exv10w12






Exhibit 10.12




PACIFIC SUNWEAR OF CALIFORNIA, INC.

EXECUTIVE SEVERANCE PLAN




ARTICLE 1

ESTABLISHMENT, TERM, AND PURPOSE




     1.1. Establishment of the Plan. Pacific Sunwear of California, Inc, a California corporation
(the “Company”), hereby establishes a severance plan to be known as the “Pacific Sunwear of
California, Inc. Executive Severance Plan” (the “Plan”).



     1.2. Purpose of the Plan. The Plan is designed to provide certain severance benefits to a
select group of management or highly compensated employees of the Company who become eligible to
receive such benefits pursuant to Article 4 hereof.



     1.3. Term of the Plan. The Plan shall commence upon the date of its approval by the Committee
(the “Effective Date”), and shall continue in effect through December 31, 2009 (such period
being referred to herein as the “Term”); provided, however, that the Term shall be
automatically extended for one (1) additional year on December 31, 2009 and on each December 31
thereafter, unless the Company delivers written notice at least eleven (11) months prior to the end
of the Term (or extended Term, as the case may be) to each Participant in the Plan that the Term
will not be extended, and if such notice is timely given, the Plan will terminate at the end of the
Term then in effect (with no extension or further extension, as the case may be). Notwithstanding
the foregoing, in the event that a Change in Control Event occurs during the Term (or extended
Term, as the case may be), the Term shall be extended through, and shall end no earlier than, the
first anniversary of the occurrence of such Change in Control Event. The termination or expiration
of the Term shall not affect the rights of Participants to benefits pursuant to the Plan to the
extent the Participant’s employment is terminated during the Term.



ARTICLE 2

DEFINITIONS




     Whenever used in the Plan, the following terms shall have the meanings set forth below (such
defined terms are in addition to terms defined elsewhere in the Plan) unless the context clearly
indicates to the contrary:




	 	(a)	 	“ADEA” means the United States Age Discrimination in Employment Act of
1967, as amended.
	 
	 	(b)	 	“Annual Bonus” means, as to a particular Participant, the Participant’s
target bonus opportunity for the Company’s fiscal year in which the Participant’s
Separation from Service occurs (or, if there is then no such target bonus opportunity,
the average annual bonus paid by the Company to the Participant for the last three full
fiscal years of the Company prior to the Participant’s Separation from Service).




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	 	(c)	 	“Base Salary” means, as to a particular Participant, the Participant’s
annualized rate of base salary from the Company (or, if the Participant is employed by
a Subsidiary, from the Subsidiary) at the relevant time.
	 
	 	(d)	 	“Board” means the Board of Directors of the Company.
	 
	 	(e)	 	“Cause” means, as to a particular Participant, a termination of the
Participant’s employment by the Company or a Subsidiary based on a determination by the
Committee, acting in good faith and based on the information then known to it, that one
or more of the following has occurred:






	 	(i)	 	the Participant’s conviction of or entrance of a plea of guilty
or nolo contendere to a felony;
	 
	 	(ii)	 	fraudulent conduct by the Participant in connection with the
business affairs of the Company or a Subsidiary;
	 
	 	(iii)	 	theft, embezzlement, or other criminal misappropriation of
funds by the Participant from the Company or a Subsidiary;
	 
	 	(iv)	 	the Participant’s bad faith refusal to perform his or her
duties to the Company or a Subsidiary, or follow the lawful orders of the Board
(or board of directors of a Subsidiary by which the Participant is employed, as
applicable) or the officer or other employee (if any) to whom the Participant
reports;
	 
	 	(v)	 	the Participant’s willful misconduct, which has, or would if
generally known, materially adversely affect the good will, business, or
reputation of the Company or a Subsidiary; or
	 
	 	(vi)	 	the Participant’s material breach of any agreement between the
Participant and the Company or any of its Subsidiaries.






	 	(f)	 	“CEO” means the Chief Executive Officer of the Company.
	 
	 	(g)	 	“Change in Control Event” has the meaning ascribed to such term under
the Company’s 2005 Performance Incentive Plan as in effect on the Effective Date. In
no event shall a transaction or other event that occurred prior to the Effective Date
constitute a Change in Control Event. Only the first Change in Control Event that
occurs during the Term shall be considered a Change in Control Event for purposes of
the Plan; any transaction or occurrence after the first Change in Control Event that
would otherwise constitute such a Change in Control Event shall not constitute a Change
in Control Event for purposes of the Plan. Notwithstanding any other provision herein,
a transaction shall not constitute a Change in Control Event for purposes of the Plan
unless it is a “change in the ownership or effective control” of the Company, or a
change “in the ownership of a substantial portion of the assets” of the Company within
the meaning of Section 409A of the Code.




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	 	(h)	 	“Change in Control Severance Multiplier” means, as to a particular
Participant, the “Change in Control Severance Multiplier” set forth in the
Participant’s Participation Agreement for the purpose of calculating the Participant’s
benefits under Section 4.2(a).
	 
	 	(i)	 	“COBRA Multiplier” means, as to a particular Participant, the “COBRA
Multiplier” set forth in the Participant’s Participation Agreement for the purpose of
calculating the Participant’s benefits under Section 4.1(c) and 4.2(b).
	 
	 	(j)	 	“Code” means the United States Internal Revenue Code of 1986, as
amended.
	 
	 	(k)	 	“Committee” means the Compensation Committee of the Board.
	 
	 	(l)	 	“Disability” means, as to a particular Participant, the Participant’s
inability, because of physical or mental illness or injury, to perform the essential
functions of her customary duties to the Company or a Subsidiary, even with a
reasonable accommodation, and the continuation of such disabled condition for a period
of one hundred eighty (180) continuous days, or for not less than two hundred ten (210)
days during any continuous twenty-four (24) month period.
	 
	 	(m)	 	“Eligible Person” means an employee of the Company or a Subsidiary.
	 
	 	(n)	 	“ERISA” means the United States Employee Retirement Income Security Act
of 1974, as amended.
	 
	 	(o)	 	“Good Reason” means, with respect to a particular Participant, the
occurrence of any one or more of the following conditions without the Participant’s
express written consent:






	 	(i)	 	a material diminution in the Participant’s authority, duties or
responsibilities;
	 
	 	(ii)	 	a material diminution in the Participant’s rate of base
compensation;
	 
	 	(iii)	 	a change in the location of the Participant’s principal
workplace for the Company (or the Subsidiary that employs the Participant, as
applicable) to a location that is more than fifty (50) miles from the
Participant’s principal workplace as of the date immediately preceding the
occurrence of a Change in Control Event and that results in an increased
commute for the Participant from his or her principal residence (except for
reasonable periods of required travel on Company business); or
	 
	 	(iv)	 	a material breach by the Company (or, if the Participant is
employed by a Subsidiary, the Subsidiary) of any agreement with the
Participant;






	 	 	 	provided, however, that any such condition shall not constitute “Good Reason” unless
both (x) the Participant provides written notice to the Company of the




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	 	 	 	condition claimed to constitute Good Reason within ninety (90) days of the initial
existence of such condition, and (y) the Company fails to remedy (or fails to cause
the Subsidiary that employs the Participant to remedy, as the case may be) such
condition within thirty (30) days of receiving such written notice thereof; and
provided, further, that in all events the termination of the Participant’s
employment with the Company (or the Subsidiary that employs the Participant, as
applicable) shall not be treated as a termination for “Good Reason” unless such
termination occurs not more than one (1) year following the initial existence of the
condition claimed to constitute “Good Reason.”






	 	(p)	 	“Participant” means any Eligible Person who is selected to participate
in the Plan as determined in accordance with Article 3.
	 
	 	(q)	 	“Participation Agreement” means the participation agreement described
in Section 3.2.
	 
	 	(r)	 	“Separation from Service” means, as to a particular Participant, a
termination of services provided by the Participant to his or her Employer, whether
voluntarily or involuntarily, as determined by the Committee in accordance with Section
409A of the Code and Treasury Regulation Section 1.409A-1(h). In determining whether a
Participant has experienced a Separation from Service, the following provisions shall
apply:






	 	(i)	 	For a Participant who provides services to an Employer as an
employee, except as otherwise provided in clause (iii) below, a Separation from
Service shall occur when the Participant has experienced a termination of
employment with the Employer. A Participant shall be considered to have
experienced a termination of employment for this purpose when the facts and
circumstances indicate that the Participant and his or her Employer reasonably
anticipate that either (A) no further services will be performed by the
Participant for the Employer after the applicable date, or (B) that the level
of bona fide services the Participant will perform for the Employer after such
date (whether as an employee or as an independent contractor) will permanently
decrease to no more than 20% of the average level of bona fide services
performed by the Participant (whether as an employee or an independent
contractor) over the immediately preceding 36-month period (or the full period
of services to the Employer if the Participant has been providing services to
the Employer less than 36 months). However, if the Participant is on military
leave, sick leave, or other bona fide leave of absence, the employment
relationship between the Participant and the Employer shall be treated as
continuing intact, provided that the period of such leave does not exceed 6
months, or if longer, so long as the Participant retains a right to
reemployment with the Employer under an applicable statute or by contract. If
the period of a military leave, sick leave, or other bona fide leave of absence
exceeds 6 months and the Participant does not retain a right to reemployment
under an applicable statute or




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	 	 	 	by contract, the employment relationship shall be considered to be
terminated for purposes of the Plan as of the first day immediately
following the end of such 6-month period. In applying the provisions of
this paragraph, a leave of absence shall be considered a bona fide leave of
absence only if there is a reasonable expectation that the Participant will
return to perform services for the Employer.






	 	(ii)	 	For a Participant who provides services to an Employer as an
independent contractor, except as otherwise provided in clause (iii) below, a
Separation from Service shall occur upon the expiration of the contract (or in
the case of more than one contract, all contracts) under which services are
performed for such Employer, provided that the expiration of such contract(s)
is determined by the Committee to constitute a good-faith and complete
termination of the contractual relationship between the Participant and such
Employer.
	 
	 	(iii)	 	For a Participant who provides services to an Employer as both
an employee and an independent contractor, a Separation from Service generally
shall not occur until the Participant has ceased providing services for the
Employer as both an employee and as an independent contractor, as determined in
accordance with the provisions set forth in clauses (i) and (ii) above.
Similarly, if a Participant either (A) ceases providing services for an
Employer as an independent contractor and begins providing services for such
Employer as an employee, or (ii) ceases providing services for an Employer as
an employee and begins providing services for such Employer as an independent
contractor, the Participant will not be considered to have experienced a
Separation from Service until the Participant has ceased providing services for
such Employer in both capacities, as determined in accordance with clauses (i)
and (ii) above.






	 	 	 	Notwithstanding the foregoing provisions in this definition, if a Participant
provides services for an Employer as both an employee and as a member of its board
of directors, to the extent permitted by Treasury Regulation Section 1.409A-1(h)(5)
the services provided by the Participant as a director shall not be taken into
account in determining whether the Participant has experienced a Separation from
Service as an employee, and the services provided by such Participant as an employee
shall not be taken into account in determining whether the Participant has
experienced a Separation from Service as a director, for purposes of the Plan.
	 
	 	 	 	For purposes of this definition, the term “Employer” means the Company or Subsidiary
that the Participant last performed services for or was employed by, as applicable,
on the date of his or her Separation from Service, and all other entities that are
required to be aggregated together and treated as the employer under Treasury
Regulation Section 1.409A-1(h)(3).




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	 	(s)	 	“Severance Multiplier” means, as to a particular Participant, the
“Severance Multiplier” set forth in the Participant’s Participation Agreement for the
purpose of calculating the Participant’s benefits under Section 4.1(a) and 4.1(b).
	 
	 	(t)	 	“Severance Period” means, as to a particular Participant, a period of
months determined by multiplying twelve (12) by the Participant’s Severance Multiplier,
with the first month of such period to be the month following the month in which the
Participant’s Separation from Service occurs.
	 
	 	(u)	 	“Specified Employee” means a Participant who, as of the date of the
Participant’s Separation from Service, is a “specified employee” within the meaning of
Treasury Regulation Section 1.409A-1(i).
	 
	 	(v)	 	“Subsidiary” means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned, directly or indirectly,
by the Company.
	 
	 	(w)	 	“Years of Service” means, as to a particular Participant, the number of
whole years that the Participant was employed by the Company or any of its
Subsidiaries. Years of Service shall be determined by dividing the total number of
calendar days on which the Participant was employed by the Company or one or more of
its Subsidiaries by three hundred sixty-five (365). Any fractional year shall be
disregarded.





ARTICLE 3

PARTICIPATION




     3.1. Participation. The Committee shall from time to time designate in writing those Eligible
Persons who are, subject to Section 3.2, eligible to participate in the Plan. Notwithstanding
anything else contained herein to the contrary, the Committee shall limit the class of persons
selected to participate in the Plan to a select group of management or highly compensated
employees, as set forth in Sections 201, 301 and 401 of ERISA. Once a Participant participates in
the Plan, the Participant may not be removed from participation in the Plan unless the Committee
gives written notice to the Participant that he or she will no longer be a Participant in the Plan,
in which case the Participant shall cease to be a Participant in the Plan on the later of the
one-year anniversary of the date of delivery of such notice to the Participant or, if a Change in
Control Event occurs during that one-year period, the first anniversary of such Change in Control
Event (unless, in each case, the termination of the Participant’s employment occurs prior to such
date in which case the Participant shall be entitled to the benefits otherwise due under the Plan
with respect to the termination of his or her employment).



     3.2. Participation Agreement. To the extent the Committee has designated an Eligible Person
as being eligible to participate in the Plan, the Eligible Person shall become a Participant only
by promptly completing, fully executing, and returning to the Company a participation agreement in
substantially the form attached hereto as Exhibit A (or such other



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form as the Committee may require and provide for at the time it designates the Eligible
Person as being eligible to participate in the Plan).



     3.3. Termination of Employment. Notwithstanding anything else contained in the Plan to the
contrary, a Participant shall not be deemed to have terminated employment with the Company or a
Subsidiary if his or her employment by the Company or a Subsidiary terminates but he or she
otherwise continues, immediately after such termination of employment, as an employee of the
Company or another Subsidiary; provided that whether the Participant has Good Reason to terminate
employment shall be determined by comparing the Participant’s authority, duties, responsibilities
and other terms of employment after giving effect to such change to the Participant’s authority,
duties, responsibilities and other terms of employment before giving effect to such change (in each
case relative to the Company and its Subsidiaries on a consolidated basis, not simply with
reference to the Participant’s employer).



     3.4. Benefit Offset. Notwithstanding anything else contained in the Plan to the contrary, any
severance benefits otherwise payable under the Plan to a Participant shall be offset or reduced by
the amount of severance benefits payable or deliverable to the Participant under any other plan,
program, or agreement of or with the Company or any of its Subsidiaries.



ARTICLE 4

SEVERANCE BENEFITS




     4.1. Severance Benefits. Subject to the other provisions of the Plan, if a Participant’s
employment with the Company or a Subsidiary is terminated by the Company or a Subsidiary without
Cause (and other than due to the Participant’s death or Disability) during the Term, the
Participant shall be entitled to receive from the Company the following severance benefits:




	 	(a)	 	A cash payment equal to (i) the Participant’s Severance Multiplier, multiplied
by (ii) the Participant’s last rate of Base Salary in effect on or immediately prior to
the Participant’s Separation from Service.
	 
	 	(b)	 	A cash payment equal to (i) the Participant’s Severance Multiplier, multiplied
by (ii) the quotient obtained by dividing the Participant’s Base Salary (as last in
effect on or immediately prior to the Participant’s Separation from Service) by twelve
(12), multiplied by (iii) the Participant’s Years of Service as of the Participant’s
Separation from Service (up to a maximum of twelve (12) Years of Service);
provided, however, that in no event shall the amount determined
pursuant to this Section 4.1(b) for the Participant exceed an amount equal to (x) the
amount obtained by multiplying two (2), by the Participant’s Severance Multiplier, by
the Participant’s Base Salary (as last in effect on or immediately prior to the
Participant’s Separation from Service), less (y) the amount determined for the
Participant pursuant to Section 4.1(a).
	 
	 	(c)	 	A cash payment equal to the expected aggregate cost, as reasonably determined
by the Committee, of the premiums that would be charged to the Participant to continue
medical coverage pursuant to the Consolidated Omnibus Budget




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	 	 	 	Reconciliation Act (“COBRA”), at the same or reasonably equivalent medical
coverage for the Participant (and, if applicable, the Participant’s eligible
dependents) as last in effect upon or immediately prior to the Participant’s
Separation from Service, for a number of months equal to twelve (12) multiplied by
the Participant’s COBRA Multiplier.






	 	(d)	 	Payment or reimbursement of the Participant’s costs for outplacement services
obtained by the Participant within the twelve (12) month period following the
Participant’s Separation from Service up to a maximum of $20,000 (in the case of a
Participant who was the CEO at any time within the twelve (12) month period prior to
his or her Separation from Service) or $10,000 (in the case of any other Participant).





     For purposes of clarity, the Participant shall not be entitled to receive any benefits under
this Section 4.1 if the Participant voluntarily terminates his or her employment with the Company
or a Subsidiary (regardless of the reason for such voluntary termination).



     4.2. Change in Control Severance Benefits. Subject to the other provisions of the Plan, if
(1) the Participant’s employment with the Company or a Subsidiary is terminated during the Term by
the Company or a Subsidiary without Cause (and other than due to the Participant’s death or
Disability) or by the Participant for Good Reason, and (2) such termination of employment occurs at
any time during the period commencing three (3) months before the occurrence of a Change in Control
Event and ending twelve (12) months after such Change in Control Event, the Participant shall be
entitled to receive from the Company the following benefits:




	 	(a)	 	A cash payment equal to (i) the Participant’s Change in Control Severance
Multiplier, multiplied by (ii) the sum of (x) the Participant’s highest rate of Base
Salary in effect in the one year period preceding the Participant’s Separation from
Service, and (y) the Participant’s Annual Bonus.
	 
	 	(b)	 	A cash payment equal to the amount determined under Section 4.1(c), subject to
the conditions and limitations set forth in such section.
	 
	 	(c)	 	Payment or reimbursement of the Participant’s costs for outplacement services
as provided in Section 4.1(d), subject to the conditions and limitations set forth in
such section.





     If a Participant is otherwise entitled to receive benefits under both Section 4.1 above and
this Section 4.2, the Participant shall receive the benefits provided in this Section 4.2 and
not the benefits provided in Section 4.1.



     4.3. Termination for Other Reasons. For avoidance of doubt, the Company and its Subsidiaries
shall have no obligations (or no further obligations, as the case may be) to the Participant under
the Plan if:




	 	(a)	 	the Participant’s employment terminates for any reason prior to the Effective
Date; or




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	 	(b)	 	after the Effective Date,






	 	(i)	 	the Participant’s employment is terminated by the Company or a
Subsidiary for Cause;
	 
	 	(ii)	 	the Participant voluntarily terminates his or her employment
with the Company or a Subsidiary for any reason (other than a termination for
Good Reason in the circumstances provided in Section 4.2);
	 
	 	(iii)	 	the Participant’s employment with the Company or a Subsidiary
terminates due to the Participant’s Disability or death; or
	 
	 	(iv)	 	the Participant’s employment with the Company or a Subsidiary
terminates for any reason after the Term.





     4.4. Notice of Termination. Any termination of a Participant’s employment by the Company or a
Subsidiary for Cause or due to Disability, or by a Participant for Good Reason, shall be
communicated by Notice of Termination. For purposes of the Plan, a “Notice of Termination”
shall mean a written notice which shall indicate the specific termination provision in the Plan
relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Participant’s employment under the provision so indicated.



ARTICLE 5

TIMING AND CONDITIONS OF PAYMENTS; TAXES




     5.1. Form and Timing of Severance Payments. Subject to Section 5.2 and in each case subject
to Section 5.1(d), any severance benefits described in Section 4.1 or Section 4.2 that become
payable to a Participant in accordance with the provisions of the Plan shall be paid at the times
and in the manner set forth in this Section 5.1.




	 	(a)	 	The payments described in Sections 4.1(a) and 4.1(b) shall be paid by the
Company in cash to the Participant in a series of substantially equal installment
payments (each constituting the same approximate fraction of the aggregate severance
amount and with such installments paid not less frequently than monthly), with the
first such payment being made during the calendar month that follows the calendar month
during which the Participant’s Separation from Service occurs and the last such payment
being made at the end of the Severance Period. Notwithstanding the foregoing
provisions, if a Change in Control Event occurs upon or at any time after the
Participant’s Separation from Service, the aggregate amount of the remaining unpaid
installments shall be paid to the Participant in cash in a lump sum not more than
thirty (30) days after such Change in Control Event.
	 
	 	(b)	 	The payments described in Section 4.2(a) and in Section 4.1(c) or Section
4.2(b), as applicable, shall be paid by the Company in cash to the Participant on or
within the seventy four (74) days period following the Participant’s Separation from
Service.




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	 	(c)	 	Any payment or reimbursement to which a Participant may become entitled
pursuant to Section 4.1(d) or Section 4.2(c) shall be subject to the Company’s expense
reimbursement policies in effect immediately prior to the Participant’s Separation from
Service (or, if earlier, the date of a Change in Control Event) and applicable to the
Company’s executives generally and shall be fully paid or reimbursed, as applicable, by
the Company not later than the end of the Participant’s third taxable year following
the Participant’s taxable year in which the Participant’s Separation from Service
occurs.
	 
	 	(d)	 	Notwithstanding any other provision herein, if a Participant is a Specified
Employee as of the date of such Separation from Service, the Participant shall not be
entitled to any distribution of his or her benefits hereunder until the earlier of (i)
the date which is six (6) months after his or her Separation from Service for any
reason other than death, or (ii) the date of the Participant’s death. The provisions
of this paragraph shall only apply if, and to the extent, required to avoid the
imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
	 
	 	 	 	Any amounts otherwise payable to a Participant upon or in the six (6) month period
following the Participant’s Separation from Service that are not so paid by reason
of the preceding paragraph shall be paid (without interest) as soon as practicable
(and in any event within thirty (30) days) after the date that is six (6) months
after the Participant’s Separation from Service (or, if earlier, as soon as
practicable after the date of the Participant’s death).





     5.2. Duty to Mitigate; Release.




	 	(a)	 	Notwithstanding anything to the contrary contained in the Plan but subject to
Section 5.2(c), during the period in which a Participant is entitled to receive any
payments described in Sections 4.1(a) and 4.1(b) and prior to the date on which all
such payments have been made to the Participant pursuant to Section 5.1(a), the
Participant shall have the affirmative duty to take reasonable efforts to seek other
employment in which the Participant is reasonably qualified or otherwise to mitigate
the Participant’s right to any and all such payments. In the event the Company
believes the Participant has breached his or her duty to seek other employment in which
the Participant is reasonably qualified or otherwise to mitigate the Participant’s
right to any and all such payments, the Company shall notify the Participant in writing
(with such notice to be given in accordance with Section 13.6 hereof) of such belief
not less than fourteen (14) days prior to the Company’s termination of any such
payments otherwise due to the Participant hereunder. Any money or other valuable
consideration earned or otherwise received by the Participant or credited to the
Participant’s account (whether presently or on a deferred basis) from the provision of
services (whether as an employee, independent contractor, consultant, advisor, or
otherwise) during such period shall be offset against and serve to decrease the amount
of any such payments. Each Participant agrees to notify the Company in writing
immediately upon receiving or earning any such money or




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	 	 	 	other valuable consideration. For avoidance of doubt, a Participant’s duty to
mitigate any payments pursuant to this Section 5.2(a) shall terminate upon the
occurrence of a Change in Control Event.






	 	(b)	 	Notwithstanding anything to the contrary contained in the Plan but subject to
Section 5.2(c), the Company’s obligation to make any payment of benefits with respect
to a Participant under the Plan (or to continue making any such payment, as the case
may be) is subject to the condition precedent that the Participant shall have complied
with the restrictive covenants set forth in Article 8 hereof.
	 
	 	(c)	 	Notwithstanding anything to the contrary in Sections 5.2(a) and 5.2(b) but
subject to Section 5.2(d), in no event shall the total amount actually paid by the
Company pursuant to Sections 4.1(a) and 4.1(b) to a Participant entitled to receive any
payment pursuant to such sections be less than the lesser of (i) the aggregate amount
the Participant is otherwise entitled to receive pursuant to such sections, or (ii) Ten
Thousand Dollars ($10,000), regardless of any breach by the Participant of the
Participant’s obligations under Section 5.2(a) or Article 8, which amount each
Participant agrees is good and sufficient consideration for the release described in
Section 5.2(d) and other obligations of the Participant set forth herein.
	 
	 	(d)	 	Notwithstanding anything to the contrary contained in the Plan, the Company’s
obligation to make any payment of benefits with respect to a Participant under the Plan
is subject to the condition precedent that (i) the Participant has fully executed a
valid and effective release (in the form attached hereto as Exhibit B or such
other form as the Committee may reasonably require in the circumstances, which other
form shall be substantially similar to that attached hereto as Exhibit B but
with such changes as the Committee may determine to be required or reasonably advisable
in order to make the release enforceable and otherwise compliant with applicable laws),
(ii) such executed release is delivered by the Participant to the Company so that it is
received by the Company in the time period specified below, and (iii) such release is
not revoked by the Participant (pursuant to any revocation rights afforded by
applicable law). In order to satisfy the requirements of this Section 5.2(c), a
Participant’s release referred to in the preceding sentence must be delivered by the
Participant to the Company so that it is received by the Company no later than thirty
(30) calendar days after the Participant’s Separation from Service (or such later date
as may be required for an enforceable release of the Participant’s claims under the
ADEA, to the extent the ADEA is applicable in the circumstances, in which case the
Participant will be provided with either twenty one (21) or forty five (45) days,
depending on the circumstances of the termination, to consider the release). In
addition, the Company may require that the Participant’s release be executed no earlier
than the date that the Participant’s employment with the Company terminates.




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     5.3. Withholding of Taxes. Notwithstanding anything else herein to the contrary, the Company
may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or
payable under or pursuant to the Plan such federal, state and local income, employment, or other
taxes as may be required to be withheld pursuant to any applicable law or regulation.



ARTICLE 6

SECTION 280G




     6.1. Application. The provisions of this Article 6 shall apply to each Participant in the
Plan other than the CEO. The CEO shall be covered by the provisions set forth in this Article 6
only if the CEO is a Participant and is not a party to an employment or other
written agreement with the Company that provides for “gross-up” or similar change in control
provisions with respect to Section 280G and/or Section 4999 of the Code (otherwise, such “gross-up”
or similar change in control provisions shall apply to the CEO).



     6.2. Possible Cut-Back. Notwithstanding anything contained in the Plan to the contrary, to
the extent that any payment or distribution of any type to or for the Participant by the Company or
any of its affiliates, whether paid or payable or distributed or distributable pursuant to the
terms of the Plan or otherwise (including, without limitation, any accelerated vesting of stock
options or other equity-based awards granted by the Company to the Participant) (collectively, the
“Total Payments”) is or will be subject to the excise tax imposed under Section 4999 of the
Code (which reference includes, for purposes of the Plan, any similar successor provision to
Section 4999), then the Total Payments shall be reduced (but not below zero) so that the maximum
amount of the Total Payments (after reduction) shall be one dollar ($1.00) less than the amount
which would cause the Total Payments to be subject to the excise tax imposed by Section 4999 of the
Code; provided that such reduction to the Total Payments shall be made only if the total after-tax
benefit to the Participant is greater after giving effect to such reduction than if no such
reduction had been made. The Company shall reduce or eliminate the Total Payments by first
reducing or eliminating any cash severance benefits, then by reducing or eliminating any
accelerated vesting of stock options, then by reducing or eliminating any accelerated vesting of
other equity-based awards, then by reducing or eliminating any other remaining Total Payments. The
preceding provisions of this Section 6.2 shall take precedence over the provisions of any other
plan, arrangement or agreement governing the Participant’s rights and entitlements to any benefits
or compensation; provided, however, that if the Participant is a party to a written
employment or other written agreement with the Company that contains express provisions for a
so-called “gross-up” payment to the extent that excise taxes are imposed under Section 4999 of the
Code, the Section 280G and/or Section 4999 provisions of such employment or other agreement shall
control.



     6.3. Determination. Any determination that Total Payments to the Participant must be reduced
or eliminated in accordance with Section 6.2 and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm or consulting firm with
experience in such matters selected by the Company (the “Accounting Firm”), which shall
provide detailed supporting calculations both to the Company and the Participant within fifteen
(15) business days after the date such calculation



12









 







is requested by the Company or the Participant. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting the Change in
Control Event, the Participant shall appoint another nationally recognized accounting or consulting
firm with experience in such matters to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. If a reduction or elimination of
Total Payments to the Participant in accordance with the foregoing is necessary based on the
Accounting Firm’s determination, the Accounting Firm shall furnish the Participant with a written
opinion that failure to limit the amount of the Total Payments would result in the imposition of a
tax under Section 4999 of the Code as well as the estimates of the Participant’s after-tax net
benefits before and after giving effect to such a reduction. Any determination by the Accounting
Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Total Payments to the Participant which will not have been made
by the Company should have been made. The Accounting Firm shall determine the amount of such
underpayment that has occurred and any such underpayment shall be promptly paid by the Company to
or for the benefit of the Participant. In the event that any Total Payment made to the Participant
shall be determined by the Accounting Firm to result in the imposition of any tax under Section
4999 of the Code and a reduction of Total Payments was otherwise required pursuant to Section 6.2
to avoid the imputation of such tax, the Participant shall promptly repay the amount of such excess
to the Company together with interest on such amount (at the same rate as is applied to determine
the present value of payments under Section 280G or any successor thereto), from the date the
reimbursable payment was received by the Participant to the date the same is repaid to the Company.



ARTICLE 7

PAYMENT OBLIGATIONS




     7.1. Payment of Obligations. The Company’s obligation to make any benefit payment (or
installment thereof) pursuant to the Plan shall immediately cease upon failure by the Participant
(or former Participant) entitled to such payment to comply with Section 5.2.



     7.2. Unsecured General Creditor. Participants and their heirs, successors, and assigns shall
have no legal or equitable rights, claims, or interest in any specific property or assets of the
Company or any Subsidiary. No assets of the Company or any Subsidiary shall be held under any
trust, or held in any way as collateral security, for the fulfilling of the obligations of the
Company under the Plan. Any and all of the Company’s and each Subsidiary’s assets shall be, and
remain, the general unpledged, unrestricted assets of the Company or Subsidiary, as applicable
(unless pledged or restricted with respect to such entity’s obligations other than the Plan). The
Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of
the Company to pay money in the future, and the rights of the Participants and their heirs or
successors as to benefits under the Plan shall be no greater than those of unsecured general
creditors of the Company.



     7.3. Other Benefit Plans. All payments, benefits and amounts provided under the Plan shall be
in addition to and not in substitution for any pension rights under the any tax-



13









 







qualified pension
or retirement plan in which the Participant participates, and any disability, workers’ compensation
or other Company or Subsidiary benefit plan distribution that a Participant is entitled to (other
than severance benefits), under the terms of any such plan, at the time the Participant ceases to
be employed by the Company or a Subsidiary. Notwithstanding the foregoing, the Plan shall not
create an inference that any duplicate payments shall be required. Payments received by a person
under the Plan shall not be deemed a part of the person’s compensation for purposes of the
determination of benefits under any other employee pension, welfare or other benefit plans or
arrangements, if any, provided by the Company or a Subsidiary, except where explicitly provided
under the terms of such plans or arrangements.



ARTICLE 8

RESTRICTIVE COVENANTS




     8.1. Non-Competition. Each Participant acknowledges and recognizes the highly competitive
nature of the businesses of the Company and its Subsidiaries and accordingly agrees as follows:




	 	(a)	 	During his or her employment, the Participant will not, directly or indirectly,
(i) engage in any business for the Participant’s own account that competes with the
business of the Company or its Subsidiaries (including, without limitation, businesses
which the Company or its Subsidiaries have specific plans to conduct in the future and
as to which the Participant is aware of such planning), (ii) enter the employ of, or
render any services to, any person engaged in any business that competes with the
business of the Company or its Subsidiaries, (iii) acquire a financial interest in any
person engaged in any business that competes with the business of the Company or its
Subsidiaries, directly or indirectly, as an individual, partner, shareholder, officer,
director, principal, agent, trustee or consultant, or (iv) interfere with business
relationships between the Company or any of its Subsidiaries and customers, suppliers,
partners, members or investors of the Company or its Subsidiaries. Without limiting
the generality of the foregoing, the Participant agrees that any designer,
manufacturer, wholesaler or retailer which designs, manufactures, markets or sells
specialty apparel, clothing or accessories to the age groups between eleven (11) and
thirty-five (35) and where such designer, manufacturer, wholesaler or retailer operates
within seventy-five (75) miles of any location of the Company or any affiliate, would
be “in competition with the business of the Company” or its Subsidiaries.
	 
	 	(b)	 	Notwithstanding anything to the contrary in the Plan or any Participation
Agreement, the Participant may, directly or indirectly, own, solely as an investment,
securities of any person engaged in the business of the Company or its Subsidiaries
which are publicly traded on a national or regional stock exchange or on an
over-the-counter market, or an interest in a diversified mutual fund, hedge fund or
pooled investment account, if the Participant (i) is
not a controlling person of, or a member of a group which controls, such




14









 






	 	 	 	person,
fund or account and (ii) does not, directly or indirectly, own five percent (5%) or
more of any class of securities of such person, fund or account.





     8.2. Anti-Solicitation. Each Participant promises and agrees that during his or her
employment, and for a period of one (1) year thereafter, he or she will not influence or attempt to
influence customers, vendors, or business partners of the Company or any of its Subsidiaries,
either directly or indirectly, to divert their business from the Company or a Subsidiary to any
individual, partnership, firm, corporation or other entity then in competition with the business of
the Company or any Subsidiary.



     8.3. Solicitation of Employees. Each Participant promises and agrees that during his or her
employment, and for a period of one (1) year thereafter, he or she will not directly or indirectly
solicit any employee of the Company or a Subsidiary to work for any business, individual,
partnership, firm, corporation, or other entity then in competition with the business of the
Company or any Subsidiary.



     8.4. Confidentiality. Each Participant promises and agrees that he or she will not at any
time (whether during or after his or her employment with the Company), unless compelled by lawful
process, disclose or use for his or her own benefit or purposes or the benefit or purposes of any
other person, firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its Subsidiaries or
affiliates, any trade secrets, or other confidential data or information relating to customers,
design programs, costs, marketing, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any Subsidiary or affiliate of the Company;
provided that the foregoing shall not apply to information which is not unique to the
Company (or Subsidiary or affiliate, as applicable) or which is generally known to the industry or
the public other than as a result of the Participant’s breach of this covenant. Each Participant
agrees that upon termination of his or her employment with the Company or a Subsidiary for any
reason, or upon the request of the Company or a Subsidiary, he or she will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other data, and all
copies thereof or therefrom, in any way relating to the business of the Company, any Subsidiary or
affiliate of the Company. Each Participant further agrees that he or she will not retain or use
for his or her account at any time any trade names, trademark or other proprietary business
designation used or owned in connection with the business of the Company, any Subsidiary or
affiliate of the Company; provided, however, that the Participant may retain the Participant’s
rolodex, address books, information relating to the Participant’s compensation or relating to
reimbursement of expenses, documents relating to the Participant’s participation in employee
benefit plans or programs of the Company or Subsidiary, any agreement between the Participant and
the Company or a Subsidiary relating to the Participant’s employment with the Company or a
Subsidiary, and other personal property provided that such items do not contain any confidential
information of the Company or a Subsidiary.



     8.5. Injunctive Relief. Each Participant expressly agrees that the Company will or would
suffer irreparable injury if he or she were to breach any of the provisions of this Article 8 and
that the Company would by reason of such conduct be entitled, in addition to any other
remedies, to injunctive relief. Each Participant consents and stipulates to the entry of such



15









 







injunctive relief prohibiting him or her from engaging in conduct which violates any of the
provisions of this Article 8.



ARTICLE 9

CLAIMS PROCEDURES




     9.1. Presentation of Claim. Any Participant (such Participant being referred to below as a
“Claimant”) may deliver to the Committee a written claim for a determination with respect
to the benefits payable to such Claimant pursuant to the Plan. If such a claim relates to the
contents of a notice received by the Claimant, the claim must be made within sixty (60) days after
such notice was received by the Claimant. All other claims must be made within one hundred eighty
(180) days of the date on which the event that caused the claim to arise occurred. The claim must
state with particularity the determination desired by the Claimant.



     9.2. Notification of Decision. The Committee shall consider a Claimant’s claim within a
reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee
determines that special circumstances require an extension of time for processing the claim,
written notice of the extension shall be furnished to the Claimant prior to the termination of the
initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90)
days from the end of the initial ninety (90) day period. The extension notice shall indicate the
special circumstances requiring an extension of time and the date by which the Committee expects to
render the benefit determination. The Committee shall notify the Claimant in writing:




	 	(a)	 	that the Claimant’s requested determination has been made, and that the claim
has been allowed in full; or
	 
	 	(b)	 	that the Committee has reached a conclusion contrary, in whole or in part, to
the Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:






	 	(i)	 	the specific reason(s) for the denial of the claim, or any part
of it;
	 
	 	(ii)	 	specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
	 
	 	(iii)	 	a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary;
	 
	 	(iv)	 	an explanation of the claim review procedure and the time
limits applicable to such procedures set forth in Section 9.3; and
	 
	 	(v)	 	a statement of the Claimant’s right to bring a civil action
under ERISA Section 502(a) following an adverse determination on review.





     9.3. Review of a Denied Claim. On or before sixty (60) days after receiving a notice from the
Committee that a claim has been denied, in whole or in part, a Claimant (or the



16









 







Claimant’s duly
authorized representative) may file with the Committee a written request for a review of the denial
of the claim. The Claimant (or the Claimant’s duly authorized representative):




	 	(a)	 	may, upon request and free of charge, have reasonable access to, and copies of,
all documents, records and other information relevant to the claim for benefits;
	 
	 	(b)	 	may submit written comments or other documents; and/or
	 
	 	(c)	 	may request a hearing, which the Committee, in its sole discretion, may grant.





     9.4. Decision on Review. The Committee shall render its decision on review promptly, and no
later than sixty (60) days after the Committee receives the Claimant’s written request for a review
of the denial of the claim. If the Committee determines that special circumstances require an
extension of time for processing the claim, written notice of the extension shall be furnished to
the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such
extension exceed a period of sixty (60) days from the end of the initial sixty (60) day period.
The extension notice shall indicate the special circumstances requiring an extension of time and
the date by which the Committee expects to render the benefit determination. In rendering its
decision, the Committee shall take into account all comments, documents, records and other
information submitted by the Claimant relating to the claim, without regard to whether such
information was submitted or considered in the initial benefit determination. The decision must be
written in a manner calculated to be understood by the Claimant, and it must contain:




	 	(a)	 	specific reasons for the decision;
	 
	 	(b)	 	specific reference(s) to the pertinent Plan provisions upon which the decision
was based;
	 
	 	(c)	 	a statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the Claimant’s
claim for benefits; and
	 
	 	(d)	 	A description of the Claimant’s right to bring a civil action under Section
502(a) of ERISA following an adverse benefit determination on review.





ARTICLE 10

RESOLUTION OF DISPUTES




     Notwithstanding anything to the contrary contained in the Plan, the Participant, in his or her
sole discretion, may elect to have any claim or controversy arising out of or in connection with
the Plan and/or a Participation Agreement submitted to binding arbitration and adjudicated in
accordance with this Article 10 without first having to exhaust the claims procedures set forth in
Article 9.



17









 





     The Company and each Participant hereby consent to the resolution by mandatory and binding
arbitration of all claims or controversies arising out of or in connection with the Plan and/or the
Participant’s Participation Agreement that the Company may have against the Participant, or that
the Participant may have against the Company or against any of its officers, directors, employees
or agents acting in their capacity as such, and which are not resolved under the terms of Article 9
(or which are not required to be resolved under the terms of Article 9, as the case may be). Each
party’s promise to resolve all such claims or controversies by arbitration in accordance with the
Plan rather than through the courts is consideration for the other party’s like promise. It is
further agreed that the decision of an arbitrator on any issue, dispute, claim or controversy
submitted for arbitration, shall be final and binding upon the Company and the Participant and that
judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.



     Except as otherwise provided in this procedure or by mutual agreement of the parties, any
arbitration shall be before a sole arbitrator (the “Arbitrator”) selected from Judicial Arbitration
& Mediation Services, Inc., Orange County, California, or its successor (“JAMS”), or if JAMS is no
longer able to supply the arbitrator, such arbitrator shall be selected from the American
Arbitration Association, and shall be conducted in accordance with the provisions of California
Civil Procedure Code Sections 1280 et. seq. as the exclusive remedy of such dispute.



     The Arbitrator shall interpret the Plan, any applicable Company policy or rules and
regulations, any applicable substantive law (and the law of remedies, if applicable) of the state
in which the claim arose, or applicable federal law. If arbitration is brought after the claim or
controversy has been submitted for review by the Committee in accordance with Article 8, the
Arbitrator shall limit his or her review to whether or not the Committee has abused its discretion
in its interpretation of the Plan and such policies, rules, and regulations; provided, however,
that the Arbitrator shall apply a de novo standard of review with respect to any claim for benefits
hereunder in connection with a Change in Control Event. In reaching his or her decision, the
Arbitrator shall have no authority to change or modify any lawful Company policy, rule or
regulation, or the Plan. Except as provided in the next paragraph, the Arbitrator, and not any
federal, state or local court or agency, shall have exclusive and broad authority to resolve any
dispute relating to the interpretation, applicability, enforceability or formation of the Plan,
including but not limited to, any claim that all or any part of the Plan is voidable. The
Arbitrator shall have the authority to decide dispositive motions. Following completion of the
arbitration, the arbitrator shall issue a written decision disclosing the essential findings and
conclusions upon which the award is based.



     Notwithstanding the foregoing, provisional injunctive relief may, but need not, be sought by
the Participant or the Company in a court of law while arbitration proceedings are pending, and any
provisional injunctive relief granted by such court shall remain effective until the matter is
finally resolved by the Arbitrator in accordance with the foregoing. Final resolution of any
dispute through arbitration may include any remedy or relief which would otherwise be available at
law and which the Arbitrator deems just and equitable. The Arbitrator shall have the authority to
award full damages as provided by law. Any award or relief granted by the Arbitrator hereunder
shall be final and binding on the parties hereto and may be enforced by any court of competent
jurisdiction.



18









 





     The Company shall pay the reasonable fees and expenses of the Arbitrator and of a stenographic
reporter, if employed. Each party shall pay its own legal fees and other expenses and costs
incurred with respect to the arbitration.



ARTICLE 11

SUCCESSORS AND ASSIGNMENT




     11.1. Successors to the Company. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the
business and/or assets of the Company or of any division or subsidiary thereof (the business and/or
assets of which constitute at least fifty percent (50%) of the total business and/or assets of the
Company) to expressly assume and agree to perform the Company’s obligations under the Plan in the
same manner and to the same extent that the Company would be required to perform them if such
succession had not taken place.



     11.2. Assignment by the Participant. None of the benefits, payments, proceeds or claims of
any Eligible Person or Participant shall be subject to any claim of any creditor and, in
particular, the same shall not be subject to attachment or garnishment or other legal process by
any creditor, nor shall any such Eligible Person or Participant have any right to alienate,
anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which
he or she may expect to receive, contingently or otherwise, under the Plan. Notwithstanding the
foregoing, benefits which are in pay status may be subject to a court-ordered garnishment or wage
assignment, or similar order, or a tax levy. The Plan shall inure to the benefit of and be
enforceable by each Participant’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If a Participant dies while any amount
would still be payable to him or her hereunder had he or she continued to live, all such amounts,
unless otherwise provided herein, shall be paid to the Participant’s estate in accordance with the
terms of the Plan.



ARTICLE 12

ADMINISTRATION OF THE PLAN




     12.1. Administration — General. The Company shall be the plan administrator (within the
meaning of Section 3(16)(A) of ERISA). The Company delegates its duties under the Plan to the
Committee. The Committee delegates the day-to-day ministerial duties with respect to the Plan to
the Company’s management. The Committee and its delegates shall be named fiduciaries of the Plan
to the extent required by ERISA.



     12.2. Powers and Duties of the Committee. The Committee shall enforce the Plan in accordance
with its terms, shall be charged with the general administration of the Plan, and shall have all
powers necessary to accomplish its purposes, including, but not by way of limitation, the power and
authority to do the following:




     (a) To determine eligibility for and participation in the Plan;




     (b) To construe and interpret the terms and provisions of the Plan;



19









 






     (c) To compute and certify to the amount and kind of benefits payable to Participants
and their beneficiaries, and to determine the amount of withholding taxes to be deducted
pursuant to Section 5.3;




     (d) To maintain all records that may be necessary for the administration of the Plan;




     (e) To provide for the disclosure of all information and the filing or provision of all
reports and statements to Participants, beneficiaries or governmental agencies as shall be
required by law;




     (f) To make and publish such rules for the regulation of the Plan and procedures for
the administration of the Plan as are not inconsistent with the terms hereof; and




     (g) To appoint a plan manager or any other agent, and to delegate to them such powers
and duties in connection with the administration of the Plan as the Committee may from time
to time prescribe.



     12.3. Committee Action. Subject to Article 9, the Committee shall act with respect to the
Plan at meetings by affirmative vote of a majority of the members of the Committee. Any action
permitted to be taken at a meeting with respect to the Plan may be taken without a meeting if,
prior to such action, a written consent to the action is signed by all members of the Committee and
such written consent is filed with the minutes of the proceedings of the Committee. A member of
the Committee shall not vote or act upon any matter which relates solely to himself or herself as a
Participant. The Chairman or any other member or members of the Committee designated by the
Chairman may execute any certificate or other written direction on behalf of the Committee.



     12.4. Construction and Interpretation. The Committee shall have full discretion to construe
and interpret the terms and provisions of the Plan and any and all Participation Agreements, which
interpretation or construction shall be final and binding on all parties, including but not limited
to the Company and any Participant, beneficiary or other person.



ARTICLE 13

MISCELLANEOUS




     13.1. Employment Status. Except as may be provided under any other written agreement between
a Participant and the Company or a Subsidiary (other than the Plan and the Participation Agreement
entered into with respect to the Plan), the employment of each Participant by the Company or any
Subsidiary is “at will,” and may be terminated by either the Participant or the Company (or, if the
Participant is employed by a Subsidiary, by the Subsidiary) at any time.



     13.2. Payments on Behalf of Persons Under Incapacity. In the event that any amount becomes
payable under the Plan to a person who, in the sole judgment of the
Committee, is considered by reason of physical or mental condition to be unable to give a



20









 







valid receipt therefor the Committee may direct that such payment be made to any person found by
the Committee, in its sole judgment, to have assumed the care of such person. Any payment made
pursuant to such determination shall constitute a full release and discharge of the Committee and
the Company.



     13.3. Gender and Number. Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine, the plural shall include the singular, and the
singular shall include the plural.



     13.4. Severability. In the event any provision of the Plan or any Participation Agreement
shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or
unenforceable under any present or future law, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of the Plan or Participation Agreement
or affecting the validity or enforceability of such provision in any other jurisdiction.
Furthermore, in lieu of such invalid or unenforceable provision there will be added automatically
as a part of the Plan or Participation Agreement, as applicable, a legal, valid and enforceable
provision as similar in terms to such invalid or unenforceable provision as may be possible.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of the Plan or Participation
Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.



     13.5. Modification; Waiver. The Committee may from time to time amend the Plan or any
Participation Agreement in any way it determines to be advisable; provided that no such amendment
shall materially and adversely affect the rights of any Participant (or former Participant) under
the Plan or Participation Agreement, as applicable, without that Participant’s (or former
Participant’s, as the case may be) consent. Neither the failure nor any delay on the part of a
party to exercise any right, remedy, power or privilege under the Plan or any Participation
Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right,
remedy, power or privilege preclude any other or further exercise of the same or of any right,
remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with
respect to any other occurrence. No waiver shall be effective unless it is in writing and is
signed by the party asserted to have granted such waiver.



     13.6. Notice. All notices under or with respect to the Plan or any Participation Agreement
shall be in writing and shall be either personally delivered or mailed postage prepaid, by
certified mail, return receipt requested:




	 	(a)	 	if to the Company:




Pacific Sunwear of California, Inc.

Attention: Chief Executive Officer

3450 East Miraloma Avenue

Anaheim, California 92806




21









 







with a copy to:



Pacific Sunwear of California, Inc.

Attention: Chief Financial Officer

3450 East Miraloma Avenue

Anaheim, California 92806





	 	(b)	 	if to the Participant, to the address most recently on file in the payroll
records of the Company.





     Notice shall be effective when personally delivered, or five (5) business days after being so
mailed. Any party may change its address for purposes of giving future notices pursuant to the
Plan and any Participation Agreement by notifying the other party in writing of such change in
address, such notice to be delivered or mailed in accordance with the foregoing.



     13.7. Applicable Law. The Plan and any Participation Agreement hereunder will be governed by
and construed in accordance with ERISA and, to the extent not preempted thereby, the laws of the
State of California, without giving effect to any choice of law or conflicting provision or rule
(whether of the State of California or any other jurisdiction) that would cause the laws of any
jurisdiction other than United States federal law and the law of the State of California to be
applied. In furtherance of the foregoing, applicable federal law and, to the extent not preempted
by applicable federal law, the internal law of the State of California, will control the
interpretation and construction of the Plan and any Participation Agreement hereunder, even if
under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some
other jurisdiction would ordinarily apply. Any statutory reference in the Plan or any
Participation Agreement shall also be deemed to refer to all applicable final rules and final
regulations promulgated under or with respect to the referenced statutory provision.



     13.8. Construction. To the extent that the Plan is subject to Section 409A of the Code, the
Plan shall be construed and interpreted to the maximum extent reasonably possible to avoid the
imputation of any tax, penalty or interest pursuant to Section 409A of the Code.



     13.9. Headings. Headings and subheadings of the Plan and Participation Agreements are
inserted for convenience of reference only and are not to be considered in the construction of the
provisions hereof or thereof, as applicable.



     IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute the Plan on
the date first set forth above.



	 	 	 	 	 
	 	PACIFIC SUNWEAR OF CALIFORNIA, INC.,

a California corporation

 	 
	 	By:  	 	 
	 	 	 	 
	 	  	Its:
	 
	 




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EXHIBIT A




FORM OF PARTICIPATION AGREEMENT




[Date]




_______________

_______________

_______________




Dear ______________:




     You have been selected to participate in the Pacific Sunwear of California, Inc. Executive
Severance Plan (the “Plan”), subject to your execution and return of this letter agreement
(this “Participation Agreement”) to Pacific Sunwear of California, Inc. (the
“Company”). For purposes of calculating any severance benefits you may become entitled to
under Article 4 of the Plan, the following multipliers will apply:



	 	 	 	 	 
	 

	 	Severance Multiplier:
	 	[___]
	 

	 	Change in Control Severance Multiplier:
	 	[___]
	 

	 	COBRA Multiplier
	 	[___]






     Note that the agreements you make by executing this Participation Agreement will be
enforceable against you, regardless of whether or not your employment terminates in circumstances
that entitle you to severance benefits under the Plan. Nevertheless, you agree that your
participation in the Plan (even if you never become entitled to severance benefits pursuant to the
Plan), as well as your continued employment by the Company or one of its Subsidiaries (as such term
is defined in the Plan), each in and of itself and without the other constitutes good and adequate
consideration for the agreements you make in this Participation Agreement.



     By signing this Participation Agreement you specifically agree that you have received and read
the Plan and agree to be bound by its terms. The Plan is incorporated into (made a part of) this
Participation Agreement by this reference. You acknowledge and agree that the Company has not made
any promises or representations to you concerning the Plan other than as set forth in the Plan and
this Participation Agreement.



     Please note that you are not required to participate in the Plan, and may decline
participation in the Plan by not returning this Participation Agreement. If you want to accept
participation in the Plan, you must execute this Participation Agreement and see that it is
returned in person or via facsimile to the Company’s
[                    ] at (___) ___-___ so that it is
received no later than [                    ]. This Participation Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken together constitute
one and the same agreement.



 









 





	 	 	 	 	 
	 	PACIFIC SUNWEAR OF CALIFORNIA, INC.,

a California corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



ACCEPTED AND AGREED:




                                                            




Print Name:                                           




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EXHIBIT B




FORM OF RELEASE AGREEMENT1





     This
Release Agreement (this “Release Agreement”) is entered into this ___ day of
                     20___,
by and between                                 , an individual (“Executive”), and
Pacific Sunwear of California, Inc., a California corporation (the “Company”).



     WHEREAS, Executive has been employed by the Company or one of its subsidiaries; and



     WHEREAS, Executive’s employment by the Company or one of its subsidiaries has terminated and,
in connection with the Company’s Executive Severance Plan (the “Plan”), the Company and
Executive desire to enter into this Release Agreement upon the terms set forth herein;



     NOW, THEREFORE, in consideration of the covenants undertaken and the releases contained in
this Release Agreement, and in consideration of the obligations of the Company (or one of its
subsidiaries) to pay severance benefits (conditioned upon this Release Agreement) under and
pursuant to the Plan, Executive and the Company agree as follows:



          1. Termination of Employment. Executive’s employment with the Company terminated on
[                               , ___] (the “Separation Date”). Executive waives any right or claim to
reinstatement as an employee of the Company and each of its affiliates. Executive hereby confirms
that Executive does not hold any position as an officer, director, employee, member, manager and in
any other capacity with the Company and each of its affiliates. Executive acknowledges and agrees
that Executive has received all amounts owed for his regular and usual salary (including, but not
limited to, any severance (other than any benefits due pursuant to the Plan), overtime, bonus,
accrued vacation, commissions, or other wages), reimbursement of expenses, and usual benefits, and
that all payments due to Executive from the Company have been received.




          2. Release. Executive, on behalf of himself or herself, his or her descendants,
dependents, heirs, executors, administrators, assigns, and successors, and each of them, hereby
covenants not to sue and fully releases and discharges the Company and each of its parents,
subsidiaries and affiliates, past and present, as well as its and their trustees, directors,
officers, members, managers, partners, agents, attorneys, insurers, employees, stockholders,
representatives, assigns, and successors, past and present, and each of them, hereinafter together
and collectively referred to as the “Releasees,” with respect to and from any and all
claims, wages, demands, rights, liens, agreements or contracts (written or oral), covenants,
actions, suits, causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages,
judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether
now known or unknown, suspected or unsuspected, and whether or not concealed or hidden (each, a
“Claim”), which he or she now owns or holds or he or she has at any time heretofore owned
or held or may in the future hold as against any of said Releasees (including, without limitation,
any Claim arising out of or in any way connected with






 




			
	1	 	The Company reserves the right to modify this form as
to any Participant employed outside of California.




 









 









Executive’s service as an officer, director, employee, member or manager of any Releasee,
Executive’s separation from his or her position as an officer, director, employee, manager and/or
member, as applicable, of any Releasee, or any other transactions, occurrences, acts or omissions
or any loss, damage or injury whatever), whether known or unknown, suspected or unsuspected,
resulting from any act or omission by or on the part of said Releasees, or any of them, committed
or omitted prior to the date of this Release Agreement including, without limiting the generality
of the foregoing, any Claim under Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act of
1993, the California Fair Employment and Housing Act, the California Family Rights Act, or any
other federal, state or local law, regulation, or ordinance, or any Claim for severance pay, bonus,
sick leave, holiday pay, vacation pay, life insurance, health or medical insurance or any other
fringe benefit, workers’ compensation or disability (the “Release”); provided, however,
that the foregoing Release does not apply to any obligation of the Company to Executive pursuant to
any of the following: (1) any equity-based awards previously granted by the Company to Executive,
to the extent that such awards continue after the termination of Executive’s employment with the
Company in accordance with the applicable terms of such awards (and subject to any limited period
in which to exercise such awards following such termination of employment); (2) any right to
indemnification that Executive may have pursuant to the Bylaws of the Company, its Articles of
Incorporation or under any written indemnification agreement with the Company (or any corresponding
provision of any subsidiary or affiliate of the Company) or applicable state law with respect to
any loss, damages or expenses (including but not limited to attorneys’ fees to the extent otherwise
provided) that Executive may in the future incur with respect to his or her service as an employee,
officer or director of the Company or any of its subsidiaries or affiliates; (3) with respect to
any rights that Executive may have to insurance coverage for such losses, damages or expenses under
any Company (or subsidiary or affiliate) directors and officers liability insurance policy; (4) any
rights to continued medical or dental coverage that Executive may have under COBRA (or similar
applicable state law); (5) any rights to severance benefits payable under Section 4.1 or 4.2 of the
Plan in accordance with the terms of the Plan; or (6) any rights to payment of benefits that
Executive may have under a retirement plan sponsored or maintained by the Company that is intended
to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended. In addition,
this Release does not cover any Claim that cannot be so released as a matter of applicable law.
Executive acknowledges and agrees that he or she has received any and all leave and other benefits
that he or she has been and is entitled to pursuant to the Family and Medical Leave Act of 1993.




          3. 1542 Waiver. It is the intention of Executive in executing this Release Agreement
that the same shall be effective as a bar to each and every Claim hereinabove specified. In
furtherance of this intention, Executive hereby expressly waives any and all rights and benefits
conferred upon him or her by the provisions of SECTION 1542 OF THE CALIFORNIA CIVIL CODE and
expressly consents that this Release Agreement (including, without limitation, the Release set
forth above) shall be given full force and effect according to each and all of its express terms
and provisions, including those related to unknown and unsuspected Claims, if any, as well as those
relating to any other Claims hereinabove specified. SECTION 1542 provides:




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     “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”


Executive acknowledges that he may hereafter discover Claims or facts in addition to or different
from those which Executive now knows or believes to exist with respect to the subject matter of
this Release Agreement and which, if known or suspected at the time of executing this Release
Agreement, may have materially affected this settlement. Nevertheless, Executive hereby waives any
right, Claim or cause of action that might arise as a result of such different or additional Claims
or facts. Executive acknowledges that he or she understands the significance and consequences of
such release and such specific waiver of SECTION 1542.




          4. [ADEA Waiver. Executive expressly acknowledges and agrees that by entering into
this Release Agreement, Executive is waiving any and all rights or Claims that he or she may have
arising under the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”),
which have arisen on or before the date of execution of this Release Agreement. Executive further
expressly acknowledges and agrees that:





      A. In return for this Release Agreement, the Executive will receive consideration
beyond that which the Executive was already entitled to receive before entering into this
Release Agreement;




     B. Executive is hereby advised in writing by this Release Agreement to consult with an
attorney before signing this Release Agreement;




     C. Executive has voluntarily chosen to enter into this Release Agreement and has not
been forced or pressured in any way to sign it;




     D. Executive was given a copy of this Release Agreement on [_______________, 20___]
and informed that he or she had [twenty one (21)/forty five (45)] days within which to
consider this Release Agreement and that if he or she wished to execute this Release
Agreement prior to expiration of such [21-day/45-day] period, he or she should execute the
Endorsement attached hereto;




     E. Executive was informed that he or she had seven (7) days following the date of
execution of this Release Agreement in which to revoke this Release Agreement, and this
Release Agreement will become null and void if Executive elects revocation during that time.
Any revocation must be in writing and must be received by the Company during the seven-day
revocation period. In the event that Executive exercises his or her right of revocation,
neither the Company nor Executive will have any obligations under this Release Agreement;




     F. Nothing in this Release Agreement prevents or precludes Executive from challenging
or seeking a determination in good faith of the validity of this waiver



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under the ADEA, nor does it impose any condition precedent, penalties or costs from
doing so, unless specifically authorized by federal law.]2



          5. No Transferred Claims. Executive warrants and represents that the Executive has
not heretofore assigned or transferred to any person not a party to this Release Agreement any
released matter or any part or portion thereof and he or she shall defend, indemnify and hold the
Company and each of its affiliates harmless from and against any claim (including the payment of
attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or in
connection with or arising out of any such assignment or transfer made, purported or claimed.




          6. Compliance With Participation Agreement. Executive warrants and represents that
Executive has complied fully with his or her obligations pursuant to that certain Participation
Agreement entered into by Executive in connection with the Plan. Executive covenants that he or
she will continue to abide by the applicable provisions of such Participation Agreement and the
Plan.




          7. Severability. It is the desire and intent of the parties hereto that the
provisions of this Release Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if
any particular provision of this Release Agreement shall be adjudicated by a court of competent
jurisdiction to be invalid, prohibited or unenforceable under any present or future law, such
provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Release Agreement or affecting the validity or enforceability of such provision
in any other jurisdiction; furthermore, in lieu of such invalid or unenforceable provision there
will be added automatically as a part of this Release Agreement, a legal, valid and enforceable
provision as similar in terms to such invalid or unenforceable provision as may be possible.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Release Agreement or
affecting the validity or enforceability of such provision in any other jurisdiction.




          8. Counterparts. This Release Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together constitute one and the
same agreement.




          9. Successors. This Release Agreement is personal to Executive and shall not, without
the prior written consent of the Company, be assignable by Executive. This Release Agreement shall
inure to the benefit of and be binding upon the Company and its






 




			
	2	 	Except as noted below, Section 4 will be included if
the Executive is age 40 or older as of the date that the Executive’s employment
by the Company terminates or in such other circumstances (if any) as the
Executive may have claims under the ADEA. In the event Section 4 is included,
whether the Executive has 21 days, 45 days, or some other period in which to
consider the Release Agreement will be determined with reference to the
requirements of the ADEA in order for such waiver to be valid in the
circumstances. The determinations referred to in the preceding two sentences
shall be made by the Company in its sole discretion. In any event (regardless
of the applicability of the ADEA in the circumstances) the Release Agreement
will include the Executive’s acknowledgements and agreements set forth in
clauses 4.A, 4.B, and 4.C.




4









 









respective successors and assigns and any such successor or assignee shall be deemed
substituted for the Company under the terms of this Release Agreement for all purposes. As used
herein, “successor” and “assignee” shall include any person, firm, corporation or other business
entity which at any time, whether by purchase, merger, acquisition of assets, or otherwise,
directly or indirectly acquires the ownership of the Company, acquires all or substantially all of
the Company’s assets, or to which the Company assigns this Release Agreement by operation of law or
otherwise.




          10. Governing Law. THIS RELEASE AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH UNITED STATES FEDERAL LAW AND, TO THE EXTENT NOT PREEMPTED BY UNITED STATES FEDERAL
LAW, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING
PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE LAWS OF ANY JURISDICTION OTHER THAN UNITED STATES FEDERAL LAW AND THE LAW OF THE STATE OF
CALIFORNIA TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, APPLICABLE FEDERAL LAW AND, TO THE
EXTENT NOT PREEMPTED BY APPLICABLE FEDERAL LAW, THE INTERNAL LAW OF THE STATE OF CALIFORNIA, WILL
CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS RELEASE AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER
JURISDICTION WOULD ORDINARILY APPLY.




          11. Amendment and Waiver. The provisions of this Release Agreement may be amended and
waived only with the prior written consent of the Company and Executive, and no course of conduct
or failure or delay in enforcing the provisions of this Release Agreement shall be construed as a
waiver of such provisions or affect the validity, binding effect or enforceability of this Release
Agreement or any provision hereof.




          12. Descriptive Headings. The descriptive headings of this Release Agreement are
inserted for convenience only and do not constitute a part of this Release Agreement.




          13. Construction. Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to modify, limit or restrict
in any manner the construction of the general statement to which it relates. The language used in
this Release Agreement shall be deemed to be the language chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied against any party.




          14. Arbitration. The Company and Executive hereby consent to the resolution by
mandatory and binding arbitration of all claims or controversies arising out of or in connection
with this Release Agreement that the Company may have against Executive, or that Executive may have
against the Company or against any of its officers, directors, employees or agents acting in their
capacity as such. Each party’s promise to resolve all such claims or controversies by arbitration
in accordance with this Release Agreement rather than


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through the courts is consideration for the other party’s like promise. It is further agreed
that the decision of an arbitrator on any issue, dispute, claim or controversy submitted for
arbitration, shall be final and binding upon the Company and Executive and that judgment may be
entered on the award of the arbitrator in any court having proper jurisdiction.




     Except as otherwise provided in this procedure or by mutual agreement of the parties, any
arbitration shall be before a sole arbitrator (the “Arbitrator”) selected from Judicial
Arbitration & Mediation Services, Inc., Orange County, California, or its successor
(“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator shall be
selected from the American Arbitration Association, and shall be conducted in accordance with the
provisions of California Civil Procedure Code Sections 1280 et. seq. as the exclusive remedy of
such dispute.



     The Arbitrator shall interpret this Release Agreement, any applicable Company policy or rules
or regulations, any applicable substantive law (and the law of remedies, if applicable) of the
state in which the claim arose, or applicable federal law. If arbitration is brought after the
claim or controversy has been submitted for review by the Committee (as such term is defined in the
Plan) in accordance with Article 9 of the Plan, the Arbitrator shall limit his or her review to
whether or not the Committee has abused its discretion in its interpretation of the Plan and such
policies, rules, and regulations; provided, however, that the Arbitrator shall apply a de novo
standard of review with respect to any claim for benefits under the Plan in connection with a
Change in Control Event (as such term is defined in the Plan). In reaching his or her decision,
the Arbitrator shall have no authority to change or modify any lawful Company policy, rule or
regulation, or this Release Agreement. Except as provided in the next paragraph, the Arbitrator,
and not any federal, state or local court or agency, shall have exclusive and broad authority to
resolve any dispute relating to the interpretation, applicability, enforceability or formation of
this Release Agreement, including but not limited to, any claim that all or any part of this
Release Agreement is voidable. The Arbitrator shall have the authority to decide dispositive
motions. Following completion of the arbitration, the arbitrator shall issue a written decision
disclosing the essential findings and conclusions upon which the award is based.



     Notwithstanding the foregoing, provisional injunctive relief may, but need not, be sought by
Executive or the Company in a court of law while arbitration proceedings are pending, and any
provisional injunctive relief granted by such court shall remain effective until the matter is
finally resolved by the Arbitrator in accordance with the foregoing. Final resolution of any
dispute through arbitration may include any remedy or relief which would otherwise be available at
law and which the Arbitrator deems just and equitable. The Arbitrator shall have the authority to
award full damages as provided by law. Any award or relief granted by the Arbitrator hereunder
shall be final and binding on the parties hereto and may be enforced by any court of competent
jurisdiction.



     The Company shall pay the reasonable fees and expenses of the Arbitrator and of a stenographic
reporter, if employed. Each party shall pay its own legal fees and other expenses and costs
incurred with respect to the arbitration.



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          15. Nouns and Pronouns. Whenever the context may require, any pronouns used herein
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural and vice-versa.




          16. Legal Counsel. Each party recognizes that this is a legally binding contract and
acknowledges and agrees that they have had the opportunity to consult with legal counsel of their
choice. Executive acknowledges and agrees that he has read and understands this Release Agreement
completely, is entering into it freely and voluntarily, and has been advised to seek counsel prior
to entering into this Release Agreement and he has had ample opportunity to do so.




          The undersigned have read and understand the consequences of this Release Agreement and
voluntarily sign it. The undersigned declare under penalty of perjury under the laws of the State
of California that the foregoing is true and correct.




EXECUTED this _________________ day of ____________ 20__, at Anaheim, California.




	 	 	 	 	 
	 	 “Executive”


       	 
	 	 	 
	 	Print
Name:
	 
	 		 
	 	 	 
	 
	 	PACIFIC SUNWEAR OF CALIFORNIA, INC.,

a California corporation,

 	 
	 	By:  	 	 
	 	 	Name: 	 	 
	 	 	Title:  	 	 



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ENDORSEMENT





     I,                                         , hereby acknowledge that I was given [21/45] days to consider the
foregoing Release Agreement and voluntarily chose to sign the Release Agreement prior to the
expiration of the [21-day/45-day] period.



     I declare under penalty of perjury under the laws of the United States and the State of
California that the foregoing is true and correct.



     EXECUTED this [___] day of [                     200___], at Anaheim, California.




	 	 	 
	 

	 	 
	 

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Name:








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