Exhibit 10.3

     

    ROCKY BRANDS, INC.

    


    EMPLOYMENT
AGREEMENT

    


    This
Agreement is made as of this 12th day of
June, 2009 by and between JAMES E. MCDONALD and ROCKY BRANDS, INC., an Ohio
corporation with its principal office at 39 East Canal Street, Nelsonville, Ohio
45764.

    


    Recitals

    


    A.           Rocky
Brands, Inc. and its subsidiaries (collectively, the “Company”) are engaged in
the business of designing, manufacturing and marketing high quality men’s and
women’s footwear, apparel, and accessories and, in connection with its business,
the Company develops and uses valuable technical and nontechnical trade secrets
and other confidential information which it desires to protect.

    


    B.           You
are currently
employed as an executive officer of the Company.

    


    C.           The
Company considers your continued services to be in the best interest of the
Company and desires, through this Agreement, to assure your continued services
on behalf of the Company on an objective and impartial basis and without
distraction or conflict of interest in the event of an attempt to obtain control
of the Company.

    


    D.           You
are willing to remain in the employ of the Company on the terms set forth in
this Agreement.

    


    Agreement

    


    NOW,
THEREFORE, the parties agree as follows:

    


    1.           Consideration.  As
consideration for you entering into this Agreement and your willingness to
remain bound by its terms, the Company shall employ you, provide you access to
certain Confidential Information as defined in this Agreement, and provide you
other valuable consideration as specified in this Agreement, including the
compensation and benefits as set forth in Sections 3 and 4, respectively, of
this Agreement.

    


    2.           Employment.

    


    (a)  Position.  You
will be employed as the Executive Vice President, Chief Financial Officer and
Treasurer of the Company, reporting to the Chief Executive Officer of the
Company.  You shall perform the duties, undertake the responsibilities
and exercise the authority customarily performed, undertaken and exercised by
persons employed in similar executive capacities.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (b)   Restricted
Employment.  While employed by the Company, you shall devote
your full business time and attention and your best efforts to the business of
the Company and exercise the highest degree of loyalty and care with respect to
the affairs of the Company, discharging your duties competently, diligently and
effectively.  You will not engage in any outside employment or
consulting work without first securing the approval of the Company’s Board of
Directors.  The foregoing shall not preclude you from serving on civic
or charitable boards or committees or managing personal investments, so long as
such activities do not interfere with the performance of your responsibilities
hereunder or violate the other provisions of this Agreement.  You
shall not serve on the board of any for-profit corporation or entity without the
prior consent of the Company’s Board of Directors.  You further agree
to comply fully with all policies and practices of the Company as are from time
to time in effect.

    


    3.           Compensation.

    


    (a)           Your
compensation will be at an annual base rate of $289,900 as of January 1, 2009
(“Basic Salary”), payable in accordance with the normal payroll practices of the
Company.  Your Basic Salary may be increased from time to time by the
Board of Directors of the Company.  Your Basic Salary may also be
decreased from time to time by the Board of Directors by up to 20% of your Basic
Salary in effect at that time, but only if the salaries of all other executive
officers of the Company with similar agreements have similar decreases of their
base salaries in effect at the time.  Notwithstanding the foregoing,
in no case will your Basic Salary be decreased below $231,920 without your prior
agreement.  You will also be eligible to participate in a bonus plan
to be determined annually by the Board of Directors of the Company in its
discretion.

    


    (b)           You
will be eligible to receive restricted stock awards and stock options with
respect to the common stock of the Company as shall be determined by the Board
of Directors of the Company in its discretion and pursuant to the terms of plans
adopted by the Board of Directors of the Company from time to time.

    


    (c)           Subject
to applicable Company policies, you will be reimbursed for necessary and
reasonable business expenses incurred in connection with the performance of your
duties hereunder or for promoting, pursuing or otherwise furthering the business
or interests of the Company.

    


    4.           Fringe
Benefits.  You will be
entitled to receive employee benefits and participate in any employee benefit
plans, in accordance with their terms as from time to time amended, that the
Company maintains during your employment and which are made generally available
to all other management employees in like positions.  This includes a
401(k) and profit sharing plan.

    


    5.           Confidential
Information.

    


    (a)           As
used throughout this Agreement, the term “Confidential Information” means any
information you acquire during employment by the Company (including information
you conceive, discover or develop) which is not readily available to the general
public and which relates to the business, including research and development
projects, of the Company, its subsidiaries or its affiliated
companies.


    
      
         


      

      
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    (b)           Confidential
Information includes, without
limitation, information of a technical nature (such as trade secrets,
inventions, discoveries, product requirements, designs, software codes and
manufacturing methods), matters of a business nature (such as customer lists,
the identities of customer contacts, information about customer requirements and
preferences, the terms of the Company's contracts with its customers and
suppliers, and the Company's costs and prices), personnel information (such as
the identities, duties, customer contacts, skills, and  personnel data
of the Company's employees) and other financial information relating to the
Company and its customers (including credit terms, methods of conducting
business, computer systems, computer software, and strategic marketing, sales or
other business plans).  Confidential Information may or may not be
patentable.

    


    (c)           Confidential
Information does not
include information which you learned prior to employment with the
Company from sources other than the Company, information you develop after
employment from sources other than the Company's Confidential Information or
information which is readily available to persons with equivalent skills,
training and experience in the same fields or fields of endeavor as
you.  You must presume that all information that is disclosed or made
accessible to you during employment by the Company is Confidential Information
if you have a reasonable basis to believe the information is Confidential
Information or if you have notice that the Company treats the information as
Confidential Information.

    


    (d)           Except
in conducting the Company's business, you shall not at any time, either during
or following your employment with the Company, make use of, or disclose to any
other person or entity, any Confidential Information unless (i) the specific
information becomes public from a source other than you or another person or
entity that owes a duty of confidentiality to the Company, and (ii) 12 months
have passed since the specific information became public.  However,
you may discuss Confidential Information with employees of the Company when
necessary to perform your duties to the Company.  Notwithstanding the
foregoing, if you are ordered by a court of competent jurisdiction to disclose
Confidential Information, you will officially advise the Court that you are
under a duty of confidentiality to the Company hereunder, take reasonable steps
to delay disclosure until the Company may be heard by the Court, give the
Company prompt notice of such Court order, and if ordered to disclose such
Confidential Information you shall seek to do so under seal or in camera or in
such other manner as reasonably designed to restrict the public disclosure and
maintain the maximum confidentiality of such Confidential
Information.

    


    (e)           Upon
termination of your employment with the Company for any reason, or otherwise
upon the demand of the Board of Directors of the Company, you shall deliver to
the Company all originals and copies of any notes, documents, computer data
(however stored including such data on your personal digital assistant device or
personal computer) and records of any kind that reflect or relate to any
Confidential Information.  As used herein, the term “notes” means
written or printed words, symbols, pictures, numbers or
formulae.


    
      
         


      

      
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    6.           Inventions.

    


    (a)           As
used throughout this Agreement, the term “Inventions” means any inventions,
improvements, designs, plans, discoveries or innovations of a technical or
business nature, whether patentable or not, relating in any way to the Company's
business or contemplated business if the Invention is conceived or reduced to
practice by you during your employment by the Company.  Inventions
includes all data, records, physical embodiments and intellectual property
pertaining thereto.  Inventions reduced to practice within one year
following termination of your employment with the Company shall be presumed to
have been conceived during your employment.

    


    (b)           Inventions
are the Company's exclusive property and shall be promptly disclosed and
assigned to the Company without additional compensation of any
kind.  If requested by the Company, you, your heirs, your executors,
your administrators or legal representative will provide any information,
documents, testimony or other assistance needed for the Company to acquire,
maintain, perfect or exercise any form of legal protection that the Company
desires in connection with an Invention.

    


    (c)           Upon
termination of your employment with the Company for any reason, or otherwise
upon the demand of the Board of Directors of the Company, you shall deliver to
the Company all copies of and all notes with respect to all documents or records
of any kind that relate to any Inventions.

    


    7.           Noncompetition
and Nonsolicitation.

    


    (a)           By
entering into this Agreement, you acknowledge that Confidential Information has
been and will be developed and acquired by the Company by means of substantial
expense and effort, that the Confidential Information is a valuable asset of the
Company, that the disclosure of Confidential Information to any of the Company's
competitors would cause substantial and irreparable injury to the Company and
its business, and that any customers of the Company developed by you or others
during your employment are developed on behalf of the Company.  You
further acknowledge that you have been provided with access to Confidential
Information, including Confidential Information concerning the Company's
customers, and its technical, manufacturing, sales, marketing, logistical,
financial, personnel and business plans, disclosure or misuse of which would
irreparably injure the Company.

    


     (b)           In
exchange for the consideration specified in Sections 1, 3 and 4 of this
Agreement — the adequacy of which you expressly acknowledge — you agree that
during your employment by the Company and for a period of 12 months following
the termination of your employment with the Company for any reason, you shall
not, whether directly or indirectly, alone or in conjunction with another party,
as an owner, shareholder, officer, employee, manager, consultant, independent
contractor, or otherwise:

    


    (i)           Interfere
with or harm, or attempt to interfere with or harm, the relationship of the
Company with any person who is an employee, customer, product or services
supplier, independent contractor, or business agent or partner of the
Company;


    
      
         


      

      
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    (ii)           Contact
any employee of the Company for the purpose of discussing or suggesting that
such employee resign from employment with the Company for the purpose of
becoming employed elsewhere or provide information about individual employees of
the Company or personnel policies or procedures of the Company to any person or
entity, including any individual, agency or company engaged in the business of
recruiting employees, executives or officers;

    


    (iii)           Recruit
or hire, or attempt to recruit or hire, any person who is an employee of the
Company, or was an employee of the Company within the prior six months, if such
employee or former employee was primarily engaged in a sales, marketing or
customer relationship position with the Company or has (or if a former employee
had at the time of leaving the Company) a base annual salary rate with the
Company in excess of $75,000; or

    


    (iv)           Own,
manage, operate, join, control, be employed by, consult with or participate in
the ownership, management, operation or control of, or be connected with (as a
stockholder, partner, officer, manager, employee, consultant or otherwise), any
business, individual, company, partnership, firm, corporation, or other entity
that competes or plans to compete, directly or indirectly, with the Company, its
products, or any division, subsidiary or affiliate of the Company; provided,
however, that your “beneficial ownership,” either individually or as a member of
a “group” as such terms are used in Rule 13d of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), of not more than two percent (2%) of the voting stock of any publicly
held corporation, shall not be a violation of this Agreement.

    


    8.           Termination
of Employment.

    


    (a)           Termination Upon Death or
Disability.  Your employment will terminate automatically upon
your death.  The Company is entitled to terminate your employment
because of your disability upon 30 days’ written notice to
you.  “Disability” will mean “total disability” as defined in the
Company’s long term disability plan at the time such notice is given, or if the
Company does not have such a policy at the time of determination then it will
mean your inability to perform your regular job responsibilities for more than
180 days in any one year period.  In the event of a termination under
this Section 8(a), the Company will pay you only the earned but unpaid portion
of your Basic Salary through the termination date.

    


    Following
a termination for Disability by the Company, if you desire to contest such
determination, your sole remedy will be to submit the Company’s determination of
Disability to arbitration in Nelsonville, Ohio before a single arbitrator under
the commercial arbitration rules of the American Arbitration
Association.  If the arbitrator determines that the termination was
other than for Disability, the Company’s sole liability to you will be the
amount that would be payable to you under Section 8(d) of this Agreement for a
termination of your employment by the Company without Cause.  Each
party will bear his or its own expenses of the arbitration.


    
      
         


      

      
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    (b)           Termination by Company for
Cause.   The Company is entitled to terminate your
employment for “Cause” by giving you written notice of such
termination.  As used in this Agreement, the term “Cause” shall mean
that you have committed or engaged in any one or more of the
following:

    


    (i)           Commission
of an act of dishonesty involving the Company, its business or property,
including, but not limited to, misappropriation of funds or any property of the
Company;

    


    (ii)           Engagement
in activities or conduct clearly injurious to the best interests or reputation
of the Company;

    


    (iii)           Willful
and continued failure substantially to perform your duties under this Agreement
(other than as a result of physical or mental illness or injury), after the
Board of Directors of the Company delivers to you a written demand for
substantial performance that specifically identifies the manner in which the
Board believes that you have not substantially performed your
duties;

    


    (iv)           Illegal
conduct or gross misconduct that is willful and results in material and
demonstrable damage to the business or reputation of the Company;

    


    (v)           The
clear violation of any of the material terms and conditions of this Agreement or
any other written agreement or agreements you may from time to time have with
the Company (following 30 days’ written notice from the Company specifying the
violation and your failure to cure such violation within such 30-day
period);

    


    (vi)           The
clear violation of the Company's code of business conduct or the clear violation
of any other rules of behavior as may be provided in any employee handbook which
would be grounds for dismissal of any employee of the Company; or

    


    (vii)           Commission
of a crime which is a felony, a misdemeanor involving an act of moral turpitude,
or a misdemeanor committed in connection with your employment by the
Company.

    


    No act or
failure to act shall be considered “willful” unless it is done, or omitted to be
done, by you in bad faith or without reasonable belief that your action or
omission was in the best interests of the Company.  Any act or failure
to act that is based upon authority given pursuant to a resolution duly adopted
by the Board of Directors, or the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by you in good faith
and in the best interests of the Company.

    


    In the
event of a termination under this Section 8(b), the Company will pay you only
the earned but unpaid portion of your Basic Salary through the termination
date.



    
      
         


      

      
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    Following
a termination for Cause by the Company, if you desire to contest such
determination, your sole remedy will be to submit the Company’s determination of
Cause to arbitration in Nelsonville, Ohio before a single arbitrator under the
commercial arbitration rules of the American Arbitration
Association.  If the arbitrator determines that the termination was
other than for Cause, the Company’s sole liability to you will be the amount
that would be payable to you under Section 8(d) of this Agreement for a
termination of your employment by the Company without Cause.  Each
party will bear his or its own expenses of the arbitration.

    


    (c)           Termination by
You.                                           

    


    (i)           If
you choose to terminate your employment with the Company for any reason, you
must provide the Company with 60 days’ advance written notice and agree to
continue working for the Company during the 60-day notice period; provided,
however, that upon receipt of such notice of termination the Company may
restrict your access to the Company’s offices, employees, customers, suppliers,
properties, and Confidential Information during the 60-day notice period or may
agree with you that your termination date will be prior to the end of the 60-day
notice period.  In the event of a termination under this paragraph,
the Company’s sole obligation hereunder will be to pay you the earned but unpaid
portion of your Basic Salary through the termination date of your employment,
which termination date will not be deemed to be earlier than 30 days after the
date on which you provide the Company with your written notice of
termination.

    


    (ii)           In
the event that you choose to terminate your employment with the Company within
90 days of election of an individual other than Mike Brooks or David Sharp as
Chief Executive Officer of the Company, you must provide the Company with 90
days’ advance written notice and agree to continue working for the Company
during the 90-day notice period; provided, however, that upon receipt of such
notice of termination the Company may restrict your access to the Company’s
offices, employees, customers, suppliers, properties, and Confidential
Information during the 90-day notice period or may agree with you that your
termination date will be prior to the end of the 90-day notice
period.  In the event of a termination under this paragraph, your
termination may be treated as a termination by the Company without Cause as
provided under Section 8(d) below, in which case the Company will be obligated
to pay, maintain or reimburse you as provided in Section 8(d) below based on a
termination date that is the date on which you provide the Company with your
written notice of termination.  The Company may, in its sole
discretion, choose to waive the noncompetition provisions of Section 7(b)(iv) of
this Agreement, in which case the Company’s sole obligation hereunder will be to
pay you the earned but unpaid portion of your Basic Salary through the
termination date of your employment, including the 90-day notice
period.

    


    (d)           Termination by Company Without
Cause.  The Company may terminate your employment without Cause
by giving you 30 days’ advance written notice of such termination; provided,
however, the Company may elect to restrict your access to the Company’s offices,
employees, customers, suppliers, properties, and Confidential Information during
the 30-day notice period.  In the event of a termination without Cause
hereunder, the Company’s sole obligation shall be to pay, maintain or reimburse
you the items enumerated in (i) to (iii) below, which obligation shall be
effective only upon your prior execution and delivery to the Company of a
release (and the expiration of any period during which you could lawfully revoke
or rescind such release) of any and all claims by you against the Company and
its officers, directors, employees, subsidiaries and affiliates, except for
claims based on the Company’s failure to pay or provide to you the items
enumerated below:


    
      
         


      

      
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    (i)  The Company will pay
you the earned but unpaid portion of your Basic Salary and any earned bonus for
a bonus period that was completed prior to the date of termination of your
employment.

    


    (ii)  The Company will
continue to pay you your Basic Salary for an additional 12 months after the date
of termination of your employment (the “Severance Period”) minus (A) any
deductions required by law for taxes or otherwise, and (B) 50% of your Basic
Salary if you become employed or self-employed during the Severance
Period.  You agree to immediately inform the Company if you accept
employment or begin self-employment during the Severance Period so that the
Company can make the appropriate deductions.  Any such payments will
immediately end if (A) you are in violation of any of your obligations under
this Agreement, including Sections 5, 6 and/or 7 hereof; or (B) the Company,
after your termination, learns of any facts about your job performance or
conduct that would have given the Company Cause, as defined in Section 8(b), to
terminate your employment;

    


    (iii)  The Company will pay
you a Pro-Rated Bonus (as defined below) if you are eligible under a bonus plan
which is based on the financial performance of the Company and which is in
effect at the time of your termination but which provides that you must be
employed beyond the date of your termination to earn the bonus.  Such
Pro-Rated Bonus, if any, will be paid at the same time and in the same form that
other similarly situated Company employees are paid under the same bonus plan,
except that your payment will be ratably reduced to reflect that you did not
remain employed during the entire bonus period.  The “Pro-Rated Bonus”
means the bonus that would have been payable to you had you remained employed by
the Company throughout the bonus period and based on the actual performance of
the Company for the entire bonus period, pro-rated by multiplying such amount by
a fraction, the numerator of which is the number of days during the bonus period
which occurred prior to the date of your termination of employment, and the
denominator of which is the number of days in the bonus period (e.g., 365 days
for an annual bonus plan, 182.5 days for a semi-annual bonus plan,
etc.).  The Pro-Rated Bonus will not include any amount for a bonus
plan, if any, that is based on individual performance criteria or financial
performance criteria other than the Company’s overall financial
performance.

    


    (e)           Termination Following Change in
Control.  If a “Change in Control”, as defined in Section
8(e)(i), shall have occurred and within 13 months following such Change in
Control the Company terminates your employment other than for Disability under
Section 8(a) or Cause under Section 8(b), or you terminate your employment for
Good Reason, as that term is defined in Section 8(e)(vii), then the Company
shall be obligated to pay, maintain or reimburse you the items enumerated in
(ii) through (v) below, which obligation shall be effective only upon your prior
execution and delivery to the Company of a release (and the expiration of any
period during which you could lawfully revoke or rescind such release) of the
Company and its officers, directors, employees, subsidiaries and affiliates,
except for claims based on the Company’s failure to pay or provide to you the
items enumerated below in (ii) through (ix) below.


    
      
         


      

      
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    (i)  A
“Change in Control” shall be deemed to have occurred if and when, after the date
hereof, (A) any “person” (as that term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) on the date
hereof), including any “group” as such term is used in Section 13(d)(3) of the
Exchange Act on the date hereof, shall acquire (or disclose the previous
acquisition of) beneficial ownership (as that term is defined in Section 13(d)
of the Exchange Act and the rules thereunder on the date hereof) of shares of
the outstanding stock of any class or classes of the Company which results in
such person or group possessing more than 50% of the total voting power of the
Company's outstanding voting securities ordinarily having the right to vote for
the election of directors of the Company (“a Majority Ownership Change”); or (B)
as the result of, or in connection with, any tender or exchange offer, merger or
other business combination, or any combination of the foregoing transactions (a
“Stock Transaction”), the owners of the voting shares of the Company outstanding
immediately prior to such Transaction own less than a majority of the voting
shares of the Company after the Transaction; or (C) during any period of two
consecutive years during the term of this Agreement, individuals who at the
beginning of such period constitute the Board of Directors of the Company (or
who take office following the approval of a majority of the directors then in
office who were directors at the beginning of the period) cease for any reason
to constitute a majority thereof, unless the election of each director who was
not a director at the beginning of such period has been approved in advance by
directors of the Company representing at least one-half of the directors then in
office who were directors at the beginning of the period (a “Majority Board
Change”); or (D) the sale, exchange, transfer, or other disposition of all or
substantially all of the assets of the Company (an “Asset Transaction”) shall
have occurred.

    


    (ii)  You
shall be entitled to the unpaid portion of your Basic Salary plus credit for any
vacation accrued but not taken and the amount of any earned but unpaid portion
of any bonus, incentive compensation, or any other Fringe Benefit to which you
are entitled under this Agreement through the date of the termination as a
result of a Change in Control (the “Unpaid Earned Compensation”), plus 1.5 times your
“Average Annualized Includible Compensation” as defined in this Section 8(e)(ii)
(the “Salary Termination Benefit”).  “Average
Annualized  Includible Compensation” shall mean 20% of the total of
your base salary and any incentive bonus compensation paid to you by the
Company, whether in cash or stock or a combination thereof, and includible in
your gross income during the most recent five taxable years ending before the
date on which the Change in Control occurred (or such portion of such period
during which you performed services for the Company), but Average Annualized
Includible Compensation shall not include the value of any stock options granted
or exercised, restricted stock awards granted or vested, contributions to 401(k)
or other qualified plans, the value of any medical, dental, or other insurance
benefits, or other fringe benefits or perquisites paid or provided to
you.  Notwithstanding
the foregoing, in no case shall the Salary
Termination Benefit payable to you exceed one-half of one percent (0.5%) of the “Aggregate
Valuation” at the time of a Change in Control where:


    
      
         


      

      
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    (A)  “Aggregate Valuation”
means the total amount of all cash, securities, contractual arrangements and
other properties paid or payable, directly or indirectly, in connection with a
Stock Transaction or an Asset Transaction (including, without limitation,
amounts paid (1) in excess of the ordinary course pursuant to covenants not to
compete, employment contracts, employee benefit plans, management fees or other
similar arrangements, and (2) to holders of any warrants, stock purchase rights
or convertible securities of the Company and to holders of any options or stock
appreciation rights issued by the Company, whether or not vested) or, if in
connection with a Majority Ownership Change or Majority Board Change, the fair
market value of the Company’s equity securities at the time of either such
event.  Aggregate Valuation in all such cases shall also include the
amount of any short-term debt and long-term liabilities of the Company
(including the principal amount of any indebtedness for borrowed money and
capitalized leases and the full amount of any off-balance sheet financings) (1)
repaid or retired in connection with or in anticipation of a Change in Control
and (2) existing on the Company’s balance sheet at the time of a Change in
Control if such Change in Control results from a Stock Transaction, Majority
Ownership Change or Majority Board Change, or assumed in connection with a
Change in Control, if such Change in Control results from an Asset
Transaction.  For purposes of calculating the amount of revolving
credit debt in the preceding sentence, the arithmetic mean of the amount of
revolving credit debt outstanding on the last day of each month during the 12
months preceding the Change in Control.  If the Change in Control
takes the form of an Asset Transaction, Aggregate Valuation shall include (i)
the value of any current assets not purchased, minus (ii) the value of any
current liabilities not assumed.  If the Change in Control takes the
form of a recapitalization, restructuring, spin-off, split-off or similar
transaction, Aggregate Valuation shall include the fair market value of (i) the
equity securities of the Company retained by the Company’s security holders
following such transaction, and (ii) any securities received by the Company’s
security holders in exchange for or in respect of securities of the Company
following such transaction (all securities received by such security holders
being deemed to have been paid to such security holders in such
transaction).

    


    (B)  The value of securities
that are freely tradable in an established public market will be determined on
the basis of the last market closing price prior to the consummation of a
transaction.  The value of securities, lease payments and other
consideration that are not freely tradable or have no established public market,
or if the consideration utilized consists of property other than securities, the
value of such property shall be the fair market value thereof as determined in
good faith by the Company’s independent public accounting firm at the time of
the Change in Control, or if such firm refuses to make the valuation or if no
such accounting firm then exists then by GBQ Consulting LLC, Columbus, Ohio, or
its successors; provided, however, that all debt securities shall be valued at
their stated principal amount without applying a discount
thereto.


    
      
         


      

      
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    (iii)  All
outstanding stock options and restricted stock awards issued to you shall become
100% vested and thereafter exercisable in accordance with such governing stock
option or restricted stock agreements and plans.

    


    (iv)  The
Company shall maintain for your benefit (or at your election make COBRA payments
for your benefit), until the earlier of (a) 12 months after termination of your
employment following a Change in Control, or (b) your commencement of full-time
employment with a new employer, all life insurance, medical, health and
accident, and disability plans or programs, such plans or programs to be
maintained at the then current standards of the Company, in which you shall have
been entitled to participate prior to termination of employment following a
Change in Control, provided your continued participation is permitted under the
general terms of such plans and programs after the Change in Control (“Fringe
Termination Benefit”);  (collectively the Salary Termination Benefit
and the Fringe Termination Benefit are referred to as the “Termination
Benefits”).

    


    (v)  The
Unpaid Earned Compensation shall be paid to you within 15 days after termination
of your employment.  One-half of the Salary Termination Benefit shall
be payable to you as severance pay in a lump sum payment within 30 days after
termination of employment, and one-half of the Salary Termination Benefit shall
be payable to you as severance pay in 12 monthly payments commencing 60 days
after termination of employment;  provided, however, the Company may
immediately discontinue the payment or provision of the Termination Benefits if
(A) you are in violation of any of your obligations under this Agreement,
including those in Sections 5, 6 and/or 7 hereof; and/or (B) the Company, within
60 days after your termination, learns of any facts about your job performance
or conduct that would have given the Company Cause as defined in Section 8(b) to
terminate your employment; provided further,
that the Company’s obligation to provide the Fringe Termination Benefit shall
cease upon the earlier of your becoming employed or self-employed or the
expiration of your rights to continue such medical benefits under
COBRA;



    
      
         


      

      
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     (vi)  If
any portion of the payments and benefits provided under this Agreement to you,
alone or with other payments and benefits, would constitute “parachute payments”
within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986,
as amended (the “Code”), and shall be determined by the Company's independent
compensation specialist to be nondeductible to the Company, then the aggregate
present value of all of the amounts payable to you under Section 8(e) hereof
shall be reduced to the maximum amount which would cause all of the payments
under Section 8(e) to be deductible and in such event you shall have the option,
but not the obligation, to designate or select those kinds of payments which
shall be reduced and the order of such reductions, but your
failure  to make such selections within a period of 30 days following
notice of the determination that a reduction is necessary will result in a
reduction of all such payments, pro rata.  If you disagree with the
determination of the reduced amount by the Company's independent compensation
specialist, you may contest that determination by giving notice of such contest
within 30 days of learning of the determination and may use an independent
compensation specialist of your choice in connection with such
contest.  The Company shall pay all of your costs in connection with
such contest if the ultimate determination by the two independent compensation
specialists in consultation with each other, or by a third independent
compensation specialist, jointly chosen by the two first-named independent
compensation specialists in the event the first two cannot agree, represents a
lesser reduction in the amounts payable under Section 8(e) hereof than the
Company's independent compensation specialist established in the first
instance.  Otherwise, you shall pay your own and any additional costs
incurred by the Company in contesting such determination.  If there is
a final determination by the Internal Revenue Service or a court of competent
jurisdiction that the Company overpaid amounts under Section 280G of the Code,
the amount of the overpayment shall be treated as a loan to you and shall be
repaid immediately, together with interest on such amount at the prime rate of
interest at Huntington National Bank, Columbus, Ohio, or any successor thereto,
in effect from time to time.  If the Internal Revenue Service or a
court of competent jurisdiction finally determines, or if the Code or
regulations thereunder shall change such that the Company underpaid you under
Section 280G of the Code, the Company shall pay the difference to you with
interest as specified above.

    


    (vii)  As
used in this Agreement, the term “Good Reason” means, without your written
consent:

    


    (A)  a
material change in your status, position or responsibilities which, in your
reasonable judgment, does not represent a promotion from your existing status,
position or responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities or the removal or
termination of duties or responsibilities (except in connection with the
termination of employment for total and permanent disability, death, or Cause,
or by you other than for Good Reason), which, in your reasonable judgment, are
materially inconsistent with such status, position or
responsibilities;

    


    (B)  a
reduction by the Company in your Basic Salary as in effect on the date of the
Change in Control or the Company's failure to increase (within twelve months of
your last increase in Basic Salary) your Basic Salary after a Change in Control
in an amount which at least equals, on a percentage basis, the average
percentage increase in Basic Salary for all executive and senior officers of the
Company, in like positions, which were effected in the preceding twelve
months;


    
      
         


      

      
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    (C)  the
relocation of the Company's principal executive offices to a location more than
75 miles from Nelsonville, Ohio or the relocation of your regular office
assignment by the Company to any place outside of a 15 mile radius of
Nelsonville, Ohio, except for required travel on the Company's business to an
extent consistent with business travel obligations at the time of a Change in
Control;

    


    (D)  the
failure of the Company to continue in effect, or continue or reduce your
participation in, on a percentage basis, by more than the average percentage
decrease for all executive and senior officers of the Company, in like
positions, which were effected in the preceding twelve months, any incentive,
bonus or other compensation plan in which you participate, including but not
limited to the Company's stock option plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), has been made or
offered with respect to such plan in connection with the Change in
Control;

    


    (E)  the
failure by the Company to continue to provide you with benefits substantially
similar to those enjoyed or to which you are entitled under any of the Company's
pension, profit sharing, life insurance, medical, dental, health and accident,
or disability plans at the time of a Change in Control, the taking of any action
by the Company which would directly or indirectly materially reduce any of such
benefits or deprive you of any material fringe benefit enjoyed or to which you
are entitled at the time of the Change in Control, or the failure by the Company
to provide the number of paid vacation and sick leave days to which you are
entitled on the basis of years of service with the Company in accordance with
the Company's normal vacation policy in effect on the date hereof;

    


    (F)  the
failure of the Company to obtain a satisfactory agreement from any successor or
assign of the Company to assume and agree to perform this
Agreement;

    


    (G)  any
request by the Company that you participate in an unlawful act or take any
action constituting a breach of your professional standard of conduct;
or

    


    (H)  any
breach of this Agreement on the part of the Company.

    


    Notwithstanding
anything in this Section to the contrary, your right to terminate your
employment pursuant to this Section shall not be affected by incapacity due to
physical or mental illness.



    
      
         


      

      
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    (viii)  Upon
any termination or expiration of this Agreement or any cessation of your
employment hereunder, the Company shall have no further obligations under this
Agreement and no further payments shall be payable by the Company to you, except
as provided in Section 8 above and except as required under any benefit plans or
arrangements maintained by the Company and applicable to you at the time of such
termination, expiration or cessation of your employment.

    


    (ix)   Enforcement of
Agreement.  The Company is aware that upon the occurrence of a
Change in Control, the Board of Directors or a shareholder of the Company may
then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may take or attempt to take other action to deny you
the benefits intended under this Agreement.  In these circumstances,
the purpose of this Agreement could be frustrated.  Accordingly, if
following a Change in Control it should appear to you that the Company has
failed to comply with any of its obligations under Section 8 of this Agreement
or in the event that the Company or any other person takes any action to declare
Section 8 of this Agreement void or unenforceable, or institutes any litigation
or other legal action designed to deny, diminish or to recover from you the
benefits entitled to be provided to you under Section 8, and that you have
complied with all your obligations under this Agreement, the Company authorizes
you to retain counsel of your choice, at the expense of the Company as provided
in this Section 8(e)(ix), to represent you in connection with the initiation or
defense of any pre-suit settlement negotiations, litigation or other legal
action, whether such action is by or against the Company or any Director,
officer, shareholder, or other person affiliated with the Company, in any
jurisdiction.  Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company consents to you
entering into an attorney-client relationship with such counsel, and in that
connection the Company and you agree that a confidential relationship shall
exist between you and such counsel, except with respect to any fee and expense
invoices generated by such counsel.  The reasonable fees and expenses
of counsel selected by you as hereinabove provided shall be paid or reimbursed
to you by the Company on a regular, periodic basis upon presentation by you of a
statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $50,000.  Any
legal expenses incurred by the Company by reason of any dispute between the
parties as to enforceability of Section 8 or the terms contained in Section
8(f), notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to seek
reimbursement from you for such expenses.

    


    (f)           Suspension of Noncompetition
Periods.  The noncompetition periods described in Section 7 of
this Agreement shall be suspended while you engage in any activities in breach
of this Agreement.  In the event that a court grants injunctive relief
to the Company for your failure to comply with Section 7, the noncompetition
period shall begin again on the date such injunctive relief is
granted.


    
      
         


      

      
        - 14
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    (g)           No Limitation on Certain
Obligations.  Nothing contained in this Section 8 shall be
construed as limiting your obligations under Sections 5, 6, or 7 of this
Agreement concerning Confidential Information, Inventions, or Noncompetition and
Nonsolicitation.

    


    (h)           Code Section
409A.  You and the Company desire to comply with Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), in accordance
with the transition rules applicable under IRS Notice 2007-86 and Final
Regulations issued under Section 409A of the Code.  Therefore,
notwithstanding any provision of this Agreement to the contrary, if the Company
determines that you are a “specified employee” as defined in Section 409A of the
Code or any guidance promulgated thereunder (“Code Section 409A”), you shall not
be entitled to any payments under Section 8 of this Agreement upon termination
of your employment with the Company for any reason that otherwise would cause
you to incur any additional tax or interest under Code Section 409A, until the
earlier of (i) the date which is six months after the date of such termination,
or (ii) the date of your death.  If any provision of this Agreement
(or of any award of compensation, including equity compensation or benefits)
would cause you to incur any additional tax or interest under Code Section 409A,
the Company shall, after consulting with you and receiving your approval (which
shall not be unreasonably withheld), reform such provision in such a manner as
shall not cause you to incur any such tax or interest.

    


               9.           Remedies;
Venue; Process.

    


    (a)           You
hereby acknowledge and agree that the Confidential Information disclosed to you
prior to and during the term of this Agreement is of a special, unique and
extraordinary character, and that any breach of this Agreement will cause the
Company irreparable injury and damage, and consequently the Company shall be
entitled, in addition to all other legal and equitable remedies available to it,
to injunctive and any other equitable relief to prevent or cease a breach of
Sections 5, 6, or 7 of this Agreement without further proof of harm and
entitlement; that the terms of this Agreement, if enforced by the Company, will
not unduly impair your ability to earn a living or pursue your vocation; and
further, that the Company may cease paying any compensation and benefits under
Section 8 if you fail to comply with this Agreement, without restricting the
Company from other legal and equitable remedies.  The parties agree
that the prevailing party in litigation concerning a breach of this Agreement
shall be entitled to all costs and expenses (including reasonable legal fees and
expenses) which it incurs in successfully enforcing this Agreement and in
prosecuting or defending any litigation (including appellate proceedings)
concerning a breach of this Agreement.

    


    (b)           Except
as otherwise specifically provided in of this Agreement, the parties agree that
jurisdiction and venue in any action brought pursuant to this Agreement to
enforce its terms or otherwise with respect to the relationships between the
parties shall properly lie in the Court of Common Pleas of Athens County,
Ohio.  Such jurisdiction and venue is exclusive, except that the
Company may bring suit in any jurisdiction and venue where jurisdiction and
venue would otherwise be proper if you may have breached Sections 5, 6, or 7 of
this Agreement.  The parties further agree that the mailing by
certified or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process against
them, without the necessity for service by any other means provided by statute
or rule of court.


    
      
         


      

      
        - 15
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    10.           Exit
Interview.  Prior to termination of your employment with the
Company for any reason, you shall attend an exit interview if desired by the
Company and shall, in any event, inform the Company at the earliest possible
time of the identity of your future employer and of the nature of your future
employment.

    


    11.           No
Waiver.  Any failure by the Company to enforce any provision of
this Agreement shall not in any way affect the Company's right to enforce such
provision or any other provision at a later time.

    


    12.           Saving.  If
any provision of this Agreement is later found to be completely or partially
unenforceable, the remaining part of that provision of any other provision of
this Agreement shall still be valid and shall not in any way be affected by the
finding.  Moreover, if any provision is for any reason held to be
unreasonably broad as to time, duration, geographical scope, activity or
subject, such provision shall be interpreted and enforced by limiting and
reducing it to preserve enforceability to the maximum extent permitted by
law.

    


    13.           No
Limitation.  You acknowledge that your employment by the
Company may be terminated at any time by the Company or by you with or without
cause in accordance with the terms of this Agreement.  This Agreement
is in addition to and not in place of other obligations of trust, confidence and
ethical duty imposed on you by law.

    


    14.           Notices.  Notices
and all other communications under this Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, or upon
receipt if overnight delivery service or facsimile is used, addressed as
follows:

    


    To You:

    


    James E. McDonald

    120 University Estates
Blvd.

    Athens OH 45701

    


    To the Company:

    


    Rocky Brands, Inc.

    39 East Canal Street

    Nelsonville, OH 45764

      or

    Fax:  740-753-5500

    


    Attention:  Chief Executive
Officer


    
      
         


      

      
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    15.           Governing
Law.  This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Ohio without reference to its choice of
law rules.

    


    16.           Final
Agreement.   This Agreement replaces any existing
agreement between you and the Company relating to the same subject matter and
may be modified only by an agreement in writing signed by both you and a duly
authorized representative of the Company.

    


    17.           Further
Acknowledgments.   YOU ACKNOWLEDGE
THAT YOU HAVE RECEIVED A COPY OF THIS AGREEMENT, THAT YOU HAVE READ AND
UNDERSTOOD THIS AGREEMENT, THAT YOU UNDERSTAND THIS AGREEMENT AFFECTS YOUR
RIGHTS, AND THAT YOU HAVE ENTERED INTO THIS AGREEMENT
VOLUNTARILY.


    
      
         


      

      
        - 17
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                          ROCKY BRANDS, INC.

                        
	 
      
	
                          By:

                        	      
                          /s/
      Mike Brooks

                        
	 
      	
                          Mike
      Brooks

                        
	 
      	
                          Chief
      Executive Officer

                        
	 
      
	
                          EXECUTIVE:

                        
	 
	      
                          /s/
      James E. McDonald

                        
	
                          James
      E.
McDonald

                        


                

              

            

          

        

      

    

     

    
      
         


      

      
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