Document:

Exhibit 10.5

 

EXHIBIT 10.5

OAKLEY, INC.

DEFERRED COMPENSATION PLAN

          Oakley, Inc. (together with its subsidiaries, the “Company”) hereby establishes the Oakley,
Inc. Deferred Compensation Plan (as amended from time to time, the “Plan”), effective as of January
1, 1997.

          The purpose of the Plan is to provide an opportunity for certain officers and other employees
of the Company to elect to defer a portion of the compensation payable to them by the Company. The
Plan is intended as a means of maximizing the effectiveness and flexibility of the Company’s
compensation arrangements, and as an aid in attracting and retaining individuals of outstanding
ability for employment with the Company.

ARTICLE I — DEFINITIONS

          For purposes hereof, unless otherwise clearly apparent from the context, the following terms
shall have the indicated meanings.

	1.1	 	Account Balance: The excess, if any, of (a) (i) the aggregate Deferred Amounts
credited to the Deferred Compensation Account maintained on behalf of a Participant since the
date such Participant began participating in the Plan, plus (ii) any Additions with respect to
such Participant’s Deferred Compensation Account, over (b) any withdrawals or other charges
against the Deferred Compensation Account (including, without limitation, any withholding or
other applicable taxes or charges for administering the Plan).
	 
	1.2	 	Additions: Interest credited by the Company to each Participant’s Deferred
Compensation Account as described in Section 2.3.
	 
	1.3	 	Beneficiary: Any person or persons, as designated pursuant to Article 4, to whom any
benefits may be payable pursuant to Section 3.3 upon the death of a Participant.
	 
	1.4	 	Committee: The Deferred Compensation Plan Committee or other committee appointed by
the Board of Directors of the Company to administer the Plan.
	 
	1.5	 	Compensation: Total salary, bonuses and commissions payable or accrued by the
Company for services rendered by a Participant and reportable on Form W-2 or Form 1099 as taxable income for Federal income tax purposes.

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	1.6	 	Deferred Compensation Account. A memorandum account maintained by the Company for
the benefit of each Participant.
	 
	1.7	 	Deferred Amount: An amount credited by the Company to a Participant’s Deferred
Compensation Account in lieu of payment of amounts of Compensation to such Participant.
	 
	1.8	 	Effective Date of the Plan: January l, 1997; provided, that no amounts of
Compensation may be deferred with respect to services rendered by a Participant prior to
February 1, 1997.
	 
	1.9	 	Participant: Any officer or other key employee of the Company designated by the
Committee to be eligible for participation in the Plan and who has executed an application
for participation pursuant to Section 2.1. Such individual shall first become a Participant
as of the effective date of his or her initial election to defer Compensation in accordance
with Section 2.1 hereof and, subject to the terms and conditions of the Plan, such
individual’s status as a Participant shall continue until the date of the last payment made to
or on behalf of such individual pursuant to Section 3 hereof.
	 
	1.10	 	Plan Year: January l to December 31; provided, that the initial Plan Year
shall be February 1, 1997 to December 31, 1997.
	 
	1.11	 	Termination: The termination of a Participant’s employment with the Company for any
reason (including but not limited to by reason of death, disability or retirement).
	 
	1.12	 	Termination Benefit: Has the meaning set forth in Section 3.1 hereof.
	 
	1.13	 	Termination Benefit Election: Has the meaning set forth in Section 3.1 hereof.

ARTICLE II — DEFERRED COMPENSATION

	2.1	 	Eligibility and Participation: Eligibility to commence participation in this Plan
shall be restricted to those officers and key employees of the Company selected for
participation by the Committee.

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	 	(a)	 	Application. Any individual so selected shall become a Participant
by filing with the Company a written application for participation in a form
satisfactory to the Company within thirty (30) days of the date when he or she is
first notified, in writing, that he or she is eligible to participate in the Plan.
If such application is not filed within such thirty (30) day period, such individual
shall not thereafter be permitted to participate in the Plan until the next
opportunity generally available to all Participants to make or change their deferral
elections.
	 
	 	(b)	 	Deferral Election. The Participant shall indicate, in a written
form satisfactory to the Company, the percentage or amount of the Compensation
otherwise payable to him or her to be deferred commencing on the first day that the
Participant is eligible to defer amounts under the Plan with respect to a specific
Plan Year. An election with respect to the portion of Compensation to be deferred
shall be irrevocable and shall remain in effect until the earliest of (i) the end of
the applicable Plan Year, (ii) the date of termination of such individual’s
participation in the Plan, and (iii) the date the Plan terminates.
	 
	 	(c)	 	Deferral Percentage. Such election with respect to a Participant’s
base salary and/or commissions must be a percentage or amount that would, on a
projected basis, equal at least four thousand dollars ($4000) for the Plan Year with
respect to which such election is being made. A separate election may be made with
respect to the deferral of a portion of the Participant’s annual bonus, if any, which
election may be expressed either as a percentage (which need not be the same as the
percentage chosen with respect to salary and commissions) or as a fixed amount of the
Participant’s annual bonus.
	 
	 	(d)	 	Deferral Maximum. The Company may establish a dollar maximum with
respect to the total amount which may be deferred in any Plan Year by each
Participant. The Company shall notify Participants in writing of any such maximum
prior to the beginning of each Plan Year. If no such notification is given, the
maximum in effect for the immediately preceding Plan Year, if any, shall apply for
the new Plan Year. The maximum for the Plan Year from February 1, 1997 to December
31, 1997 shall be $150,000.
	 
	 	(e)	 	Deferral Period. Unless specified as an “In Service Distribution”
as described in Section 3.2, the deferral period with respect to Deferred Amounts and any Additions in respect thereof shall extend until Termination.

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	2.2	 	No less than six (6) weeks prior to the start of each Plan Year, the Committee shall provide
(i) notice to each Participant of the terms and conditions upon which deferrals may be made
with respect to such Plan Year and (ii) a deferral form with which to make deferral elections
for such Plan Year. Such election form must be filed at least twenty (20) days prior to the
beginning of the Plan Year to which it pertains and shall be effective on the first day of the
Plan Year following the filing thereof.
	 
	2.3	 	Interest on the Account Balance (“Additions”) shall accrue and be compounded daily and shall
be credited monthly. Such accruals shall continue until such date as the Account Balance is
zero.
	 
	 	 	The applicable interest rate used to calculate Additions shall be based upon an interest
rate index (the “Index”) such as the “Prime Rate.” The Index in effect for a Plan Year
shall be determined as of the December 1st immediately prior to the beginning of such Plan
Year and shall correspond to the index or other measure used to determine the highest rate
of interest paid by the Company under its principal banking agreement in effect as of such
date. Should no principal banking agreement be in effect on the first day of December
preceding any Plan Year, the Committee shall select an Index to be applied under this
Section 2.3. During the 1997 Plan Year, the Index shall be the “Prime Rate” as published
in the Wall Street Journal.
	 
	 	 	The actual interest rate used to calculate Additions shall be adjusted, based on the Index
for the Plan Year then in effect, as of the first day of each calendar quarter of such
Plan Year. Notwithstanding the foregoing, the applicable interest rate shall not at any
time not be less than four percent (4%) per annum.
	 
	2.4	 	A Participant shall continue to be eligible to defer amounts of Compensation under the Plan
until the earliest date on which any of the following events occurs:
	 
	 	 	(a)     The Plan is terminated;
	 
	 	 	(b)     There occurs a Termination of the Participant;
	 
	 	 	(c)     The Committee makes a determination that the Participant is no longer
eligible to continue to defer amounts under the Plan;

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	 	(d)	 	The Participant incurs a disability and has received benefits under the
Company’s long-term disability plan for at least six (6) months; or
	 
	 	(e)	 	The Participant provides notice to the Company, as provided in Section 2.7,
that he or she does not want to continue participation in the Plan for one or more
years.

	2.5	 	Should a Participant’s eligibility to defer amounts under the Plan be discontinued under
Section 2.4, he or she may not be eligible to re-commence deferrals under the Plan except
upon prior approval by the Committee.
	 
	2.6	 	In the event a Participant is granted a leave of absence by the Company, no additional
Deferred Amounts shall be credited to the Participant’s Account Balance for the duration of
the period of such leave. However, Additions shall continue to be so credited during such
period. Such leave of absence shall not entitle the Participant to distribution of his or her
Termination Benefit.
	 
	2.7	 	A Participant may notify the Company, in advance and in writing, that he or she does not wish
to defer any Compensation under the Plan for a period of one or more years. Such notice shall
not entitle the Participant to distribution of his or her Termination Benefit.

ARTICLE III — PAYMENT OF PLAN BENEFITS

	3.1	 	Termination Benefit: Upon a Participant’s Termination, the Participant shall be
entitled to receive a distribution of the Participant’s Account Balance (the “Termination
Benefit”).
	 
	 	 	Except as otherwise provided in this Article III, pursuant to the Participant’s
Termination Benefit Election (as defined below), the Termination Benefit shall be paid
either (i) in a lump sum within thirty (30) days following the Participant’s Termination,
(ii) in five annual installments or (iii) in ten annual installments (each, a “Standard
Distribution Option”). Should annual installments be selected, the first such payment
shall be made within thirty (30) days following Termination.
	 
	 	 	As of the date a Participant commences participation in the Plan, the Participant shall
elect a Standard Distribution Option (a “Termination Benefit Election”). The Termination
Benefit Election may only be changed once a year thereafter, effective as of the first
day of the next

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	 	 	Plan Year beginning after the date of such election. The Termination Benefit Election
shall not be binding unless made at least one full year prior to the date of Termination.
If the Participant should retire within one year of commencing participation in the Plan,
or if no Termination Benefit Election is otherwise in effect, the Termination Benefit
shall be payable by lump sum, regardless of any Termination Benefit Election made by the
Participant.
	 
	 	 	The Company shall furnish to the Participant the appropriate form for making the
Termination Benefit Election. This form shall be furnished at the time the Participant
commences participation in the Plan, and at least thirty (30) days before the start of
each subsequent Plan Year.
	 
	 	 	In the event the Participant chooses to receive the Termination Benefit in installments
over a period of five years, the first payment would be equal to one-fifth of the full
value of the Deferred Compensation Account as of the date of such payment. The
installment payment to be made the following year would be equal to one-fourth of the
value of the Deferred Compensation Account as of the date of such payment (including any
Additions credited to the remaining balance since the date of the first payment), and so
forth. A similar payment schedule would apply to a Termination Benefit payable in
installments over a ten-year period. Such method of payment is referred to herein as the
“Installment Method.”
	 
	3.2	 	In Service Distribution: Notwithstanding Section 3.1, Participants may make an
irrevocable election, at the time specified in Section 2.1 or Section 2.2 for Deferred Amount
elections or changes, to receive all or any part of their Deferred Amount for any Plan Year,
together with Additions with respect thereto, in the form of an “In Service Distribution” in a
lump sum or in installments during a specified year or term of not more than four years prior
to Termination; provided, that the deferral period for an In Service Distribution
must be no less than three (3) years following the end of the Plan Year as to which the
election relates; and provided, further, that In Service Distributions shall
be permitted to commence only as of the first day of a calendar quarter. Amounts payable in
installments over a specified term of years shall be paid pursuant to the Installment Method
described in Section 3.1.
	 
	 	 	Notwithstanding the foregoing, in the event of a Participant’s Termination prior to
distribution of amounts otherwise payable pursuant to an In Service Distribution election,
the Participant’s Termination Benefit Election shall take precedence over the In Service
Distribution election as of the date of Termination.

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	3.3	 	Death Benefit: If a Participant should die at a time when the Participant’s Account
Balance is greater than zero, then, notwithstanding any prior election by the Participant to
receive the Termination Payment in a series of annual installments, the Participant’s
Beneficiary or Beneficiaries shall be paid an amount equal to the value of the Participant’s
Account Balance as of the date of death, in a lump sum, as soon as administratively feasible
in accordance with Section 6.4.
	 
	3.4	 	Withdrawal: At any time prior to Termination, a Participant may make a one-time
irrevocable election to withdraw all (but not less than all) of the Participant’s then Account
Balance (a “Withdrawal”); provided, that the amount payable to any Participant making
a Withdrawal shall be reduced by six (6) percent of the Account Balance as of the date of the
Withdrawal, such amount to be forfeited to the Company; and provided, further,
that from and after the date notice of the Withdrawal is provided to the Company, the
Participant making the Withdrawal shall no longer be eligible to defer amounts under or
otherwise participate in the Plan. The date of the Withdrawal shall be as soon as
administratively practicable following the Company’s receipt of notice from the Participant
requesting the Withdrawal.

ARTICLE IV — BENEFICIARIES

	4.1	 	At the time participation in the Plan commences, each Participant shall designate on a form
satisfactory to the Company one or more Beneficiaries to receive any benefits which may become
payable hereunder in the event of the Participant’s death (“Beneficiary Designation”). A
Beneficiary Designation may be changed by a Participant at any time upon written notice to the
Company.
	 
	4.2	 	If the Participant shall have made more than one Beneficiary Designation, the Beneficiary
Designation most recently filed with the Company prior to the time of the Participant’s death
shall govern.
	 
	4.3	 	If any amounts under the Plan become payable following the Participant’s death at a time when
no Beneficiary Designation is applicable, such payments shall be made in a lump sum (a) to the
Participant’s then living spouse, if any; or (b) if none, then to such person or persons,
including the Participant’s estate, as the Participant may designate under his or her last
Will, making specific reference hereto; or (c) if the Participant is not survived by a spouse
or shall fail to so designate such person or persons by Will, then such payments shall be
made to the then living children of the Participant, if any, in equal shares; and (d) if none, then in one lump sum to the Participant’s estate.

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ARTICLE V — AMENDMENT AND TERMINATION OF PLAN

	5.1	 	Amendment and Termination: The Company reserves the right to amend in whole or in
part, in writing, or to terminate this Plan at any time, with or without notice; provided,
however, that no such action shall reduce the value of a Participant’s Account Balance accrued
prior to the date of any such amendment or termination.
	 
	 	 	If the Plan is amended in such a way that the rate of interest to be credited on the
Account Balance or on future Deferred Amounts, as described in Section 2.3, would be less
than four percent (4%) per year, the Plan shall be terminated as of the date of such
amendment and the value of each Participant’s Account Balance shall be distributed, in a
lump sum, within 30 days of any such amendment.
	 
	 	 	Notwithstanding the foregoing, the Plan shall not be terminated if, as an alternative
means of calculating Additions, the Plan is amended to permit Participants to select from
among one or more hypothetical investment funds in which their Deferred Amounts or Account
Balances would be deemed to be invested.
	 
	5.2	 	In the event of a Change in Control of the Company, as described below, the Plan shall be
terminated as of the effective date of such event. The Account Balance of each Participant
shall then be paid, in a lump sum, within 30 days following the date of the Change of Control
unless the successor or surviving corporation shall agree in writing to continue the Plan on
terms at least as favorable to Participants as in effect immediately prior to the Change in
Control.
	 
	 	 	For the purpose of this Plan, a “Change in Control” shall be deemed to have occurred if:

     (i) Any “person,” as such term is used in Section 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,
Mike Parnell, their affiliates, spouses, widows, lineal descendants and heirs, devisees
and donees, and trusts created by Jim Jannard or Mike Parnell for the benefit of such
persons; or any company owned, directly or indirectly, by all the stockholders of the
Company in substantially the same

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proportions as their ownership of the Company’s common stock (each such person an
“Excluded Person”)), is or becomes after the Effective Date of the Plan 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 of the Plan), 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)) whose election by the Board or nomination for election by the
Company’s stockholders 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 stockholders 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 stockholders 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, Mike Parnell, their affiliates, spouses,
widows, lineal descendants and heirs, devisees

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and donees, and trusts created by Jim Jannard or Mike Parnell 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 or any successors.

ARTICLE VI — MISCELLANEOUS

	6.1	 	Insurance: The Company may purchase one or more insurance policies on the life of a
Participant as a means of providing, in whole or in part, for the payment of benefits
hereunder. However, in such event neither the Participant, his or her designated Beneficiary
nor any other beneficiary shall have any rights whatsoever therein or in the proceeds
therefrom. The Company (or any “Rabbi Trust” (as described in Section 6.5) formed in
connection with this Plan) shall be the sole owner and beneficiary of any such insurance
policy and shall possess and may exercise all incidents of ownership therein. No such policy,
policies or other property shall be held in any trust for the Participant, Beneficiary or any
other person or as collateral security for any obligation of the Company hereunder. This
Plan shall under no circumstances be deemed to constitute a contract of insurance.
	 
	6.2	 	No Contract of Employment: The Plan shall under no circumstances be deemed to have
any effect upon the terms or conditions of employment of any officer or other employee of the
Company whether or not he or she is a Participant hereunder. Neither the offering of the
Plan, the payment of any expenses, costs or benefit amounts associated with the Plan, nor any
documents prepared in connection with the Plan shall be construed as having created a contract
of employment between the Participant and the Company.
	 
	6.3	 	Benefits Not Transferable: Benefits under this Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, hypothecation, pledge or
encumbrance by, or attachment or garnishment by creditors of, the Participant or any
Beneficiary and any attempt to do so shall be null and void. Benefits under this Plan shall
not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any
Participant or Beneficiary, nor may the same be subject to attachment or seizure by any
creditor of any Participant or Beneficiary under any circumstances.
	 
	6.4	 	Determination of Benefits: In the event of a Participant’s Termination (or death
following Termination if, at the time of death, a portion of the Participant’s Account Balance
remains unpaid), the Participant or 

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applicable Beneficiary, as the case may be, shall notify the Company promptly of such event, and
the Company shall then provide a claimant’s statement form for completion which must be
returned to the Company together with an official death certificate, if applicable, before
Plan benefits may be paid. Within ninety days after receipt of an application for
benefits, the Company shall notify the applicant of its decision with respect to the
payment of benefits under the Plan. If special circumstances require an extension of
time, the Company shall notify the applicant of such circumstances within ninety days
after receipt of the application, and the Company shall thereafter notify the applicant of
its decision within 180 days after receipt of the application. If the application is
denied in whole or in part, the Company’s notice of denial shall be in writing and shall
state:

	 	(a)	 	The specific reasons for denial with specific reference to pertinent Plan
provisions upon which the denial was based;
	 
	 	(b)	 	A description of any additional materials or information necessary for the
applicant to perfect his or her claim and an explanation of why the materials or
information are necessary; and
	 
	 	(c)	 	An explanation of the Plan’s claim review procedure.

During the sixty-day period following an applicant’s receipt of a notice of denial of any
application for benefits, the applicant or his duly authorized representative shall be
given the opportunity to review pertinent documents and within such sixty (60) day period
submit a written request to the Company for review of the denial.

An applicant submitting a request for review shall be allowed to submit questions and
comments in writing to the Company. The Company shall afford an applicant who requests a
hearing a full and fair review of the decision denying the application and may, in its
sole discretion, hold a hearing to review any or all issues raised by the applicant, which
hearing shall take place within thirty (30) days of the date of the applicant’s request.
Within sixty (60) days after receipt of the request for review, the Company shall issue a
written decision to the applicant. If special circumstances, such as the need to hold a
hearing, require an extension of time, the Company shall issue a written decision no later
than 120 days after receipt of the request for review. The Company’s decision shall
include specific reasons for the decision, written in a manner calculated to be understood
by the applicant, and contain specific references to pertinent Plan provisions upon which
the decision is based.

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	6.5	 	No Trust: For tax purposes and for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), this Plan is intended to qualify as an
unfunded plan maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees, and shall be interpreted
accordingly.
	 
	 	 	No action by the Company or its Board of Directors under this Plan shall be construed as
creating a trust, escrow or other secured or segregated fund or other fiduciary
relationship of any kind in favor of any Participant or Beneficiary or any other persons
otherwise entitled to benefits under the Plan. The status of the Participant and any
Beneficiary with respect to any liabilities assumed by the Company hereunder shall be
solely that of an unsecured creditor of the Company. The Plan constitutes a mere promise
by the Company to make benefit payments in the future. Any insurance policy or any other
asset acquired or held by the Company in connection with liabilities assumed by it
hereunder, shall not be deemed to be held under any trust, escrow or other secured or
segregated fund or other fiduciary relationship of any kind for the benefit of the
Participant or Beneficiary or to be security for the performance of the obligations of the
Company, but shall be and remain a general, unpledged, unrestricted asset of the Company
at all times subject to the claims of general creditors of the Company. Notwithstanding
the foregoing, the Company may transfer assets, including any insurance policies, to a
grantor trust of the type known as a “Rabbi Trust” with the Company as grantor and owner
of such trust.
	 
	6.6	 	Plan Administration: The Plan shall be administered by the Committee. The Committee
shall have the exclusive authority and responsibility for all matters in connection with the
operation and administration of the Plan. The Committee’s powers and duties shall include,
but not be limited to, the following: (a) responsibility for the compilation and maintenance
of all records necessary in connection with the Plan; (b) authorizing the payment of all
benefits under and expenses of the Plan; (c) authority to engage such legal, accounting and
other professional services as it may deem proper; (d) discretionary authority to interpret
the Plan; and (e) discretionary authority to determine eligibility for benefits under the Plan
and to resolve all issues of fact and law in connection with such determination. Decisions by
the Committee shall be final and binding upon all parties.
	 
	 	 	The Committee, from time to time, may delegate to other persons or organizations any of
its rights, powers and duties with respect to the operation and administration of the
Plan. Any such allocation shall be

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	 	 	reviewed from time to time by the Committee; shall, unless the Committee specifies
otherwise, carry such discretionary authority as the Committee, possesses regarding the
matter; and shall be terminable upon such notice as the Committee, in its sole discretion,
deems reasonable and prudent under the circumstances.
	 
	 	 	The expense of administering the Plan shall be borne by the Company and shall not be
charged against amounts payable hereunder.
	 
	6.7	 	Satisfaction of Claims: Any payment to a Participant or Beneficiary or the legal
representative of either, in accordance with the terms of this Plan, shall to the extent
thereof be in full satisfaction of all claims such person may have against the Company. The
Company may require such payee, as a condition to such payment, to execute a receipt and
release therefor in such form as shall be determined by the Company.
	 
	6.8	 	Governing Law: The Plan shall be construed, administered, and governed in all
respects in accordance with the laws of the State of California to the extent not preempted by
ERISA.
	 
	6.9	 	Gender and Number: Words used herein in the masculine, feminine or neuter gender
shall be construed as though they were also used in another gender in all cases where they
would so apply. Words used herein in the singular or plural form shall be construed as though
they were also used in the other form in all cases where they would so apply.
	 
	6.10	 	Severability: In the event that a court of competent jurisdiction determines that
any provision of the Plan is in violation of any statute or public policy, only those
provisions of the Plan that violate such statute or public policy shall be stricken. All
provisions of the Plan that do not violate any statute or public policy shall continue in full
force and effect. Further, any court order striking any provision of the Plan shall modify
the stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the Company in establishing the Plan.
	 
	6.11	 	Taxation: If the Internal Revenue Service finds that Compensation intended to be
deferred for Federal income tax purposes pursuant to the Plan is immediately taxable to a
Participant for Federal income tax purposes, the Company may, but shall not be required to,
amend the Plan to comply with the Internal Revenue Service requirements necessary to achieve
the desired Federal income tax benefits relating to the Plan. Notwithstanding the foregoing,
each Participant or Beneficiary, as applicable, shall be liable for any tax that may be
imposed by the Internal 

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	 	 	Revenue Service or any other taxing entity with respect to any payments or other benefits
provided to or on behalf of such Participant or Beneficiary pursuant to the Plan
(including, without limitation, any and all withholding taxes), irrespective of whether
such tax consequences were intended pursuant to the Plan. In the event amounts of
Compensation otherwise intended to be deferred under the Plan result in immediate taxation
to the Participant for Federal income tax purposes, and the Plan is not amended to achieve
the intended deferral, then the Participant shall be entitled to an immediate distribution
of that portion of the value of his or her Deferred Compensation Account subject to such
taxation.
	 
	6.12	 	Indemnification: The Company agrees to and shall indemnify and hold harmless each
Indemnified Person (as hereinafter defined) from and against all claims, losses, damages,
causes of action, suits, and liability of every kind, including all expenses of litigation,
court costs and reasonable attorney’s fees, incurred in connection with the Plan.
“Indemnified Person” shall mean each director, officer and employee of the Company acting as a
fiduciary of the Plan. Such indemnity shall apply regardless of whether the claims, losses,
damages, causes of action, suits or liabilities arise in whole or in part from the negligence
or fault on the part of the Indemnified Person, except to the extent there has been a final
adjudication by a court or other tribunal of competent jurisdiction that the claim or
liability is the result of gross negligence or willful misconduct of the Indemnified Person.
	 
	6.13	 	Coordination with Other Benefit Plans: Deferrals by the Participant shall be given
effect under the Company’s other benefits plans and/or whenever the Company is required to
verify the employment of a Participant, as follows:

	 	(a)	 	Deferrals shall be considered for purposes of determining the Participant’s
total income when verifying a Participant’s employment for credit grantors, credit
reporting agencies, in response to legal process and/or to other authorized persons or
entities.
	 
	 	(b)	 	Where permitted by the terms of the applicable plan, and subject to
applicable law, amounts deferred under the Plan shall be taken into account for
purposes of determining amounts to be paid to the Participant under any insurance or
salary continuation or replacement plan maintained by the Company.
	 
	 	(c)	 	Except where specifically excluded by the terms of such plans or agreements,
deferrals of base salary and other amounts under the Plan shall be taken into account
by the Company when determining a

14

 

	 	 	 	Participant’s compensation in connection with determining eligibility and amounts
payable under any bonus, incentive or severance pay plans or agreements maintained
by the Company.
	 
	 	(e)	 	Amounts deferred under the Plan shall not be treated as compensation for
purposes of determining the amount of a Participant’s deferrals under any qualified
pension plan of the Company.

ACKNOWLEDGED:

OAKLEY, INC.

	 	 	 	 	 
	By:

	 	/s/ Link Newcomb
 

	 	 
	Its:
	 	Chief Operating Officer	 	 
	 
	2/10/97	 	 
	 	 	 
	Date	 	 

15Exhibit 10.6

 

EXHIBIT 10.6

OAKLEY, INC.

2005 DEFERRED COMPENSATION PLAN

Oakley, Inc. (together with its subsidiaries, the “Company”) hereby establishes the Oakley,
Inc. 2005 Deferred Compensation Plan (as amended from time to time, the “Plan”), effective
as of January 1, 2005.

The purpose of the Plan is to provide an opportunity for certain officers and other employees of
the Company to elect to defer a portion of the compensation payable to them by the Company. The
Plan is intended as a means of maximizing the effectiveness and flexibility of the Company’s
compensation arrangements, and as an aid in attracting and retaining individuals of outstanding
ability for employment with the Company.

The Plan is unfunded and is maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees, within the meaning of Sections
201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.
Also, the Plan is intended to comply with Sections 409A(a)(2), (3) and (4) of the Internal Revenue
Code of 1986, as amended.

ARTICLE I—DEFINITIONS

For purposes hereof, unless otherwise clearly apparent from the context, the following terms shall
have the indicated meanings.

	1.1	 	Account: The bookkeeping account maintained for a Participant under the Plan for
purposes of determining the benefits payable to such Participant. A Participant’s Account
shall be maintained solely for administrative purposes and shall not represent any right,
title or interest in the assets of the Company.
	 
	1.2	 	Account Balance: The balance in a Participant’s Account, determined by (a) the
aggregate Deferred Amounts and Company Contributions credited to the Account maintained on
behalf of a Participant since the date such Participant began participating in the Plan, (b)
any Earnings credited or debited with respect to such Participant’s Account, and (c) any
distributions or other charges debited from the Account (including, without limitation, any
withholding or other applicable taxes or charges for administering the Plan).
	 
	1.3	 	Beneficiary: Any person or persons, as designated pursuant to Article V, to whom any
benefits may be payable pursuant to Section 4.3 upon the death of a Participant.
	 
	1.4	 	Benefit: Any Separation from Service Benefit or In-Service Benefit, or other benefit
payable under Article IV.

 

 

	1.5	 	Benefit Election: A Separation of Service Benefit Election under Section 4.1, or an
In-Service Benefit Election under Section 4.2.
	 
	1.6	 	Cause: The occurrence of any of the following:

	 	a.	 	a Participant’s willful material breach or habitual willful neglect of such
Participant’s duties as an employee of the Company;
	 
	 	b.	 	a Participant’s commission or conviction of any crime or criminal offense
involving theft, fraud, embezzlement, misappropriation of assets, malicious mischief,
or any felony; or
	 
	 	c.	 	a Participant’s willful engagement in conduct which is demonstrably injurious
to the Company, monetarily or otherwise, including, but not limited to, conduct that
constitutes activity which is competitive with the Company.

	1.7	 	Code: The Internal Revenue Code of 1986, as amended from time to time.
	 
	1.8	 	Committee: The Deferred Compensation Plan Committee or other committee appointed by
the Board of Directors of Oakley, Inc. to administer the Plan.
	 
	1.9	 	Company: Oakley, Inc., a Washington corporation, and any successor thereof,
including any affiliated company that adopts this Plan with the consent of the Board of
Directors of Oakley, Inc.
	 
	1.10	 	Company Contribution: An amount credited to a Participant’s Account under Section
2.4 of the Plan. Such amounts may vary from time to time and from Participant to Participant
and shall be determined by the Committee in its discretion.
	 
	1.11	 	Compensation: A Participant’s Compensation will mean his or her total base salary,
bonuses and commissions earned from employment with the Company during the relevant period,
determined prior to any deferral under the Plan or any other plan of the Company or any other
withholding or deduction.
	 
	1.12	 	Deferred Amount: An amount credited by the Company to a Participant’s Account in
lieu of payment of amounts of Compensation to such Participant under Section 2.1, 2.2 or 2.3
of the Plan.
	 
	1.13	 	Disability: The Participant is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less than twelve
month, or is, by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous period of not less
than twelve (12) months, receiving income replacement benefits for a period of not less than
three months under an accident and health plan covering employees of the Company.

Page 2 of 19

 

	1.14	 	Earnings: As described in Section 3.2.
	 
	1.15	 	Effective Date of the Plan: January 1, 2005.
	 
	1.16	 	ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to
time.
	 
	1.17	 	In-Service Benefit: Has the meaning set forth in Section 4.2 hereof.
	 
	1.18	 	In-Service Benefit Election: Has the meaning set forth in Section 4.2 hereof.
	 
	1.19	 	Participant: Any officer or other key employee of the Company designated by the
Committee to be eligible for participation in the Plan and who has executed an application for
participation pursuant to Section 2.1. An officer or other key employee of the Company shall
be designated as eligible for participation only if the Committee determines that such officer
or other key employee is part of a select group of highly compensated or management employees,
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Such individual
shall first become a Participant as of the effective date of his or her initial election to
defer Compensation in accordance with Section 2.1 hereof and, subject to the terms and
conditions of the Plan, such individual’s status as a Participant shall continue until the
date of the last payment made to or on behalf of such individual pursuant to Article IV.
	 
	1.20	 	Plan Year: January 1 to December 31.
	 
	1.21	 	Separation from Service: A Participant’s Separation from Service will mean his or
her “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of the Code and
the Treasury Regulations thereunder, with respect to the Company.
	 
	1.22	 	Separation from Service Benefit: Has the meaning set forth in Section 4.1 hereof.
	 
	1.23	 	Separation from Service Benefit Election: Has the meaning set forth in Section 4.1
hereof.

ARTICLE II—DEFERRED COMPENSATION

	2.1	 	Eligibility and Participation: Eligibility to commence participation in this Plan
shall be restricted to those officers and key employees of the Company selected for
participation by the Committee in accordance with Section 1.19.

	 	a.	 	Initial Eligibility:

	 	i.	 	Any individual who was a participant in the Oakley, Inc.
Deferred Compensation Plan prior to January 1, 2005, and was selected to become
a Participant in this Plan effective as of January 1, 2005, shall become a
Participant by filing with the Company an application for participation, in a

Page 3 of 19

 

	 	 	 	written form satisfactory to the Company, prior to January 1, 2005. If such
application is not filed prior to January 1, 2005, such individual shall not
thereafter be permitted to participate in the Plan until the first day of the
next Plan Year.
	 
	 	ii.	 	Any individual who was a participant in the Oakley, Inc.
Deferred Compensation Plan prior to January 1, 2005, and was not selected to
become a Participant in this Plan effective as of January 1, 2005, but who is
later selected to become a Participant in this Plan, shall become a Participant
effective as of the first day of the Plan Year next following such selection,
by filing with the Company an application for participation, in a written form
satisfactory to the Company, prior to the first day of such Plan Year. If such
application is not filed prior to the first day of such Plan Year, such
individual shall not thereafter be permitted to participate in the Plan until
the first day of the next Plan Year.
	 
	 	iii.	 	Any individual who is selected to become a Participant in the
Plan (other than an individual described in paragraph i. or ii.) shall become a
Participant by filing with the Company an application for participation, in a
written form satisfactory to the Company, within thirty (30) days of the date
on which he or she is first selected for participation in the Plan. If such
application is not filed within such thirty (30) day period, such individual
shall not thereafter be permitted to participate in the Plan until the first
day of the next Plan Year.

	 	b.	 	Initial Deferral Election: The Participant shall indicate, with respect
to the Plan Year for which he or she first becomes a Participant, in a written deferral
election form satisfactory to the Company, the percentage or amount of his or her
Compensation to be earned during the Plan Year that shall be deferred under the Plan,
commencing with Compensation earned after the date of the Participant’s initial
deferral election. The Participant shall make such initial deferral election prior to
January 1, 2005, or prior to the first day of the first Plan Year in which he or she
becomes a Participant, in the case of a Participant described in paragraph a.i. or
a.ii. The Participant shall make such initial deferral election within thirty (30)
days after the date on which he or she is first selected for participation in the Plan,
or the first day of the first Plan Year in which he or she becomes a Participant, in
the case of a Participant described in paragraph a.iii. Subject to Section 2.3b., the
Participant’s initial deferral election with respect to the Compensation to be deferred
shall be irrevocable and shall remain in effect until the end of the applicable Plan
Year.
	 
	 	c.	 	Deferral Percentage: A Participant’s deferral election with respect to
a Participant’s base salary and/or commissions to be earned during a Plan Year must be
a percentage or amount that would, on a projected basis, equal at least four thousand
dollars ($4,000) for the Plan Year with respect to which such election is being made. A
separate deferral election may be made with respect to

Page 4 of 19

 

	 	 	 	the Participant’s annual bonus under the Company’s annual bonus program, if any, to
be earned during the Plan Year which election may be expressed either as a
percentage (which need not be the same as the percentage chosen with respect to base
salary or commissions) or as a fixed amount of the Participant’s annual bonus.
Also, a separate deferral election may be made with respect to the Participant’s
bonus or bonuses (other than the Participant’s annual bonus under the Company’s
annual bonus program), if any, to be earned during the Plan Year which election may
be expressed either as a percentage (which need not be the same as the percentage
chosen with respect to base salary or commissions, or annual bonus) or a fixed
amount of the Participant’s other bonus or bonuses.

	 	d.	 	Deferral Maximum: The Company may establish a dollar maximum with
respect to the total amount which may be deferred from Compensation earned during any
Plan Year by each Participant. The Company shall notify Participants in writing of any
such maximum prior to the beginning of each Plan Year. If no such notification is
given, the maximum in effect for the immediately preceding Plan Year, if any, shall
apply for the new Plan Year. The maximum for the Plan Year from January 1, 2005 to
December 31, 2005 shall be $200,000.
	 
	 	e.	 	Initial Separation from Service Benefit Election: A Participant shall
make an initial Separation from Service Benefit Election not later than the date of
such Participant’s initial deferral election under Section 2.1.b.
	 
	 	f.	 	Initial In-Service Benefit Election. A Participant may make an
In-Service Benefit Election for the first Plan Year of participation not later than the
date of such Participant’s initial deferral election under Section 2.1.b. Such Benefit
Election shall apply to such Participant’s Deferred Amounts and Company Contributions
(if any) with respect to the Plan Year in which he or she first becomes a Participant
in the Plan (and any Earnings attributable thereto). Such initial In-Service Benefit
Election shall not apply to such Participant’s Deferred Amounts and Company
Contributions (if any) with respect to any subsequent Plan Year (and the Earnings
attributable thereto).

	2.2	 	Subsequent Deferral Elections:

	 	a.	 	Deferral Elections: A Participant shall indicate, with respect to each
Plan Year commencing after he or she has become a Participant, in a written deferral
election form satisfactory to the Company, the percentage or amount of his or her
Compensation to be earned during the Plan Year that shall be deferred under the Plan
commencing with Compensation earned on or after the first day of such Plan Year. The
Participant shall make such deferral election prior to the commencement of the
applicable Plan Year. Subject to Section 2.3b., the Participant’s deferral election
with respect to the Compensation to be deferred with respect to a Plan Year shall be
irrevocable and shall remain in effect until the end of the applicable Plan Year.

Page 5 of 19

 

	 	b.	 	Deferral Percentage and Deferral Maximum: A Participant’s deferral
election with respect to a Plan Year shall be made in accordance with Section 2.1.c and
shall be subject to the applicable deferral maximum with respect to such Plan Year
under Section 2.1.d.
	 
	 	c.	 	In-Service Benefit Election: A Participant may make an In-Service
Benefit Election with respect to each Plan Year commencing after he or she has become a
Participant. A Participant’s In-Service Benefit Election with respect to a Plan Year
shall apply to such Participant’s Deferred Amounts and Company Contributions (if any)
with respect to the Plan Year (and any Earnings attributable thereto). Such In-Service
Benefit Election shall not apply to such Participant’s Deferred Amounts and Company
Contributions (if any) with respect to any subsequent Plan Year (and the Earnings
attributable thereto).

	2.3	 	Performance-Based Compensation Deferral Elections:

	 	a.	 	Special Deferral Election: The Committee may, in its discretion,
permit a Participant to make a special deferral election with respect to such
Participant’s Compensation to be earned during a Plan Year that is performance-based
compensation based on services performed over a period of at least twelve (12) months,
within the meaning of Code Section 409A(a)(4)(B)(iii) and the Treasury Regulations
thereunder (“Performance-Based Compensation”). Such special deferral election
shall be subject to such terms and conditions as the Committee shall determine, in its
discretion. Any such special deferral election shall be made no later than six (6)
months before the end of the service period for such Performance-Based Compensation,
and such Participant’s deferral election under Section 2.1 or 2.2 shall not apply to
such Performance-Based Compensation.
	 
	 	b.	 	Change in Performance-Based Compensation Deferral Election: In the
event that a Participant has made a deferral election with respect to such
Participant’s Performance-Based Compensation to be earned during a Plan Year under
Section 2.1 or 2.2 or subsection a., the Committee may, in its discretion, permit such
Participant to modify or revoke such deferral election to the extent applicable to
Performance-Based Compensation, no later than six (6) months before the end of the
service period for such Performance-Based Compensation.

	2.4	 	Company Contributions: The Company shall credit Company Contributions, in such
amounts and at such times as are determined by the Committee, in its discretion, to one or
more Participants. The amounts of such Company Contributions and the terms and conditions
under which such Company Contributions are credited, shall be determined by the Committee, in
its discretion, from time to time. Neither the Company nor the Committee shall have any
obligation to credit Company Contributions to any Participant.
	 
	2.5	 	Continued Participation: A Participant shall continue to be eligible to defer amounts
of Compensation under the Plan until the earliest on which any of the following events occurs:

Page 6 of 19

 

	 	a.	 	the Plan is terminated;
	 
	 	b.	 	the Participant’s Separation from Service;
	 
	 	c.	 	the Committee determines that such Participant is no longer a part of a
select group of highly compensated or management employees, within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA; or
	 
	 	d.	 	the Committee determines, in its discretion, that such Participant shall
cease to be eligible to defer amounts of Compensation under the Plan.

	2.6	 	Eligibility to Participate: Should a Participant’s eligibility to defer amounts under
the Plan be discontinued under Section 2.5, he or she may not be eligible to re-commence
deferrals under the Plan except upon prior approval by the Committee.
	 
	2.7	 	Leave of Absence: In the event a Participant is granted a leave of absence by the
Company, no additional Deferred Amounts shall be credited to the Participant’s Account for the
duration of the period of such leave. However, Earnings shall continue to be so credited or
debited during such period. Such leave of absence shall not entitle the Participant to
distribution of his or her Separation from Service Benefit.

ARTICLE III—ACCOUNTS

	3.1	 	Account and Subaccounts: The Committee shall establish and maintain for each
Participant an Account to which shall be credited the amounts credited thereto under Sections
2.1, 2.2, 2.3 and 2.4, credited or debited the amounts determined under Section 3.2, debited
the forfeitures under Section 4.5, and debited the amounts distributed as Benefits under
Article IV. The Account of a Participant shall be a bookkeeping account and shall be
maintained solely for purposes of determining the Benefits payable to such Participant or his
or her Beneficiary.
	 
	 	 	The Committee shall establish and maintain with respect to a Participant’s Account a
Subaccount for each Plan Year, to which shall be credited with amounts credited to such
Account with respect to such Plan Year under Sections 2.1, 2.2, 2.3 and 2.4, credited or
debited the amounts determined under Section 3.2, debited the forfeitures under Section 4.5,
and debited the amounts distributed as Benefits under Article IV. The subaccounts of the
Account of a Participant shall be bookkeeping subaccounts and shall be maintained solely for
purposes of determining the benefits payable to such Participant or his or her Beneficiary.
	 
	3.2	 	Earnings: The Company hereby agrees that it will credit or debit interest, earnings,
gains or losses with respect to Deferred Amounts and Company Contributions in the
Participant’s Account Balance (such interest, earnings, gains or losses referred to as
“Earnings”) from and after the dates such Deferred Amounts and Company Contributions
are credited to the Participant’s Account. Earnings to Deferred Amounts and Company

Page 7 of 19

 

	 	 	Contributions shall accrue commencing on the date the Account first has a positive balance
and shall continue until such Participant’s Benefits have been fully distributed under the
Plan.
	 
	 	 	Earnings shall be calculated as if Deferred Amounts and Company Contributions had been
invested in whole and fractional shares of the investments or investment funds selected by
the Committee from time to time to which the Participant would prefer to have any Deferred
Amounts, Company Contributions and Earnings thereon deemed to be invested (the
“Investment Funds”). For purposes of computing Earnings, Deferred Amounts and
Company Contributions shall be assumed to have been invested in the Investment Shares on
each date a Deferred Amount and Company Contribution is credited to the Participant’s
Account Balance, at the closing trading price of the Investment Shares on such date or the
first business day thereafter. Earnings shall be computed as if all dividends paid on the
Investment Shares were reinvested in whole and fractional shares on the date credited.
	 
	 	 	A Participant may from time to time request, in accordance with such rules and procedures as
adopted by the Committee, that the portion of his Account Balance relating to Deferred
Amounts, Company Contributions and Earnings thereon and/or all future Deferred Amounts and
Company Contributions be transferred from one Investment Fund to another Investment Fund.
Any transfer among Investment Funds will be calculated by assuming shares of the prior
Investment Fund are sold and the shares of the alternate Investment Fund are purchased
according to rules and procedures established by the Committee. The Committee may limit the
number of times in a Plan Year that the Participant may change his Investment Fund
allocation and may, in its sole discretion, determine whether such amounts will, in fact, be
so invested or will be invested otherwise or will remain uninvested.

ARTICLE IV—PAYMENT OF PLAN BENEFITS

	4.1	 	Separation from Service Benefit: Upon a Participant’s Separation from Service (other
than a Separation from Service by reason of discharge from employment with the Company for
Cause), the Participant shall receive a distribution of the Participant’s Account (the
“Separation from Service Benefit”).
	 
	 	 	Except as otherwise provided in this Article IV, pursuant to the Participant’s Separation
from Service Benefit Election (as defined below), the Participant’s Separation from Service
Benefit shall be paid in either:

	 	a.	 	a lump sum within thirty (30) days following the Participant’s Separation
from Service, or
	 
	 	b.	 	five annual installments with the first such payment to be made within thirty
(30) days following Separation from Service, and each subsequent payment to be made
within thirty (30) days of each anniversary of the Separation from Service.

Page 8 of 19

 

	 	 	Not later than the date a Participant commences participation in the Plan, the Participant
shall elect the form of payment of his or her Separation from Service Benefit in accordance
with the preceding paragraph (a “Separation of Service Benefit Election”). If the
Participant fails to make a Separation from Service Benefit Election, his or her Separation
from Service Benefit shall be payable in a lump sum. A Participant may change his or her
Separation from Service Benefit Election only once thereafter, by electing a new form of
payment in accordance with the preceding paragraph. The Participant’s new Separation from
Service Benefit Election shall be effective as of the date that is twelve (12) months after
the date such new Separation from Service Benefit Election is made and, once effective,
shall supersede the Participant’s initial Separation from Service Benefit Election. The new
Separation from Service Benefit Election shall not be effective unless made at least twelve
(12) months prior to the date of the Participant’s Separation from Service. If a
Participant has a Separation from Service before his or her new Separation from Service
Benefit Election becomes effective, such Participant’s Account shall be distributed in
accordance with his or her initial Separation from Service Benefit Election.
	 
	 	 	In the event that a Participant makes a new Separation from Service Benefit Election, and
such new Separation from Service Benefit Election becomes effective, the payment of such
Participant’s Separation from Service Benefit shall be made or commence following the fifth
anniversary of such Participant’s Separation from Service, in the form of payment specified
in such new Separation from Service Benefit Election. If such Separation from Service
Benefit is payable as a lump sum, such lump sum payment shall be made within thirty (30)
days following the fifth anniversary of Separation from Service, and if such Separation from
Service Benefit is payable in installments, the first installment payments shall be made
within thirty (30) days following the fifth anniversary of Separation from Service, and each
subsequent payment shall be made within thirty (30) days following each anniversary of the
Separation from Service thereafter.
	 
	 	 	The Company shall furnish to the Participant the appropriate form for making the initial
Separation from Service Benefit Election. This form shall be furnished at the time the
Participant commences participation in the Plan. The Company also shall furnish to a
Participant upon request the appropriate form for changing his or her Separation from
Service Benefit Election.
	 
	 	 	In the event the Participant chooses to receive the Separation from Service Benefit in
installments over a period of five years, the first payment shall be equal to one-fifth of
the full value of the Account Balance as of the date of the Separation from Service of such
Participant (or, in the event the installments are made pursuant to the Participant’s new
Separation from Service Benefit Election, the fifth anniversary of the date of the
Separation from Service). The installment payment to be made the following year shall be
equal to one-fourth of the value of the Account Balance as of the date of distribution
(including any Earnings credited or debited to the remaining Account Balance since the date
of the first payment), and so forth.

Page 9 of 19

 

	4.2	 	In-Service Benefit: A Participant may make an irrevocable election with respect to a
Plan Year (an “In-Service Benefit Election”), at the time specified in Section 2.1,
2.2 or 2.3 for deferral elections with respect to Compensation to be earned during such Plan
Year, to receive a distribution of all or any part of such Participant’s Deferred Amount and
Company Contributions (if any) with respect to such Plan Year, together with Earnings
attributable thereto, in the form of an in-service distribution (the “In-Service
Benefit”).
	 
	 	 	The Participant may elect to receive such In-Service Benefit in either:

	 	a.	 	a lump sum, or
	 
	 	b.	 	four annual installments.

	 	 	The Participant shall specify in his or her In-Service Benefit Election for a Plan Year the
percentage of such Participant’s Deferred Amount and Company Contributions (if any) with
respect to such Plan Year (and Earnings attributable thereto) to which such In-Service
Benefit Election shall apply, and the calendar quarter and Plan Year in which the
distribution of the In-Service Benefit shall be made or commence. The Plan Year in which
the distribution of an In-Service Benefit shall be made or commence must be no less than
three (3) Plan Years following the end of the Plan Year to which the In-Service Benefit
Election relates. The lump sum payment, or such installment payments, shall be made or
commence, within thirty (30) days following the first day of a calendar quarter of a Plan
Year specified by the Participant.
	 
	 	 	In the event the Participant chooses to receive an In-Service Benefit in installments over a
period of four years, the first payment shall be equal to one-fourth of the specified
percentage of the value of the applicable subaccount of the Account to be distributed as of
the date of the commencement of the In-Service Benefit. The installment payment to be made
the following year shall be equal to one-third of the specified percentage of the value of
the subaccount of the Account as of the date of distribution (including any Earnings
credited or debited thereto since the date of the first payment), and so forth.
	 
	 	 	A Participant may make a separate In-Service Benefit Election with respect to each Plan
Year. A Participant shall not be required to make an In-Service Benefit Election for any
Plan Year.
	 
	 	 	The Company shall furnish to the Participant the appropriate form for making an In-Service
Benefit Election for a Plan Year.
	 
	 	 	Notwithstanding the foregoing, in the event of a Participant’s Separation from Service, or
in the event the Participant dies or becomes subject to a Disability, prior to distribution
of amounts otherwise payable pursuant to an In-Service Benefit Election for a Plan Year, the
Participant’s Separation from Service Benefit Election (or, in the case of a Participant who
dies or becomes subject to a Disability, or who has a Separation from Service by reason of
discharge from employment with the Company for Cause, the lump sum

Page 10 of 19

 

	 	 	distribution form and timing specified in Section 4.3 or 4.5, as applicable) shall take
precedence over the In-Service Benefit Election as of the date of Separation from Service.
In the event of a Participant’s Separation from Service, or in the event the Participant
dies or becomes subject to a Disability, any distribution pursuant to such Participant’s
In-Service Benefit Election shall be suspended and such Participant’s Account Balance shall
be distributed in accordance with such Participant’s Separation from Service Benefit
Election, or Section 4.3 or 4.5, as applicable.
	 
	4.3	 	Death or Disability Benefit: If a Participant should die or be subject to a
Disability at a time when the Participant’s Account Balance is greater than zero, then,
notwithstanding any prior Benefit Election, the Participant (in the event of the Participant’s
Disability), or the Participant’s Beneficiary or Beneficiaries (in the event of the
Participant’s death), shall be paid an amount equal to the value of the Participant’s Account
Balance as of the effective date of the Disability, or the date of death, as applicable, in a
lump sum, within thirty (30) days following such Participant’s death or Disability.
	 
	 	 	Such Benefit distribution shall be made in accordance with Code Section 409A(a)(2)(A)(ii) or
(iii), as applicable, and the Treasury Regulations thereunder.
	 
	4.4	 	Hardship Benefit: The Committee may make a payment of Benefits to a Participant in
the event the Committee determines that the Participant has a severe financial hardship
resulting from an illness or accident of the Participant, the Participant’s spouse, or a
dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participant’s
property due to casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. The Company may only
distribute amounts necessary to satisfy such emergency plus amounts necessary to pay taxes
reasonably anticipated as a result of the distribution, after taking into account the extent
to which such hardship is or may be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant’s assets (to the extent the
liquidation of such assets would not itself cause severe financial hardship).
	 
	 	 	Such Benefit distribution shall be made in accordance with Code Sections 409A(a)(2)(A)(vi)
and (B)(ii) and the Treasury Regulations thereunder.
	 
	4.5	 	Cause: Should a Participant have a Separation from Service by reason of discharge
from employment with the Company for Cause, he or she shall forfeit any and all Benefits
except those relating to his Deferred Amounts (and Earnings attributable thereto). Such
Participant’s Benefits relating to his Deferred Amounts (and Earnings attributable thereto)
shall be payable to the Participant in a lump sum within thirty (30) days following his
Separation from Service, and no further Benefits under the Plan shall be paid to, or on behalf
of, such Participant.
	 
	4.6	 	Specified Participants: Notwithstanding Section 4.1 or 4.5, in the case of any
Specified Participant, a distribution of Separation from Service Benefit, or a distribution
upon Separation from Service by reason of discharge from employment with the Company for
Cause, may not be made before the date which is six (6) months after the date of

Page 11 of 19

 

	 	 	Separation from Service (or, if earlier, the date of such Participant’s death) in accordance
with Code Section 409A(a)(2)(B)(i). For purposes of the preceding sentence, a Specified
Participant shall mean a Participant who is a “key employee” as defined in Code Section
416(i) (without regard to paragraph 5 thereof) of a corporation any stock in which is
publicly traded on an established securities market or otherwise.
	 
	 	 	If a Specified Participant’s Separation from Service Benefit Election provides for a lump
sum payment, such payment shall be made on the date of payment specified in Section 4.1 (or,
if later, within thirty (30) days following the date which is six (6) months after his or
her Separation from Service), based on the Account Balance at the time of payment. If a
Specified Participant’s Separation from Service Benefit Election provides for installment
payments, the first installment payment shall be made on the date of payment specified in
Section 4.1 (or, if later, within thirty (30) days following the date which is six (6)
months after his or her Separation from Service), based on the Account Balance at the time
of payment, and the remaining installment payments shall be paid on the dates specified in
Section 4.1.
	 
	 	 	If a Specified Participant has a Separation from Service by reason of discharge from
employment with the Company for Cause, the lump sum payment under Section 4.5 shall be made
within thirty (30) days following the date which is six (6) months after his or her
Separation from Service, based on the Deferred Amounts (and Earnings attributable thereto)
at the time of payment.
	 
	4.7	 	Acceleration of Benefits: The time or schedule of any Benefit payment under the Plan
shall not be accelerated, except as permitted under Code Section 409A and the Treasury
Regulations issued by the Internal Revenue Service, as follows:

	 	a.	 	Domestic Relations Order: The time or schedule of a Benefit payment
under Article IV of the Plan to an individual other than the Participant shall be
accelerated as may be necessary to fulfill a domestic relations order (as defined in
Code Section 414(p)(1)(B)).
	 
	 	b.	 	De Minimus Amounts: Notwithstanding Section 4.1, in the event that a
Participant (other than a Specified Participant) has a Separation from Service, and the
Participant’s Account Balance as of the date of such Separation from Service is not
greater than $10,000, the Participant’s Account shall be distributed in a lump sum
payment (and without regard to such Participant’s Separation from Service Benefit
Election); provided, that such payment shall not be made unless such payment
accompanies the termination of such Participant’s interests in the Plan and all similar
arrangements that would constitute a nonqualified deferred compensation plan in
accordance with the Treasury Regulations under Code Section 409A. Such lump sum
payment shall be made within thirty (30) days following such Participant’s Separation
from Service.

Page 12 of 19

 

ARTICLE V—BENEFICIARIES

	5.1	 	At the time participation in the Plan commences, each Participant shall designate on a form
satisfactory to the Company one or more Beneficiaries to receive any benefits which may become
payable hereunder in the event of the Participant’s death (“Beneficiary Designation”).
A Beneficiary Designation may be changed by a Participant at any time upon written notice to
the Company.
	 
	5.2	 	If the Participant shall have made more than one Beneficiary Designation, the Beneficiary
Designation most recently filed with the Company prior to the time of the Participant’s death
shall govern.
	 
	5.3	 	If any amounts under the Plan become payable following the Participant’s death at a time when
no Beneficiary Designation is applicable, such payments shall be made in a lump sum:

	 	a.	 	to the Participant’s then living spouse, if any;
	 
	 	b.	 	if none, then to such person or persons, including the Participant’s estate,
as the Participant may designate under his or her last will, making specific reference
hereto; or c. if the Participant is not survived by a spouse or shall fail to so
designate such person or persons by will, then such payments shall be made to the then
living children of the Participant, if any, in equal shares; and d. if none, then in
one lump sum to the Participant’s estate.

ARTICLE VI—AMENDMENT AND TERMINATION OF PLAN

	6.1	 	Amendment and Termination: The Company reserves the right to amend, in writing, or to
terminate this Plan at any time, with or without notice to the Participants and Beneficiaries;
provided, however, that no such action shall reduce the value of a Participant’s Account
Balance accrued prior to the date of any such amendment or termination. Except as otherwise
provided in Section 6.2, a Participant’s Account shall be distributed in accordance with
Article IV following the termination of the Plan.
	 
	6.2	 	Termination upon Change of Control: In the event of a Change of Control, as
described below, the Plan shall be terminated as of the effective date of such event, and the
Account of each Participant shall then be paid, in a lump sum, within thirty (30) days
following the date of the Change of Control, unless the successor or surviving corporation
shall agree in writing to continue the Plan on terms at least as favorable to Participants as
in effect immediately prior to the Change of Control and the Company determines in its
discretion not to terminate the Plan. Any such termination of the Plan shall be effective
within the 30 days prior, to or the 12 months following, the Change of Control, and shall be
effective only if all substantially similar nonqualified deferred compensation arrangements of
the Company are terminated and all deferred compensation amounts under the terminated
arrangements are paid within 12 months of the date of termination

Page 13 of 19

 

		 	of the arrangements in accordance with the Treasury Regulations under Code Section 409A.
	 
	 	 	For purposes of this Section, “Change of Control” shall mean 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 Code Section 409A(a)(2)(A)(iv) and the
Treasury Regulations thereunder.

ARTICLE VII—MISCELLANEOUS

	7.1	 	Insurance: The Company may purchase one or more insurance policies on the life of a
Participant as a means of providing, in whole or in part, for the payment of benefits
hereunder. However, in such event neither the Participant, his or her designated Beneficiary
nor any other beneficiary shall have any rights whatsoever therein or in the proceeds
therefrom. The Company (or any “Rabbi Trust”) as described in Section 7.5) formed in
connection with this Plan) shall be the sole owner and beneficiary of any such insurance
policy and shall possess and may exercise all incidents of ownership therein. No such policy,
policies or other property shall be held in any trust for the Participant, Beneficiary or any
other person or as collateral security for any obligation of the Company hereunder. This Plan
shall under no circumstances be deemed to constitute a contract of insurance.
	 
	7.2	 	No Contract of Employment: The Plan shall under no circumstances be deemed to have
any effect upon the terms or conditions of employment of any officer or other employee of the
Company whether or not he or she is a Participant hereunder. Neither the offering of the Plan,
the payment of any expenses, costs or benefit amounts associated with the Plan, nor any
documents prepared in connection with the Plan shall be construed as having created a contract
of employment between the Participant and the Company.
	 
	7.3	 	Benefits Not Transferable: Benefits under this Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, hypothecation, pledge or
encumbrance by, or attachment or garnishment by creditors of, the Participant or any
Beneficiary and any attempt to do so shall be null and void. Benefits under this Plan shall
not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any
Participant or Beneficiary, nor may the same be subject to attachment or seizure by any
creditor of any Participant or Beneficiary under any circumstances.
	 
	7.4	 	Determination of Benefits and Claims Procedure: In the event of a Participant’s
Separation from Service (or death following Separation from Service if, at the time of death,
a portion of the Participant’s Account Balance remains unpaid), or other circumstances under
which Benefits are payable under the Plan, the Participant or applicable Beneficiary, or other
person claiming Benefits under the Plan, (the “Claimant”), shall notify the Company promptly
of such event, and the Company shall then provide the Participant or Beneficiary with an
application for benefits form for completion which must be returned to the Committee (together
with an official death certificate, if applicable) before Plan Benefits may be paid.

Page 14 of 19

 

	 	 	Within ninety (90) days after receipt of a claim for Benefits, the Committee shall notify
the Claimant of its decision with respect to payment of Benefits under the Plan. If special
circumstances require an extension of time, the Committee shall notify the Claimant of such
circumstances within ninety (90) days after receipt of the application (and the notice shall
indicate the special circumstances requiring an extension of time and the date by which the
Committee expects to render a decision), and the Committee shall thereafter notify the
Claimant of its decision within one hundred and eighty (180) days after receipt of the
application. If the claim is denied in whole or in part, the Committee’s notice of denial
shall be in writing and shall state in a manner calculated to be understood by the Claimant:

	 	a.	 	The specific reason or reasons for denial;
	 
	 	b.	 	Reference to the specific Plan provisions upon which the denial was based;
	 
	 	c.	 	A description of any additional materials or information necessary for the
Claimant to perfect his or her claim and an explanation of why the materials or
information are necessary; and
	 
	 	d.	 	A description of the Plan’s claims review procedure and the time limits
applicable to such procedure, including a statement of the Claimant’s right to bring a
civil action under Section 502(a) of ERISA following a denial of the claim on review.

	 	 	During the sixty (60) day period following a Claimant’s receipt of a notice of denial of
any claim for Benefits, the Claimant or his duly authorized representative shall be given
the opportunity to submit a written request to the Company for full and fair review of the
Claimant’s Claim and the denial. The review of the denial of the Claimant’s claim shall:

	 	a.	 	provide the Claimant with the opportunity to submit written comments,
documents, records, or other information relating to the claim,
	 
	 	b.	 	provide that the Claimant will be provided, upon request and free of charge,
reasonable access to, and copies of, all documents, records, and other information
relevant to the Claimant’s claim, and
	 
	 	c.	 	provide for a review that takes 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 determination on
the claim by the Committee.

	 	 	The Committee may, in its sole discretion, hold a hearing to review any or all issues raised
by the Claimant, which hearing shall take place within sixty (60) days of the date of the
Claimant’s request for review of the denial of the claim for Benefits.

Page 15 of 19

 

	 	 	Within sixty (60) days after receipt of the request for review, the Committee shall issue a
written decision to the Claimant. If special circumstances, such as the need to hold a
hearing, require an extension of time, the Committee shall issue a written decision no later
than one hundred and twenty (120) days after receipt of the request for review. If the
Committee determines that an extension of time for processing is required, written notice of
the extension shall be furnished to the Claimant prior to the termination 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
determination on review.
	 
	 	 	The decision on review by the Committee shall be in writing and, if the review is denied,
shall provide the Claimant with written notice of the denial, setting forth, in a manner
calculated to be understood by the Claimant:

	 	a.	 	The specific reason or reasons for the denial on review,
	 
	 	b.	 	References to the specific Plan provisions on which the denial on review is 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 to the Claimant’s claim, and
	 
	 	d.	 	A statement of the Claimant’s right to bring an action under Section 502(a) of
ERISA.

	 	 	Whether a document, record or other information is relevant to the claim shall be determined
by reference to Department of Labor Regulation Section 2560.503-1(m)(8).
	 
	 	 	In considering claims under this claims procedure, the Committee shall have discretionary
authority to make findings of fact and to construe the terms of the Plan and, to the full
extent permitted by law, the determination by the Committee (if there is no request for
review) or the decision by the Committee upon review (if a review is requested) shall be
final and binding on all parties, unless held by a court of competent jurisdiction to
constitute an abuse of discretion.
	 
	7.5	 	No Trust: For tax purposes and for purposes of ERISA, this Plan is intended to
quality as an unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees, and shall be
interpreted accordingly.
	 
	 	 	No action by the Company or its Board of Directors under this Plan shall be construed as
creating a trust, escrow or other secured or segregated fund or other fiduciary relationship
of any kind in favor of any Participant or Beneficiary or any other persons otherwise
entitled to benefits under the Plan. The status of the Participant and any Beneficiary with
respect to any liabilities assumed by the Company hereunder shall be solely that of an
unsecured creditor of the Company. The Plan constitutes a mere promise by the company to
make benefit payments in the future. Any insurance policy or any other asset acquired or
held by the Company in connection with liabilities assumed by it hereunder, shall not

Page 16 of 19

 

	 	 	be deemed to be held under any trust, escrow or other secured or segregated fund or other
fiduciary relationship of any kind for the benefit of the Participant or Beneficiary or to
be security for the performance of the obligations of the company, but shall be and remain a
general, unpledged, and unrestricted asset of the Company. Notwithstanding the foregoing,
the Company may transfer assets, including any insurance policies, to a grantor trust of the
type known as a “Rabbi Trust” with the Company as grantor and owner of such trust.
	 
	7.6	 	Plan Administration: The Plan shall be administered by the Committee. The Committee
shall have the exclusive and discretionary authority and responsibility for all matters in
connections with the operation and administration of the Plan. The Committee’s powers and
duties shall include, but not be limited to, the following:

	 	a.	 	responsibility for the compilation and maintenance of all records necessary in
connection with the Plan;
	 
	 	b.	 	authorizing the payment of all benefits under and expenses of the Plan;
	 
	 	c.	 	authority to engage such legal, accounting and other professional services as
it may deem proper;
	 
	 	d.	 	discretionary authority to interpret the Plan; and
	 
	 	e.	 	discretionary authority to determine eligibility for benefits under the Plan
and to resolve all issues of fact and law in connection with such determination.
Decisions by the Committee shall be final and binding upon all parties.

	 	 	The Plan shall be interpreted, construed and administered in a manner that satisfies the
requirements of Code Sections 409A(a)(2), (3) and (4) and the Treasury Regulations
thereunder.
	 
	 	 	The Committee, from time to time, may delegate to other persons or organizations any of its
rights, powers and duties with respect to the operation and administration of the Plan. Any
such allocation shall be reviewed from time to time by the Committee; shall, unless the
Committee specifies otherwise, carry such discretionary authority as the Committee,
possesses regarding the matter; and shall be terminable upon such notice as the Committee,
in its sole discretion, deems reasonable and prudent under the circumstances.
	 
	 	 	The expense of administering the Plan shall be borne by the Company and shall not be charged
against amounts payable hereunder.
	 
	7.7	 	Satisfaction of Claims: Any payment to a Participant or Beneficiary or the legal
representative of either, in accordance with the terms of this Plan, shall to the extent
hereof be in full satisfaction of all claims such person may have against the Company. The
Company may require such payee, as a condition to such payment, to execute a receipt and
release therefor in such form as shall be determined by the Company.

Page 17 of 19

 

	7.8	 	Governing Law: The Plan shall be construed, administered, and governed in all
respects in accordance with ERISA and, to the extent not preempted by ERISA, the laws of the
State of California (without regard to the conflicts of laws principles thereof).
	 
	7.9	 	Gender and Number: Words used herein in the masculine, feminine or neuter gender
shall be construed as though they were also used in another gender in all cases where they
would so apply. Words used herein in the singular or plural form shall be construed as though
they were also used in the other form in all cases where they would so apply.
	 
	7.10	 	Severability: In the event that a court of competent jurisdiction determines that any
provision of the Plan is in violation of any statute or public policy, only those provisions
of the Plan that violate such statue or public policy shall be stricken. All provisions of the
Plan that do not violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any provision of the Plan shall modify the stricken terms
as narrowly as possible to give as much effect as possible to the intentions of the Company in
establishing the Plan.
	 
	7.11	 	Taxation: If the Internal Revenue Service finds that Compensation intended to be
deferred for Federal income tax purposes pursuant to the Plan is immediately taxable to a
Participant for Federal income tax purposes, the Company may, but shall not be required to,
amend the Plan to comply with the Internal Revenue Service requirements necessary to achieve
the desired Federal income tax benefits relating to the Plan. Notwithstanding the foregoing,
each Participant or Beneficiary, as applicable, shall be liable for any tax that may be
imposed by the Internal Revenue Service or any other taxing entity with respect to any
payments or other benefits provided to or on behalf of such Participant or Beneficiary
pursuant to the Plan (including, without limitation, any and all withholding taxes),
irrespective of whether such tax consequences were intended pursuant to the Plan. In the event
amounts of Compensation otherwise intended to be deferred under the Plan result in immediate
taxation to the Participant for Federal income tax purposes, and the Plan is not amended to
achieve the intended deferral, then the Participant shall be entitled to an immediate
distribution of that portion of the value of his or her Deferred Compensation Account subject
to such taxation.
	 
	7.12	 	Indemnification: The Company agrees to and shall indemnify and hold harmless each
Indemnified Person (as hereinafter defined) from and against all claims, losses, damages,
causes of action, suits, and liability of every kind, including all expenses of litigation,
court costs and reasonable attorney’s fees, incurred in connection with the Plan. “Indemnified
Person” shall mean each director, officer and employee of the Company acting as a member of
the Committee or at the direction of the Committee. Such indemnity shall apply regardless of
whether the claims, losses, damages, causes of action, suits or liabilities arise in whole or
in part from the negligence or fault on the part of the Indemnified Person, except to the
extent there has been a final adjudication by a court or other tribunal of competent
jurisdiction that the claim or liability is the result of gross negligence or willful
misconduct of the Indemnified Person.

Page 18 of 19

 

	7.13	 	Coordination with Other Benefit Plans: Deferrals by the Participant shall be given
effect under the Company’s other benefits plans and/or whenever the company is required to
verify the employment of a Participant, as follows:

	 	a.	 	Deferrals shall be considered for purposes of determining the Participant’s
total income when verifying a Participant’s employment for credit grantors, credit
reporting agencies, in response to legal process and/or to other authorized persons or
entities.
	 
	 	b.	 	Where permitted by the terms of the applicable plan, and subject to applicable
law, amounts deferred under the Plan shall be taken into account for purposes of
determining amounts to be paid to the Participant under any insurance or salary
continuation or replacement plan maintained by the Company.
	 
	 	c.	 	Except where specifically excluded by the terms of such plans or agreements,
deferrals of base salary and other amounts under the Plan shall be taken into account
by the Company when determining a Participant’s compensation in connection with
determining eligibility and amounts payable under any bonus, incentive or severance pay
plans or agreements maintained by the Company.
	 
	 	d.	 	Amounts deferred under the Plan shall not be treated as compensation for
purposes of determining the amount of a Participant’s deferrals under any qualified
pension plan of the Company.

	 	 	Executed at Foothill Ranch, California.

	 	 	 	 	 
	 	 	OAKLEY, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Richard Shields
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Its:	 	CFO
	 

	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	12/30/05
	 	 	 
	 

	 	Date	 	 

Page 19 of 19

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