Document:

Exhibit 10.1

 

NEOPHARM, INC.

Term Sheet

for

Timothy Walbert

 

	
  Position

  	
   

  	
  Executive
  Vice President Commercial Operations

  
	
   

  	
   

  	
   

  
	
  Term

  	
   

  	
  Employment
  at will.

  
	
   

  	
   

  	
   

  
	
  Base Salary

  	
   

  	
  $240,000 per
  year (“Base Salary”)

  
	
   

  	
   

  	
   

  
	
  Sign-On Bonus

  	
   

  	
  $50,000

  
	
   

  	
   

  	
   

  
	
  Annual Bonus

  	
   

  	
  Eligibility
  for:

  
	
   

  	
   

  	
  •      Target Bonus
  equal to 30% of Base Salary upon attaining agreed upon Milestones.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •      Overachievement
  Bonus (in lieu of Target Bonus) up to a maximum of 50% of Base Salary.

  
	
   

  	
   

  	
   

  
	
  Stock Options

  	
   

  	
  Options to
  acquire 75,000 shares of common stock at the fair market value on the date of
  grant, with vesting in four equal installments on each of the first four
  anniversaries of the date of grant, or upon a change of control as defined in
  the 1998 Equity Incentive Plan, as amended (a “Change of Control”).

  
	
   

  	
   

  	
   

  
	
  Benefits

  	
   

  	
  •      4 weeks
  vacation

  •      $500/month
  car allowance

  •      Participation
  in 401(k) Plan

  •      Life and
  Health insurance under current Company policies

  •      Disability
  coverage on same basis as currently provided to Company’s senior officers

  •      All other standard
  Company benefits

  
	
   

  	
   

  	
   

  
	
  Severance Benefits

  	
   

  	
  Upon
  termination of employment by the Company without cause, at any time after the
  six (6) month anniversary of hire, or within 12 months after a Change of
  Control, Base Salary will be continued for 6 months.

  
	
   

  	
   

  	
   

  
	
  Restrictive Covenants

  	
   

  	
  Employee
  agrees to execute the Company’s standard employee Confidentiality Agreement.

  

 

 

Acknowledged
and agreed to

this 17th day of January 2006.

 

	
  /s/ Timothy
  P. Walbert

  	
   

  
	
  Timothy P.
  WalbertExhibit 10.1

 

SECOND LOAN MODIFICATION
AGREEMENT

 

This
Second Loan Modification Agreement (this “Agreement”) is effective as of the
30th day of December, 2005, by and between 1-800 CONTACTS, INC. (“Borrower”)
and ZIONS FIRST NATIONAL BANK (“Lender”).

 

Recitals

 

A.                                   Borrower executed and delivered to Lender
that certain Promissory Note (Reducing Revolving Line of Credit) dated February 27,
2004 in the original principal amount of $28,000,000.00 (the “Note”).

 

B.                                     In connection with the Note, Borrower
executed and delivered to Lender a Restated Loan Agreement dated February 27,
2004, as modified by that certain Loan Modification Agreement dated June 25,
2004 (the “Loan Agreement”).

 

C.                                     Borrower has requested that Lender increase
the amount of the Note and modify certain terms and conditions contained in the
Loan Agreement and Lender has agreed to such increase and modifications
provided, among other things, Borrower executes and delivers this Agreement to
Lender.

 

NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Loan Agreement is hereby modified as
follows:

 

1.                                       Except as otherwise expressly provided
herein, terms assigned defined meanings in the Loan Agreement shall have the
same defined meanings in this Agreement.

 

2.                                       The definition for “EBITDA” contained in Section 1.1
of the Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

“EBITDA” means net income (excluding extraordinary gains and losses
realized other than in the ordinary course of business up to a maximum of
$2,500,000.00) before interest, taxes, depreciation, and amortization, and
other non-cash charges, including stock-based compensation expenses and foreign
currency translation gains or losses, determined in accordance with generally
accepted accounting principles consistent with the financial statements of
Borrower delivered to Lender.

 

3.                                       The definition for “LIBOR Rate Applicable
Margin” contained in Section 1.1 of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:

 

“LIBOR Rate Applicable Margin” means two percent (2.00%) until the rate
changes pursuant to the terms of the Promissory Note, and thereafter:

 

a.                                       If the Maximum Leverage Ratio is greater than
or equal to two (2.0) but less than two and five-tenths (2.5), two and
twenty-five hundredths percent (2.25%).

 

b.                                      If the Maximum Leverage Ratio is greater than
or equal to one (1.0) but less than two (2.0), two percent (2.00%).

 

 

c.                                       If the Maximum Leverage Ratio is less than
one (1.0), one and seventy-five hundredths percent (1.75%).

 

4.                                       The definition for “Maximum Available Advance
Amount” contained in Section 1.1 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:

 

“Maximum Available Advance Amount” means (1) $30,000,000.00 at all
times that Borrower’s Minimum Fixed Charge Coverage Ratio is equal to or
greater than one and five-tenths (1.50) but less than two (2.0); (2) $35,000,000.00
at all times that Borrower’s Minimum Fixed Charge Coverage Ratio is equal to or
greater than two (2.0) but less than two and five-tenths (2.5); or (3) $40,000,000.00
at all times that Borrower’s Minimum Fixed Charge Coverage Ratio is equal to or
greater than two and five-tenths (2.5).

 

5.                                       The definition for “Prime Rate Applicable
Margin” contained in Section 1.1 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:

 

“Prime Rate Applicable Margin” means zero percent (0.00%) until the
rate changes pursuant to the terms of the Promissory Note, and thereafter:

 

a.                                       If the Maximum Leverage Ratio is greater than
or equal to two (2.0) but less than two and five-tenths (2.5), twenty-five
hundredths percent (0.25%).

 

b.                                      If the Maximum Leverage Ratio is greater than
or equal to one (1.0) but less than two (2.0), zero percent (0.00%).

 

c.                                       If the Maximum Leverage Ratio is less than
one (1.0), minus twenty-five hundredths percent (-0.25%).

 

6.                                       The definition for “Promissory Note”
contained in Section 1.1 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:

 

“Promissory Note” means the Replacement Promissory Note (Revolving Line
of Credit) to be executed by Borrower pursuant to Section 2.3 Promissory
Note in the form of Exhibit A hereto, which is incorporated herein by
reference, and any and all renewals, extensions, modifications, and replacements
thereof.

 

7.                                       The definition for “Unused Facility Fee
Applicable Margin” contained in Section 1.1 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

 

“Unused Facility Fee Applicable Margin” means three hundred
seventy-five hundredths percent (0.375%) until the fee changes pursuant to the
terms of the Loan Agreement, and thereafter:

 

a.                                       If the Maximum Leverage Ratio is greater than
or equal to one (1.0) but less than two and five-tenths (2.5), three hundred
seventy-five hundredths percent (0.375%).

 

2

 

b.                                      If the Maximum Leverage Ratio is less than
one (1.0), twenty-five hundredths percent (0.25%).

 

8.                                       Section 2.1 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

 

2.1                                 Amount of Loan

 

Upon fulfillment of all conditions precedent set forth in Section 4
Conditions to Loan Disbursements, and so long as no Event of Default
exists, Lender agrees to loan Borrower up to forty million dollars
($40,000,000.00) as a revolving line of credit.

 

9.                                       The first paragraph of Section 2.2 of
the Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

2.2                                 Nature and Duration of Loan

 

The Loan shall be a revolving loan payable in full upon the dates and
upon the terms and conditions provided in the Promissory Note.  Lender and Borrower intend the Loan to be in
the nature of a line of credit under which Borrower may repeatedly draw and
repay funds on a revolving basis in accordance with the terms and conditions of
this Loan Agreement and the Promissory Note. 
The right of Borrower to draw funds and the obligation of Lender to
advance funds shall not accrue until all of the conditions set forth in Section 4,
Conditions to Loan Disbursements, have been fully satisfied, and shall
terminate:  (i) upon occurrence of
an Event of Default or (ii) upon maturity of the Promissory Note, unless
the Promissory Note is renewed or extended by Lender, in which case such
termination shall occur upon the maturity of the final renewal or extension of
the Promissory Note.  Upon such
termination, any and all amounts owing to Lender pursuant to the Promissory Note
shall thereupon be due and payable in full.

 

10.                                 Section 2.5 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

 

2.5                                 Limitations on Advances

 

Notwithstanding anything to the contrary in the Loan Documents, no advance
shall be made on the Promissory Note if, after making the requested advance,
the total principal amount of all advances outstanding, together with the
amount of all outstanding letters of credit issued against the Promissory Note
pursuant to Section 2.2, Nature and Duration of Loan, will exceed
the Maximum Available Advance Amount.

 

If at any time the aggregate, principal amount of all advances
outstanding and unpaid on, together with the amount of all outstanding letters
of credit issued against, the Promissory Note exceeds the amount allowable
under the Maximum Available Advance Amount, Borrower shall immediately make
payment to Lender in a sufficient amount to bring the amount of such advances and
letters of credit issued back into compliance with the Maximum Available
Advance Amount.  If the foregoing
covenant requires prepayment of an advance based on the LIBOR Rate (as defined
in the Promissory Note), such prepayment shall be subject to a prepayment fee
as provided in the Promissory Note.

 

3

 

11.                                 Section 2.7 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

 

2.7                                 Non-Use Fee

 

Borrower shall pay to Lender a non-use fee for the Loan for so long as
this Loan Agreement is in effect.  The
non-use fee shall be an amount equal to the Unused Facility Fee Applicable
Margin per annum of the unused portion of the Maximum Available Advance Amount,
calculated on the average unused portion of the Loan for each calendar quarter
or portion thereof.  The fee shall be
payable quarterly, in arrears, and shall be due no later than the fifth Banking
Business Day after the first day of the month following each calendar quarter.  Changes in the Unused Facility Fee Applicable
Margin shall take effect on the later of (i) the first day of the month
following forty-five (45) days after the end of each fiscal quarter of
Borrower, or (ii) provided no Event of Default exists, the first day of
the month following receipt by Lender of the monthly financial statements for
the quarter or quarterly financial statements provided in Section 6.8, Financial
Statements and Reports.

 

12.                                 Subsection b. of Section 6.8, Financial
Statements and Reports, is hereby deleted in its entirety and replaced with
the following:

 

b.                                      Borrower shall provide quarterly unaudited financial
statements of Borrower and all Subsidiaries for each fiscal quarter.  The quarterly unaudited financial statements
shall be in a form reasonably acceptable to Lender.  The unaudited financial statements shall be
delivered to Lender within forty-five (45) days of the end of each applicable
fiscal quarter.  The quarterly unaudited
financial statements may be those submitted by Borrower to the SEC in
connection with its 10Q report or, if not, shall include a certification by the
chief financial officers or chief executive officers of Borrower and the
Subsidiaries that the quarterly financial statements fully and fairly represent
Borrower’s and the Subsidiaries’ financial condition as of the date thereof and
the results of operations for the period covered thereby and are consistent
with other financial statements previously delivered to Lender.

 

13.                                 Subsection a. of Section 6.9 of the
Loan Agreement is hereby deleted in its entirety.

 

14.                                 Subsection b. of Section 6.9 of the
Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

b.                                      Capital Expenditures. 
Borrower will not make any expenditures for tangible fixed or capital
assets if, after giving effect thereto, the aggregate of all such expenditures
made by Borrower would exceed twenty million dollars ($20,000,000.00) for each
fiscal year of Borrower.  Amounts not
expended in any fiscal year may be carried over to the next fiscal year for
purposes of this calculation.

 

15.                                 Subsection d. of Section 6.9 of the
Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

d.                                      Minimum Fixed Charge Coverage Ratio. 
Borrower will at all times, and on a Trailing Twelve Month basis, maintain
a ratio of (i) EBITDA less the sum

 

4

 

of
Replacement Capital Expenditures, income taxes paid in cash, and dividends or
other equity distributions paid by Borrower to (ii) Net Cash Interest
Expense plus scheduled principal payments made on long term debt (excluding the
principal balance outstanding and due under the Promissory Note at maturity and
excluding scheduled principal payments made on the VisionTec Acquisition Debt) of
not less than one and five-tenths (1.5).

 

Replacement Capital Expenditures means two million dollars
($2,000,000.00) for Borrower’s fiscal year 2005 and each of Borrower’s fiscal
years thereafter.

 

Cash Taxes means expenditures paid for foreign, federal, and state
income taxes.

 

Net Cash Interest Expense means interest expenses paid minus interest
income received.

 

16.                                 Subsection e. of Section 6.9 of the
Loan Agreement is hereby deleted in its entirety.

 

17.                                 The third paragraph of Section 6.18 is
hereby deleted in its entirety and replaced with the following:

 

6.18                           Mergers, Consolidations, and Purchase and
Sale of Assets

 

Permitted Acquisition Baskets means any merger involving Borrower or
any of the Subsidiaries or any acquisitions by Borrower or any of the
Subsidiaries of all or substantially all of the assets or business of any
person or entity in which (i) if a merger, Borrower or the Subsidiary is
the surviving entity; (ii) the acquired company operates or the assets are
used in the same business lines as Borrower or any Subsidiaries; (iii) the
value (whether cash or other consideration) paid by Borrower or the Subsidiary does
not exceed five million dollars ($5,000,000.00); and (iv) the aggregate
value (whether cash or other consideration) paid by Borrower and all
Subsidiaries for all acquired companies and assets during the Trailing Twelve
Month period does not exceed ten million dollars ($10,000,000.00).

 

18.                                 Section 6.19 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:

 

6.19                           Dividends

 

Borrower shall not (a) (i) declare or pay any cash dividends,
(ii) purchase, redeem, retire or otherwise acquire for value any of its
capital stock now or hereafter outstanding, (iii)          make
any distribution of assets to its stockholders, investors, or equity holders,
whether in cash, assets, or in obligations of Borrower, (iv) allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption, or retirement of any shares of its capital
stock or equity interest, or (v) make any other distribution by reduction
of capital or otherwise in respect of any shares of its capital stock or equity
interests, (b) (i) at any time if an Event of Default has occurred
which has not been waived or cured, (ii) if an Event of Default would
result by such payment or action or exist after such payment or action, and (iii) if
the aggregate amount or value of all such payments, distributions, and
allocations would exceed fifteen million dollars ($15,000,000.00) in any fiscal
year of Borrower.

 

5

 

19.                                 The first paragraph of Section 6.20 of
the Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

6.20                           Loans and Investments

 

Borrower shall not make any loans to, or make any investments in, or
pay any advances of any nature whatsoever to any person or entity, in an
aggregate, outstanding amount greater than five million dollars
($5,000,000.00), except (i) advances in the ordinary course of business to
vendors, suppliers, and contractors; (ii) Permitted Subsidiary Loans; and (iii) investments
in ClearLab and VisionTec and/or Shayna.

 

20.                                 Borrower shall pay Lender a facility fee of
$72,000.00 concurrent with the execution of this Agreement.

 

21.                                 Except as expressly modified by this Agreement,
all other terms and conditions of the Loan Agreement shall remain in full force
and effect.

 

	
  Dated this 13 day of January, 2006.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  1-800
  CONTACTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert G.
  Hunter

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   VP Finance &
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZIONS
  FIRST NATIONAL BANK

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Jim C. Stanchfield

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   Vice President

  	
   

  
					

 

6

 

REPLACEMENT PROMISSORY NOTE

(Revolving Line of Credit)

 

December 30,
2005

 

	
  Borrower:

  	
  1-800 CONTACTS, INC.

  
	
   

  	
   

  
	
  Lender:

  	
  Zions First National Bank

  
	
   

  	
   

  
	
  Amount:

  	
  $40,000,000.00

  
	
   

  	
   

  
	
  Maturity:

  	
  February 27, 2007

  

 

For value received, Borrower
promises to pay to the order of Lender at its Commercial Banking Division, 10
East South Temple, Suite 1500, UT KC15 0321, Salt Lake City, Utah, 84133,
the sum of forty million dollars ($40,000,000.00) or such other principal
balance as may be outstanding hereunder in lawful money of the United States
with interest thereon calculated and payable as provided herein.

 

Definitions

 

Terms used in the singular
shall have the same meaning when used in the plural and vice versa. As used in
this Replacement Promissory Note (this “Promissory Note”), the term:

 

“Banking Business Day” means
any day other than a Saturday, Sunday or other day on which commercial banks in
the State of Utah are authorized or required to close and, when used in
reference to an Interest Period, a day on which dealings in dollar deposits are
also carried on in the London Interbank market and banks are open for business
in London.

 

“Dollars” and the sign “$”
mean lawful money of the United States.

 

“Event of Default” shall
have the meaning set forth in the Loan Agreement

 

“Interest Period” means,
with respect to any advance or balance for which interest is based on the LIBOR
Rate, the period commencing on the date such advance is made or, as to an
existing balance, the date selected by Borrower and ending, as Borrower may
select, on the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, except that each such Interest Period that
commences on the last Banking Business Day of a calendar month (or on any day
for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Banking Business Day of the
appropriate subsequent calendar month;. provided that all of the foregoing
provisions relating to Interest Periods are subject to the following:

 

a.                                       No Interest Period may extend beyond the
termination of the Loan Agreement;

 

b.                                      No Interest Period may extend beyond the
aforesaid Maturity Date or such later date to which it is extended; and

 

c.                                       If an Interest Period would end on a day that
is not a Banking Business Day, such Interest Period shall be extended to the
next Banking Business Day unless such Banking Business Day would fall in the
next calendar month, in which event such Interest Period shall end on the
immediately preceding Banking Business Day.

 

 

“LIBOR Rate” applicable to
any Interest Period means the rate per annum quoted by Lender as its LIBOR
Rate, rounded to the nearest thousandth. The LIBOR Rate shall be related to
quotes for the London Interbank Offered Rate from the British Bankers
Association Interest Settlement Rates, Lasser Marshall Inc., or other
comparable services for the applicable Interest Period. This definition of
LIBOR Rate is to be strictly interpreted and is not intended to serve any
purpose other than providing an index to determine the interest rate used
herein. The LIBOR Rate of Lender may not necessarily be the same as the quoted
London Interbank Offered Rate quoted by any particular institution or service
applicable to any Interest Period.

 

“Loan Agreement” means the
Restated Loan Agreement dated February 27, 2004, between Lender and
Borrower, together with any exhibits, amendments, addenda, and modifications.

 

“Prime Rate” means an index
which is determined daily by the published commercial loan variable rate index
held by any two of the following banks: J. P. Morgan Chase & Co.,
Wells Fargo Bank, National Association, and Bank of America, N.A. In the event
no two of the above banks have the same published rate, the bank having the
median rate will establish the Prime Rate. If, for any reason beyond the
control of Lender, any of the aforementioned banks becomes unacceptable as a
reference for the purpose of determining the Prime Rate used herein, Lender
may, five days after posting notice in Lender’s bank offices, substitute
another comparable bank for the one determined unacceptable. As used in this
paragraph, “comparable bank” shall mean one of the ten largest commercial banks
headquartered in the United States of America. This definition of Prime Rate is
to be strictly interpreted and is not intended to serve any purpose other than
providing an index to determine the variable interest rate used herein. It is
not the lowest rate at which Lender may make loans to any of its customers,
either now or in the future.

 

Revolving
Line of Credit

 

This Promissory Note shall
be a revolving line of credit under which Borrower may repeatedly draw and
repay funds, so long as no default has occurred hereunder or under the Loan
Agreement.  All disbursements under this
Promissory Note shall be made in accordance with the Loan Agreement and the
amount available for disbursement shall be as provided in the Loan Agreement.

 

This Promissory Note
succeeds and replaces that certain Promissory Note dated February 27, 2004
executed by Borrower in favor of Lender in the original principal amount of
twenty-eight million dollars ($28,000,000.00).

 

Principal and interest shall
be payable as follows: Interest accrued is to be paid monthly commencing January 1,
2006, and on the same day of each month thereafter.  All principal and unpaid interest shall be
paid in full on February 27, 2007.

 

All payments shall be
applied first to fees, then accrued interest, and the remainder, if any, to
principal.

 

Interest shall accrue from
the date of disbursement of the principal amount or portion thereof until paid,
both before and after judgment, in accordance with the terms set forth herein.

 

Prime
Rate or LIBOR Rate Election

 

Each advance under this
Promissory Note shall initially bear interest based on the Prime Rate.

 

2

 

Provided no Event of Default
has occurred, Borrower may elect at any time and from time to time to convert
the interest rate on all or any portion of the outstanding principal balance
from the Prime Rate based interest rate to the LIBOR Rate based interest rate
by giving Lender two (2) Banking Business Days written notice of such
election, specifying the amount of the outstanding principal balance to be
converted and the Interest Period.  The
amount for which such election is exercised must be two hundred fifty thousand
dollars ($250,000.00) or multiples thereof. 
An election to convert to the LIBOR Rate based interest rate may not be
changed to the Prime Rate based interest rate without consent of Lender until
expiration of the selected Interest Period.

 

Interest
Based on Prime Rate

 

Interest based on the Prime
Rate shall be at a variable rate computed on the basis of a three hundred sixty
(360) day year as follows: the Prime Rate Applicable Margin (as defined in the
Loan Agreement) per annum above the Prime Rate from time to time in effect,
adjusted as of the date of any change in the Prime Rate.

 

Interest
Based on LIBOR Rate

 

Interest based on the LIBOR
Rate shall be calculated as follows:

 

1.                                       Interest shall be at a rate computed on the
basis of a three hundred sixty (360) day year at a rate equal to the LIBOR Rate
for the applicable Interest Period plus the LIBOR Rate Applicable Margin (as
defined in the Loan Agreement) per annum. .

 

2.                                        Notwithstanding any other provision in this
Promissory Note, if the adoption of any applicable law, rule, or regulation, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or compliance by
Lender with any request or directive (whether or not having the force of law)
of any such authority, central bank, or comparable agency, shall make it
unlawful or impossible for Lender to maintain balances based on the LIBOR Rate,
then upon notice to Borrower by Lender the outstanding principal amount of the
balances based on the LIBOR Rate, together with interest accrued thereon, shall
be repaid immediately upon demand of Lender if such change or compliance with
such request, in the reasonable judgment of Lender, requires immediate
repayment or, if such repayment is not required, at the election of Borrower
shall be converted to a balance based on Prime Rate or repaid at the expiration
of the last Interest Period to expire before the effective date of any such
change or request.

 

3.                                       Notwithstanding anything to the contrary
herein, if Lender reasonably determines (which determination shall be
conclusive) that (a) quotations of interest rates are not being provided
for purposes of determining the LIBOR Rate, or (b) the LIBOR Rate does not
accurately cover the cost to Lender of making or maintaining advances based on
the LIBOR Rate, then Lender may give notice thereof to Borrower, whereupon
until Lender notifies Borrower that the circumstances giving rise to such
suspension no longer exist, then (1) the right of Borrower to request
interest pricing based on the LIBOR Rate shall be suspended; and (2) Borrower
shall repay in full the then outstanding principal amount based on LIBOR Rate
together with accrued interest thereon, on the last day of the then current
Interest Period applicable to such balance, or, at Borrower’s option, convert
the outstanding principal balances based on LIBOR Rate to balances based on
Prime Rate on the last day of the then current Interest Period applicable to
such balances.

 

3

 

General

 

Borrower may prepay all or
any portion of all Prime Rate based balances at any time without penalty. Any
prepayment, in full or in part, of any LIBOR Rate based balances shall be
subject to a prepayment fee if the Original LIBOR Rate (hereinafter defined) is
greater than the Current LIBOR Rate (hereinafter defined) on the prepayment
date. The prepayment fee shall be an amount equal to the net present value
(using the Original LIBOR Rate plus one and five-tenths percent (1.5%) as the
discount rate) of the prepaid principal amount over the remaining term of the
respective Interest Period, times the difference between (i) the Current
LIBOR Rate and (ii) the Original LIBOR Rate times the number of years and
fractional years remaining until the end of the respective Interest Period.
“Original LIBOR Rate” means the LIBOR Rate in effect as of the first day of the
Interest Period applicable to any balances subject to the LIBOR Rate. “Current
LIBOR Rate” means the LIBOR Rate on the date a prepayment of any balances
subject to the LIBOR Rate is made for the Interest Period which most closely
matches the period from the date the prepayment is received until the end of
the Interest Period applicable to the balance prepaid.

 

Any prepayment received by
Lender after 2:00 p.m. mountain standard or daylight time (whichever is in
effect on the date the prepayment is received) shall be deemed received on the
following Banking Business Day.

 

Upon default in payment of
any principal or interest when due, whether due at stated maturity, by
acceleration, or otherwise, all outstanding principal shall bear interest at a
default rate from the date when due until paid, both before and after judgment,
which default rate shall be 4 percent (4%) per annum above the foregoing rates
and upon maturity of the applicable Interest Periods all balances bearing
interest based on the LIBOR Rate shall be converted to balances bearing
interest based on the Prime Rate.

 

Changes in the Prime Rate
Applicable Margin and the LIBOR Rate Applicable Margin shall take effect,
provided no Event of Default exists, on the first day of the month following
receipt by Lender of the quarterly or annual financial statements as provided
in Section 6.8, Financial Statements and Reports, of the Loan
Agreement.

 

If, at any time prior to the
maturity of this Promissory Note, this Promissory Note shall have a zero
balance owing, this Promissory Note shall not be deemed satisfied or terminated
but shall remain in full force and effect for future draws unless terminated
upon other grounds.

 

This Promissory Note is made
in accordance with the Loan Agreement and is secured by the collateral
identified in and contemplated by the Loan Agreement.

 

If an Event of Default
occurs, time being the essence hereof, then the entire unpaid balance, with
interest as aforesaid, shall, at the election of the holder hereof and without
notice of such election, become immediately due and payable in full.

 

If an Event of Default
occurs, Borrower agrees to pay to the holder hereof all collection costs,
including reasonable attorney fees and legal expenses, in addition to all other
sums due hereunder.

 

This Promissory Note shall
be governed by and construed in accordance with the laws of the State of Utah.

 

Borrower acknowledges that
by execution and delivery of this Promissory Note, Borrower has transacted
business in the State of Utah and Borrower voluntarily submits to, consents to,
and waives any

 

4

 

defense to the jurisdiction
of courts located in the State of Utah as to all matters relating to or arising
from this Promissory Note. EXCEPT AS EXPRESSLY AGREED IN WRITING BY LENDER AND
EXCEPT AS PROVIDED IN THE ARBITRATION PROVISIONS IN THE LOAN AGREEMENT, THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE OF UTAH SHALL HAVE SOLE AND
EXCLUSIVE JURISDICTION OF ANY AND ALL CLAIMS, DISPUTES, AND CONTROVERSIES,
ARISING UNDER OR RELATING TO THIS PROMISSORY NOTE. NO LAWSUIT, PROCEEDING, OR
ANY OTHER ACTION RELATING TO OR ARISING UNDER THIS PROMISSORY NOTE MAY BE
COMMENCED OR PROSECUTED IN ANY OTHER FORUM EXCEPT AS EXPRESSLY AGREED IN
WRITING BY LENDER.

 

Borrower hereby waives
presentment for payment, demand, protest, notice of protest, notice of protest
and of non-payment and of dishonor, and consent to extensions of time, renewal,
waivers or modifications without notice and further consent to the release of
any collateral or any part thereof with or without substitution.

 

	
   

  	
  Borrower:

  
	
   

  	
   

  
	
   

  	
  1-800
  CONTACTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert G.
  Hunter

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   VP Finance &
  Treasurer

  	
   

  
					

 

5

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