Document:

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                                                                    EXHIBIT 10.5

                       PACIFIC SUNWEAR OF CALIFORNIA, INC.

                   AMENDED AND RESTATED 1992 STOCK AWARD PLAN

     (Composite Plan Document Reflecting Plan Amendments Through April 1999
      and Stock Splits Through and Including the June 8, 1999 Stock Split)

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                                TABLE OF CONTENTS

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I.    THE PLAN................................................................1

      1.1  Purpose............................................................1

      1.2  Administration.....................................................1

      1.3  Participation......................................................2

      1.4  Stock Subject to the Plan..........................................2

      1.5  Grant of Awards....................................................2

      1.6  Exercise of Awards.................................................3

      1.7  No Transferability; Limited Exception to Transfer Restrictions.....3

II.   OPTIONS.................................................................4

      2.1  Grants.............................................................4

      2.2  Option Price.......................................................4

      2.3  Option Period......................................................5

      2.4  Exercise of Options................................................5

      2.5  Limitations on Grant of Incentive Stock Options....................5

      2.6  Non-Employee Director Awards.......................................6

III.  STOCK APPRECIATION RIGHTS...............................................7

      3.1  Grants.............................................................7

      3.2  Exercise of Stock Appreciation Rights..............................8

      3.3  Payment............................................................8

IV.   RESTRICTED STOCK AWARDS.................................................9

      4.1  Grants.............................................................9

      4.2  Restrictions.......................................................9

V.    PERFORMANCE SHARE AWARDS...............................................10

      5.1  Grants............................................................10

      5.2  Special Performance-Based Share Awards............................10

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                               TABLE OF CONTENTS
                                  (Continued)
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VI.   OTHER PROVISIONS.......................................................11

      6.1  Rights of Eligible Employees, Participants and Beneficiaries......11

      6.2  Adjustments Upon Changes in Capitalization........................12

      6.3  Termination of Employment.........................................13

      6.4  Acceleration of Awards............................................14

      6.5  Government Regulations............................................15

      6.6  Tax Withholding...................................................15

      6.7  Amendment, Termination and Suspension.............................16

      6.8  Privileges of Stock Ownership; Nondistributive Intent.............16

      6.9  Effective Date of the Plan........................................17

      6.10 Term of the Plan..................................................17

      6.11 Governing Law.....................................................17

      6.12 Plan Construction.................................................17

VII.  DEFINITIONS............................................................18

      7.1  Definitions.......................................................18

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                       PACIFIC SUNWEAR OF CALIFORNIA, INC.
                   AMENDED AND RESTATED 1992 STOCK AWARD PLAN

     (Composite Plan Document Reflecting Plan Amendments Through April 1999
      and Stock Splits Through and Including the June 8, 1999 Stock Split)

I. THE PLAN.

        1.1 Purpose.

        The purpose of this Plan is to promote the success of the Company by
providing an additional means to attract, motivate and retain key personnel
through the grant of Options and other Awards(1) that provide added long term
incentives for high levels of performance and for significant efforts to improve
the financial performance of the Company.

        1.2 Administration.

        (a) This Plan shall be administered by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the unanimous written consent of its members. In
the event action by the Committee is taken by written consent, the action shall
be deemed to have been taken at the time specified in the consent or, if none is
specified, at the time of the last signature. The Committee may delegate
administrative functions to individuals who are officers or employees of the
Company.

        (b) Subject to the express provisions of this Plan, the Committee shall
have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment or
consulting services for purposes of this Plan and to make all other
determinations necessary or advisable for the administration of this Plan. The
determination of the Committee on any of the foregoing matters shall be
conclusive.

        (c) Any action taken by, or inaction of, the Company, any Subsidiary,
the Board or the Committee relating to this Plan shall be within the absolute
discretion of that entity or body. No member of the Board or Committee, or
officer of the Company or any Subsidiary, shall be liable for any such action or
inaction.

        (d) Subject to the requirements of Section 7.1(h), the Board, at any
time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of its
members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.

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(1) For definitions of these and other capitalized terms, see Section 7.1,
    Definitions.

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        (e) In making any determination or in taking or not taking any action
under this Plan, the Committee or the Board, as the case may be, may obtain and
may rely upon the advice of experts, including professional advisors to the
Company. No director, officer or agent of the Company shall be liable for any
such action or determination taken or made or omitted in good faith.

        (f) The Committee may delegate ministerial, non-discretionary functions
to individuals who are officers or employees of the Company.

        1.3 Participation.

        Awards may be granted only to Eligible Employees. An Eligible Employee
who has been granted an Award may, if otherwise eligible, be granted additional
Awards if the Committee shall so determine. Except as provided in Section 2.6
below, members of the Board who are not officers or employees of the Company
shall not be eligible to receive Awards.

        1.4 Stock Subject to the Plan.

        The stock to be offered under this Plan shall be shares of the Company's
authorized but unissued Common Stock. The aggregate amount of Common Stock that
may be issued or transferred pursuant to Awards granted under this Plan shall
not exceed 5,172,864 shares, subject to adjustment as set forth in Section 6.2.
The maximum number of shares of Common Stock that may be delivered pursuant to
options qualified as Incentive Stock Options granted under this Plan is
3,375,000 shares, subject to adjustment as set forth in Section 6.2. If any
Option and any related Stock Appreciation Right shall lapse or terminate without
having been exercised in full, or any Common Stock subject to a Restricted Stock
Award shall not vest or any Common Stock subject to a Performance Share Award or
a Performance-Based Award shall not have been transferred, the unpurchased,
unvested or nontransferred shares subject thereto shall again be available for
purposes of this Plan.

        1.5 Grant of Awards.

        Subject to the express provisions of this Plan, the Committee shall
determine from the class of Eligible Employees those individuals to whom Awards
under this Plan shall be granted, the terms of Awards (which need not be
identical) and the number of shares of Common Stock subject to each Award;
provided, however, that the aggregate number of shares of Common Stock subject
to Awards that may be granted to any employee in any twelve month period may not
exceed 1,384,593 subject to adjustment as described in Section 6.2 of the Plan.
Each Award shall be subject to the terms and conditions set forth in this Plan
and such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of this Plan. The grant of an Award
is made on the Award Date.

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        1.6 Exercise of Awards.

        An Option or Stock Appreciation Right shall be deemed to be exercised
when the Secretary of the Company receives written notice of such exercise from
the Participant, together with payment of the purchase price made in accordance
with Section 2.2(a), except to the extent payment may be permitted to be made
following delivery of written notice of exercise in accordance with Section
2.2(b). Notwithstanding any other provision of this Plan, the Committee may
impose, by rule and in Award Agreements, such conditions upon the exercise of
Awards (including, without limitation, conditions limiting the time of exercise
to specified periods) as may be required to satisfy applicable regulatory
requirements.

        1.7 No Transferability; Limited Exception to Transfer Restrictions.

        (a) Limit On Exercise and Transfer. Unless otherwise expressly provided
in (or pursuant to) this Section 1.7, by applicable law and by the Award
Agreement, as the same may be amended, (i) all Awards are non-transferable and
shall not be subject in any manner to sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge; Awards shall be exercised only by the
Participant; and (ii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.

        (b) Exceptions. The Committee may permit Awards to be exercised by and
paid to certain persons or entities related to the Participant, including but
not limited to members of the Participant's immediate family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial
owners are members of the Participant's immediate family and/or charitable
institutions, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes on a gratuitous or donative basis and
without consideration (other than nominal consideration). Notwithstanding the
foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject
to any and all additional transfer restrictions under the Code.

        (c) Further Exceptions to Limits On Transfer. The exercise and transfer
restrictions in Section 1.7(a) shall not apply to:

            (i) transfers to the Company,

            (ii) the designation of a beneficiary to receive benefits in the
        event of the Participant's death or, if the Participant has died,
        transfers to or exercise by the Participant's beneficiary, or, in the
        absence of a validly designated beneficiary, transfers by will or the
        laws of descent and distribution,

            (iii) transfers pursuant to a QDRO order if approved or ratified by
        the Committee,

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            (iv) if the Participant has suffered a disability, permitted
        transfers or exercises on behalf of the Participant by his or her legal
        representative, or

            (v) the authorization by the Committee of "cashless exercise"
        procedures with third parties who provide financing for the purpose of
        (or who otherwise facilitate) the exercise of Awards consistent with
        applicable laws and the express authorization of the Committee.

        Notwithstanding the foregoing, Incentive Stock Options and Restricted
        Stock Awards shall be subject to any and all additional transfer
        restrictions under the Code.

II. OPTIONS.

        2.1 Grants.

        One or more Options may be granted to any Eligible Employee. Each Option
so granted shall be designated by the Committee as either a Nonqualified Stock
Option or an Incentive Stock Option.

        2.2 Option Price.

        (a) The purchase price per share of Common Stock covered by each Option
shall be determined by the Committee, but in the case of Incentive Stock Options
shall not be less than 100% (110% in the case of a Participant who owns more
than 10% of the total combined voting power of all classes of stock of the
Company) of the Fair Market Value of the Common Stock on the date the Incentive
Stock Option is granted. The purchase price of any shares purchased shall be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by check payable to the order of the Company,
(ii) if authorized by the Committee or specified in the Option being exercised,
by a promissory note made by the Participant in favor of the Company, upon the
terms and conditions determined by the Committee, and secured by the Common
Stock issuable upon exercise in compliance with applicable law (including,
without limitation, state corporate law and federal margin requirements) or
(iii) if authorized by the Committee or specified in the Option being exercised,
by shares of Common Stock of the Company already owned by the Participant;
provided, however, that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.

        (b) In addition to the payment methods described in subsection (a), the
Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Committee, any applicable tax withholding under Section
6.6. The Company shall not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise price therefor.

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        2.3 Option Period.

        Each Option and all rights or obligations thereunder shall expire on
such date as shall be determined by the Committee, but not later than 10 years
after the Award Date, and shall be subject to earlier termination as hereinafter
provided.

        2.4 Exercise of Options.

        Except as otherwise provided in Sections 6.3 and 6.4, an Option may
become exercisable, in whole or in part, on the date or dates specified in the
Award Agreement and thereafter shall remain exercisable until the expiration or
earlier termination of the Option. No Option shall be exercisable for at least
six months after the Award Date, except in the case of death or Total
Disability. The Committee may, at any time after grant of the Option and from
time to time, increase the number of shares exercisable at any time so long as
the total number of shares subject to the Option is not increased. No Option
shall be exercisable except in respect of whole shares, and fractional share
interests shall be disregarded. Not less than 10 shares of Common Stock may be
purchased at one time unless the number purchased is the total number at the
time available for purchase under the terms of the Option.

        2.5 Limitations on Grant of Incentive Stock Options.

        (a) To the extent that the aggregate fair market value of stock with
respect to which incentive stock options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as nonqualified stock options. For purposes of
determining whether the $100,000 limit is exceeded, the fair market value of
stock subject to options shall be determined as of the date the options are
awarded. In reducing the number of options treated as incentive stock options to
meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Company may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock Option.

        (b) There shall be imposed in any Award Agreement relating to Incentive
Stock Options such terms and conditions as are required in order that the Option
be an "incentive stock option" as that term is defined in Section 422 of the
Code.

        (c) No Incentive Stock Option may be granted to any person who, at the
time the Incentive Stock Option is granted, owns shares of outstanding Common
Stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the exercise price of such Option is at least
110% of the Fair Market Value of the stock subject to the Option and such Option
by its terms is not exercisable after the expiration of five years from the date
such Option is granted.

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        2.6 Non-Employee Director Awards.

        (a) Participation. Awards under this Section 2.6 shall be made only to
Non-Employee Directors.

        (b) Option Grants. As and when any person who is not then an officer or
employee of the Company shall become a director of the Company, there shall be
granted automatically (without any action by the Board or the Committee) a
Nonqualified Stock Option (the grant or award date of which shall be the date
such person takes office) to such person to purchase 9,000* shares of Common
Stock.

        Notwithstanding the foregoing, no Option shall be granted under this
Section 2.6 after the date of the Corporation's 1999 Annual Meeting of
Shareholders.

        (c) Subsequent Annual Options. In each calendar year during the term of
the Plan, commencing with the 1997 annual meeting, there shall be granted
automatically (without any action by the Committee or the Board) a Nonqualified
Stock Option to purchase 9,000* shares of Common Stock to each Non-Employee
Director who is re-elected as a director of the Company or who continues as a
director (the grant or award date of which shall be the date of the annual
meeting of shareholders in each such year).

        Notwithstanding the foregoing, no Option shall be granted under this
Section 2.6 after the date of the Corporation's 1999 Annual Meeting of
Shareholders.

        (d) Option Price. The purchase price per share of the Common Stock
covered by each Option granted pursuant to this Section 2.6 shall be one hundred
percent of the Fair Market Value of the Common Stock on the Award Date. The
purchase price of any shares purchased shall be paid in full at the time of each
purchase in cash or by check or in shares of Common Stock valued at their Fair
Market Value on the business day next preceding the date of exercise of the
Option, or partly in such shares and partly in cash.

        (e) Option Period. Each Option granted under this Section 2.6 and all
rights or obligations thereunder shall expire on the tenth anniversary of the
Award Date and shall be subject to earlier termination as provided below.

        (f) Exercise of Options. Except as otherwise provided in Sections 2.6(g)
and 2.6(h), each Option granted under this Section 2.6 shall become exercisable
(i) as to one-quarter of the covered shares on the earlier of (A) the first
anniversary of the Award Date, or (B) the day immediately preceding the first
regularly scheduled Annual

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* The May 21, 1998 amendment to the Plan provided that the number of shares
  subject to each new Option grant under Section 2.6 will not, without specific
  approval by the Board, be increased as a result of splits of the Common Stock
  after such date.

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Meeting of shareholders first occurring after the Award Date; and (ii) as to an
additional 1/36th of the covered shares each month thereafter (using the Award
Date as the date of monthly vesting). This provision shall be effective with
respect to all outstanding Options granted pursuant to this Section 2.6 and all
future Options granted pursuant to this Section 2.6 and the vesting of such
Options shall be determined in accordance herewith.

        (g) Termination of Directorship. If a Non-Employee Director
Participant's services as a member of the Board terminate, each Option granted
pursuant to Section 2.6(b) or (c) hereof held by such Non-Employee Director
Participant which is not then exercisable shall terminate; provided, however,
that if a Non-Employee Director Participant's services as a member of the Board
terminate by reason of death or Total Disability, the Committee may, in its
discretion, consider to be exercisable a greater portion of any such Option than
would otherwise be exercisable, upon such terms as the Committee shall
determine. If a Non-Employee Director Participant's services as a member of the
Board terminate by reason of death or Total Disability, any portion of any such
Option which is then exercisable may be exercised for one year after the date of
such termination or the balance of such Option's term, whichever period is
shorter. If a Non-Employee Director Participant's services as a member of the
Board terminate for any other reason, any portion of any such Option which is
then exercisable may be exercised for three months after the date of such
termination or the balance of such Option's term, whichever period is shorter.

        (h) Acceleration Upon an Event. Immediately prior to the occurrence of
an Event, in order to protect the holders of Options granted under this Section
2.6, each Option granted under Section 2.6(b) or (c) hereof shall become
exercisable in full.

        (i) Adjustments. The specific numbers of shares stated in the foregoing
provisions of Section 2.6(b) and (c) hereof and the consideration payable for
such shares shall be subject to adjustment in certain events as provided in
Section 6.2 of this Plan.

        (j) Effective Date of Section 2.6. This Section 2.6 shall be effective
as of the date of Board approval (March 23, 1994), subject to shareholder
approval within twelve months after such date.

III. STOCK APPRECIATION RIGHTS.

        3.1 Grants.

        In its discretion, the Committee may grant Stock Appreciation Rights
concurrently with the grant of Options. A Stock Appreciation Right shall extend
to all or a portion of the shares covered by the related Option. A Stock
Appreciation Right shall entitle the Participant who holds the related Option,
upon exercise of the Stock Appreciation Right and surrender of the related
Option, or portion thereof, to the extent the Stock Appreciation Right and
related Option each were previously unexercised, to receive payment of an amount
determined pursuant to Section 3.3. Any Stock

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Appreciation Right granted in connection with an Incentive Stock Option shall
contain such terms as may be required to comply with the provisions of Section
422 of the Code and the regulations promulgated thereunder. In its discretion,
the Committee may also grant Stock Appreciation Rights independently of any
Option subject to such conditions as the Committee may in its absolute
discretion provide.

        3.2 Exercise of Stock Appreciation Rights.

        (a) A Stock Appreciation Right granted concurrently with an Option shall
be exercisable only at such time or times, and to the extent, that the related
Option shall be exercisable and only when the Fair Market Value of the stock
subject to the related Option exceeds the exercise price of the related Option.

        (b) In the event that a Stock Appreciation Right granted concurrently
with an Option is exercised, the number of shares of Common Stock subject to the
related Option shall be charged against the maximum amount of Common Stock that
may be issued or transferred pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related Option of the
Participant shall also be reduced by such number of shares.

        (c) If a Stock Appreciation Right granted concurrently with an Option
extends to less than all the shares covered by the related Option and if a
portion of the related Option is thereafter exercised, the number of shares
subject to the unexercised Stock Appreciation Right shall be reduced only if and
to the extent that the remaining number of shares covered by such related Option
is less than the remaining number of shares subject to such Stock Appreciation
Right.

        (d) A Stock Appreciation Right granted independently of any Option shall
be exercisable pursuant to the terms of the Award Agreement but in no event
earlier than six months after the Award Date, except in the case of death or
Total Disability.

        3.3 Payment.

        (a) Upon exercise of a Stock Appreciation Right and surrender of an
exercisable portion of the related Option, the Participant shall be entitled to
receive payment of an amount determined by multiplying

            (i) the difference obtained by subtracting the exercise price per
        share of Common Stock under the related Option from the Fair Market
        Value of a share of Common Stock on the date of exercise of the Stock
        Appreciation Right, by

            (ii) the number of shares with respect to which the Stock
        Appreciation Right shall have been exercised.

        (b) The Committee, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or

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partly in such shares and partly in cash, provided that the Committee shall have
determined that such exercise and payment are consistent with applicable law. In
any event, cash shall be paid in lieu of fractional shares. Absent a
determination to the contrary, all Stock Appreciation Rights shall be settled in
cash as soon as practicable after exercise. The exercise price for the Stock
Appreciation Right shall be the exercise price of the related Option.
Notwithstanding the foregoing, the Committee may, in the Award Agreement,
determine the maximum amount of cash or stock or a combination thereof which may
be delivered upon exercise of a Stock Appreciation Right.

        (c) Upon exercise of a Stock Appreciation Right granted independently of
any Option, the Participant shall be entitled to receive payment of an amount
based on a percentage, specified in the Award Agreement, of the difference
obtained by subtracting the Fair Market Value per share of Common Stock on the
Award Date from the Fair Market Value per share of Common Stock on the date of
exercise of the Stock Appreciation Right. Such amount shall be paid as described
in paragraph (b) above.

IV. RESTRICTED STOCK AWARDS.

        4.1 Grants.

        Subject to Section 1.4, the Committee may, in its discretion, grant one
or more Restricted Stock Awards to any Eligible Employee. Each Restricted Stock
Award agreement shall specify the number of shares of Common Stock to be issued
to the Participant, the date of such issuance, the price, if any, to be paid for
such shares by the Participant and the restrictions imposed on such shares,
which restrictions shall not terminate earlier than six months after the Award
Date.

        4.2 Restrictions.

        (a) Shares of Common Stock included in Restricted Stock Awards may not
be sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until such shares have vested.

        (b) Participants receiving Restricted Stock shall be entitled to
dividend and voting rights for the shares issued even though they are not
vested, provided that such rights shall terminate immediately as to any
forfeited Restricted Stock.

        (c) In the event that the Participant shall have paid cash in connection
with the Restricted Stock Award, the Award Agreement shall specify whether and
to what extent such cash shall be returned upon a forfeiture (with or without an
earnings factor).

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V. PERFORMANCE SHARE AWARDS.

        5.1 Grants.

        The Committee may, in its discretion, grant Performance Share Awards to
Eligible Employees based upon such factors as the Committee shall determine. A
Performance Share Award agreement shall specify the number of shares of Common
Stock subject to the Performance Share Award, the price, if any, to be paid for
such shares by the Participant and the conditions upon which issuance to the
Participant shall be based, which issuance shall not be earlier than six months
after the Award Date.

        5.2 Special Performance-Based Share Awards.

        Without limiting the generality of the foregoing, and in addition to
options granted under other provisions of this Plan, other performance-based
awards within the meaning of Section 162(m) of the Code ("Performance-Based
Awards"), whether in the form of restricted stock, performance stock, phantom
stock, or other rights, the vesting or payment of which depends on the degree of
achievement of the Performance Goals relative to preestablished targeted levels
for the Company and/or one or more of its Subsidiaries or divisions, may be
granted under this Plan. An award that is intended to satisfy the requirements
of this Section 5.2 shall be designated as a Performance-Based Award at the time
of grant.

        (a) Eligible Class. The eligible class of persons for Performance-Based
Awards under this Section shall be the executive officers of the Company.

        (b) Performance Goal Alternatives. The specific performance goals for
Performance-Based Awards granted under this Section shall be, on an absolute or
relative basis, one or more of the Performance Goals, as selected by the
Committee in its sole discretion. The Committee shall establish in the
applicable Award Agreement the specific performance target(s) relative to the
Performance Goal(s) which must be attained before the compensation under the
Performance-Based Award becomes payable. The specific targets shall be
determined within the time period permitted under Section 162(m) of the Code
(and any regulations issued thereunder) so that such targets are considered to
be preestablished and so that the attainment of such targets is substantially
uncertain at the time of their establishment. The applicable performance
measurement period may not be less than one nor more than 10 years.

        (c) Maximum Performance-Based Award. Notwithstanding any other provision
of the Plan to the contrary, the maximum number of shares which may be delivered
pursuant to awards that are granted as Performance-Based Awards under this
Section 5.2 to any Participant in any calendar year shall not exceed 1,384,593
shares, either individually or in the aggregate, subject to adjustment as
provided in Section 6.2. Awards that are cancelled during the year shall be
counted against this limit to the extent required by Section 162(m) of the Code.

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        (d) Committee Certification. Before any Performance-Based Award under
this Section 5.2 is paid, the Committee must certify in writing that the
Performance Goal(s) and any other material terms of the Performance-Based Award
were satisfied; provided, however, that a Performance-Based Award may be paid
without regard to the satisfaction of the applicable Performance Goal in the
event of a change in control event in accordance with Section 162(m) of the Code
and Section 6.2.

        (e) Terms and Conditions of Awards. The Committee will have the
discretion to determine the restrictions or other limitations of the individual
awards granted under this Section 5.2 including the authority to reduce awards,
payouts or vesting or to pay no awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions or otherwise.

        (f) Adjustments for Changes in Capitalization and other Material
Changes. In the event of a change in corporate capitalization, such as a stock
split or stock dividend, or a corporate transaction, such as a merger,
consolidation, spinoff, reorganization or similar event, or any partial or
complete liquidation of the Company, or any similar event consistent with
regulations issued under Section 162(m) of the Code including, without
limitation, any material change in accounting policies or practices affecting
the Company and/or the Performance Goals or targets, then the Committee may make
adjustments to the Performance Goals and targets relating to outstanding
Performance-Based Awards to the extent such adjustments are made to reflect the
occurrence of such an event; provided, however, that adjustments described in
this subsection may be made only to the extent that the occurrence of an event
described herein was unforeseen at the time the targets for a Performance-Based
Award were established by the Committee.

VI. OTHER PROVISIONS.

        6.1 Rights of Eligible Employees, Participants and Beneficiaries.

        (a) Status as an Eligible Employee shall not be construed as a
commitment that any Award will be made under this Plan to any Eligible Employee
generally.

        (b) Nothing contained in this Plan (or in Award Agreements or in any
other documents related to this Plan or to Awards) shall confer upon any
Eligible Employee or Participant any right to continue in the service or employ
of the Company or constitute any contract or agreement of service or employment,
or interfere in any way with the right of the Company to reduce such person's
compensation or other benefits or to terminate the services or employment of
such Eligible Employee or Participant, with or without cause, but nothing
contained in this Plan or any document related thereto shall affect any other
contractual right of any Eligible Employee or Participant.

        (c) No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock) of the Company by reason of any Award granted hereunder. Neither
the provisions of this Plan (or of any documents related hereto), nor the
creation or adoption of this Plan,

                                       11

<PAGE>   15

nor any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive an Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.

        6.2 Adjustments Upon Changes in Capitalization.

        (a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger to which the Company is a party, or
through a combination, consolidation, recapitalization, reclassification, stock
split, stock dividend, reverse stock split, stock consolidation or other capital
change or adjustment, an appropriate adjustment shall be made in the number and
kind of shares or other consideration that is subject to or may be delivered
under this Plan and pursuant to outstanding Awards. A corresponding adjustment
to the consideration payable with respect to Awards granted prior to any such
change and to the price, if any, paid in connection with Restricted Stock Awards
or Performance Share Awards or Performance-Based Awards shall also be made. Any
such adjustment, however, shall be made without change in the total payment, if
any, applicable to the portion of the Award not exercised but with a
corresponding adjustment in the price for each share. Corresponding adjustments
shall be made with respect to Stock Appreciation Rights based upon the
adjustments made to the Options to which they are related or, in the case of
Stock Appreciation Rights granted independently of any Option, based upon the
adjustments made to Common Stock.

        (b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
the Plan shall terminate. Notwithstanding the foregoing, the Committee may
provide in writing in connection with, or in contemplation of, any such
transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the Awards
theretofore granted or the substitution by such corporation for such Awards of
awards covering the stock of the successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (ii) for the continuance of this Plan by such successor
corporation in which event this Plan and the Awards shall continue in the manner
and under the terms so provided; or (iii) for the payment in cash or shares of
Common Stock in lieu of and in complete satisfaction of such Awards.

        (c) In adjusting Awards to reflect the changes described in this Section
6.2, or in determining that no such adjustment is necessary, the Committee may
rely upon the advice of independent counsel and accountants of the Company, and
the determination of the Committee shall be conclusive. No fractional shares of
stock shall be issued under this Plan on account of any such adjustment.

                                       12

<PAGE>   16

        6.3 Termination of Employment.

        (a) If the Participant's service to or employment by the Company
terminates for any reason other than Retirement, death or Total Disability, the
Participant shall have, subject to earlier termination pursuant to or as
contemplated by Section 2.3, three months or such shorter period as is provided
in the Award Agreements from the date of termination of services or employment
to exercise any Option to the extent it shall have become exercisable on the
date of termination of employment, and any Option not exercisable on that date
shall terminate. Notwithstanding the preceding sentence, in the event the
Participant is discharged for cause as determined by the Committee in its sole
discretion, all Options shall lapse immediately upon such termination of
services or employment.

        (b) If the Participant's service to or employment by the Company
terminates as a result of Retirement or Total Disability, the Participant or
Participant's Personal Representative, as the case may be, shall have, subject
to earlier termination pursuant to or as contemplated by Section 2.3, 12 months
(or, in the case of Incentive Stock Options where the Participant terminates as
a result of Retirement, three months) or such shorter period as is provided in
the Award Agreements from the date of termination of services or employment to
exercise any Option to the extent it shall have become exercisable by the date
of termination of services or employment and any Option not exercisable on that
date shall terminate.

        (c) If the Participant's service to or employment by the Company
terminates as a result of death while the Participant is rendering services to
the Company or is employed by the Company or during the 12 month period (or, in
the case of Incentive Stock Options where the Participant has terminated as a
result of Retirement, three month period) referred to in subsection (b) above,
the Participant's Option shall be exercisable by the Participant's Beneficiary,
subject to earlier termination pursuant to or as contemplated by Section 2.3,
during the 12 month period or such shorter period as is provided in the Award
Agreements following the Participant's death, as to all or any part of the
shares of Common Stock covered thereby to the extent exercisable on the date of
death (or earlier termination).

        (d) Each Stock Appreciation Right granted concurrently with an Option
shall have the same termination provisions and exercisability periods as the
Option to which it relates. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independently of an Option shall
be established in accordance with Section 3.2(d). The exercisability period of a
Stock Appreciation Right shall not exceed that provided in Section 2.3 or in the
related Award Agreement and the Stock Appreciation Right shall expire at the end
of such exercisability period.

        (e) In the event of termination of services to or employment with the
Company for any reason, (i) shares of Common Stock subject to the Participant's
Restricted Stock Award shall be forfeited in accordance with the provisions of
the related Award Agreement to the extent such shares have not become vested on
that date; and (ii) shares of Common Stock subject to the Participant's
Performance Share Award or Performance-Based Award shall be forfeited in
accordance with the provisions of the related Award Agreement to the extent such
shares have not been issued or become issuable on that date.

                                       13

<PAGE>   17

        (f) In the event of termination of services to or employment with the
Company for any reason, other than discharge for cause, the Committee may, in
its discretion, increase the portion of the Participant's Award available to the
Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, upon such terms as the Committee shall determine.

        (g) If an entity ceases to be a Subsidiary, such action shall be deemed
for purposes of this Section 6.3 to be a termination of services or employment
of each consultant or employee of that entity who does not continue as a
consultant or as an employee of another entity within the Company.

        (h) Upon forfeiture of a Restricted Stock Award pursuant to this Section
6.3, the Participant, or his or her Beneficiary or Personal Representative, as
the case may be, shall transfer to the Company the portion of the Restricted
Stock Award not vested at the date of termination of services or employment,
without payment of any consideration by the Company for such transfer unless the
Participant paid a purchase price in which case repayment, if any, of that price
shall be governed by the Award Agreement. Notwithstanding any such transfer to
the Company, or failure, refusal or neglect to transfer, by the Participant, or
his or her Beneficiary or Personal Representative, as the case may be, such
nonvested portion of any Restricted Stock Award shall be deemed transferred
automatically to the Company on the date of termination of services or
employment. The Participant's original acceptance of the Restricted Stock Award
shall constitute his or her appointment of the Company and each of its
authorized representatives as attorney(s)-in-fact to effect such transfer and to
execute such documents as the Company or such representatives deem necessary or
advisable in connection with such transfer.

        6.4 Acceleration of Awards.

        Unless prior to an Event the Board determines that, upon its occurrence,
there shall be no acceleration of Awards or determines those Awards which shall
be accelerated and the extent to which they shall be accelerated, upon the
occurrence of an Event (i) each Option and each related Stock Appreciation Right
shall become immediately exercisable to the full extent theretofore not
exercisable, (ii) Restricted Stock shall immediately vest free of restrictions
and (iii) the number of shares covered by each Performance Share Award or
Performance-Based Award shall be issued to the Participant; subject, however, to
compliance with applicable regulatory requirements, including without limitation
and Section 422 of the Code. For purposes of this section only, the Board shall
mean the Board as constituted immediately prior to the Event.

                                       14

<PAGE>   18

        6.5 Government Regulations.

        This Plan, the granting of Awards under this Plan and the issuance or
transfer of shares of Common Stock (and/or the payment of money) pursuant
thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under this Plan, and no shares shall be issued by the
Company, nor cash payments made by the Company, pursuant to or in connection
with any such Award, unless and until, in each such case, all legal requirements
applicable to the issuance or payment have, in the opinion of counsel to the
Company, been complied with. In connection with any stock issuance or transfer,
the person acquiring the shares shall, if requested by the Company, give
assurances satisfactory to counsel to the Company in respect of such matters as
the Company may deem desirable to assure compliance with all applicable legal
requirements.

        6.6 Tax Withholding.

        (a) Upon the disposition by a Participant or other person of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of the
Code, or upon the exercise of a Nonqualified Stock Option, the exercise of a
Stock Appreciation Right, the vesting of a Restricted Stock Award or the payment
of a Performance Share Award or Performance-Based Award, the Company shall have
the right to (i) require such Participant or such other person to pay by cash or
check payable to the Company, the amount of any taxes which the Company may be
required to withhold with respect to such transactions or (ii) deduct from
amounts paid in cash the amount of any taxes which the Company may be required
to withhold with respect to such cash amounts. The above notwithstanding, in any
case where a tax is required to be withheld in connection with the issuance or
transfer of shares of Common Stock under this Plan, the Participant may elect,
pursuant to such rules as the Committee may establish, to have the Company
reduce the number of such shares issued or transferred by the appropriate number
of shares to accomplish such withholding; provided, the Committee may impose
such conditions on the payment of any withholding obligation as may be required
to satisfy applicable regulatory requirements.

        (b) The Committee may, in its discretion, permit a loan from the Company
to a Participant in the amount of any taxes which the Company may be required to
withhold with respect to shares of Common Stock received pursuant to a
transaction described in subsection (a) above. Such a loan will be for a term,
at a rate of interest and pursuant to such other terms and rules as the
Committee may establish.

                                       15

<PAGE>   19

        6.7 Amendment, Termination and Suspension.

        (a) The Board may, at any time, terminate or, from time to time, amend,
modify or suspend this Plan (or any part hereof). In addition, the Committee
may, from time to time, amend or modify any provision of this Plan except
Section 6.4 and, with the consent of the Participant, make such modifications of
the terms and conditions of such Participant's Award as it shall deem advisable.
The Committee, with the consent of the Participant, may also amend the terms of
any Option to provide that the Option price of the shares remaining subject to
the original Award shall be reestablished at a price not less than 100% of the
Fair Market Value of the Common Stock on the effective date of the amendment;
provided that any such amendment shall be subject to approval by the
shareholders of the Company. No modification of any other term or provision of
any Option which is amended in accordance with the foregoing shall be required,
although the Committee may, in its discretion, make such further modifications
of any such Option as are not inconsistent with or prohibited by this Plan. No
Awards may be granted during any suspension of this Plan or after its
termination.

        (b) Any amendment that would materially (i) increase the benefits
accruing to Participants, (ii) increase the aggregate number of shares which may
be issued under this Plan, or (iii) modify the requirements of eligibility for
participation in this Plan, shall be subject to shareholder approval only to the
extent then required by Section 422 of the Code or any successor provisions,
rules or statutes thereto, by a majority of the shareholders.

        (c) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board or the
Committee and the consent of the Participant, in any way modify, amend, alter or
impair any rights or obligations under any Award previously granted under the
Plan.

        6.8 Privileges of Stock Ownership; Nondistributive Intent.

        A Participant shall not be entitled to the privilege of stock ownership
as to any shares of Common Stock not actually issued to him or her. Upon the
issuance and transfer of shares to the Participant, unless a registration
statement is in effect under the Securities Act and applicable state securities
law, relating to such issued and transferred Common Stock and there is available
for delivery a prospectus meeting the requirements of Section 10 of the
Securities Act, the Common Stock may be issued and transferred to the
Participant only if he or she represents and warrants in writing to the Company
that the shares are being acquired for investment and not with a view to the
resale or distribution thereof. No shares shall be issued and transferred unless
and until there shall have been full compliance with any then applicable
regulatory requirements (including those of exchanges upon which any Common
Stock of the Company may be listed).

                                       16

<PAGE>   20

        6.9 Effective Date of the Plan.

        This Plan shall be effective upon its approval by the Board, subject to
approval by the shareholders of the Company within twelve months from the date
of such Board approval.

        6.10 Term of the Plan.

        Unless previously terminated by the Board, this Plan shall terminate at
the close of business on November 17, 2002, and no Awards shall be granted under
it thereafter, but such termination shall not affect any Award theretofore
granted.

        6.11 Governing Law.

        This Plan and the documents evidencing Awards and all other related
documents shall be governed by, and construed in accordance with, the laws of
the State of California. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue to be fully effective.

        6.12 Plan Construction.

        (a) Rule 16b-3. It is the intent of the Company that transactions in and
affecting Awards in the case of Participants who are or may be subject to
Section 16 of the Exchange Act satisfy any then applicable requirements of Rule
16b-3 so that such persons (unless they otherwise agree) will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange
Act in respect of those transactions and will not be subjected to avoidable
liability thereunder. In furtherance of such intent and the Company's intent to
satisfy any applicable state securities laws, the Awards granted under all of
the provisions of the Plan, in the discretion of the Committee, may be deemed
granted under a separate plan if so required, notwithstanding the designation of
this document as a single plan for convenience of reference and to establish
certain provisions and limitations applicable to all authorized Awards. If any
provision of the Plan or of any Award would frustrate or otherwise conflict with
the intent expressed above, that provision to the extent possible shall be
interpreted so as to avoid such conflict. If the conflict remains
irreconcilable, the Committee may disregard the provision if it concludes that
to do so furthers the interest of the Company and is consistent with the
purposes of the Plan as to such persons in the circumstances.

        (b) Section 162(m). It is the further intent of the Company that Options
or Stock Appreciation Rights with an exercise or base price not less than Fair
Market Value on the date of grant and Performance-Based Awards under Section 5.2
of this Plan that are granted to or held by a Section 16 Person shall qualify as
performance-based compensation under Section 162(m) of the Code, and this Plan
shall be interpreted consistent with such intent.

                                       17

<PAGE>   21

VII. DEFINITIONS.

        7.1 Definitions.

        (a) "Award" means an Option, which may be designated as a Nonqualified
Stock Option or an Incentive Stock Option, a Stock Appreciation Right, a
Restricted Stock Award, Performance Share Award or Performance-Based Award, in
each case granted under this Plan.

        (b) "Award Agreement" means a written agreement setting forth the terms
of an Award.

        (c) "Award Date" means the date upon which the Committee took the action
granting an Award or such later date as is prescribed by the Committee or, in
the case of Options granted under Section 2.6, the date specified in such
Section 2.6.

        (d) "Beneficiary" means the person, persons, trust or trusts entitled by
will or the laws of descent and distribution to receive the benefits specified
under this Plan in the event of a Participant's death, and shall mean the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.

        (e) "Board" means the Board of Directors of the Company.

        (f) "Cash Flow" shall mean cash and cash equivalents derived from either
(i) net cash flow from operations or (ii) net cash flow from operations,
financings and investing activities, as determined by the Committee at the time
an Incentive is granted.

        (g) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

        (h) "Commission" means the Securities and Exchange Commission.

        (i) "Committee" means the Board or a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom (i) in respect of any transaction at a time when
the affected Participant may be subject to Section 162(m) of the Code, shall be
an "outside director" within the meaning of Section 162(m) of the Code and (ii)
in respect of any transaction at a time when the affected Participant may be
subject to Section 16 of the Exchange Act, shall be a "Non-Employee Director"
within the meaning of Rule 16b-3(b)(3) under the Exchange Act.

        (j) "Common Stock" means the Common Stock of the Company.

        (k) "Company" means Pacific Sunwear of California, Inc., a California
corporation, and its successors.

                                       18

<PAGE>   22

        (l) "Eligible Employee" means an officer or key employee of the Company
and consultants to the Company whether or not such consultants are employees.

        (m) "EPS" shall mean earnings per common share on a fully diluted basis
determined by dividing (i) net earnings, less dividends on preferred stock of
the Company and its Subsidiaries by (ii) the weighted average number of common
shares and common shares equivalents outstanding.

        (n) "Event" means any of the following:

            (i) Approval by the shareholders of the Company of the dissolution
        or liquidation of the Company;

            (ii) Approval by the shareholders of the Company of an agreement to
        merge or consolidate, or otherwise reorganize, with or into one or more
        entities other than Subsidiaries, as a result of which less than 50% of
        the outstanding voting securities of the surviving or resulting entity
        are, or are to be, owned by former shareholders of the Company; or

            (iii) Approval by the shareholders of the Company of the sale of
        substantially all of the Company's business assets to a person or entity
        which is not a Subsidiary.

        (o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

        (p) "Fair Market Value" means (i) if the stock is listed or admitted to
trade on a national securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such shares; (ii) if the
stock is not listed or admitted to trade on a national securities exchange, the
last price for the stock on such date, as furnished by the National Association
of Securities Dealers, Inc. ("NASD") through the NASDAQ National Market
Reporting System or a similar organization if the NASD is no longer reporting
such information; (iii) if the stock is not listed or admitted to trade on a
national securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the stock on such
date, as furnished by the NASD; or (iv) if the stock is not listed or admitted
to trade on a national securities exchange, is not reported on the National
Market Reporting System and if bid and asked prices for the stock are not
furnished by the NASD or a similar organization, the values established by the
Committee for purposes of the Plan.

        (q) "Incentive Stock Option" means an option which is designated as an
incentive stock option within the meaning of Section 422 of the Code, the award
of which contains such provisions as are necessary to comply with that section.

                                       19

<PAGE>   23

        (r) "Non-Employee Director" means a member of the Board who is not an
officer or employee of the Company.

        (s) "Non-Employee Director Participant" means a Non-Employee Director
who has been granted an Option under Section 2.6.

        (t) "Nonqualified Stock Option" means an option which is designated as a
Nonqualified Stock Option and shall include any Option intended as an Incentive
Stock Option that fails to meet the applicable legal requirements thereof.

        (u) "Option" means an option to purchase Common Stock under this Plan.
An Option shall be designated by the Committee as a Nonqualified Stock Option or
an Incentive Stock Option.

        (v) "Participant" means an Eligible Employee who has been granted an
Award.

        (w) "Performance Goal" shall mean EPS or ROE or Cash Flow or Total
Stockholder Return, and "Performance Goals" means any combination thereof.

        (x) "Performance-Based Awards" shall mean an Award of a right to receive
shares of Common Stock or other compensation (including cash) under Section 5.2,
the issuance or payment of which is contingent upon, among other conditions, the
attainment of performance objectives specified by the Committee.

        (y) "Performance Share Award" means an award of shares of cash or Common
Stock under Section 5.1, the issuance of which is contingent upon attainment of
performance objectives specified by the Committee.

        (z) "Personal Representative" means the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant by legal proceeding or otherwise the power to exercise the
rights and receive the benefits specified in this Plan.

        (aa) "Plan" means the Pacific Sunwear of California, Inc. 1992 Stock
Award Plan, as amended.

        (bb) "QDRO" shall mean an order requiring the transfer of an Award or
portion thereof pursuant to a state domestic relations law to the spouse, former
spouse, child or other dependent of a Participant. Such order must be in a form
substantially identical to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended.

        (cc) "Restricted Stock" means those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.

                                       20

<PAGE>   24

        (dd) "Restricted Stock Award" means an award of a fixed number of shares
of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.

        (ee) "Retirement" means retirement from employment by or providing
services to the Company or any Subsidiary after age 65 and, in the case of
employees, in accordance with the retirement policies of the Company then in
effect.

        (ff) "ROE" shall mean consolidated net income of the Company and its
Subsidiaries (less preferred dividends), divided by the average consolidated
common shareholders equity.

        (gg) "Securities Act" means the Securities Act of 1933, as amended.

        (hh) "Stock Appreciation Right" means a right to receive a number of
shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 3.3(a).

        (ii) "Subsidiary" means any corporation or other entity a majority or
more of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.

        (jj) "Total Disability" means a "permanent and total disability" within
the meaning of Section 22(e)(3) of the Code and, in the case of Awards other
than Incentive Stock Options, such other disabilities, infirmities, afflictions
or conditions as the Committee by rule may include.

        (kk) "Total Stockholder Return" shall mean with respect to the Company
or its Subsidiaries or other entities (if measured on a relative basis), the (i)
change in the market price of its common stock (as quoted in the principal
market on which it is traded as of the beginning and ending of the period) plus
dividends and other distributions paid, divided by (ii) the beginning quoted
market price, all of which is adjusted for any changes in equity structure,
including but not limited to stock splits and stock dividends.

                                       21<PAGE>   1

                                                                   EXHIBIT 10.12

                       PACIFIC SUNWEAR OF CALIFORNIA, INC.
                           INCENTIVE COMPENSATION PLAN

SECTION 1. PURPOSE OF PLAN

     The purpose of the Plan is to promote the success of the Company by
     providing to participating eligible persons bonus incentives that qualify
     as performance-based compensation within the meaning of Section 162(m) of
     the Code. The Plan provides for payment of incentive compensation and,
     accordingly, is not intended to be a plan that is subject to the Employee
     Retirement Income Security Act of 1974, as amended, and shall be
     administered accordingly.

SECTION 2. DEFINITIONS AND TERMS

     2.1 ACCOUNTING TERMS. Except as otherwise expressly provided or the context
     otherwise requires, financial and accounting terms herein and in Appendix A
     hereto are used as defined for purposes of, and shall be determined in
     accordance with, generally accepted accounting principles, as from time to
     time in effect, as applied and reflected in the consolidated financial
     statements of the Company, prepared in the ordinary course of business.

     2.2 SPECIFIC TERMS. The following words and phrases as used herein shall
     have the following meanings unless a different meaning is plainly required
     by the context:

          "AWARD" means an award, subject to the terms and conditions hereof,
          under the Plan of a conditional right to receive a Bonus if the
          applicable Performance Target(s) is satisfied in the relevant
          Performance Period.

          "AWARD AGREEMENT" means a written agreement evidencing the grant of an
          award under the Plan.

          "BASE SALARY" means the annualized aggregate base salary of a
          Participant from the Company and all affiliates of the Company at the
          time the Participant is granted an Award, exclusive of any commissions
          or other actual or imputed income from any Company-provided benefits
          or perquisites, but prior to any reductions for salary deferred
          pursuant to any deferred compensation plan or for contributions to a
          plan qualifying under Section 401(k) of the Code or contributions to a
          cafeteria plan under Section 125 of the Code.

          "BOARD" means the Board of Directors of the Company.

<PAGE>   2

          "BONUS" means a cash payment or a payment opportunity in respect of an
          Award under the Plan, as the context requires.

          "BUSINESS CRITERIA" means one or any combination of the criteria set
          forth on Appendix A hereto.

          "CHANGE IN CONTROL" means any of the following:

               (i)   Approval by the stockholders of the Company of the
                     dissolution or liquidation of the Company;

               (ii)  Approval by the stockholders of the Company of an agreement
                     to merge or consolidate, or otherwise reorganize, with or
                     into one or more entities other than Subsidiaries, as a
                     result of which less than 50% of the outstanding voting
                     securities of the resulting or surviving entity are, or are
                     to be, owned by former stockholders of the Company; or

               (iii) Approval by the stockholders of the Company of the sale of
                     substantially all of the Company's business assets to a
                     person or entity which is not a Subsidiary.

          "CODE" means the Internal Revenue Code of 1986, as amended from time
          to time.

          "COMMITTEE" means the committee appointed by the Board to administer
          the Plan in accordance with Section 3.1 and Section 162(m).

          "COMPANY" means Pacific Sunwear of California, Inc. and any successor,
          whether by merger, ownership of all or substantially all of its
          assets, or otherwise.

          "DISABILITY" means the complete and permanent disability of the
          Participant, as defined in Section 22(e)(3) of the Code.

          "ELIGIBLE PERSON" means any salaried employee or officer of the
          Company.

          "PARTICIPANT" means an Eligible Person selected by the Committee to
          receive an Award.

          "PERFORMANCE PERIOD" means the fiscal year of the Company or other
          specific period of time established by the Committee with respect to
          which the Performance Targets are set by the Committee. A Performance
          Period shall not exceed 10 years.

          "PERFORMANCE TARGET(S)" means the specific objective goal or goals
          (which may be cumulative and/or alternative) that are timely set by
          the Committee for each Participant and set forth in his or her Award
          Agreement for the Performance Period in respect of any one or more of
          the Business Criteria.

                                       2

<PAGE>   3

          "PLAN" means this Pacific Sunwear of California, Inc. Incentive
          Compensation Plan, as amended from time to time.

          "RETIREMENT" means termination of employment from the Company and its
          subsidiaries after attainment of age sixty five (65).

          "SECTION 162(m)" means Section 162(m) of the Code, and the regulations
          promulgated thereunder, all as amended from time to time.

          "SHARES" means shares of Common Stock, par value $0.01 per share, of
          the Company or any securities or property, including rights into which
          the same may be converted by operation of law or otherwise.

          "SUBSIDIARY" means any corporation or other entity a majority or more
          of whose outstanding voting stock or voting power is beneficially
          owned, directly or indirectly, by the Company.

          "TERMINATION FOR CAUSE" or "CAUSE" means that the Eligible Person has
          been terminated because such Eligible Person (i) materially breached
          his or her employment agreement with the Company, or in the absence of
          a written agreement, the material terms of his or her employment, (ii)
          continually failed to substantially perform his or her duties with the
          Company (other than a failure resulting from the Employee's incapacity
          due to physical or mental illness), (iii) willfully engaged in conduct
          which is materially injurious to the Company, monetarily or otherwise,
          or (iv) has committed a felony.

SECTION 3. ADMINISTRATION OF THE PLAN

     3.1 THE COMMITTEE. The Plan shall be administered by a Committee, duly
     authorized by the Board to administer the Plan, which Committee shall
     consist solely of two or more members of the Board who (i) are not eligible
     to participate in the Plan and (ii) are "outside directors" within the
     meaning of Section 162(m).

     3.2 POWERS OF THE COMMITTEE. The Committee shall have the sole authority to
     select from among the Eligible Persons those individuals who will
     participate in and receive Awards under the Plan, to determine Performance
     Periods, to select applicable Business Criteria and establish and
     administer the Performance Target(s) and, subject to Sections 4 and 5,
     determine the amount of Bonuses, and the time or times at which and the
     form and manner in which Bonuses will be paid (which may include elective
     or mandatory deferral alternatives) and shall otherwise be responsible for
     the administration of the Plan; subject to the other terms of the Plan. The
     Committee shall have the authority to construe and interpret the Plan
     (except as otherwise provided herein) and any agreement or other document
     relating to any Award under the Plan, may adopt rules and regulations
     governing the administration of the Plan, and shall exercise all other
     duties and powers conferred on it by the Plan, or which are incidental or
     ancillary thereto. For each Performance Period, the Committee shall
     determine, at the time the Business Criteria and the Performance Target(s)
     are set, those Eligible Persons who are selected as Participants in the
     Plan for that Performance Period. All actions taken and all interpretations
     and

                                       3

<PAGE>   4

     determinations made by the Committee in respect of the Plan shall be
     conclusive and binding on all Eligible Persons, Participants, the Company,
     and all other persons, and shall be given the maximum deference permitted
     by law.

     3.3 REQUISITE ACTION. A majority of the members of the Committee shall
     constitute a quorum. The vote of a majority of those present at a meeting
     at which a quorum is present or the unanimous written consent of the
     Committee shall constitute action by the Committee.

     3.4 EXPRESS AUTHORITY (AND LIMITATIONS ON AUTHORITY) TO CHANGE TERMS AND
     CONDITIONS OF AWARDS; ACCELERATION OR DEFERRAL OF PAYMENT. Without limiting
     the Committee's authority under other provisions of the Plan, but subject
     to any express limitations of the Plan and Section 5.8, the Committee shall
     have the authority to accelerate a Bonus (after the attainment of the
     applicable Performance Target(s)) and to waive restrictive conditions for a
     Bonus (including any forfeiture conditions, but not Performance Target(s)),
     in such circumstances as the Committee deems appropriate. In the case of
     any acceleration of a Bonus after the attainment of the applicable
     Performance Target(s), the amount payable shall be discounted to its
     present value using an interest rate equal to Moody's Average Corporate
     Bond Yield for the month preceding the month in which such acceleration
     occurs. Any deferred payment shall be subject to Section 4.9 and, if
     applicable, Section 4.10.

     3.5 PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. All expenses and
     liabilities incurred by the members of the Committee in connection with the
     administration of the Plan shall be borne by the Company. The Committee may
     employ attorneys, consultants, accountants or other persons, and shall be
     entitled to rely upon the advice, opinions or valuation of any such
     persons. No member of the Committee shall be personally liable by reason of
     any action, determination or interpretation made in good faith by him or on
     his behalf with respect to the Plan or any Award, and each member of them
     shall be protected and indemnified by the Company in respect of any such
     action, determination or interpretation to the full extent permitted by
     law.

     3.6 AWARD AGREEMENTS. Each Award shall be evidenced by a written Award
     Agreement, the form of which shall be approved by the Committee, which
     shall set forth the terms and conditions of that Award. Each Award
     Agreement shall be signed by a duly authorized officer of the Company and,
     if required by the Committee, by the recipient of that Award.

SECTION 4. BONUS PROVISIONS.

     4.1 PROVISION FOR BONUS. Each Participant may receive a Bonus if and only
     if the Performance Target(s) established by the Committee, relative to the
     applicable Business Criteria, are attained in the applicable Performance
     Period. The applicable Performance Period and Performance Target(s) shall
     be determined by the Committee consistent with the terms of the Plan and
     Section 162(m). Notwithstanding the fact that the Performance Target(s)
     have been attained, the Company may, by express provision in the applicable
     Award Agreement, reserve the discretion to pay a Bonus of less than the
     amount

                                       4

<PAGE>   5

     determined by the formula or standard established pursuant to Section 4.2
     or may pay no Bonus at all.

     4.2 SELECTION OF PERFORMANCE TARGET(S). The specific Performance Target(s)
     with respect to the Business Criteria must be established by the Committee
     while the performance relating to the Performance Target(s) remains
     substantially uncertain within the meaning of Section 162(m) and in no
     event (i) more than 90 days after the commencement of the applicable
     Performance Period, or (ii) after 25% of the applicable Performance Period
     has elapsed. At the time the Performance Target(s) are selected, the
     Committee shall provide, in terms of an objective formula or standard for
     each Participant, and for any person who may become a Participant after the
     Performance Target(s) are set, the method of computing the specific amount
     that will represent the maximum amount of Bonus payable to the Participant
     if the Performance Target(s) are attained, subject to Sections 4.1, 4.3,
     4.7, 5.1 and 5.8.

     4.3 MAXIMUM INDIVIDUAL BONUS. Notwithstanding any other provision hereof,
     the maximum aggregate Bonus that may be paid pursuant to all Awards granted
     in any calendar year to any one Eligible Person is $2.5 million. The
     foregoing limit shall be subject to adjustments consistent with Section
     3.4.

     4.4 SELECTION OF PARTICIPANTS. For each Performance Period established by
     the Committee, the Committee shall determine, at the time the Business
     Criteria and the Performance Target(s) are set, those Eligible Persons who
     will participate in the Plan and receive Awards with respect to that
     Performance Period.

     4.5 EFFECT OF MID-YEAR COMMENCEMENT OF SERVICE. To the extent compatible
     with Sections 4.2 and 5.8, if services as an Eligible Person commence after
     the adoption of the Plan and the Performance Target(s) are established for
     a Performance Period, the Committee may grant an Award that is
     proportionately adjusted based on the period of actual service during the
     Performance Period; the amount of any Bonus paid to such person shall not
     exceed that proportionate amount of the applicable maximum individual bonus
     under Section 4.3.

     4.6 ADJUSTMENTS. To preserve the intended incentives and benefits of an
     Award, the Committee shall (i) adjust Performance Targets or other features
     of an Award to reflect any material change in corporate capitalization, any
     material corporate transaction (such as a reorganization, combination,
     separation, merger, acquisition, or any combination of the foregoing), or
     any complete or partial liquidation of the Company, (ii) calculate
     Performance Targets without regard for any change in accounting policies or
     practices affecting the Company and/or the Business Criteria or the
     Performance Targets, and (iii) adjust Business Criteria and Performance
     Targets or other features of an Award to reflect the effects of any special
     charges to the Company's earnings; in each case only to the extent
     consistent with the requirements of Section 162(m) to qualify such Award as
     performance-based compensation. By express provision in an Award Agreement,
     the Committee may (i) override any or all of the foregoing provisions of
     this Section 4.6 with respect to an Award, and/or (ii) establish such other
     events or circumstances, consistent

                                       5

<PAGE>   6

     with Section 162(m), with respect to which the Committee will make
     appropriate adjustments to the Award.

     4.7 COMMITTEE DISCRETION TO DETERMINE BONUSES. The Committee has the sole
     discretion to determine the standard or formula pursuant to which each
     Participant's Bonus shall be calculated (in accordance with Section 4.2),
     whether all or any portion of the amount so calculated will be paid, and
     the specific amount (if any) to be paid to each Participant, subject in all
     cases to the terms, conditions and limits of the Plan and of any other
     written commitment authorized by the Committee. To this same extent, the
     Committee may at any time establish additional conditions and terms of an
     Award or the payment of Bonuses (including but not limited to the
     achievement of other financial, strategic or individual goals, which may be
     objective or subjective) as it may deem desirable in carrying out the
     purposes of the Plan and may take into account such other factors as it
     deems appropriate in administering any aspect of the Plan. The Committee
     may not, however, increase the maximum amount permitted to be paid to any
     individual under Section 4.2 or 4.3 of the Plan or Award a Bonus under the
     Plan if the applicable Performance Target(s) have not been satisfied
     (subject to Section 4.13(iii)).

     4.8 COMMITTEE CERTIFICATION. No Participant shall receive any payment under
     the Plan unless the Committee has certified, by resolution or other
     appropriate action in writing, that the amount thereof has been accurately
     determined in accordance with the terms, conditions and limits of the Plan
     and that the Performance Target(s) and any other material terms previously
     established by the Committee or set forth in the Plan or the applicable
     Award Agreement were in fact satisfied.

     4.9 TIME OF PAYMENT; DEFERRED AMOUNTS. Any Bonuses shall be paid as soon as
     practicable following the Committee's determinations under this Section 4
     and the certification of the Committee's findings under Section 4.8.
     Payment shall be in cash unless the Committee provides otherwise in the
     applicable Award Agreement, in which case the Committee may provide for
     payment in cash or cash equivalent or in such other form of equal value on
     such payment date (including Shares or share equivalents as contemplated by
     Section 4.10). All payments shall be subject to applicable withholding
     requirements and Section 4.10. Notwithstanding the foregoing but subject to
     Sections 3.4, 4.3, 4.10 and 5.8, the Committee may provide a Participant
     the opportunity to elect to defer the payment of any Bonus under a
     nonqualified deferred compensation plan or as contemplated by Section 4.10.
     In the case of any deferred payment of a Bonus after the attainment of the
     applicable Performance Target(s), any amount in excess of the amount
     otherwise payable shall be based on either Moody's Average Corporate Bond
     Yield over the deferral period or one or more predetermined actual
     investments (including Shares) such that the amount payable at the later
     date will be based upon actual returns, including any decrease or increase
     in the value of the investment(s), unless the alternative deferred payment
     is otherwise exempt from the limitations under Section 162(m).

     4.10 SHARE PAYOUTS. Any Shares payable under the Plan shall be pursuant to
     a combined award under the Plan and the Pacific Sunwear of California, Inc.
     1992 Stock Award Plan, as amended from time to time (the "1992 Plan"), or
     another stockholder approved stock incentive or award plan of the Company
     (any of the foregoing stock plans

                                       6

<PAGE>   7

     is referred to herein as a "Stock Plan"). The number of Shares or stock
     units (or similar deferred award representing a right to receive Shares)
     awarded in lieu of all or any portion of a cash bonus under the Plan shall
     be equal to the largest whole number of Shares which have an aggregate fair
     market value no greater than the amount of cash otherwise payable as of the
     date such cash payment would have been paid. For this purpose, "fair market
     value" shall mean the average of the high and low prices of Company common
     stock on such date. Any stock units (or similar rights) shall thereafter be
     subject to adjustments as contemplated by the Stock Plan. Dividend
     equivalent rights as earned may be accrued and payable in additional stock
     units, cash or Shares or any combination thereof, in the Committee's
     discretion.

     4.11 FORFEITURE. Unless the Committee expressly provides otherwise in the
     applicable Award Agreement, a Participant shall forfeit all rights to any
     Bonus for a Performance Period if: (i) he or she is not employed by the
     Company on the last day of such Performance Period for reasons other than
     death, Disability, Retirement, or involuntary termination by the Company
     (other than for Cause), or (ii) he or she is employed on the last day of
     the Performance Period but his or her employment is Terminated for Cause
     prior to the date that the Bonus for such Performance Period is actually
     paid to such Participant pursuant to Section 4.9 (or credited as a deferral
     pursuant to such section in lieu of actual payment at that time).

     4.12 DESIGNATED BENEFICIARIES. If a Participant dies prior to receiving any
     payment due under the Plan, such payment shall be made to his designated
     beneficiary. A Participant's designated beneficiary shall be the
     beneficiary designated by the Participant, in a manner determined by the
     Committee to receive amounts due the Participant in the event of his death.
     In the absence of an effective designation, a Participant's designated
     beneficiary shall be deemed to be his or her spouse, or, if he or she has
     no spouse at the time of his or her death, his or her estate.

     4.13 IMPACT OF CHANGE IN CONTROL. In the event of a Change in Control, the
     following provisions shall apply:

               (i) To the maximum extent possible, the Plan shall remain in
          effect for the Performance Period in which the Change in Control
          occurs, and all Awards for such period shall be calculated and paid in
          the same manner as described herein.

               (ii) The Board or the Committee may terminate the Plan and
          outstanding Awards in connection with a Change in Control if the Plan
          cannot be continued in its present format following such Change in
          Control because of the nature of such event; provided that each
          outstanding Award shall be paid in accordance with paragraph (iii)
          below.

               (iii) Payment for early termination of an outstanding Award shall
          equal the maximum Bonus that would be paid with respect to such Award
          if all Performance Targets had been achieved pro rated for the number
          of days in the Performance Period occurring prior to the Change in
          Control (or such later date as may be determined by the Board or the
          Committee) divided by the total number of days in that Performance
          Period.

                                       7

<PAGE>   8
     4.14 RESTRICTED STOCK AWARDS. The 1992 Plan permits the Company to grant
     Restricted Stock Awards (as defined in the 1992 Plan). The Board or the
     Committee (if authorized by the Board under the terms of the 1992 Plan) may
     grant to any Eligible Person (if otherwise eligible under the 1992 Plan) a
     Restricted Stock Award under the 1992 Plan which is also subject to the
     provisions of the Plan (a "Combined Award"). Any Combined Award: (i) shall
     be granted under, and shall be subject to the terms and the conditions of,
     the 1992 Plan, but shall vest upon the attainment of one or more
     Performance Targets; and (ii) shall not be charged against the limit
     contained in Section 4.3. The maximum number of Shares which may be subject
     to Combined Awards granted to any individual Eligible Person in any one
     calendar year is 615,375 (subject to adjustment under the 1992 Plan),
     subject to and chargeable against the limits of the 1992 Plan. Shares (and
     the delivery thereof) with respect to Combined Awards are subject to all of
     the terms and conditions of the 1992 Plan.

SECTION 5. GENERAL PROVISIONS

     5.1 NO RIGHT TO BONUS OR CONTINUED EMPLOYMENT. Neither the establishment of
     the Plan nor the provision for or payment of any amounts hereunder nor any
     action of the Company (including, for purposes of this Section 5.1, any
     predecessor or subsidiary), the Board or the Committee in respect of the
     Plan or any Award Agreement, shall be held or construed to confer upon any
     person any legal right to receive, or any interest in, a Bonus or any other
     payment or benefit under the Plan, or any legal right to be continued in
     the employ of the Company. The Company expressly reserves any and all
     rights to discharge an Eligible Person or reduce the compensation of any
     Eligible Person in its sole discretion, without liability of any person,
     entity or governing body under the Plan or otherwise. Notwithstanding any
     other provision hereof and notwithstanding the fact that the Performance
     Target(s) have been attained and/or the individual maximum amounts pursuant
     to Section 4.2 have been calculated, the Company shall have no obligation
     to pay any Bonus hereunder nor to pay the maximum amount so calculated or
     any prorated amount based on service during the period, unless the
     Committee otherwise expressly provides by written contract or other written
     commitment. Neither the adoption of the Plan nor any Award Agreement shall
     constitute a contract between the Company and any Eligible Person or
     Participant. No Award or Bonus shall be considered as compensation under
     any employee benefit plan of the Company, except as otherwise determined by
     the Company. Status as an Eligible Person shall not be construed as an
     obligation of the Company to grant an Award and the grant of an Award to a
     Participant with respect to one Performance Period shall not be construed
     as an obligation of the Company to grant that Participant any subsequent
     Award.

     5.2 DISCRETION OF COMPANY, BOARD OF DIRECTORS AND COMMITTEE. Any decision
     made or action taken by the Company or by the Board or by the Committee
     arising out of or in connection with the creation, amendment, construction,
     administration, interpretation and effect of the Plan and any Award shall
     be within the absolute discretion of such entity and shall be conclusive
     and binding upon all persons. No member of the Committee shall

                                       8

<PAGE>   9

     have any liability for actions taken or omitted under the Plan by the
     member or any other person.

     5.3 ABSENCE OF LIABILITY. A member of the Board or a member of the
     Committee or any officer of the Company shall not be liable for any act or
     inaction hereunder, whether of commission or omission.

     5.4 NO FUNDING OF PLAN. The Company shall not be required to fund or
     otherwise segregate any cash or any other assets which may at any time be
     paid to Participants under the Plan. The Plan shall constitute an
     "unfunded" plan of the Company. The Company shall not, by any provisions of
     the Plan, be deemed to be a trustee of any property, and any obligations of
     the Company to any Participant under the Plan shall be those of a debtor
     and any rights of any Participant or former Participant shall be no greater
     than those of a general unsecured creditor.

     5.5 NON-TRANSFERABILITY OF BENEFITS AND INTERESTS. Except as expressly
     provided by the Committee, no benefit payable under the Plan shall be
     subject in any manner to anticipation, alienation, sale, transfer,
     assignment, pledge, encumbrance or charge, and any such attempted action be
     void and no such benefit shall be in any manner liable for or subject to
     debts, contracts, liabilities, engagements or torts of any Participant or
     former Participant. This Section 5.5 shall not apply to the designation of
     a beneficiary pursuant to Section 4.12.

     5.6 LAW TO GOVERN. All questions pertaining to the construction,
     regulation, validity and effect of the provisions of the Plan shall be
     determined in accordance with the laws of the State of California.

     5.7 NON-EXCLUSIVITY. Subject to Section 5.8, the Plan does not limit the
     authority of the Company, the Board or the Committee, or any subsidiary of
     the Company to grant awards or authorize any other compensation under any
     other plan or authority, including, without limitation, awards or other
     compensation based on the same Performance Target(s) used under the Plan.

     5.8 SECTION 162(m) CONDITIONS; BIFURCATION OF PLAN. It is the intent of the
     Company that (except with respect to the payment of Awards pursuant to
     Section 4.13(ii) following a Change in Control) the Plan, Awards, and
     Bonuses paid hereunder satisfy and be interpreted in a manner, that, in the
     case of Participants who are or may be persons whose compensation is
     subject to Section 162(m), satisfies any applicable requirements as
     performance-based compensation. Any provision, application or
     interpretation of the Plan inconsistent with this intent to satisfy the
     standards in Section 162(m) of the Code shall be disregarded.
     Notwithstanding anything to the contrary in the Plan, the provisions of the
     Plan may at any time be bifurcated by the Board or the Committee in any
     manner so that certain provisions of the Plan or any Bonus intended (or
     required in order) to satisfy the applicable requirements of Section 162(m)
     are only applicable to persons whose compensation is subject to Section
     162(m).

                                       9

<PAGE>   10

     5.9 TAX WITHHOLDING. No later than the date as to which an amount first
     becomes includible in the gross income of a Participant for federal income
     tax purposes with respect to any Award, the Company shall withhold or
     require the withholding from, or the Participant shall pay to the Company
     or make arrangements satisfactory to the Company regarding the payment of,
     any federal, state or local taxes of any kind required by law or the
     Company to be withheld with respect to such amount. The obligations of the
     Company under the Plan shall be conditional on such payment or arrangements
     and the Company shall, to the extent permitted by law, have the right to
     deduct any such taxes from any payment of any kind otherwise due to the
     Participant.

     5.10 CONFLICTS WITH PLAN. In the event of any inconsistency or conflict
     between the terms of the Plan, any summary and/or an Award Agreement, the
     terms of the Plan shall govern.

     5.11 NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company, the Board, the
     Committee, nor any other officer, employee or agent makes any commitment or
     guarantee that any federal, state or local tax treatment will apply or be
     available to any person participating or eligible to participate hereunder.

     5.12 GENDER, TENSE AND HEADINGS. Whenever the context requires such, words
     of the masculine gender used herein shall include the feminine and neuter,
     and words used in the singular shall include the plural. Section headings
     as used herein are inserted solely for convenience and reference and
     constitute no part of the Plan.

SECTION 6. AMENDMENTS, SUSPENSION OR TERMINATION OF PLAN

     The Board or the Committee may from time to time amend, suspend or
     terminate in whole or in part, and if suspended or terminated, may
     reinstate, any or all of the provisions of the Plan. Notwithstanding the
     foregoing, no amendment may be effective without Board and/or stockholder
     approval if such approval is necessary to comply with the applicable rules
     of Section 162(m) of the Code.

SECTION 7. EFFECTIVE DATE

     The Plan shall be effective upon the date of its adoption by the Board,
     subject, however, to the approval of the Company's stockholders at the 1998
     annual meeting of stockholders. Any award granted under the Plan prior to
     the date of such stockholder approval shall be, and hereby is, specifically
     conditioned upon the receipt of such stockholder approval. Unless the Plan
     is terminated earlier by the Board or the Committee, no Plan awards shall
     be granted after January 31, 2003.

                                       10

<PAGE>   11

                                   APPENDIX A

                                BUSINESS CRITERIA

     The Business Criteria shall mean any one or a combination of the following,
in each case Subject to Section 2.1 of the Plan. The Business Criteria may be
established with respect to the Company or any applicable subsidiary, division,
segment, or unit.

     EBIT. "EBIT" means Net Income before interest expense and taxes.

     EBITDA. "EBITDA" means Net Income before interest expense, taxes,
depreciation and amortization.

     EPS. "EPS" means Net Income divided by the weighted average number of
common shares outstanding. Unless otherwise provided by the Committee in the
related Award Agreement, common shares outstanding shall be adjusted to include
the dilutive effect of stock options, restricted stock and other dilutive
financial instruments.

     EXPENSE REDUCTION. "Expense Reduction" means reduction in actual expense or
an improvement in the expense to Net Sales ratio compared to a target or prior
year actual expense to Sales ratio.

     DEBT TO EBITDA. "Debt to EBITDA" means the ratio of debt to EBITDA.

     INTEREST COVERAGE. "Interest Coverage" means the ratio of EBITDA to
interest expense.

     INVENTORY TURNS. "Inventory Turns" means the ratio of total cost of goods
sold on a historical basis to average net inventory.

     NET INCOME. "Net Income" means the difference between total Net Sales and
total costs and expenses, including income taxes.

     NET SALES. "Net Sales" means net sales.

     OPERATING CASH FLOW. "Operating Cash Flow" means the net cash provided by
operating activities less net cash used by operations and investing activities
as shown on the statement of cash flows.

     PRE-TAX MARGIN. "Pre-Tax Margin" means the ratio of earnings before income
taxes to Net Sales.

     RETURN ON ASSETS. "Return on Assets" means the ratio of Net Income to total
average assets including goodwill.

     RETURN ON CAPITAL. "Return on Capital" means the ratio of Net Income to
average total capital. Total capital includes working capital, and other long
term assets such as PP&E, goodwill and intangibles, and leased assets. Unless
otherwise provided by the Committee in the related Award Agreement, cash,
deferred tax assets and debt shall not be included in capital for calculation
purposes.

                                       11

<PAGE>   12

     RETURN ON EQUITY. "Return on Equity" means Net Income divided by average
total equity.

     STOCK PRICE APPRECIATION. "Stock Price Appreciation" means an increase, or
an average annualized increase, in the stock price or market value of the Common
Stock of the Company after the date of grant of an Award or above a specified
price.

     WORKING CAPITAL IMPROVEMENT. "Working Capital Improvement" means the net
change in current assets less current liabilities over the applicable period or
the reduction in the current ratio (current assets divided by current
liabilities), excluding changes in cash and cash equivalents, and current and
deferred income taxes.

                                       12

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