This Employment
Agreement (this “ Agreement ”) is made as of
June 16, 2009, between Gary H. Schoenfeld (“
Executive ”) and Pacific Sunwear of California, Inc.
(the “ Company ”).
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 29, 2009 (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.
The parties agree
as follows:
(a) The
Company does hereby hire, engage, and employ Executive as its
President and 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 President and Chief Executive Officer. The Company
further agrees to nominate and recommend Executive for election to
the Board at the first annual meeting of the Company’s
shareholders at which directors are elected after the Effective
Date. If Executive is elected to serve on the Board, Executive
shall not receive additional compensation for such Board
service.
(b) Throughout
his employment, Executive shall devote his time, energy, and skill
to the performance of his duties for the Company, vacations and
other leave authorized under this Agreement excepted. During his
employment hereunder, and except for his service on the board of
directors of Camelback Products LLC (“ Camelback
Products ”) (on which Executive may continue to serve so
long as such service does not materially interfere with
Executive’s performance of his duties for the Company),
Executive shall not serve as a director, officer, partner, member
or employee of, or consultant to, any other company or business
without first receiving the written consent of the Board. In the
event that Executive ceases to serve on the board of directors of
Camelback Products, the Board shall not unreasonably withhold its
consent to Executive serving on another board of one company or
business that does not compete with the Company. The foregoing
notwithstanding, Executive shall be permitted 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. All of Executive’s business and
professional relationships shall at
all times be in
compliance with the conflict of interest and other policies set
forth in the Company’s Code of Ethical Standards, Business
Practices and Conduct applicable to all officers and employees of
the Company (the “ Code of Ethics ”).
(c) Executive
hereby represents to the Company that he is not subject to any
employment, confidentiality, trade secret or similar agreement,
which would interfere with the performance of his duties for the
Company.
The term of
employment under this Agreement (the “ Term ”)
shall commence on the Effective Date and shall terminate on the
third (3 rd
) anniversary of the Effective Date
(the “ Termination Date ”); provided, however,
that this Agreement shall be automatically renewed, and the Term
shall be automatically extended for one (1) additional year on
each anniversary of the Effective Date, unless either party gives
notice, in writing, more than sixty (60) days prior to such
anniversary that the Term shall not be extended (or further
extended, as the case may be). The term “Term” shall
include any extension thereof pursuant to the preceding sentence.
Provision of notice that the Term shall not be extended or further
extended, as the case may be, shall not constitute a breach of this
Agreement and shall not constitute “Good Reason” for
purposes of this Agreement. Notwithstanding the foregoing, the Term
is subject to earlier termination as provided below in this
Agreement.
(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
Fifty Thousand Dollars ($1,050,000). Following the conclusion of
the Company’s fiscal year ending on or about January 31,
2012, Executive will be eligible for an annual performance and
salary review, 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
(the “ Target Annual Bonus ”) 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 shall not be eligible for an
Annual Bonus with respect to the fiscal year ending on or about
January 31, 2010. The Annual Bonus amount shall be determined
by the Company’s Compensation Committee based upon
achievement of Company and individual performance goals 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
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Sections 5(b), 6(b) and Section 7)
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.
(c)
Equity Compensation . At the first regular meeting of
the Compensation Committee held following the Effective Date, the
Compensation Committee will approve the grant to Executive of the
following equity awards under the Company’s 2005 Performance
Incentive Plan (the “ 2005 Plan ”), each such
award to be effective on the date of such approval by the
Compensation Committee (the “ Grant Date
”):
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An
option to purchase 1,000,000 shares of the Company’s common
stock, with the per share exercise price of such option to be the
closing market price of a share of the Company’s common stock
on the Grant Date, the expiration date of such option to be the day
before the seventh anniversary of the Grant Date (subject to
earlier termination as provided in the applicable award agreement),
and such option to vest and become exercisable with respect to 25%
of the shares covered by such option on each of the first four
anniversaries of the Grant Date, in each case subject to
Executive’s employment by the Company through the applicable
vesting date; and
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•
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An
award of 25,000 restricted shares of the Company’s common
stock, such award to vest with respect to 100% of the shares
covered by the award on the first anniversary of the Grant Date,
subject to Executive’s employment by the Company through the
vesting date.
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In addition,
provided Executive is then still employed by the Company, the
Compensation Committee will approve the grant to Executive at the
first regular meeting of the Compensation Committee held in
January 2010 of an option to purchase 500,000 shares of the
Company’s common stock, with the per share exercise price of
such option to be the closing market price of a share of the
Company’s common stock on the date of such approval (the
“ January Grant Date ”), the expiration date of
such option to be the day before the seventh anniversary of the
January Grant Date (subject to earlier termination as provided in
the applicable award agreement), and such option to vest and become
exercisable with respect to 100% of the shares covered by such
option on the fourth anniversary of the Effective Date, subject to
Executive’s employment by the Company through the vesting
date.
Each of the
foregoing awards will be evidenced by an award agreement in the
Company’s standard form of award agreement for that
particular type of award under the 2005 Plan and be subject to such
other terms as are provided therein and in the 2005 Plan. Copies of
the 2005 Plan and such forms of award agreements have been provided
to Executive. The parties acknowledge and agree that the foregoing
awards are intended to satisfy the Company’s obligation to
grant equity incentive awards to Executive through 2011 (if
employment continues through such period) and the parties do not
anticipate that additional equity incentive awards will be granted
to Executive prior to 2012. The amount, timing, and other terms of
any future equity award grants to Executive shall be determined by
the Board (or the Compensation Committee) in its good faith
discretion.
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(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, auto allowance 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. Notwithstanding the foregoing, Executive shall not be
eligible to participate in any severance plan, program or
arrangement of the Company (other than this Agreement), including,
without limitation, the Company’s Executive Severance Plan,
and shall not be entitled to any severance benefits under any such
plan, program or arrangement.
(b)
Vacation and Other Leave . During the Term, Executive
shall accrue vacation at a rate of four (4) weeks per year
(subject to the Company’s standard vacation policies
applicable to Company executives which limit or eliminate accruals
for any period of time when the individual has accrued and untaken
vacation in excess of a prescribed level). 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 his duties for the
Company.
(a)
Definition of Disabled and 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 his 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 his estate shall be entitled to
receive:
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(i)
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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)
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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 two and
one-half (2 1 / 2 ) months following the end of such
completed fiscal year;
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(iii)
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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 his 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 in no event later than two and one-half (2
1
/ 2 ) months following the end of such
fiscal year;
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(iv)
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such employee benefits, if any, to
which Executive may be entitled under the employee benefit plans
and arrangements of the Company; and
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(v)
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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 (v) are collectively referred to
herein as the “ Accrued Obligations
”).
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6.
TERMINATION BY THE COMPANY
(a)
Termination for Cause . The Company may terminate the
Term and Executive’s employment hereunder for Cause at any
time; provided, however, that in the event of conduct giving rise
to a claim of Cause based on any of clauses (iv) through
(vii) of the following definition of “Cause,”
Executive shall be given written notice of the grounds claimed to
constitute Cause and (except as otherwise provided below) be given
an opportunity (of not more than 30 days) to promptly cure
such conduct. The Company need not, however, give Executive such an
opportunity to cure if (x) a cure is not reasonably possible
in the circumstances or (y) the Company has theretofore given
notice to Executive of similar conduct (whether or not he cured the
prior instance(s) of such conduct). Executive agrees that a cure
may not be possible in all circumstances. The term “
Cause ” for purposes of this Agreement shall mean a
determination by the Compensation Committee of the Board, acting in
good faith and based on the information then known to it, that one
or more of the following has occurred:
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(i)
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Executive’s conviction of, or
entrance of a plea of guilty or nolo contendere to a
felony;
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(ii)
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fraudulent conduct by Executive in
connection with the business affairs of the Company or any of its
Subsidiaries;
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(iii)
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theft, embezzlement, or other
criminal misappropriation of funds by Executive from the Company or
any of its Subsidiaries;
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(iv)
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Executive’s bad faith refusal
to perform his duties to the Company or its Subsidiaries, or follow
the lawful orders of the Board;
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(v)
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Executive’s willful
misconduct, which has, or would if generally known, materially
adversely affect the good will, business, or reputation of the
Company or any of its Subsidiaries;
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(vi)
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Executive’s material breach of
any written agreement between Executive and the Company or any of
its Subsidiaries; or
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(vii)
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Executive’s material violation
of the Company’s Code of Ethics or Code of Ethics for the
Chief Executive Officer and Senior Financial Officers.
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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 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”).
For purposes of
this Agreement, the term “ Subsidiary ” means
any corporation or other entity a majority of whose outstanding
voting stock or voting power is beneficially owned, directly or
indirectly, by the Company.
(b)
Termination Without Cause . The Company may, with or
without reason, terminate Executive’s employment hereunder
without Cause at any time, by providing Executive 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 payment of the Accrued Obligations and, subject to
Section 6(c), the following severance benefits, such benefits to be
paid at the times and in the manner provided in
Section 6(d):
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(i)
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a
cash payment equal to Executive’s last annualized rate of
Base Salary in effect on or immediately prior to Executive’s
Separation from Service;
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(ii)
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a
cash payment equal to (i) the quotient obtained by dividing
Executive’s Base Salary (at the last annualized rate in
effect on or immediately prior to Executive’s Separation from
Service) by twelve (12), multiplied by (ii) Executive’s
Years of Service as of Executive’s Separation from Service
(up to a maximum of twelve (12) Years of Service);
provided , however ,
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that in no event shall the amount
determined pursuant to this Section 6(b)(ii) exceed an amount
equal to (x) the amount obtained by multiplying two
(2) by Executive’s Base Salary (at the last annualized
rate in effect on or immediately prior to Executive’s
Separation from Service), less (y) the amount determined
pursuant to Section 6(b)(i);
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(iii)
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a
cash payment equal to the expected aggregate cost, as reasonably
determined by the Compensation Committee, of the premiums that
would be charged to Executive to continue medical coverage pursuant
to the Consolidated Omnibus Budget Reconciliation Act (“
COBRA ”), at the same or reasonably equivalent medical
coverage for Executive (and, if applicable, Executive’s
eligible dependents) as last in effect upon or immediately prior to
Executive’s Separation from Service, for twelve
(12) months; and
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(iv)
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payment or reimbursement of
Executive’s costs for outplacement services obtained by
Executive within the twelve (12) month period following
Executive’s Separation from Service up to a maximum of
$20,000.
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For purposes of
this Agreement, Executive’s severance benefits shall be
calculated with respect to Executive’s Base Salary as in
effect prior to any reduction that would constitute “Good
Reason” (as defined in Section 7) for Executive’s
resignation.
For purposes of
this Agreement, the term “ Years of Service ”
shall mean the number of whole years that Executive was employed by
the Company or any of its Subsidiaries. Years of Service shall be
determined by dividing the total number of calendar days on which
Executive was employed by the Company or one or more of its
Subsidiaries by three hundred sixty-five (365). Any fractional year
shall be disregarded.
For purposes of
this Agreement, a “ Separation from Service ”
occurs when Executive dies, retires, or otherwise has a termination
of employment with the Company that constitutes a “separation
from service” within the meaning of Treasury
Regulation Section 1.409A-1(h)(1), without regard to the
optional alternative definitions available thereunder.
(c)
Compliance with Agreement; Release .
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(i)
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Notwithstanding anything to the
contrary contained in this Agreement but subject to
Section 6(c)(ii), during the period in which Executive is
entitled to receive any payments described in Sections 6(b)(i)
and 6(b)(ii) (including any entitlement to receive such payments
pursuant to Section 7) and prior to the date on which all such
payments have been made to Executive pursuant to
Section 6(d)(i), any money or other valuable consideration
earned or otherwise received by Executive or credited to
Executive’s account (whether presently or on a deferred
basis) from the provision of services (whether as an employee,
independent contractor, consultant, advisor, or otherwise) during
such period shall be offset against and serve to decrease the
amount of any such payments.
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Executive agrees to notify the
Company in writing immediately upon receiving or earning any such
money or other valuable consideration.
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(ii)
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Notwithstanding anything to the
contrary contained in this Agreement, the Company’s
obligation to make any payment of severance benefits to Executive
pursuant to Section 6(b), Section 7 or Section 10(a) (or
to continue making any such payment, as the case may be) is subject
to the condition precedent that Executive shall have complied with
the restrictive covenants set forth in Sections 11 through 14
hereof; provided, however, that, subject to Section 6(c)(iii),
in no event shall the total amount actually paid by the Company
pursuant to Sections 6(b)(i) and 6(b)(ii) (or Sections 7
or 10(a)(i) and 10(a)(ii), if applicable) be less than the lesser
of (i) the aggregate amount Executive is otherwise entitled to
receive pursuant to such sections, or (ii) Ten Thousand
Dollars ($10,000), regardless of any breach by Executive of
Executive’s obligations under Section 6(c)(i) or any of
the provisions of Sections 11 through 14, which amount
Executive agrees is good and sufficient consideration for the
release described in Section 6(c)(iii).
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(iii)
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Notwithstanding anything to the
contrary contained in this Agreement, the Company’s
obligation to make any payment of severance benefits pursuant to
Section 6(b), Section 7 or Section 10(a) is subject to
the condition precedent that (A) Executive has fully executed
a valid and effective release (in the form attached hereto as
Exhibit A or such other form as the Compensation
Committee may reasonably require in the circumstances, which other
form shall be substantially similar to that attached hereto as
Exhibit A but with such changes as the Compensation
Committee may determine to be required or reasonably advisable in
order to make the release enforceable and otherwise compliant with
applicable laws), (B) such executed release is delivered by
Executive to the Company so that it is received by the Company in
the time period specified below, and (C) such release is not
revoked by Executive (pursuant to any revocation rights afforded by
applicable law). In order to satisfy the requirements of this
Section 6(c)(iii), Executive’s release referred to in
the preceding sentence must be delivered by Executive to the
Company so that it is received by the Company no later than thirty
(30) calendar days after Executive’s Separation from Service
(or such later date as may be required for an enforceable release
of Executive’s claims under the Age Discrimination in
Employment Act of 1967, as amended (“ ADEA ”),
to the extent the ADEA is applicable in the circumstances, in which
case Executive will be provided with either twenty one (21) or
forty five (45) days, depending on the circumstances of the
termination, to consider the release). In addition, the Company may
require that Executive’s release be executed no earlier than
the date that Executive’s employment with the Company
terminates.
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(d)
Form and Timing of Severance Payments . Any severance
benefits that become payable to Executive pursuant to Section 6(b)
(including any such benefits payable pursuant to Section 7) or
Section 10(a) shall be paid at the times and in the manner set
forth in this Section 6(d).
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(i)
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The
payments described in Sections 6(b)(i) and 6(b)(ii) shall be
paid by the Company in cash to Executive in a series of twelve (12)
substantially equal monthly installment payments (each constituting
the same approximate fraction of the aggregate severance amount),
with the first such installment payment being made within ten
(10) business days following the date on which
Executive’s release contemplated by Section 6(c) has been
executed by Executive, delivered to the Company, and has become
effective and irrevocable by Executive (to the extent Executive has
any revocation rights under applicable law) and with the remaining
eleven (11) installment payments being made monthly thereafter
for eleven (11) months. Notwithstanding the foregoing
provisions, if a Change in Control Event (as defined below) occurs
upon or at any time after Executive’s Separation from
Service, the aggregate amount of the remaining unpaid installments
shall be paid to Executive in cash in a lump sum not more than
thirty (30) days after such Change in Control
Event.
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(ii)
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The
payments described in Section 10(a)(i) and in Section
6(b)(iii) or Section 10(a)(ii), as applicable, shall be paid
by the Company in cash to Executive on or within (x) the
seventy-four (74) day period following Executive’s
Separation from Service, or, if later and in the case of payments
described in Sections 10(a)(i) or 10(a)(ii), (y) the
thirty (30) day period following the Change in Control Event,
as applicable.
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(iii)
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Any
payment or reimbursement to which Executive may become entitled
pursuant to Section 6(b)(iv) or Section 10(a)(iii) shall
be subject to the Company’s expense reimbursement policies in
effect immediately prior to Executive’s Separation from
Service (or, if earlier, the date of a Change in Control Event) and
applicable to the Company’s executives generally and shall be
fully paid or reimbursed, as applicable, by the Company not later
than the end of Executive’s third taxable year following
Executive’s taxable year in which Executive’s
Separation from Service occurs.
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(iv)
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Each installment of severance
benefits is a separate “payment” for purposes of
Treasury Regulation Section 1.409A-2(b)(2)(i), and the
severance benefits are intended to satisfy the exemptions from
application of Section 409A provided under Treasury
Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9) (to the
extent of the applicable limitations of such exemptions). However,
if such exemptions are not available, the provisions of
Section 6(d)(v) shall apply.
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(v)
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The
provisions of this paragraph shall only apply if, and to the
extent, required to avoid the imputation of any tax, penalty or
interest pursuant to
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Section 409A of the Code.
Notwithstanding any other provision herein, if Executive is a
“specified employee” (within the meaning of Treasury
Regulation Section 1.409A-1) as of the date of
Executive’s Separation from Service, Executive shall not be
entitled to any distribution of his severance benefits hereunder
until the earlier of (i) the date which is six (6) months
after his Separation from Service for any reason other than death,
or (ii) the date of Executive’s death. Any amounts
otherwise payable to Executive upon or in the six (6) month
period following Executive’s Separation from Service that are
not so paid by reason of the preceding paragraph shall be paid
(without interest) as soon as practicable (and in any event within
thirty (30) days) after the date that is six (6) months
after Executive’s Separation from Service (or, if earlier, as
soon as practicable after the date of Executive’s
death).
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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 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 payment of the Accrued
Obligations and, subject to Section 6(c), the severance
benefits set forth in clauses (i) through (iv) of
Section 6(b), such benefits to be paid at the times and in the
manner provided in the corresponding provisions of
Section 6(d).
For purposes
hereof, the term “ Good Reason ” shall mean the
occurrence of any one or more of the following conditions without
Executive’s express written consent:
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(i)
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a
material diminution in Executive’s authority, duties or
responsibilities;
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(ii)
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a
material diminution in Executive’s rate of base
compensation;
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(iii)
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a
change in the location of Executive’s principal workplace for
the Company to a location that is more than fifty (50) miles
from Anaheim, California and that results in an increased commute
for Executive from his principal residence (except for reasonable
periods of required travel on Company business); or
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(iv)
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a
material breach by the Company of this Agreement.
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provided, however, that any such
condition shall not constitute “Good Reason” unless
both (x) Executive provides written notice to the Company of
the condition claimed to constitute Good Reason within ninety
(90) days of the initial existence of such condition, and
(y) the Company fails to remedy such condition within thirty
(30) days of receiving such written notice thereof; and provided,
further, that in all events the terminati
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