<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
PACIFIC SUNWEAR OF CALIFORNIA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
------------------------------------------------------------------------
(5) Total fee paid:
N/A
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
------------------------------------------------------------------------
(3) Filing Party:
N/A
------------------------------------------------------------------------
(4) Date Filed:
N/A
------------------------------------------------------------------------
<PAGE> 2
PACIFIC SUNWEAR OF CALIFORNIA, INC.
5200 E. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
April 20, 1998
Dear Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of the Company to be held on Thursday, May 21, 1998 at the principal executive
offices of the Company located at 5200 E. La Palma Avenue, Anaheim, California
92807, beginning at 9:00 a.m., local time.
At this meeting, you are being asked to elect five directors for a term of
one year and to approve the Pacific Sunwear of California, Inc. Employee Stock
Purchase Plan, the Pacific Sunwear of California, Inc. Incentive Compensation
Plan, as well as an amendment to the Company's 1992 Stock Award Plan. Greg H.
Weaver, Pearson C. Cummin III, Peter L. Harris, Julius Jensen III and Sally
Frame Kasaks are the nominees for election to the Board of Directors. Each of
the nominees is currently serving as a director of the Company.
The members of the Board and management look forward to personally greeting
as many shareholders as possible at the meeting. However, whether or not you
plan to attend personally, and regardless of the number of shares you own, it is
important that your shares be represented.
Although you presently may plan to attend the Annual Meeting, please
complete, sign, date and promptly return the enclosed proxy card. If you do
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.
Sincerely,
/s/ GREG H. WEAVER
Greg H. Weaver
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
PACIFIC SUNWEAR OF CALIFORNIA, INC.
5200 E. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 1998
The Annual Meeting of Shareholders of Pacific Sunwear of California, Inc.,
a California corporation (the "Company"), will be held at the principal
executive offices of the Company located at 5200 E. La Palma Avenue, Anaheim,
California 92807, on Thursday, May 21, 1998 at 9:00 a.m. local time for the
following purposes:
(1) To elect five members of the Board of Directors;
(2) To approve the Pacific Sunwear of California, Inc. Employee Stock
Purchase Plan;
(3) To approve an amendment to the Company's 1992 Stock Award Plan which
increases the number of shares authorized to be issued under such Plan
by 400,000 shares;
(4) To approve the Pacific Sunwear of California, Inc. Incentive
Compensation Plan; and
(5) To transact such other business as may properly come before the Annual
Meeting and at any adjournment thereof.
Shares represented by properly executed proxies will be voted in accordance
with the specifications therein. It is the intention of the Board of Directors
that shares represented by proxies, which are not limited to the contrary, will
be voted for: (1) the election of those directors named in the attached proxy
statement; (2) the approval of the Pacific Sunwear of California, Inc. Employee
Stock Purchase Plan and the Pacific Sunwear of California, Inc. Incentive
Compensation Plan; and (3) the amendments to the Company's 1992 Stock Award Plan
as set forth in the attached Proxy Statement.
The Board of Directors has fixed the close of business on April 14, 1998 as
the record date for determining shareholders entitled to notice of and to vote
at the Annual Meeting and at any adjournment thereof.
By Order of the Board of Directors
/s/ CARL W. WOMACK
Carl W. Womack
Sr. Vice President,
Chief Financial Officer and Secretary
Anaheim, California
April 20, 1998
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWNED ON THE RECORD DATE, PLEASE INDICATE YOUR
VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE, SIGN AND RETURN IT IN THE
ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE
IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE
COMPANY OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN PROMPTLY MAILING IN
YOUR PROXY CARD.
<PAGE> 4
PACIFIC SUNWEAR OF CALIFORNIA, INC.
5200 E. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
------------------------
PROXY STATEMENT
------------------------
The accompanying proxy is being solicited by the Board of Directors of
Pacific Sunwear of California, Inc. (the "Company") for use at the Company's
Annual Meeting of Shareholders (the "Annual Meeting") to be held on Thursday,
May 21, 1998, at 9:00 a.m. local time at the Company's principal executive
offices, 5200 E. La Palma Avenue, Anaheim, California 92807, and at any and all
adjournments thereof. This Proxy Statement and the accompanying proxy are being
mailed to shareholders on or about April 20, 1998.
PROXY PROCEDURES
All shares represented by each properly executed unrevoked proxy received
in time for the Annual Meeting will be voted in the manner specified therein.
Any shareholder has the power to revoke his or her proxy at any time before it
is voted. A proxy may be revoked by delivering a written notice of revocation to
the Secretary of the Company at the Company's principal executive office, by a
subsequent proxy executed by the person executing the prior proxy and presented
to the Secretary of the Company at the Annual Meeting, or by attendance at the
Annual Meeting and voting in person by the person executing the proxy.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the person appointed by the Company to act as an inspector of election for the
meeting. The election inspector will treat shares represented by proxies that
reflect abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum and for purposes of determining the
outcome of any matter submitted to the shareholders for a vote. Abstentions,
however, do not constitute a vote "for" or "against" any matter and thus will be
disregarded in the calculation of a plurality or of "votes cast."
The election inspector will treat shares referred to as "broker non-votes"
(i.e., shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote that the broker
or nominee does not have discretionary power to vote on a particular matter) as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has physically indicated on the proxy that it does
not have discretionary authority to vote, those shares will be treated as not
present and not entitled to vote with respect to that matter (even though those
shares are considered entitled to vote for quorum purposes and may be entitled
to vote on other matters).
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally by mail, but directors, officers and regular
employees of the Company may solicit proxies personally or by telephone or
special letter without any additional compensation. The Company also will
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for any reasonable expenses in forwarding proxy materials to beneficial owners.
The Company may also engage a proxy solicitation company in connection with the
1998 Annual Meeting of Shareholders for a fee which is not expected to exceed
$2,500 plus out-of-pocket expenses. The mailing address of the Company's
principal executive offices is 5200 E. La Palma Avenue, Anaheim, California
92807.
<PAGE> 5
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
On April 14, 1998, the record date with respect to this solicitation for
determining shareholders entitled to notice of and to vote at the Annual
Meeting, 13,811,811 shares of the Company's Common Stock were outstanding. No
shares of any other class of stock were outstanding. Only shareholders of record
on such date are entitled to notice of and to vote at the Annual Meeting and at
any adjournment thereof. Each shareholder of record is entitled to one vote for
each share held on all matters to come before the Annual Meeting and at any
adjournment thereof.
Except as otherwise indicated, the following table sets forth information
as of March 31, 1998 with respect to the beneficial ownership of the Company's
Common Stock by each person who is known by the Company to beneficially own more
than 5% of the Company's Common Stock, each director of the Company, each
nominee for election to the Board of Directors, each executive officer named in
the Summary Compensation Table and by all directors and executive officers as a
group. Except as otherwise indicated, beneficial ownership includes both voting
and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------------------ ---------- ----------
<S> <C> <C>
The Equitable Companies Inc. and its subsidiaries(1)........ 955,183 6.9%
1290 Avenue of the Americas
New York, NY 10104
Duncan-Hurst Capital Management(2).......................... 868,238 6.3%
4365 Executive Drive, Suite 1520
San Diego, CA 92121
Nicholas Applegate Capital Management(3).................... 850,895 6.2%
600 West Broadway, 29th Floor
San Diego, CA 92101
PNC Bank Corp and its subsidiaries(4)....................... 709,650 5.2%
One PNC Plaza, 249 5th Ave.
Pittsburgh, PA 15222
FMR Corp and related parties(5)............................. 693,549 5.1%
82 Devonshire St.
Boston, MA 02109
Pearson C. Cummin III(6).................................... 24,705 *
Julius Jensen III(7)........................................ 48,287 *
Peter L. Harris(6).......................................... 16,922 *
James B. McCurry(6)......................................... 16,922 *
Sally Frame Kasaks.......................................... -- *
Greg H. Weaver(8)........................................... 211,223 1.5%
Timothy M. Harmon(9)........................................ 127,773 *
Carl W. Womack(10).......................................... 118,012 *
Gary C.W. Hunt(11).......................................... 23,235 *
Robert G. Entersz(12)....................................... 1,719 *
All directors and executive officers as a group (15 643,905 4.5%
persons)(13)..............................................
</TABLE>
- ---------------
* Less than one percent.
(1) Share ownership for The Equitable Companies Inc. and its subsidiaries,
including Alliance Capital Management L.P., is as of December 31, 1997 and
was obtained from a Schedule 13G, dated December 31, 1997, filed with the
Securities and Exchange Commission. Alliance Capital Management L.P. has
sole voting power with respect to 490,900 shares, shared voting power with
respect to 459,850 shares and sole dispositive power with respect to
954,450 shares. The Equitable Companies Inc. is a subsidiary of the Alpha
Assurances Vie Mutuelle and related companies, which, as parent holding
companies, each and as a group disclaim beneficial ownership of any shares
of Common Stock.
2
<PAGE> 6
(2) Share ownership for Duncan-Hurst Capital Management is as of February 17,
1998 and was obtained from a Schedule 13G, dated February 17, 1998, filed
with the Securities and Exchange Commission. Duncan-Hurst Capital
Management and William H. Duncan, Jr., who is its principal shareholder,
sole director, Chief Executive Officer and Chief Investment Officer, have
sole voting power with respect to 440,441 shares, shared voting power with
respect to 427,797 shares and sole dispositive power with respect to
868,238 shares.
(3) Share ownership for Nicholas Applegate Capital Management is as of December
31, 1997 and was obtained from a Schedule 13G dated February 3, 1998 filed
with the Securities and Exchange Commission. Nicholas Applegate Capital
Management has sole voting power with respect to 710,500 shares, shared
voting power with respect to 10,320 shares and sole dispositive power with
respect to 850,895 shares.
(4) Share ownership for PNC Bank Corp and its subsidiaries is as of February
13, 1998 and was obtained from a Schedule 13G dated February 13, 1998 filed
with the Securities and Exchange Commission. PNC Bank Corp., PNC Bancorp,
Inc. and PNC Bank, N.A. have sole voting power with respect to 709,250
shares, and sole dispositive power with respect to 709,650 shares.
BlackRock, Inc. and PNC Equity Advisors Co. have sole voting and
dispositive powers with respect to 708,000 shares.
(5) Share ownership for FMR Corp and related parties is as of February 14, 1998
and was obtained from a Schedule 13G dated February 14, 1998 filed with the
Securities and Exchange Commission. FMR Corp and related parties have sole
voting power with respect to 148,699 shares, and sole dispositive power
with respect to 693,549 shares. For the purposes of the reporting
requirements of the Securities Exchange Act of 1934, Fidelity Management &
Research Co., Fidelity Management Trust Co., Edward C. Johnson III and
members of the Edward C. Johnson III family and trusts for their benefit
are also deemed to be beneficial owners of such securities.
(6) Includes 16,922 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(7) Includes 12,143 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(8) Includes 168,534 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(9) Includes 65,703 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(10) Includes 76,185 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(11) Includes 23,235 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(12) Includes 1,719 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
(13) Includes 446,642 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1998.
3
<PAGE> 7
ELECTION OF DIRECTORS
The Company's Bylaws provide that the authorized number of directors of the
Company shall be not less than five nor more than nine until changed by
Amendment of the Articles of Incorporation or by a Bylaw duly adopted by
approval of the outstanding shares. The exact number of directors shall be fixed
by amendment of the Bylaws duly adopted either by the Board of Directors or the
shareholders. The exact number of authorized directors as of the date of this
Proxy Statement is six. Effective as of the 1998 Annual Meeting of Shareholders,
the number of authorized directors will be five.
At present there are six directors, who currently hold office until the
1998 Annual Meeting of Shareholders and until their successors have been duly
elected and qualified. One of such directors, Mr. James B. McCurry, will not
stand for re-election. Five directors will be elected at the 1998 Annual Meeting
of Shareholders for a term of one year and until their successors shall have
been duly elected and qualified. For the purpose of electing directors, each
shareholder is entitled to one vote per share for each of the five directors to
be elected. The candidates receiving the highest number of votes will be
elected.
The accompanying proxies solicited by the Board of Directors will be voted
for the election of the nominees named below, unless the proxy card is marked to
withhold authority to vote. Each nominee is presently a member of the Company's
Board of Directors and was previously elected to the present term of office by
the shareholders of the Company, other than Ms. Kasaks. Ms. Kasaks was appointed
a director by the Board of Directors in June 1997.
The nominees for election as directors are:
Greg H. Weaver
Pearson C. Cummin III
Peter L. Harris
Julius Jensen III
Sally Frame Kasaks
If any of the nominees should become unavailable for election to the Board
of Directors, the persons named in the proxy or their substitutes shall be
entitled to vote for a substitute to be designated by the Board of Directors.
Alternatively, the Board of Directors may reduce the number of directors. The
Board of Directors has no reason to believe that it will be necessary to
designate a substitute nominee or reduce the number of directors.
In the election of directors, shares present but not voting will be
disregarded (except for quorum purposes) and the nominees receiving the highest
number of affirmative votes of the shares entitled to be voted for them up to
the number of directors to be elected by those shares will be elected and votes
cast against a candidate or votes withheld will have no legal effect. Any
unmarked proxies, including those submitted by brokers or nominees, will be
voted as indicated in the accompanying proxy card. Cumulative voting will not
apply.
4
<PAGE> 8
NOMINEES
The following table provides information regarding each nominee for
election to the Board of Directors. The ages shown are as of April 14, 1998.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE FIVE YEARS AND DIRECTORSHIPS SINCE
------------ ------------------------------- --------
<S> <C> <C>
Greg H. Weaver (44) Chief Executive Officer since October 1996, Chairman of 1996
the Board since November 1997 and a director since
February 1996. Mr. Weaver served as President and Chief
Executive Officer from October 1996 to November 1997,
as President and Chief Operating Officer from February
1996 to October 1996 and as Chief Operating Officer and
Executive Vice President from October 1994 to February
1996. Mr. Weaver also served as Executive Vice
President, Senior Vice President and as Vice President
since he joined the Company in July 1987.
Pearson C. Cummin III (55) General partner of Consumer Venture Partners, a venture 1988
capital investment firm, since January 1986. Director
of Natural Wonders, Inc. and Director of The Boston
Beer Company.
Peter L. Harris (54) Chairman, Chief Executive Officer and President of 1994
Expressly Portraits, a family portrait studio chain,
since August 1995. Previously, Chairman of Accolade,
Inc., a publisher of interactive entertainment
software, from May 1994 to January 1996, and Chief
Executive of Accolade, Inc. from May 1994 to June 1995.
President and Chief Executive Officer of F.A.O. Schwarz
from 1985 to 1992 and President of Gemco Department
Stores from 1980 to 1984. Director of Natural Wonders,
Inc., Hollywood Park, Inc. and ONSALE, Inc.
Julius Jensen III (64) General partner of Copley Venture Partners, a venture 1988
capital investment firm, since 1985. Director of
Mulberry Child Care Centers and Director of Natural
Wonders, Inc.
Sally Frame Kasaks (53) Business consultant since January 1997. Previously, 1997
Chairman and Chief Executive Officer of Ann Taylor
Stores, Inc., a specialty apparel retailer, where she
was employed from February 1992 to August 1996.
President and Chief Executive Officer of Abercrombie
and Fitch, a specialty apparel retailing division of
The Limited, Inc. from February 1989 to February 1992.
Chairman and Chief Executive Officer of The Talbots,
Inc., a specialty apparel retailing division of General
Mills Co. from November 1985 to September 1988.
Consultant to the Commander for the Board of Directors
of the Army and Air Force Exchange Stores and Director
of Cortefiel, S.A.
</TABLE>
5
<PAGE> 9
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
COMPENSATION OF DIRECTORS
During the fiscal year ended February 1, 1998 ("fiscal 1997"), non-employee
directors of the Company were paid a fee of $2,000 for each meeting attended of
the Board of Directors and were reimbursed for expenses incurred in attending
meetings of the Board of Directors. In addition, non-employee directors of the
Company were paid a fee of $500 for each telephonic meeting of the Board of
Directors that they participated in. During fiscal 1997, each non-employee
director of the Company received a stock option to purchase 9,000 shares of
Common Stock.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee, currently consisting of Mr.
Jensen and Ms. Kasaks and a Compensation Committee, currently consisting of
Messrs. Jensen, Cummin and Harris. During fiscal 1997, Mr. Scott Young, a member
of the Board of Directors until May 1997, served on the Audit Committee until
the end of his term. Mr. McCurry, who will not stand for re-election, served on
the Audit Committee during fiscal 1997. Mr. Jon R. Stone, a member of the Board
of Directors until May 1997, served on the Compensation Committee until the end
of his term. The primary responsibility of the Audit Committee is to review the
scope of audit and non-audit assignments and internal auditing procedures and
the adequacy of internal controls. The Audit Committee meets with management and
the Company's independent public accountants. The Audit Committee met one time
during fiscal 1997. The primary responsibility of the Compensation Committee is
to establish compensation and incentives for the Company's executive officers
and to administer the Company's incentive compensation and benefit plans,
including the Company's 1992 Stock Award Plan (the "1992 Stock Award Plan"). The
Compensation Committee met one time and took action by written consent 12 times
during fiscal 1997.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During fiscal 1997, the Board of Directors met five times. Except Sally
Frame Kasaks, who attended the two meetings that occurred after her appointment,
no director attended fewer than 75% of the aggregate number of meetings held by
the Board of Directors and the Committees of the Board of Directors on which
such director served.
6
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth all compensation paid to or earned by the
named executive officers for fiscal 1997 and for the fiscal years ended February
2, 1997 ("fiscal 1996") and February 4, 1996 ("fiscal 1995").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL ------------------------
COMPENSATION(1) RESTRICTED SECURITIES
-------------------- STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)(2)
------------------ ---- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Greg H. Weaver.................... 1997 $434,908 $478,125 -- 100,000 $27,287
Chairman of the Board and 1996 308,246 281,250 1,162,125(3) 193,750 13,153
Chief Executive Officer 1995 241,454 60,000 -- -- 8,985
Timothy M. Harmon................. 1997 265,550 193,125 -- 75,000 16,821
President and Chief 1996 201,343 142,500 -- 87,500 14,325
Merchandising Officer 1995 192,923 30,000 -- -- 7,692
Carl W. Womack.................... 1997 223,692 163,125 -- 22,500 14,727
Senior Vice President, 1996 198,308 142,500 -- 80,000 14,285
Chief Financial Officer and 1995 187,731 35,000 -- -- 7,519
Secretary
Gary C.W. Hunt.................... 1997 176,942 102,450 -- 15,000 11,732
Vice President of 1996 156,000 90,000 -- 10,000 10,308
Product Development 1995 135,423 24,000 -- 11,250 4,820
Robert G. Entersz................. 1997 172,692 99,900 -- 15,000 11,499
Vice President of Merchandising 1996 156,000 90,000 -- 5,000 9,100
1995(4) 36,115 -- -- 22,500 --
</TABLE>
- ---------------
(1) The annual compensation reported does not include the value of certain
perquisites which in the aggregate did not exceed the lesser of either
$50,000 or 10 percent of the total of annual salary and bonus reported for
the named executive.
(2) Amounts shown for all individuals except Mr. Weaver represent contributions
by the Company to the Company's Employee Savings Plan (401(k)) and Executive
Deferred Compensation Plan. The amounts shown for Mr. Weaver in each of
1997, 1996 and 1995 include contributions by the Company to such plans and
in each of 1997 and 1996 an annual premium of $1,670 was paid with respect
to a term life insurance policy purchased for the benefit of Mr. Weaver. The
amounts contributed to the plans are subject to vesting requirements.
(3) On September 18, 1996, Mr. Weaver was granted a restricted stock award
covering 56,250 shares (84,375 shares as adjusted for the three-for-two
stock split effected October 9, 1997) of Common Stock at a price of $0.01
per share. The closing price of the Company's Common Stock on that date was
$20.67 ($13.78 as adjusted for the three-for-two stock split effected
October 9, 1997). Such shares shall vest in four equal annual installments,
subject to the attainment of certain cumulative earnings per share growth
targets, beginning on March 31, 1999. The value of such restricted stock at
the end of fiscal 1997 based on the closing price of $28.75 for the
Company's Common Stock on January 30, 1998, net of consideration paid by Mr.
Weaver, was $2,425,219.
(4) Mr. Entersz joined the Company in November 1995.
7
<PAGE> 11
SUMMARY OF OPTION GRANTS
The following table sets forth certain information with respect to grants
of stock options during fiscal 1997 to the named executive officers of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENTAGE OF ANNUAL RATES OF
UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ---------- --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Greg H. Weaver.......... 100,000 22.7% $26.38 10/27/07 $1,658,710 $4,203,496
Timothy M. Harmon....... 75,000 17.0 26.38 10/27/07 1,244,032 3,152,622
Carl W. Womack.......... 22,500 5.1 26.38 10/27/07 373,210 945,787
Gary C.W. Hunt.......... 15,000 3.4 26.38 10/27/07 248,806 630,524
Robert G. Entersz....... 15,000 3.4 26.38 10/27/07 248,806 630,524
</TABLE>
- ---------------
(1) All of such options were granted under the 1992 Stock Award Plan for a term
of 10 years, subject to earlier termination in certain events related to
termination of employment. Acceleration of the exercisability of the options
may occur under certain circumstances, including a change in control of the
Company. Under the terms of the 1992 Stock Award Plan, the Compensation
Committee of the Board of Directors retains discretion, subject to plan
limits, to modify the terms of outstanding options and to reprice the
options. Options begin vesting one year after the grant date. On the initial
vesting date, 25% of the options vest and, thereafter, options continue to
vest at the rate of 2.08% each calendar month.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares and by offset of the underlying
shares, respectively, subject in each case to certain conditions.
SUMMARY OF OPTIONS EXERCISED
The following table provides information with respect to the exercise of
stock options during the most recently completed fiscal year by the named
executive officers of the Company together with the fiscal year-end value of
unexercised options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)($)
EXERCISE REALIZED(1) ------------------------- ---------------------------
(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------- ----------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
Greg H. Weaver............... -- $ -- 142,908/275,431 $3,159,041/$3,707,766
Timothy M. Harmon............ 53,043 1,270,121 53,359/156,875 1,183,196/ 1,825,822
Carl W. Womack............... -- -- 104,896/ 89,024 2,643,870/ 1,648,511
Gary C.W. Hunt............... 7,625 192,500 20,758/ 33,672 474,091/ 393,595
Robert G. Entersz............ 11,015 227,624 859/ 35,938 19,616/ 497,474
</TABLE>
- ---------------
(1) Market value of the securities underlying the "in-the-money" options at
exercise date or year-end, as the case may be, minus the exercise price of
such options.
SEVERANCE AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company and Mr. Weaver are parties to an Amended and Restated
Employment Agreement (the "Employment Agreement") dated as of November 3, 1997,
pursuant to which Mr. Weaver is entitled to (i) a
8
<PAGE> 12
base salary of $500,000 per year, subject to a minimum annual adjustment equal
to the greater of the increase in the Consumer Price Index or five percent (5%),
(ii) an annual bonus equal to a percentage of his base salary based upon the
achievement of financial performance criteria to be established by the Company
in consultation with Mr. Weaver and (iii) certain other benefits, including a
car allowance of $800 per month. The Employment Agreement is renewed
automatically each January 15 for one year unless the Company provides 60 days
notice of its intention not to renew. If the Company gives a 60 day notice or if
Mr. Weaver is terminated without cause, Mr. Weaver shall be entitled to his then
annual salary for a period of one year following the effective date of his
termination and a pro rata portion of any bonus to which he would otherwise be
entitled. Mr. Harmon and Mr. Womack are parties to severance agreements dated as
of October 27, 1997 and February 6, 1996, respectively, which cover severance
and bonus payments in the event of termination. Mr. Harmon shall be entitled to
his then annual salary for a period of nine months if terminated without cause
and Mr. Womack shall be entitled to his then annual salary for a period of six
months if terminated without cause, and each shall also be entitled to a
pro-rata portion of any bonus to which he would otherwise be entitled if
terminated in the fourth quarter of any fiscal year.
The 1992 Stock Award Plan provides for acceleration of the vesting of
awards granted thereunder upon the occurrence of certain events. Under the 1992
Stock Award Plan, in the event the shareholders of the Company approve the
dissolution or liquidation of the Company, certain mergers or consolidations, or
the sale of substantially all of the business assets of the Company, unless
prior to such event the Board of Directors determines that there shall be either
no acceleration or limited acceleration of awards, each option and related stock
appreciation right shall become immediately exercisable, restricted stock shall
immediately vest and the number of shares covered by each performance share
award shall be issued to the participant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Julius Jensen III, Pearson
C. Cummin III and Peter L. Harris. No member of the Compensation Committee is
either an officer or employee of the Company.
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE
GRAPH THAT APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE
SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR
INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
REPORT OF THE COMPENSATION COMMITTEE
To: The Board of Directors
As members of the Compensation Committee, we are responsible for
administering the Company's incentive plans, including the 1992 Stock Award
Plan. In addition, we review compensation levels of members of senior
management, evaluate the performance of corporate management and consider
management succession and related matters. The Committee reviews compensation
for the executive officers of the Company with the Board. The Compensation
Committee is comprised entirely of non-employee directors.
OVERALL COMPENSATION POLICIES
The primary compensation policy of the Company, which is endorsed by the
Committee, is that a significant portion of the annual compensation of each
executive officer should be based upon the financial performance of the Company
and the contribution to that performance made by each executive officer. Under
the Company's 1997 Bonus Plan, bonuses for the Company's officers were based on
the percentage of budgeted earnings achieved by the Company. Bonuses for the
Company's senior managers are based both on the Company's earnings and a
subjective evaluation of individual job performance and achievement without
9
<PAGE> 13
regard to earnings. The executive officers of the Company were awarded bonuses
in the aggregate amount of $1,418,123, ranging from 37% to 110% of their
respective base salaries, for services rendered in fiscal 1997.
It is also a policy of the Company and the Committee that executive
compensation should serve to attract and retain key employees and provide them
with incentives to assist the Company in achieving strategic and financial goals
which ultimately enhance the value of the Company's stock. In that regard, in
addition to the base salary and bonus elements of executive compensation, the
Company from time to time provides long-term incentives to key employees through
the grant of stock options and restricted stock under the 1992 Stock Award Plan.
These long-term incentives are designed to couple the interests of key employees
with those of the shareholders of the Company in that the value of grants under
the 1992 Stock Award Plan is directly related to the future value of the
Company's Common Stock.
The Compensation Committee considers the anticipated tax treatment to the
Company regarding the compensation and benefits paid to the executive officers
of the Company in light of the enactment of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and final regulations adopted thereunder. The
basic philosophy of the Compensation Committee is to strive to provide the
executive officers of the Company with a compensation package which will
preserve the deductibility of such payments for the Company. However, certain
types of compensation payments and their deductibility (e.g., the spread on the
exercise of non-qualified options) depend on the timing of an executive
officer's vesting or exercise of previously granted rights. Moreover,
interpretations of and changes in the tax laws and other factors beyond the
Compensation Committee's control may affect the deductibility of certain
compensation payments. The Compensation Committee will consider various
alternatives to preserving the deductibility of compensation payments and
benefits to the extent reasonably practicable and to the extent consistent with
its other compensation objectives.
The Compensation Committee and the Board has recommended to shareholders
the adoption of the Pacific Sunwear of California, Inc. Incentive Compensation
Plan (the "Incentive Compensation Plan") in the form presented for shareholder
approval in this Proxy Statement. See "Proposal Four -- Approval of the Pacific
Sunwear of California, Inc. Incentive Compensation Plan." The purpose of the
Incentive Compensation Plan is to promote the success of the Company by
providing participating persons bonus incentives (cash or stock-based) that are
intended to qualify as performance-based compensation within the meaning of
Section 162(m), and which should constitute deductible compensation payments for
the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In connection with his appointment as Chief Executive Officer in September
1996, the Company entered into an employment agreement with Mr. Weaver. In
November 1997, the Company entered into an amended and restated employment
agreement with Mr. Weaver and, pursuant to the agreement, increased his annual
base salary to $500,000. At the same time, the Compensation Committee approved
the grant to Mr. Weaver of 100,000 stock options.
The terms of the compensation arrangements with and stock option awards
made to Mr. Weaver were determined based on the Committee's subjective
evaluation of the continuing role of Mr. Weaver as Chief Executive Officer in
the financial performance of the Company during fiscal 1997 and the achievement
of several strategic objectives, including the continuing rollout of juniors and
footwear apparel, the opening of 52 stores, the relocation/expansion of 15
stores, the development of a new retail concept and improved financial results.
The Committee does not, in determining the level of compensation to be paid,
conduct any formal survey of the salaries paid by other public retailing
companies but has from time to time reviewed publicly available compensation
information of public retailing companies.
The aggregate base salary payments made to Mr. Weaver in fiscal 1997 were
$434,908, as the increases to Mr. Weaver's base salary described above were not
effective at the start of fiscal 1997. Under the terms of his employment
agreement, Mr. Weaver was also paid a bonus of $478,125 in fiscal 1997. This
bonus was based upon the percentage of budgeted earnings for the fiscal year
achieved by the Company.
10
<PAGE> 14
CONCLUSION
The Committee has reviewed each element of compensation for each of the
executive officers for fiscal 1997. The Committee reported to the Board of
Directors that in the Committee's opinion, the compensation of each executive
officer is reasonable in view of the Company's performance and the Committee's
subjective evaluation of the contribution of each executive officer to that
performance.
March 31, 1998
COMPENSATION COMMITTEE
Julius Jensen III
Pearson C. Cummin III
Peter L. Harris
11
<PAGE> 15
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total return on the Company's Common Stock with the cumulative total
return of the CRSP Total Return Index for the Nasdaq Stock Market (U.S.
Companies)("Nasdaq Market Index") and the CRSP Total Return Industry Index for
Nasdaq Retail Trade Stocks ("Retail Index") for the period commencing on March
16, 1993(1) and ending on February 1, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MARCH 16, 1993 THROUGH FEBRUARY 1,
1998(2)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ MARKET
(FISCAL YEAR COVERED) PACIFIC SUNWEAR INDEX RETAIL INDEX
<S> <C> <C> <C>
03/16/93 100 100 100
01/30/94 62 114 108
01/29/95 90 109 96
02/04/96 55 160 109
02/02/97 252 207 134
02/01/98 411 245 157
</TABLE>
- ---------------
(1) Trading in the Company's Common Stock commenced on March 16, 1993 and the
Company's 1997 fiscal year ended on February 1, 1998.
(2) Assumes that $100.00 was invested on March 16, 1993 in the Company's Common
Stock at the Company's closing price on that date of $7.00 per share and at
the closing sales price for each index on that date and that all dividends
were reinvested. No cash dividends have been declared on the Company's
Common Stock. Shareholder returns over the indicated period should not be
considered indicative of future shareholder returns.
12
<PAGE> 16
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, shareholders will be requested to approve the
Pacific Sunwear of California, Inc. Employee Stock Purchase Plan (the "ESPP").
On November 19, 1997, the Company's Board of Directors (the "Board") adopted the
ESPP, subject to shareholder approval thereof prior to November 19, 1998.
The principal terms of the ESPP are summarized below. The following summary
is qualified in its entirety by the full text of the ESPP, a copy of which is
attached to this Proxy Statement as Exhibit A. Capitalized terms used in the
summary which are not otherwise defined will have the meanings set forth in the
ESPP.
SUMMARY DESCRIPTION OF THE ESPP
PURPOSE. The purpose of the ESPP is to provide employees of the Company
(and its participating Subsidiaries) with an incentive to advance the best
interests of the Company by providing a method whereby they may voluntarily
purchase Common Stock at a favorable price and upon favorable terms. Officers
have been excluded from participation in the ESPP.
OPERATION. The ESPP operates in successive six-month periods ("Offering
Periods"), commencing on each January 1 and July 1. The first Offering Period
commenced on January 1, 1998 and will end on June 30, 1998. On the first day of
each Offering Period (the "Grant Date"), each Eligible Employee who has timely
filed a valid election to participate in the ESPP for that Offering Period (a
"Participant") will be granted an option (an "Option") to purchase shares of the
Company's Common Stock. A Participant must designate in his or her election the
percentage (which must be at least 1% and not more than 10%) of his or her
Compensation to be withheld from his or her pay during that Offering Period and
credited to a bookkeeping account (an "Account") maintained under the ESPP in
his or her name on the Company's books.
Each Option will be for a six-month term and will automatically be
exercised on the last day of the Offering Period with respect to which it was
granted (the "Exercise Date"). The number of shares of Common Stock acquired
upon exercise of an Option will be determined by dividing the Participant's
Account balance as of the Exercise Date by the Option Price. The "Option Price"
for each Option will equal the lesser of: (i) 90% of the Fair Market Value of a
share of Common Stock on the Grant Date of the Option; or (ii) 90% of the Fair
Market Value of a share of Common Stock on the Exercise Date of the Option. A
Participant's Account will be reduced upon exercise of his or her Option by the
amount used to pay the Option Price.
A Participant's election to participate in the ESPP will continue in effect
for all Offering Periods until: (i) he or she timely files a new valid election
to change the level of his or her contributions or terminate his or her
participation, effective with the following Offering Period; or (ii) the ESPP or
his or her participation in an Offering Period is terminated, each as described
below.
No Participant will have any rights as a shareholder with respect to shares
acquired upon exercise of an Option until a certificate for the shares has
actually been issued in the Participant's name following the applicable Exercise
Date. No adjustment will be made for dividends or other rights as a shareholder
for which a record date is prior to the issuance of such share certificate. No
interest will be paid to any Participant or credited to any Account under the
ESPP.
ELIGIBILITY. Only Eligible Employees may participate in the ESPP. An
"Eligible Employee" is any employee of the Company (or any of its participating
Subsidiaries) (i) who has completed at least three months of continuous
full-time employment with the Company (or a participating Subsidiary) as of the
applicable Grant Date, (ii) whose customary employment is for more than 20 hours
per week, and (iii) whose customary employment is for more than five months per
calendar year. Notwithstanding the foregoing, officers of the Company and
employees who own 5% or more of the Common Stock are excluded from ESPP
participation. As of January 1, 1998 there were a total of approximately 2,400
employees of the Company who
13
<PAGE> 17
were Eligible Employees and, of this number, approximately 150 had actually
elected to participate in the January 1, 1998 - June 30, 1998 Offering Period.
TERMINATION OF PARTICIPATION. A Participant may elect to terminate his or
her contributions to the ESPP during an Offering Period at any time prior to the
Exercise Date by completing and filing a withdrawal form in a manner prescribed
by the Committee. A Participant may not elect to withdraw his or her funds while
continuing payroll withholding. A Participant's participation in the ESPP will
also terminate (prior to the applicable Exercise Date): (i) if his or her
employment by the Company (or a participating Subsidiary) terminates for any
reason, or (ii) in the event that he or she is no longer an Eligible Employee.
If a Participant's ESPP participation terminates during an Offering Period
for any of the reasons discussed in the preceding paragraph, he or she will no
longer be permitted to make contributions to the ESPP for that Offering Period,
his or her Option for that Offering Period will automatically terminate, and his
or her Account balance will be paid to him or her in cash without interest.
However, a Participant's termination from participation will not have any effect
upon his or her ability to participate in any succeeding Offering Period,
provided that the applicable eligibility and participation requirements are
again then met.
Nothing in the ESPP confers upon any Participant any right to remain in the
employ of the Company or a Subsidiary.
TRANSFER RESTRICTIONS. Options and other interests in the ESPP are
generally non-assignable and non-transferable.
AUTHORIZED SHARES; LIMITS ON CONTRIBUTIONS. The maximum aggregate number of
shares of Common Stock available under the ESPP is 120,000 shares. The shares
may be authorized but unissued shares of the Company or shares purchased on the
open market. In the event of a merger, consolidation, recapitalization, stock
split, stock dividend, combination of shares, or other change affecting the
Common Stock, a proportionate and equitable adjustment will be made to the
number of shares subject to the ESPP and outstanding Options.
ADMINISTRATION. The ESPP will be administered by the Board or by a
committee appointed by the Board (the "Committee"). The Board has appointed the
Compensation Committee of the Board as the "Committee" under the ESPP. The
members of the Compensation Committee are currently Messrs. Jensen, Cummin and
Harris. The Committee has the authority to administer, construe, and interpret
the ESPP, amend and rescind rules for administering the ESPP, and make all other
determinations necessary or advisable for the administration of the ESPP.
Certain non-discretionary administrative functions may be delegated to third
parties, including officers of the Company. The ESPP will not limit the
authority of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
AMENDMENT OR TERMINATION OF THE ESPP. The Board may amend, modify or
terminate the ESPP at any time and in any manner (without notice), provided that
the existing rights of Participants are not materially adversely affected
thereby. Shareholder approval for any amendment will only be required to the
extent necessary to meet the requirements of Section 423 of the Code.
The ESPP and outstanding Options will terminate (and amounts credited to
Participants' Accounts will be refunded in cash without interest): (i) upon the
dissolution of the Company or a merger or similar transaction in which the
Company does not survive; or (ii) a Change in Control of the Company. Unless
previously terminated by the Board, no new Offering Periods will commence on or
after, and the ESPP will terminate on, January 1, 2008 or, if earlier, when no
shares remain available for Options under the ESPP.
FEDERAL INCOME TAX CONSEQUENCES. The ESPP is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code. Participant
contributions to the ESPP are made on an after-tax basis (that is, the
contributions are deducted from compensation that is taxable to the Participant
and for which the Company or a Subsidiary is generally entitled to a tax
deduction). Generally, no taxable income will be recognized by a Participant as
of either the Grant Date or the Exercise Date of an Option. A Participant will
generally recognize income (or loss) upon a sale or disposition of the shares
acquired under the ESPP. If such
14
<PAGE> 18
shares are held by the Participant for a period of at least two years after the
Grant Date of the related Option and for a period of at least one year after the
Exercise Date of the related Option (the "Required Holding Period"), and the
shares are sold at a price in excess of the Option Price of the related Option,
the gain on the sale of the shares will be taxed as ordinary income to the
extent of the lesser of: (i) the amount by which the fair market value of the
shares on the Grant Date exceeded the Option Price, or (ii) the amount by which
the fair market value of the shares at the time of their sale exceeded the
Option Price. Any portion of the gain not taxed as ordinary income will be taxed
at capital gain tax rates. The Company will not be entitled to a federal income
tax deduction with respect to any shares that are held for the Required Holding
Period.
The foregoing is only a summary of certain federal income tax consequences
and is not exhaustive and, among other considerations, does not describe state,
local, or tax withholding consequences.
PLAN BENEFITS. The benefits that will be received by or allocated to
Eligible Employees under the ESPP cannot be determined at this time because the
amount of contributions set aside to purchase shares of Common Stock under the
ESPP (subject to the limitations discussed above) are entirely within the
discretion of each Participant. The Fair Market Value of a share of Common Stock
on March 31, 1998 was $41.50. The Company has registered under the Securities
Act of 1933, as amended, the Common Stock available (subject to shareholder
approval of the ESPP) under the ESPP. In the event that the ESPP is not approved
by shareholders prior to November 19, 1998, all amounts credited to
Participants' Accounts will be refunded in cash (without interest) and the ESPP
and all outstanding Options will automatically terminate.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD "FOR" THIS PROPOSAL
The Board believes that the ESPP will help promote the interests of the
Company by (i) linking the interests of the Company's shareholders and
Participants, and (ii) providing an additional means through which the Company
can attract, motivate, and retain employees.
Approval of the ESPP requires the affirmative vote of a majority of the
Common Stock present, or represented, and entitled to vote at the Annual
Meeting.
THE BOARD HAS APPROVED AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ESPP.
Proxies solicited by the Board will be so voted unless shareholders specify
otherwise in their proxies. Broker non-votes and abstentions on this proposal
have the effect described on page 1.
15
<PAGE> 19
AMENDMENT TO 1992 STOCK AWARD PLAN
At the Annual Meeting, shareholders will be requested to approve amendments
to the Company's Amended and Restated 1992 Stock Award Plan (the "1992 Stock
Award Plan"). The 1992 Stock Award Plan provides for a limit on the aggregate
number of shares of the Company's Common Stock that may be issued or delivered
pursuant to Awards thereunder (the "Aggregate Share Limit"). At March 31, 1998,
1,372,513 shares of the Company's Common Stock ("Common Stock") remained subject
to awards then outstanding under the 1992 Stock Award Plan and 74,169 shares of
Common Stock were then available for additional 1992 Stock Award Plan awards
under the Aggregate Share Limit.
On March 18, 1998, the Board approved an amendment to the Aggregate Share
Limit (the "Amendment"), subject to the receipt of shareholder approval of the
Amendment. The Amendment, if approved by shareholders, will increase the
Aggregate Share Limit from 1,899,051 shares to 2,299,051 shares, subject to
certain adjustments as provided in the 1992 Stock Award Plan (see "Summary
Description of the 1992 Stock Award Plan -- Shares Available for Awards" below).
The Board approved the Amendment based, in part, on a belief that the number of
shares that remained available for additional awards under the 1992 Stock Award
Plan was insufficient to adequately provide for future incentives.
The principal terms of the 1992 Stock Award Plan are summarized below. The
following summary is qualified in its entirety by the full text of the 1992
Stock Award Plan, which can be reviewed on the Securities and Exchange
Commission's Web site at http://www.sec.gov and can be obtained from the
Company. Written requests for a copy of the 1992 Stock Award Plan should be
directed to the Company at the address set forth on the cover page of this Proxy
Statement, Attention: Carl W. Womack, Secretary. Capitalized terms used in the
summary which are not otherwise defined will have the meanings set forth in the
1992 Stock Award Plan.
SUMMARY DESCRIPTION OF THE 1992 STOCK AWARD PLAN
The purpose of the 1992 Stock Award Plan is to promote the success of the
Company by providing an additional means to attract, motivate and retain key
personnel through the grant of Options and other Awards that provide added long
term incentives for high levels of performance and for significant efforts to
improve the financial performance of the Company.
AWARDS. The 1992 Stock Award Plan authorizes stock options (incentive or
nonqualified), restricted stock, stock appreciation rights ("SARs") and
performance share awards.
ADMINISTRATION. The 1992 Stock Award Plan is administered by either the
Board or a committee of the Board (the "Committee"). The Board has appointed the
Compensation Committee of the Board as the "Committee" under the 1992 Stock
Award Plan. The members of the Committee are currently Messrs. Jensen, Cummin
and Harris. The Committee determines the number of shares that are to be subject
to Awards and the terms and conditions of such Awards, including the price (if
any) to be paid for the shares or the Award.
ELIGIBILITY. Persons eligible to receive Awards under the 1992 Stock Award
Plan include officers and key employees of the Company and consultants to the
Company. Members of the Board who are not officers or employees of the Company
(each a "Non-Employee Director") are eligible to receive certain automatic Award
grants under the 1992 Stock Award Plan, as described more fully below.
Approximately ten officers and 86 key employees of the Company are considered
eligible under the 1992 Stock Award Plan at the present time, subject to the
power of the Committee to determine eligible persons to whom Awards will be
granted. Currently, there are four Non-Employee Directors.
TRANSFER RESTRICTIONS. Subject to customary exceptions, Awards under the
1992 Stock Award Plan are not transferable by the recipient other than by will
or the laws of descent and distribution and are generally exercisable, during
the recipient's lifetime, only by him or her; any amounts payable or shares
issuable pursuant to an Award will be paid only to the recipient or the
recipient's beneficiary or representative. The Committee may permit the transfer
of an Award if the transferor presents satisfactory evidence that the
16
<PAGE> 20
transfer is for estate and/or tax planning purposes and is without consideration
(other than nominal consideration).
LIMITS ON AWARDS; AUTHORIZED SHARES. Under the 1992 Stock Award Plan, the
current Aggregate Share Limit is 1,899,051 shares of Common Stock. The
Amendment, if approved by shareholders, will increase the Aggregate Share Limit
to 2,299,051 shares of Common Stock. The maximum number of shares of Common
Stock that may be issued pursuant to Incentive Stock Options under the 1992
Stock Award Plan will not exceed 1,500,000 shares. The maximum number of shares
of Common Stock subject to Awards which may be granted to any individual during
any calendar year is 615,375 shares.
As is customary in incentive plans of this nature, the number and kind of
shares available under the 1992 Stock Award Plan and the then outstanding
Awards, as well as exercise or purchase prices, performance targets under
certain performance-based Awards and share limits, are subject to adjustment in
the event of certain reorganizations, mergers, combinations, consolidations,
recapitalizations, reclassifications, stock splits, stock dividends, asset sales
or other similar events, or extraordinary dividends or distributions of property
to shareholders.
The 1992 Stock Award Plan will not limit the authority of the Board or the
Committee to grant awards or authorize any other compensation, with or without
reference to the Common Stock, under any other plan or authority.
STOCK OPTIONS. An option is the right to purchase shares of Common Stock at
a future date at a specified price (the "Option Price"). An option may either be
an Incentive Stock Option or a Nonqualified Stock Option. Incentive Stock Option
benefits are taxed differently from Nonqualified Stock Options, as described
under "Federal Income Tax Treatment" below. Incentive Stock Options are also
subject to more restrictive terms and are limited in amount by the Code and the
1992 Stock Award Plan.
The Option Price of Options will be determined by the Committee, but in the
case of Incentive Stock Options may be no less than the fair market value of a
share on the date of grant. Full payment for shares purchased on the exercise of
any Option must be made at the time of such exercise in a manner approved by the
Committee (which may include cash, delivery of previously owned Common Stock, a
promissory note, or certain cashless exercises arranged through a third party,
subject to certain limitations set forth in the 1992 Stock Award Plan). Options
granted under the 1992 Stock Award Plan may be exercised at the time or times
determined by the Committee, but in no event after ten years from the date of
grant.
STOCK APPRECIATION RIGHTS. An SAR is the right to receive payment of an
amount equal to the excess of the fair market value of a share of Common Stock
on the date of exercise of the SAR over the base price of the SAR. The base
price will be established by the Administrator at the time of grant of the SAR,
but will not be less than the fair market value of a share on the date of grant.
SARs may be granted in connection with other Awards or independently.
RESTRICTED STOCK AWARDS. A Restricted Stock Award is an award typically for
a fixed number of shares of Common Stock subject to restrictions. The Committee
specifies the price, if any, the Participant must pay for such shares and the
restrictions (which may include, for example, continued service only and/or
performance standards) imposed on such shares.
PERFORMANCE SHARE AWARDS. Performance Share Awards may be granted on the
basis of such factors as the Committee deems appropriate. Generally, these
Awards will be based upon specific agreements and will specify the number of
shares of Common Stock subject to the Award, the price, if any, to be paid for
such shares by the participant and the conditions upon which the issuance of the
shares will be based.
In addition to Awards under the other provisions of the 1992 Stock Award
Plan, the 1992 Stock Award Plan provides that the Committee may grant to
eligible officers performance-based Awards designed to satisfy the requirements
for deductibility of compensation under Section 162(m) of the Code ("Section
162(m) Performance-Based Awards"). Options with an exercise price and SARs with
a base price not less than fair market value on the date of grant will,
generally speaking, be considered Section 162(m) Performance-Based Awards. Other
Section 162(m) Performance-Based Awards must be based on the performance
relative to
17
<PAGE> 21
pre-established goals over performance periods not shorter than one year nor
longer than ten years. The business criteria on which performance goals will be
established include one or more of the following as applied to the consolidated
operations, or one or more subsidiaries or business segments: (i) earnings per
share of Common Stock on a basic and diluted basis determined by dividing (a)
net earnings less dividends on Preferred Stock, if any, of the Company and its
subsidiaries by (b) the weighted average number of shares of Common Stock
outstanding, basic and diluted, (ii) consolidated net income of the Company and
its subsidiaries (less, if any, preferred dividends), divided by the average
consolidated common shareholder equity, (iii) net cash flow (including cash and
cash equivalents) from operations or net cash flow from operations, financing
and investing activities, or (iv) change in the market price of the Company's
Common Stock plus dividends and other distributions paid, divided by the
beginning market price of the Common Stock, adjusted for any changes in equity
structure. Section 162(m) Performance-Based Awards (other than Options and Stock
Appreciation Rights) are earned and payable only if performance meets the
specific, pre-established performance goals approved by the Committee in advance
of applicable deadlines under the Code and while the performance relating to the
goals remains substantially uncertain. Performance goals may be adjusted to
reflect certain changes, including reorganizations, liquidations and
capitalization and accounting changes, to the extent permitted by Section
162(m).
Grants of Section 162(m) Performance-Based Awards in any calendar year to
any participant may not be made with reference to more than 615,375 shares.
Before any of the Section 162(m) Performance-Based Awards (other than by
exercise of qualifying options or SARs) are paid to a covered officer, the
Committee must certify that the performance goals have been satisfied. The
Committee will have discretion to determine the performance goals and
restrictions or other limitations of the individual Awards and is expected to
reserve "negative" discretion to reduce the number of shares delivered pursuant
to payments of Awards below maximum Award limits.
AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. Each person who first
becomes a Non-Employee Director is granted automatically a Nonqualified Stock
Option to purchase 9,000 shares of Common Stock (the "Initial Grant"). In
addition, the 1992 Stock Award Plan provides that in each calendar year, there
will be granted automatically (without any action by the Committee) as of the
date of the annual meeting of shareholders in each such year, a Nonqualified
Stock Option to purchase 9,000 shares of Common Stock to each Non-Employee
Director who is re-elected as a member of the Board or who continues as a member
of the Board (the "Annual Grant"). The purchase price per share of Common Stock
covered by each such option will be the fair market value of the Common Stock on
the date the option is granted. The 1992 Stock Award Plan provides that
Non-Employee Director options expire on the tenth anniversary of the award date
and vest according to the following schedule (i) the first 25% of the shares
covered by an Option become exercisable on the earlier of (a) the first
anniversary of the award date or (b) the date immediately preceding the first
scheduled Annual Meeting of shareholders first occurring after the award date,
and (ii) 1/36th of the remaining shares covered by the Option become exercisable
each month thereafter. Immediately prior to the occurrence of a Change in
Control, each option granted under the Non-Employee Director Program will become
exercisable in full.
If a Non-Employee Director's services as a member of the Board terminate,
any option granted under the Non-Employee Director program held by such
Non-Employee Director which is not then exercisable shall terminate (subject to
the Committees discretion to increase the portion of the Award available to the
Non-Employee Director). If a Non-Employee Director's services as a member of the
Board terminate by reason of death or total disability, any portion of any such
option which is then exercisable may be exercised for one year after the date of
such termination or the balance of such option's term, whichever period is
shorter. If a Non-Employee Director's services as a member of the Board
terminate for any other reason, any portion of any such option which is then
exercisable may be exercised for three months after the date of such termination
or the balance of such option's term, whichever period is shorter.
EFFECT OF TERMINATION OF EMPLOYMENT. Options which have not yet become
exercisable will generally lapse upon the date a participant is no longer
employed by the Company for any reason. Options which have become exercisable
must be exercised within three months after such date if the termination of
employment was for any reason other than Retirement, Total Disability, death or
discharge for cause. In the event a
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participant is discharged for cause, all Options will lapse immediately upon
such termination of employment. If the termination of employment is due to
Retirement, Total Disability or death, the options which are exercisable on the
date of such termination must generally be exercised within twelve months of the
date of such termination. In no event may an Option be exercised after its
stated term. Stock Appreciation Rights generally have the same termination
provisions as the Options to which they relate. Shares subject to Restricted
Stock Awards that have not become vested upon the date a participant is no
longer employed by the Company for any reason will be forfeited in accordance
with the terms of the related award agreements. Shares subject to Performance
Share Awards that have not been issued or become issuable upon the date a
participant is no longer employed by the Company for any reason shall similarly
be forfeited. The Committee may increase the portion of a Participant's Award
available to the Participant in connection with a Participant's termination of
employment (other than termination by the Company for cause).
ACCELERATION OF AWARDS; POSSIBLE EARLY TERMINATION OF AWARDS. Unless prior
to an Event the Committee determines that, upon its occurrence, benefits will
not be accelerated, then generally upon the Event each Option and Stock
Appreciation Right will become immediately exercisable, restricted stock will
vest, and cash and performance-based awards and stock units will become payable.
An Event under the 1992 Stock Award Plan generally includes (subject to certain
exceptions) certain mergers or consolidations approved by the Company's
shareholders, or shareholder approval of a liquidation of the Company or sale of
substantially all of the Company's assets.
AMENDMENTS. The Board may amend or terminate the 1992 Stock Award Plan at
any time. If any amendment to the 1992 Stock Award Plan would (i) increase the
benefits accruing to participants, (ii) increase the aggregate number of shares
which may be issued under the 1992 Stock Award Plan or (iii) modify the
requirements of eligibility for participation in the 1992 Stock Award Plan,
then, to the extent then required by Section 422 of the Code, such amendment
will be subject to shareholder approval. Outstanding Awards may be amended,
subject, however, to the consent of the holder if the amendment materially and
adversely affects the holder. Unless previously terminated by the Board, the
1992 Stock Award Plan will terminate on November 17, 2002.
SECURITIES UNDERLYING AWARDS. The market value of a share of Common Stock
as of March 31, 1998 was $41.50 per share. Upon receipt of shareholder approval
of the Amendment, the Company plans to register under the Securities Act of
1933, the additional shares of Common Stock made available under the 1992 Stock
Award Plan.
FEDERAL INCOME TAX CONSEQUENCES. With respect to nonqualified stock
options, the Company is generally entitled to deduct an amount equal to the
difference between the option exercise price and the fair market value of the
shares at the time of exercise. With respect to Incentive Stock Options, the
Company is generally not entitled to a similar deduction either upon grant of
the option or at the time the option is exercised. If Incentive Stock Option
shares are not held for specified qualifying periods, however, the difference
between the fair market value of the shares at the date of exercise (or, if
lower, the sale price) and the cost of such shares is taxed as ordinary income
(and the Company will receive a corresponding deduction) in the year the shares
are sold.
The current federal income tax consequences of other Awards authorized
under the 1992 Stock Award Plan generally follow certain basic patterns: SARs
are taxed and deductible in substantially the same manner as non-qualified stock
options; non-transferable restricted stock subject to a substantial risk of
forfeiture results in income recognition only at the time the restrictions lapse
(unless the recipient elects to accelerate recognition as of the date of grant);
and Performance Share Awards generally are subject to tax at the time of
payment. In each of the foregoing cases, the Company will generally have a
corresponding deduction at the time the participant recognizes income.
If an Award is accelerated under the 1992 Stock Award Plan in connection
with a change in control (as this term is used in the Code), the Company may not
be permitted to deduct the portion of the compensation attributable to the
acceleration ("parachute payments") if it exceeds certain threshold limits under
the Code (and certain excise taxes may be triggered). Further, if the
compensation attributable to Awards is not "performance-based" within the
meaning of Section 162(m) of the Code, the Company may not be permitted
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to deduct the aggregate non performance-based compensation in excess of
$1,000,000 in certain circumstances.
The above tax summary is based upon federal income tax laws in effect as of
March 1, 1998.
SPECIFIC BENEFITS
For information regarding options and restricted stock awards granted to
executive officers of the Company, see the material under the heading "Executive
Compensation" following the Proposal One discussion.
The number, amount and type of awards to be received by or allocated to
eligible persons in the future under the 1992 Stock Award Plan cannot be
determined at this time. At this time, the Company is not considering any
additional awards under the 1992 Stock Award Plan. If the Amendment had been in
effect in 1997, the Company expects that the grants would not have been
substantially different from those described in this section and in the Summary
Compensation Table above.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD "FOR" THIS PROPOSAL
The Board believes that the additional shares to be made available under
the 1992 Stock Award Plan by the approval of the Amendment will promote the
interests of the Company and its shareholders and continue to enable the Company
to attract, retain and reward persons important to the Company's success and to
provide incentives based on the attainment of corporate objectives and increases
in shareholder value.
Approval of the Amendment requires the affirmative vote of a majority of
the Common Stock present, or represented, and entitled to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE AMENDMENT TO THE 1992 STOCK AWARD PLAN.
Proxies solicited by the Board will be so voted unless shareholders specify
otherwise in their proxies. Broker non-votes and abstentions on this proposal
have the effect described on page 1. All members of the Board are eligible for
awards under the 1992 Stock Award Plan.
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APPROVAL OF INCENTIVE COMPENSATION PLAN
At the Annual Meeting, shareholders will be requested to approve the
Pacific Sunwear of California, Inc. Incentive Compensation Plan (the "Incentive
Compensation Plan"). On March 18, 1998, the Board adopted the Incentive
Compensation Plan, subject to the receipt of shareholder approval thereof at the
Annual Meeting.
Section 162(m) of the Internal Revenue Code ("Section 162(m)") limits the
tax deductibility of compensation that is not "performance-based" within the
meaning of that section if the amount of the aggregate non performance-based
compensation exceeds $1 million in certain circumstances. The Incentive
Compensation Plan permits the Company to grant bonus incentives that are
intended to qualify as "performance-based" compensation so as to not preclude
the tax deductibility of such compensation should the limits of Section 162(m)
ever be exceeded by the Company. As it has done in recent years, the Company
intends to base the bonus incentives for fiscal 1998 on the percentage of
budgeted earnings achieved by the Company.
The principal terms of the Incentive Compensation Plan are summarized
below. The following summary is qualified in its entirety by the full text of
the Incentive Compensation Plan, a copy of which is attached to this Proxy
Statement as Exhibit B. Capitalized terms used in the summary which are not
otherwise defined will have the meanings set forth in the Incentive Compensation
Plan.
SUMMARY DESCRIPTION OF THE INCENTIVE COMPENSATION PLAN
PURPOSE. The purpose of the Incentive Compensation Plan is to promote the
success of the Company by providing to participating Eligible Persons bonus
incentives that qualify as performance-based compensation within the meaning of
Section 162(m).
ADMINISTRATION. The Incentive Compensation Plan will be administered by a
committee appointed by the Board (the "Committee"). The Board has appointed the
Compensation Committee of the Board as the "Committee" under the Incentive
Compensation Plan. The members of the Committee are currently Messrs. Jensen,
Cummin and Harris. The Committee has the authority to select Participants,
determine Performance Periods, select Business Criteria, and establish
Performance Targets. The Committee also has the authority to administer,
construe, and interpret the Incentive Compensation Plan, amend and rescind rules
for administering the Incentive Compensation Plan, and make all other
determinations necessary or advisable for the administration of the Incentive
Compensation Plan. The Incentive Compensation Plan will not limit the authority
of the Board or the Committee to grant awards or authorize any other
compensation under any other plan or authority (including the 1992 Stock Award
Plan, described above).
ELIGIBILITY AND PLAN LIMITS. Any officer or salaried employee of the
Company (each an "Eligible Person") may be granted an Award (or Awards) by the
Committee under the Incentive Compensation Plan. A maximum amount of $2.5
million may be paid with respect to all Awards granted under the Incentive
Compensation Plan in any calendar year to any one Eligible Person (subject to
certain adjustments under the Incentive Compensation Plan). As of March 31,
there were approximately ten Eligible Persons.
Nothing in the Incentive Compensation Plan confers upon any Participant any
right to remain in the employ of the Company.
PLAN AWARDS. Under the Incentive Compensation Plan, the Committee may grant
performance-based Awards to Eligible Persons. These Awards will be based on the
performance of the Company and/or one or more of its subsidiaries, divisions,
segments or units.
The Business Criteria with respect to which Performance Targets may be
established include the following: EBIT, EBITDA, EPS, Expense Reduction, Debt to
EBITDA, Interest Coverage, Inventory Turns, Net Income, Net Sales, Operating
Cash Flow, Pre-Tax Margin, Return on Assets, Return on Capital, Return on
Equity, Stock Price Appreciation, and Working Capital Improvement (in each case
as defined in Appendix A to the Incentive Compensation Plan), or any combination
thereof. Adoption of the Incentive Compensation Plan is intended to enable the
Company to continue its historical method of bonus determination (using budgeted
earnings as a Performance Target) while preserving the deductibility of the
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compensation expense. Awards are payable only if performance reaches specific,
preestablished Performance Targets approved by the Committee in advance of
applicable deadlines under the Code and while the performance relating to the
goals remains substantially uncertain (except that the payment of Awards may be
accelerated following a Change in Control of the Company, as described in
Section 4.13 of the Incentive Compensation Plan). Performance Targets will
generally be adjusted to the extent permitted by Section 162(m) to reflect
certain changes affecting the Company, including reorganizations, liquidations,
capitalizations and accounting changes.
Concurrently with the selection of the Performance Targets, the Committee
must establish an objective formula or standard for calculating the maximum
Bonus which may become payable with respect to each Award.
Awards will generally be paid in cash from the Company's general assets,
however, Awards may be stock-based (payable in stock only or in cash or stock).
Before any Award is paid, the Committee must certify that the Performance
Targets have been satisfied. The Committee may reserve "negative" discretion to
reduce payments below maximum Award limits.
Awards are generally nontransferable.
AMENDMENT/TERMINATION OF THE PLAN. The Incentive Compensation Plan may from
time to time be amended, suspended or terminated, in whole or in part, by the
Board or the Committee, but no amendment will be effective without Board and/or
shareholder approval if such approval is required to comply with the applicable
rules under Section 162(m). Unless earlier terminated by the Board or the
Committee, no new Awards may be granted after January 31, 2003.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS UNDER THE PLAN. Awards under the
Incentive Compensation Plan are generally subject to tax at the time of payment
and the Company will generally have a corresponding deduction at the time the
Participant recognizes income. Awards are intended to satisfy the "performance-
based" exception to Section 162(m). If payment of an Award is accelerated under
the Incentive Compensation Plan in connection with a Change in Control of the
Company: (i) the Company may not be permitted to deduct the portion of the
compensation attributable to the acceleration ("parachute payments") if it
exceeds certain threshold limits under the Code (and certain related excise
taxes may be triggered), and (ii) the Company may not be entitled to a tax
deduction if payments are accelerated at a time when the Performance Targets
have not been satisfied if the limits of Section 162(m) are exceeded.
RESTRICTED STOCK AWARDS. The Company also maintains, and shareholders
previously approved, the 1992 Stock Award Plan, as described above. The 1992
Stock Award Plan permits the Company to grant awards of restricted Shares
("Restricted Stock Awards"). Restricted Stock Awards generally vest based upon
the passage of time or the attainment of one or more performance or other
criteria. The Incentive Compensation Plan will permit the Company to grant
Restricted Stock Awards under the 1992 Stock Award Plan which vest based upon
the satisfaction of one or more Performance Targets and which are also subject
to the other provisions of the Incentive Compensation Plan ("Combined Awards").
The maximum number of Shares which may be subject to Combined Awards granted to
any individual Eligible Person in any one calendar year is 615,375; subject to
and chargeable against the existing limits of the 1992 Stock Award Plan.
Combined Awards will not reduce or otherwise affect the $2.5 million annual
Award limit (described above).
VOTE REQUIRED; RECOMMENDATION OF THE BOARD "FOR" THIS PROPOSAL
The Board believes, in general, that it is desirable and in the best
interest of the Company and its shareholders to enable the Company's
compensation plans to comply with the requirements of Section 162(m). The 1992
Stock Award Plan currently provides for the grant of stock-based awards that are
intended to qualify as "performance-based" compensation under Section 162(m).
However, the 1992 Stock Award Plan does not give the Company the flexibility to
pay such awards in cash.
The Board believes that the Incentive Compensation Plan is consistent with
the Company's existing policies that closely relate a substantial portion of
certain executive's compensation to the Company's performance and will enable
the Company to pay "performance-based" awards in cash. The Plan also serves
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the Company's interests by granting the Committee discretion both in selecting
the criteria by which performance is to be measured and in establishing actual
performance targets, and determining the level of bonuses that will be paid if
such targets are timely achieved; all within the limits and terms imposed by the
Incentive Compensation Plan.
The Company believes that it is possible that compensation paid to one or
more of its executive officers may, in the future, exceed the limits of Section
162(m). If the Incentive Compensation Plan is not approved by shareholders,
bonuses paid by the Company to executive officers will not be tax deductible to
the Company to the extent that (when combined with other non-exempt compensation
paid to such executive officers) they exceed these limits.
The number, amount and type of Awards to be received by or allocated to
Eligible Persons under the Incentive Compensation Plan cannot be determined at
this time. The Committee has not yet considered any specific Awards or
Performance Targets under the Incentive Compensation Plan, and bonuses paid in
fiscal 1998 will be paid outside the Incentive Compensation Plan. If the
Incentive Compensation Plan had been in effect in 1997, the Company expects that
compensation levels would not have been substantially different from those
described in the Summary Compensation Table.
Approval of the Incentive Compensation Plan requires the affirmative vote
of a majority of the Common Stock present, or represented, and entitled to vote
at the Annual Meeting.
THE BOARD HAS APPROVED AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
INCENTIVE COMPENSATION PLAN.
Proxies solicited by the Board will be so voted unless shareholders specify
otherwise in their proxies.
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OTHER MATTERS
Management does not know of any other matters to be presented at the Annual
Meeting of Shareholders, but should any other matters requiring a vote of
shareholders arise, including a question of adjourning the meeting, the persons
named in the accompanying proxy will vote thereon according to their best
judgment.
UPON REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED FEBRUARY 1, 1998, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WILL BE FURNISHED TO ANY SHAREHOLDER WITHOUT CHARGE BY THE COMPANY. ANY
SHAREHOLDER DESIRING A COPY SHOULD WRITE TO THE COMPANY AT THE ADDRESS SET FORTH
IN THE COVER PAGE OF THE PROXY STATEMENT, ATTENTION: CARL W. WOMACK, SECRETARY.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1999 Annual Meeting
of Shareholders of the Company must be received by December 24, 1998 for
inclusion in the Company's 1999 Proxy Statement. In addition, the Company's
Bylaws establish an advance notice procedure with regard to certain matters,
including shareholder proposals not included in the Company's Proxy Statement,
to be brought before an annual meeting of shareholders. In general, notice must
be received by the Secretary of the Company at the Company's principal executive
office not less than 15 days prior to the scheduled annual meeting, regardless
of any postponements, deferrals or adjournments of that meeting unless less than
25 days notice or prior public disclosure of the date scheduled for the meeting
is given or made, in which event notice by the shareholder to be timely must be
delivered or received not later than the close of business on the tenth day
following the earlier of (i) the day on which such notice of the date of the
scheduled annual meeting was mailed or (ii) the day on which such public
disclosure was made. The shareholder's notice to the Secretary of the Company
must set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the proposal desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, including the names of nominees for election to the Board of
Directors, if any, (ii) the name and address, as they appear in the Company's
books, of the shareholder proposing such business and any other shareholders
known by such shareholder to be supporting such proposal, (iii) the class and
number of shares of the Company's stock that are beneficially owned by the
shareholder on the date of such shareholder notice, and by other shareholders
known by such shareholder to be supporting such proposal on the date of such
shareholder notice, and (iv) any financial interest of the shareholder in such
proposal. If the presiding officer at the annual meeting determines that a
shareholder proposal is not made in accordance with the terms described above,
the presiding officer shall so declare at the annual meeting, the proposal shall
be deemed by the presiding officer to be improperly before the shareholders and
the proposal shall not be acted upon at the annual meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following Form 4s were inadvertently not filed on a timely basis: one
Form 4 for Frank J. Schools disclosing a purchase and sale of common stock
pursuant to the exercise of options; and one Form 4 for Carl W. Womack
disclosing a gift of common stock.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Deloitte & Touche LLP, the independent auditors of the
Company, will be in attendance at the Annual Meeting, able to make a statement
if he or she so desires, and available to respond to appropriate questions.
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EXHIBIT A
PACIFIC SUNWEAR OF CALIFORNIA, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Pacific Sunwear of
California, Inc. Employee Stock Purchase Plan (this "Plan").
1. PURPOSE
The purpose of this Plan is to provide Eligible Employees with an incentive
to advance the best interests of the Corporation (and those Subsidiaries which
may be designated by the Committee as "Participating Corporations") by providing
a method whereby they may voluntarily purchase Common Stock at a favorable price
and upon favorable terms.
2. DEFINITIONS
Capitalized terms used herein which are not otherwise defined shall have
the following meanings.
"Account" shall mean the bookkeeping account maintained by the Corporation,
or by a recordkeeper on behalf of the Corporation, for a Participant pursuant to
Section 7(a).
"Board" shall mean the Board of Directors of the Corporation.
"Change in Control" shall mean any of the following:
a. Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation;
b. Approval by the shareholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities other than Subsidiaries, as a result of which less than 50% of the
outstanding voting securities of the surviving or resulting entity are, or
are to be, owned by former shareholders of the Corporation;
c. Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business assets to a person or
entity that is not a Subsidiary.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the committee appointed by the Board to administer
this Plan pursuant to Section 12.
"Common Stock" shall mean the common stock of the Corporation.
"Company" shall mean the Corporation and its Subsidiaries.
"Compensation" shall mean an Eligible Employee's regular earnings, overtime
pay, sick pay, shift differential, shift premium, vacation pay, incentive
compensation, commissions and bonuses. Compensation also includes any amounts
contributed as salary reduction contributions to a plan qualifying under Section
401(k), 125 or 129 of the Code. Any other form of remuneration is excluded from
Compensation, including (but not limited to) the following: prizes, awards,
housing allowances, stock option exercises, stock appreciation rights,
restricted stock exercises, performance awards, auto allowances, tuition
reimbursement and other forms of imputed income. Notwithstanding the foregoing,
Compensation shall not include any amounts deferred under or paid from the
Corporation's Executive Deferred Compensation Plan.
"Contributions" shall mean all bookkeeping amounts credited to the Account
of a Participant pursuant to Section 7(a).
"Corporation" shall mean Pacific Sunwear of California, Inc., a California
corporation.
"Eligible Employee" shall mean any employee of the Corporation, or of any
Subsidiary which has been designated in writing by the Committee as a
"Participating Corporation" (including any Subsidiaries which
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have become such after the date that this Plan is approved by shareholders).
Notwithstanding the foregoing, "Eligible Employee" shall not include any
employee who (i) has not as of the Grant Date completed at least three months of
continuous full-time employment with the Company, (ii) whose customary
employment is for 20 hours per week or less; or (iii) whose customary employment
is for not more than five months in a calendar year. In addition, no Officer
shall be an Eligible Employee.
"Effective Date" shall mean January 1, 1998.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exercise Date" shall mean, with respect to an Offering Period, the last
day of that Offering Period.
"Fair Market Value" shall mean the closing price of a Share on The New York
Stock Exchange on such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), as reported in
The Wall Street Journal or, in the event the Common Stock is not listed on The
New York Stock Exchange, the "Fair Market Value" shall be the closing price of
the Common Stock for such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), as reported by
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
or, if such price is not reported, the mean of the bid and asked prices per
Share as reported by NASDAQ or, if such prices are not so listed or reported, as
determined by the Committee (or its delegate), in its discretion.
"Grant Date" shall mean the first day of each Offering Period.
"Offering Period" shall mean the six-consecutive month periods commencing
on each January 1 and July 1.
"Officer" shall mean (i) any individual who is a named officer of the
Corporation pursuant to the Corporation's By-Laws, and (ii) any other individual
who the Committee determines, in its sole discretion, to be (A) a highly
compensated employee (within the meaning of Section 414(q) of the Code) and (B)
an officer of the Company for purposes of this Plan.
"Option" shall mean the stock option to acquire Shares granted to a
Participant pursuant to Section 8.
"Option Price" shall mean the per share exercise price of an Option as
determined in accordance with Section 8(b).
"Participant" shall mean an Eligible Employee who has elected to
participate in this Plan and who has filed a valid and effective Subscription
Agreement to make Contributions pursuant to Section 6.
"Plan" shall mean this Pacific Sunwear of California, Inc. Employee Stock
Purchase Plan, as amended from time to time.
"Rule 16b-3" shall mean Rule 16b-3 promulgated under Section 16.
"Section 16" shall mean Section 16 of the Exchange Act.
"Share" shall mean a share of Common Stock.
"Subscription Agreement" shall mean the written agreement filed by an
Eligible Employee with the Corporation pursuant to Section 6 to participate in
this Plan.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations (beginning with the Corporation) in which each corporation (other
than the last corporation) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one or more of the other
corporations in the chain.
3. ELIGIBILITY
Any person employed as an Eligible Employee as of a Grant Date shall be
eligible to participate in this Plan during the Offering Period in which such
Grant Date occurs, subject to the Eligible Employee satisfying the requirements
of Section 6.
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4. STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS
The total number of Shares to be made available under this Plan is 120,000
authorized and unissued or treasury shares of Common Stock, or Shares
repurchased on the open market, subject to adjustments pursuant to Section 17.
In the event that all of the Shares made available under this Plan are
subscribed prior to the expiration of this Plan, this Plan may be terminated in
accordance with Section 19.
5. OFFERING PERIODS
During the term of this Plan, the Corporation will offer Options to
purchase Shares to all Participants during each Offering Period. Each Option
shall become effective on the Grant Date. The term of each Option shall be six
months and shall end on the Exercise Date. The first Offering Period shall
commence on or after the Effective Date. Offering Periods shall continue until
this Plan is terminated in accordance with Section 18 or 19, or, if earlier,
until no Shares remain available for Options pursuant to Section 4.
6. PARTICIPATION
An Eligible Employee may become a participant in this Plan by completing a
Subscription Agreement on a form approved by and in a manner prescribed by the
Committee (or its delegate). To become effective, a Subscription Agreement must
be filed with the Corporation prior to the start of the Offering Period with
respect to which it is to become effective and must set forth the percentage of
the Eligible Employee's Compensation (which shall be a whole percentage point
not less than 1% and not more than 10%) to be credited to the Participant's
Account as Contributions each pay period. Subscription Agreements shall contain
the Eligible Employee's authorization and consent to the Corporation's
withholding from his or her Compensation the amount of his or her Contributions.
Subscription Agreements shall remain valid for all Offering Periods until (i) an
Eligible Employee's participation terminates pursuant to the terms hereof, or
(ii) until a new Subscription Agreement becomes effective.
7. METHOD OF PAYMENT OF CONTRIBUTIONS
(a) The Corporation shall maintain on its books, or cause to be maintained
by a recordkeeper, an Account in the name of each Participant. The percentage of
Compensation elected to be applied as Contributions by a Participant shall be
deducted from such Participant's Compensation on each payday during the period
for payroll deductions set forth below and such payroll deductions shall be
credited to that Participant's Account as soon as administratively practicable
after such date. A Participant may not make any additional payments to his or
her Account. A Participant's Account shall be reduced by any amounts used to pay
the Option Price of Shares acquired, or by any other amounts distributed
pursuant to the terms hereof.
(b) Payroll deductions with respect to an Offering Period shall commence as
of the first day of the payroll period which coincides with or immediately
follows the applicable Grant Date and shall end on the last day of the payroll
period which coincides with or immediately precedes the applicable Exercise
Date, unless sooner terminated by the Participant as provided in this Section or
until his or her participation terminates pursuant to Section 11.
(c) A Participant may terminate his or her Contributions during an Offering
Period by completing and filing with the Corporation, in such form and on such
terms as the Committee (or its delegate) may prescribe, a written withdrawal
form which shall be signed by the Participant. Such termination shall be
effective as soon as administratively practicable after its receipt by the
Corporation.
(d) A Participant may discontinue or otherwise change the level of his or
her Contributions (within Plan limits) effective as of the next Grant Date by
completing and filing with the Corporation, on such terms as the Committee (or
its delegate) may prescribe, a new Subscription Agreement.
8. GRANT OF OPTION
(a) On each Grant Date, each Eligible Employee who is a participant during
that Offering Period shall be granted an Option to purchase a number of Shares.
The Option shall be exercised on the Exercise Date.
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The number of Shares subject to the Option shall be determined by dividing the
Participant's Account balance as of the applicable Exercise Date by the Option
Price.
(b) The Option Price per Share of the Shares subject to an Option shall be
the lesser of: (i) 90% of the Fair Market Value of a Share on the applicable
Grant Date; or (ii) 90% of the Fair Market Value of a Share on the applicable
Exercise Date.
(c) Notwithstanding anything else contained herein, a person who is
otherwise an Eligible Employee shall not be granted any Option or other right to
purchase Shares under this Plan to the extent (i) it would, if exercised, cause
the person to own "stock" (as such term is defined for purposes of Section
423(b)(3) of the Code) possessing 5% or more of the total combined voting power
or value of all classes of stock of the Corporation, or any Subsidiary, or (ii)
such Option causes such individual to have rights to purchase stock under this
Plan and any other plan of the Company qualified under Section 423 of the Code
which accrue at a rate which exceeds $25,000 of the fair market value of the
stock of the Corporation or of a Subsidiary (determined at the time the right to
purchase such Stock is granted) for each calendar year in which such right is
outstanding. For this purpose a right to purchase Shares accrues when it first
become exercisable during the calendar year. In determining whether the stock
ownership of an Eligible Employee equals or exceeds the 5% limit set forth
above, the rules of Section 424(d) of the Code (relating to attribution of stock
ownership) shall apply.
9. EXERCISE OF OPTION
Unless a Participant's Plan participation is terminated as provided in
Section 11, his or her Option for the purchase of Shares shall be exercised
automatically on the Exercise Date for that Offering Period, without any further
action on the Participant's part, and the maximum number of whole Shares subject
to such Option shall be purchased at the Option Price with the balance of such
Participant's Account. If any amount (which is not sufficient to purchase a
whole Share) remains in a Participant's Account after the exercise of his or her
Option on the Exercise Date: (i) such amount shall be credited to such
Participant's Account for the next Offering Period, if he or she is then a
Participant; or (ii) if such Participant is not a Participant in the next
Offering Period, or if the Committee so elects, such amount shall be refunded to
such Participant as soon as administratively practicable after such date.
10. DELIVERY
As soon as administratively practicable after the Exercise Date, the
Corporation shall deliver to each Participant a certificate representing the
Shares purchased upon exercise of his or her Option. The Corporation may make
available an alternative arrangement for delivery of Shares to a recordkeeping
service. The Committee (or its delegate), in its discretion, may either require
or permit the Participant to elect that such certificates be delivered to such
recordkeeping service. In the event the Corporation is required to obtain from
any commission or agency authority to issue any such certificate, the
Corporation will seek to obtain such authority. Inability of the Corporation to
obtain from any such commission or agency authority which counsel for the
Corporation deems necessary for the lawful issuance of any such certificate
shall relieve the Corporation from liability to any Participant except to return
to the Participant the amount of the balance in his or her Account.
11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS
(a) Upon a Participant's termination from employment with the Company for
any reason or in the event that a Participant is no longer an Eligible Employee
or if the Participant elects to terminate Contributions pursuant to Section
7(c), at any time prior to the last day of an Offering Period in which he or she
participates, such Participant's Account shall be paid to him or her or in cash,
or, in the event of such Participant's death, paid to the person or persons
entitled thereto under Section 13, and such Participant's Option and
participation in the Plan shall be automatically terminated.
(b) A Participant's termination from Plan participation precludes the
Participant from again participating in this Plan during that Offering Period.
However, such termination shall not have any effect upon his or
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her ability to participate in any succeeding Offering Period, provided that the
applicable eligibility and participation requirements are again then met. A
Participant's termination from Plan participation shall be deemed to be a
revocation of that Participant's Subscription Agreement and such Participant
must file a new Subscription Agreement to resume Plan participation in any
succeeding Offering Period.
12. ADMINISTRATION
(a) The Board shall appoint the Committee, which shall be composed of not
less than two members of the Board. Each member of the Committee, in respect of
any transaction at a time when an affected Participant may be subject to Section
16 of the Exchange Act, shall be a "non-employee director" within the meaning of
Rule 16b-3 promulgated under Section 16. The Board may, at any time, increase or
decrease the number of members of the Committee, may remove from membership on
the Committee all or any portion of its members, and may appoint such person or
persons as it desires to fill any vacancy existing on the Committee, whether
caused by removal, resignation, or otherwise. The Board may also, at any time,
assume or change the administration of this Plan.
(b) The Committee shall supervise and administer this Plan and shall have
full power and discretion to adopt, amend and rescind any rules deemed desirable
and appropriate for the administration of this Plan and not inconsistent with
the terms of this Plan, and to make all other determinations necessary or
advisable for the administration of this Plan. The Committee shall act by
majority vote or by unanimous written consent. No member of the Committee shall
be entitled to act on or decide any matter relating solely to himself or herself
or any of his or her rights or benefits under this Plan. The Committee shall
have full power and discretionary authority to construe and interpret the terms
and conditions of this Plan, which construction or interpretation shall be final
and binding on all parties including the Corporation, Participants and
beneficiaries. The Committee may delegate ministerial non-discretionary
functions to third parties, including officers of the Corporation.
(c) Any action taken by, or inaction of, the Corporation, the Board or the
Committee relating to this Plan shall be within the absolute discretion of that
entity or body. No member of the Board or Committee, or officer of the
Corporation shall be liable for any such action or inaction.
13. DESIGNATION OF BENEFICIARY
(a) A Participant may file, in a manner prescribed by the Committee (or its
delegate), a written designation of a beneficiary who is to receive any Shares
or cash from such Participant's Account under this Plan in the event of such
Participant's death. If a Participant's death occurs subsequent to the end of an
Offering Period but prior to the delivery to him or her of any Shares
deliverable under the terms of this Plan, such Shares and any remaining balance
of such Participant's Account shall be paid to such beneficiary (or such other
person as set forth in Section 13(b)) as soon as administratively practicable
after the Corporation receives notice of such Participant's death and any
outstanding unexercised Option shall terminate. If a Participant's death occurs
at any other time, the balance of such Participant's Account shall be paid to
such beneficiary (or such other person as set forth in Section 13(b)) in cash as
soon as administratively practicable after the Corporation receives notice of
such Participant's death and such Participant's Option shall terminate. If a
Participant is married and the designated beneficiary is not his or her spouse,
spousal consent shall be required for such designation to be effective.
(b) Beneficiary designations may be changed by the Participant (and his or
her spouse, if required) at any time on forms provided and in the manner
prescribed by the Committee (or its delegate). If a Participant dies with no
validly designated beneficiary under this Plan who is living at the time of such
Participant's death, the Corporation shall deliver all Shares and/or cash
payable pursuant to the terms hereof to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed, the Corporation, in its discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Corporation,
then to such other person as the Corporation may designate.
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14. TRANSFERABILITY
Neither Contributions credited to a Participant's Account nor any Options
or rights with respect to the exercise of Options or right to receive Shares
under this Plan may be anticipated, alienated, encumbered, assigned,
transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution, or as provided in Section 13) by the
Participant. Any such attempt at anticipation, alienation, encumbrance,
assignment, transfer, pledge or other disposition shall be without effect and
all amounts shall be paid and all shares shall be delivered in accordance with
the provisions of this Plan. Amounts payable or Shares deliverable pursuant to
this Plan shall be paid or delivered only to the Participant or, in the event of
the Participant's death, to the Participant's beneficiary pursuant to Section
13.
15. USE OF FUNDS; INTEREST
All Contributions received or held by the Corporation under this Plan will
be included in the general assets of the Corporation and may be used for any
corporate purpose. No interest will be paid to any Participant or credited to
his or her Account under this Plan.
16. REPORTS
Statements shall be provided to Participants as soon as administratively
practicable following each Exercise Date. Each Participant's statement shall set
forth, as of such Exercise Date, that Participant's Account balance immediately
prior to the exercise of his or her Option, the Fair Market Value of a Share,
the Option Price, the number of whole Shares purchased and his or her remaining
Account balance, if any.
17. ADJUSTMENTS OF AND CHANGES IN THE STOCK
In the event that the Shares shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation (whether by reason of merger,
consolidation, recapitalization, stock split, combination of shares, or
otherwise), or if the number of Shares shall be increased through a stock split
or the payment of a stock dividend, then there shall be substituted for or added
to each Share theretofore reserved for sale under this Plan, the number and kind
of shares of stock or other securities into which each outstanding Share shall
be so changed, or for which each such Share shall be exchanged, or to which each
such Share is entitled, as the case may be, or the number or kind of securities
which may be sold under this Plan and the purchase price per Share shall be
appropriately adjusted consistent with such change in such manner as the
Committee (or its delegate) may deem equitable to prevent substantial dilution
or enlargement of rights granted to, or available for, Eligible Employees under
this Plan.
18. POSSIBLE EARLY TERMINATION OF PLAN AND OPTIONS
Upon a dissolution of the Corporation, an event described in Section 17
that the Corporation does not survive, or the occurrence of a Change in Control,
the Plan and, if prior to the last day of an Offering Period, any outstanding
Option granted with respect to that Offering Period shall terminate, subject to
any provision that has been expressly made by the Committee through a plan or
reorganization approved by the Board or otherwise for the survival,
substitution, assumption, exchange or other settlement of the Plan and Options.
In the event a Participant's Option is terminated pursuant to this Section 18,
such Participant's Account shall be paid to him or her in cash without interest.
19. TERM OF PLAN; AMENDMENT OR TERMINATION
(a) This Plan shall become effective as of the Effective Date. No new
Offering Periods shall commence on or after the tenth anniversary of the
Effective Date and this Plan shall terminate on such date unless sooner
terminated pursuant to Section 18 or this Section 19.
(b) The Board may amend, modify or terminate this Plan at any time without
notice. Shareholder approval for any amendment or modification shall not be
required, except to the extent required by Section 423 of the Code or other
applicable law, or deemed necessary or advisable by the Board. No
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amendment, modification, or termination pursuant to this Section 18(b) shall,
without written consent of the Participant, affect in any manner materially
adverse to the Participant any rights or benefits of such Participant or
obligations of the Corporation under any Option granted under this Plan prior to
the effective date of such change. Changes contemplated by Section 17 shall not
be deemed to constitute changes or amendments requiring Participant consent.
Notwithstanding the foregoing, the Committee shall have the right to designate
from time to time the Subsidiaries whose employees may be eligible to
participate in this Plan and such designation shall not constitute any amendment
to this Plan requiring shareholder approval.
20. NOTICES
All notices or other communications by a Participant to the Corporation
contemplated by this Plan shall be deemed to have been duly given when received
in the form and manner specified by the Committee (or its delegate) at the
location, or by the person, designated by the Committee (or its delegate) for
that purpose.
21. CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued with respect to an Option unless the exercise of
such Option and the issuance and delivery of such Shares complies with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, any
applicable state securities laws, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed.
As a condition precedent to the exercise of any Option, if, in the opinion
of counsel for the Corporation such a representation is required under
applicable law, the Corporation may require any person exercising such Option to
represent and warrant that the Shares subject thereto are being acquired only
for investment and without any present intention to sell or distribute such
Shares.
22. PLAN CONSTRUCTION
(a) It is the intent of the Corporation that transactions in and affecting
Options in the case of Participants who are or may be subject to the
prohibitions of Section 16 satisfy any then applicable requirements of Rule
16b-3 so that such persons (unless they otherwise agree) will be entitled to the
exemptive relief of Rule 16b-3 in respect of those transactions and will not be
subject to avoidable liability thereunder. Accordingly, this Plan shall be
deemed to contain and the Shares issued upon exercise thereof shall be subject
to, such additional conditions and restrictions as may be required by Rule 16b-3
to qualify for the maximum exemption from Section 16 with respect to Plan
transactions.
(b) This Plan and Options are intended to qualify under Section 423 of the
Code.
(c) If any provision of this Plan or of any Option would otherwise
frustrate or conflict with the intents expressed above, that provision to the
extent possible shall be interpreted so as to avoid such conflict. If the
conflict remains irreconcilable, the Committee may disregard the provision if it
concludes that to do so furthers the interest of the Corporation and is
consistent with the purposes of this Plan as to such persons in the
circumstances.
23. EMPLOYEES' RIGHTS
Nothing in this Plan (or in any agreement related to this Plan) shall
confer upon any Eligible Employee or Participant any right to continue in the
service or employ of the Company or constitute any contract or agreement of
service or employment, or interfere in any way with the right of the Company to
reduce such person's compensation or other benefits or to terminate the services
or employment or such Eligible Employee or Participant, with or without cause,
but nothing contained in this Plan or any document related hereto shall affect
any other contractual right of any Eligible Employee or Participant. No
Participant shall have any rights as a shareholder until a certificate for
Shares has been issued in the Participant's name following exercise of his or
her Option. No adjustment will be made for dividends or other rights as a
shareholder for which a record
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date is prior to the issuance of such Share certificate. Nothing in this Plan
shall be deemed to create any fiduciary relationship between the Corporation and
any Participant.
24. MISCELLANEOUS
(a) This Plan and related documents shall be governed by, and construed in
accordance with, the laws of the State of California. If any provision shall be
held by a court of competent jurisdiction to be invalid and unenforceable, the
remaining provisions of this Plan shall continue to be fully effective.
(b) Captions and headings are given to the sections of this Plan solely as
a convenience to facilitate reference. Such captions and headings shall not be
deemed in any way material or relevant to the construction of interpretation of
this Plan or any provision hereof.
(c) The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for employees of the Company, or (ii) to grant or
assume options (outside the scope of and in addition to those contemplated by
this Plan) in connection with any proper corporate purpose.
25. EFFECTIVE DATE
This Plan shall be effective on the Effective Date, subject, however, to
the approval of this Plan by the shareholders of the Company within twelve
months after the date on which the Board approved this Plan. Notwithstanding
anything else contained herein to the contrary, no Shares shall be issued or
delivered under this Plan until such shareholder approval is obtained and, if
such shareholder approval is not obtained within such 12-month period of time,
all Contributions credited to a Participant's Account hereunder shall be
refunded to such Participant (without interest) as soon as practicable after the
end of such 12-month period.
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EXHIBIT B
PACIFIC SUNWEAR OF CALIFORNIA, INC.
INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE OF PLAN
The purpose of the Plan is to promote the success of the Company by
providing to participating eligible persons bonus incentives that qualify as
performance-based compensation within the meaning of Section 162(m) of the Code.
The Plan provides for payment of incentive compensation and, accordingly, is not
intended to be a plan that is subject to the Employee Retirement Income Security
Act of 1974, as amended, and shall be administered accordingly.
SECTION 2. DEFINITIONS AND TERMS
2.1 Accounting Terms. Except as otherwise expressly provided or the
context otherwise requires, financial and accounting terms herein and in
Appendix A hereto are used as defined for purposes of, and shall be determined
in accordance with, generally accepted accounting principles, as from time to
time in effect, as applied and reflected in the consolidated financial
statements of the Company, prepared in the ordinary course of business.
2.2 Specific Terms. The following words and phrases as used herein shall
have the following meanings unless a different meaning is plainly required by
the context:
"AWARD" means an award, subject to the terms and conditions hereof,
under the Plan of a conditional right to receive a Bonus if the applicable
Performance Target(s) is satisfied in the relevant Performance Period.
"AWARD AGREEMENT" means a written agreement evidencing the grant of an
award under the Plan.
"BASE SALARY" means the annualized aggregate base salary of a
Participant from the Company and all affiliates of the Company at the time
the Participant is granted an Award, exclusive of any commissions or other
actual or imputed income from any Company-provided benefits or perquisites,
but prior to any reductions for salary deferred pursuant to any deferred
compensation plan or for contributions to a plan qualifying under Section
401(k) of the Code or contributions to a cafeteria plan under Section 125
of the Code.
"BOARD" means the Board of Directors of the Company.
"BONUS" means a cash payment or a payment opportunity in respect of an
Award under the Plan, as the context requires.
"BUSINESS CRITERIA" means one or any combination of the criteria set
forth on Appendix A hereto.
"CHANGE IN CONTROL" means any of the following:
(i) Approval by the stockholders of the Company of the dissolution
or liquidation of the Company;
(ii) Approval by the stockholders of the Company of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities other than Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the resulting or surviving entity
are, or are to be, owned by former stockholders of the Company; or
(iii) Approval by the stockholders of the Company of the sale of
substantially all of the Company's business assets to a person or entity
which is not a Subsidiary.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COMMITTEE" means the committee appointed by the Board to administer
the Plan in accordance with Section 3.1 and Section 162(m).
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"COMPANY" means Pacific Sunwear of California, Inc. and any successor,
whether by merger, ownership of all or substantially all of its assets, or
otherwise.
"DISABILITY" means the complete and permanent disability of the
Participant, as defined in Section 22(e)(3) of the Code.
"ELIGIBLE PERSON" means any salaried employee or officer of the
Company.
"PARTICIPANT" means an Eligible Person selected by the Committee to
receive an Award.
"PERFORMANCE PERIOD" means the fiscal year of the Company or other
specific period of time established by the Committee with respect to which
the Performance Targets are set by the Committee. A Performance Period
shall not exceed 10 years.
"PERFORMANCE TARGET(S)" means the specific objective goal or goals
(which may be cumulative and/or alternative) that are timely set by the
Committee for each Participant and set forth in his or her Award Agreement
for the Performance Period in respect of any one or more of the Business
Criteria.
"PLAN" means this Pacific Sunwear of California, Inc. Incentive
Compensation Plan, as amended from time to time.
"RETIREMENT" means termination of employment from the Company and its
subsidiaries after attainment of age sixty five (65).
"SECTION 162(M)" means Section 162(m) of the Code, and the regulations
promulgated thereunder, all as amended from time to time.
"SHARES" means shares of Common Stock, par value $0.01 per share, of
the Company or any securities or property, including rights into which the
same may be converted by operation of law or otherwise.
"SUBSIDIARY" means any corporation or other entity a majority or more
of whose outstanding voting stock or voting power is beneficially owned,
directly or indirectly, by the Company.
"TERMINATION FOR CAUSE" or "CAUSE" means that the Eligible Person has
been terminated because such Eligible Person (i) materially breached his or
her employment agreement with the Company, or in the absence of a written
agreement, the material terms of his or her employment, (ii) continually
failed to substantially perform his or her duties with the Company (other
than a failure resulting from the Employee's incapacity due to physical or
mental illness), (iii) willfully engaged in conduct which is materially
injurious to the Company, monetarily or otherwise, or (iv) has committed a
felony.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 The Committee. The Plan shall be administered by a Committee, duly
authorized by the Board to administer the Plan, which Committee shall consist
solely of two or more members of the Board who (i) are not eligible to
participate in the Plan and (ii) are "outside directors" within the meaning of
Section 162(m).
3.2 Powers of the Committee. The Committee shall have the sole authority
to select from among the Eligible Persons those individuals who will participate
in and receive Awards under the Plan, to determine Performance Periods, to
select applicable Business Criteria and establish and administer the Performance
Target(s) and, subject to Sections 4 and 5, determine the amount of Bonuses, and
the time or times at which and the form and manner in which Bonuses will be paid
(which may include elective or mandatory deferral alternatives) and shall
otherwise be responsible for the administration of the Plan; subject to the
other terms of the Plan. The Committee shall have the authority to construe and
interpret the Plan (except as otherwise provided herein) and any agreement or
other document relating to any Award under the Plan, may adopt rules and
regulations governing the administration of the Plan, and shall exercise all
other duties and powers conferred on it by the Plan, or which are incidental or
ancillary thereto. For each Performance Period, the Committee shall determine,
at the time the Business Criteria and the Performance Target(s) are set, those
Eligible Persons who are selected as Participants in the Plan for that
Performance Period. All actions taken
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and all interpretations and determinations made by the Committee in respect of
the Plan shall be conclusive and binding on all Eligible Persons, Participants,
the Company, and all other persons, and shall be given the maximum deference
permitted by law.
3.3 Requisite Action. A majority of the members of the Committee shall
constitute a quorum. The vote of a majority of those present at a meeting at
which a quorum is present or the unanimous written consent of the Committee
shall constitute action by the Committee.
3.4 Express Authority (and Limitations on Authority) to Change Terms and
Conditions of Awards; Acceleration or Deferral of Payment. Without limiting the
Committee's authority under other provisions of the Plan, but subject to any
express limitations of the Plan and Section 5.8, the Committee shall have the
authority to accelerate a Bonus (after the attainment of the applicable
Performance Target(s)) and to waive restrictive conditions for a Bonus
(including any forfeiture conditions, but not Performance Target(s)), in such
circumstances as the Committee deems appropriate. In the case of any
acceleration of a Bonus after the attainment of the applicable Performance
Target(s), the amount payable shall be discounted to its present value using an
interest rate equal to Moody's Average Corporate Bond Yield for the month
preceding the month in which such acceleration occurs. Any deferred payment
shall be subject to Section 4.9 and, if applicable, Section 4.10.
3.5 Professional Assistance; Good Faith Actions. All expenses and
liabilities incurred by the members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants or other persons, and shall be
entitled to rely upon the advice, opinions or valuation of any such persons. No
member of the Committee shall be personally liable by reason of any action,
determination or interpretation made in good faith by him or on his behalf with
respect to the Plan or any Award, and each member of them shall be protected and
indemnified by the Company in respect of any such action, determination or
interpretation to the full extent permitted by law.
3.6 Award Agreements. Each Award shall be evidenced by a written Award
Agreement, the form of which shall be approved by the Committee, which shall set
forth the terms and conditions of that Award. Each Award Agreement shall be
signed by a duly authorized officer of the Company and, if required by the
Committee, by the recipient of that Award.
SECTION 4. BONUS PROVISIONS.
4.1 Provision for Bonus. Each Participant may receive a Bonus if and only
if the Performance Target(s) established by the Committee, relative to the
applicable Business Criteria, are attained in the applicable Performance Period.
The applicable Performance Period and Performance Target(s) shall be determined
by the Committee consistent with the terms of the Plan and Section 162(m).
Notwithstanding the fact that the Performance Target(s) have been attained, the
Company may, by express provision in the applicable Award Agreement, reserve the
discretion to pay a Bonus of less than the amount determined by the formula or
standard established pursuant to Section 4.2 or may pay no Bonus at all.
4.2 Selection of Performance Target(s). The specific Performance Target(s)
with respect to the Business Criteria must be established by the Committee while
the performance relating to the Performance Target(s) remains substantially
uncertain within the meaning of Section 162(m) and in no event (i) more than 90
days after the commencement of the applicable Performance Period, or (ii) after
25% of the applicable Performance Period has elapsed. At the time the
Performance Target(s) are selected, the Committee shall provide, in terms of an
objective formula or standard for each Participant, and for any person who may
become a Participant after the Performance Target(s) are set, the method of
computing the specific amount that will represent the maximum amount of Bonus
payable to the Participant if the Performance Target(s) are attained, subject to
Sections 4.1, 4.3, 4.7, 5.1 and 5.8.
4.3 Maximum Individual Bonus. Notwithstanding any other provision hereof,
the maximum aggregate Bonus that may be paid pursuant to all Awards granted in
any calendar year to any one Eligible Person is $2.5 million. The foregoing
limit shall be subject to adjustments consistent with Section 3.4.
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4.4 Selection of Participants. For each Performance Period established by
the Committee, the Committee shall determine, at the time the Business Criteria
and the Performance Target(s) are set, those Eligible Persons who will
participate in the Plan and receive Awards with respect to that Performance
Period.
4.5 Effect of Mid-Year Commencement of Service. To the extent compatible
with Sections 4.2 and 5.8, if services as an Eligible Person commence after the
adoption of the Plan and the Performance Target(s) are established for a
Performance Period, the Committee may grant an Award that is proportionately
adjusted based on the period of actual service during the Performance Period;
the amount of any Bonus paid to such person shall not exceed that proportionate
amount of the applicable maximum individual bonus under Section 4.3.
4.6 Adjustments. To preserve the intended incentives and benefits of an
Award, the Committee shall (i) adjust Performance Targets or other features of
an Award to reflect any material change in corporate capitalization, any
material corporate transaction (such as a reorganization, combination,
separation, merger, acquisition, or any combination of the foregoing), or any
complete or partial liquidation of the Company, (ii) calculate Performance
Targets without regard for any change in accounting policies or practices
affecting the Company and/or the Business Criteria or the Performance Targets,
and (iii) adjust Business Criteria and Performance Targets or other features of
an Award to reflect the effects of any special charges to the Company's
earnings; in each case only to the extent consistent with the requirements of
Section 162(m) to qualify such Award as performance-based compensation. By
express provision in an Award Agreement, the Committee may (i) override any or
all of the foregoing provisions of this Section 4.6 with respect to an Award,
and/or (ii) establish such other events or circumstances, consistent with
Section 162(m), with respect to which the Committee will make appropriate
adjustments to the Award.
4.7 Committee Discretion to Determine Bonuses. The Committee has the sole
discretion to determine the standard or formula pursuant to which each
Participant's Bonus shall be calculated (in accordance with Section 4.2),
whether all or any portion of the amount so calculated will be paid, and the
specific amount (if any) to be paid to each Participant, subject in all cases to
the terms, conditions and limits of the Plan and of any other written commitment
authorized by the Committee. To this same extent, the Committee may at any time
establish additional conditions and terms of an Award or the payment of Bonuses
(including but not limited to the achievement of other financial, strategic or
individual goals, which may be objective or subjective) as it may deem desirable
in carrying out the purposes of the Plan and may take into account such other
factors as it deems appropriate in administering any aspect of the Plan. The
Committee may not, however, increase the maximum amount permitted to be paid to
any individual under Section 4.2 or 4.3 of the Plan or Award a Bonus under the
Plan if the applicable Performance Target(s) have not been satisfied (subject to
Section 4.13(iii)).
4.8 Committee Certification. No Participant shall receive any payment
under the Plan unless the Committee has certified, by resolution or other
appropriate action in writing, that the amount thereof has been accurately
determined in accordance with the terms, conditions and limits of the Plan and
that the Performance Target(s) and any other material terms previously
established by the Committee or set forth in the Plan or the applicable Award
Agreement were in fact satisfied.
4.9 Time of Payment; Deferred Amounts. Any Bonuses shall be paid as soon
as practicable following the Committee's determinations under this Section 4 and
the certification of the Committee's findings under Section 4.8. Payment shall
be in cash unless the Committee provides otherwise in the applicable Award
Agreement, in which case the Committee may provide for payment in cash or cash
equivalent or in such other form of equal value on such payment date (including
Shares or share equivalents as contemplated by Section 4.10). All payments shall
be subject to applicable withholding requirements and Section 4.10.
Notwithstanding the foregoing but subject to Sections 3.4, 4.3, 4.10 and 5.8,
the Committee may provide a Participant the opportunity to elect to defer the
payment of any Bonus under a nonqualified deferred compensation plan or as
contemplated by Section 4.10. In the case of any deferred payment of a Bonus
after the attainment of the applicable Performance Target(s), any amount in
excess of the amount otherwise payable shall be based on either Moody's Average
Corporate Bond Yield over the deferral period or one or more predetermined
actual investments (including Shares) such that the amount payable at the later
date will
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<PAGE> 40
be based upon actual returns, including any decrease or increase in the value of
the investment(s), unless the alternative deferred payment is otherwise exempt
from the limitations under Section 162(m).
4.10 Share Payouts. Any Shares payable under the Plan shall be pursuant to
a combined award under the Plan and the Pacific Sunwear of California, Inc. 1992
Stock Award Plan, as amended from time to time (the "1992 Plan"), or another
stockholder approved stock incentive or award plan of the Company (any of the
foregoing stock plans is referred to herein as a "Stock Plan"). The number of
Shares or stock units (or similar deferred award representing a right to receive
Shares) awarded in lieu of all or any portion of a cash bonus under the Plan
shall be equal to the largest whole number of Shares which have an aggregate
fair market value no greater than the amount of cash otherwise payable as of the
date such cash payment would have been paid. For this purpose, "fair market
value" shall mean the average of the high and low prices of Company common stock
on such date. Any stock units (or similar rights) shall thereafter be subject to
adjustments as contemplated by the Stock Plan. Dividend equivalent rights as
earned may be accrued and payable in additional stock units, cash or Shares or
any combination thereof, in the Committee's discretion.
4.11 Forfeiture. Unless the Committee expressly provides otherwise in the
applicable Award Agreement, a Participant shall forfeit all rights to any Bonus
for a Performance Period if: (i) he or she is not employed by the Company on the
last day of such Performance Period for reasons other than death, Disability,
Retirement, or involuntary termination by the Company (other than for Cause), or
(ii) he or she is employed on the last day of the Performance Period but his or
her employment is Terminated for Cause prior to the date that the Bonus for such
Performance Period is actually paid to such Participant pursuant to Section 4.9
(or credited as a deferral pursuant to such section in lieu of actual payment at
that time).
4.12 Designated Beneficiaries. If a Participant dies prior to receiving
any payment due under the Plan, such payment shall be made to his designated
beneficiary. A Participant's designated beneficiary shall be the beneficiary
designated by the Participant, in a manner determined by the Committee to
receive amounts due the Participant in the event of his death. In the absence of
an effective designation, a Participant's designated beneficiary shall be deemed
to be his or her spouse, or, if he or she has no spouse at the time of his or
her death, his or her estate.
4.13 Impact of Change in Control. In the event of a Change in Control, the
following provisions shall apply:
(i) To the maximum extent possible, the Plan shall remain in effect
for the Performance Period in which the Change in Control occurs, and all
Awards for such period shall be calculated and paid in the same manner as
described herein.
(ii) The Board or the Committee may terminate the Plan and outstanding
Awards in connection with a Change in Control if the Plan cannot be
continued in its present format following such Change in Control because of
the nature of such event; provided that each outstanding Award shall be
paid in accordance with paragraph (iii) below.
(iii) Payment for early termination of an outstanding Award shall
equal the maximum Bonus that would be paid with respect to such Award if
all Performance Targets had been achieved pro rated for the number of days
in the Performance Period occurring prior to the Change in Control (or such
later date as may be determined by the Board or the Committee) divided by
the total number of days in that Performance Period.
4.14 Restricted Stock Awards. The 1992 Plan permits the Company to grant
Restricted Stock Awards (as defined in the 1992 Plan). The Board or the
Committee (if authorized by the Board under the terms of the 1992 Plan) may
grant to any Eligible Person (if otherwise eligible under the 1992 Plan) a
Restricted Stock Award under the 1992 Plan which is also subject to the
provisions of the Plan (a "Combined Award"). Any Combined Award: (i) shall be
granted under, and shall be subject to the terms and the conditions of, the 1992
Plan, but shall vest upon the attainment of one or more Performance Targets; and
(ii) shall not be charged against the limit contained in Section 4.3. The
maximum number of Shares which may be subject to Combined Awards granted to any
individual Eligible Person in any one calendar year is 615,375 (subject to
adjustment under the 1992 Plan), subject to and chargeable against the limits of
the 1992 Plan. Shares (and
B-5
<PAGE> 41
the delivery thereof) with respect to Combined Awards are subject to all of the
terms and conditions of the 1992 Plan.
SECTION 5. GENERAL PROVISIONS
5.1 No Right to Bonus or Continued Employment. Neither the establishment
of the Plan nor the provision for or payment of any amounts hereunder nor any
action of the Company (including, for purposes of this Section 5.1, any
predecessor or subsidiary), the Board or the Committee in respect of the Plan or
any Award Agreement, shall be held or construed to confer upon any person any
legal right to receive, or any interest in, a Bonus or any other payment or
benefit under the Plan, or any legal right to be continued in the employ of the
Company. The Company expressly reserves any and all rights to discharge an
Eligible Person or reduce the compensation of any Eligible Person in its sole
discretion, without liability of any person, entity or governing body under the
Plan or otherwise. Notwithstanding any other provision hereof and
notwithstanding the fact that the Performance Target(s) have been attained
and/or the individual maximum amounts pursuant to Section 4.2 have been
calculated, the Company shall have no obligation to pay any Bonus hereunder nor
to pay the maximum amount so calculated or any prorated amount based on service
during the period, unless the Committee otherwise expressly provides by written
contract or other written commitment.
Neither the adoption of the Plan nor any Award Agreement shall constitute a
contract between the Company and any Eligible Person or Participant. No Award or
Bonus shall be considered as compensation under any employee benefit plan of the
Company, except as otherwise determined by the Company. Status as an Eligible
Person shall not be construed as an obligation of the Company to grant an Award
and the grant of an Award to a Participant with respect to one Performance
Period shall not be construed as an obligation of the Company to grant that
Participant any subsequent Award.
5.2 Discretion of Company, Board of Directors and Committee. Any decision
made or action taken by the Company or by the Board or by the Committee arising
out of or in connection with the creation, amendment, construction,
administration, interpretation and effect of the Plan and any Award shall be
within the absolute discretion of such entity and shall be conclusive and
binding upon all persons. No member of the Committee shall have any liability
for actions taken or omitted under the Plan by the member or any other person.
5.3 Absence of Liability. A member of the Board or a member of the
Committee or any officer of the Company shall not be liable for any act or
inaction hereunder, whether of commission or omission.
5.4 No Funding of Plan. The Company shall not be required to fund or
otherwise segregate any cash or any other assets which may at any time be paid
to Participants under the Plan. The Plan shall constitute an "unfunded" plan of
the Company. The Company shall not, by any provisions of the Plan, be deemed to
be a trustee of any property, and any obligations of the Company to any
Participant under the Plan shall be those of a debtor and any rights of any
Participant or former Participant shall be no greater than those of a general
unsecured creditor.
5.5 Non-Transferability of Benefits and Interests. Except as expressly
provided by the Committee, no benefit payable under the Plan shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action be void and no such benefit
shall be in any manner liable for or subject to debts, contracts, liabilities,
engagements or torts of any Participant or former Participant. This Section 5.5
shall not apply to the designation of a beneficiary pursuant to Section 4.12.
5.6 Law to Govern. All questions pertaining to the construction,
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of California.
5.7 Non-Exclusivity. Subject to Section 5.8, the Plan does not limit the
authority of the Company, the Board or the Committee, or any subsidiary of the
Company to grant awards or authorize any other compensation under any other plan
or authority, including, without limitation, awards or other compensation based
on the same Performance Target(s) used under the Plan.
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<PAGE> 42
5.8 Section 162(m) Conditions; Bifurcation of Plan. It is the intent of
the Company that (except with respect to the payment of Awards pursuant to
Section 4.13(ii) following a Change in Control) the Plan, Awards, and Bonuses
paid hereunder satisfy and be interpreted in a manner, that, in the case of
Participants who are or may be persons whose compensation is subject to Section
162(m), satisfies any applicable requirements as performance-based compensation.
Any provision, application or interpretation of the Plan inconsistent with this
intent to satisfy the standards in Section 162(m) of the Code shall be
disregarded. Notwithstanding anything to the contrary in the Plan, the
provisions of the Plan may at any time be bifurcated by the Board or the
Committee in any manner so that certain provisions of the Plan or any Bonus
intended (or required in order) to satisfy the applicable requirements of
Section 162(m) are only applicable to persons whose compensation is subject to
Section 162(m).
5.9 Tax Withholding. No later than the date as to which an amount first
becomes includible in the gross income of a Participant for federal income tax
purposes with respect to any Award, the Company shall withhold or require the
withholding from, or the Participant shall pay to the Company or make
arrangements satisfactory to the Company regarding the payment of, any federal,
state or local taxes of any kind required by law or the Company to be withheld
with respect to such amount. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
5.10 Conflicts with Plan. In the event of any inconsistency or conflict
between the terms of the Plan, any summary and/or an Award Agreement, the terms
of the Plan shall govern.
5.11 No Guarantee of Tax Consequences. Neither the Company, the Board, the
Committee, nor any other officer, employee or agent makes any commitment or
guarantee that any federal, state or local tax treatment will apply or be
available to any person participating or eligible to participate hereunder.
5.12 Gender, Tense and Headings. Whenever the context requires such, words
of the masculine gender used herein shall include the feminine and neuter, and
words used in the singular shall include the plural. Section headings as used
herein are inserted solely for convenience and reference and constitute no part
of the Plan.
SECTION 6. AMENDMENTS, SUSPENSION OR TERMINATION OF PLAN
The Board or the Committee may from time to time amend, suspend or
terminate in whole or in part, and if suspended or terminated, may reinstate,
any or all of the provisions of the Plan. Notwithstanding the foregoing, no
amendment may be effective without Board and/or stockholder approval if such
approval is necessary to comply with the applicable rules of Section 162(m) of
the Code.
SECTION 7. EFFECTIVE DATE
The Plan shall be effective upon the date of its adoption by the Board,
subject, however, to the approval of the Company's stockholders at the 1998
annual meeting of stockholders. Any award granted under the Plan prior to the
date of such stockholder approval shall be, and hereby is, specifically
conditioned upon the receipt of such stockholder approval. Unless the Plan is
terminated earlier by the Board or the Committee, no Plan awards shall be
granted after January 31, 2003.
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<PAGE> 43
CERTIFICATION
The undersigned duly authorized officer of the Company certifies that the
foregoing constitutes a complete and correct copy of the Plan as adopted on
March 18, 1998 by the Board.
By: /s/ Carl W. Womack
Its: Chief Financial Officer &
Secretary
Date: March 23, 1998
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<PAGE> 44
APPENDIX A TO EXHIBIT B
BUSINESS CRITERIA
The Business Criteria shall mean any one or a combination of the following,
in each case Subject to Section 2.1 of the Plan. The Business Criteria may be
established with respect to the Company or any applicable subsidiary, division,
segment, or unit.
EBIT. "EBIT" means Net Income before interest expense and taxes.
EBITDA. "EBITDA" means Net Income before interest expense, taxes,
depreciation and amortization.
EPS. "EPS" means Net Income divided by the weighted average number of
common shares outstanding. Unless otherwise provided by the Committee in the
related Award Agreement, common shares outstanding shall be adjusted to include
the dilutive effect of stock options, restricted stock and other dilutive
financial instruments.
EXPENSE REDUCTION. "Expense Reduction" means reduction in actual expense or
an improvement in the expense to Net Sales ratio compared to a target or prior
year actual expense to Sales ratio.
DEBT TO EBITDA. "Debt to EBITDA" means the ratio of debt to EBITDA.
INTEREST COVERAGE. "Interest Coverage" means the ratio of EBITDA to
interest expense.
INVENTORY TURNS. "Inventory Turns" means the ratio of total cost of goods
sold on a historical basis to average net inventory.
NET INCOME. "Net Income" means the difference between total Net Sales and
total costs and expenses, including income taxes.
NET SALES. "Net Sales" means net sales.
OPERATING CASH FLOW. "Operating Cash Flow" means the net cash provided by
operating activities less net cash used by operations and investing activities
as shown on the statement of cash flows.
PRE-TAX MARGIN. "Pre-Tax Margin" means the ratio of earnings before income
taxes to Net Sales.
RETURN ON ASSETS. "Return on Assets" means the ratio of Net Income to total
average assets including goodwill.
RETURN ON CAPITAL. "Return on Capital" means the ratio of Net Income to
average total capital. Total capital includes working capital, and other long
term assets such as PP&E, goodwill and intangibles, and leased assets. Unless
otherwise provided by the Committee in the related Award Agreement, cash,
deferred tax assets and debt shall not be included in capital for calculation
purposes.
RETURN ON EQUITY. "Return on Equity" means Net Income divided by average
total equity.
STOCK PRICE APPRECIATION. "Stock Price Appreciation" means an increase, or
an average annualized increase, in the stock price or market value of the Common
Stock of the Company after the date of grant of an Award or above a specified
price.
WORKING CAPITAL IMPROVEMENT. "Working Capital Improvement" means the net
change in current assets less current liabilities over the applicable period or
the reduction in the current ratio (current assets divided by current
liabilities), excluding changes in cash and cash equivalents, and current and
deferred income taxes.
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<PAGE> 45
PACIFIC SUNWEAR OF CALIFORNIA, INC.
AMENDED AND RESTATED 1992 STOCK AWARD PLAN
(March 1998)
<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE PLAN.................................................................... 1
1.1 Purpose.............................................................. 1
1.2 Administration....................................................... 1
1.3 Participation........................................................ 2
1.4 Stock Subject to the Plan............................................ 2
1.5 Grant of Awards...................................................... 3
1.6 Exercise of Awards................................................... 3
1.7 No Transferability; Limited Exception to
Transfer Restrictions................................................ 3
II. OPTIONS..................................................................... 5
2.1 Grants............................................................... 5
2.2 Option Price......................................................... 5
2.3 Option Period........................................................ 6
2.4 Exercise of Options.................................................. 6
2.5 Limitations on Grant of Incentive Stock
Options.............................................................. 6
2.6 Non-Employee Director Awards......................................... 7
III. STOCK APPRECIATION RIGHTS................................................... 9
3.1 Grants............................................................... 9
3.2 Exercise of Stock Appreciation Rights................................ 9
3.3 Payment.............................................................. 10
IV. RESTRICTED STOCK AWARDS..................................................... 11
4.1 Grants............................................................... 11
4.2 Restrictions......................................................... 11
V. PERFORMANCE SHARE AWARDS.................................................... 11
5.1 Grants............................................................... 11
5.2 Special Performance-Based Share Awards............................... 11
VI. OTHER PROVISIONS............................................................ 13
6.1 Rights of Eligible Employees, Participants
and Beneficiaries.................................................... 13
6.2 Adjustments Upon Changes in Capitalization........................... 14
6.3 Termination of Employment............................................ 15
6.4 Acceleration of Awards............................................... 17
6.5 Government Regulations............................................... 17
6.6 Tax Withholding...................................................... 18
6.7 Amendment, Termination and Suspension................................ 18
6.8 Privileges of Stock Ownership;
Nondistributive Intent............................................... 19
6.9 Effective Date of the Plan........................................... 20
6.10 Term of the Plan..................................................... 20
6.11 Governing Law........................................................ 20
6.12 Plan Construction.................................................... 20
VII. DEFINITIONS................................................................. 21
7.1 Definitions.......................................................... 21
</TABLE>
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<PAGE> 47
PACIFIC SUNWEAR OF CALIFORNIA, INC.
AMENDED AND RESTATED 1992 STOCK AWARD PLAN
(March 1998)
I. THE PLAN.
1.1 Purpose.
The purpose of this Plan is to promote the success of the Company
by providing an additional means to attract, motivate and retain key personnel
through the grant of Options and other Awards(1) that provide added long term
incentives for high levels of performance and for significant efforts to improve
the financial performance of the Company.
1.2 Administration.
(a) This Plan shall be administered by the Committee. Action of
the Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the unanimous written consent of its members. In
the event action by the Committee is taken by written consent, the action shall
be deemed to have been taken at the time specified in the consent or, if none is
specified, at the time of the last signature. The Committee may delegate
administrative functions to individuals who are officers or employees of the
Company.
(b) Subject to the express provisions of this Plan, the Committee
shall have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment or
consulting services for purposes of this Plan and to make all other
determinations necessary or advisable for the administration of this Plan. The
determination of the Committee on any of the foregoing matters shall be
conclusive.
- --------
1 For definitions of these and other capitalized terms, see Section 7.1,
Definitions.
1
<PAGE> 48
(c) Any action taken by, or inaction of, the Company, any
Subsidiary, the Board or the Committee relating to this Plan shall be within the
absolute discretion of that entity or body. No member of the Board or Committee,
or officer of the Company or any Subsidiary, shall be liable for any such action
or inaction.
(d) Subject to the requirements of Section 7.1(h), the Board, at
any time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of its
members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
(e) In making any determination or in taking or not taking any
action under this Plan, the Committee or the Board, as the case may be, may
obtain and may rely upon the advice of experts, including professional advisors
to the Company. No director, officer or agent of the Company shall be liable for
any such action or determination taken or made or omitted in good faith.
(f) The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 Participation.
Awards may be granted only to Eligible Employees. An Eligible
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee shall so determine. Except as provided in
Section 2.6 below, members of the Board who are not officers or employees of the
Company shall not be eligible to receive Awards.
1.4 Stock Subject to the Plan.
The stock to be offered under this Plan shall be shares of the
Company's authorized but unissued Common Stock. The aggregate amount of Common
Stock that may be issued or transferred pursuant to Awards granted under this
Plan shall not exceed 2,199,051 (subject to shareholder approval at the 1998
annual meeting of shareholders, otherwise 1,899,051) shares, subject to
adjustment as set forth in Section 6.2. The maximum number of shares of Common
Stock that may be delivered pursuant to options qualified as Incentive Stock
Options granted under this Plan is 1,500,000 shares, subject to adjustment as
set forth in Section 6.2. If any Option and any related Stock Appreciation Right
shall lapse or terminate without having been exercised in full, or any Common
Stock subject to a
2
<PAGE> 49
Restricted Stock Award shall not vest or any Common Stock subject to a
Performance Share Award or a Performance-Based Award shall not have been
transferred, the unpurchased, unvested or nontransferred shares subject thereto
shall again be available for purposes of this Plan.
1.5 Grant of Awards.
Subject to the express provisions of this Plan, the Committee
shall determine from the class of Eligible Employees those individuals to whom
Awards under this Plan shall be granted, the terms of Awards (which need not be
identical) and the number of shares of Common Stock subject to each Award;
provided, however, that the aggregate number of shares of Common Stock subject
to Awards that may be granted to any employee in any twelve month period may not
exceed 615,375 subject to adjustment as described in Section 6.2 of the Plan.
Each Award shall be subject to the terms and conditions set forth in this Plan
and such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of this Plan. The grant of an Award
is made on the Award Date.
1.6 Exercise of Awards.
An Option or Stock Appreciation Right shall be deemed to be
exercised when the Secretary of the Company receives written notice of such
exercise from the Participant, together with payment of the purchase price made
in accordance with Section 2.2(a), except to the extent payment may be permitted
to be made following delivery of written notice of exercise in accordance with
Section 2.2(b). Notwithstanding any other provision of this Plan, the Committee
may impose, by rule and in Award Agreements, such conditions upon the exercise
of Awards (including, without limitation, conditions limiting the time of
exercise to specified periods) as may be required to satisfy applicable
regulatory requirements.
1.7 No Transferability; Limited Exception to Transfer
Restrictions.
(a) Limit On Exercise and Transfer. Unless otherwise expressly
provided in (or pursuant to) this Section 1.7, by applicable law and by the
Award Agreement, as the same may be amended, (i) all Awards are non-transferable
and shall not be subject in any manner to sale, transfer, anticipation,
alienation, assignment, pledge, encumbrance or charge; Awards shall be exercised
only by the Participant; and (ii) amounts payable or shares issuable pursuant to
an Award shall be delivered only to (or for the account of) the Participant.
3
<PAGE> 50
(b) Exceptions. The Committee may permit Awards to be exercised
by and paid to certain persons or entities related to the Participant, including
but not limited to members of the Participant's immediate family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial
owners are members of the Participant's immediate family and/or charitable
institutions, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes on a gratuitous or donative basis and
without consideration (other than nominal consideration). Notwithstanding the
foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject
to any and all additional transfer restrictions under the Code.
(c) Further Exceptions to Limits On Transfer. The exercise and
transfer restrictions in Section 1.7(a) shall not apply to:
(i) transfers to the Company,
(ii) the designation of a beneficiary to receive benefits in
the event of the Participant's death or, if the Participant has died,
transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution,
(iii) transfers pursuant to a QDRO order if approved or
ratified by the Committee,
(iv) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable laws and the express authorization of the
Committee.
Notwithstanding the foregoing, Incentive Stock Options and Restricted
Stock Awards shall be subject to any and all additional transfer
restrictions under the Code.
4
<PAGE> 51
II. OPTIONS.
2.1 Grants.
One or more Options may be granted to any Eligible Employee. Each
Option so granted shall be designated by the Committee as either a Nonqualified
Stock Option or an Incentive Stock Option.
2.2 Option Price.
(a) The purchase price per share of Common Stock covered by each
Option shall be determined by the Committee, but in the case of Incentive Stock
Options shall not be less than 100% (110% in the case of a Participant who owns
more than 10% of the total combined voting power of all classes of stock of the
Company) of the Fair Market Value of the Common Stock on the date the Incentive
Stock Option is granted. The purchase price of any shares purchased shall be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by check payable to the order of the Company,
(ii) if authorized by the Committee or specified in the Option being exercised,
by a promissory note made by the Participant in favor of the Company, upon the
terms and conditions determined by the Committee, and secured by the Common
Stock issuable upon exercise in compliance with applicable law (including,
without limitation, state corporate law and federal margin requirements) or
(iii) if authorized by the Committee or specified in the Option being exercised,
by shares of Common Stock of the Company already owned by the Participant;
provided, however, that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
(b) In addition to the payment methods described in subsection
(a), the Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Committee, any applicable tax withholding under Section
6.6. The Company shall not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise price therefor.
5
<PAGE> 52
2.3 Option Period.
Each Option and all rights or obligations thereunder shall expire
on such date as shall be determined by the Committee, but not later than 10
years after the Award Date, and shall be subject to earlier termination as
hereinafter provided.
2.4 Exercise of Options.
Except as otherwise provided in Sections 6.3 and 6.4, an Option
may become exercisable, in whole or in part, on the date or dates specified in
the Award Agreement and thereafter shall remain exercisable until the expiration
or earlier termination of the Option. No Option shall be exercisable for at
least six months after the Award Date, except in the case of death or Total
Disability. The Committee may, at any time after grant of the Option and from
time to time, increase the number of shares exercisable at any time so long as
the total number of shares subject to the Option is not increased. No Option
shall be exercisable except in respect of whole shares, and fractional share
interests shall be disregarded. Not less than 10 shares of Common Stock may be
purchased at one time unless the number purchased is the total number at the
time available for purchase under the terms of the Option.
2.5 Limitations on Grant of Incentive Stock Options.
(a) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as nonqualified stock options. For purposes of
determining whether the $100,000 limit is exceeded, the fair market value of
stock subject to options shall be determined as of the date the options are
awarded. In reducing the number of options treated as incentive stock options to
meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Company may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock Option.
(b) There shall be imposed in any Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an
6
<PAGE> 53
"incentive stock option" as that term is defined in Section 422 of the Code.
(c) No Incentive Stock Option may be granted to any person who,
at the time the Incentive Stock Option is granted, owns shares of outstanding
Common Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and such
Option by its terms is not exercisable after the expiration of five years from
the date such Option is granted.
2.6 Non-Employee Director Awards.
(a) Participation. Awards under this Section 2.6 shall be made
only to Non-Employee Directors.
(b) Option Grants. As and when any person who is not then an
officer or employee of the Company shall become a director of the Company, there
shall be granted automatically (without any action by the Board or the
Committee) a Nonqualified Stock Option (the grant or award date of which shall
be the date such person takes office) to such person to purchase 9,000 shares of
Common Stock.
(c) Subsequent Annual Options. In each calendar year during the
term of the Plan, commencing with the 1997 annual meeting, there shall be
granted automatically (without any action by the Committee or the Board) a
Nonqualified Stock Option to purchase 9,000 shares of Common Stock to each
Non-Employee Director who is re-elected as a director of the Company or who
continues as a director (the grant or award date of which shall be the date of
the annual meeting of shareholders in each such year).
(d) Option Price. The purchase price per share of the Common
Stock covered by each Option granted pursuant to this Section 2.6 shall be one
hundred percent of the Fair Market Value of the Common Stock on the Award Date.
The purchase price of any shares purchased shall be paid in full at the time of
each purchase in cash or by check or in shares of Common Stock valued at their
Fair Market Value on the business day next preceding the date of exercise of the
Option, or partly in such shares and partly in cash.
(e) Option Period. Each Option granted under this Section 2.6 and
all rights or obligations thereunder shall expire on the tenth anniversary of
the Award Date and shall be subject to earlier termination as provided below.
(f) Exercise of Options. Except as otherwise provided in Sections
2.6(g) and 2.6(h), each Option granted
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under this Section 2.6 shall become exercisable (i) as to one-quarter of the
covered shares on the earlier of (A) the first anniversary of the Award Date, or
(B) the day immediately preceding the first regularly scheduled Annual Meeting
of shareholders first occurring after the Award Date; and (ii) as to an
additional 1/36th of the covered shares each month thereafter (using the Award
Date as the date of monthly vesting). This provision shall be effective with
respect to all outstanding Options granted pursuant to this Section 2.6 and all
future Options granted pursuant to this Section 2.6 and the vesting of such
Options shall be determined in accordance herewith.
(g) Termination of Directorship. If a Non-Employee Director
Participant's services as a member of the Board terminate, each Option granted
pursuant to Section 2.6(b) or (c) hereof held by such Non-Employee Director
Participant which is not then exercisable shall terminate; provided, however,
that if a Non-Employee Director Participant's services as a member of the Board
terminate by reason of death or Total Disability, the Committee may, in its
discretion, consider to be exercisable a greater portion of any such Option than
would otherwise be exercisable, upon such terms as the Committee shall
determine. If a Non-Employee Director Participant's services as a member of the
Board terminate by reason of death or Total Disability, any portion of any such
Option which is then exercisable may be exercised for one year after the date of
such termination or the balance of such Option's term, whichever period is
shorter. If a Non-Employee Director Participant's services as a member of the
Board terminate for any other reason, any portion of any such Option which is
then exercisable may be exercised for three months after the date of such
termination or the balance of such Option's term, whichever period is shorter.
(h) Acceleration Upon an Event. Immediately prior to the
occurrence of an Event, in order to protect the holders of Options granted under
this Section 2.6, each Option granted under Section 2.6(b) or (c) hereof shall
become exercisable in full.
(i) Adjustments. The specific numbers of shares stated in the
foregoing provisions of Section 2.6(b) and (c) hereof and the consideration
payable for such shares shall be subject to adjustment in certain events as
provided in Section 6.2 of this Plan.
(j) Effective Date of Section 2.6. This Section 2.6 shall be
effective as of the date of Board approval (March 23, 1994), subject to
shareholder approval within twelve months after such date.
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III. STOCK APPRECIATION RIGHTS.
3.1 Grants.
In its discretion, the Committee may grant Stock Appreciation
Rights concurrently with the grant of Options. A Stock Appreciation Right shall
extend to all or a portion of the shares covered by the related Option. A Stock
Appreciation Right shall entitle the Participant who holds the related Option,
upon exercise of the Stock Appreciation Right and surrender of the related
Option, or portion thereof, to the extent the Stock Appreciation Right and
related Option each were previously unexercised, to receive payment of an amount
determined pursuant to Section 3.3. Any Stock Appreciation Right granted in
connection with an Incentive Stock Option shall contain such terms as may be
required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder. In its discretion, the Committee may also
grant Stock Appreciation Rights independently of any Option subject to such
conditions as the Committee may in its absolute discretion provide.
3.2 Exercise of Stock Appreciation Rights.
(a) A Stock Appreciation Right granted concurrently with an
Option shall be exercisable only at such time or times, and to the extent, that
the related Option shall be exercisable and only when the Fair Market Value of
the stock subject to the related Option exceeds the exercise price of the
related Option.
(b) In the event that a Stock Appreciation Right granted
concurrently with an Option is exercised, the number of shares of Common Stock
subject to the related Option shall be charged against the maximum amount of
Common Stock that may be issued or transferred pursuant to Awards under this
Plan. The number of shares subject to the Stock Appreciation Right and the
related Option of the Participant shall also be reduced by such number of
shares.
(c) If a Stock Appreciation Right granted concurrently with an
Option extends to less than all the shares covered by the related Option and if
a portion of the related Option is thereafter exercised, the number of shares
subject to the unexercised Stock Appreciation Right shall be reduced only if and
to the extent that the remaining number of shares covered by such related Option
is less than the remaining number of shares subject to such Stock Appreciation
Right.
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(d) A Stock Appreciation Right granted independently of any
Option shall be exercisable pursuant to the terms of the Award Agreement but in
no event earlier than six months after the Award Date, except in the case of
death or Total Disability.
3.3 Payment.
(a) Upon exercise of a Stock Appreciation Right and surrender of
an exercisable portion of the related Option, the Participant shall be entitled
to receive payment of an amount determined by multiplying
(i) the difference obtained by subtracting the exercise
price per share of Common Stock under the related Option from the Fair
Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right, by
(ii) the number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) The Committee, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly in cash, provided that
the Committee shall have determined that such exercise and payment are
consistent with applicable law. In any event, cash shall be paid in lieu of
fractional shares. Absent a determination to the contrary, all Stock
Appreciation Rights shall be settled in cash as soon as practicable after
exercise. The exercise price for the Stock Appreciation Right shall be the
exercise price of the related Option. Notwithstanding the foregoing, the
Committee may, in the Award Agreement, determine the maximum amount of cash or
stock or a combination thereof which may be delivered upon exercise of a Stock
Appreciation Right.
(c) Upon exercise of a Stock Appreciation Right granted
independently of any Option, the Participant shall be entitled to receive
payment of an amount based on a percentage, specified in the Award Agreement, of
the difference obtained by subtracting the Fair Market Value per share of Common
Stock on the Award Date from the Fair Market Value per share of Common Stock on
the date of exercise of the Stock Appreciation Right. Such amount shall be paid
as described in paragraph (b) above.
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IV. RESTRICTED STOCK AWARDS.
4.1 Grants.
Subject to Section 1.4, the Committee may, in its discretion,
grant one or more Restricted Stock Awards to any Eligible Employee. Each
Restricted Stock Award agreement shall specify the number of shares of Common
Stock to be issued to the Participant, the date of such issuance, the price, if
any, to be paid for such shares by the Participant and the restrictions imposed
on such shares, which restrictions shall not terminate earlier than six months
after the Award Date.
4.2 Restrictions.
(a) Shares of Common Stock included in Restricted Stock Awards
may not be sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until such shares have vested.
(b) Participants receiving Restricted Stock shall be entitled to
dividend and voting rights for the shares issued even though they are not
vested, provided that such rights shall terminate immediately as to any
forfeited Restricted Stock.
(c) In the event that the Participant shall have paid cash in
connection with the Restricted Stock Award, the Award Agreement shall specify
whether and to what extent such cash shall be returned upon a forfeiture (with
or without an earnings factor).
V. PERFORMANCE SHARE AWARDS.
5.1 Grants.
The Committee may, in its discretion, grant Performance Share
Awards to Eligible Employees based upon such factors as the Committee shall
determine. A Performance Share Award agreement shall specify the number of
shares of Common Stock subject to the Performance Share Award, the price, if
any, to be paid for such shares by the Participant and the conditions upon which
issuance to the Participant shall be based, which issuance shall not be earlier
than six months after the Award Date.
5.2 Special Performance-Based Share Awards.
Without limiting the generality of the foregoing, and in addition
to options granted under other provisions of this Plan, other performance-based
awards within the meaning
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of Section 162(m) of the Code ("Performance-Based Awards"), whether in the form
of restricted stock, performance stock, phantom stock, or other rights, the
vesting or payment of which depends on the degree of achievement of the
Performance Goals relative to preestablished targeted levels for the Company
and/or one or more of its Subsidiaries or divisions, may be granted under this
Plan. An award that is intended to satisfy the requirements of this Section 5.2
shall be designated as a Performance-Based Award at the time of grant.
(a) Eligible Class. The eligible class of persons for
Performance-Based Awards under this Section shall be the executive officers of
the Company.
(b) Performance Goal Alternatives. The specific performance goals
for Performance-Based Awards granted under this Section shall be, on an absolute
or relative basis, one or more of the Performance Goals, as selected by the
Committee in its sole discretion. The Committee shall establish in the
applicable Award Agreement the specific performance target(s) relative to the
Performance Goal(s) which must be attained before the compensation under the
Performance-Based Award becomes payable. The specific targets shall be
determined within the time period permitted under Section 162(m) of the Code
(and any regulations issued thereunder) so that such targets are considered to
be preestablished and so that the attainment of such targets is substantially
uncertain at the time of their establishment. The applicable performance
measurement period may not be less than one nor more than 10 years.
(c) Maximum Performance-Based Award. Notwithstanding any other
provision of the Plan to the contrary, the maximum number of shares which may be
delivered pursuant to awards that are granted as Performance-Based Awards under
this Section 5.2 to any Participant in any calendar year shall not exceed
615,375 shares, either individually or in the aggregate, subject to adjustment
as provided in Section 6.2. Awards that are cancelled during the year shall be
counted against this limit to the extent required by Section 162(m) of the Code.
(d) Committee Certification. Before any Performance-Based Award
under this Section 5.2 is paid, the Committee must certify in writing that the
Performance Goal(s) and any other material terms of the Performance-Based Award
were satisfied; provided, however, that a Performance-Based Award may be paid
without regard to the satisfaction of the applicable Performance Goal in the
event of a change in control event in accordance with Section 162(m) of the Code
and Section 6.2.
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(e) Terms and Conditions of Awards. The Committee will have the
discretion to determine the restrictions or other limitations of the individual
awards granted under this Section 5.2 including the authority to reduce awards,
payouts or vesting or to pay no awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions or otherwise.
(f) Adjustments for Changes in Capitalization and other Material
Changes. In the event of a change in corporate capitalization, such as a stock
split or stock dividend, or a corporate transaction, such as a merger,
consolidation, spinoff, reorganization or similar event, or any partial or
complete liquidation of the Company, or any similar event consistent with
regulations issued under Section 162(m) of the Code including, without
limitation, any material change in accounting policies or practices affecting
the Company and/or the Performance Goals or targets, then the Committee may make
adjustments to the Performance Goals and targets relating to outstanding
Performance-Based Awards to the extent such adjustments are made to reflect the
occurrence of such an event; provided, however, that adjustments described in
this subsection may be made only to the extent that the occurrence of an event
described herein was unforeseen at the time the targets for a Performance-Based
Award were established by the Committee.
VI. OTHER PROVISIONS.
6.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Status as an Eligible Employee shall not be construed as a
commitment that any Award will be made under this Plan to any Eligible Employee
generally.
(b) Nothing contained in this Plan (or in Award Agreements or in
any other documents related to this Plan or to Awards) shall confer upon any
Eligible Employee or Participant any right to continue in the service or employ
of the Company or constitute any contract or agreement of service or employment,
or interfere in any way with the right of the Company to reduce such person's
compensation or other benefits or to terminate the services or employment of
such Eligible Employee or Participant, with or without cause, but nothing
contained in this Plan or any document related thereto shall affect any other
contractual right of any Eligible Employee or Participant.
(c) No Participant, Beneficiary or other person shall have any
right, title or interest in any fund or in
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any specific asset (including shares of Common Stock) of the Company by reason
of any Award granted hereunder. Neither the provisions of this Plan (or of any
documents related hereto), nor the creation or adoption of this Plan, nor any
action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive an Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
6.2 Adjustments Upon Changes in Capitalization.
(a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger to which the Company is a party, or
through a combination, consolidation, recapitalization, reclassification, stock
split, stock dividend, reverse stock split, stock consolidation or other capital
change or adjustment, an appropriate adjustment shall be made in the number and
kind of shares or other consideration that is subject to or may be delivered
under this Plan and pursuant to outstanding Awards. A corresponding adjustment
to the consideration payable with respect to Awards granted prior to any such
change and to the price, if any, paid in connection with Restricted Stock Awards
or Performance Share Awards or Performance-Based Awards shall also be made. Any
such adjustment, however, shall be made without change in the total payment, if
any, applicable to the portion of the Award not exercised but with a
corresponding adjustment in the price for each share. Corresponding adjustments
shall be made with respect to Stock Appreciation Rights based upon the
adjustments made to the Options to which they are related or, in the case of
Stock Appreciation Rights granted independently of any Option, based upon the
adjustments made to Common Stock.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
the Plan shall terminate. Notwithstanding the foregoing, the Committee may
provide in writing in connection with, or in contemplation of, any such
transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the Awards
theretofore granted or the substitution by such
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corporation for such Awards of awards covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; (ii) for the continuance of this
Plan by such successor corporation in which event this Plan and the Awards shall
continue in the manner and under the terms so provided; or (iii) for the payment
in cash or shares of Common Stock in lieu of and in complete satisfaction of
such Awards.
(c) In adjusting Awards to reflect the changes described in this
Section 6.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advice of independent counsel and accountants of the
Company, and the determination of the Committee shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
6.3 Termination of Employment.
(a) If the Participant's service to or employment by the Company
terminates for any reason other than Retirement, death or Total Disability, the
Participant shall have, subject to earlier termination pursuant to or as
contemplated by Section 2.3, three months or such shorter period as is provided
in the Award Agreements from the date of termination of services or employment
to exercise any Option to the extent it shall have become exercisable on the
date of termination of employment, and any Option not exercisable on that date
shall terminate. Notwithstanding the preceding sentence, in the event the
Participant is discharged for cause as determined by the Committee in its sole
discretion, all Options shall lapse immediately upon such termination of
services or employment.
(b) If the Participant's service to or employment by the Company
terminates as a result of Retirement or Total Disability, the Participant or
Participant's Personal Representative, as the case may be, shall have, subject
to earlier termination pursuant to or as contemplated by Section 2.3, 12 months
(or, in the case of Incentive Stock Options where the Participant terminates as
a result of Retirement, three months) or such shorter period as is provided in
the Award Agreements from the date of termination of services or employment to
exercise any Option to the extent it shall have become exercisable by the date
of termination of services or employment and any Option not exercisable on that
date shall terminate.
(c) If the Participant's service to or employment by the Company
terminates as a result of death while the Participant is rendering services to
the Company or is employed by the Company or during the 12 month period (or,
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in the case of Incentive Stock Options where the Participant has terminated as a
result of Retirement, three month period) referred to in subsection (b) above,
the Participant's Option shall be exercisable by the Participant's Beneficiary,
subject to earlier termination pursuant to or as contemplated by Section 2.3,
during the 12 month period or such shorter period as is provided in the Award
Agreements following the Participant's death, as to all or any part of the
shares of Common Stock covered thereby to the extent exercisable on the date of
death (or earlier termination).
(d) Each Stock Appreciation Right granted concurrently with an
Option shall have the same termination provisions and exercisability periods as
the Option to which it relates. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independently of an Option shall
be established in accordance with Section 3.2(d). The exercisability period of a
Stock Appreciation Right shall not exceed that provided in Section 2.3 or in the
related Award Agreement and the Stock Appreciation Right shall expire at the end
of such exercisability period.
(e) In the event of termination of services to or employment with
the Company for any reason, (i) shares of Common Stock subject to the
Participant's Restricted Stock Award shall be forfeited in accordance with the
provisions of the related Award Agreement to the extent such shares have not
become vested on that date; and (ii) shares of Common Stock subject to the
Participant's Performance Share Award or Performance-Based Award shall be
forfeited in accordance with the provisions of the related Award Agreement to
the extent such shares have not been issued or become issuable on that date.
(f) In the event of termination of services to or employment with
the Company for any reason, other than discharge for cause, the Committee may,
in its discretion, increase the portion of the Participant's Award available to
the Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, upon such terms as the Committee shall determine.
(g) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 6.3 to be a termination of services or
employment of each consultant or employee of that entity who does not continue
as a consultant or as an employee of another entity within the Company.
(h) Upon forfeiture of a Restricted Stock Award pursuant to this
Section 6.3, the Participant, or his or her
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Beneficiary or Personal Representative, as the case may be, shall transfer to
the Company the portion of the Restricted Stock Award not vested at the date of
termination of services or employment, without payment of any consideration by
the Company for such transfer unless the Participant paid a purchase price in
which case repayment, if any, of that price shall be governed by the Award
Agreement. Notwithstanding any such transfer to the Company, or failure, refusal
or neglect to transfer, by the Participant, or his or her Beneficiary or
Personal Representative, as the case may be, such nonvested portion of any
Restricted Stock Award shall be deemed transferred automatically to the Company
on the date of termination of services or employment. The Participant's original
acceptance of the Restricted Stock Award shall constitute his or her appointment
of the Company and each of its authorized representatives as attorney(s)-in-fact
to effect such transfer and to execute such documents as the Company or such
representatives deem necessary or advisable in connection with such transfer.
6.4 Acceleration of Awards.
Unless prior to an Event the Board determines that, upon its
occurrence, there shall be no acceleration of Awards or determines those Awards
which shall be accelerated and the extent to which they shall be accelerated,
upon the occurrence of an Event (i) each Option and each related Stock
Appreciation Right shall become immediately exercisable to the full extent
theretofore not exercisable, (ii) Restricted Stock shall immediately vest free
of restrictions and (iii) the number of shares covered by each Performance Share
Award or Performance-Based Award shall be issued to the Participant; subject,
however, to compliance with applicable regulatory requirements, including
without limitation and Section 422 of the Code. For purposes of this section
only, the Board shall mean the Board as constituted immediately prior to the
Event.
6.5 Government Regulations.
This Plan, the granting of Awards under this Plan and the
issuance or transfer of shares of Common Stock (and/or the payment of money)
pursuant thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under this Plan, and no shares shall be issued by the
Company, nor cash payments made by the Company, pursuant to or in
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connection with any such Award, unless and until, in each such case, all legal
requirements applicable to the issuance or payment have, in the opinion of
counsel to the Company, been complied with. In connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested by the
Company, give assurances satisfactory to counsel to the Company in respect of
such matters as the Company may deem desirable to assure compliance with all
applicable legal requirements.
6.6 Tax Withholding.
(a) Upon the disposition by a Participant or other person of
shares of Common Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to satisfaction of the holding period requirements of Section 422
of the Code, or upon the exercise of a Nonqualified Stock Option, the exercise
of a Stock Appreciation Right, the vesting of a Restricted Stock Award or the
payment of a Performance Share Award or Performance-Based Award, the Company
shall have the right to (i) require such Participant or such other person to pay
by cash or check payable to the Company, the amount of any taxes which the
Company may be required to withhold with respect to such transactions or (ii)
deduct from amounts paid in cash the amount of any taxes which the Company may
be required to withhold with respect to such cash amounts. The above
notwithstanding, in any case where a tax is required to be withheld in
connection with the issuance or transfer of shares of Common Stock under this
Plan, the Participant may elect, pursuant to such rules as the Committee may
establish, to have the Company reduce the number of such shares issued or
transferred by the appropriate number of shares to accomplish such withholding;
provided, the Committee may impose such conditions on the payment of any
withholding obligation as may be required to satisfy applicable regulatory
requirements.
(b) The Committee may, in its discretion, permit a loan from the
Company to a Participant in the amount of any taxes which the Company may be
required to withhold with respect to shares of Common Stock received pursuant to
a transaction described in subsection (a) above. Such a loan will be for a term,
at a rate of interest and pursuant to such other terms and rules as the
Committee may establish.
6.7 Amendment, Termination and Suspension.
(a) The Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan (or any part hereof). In addition, the
Committee may, from time to time, amend or modify any provision of this Plan
except Section 6.4 and, with the consent of the Participant, make
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such modifications of the terms and conditions of such Participant's Award as it
shall deem advisable. The Committee, with the consent of the Participant, may
also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Award shall be reestablished at a price
not less than 100% of the Fair Market Value of the Common Stock on the effective
date of the amendment. No modification of any other term or provision of any
Option which is amended in accordance with the foregoing shall be required,
although the Committee may, in its discretion, make such further modifications
of any such Option as are not inconsistent with or prohibited by this Plan. No
Awards may be granted during any suspension of this Plan or after its
termination.
(b) Any amendment that would materially (i) increase the benefits
accruing to Participants, (ii) increase the aggregate number of shares which may
be issued under this Plan, or (iii) modify the requirements of eligibility for
participation in this Plan, shall be subject to shareholder approval only to the
extent then required by Section 422 of the Code or any successor provisions,
rules or statutes thereto, by a majority of the shareholders.
(c) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board or the
Committee and the consent of the Participant, in any way modify, amend, alter or
impair any rights or obligations under any Award previously granted under the
Plan.
6.8 Privileges of Stock Ownership; Nondistributive Intent.
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him or her.
Upon the issuance and transfer of shares to the Participant, unless a
registration statement is in effect under the Securities Act and applicable
state securities law, relating to such issued and transferred Common Stock and
there is available for delivery a prospectus meeting the requirements of Section
10 of the Securities Act, the Common Stock may be issued and transferred to the
Participant only if he or she represents and warrants in writing to the Company
that the shares are being acquired for investment and not with a view to the
resale or distribution thereof. No shares shall be issued and transferred unless
and until there shall have been full compliance with any then applicable
regulatory requirements (including those of exchanges upon which any Common
Stock of the Company may be listed).
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6.9 Effective Date of the Plan.
This Plan shall be effective upon its approval by the Board,
subject to approval by the shareholders of the Company within twelve months from
the date of such Board approval.
6.10 Term of the Plan.
Unless previously terminated by the Board, this Plan shall
terminate at the close of business on November 17, 2002, and no Awards shall be
granted under it thereafter, but such termination shall not affect any Award
theretofore granted.
6.11 Governing Law.
This Plan and the documents evidencing Awards and all other
related documents shall be governed by, and construed in accordance with, the
laws of the State of California. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue to be fully effective.
6.12 Plan Construction.
(a) Rule 16b-3. It is the intent of the Company that transactions
in and affecting Awards in the case of Participants who are or may be subject to
Section 16 of the Exchange Act satisfy any then applicable requirements of Rule
16b-3 so that such persons (unless they otherwise agree) will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange
Act in respect of those transactions and will not be subjected to avoidable
liability thereunder. In furtherance of such intent and the Company's intent to
satisfy any applicable state securities laws, the Awards granted under all of
the provisions of the Plan, in the discretion of the Committee, may be deemed
granted under a separate plan if so required, notwithstanding the designation of
this document as a single plan for convenience of reference and to establish
certain provisions and limitations applicable to all authorized Awards. If any
provision of the Plan or of any Award would frustrate or otherwise conflict with
the intent expressed above, that provision to the extent possible shall be
interpreted so as to avoid such conflict. If the conflict remains
irreconcilable, the Committee may disregard the provision if it concludes that
to do so furthers the interest of the Company and is consistent with the
purposes of the Plan as to such persons in the circumstances.
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(b) Section 162(m). It is the further intent of the Company that
Options or Stock Appreciation Rights with an exercise or base price not less
than Fair Market Value on the date of grant and Performance-Based Awards under
Section 5.2 of this Plan that are granted to or held by a Section 16 Person
shall qualify as performance-based compensation under Section 162(m) of the
Code, and this Plan shall be interpreted consistent with such intent.
VII. DEFINITIONS.
7.1 Definitions.
(a) "Award" means an Option, which may be designated as a
Nonqualified Stock Option or an Incentive Stock Option, a Stock Appreciation
Right, a Restricted Stock Award, Performance Share Award or Performance-Based
Award, in each case granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the
terms of an Award.
(c) "Award Date" means the date upon which the Committee took the
action granting an Award or such later date as is prescribed by the Committee
or, in the case of Options granted under Section 2.6, the date specified in such
Section 2.6.
(d) "Beneficiary" means the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death, and shall mean
the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
(e) "Board" means the Board of Directors of the Company.
(f) "Cash Flow" shall mean cash and cash equivalents derived from
either (i) net cash flow from operations or (ii) net cash flow from operations,
financings and investing activities, as determined by the Committee at the time
an Incentive is granted.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Commission" means the Securities and Exchange Commission.
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(i) "Committee" means the Board or a committee appointed by the
Board to administer this Plan, which committee shall be comprised only of two or
more directors or such greater number of directors as may be required under
applicable law, each of whom (i) in respect of any transaction at a time when
the affected Participant may be subject to Section 162(m) of the Code, shall be
an "outside director" within the meaning of Section 162(m) of the Code and (ii)
in respect of any transaction at a time when the affected Participant may be
subject to Section 16 of the Exchange Act, shall be a "Non-Employee Director"
within the meaning of Rule 16b-3(b)(3) under the Exchange Act.
(j) "Common Stock" means the Common Stock of the Company.
(k) "Company" means Pacific Sunwear of California, Inc., a
California corporation, and its successors.
(l) "Eligible Employee" means an officer or key employee of the
Company and consultants to the Company whether or not such consultants are
employees.
(m) "EPS" shall mean earnings per common share on a fully diluted
basis determined by dividing (i) net earnings, less dividends on preferred stock
of the Company and its Subsidiaries by (ii) the weighted average number of
common shares and common shares equivalents outstanding.
(n) "Event" means any of the following:
(1) Approval by the shareholders of the Company of the
dissolution or liquidation of the Company;
(2) Approval by the shareholders of the Company of an
agreement to merge or consolidate, or otherwise reorganize, with or into
one or more entities other than Subsidiaries, as a result of which less
than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former shareholders of the
Company; or
(3) Approval by the shareholders of the Company of the
sale of substantially all of the Company's business assets to a person
or entity which is not a Subsidiary.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(p) "Fair Market Value" means (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on which the stock
is so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD; or (iv) if the stock is not listed or
admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the values established by
the Committee for purposes of the Plan.
(q) "Incentive Stock Option" means an option which is designated
as an incentive stock option within the meaning of Section 422 of the Code, the
award of which contains such provisions as are necessary to comply with that
section.
(r) "Non-Employee Director" means a member of the Board who is
not an officer or employee of the Company.
(s) "Non-Employee Director Participant" means a Non-Employee
Director who has been granted an Option under Section 2.6.
(t) "Nonqualified Stock Option" means an option which is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof.
(u) "Option" means an option to purchase Common Stock under this
Plan. An Option shall be designated by the Committee as a Nonqualified Stock
Option or an Incentive Stock Option.
(v) "Participant" means an Eligible Employee who has been granted
an Award.
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(w) "Performance Goal" shall mean EPS or ROE or Cash Flow or
Total Stockholder Return, and "Performance
Goals" means any combination thereof.
(x) "Performance-Based Awards" shall mean an Award of a right to
receive shares of Common Stock or other compensation (including cash) under
Section 5.2, the issuance or payment of which is contingent upon, among other
conditions, the attainment of performance objectives specified by the Committee.
(y) "Performance Share Award" means an award of shares of cash or
Common Stock under Section 5.1, the issuance of which is contingent upon
attainment of performance objectives specified by the Committee.
(z) "Personal Representative" means the person or persons who,
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Participant by legal proceeding or otherwise the power to exercise
the rights and receive the benefits specified in this Plan.
(aa) "Plan" means the Pacific Sunwear of California, Inc. 1992
Stock Award Plan, as amended.
(ab) "QDRO" shall mean an order requiring the transfer of an
Award or portion thereof pursuant to a state domestic relations law to the
spouse, former spouse, child or other dependent of a Participant. Such order
must be in a form substantially identical to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended.
(ac) "Restricted Stock" means those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.
(ad) "Restricted Stock Award" means an award of a fixed number of
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
(ae) "Retirement" means retirement from employment by or
providing services to the Company or any Subsidiary after age 65 and, in the
case of employees, in accordance with the retirement policies of the Company
then in effect.
(af) "ROE" shall mean consolidated net income of the Company
and its Subsidiaries (less preferred dividends),
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<PAGE> 71
divided by the average consolidated common shareholders equity.
(ag) "Securities Act" means the Securities Act of 1933, as
amended.
(ah) "Stock Appreciation Right" means a right to receive a number
of shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 3.3(a).
(ai) "Subsidiary" means any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Company.
(aj) "Total Disability" means a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and, in the case of Awards
other than Incentive Stock Options, such other disabilities, infirmities,
afflictions or conditions as the Committee by rule may include.
(ak) "Total Stockholder Return" shall mean with respect to the
Company or its Subsidiaries or other entities (if measured on a relative basis),
the (i) change in the market price of its common stock (as quoted in the
principal market on which it is traded as of the beginning and ending of the
period) plus dividends and other distributions paid, divided by (ii) the
beginning quoted market price, all of which is adjusted for any changes in
equity structure, including but not limited to stock splits and stock dividends.
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PACIFIC SUNWEAR OF CALIFORNIA, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR ANNUAL MEETING, MAY 21,1998
The undersigned, a shareholder of PACIFIC SUNWEAR OF CALIFORNIA, INC., a
California corporation (the "Company"), acknowledges receipt of a copy of the
Notice of Annual Meeting of Shareholders, the accompanying Proxy Statement and
the Annual Report to Shareholders for the year ended February 1, 1998; and,
revoking any proxy previously given, hereby constitutes and appoints Greg H.
Weaver and Carl W. Womack, and each of them, his or her true and lawful agents
and proxies with full power of substitution in each, to vote the shares of
Common Stock of the Company standing in the name of the undersigned at the
Annual Meeting of Shareholders of the Company to be held at the principal
executive offices of the Company located at 5200 E. La Palma Avenue, Anaheim,
California 92807 on Thursday, May 21, 1998 at 9:00 a.m. local time, and at any
adjournment thereof, on all matters coming before said meeting.
The Board of Directors recommends a vote FOR Items 1 through 4.
1. Election of five directors: Greg H. Weaver Pearson C. Cummin III Peter L.
Harris Julius Jensen III Sally Frame Kasaks
For all nominees [ ] Withhold authority to vote for all nominees [ ]
(AUTHORITY TO VOTE FOR ANY NOMINEE NAMED MAY BE WITHHELD BY LINING THROUGH
THAT NOMINEE'S NAME.)
2. Approval of the Pacific Sunwear of California, Inc. Employee Stock Purchase
Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of the amendment to the Company's 1992 Stock Award Plan which
increases the number of shares authorized to be issued under such Plan by
400,000 shares
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of the Pacific Sunwear of California, Inc. Incentive Compensation
Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, upon any other matters as may properly come before the
meeting or at any adjournment thereof.
(continued and to be signed on other side)
<PAGE> 73
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREBY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 THROUGH 4. IF ANY NOMINEE BECOMES UNAVAILABLE FOR ANY
REASON, THE PERSONS NAMED AS PROXIES SHALL VOTE FOR THE ELECTION OF SUCH OTHER
PERSON AS THE BOARD OF DIRECTORS MAY PROPOSE TO REPLACE SUCH NOMINEE.
Dated ___________, 1998
Dated ___________, 1998
Signature of Shareholder
Signature of Shareholder
This Proxy must be
signed exactly as your
name appears hereon.
Executors,
administrators,
trustees, etc., should
give full title, as
such. If the shareholder
is a corporation, a duly
authorized officer
should sign on behalf of
the corporation and
should indicate his or
her title.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
