Document:

Exhibit 10.3

 

EXHIBIT 10.3

AMENDED AND RESTATED OAKLEY, INC.

EXECUTIVE SEVERANCE PLAN

(as amended and restated effective as of May 31, 2007)

R E C I T A L S

     A. Each of the Eligible Employees is currently employed by the Company (each as defined
below);

     B. Each Eligible Employee has received an equity-based grant pursuant to the terms and
conditions of the Company’s 1995 Stock Incentive Plan, as amended from time to time, and related
agreements entered into between the Eligible Employee and the Company thereunder. Except as
otherwise set forth in Equity Benefits below, none of the provisions of this Plan are intended to
affect the terms or conditions of such equity grants.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained:

     OAKLEY, INC., a Washington corporation (the “Company”), hereby amends and restates the OAKLEY,
INC. Executive Severance Plan for the benefit of certain executives of the Company and its
subsidiaries, on the terms and conditions hereinafter stated.

SECTION 1. DEFINITIONS. As hereinafter used:

     1.1 “Affiliate” means an affiliate of the Company, as defined in Rule 12b-2 promulgated under
Section 12 of the Exchange Act.

     1.2 “Board” means the Board of Directors of the Company or any successor thereto.

     1.3 “Cause” for termination by the Employer of an Eligible Employee’s employment shall mean
(i) the willful and continued failure by the Eligible Employee to substantially perform his or her
duties with the Company (other than by reason of the Eligible Employee’s Disability), (ii) the
willful engaging by the Eligible Employee in conduct that is demonstrably and materially injurious
to the Company or its subsidiaries, monetarily or otherwise, (iii) the Eligible Employee’s
conviction of or entry of a plea of guilty or nolo contendere to, a felony or other crime involving
moral turpitude, (iv) the commission by an Eligible Employee of any act of theft, embezzlement or
fraud in connection with employment with his or her employment with the Company, or (v) an Eligible
Employee’s appropriation (or attempted appropriation) of a material business opportunity of the
Company, including attempting to secure or securing from anyone other than the Company any personal
profit without the Company’s consent in connection with any transaction entered into on behalf of
the Company.

 

 

     1.4 “Certification” means the certification of the applicable performance goals set forth in
LTIP Awards by the Plan Administrator.

     1.5 “Change in Control” shall be deemed to have occurred if: (i) any “person,” as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”)
(other than the Company; any trustee or other fiduciary holding securities under an employee
benefit plan of the Company; Jim Jannard, his affiliates, spouse, widow, lineal descendants and
heirs, devisees and donees, and trusts created by Jim Jannard for the benefit of such persons; or
any company owned, directly or indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of the Company’s Common Stock (each such persons, an “Excluded
Person”)) is or becomes after the Effective Date the “beneficial owner” (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired directly from the Company)
representing 25% or more of the combined voting power of the Company’s then outstanding securities;
or (ii) during any period of two consecutive years (not including any period prior to the Effective
Date), individuals who at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii) or (iv) of this Section 1.4) whose election by
the Board or nomination for election by the Company’s shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof; or (iii) the shareholders of the
Company approve a merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or similar transaction)
in which no person (other than an Excluded Person) acquires more than 25% of the combined voting
power of the Company’s then outstanding securities shall not constitute a Change in Control; or
(iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all of the Company’s
assets;

provided, however, that no event shall be deemed to be a Change in Control if, immediately
following such event, Jim Jannard, his affiliates, spouse, widow, lineal descendants and heirs,
devisees and donees, and trusts created by Jim Jannard for the benefit of such persons shall
together be the beneficial owners of 50% or more of the then outstanding shares of the common stock
of the Company.

     1.6 “COBRA” means the Consolidated Omnibus Reconciliation Act of 1985, as amended.

 

 

     1.7 “Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

     1.8 “Common Stock” means the common stock, par value $0.01 per share, of the Company.

     1.9 “Company” means OAKLEY, INC. or any successors thereto.

     1.10 “Disability”: An Eligible Employee will be deemed to have a “Disability” if, for physical
or mental reasons, the Eligible Employee is unable to perform the essential functions of his
duties, with or without reasonable accommodation, for a period of one-hundred-twenty (120)
consecutive days or one-hundred-eighty (180) days during any twelve-month period.

     1.11 “Effective Date” means January 1, 2004.

     1.12 “Eligible Employee” means an individual who is designated as an Eligible Employee by the
Plan Administrator.

     1.13 “Employer” means the Company or any of its subsidiaries.

     1.14 “Equity Benefits” shall have the meaning set forth in Section 2.1(c).

     1.15 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

     1.16 “Good Reason” means the occurrence, after a Change in Control of the Company of any of
the following: (i) the assignment of the Eligible Employee of any duties substantially inconsistent
with the Eligible Employee ‘s position, duties, responsibilities and status with the Company
immediately prior to the Change in Control; (ii) a material reduction in the Eligible Employee ‘s
annual base salary, incentive compensation opportunities, or any other material components of the
Eligible Employee’s total compensation as in effect immediately prior to the Change in Control; or
(iii) the relocation of the Company’s principal executive offices to a location outside Orange
County (or, if different, the metropolitan area in which such offices are located immediately prior
to the Change in Control) or the Company’s requiring the Eligible Employee to be based anywhere
other than in the Company’s principal executive offices except for required travel on the Company’s
business to an extent substantially consistent with the Eligible Employee’s business travel
obligations immediately prior to the Change in Control.

     1.17 “LTIP Awards” means the outstanding Long-Term Incentive Plan Cash and Performance Unit
Awards granted to the Severed Employee.

     1.18 “Plan” means the OAKLEY, INC. Executive Severance Plan, as set forth herein, as it may be
amended from time to time.

 

 

     1.19 “Plan Administrator” means the Board, or if and to the extent the Board does not
administer the Plan, the Compensation and Stock Option Committee of the Board in accordance with
Section 3 below.

     1.20 “Severance” means the termination of an Eligible Employee’s employment with the Employer
(i) by the Employer other than for Cause, death or Disability or (ii) by the Eligible Employee for
Good Reason within twelve (12) months following the consummation of a Change in Control.

     An Eligible Employee will not be considered to have incurred a Severance if his or her
employment is discontinued by reason of the Eligible Employee’s death or Disability.

     1.21 “Severance Benefits” means the benefits described in Section 2.1(b).

     1.22 “Severance Date” means the date on which an Eligible Employee incurs a Severance.

     1.23 “Severance Payment” means a payment described in Section 2.1(a).

     1.24 “Severed Employee” means an Eligible Employee who incurs a Severance.

SECTION 2. BENEFITS.

     2.1 Subject to the Eligible Employee’s executing and, if applicable, not revoking, within
forty-five (45) days of the Severance Date, a release of claims satisfactory to the Company
substantially in the form attached hereto as Annex A (the “Release of Claims”), an Eligible
Employee who incurs a Severance shall be entitled to receive the following benefits:

          (a) Severance Payment. A payment, in lieu of any other severance payment pursuant to any
other plan or agreement of the Company or any subsidiary thereof to which the Eligible Employee is
otherwise entitled, of an amount comprised of (i) the sum of (x) the Severed Employee’s then annual
base salary as in effect immediately prior to the Severance Date plus (y) the aggregate amount of
commissions paid to the Severed Employee in the twelve full months immediately preceding the
Severance Date, which sum shall be payable either in a lumpsum or in twelve monthly installments
(in each case at the sole discretion of the Plan Administrator) commencing within 10 business days
following the effective date of the Release of Claims; and (ii) the share of the bonus otherwise
payable to the Severed Employee under the Company’s Amended and Restated Executive Officer
Performance Bonus Plan (determined as set forth below) had he remained in the employ of the Company
through the date on which bonuses are paid by the Company with respect to the year in which the
Severance Date occurs, which amount shall be payable within 5 days following the determination of
the amount of the payment as described below.

 

 

          For the purposes of this Section 2.1(a), the amount of the bonus payable to the Severed Employee
shall be determined in good faith by the Plan Administrator, whose determination shall be final and
binding on the Severed Employee, within 15 days following the end of the month in which the
Severance Date occurs. The amount of the bonus payable shall be determined (i) on the basis of the
Company’s earnings per share results through the end of the calendar month in which the Severance
Date occurs (as determined by the Company’s senior financial officer), as measured against the
portion of any Company earnings per share target which had been established by the Plan
Administrator as the basis for payment of all or any portion of such bonus which is related to such
time period, and (ii) if applicable, on the basis of Severed Employee’s individual performance
through the Severance Date as measured against his performance targets established by the Company
for such time period, each as pro-rated for the period through the end of the calendar month in
which the Severance Date occurs.

          (b) Severance Benefits. Provided the Severed Employee timely elects COBRA coverage, the
Company shall pay, on the Severed Employee’s behalf, his or her group health insurance premiums,
including coverage for the Severed Employee’s eligible dependants that were enrolled immediately
prior to the Severance Date, for a period not to exceed ninety (90) days following the Severance
Date. The Severed Employee will advise the Company promptly upon the Severed Employee becoming
eligible for medical benefits from another source, and, if such occurs, the Company’s obligation to
pay the Severed Employee’s COBRA premiums will cease. The Severed Employee shall be entitled to
maintain coverage for himself or herself and his or her eligible dependents at the Severed
Employee’s own expense for the balance of the period that the Severed Employee is entitled to
coverage under COBRA.

          (c) Equity Benefits.

               (i) For any Severance not in connection with a Change in Control, the
acceleration of vesting of that portion of the Severed Employee’s equity based
awards that are outstanding as of the Severance Date, if any, that would have
become vested based solely on the passage of time during the nine-month period
immediately following the Severance Date had the Severed Employee remained
continuously employed by the Company during such period.

               (ii) If the Severance is in connection with a Change in Control, 100% of the
Severed Employee’s granted equity based awards shall become immediately vested as
of the Severance Date. For purposes of deferred stock awards, 100% acceleration
of vesting shall refer to 100% vesting of the target performance units.

               (iii) If approved by the Plan Administrator prior to the expiration of the
period during which options to purchase Common Stock may be exercised by the
Severed Employee (which approval shall be at the sole discretion of the Plan
Administrator), the post-termination option exercise period of such options (x)
shall be extended by the number

 

 

of days subject to any trading blackout on the Common Stock that occurred
during the period beginning on the Severed Employee’s Severance Date and ending on
the last day the Severed Employee’s options would otherwise have been exercisable,
and (y) may be subject to additional extensions, provided that no such extensions
shall in any event extend the option term beyond ten years.

               (iv) For any Severance not in connection with a Change in Control, if (x) the
Severed Employee was granted restricted stock under the 1995 Stock Incentive Plan,
as amended, that is subject to pre-established performance goals that would
trigger accelerated vesting of the restricted stock (“Performance Acceleration”),
(y) the Severance Date is on or after July 1 of any fiscal year and (z) at the end
of the fiscal year when the Severance occurred the Plan Administrator has
concluded that the Company has met the requirements for Performance Acceleration,
then those shares of restricted stock of the Severed Employee that are subject to
the Performance Acceleration for such fiscal year shall become vested on the date
that the Plan Administrator determined the Performance Acceleration criteria was
met, with the exact number of restricted shares vesting being based pro rata on
the number of days such Severed Employee was employed by the Company in such
fiscal year; provided, however, that there shall be no duplication of vesting
under the terms of this Agreement.

          (d) Cash and Deferred Stock Awards under the Long-Term Incentive Plan (“LTIP”).

               (i) Cash Awards

                    (1) For any Severance not in connection with a Change in Control that occurs
prior to the Certification, if the Severed Employee was employed by the Company
for at least two-thirds (2/3) of the performance period underlying the applicable
cash award, the Severed Employee shall be entitled to fifty percent (50%) of the
cash amount payable upon satisfaction of the performance goals as certified by the
Plan Administrator of the LTIP, with such cash amount pro rated based on the
number of days such Severed Employee was employed by the Company during the
applicable performance period (the “50% Pro-rata Cash Payment”). Such cash amount
shall be paid out in full on the first date that any payment is made on a similar
award, based on the same performance criteria and performance period, to any other
officer of the Company who is still employed by the Company through such payment
date.

                    (2) For any Severance in connection with a Change in Control that occurs
prior to the Certification, the Severed Employee shall be entitled to one hundred
percent (100%) of the cash

 

 

amount payable upon satisfaction of the performance goals as certified by the
Plan Administrator of the LTIP, with such cash amount pro rated based on the
number of days such Severed Employee was employed by the Company during the
applicable performance period (the “100% Pro-rata Cash Payment”). Such cash
amount shall be paid out in full on the first date that any payment is made on a
similar award, based on the same performance criteria and performance period, to
any other officer of the Company who is still employed by the Company through such
payment date.

                    (3) For any Severance that occurs on or after the Certification, 100% of the
Severed Employee’s then unvested cash awards shall become immediately vested as of
the Severance Date. Such cash award shall be paid out in full within 10 business
days following the effective date of the Release of Claims.

               (ii) Deferred Stock Awards

                    (1) For any Severance not in connection with a Change in Control that occurs
prior to the Certification, if the Severed Employee was employed by the Company
for at least two-thirds (2/3) of the performance period underlying the applicable
deferred stock award, the Severed Employee shall be entitled to fifty percent
(50%) of the shares payable upon satisfaction of the performance goals as
certified by the Plan Administrator of the LTIP, with such number of shares pro
rated based on the number of days such Severed Employee was employed by the
Company during the applicable performance period (the “50% Pro-rata Share
Payment”). Such shares shall be paid out in full on the first date that any
payment is made on a similar award, based on the same performance criteria and
performance period, to any other officer of the Company who is still employed by
the Company through such payment date.

                    (2) For any Severance in connection with a Change in Control that occurs
prior to the Certification, the Severed Employee shall be entitled to the greater
of (x) one hundred percent (100%) of the shares payable upon satisfaction of the
performance goals as certified by the Plan Administrator of the LTIP, with such
number of shares pro rated based on the number of days such Severed Employee was
employed by the Company during the applicable performance period and (y) the
acceleration of vesting of the target performance units set forth in Section
2.1(c)(ii) above. Such shares shall be paid out in full on the first date that
any payment is made on a similar award, based on the same performance criteria and
performance period, to any other officer of the Company who is still employed by
the Company through such payment date.

 

 

                    (3) For any Severance that occurs on or after the Certification, 100% of the
Severed Employee’s then unvested deferred stock awards shall become immediately
vested as of the Severance Date. Such deferred stock award shall be paid out in
full within 10 business days following the effective date of the Release of
Claims.

     2.2 Any claim arising out of this Agreement, including any claim by an Eligible Employee as to
the amount or timing of any distribution, shall be submitted in writing to the Plan Administrator.
The Plan Administrator shall, within sixty (60) days after receipt of such written claim, send a
written notification to the affected parties as to its disposition. In the event a claim is wholly
or partially denied, such written notification shall (i) state the specific reason or reasons for
the denial, (ii) make specific reference to pertinent Plan provisions on which the denial is based,
(iii) provide a description of any additional material or information necessary for the claim and
an explanation of why such material or information is necessary, and (iv) set forth the procedure
by which the denial may be appealed. In the event a party wishes to appeal the denial of a claim,
he, she or it may request a review of such denial by making application in writing to the Plan
Administrator within thirty (30) days after receipt of such denial. Such party (or his, her or its
duly authorized legal representative) may, upon written request to the Plan Administrator, review
any documents pertinent to his, her or its claim, and submit in writing issues and comments in
support of his, her or its position. Within sixty (60) days after receipt of a written appeal
(unless special circumstances, such as the need to hold a hearing, require an extension of time,
but in no event more than one hundred twenty (120) days after such receipt), the Plan Administrator
shall notify the affected parties of the final decision. The final decision shall be in writing
and shall include specific reasons for the decision, written in a manner calculated to be
understood by the claimant, and specific references to the pertinent Plan provisions on which the
decision is based.

     2.3 Any further dispute or controversy arising under or in connection with this Plan which
remains after the final decision of the Plan Administrator, as contemplated by Section 2.2, shall
be finally settled exclusively by arbitration in Orange County, California, in accordance with the
rules of the American Arbitration Association then in effect; provided, however, that the
arbitrator shall apply the applicable provisions of ERISA, and applicable regulations adopted
thereunder, in such arbitration proceeding. Judgment may be entered on the arbitrator’s award in
any court having jurisdiction.

     2.4 The Company shall be entitled to withhold from amounts to be paid to the Severed Employee
hereunder any Federal, state or local withholding or other taxes or charges which it is from time
to time required to withhold.

     2.5 If any amount to be paid to a Severed Employee pursuant to Section 2.1 is subject to
Section 409A of the Code, and the rules and regulations thereunder (“Section 409A”), and if the
Severed Employee is a “specified employee” (as defined under Section 409A) as of the Severance
Date, then, to the extent necessary to avoid the imposition of excise taxes or other penalties
under Section 409A, the payment of benefits, if any, scheduled to be paid by the Company to the
Severed Employee hereunder during the first

 

 

six (6) month period following the date of a termination of employment hereunder shall not be
paid until the date which is the first business day following the six-month anniversary of the
Severance Date. Moreover, in the event the Severed Employee is required to execute a Release of
Claims, no amount payable pursuant to Section 2.1 that is subject to Section 409A of the Code shall
be made prior to the expiration of the revocation period without regard to whether the Severed
Employee waives such revocation right prior to the expiration of such period.

SECTION 3. PLAN ADMINISTRATION.

     3.1 The Plan shall be administered by the Board or, at the Board’s sole discretion, by the
Compensation and Stock Option Committee of the Board, which shall be appointed by the Board, and
which shall serve at the pleasure of the Board. The Plan shall be interpreted, administered and
operated by the Plan Administrator, who shall have complete authority, in its sole discretion
subject to the express provisions of the Plan, to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other determinations necessary or
advisable for the administration of the Plan.

     3.2 All questions of any character whatsoever arising in connection with the interpretation of
the Plan or its administration or operation shall be submitted to and settled and determined by the
Plan Administrator in an equitable and fair manner in accordance with the procedure for claims and
appeals described in Section 2.2. Subject to the rights to arbitration provided in Section 2.3
hereof, any such settlement and determination shall be final and conclusive, and shall bind and may
be relied upon by the Employer, each of the Eligible Employees and all other parties in interest.

     3.3 The Plan Administrator may delegate any of its duties hereunder to such person or persons
from time to time as it may designate.

     3.4 The Plan Administrator is empowered, on behalf of the Plan, to engage accountants, legal
counsel and such other personnel as it deems necessary or advisable to assist it in the performance
of its duties under the Plan. The functions of any such persons engaged by the Plan Administrator
shall be limited to the specified services and duties for which they are engaged, and such persons
shall have no other duties, obligations or responsibilities under the Plan. Such persons shall
exercise no discretionary authority or discretionary control respecting the management of the Plan.
All reasonable expenses thereof shall be borne by the Employer.

SECTION 4. PLAN MODIFICATION OR TERMINATION.

     The Plan may be amended or terminated by the Board, or a duly appointed committee of the
Board, at any time; provided, however, that following the consummation of a Change in Control, the
Plan may not be amended or terminated without the prior written consent of the then Eligible
Employees for a period of twelve months following such Change in Control.

 

 

SECTION 5. GENERAL PROVISIONS.

     5.1 Except as otherwise provided herein or by law, no right or interest of any Eligible
Employee under the Plan shall be assignable or transferable, in whole or in part, either directly
or by operation of law or otherwise, including without limitation by execution, levy, garnishment,
attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be
effective; and no right or interest of any Eligible Employee under the Plan shall be liable for, or
subject to, any obligation or liability of such Eligible Employee. When a payment is due under
this Plan to a Severed Employee who is unable to care for his or her affairs, payment may be made
directly to his or her legal guardian or personal representative.

     5.2 If the Company or any Affiliate is obligated pursuant to applicable law or by virtue of
being a party to a contract (but not pursuant to any severance plan) to pay severance pay, a
termination indemnity, notice pay or the like or if the Company or any Affiliate is obligated by
law to provide advance notice of separation (“Notice Period”), then any Severance Payment hereunder
shall be reduced by the amount of any such severance pay, termination indemnity, notice pay or the
like, as applicable, and by the amount of any compensation received during any Notice Period.

     5.3 Neither the establishment of the Plan, nor any modification thereof, nor the creation of
any fund, trust or account, nor the payment of any benefits shall be construed as giving any
Eligible Employee, or any person whomsoever, the right to be retained in the service of the
Employer, and all Eligible Employees shall remain subject to discharge to the same extent as if the
Plan had never been adopted.

     5.4 If any provision of this Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provisions had not been included.

     5.5 Notwithstanding anything herein to the contrary, nothing in this Plan is intended to
modify or terminate the Company’s obligations under any indemnity agreement entered into between an
Eligible Employee and the Company.

     5.6 This Plan shall be binding upon and shall inure to the benefit of and be enforceable by
the Company and its successors and assigns, and by each Eligible Employee and by the personal and
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees of each Eligible Employee. If any Eligible Employee shall die while any amount would
still be payable to such Eligible Employee (other than amount which, by their terms, terminate upon
the death of the Eligible Employee), all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Plan to the executors, personal representatives or
administrators of the Eligible Employee’s estate as if the Eligible Employee had continued to live.

     5.7 The headings and captions herein are provided for reference and convenience only, shall
not be considered part of the Plan, and shall not be employed in the construction of the Plan.

 

 

     5.8 The Plan shall not be funded. No Eligible Employee shall have any right to, or interest
in, any assets of any Employer which may be applied by the Employer to the payment of benefits or
other rights under this Plan.

     5.9 All notices and all other communications provided for in this Plan (i) shall be in
writing, (ii) shall be hand delivered, sent by first class mail, certified or registered with
return receipt requested, addressed, in the case of the Company, to One Icon, Foothill Ranch,
California 92610, and in the case of an Eligible Employee, to the last known address of such
Eligible Employee, or by transmission of a fax and (iii) shall be effective when delivered, if hand
delivered; three (3) days after mailing by first class mail, certified or registered with return
receipt requested; and 24 hours after transmission of a fax.

     5.10 This Plan shall be construed and enforced according to the laws of the State of
California (without regard to its principle of conflict of laws) to the extent not preempted by
Federal law, which shall otherwise control.

     5.11 It is intended that this Agreement shall comply with the provisions of section 409A of
the Code and the Treasury Regulations relating thereto so as not to subject any Eligible Employee
to the payment of additional taxes and interest under section 409A of the Code. In furtherance of
this intent, this Agreement shall be interpreted, operated, and administered in a manner consistent
with these intentions, and to the extent that any regulations or other guidance issued under
section 409A of the Code would result in any Eligible Employee being subject to payment of
additional income taxes or interest under section 409A of the Code, the Company agrees to amend
this Agreement as may be necessary in order to avoid the application of such taxes or interest
under section 409A of the Code.Exhibit 10.4

 

EXHIBIT 10.4

OAKLEY, INC.

1995 STOCK INCENTIVE PLAN

As Amended Effective June 1, 2007

Section 1. General Purpose of Plan; Definitions.

     The name of this plan is the Oakley, Inc. 1995 Stock Incentive Plan (the “Plan”). The Plan
was adopted by the Board on August 8, 1995, subject to the approval of the shareholders of the
Company, which approval was obtained on the same date. An amendment to certain administrative
procedures under the Plan was adopted by the Board on November 2, 1995. The Plan was subsequently
amended by the Board on April 17, 1999 (i) to increase the number of shares reserved for issuance
under the Plan by 1,000,000 shares and (ii) to include provisions to comply with the requirements
for “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended. The Plan was further amended on March 26, 2003, to increase the number
of shares reserved for issuance by 2,000,000 shares and to extend the term of the plan to March 26,
2013. Subject to shareholder approval (received on June 9, 2006), on March 22, 2006, the Board of
Directors approved amendments to increase the number of shares reserved for issuance by 3,500,000
shares, for an aggregate of 12,212,000 shares, to specify that the maximum number of shares that
may be issued under the Stock Plan, including upon exercise of ISOs, be 12,212,000 shares and to
provide the performance goals applicable to awards of performance shares. On June 1, 2007, the
Board of Directors approved amendments to the Plan regarding (i) the dividend treatment of shares
of Deferred Stock during the Restricted Period and (ii) the issuance or non-issuance of stock
certificates to Participants. The purpose of the Plan is to enable the Company to attract and
retain highly qualified personnel who will contribute to the Company’s success by their ability,
ingenuity and industry and to provide incentives to the participating officers, employees,
directors, consultants (including selected professional athletes and other individuals who endorse
the Company’s products and/or consult with the Company concerning the Company’s products) and
advisors that are linked directly to increases in shareholder value and will therefore inure to the
benefit of all shareholders of the Company.

     For purposes of the Plan, the following terms shall be defined as set forth below:

     (1) “Administrator” means the Board, or if the Board does not administer the Plan, the
Committee in accordance with Section 2.

     (2) “Board” means the Board of Directors of the Company.

     (3) “Code” means the Internal Revenue Code of 1986, as amended from time to time, or
any successor thereto.

     (4) “Committee” means the Compensation Committee of the Board or any committee the
Board may subsequently appoint to administer the Plan. To the extent necessary and desirable, the
Committee shall be composed entirely of individuals who meet the qualifications referred to in
Section 162(m) of the Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
If at any time or to any extent the Board shall not administer the Plan, then the functions of the
Board specified in the Plan shall be exercised by the Committee.

     (5) “Company” means Oakley, Inc., a Washington corporation (or any successor
corporation).

     (6) “Deferred Stock” means an award made pursuant to Section 7 below of the right to
receive Stock at the end of a specified deferral period.

 

 

     (7) “Disability” means the inability of a Participant to perform substantially his
duties and responsibilities to the Company by reason of a physical or mental disability or
infirmity (i) for a continuous period of six months, or (ii) at such earlier time as the
Participant submits medical evidence satisfactory to the Company that he has a physical or mental
disability or infirmity which will likely prevent him from returning to the performance of his work
duties for six months or longer. The date of such Disability shall be on the last day of such
six-month period or the day on which the Participant submits such satisfactory medical evidence, as
the case may be.

     (8) “Effective Date” shall mean the date provided pursuant to Section 11.

     (9) “Eligible Employee” means an employee of the Company eligible to participate in
the Plan pursuant to Section 4.

     (10) “Fair Market Value” means, as of any given date, with respect to any awards
granted hereunder, at the discretion of the Administrator and subject to such limitations as the
Administrator may impose, (A) if the Stock is publicly traded, the closing sale price of the Stock
on such date as reported in the Wall Street Journal, or the average of the closing price of the
Stock on each day on which the Stock was traded over a period of up to twenty trading days
immediately prior to such date, (B) the fair market value of the Stock as determined in accordance
with a method prescribed in the agreement evidencing any award hereunder, or (C) the fair market
value of the Stock as otherwise determined by the Administrator in the good faith exercise of its
discretion.

     (11) “Incentive Stock Option” means any Stock Option intended to be designated as an
“incentive stock option” within the meaning of Section 422 of the Code.

     (12) “Limited Stock Appreciation Right” means a Stock Appreciation Right that can be
exercised only in the event of a “Change of Control” (as defined in the award evidencing such
Limited Stock Appreciation Right).

     (13) “Non-Qualified Stock Option” means any Stock Option that is not an Incentive
Stock Option, including any Stock Option that provides (as of the time such option is granted) that
it will not be treated as an Incentive Stock Option.

     (14) “Parent Corporation” means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the corporations in the chain
(other than the Company) owns stock possessing 50% or more of the combined voting power of all
classes of stock in one of the other corporations in the chain.

     (15) “Participant” means any Eligible Employee, consultant (including selected
professional athletes and other individuals who endorse the Company’s products and/or consult with
the Company concerning the Company’s products) or advisor to the Company selected by the
Administrator, pursuant to the Administrator’s authority in Section 2 below, to receive grants of
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock
awards, Deferred Stock awards, Performance Shares or any combination of the foregoing.

     (16) “Performance Goals” means the following business criteria for Oakley as a whole
or any of its subsidiaries, operating divisions or other operating units: Common Stock price,
market share, gross revenue, pretax income, operating income, cash flow, earnings per share, return
on equity, return on invested capital or assets, sales, cost reductions and savings, return on
revenues or productivity. In addition, performance goals may be based upon a participant’s
attainment of specific objectives set for that participant’s performance by Oakley with respect to
any of the foregoing performance goals or implementing policies and plans, negotiating transactions
and sales, developing long-term business goals or exercising managerial responsibility.

     (17) “Performance Share” means an award of shares of Stock pursuant to Section 7 that
is subject to restrictions based upon the attainment of specified Performance Goals.

2

 

     (18) “Restricted Stock” means an award granted pursuant to Section 7 of shares of
Stock subject to certain restrictions.

     (19) “Stock” means the common stock, $0.01 par value, of the Company.

     (20) “Stock Appreciation Right” means the right pursuant to an award granted under
Section 6 to receive an amount equal to the difference between (A) the Fair Market Value, as of the
date such Stock Appreciation Right or portion thereof is surrendered, of the shares of Stock
covered by such right or such portion thereof, and (B) the aggregate exercise price of such right
or such portion thereof.

     (21) “Stock Option” means any option to purchase shares of Stock granted pursuant to
Section 5 or 5A.

     (22) “Subsidiary” means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company, if each of the corporations (other than the last
corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.

Section 2. Administration.

     The Plan shall be administered in accordance with the requirements of Section 162(m) of the
Code (but only to the extent necessary and desirable to maintain qualification of awards under the
Plan under Section 162(m) of the Code) and, to the extent applicable, Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (“Rule 16b-3”), by the Board or, at the Board’s sole
discretion, by the Committee, which shall be appointed by the Board, and which shall serve at the
pleasure of the Board.

     The Administrator shall have the power and authority to grant to Eligible Employees,
consultants and advisors to the Company, pursuant to the terms of the Plan: (a) Stock Options, (b)
Stock Appreciation Rights or Limited Stock Appreciation Rights, (c) Restricted Stock, (d)
Performance Shares, (e) Deferred Stock or (f) any combination of the foregoing.

     In particular, the Administrator shall have the authority:

          (a) to select those employees of the Company who shall be Eligible Employees;

          (b) to determine whether and to what extent Stock Options, Stock Appreciation Rights,
Limited Stock Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares or
a combination of the foregoing, are to be granted hereunder to Eligible Employees,
consultants and advisors to the Company;

          (c) to determine the number of shares to be covered by each such award granted
hereunder;

          (d) to determine the terms and conditions, not inconsistent with the terms of the
Plan, of any award granted hereunder (including, but not limited to, (x) the restrictions
applicable to Restricted or Deferred Stock awards and the conditions under which
restrictions applicable to such Restricted or Deferred Stock shall lapse, and (y) the
Performance Goals and periods applicable to the award of Performance Shares); and

          (e) to determine the terms and conditions, not inconsistent with the terms of the
Plan, which shall govern all written instruments evidencing the Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock, Deferred Stock,
Performance Shares or any combination of the foregoing.

3

 

     The Administrator shall have the authority, in its discretion, to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall from time to time
deem advisable; to interpret the terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to otherwise supervise the administration of the
Plan.

     All decisions made by the Administrator pursuant to the provisions of the Plan shall be final
and binding on all persons, including the Company and the Participants.

Section 3. Stock Subject to Plan.

     The total number of shares of Stock reserved and available for issuance under the Plan shall
be 12,212,000 and the maximum number of shares available for the issuance of ISOs will be
12,212,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares
or treasury shares. The aggregate number of shares of Stock as to which Stock Options, Stock
Appreciation Rights, Restricted Stock and Performance Shares may be granted to any individual
during any calendar year may not, subject to adjustment as provided in this Section 3, exceed 80%
of the shares of Stock reserved for the purposes of the Plan in accordance with the provisions of
this Section 3.

     To the extent that (i) a Stock Option expires or is otherwise terminated without being
exercised, or (ii) any shares of Stock subject to any Restricted Stock, Deferred Stock or
Performance Share award granted hereunder are forfeited, such shares shall again be available for
issuance in connection with future awards under the Plan; provided, however, that,
to the extent that such future awards are intended to comply with Section 162(m) of the Code, such
shares shall be available for issuance only to the extent permitted under Section 162(m). If any
shares of Stock have been pledged as collateral for indebtedness incurred by a Participant in
connection with the exercise of a Stock Option and such shares are returned to the Company in
satisfaction of such indebtedness, such shares shall again be available for issuance in connection
with future awards under the Plan.

     In the event of any merger, reorganization, consolidation, recapitalization, stock dividend or
other change in corporate structure affecting the Stock, a substitution or adjustment shall be made
in (i) the aggregate number of shares reserved for issuance under the Plan, (ii) the kind, number
and option price of shares subject to outstanding Stock Options granted under the Plan, and (iii)
the kind, number and purchase price of shares issuable pursuant to awards of Restricted Stock,
Deferred Stock and Performance Shares, as may be determined by the Administrator, in its sole
discretion. Such other substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion. An adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation Right or Limited
Stock Appreciation Right associated with any Stock Option. In connection with any event described
in this paragraph, the Administrator may provide, in its discretion, for the cancellation of any
outstanding awards and payment in cash or other property therefor.

Section 4. Eligibility.

     Officers (including officers who are directors of the Company), employees of the Company, and
consultants and advisors to the Company who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company shall be eligible to be granted Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock awards,
Deferred Stock awards or Performance Shares hereunder. The Participants under the Plan shall be
selected from time to time by the Administrator, in its sole discretion, from among the Eligible
Employees, consultants and advisors to the Company recommended by the senior management of the
Company, and the Administrator shall determine, in its sole discretion, the number of shares
covered by each award.

Section 5. Stock Options.

     Stock Options may be granted alone or in addition to other awards granted under the Plan. Any
Stock Option granted under the Plan shall be in such form as the Administrator may from time to
time approve, and the provisions of Stock Option awards need not be the same with respect to each
optionee. Recipients of Stock

4

 

Options shall enter into a subscription and/or award agreement with the Company, in such form
as the Administrator shall determine, which agreement shall set forth, among other things, the
exercise price of the option, the term of the option and provisions regarding exercisability of the
option granted thereunder.

     The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and
(ii) Non-Qualified Stock Options.

     The Administrator shall have the authority to grant any Eligible Employee Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock Options (in each case with or without
Stock Appreciation Rights or Limited Stock Appreciation Rights). Consultants and advisors may only
be granted Non-Qualified Stock Options (with or without Stock Appreciation Rights or Limited Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Stock
Option, it shall constitute a separate Non-Qualified Stock Option. More than one option may be
granted to the same optionee and be outstanding concurrently hereunder.

     Stock Options granted under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Administrator shall deem desirable:

     (1) Option Price. The option price per share of Stock purchasable under a Stock
Option shall be determined by the Administrator in its sole discretion at the time of grant but
shall not, (i) in the case of Incentive Stock Options, be less than 100% of the Fair Market Value
of the Stock on such date, (ii) in the case of Non-Qualified Stock Options intended to qualify as
“performance-based compensation” within the meaning of Section 162(m) of the Code, be less than
100% of the Fair Market Value of the Stock on such date and (iii) shall not, in any event, be less
than the par value of the Stock. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 425(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any Parent Corporation and an Incentive Stock
Option is granted to such employee, the option price of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no less than 110% of the Fair Market Value of
the Stock on the date such Incentive Stock Option is granted.

     (2) Option Term. The term of each Stock Option shall be fixed by the Administrator,
but no Stock Option shall be exercisable more than ten years after the date such Stock Option is
granted; provided, however, that if an employee owns or is deemed to own (by reason
of the attribution rules of Section 425(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company or any Parent Corporation and an Incentive Stock Option is
granted to such employee, the term of such Incentive Stock Option (to the extent required by the
Code at the time of grant) shall be no more than five years from the date of grant.

     (3) Exercisability. Stock Options shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the Administrator at or after grant.
The Administrator may provide, in its discretion, that any Stock Option shall be exercisable only
in installments, and the Administrator may waive such installment exercise provisions at any time
in whole or in part based on such factors as the Administrator may determine, in its sole
discretion.

     (4) Method of Exercise. Subject to Section 5(3) above, Stock Options may be exercised
in whole or in part at any time during the option period, by giving written notice of exercise to
the Company specifying the number of shares to be purchased, accompanied by payment in full of the
purchase price in cash or its equivalent as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be made in the form of
unrestricted Stock already owned by the optionee, or, in the case of the exercise of a
Non-Qualified Stock Option, Restricted Stock or Performance Shares subject to an award hereunder
(based, in each case, on the Fair Market Value of the Stock on the date the option is exercised);
provided, however, that in the case of an Incentive Stock Option, the right to make
payment in the form of already owned shares may be authorized only at the time of grant. If
payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock or Performance Shares, the shares received upon the exercise of such
Stock Option (to the extent of the number of shares of Restricted Stock or Performance Shares
surrendered upon exercise of such Stock Option) shall be restricted in accordance with the original
terms of the Restricted Stock or Performance Share award in question, except that the Administrator
may direct that such

5

 

restrictions shall apply only to that number of shares equal to the number of shares
surrendered upon the exercise of such option. An optionee shall generally have the rights to
dividends and any other rights of a shareholder with respect to the Stock subject to the option
only after the optionee has given written notice of exercise, has paid in full for such shares,
and, if requested, has given the representation described in paragraph (1) of Section 10.

     The Administrator may require the voluntary surrender of all or a portion of any Stock Option
granted under the Plan as a condition precedent to the grant of a new Stock Option. Subject to the
provisions of the Plan, such new Stock Option shall be exercisable at the price, during such period
and on such other terms and conditions as are specified by the Administrator at the time the new
Stock Option is granted; provided, however, should the Administrator so require,
the number of shares subject to such new Stock Option shall not be greater than the number of
shares subject to the surrendered Stock Option. Upon their surrender, Stock Options shall be
canceled and the shares previously subject to such canceled Stock Options shall again be available
for grants of Stock Options and other awards hereunder; provided, however, that, to
the extent that such future awards are intended to comply with Section 162(m) of the Code, such
shares shall be available for issuance only to the extent permitted under Section 162(m).

     (5) Loans. The Company may make loans available to Stock Option holders in connection
with the exercise of outstanding options granted under the Plan, as the Administrator, in its
discretion, may determine. Such loans shall (i) be evidenced by promissory notes entered into by
the Stock Option holders in favor of the Company, (ii) be subject to the terms and conditions set
forth in this Section 5(5) and such other terms and conditions, not inconsistent with the Plan, as
the Administrator shall determine, (iii) bear interest, if any, at such rate as the Administrator
shall determine, and (iv) be subject to Board approval (or to approval by the Administrator to the
extent the Board may delegate such authority). In no event may the principal amount of any such
loan exceed the sum of (x) the exercise price less the par value of the shares of Stock covered by
the option, or portion thereof, exercised by the holder, and (y) any federal, state, and local
income tax attributable to such exercise. The initial term of the loan, the schedule of payments
of principal and interest under the loan, the extent to which the loan is to be with or without
recourse against the holder with respect to principal or interest and the conditions upon which the
loan will become payable in the event of the holder’s termination of employment shall be determined
by the Administrator. Unless the Administrator determines otherwise, when a loan is made, shares
of Stock having a Fair Market Value at least equal to the principal amount of the loan shall be
pledged by the holder to the Company as security for payment of the unpaid balance of the loan, and
such pledge shall be evidenced by a pledge agreement, the terms of which shall be determined by the
Administrator, in its discretion; provided, however, that each loan shall comply
with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.

     (6) Non-transferability of Options. Unless otherwise determined by the Administrator,
no Stock Option shall be transferable by the optionee, and all Stock Options shall be exercisable,
during the optionee’s lifetime, only by the optionee.

     (7) Termination of Employment or Service. If an optionee’s employment with or service
as a director of or consultant or advisor to the Company terminates by reason of death, Disability
or for any other reason, the Stock Option may thereafter be exercised to the extent provided in the
applicable subscription, award or other agreement, or as otherwise determined by the Administrator.

     (8) Annual Limit on Incentive Stock Options. To the extent that the aggregate Fair
Market Value (determined as of the date the Incentive Stock Option is granted) of shares of Stock
with respect to which Incentive Stock Options granted to an Optionee under this Plan and all other
option plans of the Company or its Parent Corporation become exercisable for the first time by the
Optionee during any calendar year exceeds $100,000, such Stock Options shall be treated as
Non-Qualified Stock Options.

Section 5A. Director Stock Option Grants In Lieu of Retainer and/or Meeting Fees.

     The Board may, in its sole discretion, provide that each director of the Company shall have
the right to elect to waive the receipt of any part or all of his or her annual retainer and/or
meeting fees (if any) for the year commencing on the date immediately following each annual meeting
of the Company’s shareholders, and to receive a number of Non-Qualified Stock Options (“Director
Fee Options”) in lieu thereof. Such election shall be

6

 

made on or before such annual meeting and, once made, shall be irrevocable. Director Fee
Options shall be deemed to be granted annually (in advance with respect to any waived retainer fees
and in arrears with respect to any waived meeting fees).

     (1) Number of Shares of Stock Subject to Options. The number of shares of Stock
subject to Director Fee Options shall be fixed by the Board of Directors in advance of such annual
meeting based upon the amount of fees so waived and an independent appraisal of the intrinsic value
of the Director Fee Options.

     (2) Option Price. The option price per share of Stock purchasable under the Director
Fee Options shall be equal to 100% of the fair market value of the Stock on the date of grant.

     (3) Option Term. The Director Fee Options shall be exercisable for a term of ten (10)
years from the date of grant.

     (4) Vesting and Exercisability. The Director Fee Options shall be 100% vested and
exercisable on the later of (i) March 1 following the date of grant and (ii) the date that is 270
days following the date of grant (the “Vesting Date”). In the event a director’s service
terminates prior to the Vesting Date for a specific grant of Director Fee Options, such director
shall be deemed to vest in such options pro rata through the date of such termination of service,
and such pro rata portion of such Director Fee Options shall become exercisable on the applicable
Vesting Date.

     (5) Method of Exercise. Director Fee Options may be exercised in whole or in part at
any time during the option period, by giving written notice of exercise to the Company specifying
the number of shares to be purchased, accompanied by payment in full of the purchase price in cash
or its equivalent as determined by the Administrator.

     (6) Non-transferability of Options. The Director Fee Options shall be subject to the
provisions of Section 5(6).

     (7) Stub Period; Unanticipated Circumstances. The Board of Directors shall have the
authority to make appropriate arrangements consistent with the provisions of this Section 5A with
respect to retainer and/or meeting fees otherwise payable with respect to any incomplete year
during the term of the Plan, and with respect to circumstances that may arise that are not
contemplated under the Plan.

Section 6. Stock Appreciation Rights and Limited Stock Appreciation Rights.

     (1) Grant and Exercise. Stock Appreciation Rights and Limited Stock Appreciation
Rights may be granted either alone (“Free Standing Rights”) or in conjunction with all or part of
any Stock Option granted under the Plan (“Related Rights”). In the case of a Non-Qualified Stock
Option, Related Rights may be granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time
of the grant of the Incentive Stock Option.

     A Related Right or applicable portion thereof granted in conjunction with a given Stock Option
shall terminate and no longer be exercisable upon the termination or exercise of the related Stock
Option, except that, unless otherwise provided by the Administrator at the time of grant, a Related
Right granted with respect to less than the full number of shares covered by a related Stock Option
shall only be reduced if and to the extent that the number of shares covered by the exercise or
termination of the related Stock Option exceeds the number of shares not covered by the Related
Right.

     A Related Right may be exercised by an optionee, in accordance with paragraph (2) of this
Section 6, by surrendering the applicable portion of the related Stock Option. Upon such exercise
and surrender, the optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (2) of this Section 6. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the Related Rights have been so
exercised.

7

 

     (2) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms
and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time
to time by the Administrator, including the following:

          (a) Stock Appreciation Rights that are Related Rights (“Related Stock Appreciation
Rights”) shall be exercisable only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan; provided, however, that no Related Stock
Appreciation Right shall be exercisable during the first six months of its term, except
that this additional limitation shall not apply in the event of death or Disability of the
optionee prior to the expiration of such six-month period.

          (b) Upon the exercise of a Related Stock Appreciation Right, an optionee shall be
entitled to receive up to, but not more than, an amount in cash or that number of shares of
Stock (or in some combination of cash and shares of Stock) equal in value to the excess of
the Fair Market Value of one share of Stock as of the date of exercise over the option
price per share specified in the related Stock Option multiplied by the number of shares of
Stock in respect of which the Related Stock Appreciation Right is being exercised, with the
Administrator having the right to determine the form of payment.

          (c) Related Stock Appreciation Rights shall be transferable or exercisable only when
and to the extent that the underlying Stock Option would be transferable or exercisable
under paragraph (6) of Section 5 of the Plan.

          (d) Upon the exercise of a Related Stock Appreciation Right, the Stock Option or part
thereof to which such Related Stock Appreciation Right is related shall be deemed to have
been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the
number of shares of Stock to be issued under the Plan, but only to the extent of the number
of shares issued under the Related Stock Appreciation Right.

          (e) A Related Stock Appreciation Right granted in connection with an Incentive Stock
Option may be exercised only if and when the Fair Market Value of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such Stock Option.

          (f) Stock Appreciation Rights that are Free Standing Rights (“Free Standing Stock
Appreciation Rights”) shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Administrator at or after grant;
provided, however, that no Free Standing Stock Appreciation Right shall be
exercisable during the first six months of its term, except that this limitation shall not
apply in the event of death or Disability of the recipient of the Free Standing Stock
Appreciation Right prior to the expiration of such six-month period.

          (g) The term of each Free Standing Stock Appreciation Right shall be fixed by the
Administrator, but no Free Standing Stock Appreciation Right shall be exercisable more than
ten years after the date such right is granted.

          (h) Upon the exercise of a Free Standing Stock Appreciation Right, a recipient shall
be entitled to receive up to, but not more than, an amount in cash or that number of shares
of Stock (or any combination of cash or shares of Stock) equal in value to the excess of
the Fair Market Value of one share of Stock as of the date of exercise over the price per
share specified in the Free Standing Stock Appreciation Right (which price shall be no less
than 100% of the Fair Market Value of the Stock on the date of grant) multiplied by the
number of shares of Stock in respect to which the right is being exercised, with the
Administrator having the right to determine the form of payment.

          (i) Free Standing Stock Appreciation Rights shall be transferable or exercisable only
when and to the extent that a Stock Option would be transferable or exercisable under
paragraph (6) of Section 5 of the Plan.

8

 

          (j) In the event of the termination of employment or service of a Participant who has
been granted one or more Free Standing Stock Appreciation Rights, such rights shall be
exercisable at such time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant.

          (k) Limited Stock Appreciation Rights may only be exercised within the 30-day period
following a “Change of Control” (as defined by the Administrator in the agreement
evidencing such Limited Stock Appreciation Right) and, with respect to Limited Stock
Appreciation Rights that are Related Rights (“Related Limited Stock Appreciation Rights”),
only to the extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6 of the Plan;
provided, however, that no Related Limited Stock Appreciation Right shall
be exercisable during the first six months of its term, except that this additional
limitation shall not apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.

          (l) Upon the exercise of a Limited Stock Appreciation Right, the recipient shall be
entitled to receive an amount in cash equal in value to the excess of the “Change of
Control Price” (as defined in the agreement evidencing such Limited Stock Appreciation
Right) of one share of Stock as of the date of exercise over (A) the option price per share
specified in the related Stock Option, or (B) in the case of a Limited Stock Appreciation
Right which is a Free Standing Stock Appreciation Right, the price per share specified in
the Free Standing Stock Appreciation Right, such excess to be multiplied by the number of
shares in respect of which the Limited Stock Appreciation Right shall have been exercised.

Section 7. Restricted Stock, Deferred Stock and Performance Shares.

     (1) General. Restricted Stock, Deferred Stock or Performance Share awards may be
issued either alone or in addition to other awards granted under the Plan. The Administrator shall
determine the Eligible Employees, consultants and advisors to whom, and the time or times at which,
grants of Restricted Stock, Deferred Stock or Performance Share awards shall be made; the number of
shares to be awarded; the price, if any, to be paid by the recipient of Restricted Stock, Deferred
Stock or Performance Share awards; the Restricted Period (as defined in paragraph (3) hereof)
applicable to Restricted Stock or Deferred Stock awards; the Performance Goals applicable to
Performance Share or Deferred Stock awards; the date or dates on which restrictions applicable to
such Restricted Stock or Deferred Stock awards shall lapse during such Restricted Period; and all
other conditions of the Restricted Stock, Deferred Stock and Performance Share awards. The
Administrator may also condition the grant of Restricted Stock, Deferred Stock awards or
Performance Shares upon the exercise of Stock Options, or upon such other criteria as the
Administrator may determine, in its sole discretion. The provisions of Restricted Stock, Deferred
Stock or Performance Share awards need not be the same with respect to each recipient. In the
discretion of the Administrator, loans may be made to Participants in connection with the purchase
of Restricted Stock under substantially the same terms and conditions as provided in Section 5(5)
with respect to the exercise of stock options.

     (2) Awards and Certificates. The prospective recipient of a Restricted Stock,
Deferred Stock or Performance Share award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award (a “Restricted Stock
Award Agreement,” “Deferred Stock Award Agreement” or “Performance Share Award Agreement,” as
appropriate) and delivered a fully executed copy thereof to the Company, within a period of sixty
days (or such other period as the Administrator may specify) after the award date. Upon the
granting or vesting of an award of stock, the Company shall, in its discretion, either issue the
Participant a physical stock certificate or credit the Participant’s award in electronic form in an
account held by the Company’s transfer agent or other designee.

     (3) Restrictions and Conditions. The Restricted Stock, Deferred Stock and Performance
Share awards granted pursuant to this Section 7 shall be subject to the following restrictions and
conditions:

          (a) Subject to the provisions of the Plan and the Restricted Stock Award Agreement,
Deferred Stock Award Agreement or Performance Share Award Agreement, as appropriate,
governing such award, during such period as may be set by the Administrator commencing on
the grant date (the “Restricted Period”), the Participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock, Performance Shares or Deferred Stock
awarded under the Plan; provided, however,

9

 

that the Administrator may, in its sole discretion, provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions in whole or in
part based on such factors and such circumstances as the Administrator may determine, in
its sole discretion, including, but not limited to, the Participant’s termination of
employment or service, death or Disability or the occurrence of a “Change of Control” as
defined in the agreement evidencing such award.

          (b) Except as provided in paragraph (3)(a) of this Section 7, the Participant shall
generally have, with respect to the shares of Restricted Stock or Performance Shares, all
of the rights of a shareholder with respect to such stock during the Restricted Period. The
Participant shall generally not have the rights of a shareholder with respect to stock
subject to Deferred Stock awards during the Restricted Period and no dividends declared
during the Restricted Period shall accrue or be paid to the Participant holding awards of
Deferred Stock.

          (c) The rights of holders of Restricted Stock, Deferred Stock and Performance Share
awards upon termination of employment or service for any reason during the Restricted
Period shall be set forth in the Restricted Stock Award Agreement, Deferred Stock Award
Agreement or Performance Share Award Agreement, as appropriate, governing such awards.

Section 8. Amendment and Termination.

     The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made that would impair the rights of a Participant under any award
theretofore granted without such Participant’s consent, or that without the approval of the
shareholders (as described below) would:

     (1) except as provided in Section 3, increase the total number of shares of Stock reserved for
the purpose of the Plan;

     (2) change the class of employees, directors, consultants and advisors eligible to participate
in the Plan; or

     (3) extend the maximum option period under paragraph (2) of Section 5 or Section 5A of the
Plan.

     Notwithstanding the foregoing, shareholder approval under this Section 8 shall only be
required at such time and under such circumstances as shareholder approval would be required under
Section 162(m) of the Code or other applicable law, rule or regulation with respect to any material
amendment to any employee benefit plan of the Company.

     The Administrator may amend the terms of any award theretofore granted, prospectively or
retroactively, but, subject to Section 3 above, no such amendment shall impair the rights of any
holder without his or her consent.

Section 9. Unfunded Status of Plan.

     The Plan is intended to constitute an “unfunded” plan for incentive compensation. With
respect to any payments not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a general creditor of the
Company.

Section 10. General Provisions.

     (1) The Administrator may require each person purchasing shares pursuant to a Stock Option to
represent to and agree with the Company in writing that such person is acquiring the shares without
a view to distribution thereof. The stock certificates, if issued, for such shares may include any
legend which the Administrator deems appropriate to reflect any restrictions on transfer.

10

 

     All certificates, if issued, for shares of Stock delivered under the Plan shall be subject to
such stock-transfer orders and other restrictions as the Administrator may deem advisable under the
rules, regulations, and other requirements of the Commission, any stock exchange upon which the
Stock is then listed, and any applicable federal or state securities law, and the Administrator may
cause a legend or legends to be placed on any such certificates to make appropriate reference to
such restrictions.

     (2) Nothing contained in the Plan shall prevent the Board from adopting other or additional
compensation arrangements, subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee, director, consultant or advisor of the Company any
right to continued employment or service with the Company, as the case may be, nor shall it
interfere in any way with the right of the Company to terminate the employment or service of any of
its employees, directors, consultants or advisors at any time.

     (3) Each Participant shall, no later than the date as of which the value of an award first
becomes includible in the gross income of the Participant for federal income tax purposes, pay to
the Company, or make arrangements satisfactory to the Administrator regarding payment of, any
federal, state, or local taxes of any kind required by law to be withheld with respect to the
award. The obligations of the Company under the Plan shall be conditional on the making of such
payments or arrangements, and the Company shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the Participant.

     (4) No member of the Board or the Administrator, nor any officer or employee of the Company
acting on behalf of the Board or the Administrator, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by
the Company in respect of any such action, determination or interpretation.

Section 11. Effective Date of Plan.

     The Plan became effective (the “Effective Date”) on August 8, 1995, the date the Company’s
shareholders formally approved the Plan.

Section 12. Term of Plan.

     No Stock Option, Stock Appreciation Right, Limited Stock Appreciation Right, Restricted Stock,
Deferred Stock or Performance Share award shall be granted pursuant to the Plan on or after March
26, 2013, but awards theretofore granted may extend beyond that date.

11

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