<PAGE>
EXHIBIT 10.40
INDEMNIFICATION AGREEMENT
This
Indemnification Agreement is made as of this 1st day of
January,
2005, by and between OAKLEY, INC., a
Washington corporation (the "Company"), and
MICHAEL J. PUNTORIERO ("Indemnified
Party").
WHEREAS,
as of the date hereof, the Company has provisions for
indemnification of its directors and
officers in Article V of its Articles of
Incorporation (the "Articles of
Incorporation") and Article VII of its Amended
and Restated Bylaws (the "Bylaws") which
provide for indemnification of the
Company's directors and officers to the
fullest extent permitted by law;
WHEREAS,
the indemnification provisions in the Bylaws provide that the
right of indemnification is a contract
right of the covered parties;
WHEREAS,
the Bylaws provide that the Company may maintain, at its
expense,
insurance to protect itself and any of its
directors and officers against
liability asserted against such persons
incurred in such capacity whether or not
the Company has the power to indemnify such
persons against the same liability
under Section 23B.08.510 or .520 of the Act
(as defined below) or a successor
statute;
WHEREAS,
the Company and the Indemnified Party recognize that the
officers
and directors of publicly owned companies
are frequently joined as parties to
Proceedings (as defined below) against
their respective companies as a result of
their serving in such capacity; and
WHEREAS,
in order to induce Indemnified Party to serve or continue to
serve the Company, the Company wishes to
confirm the contract indemnification
rights provided in the Bylaws and agrees to
provide Indemnified Party with the
benefits contemplated by this Agreement and
to supplement the provisions of this
Agreement with directors' and officers'
liability insurance maintained by the
Company.
NOW,
THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth
herein, and other good and valuable
consideration, the receipt and sufficiency
of which are hereby acknowledged, the
Company and Indemnified Party hereby agree
as follows:
1.
Definitions. The following terms, as used herein, shall have
the
following respective meanings; other
capitalized terms used and not specifically
defined in this Section 1 shall have the
meanings provided elsewhere in the
Agreement and in the Bylaws:
(a) "Act" means
the Washington Business Corporation Act RCW Title
23B, as amended from time to time.
(b) "Adjudication" shall refer
to a final, non-appealable decision
by a court of competent jurisdiction.
"Adjudged" shall have a correlative
meaning.
<PAGE>
(c) "Covered
Amount" means any Loss, Fine and Expense, to the
extent such Loss, Fine or Expense, in type
or amount, is not insured under the
D&O Insurance maintained by the Company
from time to time.
(d) "Covered
Act" means any act or omission of the Indemnified
Party in his or her capacity as a director,
officer, employee, agent, fiduciary
or consultant of the Company alleged by any
claimant or any claim against
Indemnified Party by reason of him or her
serving in such a capacity, or by
reason of Indemnified Party serving, at the
request of the Company, in such
capacity with another corporation,
partnership, employee benefit plan, trust or
other enterprise, in all cases, whether
such alleged act or omission occurred
before or after the date of this
Agreement.
(e) "D&O
Insurance" means the liability insurance which the
Company may purchase on behalf of
Indemnified Party against liability asserted
against or incurred by Indemnified Party in
connection with claims arising from
Covered Acts, whether or not the Company
would have the power to indemnify the
individual against the same liability under
Section 23B.08.510 or 23B.08.520 of
the Act.
(f)
"Determination" means a determination, based on the facts
known at the time, made:
(i) by the Board
of Directors by majority vote of a quorum
consisting of directors not at the time
parties to the Proceeding;
(ii) if a quorum
cannot be obtained under clause (i), by
majority vote of a duly designated
committee of the Board of Directors, in the
manner provided by Section 23B.08.550(2)(b)
of the Act;
(iii) by special legal counsel, selected in the manner
provided by Section 23B.08.550(2)(c) of the
Act, in a written opinion; or
(iv) by a majority of
the shareholders of the Company,
excluding shares owned or voted under the
control of directors who are at the
time parties to the Proceeding.
"Determined" shall have a correlative meaning.
(g) "Excluded
Claim" means any payment for Losses, Fines or
Expenses in connection with any claim
relating to or arising out of:
(i) acts or
omissions of the Indemnified Party Adjudged to
be intentional misconduct or a knowing
violation of law;
(ii) conduct of the
Indemnified Party Adjudged to be in
violation of Section 23B.08.310 of the Act;
or
2
<PAGE>
(iii) any transaction with respect to which it was Adjudged
that such Indemnified Party personally
received a benefit in money, property, or
services to which the Indemnified Party was
not legally entitled.
(h) "Expenses"
means any reasonable expenses incurred by
Indemnified Party as a result of a claim or
claims made against Indemnified
Party from Covered Acts, including, without
limitation, reasonable counsel fees
and costs of investigative, judicial or
administrative proceedings or appeals.
(i) "Fines"
means any fine or penalty including, with respect to
an employee benefit plan, any excise tax
assessed with respect thereto.
(j) "Losses"
means amounts, as determined by an Adjudication,
which the Indemnified Party is legally
obligated to pay as a result of a claim
or claims arising from Covered Acts,
including, without limitation, Fines,
damages and judgments and sums paid in
settlement of such claim or claims.
(k) "Proceeding"
means any threatened, pending or completed
action, suit, proceeding or investigation,
whether civil, criminal or
administrative whether formal or
informal.
2.
Maintenance of D&O Insurance.
(a) The Company
hereby covenants and agrees that, so long as
Indemnified Party shall continue to serve
as a director or executive officer of
the Company and thereafter, for so long as
Indemnified Party shall be subject to
any possible Proceeding arising from any
Covered Act, the Company, subject to
Section 2(c), shall maintain in full force
and effect D&O Insurance.
(b) In all
policies of D&O Insurance, Indemnified Party shall be
named as an insured in such a manner as to
provide Indemnified Party the same
rights and benefits, and the same
limitations, as are accorded to the Company's
directors or executive officers most
favorably insured by such policy.
(c) The Company
shall have no obligation to maintain D&O Insurance
if the Company, by majority vote of the
Board of Directors, determines in good
faith that such insurance is not reasonably
available, the premium costs for
such insurance are disproportionate to the
amount of coverage provided, or the
coverage provided by such insurance is
limited by exclusions so as to provide an
insufficient benefit; provided, however,
that such decision shall not adversely
affect coverage of D&O Insurance for
periods prior to such decision without the
unanimous vote of all directors.
3.
Indemnification. The Company shall indemnify Indemnified Party up
to
the Covered Amount and shall advance any
and all Expenses to Indemnified Party
in connection with any Proceeding or any
Covered Act, subject, in each case, to
the further provisions of this Agreement.
This Agreement is made pursuant to and
to effec
