target Award will be based on the number of business days in the Performance Period with the former AIP annual bonus target percentage and earned salary and the number of business days in the Performance Period with the new AIP annual bonus target percentage and earned salary. If a Participant’s employment terminates before the date the Actual Award (as defined below) is paid, the Participant will not be eligible for a bonus payment, or any portion of a bonus payment, except as provided in an applicable severance plan or in an individual retention agreement with the Participant. If a Participant is on a leave of absence for the entire Performance Period, the Participant is not eligible for an AIP bonus payment. If a Participant is on a leave of absence for a portion of the Performance Period, the Participant will be eligible for a bonus under the AIP calculated by reference to the actual salary earned during the Performance Period (exclusive of any salary replacement benefits paid during the leave via insurance).

Employees Covered by Internal Revenue Code Section 162(m)

Nothing in this AIP requires that compensation that can be earned hereunder be fully deductible under Section 162(m). However, to the extent the Committee determines it to be necessary or desirable to achieve full deductibility of bonus compensation awarded under the AIP, the Committee, in its sole discretion, (i) may exclude from participation under the AIP those individuals who are or who may likely be “covered employees” under Section 162(m) whose employment in an eligible position commenced after the Committee established the Threshold Goal (as defined below), which generally will be a date not later than the 90^th day of the Performance Period and (ii) may take other actions as necessary or desirable toward the opportunity for deductibility of the compensation paid under the AIP.

HOW THE AIP WORKS

Summary

Subject to the terms of this AIP, provided that the Company achieves an adjusted EBITDA-based Threshold Goal for the Performance Period, the AIP will be funded at 200% of the Target Award for all Participants, and each Participant will be credited with (subject to the employment requirements set forth herein) a cash bonus payment equal to 200% of his or her Target Award and in no event greater than $4 million, subject to reduction pursuant to the metrics set forth in this AIP. Such potentially reduced amount is the Participant’s Actual Award and will be determined by multiplying the Participant’s Target Award by a Corporate Goal Result (determining 70% of the Actual Award) and by an Individual Goals Result (as defined below and determining 30% of the Actual Award). Capitalized terms used in this Summary have the meanings set forth below.

The Actual Award is comprised of:



Corporate Goal (70%)	+	Individual Goal (30%)

Part 1: Determination of Target Award

The “Target Award” equals the product of the annual bonus target percentage (as designated by the Committee) and the actual base salary earned by the Participant during the Performance Period. For example, an employee whose annual bonus target percentage is 10% and whose actual earned annual base salary is $120,000 has a Target Award of $12,000 ($120,000 x 10%). The Target Award is the amount that would be earned and payable under the AIP upon achievement at the 100% level of both the Corporate Goal Result and the Individual Goals Result (each as defined below), provided the Threshold Goal is attained and employment requirements are satisfied.

The maximum bonus a Participant may earn for the Performance Period is the lesser of: (i) 200% of his or her Target Award (regardless of the level of achievement of the Corporate Goal Result and the Individual Goals Result) and (ii) $4 million (the “Maximum Award” as set forth in the 2011 Plan).

Part 2: Achievement of Threshold Goal

For any Participant to earn any bonus under this AIP, AA must first achieve a “Threshold Goal” of at least 90% of its annual “Adjusted EBITDA” target for the 2015 fiscal year, which means net income/loss excluding the impact of income taxes, net interest income/expense, depreciation and amortization, subject to equitable adjustments determined by the Committee for unusual or non-recurring events, changes in applicable laws and regulations, items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, or to take into account other extraordinary items and events (such as restructuring, acquisition and related costs, volatility in currency exchange rates, non-cash compensation related to stock and options, changes in warrant liability expense, impairment of assets, non-cash adjustments to balance sheet items, expenses related to capital structure transactions, gain (loss) on extinguishment of debt, and cash and non-cash adjustments related to the closing of retail stores, unless such adjustment may not be made under Section 162(m) and the Committee determines that compliance with Section 162(m) is desirable).

If the Company achieves the Threshold Goal, the AIP will be funded at 200% of the Target Award for all Participants, and each Participant will be credited with his or her Maximum Award, and the Maximum Award will then be subject to the metrics below to determine the Actual Award, which may result in a downward adjustment of the Maximum Award. If the Company does not achieve the Threshold Goal, the AIP will not be funded and Participants will earn no bonus under the AIP. The Company is under no obligation to pay out the entire funded or credited amount to Participants.

Part 3: Determination of Actual Award

The Committee will determine the actual award earned and payable to that Participant (the “Actual Award”) by reducing the Maximum Award based on (i) achievement of Adjusted EBITDA (the Corporate Goal Result) and (ii) achievement of individual performance objectives selected for each Participant (the Individual Goals Result).

Adjusted EBITDA: The level of achievement against the Adjusted EBITDA metric will result in a payout percentage (the “Corporate Goal Result”) determined using the matrix attached as Exhibit B. The Committee, in its sole discretion, may adjust the Corporate Goal Result determined on Exhibit B in the manner noted above, although no such adjustment will result in the Corporate Goal Result exceeding 200%.

Individual Goals: At the outset of the Performance Period, the Committee, in consultation with the CEO (other than with respect to her own goals), or the CEO (with respect to Participants who are not executive officers), will set individual performance goals for each Participant, and weighting for each goal. Following the Performance Period, the Committee, in consultation with the CEO (other than with respect to her own performance) assesses each Participant’s achievement of these goals (expressed as a percentage) (the “Individual Goals Result”). A Participant’s Individual Goals Result may range from 0% to 200%.

Each Participant’s Actual Award is determined using the following formula based on the achievement determinations described in the above steps.

Actual Award ($) =

[(Corporate Goal Result x 70%) + (Individual Goals Result x 30%)] x Target Award ($)

Exhibit C to this AIP provides an example of the calculation process as a reference point only.

GENERAL

Administration

Actual Awards earned are paid on an annual basis approximately 45-60 days after the end of the Performance Period, but in no event after the later of (i) March 15^th of the year following the calendar year in which the Actual Award is earned, or (ii) the 15^th day of the third month following the fiscal year of the Company in which the Actual Award is earned, and in all cases in compliance with the short term deferral exception from Section 409A of the Internal Revenue Code of 1986, as amended. The Company reserves the right to interpret and to make changes to or withdraw the AIP at any time, subject to applicable legal requirements. All terms and conditions of the AIP are subject to compliance with applicable law. The Committee, in its sole discretion, may eliminate or reduce the Actual Award payable to any Participant below that which otherwise would be payable in accordance with the provisions set forth above.

Recoupment

Any amounts paid under the AIP will be subject to recoupment in accordance with any clawback policy that AA is required to adopt pursuant to the listing standards of any national securities exchange or association on which AA’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with AA.

Exhibit A

American Apparel, Inc.

FY 2015 Executive Annual Incentive Plan

Participation Notice

To: [name of participant]

Date: March ___. 2015

American Apparel, Inc. (the “Company”) has adopted the American Apparel, Inc. Fiscal Year 2015 Executive Annual Incentive Plan (the “Plan”). The Company is providing you this Participation Notice to inform you that you have been designated as a Participant in the Plan. A copy of the Plan document is attached to this Participation Notice. The terms and conditions of your participation in the Plan are as set forth in the Plan and this Participation Notice.

You are eligible to earn a Target Award for 2015 equal to [___]% of your actual base salary earned in 2015. Assuming you earn base salary for 2015 of [$___], and assuming 100% achievement of both Corporate Goals and Individual Goals, your Target Award would be [$_____].

70% of the Target Award is determined based on Corporate Goals, and 30% of the Target Award is determined based on Individual Goals. The Corporate Goal for 2015 is set forth in the Plan. Your Individual Goals, and the weighting of those Individual Goals, are as follows:



Goal	Weighting
	[___]%
	[___]%
	[___]%

Your achievement against your Individual Goals will be scored using the following scale:



Description of Achievement	Performance Rating	% Achievement
Unsatisfactory performance	1	0%
Attempted but failed to make meaningful progress	2	25%
Attempted but not fully achieved	3	50%
Achieved at a satisfactory level	4	100%
Successfully achieved	5	150%
Exceptional achievement	6	200%

For clarity, this Participation Notice supersedes and replaces your rights to earn annual or quarterly incentive compensation as set forth in your offer letter or employment agreement with the Company, or any other prior agreement or understanding with the Company.

Please sign and return to the Company’s General Counsel a copy of this Participation Notice. Please retain a copy of this Participation Notice, along with the Plan document, for your records.

_____________________________________

(Participant’s Signature)

_____________________________________

(Date)

_____________________________________

Chief Executive Officer

_____________________________________

Date

Exhibit B

FY15 Annual Incentive Plan - Adjusted EBITDA Achievement & Corporate Goal Result



Adjusted EBITDA Achievement % (rounded)	Corporate Goal Result
Below 90%	0%
90%	50%
100%	100%
120%	200%
Above 120%	200%

NOTE: The Corporate Goal Result will be determined using straight line linear interpolation between points, and will be rounded to the nearest whole number.

Exhibit C

Sample Calculation

Part 1: Determination of Target Award

Assume an employee has an annual bonus target percentage of 10% and has earned $120,000 in base salary for 2015. His 2015 Target Award is $12,000 ($120,000 x 10%), and his Maximum Award is $24,000 ($12,000 x 200%).

Part 2: Achievement of Threshold Goal

Assume that the Company achieves 110% of its annual “Adjusted EBITDA” target for the 2015 fiscal year, which exceeds the Threshold Goal of 90% of its Adjusted EBITDA target. In this case, the employee is eligible to earn an Actual Award for 2015, as set forth below.

Part 3: Determination of Actual Award

Assume that the Company achieved 110% of the annual Adjusted EBITDA target.

Corporate Goal: At 110% achievement of Adjusted EBITDA, using the table below, the Corporate Goal Result is 150% - that is, the achievement is halfway between 100% and 120%, and so the credit is halfway between 100% and 200%.



Adjusted EBITDA Achievement % (rounded)	Corporate Goal Result
Below 90%	0%
90%	50%
100%	100%
120%	200%
Above 120%	200%

Individual Goals: Assume the employee was assigned 3 Individual Goals, and the Company determined achievement as set forth below. Based on the scoring model described in the Participation Notice, the employee has an Individual Goals Result of 105%. That is, the Weighted Achievement is determined by multiplying the Weighting by the % Achievement. The Individual Goals Result equals the sum of the Weighted Achievement of each Individual Goal.



Goal	Weighting	Performance Rating	% Achievement	Weighted Achievement
1	60%	4	100%	60%
2	25%	5	150%	37.5%
3	15%	3	50%	7.5%
Individual Goals Result:				105%

The employee’s Actual Award, determined using the AIP formula and the levels of achievement, is:

Actual Award = [(150 % x 70%) + (105 % x 30%)] x $12,000 = 136.5% x $12,000 = $16,380

Exhibit 10.2

AMERICAN APPAREL, INC.

RESTRICTED STOCK UNIT GRANT NOTICE

2011 OMNIBUS STOCK INCENTIVE PLAN

American Apparel, Inc. (the “Company”) hereby awards to Participant the number of restricted stock units (“RSUs”) set forth below (the “Award”). The Award is subject to all of the terms and conditions as set forth in this Restricted Stock Unit Grant Notice (the “Notice”), the 2011 Omnibus Stock Incentive Plan (the “Plan”) and the Restricted Stock Unit Agreement (the “Award Agreement”), both of which are attached hereto and incorporated in their entirety. Capitalized terms not explicitly defined in this Notice but defined in the Plan or the Award Agreement will have the same definitions as in the Plan or the Award Agreement. In the event of any conflict between the terms of the Award and the Plan, the terms of the Plan will control.

Participant:

Date of Grant:

Vesting Commencement Date:

Number of RSUs:

Vesting Schedule:

The Award vests as to ____ of the RSUs (rounded down to the nearest whole RSU) ___ months after the Vesting Commencement Date, with the balance vesting as to 1/___ of the total number of RSUs (rounded down to the nearest whole RSU) every ___ months thereafter, so that the Award is fully vested only after ____ years, subject to Participant’s Continuous Service with the Company through each such vesting date.

Each installment of RSUs that vests hereunder is a “separate payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2).


Issuance Schedule:	Subject to any change on a Change in Capitalization, one share of Common Stock will be issued for each RSU that vests at the time set forth in the Award Agreement.

Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Notice, the Award Agreement, the Plan and the prospectus for the Plan. As of the Date of Grant, this Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the Award and supersede all prior oral and written agreements on the terms of the Award, with the exception, if applicable, of (i) the written employment agreement or offer letter agreement entered into between the Company and Participant specifying the terms that should govern this specific Award, or, if applicable instead, the severance benefit plan then in effect and applicable to Participant and (ii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law. By accepting this Award, Participant consents to receive Plan documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. This Award will automatically immediately expire if you have not accepted and agreed to the Notice, this Award Agreement and the terms of the Plan on or before the date that is three (3) months after the Date of Grant, and you will have no further rights, title or interests in or to the Award or the shares underlying the Award.

AMERICAN APPAREL, INC. PARTICIPANT:

By: _____________________ _______________________

Signature Signature

Title: ____________________ Date: ___________________

Date:____________________


Also Provided:	Award Agreement, 2011 Omnibus Stock Incentive Plan, Prospectus

American Apparel, Inc.

2011 Omnibus Stock Incentive Plan

Restricted Stock Unit Agreement

American Apparel, Inc. (the “Company”) has awarded you a Restricted Stock Unit Award (the “Award”) that is subject to its 2011 Omnibus Stock Incentive Plan (the “Plan”), the Restricted Stock Unit Grant Notice (the “Grant Notice”) and this Restricted Stock Unit Agreement (the “Agreement”), for the number of Restricted Stock Units indicated in the Grant Notice. Capitalized terms not explicitly defined in this Agreement or in the Grant Notice but defined in the Plan will have the same definitions as in the Plan. In the event of any conflict between the terms in this Agreement and the Plan, the terms of the Plan will control.

1. Grant of the Award. The Award represents your right to be issued on a future date one share of Common Stock for each Restricted Stock Unit that vests. However, this Award will automatically immediately expire if you have not accepted and agreed to the Grant Notice, this Agreement and the terms of the Plan on or before the date that is three (3) months after the Date of Grant, and you will have no further rights, title or interests in or to the Award or the shares underlying the Award.

2. Vesting. Your Restricted Stock Units will vest as provided in the Grant Notice. Vesting will cease on the termination of your Continuous Service. Any Restricted Stock Units that have not yet vested will be forfeited on the termination of your Continuous Service.

3. Adjustments to Number of RSUs & Shares of Common Stock.

(a) The Restricted Stock Units subject to your Award will be adjusted for a Change in Capitalization, as provided in the Plan.

(b) Any additional Restricted Stock Units and any shares, cash or other property that become subject to the Award will be subject, in a manner determined by the Board, to the terms of the Award, including the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares covered by your Award.

(c) You have no rights to be issued any fractional share of Common Stock or cash in lieu of such fractional share under this Award. Any fraction of a share will be rounded down to the nearest whole share.

4. Securities Law Compliance. You will not be issued any Common Stock underlying the Restricted Stock Units or other shares with respect to your Restricted Stock Units unless either (i) the shares are registered under the Securities Act, or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award also must comply with other applicable laws and regulations governing the Award, and you will not receive shares underlying your Restricted Stock Units if the Company determines that such receipt would not be in material compliance with such laws and regulations.

5. Transferability. Prior to the time that shares of Common Stock have been delivered to you, you may not transfer, pledge, sell or otherwise dispose of any portion of the Restricted Stock Units or the

shares in respect of your Restricted Stock Units. For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan, nor may you transfer, pledge, sell or otherwise dispose of such shares. This restriction on transfer will lapse on delivery to you of shares in respect of your vested Restricted Stock Units.

(a) Death. Your Restricted Stock Units are not transferable other than by will and by the laws of descent and distribution. At your death, your executor or administrator of your estate will be entitled to receive, on behalf of your estate, Common Stock or other consideration under this Award.

(b) Domestic Relations Orders. If you receive written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your right to receive the distribution of Common Stock or other consideration under your Restricted Stock Units, in accordance with a domestic relations order or official marital settlement agreement that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss with the Company’s General Counsel the proposed terms of any such transfer prior to finalizing the domestic relations order or marital settlement agreement to verify that you may make such transfer, and if so, to help ensure the required information is contained within the domestic relations order or marital settlement agreement. The Company is not obligated to allow you to transfer your Award in connection with your domestic relations order or marital settlement agreement.

6. Date of Issuance.

(a) The issuance of shares in respect of the Restricted Stock Units is intended to comply with Treasury Regulations Section 1.409A-1(b)(4) and will be construed and administered in such a manner. As a result, the shares will be issued no later than the date that is the 15th day of the third calendar month of the applicable year following the year in which the shares of Common Stock under this Award are no longer subject to a “substantial risk of forfeiture” within the meaning of Treasury Regulations Section 1.409A-1(d).

(b) If the Company determines that it is necessary to comply with applicable tax laws, the shares will be issued no later than December 31 of the calendar year in which the shares are no longer subject to a “substantial risk of forfeiture” within the meaning of Treasury Regulations Section 1.409A-1(d).

7. Dividends. You will receive no benefit or adjustment to your Restricted Stock Units with respect to any cash dividend, stock dividend or other distribution except as provided in the Plan with respect to a Change in Capitalization.

8. Restrictive Legends. The Common Stock issued with respect to your Restricted Stock Units will be endorsed with appropriate legends determined by the Company.

9. Award not a Service Contract. Your Continuous Service is not for any specified term and may be terminated by you or by the Company or an Affiliate at any time, for any reason, with or without cause and with or without notice. Nothing in this Agreement (including, but not limited to, the vesting of your Restricted Stock Units or the issuance of the shares subject to your Restricted Stock Units), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Agreement or the Plan shall: (i) confer on you any right to continue in the employ or service of, or affiliation with, the Company or an Affiliate; (ii) constitute any promise or commitment by the Company or an Affiliate regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of

employment or affiliation; (iii) confer any right or benefit under this Agreement or the Plan unless such right or benefit has specifically accrued under the terms of this Agreement or Plan; or (iv) deprive the Company of the right to terminate you at will and without regard to any future vesting opportunity that you may have.

10. Withholding Obligations.

(a) On each vesting date, and on or before the time you receive a distribution of the shares underlying your Restricted Stock Units, and at any other time as reasonably requested by the Company in accordance with applicable tax laws, you agree to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate that arise in connection with your Award (the “Withholding Taxes”). Specifically, the Company or an Affiliate may, in its sole discretion, satisfy all or any portion of the Withholding Taxes relating to your Award by any of the following means or by a combination of such means: (i) withholding from any compensation otherwise payable to you by the Company or an Affiliate; (ii) causing you to tender a cash payment (which may be in the form of a check, electronic wire transfer or other method permitted by the Company); (iii) permitting or requiring you to enter into a “same day sale” commitment with a broker-dealer that is a member of the Financial Industry Regulatory Authority (a “FINRA Dealer”) whereby you irrevocably elect to sell a portion of the shares to be delivered in connection with your Restricted Stock Units to satisfy the Withholding Taxes and whereby the FINRA Dealer irrevocably commits to forward the proceeds necessary to satisfy the Withholding Taxes directly to the Company and/or its Affiliates; or (iv) subject to the approval of the independent members of the Board, withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to you in connection with your Restricted Stock Units with a fair market value (measured as of the date shares of Common Stock are issued to you) equal to the amount of such Withholding Taxes; provided, however, that the number of such shares of Common Stock so withheld will not exceed the amount necessary to satisfy the Company’s required tax withholding obligations using the minimum statutory withholding rates for federal, state, local and foreign tax purposes, including payroll taxes, that are applicable to supplemental taxable income.

(b) Unless the Withholding Taxes of the Company and/or any Affiliate are satisfied, the Company will have no obligation to deliver to you any Common Stock.

(c) If the Company’s obligation to withhold arises prior to the delivery to you of Common Stock or it is determined after the delivery of Common Stock to you that the amount of the Company’s withholding obligation was greater than the amount withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.

11. Unsecured Obligation. Your Award is unfunded, and as a holder of vested Restricted Stock Units, you will be considered an unsecured creditor of the Company with respect to the Company’s obligation, if any, to issue shares or other property pursuant to this Agreement. You will not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to this Agreement until such shares are issued to you. On such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Agreement, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.

12. Release of Claims. You acknowledge that this Award is being granted in consideration for your release of claims as set forth in this Section 12.

(a) You, on behalf of each of your executors, administrators, trusts, heirs, assigns, agents and representatives (collectively, with me, the “Releasors”), hereby irrevocably release and forever discharge the Company and each of its subsidiaries and affiliates, and their respective predecessors, successors, heirs, assigns, employees, shareholders, officers and directors (collectively, the “Released Parties”) from any past, present and future claim, demand, right, obligation, cause of action, judgment and liability of any kind, at law or in equity, whether or not now known, that the Releasors have or may have in the future against the Released Parties relating to your employment with the Released Parties and/or your rights to receive compensation from the Released Parties (including but not limited to any rights, interests or entitlements to any shares of common stock or other equity interest in, or the grant of any equity-based or similar award or incentive with respect to, the Released Parties), based on acts, events or omissions that occurred prior to the date you are signing this Release by accepting this Agreement (each such claim, an “Employment Claim”). The Employment Claims include, without limitation, claims for breach of contract, claims for breach of the implied covenant of good faith and fair dealing, tort claims (including but not limited to fraud, misrepresentation, and emotional distress), and claims under foreign, United States, or local (state, provincial, city) laws (including discrimination, harassment, retaliation, misclassification, unfair business practices, attorneys’ fees, any and all claims for wages, back wages, salary, overtime pay, accrued but unused vacation pay, pension allocations, commissions, incentives, stock or stock options, bonus pay, severance pay, notice period and notice period substitution, deferred compensation payments, expenses, compensatory damages, exemplary damages, contractual obligations and all other payments, compensation, benefits, reimbursement of any kind, the U.S. Civil Rights Act of 1964 (as amended), the U.S. Civil Rights Act of 1991, the U.S. Rehabilitation Act of 1973, the U.S. Equal Pay Act, the U.S. Fair Labor Standards Act, the U.S. Fair Credit Reporting Act, the U.S. Family and Medical Leave Act, the U.S. Immigration Control and Reform Act, the U.S. Americans with Disabilities Act of 1990 (as amended), the U.S. Employee Retirement Income Security Act of 1974 (as amended), the California Family Rights Act, the California Labor Code, the California Workers’ Compensation Act, and the California Fair Employment and Housing Act).

(b) However, the following rights or claims are not included in the Released Claims: (a) any claims for which a notice and revocation period is required (such as the U.S. Older Workers Benefit Protection Act and the U.S. Age Discrimination in Employment Act); (b) any claims for indemnification you may have under a written indemnification agreement with the Released Parties, or under the charter, bylaws or operating agreements of the Released Parties, or under applicable law; (c) any rights which cannot be waived as a matter of law; or (d) any obligations incurred under this Agreement.

(c) You understand that nothing in this Agreement prevents you from filing, cooperating with or participating in any proceeding before the U.S. Equal Employment Opportunity Commission, the U.S. Department of Labor, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company. However, you understand that any such filing or participation does not give you the right to recover any monetary damages against the Released Parties, because your release of claims under this Agreement bars you from recovering such monetary relief from the Released Parties.

(d) You represent and warrant that, other than the Employment Claims, you are not aware of any claims you have or might have that are not included in this Section 12. You acknowledge that you have been advised to consult with legal counsel about this Agreement and are familiar with the provisions of California Civil Code Section 1542, a statute that otherwise prohibits the release of unknown claims, which provides as follows: a general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. You are aware of this code section, and so you

expressly waive any rights you may have thereunder, as well as under any other statute or common law principles of similar effect.

(e) You represent that the Released Parties have paid and/or provided all accrued, unpaid salary, wages, bonuses, commissions, vacation, paid time off, reimbursable expenses, incentives and other accrued, unpaid benefits and compensation due to you through the date of this Agreement. You also represent that neither you, nor any of the Releasors, have any lawsuits, claims, or actions pending in your name, or on behalf of any other person or entity, against the Released Parties. You represent that you do not intend to bring any claims on your own behalf or on behalf of any other person or entity against the Released Parties.

13. Notices. Any notices provided for in this Agreement or the Plan will be given in writing (including electronically) and will be deemed effectively given on receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Award by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this Award, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

14. Miscellaneous.

(a) The rights and obligations of the Company under your Award will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Company’s successors and assigns.

(b) You agree on request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.

(c) You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award, and fully understand all provisions of your Award.

(d) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

(e) All obligations of the Company under the Plan and this Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

15. Governing Plan Document. Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Your Award (and any compensation paid or shares issued under your Award) is subject to recoupment in accordance with The Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment on a Resignation for Good Reason, or for a “constructive termination” or any similar term under any plan of or agreement with the Company. You

hereby acknowledge receipt or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Company’s policy permitting officers and directors to sell shares only during certain “window” periods and the Company’s insider trading policy, in effect from time to time.

16. Severability. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

17. Effect on Other Employee Benefit Plans. The value of the Award subject to this Agreement will not be included as compensation, earnings, salaries, or other similar terms used when calculating the Employee’s benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any of the Company’s or any Affiliate’s employee benefit plans.

18. Amendment. Any amendment to this Agreement must be in writing, signed by a duly authorized representative of the Company. The Board reserves the right to amend this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, interpretation, ruling, or judicial decision.

19. Compliance with Section 409A of the Code. This Award is intended to comply with the “short-term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4). However, if this Award fails to satisfy the requirements of the short-term deferral rule and is otherwise not exempt from, and therefore deemed to be deferred compensation subject to, Section 409A of the Code, and if you are a “Specified Employee” (within the meaning set forth Section 409A(a)(2)(B)(i) of the Code) as of the date of your separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h)), then the issuance of any shares that would otherwise be made on the date of the separation from service or within the first six months thereafter will not be made on the originally scheduled dates and will instead be issued in a lump sum on the date that is six months and one day after the date of the separation from service, with the balance of the shares issued thereafter in accordance with the original vesting and issuance schedule set forth above, but if and only if such delay in the issuance of the shares is necessary to avoid the imposition of taxation on you in respect of the shares under Section 409A of the Code. Each installment of shares that vests is a “separate payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2).

20. No Obligation to Minimize Taxes. The Company has no duty or obligation to minimize the tax consequences to you of this Award and will not be liable to you for any adverse tax consequences to you arising in connection with this Award. You are hereby advised to consult with your own personal tax, financial and/or legal advisors regarding the tax consequences of this Award and by signing the Grant Notice, you have agreed that you have done so or knowingly and voluntarily declined to do so.

* * *

This Agreement, together with any appendix attached hereto that addresses local or foreign legal requirements, will be deemed to be signed by you on the signing (or electronic acceptance) by you of the Grant Notice to which it is attached.

Exhibit 10.3

American Apparel, Inc.

Stock Option Grant Notice

American Apparel, Inc. (the “Company”), under its 2011 Omnibus Stock Incentive Plan (the “Plan”), hereby grants to Participant an option (the “Option”) to purchase the number of shares of the Company’s Common Stock set forth below. The Option is subject to all of the terms and conditions as set forth in this notice (the “Grant Notice”), in the Option Agreement and in the Plan, both of which are incorporated herein in their entirety. Capitalized terms not explicitly defined in this Grant Notice but defined in the Plan or the Option Agreement will have the same definitions as in the Plan or the Option Agreement. If there is any conflict between the terms in the Option Agreement and the Plan, the terms of the Plan will control.



Participant:	_____________________________________
Date of Grant:	_____________________________________
Vesting Commencement Date:	_____________________________________
Number of Shares Subject to Option:	_____________________________________
Exercise Price (Per Share):	_____________________________________
Total Exercise Price:	_____________________________________
Expiration Date:	_____________________________________

Type of Grant: o Incentive Stock Option o Nonstatutory Stock Option

Exercise Schedule: Same as Vesting Schedule


Vesting Schedule:	The Option will vest over a __ year period. Subject to Participant’s Continuous Service on each vesting date, this Option will vest ______________________. Any fractional share will be rounded down to the nearest whole share.


Payment:	By one or a combination of the following items:


•	By cash, check, bank draft, electronic funds or wire transfer, or money order payable to the Company


•	Pursuant to a Regulation T Program (also called “broker assisted exercise”), if the Common Stock is publicly traded and to the extent permitted by the Company


•	By a “net exercise” arrangement, but only if this Option is a Nonstatutory Stock Option and if permitted by the Company at exercise


•	By delivery of already owned shares, if permitted by the Board at exercise

Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Option Agreement and the Plan. As of the Date of Grant, this Grant Notice, the Option Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the Option and supersede all prior oral and written agreements with respect to the Option, with the exception, if applicable, of any written employment agreement or offer letter agreement between the Company and Participant specifying the terms that should govern this Option. By accepting the Option, Participant consents to receive documents governing the Option by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third

party designated by the Company from time to time. This Option will automatically immediately expire if you have not accepted and agreed to the Grant Notice, this Option Agreement and the terms of the Plan on or before the date that is three (3) months after the Date of Grant, and you will have no further rights, title or interests in or to the Option or the shares underlying the Option.

* * *



American Apparel, Inc.	Participant:

By: ________________________________ Signature	By: ____________________________________ Signature
Title: ______________________________	Date: __________________________________
Date: ______________________________

Attachments: Option Agreement, 2011 Omnibus Stock Incentive Plan

American Apparel, Inc.

Option Agreement

Pursuant to your Stock Option Grant Notice (the “Grant Notice”) and this Option Agreement (this “Option Agreement”), American Apparel Inc. (the “Company”) has granted you an option (the “Option”) under its 2011 Omnibus Stock Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. However, this Option will automatically immediately expire if you have not accepted and agreed to the Grant Notice, this Option Agreement and the terms of the Plan on or before the date that is three (3) months after the Date of Grant, and you will have no further rights, title or interests in or to the Option or the shares underlying the Option.

1. Vesting. The Option will vest as provided in your Grant Notice. Vesting will cease, in all events, on the termination of your Continuous Service after taking into account any acceleration that occurs on your termination.

2. Number of Shares and Exercise Price. The number of shares of Common Stock subject to the Option and the exercise price per share in your Grant Notice will be adjusted for a Change in Capitalization as provided in the Plan.

3. Exercise Restriction for Non-Exempt Employees. If you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (that is, a “Non-Exempt Employee”), and except as otherwise provided in the Plan, you may not exercise your Option until you have completed at least six (6) months of Continuous Service measured from the Date of Grant, even if you have already been an employee for more than six (6) months. Consistent with the provisions of the Worker Economic Opportunity Act, you may exercise the Option as to any vested portion prior to such six (6) month anniversary in the case of (i) your death or Disability or (ii) a Change in Control.

4. Method of Payment. You must pay the full amount of the exercise price for the shares of Common Stock subject to the Option that you wish to exercise. If permitted in your grant notice, you may pay the exercise price through one or more of the following:

(a)Provided that at the time of exercise the Common Stock is publicly traded, using a program developed under Regulation T, as provided by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. This manner of payment is also known as a “broker-assisted exercise,” “same day sale” or “sell to cover.”

(b)If the Option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable on exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price. You must submit an additional payment to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued.

(c)If permitted by the Board at the time of exercise, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date

of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise the Option (or any vested portion thereof), will include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. You may not exercise the Option (or any exercisable portion thereof) by delivery to the Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

5. Whole Shares. You may exercise the Option (or any vested portion thereof) only for whole shares of Common Stock.

6. Compliance with Laws. In no event may you exercise the Option (or any vested portion thereof) unless the shares of Common Stock issuable on exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the shares would be exempt from the registration requirements of the Securities Act and compliant with all applicable laws. The exercise of the Option (or any vested portion thereof) also must comply with all other applicable laws and regulations governing the Option. You may not exercise the Option (or any vested portion thereof) if the Company determines that such exercise would not be in material compliance with such laws and regulations (including any restrictions on exercise required for compliance with Treasury Regulations Section 1.40l(k)-1(d)(3), if applicable).

7. Term. You may not exercise the Option before the Date of Grant or after the expiration of the term of the Option. The term of the Option expires, subject to the provisions of the Plan, on the earliest of the following:

(a) immediately on the termination of your Continuous Service for Cause;

(b) three (3) months after the termination of your Continuous Service for any reason other than for Cause, your Disability or your death (except as otherwise provided in Section 9(d) below); however, if during any part of such three (3) month period the Option is not exercisable solely because doing so would violate the registration requirements under the Securities Act, the Option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; provided further, that if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six (6) months after the Date of Grant and (iii) you have vested in a portion of the Option at the time of your termination of Continuous Service, the Option will not expire until the earlier of (A) the later of (1) the date that is seven (7) months after the Date of Grant, and (2) the date that is three (3) months after the termination of your Continuous Service, and (B) the Expiration Date;

(c) twelve (12) months after the termination of your Continuous Service due to your Disability (except as otherwise provided in Section 9(d) below);

(d) twelve (12) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates for any reason other than Cause;

(e) the Expiration Date indicated in your Grant Notice; or

(f) the day before the tenth (10th) anniversary of the Date of Grant.

If the Option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the Date of Grant and ending on the date that is three (3) months before the date of the Option’s exercise, you must be an

employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of the Option under certain circumstances for your benefit but cannot guarantee that the Option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you exercise the Option more than three (3) months after the date your employment with the Company or an Affiliate terminates.

8. Exercise.

(a) You may exercise the vested portion of the Option during its term by (i) delivering a Notice of Exercise (in a form designated by the Company), or making the required electronic election with the Company’s electronic platform (e.g., Equity Edge) or designated broker (e.g., E*Trade), and (ii) paying the exercise price and any applicable withholding taxes to the Company’s stock plan administrator, or to such other person as the Company may designate, together with such additional documents as the Company may then require.

(b) By exercising the Option you agree that, as a condition to any exercise of the Option, you must enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of the Option, (ii) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise or (iii) the disposition of shares of Common Stock acquired on such exercise.

(c) If the Option is an Incentive Stock Option, by exercising the Option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued on exercise of the Option that occurs within two (2) years after the Date of Grant or within one (1) year after such shares of Common Stock are transferred on exercise of the Option.

9. Transferability. The Option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.

(a) Certain Trusts. On receiving written permission from the Board or its duly authorized designee, and only if doing so does not violate Code Section 409A, the incentive stock option rules (if applicable) and applicable securities laws, you may transfer the Option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable state law) while the Option is held in the trust. You and the trustee must enter into transfer and other agreements required by the Company.

(b) Domestic Relations Orders. On receiving written permission from the Board or its duly authorized designee, and only if doing so does not violate Code Section 409A, the incentive stock option rules (if applicable) and applicable securities laws, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer the Option pursuant to the terms of a court approved domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulations Section 1.421-l(b)(2) that contains the information required by the Company to effectuate the transfer. You are encouraged to contact the Company’s Corporate Secretary regarding the proposed terms of any division of the Option prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement. If the Option is an Incentive Stock Option, the Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.

(c) Beneficiary Designation. On your death, your executor or administrator of your estate will be entitled to exercise the Option and receive, on behalf of your estate, the Common Stock or other consideration resulting from such exercise.

10. Option not a Service Contract. The Option is not an employment or service contract, and nothing in the Option, the Grant Notice, this Option Agreement or the Plan will be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in the Option, the Grant Notice, this Option Agreement or the Plan will obligate the Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.

11. Withholding Obligations.

(a) At the time you exercise the Option, in whole or in part, and at any time thereafter as the Company requests, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “same day sale” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate that arise in connection with the exercise of the Option.

(b) You may not exercise the Option unless the tax withholding obligations of the Company and any Affiliate are satisfied. Accordingly, you may not be able to exercise the Option when desired even though the Option is vested, and the Company will have no obligation to issue a certificate for shares of Common Stock unless such obligations are satisfied.

12. Tax Consequences. You hereby agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes your tax liabilities. You will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from the Option or your other compensation. In particular, you acknowledge that the Option is exempt from Section 409A only if the exercise price per share specified in the Grant Notice is at least equal to the “fair market value” per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the Option.

13. Release of Claims. You acknowledge that this Option is being granted in consideration for your release of claims as set forth in this Section 13.

for breach of contract, claims for breach of the implied covenant of good faith and fair dealing, tort claims (including but not limited to fraud, misrepresentation, and emotional distress), and claims under foreign, United States, or local (state, provincial, city) laws (including discrimination, harassment, retaliation, misclassification, unfair business practices, attorneys’ fees, any and all claims for wages, back wages, salary, overtime pay, accrued but unused vacation pay, pension allocations, commissions, incentives, stock or stock options, bonus pay, severance pay, notice period and notice period substitution, deferred compensation payments, expenses, compensatory damages, exemplary damages, contractual obligations and all other payments, compensation, benefits, reimbursement of any kind, the U.S. Civil Rights Act of 1964 (as amended), the U.S. Civil Rights Act of 1991, the U.S. Rehabilitation Act of 1973, the U.S. Equal Pay Act, the U.S. Fair Labor Standards Act, the U.S. Fair Credit Reporting Act, the U.S. Family and Medical Leave Act, the U.S. Immigration Control and Reform Act, the U.S. Americans with Disabilities Act of 1990 (as amended), the U.S. Employee Retirement Income Security Act of 1974 (as amended), the California Family Rights Act, the California Labor Code, the California Workers’ Compensation Act, and the California Fair Employment and Housing Act).

(c) You understand that nothing in this Option Agreement prevents you from filing, cooperating with or participating in any proceeding before the U.S. Equal Employment Opportunity Commission, the U.S. Department of Labor, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company. However, you understand that any such filing or participation does not give you the right to recover any monetary damages against the Released Parties, because your release of claims under this Agreement bars you from recovering such monetary relief from the Released Parties.

(d) You represent and warrant that, other than the Employment Claims, you are not aware of any claims you have or might have that are not included in this Section 13. You acknowledge that you have been advised to consult with legal counsel about this Agreement and are familiar with the provisions of California Civil Code Section 1542, a statute that otherwise prohibits the release of unknown claims, which provides as follows: a general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. You are aware of this code section, and so you expressly waive any rights you may have thereunder, as well as under any other statute or common law principles of similar effect.

14. Notices. Any notices provided for in the Option, this Option Agreement, the Grant Notice or

the Plan will be given in writing and will be deemed effectively given on receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and the Option by electronic means or to request your consent to participate in the Plan by electronic means. By accepting the Option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

15. Governing Plan Document. The Option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of the Option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In addition, the Option (and any compensation paid or shares issued under the Option) is subject to recoupment in accordance with The Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or for a “constructive termination” (or similar term) under any agreement with the Company.

16. S-8 Stock Plan Prospectus; Window Policy. You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Company’s policy permitting certain individuals to sell shares only during certain “window” periods and the Company’s insider trading policy, in effect from time to time.

17. Effect on Other Employee Benefit Plans. The value of the Option will not be included as compensation, earnings, salaries, or other similar terms used when calculating your benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify or terminate any of the Company’s or any Affiliate’s employee benefit plans.

18. Voting Rights. You will not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to the Option until such shares are issued to you. On such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in the Option, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.

19. Severability. If all or any part of this Option Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Option Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Option Agreement (or part of such a Section) so declared to be unlawful or invalid will, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

20. Miscellaneous.

(a) The rights and obligations of the Company under the Option will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Company’s successors and assigns.

(b) You agree on request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of the Option.

* * *

This Option Agreement, together with any appendix attached hereto that addresses local or foreign legal requirements, will be deemed to be signed by you on the signing by you of the Grant Notice to which it is attached.

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