Document:

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EXHIBIT 10.5

AMENDED AND RESTATED OAKLEY, INC.

EXECUTIVE SEVERANCE PLAN

(as amended and restated effective as of June 3, 2004)

R E C I T A L S

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

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

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

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

SECTION 1. DEFINITIONS. As hereinafter used:

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

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

      1.3 “Cause” for termination by the Employer of an Eligible Employee’s employment shall mean
(i) the willful and continued failure by the Eligible Employee to substantially perform his or her
duties with the Company (other than by reason of the Eligible Employee’s Disability), (ii) the
willful engaging by the Eligible Employee in conduct that is demonstrably and materially injurious
to the Company or its subsidiaries, monetarily or otherwise, (iii) the Eligible Employee’s
conviction of or entry of a plea of guilty or nolo contendere to, a felony or other crime involving
moral turpitude, (iv) the commission by an Eligible Employee of any act of theft, embezzlement or
fraud in connection with employment with his or her employment with the Company, or (v) an Eligible
Employee’s appropriation (or attempted appropriation) of a material business opportunity of the
Company, including attempting to secure or securing from anyone

 

 

other than the Company any personal profit without the Company’s consent in connection with
any transaction entered into on behalf of the Company.

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

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

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

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

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

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

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

      1.10 “Effective Date” means January 1, 2004.

      1.11 “Eligible Employee” means an individual who is a member of the Office of the Chairman and
designated as an Eligible Employee by the Plan Administrator.

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 2. BENEFITS.

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

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

For the purposes of this Section 2.1(a), the amount of the bonus payable to the Severed Employee
shall be determined in good faith by the Plan Administrator, whose determination shall be final and
binding on the Severed Employee, within 15 days following the end of the month in which the
Severance Date occurs. The amount of the bonus payable shall be determined (i) on the basis of the
Company’s earnings per share results through the end of the calendar month in which the Severance
Date occurs (as

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determined by the Company’s senior financial officer), as measured against the portion of any
Company earnings per share target which had been established by the Plan Administrator as the basis
for payment of all or any portion of such bonus which is related to such time period, and (ii) if
applicable, on the basis of Severed Employee’s individual performance through the Severance Date as
measured against his performance targets established by the Company for such time period, each as
pro-rated for the period through the end of the calendar month in which the Severance Date occurs.

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

               (c) Equity Benefits.

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

                    (ii) If the Severance is in connection with a Change in Control, 100% of the
Severed Employee’s granted equity based awards shall become immediately vested as
of the Severance Date.

                    (iii) If approved by the Plan Administrator prior to the expiration of the
period during which options to purchase Common Stock may be exercised by the
Severed Employee (which approval shall be at the sole discretion of the Plan
Administrator), the post-termination option exercise period of such options (x)
shall be extended by the number of days subject to any trading blackout on the
Common Stock that occurred during the period beginning on the Severed Employee’s
Severance Date and ending on the last day the Severed Employee’s options would
otherwise have been exercisable, and (y) may be subject to additional extensions,
provided that no such extensions shall in any event extend the option term beyond
ten years.

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                    (iv) If (x) the Severed Employee was granted restricted stock under the Plan
that is subject to pre-established performance goals that would trigger
accelerated vesting of the restricted stock (“Performance Acceleration”), (y) the
Severance Date is on or after July 1 of any fiscal year and (z) at the end of the
fiscal year when the Severance occurred the Plan Administrator has concluded that
the Company has met the requirements for Performance Acceleration, then those
shares of restricted stock of the Severed Employee that are subject to the
Performance Acceleration for such fiscal year shall become vested on the date that
the Plan Administrator determined the Performance Acceleration criteria was met,
with the exact number of restricted shares vesting being based pro rata on the
number of days such Severed Employee was employed by the Company in such fiscal
year; provided, however, that there shall be no duplication of vesting under the
terms of this Agreement.

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

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

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

SECTION 3. PLAN ADMINISTRATION.

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

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

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

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

SECTION 4. PLAN MODIFICATION OR TERMINATION.

      The Plan may be amended or terminated by the Board, or a duly appointed committee of the
Board, at any time; provided, however, that following the consummation of a Change in Control, the
Plan may not be amended or terminated without the prior written consent of the then Eligible
Employees for a period of twelve months following such Change in Control; provided, further, that
the individuals listed on Exhibit A shall remain Eligible Employees for a minimum period of two
years from the date such individual is first designated as an Eligible Employee and the benefits
set forth hereunder as of the Effective Date that are payable to those individuals may not be
amended or terminated, without the Eligible Employee’s written consent, for a period of two years
from the date such individual is first designated as an Eligible Employee, as applicable.

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SECTION 5. GENERAL PROVISIONS.

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

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

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

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

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

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

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

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

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

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

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EXHIBIT 10.6

AMENDED AND RESTATED OAKLEY, INC.

OFFICER SEVERANCE PLAN

(as amended and restated as of June 3, 2004)

R E C I T A L S

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

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

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

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

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

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

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

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

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

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

      1.10 “Effective Date” means J January 1, 2004.

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

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

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

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

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

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

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

      1.18 “Severance” means the termination of an Eligible Employee’s employment with the Employer
(i) by the Employer other than for Cause, death or Disability or (ii) by

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the Eligible Employee for Good Reason within twelve (12) months following the consummation of
a Change in Control.

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

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

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

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

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

SECTION 2. BENEFITS.

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

          (a) Severance Payment. A payment, in lieu of any other severance payment pursuant to any
other plan or agreement of the Company or any subsidiary thereof to which the Eligible Employee is
otherwise entitled, of an amount comprised of (i) the sum of (x) fifty percent (50%) of the Severed
Employee’s then annual base salary as in effect immediately prior to the Severance Date, (y) one
additional month’s base salary for each completed year of employment with the Company in excess of
five years (not to exceed six months) and (z) the aggregate amount of commissions paid to the
Severed Employee in the six 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

4

 

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 six-month period
immediately following the Severance Date had the Severed Employee remained
continuously employed by the Company during such period.

               (ii) If the Severance is in connection with a Change in Control, 100% of the
Severed Employee’s granted equity based awards shall become immediately vested as
of the Severance Date.

               (iii) If approved by the Plan Administrator prior to the expiration of the
period during which options to purchase Common Stock may be exercised by the
Severed Employee (which approval shall be at the sole discretion of the Plan
Administrator), the post-termination option exercise period of such options (x)
shall be extended by the number of days subject to any trading blackout on the
Common Stock that occurred during the period beginning on the Severed Employee’s
Severance Date and ending on the last day the Severed Employee’s options would
otherwise have been exercisable, and (y) may be subject to additional extensions,
provided that no such extensions shall in any event extend the option term beyond
ten years.

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               (iv) If (x) the Severed Employee was granted restricted stock under the Plan
that is subject to pre-established performance goals that would trigger
accelerated vesting of the restricted stock (“Performance Acceleration”), (y) the
Severance Date is on or after July 1 of any fiscal year and (z) if at the end of
the fiscal year when the Severance occurred the Plan Administrator has concluded
that the Company has met the requirements for Performance Acceleration, then those
shares of restricted stock of the Severed Employee that are subject to the
Performance Acceleration for such fiscal year shall become vested on the date that
the Plan Administrator determined the Performance Acceleration criteria was met,
with the exact number of restricted shares vesting being based pro rata on the
number of days such Severed Employee was employed by the Company in such fiscal
year; provided, however that there shall be no duplication of vesting under the
terms of this Agreement.

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

      2.3 Any further dispute or controversy arising under or in connection with this Plan which
remains after the final decision of the Plan Administrator, as contemplated by Section 2.2, shall
be finally settled exclusively by arbitration in Orange County, California, in accordance with the
rules of the American Arbitration Association then in effect; provided, however, that the
arbitrator shall apply the applicable provisions of

6

 

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.

SECTION 3. PLAN ADMINISTRATION.

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

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

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

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

SECTION 4. PLAN MODIFICATION OR TERMINATION.

      The Plan may be amended or terminated by the Board, or a duly appointed committee of the
Board, at any time; provided, however, that following the consummation of a Change in Control, the
Plan may not be amended or terminated without the prior written consent of the then Eligible
Employees for a period of twelve months following such Change in Control; provided, further, that
the individuals listed on Exhibit A shall remain Eligible Employees for a minimum period of two
years from the date such individual is first designated as an Eligible Employee and the benefits
set forth hereunder as of the Effective Date that are payable to those individuals may not be
amended or terminated, without the Eligible Employee’s written consent, for a period of

7

 

two years from the date such individual is first designated as an Eligible Employee, as
applicable.

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.

8

 

      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.

9

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