PACIFIC SUNWEAR OF CALIFORNIA INC
EXHIBIT 10.4
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>a88399exv10w4.txt
<DESCRIPTION>EXHIBIT 10.4
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.4


                       PACIFIC SUNWEAR OF CALIFORNIA, INC.

                              1999 STOCK AWARD PLAN

              (Composite Plan Document Reflecting Amendment 2001-I
                   and Stock Splits Through December 31, 2002)



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                               TABLE OF CONTENTS

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                                                                                   PAGE
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<S>                                                                                <C>
I.      THE PLAN.....................................................................1

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

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

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

        1.4    Stock Subject to the Plan.............................................3

        1.5    Grant of Awards.......................................................3

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

        1.7    No Transferability; Limited Exception to Transfer Restrictions........4

II.     OPTIONS......................................................................5

        2.1    Grants................................................................5

        2.2    Option Price..........................................................5

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

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

        2.5    Limitations on Grant of Incentive Stock Options.......................6

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

        2.7    Options and Rights in Substitution for Stock Options Granted by
               Other Corporations....................................................8

        2.8    Adjustments, No Repricing Without Prior Shareholder Approval..........8

III.    STOCK APPRECIATION RIGHTS....................................................8

        3.1    Grants................................................................8

        3.2    Exercise of Stock Appreciation Rights.................................9

        3.3    Payment...............................................................9

IV.     RESTRICTED STOCK AWARDS.....................................................10

        4.1    Grants...............................................................10

        4.2    Restrictions.........................................................10

        4.3    Return to the Corporation............................................10

V.      PERFORMANCE SHARE AWARDS....................................................11

        5.1    Grants...............................................................11

        5.2    Special Performance-Based Share Awards...............................11
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                                      -i-

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                               TABLE OF CONTENTS
                                  (CONTINUED)

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VI.     OTHER PROVISIONS............................................................12

        6.1    Rights of Eligible Employees, Participants and Beneficiaries.........12

        6.2    Adjustments Upon Changes in Capitalization...........................13

        6.3    Termination of Employment............................................14

        6.4    Acceleration of Awards...............................................15

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

        6.6    Tax Withholding......................................................16

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

        6.8    Privileges of Stock Ownership; Nondistributive Intent................17

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

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

        6.11   Governing Law........................................................18

        6.12   Plan Construction....................................................18

        6.13   Captions.............................................................18

        6.14   Non-Exclusivity of Plan..............................................18

        6.15   No Corporate Action Restriction......................................18

        6.16   Other Company Benefit and Compensation Program.......................19

VII.    DEFINITIONS.................................................................19

        7.1    Definitions..........................................................19
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                                      -ii-

<PAGE>

                       PACIFIC SUNWEAR OF CALIFORNIA, INC.
                              1999 STOCK AWARD PLAN

              (Composite Plan Document Reflecting Amendment 2001-I
                   and Stock Splits Through December 31, 2002)

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, retain and reward key
personnel through the grant of Options and other Awards that provide added long
term incentives for high levels of performance and for significant efforts to
improve the financial performance of the Company. The purpose of this Plan is
also to attract, motivate and retain experienced and knowledgeable independent
directors through the Option grants provided under Section 2.6.

        1.2 Administration.

        (a) This Plan shall be administered and all Awards (other than those
under Section 2.6) shall be authorized 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:

                (i) to grant Awards to Eligible Employees, determine the price
        at which securities will be offered or awarded and the amount of
        securities to be offered or awarded to any of such persons, and
        determine the other specific terms and conditions of such Awards
        consistent with the express limits of this Plan, and establish the
        installments (if any) in which such Awards shall become exercisable or
        shall vest, or determine that no delayed exercisability or vesting is
        required, and establish the events of termination or reversion of such
        Awards;

                (ii) to approve the forms of Award Agreements (which need not be
        identical either as to type of award or among Participants);

                (iii) to construe and interpret this Plan and any agreements
        defining the rights and obligations of the Company and Participants
        under this Plan, further define the terms used in this Plan, and
        prescribe, amend and rescind rules and regulations relating to the
        administration of this Plan;



<PAGE>

                (iv) to cancel, modify, or waive the Corporation's rights with
        respect to, or modify, discontinue, suspend, or terminate any or all
        outstanding Awards held by Eligible Employees, subject to any required
        consent under Section 6.7;

                (v) to accelerate or extend the exercisability or extend the
        term of any or all such outstanding Awards within the maximum ten-year
        term of Awards; and

                (vi) to make all other determinations and take such other action
        as contemplated by this Plan or as may be necessary or advisable for the
        administration of this Plan and the effectuation of its purposes.

Notwithstanding the foregoing, the provisions of Section 2.6 relating to
Non-Employee Director Options shall be automatic and, to the maximum extent
possible, self-effectuating.

        (c) Any action taken by, or inaction of, the Corporation, any
Subsidiary, the Board or the Committee relating or pursuant to this Plan and
within its authority hereunder or under applicable law shall be within the
absolute discretion of that entity or body and shall be conclusive and binding
upon all persons. Neither the Board nor any Committee, nor any member thereof or
person acting at the direction thereof, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with this Plan (or any Award made under this Plan), and all such persons shall
be entitled to indemnification and reimbursement by the Company in respect of
any claim, loss, damage or expense (including, without limitation, attorneys'
fees) arising or resulting therefrom to the fullest extent permitted by law
and/or under any directors and officers liability insurance coverage that may be
in effect from time to time.

        (d) Subject to the requirements of Section 7.1, 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.

        (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.

        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.



                                       2
<PAGE>

        1.4 Stock Subject to the Plan.

        (a) Subject to Section 6.2, 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 (including Incentive Stock Options) granted under this Plan shall not
exceed 4,800,000 shares, subject to adjustment as set forth in Section 6.2. In
no event shall more than 900,000 shares of Common Stock (subject to adjustment
under Section 6.2) be available for Awards issued (or reissued) under this Plan
as time-based Restricted Stock for nominal or no consideration other than the
par value thereof. This limit on Restricted Stock does not apply to shares
issued principally for past services, in respect of compensation earned but
deferred, or as Performance-Based Awards under Section 5.2. 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 900,000, subject to adjustment as set
forth in Section 6.2.

        (b) No Award may be granted under this Plan unless, on the date of
grant, the sum of (i) the maximum number of shares issuable at any time pursuant
to such Award, plus (ii) the number of shares that have previously been issued
pursuant to Awards granted under this Plan, other than reacquired shares
available for reissue consistent with any applicable legal limitations, plus
(iii) the maximum number of shares that may be issued at any time after such
date of grant pursuant to Awards that are outstanding on such date, does not
exceed the share limit set forth in Section 1.4(a). Shares that are subject to
or underlie Awards which expire or for any reason are cancelled or terminated,
are forfeited, fail to vest, or for any other reason are not paid or delivered
under this Plan, as well as reacquired shares, shall again, except to the extent
prohibited by law, be available for subsequent Awards under the 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 number of shares of Common Stock subject
to each Award, the price (if any) to be paid for the shares or the Award and, in
the case of performance share awards, in addition to matters addressed in
Section 1.2(b), the specific objectives, goals and performance criteria (such as
an increase in sales, market value, earnings or book value over a base period,
the years of service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
performance share award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
The Award Agreement shall set forth the material terms and conditions of the
Award established by the Committee consistent with the specific provisions of
this Plan. The grant of an Award is made on the Award Date.

        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),



                                       3
<PAGE>

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 or Section 1.7(c), 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,

                (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.



                                       4
<PAGE>

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 in the applicable Award
Agreement 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 shall not be less than 100% (110% in
the case of an Incentive Stock Option grant to 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 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 the
Committee may in its absolute discretion limit the Participant's ability to
exercise an Award by means other than cash or check, and provided further 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.

        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 Section 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



                                       5
<PAGE>

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.

        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. Effective on the day after the Company's 1999 annual
meeting, 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.



                                       6
<PAGE>

        (c) Subsequent Annual Options. In each calendar year during the term of
the Plan, commencing with the 2000 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).

        (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 fifth 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 Meeting of shareholders first occurring after the
Award Date; and (ii) as to an additional 1/48th of the covered shares in each of
the 36 months thereafter (using the Award Date as the date of monthly vesting).

        (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



                                       7
<PAGE>

shall be subject to adjustment in certain events as provided in Section 6.2 of
this Plan; provided, however, that the specific number of shares stated in
Section 2.6(b) and in Section 2.6(c) shall not be adjusted, unless such
adjustment is approved by the Board, in connection with a split or reverse split
of the Common Stock.

        2.7 Options and Rights in Substitution for Stock Options Granted by
Other Corporations.

        Options and Stock Appreciation Rights may be granted to Eligible
Employees under this Plan in substitution for employee stock options granted by
other entities to persons who are or who will become Eligible Employees in
respect of the Company, in connection with a distribution, merger or
reorganization by or with the granting entity or an affiliated entity, or the
acquisition by the Company, directly or indirectly, of all or a substantial part
of the stock or assets of the other entity.

        2.8 Adjustments, No Repricing Without Prior Shareholder Approval.

        Subject to Section 1.4 and Section 6.7 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee
any adjustment in the exercise or repurchase price (except as set forth below),
vesting schedule, the number of shares subject to, the restrictions upon or the
term of, an Award granted under this Article by cancellation of an outstanding
Award and a subsequent regranting of an Award, by amendment, by substitution of
an outstanding Award, by waiver or by other legally valid means. Such amendment
or other action may result among other changes in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award (except as set forth below), provide for a greater or lesser number
of shares subject to the Award, or provide for a longer or shorter vesting or
exercise period. Notwithstanding the foregoing, in no case shall the per share
exercise price of any Option or related Stock Appreciation Right be reduced (by
amendment, substitution, cancellation and regrant or other means) without
stockholder approval to a price less than the Fair Market Value of a share of
Common Stock on the related Award 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 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.



                                       8
<PAGE>

        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 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.



                                       9
<PAGE>

        (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. Stock certificates evidencing shares of Restricted Stock pending the lapse
of the restrictions shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award. Upon issuance of the Restricted Stock Award, the
Participant may be required to provide such further assurance and documents as
the Committee may require to enforce the restrictions.

        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) Unless otherwise provided in the applicable Award Agreement,
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).

        4.3 Return to the Corporation.

        Unless the Committee otherwise expressly provides, shares of Restricted
Stock that remain subject to restrictions at the time of termination of
employment or are subject to other conditions to vesting that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and on such terms as the
Committee shall therein provide.



                                       10
<PAGE>

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 pre-established 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 pre-established 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 900,000
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.

        (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;



                                       11
<PAGE>

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, 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.



                                       12
<PAGE>

        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 and outstanding Awards 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.

        (d) In any of such events, the Committee may take such action prior to
such event to the extent that the Committee deems the action necessary to permit
the Participant to realize the benefits intended to be conveyed with respect to
the underlying shares in the same manner as is or will be available to
shareholders generally.



                                       13
<PAGE>

        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



                                       14
<PAGE>

related Award Agreement to the extent such shares have not been issued or become
issuable on that date.

        (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.

        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




                                       15
<PAGE>

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.

        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). No Awards may be granted
during any suspension of this Plan or after termination of this Plan, but the
Committee shall retain jurisdiction as to Awards then outstanding in accordance
with the terms of this Plan.

        (b) To the extent then required under Sections 162, 422 or 424 of the
Code or any other applicable law, or deemed necessary or advisable by the Board,
any amendment to this Plan shall be subject to shareholder approval.



                                       16
<PAGE>

        (c) Without limiting any other express authority of the Committee under
(but subject to) the express limits of this Plan, the Committee by agreement or
resolution may waive conditions of or limitations on Awards to Participants that
the Committee in the prior exercise of its discretion has imposed, without the
consent of a Participant, and may make other changes to the terms and conditions
of Awards that do not affect in any manner materially adverse to the
Participant, the Participant's rights and benefits under an Award.

        (d) No amendment, suspension or termination of this Plan or change of or
affecting any outstanding Award shall, without written consent of the
Participant, affect in any manner materially adverse to the Participant any
rights or benefits of the Participant or obligations of the Company under any
Award granted under this Plan prior to the effective date of such change.
Changes contemplated by Section 6.2 shall not be deemed to constitute changes or
amendments for purposes of this Section 6.7.

        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).

        6.9 Effective Date of the Plan.

        This Plan shall be effective upon its approval by the Board (the
"Effective Date"), 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 the day before the tenth anniversary of the Effective
Date, and no Awards shall be granted under it thereafter, but such termination
shall not affect any Award theretofore granted. Unless otherwise expressly
provided in this Plan or in an applicable Award Agreement, any Award granted
prior to the Plan's termination date may extend beyond such date, and all
authority of the Committee with respect to Awards hereunder, including the
authority to amend an Award, shall continue during any suspension of this Plan
and in respect of Awards outstanding on the termination date.



                                       17
<PAGE>

        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 the Awards and
transactions permitted by Awards generally satisfy and be interpreted in a
manner that, in the case of Participants who are or may be subject to Section 16
of the Exchange Act, satisfies the applicable requirements of Rule 16b-3
promulgated thereunder 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.

        (b) Section 162(m). It is the further intent of the Company that (to the
extent the Company or Awards under this Plan may be or become subject to
limitations on deductibility under Section 162(m) of the Code), Options or SARs
granted 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 person subject to Section 162(m) of the Code will
qualify as performance-based compensation or otherwise be exempt from
deductibility limitations under Section 162(m) of the Code, to the extent that
the Committee authorizing the Award (or the payment thereof, as the case may be)
satisfies any applicable administrative requirements thereof.

        6.13 Captions.

        Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.

        6.14 Non-Exclusivity of Plan.

        Nothing in this Plan shall limit or be deemed to limit the authority of
the Board or the Committee to grant awards or authorize any other compensation,
with or without reference to the Common Stock, under any other plan or
authority.

        6.15 No Corporate Action Restriction.

        The existence of the Plan, the Award Agreements and the Awards granted
hereunder shall not limit, affect or restrict in any way the right or power of
the Board or the shareholders of the Corporation to make or authorize: (a) any
adjustment, recapitalization, reorganization or other change in the
Corporation's or any Subsidiary's capital structure or its business, (b) any
merger, amalgamation, consolidation or change



                                       18
<PAGE>

in the ownership of the Corporation or any subsidiary, (c) any issue of bonds,
debentures, capital, preferred or prior preference stock ahead of or affecting
the Corporation's or any Subsidiary's capital stock or the rights thereof, (d)
any dissolution or liquidation of the Corporation or any Subsidiary, (e) any
sale or transfer of all or any part of the Corporation or any Subsidiary's
assets or business, or (f) any other corporate act or proceeding by the
Corporation or any Subsidiary. No participant, beneficiary or any other person
shall have any claim under any Award or Award Agreement against any member of
the Board or the Committee, or the Corporation or any employees, officers or
agents of the Corporation or any Subsidiary, as a result of any such action.

        6.16 Other Company Benefit and Compensation Program.

        Payments and other benefits received by a Participant under an Award
made pursuant to this Plan shall not be deemed a part of a Participant's
compensation for purposes of the determination of benefits under any other
employee welfare or benefit plans or arrangements, if any, provided by the
Corporation or any Subsidiary, except where the Committee or the Board expressly
otherwise provides or authorizes in writing. Awards under this Plan may be made
in addition to, in combination with, as alternatives to or in payment of grants,
awards or commitments under any other plans or arrangements of the Company or
the Subsidiaries.

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

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



                                       19
<PAGE>

        (h) "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.

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

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

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

        (l) "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.

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

        (n) "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



                                       20
<PAGE>

stock are not furnished by the NASD or a similar organization, the values
established by the Committee for purposes of the Plan.

        (o) "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.

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

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

        (r) "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.

        (s) "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.

        (t) "Participant" means an Eligible Employee who has been granted an
Award and a Non-Employee Director who has received an Option under Section 2.6.

        (u) "Performance Goal" means any one or more of the criteria set forth
on Exhibit A hereto.

        (v) "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.

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

        (x) "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.

        (y) "Plan" means the Pacific Sunwear of California, Inc. 1999 Stock
Award Plan, as it may be amended from time to time.

        (z) "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.



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<PAGE>

        (aa) "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.

        (bb) "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.

        (cc) "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.

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

        (ee) "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).

        (ff) "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.

        (gg) "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.



                                       22
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                                    EXHIBIT A

                                PERFORMANCE GOALS

        The Performance Targets shall mean any one or a combination of the
following.

        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.

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



                                      A-1
<PAGE>

        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.



                                      A-2
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