SETTLEMENT AGREEMENT AND GENERAL RELEASE

EXHIBIT 10.12

SETTLEMENT AGREEMENT AND GENERAL RELEASE

     This Settlement and General Release (“Agreement”) is entered into by and between Joseph C. Canouse, an individual, for himself and all his agents, representatives, heirs, executors, trustees, administrators, successors and assigns (“Canouse”), and True Religion Apparel, Inc., a Delaware corporation, for itself and its parents, subsidiaries, related, affiliated, and predecessor corporations and entities, and also on behalf of all of its and their respective past and present officers, directors, shareholders, partners, agents, representatives, employees, administrators, and assigns (“TRLG” or the “Company”). This Agreement is intended by the parties to resolve fully and finally any and all obligations and/or differences between them, including, without limitation, those obligations and/or differences arising out of or relating to any and all agreements between Canouse and the Company and any claims, disputes, or litigation related thereto.

RECITALS

      WHEREAS , Canouse filed a civil action in the United States District Court for the Central District of California, styled Joseph C. Canouse v. True Religion Apparel, Inc. , Case No. CV 05-1978-JFW for Breach of Contract, Fraud, Unjust Enrichment, Attorneys’ Fees per Georgia Statute, Specific Performance and Conversion (the “Civil Action”);

      WHEREAS , the Civil Action pertained to that certain Agreement, dated as of February 26, 2004, by and between Canouse and the Company, pursuant to which Canouse was to render services to the Company in 2004 in exchange for the consideration set forth therein;

      WHEREAS , TRLG has denied all liability, filed an Answer, and defended itself in the Civil Action;

      WHEREAS , the parties hereto desire to settle all disputes and to enter into this Agreement and to set forth their understandings and agreements with respect to the settlement of all their respective rights, obligations or liabilities arising under, out of, or in connection with the Civil Action, as well as all other disputes, controversies, and claims between them of whatever nature and origin, from the beginning of time through the date of this Agreement;

      NOW THEREFORE , for and in consideration of the mutual promises, covenants, and agreements herein below set forth, the parties hereto do hereby mutually covenant and agree by and between themselves as follows:

AGREEMENT

      1.  Cash Payment To Canouse. TRLG will pay Canouse One Hundred Thousand Dollars ($100,000.00), in good funds within five (5) days of the Effective Date. Payment shall

be delivered to Canouse care of Scott L. Bonder at Fleming, Fried & Bonder, LLC, 1230 Peachtree Street, Suite 3750, Atlanta Georgia 30309. If payment is made by negotiable instrument such as a check, it shall be made payable to “Joseph C. Canouse AND Fleming, Fried & Bonder, LLC.” Wire transfer may also be used and appropriate information will be supplied upon request.

      2.  Stock Issuance to Canouse.

          2.1 Issuance of Shares. Subject to the terms and conditions of this Agreement, within five (5) days of the Effective Date, TRLG will issue to Canouse and Canouse will acquire from TRLG one hundred thousand (100,000) shares of the Company’s common stock (the “Shares”). TRLG will deliver the certificate(s) representing the Shares, free and clear of any liens, claims, charges, pledges, security interests, options or other legal or equitable encumbrances, other than as created by this Agreement and federal and states securities laws, to Fleming, Fried & Bonder LLC at 1230 Peachtree Street, Suite 3750, Atlanta Georgia 30309. As of the Effective Date, the Company and Canouse agree that all of the Shares shall be fully vested and saleable by Canouse subject only to the requirements of state and federal securities laws.

          2.2 Responsibility for Taxes . Canouse agrees: (i) that he shall be solely liable for and shall pay any and all taxes, costs, interest, assessments, penalties, damages, attorney’s fees or other losses to which he is or may be subject by reason of the cash payments and\or stock transfer by the Company to him identified in this Agreement; (ii) to indemnify and hold the Company Releasees (defined below) harmless from any and all taxes, costs, assessment, interest, penalties, damages, attorney’s fees or other losses to which the Company Releasees, or any of them, are or may be subject by reason of such payments, interest, reimbursements and/or loans, including, but not limited to, any claim or claims against the Company Releasees, for failure to withhold or underwithholding of taxes; (iii) not to seek or make any claim or claims against the Company Releasees, or any of them, for contribution, indemnity, compensation, recompense, damages, taxes, costs, interest, penalties, attorneys’ fees or other losses, if a determination is made that withholdings should have been made from any payments to Canouse; and (iv) to assume responsibility for contending and defending any claim or assertion that withholding should have been made from any payment or other interest provided, or that the Company Releasees, or any of them, owe taxes thereon for any reason, and to cooperate fully in the defense of any such claim or claims which is/are brought against the Company Releases, or any of them.

          2.3 Standstill . Canouse agrees that, without the prior written consent of the Company, Canouse shall not, for a period of five (5) years from the date of this Agreement (the “Standstill Period”), directly or indirectly:

               (a) acquires or agree, offer, seek or propose to acquire, or cause to be acquired, ownership (including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of any of the assets or businesses of the Company or any securities of the Company (including, without limitation, any debt, equity or convertible securities) or any rights or options to acquire any such ownership from any Person;

               (b) make, or in any way participate in, any “solicitation” of “proxies” (as such terms are used in the proxy rules of the Securities and Exchange Commission (“the SEC”) to vote or consents, or seek to advise or influence in any manner whatsoever any Person with respect to the voting of any securities of the Company;

               (c) form, join, or in any way participate in a “group” (within the meaning of Section 13d(3) of the Exchange Act) with respect to any voting securities of the Company;

               (d) arrange, or in any way participate in, any financing for the purchase of any voting securities or securities convertible or exchangeable into or exercisable for any voting securities or assets of the Company;

               (e) otherwise act, whether alone or in concert with others, to seek to propose to the Company, or any of its stockholders, any merger, business combination, restructuring, recapitalization or similar transaction to or with the Company or otherwise act, whether alone or in concert with others, to seek to control, change or influence the management, stockholders, Board of Directors, or policies of the Company, or nominate any Person as a director of the Company;

               (f) solicit, negotiate with, or provide any information to, any Person with respect to a merger, business combination, exchange offer or liquidation of the Company or any other acquisition of the Company, any acquisition of securities of or all or any portion of the assets of the Company or any other similar transaction;

               (g) make any proposal to be considered and/or voted upon at any meeting of the stockholders of the Company;

               (h) announce an intention to, or enter into any discussion, negotiations, arrangements or understandings with any third party with respect to, any of the foregoing matters;

               (i) disclose any intention, plan or arrangement inconsistent with any of the foregoing provisions; or

               (j) advise, assist, encourage or participate with any other Person in connection with action inconsistent with any of the foregoing provisions.

     For purposes of this Agreement, the term “Person” shall mean any natural person, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, government or any agency or political subdivision thereof, or any other legal entity or organization. This standstill provision shall not affect Canouse’s ability to purchase interests in mutual funds or other similar investment vehicles over which he has no ability to direct the investment or disposition of shares or other equity interests.

          2.4 Registration Rights .

               (a) Canouse understands that the Company will use its commercially reasonable efforts to file a Registration Statement with the SEC for the resale of the Shares as soon as shall be reasonably practicable following the date of this Agreement, but in no event more than thirty (30) days from the Effective date of this Agreement. Subject to the provisions of this Agreement, the Company shall use commercially reasonable efforts to have such Registration Statement declared effective by the SEC as promptly as shall be practicable, and shall use reasonable efforts to expedite the process, but in any event within 120 days of the filing date of the registration statement. If and when the Registration Statement becomes effective, the Company shall keep such Registration Statement effective for a period of up to 120 days or until the distribution contemplated in such Registration Statement has been completed. For the purposes of this Agreement: (A) “Registrable Shares” means the Shares (and including any shares issued in connection with any split or dividend in respect of any such shares); provided , however , that any such Share will cease to be a Registrable Share when (1) a Registration Statement covering a Registrable Share has been declared effective by the SEC and such Share has been disposed of by Canouse pursuant to such effective Registration Statement, (2) the Registrable Share is transferred to another person, (3) such Share (after initial issuance) is held by the Company or one of its subsidiaries or otherwise ceases to be outstanding, or (4) such Share may be traded without restriction pursuant to paragraph (k) of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if applicable; and (B) “Registration Statement” means any registration statement or comparable document under the Securities Act through which a public sale or disposition of the Registrable Shares may be registered, including the prospectus, amendments and supplements to such registration statement, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. The Company shall promptly respond to all requests from the SEC and, except as set forth under subsection (d) below, shall not delay the effectiveness of the Registration Statement.

               (b) Upon the written request of Canouse to include all or any portion of Canouse’s Registrable Shares in an underwritten offering, the Company shall have the right, in its sole discretion, to determine whether any of such Registrable Shares are to be included in such underwritten offering, and if the Company so determines, the Company alone shall have the right to select the managing underwriter or underwriters to administer the offering.

               (c) If the managing underwriter of an underwritten offering under this Section 2.4 advises the Company in writing that in its opinion the number of shares requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration only the number of shares which in the opinion of such underwriter can be sold and may delay registering the balance of the shares in a non-underwritten offering for up to 120 days. This provision shall not relieve or modify the Company’s obligations to use its commercially reasonable efforts to file and have declared effective any Registration Statement under paragraph (a) above.

               (d) The Company’s obligations under this Section 2.4 shall not restrict its ability to suspend the effectiveness of, or direct Canouse not to offer or sell Shares under, any Registration Statement, at any time, for such reasonable period of time which the Company reasonably believes is necessary to prevent the premature disclosure of any events or information having a material effect on the Company. In addition, the Company shall not be required to keep any Registration Statement effective, or may, without suspending such effectiveness, instruct

Canouse not to sell such Shares, during any period during which the Company is instructed, directed, ordered or otherwise requested by any governmental agency or self-regulatory organization to stop or suspend such trading or sales.

               (e) In the event of any filing of a prospectus supplement or the commencement of an underwritten public distribution of the Company’s common stock under a Registration Statement, whether or not Registrable Shares are included, Canouse agrees not to effect any public sale or distribution of Registrable Shares (except as part of such underwritten public distribution), including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during a period designated by the Company in a written notice duly given to Canouse, which period shall commence up to 14 days prior to the effective date of any such filing of such prospectus supplement or the commencement of such underwritten public distribution of such common stock under a Registration Statement and shall continue for up to 44 consecutive days in the case of a sale pursuant to Rule 144 and for up to 74 consecutive days otherwise.

               (f)  Registration Procedures . Except as otherwise expressly provided herein, in connection with any registration of Registrable Shares pursuant to this Section 2.4, the Company shall, as expeditiously as possible:

                    (i) use its commercially reasonable efforts to prepare and file with the SEC a Registration Statement with respect to such Registrable Shares and use its commercially reasonable efforts to cause such Registration Statement to become effective as soon as practicable thereafter; and before filing a Registration Statement or prospectus or any amendments or supplements thereto, furnish to Canouse copies of such Registration Statement and such other documents as proposed to be filed (including copies of any document to be incorporated by reference therein), and thereafter furnish to Canouse such number of copies as may be reasonably requested in writing by Canouse of such Registration Statement, each amendment and supplement thereto (including copies of any document to be incorporated by reference therein), including all exhibits thereto, the prospectus included in such Registration Statement (including each preliminary prospectus), and, promptly after the effectiveness of a Registration Statement, the definitive final prospectus filed with the SEC;

                    (ii) notify Canouse, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of any event as a result of which the prospectus included in such Registration Statement (including any document to be incorporated by reference therein) contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading and, the Company shall prepare a supplement or amendment to such prospectus, as soon as practicable, so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to Canouse any such supplement or amendment;

                    (iii) notify Canouse and the managing underwriters, if any, promptly, and (if requested by any such person) confirm such advice in writing, (A) when the Registration Statement, the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective

amendment, when the same has become effective, (B) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose and the Company shall promptly use its commercially reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued, and (C) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Shares for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose.

               (g) The Company may require Canouse to furnish to the Company such information regarding himself and the distribution of such Registrable Shares as the Company may from time to time reasonably request in writing and such other information as may be legally required in connection with such registration. Canouse agrees, by its acquisition of Registrable Sha