Document:

Exhibit 10.4

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT
AGREEMENT (this “Agreement”) is made as of March 28, 2006 between 1-800
CONTACTS, INC., a Delaware corporation (the “Company”), and Robert
Hunter (the “Executive”).  This Agreement shall be effective as of March
30, 2006 (the “Effective Date”).

 

                In
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.             Employment.  The Company shall employ Executive, and
Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement, for the period beginning on the
Effective Date and ending as provided in paragraph 4 hereof (the “Employment
Period”).

2.             Position
and Duties.

(a)           During the Employment Period Executive shall serve as
Chief Financial Officer for the Company and shall have such duties, authorities
and responsibilities commensurate with the duties, responsibilities and authorities
of persons in similar capacities in similarly sized companies and such other
duties, responsibilities and authority assigned to Executive by the Company’s
Chief Executive Officer or President that are not inconsistent with Executive’s
position as Chief Financial Officer, or shall serve as such other senior
management position as assigned to Executive by the Chief Executive Officer of
the Company (the “Chief Executive Officer”), the President of the
Company (the “President”) or the Board of Directors of the Company (the “Board”).

(b)           Executive shall report to the Company’s Chief Executive
Officer, the President or such other persons as the Chief Executive Officer or
President may direct from time to time, and Executive shall devote Executive’s
best efforts and full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company and its Affiliates (as hereinafter
defined).  Executive shall perform Executive’s
duties and responsibilities to the best of Executive’s abilities in a diligent,
trustworthy, businesslike and efficient manner.

(c)           For purposes of this Agreement, “Affiliate” shall
mean a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with another person
(within the meaning of Rule 12b-2) promulgated under the Securities Exchange
Act of 1934, as amended.

3.             Base
Salary and Benefits.

(a)           Executive’s initial base salary shall be $170,000 per
annum, which salary shall be payable in regular installments in accordance with
the Company’s general payroll practices and shall be subject to customary
deductions and withholding.  Thereafter,
the Company shall periodically review Executive’s Base Salary for increase but
not decrease (presently conducted

on an annual basis). 
The base salary as determined herein from time to time shall constitute “Base
Salary” for purposes of this Agreement.

(b)           In addition to the Base Salary, Executive shall be
eligible to participate in the Company’s bonus and other incentive compensation
plans and programs in effect from time to time for the Company’s senior
executives.  Executive shall have the
opportunity to earn an annual bonus (the “Bonus”) for each fiscal year
during the Employment Period with a target Bonus that will not be less than the
target annual bonus Executive is eligible to receive as of the Effective Date
or that Executive may hereafter become eligible to receive.

(c)           During the Employment Period,
Executive shall be, to the extent eligible, entitled to participate in the
employee benefit programs made available to all employees of the Company
according to their terms.  In addition,
Executive shall be entitled to other perquisites and fringe benefits in such
amounts as determined by the Chief Executive Officer or the President in
accordance with Company policy and practice and as approved by the Compensation
Committee.  Without limiting the foregoing,
Executive shall be entitled to the following benefits during the Employment
Period:

                

	
   

  	
  (i)

  	
   

  	
  Participation in any long-term incentive plan
  adopted by the Company for the benefit of senior executives of the Company as
  determined by the Board (or a committee thereof);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  Four weeks (20 working days) of paid vacation each
  year (as prorated for partial years), in addition to holidays, in accordance
  with the Company’s policy on accrual and use applicable to senior executives,
  which vacation may be taken at such times as mutually agreed between
  Executive and the Company; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
   

  	
  Reimbursement for all reasonable and necessary
  travel, entertainment and other business expenses incurred by Executive, in
  accordance with Company policy (including presentment of appropriate
  documentation).

  
	
   

  	
   

  	
   

  	
   

  

4.             Employment
Period.  Executive’s term of
employment under this Agreement (such term of employment, as it may be extended
or terminated, is herein referred to as the “Employment Period”) shall
be for a term commencing on the Effective Date and, unless terminated earlier
as provided in paragraph 5 hereof, ending on the fifth anniversary of the
Effective Date (the “Original Employment Period”), provided that the
Employment Period shall be automatically extended, subject to earlier
termination as provided in paragraph 5 hereof, for successive additional two
(2) year periods (the “Additional Terms”), unless, at least 180 days
prior to the end of the Original Employment Term or the then Additional Term,
the Company or Executive has notified the other in writing that the Employment
Period shall terminate at the end of the then current term.

5.             Termination.  Executive’s employment and the Employment
Period shall terminate on the first of the following to occur:

(a)           Automatically on the date Executive dies.

 

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(b)           Upon 30 days’ prior written notice by Executive to the
Company of Executive’s voluntary termination of employment without Good Reason.

(c)           Upon written notice by Executive to the Company of a termination
for Good Reason, unless such events are corrected in all material respects by
the Company within 20 days following written notification by Executive to the
Company that Executive intends to terminate employment hereunder for Good
Reason.  “Good Reason” shall mean the
occurrence of any of the following events, without Executive’s express written
consent:

	
   

  	
  (i)

  	
   

  	
  A substantial adverse change in duties that results
  in Executive performing duties that are of a significantly lower level than
  those customarily performed by Executive during the year preceding the
  termination of the Employment Period.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  A change in Executive’s regular worksite to a
  worksite that is more than 50 miles by the most direct road from Executive’s
  regular worksite during the year preceding the termination of the Employment
  Period and that is also further from Executive’s principal residence.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
   

  	
  A material breach of this Agreement by the Company
  that is not cured, if curable, within 30 days after written notice and demand
  by Executive including, but not limited to, any failure to pay when due
  Executive’s Base Salary or other amounts due under this Agreement.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv)

  	
   

  	
  The failure of the Company to obtain and deliver to
  Executive a written agreement from any successor to the Company to assume and
  agree to perform this Agreement.

  

 

Good
Reason will cease to exist for an event on the 60th day following its
occurrence, unless Executive shall have given the Company written notice
thereof prior to such date.

(d)           Upon written notice by the
Company to Executive of termination due to Disability.  For purposes of this Agreement, “Disability”
shall be defined as a good faith determination by the Chief Executive Officer
or President that Executive has been or will be unable to perform Executive’s
material duties hereunder due to a physical or mental injury, infirmity or
incapacity for 90 days (including weekends and holidays) in any 365-day period,
regardless of whether Executive is deemed disabled pursuant to the Company’s policies
or plans.

(e)           The Company may terminate
Executive’s employment hereunder for Cause immediately upon written notice by
the Company to Executive of a termination for Cause.  For purposes of this Agreement, “Cause”
shall mean any of the following:

	
   

  	
  (i)

  	
   

  	
  The willful and continued failure by Executive to
  perform the duties of Executive’s then position or Executive’s willful
  failure to follow the written direction of the Chief Executive Officer, the
  President, other more senior executive or the Board.

  

 

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  (ii)

  	
   

  	
  The engaging by Executive in conduct that can
  reasonably be expected to be materially monetarily or reputation-wise
  injurious to the Company or an Affiliate.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
   

  	
  Gross negligence or willful misconduct of a material
  nature by Executive with regard to the Company or an Affiliate or in the
  performance of Executive’s duties.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv)

  	
   

  	
  Executive’s indictment, conviction, pleading guilty
  or nolo contendere to a felony or other civil or criminal offense involving
  fraud, dishonesty or moral turpitude.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (v)

  	
   

  	
  Executive’s material violation of the Company’s code
  of ethics or a material breach by Executive of a fiduciary duty or
  responsibility to the Company or an Affiliate.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vi)

  	
   

  	
  Executive’s material breach of this Agreement or any
  other written agreement between Executive and the Company or an Affiliate
  that is not cured, if curable, within 20 days of the giving of written notice
  thereof to Executive (or such longer period specified in such other
  agreement).

  

 

(f)            Upon written notice by
the Company to Executive of an involuntary termination without Cause, other
than for death or Disability.

6.             Consequences of Termination.

(a)           Upon a termination of the
Employment Period pursuant to paragraph 5(a), the Company shall pay or provide
Executive’s estate with the following severance benefits, subject to paragraph
6(d) hereof:

	
   

  	
  (i)

  	
   

  	
  The Accrued Benefits (as defined below).

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  Continued payment of Executive’s Base Salary (but
  not as an employee) for a period of 12 months commencing on the date of
  termination.

  

 

(b)           Upon the expiration of the
Employment Period or a termination of the Employment Period pursuant to
paragraph 5 (b), (d) and (e) hereof, the Company shall pay or provide Executive
(i) any unpaid Base Salary through the date of termination; (ii) any annual
bonus earned but unpaid with respect to the fiscal year ending on or preceding
the date of termination (other than in connection with a termination pursuant
to paragraphs 5(b) or (e) hereof); provided, however, to the extent payment of
such bonus is subject to Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and the regulations issued or to be issued by the
Department of the Treasury thereunder (“Section 409A”), such payment
shall be made at such times in such calendar year as provided to other
executives but in no event prior to the expiration of the six-month period
commencing on the date of the expiration of the Employment Period or such
termination if Executive is a “specified employee” within the meaning of
Section 409A and is not otherwise exempt from the six-month delay requirement
under Section 409A; (iii) reimbursement for any unreimbursed expenses incurred
through the

 

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date of termination; and (iv) all
other payments, benefits or fringe benefits to which Executive may be entitled
under the terms of any applicable compensation arrangement or benefit, equity
or fringe benefit plan or program or grant or this Agreement (collectively
items (i) through (v) shall be hereafter referred to as “Accrued Benefits”).

(c)           Upon a termination of the
Employment Period pursuant to paragraph 5(c) or (f) hereof, Executive shall be
entitled to receive the following severance benefits, subject to paragraph 6(d)
hereof:

	
   

  	
  (i)

  	
   

  	
  The Accrued Benefits.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  Continued payment of Executive’s Base Salary (but
  not as an employee) for a period of 12 months commencing on the date of
  termination or such later date provided for under Section 409A without
  triggering adverse tax consequences to Executive under Section 409A;
  provided, however, that if such payments commence more than 30 days following
  the date of termination, the first such payment shall equal the sum of all payments
  that would have been made from the date of termination to the date of such
  first payment were it not for the delay in payment for Section 409A purposes.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
   

  	
  a pro-rata portion of Executive’s Bonus for the
  performance year in which Executive’s termination occurs at the time that
  annual bonuses are paid to other senior executives or such later date
  provided for under Section 409A without triggering adverse tax consequences
  to Executive (determined by multiplying the amount Executive would have received
  based solely upon achievement of corporate financial targets had employment
  continued through the end of the performance year, as determined by the Board
  in good faith, by a fraction, the numerator of which is the number of days
  during the performance year of termination that Executive is employed by the
  Company and the denominator of which is 365);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv)

  	
   

  	
  To the extent Executive is eligible to and does
  elect COBRA continuation coverage with respect to some or all of the
  Company’s health plans, the Company shall continue to pay a share of the
  “applicable premium” for such coverage until such coverage or the salary
  continuation period described in paragraph 6 hereof ends or until Executive
  receives health coverage under the plans and programs of a subsequent
  employer, whichever is earlier, provided Executive continues to timely pay
  Executive’s share of the “applicable premium” for such coverage. The
  Company’s share shall be the same portion of the normal cost of group health
  coverage borne by the Company for similarly situated active employees at the
  same coverage level (such as employee-only or employee-plus-spouse) as
  Executive, disregarding coverage levels higher than the level of Executive on
  the last day of the Employment Period; provided, however, that if such
  payments commence more than 30 days following the date of termination, the
  first such payment shall equal the

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

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  sum of all payments that would have been made from
  the date of termination to the date of such first payment were it not for the
  delay in payment for Section 409A purposes.

  
	
   

  	
   

  	
   

  	
   

  

Payments provided in this
paragraph 6(c) shall be in lieu of any termination or severance payments or
benefits for which Executive may be eligible under any of the plans, policies
or programs of the Company.

(d)           Any severance benefit that
would otherwise be payable pursuant to paragraph 6(b) or (c) hereof shall be
paid subject to the following rules:

	
   

  	
  (i)

  	
   

  	
  No severance benefit (or, in the event of
  Executive’s death, any severance benefit beyond the first month’s severance
  benefit) shall be paid unless Executive (or, in the event of Executive’s
  death, Executive’s estate) signs a release in a form and manner acceptable to
  the Company, which will be similar to Exhibit A to this Agreement, and does
  not revoke that release within the time prescribed by law or the terms of the
  release.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  If the Compensation Committee of the Board
  determines in good faith, after giving Executive written notice setting forth
  the factual basis of such determination and a reasonable opportunity for
  Executive to respond, that Executive has violated any of the provisions of
  paragraphs 7, 8 or 9 hereof, no severance benefit shall be paid, any
  severance benefit in pay status shall immediately cease to be paid and any
  severance benefit paid to Executive subsequent to Executive’s violation of
  the provisions of paragraphs 7, 8 or 9 hereof shall be immediately repaid to
  the Company. The right granted to the Company by this paragraph shall not
  limit the Company’s right to any additional legal or equitable relief,
  including an injunction.

  
	
   

  	
   

  	
   

  	
   

  

(e)           In the event that
Executive becomes entitled to payments and/or benefits which would constitute “parachute
payments” within the meaning of Section 280G(b)(2) of the Code, the provisions
of Exhibit B shall apply.

7.             Confidential Information; Return of Property.  Executive
acknowledges that the information, observations, data, strategic and
development plans, financial condition, business plans, co-developer
identities, business records, customer lists, clients and suppliers, project
records, market reports, employee lists and business manuals, policies and
procedures, information relating to processes, technologies of theory and all
other information that may be disclosed or obtained by Executive while employed
by the Company and its Affiliates concerning the business or affairs of the
Company or any Affiliate (“Confidential Information”) are the property
of the Company or such Affiliate. 
Therefore, Executive agrees not to disclose, other than in the course of
Executive’s assigned duties and for the benefit of the Company, to any
unauthorized person or use for Executive’s own purposes any Confidential
Information without the prior written consent of Company, unless and to the
extent that (a) the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive’s (or any
representative of Executive’s) acts or omissions or

 

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Executive is required to disclose by applicable law, regulation or
legal process (provided that Executive provides the Company with prior notice
of the contemplated disclosure and reasonably cooperates with the Company at
its expense in seeking a protective order or other appropriate protection of
such information).  Executive shall
deliver to the Company at the termination of the Employment Period, or at any
other time the Company may request, all of the property of the Company that
Executive may then possess or have under control, including all memoranda,
notes, e-mails, plans, records, reports, computer disks or tapes, printouts,
software, computer access codes and other documents and data (and copies or
reproductions thereof) containing or relating to Confidential Information, Work
Product (as defined below) or the business of the Company or any Affiliate and
all computers (including laptops), cell phones, keys, PDAs, Blackberries,
credit cards, facsimile machines, televisions and card access keys to any
Company building.  Executive agrees not
to retain any copies, duplicates, reproductions or excerpts of such material or
documents.

8.             Intellectual Property.

(a)           In accordance with UCA
§34-39-1 et seq., Executive
acknowledges and agrees that all of the following Intellectual Property or
parts thereof (the “Intellectual Property”), whether patentable or
unpatentable shall belong exclusively to the Company or an Affiliate (or their
designee), whether or not patent applications, trademark registrations, or
copyright registrations are filed thereon:

	
   

  	
  (i)

  	
   

  	
  Intellectual Property, whether in whole or in part
  that is conceived, developed, reduced to practice, or created by Executive,
  solely or jointly with others, within the scope of Executive’s employment, on
  the Company’s or an Affiliate’s time, or with the aid, assistance, or use of
  any of the Company’s or an Affiliate’s property, facilities, supplies,
  resources, or Intellectual Property. For purposes of this Agreement, “Intellectual
  Property” means any and all patents, trade secrets, know-how, technology,
  confidential information, ideas, copyrights, trademarks, and service marks
  and any and all rights, applications, and registrations relating to them.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  Intellectual Property or parts thereof that are
  suggested by any work, services or duties performed by Executive for the
  Company or an Affiliate, either while performing Executive’s duties with the
  Company or an Affiliate or on Executive’s own time, but only insofar as the
  Intellectual Property is related to Executive’s work as an employee or other
  service provider to the Company or an Affiliate.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
   

  	
  Intellectual Property or parts thereof that are
  related to the industry or trade of the Company or an Affiliate.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv)

  	
   

  	
  Intellectual Property or parts thereof that are
  related to the current or demonstrably anticipated business, research, or
  development of the Company or an Affiliate.

  

 

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(b)           Executive agrees and
acknowledges that any Intellectual Property that is worked on, developed, or in
any way conceived of or commenced in any way during the Employment Period,
including any Intellectual Property developed subsequent to the Employment
Period that can be reasonably shown to have evolved from or germinated during
the Employment Period shall presumptively belong exclusively to the Company or
an Affiliate (or their designee).

(c)           Executive will keep full
and complete written records (the “Records”), in the manner prescribed
by the Company, of all Intellectual Property, and will promptly disclose all
Intellectual Property completely and in writing to the Company.  The Records shall be the sole and exclusive
property of the Company, and Executive will surrender them upon the termination
of the Employment Period, or upon the Company’s request.  Executive will assign to the Company or an
Affiliate the Intellectual Property including all patents, trademarks, and/or
copyrights that may issue thereon in any and all countries, whether during or
subsequent to the Employment Period, together with the right to file, in
Executive’s name or in the name of the Company or an Affiliate (or their
designees), applications for patents, trademarks, and/or copyrights and equivalent
rights (the “Applications”). 
Executive will, at any time during and subsequent to the Employment
Period, make such applications, sign such papers, take all rightful oaths, and
perform all acts as may be requested from time to time by the Company or an
Affiliate with respect to the Intellectual Property.  Executive will also execute assignments to
the Company or an Affiliate (or their designees) of the Applications, and give
the Company or an Affiliate and their attorneys all reasonable assistance (including
the giving of testimony) to obtain the Inventions for its benefit, all without
additional compensation to Executive from the Company or an Affiliate, but
entirely at the Company’s or an Affiliate’s expense.

(d)           In addition, the
Intellectual Property will be deemed Work for Hire, as such term is defined
under the copyright law of the United States, on behalf of the Company and its
Affiliates and Executive agrees that the Company or an Affiliate will be the
sole owner of the Intellectual Property, and all underlying rights therein, in
all media now known or hereinafter devised, throughout the universe and in
perpetuity without any further obligations to Executive.  If the Intellectual Property, or any portion thereof,
is deemed not to be Work for Hire, Executive hereby irrevocably conveys,
transfers and assigns to the Company or an Affiliate, all rights, in all media
now known or hereinafter devised, throughout the universe and in perpetuity, in
and to the Intellectual Property, including without limitation, all of
Executive’s right, title and interest in the copyrights (and all renewals,
revivals and extensions thereof) to the Intellectual Property, including
without limitation, all rights of any kind or any nature now or hereafter
recognized, including without limitation, the unrestricted right to make
modifications, adaptations and revisions to the Intellectual Property, to
exploit and allow others to exploit the Intellectual Property and all rights to
sue at law or in equity for any infringement, or other unauthorized use or
conduct in derogation of the Intellectual Property, known or unknown, prior to
the date hereof, including without limitation the right to receive all proceeds
and damages therefrom.  In addition,
Executive hereby waives any so-called “moral rights” with respect to the
Intellectual Property.  Executive hereby
waives any and all currently existing and future monetary rights in and to the
Intellectual Property and all patents, trademarks, and/or copyrights that may
issue thereon, including, without limitation, any rights that would otherwise
accrue to Executive’s benefit by virtue of Executive being an employee of or
other service provider to the Company or an Affiliate.

 

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(e)           Further, Executive
recognizes and acknowledges the validity of the Company or an Affiliate’s
rights in the Intellectual Property and all applications and registrations
secured and to be secured therefore, and that the Company or an Affiliate is
the owner thereof.  Executive further
agrees not to challenge the validity of or the Company or an Affiliate’s title
in the Intellectual property and will not oppose, petition to cancel, or
request re-examination of any applications filed or issued or registrations
received in respect of the Intellectual Property.

9.             Non-Compete, Non-Solicitation, Non-Disparagement; Cooperation.

(a)           In further consideration
of the compensation to be paid to Executive hereunder, Executive acknowledges
that in the course of Executive’s employment with the Company Executive shall
become familiar with the Company’s trade secrets and with other Confidential
Information concerning the Company and Affiliates.  Therefore, Executive agrees that during the
Employment Period and for two years thereafter (the “Noncompete Period”),
Executive shall not, without the express written consent of the Company,
directly or indirectly own any interest in, manage, control, participate in,
consult with, advise, render services for, or in any manner engage in any activity
competing with the business of the Company or Affiliates within any
geographical area in which the Company or Affiliates engage or plan to engage
in such businesses as of the date of the termination of Executive’s
employment.  Nothing herein shall prohibit
Executive from being a passive owner of not more than 1% of the outstanding
stock of any class of a corporation that is publicly traded, so long as
Executive has no active participation in the business of such corporation.

(b)           During the Noncompete Period,
Executive shall not, directly or indirectly, individually or on behalf of any
other person, firm corporation or other entity (i) hire any person who was an
employee, representative or agent of the Company or any Affiliate at any time
during the three-month period prior to the beginning of the Noncompete Period
or solicit, aid, induce or attempt to induce such an employee, representative
or agent to terminate its relationship with the Company or an Affiliate or (ii)
solicit, induce or attempt to induce any customer, supplier, vendor, licensee,
licensor, franchisee or other business relation of the Company or any Affiliate
to cease doing business with the Company or such Affiliate, or in any way
interfere with the relationship between any such customer, supplier, vendor,
licensee or business relation and the Company or any Affiliate, which
interference may reasonably be expected to cause material monetary damage to
the Company or its Affiliates.

(c)           During the Employment
Period and for three years thereafter, Executive shall not or encourage or
induce others to do or say anything at any time that disparages the Company or
an Affiliate or any of the Company’s or an Affiliate’s past or present
directors, officers, employees or agents or their products or services (the “Company
Parties”).  For purposes of this
Agreement, the term “disparage” includes, without limitation, comments or
statements to the press and/or media, the Company Parties or any individual or
entity with whom any Company Party has a business relationship that would
adversely affect in any manner: (i) the conduct of the business of any Company
Party (including, without limitation, any business plans or prospects); or (ii)
the business reputation of any Company Party.

(d)           Upon the receipt of reasonable
notice from the Company (including outside counsel), Executive agrees that
while employed by the Company and thereafter, Executive will

 

9

 

respond and provide
information with regard to matters in which Executive has knowledge as a result
of Executive’s employment with the Company, and will provide reasonable
assistance to the Company, its affiliates and their respective representatives
in defense of any claims that may be made against the Company or its
affiliates, and will assist the Company and its affiliates in the prosecution
of any claims that may be made by the Company or its affiliates, to the extent
that such claims may relate to the period of Executive’s employment with the
Company (or any predecessor).  Executive
agrees to promptly inform the Company if Executive becomes aware of any
lawsuits involving such claims that may be filed or threatened against the
Company or its affiliates.  Executive
also agrees to promptly inform the Company (to the extent Executive is legally
permitted to do so) if Executive is asked to assist in any investigation of the
Company or its affiliates (or their actions), regardless of whether a lawsuit
or other proceeding has then been filed against the Company or its affiliates
with respect to such investigation, and shall not do so unless legally
required.

10.           Enforcement.  If, at the
time of enforcement of paragraphs 7, 8 or 9 hereof, a court holds that the
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum period, scope or geographical area
reasonable under such circumstances shall be substituted for the stated period,
scope or area.  Because Executive’s
services are unique and because Executive has access to Confidential
Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of paragraphs 7, 8 or 9 hereof.  Therefore, in the event of a breach or
threatened breach of paragraphs 7, 8 or 9 hereof, the Company or its successor
or assigns may, in addition to all other rights and remedies existing in their
favor, apply to any court of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other
security).  In addition, in the event of
an alleged breach or violation by Executive of paragraph 9 hereof, the
Noncompete Period shall be tolled until such breach or violation has been duly
cured.  Executive agrees that the
restrictions contained in paragraph 9 hereof are reasonable.

11.           Other Businesses.  As long as
Executive is employed by the Company or an Affiliate, Executive shall not,
without the express written consent of the Board, the Chief Executive Officer
or the President, become engaged in or render services for, any business other
than the business of the Company, any Affiliate or any corporation or
partnership in which the Company or an Affiliate has an equity interest;
provided, that Executive may be a passive owner of not more than 1% of the
equity securities of an enterprise engaged in such business, so long as
Executive has no active participation in the business of such enterprise, if
such activities do not in any material way interfere with the performance by
Executive of Executive’s obligations hereunder and such activities do not in
any way materially and adversely affect the Company or an Affiliate or create a
potential business conflict or the appearance thereof.  If at any time such services conflict with
Executive’s fiduciary duty to the Company or an Affiliate or create any
appearance thereof, Executive shall promptly cease providing such services
after written notice of the conflict is received from the Company.  Executive shall notify the Company prior to
engaging in any such activities.  Nothing
contained in this paragraph 11 shall limit the provisions of paragraph 9 hereof.

 

10

12.           Executive’s Representations.  Executive
hereby represents and warrants to the Company that (i) the execution, delivery
and performance of this Agreement by Executive do not and shall not conflict
with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
Executive is bound, (ii) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity and (iii) upon the execution and delivery of this Agreement by
the Company, this Agreement shall be the valid and binding obligation of
Executive, enforceable in accordance with its terms.  Executive hereby acknowledges and represents
that full understanding of the terms and conditions contained herein.

13.           Survival.  Paragraphs
7, 8 and 9 and paragraphs 13 through 21 shall survive and continue in full
force in accordance with their terms notwithstanding any termination of the
Employment Period.

14.           Notices.  Any notice
provided for in this Agreement shall be in writing and shall be delivered,
either personally or by reputable overnight courier service or mailed postpaid
by first class mail, return receipt requested, to the recipient at the address
below indicated:

	
   

  	
  Notices
  to Executive

  	
   

  	
  Notices
  to the Company

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  At the
  address shown

  	
   

  	
  66 E.
  Wadsworth Park Drive

  
	
   

  	
  on the
  records of the Company

  	
   

  	
  Draper,
  UT 84020

  
	
   

  	
   

  	
   

  	
  Attn:
  General Counsel

  

 

Or such other address or to
the attention of such other person as the recipient party shall have specified
by prior written notice to the sending party. 
Any notice given pursuant to this Agreement shall be deemed to have been
given when so delivered or mailed.

 

15.           Severability.  Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein

16.           Complete Agreement. 
This Agreement, those documents expressly referred to herein and other
documents of even date herewith and the embody the complete agreement and
understanding between the parties and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, that
may have related to the subject matter hereof in any way (including, without
limitation, the employment agreement between Executive and the Company dated as
of February 9, 2002).  Notwithstanding
the foregoing, Executive acknowledges and agrees that the restrictions
contained in paragraphs 7, 8 and 9 hereof are in addition to, and not in lieu
of, any other Company-imposed limitation on Executive’s activities or rights during
the Employment Period and thereafter.

 

11

17.           No Strict Construction.  The language
used in this Agreement shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction shall
be applied against either party.

18.           Counterparts.  This
Agreement may be executed in separate counterparts, each of which is deemed to
be an original and all of which taken together constitute one and the same agreement.

19.           Successors and Assigns.  This
Agreement is personal to each of the parties hereto.  Except as provided in this paragraph 19, no
party may assign or delegate any rights or obligations hereunder.  The Company may assign this Agreement to a
person or entity that is an Affiliate or successor and shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of (i) the
Company, (ii) any Affiliate to which this Agreement has been assigned or (iii)
any division of the Company or Affiliate by which Executive is employed to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.  As used in
this Agreement, “Company” shall mean the Company, any Affiliate to which this
Agreement has been assigned and any successor to the business and/or assets of
(i) the Company, (ii) any Affiliate to which this Agreement has been assigned
or (iii) any division of the Company or Affiliate by which Executive is
employed which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

20.           Choice of Law.  All issues
and questions concerning the construction, validity, enforcement and
interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by, and construed in accordance with, the laws of the State of Utah,
without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Utah or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Utah.

21.           Amendment and Waiver.  The
provisions of this Agreement may be amended or waived only with the prior
written consent of the Company and Executive by a document that explicitly
states its intention to amend this Agreement, and no course of conduct or
failure or delay in enforcing the provisions of this Agreement shall affect the
validity, binding effect or enforceability of this Agreement

22.           Indemnification; Liability Insurance.  Executive’s
right to be indemnified for any actions, suits, proceedings, claims, demands,
judgments, costs, expenses (including reasonable attorney’s fees), losses, and
damages resulting from Executive’s good faith performance of his duties and
obligations with the Company and Executive’s right to be covered under
directors and officers liability insurance, each to the extent provided in the
by-laws or other organizational document of the Company, shall survive the
termination of Executive’s employment with the Company while potential
liability exists.

 

12

23.           No Mitigation.  In no event
shall Executive be obliged to seek other employment or take any other action by
way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement, nor shall the amount of any payment hereunder be
reduced by any compensation earned by Executive as a result of employment by
another employer.

24.           Arbitration.  Any dispute or controversy arising
under or in connection with this Agreement or Executive’s employment with the
Company, other than injunctive relief under paragraph 10 hereof, shall be
settled exclusively by arbitration, conducted before a single arbitrator in
Salt Lake City, Utah (applying Utah law) in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association then in effect.  The decision
of the arbitrator will be final and binding upon the parties hereto.  Judgment may be entered on the arbitrator’s
award in any court having jurisdiction. 
The parties acknowledge and agree that in connection with any such
arbitration and regardless of outcome (a) each party shall pay all its own
costs and expenses, including without limitation its own legal fees and
expenses, and (b) joint expenses shall be borne equally among the parties.  Following a change of ownership or effective
control covered by Section 280G(b)(2) of the Code, in the event of any dispute
arising out of or under this Agreement or Executive’s employment with the
Company, if the arbitrator determines that Executive has prevailed on the
issues in the arbitration, the Company shall, upon presentment of appropriate
documentation, promptly, at Executive’s election, pay or reimburse Executive
for all reasonable legal and other professional fees, costs of arbitration and
other expenses incurred in connection therewith by Executive.

25.           Withholding.  The Company
may withhold from any and all amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to
any applicable law or regulation.

26.           Section 409A of the
Code.  This Agreement is intended to comply with the
applicable requirements of Section 409A and shall be limited, construed and
interpreted in accordance with such intent. 
To the extent that payment or benefit hereunder is subject to Section
409A, it is intended that it be paid in a manner that will comply with Section
409A, including proposed, temporary or final regulations or any other guidance
issued by the Secretary of the Treasury and the Internal Revenue Service with
respect thereto.  Notwithstanding
anything herein to the contrary, any provision in this Agreement that is
inconsistent with Section 409A shall be deemed to be amended to comply with
Section 409A and to the extent such provision cannot be amended to comply
therewith, such provision shall be null and void.  Notwithstanding the foregoing, the Company
shall have no liability to Executive or otherwise if any amounts paid or
payable are subject to Section 409A; provided, however, that following a change
of ownership or effective control covered by Section 280G(b)(2) of the Code,
the Company shall indemnify and hold Executive harmless, on an after-tax basis,
for any additional tax (including interest and penalties with respect thereto)
imposed on Executive as a result of Section 409A of the Code.

 

[Signature Page to Follow]

 

13

 

 

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date first written above.

 

	
  EXECUTIVE

  	
   

  	
  1-800 CONTACTS, INC.

  
	
   

  	
   

  	
   

  
	
  /s/ Robert Hunter

  	
   

  	
  /s/ Brian W. Bethers

  
	
  Robert
  Hunter

  	
   

  	
  Brian W.
  Bethers, President

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
  Dated:

  	
   

  
					

 

 

14

 

EXHIBIT A

 

Form Release

EXHIBIT B

 

Gross-Up Provisions

 

                (a)           In the event that Executive shall
become entitled to payments and/or benefits provided by this Agreement or any
other amounts in the “nature of compensation” (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company,
any person whose actions result in a change of ownership or effective control
covered by Section 280G(b)(2) of the Code or any person affiliated with the
Company or such person) as a result of such change in ownership or effective
control (collectively the “Company Payments”), and such Company Payments
will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of
the Code (and any similar tax that may hereafter be imposed by any taxing
authority) the Company shall pay to Executive an additional amount (the “Gross-Up
Payment”) such that the net amount retained by Executive, after deduction
of any Excise Tax on the Company Payments and any U.S. federal, state, and for
local income or payroll tax upon the Gross-up Payment provided for by this
paragraph (a), but before deduction for any U.S. federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments.

 

                Notwithstanding
the foregoing, if it shall be determined that Executive is entitled to a
Gross-Up Payment, but that if the Company Payments are reduced by the amount
necessary such that the receipt of the Company Payments would not give rise to
any Excise Tax (the “Reduced Payment”) and the Reduced Payment would not
be less than 90.0% of the Company Payments, then no Gross-Up Payment shall be
made to Executive and the Company Payments, in the aggregate, shall be reduced
to the Reduced Payments.  If the Reduced
Payments is to be effective, payments shall be reduced in the following order
(1) acceleration of vesting of any stock options for which the exercise price
exceeds the then fair market value, (2) any cash severance based on a multiple
of Base Salary or Bonus, (3) any other cash amounts payable to Executive, (4)
any benefits valued as parachute payments; and (5) acceleration of vesting of
any equity not covered by (1) above, unless Executive elects another method of
reduction by written notice to the Company.

 

                In the
event that the Internal Revenue Service or court ultimately makes a
determination that the excess parachute payments plus the base amount is an amount
other than as determined initially, an appropriate adjustment shall be made
with regard to the Gross-Up Payment or Reduced Payment, as applicable to
reflect the final determination and the resulting impact on whether the
preceding paragraph applies.

 

                (b)           For purposes of determining whether
any of the Company Payments and Gross-up Payments (collectively the “Total
Payments”) will be subject to the Excise Tax and the amount of such Excise
Tax, (x) the Total Payments shall be treated as “parachute payments” within the
meaning of Section 280G(b)(2) of the Code, and all “parachute payments” in
excess of the “base amount” (as defined under Section 280G(b)(3) of the Code)
shall be treated as subject to the Excise Tax, unless and except to the extent
that, in the determination of the Company’s independent certified public
accountants or tax counsel selected by such accountants or the Company (the “Accountants”)
such Total Payments (in whole or in part) either do not constitute “parachute
payments,” including giving effect to the recalculation of stock options in
accordance

 

 

with Treasury Regulation Section 1.280G-1, Q&A 33,
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the “base amount” or are
otherwise not subject to the Excise Tax, and (y) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G of the Code.  To the extent permitted under Revenue
Procedure 2003-68, the value determination shall be recalculated to the extent
it would be beneficial to the Company. 
The determination of the Accountants shall be final and binding upon the
Company and Executive, except to the extent provided herein with regard to
Internal Revenue Service determinations. 
The Company shall be responsible for all charges of the Accountants..

 

                (c)           In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken
into account hereunder at the time the Gross-up Payment is made, Executive
shall repay to the Company, within five days of when the amount of such
reduction in Excise Tax is finally determined, the portion of the prior
Gross-up Payment attributable to such reduction (plus the portion of the
Gross-up Payment attributable to the Excise Tax and U.S. federal, state and
local income tax imposed on the portion of the Gross-up Payment being repaid by
Executive if such repayment results in a reduction in Excise Tax or a U.S.
federal, state and local income tax deduction). 
The Company shall be responsible for all charges of the Accountant.

 

                In the event that the Excise Tax is later determined
by the Accountant or the Internal Revenue Service to exceed the amount taken
into account hereunder at the time the Gross-up Payment is made (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess (plus any interest or penalties
payable with respect to such excess) at the time that the amount of such excess
is finally determined.

 

                (d)           The
Gross-up Payment or portion thereof provided for in subsection (c) above shall
be paid not later than the thirtieth (30th) day following an event occurring
which subjects Executive to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined in good faith by the Accountant, of the minimum amount
of such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to
further payments pursuant to subsection (c) hereof, as soon as the amount
thereof can reasonably be determined, but in no event later than the ninetieth
day after the occurrence of the event subjecting Executive to the Excise Tax.  In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute an advance by the Company to Executive, payable on the
fifth day after demand by the Company.

 

                (e)           In the event of any controversy with
the Internal Revenue Service (or other taxing authority) with regard to the
Excise Tax, Executive shall permit the Company to control issues related to the
Excise Tax (at its expense).  In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, Executive shall permit the

 

2

 

representative of the Company to accompany Executive, and
Executive and Executive’s representative shall cooperate with the Company and
its representative.

 

                (f)            Executive shall promptly deliver to
the Company copies of any written communications, and summaries of any verbal
communications, with any taxing authority regarding the Excise Tax covered by
this provision.

 

                (g)           Nothing in this Section is intended
to violate the Sarbanes-Oxley Act and to the extent that any advance or
repayment obligation hereunder would do so, such obligation shall be modified
so as to make the advance a nonrefundable payment to you and the repayment
obligation null and void.

 

3Exhibit 10.5

 

EMPLOYMENT
AGREEMENT

 

THIS EMPLOYMENT AGREEMENT
(this “Agreement”) is made as
of March 28, 2006, 2006 between 1-800 CONTACTS, INC., a Delaware
corporation (the “Company”), and Kevin K. McCallum (the “Executive”). This Agreement
shall be effective as of March 30, 2006 (the “Effective Date”).

 

In consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.             Employment.
The Company shall employ Executive, and Executive hereby accepts employment
with the Company, upon the terms and conditions set forth in this Agreement,
for the period beginning on the Effective Date and ending as provided in
paragraph 4 hereof (the “Employment Period”).

 

2.             Position
and Duties.

 

(a)           During
the Employment Period Executive shall serve as Senior Vice President, Marketing
and Operations for the Company
and shall have such duties, authorities and responsibilities commensurate with
the duties, responsibilities and authorities of persons in similar capacities
in similarly sized companies and such other duties, responsibilities and
authority assigned to Executive by the Company’s Chief Executive Officer or
President that are not inconsistent with Executive’s position as Senior Vice
President, Marketing and Operations, or shall serve as such other senior
management position as assigned to Executive by the Chief Executive Officer of
the Company (the “Chief Executive Officer”), the President of the
Company (the “President”) or the Board of Directors of the Company (the “Board”).

 

(b)           Executive
shall report to the Company’s Chief Executive Officer, the President or such
other persons as the Chief Executive Officer or President may direct from time
to time, and Executive shall devote Executive’s best efforts and full business
time and attention (except for permitted vacation periods and reasonable
periods of illness or other incapacity) to the business and affairs of the
Company and its Affiliates (as hereinafter defined). Executive shall perform Executive’s
duties and responsibilities to the best of Executive’s abilities in a diligent,
trustworthy, businesslike and efficient manner.

 

(c)           For
purposes of this Agreement, “Affiliate” shall mean a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with another person (within the
meaning of Rule 12b-2) promulgated under the Securities Exchange Act of
1934, as amended.

 

3.             Base
Salary and Benefits.

 

(a)           Executive’s
initial base salary shall be $220,000 per annum, which salary shall be payable
in regular installments in accordance with the Company’s general payroll
practices and shall be subject to customary deductions and withholding. Thereafter,
the Company shall periodically review Executive’s Base Salary for increase but
not decrease (presently conducted

 

 

on an annual basis). The base
salary as determined herein from time to time shall constitute “Base Salary”
for purposes of this Agreement.

 

(b)           In
addition to the Base Salary, Executive shall be eligible to participate in the
Company’s bonus and other incentive compensation plans and programs in effect
from time to time for the Company’s senior executives. Executive shall have the
opportunity to earn an annual bonus (the “Bonus”) for each fiscal year
during the Employment Period with a target Bonus that will not be less than the
target annual bonus Executive is eligible to receive as of the Effective Date
or that Executive may hereafter become eligible to receive.

 

(c)           During
the Employment Period, Executive shall be, to the extent eligible, entitled to
participate in the employee benefit programs made available to all employees of
the Company according to their terms. In addition, Executive shall be entitled
to other perquisites and fringe benefits in such amounts as determined by the
Chief Executive Officer or the President in accordance with Company policy and
practice and as approved by the Compensation Committee. Without limiting the
foregoing, Executive shall be entitled to the following benefits during the
Employment Period:

 

(i)            Participation
in any long-term incentive plan adopted by the Company for the benefit of
senior executives of the Company as determined by the Board (or a committee
thereof);

 

(ii)           Four
weeks (20 working days) of paid vacation each year (as prorated for partial
years), in addition to holidays, in accordance with the Company’s policy on
accrual and use applicable to senior executives, which vacation may be
taken at such times as mutually agreed between Executive and the Company; and

 

(iii)          Reimbursement
for all reasonable and necessary travel, entertainment and other business
expenses incurred by Executive, in accordance with Company policy (including
presentment of appropriate documentation).

 

4.             Employment
Period. Executive’s term of employment under this Agreement
(such term of employment, as it may be extended or terminated, is herein
referred to as the “Employment Period”) shall be for a term commencing
on the Effective Date and, unless terminated earlier as provided in paragraph 5
hereof, ending on the fifth anniversary of the Effective Date (the “Original
Employment Period”), provided that the Employment Period shall be
automatically extended, subject to earlier termination as provided in paragraph
5 hereof, for successive additional two (2) year periods (the “Additional
Terms”), unless, at least 180 days prior to the end of the Original
Employment Term or the then Additional Term, the Company or Executive has
notified the other in writing that the Employment Period shall terminate at the
end of the then current term.

 

5.             Termination.
Executive’s employment and the Employment Period shall terminate on the first
of the following to occur:

 

(a)           Automatically
on the date Executive dies.

 

2

 

(b)           Upon
30 days’ prior written notice by Executive to the Company of Executive’s
voluntary termination of employment without Good Reason.

 

(c)           Upon
written notice by Executive to the Company of a termination for Good Reason,
unless such events are corrected in all material respects by the Company within
20 days following written notification by Executive to the Company that
Executive intends to terminate employment hereunder for Good Reason. “Good
Reason” shall mean the occurrence of any of the following events, without
Executive’s express written consent:

 

(i)            A
substantial adverse change in duties that results in Executive performing
duties that are of a significantly lower level than those customarily performed
by Executive during the year preceding the termination of the Employment
Period.

 

(ii)           A
change in Executive’s regular worksite to a worksite that is more than 50 miles
by the most direct road from Executive’s regular worksite during the year
preceding the termination of the Employment Period and that is also further
from Executive’s principal residence.

 

(iii)          A
material breach of this Agreement by the Company that is not cured, if curable,
within 30 days after written notice and demand by Executive including, but not
limited to, any failure to pay when due Executive’s Base Salary or other
amounts due under this Agreement.

 

(iv)          The
failure of the Company to obtain and deliver to Executive a written agreement
from any successor to the Company to assume and agree to perform this
Agreement

 

Good Reason
will cease to exist for an event on the 60th day following its occurrence,
unless Executive shall have given the Company written notice thereof prior to
such date.

 

(d)           Upon
written notice by the Company to Executive of termination due to Disability. For
purposes of this Agreement, “Disability” shall be defined as a good faith
determination by the Chief Executive Officer or President that Executive has
been or will be unable to perform Executive’s material duties hereunder
due to a physical or mental injury, infirmity or incapacity for 90 days
(including weekends and holidays) in any 365-day period, regardless of whether
Executive is deemed disabled pursuant to the Company’s policies or plans.

 

(e)           The
Company may terminate Executive’s employment hereunder for Cause
immediately upon written notice by the Company to Executive of a termination
for Cause. For purposes of this Agreement, “Cause” shall mean any of the
following:

 

(i)            The
willful and continued failure by Executive to perform the duties of
Executive’s then position or Executive’s willful failure to follow the written
direction of the Chief Executive Officer, the President, other more senior
executive or the Board.

 

3

 

(ii)           The
engaging by Executive in conduct that can reasonably be expected to be
materially monetarily or reputation-wise injurious to the Company or an
Affiliate.

 

(iii)          Gross
negligence or willful misconduct of a material nature by Executive with regard
to the Company or an Affiliate or in the performance of Executive’s duties.

 

(iv)          Executive’s
indictment, conviction, pleading guilty or nolo contendere to a felony or other
civil or criminal offense involving fraud, dishonesty or moral turpitude.

 

(v)           Executive’s
material violation of the Company’s code of ethics or a material breach by
Executive of a fiduciary duty or responsibility to the Company or an Affiliate.

 

(vi)          Executive’s
material breach of this Agreement or any other written agreement between
Executive and the Company or an Affiliate that is not cured, if curable, within
20 days of the giving of written notice thereof to Executive (or such longer
period specified in such other agreement).

 

(f)            Upon
written notice by the Company to Executive of an involuntary termination
without Cause, other than for death or Disability.

 

6.             Consequences
of Termination.

 

(a)           Upon
a termination of the Employment Period pursuant to paragraph 5(a), the Company
shall pay or provide Executive’s estate with the following severance benefits,
subject to paragraph 6(d) hereof:

 

(i)            The
Accrued Benefits (as defined below).

 

(ii)           Continued
payment of Executive’s Base Salary (but not as an employee) for a period of 12
months commencing on the date of termination.

 

(b)           Upon
the expiration of the Employment Period or a termination of the Employment
Period pursuant to paragraph 5 (b), (d) and (e) hereof, the Company
shall pay or provide Executive (i) any unpaid Base Salary through the date
of termination; (ii) any annual bonus earned but unpaid with respect to
the fiscal year ending on or preceding the date of termination (other than in
connection with a termination pursuant to paragraphs 5(b) or (e) hereof);
provided, however, to the extent payment of such bonus is subject to Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), and the
regulations issued or to be issued by the Department of the Treasury thereunder
(“Section 409A”), such payment shall be made at such times in such
calendar year as provided to other executives but in no event prior to the
expiration of the six-month period commencing on the date of the expiration of
the Employment Period or such termination if Executive is a “specified employee”
within the meaning of Section 409A and is not otherwise exempt from the
six-month delay requirement under Section 409A; (iii) reimbursement
for any unreimbursed expenses incurred through the

 

4

 

date of termination; and (iv) all
other payments, benefits or fringe benefits to which Executive may be
entitled under the terms of any applicable compensation arrangement or benefit,
equity or fringe benefit plan or program or grant or this Agreement (collectively
items (i) through (v) shall be hereafter referred to as “Accrued
Benefits”).

 

(c)           Upon
a termination of the Employment Period pursuant to paragraph 5(c) or (f) hereof,
Executive shall be entitled to receive the following severance benefits, subject
to paragraph 6(d) hereof:

 

(i)            The
Accrued Benefits.

 

(ii)           Continued
payment of Executive’s Base Salary (but not as an employee) for a period of 12
months commencing on the date of termination or such later date provided for
under Section 409A without triggering adverse tax consequences to
Executive under Section 409A; provided, however, that if such payments
commence more than 30 days following the date of termination, the first such
payment shall equal the sum of all payments that would have been made from the
date of termination to the date of such first payment were it not for the delay
in payment for Section 409A purposes.

 

(iii)          a
pro-rata portion of Executive’s Bonus for the performance year in which
Executive’s termination occurs at the time that annual bonuses are paid to
other senior executives or such later date provided for under Section 409A
without triggering adverse tax consequences to Executive (determined by
multiplying the amount Executive would have received based solely upon
achievement of corporate financial targets had employment continued through the
end of the performance year, as determined by the Board in good faith, by a
fraction, the numerator of which is the number of days during the performance
year of termination that Executive is employed by the Company and the
denominator of which is 365);

 

(iv)          To
the extent Executive is eligible to and does elect COBRA continuation coverage
with respect to some or all of the Company’s health plans, the Company shall
continue to pay a share of the “applicable premium” for such coverage until
such coverage or the salary continuation period described in paragraph 6 hereof
ends or until Executive receives health coverage under the plans and programs
of a subsequent employer, whichever is earlier, provided Executive continues to
timely pay Executive’s share of the “applicable premium” for such coverage. The
Company’s share shall be the same portion of the normal cost of group health
coverage borne by the Company for similarly situated active employees at the
same coverage level (such as employee-only or employee-plus-spouse) as
Executive, disregarding coverage levels higher than the level of Executive on
the last day of the Employment Period; provided, however, that if such payments
commence more than 30 days following the date of termination, the first such
payment shall equal the

 

5

 

sum of all payments that would have been made from the date of
termination to the date of such first payment were it not for the delay in
payment for Section 409A purposes.

 

Payments provided in this
paragraph 6(c) shall be in lieu of any termination or severance payments
or benefits for which Executive may be eligible under any of the plans,
policies or programs of the Company.

 

(d)           Any
severance benefit that would otherwise be payable pursuant to paragraph 6(b) or
(c) hereof shall be paid subject to the following rules:

 

(i)            No
severance benefit (or, in the event of Executive’s death, any severance benefit
beyond the first month’s severance benefit) shall be paid unless Executive (or,
in the event of Executive’s death, Executive’s estate) signs a release in a form and
manner acceptable to the Company, which will be similar to Exhibit A to
this Agreement, and does not revoke that release within the time prescribed by
law or the terms of the release.

 

(ii)           If
the Compensation Committee of the Board determines in good faith, after giving
Executive written notice setting forth the factual basis of such determination
and a reasonable opportunity for Executive to respond, that Executive has
violated any of the provisions of paragraphs 7, 8 or 9 hereof, no severance
benefit shall be paid, any severance benefit in pay status shall immediately
cease to be paid and any severance benefit paid to Executive subsequent to
Executive’s violation of the provisions of paragraphs 7, 8 or 9 hereof shall be
immediately repaid to the Company. The right granted to the Company by this
paragraph shall not limit the Company’s right to any additional legal or
equitable relief, including an injunction.

 

(e)           In
the event that the Company does not achieve the performance goals set forth on Exhibit B
by March 31, 2007 and Executive terminates the Employment Period pursuant
to paragraph 5(b) on or before December 31, 2007, Executive shall
enter into a consulting agreement, in a form and manner acceptable to the
Company for the one-year period commencing on the date of termination that
provides for compensation and benefits substantially similar to the compensation
and benefits that would be payable if the Company had terminated the Employment
Period pursuant to paragraph 5(f) (including the rules set forth in
paragraph 6(d)).

 

(f)            In
the event that Executive becomes entitled to payments and/or benefits which would
constitute “parachute payments” within the meaning of Section 280G(b)(2) of
the Code, the provisions of Exhibit C shall apply.

 

7.             Confidential
Information; Return of Property. Executive
acknowledges that the information, observations, data, strategic and
development plans, financial condition, business plans, co-developer
identities, business records, customer lists, clients and suppliers, project
records, market reports, employee lists and business manuals, policies and
procedures,

 

6

 

information relating to processes, technologies of theory
and all other information that may be disclosed or obtained by Executive
while employed by the Company and its Affiliates concerning the business or
affairs of the Company or any Affiliate (“Confidential Information”) are
the property of the Company or such Affiliate. Therefore, Executive agrees not
to disclose, other than in the course of Executive’s assigned duties and for
the benefit of the Company, to any unauthorized person or use for Executive’s
own purposes any Confidential Information without the prior written consent of
Company, unless and to the extent that (a) the aforementioned matters
become generally known to and available for use by the public other than as a
result of Executive’s (or any representative of Executive’s) acts or omissions
or Executive is required to disclose by applicable law, regulation or legal
process (provided that Executive provides the Company with prior notice of the
contemplated disclosure and reasonably cooperates with the Company at its
expense in seeking a protective order or other appropriate protection of such
information). Executive shall deliver to the Company at the termination of the
Employment Period, or at any other time the Company may request, all of
the property of the Company that Executive may then possess or have under
control, including all memoranda, notes, e-mails, plans, records, reports,
computer disks or tapes, printouts, software, computer access codes and other
documents and data (and copies or reproductions thereof) containing or relating
to Confidential Information, Work Product (as defined below) or the business of
the Company or any Affiliate and all computers (including laptops), cell
phones, keys, PDAs, Blackberries, credit cards, facsimile machines, televisions
and card access keys to any Company building. Executive agrees not to retain
any copies, duplicates, reproductions or excerpts of such material or
documents.

 

8.             Intellectual
Property.

 

(a)           In
accordance with UCA §34-39-1 et seq.,
Executive acknowledges and agrees that all of the following Intellectual
Property or parts thereof (the “Intellectual Property”), whether
patentable or unpatentable shall belong exclusively to the Company or an
Affiliate (or their designee), whether or not patent applications, trademark
registrations, or copyright registrations are filed thereon:

 

(i)            Intellectual
Property, whether in whole or in part that is conceived, developed,
reduced to practice, or created by Executive, solely or jointly with others,
within the scope of Executive’s employment, on the Company’s or an Affiliate’s
time, or with the aid, assistance, or use of any of the Company’s or an
Affiliate’s property, facilities, supplies, resources, or Intellectual Property.
For purposes of this Agreement, “Intellectual Property” means any and
all patents, trade secrets, know-how, technology, confidential information,
ideas, copyrights, trademarks, and service marks and any and all rights,
applications, and registrations relating to them.

 

(ii)           Intellectual
Property or parts thereof that are suggested by any work, services or duties
performed by Executive for the Company or an Affiliate, either while performing
Executive’s duties with the Company or an Affiliate or on Executive’s own time,
but only insofar as the Intellectual Property is related to Executive’s work as
an employee or other service provider to the Company or an Affiliate.

 

7

 

(iii)          Intellectual
Property or parts thereof that are related to the industry or trade of the
Company or an Affiliate.

 

(iv)          Intellectual
Property or parts thereof that are related to the current or demonstrably
anticipated business, research, or development of the Company or an Affiliate.

 

(b)           Executive
agrees and acknowledges that any Intellectual Property that is worked on,
developed, or in any way conceived of or commenced in any way during the
Employment Period, including any Intellectual Property developed subsequent to
the Employment Period that can be reasonably shown to have evolved from or
germinated during the Employment Period shall presumptively belong exclusively
to the Company or an Affiliate (or their designee).

 

(c)           Executive
will keep full and complete written records (the “Records”), in the
manner prescribed by the Company, of all Intellectual Property, and will
promptly disclose all Intellectual Property completely and in writing to the
Company. The Records shall be the sole and exclusive property of the Company,
and Executive will surrender them upon the termination of the Employment
Period, or upon the Company’s request. Executive will assign to the Company or
an Affiliate the Intellectual Property including all patents, trademarks,
and/or copyrights that may issue thereon in any and all countries, whether
during or subsequent to the Employment Period, together with the right to file,
in Executive’s name or in the name of the Company or an Affiliate (or their
designees), applications for patents, trademarks, and/or copyrights and
equivalent rights (the “Applications”). Executive will, at any time
during and subsequent to the Employment Period, make such applications, sign
such papers, take all rightful oaths, and perform all acts as may be
requested from time to time by the Company or an Affiliate with respect to the
Intellectual Property. Executive will also execute assignments to the Company
or an Affiliate (or their designees) of the Applications, and give the Company
or an Affiliate and their attorneys all reasonable assistance (including the
giving of testimony) to obtain the Inventions for its benefit, all without
additional compensation to Executive from the Company or an Affiliate, but
entirely at the Company’s or an Affiliate’s expense.

 

(d)           In
addition, the Intellectual Property will be deemed Work for Hire, as such term
is defined under the copyright law of the United States, on behalf of the
Company and its Affiliates and Executive agrees that the Company or an
Affiliate will be the sole owner of the Intellectual Property, and all
underlying rights therein, in all media now known or hereinafter devised,
throughout the universe and in perpetuity without any further obligations to
Executive. If the Intellectual Property, or any portion thereof, is deemed not
to be Work for Hire, Executive hereby irrevocably conveys, transfers and
assigns to the Company or an Affiliate, all rights, in all media now known or
hereinafter devised, throughout the universe and in perpetuity, in and to the
Intellectual Property, including without limitation, all of Executive’s right,
title and interest in the copyrights (and all renewals, revivals and extensions
thereof) to the Intellectual Property, including without limitation, all rights
of any kind or any nature now or hereafter recognized, including without
limitation, the unrestricted right to make modifications, adaptations and
revisions to the Intellectual Property, to exploit and allow others to exploit
the Intellectual Property and all rights to sue at law or in equity for any infringement,
or other unauthorized use or conduct in derogation of the Intellectual
Property, known or unknown, prior to the date hereof, including without
limitation the right to receive all proceeds and damages therefrom. In

 

8

 

addition, Executive hereby
waives any so-called “moral rights” with respect to the Intellectual Property. Executive
hereby waives any and all currently existing and future monetary rights in and
to the Intellectual Property and all patents, trademarks, and/or copyrights
that may issue thereon, including, without limitation, any rights that
would otherwise accrue to Executive’s benefit by virtue of Executive being an
employee of or other service provider to the Company or an Affiliate.

 

(e)           Further,
Executive recognizes and acknowledges the validity of the Company or an
Affiliate’s rights in the Intellectual Property and all applications and
registrations secured and to be secured therefore, and that the Company or an
Affiliate is the owner thereof. Executive further agrees not to challenge the
validity of or the Company or an Affiliate’s title in the Intellectual property
and will not oppose, petition to cancel, or request re-examination of any
applications filed or issued or registrations received in respect of the
Intellectual Property.

 

9.             Non-Compete, Non-Solicitation,
Non-Disparagement; Cooperation.

 

(a)           In
further consideration of the compensation to be paid to Executive hereunder,
Executive acknowledges that in the course of Executive’s employment with the
Company Executive shall become familiar with the Company’s trade secrets and
with other Confidential Information concerning the Company and Affiliates. Therefore,
Executive agrees that during the Employment Period and for two years thereafter
(the “Noncompete Period”), Executive shall not, without the express
written consent of the Company, directly or indirectly own any interest in,
manage, control, participate in, consult with, advise, render services for, or
in any manner engage in any activity competing with the business of the Company
or Affiliates within any geographical area in which the Company or Affiliates
engage or plan to engage in such businesses as of the date of the termination
of Executive’s employment. Nothing herein shall prohibit Executive from being a
passive owner of not more than 1% of the outstanding stock of any class of
a corporation that is publicly traded, so long as Executive has no active
participation in the business of such corporation.

 

(b)           During
the Noncompete Period, Executive shall not, directly or indirectly,
individually or on behalf of any other person, firm corporation or other entity
(i) hire any person who was an employee, representative or agent of the
Company or any Affiliate at any time during the three-month period prior to the
beginning of the Noncompete Period or solicit, aid, induce or attempt to induce
such an employee, representative or agent to terminate its relationship with
the Company or an Affiliate or (ii) solicit, induce or attempt to induce
any customer, supplier, vendor, licensee, licensor, franchisee or other
business relation of the Company or any Affiliate to cease doing business with
the Company or such Affiliate, or in any way interfere with the relationship
between any such customer, supplier, vendor, licensee or business relation and
the Company or any Affiliate, which interference may reasonably be
expected to cause material monetary damage to the Company or its Affiliates.

 

(c)           During
the Employment Period and for three years thereafter, Executive shall not or
encourage or induce others to do or say anything at any time that disparages
the Company or an Affiliate or any of the Company’s or an Affiliate’s past or
present directors, officers, employees or agents or their products or services
(the “Company Parties”). For purposes of this Agreement, the term “disparage”
includes, without limitation, comments or statements to the

 

9

 

press and/or media, the Company
Parties or any individual or entity with whom any Company Party has a business
relationship that would adversely affect in any manner: (i) the conduct of
the business of any Company Party (including, without limitation, any business
plans or prospects); or (ii) the business reputation of any Company Party.

 

(d)           Upon
the receipt of reasonable notice from the Company (including outside counsel),
Executive agrees that while employed by the Company and thereafter, Executive
will respond and provide information with regard to matters in which Executive
has knowledge as a result of Executive’s employment with the Company, and will
provide reasonable assistance to the Company, its affiliates and their
respective representatives in defense of any claims that may be made
against the Company or its affiliates, and will assist the Company and its
affiliates in the prosecution of any claims that may be made by the
Company or its affiliates, to the extent that such claims may relate to
the period of Executive’s employment with the Company (or any predecessor). Executive
agrees to promptly inform the Company if Executive becomes aware of any
lawsuits involving such claims that may be filed or threatened against the
Company or its affiliates. Executive also agrees to promptly inform the Company
(to the extent Executive is legally permitted to do so) if Executive is asked
to assist in any investigation of the Company or its affiliates (or their
actions), regardless of whether a lawsuit or other proceeding has then been
filed against the Company or its affiliates with respect to such investigation,
and shall not do so unless legally required.

 

10.           Enforcement.
If, at the time of enforcement of paragraphs 7, 8 or 9 hereof, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area. Because Executive’s services are unique and
because Executive has access to Confidential Information and Work Product, the
parties hereto agree that money damages would not be an adequate remedy for any
breach of paragraphs 7, 8 or 9 hereof. Therefore, in the event of a breach or
threatened breach of paragraphs 7, 8 or 9 hereof, the Company or its successor
or assigns may, in addition to all other rights and remedies existing in their
favor, apply to any court of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other security).
In addition, in the event of an alleged breach or violation by Executive of
paragraph 9 hereof, the Noncompete Period shall be tolled until such breach or violation
has been duly cured. Executive agrees that the restrictions contained in
paragraph 9 hereof are reasonable.

 

10

 

11.           Other
Businesses. As long as Executive is employed
by the Company or an Affiliate, Executive shall not, without the express
written consent of the Board, the Chief Executive Officer or the President,
become engaged in or render services for, any business other than the business
of the Company, any Affiliate or any corporation or partnership in which the
Company or an Affiliate has an equity interest; provided, that Executive may be
a passive owner of not more than 1% of the equity securities of an enterprise
engaged in such business, so long as Executive has no active participation in the
business of such enterprise, if such activities do not in any material way
interfere with the performance by Executive of Executive’s obligations
hereunder and such activities do not in any way materially and adversely affect
the Company or an Affiliate or create a potential business conflict or the
appearance thereof. If at any time such services conflict with Executive’s
fiduciary duty to the Company or an Affiliate or create any appearance thereof,
Executive shall promptly cease providing such services after written notice of
the conflict is received from the Company. Executive shall notify the Company
prior to engaging in any such activities. Nothing contained in this paragraph
11 shall limit the provisions of paragraph 9 hereof.

 

12.           Executive’s
Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance
of this Agreement by Executive do not and shall not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order,
judgment or decree to which Executive is a party or by which Executive is
bound, (ii) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms. Executive
hereby acknowledges and represents that full understanding of the terms and
conditions contained herein.

 

13.           Survival.
Paragraphs 7, 8 and 9 and paragraphs 13 through 21 shall survive and continue
in full force in accordance with their terms notwithstanding any termination of
the Employment Period.

 

14.           Notices.
Any notice provided for in this Agreement shall be in writing and shall be
delivered, either personally or by reputable overnight courier service or
mailed postpaid by first class mail, return receipt requested, to the
recipient at the address below indicated:

 

	
  Notices to Executive

  	
   

  	
  Notices to the Company

  
	
   

  	
   

  	
   

  
	
  At the
  address shown

  	
   

  	
  66 E.
  Wadsworth Park Drive

  
	
  on the
  records of the Company

  	
   

  	
  Draper, UT
  84020

  
	
   

  	
   

  	
  Attn: General Counsel

  

 

Or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice given pursuant to this Agreement shall be deemed to have been
given when so delivered or mailed.

 

11

 

15.           Severability.
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or any other jurisdiction, but this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.

 

16.           Complete
Agreement. This Agreement, those documents expressly referred to herein and
other documents of even date herewith and the embody the complete agreement and
understanding between the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, that may have related to the subject matter hereof in any way
(including, without limitation, the employment agreement between Executive and
the Company dated as of March 13, 2000). Notwithstanding the foregoing,
Executive acknowledges and agrees that the restrictions contained in paragraphs
7, 8 and 9 hereof are in addition to, and not in lieu of, any other
Company-imposed limitation on Executive’s activities or rights during the
Employment Period and thereafter.

 

17.           No
Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be
applied against either party.

 

18.           Counterparts.
This Agreement may be executed in separate counterparts, each of which is
deemed to be an original and all of which taken together constitute one and the
same agreement.

 

19.           Successors
and Assigns. This Agreement is personal to
each of the parties hereto. Except as provided in this paragraph 19, no party may assign
or delegate any rights or obligations hereunder. The Company may assign
this Agreement to a person or entity that is an Affiliate or successor and
shall require any successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of (i) the
Company, (ii) any Affiliate to which this Agreement has been assigned or (iii) any
division of the Company or Affiliate by which Executive is employed to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if
no such succession had taken place. As used in this Agreement, “Company” shall
mean the Company, any Affiliate to which this Agreement has been assigned and
any successor to the business and/or assets of (i) the Company, (ii) any
Affiliate to which this Agreement has been assigned or (iii) any division
of the Company or Affiliate by which Executive is employed which assumes and
agrees to perform this Agreement by operation of law, or otherwise.

 

20.           Choice
of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Utah, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State
of Utah or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Utah.

 

12

 

21.           Amendment
and Waiver. The provisions of this Agreement
may be amended or waived only with the prior written consent of the
Company and Executive by a document that explicitly states its intention to
amend this Agreement, and no course of conduct or failure or delay in enforcing
the provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement

 

22.           Indemnification;
Liability Insurance. Executive’s right to be
indemnified for any actions, suits, proceedings, claims, demands, judgments, costs,
expenses (including reasonable attorney’s fees), losses, and damages resulting
from Executive’s good faith performance of his duties and obligations with the
Company and Executive’s right to be covered under directors and officers
liability insurance, each to the extent provided in the by-laws or other
organizational document of the Company, shall survive the termination of
Executive’s employment with the Company while potential liability exists.

 

23.           No
Mitigation. In no event shall Executive be
obliged to seek other employment or take any other action by way of mitigation
of the amounts payable to Executive under any of the provisions of this
Agreement, nor shall the amount of any payment hereunder be reduced by any
compensation earned by Executive as a result of employment by another employer.

 

24.           Arbitration.
Any dispute or controversy arising under or in connection with this Agreement
or Executive’s employment with the Company, other than injunctive relief under
paragraph 10 hereof, shall be settled exclusively by arbitration, conducted
before a single arbitrator in Salt Lake City, Utah (applying Utah law) in
accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association then in effect. The decision
of the arbitrator will be final and binding upon the parties hereto. Judgment may be
entered on the arbitrator’s award in any court having jurisdiction. The parties
acknowledge and agree that in connection with any such arbitration and
regardless of outcome (a) each party shall pay all its own costs and
expenses, including without limitation its own legal fees and expenses, and (b) joint
expenses shall be borne equally among the parties. Following a change of
ownership or effective control covered by Section 280G(b)(2) of the
Code, in the event of any dispute arising out of or under this Agreement or
Executive’s employment with the Company, if the arbitrator determines that
Executive has prevailed on the issues in the arbitration, the Company shall, upon
presentment of appropriate documentation, promptly, at Executive’s election,
pay or reimburse Executive for all reasonable legal and other professional
fees, costs of arbitration and other expenses incurred in connection therewith
by Executive.

 

25.           Withholding.
The Company may withhold from any and all amounts payable under this
Agreement such federal, state and local taxes as may be required to be
withheld pursuant to any applicable law or regulation.

 

13

 

26.           Section 409A
of the Code. This Agreement is intended to
comply with the applicable requirements of Section 409A and shall be
limited, construed and interpreted in accordance with such intent. To the
extent that payment or benefit hereunder is subject to Section 409A, it is
intended that it be paid in a manner that will comply with Section 409A,
including proposed, temporary or final regulations or any other guidance issued
by the Secretary of the Treasury and the Internal Revenue Service with respect thereto.
Notwithstanding anything herein to the contrary, any provision in this
Agreement that is inconsistent with Section 409A shall be deemed to be
amended to comply with Section 409A and to the extent such provision
cannot be amended to comply therewith, such provision shall be null and void. Notwithstanding
the foregoing, the Company shall have no liability to Executive or otherwise if
any amounts paid or payable are subject to Section 409A; provided,
however, that following a change of ownership or effective control covered by Section 280G(b)(2) of
the Code, the Company shall indemnify and hold Executive harmless, on an
after-tax basis, for any additional tax (including interest and penalties with
respect thereto) imposed on Executive as a result of Section 409A of the
Code.

 

IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date first written above.

 

 

	
  EXECUTIVE

  	
  1-800 CONTACTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Kevin McCallum

  	
   

  	
  /s/ Brian W. Bethers

  	
   

  
	
  Kevin McCallum

  	
  Brian W. Bethers, President

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
  Dated:

  	
   

  	
   

  
								

 

14

 

EXHIBIT A

 

Form Release

 

15

 

EXHIBIT B

 

Performance
Goals

 

16

 

EXHIBIT C

 

Gross-Up
Provisions

 

(a)           In
the event that Executive shall become entitled to payments and/or benefits
provided by this Agreement or any other amounts in the “nature of compensation”
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any person whose actions result in a change of
ownership or effective control covered by Section 280G(b)(2) of the
Code or any person affiliated with the Company or such person) as a result of
such change in ownership or effective control (collectively the “Company
Payments”), and such Company Payments will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Code (and any similar tax that may hereafter
be imposed by any taxing authority) the Company shall pay to Executive an
additional amount (the “Gross-Up Payment”) such that the net amount
retained by Executive, after deduction of any Excise Tax on the Company
Payments and any U.S. federal, state, and for local income or payroll tax upon
the Gross-up Payment provided for by this paragraph (a), but before deduction
for any U.S. federal, state, and local income or payroll tax on the Company
Payments, shall be equal to the Company Payments.

 

Notwithstanding the
foregoing, if it shall be determined that Executive is entitled to a Gross-Up
Payment, but that if the Company Payments are reduced by the amount necessary
such that the receipt of the Company Payments would not give rise to any Excise
Tax (the “Reduced Payment”) and the Reduced Payment would not be less
than 90.0% of the Company Payments, then no Gross-Up Payment shall be made to
Executive and the Company Payments, in the aggregate, shall be reduced to the
Reduced Payments. If the Reduced Payments is to be effective, payments shall be
reduced in the following order (1) acceleration of vesting of any stock
options for which the exercise price exceeds the then fair market value, (2) any
cash severance based on a multiple of Base Salary or Bonus, (3) any other
cash amounts payable to Executive, (4) any benefits valued as parachute
payments; and (5) acceleration of vesting of any equity not covered by (1) above,
unless Executive elects another method of reduction by written notice to the
Company.

 

In the event that the
Internal Revenue Service or court ultimately makes a determination that the
excess parachute payments plus the base amount is an amount other than as
determined initially, an appropriate adjustment shall be made with regard to
the Gross-Up Payment or Reduced Payment, as applicable to reflect the final
determination and the resulting impact on whether the preceding paragraph
applies.

 

(b)           For
purposes of determining whether any of the Company Payments and Gross-up
Payments (collectively the “Total Payments”) will be subject to the
Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be
treated as “parachute payments” within the meaning of Section 280G(b)(2) of
the Code, and all “parachute payments” in excess of the “base amount” (as
defined under Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless and except to the extent that, in the
determination of the Company’s independent certified public accountants or tax
counsel selected by such accountants or the Company (the “Accountants”)
such Total Payments (in whole or in part) either do not constitute “parachute
payments,” including giving effect to the recalculation of stock options in
accordance

 

 

with Treasury Regulation Section 1.280G-1,
Q&A 33, represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
“base amount” or are otherwise not subject to the Excise Tax, and (y) the value
of any non-cash benefits or any deferred payment or benefit shall be determined
by the Accountants in accordance with the principles of Section 280G of
the Code. To the extent permitted under Revenue Procedure 2003-68, the value
determination shall be recalculated to the extent it would be beneficial to the
Company. The determination of the Accountants shall be final and binding upon
the Company and Executive, except to the extent provided herein with regard to
Internal Revenue Service determinations. The Company shall be responsible for
all charges of the Accountants..

 

(c)           In
the event that the Excise Tax is subsequently determined by the Accountants to
be less than the amount taken into account hereunder at the time the Gross-up
Payment is made, Executive shall repay to the Company, within five days of when
the amount of such reduction in Excise Tax is finally determined, the portion
of the prior Gross-up Payment attributable to such reduction (plus the portion
of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state
and local income tax imposed on the portion of the Gross-up Payment being
repaid by Executive if such repayment results in a reduction in Excise Tax or a
U.S. federal, state and local income tax deduction). The Company shall be
responsible for all charges of the Accountant.

 

In the event that the Excise Tax is later
determined by the Accountant or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Gross-up Payment is made
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), the Company shall make an
additional Gross-up Payment in respect of such excess (plus any interest or
penalties payable with respect to such excess) at the time that the amount of
such excess is finally determined.

 

(d)           The
Gross-up Payment or portion thereof provided for in subsection (c) above
shall be paid not later than the thirtieth (30th) day following an event
occurring which subjects Executive to the Excise Tax; provided, however, that
if the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Executive on such
day an estimate, as determined in good faith by the Accountant, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code), subject to further payments pursuant to subsection (c) hereof,
as soon as the amount thereof can reasonably be determined, but in no event
later than the ninetieth day after the occurrence of the event subjecting
Executive to the Excise Tax. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute an advance by the Company to Executive, payable on the
fifth day after demand by the Company.

 

(e)           In
the event of any controversy with the Internal Revenue Service (or other taxing
authority) with regard to the Excise Tax, Executive shall permit the Company to
control issues related to the Excise Tax (at its expense). In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, Executive shall permit the

 

2

 

representative of the Company to accompany
Executive, and Executive and Executive’s representative shall cooperate with
the Company and its representative.

 

(f)            Executive
shall promptly deliver to the Company copies of any written communications, and
summaries of any verbal communications, with any taxing authority regarding the
Excise Tax covered by this provision.

 

(g)           Nothing
in this Section is intended to violate the Sarbanes-Oxley Act and to the
extent that any advance or repayment obligation hereunder would do so, such
obligation shall be modified so as to make the advance a nonrefundable payment
to you and the repayment obligation null and void.

 

3

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