<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
[X] Definitive Proxy Statement Only (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)
- --------------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PACIFIC SUNWEAR OF CALIFORNIA, INC.
5200 E. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
April 26, 1999
Dear Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of the Company to be held on Wednesday, May 26, 1999, 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 six directors, three for a
term of one year and three for a term of two years and to approve the Pacific
Sunwear of California, Inc. 1999 Stock Award Plan. Peter L. Harris, Sally Frame
Kasaks and Richard Lyons are the nominees for election to the Board of Directors
for a one-year term and Greg H. Weaver, Julius Jensen III and Pearson C. Cummin
III are the nominees for election to the Board of Directors for a two-year term.
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 26, 1999
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 Wednesday, May 26, 1999, at 9:00 a.m. local time for the
following purposes:
(1) To elect six members of the Board of Directors;
(2) To approve the Pacific Sunwear of California, Inc. 1999 Stock Award
Plan; and
(3) 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; and (2) the approval of the Pacific Sunwear of California, Inc. 1999
Stock Award Plan.
The Board of Directors has fixed the close of business on April 19, 1999 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 26, 1999
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 26, 1999
------------------------
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 Wednesday,
May 26, 1999, 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 26, 1999.
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 offices, 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
1999 Annual Meeting of Shareholders for a fee which is not expected to exceed
$10,000 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 19, 1999, the record date with respect to this solicitation for
determining shareholders entitled to notice of and to vote at the Annual
Meeting, 20,564,556 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, 1999 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
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------- ---------- ----------
<S> <C> <C>
Lord, Abbett & Co.(1)....................................... 1,746,619 8.5%
767 Fifth Avenue
New York, NY 10153
Mellon Bank Corporation and its subsidiaries(2)............. 1,161,222 5.7%
One Mellon Bank Center
Pittsburgh, PA 15258
Wellington Management Company, LLP(3)....................... 1,158,200 5.6%
75 State Street
Boston, MA 02109
Julius Jensen III(4)........................................ 84,068 *
Pearson C. Cummin III(5).................................... 62,484 *
Peter L. Harris(5).......................................... 37,021 *
Sally Frame Kasaks(6)....................................... 13,844 *
Richard Lyons............................................... 18,000 *
Greg H. Weaver(7)........................................... 495,422 2.4%
Timothy M. Harmon(8)........................................ 308,686 1.5%
Carl W. Womack(9)........................................... 190,885 *
Gary C.W. Hunt(10).......................................... 46,586 *
Robert G. Entersz(11)....................................... 8,774 *
All directors and executive officers as a group
(10 persons)(12)............................................ 1,265,790 6.0%
</TABLE>
- ---------------
* Less than one percent.
(1) Share ownership for Lord Abbett, & Co. as of December 31, 1998 and was
obtained from a Schedule 13G, dated February 18, 1999, filed with the
Securities and Exchange Commission. Lord Abbett, & Co. has sole voting and
dispositive power with respect to 1,746,619 shares.
(2) Share ownership for Mellon Bank Corporation and its subsidiaries as of
January 29, 1999 and was obtained from a Schedule 13G, dated February 4,
1999, filed with the Securities and Exchange Commission. Mellon Bank
Corporation and its subsidiaries has sole voting power with respect to
1,020,822 shares, sole dispositive power with respect to 1,028,222 shares
and shared dispositive power with respect to 133,000 shares.
(3) Share ownership for Wellington Management Company, LLP as of December 31,
1998 and was obtained from a Schedule 13G, dated February 9, 1999, filed
with the Securities and Exchange Commission. Wellington Management Company,
LLP has shared voting power with respect to 433,300 and shared dispositive
power with respect to 1,158,200 shares.
2
<PAGE> 6
(4) Includes 13,500 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, 1999.
(5) Includes 37,021 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, 1999.
(6) Includes 9,844 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, 1999.
(7) Includes 225,078 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, 1999.
(8) Includes 194,061 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, 1999.
(9) Includes 55,644 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, 1999.
(10) Includes 46,586 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, 1999.
(11) Includes 8,774 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, 1999.
(12) Includes 627,529 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, 1999.
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.
At present there are six directors, who currently hold office until the
1999 Annual Meeting of Shareholders and until their successors have been duly
elected and qualified. As of the record date for the 1999 Annual Meeting of
Shareholders, the Company determined that it is a "listed corporation" under
California law for purposes of classification of its board of directors. The
Bylaws provide that the Board of Directors shall, upon such determination, be
divided into two classes, with staggered two-year terms. At the 1999 Annual
Meeting of Shareholders, three directors will be elected for a term of one year
(the "Class I directors") and three directors will be elected for a term of two
years (the "Class II directors") and, in each case, 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 six 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 six 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, other than Mr. Lyons, each nominee was
previously elected to the present term of office by the shareholders of the
Company. Mr. Lyons was appointed a director by the Board of Directors in August
1998.
The nominees for election as Class I directors are:
Peter L. Harris
Sally Frame Kasaks
Richard Lyons
The nominees for election as Class II directors are:
Greg H. Weaver
Julius Jensen III
Pearson C. Cummin III
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 19, 1999.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE BUSINESS EXPERIENCE DURING LAST FIVE YEARS AND DIRECTORSHIPS SINCE
------------ ------------------------------------------------------------ --------
<S> <C> <C>
NOMINEES WHOSE TERM WILL EXPIRE IN 2000 (CLASS I DIRECTORS):
Peter L. Harris (55) Chairman, Chief Executive Officer and President of The 1994
Picture People, Inc., a mall-based entertainment retail
chain selling portraits and picture-related products, 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. and ONSALE, Inc.
Sally Frame Kasaks (54) Business consultant since January 1997. Previously, Chairman 1997
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.
Richard Lyons (42) Private investor. Previously employed at The Gap, a 1998
specialty apparel retailer from March 1984 to May 1997. Mr.
Lyons served as Executive Vice President, International, at
The Gap during 1997, President, Gap, GapKids, and Outlet
Divisions and Executive Vice President, The Gap, Inc. from
August 1995 to January 1997, President, Gap Stores, from
August 1993 to August 1995, and Senior Vice President,
GapKids from April 1990 to August 1993. Prior to his
employment at The Gap, Mr. Lyons held various merchandising
positions at retail divisions of Federated Department
Stores, from April 1978 to March 1984.
NOMINEES WHOSE TERM WILL EXPIRE IN 2001 (CLASS II DIRECTORS):
Greg H. Weaver (45) Chief Executive Officer since October 1996, Chairman of the 1996
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 (56) 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.
Julius Jensen III (65) General partner of Copley Venture Partners, a venture 1988
capital investment firm, since 1985. Director of Natural
Wonders, Inc.
</TABLE>
5
<PAGE> 9
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
COMPENSATION OF DIRECTORS
During the fiscal year ended January 31, 1999 ("fiscal 1998"), 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 1998, 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, Ms. Kasaks and Mr. Lyons, and a Compensation Committee, currently
consisting of Messrs. Jensen, Cummin and Harris. 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 1998. 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 Pacific Sunwear of California,
Inc., Incentive Compensation Plan (the "Incentive Compensation Plan") and,
subject to the receipt of shareholder approval, the Pacific Sunwear of
California, Inc. 1999 Stock Award Plan (the "1999 Stock Award Plan"). The
Compensation Committee met one time and took action by written consent nine
times during fiscal 1998.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During fiscal 1998, the Board of Directors met six times. Except Richard
Lyons, who attended the two meetings that occurred after his 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 1998 and for the fiscal years ended February
1, 1998 ("fiscal 1997") and February 2, 1997 ("fiscal 1996").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL ------------------------
COMPENSATION(1) RESTRICTED SECURITIES
------------------- STOCK UNDERLYING
NAME AND SALARY BONUS AWARDS OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) (#) COMPENSATION($)(2)
- ------------------ ---- -------- -------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Greg H. Weaver...................... 1998 $509,600 $600,000 -- 150,000 $32,965
Chairman of the Board and 1997 434,908 478,125 -- 150,000 27,287
Chief Executive Officer 1996 308,246 281,250 1,161,938(3) 435,938 13,153
Timothy M. Harmon................... 1998 $332,800 $261,300 -- 50,000 $21,182
President and Chief 1997 265,550 193,125 -- 112,500 16,821
Merchandising Officer 1996 201,343 142,500 -- 196,875 14,325
Carl W. Womack...................... 1998 $246,000 $108,000 -- 30,000 $16,270
Senior Vice President, 1997 223,692 163,125 -- 33,750 14,727
Chief Financial Officer and 1996 198,308 142,500 -- 180,000 14,285
Secretary
Gary C.W. Hunt...................... 1998 $191,000 $ 51,800 -- 15,000 $13,091
Vice President of 1997 176,942 102,450 -- 22,500 11,732
Product Development 1996 156,000 90,000 -- 22,500 10,308
Robert G. Entersz................... 1998 $186,000 $ 50,400 -- 17,500 $12,802
Vice President of 1997 172,692 99,900 -- 22,500 11,499
Merchandising 1996 156,000 90,000 -- 11,250 9,100
</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
1998, 1997 and 1996 include contributions by the Company to such plans and
in each of 1998, 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 (126,562 shares as adjusted for the three-for-two
stock splits effected October 9, 1997 and June 8, 1998) 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 ($9.19 as adjusted for the three-for-two stock splits
effected October 9, 1997 and June 8, 1998). Such shares vest in four equal
annual installments, subject to the attainment of certain cumulative
earnings per share growth targets, beginning on March 31, 1999. The
Compensation Committee of the Board of Directors has determined that the
cumulative earnings per share growth targets for the first vesting period
have been satisfied and accordingly, 31,641 shares, or 25% of the shares
subject to the restricted stock award, vested on March 31, 1999. The value
of such restricted stock at the end of fiscal 1998 based on the closing
price of $25.31 for the Company's Common Stock on January 31, 1999, net of
consideration paid by Mr. Weaver, was $3,202,722.
7
<PAGE> 11
SUMMARY OF OPTION GRANTS
The following table sets forth certain information with respect to grants
of stock options during fiscal 1998 to the named executive officers of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENTAGE OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OPTION TERM
GRANTED FISCAL PRICE EXPIRATION -----------------------------
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ---- ---------- ------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Greg H Weaver................ 100,000 19.9% $22.25 09/08/08 $1,399,290 $3,546,077
50,000 9.9% 22.56 01/20/09 709,488 1,797,981
------- ---- ---------- ----------
150,000 29.8% 2,108,778 5,344,058
Timothy M Harmon............. 40,000 7.9% 22.25 09/08/08 559,716 1,418,431
10,000 2.0% 22.56 01/20/09 141,898 359,596
------- ---- ---------- ----------
50,000 9.9% 701,614 1,778,027
Carl W. Womack............... 22,500 4.5% 22.25 09/08/08 314,840 797,867
7,500 1.5% 22.56 01/20/09 106,423 269,697
------- ---- ---------- ----------
30,000 6.0% 421,263 1,067,564
Gary C.W. Hunt............... 15,000 3.0% 22.25 09/08/08 209,894 531,912
Robert G. Entersz............ 15,000 3.0% 22.25 09/08/08 209,894 531,912
2,500 0.5% 22.56 01/20/99 35,474 89,899
------- ---- ---------- ----------
17,500 3.5% 245,368 621,811
</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. 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, if any, 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.
8
<PAGE> 12
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) ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Greg H. Weaver............... 198,719 $4,032,211 176,249/402,541 $2,594,359/$4,068,577
Timothy M. Harmon............ -- -- 168,279/197,072 3,017,362/ 2,079,749
Carl W. Womack............... 128,751 3,037,043 87,831/104,298 1,777,080/ 1,393,687
Gary C.W. Hunt............... 9,125 241,711 40,726/ 46,524 745,952/ 459,758
Robert G. Entersz............ 12,286 293,132 11,501/ 48,907 144,462/ 496,694
</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, as amended (the "Employment Agreement") pursuant to which
Mr. Weaver is entitled to (i) a base salary of $600,000 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, and subject to the receipt of shareholder
approval, the 1999 Stock Award Plan, each provides for acceleration of the
vesting of awards granted thereunder upon the occurrence of certain events.
Under the 1992 Stock Award Plan and the 1999 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.
9
<PAGE> 13
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, the Pacific Sunwear of California, Inc. Incentive Compensation Plan (the
"Incentive Compensation Plan"), and subject to the receipt of shareholder
approval, the Pacific Sunwear of California, Inc. 1999 Stock Award Plan (the
"1999 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 1998 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
regard to earnings. The executive officers of the Company were awarded bonuses
in the aggregate amount of $1,280,840, ranging from 11% to 120% of their
respective base salaries, for services rendered in fiscal 1998.
It is also a policy of the Company and the Compensation 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. If the 1999 Stock Award Plan is approved by shareholders, the
Company also intends to provide such long-term incentives to key employees under
that 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 these plans 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 Section 162(m) of the Internal Revenue Code of 1986,
as amended, and final regulations adopted thereunder. Section 162(m) generally
disallows a tax deduction to public corporations for compensation in excess of
$1,000,000 paid to the chief executive officer and the four other most highly
compensated officers as of the end of any fiscal year. However, Section 162(m)
exempts qualifying performance-based compensation if certain requirements are
met. 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
10
<PAGE> 14
Company. The Compensation Committee and the Board may, however, authorize
non-deductible compensation in such circumstances as they deem appropriate.
Because of ambiguities and uncertainties in Section 162(m), no assurances can be
given that compensation intended by the Company to be "performance based" within
the meaning of Section 162(m) will in fact be deductible by the Company.
The Compensation Committee and the Board have recommended to shareholders
the adoption of the 1999 Stock Award Plan in the form attached as an appendix to
this Proxy Statement. See "Approval of the Pacific Sunwear of California, Inc.
1999 Stock Award Plan." The purpose of the 1999 Stock Award Plan is to promote
the success of the Company and 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.
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, as
amended and restated. In February 1999, the Company amended the agreement to
increase his annual base salary to $600,000. In addition, in September 1998 and
January 1999, the Company granted Mr. Weaver 100,000 and 50,000 stock options,
respectively.
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 1998 and the achievement
of several strategic objectives, including the opening of 74 stores, the
relocation/expansion of 15 stores, the continued development of d.e.m.o., the
Company's new retail concept, the successful relocation of the distribution
center and corporate offices 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 1998 were
$500,000. Under the terms of his employment agreement, Mr. Weaver was also paid
a bonus of $600,000 in fiscal 1998. This bonus was based upon the percentage of
budgeted earnings for the fiscal year achieved by the Company. Thus, a portion
of Mr. Weaver's compensation for 1998 exceeded the $1,000,000 limit under
Section 162(m). However, Mr. Weaver elected to defer a portion of his 1998
compensation. Because of the deferral, the Committee expects that the
compensation actually paid to Mr. Weaver for 1998 will be fully deductible and
that the deferred compensation will also be fully deductible when it is actually
paid. Mr. Weaver's bonus opportunity for 1999 has been structured under the
Incentive Compensation Plan, which was approved by shareholders at the 1998
Annual Meeting of Shareholders. Bonuses paid under the Incentive Compensation
Plan are intended to qualify for the "performance-based" exception from the
Section 162(m) limits. Therefore, the Compensation Committee expects that Mr.
Weaver's 1999 compensation will be fully deductible.
CONCLUSION
The Committee has reviewed each element of compensation for each of the
executive officers for fiscal 1998. 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.
COMPENSATION COMMITTEE
Julius Jensen III
Pearson C. Cummin III
Peter L. Harris
March 31, 1999
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 January
30, 1994(1) and ending on January 31, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM JANUARY 30, 1994 THROUGH JANUARY 31,
1999
<TABLE>
<CAPTION>
PACIFIC SUNWEAR NASDAQ MARKET INDEX RETAIL INDEX
--------------- ------------------- ------------
<S> <C> <C> <C>
'01/30/94' 100 100 100
'01/29/95' 178 96 89
'02/04/96' 108 140 101
'02/02/97' 497 182 124
'02/01/98' 809 215 145
'01/31/99' 1068 338 177
</TABLE>
- ---------------
(1) The Company's 1993 and 1998 fiscal years ended on January 30, 1994 and
January 31,1999, respectively.
(2) Assumes $100.00 was invested on January 30, 1994 in the Company's Common
Stock at the closing price on that date of $2.37 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.
APPROVAL OF 1999 STOCK AWARD PLAN
At the Annual Meeting, shareholders will be asked to approve the Pacific
Sunwear of California, Inc. 1999 Stock Award Plan (the "1999 Plan").
The Company currently maintains the Pacific Sunwear of California, Inc.
1992 Stock Award Plan, as amended (the "1992 Plan"). As of March 31, 1999,
2,075,406 shares of Common Stock remained subject to awards then outstanding
under the 1992 Plan and an additional 237,018 shares remained available for
additional award grants under the 1992 Plan.
12
<PAGE> 16
The Board of Directors (the "Board") approved the 1999 Plan effective April
7, 1999, subject to the receipt of shareholder approval. The Board approved the
1999 Plan based, in part, on its belief that the 1999 Plan promotes the
interests of the Company and its shareholders and that an insufficient number of
shares remains available under the limits of the 1992 Plan to adequately provide
for future incentives. The 1999 Plan, if approved by shareholders, will
authorize the issuance or delivery of up to 800,000 shares of Common Stock in
addition to the shares that remain available under the 1992 Plan.
SUMMARY DESCRIPTION OF THE 1999 PLAN
The principal terms of the 1999 Plan are summarized below. The following
summary is qualified in its entirety by the full text of the 1999 Plan, a copy
of which is included as Appendix A to this Proxy Statement. Capitalized terms
used in the summary which are not otherwise defined are used as defined in the
1999 Plan.
PURPOSE. The purpose of the 1999 Plan is to promote the success of the
Company by providing an additional means to attract, motivate, retain and reward
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. The purpose of the 1999
Plan is also to attract, motivate and retain experienced and knowledgeable
independent directors through the grant of Options under the Non-Employee
Director Program described below.
AWARDS. The 1999 Plan authorizes stock options (incentive or nonqualified),
restricted stock, stock appreciation rights ("SARs") and performance share
awards.
ADMINISTRATION. The 1999 Plan will be 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 administrator of the 1999 Plan,
subject to shareholder approval of the 1999 Plan. The members of the Committee
are identified on page six under the heading "Committees of the Board of
Directors." 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 to be
paid for the shares or the Award.
ELIGIBILITY. Persons eligible to receive Awards under the 1999 Plan include
officers or 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 Option grants
under the Non-Employee Director Program of the 1999 Plan, as described below.
Non-Employee Directors are not eligible to receive other discretionary Awards
under the 1999 Plan.
Approximately 85 officers and key employees of the Company are considered
eligible under the 1999 Plan at the present time (including all of the Company's
named executive officers), subject to the power of the Committee to determine
eligible persons to whom Awards will be granted. In addition, there are
currently five Non-Employee Directors.
LIMITS ON AWARDS; AUTHORIZED SHARES. A maximum of 800,000 shares of Common
Stock may be issued or delivered pursuant to Awards granted under the 1999 Plan.
The maximum number of shares subject to Awards which may be granted to any
individual during any calendar year is 200,000. In addition, a maximum of
200,000 shares may be granted as time-based Restricted Stock for nominal or no
consideration.
As is customary in incentive plans of this nature, the number and kind of
shares available under the 1999 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.
Except for customary adjustments in connection with reorganizations,
mergers or other events described in the preceding paragraph, the Plan provides
that an Option or Stock Appreciation Right can not be repriced without
shareholder approval to a price that is less than the Fair Market Value of the
Common Stock on the original grant date of the Award.
13
<PAGE> 17
The 1999 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
1999 Plan.
The Option Price of Options will be determined by the Committee, but 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 1999 Plan). Options granted under the 1999 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 Committee 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 1999 Plan, the 1999
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 as Section 162(m) Performance-Based Awards. Other
Section 162(m) Performance-Based Awards must be based on the performance
relative to 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 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. These performance goals are defined and
described in more detail in Exhibit A to the Plan, attached hereto. Performance
targets with respect to one or more of the criteria may be established as
applied to the Company's consolidated operations, or one or more of its
subsidiaries or divisions.
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).
14
<PAGE> 18
Grants of Section 162(m) Performance-Based Awards in any calendar year to
any participant may not be made with reference to more than 200,000 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.
NON-EMPLOYEE DIRECTOR PROGRAM. Effective after the day of the Annual
Meeting, each person who first becomes a Non-Employee Director will be granted
automatically (without any action by the Committee) a Nonqualified Stock Option
to purchase 9,000 shares of Common Stock. In addition, in each calendar year
during the term of the 1999 Plan commencing in 2000, there will be granted
automatically 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. These automatic Option grants to
Non-Employee Directors are referred to as the "Non-Employee Director Program."
The purchase price per share of Common Stock covered by each Option granted
under the Non-Employee Director Program will be the fair market value of the
Common Stock on the date the option is granted. The 1999 Plan provides that
Non-Employee Director Program Options expire on the fifth anniversary of the
award date and vest according to the following schedule:
- the first 25% of the shares covered by an Option become exercisable on
the earlier of (1) the first anniversary of the award date or (2) the
date immediately preceding the first scheduled Annual Meeting of
shareholders first occurring after the award date, and
- 1/36 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 director
which is not then exercisable will terminate (subject to the Committee's
discretion to increase the portion of the Award available to the director if the
director terminates due to death or total disability). 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.
Automatic Option grants to directors in connection with the 1999 Annual
Meeting will be made under the automatic grant feature of the 1992 Plan. If the
1999 Plan is approved by shareholders, no additional automatic Option grants
will be made under the 1992 Plan after the Annual Meeting so as not to duplicate
the benefits contemplated by Non-Employee Director Program of the 1999 Plan.
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
generally 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 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
15
<PAGE> 19
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 1999 Plan generally includes (subject to certain exceptions)
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.
TERMINATION OF OR CHANGES TO THE 1999 PLAN. The Board may amend or
terminate the 1999 Plan at any time. Unless required by applicable law or deemed
necessary or advisable by the Board, shareholder approval for an amendment will
not be required. Unless previously terminated by the Board, the 1999 Plan will
terminate on April 7, 2009. Outstanding Awards may be amended, subject, however,
to the consent of the holder if the amendment materially and adversely affects
the holder.
TRANSFER RESTRICTIONS. Subject to certain exceptions contained in Section
1.7 of the 1999 Plan, Awards under the 1999 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.
SECURITIES UNDERLYING AWARDS. The market value of a share of Common Stock
as of March 31, 1999 was $34.75 per share. Upon receipt of shareholder approval
of the 1999 Plan, the Company plans to register under the Securities Act of
1933, the shares of Common Stock available under the 1999 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 1999 Plan generally follow certain basic patterns: SARs are taxed and
deductible in substantially the same manner as Nonqualified 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 1999 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 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 31, 1999.
16
<PAGE> 20
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 and Other Information" on page seven.
The number, amount and type of Awards to be received by or allocated to
eligible persons in the future under the 1999 Plan cannot be determined at this
time. At this time, the Company is not considering any Awards under the 1999
Plan. If the 1999 Plan had been in effect in 1998, the Company expects that the
grants would not have been substantially different from those described in the
Option Grants in Last Fiscal Year Table on page eight and the Compensation of
Directors section on page six.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD "FOR" THIS PROPOSAL
The Board believes that the approval of the 1999 Plan 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 upon the attainment of corporate objectives and
increases in shareholder value.
Approval of the 1999 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 OF DIRECTORS HAS APPROVED AND RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE 1999 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 one. All members of the Board are eligible for
awards under the 1999 Plan.
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 JANUARY 31, 1999 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 2000 Annual Meeting
of Shareholders of the Company must be received by December 29, 1999 for
inclusion in the Company's 2000 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
17
<PAGE> 21
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
Except as follows, to the Company's knowledge, based solely on its review
of copies of reports furnished to the Company and written representations that
no other reports were required, during fiscal 1998, all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were satisfied. The following Form 4s were
inadvertently not filed on a timely basis: one Form 4 for Mark A. Kibler
disclosing an option grant; and one Form 4 for Larry J. Fesler disclosing a sale
of shares of the Company's 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.
18
<PAGE> 22
APPENDIX A
PACIFIC SUNWEAR OF CALIFORNIA, INC.
1999 STOCK AWARD PLAN
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, retain and reward 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. The purpose of this Plan is
also to attract, motivate and retain experienced and knowledgeable independent
directors through the Option grants provided under Section 2.6.
1.2 Administration.
(a) This Plan shall be administered and all Awards (other than those under
Section 2.6) shall be authorized 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:
(i) to grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of securities to
be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Awards shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;
(ii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iii) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants under this Plan,
further define the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the administration of this Plan;
(iv) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Employees, subject to any required consent under
Section 6.7;
(v) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum ten-year term of
Awards; and
(vi) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Section 2.6 relating to
Non-Employee Director Options shall be automatic and, to the maximum extent
possible, self-effectuating.
(c) Any action taken by, or inaction of, the Corporation, any Subsidiary,
the Board or the Committee relating or pursuant to this Plan and within its
authority hereunder or under applicable law shall be within the absolute
discretion of that entity or body and shall be conclusive and binding upon all
persons. Neither the Board nor any Committee, nor any member thereof or person
acting at the direction thereof, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with this Plan (or any Award made under this Plan), and all such persons shall
be entitled to indemnification and
A-1
<PAGE> 23
reimbursement by the Company in respect of any claim, loss, damage or expense
(including, without limitation, attorneys' fees) arising or resulting therefrom
to the fullest extent permitted by law and/or under any directors and officers
liability insurance coverage that may be in effect from time to time.
(d) Subject to the requirements of Section 7.1, 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.
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.
(a) Subject to Section 6.2, 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
(including Incentive Stock Options) granted under this Plan shall not exceed
800,000 shares, subject to adjustment as set forth in Section 6.2. In no event
shall more than 200,000 shares of Common Stock (subject to adjustment under
Section 6.2) be available for Awards issued (or reissued) under this Plan as
time-based Restricted Stock for nominal or no consideration other than the par
value thereof. This limit on Restricted Stock does not apply to shares issued
principally for past services, in respect of compensation earned but deferred,
or as Performance-Based Awards under Section 5.2. 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 200,000, subject to adjustment as set forth
in Section 6.2.
(b) No Award may be granted under this Plan unless, on the date of grant,
the sum of (i) the maximum number of shares issuable at any time pursuant to
such Award, plus (ii) the number of shares that have previously been issued
pursuant to Awards granted under this Plan, other than reacquired shares
available for reissue consistent with any applicable legal limitations, plus
(iii) the maximum number of shares that may be issued at any time after such
date of grant pursuant to Awards that are outstanding on such date, does not
exceed the share limit set forth in Section 1.4(a). Shares that are subject to
or underlie Awards which expire or for any reason are canceled or terminated,
are forfeited, fail to vest, or for any other reason are not paid or delivered
under this Plan, as well as reacquired shares, shall again, except to the extent
prohibited by law, be available for subsequent Awards under the 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 number of shares of Common Stock subject
to each Award, the price (if any) to be paid for the shares or the Award and, in
the case of performance share awards, in addition to matters addressed in
Section 1.2(b), the specific objectives, goals and performance criteria (such as
an increase in sales, market value, earnings or book value over a base period,
the years of service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
performance share award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
The Award Agreement shall set forth the material terms and conditions of the
Award established by the
A-2
<PAGE> 24
Committee consistent with the specific 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.
(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 or Section 1.7(c), 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.
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 in the applicable Award Agreement
as either a Nonqualified Stock Option or an Incentive Stock Option.
A-3
<PAGE> 25
2.2 Option Price.
(a) The purchase price per share of Common Stock covered by each Option
shall be determined by the Committee, but shall not be less than 100% (110% in
the case of an Incentive Stock Option grant to 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 the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by means other than cash or check,
and provided further 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.
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 Section 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
A-4
<PAGE> 26
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 "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. Effective on the day after the Company's 1999 annual
meeting, 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 2000 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 fifth 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 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 1/48 of the covered shares in each of
the 36 months thereafter (using the Award Date as the date of monthly vesting).
(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
A-5
<PAGE> 27
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; provided, however, that the specific number of shares
stated in Section 2.6(b) and in Section 2.6(c) shall not be adjusted, unless
such adjustment is approved by the Board, in connection with a split or reverse
split of the Common Stock.
2.7 Options and Rights in Substitution for Stock Options Granted by Other
Corporations.
Options and Stock Appreciation Rights may be granted to Eligible Employees
under this Plan in substitution for employee stock options granted by other
entities to persons who are or who will become Eligible Employees in respect of
the Company, in connection with a distribution, merger or reorganization by or
with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the other entity.
2.8 Adjustments; No Repricing Without Prior Shareholder Approval.
Subject to Section 1.4 and Section 6.7 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee
any adjustment in the exercise or repurchase price (except as set forth below),
vesting schedule, the number of shares subject to, the restrictions upon or the
term of, an Award granted under this Article by cancellation of an outstanding
Award and a subsequent regranting of an Award, by amendment, by substitution of
an outstanding Award, by waiver or by other legally valid means. Such amendment
or other action may result among other changes in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award (except as set forth below), provide for a greater or lesser number
of shares subject to the Award, or provide for a longer or shorter vesting or
exercise period. Notwithstanding the foregoing or any other provision in the
Plan, in no case shall the per share exercise price of any Option or related
Stock Appreciation Right be reduced (by amendment, substitution, cancellation or
regrant) without stockholder approval to a price less than the Fair Market Value
of a share of Common Stock on the related initial Award Date.
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.
A-6
<PAGE> 28
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.
(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.
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
A-7
<PAGE> 29
shares by the Participant and the restrictions imposed on such shares, which
restrictions shall not terminate earlier than six months after the Award Date.
Stock certificates evidencing shares of Restricted Stock pending the lapse of
the restrictions shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award. Upon issuance of the Restricted Stock Award, the
Participant may be required to provide such further assurance and documents as
the Committee may require to enforce the restrictions.
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) Unless otherwise provided in the applicable Award Agreement,
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).
4.3 Return to the Corporation.
Unless the Committee otherwise expressly provides, shares of Restricted
Stock that remain subject to restrictions at the time of termination of
employment or are subject to other conditions to vesting that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and on such terms as the
Committee shall therein provide.
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 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
A-8
<PAGE> 30
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 200,000
shares, either individually or in the aggregate, subject to adjustment as
provided in Section 6.2. Awards that are canceled 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.
(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 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
A-9
<PAGE> 31
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 and outstanding Awards 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 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.
(d) In any of such events, the Committee may take such action prior to such
event to the extent that the Committee deems the action necessary to permit the
Participant to realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is or will be available to shareholders
generally.
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,
A-10
<PAGE> 32
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, 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 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
A-11
<PAGE> 33
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 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). No Awards may be granted
during any suspension of this Plan or after termination of this Plan, but the
Committee shall retain jurisdiction as to Awards then outstanding in accordance
with the terms of this Plan.
(b) To the extent then required under Sections 162, 422 or 424 of the Code
or any other applicable law, or deemed necessary or advisable by the Board, any
amendment to this Plan shall be subject to shareholder approval.
(c) Without limiting any other express authority of the Committee under
(but subject to) the express limits of this Plan, the Committee by agreement or
resolution may waive conditions of or limitations on Awards to Participants that
the Committee in the prior exercise of its discretion has imposed, without the
A-12
<PAGE> 34
consent of a Participant, and may make other changes to the terms and conditions
of Awards that do not affect in any manner materially adverse to the
Participant, the Participant's rights and benefits under an Award.
(d) No amendment, suspension or termination of this Plan or change of or
affecting any outstanding Award shall, without written consent of the
Participant, affect in any manner materially adverse to the Participant any
rights or benefits of the Participant or obligations of the Company under any
Award granted under this Plan prior to the effective date of such change.
Changes contemplated by Section 6.2 shall not be deemed to constitute changes or
amendments for purposes of this Section 6.7.
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).
6.9 Effective Date of the Plan.
This Plan shall be effective upon its approval by the Board (the "Effective
Date"), 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 the day before the tenth anniversary of the Effective Date,
and no Awards shall be granted under it thereafter, but such termination shall
not affect any Award theretofore granted. Unless otherwise expressly provided in
this Plan or in an applicable Award Agreement, any Award granted prior to the
Plan's termination date may extend beyond such date, and all authority of the
Committee with respect to Awards hereunder, including the authority to amend an
Award, shall continue during any suspension of this Plan and in respect of
Awards outstanding on the termination date.
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 the Awards and
transactions permitted by Awards generally satisfy and be interpreted in a
manner that, in the case of Participants who are or may be subject to Section 16
of the Exchange Act, satisfies the applicable requirements of Rule 16b-3
promulgated thereunder 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.
(b) Section 162(m). It is the further intent of the Company that (to the
extent the Company or Awards under this Plan may be or become subject to
limitations on deductibility under Section 162(m) of the Code), Options or SARs
granted 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 person subject
A-13
<PAGE> 35
to Section 162(m) of the Code will qualify as performance-based compensation or
otherwise be exempt from deductibility limitations under Section 162(m) of the
Code, to the extent that the Committee authorizing the Award (or the payment
thereof, as the case may be) satisfies any applicable administrative
requirements thereof.
6.13 Captions.
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.
6.14 Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to 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.
6.15 No Corporate Action Restriction.
The existence of the Plan, the Award Agreements and the Awards granted
hereunder shall not limit, affect or restrict in any way the right or power of
the Board or the shareholders of the Corporation to make or authorize: (a) any
adjustment, recapitalization, reorganization or other change in the
Corporation's or any Subsidiary's capital structure or its business, (b) any
merger, amalgamation, consolidation or change in the ownership of the
Corporation or any subsidiary, (c) any issue of bonds, debentures, capital,
preferred or prior preference stock ahead of or affecting the Corporation's or
any Subsidiary's capital stock or the rights thereof, (d) any dissolution or
liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of
all or any part of the Corporation or any Subsidiary's assets or business, or
(f) any other corporate act or proceeding by the Corporation or any Subsidiary.
No participant, beneficiary or any other person shall have any claim under any
Award or Award Agreement against any member of the Board or the Committee, or
the Corporation or any employees, officers or agents of the Corporation or any
Subsidiary, as a result of any such action.
6.16 Other Company Benefit and Compensation Program.
Payments and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant's compensation
for purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Corporation or any
Subsidiary, except where the Committee or the Board expressly otherwise provides
or authorizes in writing. Awards under this Plan may be made in addition to, in
combination with, as alternatives to or in payment of grants, awards or
commitments under any other plans or arrangements of the Company or the
Subsidiaries.
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
A-14
<PAGE> 36
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) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Commission" means the Securities and Exchange Commission.
(h) "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.
(i) "Common Stock" means the Common Stock of the Company.
(j) "Company" means Pacific Sunwear of California, Inc., a California
corporation, and its successors.
(k) "Eligible Employee" means an officer or key employee of the Company and
consultants to the Company whether or not such consultants are employees.
(l) "Event" means any of the following:
(i) Approval by the shareholders of the Company of the dissolution or
liquidation of the Company;
(ii) 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
(iii) 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.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "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.
(o) "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.
(p) "Non-Employee Director" means a member of the Board who is not an
officer or employee of the Company.
A-15
<PAGE> 37
(q) "Non-Employee Director Participant" means a Non-Employee Director who
has been granted an Option under Section 2.6.
(r) "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.
(s) "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.
(t) "Participant" means an Eligible Employee who has been granted an Award
and a Non-Employee Director who has received an Option under Section 2.6.
(u) "Performance Goal" means any one or more of the criteria set forth on
Exhibit A hereto.
(v) "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.
(w) "Performance Share Award" means an award of shares of Common Stock
under Section 5.1, the issuance of which is contingent upon attainment of
performance objectives specified by the Committee.
(x) "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.
(y) "Plan" means the Pacific Sunwear of California, Inc. 1999 Stock Award
Plan, as it may be amended from time to time.
(z) "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.
(aa) "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.
(bb) "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.
(cc) "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.
(dd) "Securities Act" means the Securities Act of 1933, as amended.
(ee) "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).
(ff) "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.
(gg) "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.
A-16
<PAGE> 38
EXHIBIT A
PERFORMANCE GOALS
The Performance Targets shall mean any one or a combination of the
following.
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.
A-17
<PAGE> 39
PACIFIC SUNWEAR OF CALIFORNIA, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR ANNUAL MEETING, MAY 26, 1999
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 January 31, 1999; 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 Wednesday, May 26, 1999 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 and 2.
1. Election of Class I directors: Peter L. Harris
Sally Frame Kasaks
Richard Lyons
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.)
Election of Class II directors: Greg H. Weaver
Julius Jensen III
Pearson C. Cummin III
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.)
(continued and to be signed on other side)
<PAGE> 40
2. Approval of the Pacific Sunwear of California, Inc. 1999 Stock Award Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, upon any other matters as may properly come before
the meeting or at any adjournment thereof.
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 AND 2. 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
-------------, 1999
Dated
-------------, 1999
-------------------------
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.
