INDEMNIFICATION AGREEMENT

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Exhibit 10.40

INDEMNIFICATION AGREEMENT

        This Indemnification Agreement is made as of this 12th day of February 2004, by and between OAKLEY, INC., a Washington corporation (the "Company"), and Tom Davin ("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.

        (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

        (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

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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 effectuate the indemn