Exhibit 10.3

Application for confidential treatment for a portion of this document has been
submitted to the Securities and Exchange Commission pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934.  This document omits the information
subject to the confidentiality request.  Omissions are designated by the symbol
“**”.  A complete version of this document has been filed separately with the
Securities and Exchange Commission.

EMPLOYMENT AGREEMENT, INCLUDING AGREEMENT TO

ARBITRATE, NONCOMPETITION AGREEMENT AND

NONDISCLOSURE AGREEMENT

This Agreement is made and entered into on August 31, 2007 (effective as of
January 1, 2007), by and between James S. Peliotes (“Employee”) and Heeling
Sports Limited, a Texas limited partnership (the “Company”).

R E C I T A L S

A.                                   EMPLOYEE IS CURRENTLY SERVING AS VICE
PRESIDENT – MARKETING OF THE COMPANY.

B.                                     IN THE COURSE OF EMPLOYEE’S EMPLOYMENT
WITH THE COMPANY, EMPLOYEE HAS AND WILL CONTINUE TO GAIN ACCESS TO CONFIDENTIAL
INFORMATION, AS HEREINAFTER DEFINED, RELATING TO THE BUSINESS OF THE COMPANY.

C.                                     COMPANY AND EMPLOYEE DESIRE A SPEEDY,
ECONOMICAL AND IMPARTIAL DISPUTE RESOLUTION PROCEDURE.

D.                                    EMPLOYEE’S PERFORMANCE OF SERVICES TO THE
COMPANY MAY RESULT IN DISCOVERIES, AS HEREINAFTER DEFINED.

E.                                      THE PARTIES HERETO DESIRE TO ENTER INTO
THIS AGREEMENT IN ORDER TO SET FORTH THE RESPECTIVE RIGHTS, LIMITATIONS AND
OBLIGATIONS OF BOTH THE COMPANY AND EMPLOYEE WITH RESPECT TO EMPLOYEE’S
EMPLOYMENT WITH THE COMPANY, THE CONFIDENTIAL INFORMATION, THE DISCOVERIES,
ARBITRATION AND THE OTHER MATTERS SET FORTH HEREIN.

NOW, THEREFORE, in consideration of the employment of Employee by the Company,
the compensation paid to Employee, and the Company continuing to provide
Confidential Information to Employee, as well as the other mutual promises
hereinafter contained, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1.                                      EMPLOYMENT.  THE COMPANY AGREES TO
CONTINUE TO EMPLOY EMPLOYEE AND EMPLOYEE HEREBY ACCEPTS SUCH CONTINUED
EMPLOYMENT FROM THE COMPANY UPON THE TERMS AND CONDITIONS SET FORTH IN THIS
AGREEMENT FOR THE PERIOD BEGINNING ON THE DATE EMPLOYEE BECAME EMPLOYED BY THE
COMPANY AND CONTINUING THROUGH DECEMBER 31, 2007 (“EMPLOYMENT PERIOD”) WHICH
SHALL BE AUTOMATICALLY RENEWABLE IN ONE YEAR INCREMENTS AT THE END OF SUCH
PERIOD AND EACH ANNIVERSARY DATE THEREAFTER, UNLESS TERMINATED BY EITHER PARTY
IN WRITING AT LEAST 90 DAYS PRIOR TO THE END OF SUCH TERM OR TERMINATED EARLIER
IN ACCORDANCE WITH SECTION 5 HEREOF.

2.                                      SERVICES.  DURING THE EMPLOYMENT PERIOD,
EMPLOYEE WILL RENDER THE SERVICES TO THE COMPANY AS VICE PRESIDENT – MARKETING,
AND/OR SUCH

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OTHER POSITION AS AGREED TO BY THE BOARD OF DIRECTORS AND EMPLOYEE.  EMPLOYEE
COVENANTS THAT HE WILL DEVOTE HIS BEST EFFORTS, KNOWLEDGE, SKILL AND ENTIRE
PRODUCTIVE TIME AND ATTENTION (EXCEPT FOR VACATION OR OTHER LEAVE PERIODS) TO
THE BUSINESS OF THE COMPANY AND WILL FAITHFULLY AND DILIGENTLY CARRY OUT SUCH
DUTIES AND HAVE SUCH RESPONSIBILITIES AS ARE CUSTOMARY FOR PERSONS EMPLOYED IN A
SUBSTANTIALLY SIMILAR CAPACITY FOR SIMILAR COMPANIES.  EMPLOYEE SHALL ALSO USE
HIS BEST EFFORTS TO INITIATE, PRESERVE AND MAINTAIN THE FAVORABLE RELATIONSHIPS
OF THE COMPANY WITH ITS CUSTOMERS, SUPPLIERS AND STOCKHOLDERS.  DURING THE
EMPLOYMENT PERIOD, EMPLOYEE SHALL NOT RENDER SERVICES OF A BUSINESS,
PROFESSIONAL OR COMMERCIAL NATURE TO ANY OTHER ENTITY OR PERSON WITHOUT THE
WRITTEN CONSENT OF THE BOARD OF DIRECTORS (THE “BOARD OF DIRECTORS”) OF HEELYS,
INC., SUCCESSOR BY MERGER TO HEELING, INC. AND THE OWNER OF ALL OF THE EQUITY
INTERESTS OF THE COMPANY (THE “PARENT”), WHICH CONSENT MAY BE WITHHELD IN THE
BOARD OF DIRECTOR’S SOLE DISCRETION.  EMPLOYEE WILL REPORT TO THE BOARD OF
DIRECTORS AND SHALL FAITHFULLY AND DILIGENTLY COMPLY WITH ALL REASONABLE AND
LAWFUL DIRECTIVES.

3.                                      ADHERENCE TO COMPANY RULES.  EMPLOYEE,
AT ALL TIMES DURING THE PERFORMANCE OF THIS AGREEMENT, SHALL ADHERE TO AND OBEY
ALL OF THE COMPANY’S RULES, REGULATIONS AND POLICIES WHICH ARE NOW IN EFFECT, OR
AS SUBSEQUENTLY ADOPTED OR MODIFIED BY THE COMPANY WHICH GOVERN THE OPERATION OF
THE COMPANY’S BUSINESS AND THE CONDUCT OF EMPLOYEES OF THE COMPANY.

4.                                      COMPENSATION.

A.                                       SALARY AND BONUS.  DURING THE
EMPLOYMENT PERIOD, THE COMPANY WILL PAY EMPLOYEE THE COMPENSATION SET FORTH IN
EXHIBIT 1 HERETO.  EMPLOYEE’S COMPENSATION SHALL BE REVIEWED ANNUALLY BY THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS, BUT MAY NOT BE REDUCED BELOW
THE AMOUNT SET FORTH IN EXHIBIT 1 HERETO.  EMPLOYEE’S COMPENSATION WILL BE
PAYABLE IN ACCORDANCE WITH THE COMPANY’S CUSTOMARY PAYROLL PRACTICES.

B.                                       BENEFITS.  DURING THE EMPLOYMENT
PERIOD, EMPLOYEE SHALL BE ENTITLED TO THE BENEFITS AS SET FORTH ON EXHIBIT 1
HERETO.  NOTWITHSTANDING ANYTHING IN THIS SECTION 4(B) TO THE CONTRARY, ALL
BENEFIT OBLIGATIONS ARE SUBJECT TO GUIDANCE ISSUED BY THE U.S. DEPARTMENT OF
TREASURY UNDER SECTION 409A OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE “CODE”).  TO THE EXTENT REQUIRED, THE COMPANY MAY MODIFY THE BENEFITS
PROVIDED UNDER THIS SECTION 4(B) TO COMPLY WITH SUCH GUIDANCE; PROVIDED,
HOWEVER, THAT THE AGGREGATE VALUE OF BENEFITS PROVIDED TO EMPLOYEE AFTER SUCH
MODIFICATION SHALL NOT BE LESS THAN THE AGGREGATE VALUE OF THE BENEFITS PROVIDED
TO HIM PRIOR TO THE MODIFICATION.

5.                                      TERMINATION.  EMPLOYEE’S EMPLOYMENT WITH
THE COMPANY WILL CONTINUE THROUGHOUT THE EMPLOYMENT PERIOD UNLESS EARLIER
TERMINATED PURSUANT TO ANY OF THE FOLLOWING PROVISIONS:

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A.                                       TERMINATION BY THE COMPANY FOR CAUSE. 
THE COMPANY SHALL HAVE THE RIGHT TO IMMEDIATELY TERMINATE EMPLOYEE’S EMPLOYMENT
AT ANY TIME FOR ANY OF THE FOLLOWING REASONS (EACH OF WHICH IS REFERRED TO
HEREIN AS “CAUSE”) BY GIVING EMPLOYEE WRITTEN NOTICE OF TERMINATION (THE
EFFECTIVE DATE OF WHICH MAY BE THE DATE OF SUCH NOTICE):

(I)                                     WILLFUL BREACH BY EMPLOYEE OF ANY
PROVISION OF THIS AGREEMENT AND FAILURE TO CURE SUCH BREACH (TO THE EXTENT
PRACTICABLE) WITHIN 15 DAYS AFTER THE DATE HE IS GIVEN WRITTEN NOTICE THEREOF BY
THE COMPANY;

(II)                                  ANY WILLFUL ACT BY EMPLOYEE OF FRAUD OR
DISHONESTY, INCLUDING BUT NOT LIMITED TO STEALING OR FALSIFICATION OF COMPANY
RECORDS, WITH RESPECT TO ANY ASPECT OF THE COMPANY’S BUSINESS;

(III)                               KNOWING VIOLATION OF STATE, FEDERAL OR
INTERNATIONAL LAWS APPLICABLE TO THE COMPANY;

(IV)                              DRUG OR ALCOHOL USE OF EMPLOYEE IN VIOLATION
OF COMPANY POLICY OR THAT MATERIALLY IMPEDES EMPLOYEE’S JOB PERFORMANCE OR
BRINGS EMPLOYEE OR EMPLOYER INTO DISREPUTE IN THE COMMUNITY;

(V)                                 SUBSTANTIAL FAILURE BY EMPLOYEE TO PERFORM
ANY SPECIFIC DIRECTIVE OF THE BOARD OF DIRECTORS AFTER 30 DAYS NOTICE OF SUCH
FAILURE AND EXPLANATION OF SUCH FAILURE OF PERFORMANCE;

(VI)                              WILLFUL (X) MISAPPROPRIATION OF FUNDS OR OF
ANY CORPORATE OPPORTUNITY OR (Y) ACTS DISLOYAL TO THE COMPANY;

(VII)                           CONVICTION OF EMPLOYEE OF A FELONY, OR OF A
CRIME THAT THE COMPANY, IN ITS SOLE DISCRETION, DETERMINES INVOLVES A SUBJECT
MATTER WHICH MAY REFLECT NEGATIVELY ON THE COMPANY’S REPUTATION OR BUSINESS (OR
A PLEA OF NOLO CONTENDERE THERETO);

(VIII)                        ACTS BY EMPLOYEE ATTEMPTING TO SECURE OR SECURING
ANY PERSONAL PROFIT NOT FULLY DISCLOSED TO AND APPROVED BY THE BOARD OF
DIRECTORS OF THE COMPANY IN CONNECTION WITH ANY TRANSACTION ENTERED INTO ON
BEHALF OF THE COMPANY;

(IX)                                GROSS, WILLFUL OR WANTON NEGLIGENCE, OR
CONDUCT WHICH CONSTITUTES A BREACH OF ANY FIDUCIARY DUTY OWED TO THE COMPANY BY
EMPLOYEE;

(X)                                   CONDUCT ON THE PART OF EMPLOYEE, EVEN IF
NOT IN CONNECTION WITH THE PERFORMANCE OF HIS DUTIES CONTEMPLATED UNDER THIS
AGREEMENT, THAT COULD RESULT IN SERIOUS PREJUDICE TO THE INTERESTS OF THE
COMPANY, AND EMPLOYEE FAILS TO CEASE SUCH

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CONDUCT IMMEDIATELY WITHIN 30 DAYS OF RECEIPT OF NOTICE TO CEASE SUCH CONDUCT;

(XI)                                VOLUNTARY TERMINATION INITIATED BY EMPLOYEE;
OR

(XII)                             ACCEPTANCE OF EMPLOYMENT WITH ANY OTHER
EMPLOYER.

If the Company terminates Employee’s employment for any of the reasons set forth
above, the Company shall have no further obligations hereunder from and after
the effective date of termination except for the payment of Employee’s salary
and accrued vacation time earned through the date of termination promptly after
such termination and the Company shall have all other rights and remedies
available under this or any other agreement and at law or in equity.

B.                                       TERMINATION UPON DEATH OR DISABILITY.
IF EMPLOYEE SHALL DIE OR BECOME DISABLED DURING THE EMPLOYMENT PERIOD,
EMPLOYEE’S EMPLOYMENT HEREUNDER SHALL TERMINATE (SUCH TERMINATION BEING TREATED
FOR PURPOSES OF THIS AGREEMENT AS IF EMPLOYEE HAD NOT BEEN TERMINATED FOR
“CAUSE” PURSUANT TO SUBSECTION (A) ABOVE) AND THE COMPANY SHALL PAY TO EMPLOYEE
OR HIS ESTATE, AS APPLICABLE, (I) ANY COMPENSATION (INCLUDING ACCRUED VACATION
TIME AND A PRO-RATED BONUS UNDER THE COMPANY’S BONUS PLAN THROUGH THE DATE OF
DEATH OR DISABILITY) DUE THAT WOULD OTHERWISE HAVE BEEN PAYABLE THROUGH THE DATE
OF DEATH OR DISABILITY PROMPTLY AFTER THE DEATH OR DISABILITY (BUT THE PRO-RATED
BONUS WILL BE PAID WHEN OTHERWISE PAYABLE HAD HE CONTINUED AS AN EMPLOYEE OF THE
COMPANY) AND (II) AN AMOUNT EQUAL TO ONE-HALF THE EMPLOYEE’S ANNUAL BASE SALARY
WHICH AMOUNT SHALL BE PAYABLE IN CASH IN 12 EQUAL MONTHLY PAYMENTS COMMENCING
WITH THE MONTH FOLLOWING THE MONTH OF HIS DEATH OR DISABILITY AND SHALL BE PAID
WHEN OTHERWISE PAYABLE HAD HE CONTINUED AS AN EMPLOYEE.  FOR PURPOSES OF THIS
AGREEMENT, EMPLOYEE SHALL BECOME “DISABLED” IF (A) HE IS UNABLE TO ENGAGE IN ANY
SUBSTANTIAL GAINFUL ACTIVITY BY REASON OF ANY MEDICALLY DETERMINABLE PHYSICAL OR
MENTAL IMPAIRMENT WHICH CAN BE EXPECTED TO RESULT IN DEATH OR CAN BE EXPECTED TO
LAST FOR A CONTINUOUS PERIOD OF NOT LESS THAN 12 MONTHS, OR (B) HE IS, BY REASON
OF ANY MEDICALLY DETERMINABLE PHYSICAL OR MENTAL IMPAIRMENT WHICH CAN BE
EXPECTED TO RESULT IN DEATH OR CAN BE EXPECTED TO LAST FOR A CONTINUOUS PERIOD
OF NOT LESS THAN 12 MONTHS, RECEIVING INCOME REPLACEMENT BENEFITS FOR A PERIOD
OF NOT LESS THAN THREE MONTHS UNDER AN ACCIDENT OR HEALTH PLAN COVERING
EMPLOYEES OF THE COMPANY.

C.                                       TERMINATION WITHOUT CAUSE.  THE COMPANY
SHALL HAVE THE RIGHT TO TERMINATE EMPLOYEE’S EMPLOYMENT WITHOUT CAUSE AT ANY
TIME.  UPON TERMINATION, THE COMPANY SHALL PAY TO EMPLOYEE (I) ANY COMPENSATION
(INCLUDING ACCRUED VACATION TIME AND A PRO-RATED BONUS UNDER THE COMPANY’S BONUS
PLAN THROUGH THE DATE OF TERMINATION WITHOUT

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CAUSE) DUE THAT WOULD OTHERWISE HAVE BEEN PAYABLE THROUGH THE DATE OF
TERMINATION WITHOUT CAUSE PROMPTLY AFTER THE DATE OF TERMINATION WITHOUT CAUSE
(BUT THE PRO-RATED BONUS WILL BE PAID WHEN OTHERWISE PAYABLE HAD HE CONTINUED AS
AN EMPLOYEE OF THE COMPANY) AND (II) SIX MONTH’S BASE SALARY PLUS, IF EMPLOYEE
HAS COMPLETED MORE THAN FIVE YEARS OF SERVICE, INCLUDING SERVICE AS A MEMBER OF
THE BOARD OF DIRECTORS, AN ADDITIONAL AMOUNT EQUAL TO HIS MONTHLY BASE SALARY
FOR EACH YEAR OF COMPLETED SERVICE IN EXCESS OF FIVE YEARS WHICH SHALL BE PAID
IN 12 EQUAL MONTHLY PAYMENTS COMMENCING WITH THE MONTH FOLLOWING THE MONTH IN
WHICH HIS EMPLOYMENT IS TERMINATED WITHOUT CAUSE AND SHALL BE PAID WHEN
OTHERWISE PAYABLE HAD HE CONTINUED AS AN EMPLOYEE AND THE COMPANY SHALL HAVE NO
FURTHER OBLIGATIONS TO EMPLOYEE UNDER THIS AGREEMENT.  IF EMPLOYEE IS A
SPECIFIED EMPLOYEE ON THE DATE HIS EMPLOYMENT IS TERMINATED WITHOUT CAUSE, THE
MONTHLY PAYMENTS UNDER SECTION 5©(II) SHALL NOT COMMENCE UNTIL THE FIRST MONTH
NEXT FOLLOWING THE SIX-MONTH ANNIVERSARY OF THE DATE HIS EMPLOYMENT SO
TERMINATED.  FOR PURPOSES OF THIS AGREEMENT, AN EMPLOYEE SHALL BE CONSIDERED A
“SPECIFIED EMPLOYEE” AS PROVIDED IN CODE §409A AND THE TREASURY REGULATIONS
PROMULGATED THEREUNDER.  IF EMPLOYEE DIES AFTER HIS EMPLOYMENT IS TERMINATED
WITHOUT CAUSE AND BEFORE HIS RECEIPT OF ALL SALARY CONTINUATION PAYMENTS DUE
EMPLOYEE UNDER THIS SECTION 5©, THE BALANCE SHALL BE PAID TO HIS ESTATE IN THE
SAME MANNER AND AT THE SAME TIME AS SPECIFIED IN THIS SECTION 5©.  DURING THE
REQUIRED PERIOD OF CONTINUATION COVERAGE WITHIN THE MEANING OF CODE
§4980B(F)(2)(B)(I)(I), EMPLOYEE SHALL BE REIMBURSED BY THE COMPANY WITHIN FIVE
DAYS OF EACH PAYMENT BY EMPLOYEE OF THE MONTHLY PREMIUM PAYABLE TO CONTINUE
COVERAGE OF EMPLOYEE AND HIS DEPENDENTS UNDER THE COMPANY’S GROUP HEALTH PLAN OR
PLANS FOLLOWING THE DATE HIS EMPLOYMENT IS TERMINATED WITHOUT CAUSE IN AN AMOUNT
EQUAL TO THE AMOUNT OF THAT MONTHLY PREMIUM PAYABLE BY EMPLOYEE FOR SUCH
CONTINUATION COVERAGE. TERMINATION “WITHOUT CAUSE” MEANS THE TERMINATION OF
EMPLOYEE’S EMPLOYMENT EITHER (I) BY THE COMPANY FOR A REASON OTHER THAN FOR
CAUSE OR (II) BY THE COMPANY OR EMPLOYEE RESULTING FROM A “CHANGE OF CONTROL.” 
FOR PURPOSES OF THIS AGREEMENT, A “CHANGE OF CONTROL” MEANS THE OCCURRENCE OF
ANY OF THE FOLLOWING EVENTS:  (A) ANY “PERSON” (AS SUCH TERM IS USED IN SECTIONS
13(D) AND 14(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
“EXCHANGE ACT”)), OTHER THAN ONE OR MORE PERMITTED HOLDERS, IS OR BECOMES THE
“BENEFICIAL OWNER” (AS DEFINED IN RULE 13D-3 UNDER THE EXCHANGE ACT), DIRECTLY
OR INDIRECTLY, OF SECURITIES OF THE PARENT REPRESENTING 25% OR MORE OF THE
COMBINED VOTING POWER OF THE PARENT’S THEN OUTSTANDING SECURITIES; (B) ANY
CHANGE OR CHANGES IN THE COMPOSITION OF THE PARENT’S BOARD OF DIRECTORS WITHIN A
TWO-YEAR PERIOD AS A RESULT OF WHICH LESS THAN A MAJORITY OF THE DIRECTORS ARE
(1) PERSONS WHO WERE DIRECTORS AT THE BEGINNING OF THAT TWO-YEAR PERIOD OR (2)
PERSONS WHO WERE ELECTED OR NOMINATED FOR ELECTION AS DIRECTORS WITH THE
AFFIRMATIVE VOTE OR CONSENT OF AT LEAST A MAJORITY OF THE INCUMBENT DIRECTORS AT
THE TIME OF THAT ELECTION OR NOMINATION, BUT NOT

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INCLUDING ANY PERSON WHOSE ELECTION OR NOMINATION WAS OR IS IN CONNECTION WITH
AN ACTUAL OR THREATENED PROXY CONTEST REGARDING THE ELECTION OF THE PARENT’S
DIRECTORS; (C) THE PARENT IS MERGED OR CONSOLIDATED WITH ANOTHER CORPORATION OR
OTHER ENTITY (OTHER THAN ONE OR MORE PERMITTED HOLDERS OR ANY ENTITY CONTROLLED
BY ONE OR MORE PERMITTED HOLDERS) AND, AS A RESULT OF THE MERGER OR
CONSOLIDATION, LESS THAN 75% OF THE OUTSTANDING VOTING SECURITIES OF THE
SURVIVING OR RESULTING CORPORATION OR OTHER ENTITY, AS THE CASE MAY BE, ARE
“BENEFICIALLY OWNED” (WITHIN THE MEANING OF RULE 13D-3 UNDER THE EXCHANGE ACT),
DIRECTLY OR INDIRECTLY, IMMEDIATELY AFTER THE MERGER OR CONSOLIDATION BY PERSONS
WHO OR WHICH BENEFICIALLY OWNED THE OUTSTANDING VOTING SECURITIES OF THE PARENT
IMMEDIATELY BEFORE THE MERGER OR CONSOLIDATION; OR (D) THE PARENT TRANSFERS,
SELLS OR OTHERWISE DISPOSES OF ALL OR SUBSTANTIALLY ALL OF ITS ASSETS TO ANOTHER
CORPORATION OR OTHER ENTITY WHICH IS NOT AN AFFILIATE OF THE PARENT. “PERMITTED
HOLDERS” MEANS CAPITAL SOUTHWEST VENTURE CORPORATION AND ITS AFFILIATES AND
ROGER R. ADAMS AND HIS AFFILIATES.  FOR PURPOSES OF THIS AGREEMENT, ANY
TERMINATION OF EMPLOYEE’S EMPLOYMENT BY THE COMPANY WHICH OCCURS WITHIN 12
MONTHS FOLLOWING SUCH CHANGE OF CONTROL SHALL BE CONCLUSIVELY PRESUMED TO HAVE
RESULTED FROM SUCH CHANGE OF CONTROL UNLESS THE COMPANY DEMONSTRATES TO AN
ARBITRATOR, OR EMPLOYEE AGREES, THAT THE TERMINATION WAS WITH CAUSE.  SHOULD THE
COMPANY FAIL TO COMPLY IN A MATERIAL RESPECT WITH THIS AGREEMENT, AND SUCH
FAILURE IS NOT CURED (IF PRACTICABLE) WITHIN 30 DAYS AFTER THE COMPANY IS GIVEN
WRITTEN NOTICE OF SUCH NONCOMPLIANCE, EMPLOYEE MAY RESIGN AND RECEIVE THE
BENEFITS OF THIS SECTION 5(C).  IF, WHETHER BEFORE OR AFTER A CHANGE OF CONTROL,
WITHOUT EMPLOYEE’S CONSENT THE COMPANY REDUCES THE EMPLOYEE’S BASE SALARY OR
“TARGET” AMOUNT FOR PURPOSES OF THE COMPANY’S BONUS PLAN, MATERIALLY CHANGES HIS
TITLE, REDUCES THE SCOPE OF THE ASSIGNED WORK RESPONSIBILITIES, OR RELOCATES ITS
OFFICES IN EXCESS OF 50 MILES FROM THE ADDRESS SET FORTH HEREIN, EMPLOYEE SHALL
BE DEEMED TO HAVE BEEN CONSTRUCTIVELY TERMINATED WITHOUT CAUSE.

D.                                       LIMITATION ON PAYMENTS.  IF ANY
SEVERANCE PAYMENT OR OTHER BENEFITS RECEIVED OR TO BE RECEIVED BY EMPLOYEE UNDER
SECTION 5© OF THIS AGREEMENT OR ANY OTHER OF THE TOTAL SEVERANCE BENEFITS
CONSTITUTE “PARACHUTE PAYMENTS” WITHIN THE MEANING OF CODE §280G AND WOULD BE
SUBJECT TO THE EXCISE TAX IMPOSED BY CODE §4999 (THE “EXCISE TAX”), THEN
EMPLOYEE’S PAYMENTS AND BENEFITS UNDER SECTION 5© OF THIS AGREEMENT SHALL BE
EITHER

(I)                                     PAID IN FULL, OR

(II)                                  PAID AS TO SUCH LESSER EXTENT WHICH WOULD
RESULT IN NO PORTION OF SUCH PAYMENTS OR BENEFITS BEING SUBJECT TO THE EXCISE
TAX,

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income and payroll taxes and the Excise Tax,

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results in the receipt by Employee on an after-tax basis, of the greatest amount
of Total Severance Benefits, notwithstanding that all or some portion of such
benefits may be subject to the Excise Tax under Section 4999 of the Code.  For
purposes of this Agreement, “Total Severance Benefits” means the severance
payments and benefits under Section 5© of this Agreement and all other payments
and benefits received or to be received by Employee under this Agreement and all
payments and benefits (if any) to which Employee may be entitled under any plan,
agreement or otherwise upon or as the result of a Change of Control or the
termination of his employment with the Company, or both.  This Section 5(d) is
not intended to prevent and shall not result in the prevention of the
acceleration and full vesting of any outstanding stock option held by Employee. 
Any determination required under this Section 5(d) shall be made in writing by
the Company’s independent public accountants (the “Accountants”), whose
determination shall be conclusive and binding upon Employee and the Company for
all purposes.  For purposes of making the calculations required by this Section
5(d), the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Code §§280G and 4999.  The Company
and Employee shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section 5(d).  The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
Section 5(d).

6.                                      NONDISCLOSURE.  EMPLOYEE ACKNOWLEDGES
THAT DURING THE COURSE OF HIS EMPLOYMENT BY THE COMPANY, THE COMPANY AND ITS
AFFILIATES HAVE PROVIDED AND WILL PROVIDE, AND THE EMPLOYEE HAS ACQUIRED AND
WILL ACQUIRE, TECHNICAL KNOWLEDGE WITH RESPECT TO THE COMPANY’S AND ITS
AFFILIATES’ BUSINESS OPERATIONS, INCLUDING, BY WAY OF ILLUSTRATION, THE
COMPANY’S AND ITS AFFILIATES’ EXISTING AND CONTEMPLATED PRODUCT LINE, TRADE
SECRETS, COMPILATIONS, BUSINESS AND FINANCIAL METHODS OR PRACTICES, PLANS,
PRICING, MARKETING, MERCHANDISING AND SELLING TECHNIQUES AND INFORMATION,
CUSTOMER LISTS, SUPPLIER LISTS AND CONFIDENTIAL INFORMATION RELATING TO THE
COMPANY’S AND ITS AFFILIATES’ POLICIES AND/OR BUSINESS STRATEGY (ALL OF SUCH
INFORMATION HEREIN REFERENCED TO AS THE “CONFIDENTIAL INFORMATION”).  THE
PROTECTION OF THE CONFIDENTIAL INFORMATION AGAINST UNAUTHORIZED DISCLOSURE OR
USE IS OF CRITICAL IMPORTANCE TO THE COMPANY.  EMPLOYEE AGREES THAT EMPLOYEE
WILL NOT, DURING THE EMPLOYMENT PERIOD, DIVULGE TO ANY PERSON, DIRECTLY OR
INDIRECTLY, EXCEPT TO THE COMPANY OR ITS OFFICERS AND AGENTS OR AS REASONABLY
REQUIRED IN CONNECTION WITH EMPLOYEE’S DUTIES ON BEHALF OF THE COMPANY, OR USE,
EXCEPT ON BEHALF OF THE COMPANY, ANY CONFIDENTIAL INFORMATION ACQUIRED BY THE
EMPLOYEE DURING THE EMPLOYMENT PERIOD.  EMPLOYEE AGREES THAT EMPLOYEE WILL NOT,
FOR A PERIOD OF THREE YEARS AFTER THE EMPLOYMENT PERIOD HAS ENDED, USE OR
DIVULGE TO ANY PERSON DIRECTLY OR INDIRECTLY ANY

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CONFIDENTIAL INFORMATION, OR USE ANY CONFIDENTIAL INFORMATION IN SUBSEQUENT
EMPLOYMENT.

7.                                      RETURN OF DOCUMENTS.  EMPLOYEE’S
RELATIONSHIP WITH THE COMPANY IS TERMINATED (FOR WHATEVER REASON), EMPLOYEE
SHALL NOT TAKE WITH EMPLOYEE, BUT WILL LEAVE WITH THE COMPANY, ALL WORK PRODUCT,
RECORDS, FILES, MEMORANDA, REPORTS, PRICE LISTS, CUSTOMER LISTS, SUPPLIER LISTS,
DOCUMENTS AND OTHER INFORMATION, IN WHATEVER FORM (INCLUDING ON COMPUTER DISC),
AND ANY COPIES THEREOF, RELATING TO THE CONFIDENTIAL INFORMATION OR IF SUCH
ITEMS ARE NOT ON THE PREMISES OF THE COMPANY, EMPLOYEE AGREES TO RETURN SUCH
ITEMS IMMEDIATELY UPON EMPLOYEE’S TERMINATION).  EMPLOYEE ACKNOWLEDGES THAT ALL
SUCH ITEMS ARE AND REMAIN THE PROPERTY OF THE COMPANY.

8.                                      DISCOVERIES.  EMPLOYEE WILL PROMPTLY AND
FREELY DISCLOSE TO THE COMPANY, IN WRITING, ANY AND ALL IDEAS, CONCEPTIONS,
INVENTIONS, IMPROVEMENTS AND DISCOVERIES (COLLECTIVELY, “DISCOVERIES”), WHETHER
PATENTABLE OR NOT, THAT ARE CONCEIVED OR MADE BY EMPLOYEE, SOLELY OR JOINTLY
WITH ANOTHER, DURING THE EMPLOYMENT PERIOD, AND THAT RELATE TO THE BUSINESS OR
ACTIVITIES OF, OR THE PRODUCTS SOLD BY, THE COMPANY.  EMPLOYEE HEREBY ASSIGNS TO
THE COMPANY ALL OF EMPLOYEE’S INTEREST IN ANY SUCH DISCOVERIES.  UPON THE
REQUEST OF THE COMPANY, WHETHER DURING OR AFTER THE EMPLOYMENT PERIOD, EMPLOYEE
WILL EXECUTE ANY AND ALL APPLICATIONS, ASSIGNMENTS AND OTHER INSTRUMENTS THAT
THE COMPANY SHALL, IN ITS SOLE DISCRETION, DEEM NECESSARY TO APPLY FOR AND
OBTAIN PROTECTION, INCLUDING, WITHOUT LIMITATION, PATENT PROTECTION, FOR THE
DISCOVERIES IN ALL COUNTRIES OF THE WORLD.  THE OBLIGATIONS OF THE PARTIES UNDER
THIS SECTION 8 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.

9.                                      COPYRIGHT.  IF, DURING THE EMPLOYMENT
PERIOD, EMPLOYEE CREATES ANY ORIGINAL WORK OF AUTHORSHIP FIXED IN ANY TANGIBLE
MEDIUM OF EXPRESSION, WHICH IS THE SUBJECT MATTER OF COPYRIGHT, INCLUDING,
WITHOUT LIMITATION, VIDEO TAPES, WRITTEN PRESENTATIONS, COMPUTER PROGRAMS,
DRAWINGS, MODELS, MANUALS, BROCHURES AND THE LIKE, THAT RELATE TO THE COMPANY’S
BUSINESS, PRODUCTS SOLD OR SERVICES, WHETHER SUCH WORK IS CREATED SOLELY BY
EMPLOYEE OR JOINTLY WITH OTHERS, THE COMPANY SHALL BE DEEMED TO BE THE AUTHOR OF
SUCH WORK IF THE WORK IS PREPARED BY EMPLOYEE WITHIN THE SCOPE OF EMPLOYEE’S
EMPLOYMENT; OR IF THE WORK IS NOT PREPARED BY EMPLOYEE WITHIN THE SCOPE OF
EMPLOYEE’S EMPLOYMENT, BUT IS SPECIALLY ORDERED BY THE COMPANY, INCLUDING,
WITHOUT LIMITATION, AS A CONTRIBUTION TO A COLLECTIVE WORK, OR AS A PART OF AN
AUDIO-VISUAL WORK, AS A TRANSLATION, AS A SUPPLEMENTARY WORK, AS A COMPILATION,
OR AS AN INSTRUCTIONAL TEXT, OR IS CREATED USING ANY RESOURCES OR PROPERTY OF
THE COMPANY, THE WORK SHALL BE CONSIDERED A WORK MADE FOR HIRE, AND THE COMPANY
SHALL BE THE AUTHOR OF THE WORK.  IF SUCH WORK IS NEITHER PREPARED BY EMPLOYEE
WITHIN THE SCOPE OF EMPLOYMENT, NOR AS A WORK MADE FOR HIRE, EMPLOYEE HEREBY
ASSIGNS TO THE COMPANY ALL OF EMPLOYEE’S WORLD-WIDE RIGHT, TITLE AND INTEREST IN
AND TO SUCH WORK AND ALL RIGHTS OF COPYRIGHT THEREIN.  EMPLOYEE AGREES TO, UPON
THE REQUEST OF THE COMPANY, WHETHER DURING OR AFTER THE PERIOD OF EMPLOYEE’S
EMPLOYMENT BY THE COMPANY, ASSIST THE COMPANY IN THE PROTECTION OF THE COMPANY’S
WORLD-WIDE

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RIGHT, TITLE AND INTEREST IN AND TO THE WORK AND ALL RIGHTS OF COPYRIGHT
THEREIN, INCLUDING, WITHOUT LIMITATION, THE EXECUTION OF ALL FORMAL ASSIGNMENT
DOCUMENTS REQUESTED BY THE COMPANY, AND THE EXECUTION OF ALL LAWFUL OATHS AND
APPLICATIONS FOR REGISTRATION OF COPYRIGHT IN THE UNITED STATES AND FOREIGN
COUNTRIES.  THE OBLIGATIONS OF THE PARTIES UNDER THIS SECTION 9 SHALL SURVIVE
THE TERMINATION OF THIS AGREEMENT.

10.                               NO EXCLUSIONS.  EMPLOYEE HEREBY REPRESENTS
THAT EMPLOYEE HAS NOT HERETOFORE MADE ANY DISCOVERIES OR PREPARED ANY WORK WHICH
IS THE SUBJECT OF COPYRIGHTS THAT EMPLOYEE WISHES TO EXCLUDE FROM THE PROVISIONS
OF SECTIONS 8 AND 9 ABOVE.

11.                               NONCOMPETITION. THE BUSINESS OF THE COMPANY IS
RELATIVELY UNIQUE AND EMPLOYEE ACKNOWLEDGES THAT HE IS BEING PROVIDED AND WILL
CONTINUE TO BE PROVIDED BY THE COMPANY WITH SIGNIFICANT INFORMATION, TRADE
SECRETS AND OPPORTUNITIES, WHICH ARE CONFIDENTIAL AND PROPRIETARY IN NATURE. 
EMPLOYEE FURTHER ACKNOWLEDGES THAT SUCH INFORMATION AND OPPORTUNITIES WOULD HAVE
SIGNIFICANT VALUE TO ANY CURRENT OR PROSPECTIVE COMPETITOR OF THE COMPANY.  IN
RECOGNITION OF THE COMPANY’S AGREEMENT TO PROVIDE TO EMPLOYEE SUCH INFORMATION
AND OPPORTUNITIES, OF THE NEED TO FULLY PROTECT SUCH INFORMATION AND
OPPORTUNITIES FROM UNAUTHORIZED DISCLOSURE OR USE, AND IN CONSIDERATION OF THE
NUMEROUS MUTUAL PROMISES CONTAINED IN THIS AGREEMENT BETWEEN THE COMPANY AND THE
EMPLOYEE, INCLUDING, WITHOUT LIMITATION, THOSE INVOLVING CONFIDENTIAL
INFORMATION, COMPENSATION, TERMINATION AND ARBITRATION, AND IN ORDER TO PROTECT
THE COMPANY’S CONFIDENTIAL INFORMATION AND TO REDUCE THE LIKELIHOOD OF
IRREPARABLE DAMAGE WHICH WOULD OCCUR IN THE EVENT SUCH INFORMATION IS PROVIDED
TO OR USED BY A COMPETITOR OF THE COMPANY,  DURING THE EMPLOYMENT PERIOD AND FOR
AN ADDITIONAL PERIOD OF ONE YEAR IMMEDIATELY FOLLOWING THE EMPLOYMENT PERIOD
(THE “NONCOMPETITION TERM”), EMPLOYEE WILL NOT, DIRECTLY OR INDIRECTLY, EITHER
THROUGH ANY FORM OF OWNERSHIP OR AS A DIRECTOR, OFFICER, PRINCIPAL, AGENT,
EMPLOYEE, EMPLOYER, ADVISER, CONSULTANT, SHAREHOLDER, PARTNER, OR IN ANY OTHER
INDIVIDUAL OR REPRESENTATIVE CAPACITY WHATSOEVER, EITHER FOR HIS OWN BENEFIT OR
FOR THE BENEFIT OF ANY OTHER PERSON, FIRM, CORPORATION, GOVERNMENTAL OR PRIVATE
ENTITY, OR ANY OTHER ENTITY OF WHATEVER KIND, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY (WHICH CONSENT MAY BE WITHHELD IN ITS SOLE DISCRETION), COMPETE
WITH THE COMPANY OR ITS AFFILIATES, IN NORTH AND SOUTH AMERICA, MEXICO, WESTERN
AND EASTERN EUROPE, THE MIDDLE EAST, AND THE FAR EAST INCLUDING JAPAN, MALAYSIA,
SOUTH KOREA, CHINA, TAIWAN OR ASIA (“NONCOMPETITION TERRITORY”) IN ANY BUSINESS
ACTIVITY OF THE COMPANY EXISTING OR CONTEMPLATED AS OF, OR CONDUCTED OR
CONTEMPLATED BY THE COMPANY PRIOR TO, THE DATE OF THIS AGREEMENT, AND/OR DURING
THE EMPLOYMENT PERIOD.  ANY SUCH ACTS DURING THE NONCOMPETITION TERM IN THE
NON-COMPETITION TERRITORY SHALL BE CONSIDERED BREACHES AND VIOLATIONS OF THIS
AGREEMENT.  ADDITIONALLY, DURING THE NONCOMPETITION TERM, EMPLOYEE SHALL NOT
DIRECTLY OR INDIRECTLY REQUEST OR ADVISE ANY CUSTOMER OR SUPPLIER OF THE COMPANY
TO WITHDRAW, CURTAIL OR CANCEL ITS BUSINESS ACTIVITIES WITH THE COMPANY.

9

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If, during any period within the Noncompetition Term, Employee is not in
compliance with the terms of this Section 11, the Company shall be entitled to,
among other remedies, seek compliance by Employee with the terms of this Section
11 for an additional period equal to the period of such noncompliance.  For
purposes of this Agreement, the term “Noncompetition Term” shall also include
this additional period.  Employee hereby acknowledges that the geographic
boundaries, scope of prohibited activities and the time duration of the
provisions of this Section 11 are reasonable and are no broader than are
necessary to protect the legitimate business interests of the Company, given the
unique and worldwide nature of the Internet and electronic commerce.

This Section 11 shall survive the termination of Employee’s employment and can
only be revoked or modified by a writing signed by the parties which
specifically states an intent to revoke or modify this provision.

12.                               NO INTERFERENCE WITH EMPLOYEES.  DURING THE
NONCOMPETITION TERM, WITHOUT THE CONSENT OF THE BOARD OF DIRECTORS, NEITHER
EMPLOYEE  NOR ANY INDIVIDUAL, PARTNERS, LIMITED PARTNERSHIP, CORPORATION OR
OTHER ENTITY OR BUSINESS WITH WHICH EMPLOYEE IS IN ANY WAY AFFILIATED,
INCLUDING, WITHOUT LIMITATION, ANY PARTNER, LIMITED PARTNER, DIRECTOR, OFFICER,
SHAREHOLDER OR EMPLOYEE OF ANY SUCH ENTITY OR BUSINESS, WILL (I) REQUEST, INDUCE
OR ATTEMPT TO INFLUENCE, DIRECTLY OR INDIRECTLY, ANY EMPLOYEE OF THE COMPANY TO
TERMINATE HIS EMPLOYMENT WITH THE COMPANY OR (II) EMPLOY ANY PERSON WHO AS OF
THE DATE HEREOF WAS, OR AFTER SUCH DATE IS OR WAS, AN EMPLOYEE OF THE COMPANY.

13.                               REFORMATION OF SECTIONS 11 AND 12.  THE
COMPANY AND EMPLOYEE AGREE AND STIPULATE THAT THE AGREEMENTS AND COVENANTS NOT
TO COMPETE CONTAINED IN SECTIONS 11 AND 12 HEREOF ARE FAIR AND REASONABLE IN
LIGHT OF ALL OF THE FACTS AND CIRCUMSTANCES OF THE RELATIONSHIP BETWEEN EMPLOYEE
AND THE COMPANY; HOWEVER, EMPLOYEE AND THE COMPANY ARE AWARE THAT IN CERTAIN
CIRCUMSTANCES COURTS HAVE REFUSED TO ENFORCE CERTAIN AGREEMENTS NOT TO COMPETE. 
THEREFORE, IN FURTHERANCE OF, AND NOT IN DEROGATION OF THE PROVISIONS OF
SECTIONS 11 AND 12, THAT IN THE EVENT A COURT SHOULD DECLINE TO ENFORCE THE
PROVISIONS OF SECTIONS 11 AND/OR 12, SECTIONS 11 AND/OR 12, AS APPLICABLE, SHALL
BE DEEMED TO BE MODIFIED OR REFORMED TO RESTRICT EMPLOYEE’S COMPETITION WITH THE
COMPANY OR ITS AFFILIATES TO THE MAXIMUM EXTENT, AS TO TIME, GEOGRAPHY AND
BUSINESS SCOPE, WHICH THE COURT SHALL FIND ENFORCEABLE; PROVIDED, HOWEVER, IN NO
EVENT SHALL THE PROVISIONS OF SECTIONS 11 AND/OR 12, AS APPLICABLE, BE DEEMED TO
BE MORE RESTRICTIVE TO EMPLOYEE THAN THOSE CONTAINED HEREIN.

14.                               INJUNCTIVE RELIEF.  EMPLOYEE ACKNOWLEDGES THAT
BREACH OF ANY OF THE AGREEMENTS CONTAINED HEREIN, INCLUDING, WITHOUT LIMITATION,
ANY OF THE NONCOMPETITION AND CONFIDENTIALITY COVENANTS SPECIFIED IN SECTIONS 6
THROUGH 12, WILL GIVE RISE TO IRREPARABLE INJURY TO THE COMPANY, INADEQUATELY
COMPENSABLE IN DAMAGES.  ACCORDINGLY, NOTWITHSTANDING SECTION 15 BELOW, THE
COMPANY SHALL BE ENTITLED, WITHOUT THE POSTING OF ANY BOND, TO INJUNCTIVE RELIEF
TO PREVENT OR CURE BREACHES OR THREATENED BREACHES OF THE PROVISIONS OF THIS
AGREEMENT AND TO

10

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ENFORCE SPECIFIC PERFORMANCE OF THE TERMS AND PROVISIONS HEREOF IN ANY COURT OF
COMPETENT JURISDICTION, IN ADDITION TO ANY OTHER LEGAL OR EQUITABLE REMEDIES
WHICH MAY BE AVAILABLE.  EMPLOYEE FURTHER ACKNOWLEDGES AND AGREES THAT IN THE
EVENT OF THE TERMINATION OF THIS AGREEMENT, HIS EXPERIENCE AND CAPABILITIES ARE
SUCH THAT HE CAN OBTAIN EMPLOYMENT IN BUSINESS ACTIVITIES WHICH ARE OF A
DIFFERENT OR NONCOMPETING NATURE WITH HIS ACTIVITIES AS AN EMPLOYEE OF THE
COMPANY; AND THAT THE ENFORCEMENT OF A REMEDY HEREUNDER BY WAY OF INJUNCTION
SHALL NOT PREVENT EMPLOYEE FROM EARNING A REASONABLE LIVELIHOOD.  EMPLOYEE
FURTHER ACKNOWLEDGES AND AGREES THAT THE COVENANTS CONTAINED HEREIN ARE
NECESSARY FOR THE PROTECTION OF THE COMPANY’S LEGITIMATE BUSINESS INTERESTS AND
ARE REASONABLE IN SCOPE AND CONTENT.

15.                               MUTUAL AGREEMENT TO ARBITRATE.  COMPANY AND
EMPLOYEE RECOGNIZE THAT DIFFERENCES MAY ARISE BETWEEN THEM.  THROUGH THIS
SECTION 15, BOTH PARTIES EXPECT TO GAIN THE BENEFITS OF A SPEEDY, ECONOMICAL,
IMPARTIAL DISPUTE-RESOLUTION PROCEDURE.  THEREFORE, THE PARTIES AGREE AS
FOLLOWS:

A.                                       THIS SECTION 15 SHALL APPLY TO ALL
DISPUTES OR CONTROVERSIES, WHETHER OR NOT ARISING OUT OF EMPLOYEE’S EMPLOYMENT
(OR TERMINATION OF THAT EMPLOYMENT), THAT COMPANY MAY HAVE AGAINST EMPLOYEE, OR
THAT EMPLOYEE MAY HAVE AGAINST COMPANY OR AGAINST (AS APPLICABLE) ITS PAST OR
PRESENT OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES, ADVISORS OR
AGENTS (COLLECTIVELY, “CLAIMS”), EXCEPT FOR INJUNCTIVE RELIEF TO BE PURSUED BY
COMPANY PURSUANT TO SECTION (B) BELOW.  THE CLAIMS INCLUDE, BUT ARE NOT LIMITED
TO, CONTROVERSIES RELATING TO: COMPENSATION OR BENEFITS, BREACH OF ANY CONTRACT,
TORTS, DISCRIMINATION UNDER STATE, FEDERAL OR LOCAL LAW, AND VIOLATION OF ANY
FEDERAL, STATE, OR OTHER GOVERNMENTAL LAW, STATUTE, REGULATION, OR ORDINANCE. 
HOWEVER, THIS SECTION 15 SHALL NOT APPLY TO ANY CLAIM: (I) FOR WORKERS’
COMPENSATION OR UNEMPLOYMENT BENEFITS; OR (II) BY COMPANY FOR INJUNCTIVE AND/OR
OTHER EQUITABLE RELIEF FOR UNFAIR COMPETITION AND/OR THE USE AND/OR UNAUTHORIZED
DISCLOSURE OF TRADE SECRETS OR CONFIDENTIAL INFORMATION, INCLUDING BUT NOT
LIMITED TO, MATTERS DESCRIBED IN SECTIONS 6 AND 11 ABOVE.  WITH RESPECT TO
MATTERS REFERRED TO IN THE FOREGOING SUB-PARAGRAPH (II), COMPANY MAY SEEK AND
OBTAIN INJUNCTIVE RELIEF IN COURT, AND THEN PROCEED WITH ARBITRATION UNDER THIS
SECTION 15.

11

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B.                                       EXCEPT AS SET FORTH IN THIS AGREEMENT,
THE SOLE AND EXCLUSIVE METHOD TO RESOLVE ANY CLAIM IS ARBITRATION AS PROVIDED IN
THIS SECTION 15 AND THE PARTIES EACH WAIVE THEIR RIGHT TO COMMENCE AN ACTION IN
ANY COURT TO RESOLVE A CLAIM.  EXCEPT WITH RESPECT TO INJUNCTIVE RELIEF
SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT, NEITHER PARTY SHALL INITIATE OR
PROSECUTE ANY LAWSUIT IN ANY WAY RELATED TO ANY CLAIM COVERED BY THIS SECTION
15.

C.                                       A CLAIM MUST BE PROCESSED IN THE MANNER
SET FORTH BELOW.

(I)                                     WRITTEN NOTICE OF DESIRE TO ARBITRATE
SHALL DESCRIBE THE FACTUAL BASIS OF ALL CLAIMS ASSERTED, AND SHALL BE SENT TO
THE OTHER PARTY BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. 
WRITTEN NOTICE TO EMPLOYEE WILL BE MAILED TO EMPLOYEE’S ADDRESS AS IT APPEARS IN
COMPANY’S RECORDS.  WRITTEN NOTICE TO COMPANY, OR ITS OFFICERS, DIRECTORS,
EMPLOYEES OR AGENTS, SHALL BE SENT TO THE COMPANY AT COMPANY’S PRINCIPAL
EXECUTIVE OFFICE.  IF WRITTEN NOTICE OF INTENTION TO ARBITRATE IS NOT GIVEN
WITHIN THE APPLICABLE TIME PERIOD, THE PARTY WHO FAILED TO GIVE NOTICE WILL BE
DEEMED TO HAVE WAIVED THE RIGHT TO FURTHER CONTEST THE MATTER, AND WILL BE
DEEMED TO HAVE ACCEPTED THE OTHER PARTY’S LAST STATED POSITION ON THE CLAIM.

(II)                                  THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE THEN-CURRENT MODEL EMPLOYMENT ARBITRATION PROCEDURES OF THE
AMERICAN ARBITRATION ASSOCIATION (“AAA”) BEFORE A SINGLE ARBITRATOR.  THE
ARBITRATION SHALL TAKE PLACE IN OR NEAR THE CITY IN WHICH EMPLOYEE IS OR WAS
LAST WORKING WITH COMPANY.

(A)                              THE ARBITRATOR SHALL BE SELECTED IN THE
FOLLOWING MANNER.  THE AAA SHALL GIVE EACH PARTY A LIST OF AT LEAST SIX
ARBITRATORS DRAWN FROM ITS PANEL OF LABOR AND EMPLOYMENT ARBITRATORS.  EACH SIDE
MAY STRIKE ALL NAMES ON THE LIST IT DEEMS UNACCEPTABLE.  IF ONLY ONE COMMON NAME
REMAINS ON THE

12

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LISTS OF ALL PARTIES, THAT INDIVIDUAL SHALL BE THE ARBITRATOR.  IF MORE THAN ONE
COMMON NAME REMAINS ON THE LISTS OF ALL PARTIES, THE PARTIES SHALL STRIKE NAMES
ALTERNATELY UNTIL ONLY ONE REMAINS.  IF NO COMMON NAME REMAINS ON THE LISTS OF
ALL PARTIES, THE AAA SHALL FURNISH ONE ADDITIONAL LIST, AND THE ABOVE PROCEDURE
WILL BE UTILIZED.  IF NO ARBITRATOR IS DESIGNATED FROM THE SECOND LIST, THE
PROCEDURE OF THE AAA RULES WILL BE UTILIZED TO SELECT THE ARBITRATOR.  IN NO
EVENT WILL THE ARBITRATOR BE THEN AFFILIATED IN ANY MANNER WITH A COMPETITOR OF
THE COMPANY.

(B)                                ANY PARTY MAY BE REPRESENTED BY AN ATTORNEY
OR OTHER REPRESENTATIVE SELECTED BY THE PARTY.

(C)                                EACH PARTY SHALL HAVE THE RIGHT TO TAKE
DEPOSITIONS OF INDIVIDUALS AND ANY EXPERT WITNESSES DESIGNATED BY ANOTHER
PARTY.  EACH PARTY ALSO SHALL HAVE THE RIGHT TO MAKE REQUESTS FOR PRODUCTION OF
DOCUMENTS TO ANY PARTY.  ADDITIONAL DISCOVERY MAY BE HAD ONLY WHERE THE
ARBITRATOR SO ORDERS, UPON A SHOWING OF SUBSTANTIAL NEED.  ALL ISSUES RELATED TO
DISCOVERY WILL BE RESOLVED BY THE ARBITRATOR.

(D)                               AT LEAST 14 DAYS BEFORE THE ARBITRATION, THE
PARTIES MUST EXCHANGE LISTS OF WITNESSES, INCLUDING ANY EXPERT, AND COPIES OF
ALL EXHIBITS INTENDED TO BE USED AT THE ARBITRATION.

(III)                               THE ARBITRATOR WILL HAVE NO AUTHORITY TO: 
ADOPT NEW COMPANY POLICIES OR PROCEDURES,  MODIFY THIS SECTION 15 OR EXISTING
COMPANY POLICIES, PROCEDURES, WAGES OR BENEFITS, OR IN THE ABSENCE OF A WRITTEN
WAIVER PURSUANT TO PARAGRAPH (IX) BELOW, HEAR OR DECIDE ANY MATTER THAT WAS NOT
PROCESSED IN ACCORDANCE WITH THIS SECTION 15.  THE ARBITRATOR SHALL HAVE
EXCLUSIVE AUTHORITY TO

13

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RESOLVE ANY CLAIM, INCLUDING, BUT NOT LIMITED TO, A DISPUTE RELATING TO THE
INTERPRETATION, APPLICABILITY, ENFORCEABILITY OR FORMATION OF THIS SECTION 15,
OR ANY CONTENTION THAT ALL OR ANY PART OF THIS SECTION 15 IS VOID OR VOIDABLE. 
THE ARBITRATOR WILL HAVE THE AUTHORITY TO AWARD ANY FORM OF REMEDY OR DAMAGES
THAT WOULD BE AVAILABLE IN A COURT.

(IV)                              COMPANY SHALL PAY REASONABLE AND NECESSARY
FEES OF THE AAA AND THE ARBITRATOR.  THE PARTIES WILL PAY THEIR OWN ATTORNEYS’
FEES AND EXPENSES ASSOCIATED WITH THE ARBITRATION.

(V)                                 EITHER PARTY, IN ITS SOLE DISCRETION, MAY,
IN WRITING, WAIVE, IN WHOLE OR IN PART, THE OTHER’S FAILURE TO FOLLOW ANY TIME
LIMIT OR OTHER REQUIREMENT SET FORTH IN THIS SECTION 15.

(VI)                              TO THE EXTENT PERMITTED BY LAW, EMPLOYEE
AGREES NOT TO INITIATE OR PROSECUTE AGAINST COMPANY ANY ADMINISTRATIVE ACTION
(OTHER THAN AN ADMINISTRATIVE CHARGE OF DISCRIMINATION) IN ANY WAY RELATED TO
ANY CLAIM COVERED BY THIS SECTION 15.

(VII)                           THE ARBITRATION WILL BE CONDUCTED IN PRIVATE,
AND WILL NOT BE OPEN TO THE PUBLIC OR THE MEDIA.  THE TESTIMONY AND OTHER
EVIDENCE PRESENTED, AND THE RESULTS OF THE ARBITRATION, UNLESS OTHERWISE AGREED
TO BY BOTH PARTIES, ARE CONFIDENTIAL AND MAY NOT BE MADE PUBLIC OR REPORTED BY
ANY NEWS AGENCY OR LEGAL PUBLISHER OR SERVICE.

(VIII)                        THE ARBITRATOR SHALL RENDER A WRITTEN DECISION AND
AWARD (THE “AWARD”), WHICH SHALL SET FORTH THE FACTS AND REASONS THAT SUPPORT
THE AWARD.  THE AWARD SHALL BE FINAL AND BINDING ON COMPANY AND EMPLOYEE AND
SHALL BE ENTERED IN A COURT OF COMPETENT JURISDICTION.

16.                               SEVERABILITY AND REFORMATION.  SUBJECT TO THE
REFORMATION PROVISION IN SECTION 13, IF ANY PROVISION OF THIS AGREEMENT IS HELD
TO BE ILLEGAL, INVALID OR UNENFORCEABLE UNDER ANY PRESENT OR FUTURE LAW, AND IF
THE RIGHTS OR OBLIGATIONS OF EMPLOYEE OR THE COMPANY UNDER THIS AGREEMENT WOULD

14

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NOT BE MATERIALLY AND ADVERSELY AFFECTED THEREBY, SUCH PROVISION SHALL BE FULLY
SEVERABLE, AND THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED AS IF SUCH
ILLEGAL, INVALID OR UNENFORCEABLE PROVISION HAD NEVER COMPRISED A PART THEREOF,
THE REMAINING PROVISIONS OF THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT
AND SHALL NOT BE AFFECTED BY THE ILLEGAL, INVALID OR UNENFORCEABLE PROVISION OR
BY ITS SEVERANCE HEREFROM, AND IN LIEU OF SUCH ILLEGAL, INVALID OR UNENFORCEABLE
PROVISION, THERE SHALL BE ADDED AUTOMATICALLY AS A PART OF THIS AGREEMENT A
LEGAL, VALID AND ENFORCEABLE PROVISION AS SIMILAR IN TERMS TO SUCH ILLEGAL,
INVALID OR UNENFORCEABLE PROVISION AS MAY BE POSSIBLE, AND THE COMPANY AND
EMPLOYEE HEREBY REQUEST THE COURT OR ANY ARBITRATOR TO WHOM DISPUTES RELATING TO
THIS AGREEMENT ARE SUBMITTED TO REFORM THE OTHERWISE UNENFORCEABLE COVENANT IN
ACCORDANCE WITH THIS SECTION 16.

17.                               HEADINGS, GENDER, ETC.  THE HEADINGS USED IN
THIS AGREEMENT HAVE BEEN INSERTED FOR CONVENIENCE AND DO NOT CONSTITUTE MATTER
TO BE CONSTRUED OR INTERPRETED IN CONNECTION WITH THIS AGREEMENT.  UNLESS THE
CONTEXT OF THIS AGREEMENT OTHERWISE REQUIRES, (I) WORDS OF ANY GENDER SHALL BE
DEEMED TO INCLUDE EACH OTHER GENDER; (II) WORDS USING THE SINGULAR OR PLURAL
NUMBER SHALL ALSO INCLUDE THE PLURAL OR SINGULAR NUMBER, RESPECTIVELY; AND (III)
THE TERMS “HEREOF,” “HEREIN,” “HEREBY,” “HERETO,” AND DERIVATIVE OR SIMILAR
WORDS SHALL REFER TO THIS ENTIRE AGREEMENT.

18.                               GOVERNING LAW.  THIS AGREEMENT WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO ANY PRINCIPLE OF CONFLICT OF LAWS THAT WOULD REQUIRE
THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.

19.                               SURVIVAL.  EMPLOYEE’S TERMINATION FROM
EMPLOYMENT, FOR WHATEVER REASON, SHALL NOT REDUCE OR TERMINATE EMPLOYEE’S OR THE
COMPANY’S COVENANTS AND AGREEMENTS SET FORTH HEREIN.

20.                               NOTICES.  ANY NOTICE NECESSARY UNDER THIS
AGREEMENT SHALL BE IN WRITING AND SHALL BE CONSIDERED DELIVERED THREE DAYS AFTER
MAILING IF SENT CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR WHEN RECEIVED, IF
SENT BY TELECOPY, PREPAID COURIER, EXPRESS MAIL OR PERSONAL DELIVERY TO THE
FOLLOWING ADDRESSES:

If to the Company:

 

Heelys, Inc.

 

 

3200 Belmeade Dr., Suite 100

 

 

Carrollton, Texas 75006

 

 

Telecopy:  (214) 390-1661

 

 

Attention:  Chairman of the Board

 

 

 

If to the Employee:

 

James S. Peliotes

 

 

3200 Belmeade Dr., Suite 100

 

 

Carrollton, Texas 75006

 

 

Telecopy:  214-390-1661

 

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21.                               ATTORNEYS’ FEES.  THE PREVAILING PARTY IN ANY
LEGAL PROCEEDINGS BROUGHT BY OR AGAINST THE OTHER PARTY TO ENFORCE ANY PROVISION
OF THIS AGREEMENT SHALL BE ENTITLED TO RECOVER AGAINST THE NON-PREVAILING PARTY
THE REASONABLE ATTORNEYS’ FEES, COURT COSTS, ARBITRATION FEES AND OTHER EXPENSES
INCURRED BY THE PREVAILING PARTY.  THIS SECTION SHALL NOT APPLY TO ARBITRATION,
WHICH IS GOVERNED BY SECTION 15©(VIII).

22.                               ENTIRE AGREEMENT.  THIS AGREEMENT, INCLUDING
THE RECITALS AND INTRODUCTIONS AND ALL EXHIBITS REFERRED TO, EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING OF THE PARTIES HERETO IN RESPECT OF THE SUBJECT
MATTER CONTAINED HEREIN AND SUPERSEDES ALL PRIOR CONFLICTING OR INCONSISTENT
AGREEMENTS, CONSENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. 
EMPLOYEE ACKNOWLEDGES AND AGREES THAT THERE IS NO ORAL OR OTHER AGREEMENT
BETWEEN THE COMPANY AND EMPLOYEE RELATING TO THE EMPLOYMENT RELATIONSHIP WHICH
HAS NOT BEEN INCORPORATED IN THIS AGREEMENT.

23.                               NO WAIVER.  THE FOREBEARANCE OR FAILURE OF ONE
OF THE PARTIES HERETO TO INSIST UPON STRICT COMPLIANCE BY THE OTHER WITH ANY
PROVISIONS OF THIS AGREEMENT, WHETHER CONTINUING OR NOT, SHALL NOT BE CONSTRUED
AS A WAIVER OF ANY RIGHTS OR PRIVILEGES HEREUNDER.  NO WAIVER OF ANY RIGHT OR
PRIVILEGE OF A PARTY ARISING FROM ANY DEFAULT OR FAILURE HEREUNDER OF
PERFORMANCE BY THE OTHER SHALL AFFECT SUCH PARTY’S RIGHTS OR PRIVILEGES IN THE
EVENT OF A FURTHER DEFAULT OR FAILURE OF PERFORMANCE.

24.                               ASSIGNMENT.  THIS AGREEMENT MAY NOT BE
ASSIGNED BY THE COMPANY WITHOUT THE EMPLOYEE’S APPROVAL, BUT NO APPROVAL SHALL
BE REQUIRED FOR THE COMPANY TO ASSIGN THIS AGREEMENT TO ANY AFFILIATE OR
SUCCESSOR IN INTEREST TO THE COMPANY’S BUSINESS OR IN CONNECTION WITH A CHANGE
OF CONTROL.  THIS AGREEMENT MAY NOT BE ASSIGNED BY EMPLOYEE.  ANY ASSIGNMENT
MADE BY EITHER PARTY IN CONTRAVENTION OF THIS SECTION SHALL BE NULL AND VOID FOR
ALL PURPOSES.

25.                               BINDING EFFECT.  THIS AGREEMENT SHALL BE
BINDING ON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR RESPECTIVE
SUCCESSORS AND PERMITTED ASSIGNS.

26.                               MODIFICATION.  THIS AGREEMENT MAY BE MODIFIED
ONLY BY A WRITTEN AGREEMENT SIGNED BY BOTH PARTIES.  ANY SUCH WRITTEN
MODIFICATION MUST BE AUTHORIZED  BY THE BOARD OF DIRECTORS OF THE COMPANY.

27.                               COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED
IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED TO BE AN ORIGINAL
INSTRUMENT, AND ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE AND THE SAME
AGREEMENT.

28.                               CODE §409A COMPLIANCE.   IT IS THE INTENTION
OF THE COMPANY AND EMPLOYEE THAT THIS AGREEMENT NOT RESULT IN UNFAVORABLE TAX

16

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CONSEQUENCES TO EMPLOYEE UNDER CODE §409A.  THE COMPANY AND EMPLOYEE ACKNOWLEDGE
THAT ONLY LIMITED GUIDANCE HAS BEEN ISSUED BY THE INTERNAL REVENUE SERVICE WITH
RESPECT TO THE APPLICATION OF CODE §409A TO CERTAIN ARRANGEMENTS, SUCH AS THIS
AGREEMENT.  IT IS EXPECTED BY THE COMPANY AND EMPLOYEE THAT THE INTERNAL REVENUE
SERVICE WILL PROVIDE FURTHER GUIDANCE REGARDING THE INTERPRETATION AND
APPLICATION OF CODE §409A IN CONNECTION WITH FINALIZING ITS CURRENT PROPOSED
REGULATIONS.  THE COMPANY AND EMPLOYEE ACKNOWLEDGE FURTHER THAT THE FULL EFFECT
OF CODE §409A ON POTENTIAL PAYMENTS PURSUANT TO THIS AGREEMENT CANNOT BE
DETERMINED AT THE TIME THAT THE COMPANY AND EMPLOYEE ARE ENTERING INTO THIS
AGREEMENT.  THE COMPANY AND EMPLOYEE AGREE TO WORK TOGETHER IN GOOD FAITH IN AN
EFFORT TO COMPLY WITH CODE §409A INCLUDING, IF NECESSARY, AMENDING THE AGREEMENT
BASED ON FURTHER GUIDANCE ISSUED BY THE INTERNAL REVENUE SERVICE FROM TIME TO
TIME, PROVIDED THAT NEITHER PARTY SHALL BE REQUIRED TO ASSUME AN ECONOMIC BURDEN
BEYOND WHAT IS ALREADY REQUIRED BY THIS AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the day and year first above written.

 

HEELING SPORTS LIMITED

EMPLOYEE

 

 

By:  HEELING MANAGEMENT CORP.,

/s/ James S. Peliotes

 

its sole general partner

James S. Peliotes

 

 

 

 

 

By:

/s/ Michael G. Staffaroni

 

 

 

 

Michael G. Staffaroni

 

 

 

Chief Executive Officer

 

 

17

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Exhibit 1

Salary and Benefits

Reference Section 4, part a.

1.               BASE SALARY TO BE $** PER MONTH - $** PER YEAR.

2.               BONUS PLAN:   BEGINNING WITH THE CALENDAR YEAR 2007, AN ANNUAL
BONUS AMOUNT AS DETERMINED BY THE COMPANY’S COMPENSATION COMMITTEE AND FOR
PURPOSES OF SUCH BONUS PLAN, EMPLOYEE’S “TARGET” AMOUNT IS 25% OF EMPLOYEE’S
THEN CURRENT BASE SALARY.

Reference Section 4, part b.

1.               EMPLOYEE TO RECEIVE THREE WEEKS PAID VACATION EACH CALENDAR
YEAR.

2.               EMPLOYEE TO RECEIVE LIFE, MEDICAL AND DENTAL INSURANCE THROUGH
THE PLAN ADOPTED BY THE COMPANY FOR ITS FULL TIME EMPLOYEES.

3.               EMPLOYEE SHALL BE ENTITLED TO PARTICIPATE IN A 401(K) PLAN
ADOPTED BY THE COMPANY FOR ITS FULL TIME EMPLOYEES, INCLUDING ANY MATCHING
ARRANGEMENTS IN EFFECT FROM TIME TO TIME.

--------------------------------------------------------------------------------

** Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.

18

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