EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of May 22, 2007,
between Sally Frame Kasaks ("Executive") and Pacific Sunwear of California, Inc.
(the "Company").
RECITALS
A. The Company desires that Executive be employed by the Company to
carry out the duties and responsibilities described below, all on the terms and
conditions hereinafter set forth, effective as of June 4, 2007 (the "Effective
Date"), and Executive is willing to accept such employment on such terms and
conditions.
B. This Agreement shall govern the employment relationship between
Executive and the Company from and after the Effective Date and supersedes and
negates all previous agreements and understandings with respect to such
relationship.
AGREEMENT
The parties agree as follows:
1. DUTIES
(a) The Company does hereby hire, engage, and employ Executive as its
Chief Executive Officer for the Term (as defined in Section 2). Executive does
hereby accept and agree to such hiring, engagement, and employment. Executive
shall serve the Company in such position in conformity with the provisions of
this Agreement and the general direction of the Board of Directors of the
Company (the "Board"). Executive shall have duties and authority consistent with
Executive's position as Chief Executive Officer. Subject to her election to the
Board from time to time, Executive shall continue to serve on the Board as its
Chairperson during her employment hereunder; provided, however, that the Board
may appoint an independent non-executive Chairperson if the Board determines in
good faith (after consultation with Executive) such appointment is required by
law or reasonably necessary for corporate governance purposes. Executive shall
not receive additional compensation for such Board service.
(b) Throughout her employment, Executive shall devote her time, energy,
and skill to the performance of her duties for the Company, vacations and other
leave authorized under this Agreement excepted. During her employment hereunder,
and except for her service on the board of directors of The Children's Place,
Inc. ("TCPI") (on which Executive may continue to serve so long as such service
does not materially interfere with Executive's performance of her duties for the
Company), Executive shall not serve on the board of any other publicly traded
company without first receiving the written consent of the Board. In the event
that Executive ceases to serve on the board of directors of TCPI, the Board
shall not unreasonably withhold its consent to Executive serving on another
board of a public company that does not compete with the Company. The foregoing
notwithstanding, Executive shall be permitted to continue to serve on the board
of directors of Crane and Company, to engage in charitable, civic, educational,
professional, industry and community affairs, to serve on the boards of
directors of non-profit
organizations, and to manage Executive's passive personal investments, provided
that such activities do not materially interfere with the performance of
Executive's duties hereunder.
(c) Executive hereby represents to the Company that she has forwarded to
the Company a copy of her prior agreement with Ann Taylor Stores Corporation
dated February 1, 1994 (the "Ann Taylor Agreement"). Executive here represents
to the Company that, other than the Ann Taylor Agreement, she is not subject to
any employment, confidentiality, trade secret or similar agreement which
reasonably could interfere with the performance of her duties for the Company.
2. TERM
The term of employment under this Agreement (the "Term") shall commence
on the Effective Date and shall terminate on the last day of the fiscal year
ending on or about January 31, 2010 (the "Termination Date"). Notwithstanding
the foregoing, the Term is subject to earlier termination as provided below in
this Agreement.
3. COMPENSATION
(a) Base Salary. Executive's base salary as increased from time to time
(the "Base Salary") shall be paid in accordance with the Company's regular
payroll practices in effect from time to time, but not less frequently than in
monthly installments. Executive's Base Salary shall initially be at an
annualized rate of One Million Two Hundred Fifty Thousand Dollars ($1,250,000).
Executive will be eligible for an annual performance and salary review (with the
first such review to occur following the conclusion of the Company's fiscal year
ending on or about January 31, 2008), with any corresponding increase in
Executive's Base Salary to be determined by the Compensation Committee of the
Board (the "Compensation Committee"), which will consider such increase in good
faith and with consideration of the performance of Executive and the Company
during the just-concluded fiscal year. In no event, however, shall Executive's
Base Salary be reduced from its then-current level at any time.
(b) Annual Bonus. For each fiscal year of the Company that ends during
the Term, Executive will be eligible to participate in and receive a bonus under
the Company's annual bonus plan (the "Annual Bonus"). Executive's target Annual
Bonus will be 100% of Base Salary with a maximum Annual Bonus of 200% of Base
Salary if the Company reaches its established stretch target for the applicable
fiscal year; provided, however, that Executive's Annual Bonus with respect to
the fiscal year ending on or about January 31, 2008 shall not be less than Five
Hundred Thousand Dollars ($500,000). The Annual Bonus amount shall be determined
by the Company's Compensation Committee based upon the Company's achievement of
financial performance criteria to be established each fiscal year by the
Compensation Committee. The Annual Bonus payment, if any, shall be made in or
around April of the fiscal year following the fiscal year for which the bonus is
earned, provided that in all events (except as provided in Sections 5(b), 6(b)
and Section 7, or upon termination on or after the Termination Date) Executive
must be employed by the Company through the date on which the bonus is paid in
order to be eligible to receive any payment of the bonus.
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(c) Sign-on Bonus. In consideration for Executive's entering into this
Agreement, Executive shall be entitled to a bonus payment in the amount of Four
Hundred Thousand Dollars ($400,000), such payment to be made in cash in a lump
sum within ten (10) business days following the Effective Date.
(d) Equity Compensation. The Compensation Committee has approved the
grant to Executive of the following awards under the Company's 2005 Performance
Incentive Plan (the "Plan"):
(1) An award of stock appreciation rights ("SARs") with
respect to 250,000 shares of the Company's common stock,
such award to be effective as of May 24, 2007 (the
"Grant Date"). The per share base price of such SARs to
be the closing market price of a share of the Company's
common stock on the Grant Date. The expiration date of
such SARs will be the day before the seventh anniversary
of the Grant Date (subject to earlier termination as
provided in the applicable award agreement). Such SARs
will vest and become exercisable in three substantially
equal installments on January 31, 2008, January 31,
2009, and January 31, 2010, in each case subject to
Executive's employment by the Company through that date,
and such award will be evidenced by a stock appreciation
rights agreement in the form attached hereto as Exhibit
A and be subject to such other terms as are provided
therein and in the Plan. Notwithstanding the foregoing,
(x) upon Executive's termination of employment by the
Company without Cause or by Executive for Good Reason,
the SARs granted to Executive pursuant to this Section
3(d), to the extent unvested as of the date of such
termination, shall become fully vested on the date of
such termination, and shall remain exercisable for a
period of two years following the date of such
termination (subject, however, to earlier termination on
the original expiration date of the SAR grant or as
provided in Section 7.4 of the Plan); and (y) if
Executive continues to be employed by or provide
services to the Company through the Termination Date,
the SARs granted to Executive pursuant to this Section
3(d), to the extent outstanding and vested as of the
date of termination of Executive's employment or
services for any reason (other than a termination by the
Company for Cause), shall remain exercisable for a
period of two years following the date of such
termination (subject, however, to earlier termination on
the original expiration date of the SAR grant or as
provided in Section 7.4 of the Plan); and
(2) An award of 100,000 restricted stock units ("RSUs")
effective as of the Grant Date, such RSUs to vest on
January 31, 2010, subject (except as provided in Section
6(b)) to Executive's employment by the Company through
that date, and to be paid, no later than seventy five
(75) days after the vesting date, in an equal number of
shares of the Company's common stock. Notwithstanding
the foregoing, upon Executive's termination of
employment by the Company without Cause or by Executive
for Good Reason, the RSUs granted to Executive pursuant
to this Section 3(d), to
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the extent unvested as of the date of such termination,
shall become fully vested on the date of such
termination, and be paid, subject to Section 29(c)
hereof, as soon as practicable after the vesting date,
in an equal number of shares of the Company's common
stock. Such award will be evidenced by a restricted
stock unit award agreement in the form attached hereto
as Exhibit B and be subject to such other terms as are
provided therein and in the Plan.
During the Term, Executive shall be eligible to participate in, and
receive additional grants commensurate with her position under, the Company's
equity compensation plans. The parties anticipate that Executive will receive
additional equity-based awards in future years; provided, however, that the
amount, timing, and other terms of any future grant shall be determined by the
Board (or the Compensation Committee) in its good-faith discretion. Without
limiting the generality of the foregoing, the parties anticipate that future
annual award grants would be at lower levels than the foregoing grants being
made in connection with this Agreement and that nothing in this Section 3(d)
constitutes a commitment by the Company to make any future grants of RSUs to
Executive.
4. BENEFITS
(a) Health, Welfare And Pension. During the Term, Executive shall be
entitled to participate, on no less favorable terms than those generally
applicable to other senior executives of the Company, in all health and welfare
benefit plans and programs and all retirement, deferred compensation and similar
plans and programs generally available to other executives or employees of the
Company as in effect from time to time, subject to any legally required
restrictions specified in such plans and programs. Without limiting the
generality of the foregoing, during the Term, the Company shall provide term
life insurance for Executive in a face amount of $2,000,000, subject to all
necessary medical information and qualifying tests as are required by the
insurance provider in order to secure such coverage.
(b) Vacation And Other Leave. During the Term, Executive shall receive
five (5) weeks paid vacation per year. Such vacation shall be scheduled and
taken in accordance with the Company's standard vacation policies applicable to
Company executives. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.
(c) Expense Reimbursements. During the Term, the Company shall, pursuant
to the Company's expense reimbursement policies, promptly reimburse Executive
for reasonable expenses incurred in connection with the performance of her
duties for the Company.
(d) Automobile Allowance. During the Term, Executive shall be paid a car
allowance in the gross amount of $12,000 per year, paid on a bi-weekly basis. In
addition, the Company shall reimburse Executive for costs associated with gas,
auto repairs, auto maintenance and auto insurance.
(e) Ann Taylor Annuity Offset. The parties acknowledge that Executive is
currently receiving a supplemental retirement benefit, in the amount of One
Hundred Forty-Nine
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Thousand, Seven Hundred Twenty-Two and 44/100 Dollars ($149,722.44) payable each
year for the remainder of her life (with survivor benefits for her spouse), in
connection with her previous employment with Ann Taylor Stores Corporation ("Ann
Taylor"), as provided in the Ann Taylor Agreement. Executive had requested a
consent from Ann Taylor to her employment by the Company pursuant to the
procedures for Ann Taylor not to unreasonably withhold consent to certain
employment by Executive and not to have such employment cause ceasing of payment
of the benefit from Ann Taylor, although neither Executive nor the Company
acknowledge that any such consent was or is necessary. To the extent that Ann
Taylor ceases to pay all or any portion of the supplemental retirement benefit
to Executive (and/or her spouse) as a result of Executive's employment with the
Company, the Company agrees to pay Executive (or her beneficiaries) the amount
of such benefit (or, in the event such benefit is reduced, the amount of such
reduction) on substantially the same schedule and terms as the benefit would
have otherwise been paid by Ann Taylor (subject to the Company's withholding
obligations with respect to such payment), plus a lump-sum amount payable prior
to the end of calendar year 2007 in an amount equal to the FICA taxes Executive
has to pay on the amount payable to her by the Company under this Section 4(e)
as a replacement for the amount forfeited to Ann Taylor, fully grossed up so
that Executive has no after-tax cost therefor. The Company shall have such right
against Ann Taylor as Executive has and Executive shall have no obligation to
pursue any action against Ann Taylor (but shall cooperate with the Company in
any action it pursues). Notwithstanding the foregoing, if an event that
constitutes a change in ownership or effective control of the Company (within
the meaning of Section 409A of the Code and regulations and other guidance of
the Internal Revenue Service promulgated thereunder) occurs, a lump sum shall be
paid to Executive or her spouse, as the case may be, equal to the actuarial
equivalent (using such factors as would be used by the PBGC to value such
amounts) within thirty (30) days thereafter.
5. DEATH OR DISABILITY
(a) Definition of Permanently Disabled and Permanent Disability. For
purposes of this Agreement, the terms "Disabled" or "Disability" shall mean
Executive's inability, because of physical or mental illness or injury, to
perform the essential functions of her customary duties pursuant to this
Agreement, even with a reasonable accommodation, and the continuation of such
disabled condition for a period of one hundred eighty (180) continuous days, or
for not less than two hundred ten (210) days during any continuous twenty-four
(24) month period.
(b) Termination Due To Death Or Disability. If Executive dies during the
Term, Executive's employment shall automatically cease and terminate as of the
date of Executive's death. If Executive becomes Disabled during the Term, the
Company may terminate Executive's employment upon thirty (30) days notice to
Executive. In the event of the termination of employment hereunder due to
Executive's death or Disability, Executive or her estate shall be entitled to
receive:
(i) a lump sum cash payment, payable on the termination of
Executive's employment, equal to the sum of (x) any
accrued but unpaid Base Salary as of the date of
Executive's termination of employment hereunder, and (y)
any accrued but unused vacation time in accordance with
Company policy;
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(ii) a payment equal to any earned but unpaid Annual Bonus in
respect of the most recently completed fiscal year
preceding Executive's termination of employment
hereunder payable at the same time bonuses are paid for
such completed fiscal year to other senior executives of
the Company, but in no event later than 75 days
following the end of such completed fiscal year.
(iii) a "Pro Rata Portion of the Bonus," meaning an amount
equal to any Annual Bonus to which Executive would have
been entitled had Executive remained an employee for the
balance of the Company's fiscal year in which her
employment terminated multiplied by a fraction, the
numerator of which is the number of days from February 1
of such fiscal year through the date of Executive's
termination, and the denominator of which is 365. Such
Pro Rata Portion of the Bonus, if any, shall be paid to
Executive in a single payment at the same time bonuses
are paid for the fiscal year of termination to other
senior executives of the Company, but within the first
75 days following the end of such fiscal year.
(iv) such employee benefits, if any, to which Executive may
be entitled under the employee benefit plans and
arrangements of the Company; and
(v) continued payment of any benefit being provided to
Executive pursuant to Section 4(e); and
(vi) reimbursement of any expenses incurred by Executive
during the Term that are reimburseable by the Company in
accordance with Section 4(c) (the amounts described in
clauses 5(b)(i) through (vi) are collectively referred
to herein as the "Accrued Obligations").
6. TERMINATION BY THE COMPANY
(a) Termination For Cause. The Company may, by providing written notice
to Executive, terminate the Term and Executive's employment hereunder for Cause
at any time. The term "Cause" for purpose of this Agreement shall mean:
(i) Executive's conviction of, or entrance of a plea of
guilty or nolo contendere to, a felony; or
(ii) fraudulent conduct by Executive in connection with the
business affairs of the Company; or
(iii) theft, embezzlement, or other criminal misappropriation
of funds by Executive from the Company (other than good
faith expense account disputes or de minimis amounts);
or
(iv) Executive's bad faith refusal to (A) perform the duties
of Chief Executive Officer, or (B) follow the lawful
orders of the Board; or
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(v) Executive's willful misconduct, which has, or would if
generally known, materially adversely affect the good
will, business, or reputation of the Company; or
(vi) Executive's material breach of this Agreement.
Any determination of Cause by the Company will be made by a resolution
approved by a majority of the members of the Board, provided that no such
determination may be made until Executive has been given written notice
detailing the specific Cause event and a period of thirty (30) days following
receipt of such notice to cure such event (if susceptible to cure), and, if such
event is not curable or is not cured, a reasonable opportunity to appear before
the full Board with legal counsel to discuss the specific circumstances alleged
to constitute a Cause event. Subject to Executive's right to cure and/or appear
before the Board, if Executive's employment is terminated for Cause, the
termination shall take effect on the effective date of such termination as
specified in the written notice of such termination delivered to Executive.
In the event of the termination of Executive's employment hereunder due
to a termination by the Company for Cause, then Executive shall be entitled to
receive payment of the Accrued Obligations (excluding the Pro Rata Portion of
the Bonus and any obligation to Executive pursuant to Section 4(e)) and the
Company shall have no further obligation to Executive pursuant to this
Agreement.
If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply and Executive shall be entitled to receive the payments
called for by Section 6(b) ("Termination by the Company-Termination Without
Cause").
(b) Termination Without Cause. The Company may, with or without reason,
terminate Executive's employment hereunder without Cause at any time, by
providing Executive thirty (30) days written notice of such termination. Such
notice shall specify the effective date of the termination of Executive's
employment. In the event of the termination of Executive's employment hereunder
due to a termination by the Company without Cause (other than due to Executive's
death or Disability), then Executive shall be entitled to:
(i) payment of Accrued Obligations;
(ii) subject to the provisions of Section 29(c), continued
payment of Executive's Base Salary, in the Company's
normal payroll cycle for the greater of (x) twelve (12)
months and (y) the remainder of the Term;
(iii) with respect to the SARs and RSUs granted to Executive
by the Company pursuant to Section 3(d) hereof, the
accelerated vesting and, in the case of the SARs,
post-termination exercise period as provided therein and
as set forth in the applicable award agreements; and
(iv) (A) with respect to any SARs that may be granted
hereafter to Executive by the Company, to the extent any
such SARs are outstanding and
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unvested as of the date of Executive's termination, full
acceleration of vesting of such SARs and a period of two
years in which to exercise such SARs following
Executive's termination (subject to earlier termination
on the expiration date of such SARs or in connection
with certain corporate transactions as provided in the
applicable award agreement or in the equity compensation
plan under which the SARs are awarded); and (B) with
respect to any RSUs that may be granted hereafter to
Executive by the Company, to the extent any such RSUs
are outstanding and unvested as of the date of
Executive's termination, prorated vesting of such
outstanding and unvested RSUs (or, in the case of an RSU
grant that vests in more than one installment, prorated
vesting of the outstanding and unvested RSUs scheduled
to vest on the next scheduled vesting date following the
date of Executive's termination) based on the total
number of days Executive is employed by the Company
during the applicable vesting period (with any RSUs
remaining unvested after giving effect to such prorated
vesting to terminate as of the date of Executive's
termination), and payment of such RSUs shall be made as
soon as administratively practicable, subject to Section
29(c) hereof.
In no event shall Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to Executive under any
of the provisions of this Agreement, nor shall the amount of any payment
hereunder be reduced by any compensation earned by Executive as a result of
subsequent employment. In addition, the Company's obligation to make any
severance payment provided in this Agreement shall not be subject to set-off,
counterclaim or recoupment of amounts owed by Executive to the Company or its
affiliates under this Agreement or otherwise.
7. TERMINATION BY EMPLOYEE
Executive shall have the right to terminate Executive's employment
hereunder at any time with or without "Good Reason" (as defined below) by
providing sixty (60) days written notice of such termination to the Company. In
the event of the termination of Executive's employment hereunder by Executive
without Good Reason, then Executive shall be entitled to receive payment of the
Accrued Obligations (excluding the Pro Rata Portion of the Bonus and any
obligation to Executive pursuant to Section 4(e)) and the Company shall have no
further obligation to Executive pursuant to this Agreement. In the event of the
termination of Executive's employment hereunder by Executive for Good Reason,
then Executive shall be entitled to receive all of the severance payments and
benefits provided for in the case of a termination by the Company without Cause
under Section 6(b) hereof.
For purposes hereof, the term "Good Reason" shall mean:
(i) a reduction in Executive's title or a material reduction
of Executive's authorities, duties or responsibilities
as an executive or officer of the Company;
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(ii) the Company's requiring Executive to be based at a
location in excess of fifty (50) miles from the location
of Executive's principal job location or office on the
Effective Date; except for required travel on the
Company's business to an extent substantially consistent
with Executive's then present business travel
obligations;
(iii) a reduction by the Company of Executive's Base Salary or
target bonus percentage as in effect from time to time;
(iv) the removal of Executive as Chairperson of the Board by
the Company or the failure to nominate Executive for
re-election to serve as Chairperson of the Board (in
each case, other than for Cause or Disability and except
for a removal as Chairperson in the circumstances set
forth in Section 1(a)); or
(v) a material breach by the Company of its obligations
hereunder which is not remedied by the Company within
fifteen (15) calendar days of receipt of written notice
of such breach delivered by Executive to the Company.
8. EXPIRATION OF TERM
In the event Executive's employment has not otherwise been terminated
pursuant to this Agreement, Executive's employment shall terminate effective on
the Termination Date. In such event, Executive shall be entitled to receive
payment of the Accrued Obligations.
9. EFFECT OF TERMINATION ON BOARD MEMBERSHIP.
Executive agrees that any termination of Executive's employment
hereunder by either Executive or the Company shall, unless otherwise agreed in
writing by Executive and the Company, effect a resignation of Executive from the
Board concurrent with the termination date.
10. CHANGE IN CONTROL.
(a) Change in Control Severance Benefits. Executive shall be entitled to
participate in the Company's change in control severance plan if and when
adopted on terms no less favorable than applicable to any other executive of the
Company. For purposes of clarity, in the event Executive is otherwise entitled
to benefits under this Agreement and such a plan, Executive shall be entitled to
the cash severance provided under this Agreement or such plan (whichever is
greater), but not both, and any cash severance benefits otherwise payable shall
be subject to offset as provided in such plan to avoid a duplication of benefits
in such circumstances.
(b) Section 280G Gross-Up Payment.
(i) Subject to Section 10(b)(ii) below, in the event that
Executive shall become entitled to payments and/or
benefits provided by this Agreement or any other amounts
in the "nature of compensation" (whether pursuant to the
terms of any plan, arrangement or agreement with the
Company, any person whose actions result in a change of
ownership or effective
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control covered by Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") or any
person affiliated with the Company or such person) as a
result of such change in ownership or effective control
(collectively, the "Company Payments"), and such Company
Payments will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code (and any similar tax
that may hereafter be imposed by any taxing authority)
as a result of a change in ownership or effective
control of the Company, the Company shall pay to
Executive at the time specified in Section 10(b)(v)
hereof an additional amount (the "Gross-Up Payment")
such that the net amount retained by Executive, after
deduction of any Excise Tax on the Company Payments and
any U.S. federal, state, and local income or payroll tax
upon the Gross-Up Payment provided for by this Section
10(b)(i), but before deduction for any U.S. federal,
state, and local income or payroll tax on the Company
Payments, shall be equal to the Company Payment.
(ii) Notwithstanding anything contained in Section 10.1(b)(i)
or any other provision of this Agreement to the
contrary, if a reduction in the amount of the Company
Payments by an amount up to but not in excess of one
hundred thousand dollars ($100,000) would avoid the
imputation of any Excise Tax on the remaining Company
Payments (after such reduction), then the Company
Payments shall be reduced (but not below zero) so that
the maximum amount of the Company Payments (after
reduction) shall be one dollar ($1.00) less than the
amount which would cause the Company Payments to be
subject to the Excise Tax. Unless Executive shall have
given prior written notice to the Company to effectuate
a reduction in the Company Payments if such a reduction
is required, the Company shall reduce or eliminate the
Company Payments by first reducing or eliminating any
cash severance benefits, then by reducing or eliminating
any accelerated vesting of stock options or stock
appreciation rights, then by reducing or eliminating any
accelerated vesting of other equity-based awards, then
by reducing or eliminating any other remaining Company
Payments.
(iii) For purposes of determining whether any of the Company
Payments will be subject to the Excise Tax and, in such
event, whether a Gross-Up Payment or a reduction in
Company Payments is required pursuant to Sections
10(b)(i) and 10(b)(ii) (the Company Payments and, if
applicable, any Gross-Up Payment being collectively
referred to hereinafter as the "Total Payments"), (A)
the Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "parachute payments" in excess of the
"base amount" (as defined under Section 280G(b)(3) of
the Code) shall be treated as subject to the Excise Tax,
unless and except to the extent that, in the opinion of
the Company's independent certified public accountants
appointed prior to any change in ownership (as defined
under Section 280G(b)(2) of the Code) or tax counsel
selected by such accountants or the Company (the
"Accountants")
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such Total Payments (in whole or in part): (1) do not
constitute "parachute payments," (2) represent
reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in
excess of the "base amount" or (3) are otherwise not
subject to the Excise Tax, and (B) the value of any
non-cash benefits or any deferred payment or benefit
shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code. In the
event that the Accountants are serving as accountants or
auditors for the individual, entity or group effecting
the change in control (within the meaning of Section
280G of the Code), Executive may appoint another
nationally recognized accounting firm to make the
determinations hereunder (which accounting firm shall
then be referred to as the "Accountants" hereunder). All
determinations hereunder shall be made by the
Accountants which shall provide detailed supporting
calculations both to the Company and Executive at such
time as it is requested by the Company or Executive. The
determination of the Accountants shall be final and
binding upon the Company and Executive.
(iv) For purposes of determining whether a Gross-Up Payment
is required under this Section 10(b) and, if so, the
amount of any such Gross-Up Payment, Executive shall be
deemed to pay U.S. federal income taxes at the highest
marginal rate of U.S. federal income taxation in the
calendar year in which the Company Payments are to be
made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of
Executive's residence for the calendar year in which the
Company Payments are to be made, net of the maximum
reduction in U.S. federal income taxes which could be
obtained from deduction of such state and local taxes if
paid in such year. In the event that it is subsequently
determined by the Accountants that a Gross-Up Payment
not properly needed to be made has been made or that the
Company Payments were reduced by an amount less than
that required by Section 10(b)(ii) (in either such case,
an "Overpayment"), Executive shall repay to the Company,
at the time that the amount of such Overpayment is
finally determined, the amount of such Overpayment
(including any portion of the Gross-Up Payment
attributable to the Excise Tax and U.S. federal, state
and local income tax imposed on the portion of the
Gross-Up Payment being repaid by Executive if such
repayment results in a reduction in Excise Tax or a U.S.
federal, state and local income tax deduction), plus
interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event that any
Overpayment to be refunded to the Company has been paid
to any U.S. federal, state and local tax authority,
repayment thereof (and related amounts) shall not be
required until actual refund or credit of such portion
has been made to Executive, and interest payable to the
Company shall not exceed the interest received or
credited to Executive by such tax authority for the
period it held such portion. Executive and the Company
shall mutually agree upon the course of action to be
pursued (and the method of allocating the expense
thereof) if Executive's claim for refund or credit is
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denied. In the event that it is subsequently determined
by the Accountants that a Gross-Up Payment properly
should have been made that was not made (including by
reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), or that a reduction in Company Payments was
made that should not have been made (in either such
case, an "Underpayment"), the Company shall pay
Executive the amount of such Underpayment (plus any
interest or penalties payable with respect to such
excess) promptly after the amount of such Underpayment
is finally determined.
(v) In the event that Executive is entitled to a Gross-Up
Payment hereunder, the Gross-Up Payment or portion
thereof provided for in Section 10(b)(iv) shall be paid
not later than the thirtieth (30th) day following an
event occurring which subjects Executive to the Excise
Tax; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay
to Executive on such day an estimate, as determined in
good faith by the Accountants, of the minimum amount of
such payments and shall pay the remainder of such
payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), subject to further
payments pursuant to Section 10(b)(iv), as soon as the
amount thereof can reasonably be determined, but in no
event later than the ninetieth (90th) day after the
occurrence of the event subjecting Executive to the
Excise Tax. Subject to Sections 10(b)(iv) and 10(b)(ix)
hereof, in the event that the amount of the estimated
payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth (5th) day
after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code).
(vi) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) with regard
to the Excise Tax, Executive shall permit the Company to
control issues related to the Excise Tax (at its
expense), provided that such issues do not potentially
materially adversely affect Executive, but Executive
shall control any other issues. In the event that the
issues are interrelated, Executive and the Company shall
in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot
agree, Executive shall make the final determination with
regard to the issues. In the event of any conference
with any taxing authority as to the Excise Tax or
associated income taxes, Executive shall permit the
representative of the Company to accompany Executive,
and Executive and Executive's representative shall
cooperate with the Company and its representative.
(vii) The Company shall be responsible for all charges of the
Accountants.
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(viii) The Company and Executive shall promptly deliver to each
other copies of any written communications, and
summaries of any verbal communications, with any taxing
authority regarding the Excise Tax covered by this
Section 10(b).
(ix) Nothing in this Section 10(b) is intended to violate the
Sarbanes-Oxley Act of 2002 and to the extent that any
advance or repayment obligation hereunder would do so,
such obligation shall be modified so as to make the
advance a nonrefundable payment to Executive and the
repayment obligation null and void.
(x) The provisions of this Section 10(b) shall survive the
termination of Executive's employment with the Company
for any reason and any amount payable under this Section
10(b) shall be subject to the provisions of Section 29.
11. NON-COMPETITION.
Executive acknowledges and recognizes the highly competitive nature of
the businesses of the Company and its affiliates and accordingly agrees as
follows:
(a) During her employment, Executive will not, directly or indirectly,
(i) engage in any business for Executive's own account that competes with the
business of the Company or its affiliates (including, without limitation,
businesses which the Company or its affiliates have specific plans to conduct in
the future and as to which Executive is aware of such planning), (ii) enter the
employ of, or render any services to, any person engaged in any business that
competes with the business of the Company or its affiliates, (iii) acquire a
financial interest in any person engaged in any business that competes with the
business of the Company or its affiliates, directly or indirectly, as an
individual, partner, shareholder, officer, director, principal, agent, trustee
or consultant, or (iv) interfere with business relationships (whether formed
before or after the date of this Agreement) between the Company or any of its
affiliates and customers, suppliers, partners, members or investors of the
Company or its affiliates. Without limiting the generality of the foregoing,
Executive agrees that any designer, manufacturer, wholesaler or retailer which
designs, manufactures, markets or sells specialty apparel, clothing or
accessories to the age groups between eleven (11) and twenty-five (25) and where
such designer, manufacturer, wholesaler or retailer operates stores within
seventy-five (75) miles of any store location of the Company or any subsidiary
or affiliate, would be "in competition with the business of the Company" or its
subsidiaries or affiliates.
(b) Notwithstanding anything to the contrary in this Agreement,
Executive may, directly or indirectly, own, solely as an investment, securities
of any person engaged in the business of the Company or its affiliates which are
publicly traded on a national or regional stock exchange or on an
over-the-counter market, or an interest in a mutual fund, hedge fund or pooled
investment account, if Executive (i) is not a controlling person of, or a member
of a group which controls, such person, fund or account and (ii) does not,
directly or indirectly, own five percent (5%) or more of any class of securities
of such person, fund or account.
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12. ANTISOLICITATION.
Executive promises and agrees that during her employment, and for a
period of one (1) year thereafter, she will not influence or attempt to
influence vendors, or business partners of the Company or any of its present or
future subsidiaries, either directly or indirectly, to divert from the Company
their business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company or any subsidiary of the
Company.
13. SOLICITING EMPLOYEES.
Executive promises and agrees that during her employment, and for a
period of one (1) year thereafter, she will not directly or indirectly solicit
any of the Company employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with the business of the
Company or any subsidiary or affiliate of the Company. This Section 13 shall not
be violated by (a) general advertising or recruiting not specifically targeted
at Company employees, (b) Executive serving as a professional reference for any
employee of the Company, or (c) actions taken by any person or entity that
Executive is associated with if Executive is not personally involved in any
manner in the matter and has not identified such employee for soliciting.
14. CONFIDENTIALITY.
Executive promises and agrees that she will not at any time (whether
during or after her employment with the Company), unless compelled by lawful
process, disclose or use for her own benefit or purposes or the benefit or
purposes of any other person, firm, partnership, joint venture, association,
corporation or other business organization, entity or enterprise other than the
Company and any of its subsidiaries or affiliates, any trade secrets, or other
confidential data or information relating to customers, design programs, costs,
marketing, sales activities, promotion, credit and financial data, financing
methods, or plans of the Company or of any subsidiary or affiliate of the
Company; provided that the foregoing shall not apply to information which is not
unique to the Company or which is generally known to the industry or the public
other than as a result of Executive's breach of this covenant. Executive agrees
that upon termination of her employment with the Company for any reason, or upon
the request of the Company, she will return to the Company immediately all
memoranda, books, papers, plans, information, letters and other data, and all
copies thereof or therefrom, in any way relating to the business of the Company
and its affiliates. Executive further agrees that she will not retain or use for
her account at any time any trade names, trademark or other proprietary business
designation used or owned in connection with the business of the Company or its
affiliates. Notwithstanding the foregoing, Executive may retain Executive's
rolodex, address books, information relating to Executive's compensation or
relating to reimbursement of expenses, documents relating to Executive's
participation in employee benefit plans or programs of the Company, any
agreement between Executive and the Company relating to Executive's employment
with the Company, and other personal property provided that such items do not
contain any confidential information of the Company.
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15. INJUNCTIVE RELIEF; EFFECT ON ANN TAYLOR BENEFIT.
It is expressly agreed that the Company will or would suffer irreparable
injury if Executive were to breach any of Sections 11 through 14 above and that
the Company would by reason of such conduct be entitled, in addition to any
other remedies, to injunctive relief. Without limiting any remedy or relief
otherwise available to the Company, in the event Executive were to breach any of
Sections 11 through 14 above, or in the event Executive engages in activity
after the Term that would have violated clause (a)(i) or (a)(ii) of Section 11
had it occurred during the Term, the Company shall have no further obligation to
Executive pursuant to Section 4(e); provided, however, that this sentence shall
not apply if such breach or violation consisted solely of Executive's commencing
service as a member of the board of directors of a company, the stock of which
is publicly traded (including a company that is in competition with the business
of the Company" or its subsidiaries or affiliates as defined in Section 11(a)
above), at any time that is more than six (6) months after the termination of
Executive's employment hereunder.
16. ASSIGNMENT
This Agreement is personal in its nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; provided, however, that, in
the event of a merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other
individual(s) or entity, this Agreement shall, subject to the provisions hereof,
be binding upon and inure to the benefit of such successor and such successor
shall discharge and perform all the promises, covenants, duties, and obligations
of the Company hereunder. The Company shall be required to cause such successor
to expressly assume and agree to perform this Agreement, in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place.
17. GOVERNING LAW
This Agreement and the legal relations hereby created between the
parties hereto shall be governed by and construed under and in accordance with
the internal laws of the State of California, without regard to conflicts of
laws principles thereof.
18. ENTIRE AGREEMENT
This Agreement (together with the forms of award agreements attached
hereto) embodies the entire agreement of the parties hereto respecting the
matters within its scope. This Agreement supersedes all prior agreements of the
parties hereto on the subject matter hereof. Any prior negotiations,
correspondence, agreements, proposals, or understandings relating to the subject
matter hereof shall be deemed to be merged into this Agreement and to the extent
inconsistent herewith, such negotiations, correspondence, agreements, proposals,
or understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
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19. MODIFICATIONS
This Agreement shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and signed
by the parties hereto.
20. WAIVER
Failure to insist upon strict compliance with any of the terms,
covenants, or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition, nor shall any waiver or relinquishment of, or failure to
insist upon strict compliance with, any right or power hereunder at any one or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
21. NUMBER AND GENDER
Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.
22. SECTION HEADINGS
The section headings in this Agreement are for the purpose of
convenience only and shall not limit or otherwise affect any of the terms
hereof.
23. ARBITRATION
Any controversy arising out of or relating to this Agreement, its
enforcement or interpretation, or because of an alleged breach, default, or
misrepresentation in connection with any of its provisions, or any other
controversy arising out of Executive's employment, including, but not limited
to, any state or federal statutory claims, shall be submitted to arbitration in
Orange County, California, before a sole arbitrator selected from Judicial
Arbitration and Mediation Services, Inc., Orange County, California, or its
successor ("JAMS"), or if JAMS is no longer able to supply the arbitrator, such
arbitrator shall be selected from the American Arbitration Association, and
shall be conducted in accordance with the provisions of California Code of Civil
Procedure Sections 1280 et seq. as the exclusive forum for the resolution of
such dispute. Pursuant to California Code of Civil Procedure Section 1281.8,
provisional injunctive relief may, but need not, be sought by either party to
this Agreement in a court of law while arbitration proceedings are pending, and
any provisional injunctive relief granted by such court shall remain effective
until the matter is finally determined by the Arbitrator. Final resolution of
any dispute through arbitration may include any remedy or relief which the
Arbitrator deems just and equitable, including any and all remedies provided by
applicable state or federal statutes. At the conclusion of the arbitration, the
Arbitrator shall issue a written decision that sets forth the essential findings
and conclusions upon which the Arbitrator's award or decision is based. Any
award or relief granted by the Arbitrator hereunder shall be final and binding
on the parties hereto and may be enforced by any court of competent
jurisdiction. The parties acknowledge and agree that they are hereby waiving any
rights to trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other in connection with any matter whatsoever
arising out of or in any way connected with this Agreement or Executive's
employment. The parties agree that (i) the Company shall be responsible for
payment of the
16
forum costs of any arbitration hereunder, including the Arbitrator's fee, and
(ii) each party hereto shall be responsible for its own costs and expenses,
including, without limitation, its own legal fees and expenses, in connection
with any proceeding to enforce the terms of this Agreement.
24. SEVERABILITY
In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
25. NOTICES
All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:
(a) if to the Company:
Pacific Sunwear of California, Inc.
Attention: Lead Outside Director
3450 East Miraloma Avenue
Anaheim, California 92806
with copies to:
Pacific Sunwear of California, Inc.
Attention: Chief Financial Officer
3450 East Miraloma Avenue
Anaheim, California 92806
and
O'Melveny & Myers LLP
Attention: Jeffrey W. Walbridge, Esq.
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
(b) if to Executive:
At the address on file with the Company
Notice shall be effective when personally delivered, or five (5) business days
after being so mailed. Any party may change its address for purposes of giving
future notices pursuant to this
17
Agreement by notifying the other party in writing of such change in address,
such notice to be delivered or mailed in accordance with the foregoing.
26. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
27. INDEMNIFICATION
The Company hereby agrees to indemnify Executive and hold Executive
harmless to the maximum extent provided under the By-Laws or other
organizational documents of the Company and applicable law against and in
respect of any and all actions, suits, proceedings, claims, demands, judgments,
costs, expenses (including reasonable attorney's fees), losses, and damages
resulting from Executive's good faith performance of Executive's duties and
obligations with the Company. This obligation shall survive the termination of
Executive's employment with the Company.
28. LIABILITY INSURANCE
The Company shall cover Executive under directors and officers liability
insurance both during and, while potential liability exists, after the term of
this Agreement in the same amount and to the same extent as the Company covers
its other officers and directors (except in no event shall the Company be
required to maintain such coverage for a period of more than six years after the
last day that the Executive served as an employee of the Company or a member of
the Board).
29. TAX MATTERS
(a) Tax Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.
(b) Section 409A Compliance. The intent of the parties is that payments
and benefits under this Agreement comply with Internal Revenue Code Section 409A
and the regulations and guidance promulgated thereunder (collectively "Code
Section 409A") and, accordingly, to the maximum extent permitted, this Agreement
shall be interpreted to be in compliance therewith. If Executive notifies the
Company (with specificity as to the reason therefore) that Executive believes
that any provision of this Agreement (or of any award of compensation, including
equity compensation or benefits) would cause Executive to incur any additional
tax or interest under Code Section 409A, the Company shall, after consulting
with Executive, reform such provision to try to comply with Code Section 409A
through good faith modifications to the minimum extent reasonably appropriate to
conform with Code Section 409A. To the extent that any provision hereof is
modified in order to comply with Code Section 409A, such modification shall be
made in good faith and shall, to the maximum extent reasonably possible,
maintain the original intent and economic benefit to Executive and the Company
of the applicable provision without violating the provisions of Code Section
409A.
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(c) Six-Month Delay for "Specified Employees". Notwithstanding any
provision to the contrary in this Agreement, if Executive is deemed on the date
of termination to be a "specified employee" within the meaning of that term
under Code Section 409A(a)(2)(B), then with regard to any payment or the
provision of any benefit that is specified as subject to this Section, such
payment or benefit shall not be made or provided prior to the earlier of (i) the
expiration of the six (6)-month period measured from the date of Executive's
"separation from service" (as such term is defined under Code Section 409A), and
(ii) the date of Executive's death (the "Delay Period"). Upon the expiration of
the Delay Period, all payments and benefits delayed pursuant to this Section
29(c) (whether they would have otherwise been payable in a single sum or in
installments in the absence of such delay) shall be paid or reimbursed to
Executive in a lump sum, and any remaining payments and benefits due under this
Agreement shall be paid or provided in accordance with the normal payment dates
specified for them herein.
30. LEGAL FEES
Upon presentation of appropriate documentation, the Company shall pay
Executive's reasonable counsel fees incurred in connection with the negotiation
and documentation of this Agreement; provided, however, that in no event shall
the Company's payment obligations pursuant to this Section 30 exceed Twenty Five
Thousand Dollars ($25,000) in the aggregate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and Executive have executed this
Employment Agreement as of the date first above written.
THE COMPANY:
PACIFIC SUNWEAR OF CALIFORNIA, INC.
By: /s/ GERALD M. CHANEY
-------------------------------
Name: Gerald M. Chaney
Title: Senior Vice President, Chief
Financial Officer
EXECUTIVE:
SALLY FRAME KASAKS
/s/ SALLY FRAME KASAKS
----------------------------------
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EXHIBIT A
STOCK APPRECIATION RIGHTS AWARD AGREEMENT
EXHIBIT B
RESTRICTED STOCK UNIT AWARD AGREEMENT