EXHIBIT 10.5
AMENDED AND RESTATED OAKLEY, INC.
EXECUTIVE SEVERANCE PLAN
(as amended and restated effective as of June 3, 2004)
R E C I T A L S
          A. Each of the Eligible Employees is currently employed by the Company
(each as defined below);
          B. Each Eligible Employee has received an equity-based grant pursuant
to the terms and conditions of the Company’s 1995 Stock Incentive Plan, as
amended from time to time, and related agreements entered into between the
Eligible Employee and the Company thereunder. Except as otherwise set forth in
Equity Benefits below, none of the provisions of this Plan are intended to
affect the terms or conditions of such equity grants.
          NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained:
          OAKLEY, INC., a Washington corporation (the “Company”), hereby amends
and restates the OAKLEY, INC. Executive Severance Plan for the benefit of
certain executives of the Company and its subsidiaries, on the terms and
conditions hereinafter stated.
SECTION 1. DEFINITIONS. As hereinafter used:
      1.1 “Affiliate” means an affiliate of the Company, as defined in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.
      1.2 “Board” means the Board of Directors of the Company or any successor
thereto.
      1.3 “Cause” for termination by the Employer of an Eligible Employee’s
employment shall mean (i) the willful and continued failure by the Eligible
Employee to substantially perform his or her duties with the Company (other than
by reason of the Eligible Employee’s Disability), (ii) the willful engaging by
the Eligible Employee in conduct that is demonstrably and materially injurious
to the Company or its subsidiaries, monetarily or otherwise, (iii) the Eligible
Employee’s conviction of or entry of a plea of guilty or nolo contendere to, a
felony or other crime involving moral turpitude, (iv) the commission by an
Eligible Employee of any act of theft, embezzlement or fraud in connection with
employment with his or her employment with the Company, or (v) an Eligible
Employee’s appropriation (or attempted appropriation) of a material business
opportunity of the Company, including attempting to secure or securing from
anyone

 

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other than the Company any personal profit without the Company’s consent in
connection with any transaction entered into on behalf of the Company.
      1.4 “Change in Control” shall be deemed to have occurred if: (i) any
“person,” as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Act”) (other than the Company; any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company; Jim Jannard, his affiliates, spouse, widow, lineal descendants and
heirs, devisees and donees, and trusts created by Jim Jannard for the benefit of
such persons; or any company owned, directly or indirectly, by the shareholders
of the Company in substantially the same proportions as their ownership of the
Company’s Common Stock (each such persons, an “Excluded Person”)) is or becomes
after the Effective Date the “beneficial owner” (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any securities acquired
directly from the Company) representing 25% or more of the combined voting power
of the Company’s then outstanding securities; or (ii) during any period of two
consecutive years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (i),
(iii) or (iv) of this Section 1.4) whose election by the Board or nomination for
election by the Company’s shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof; or (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (other than an Excluded Person) acquires more than 25% of the combined
voting power of the Company’s then outstanding securities shall not constitute a
Change in Control; or (iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets;
provided, however, that no event shall be deemed to be a Change in Control if,
immediately following such event, Jim Jannard, his affiliates, spouse, widow,
lineal descendants and heirs, devisees and donees, and trusts created by Jim
Jannard for the benefit of such persons shall together be the beneficial owners
of 50% or more of the then outstanding shares of the common stock of the
Company.
      1.5 “COBRA” means the Consolidated Omnibus Reconciliation Act of 1985, as
amended.

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      1.6 “Code” means the Internal Revenue Code of 1986, as it may be amended
from time to time.
      1.7 “Common Stock” means the common stock, par value $0.01 per share, of
the Company.
      1.8 “Company” means OAKLEY, INC. or any successors thereto.
      1.9 “Disability”: An Eligible Employee will be deemed to have a
“Disability” if, for physical or mental reasons, the Eligible Employee is unable
to perform the essential functions of his duties, with or without reasonable
accommodation, for a period of one-hundred-twenty (120) consecutive days or
one-hundred-eighty (180) days during any twelve-month period.
      1.10 “Effective Date” means January 1, 2004.
      1.11 “Eligible Employee” means an individual who is a member of the Office
of the Chairman and designated as an Eligible Employee by the Plan
Administrator.
      1.12 “Employer” means the Company or any of its subsidiaries.
      1.13 “Exchange Act” means the Securities Exchange Act of 1934, as amended
from time to time.
      1.14 “Good Reason” means the occurrence, after a Change in Control of the
Company of any of the following: (i) the assignment of the Eligible Employee of
any duties substantially inconsistent with the Eligible Employee’s position,
duties, responsibilities and status with the Company immediately prior to the
Change in Control; (ii) a material reduction in the Eligible Employee’s annual
base salary, incentive compensation opportunities, or any other material
components of the Eligible Employee’s total compensation as in effect
immediately prior to the Change in Control; or (iii) the relocation of the
Company’s principal executive offices to a location outside Orange County (or,
if different, the metropolitan area in which such offices are located
immediately prior to the Change in Control) or the Company’s requiring the
Eligible Employee to be based anywhere other than in the Company’s principal
executive offices except for required travel on the Company’s business to an
extent substantially consistent with the Eligible Employee’s business travel
obligations immediately prior to the Change in Control.
      1.15 “Equity Benefits” shall have the meaning set forth in Section 2.1(c).
      1.16 “Plan” means the OAKLEY, INC. Executive Severance Plan, as set forth
herein, as it may be amended from time to time.
      1.17 “Plan Administrator” means the Board, or if and to the extent the
Board does not administer the Plan, the Compensation and Stock Option Committee
of the Board in accordance with Section 3 below.

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      1.18 “Severance” means the termination of an Eligible Employee’s
employment with the Employer (i) by the Employer other than for Cause, death or
Disability or (ii) by the Eligible Employee for Good Reason within twelve
(12) months following the consummation of a Change in Control.
      An Eligible Employee will not be considered to have incurred a Severance
if his or her employment is discontinued by reason of the Eligible Employee’s
death or Disability.
      1.19 “Severance Benefits” means the benefits described in Section 2.1(b).
      1.20 “Severance Date” means the date on which an Eligible Employee incurs
a Severance.
      1.21 “Severance Payment” means a payment described in Section 2.1(a).
      1.22 “Severed Employee” means an Eligible Employee who incurs a Severance.
SECTION 2. BENEFITS.
      2.1 Subject to the Eligible Employee’s executing and, if applicable, not
revoking, a release of claims satisfactory to the Company substantially in the
form attached hereto as Annex A (the “Release of Claims”), an Eligible Employee
who incurs a Severance shall be entitled to receive the following benefits:
               (a) Severance Payment. A payment, in lieu of any other severance
payment pursuant to any other plan or agreement of the Company or any subsidiary
thereof to which the Eligible Employee is otherwise entitled, of an amount
comprised of (i) the sum of (x) the Severed Employee’s then annual base salary
as in effect immediately prior to the Severance Date plus (y) the aggregate
amount of commissions paid to the Severed Employee in the twelve full months
immediately preceding the Severance Date, which sum shall be payable either in a
lumpsum or in twelve monthly installments (in each case at the sole discretion
of the Plan Administrator) commencing within 10 business days following the
effective date of the Release of Claims; and (ii) the share of the bonus
otherwise payable to the Severed Employee under the Company’s Amended and
Restated Executive Officer Performance Bonus Plan (determined as set forth
below) had he remained in the employ of the Company through the date on which
bonuses are paid by the Company with respect to the year in which the Severance
Date occurs, which amount shall be payable within 5 days following the
determination of the amount of the payment as described below.
For the purposes of this Section 2.1(a), the amount of the bonus payable to the
Severed Employee shall be determined in good faith by the Plan Administrator,
whose determination shall be final and binding on the Severed Employee, within
15 days following the end of the month in which the Severance Date occurs. The
amount of the bonus payable shall be determined (i) on the basis of the
Company’s earnings per share results through the end of the calendar month in
which the Severance Date occurs (as

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determined by the Company’s senior financial officer), as measured against the
portion of any Company earnings per share target which had been established by
the Plan Administrator as the basis for payment of all or any portion of such
bonus which is related to such time period, and (ii) if applicable, on the basis
of Severed Employee’s individual performance through the Severance Date as
measured against his performance targets established by the Company for such
time period, each as pro-rated for the period through the end of the calendar
month in which the Severance Date occurs.
               (b) Severance Benefits. Provided the Severed Employee timely
elects COBRA coverage, the Company shall pay, on the Severed Employee’s behalf,
his or her group health insurance premiums, including coverage for the Severed
Employee’s eligible dependants that were enrolled immediately prior to the
Severance Date, for a period not to exceed ninety (90) days following the
Severance Date. The Severed Employee will advise the Company promptly upon the
Severed Employee becoming eligible for medical benefits from another source,
and, if such occurs, the Company’s obligation to pay the Severed Employee’s
COBRA premiums will cease. The Severed Employee shall be entitled to maintain
coverage for himself or herself and his or her eligible dependents at the
Severed Employee’s own expense for the balance of the period that the Severed
Employee is entitled to coverage under COBRA.
               (c) Equity Benefits.
                    (i) For any Severance not in connection with a Change in
Control, the acceleration of vesting of that portion of the Severed Employee’s
equity based awards that are outstanding as of the Severance Date, if any, that
would have become vested based solely on the passage of time during the
nine-month period immediately following the Severance Date had the Severed
Employee remained continuously employed by the Company during such period.
                    (ii) If the Severance is in connection with a Change in
Control, 100% of the Severed Employee’s granted equity based awards shall become
immediately vested as of the Severance Date.
                    (iii) If approved by the Plan Administrator prior to the
expiration of the period during which options to purchase Common Stock may be
exercised by the Severed Employee (which approval shall be at the sole
discretion of the Plan Administrator), the post-termination option exercise
period of such options (x) shall be extended by the number of days subject to
any trading blackout on the Common Stock that occurred during the period
beginning on the Severed Employee’s Severance Date and ending on the last day
the Severed Employee’s options would otherwise have been exercisable, and
(y) may be subject to additional extensions, provided that no such extensions
shall in any event extend the option term beyond ten years.

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                    (iv) If (x) the Severed Employee was granted restricted
stock under the Plan that is subject to pre-established performance goals that
would trigger accelerated vesting of the restricted stock (“Performance
Acceleration”), (y) the Severance Date is on or after July 1 of any fiscal year
and (z) at the end of the fiscal year when the Severance occurred the Plan
Administrator has concluded that the Company has met the requirements for
Performance Acceleration, then those shares of restricted stock of the Severed
Employee that are subject to the Performance Acceleration for such fiscal year
shall become vested on the date that the Plan Administrator determined the
Performance Acceleration criteria was met, with the exact number of restricted
shares vesting being based pro rata on the number of days such Severed Employee
was employed by the Company in such fiscal year; provided, however, that there
shall be no duplication of vesting under the terms of this Agreement.
      2.2 Any claim arising out of this Agreement, including any claim by an
Eligible Employee as to the amount or timing of any distribution, shall be
submitted in writing to the Plan Administrator. The Plan Administrator shall,
within sixty (60) days after receipt of such written claim, send a written
notification to the affected parties as to its disposition. In the event a claim
is wholly or partially denied, such written notification shall (i) state the
specific reason or reasons for the denial, (ii) make specific reference to
pertinent Plan provisions on which the denial is based, (iii) provide a
description of any additional material or information necessary for the claim
and an explanation of why such material or information is necessary, and
(iv) set forth the procedure by which the denial may be appealed. In the event a
party wishes to appeal the denial of a claim, he, she or it may request a review
of such denial by making application in writing to the Plan Administrator within
thirty (30) days after receipt of such denial. Such party (or his, her or its
duly authorized legal representative) may, upon written request to the Plan
Administrator, review any documents pertinent to his, her or its claim, and
submit in writing issues and comments in support of his, her or its position.
Within sixty (60) days after receipt of a written appeal (unless special
circumstances, such as the need to hold a hearing, require an extension of time,
but in no event more than one hundred twenty (120) days after such receipt), the
Plan Administrator shall notify the affected parties of the final decision. The
final decision shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, and
specific references to the pertinent Plan provisions on which the decision is
based.
      2.3 Any further dispute or controversy arising under or in connection with
this Plan which remains after the final decision of the Plan Administrator, as
contemplated by Section 2.2, shall be finally settled exclusively by arbitration
in Orange County, California, in accordance with the rules of the American
Arbitration Association then in effect; provided, however, that the arbitrator
shall apply the applicable provisions of ERISA, and applicable regulations
adopted thereunder, in such arbitration proceeding. Judgment may be entered on
the arbitrator’s award in any court having jurisdiction.

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      2.4 The Company shall be entitled to withhold from amounts to be paid to
the Severed Employee hereunder any Federal, state or local withholding or other
taxes or charges which it is from time to time required to withhold.
SECTION 3. PLAN ADMINISTRATION.
      3.1 The Plan shall be administered by the Board or, at the Board’s sole
discretion, by the Compensation and Stock Option Committee of the Board, which
shall be appointed by the Board, and which shall serve at the pleasure of the
Board. The Plan shall be interpreted, administered and operated by the Plan
Administrator, who shall have complete authority, in its sole discretion subject
to the express provisions of the Plan, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for the administration of the Plan.
      3.2 All questions of any character whatsoever arising in connection with
the interpretation of the Plan or its administration or operation shall be
submitted to and settled and determined by the Plan Administrator in an
equitable and fair manner in accordance with the procedure for claims and
appeals described in Section 2.2. Subject to the rights to arbitration provided
in Section 2.3 hereof, any such settlement and determination shall be final and
conclusive, and shall bind and may be relied upon by the Employer, each of the
Eligible Employees and all other parties in interest.
      3.3 The Plan Administrator may delegate any of its duties hereunder to
such person or persons from time to time as it may designate.
      3.4 The Plan Administrator is empowered, on behalf of the Plan, to engage
accountants, legal counsel and such other personnel as it deems necessary or
advisable to assist it in the performance of its duties under the Plan. The
functions of any such persons engaged by the Plan Administrator shall be limited
to the specified services and duties for which they are engaged, and such
persons shall have no other duties, obligations or responsibilities under the
Plan. Such persons shall exercise no discretionary authority or discretionary
control respecting the management of the Plan. All reasonable expenses thereof
shall be borne by the Employer.
SECTION 4. PLAN MODIFICATION OR TERMINATION.
      The Plan may be amended or terminated by the Board, or a duly appointed
committee of the Board, at any time; provided, however, that following the
consummation of a Change in Control, the Plan may not be amended or terminated
without the prior written consent of the then Eligible Employees for a period of
twelve months following such Change in Control; provided, further, that the
individuals listed on Exhibit A shall remain Eligible Employees for a minimum
period of two years from the date such individual is first designated as an
Eligible Employee and the benefits set forth hereunder as of the Effective Date
that are payable to those individuals may not be amended or terminated, without
the Eligible Employee’s written consent, for a period of two years from the date
such individual is first designated as an Eligible Employee, as applicable.

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SECTION 5. GENERAL PROVISIONS.
      5.1 Except as otherwise provided herein or by law, no right or interest of
any Eligible Employee under the Plan shall be assignable or transferable, in
whole or in part, either directly or by operation of law or otherwise, including
without limitation by execution, levy, garnishment, attachment, pledge or in any
manner; no attempted assignment or transfer thereof shall be effective; and no
right or interest of any Eligible Employee under the Plan shall be liable for,
or subject to, any obligation or liability of such Eligible Employee. When a
payment is due under this Plan to a Severed Employee who is unable to care for
his or her affairs, payment may be made directly to his or her legal guardian or
personal representative.
      5.2 If the Company or any Affiliate is obligated pursuant to applicable
law or by virtue of being a party to a contract (but not pursuant to any
severance plan) to pay severance pay, a termination indemnity, notice pay or the
like or if the Company or any Affiliate is obligated by law to provide advance
notice of separation (“Notice Period”), then any Severance Payment hereunder
shall be reduced by the amount of any such severance pay, termination indemnity,
notice pay or the like, as applicable, and by the amount of any compensation
received during any Notice Period.
      5.3 Neither the establishment of the Plan, nor any modification thereof,
nor the creation of any fund, trust or account, nor the payment of any benefits
shall be construed as giving any Eligible Employee, or any person whomsoever,
the right to be retained in the service of the Employer, and all Eligible
Employees shall remain subject to discharge to the same extent as if the Plan
had never been adopted.
      5.4 If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and this Plan shall be construed and enforced as if such provisions had
not been included.
      5.5 Notwithstanding anything herein to the contrary, nothing in this Plan
is intended to modify or terminate the Company’s obligations under any indemnity
agreement entered into between an Eligible Employee and the Company.
      5.6 This Plan shall be binding upon and shall inure to the benefit of and
be enforceable by the Company and its successors and assigns, and by each
Eligible Employee and by the personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees of each
Eligible Employee. If any Eligible Employee shall die while any amount would
still be payable to such Eligible Employee (other than amount which, by their
terms, terminate upon the death of the Eligible Employee), all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Plan to the executors, personal representatives or administrators of the
Eligible Employee’s estate as if the Eligible Employee had continued to live.

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      5.7 The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
      5.8 The Plan shall not be funded. No Eligible Employee shall have any
right to, or interest in, any assets of any Employer which may be applied by the
Employer to the payment of benefits or other rights under this Plan.
      5.9 All notices and all other communications provided for in this Plan
(i) shall be in writing, (ii) shall be hand delivered, sent by first class mail,
certified or registered with return receipt requested, addressed, in the case of
the Company, to One Icon, Foothill Ranch, California 92610, and in the case of
an Eligible Employee, to the last known address of such Eligible Employee, or by
transmission of a fax and (iii) shall be effective when delivered, if hand
delivered; three (3) days after mailing by first class mail, certified or
registered with return receipt requested; and 24 hours after transmission of a
fax.
      5.10 This Plan shall be construed and enforced according to the laws of
the State of California (without regard to its principle of conflict of laws) to
the extent not preempted by Federal law, which shall otherwise control.

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