Document:

ex10_1.htm

Exhibit 10.1

 

EXECUTIVE RESTRICTIVE COVENANT AND RETENTION AGREEMENT

 

This Executive Restrictive Covenant and Retention Agreement (this "Agreement") is made this 16 th day of March 2012, by and between Heeling Sports Limited, its shareholders, parents, subsidiaries and affiliates, including its/their predecessors and successors ("Heelys"), and Craig D. Storey ("Executive").

 

WHEREAS, Executive is a senior executive of Heelys and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of Heelys and its parents, subsidiaries and/or affiliates;

 

WHEREAS, Heelys and its parents, subsidiaries and affiliates desire to incentivize Executive to remain with Heelys;

 

NOW, THEREFORE, in consideration of hire, continued employment, and the remaining consideration and mutual covenants contained in this Agreement, the parties agree as follows:

 

1.                Definitions. For purposes of this Agreement, the following terms have the meanings specified below unless the terms or context hereof otherwise require or provide:

 

   "Annual Pay" means an amount equal to the Executive's base annual salary in effect at the time of the first to occur of one of the events specified in clauses (a) or (b) of Section 2.

 

   "Cause" means (i)  that Executive has materially neglected, failed, or refused to perform Executive’s duties or responsibilities as reasonably requested (other than due to a Disability); (ii) that Executive has materially violated Heelys’ policies regarding drugs and alcohol, discrimination, harassment, retaliation, honesty, confidentiality, and/or other employee misconduct, whether now in effect or subsequently promulgated or revised; (iii) Executive’s conviction for, or entry of a plea of no contest with respect to, any felony, crime of moral turpitude, or other crime that adversely affects or (in Heelys’ reasonable judgment) may adversely affect Heelys or the ability of Executive to perform his duties and responsibilities; (iv) any act or omission of Executive involving fraud, theft, dishonesty, disloyalty, or illegality with respect to, or that harms or embarrasses or (in Heelys’ reasonable judgment) may harm or embarrass Heelys; or (v) any act or omission of Executive constituting the knowing or intentional violation of applicable law with respect to, or that harms or embarrasses or (in Heelys’ reasonable judgment) may harm or embarrass, Heelys; provided, however, that with respect to clause (i) of this Section 1, if such breach or violation is susceptible to cure, Heelys may not terminate Executive’s employment for Cause unless it provides Executive with written notice specifying such breach or violation, in reasonable detail, and Executive fails to cure or remedy such breach or violation within fifteen (15) days after receipt of such notice; provided further, that the Board of Heelys. Inc., parent company of Heelys, shall have the sole discretion to determine whether such a breach or violation is subject to cure, and if so, whether the Executive successfully effected a cure following notice.

 

   "Disability" means the Executive's inability to perform the essential functions of Executive's job, with reasonable accommodation, which continues for a period of at least six (6) months or for an aggregate of one hundred eighty (180) days within a twelve (12) month period.

  

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   "Resignation for Good Reason" means, in the absence of Executive’s consent:  (A) the material breach by Heelys of any material compensation or material benefit obligation to Executive under this Agreement; or (B) a material reduction (20% or greater) in Executive’s Annual Pay; (C) a material diminution in Executive’s authority, duties or responsibilities; or (D) a change in the location of the headquarters of Heelys such that Executive’s current residence in Dallas County, Texas would be more than 75 miles from such new headquarters; provided, however, that Good Reason shall only exist if Heelys fails to correct or cure the Good Reason condition within a period of forty-five (45) days, after being provided with written notice (describing the Good Reason condition in reasonable detail) by Executive within thirty (30) days of the initial existence of the alleged Good Reason condition.

 

2.                 Payments and Benefits to Executive.

 

(a)          Salary Continuation.  Effective upon the earliest to occur of (i) termination by Heelys of Executive's employment with Heelys without Cause, (ii) Executive’s Resignation for Good Reason, or (iii) Heelys’ termination of Executive's employment as a result of Executive’s Disability, Heelys will pay to Executive an amount equal to one (1) times Executive's Annual Pay. If one of the events specified in clauses (i), (ii) or (iii) occurs, then, the payments provided for in this Section 2 shall commence on the regular payroll date of Heelys immediately following the first to occur of one of the events specified in clauses (i), (ii) or (iii) or the effective date of Executive’s Release (defined below), whichever is later, and shall continue thereafter on Heelys’ regular payroll dates for a period of twelve (12) consecutive months at which time the obligations to make payments hereunder shall terminate and be of no further legal force or effect. Heelys shall not be obligated to make the payments provided for in this Section 2 in the event of termination of Executive's employment at a time when circumstances constituting Cause exist or if Executive engages in conduct prohibited by Sections 3(b), (c), (d) or (e), below.

 

(b)           Executive’s Release of Claims.  Executive understands that the severance benefits described in this Section 2 are the only severance benefits to which Executive may be entitled following termination of Executive’s employment under the circumstances described herein.  Executive acknowledges and agrees that Executive shall not be eligible for the severance benefits described in this Section 2 unless Executive signs and returns to Heelys a valid waiver and global release of claims (“Release”) presented to him by Heelys in the form requested by Heelys. The Release shall, among other things, release Heelys and its shareholders, parents, subsidiaries and affiliates, and their/its current and former employees, from all claims, known or unknown, arising prior to the date Heelys presents Executive with the Release for Executive’s signature that Executive asserted and/or could have asserted against any and all of them, including but not limited to any claims arising out of Executive’s employment with Heelys.

 

3.                Acknowledgement; Confidential Information; Competitive Activity; Non-Solicitation.

 

(a) Executive acknowledges and agrees as follows:

 

	
  

	
(i)

	
Heelys is engaged in the business of designing, marketing and distributing innovative, action sports-inspired products, including wheeled footwear incorporating stealth, removable wheels in the heel.

  

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(ii)

	
Heelys has devoted significant resources to developing its goodwill, its brand, and its relationships with its employees, its customers, and its vendors.  These resources include, but are not limited to, financial investments, time, training, team building, confidential information, trade secrets, marketing, brand development, and other good and valuable resources.  Heelys wishes for Executive to assist in maintaining and further developing its goodwill in the course of Executive’s employment with Heelys.  One reason Heelys is willing to invest in the development of its goodwill and allow executives to use it to the mutual benefit of Heelys and its executives is because it has agreements with executives to prevent them from using its goodwill against it in business competition.  Because Heelys would suffer irreparable harm if Executive left (voluntarily or involuntarily) its employ and used its goodwill against Heelys, it is reasonable to protect Heelys against such activities by Executive.

 

	
  

	
(iii)

	
The business relationships of Heelys with its customers and employees are a legitimate business interest of Heelys. Since Heelys would suffer irreparable harm if the Executive left (voluntarily or involuntarily) Heelys’ employ and solicited Heelys’ business and/or employees, or otherwise interfered with Heelys’ business relationships, it is reasonable to protect Heelys against such activities by Executive.

 

	
  

	
(iv)

	
Heelys shall provide Executive with its goodwill and Confidential Information and access to Confidential Information (as defined below) so that Executive may perform Executive’s duties. Since Heelys would suffer irreparable harm if Executive misused its goodwill or disclosed such Confidential Information, it is reasonable to protect Heelys against such misuse and disclosure by Executive.

 

	
  

	
(v)

	
Because Executive will have access to Confidential Information and will establish, maintain and increase Heelys’ goodwill with its customers and others, and because the services provided by Executive for Heelys are a significant factor in the creation of valuable, special and unique assets which are expected to provide Heelys with a competitive advantage, Heelys would suffer irreparable harm if Executive competed with Heelys (as described more fully below). Accordingly, it is reasonable to protect Heelys against such unfair competition by Executive.

 

	
  

	
(vi)

	
The covenants contained in Sections 3(b), (c), (d) and (e) are reasonably necessary for Heelys’ protection and are reasonably limited with respect to the activities they prohibit, their duration, their geographical scope and their effect on Executive and the public.

  

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(b)           To assist Executive in the performance of Executive’s job duties, Heelys agrees to provide and shall provide Confidential Information and materials to Executive solely as a result of Executive’s signing this Agreement, with such Confidential Information being in addition to any such information Executive received prior to signing this Agreement.  For purposes of this Agreement, all confidential or proprietary information concerning the business and affairs of Heelys, including without limitation, all trade secrets, know how and other information generally retained on a confidential basis by Heelys concerning its products, methods, know-how, techniques, systems, software codes and specifications, formulae, inventions and discoveries, business plans, pricing, product plans and the identities of and the nature of Heelys’ dealings with its employees, suppliers and customers, whether or not such information shall, in whole or in part, be subject to or capable of being protected by patent, copyright or trademark laws, shall constitute "Confidential Information."  Executive acknowledges that Executive’s improper use or revelation of Confidential Information by Executive, during or after the termination of Executive’s employment by Heelys could cause serious injury to Heelys’ business. Accordingly, Executive agrees that, unless otherwise required by law, Executive will forever keep secret and inviolate all Confidential Information which shall have come or shall hereafter come into Executive's possession, and Executive will not use the same for Executive’s own private benefit, or directly or indirectly for the benefit of others, and Executive will not disclose such Confidential Information to any other person. If Executive is legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, Executive shall provide Heelys with prompt prior written notice of such legal requirement so that Heelys may seek a protective order or other appropriate remedy and/or waive compliance with the terms of this Section 3(b). In any event, Executive may furnish only that portion of the Confidential Information which Executive is advised by legal counsel is required, and Executive shall exercise Executive's best efforts to obtain an order or assurance that confidential treatment will be accorded such Confidential Information that is disclosed. Notwithstanding anything contained herein which may be to the contrary, the term "Confidential Information" does not include any information which at the time of disclosure or thereafter (i) is generally available to and known by the public, other than as a result of a disclosure directly or indirectly by Executive, (ii) is widely known within the industry in which Heelys operates, or Executive can demonstrate was otherwise known to Executive prior to becoming an employee of Heelys, or (iii) becomes available to Executive on a non-confidential basis from a source (other than Heelys or a Heelys employee) that is not prohibited from disclosing such information to Executive by a legal, contractual or fiduciary obligation to Heelys.

(c)           Executive covenants and agrees that during Executive’s employment and for a period of one (1) year following the termination of Executive’s employment, whether such termination occurs at the insistence of Heelys or Executive (for whatever reason), Executive (whether as an employee, officer, director, partner, proprietor, investor, associate, consultant, advisor or otherwise) will not, either directly or indirectly, for Executive or any third party, engage or invest in any business or activity which is directly or indirectly in competition with any business or activity engaged in by Heelys or business or activity in which Heelys planned or proposed, to the knowledge of Executive, to become engaged including but not limited to the business activities described in Section 3(a)(i) (provided that Executive shall not be restricted hereby from owning or acquiring 5% or less of the outstanding voting securities of a public company). The geographic scope of the restriction contained in this Section 3(c) is limited to the states in which Executive (i) provided services on behalf of Heelys (or in which Executive supervised directly, indirectly, in whole or in part, the servicing activities), and/or (ii) solicited customers or sold services on behalf of Heelys (or in which Executive supervised directly, indirectly, in whole or in part, the solicitation or servicing activities related to such customers), during the twenty-four (24) months prior to the termination of Executive’s employment.

  

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(d)           Executive covenants and agrees that, for a period of one (1) year after the termination of Executive’s employment with Heelys, whether such termination occurs at the insistence of Heelys or Executive (for whatever reason), Executive shall not, individually or jointly with others, directly or indirectly recruit, hire, encourage, or attempt to recruit or hire, or by assisting others, any employees of Heelys or former employees of Heelys, nor shall Executive contact or communicate with same for the purpose of inducing, assisting, encouraging and/or facilitating Heelys’ employees or former employees to terminate their employment with Heelys or find employment or work with another person or entity.  Additionally, Executive shall not provide or pass along to any person or entity the name, contact and/or background information about any of Heelys’ employees or former employees or provide references or any other information about them.  Additionally, Executive shall not provide or pass along to Heelys’ employees or former employees any information regarding potential jobs or entities or persons to work for, including but not limited to, job openings, job postings, or the names or contact information of individuals or companies hiring people or accepting job applications.  Further, Executive shall not offer employment to or work to any employees or former employees of Heelys.  For purposes of this covenant, “former employees” shall refer to employees who are not employed by Heelys at the time of the attempted recruiting or hiring, but were employed by, or working for the Heelys in the six (6) months prior to the time of the attempted recruiting or hiring and/or interference.

(e)           Executive further covenants and agrees that during Executive’s employment and for a period of six (6) months following the termination of Executive’s employment, whether such termination occurs at the insistence of Heelys or Executive (for whatever reason) Executive shall not individually, or by assisting any other person to, directly or indirectly, (i) solicit, contact, or communicate with any person or company, for the purpose of engaging in a business that is the same or similar to Heelys’ business at the time Executive’s employment with Heelys ends, who was a customer of Heelys during the twenty-four (24) months preceding the termination of Executive’s employment, (ii) solicit, contact, or communicate with any person or company, for the purpose of engaging in a business that is the same or similar to Heelys’ business at the time Executive’s employment with Heelys ends, that Executive contacted, solicited, serviced, or sold services to as an employee of Heelys (either directly or that Executive supervised directly, indirectly, in whole or in part, the solicitation or servicing activities related to such person or company) at any time during the twenty-four (24) months preceding the termination of Executive’s employment; (iii) induce any customer, supplier or other person with whom Heelys engaged in business, or to the knowledge of Executive planned or proposed to engage in business, to terminate any commercial relationship with Heelys or cease to accept or issue its products and/or service, or (iv) transact business (relating to the business of producing and/or distributing wheeled footwear) with any customer, supplier or other person with whom Heelys engaged in business, or to the knowledge of Executive planned or proposed to engage in business, except with the expressed written consent of Heelys. The restrictions set forth in Section3.e.(iv) apply to customers, suppliers or other persons with whom Heelys engaged in business, or to the knowledge of the Executive planned or proposed to engage in business and apply even in those circumstances in which Executive was responsible for initiating or developing the business relationship with such customer, supplier or other person.

  

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(f)           Executive promises, warrants and represents that in the event Executive’s employment ends, whether at the insistence of Executive or Heelys (for whatever reason), Executive will return to Heelys on Executive’s last day of employment, all of Heelys’ property including, but not limited to, all sales aids, computer data, laptops, motor vehicles, computers, client lists, access databases, client contact information, reports, price lists, cell phones, PDAs, computers, pagers, electronic devices, equipment, supplies, access cards and keys.  The property that shall be returned includes, but is not limited to, all equipment, literature, documents, data, information, order forms, memoranda, correspondence, customer and prospective customer lists, customer’s orders, contracts and fee agreements, advertisements, customer profiles, manuals, activity reports, reference materials, records, cards, or notes acquired, compiled, or coming into Executive’s knowledge, possession, or control in connection with Executive’s activities and work for Heelys, as well as all machines, parts, equipment, or other materials received from Heelys, or from any of its customers, agents, or suppliers, in connection with such activities.

(g)           Executive acknowledges that any violation by Executive of the provisions of Sections 3(b), (c), (d) or (e) would cause serious and irreparable damage to Heelys. Executive further acknowledges that it might not be possible to measure such damage in money. Accordingly, the Executive agrees that, in the event of a breach or threatened breach by the Executive of the provisions of Sections 3(b), (c), (d) or (e), Heelys may seek, in addition to any other rights or remedies, including money damages for specific performance, an injunction or restraining order, without the need to post any bond or other security, prohibiting the Executive from doing or continuing to do any acts constituting such breach or threatened breach.

(h)           Heelys and Executive have attempted to limit the restrictive covenants in Sections 3(b), (c), (d) and (e) as reasonably necessary to the extent permitted by law. In the event a court of competent jurisdiction determines the restrictions contained in this Sections 3(b), (c), (d) or (e) are unreasonable in geographic scope, duration, or activity prohibited, then the parties agree that the court shall amend such provision, but only so much as shall be necessary for the restrictions to be enforceable.

(i)           As noted above, Executive shall not solicit Heelys’ customers or prospective customers.  In the event of any such solicitation, Executive agrees to notify Heelys of such solicitation and contact within one (1) business day of any such solicitation.

(j)             Executive’s agreements in Sections 3(b), (c), (d), or (e) shall be extended for the period of time which Executive violates one or more of these agreements and/or during any period during which Heelys appeals from an order refusing to enforce any of these agreements or covenants.  The tolling or extension period shall not exceed twelve (12) months under any circumstances.

  

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4.           Termination of Payments and Return of Monies Paid. If Executive engages in any of the conduct prohibited by Sections 3(b), (c), (d), (e), or (f) above, Heelys (i) shall be relieved of making any payments to Executive provided in Section 2, and (ii) Executive shall reimburse Heelys for any payments previously made by Heelys to Executive pursuant to Section 2.  If upon challenge by Executive or upon initiative of Heelys a court enforces the covenant contained in Sections 3(c) above, and if Executive no longer violates the covenant, a court has the discretion to determine if Heelys shall resume making some or all of the payments set forth in Section 2, taking into account the conduct of Executive and any damage or injury suffered by Heelys.

 

5.           Notice and Transition of Duties.  If Executive intends to leave the employment of Heelys for any reason, Executive agrees, prior to leaving, to give Heelys thirty (30) days written notice of Executive’s intent to leave the employment of Heelys.  Executive agrees to provide transition assistance to Heelys and whomever Heelys assigns to handle the work that Executive was handling prior to the time Executive gave said written notice.  This transition assistance includes, but is not limited to, updating Heelys on:  Executive’s activities, requests by Heelys’ customers, work in progress and work that needs to be done in the future to take good care of Heelys’ business and customers.  Executive agrees that this notice and orderly transition is important to protect the interests of Heelys and Heelys’ customers.

 

6.           Notification to Prospective Employers.  For one (1) year following the end of Executive’s employment with Heelys, Executive promises and agrees to provide a copy of this Agreement to any headhunter, person or entity from whom Executive seeks a job or work, including but not limited to, applying for work as an employee, consultant, temporary worker, owner and/or independent contractor.  Further, if Heelys learns the identity of any headhunter or person or entity to whom Executive applies for work in the one (1) year following the date Employee’s employment with Heelys ends, Executive authorizes Heelys to provide a copy of this Agreement to said person or entity and discuss the provisions and ramifications of this Agreement with said person or entity

 

7.           Governing Law/Venue. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas without reference to principles of conflicts of laws. In the event of any dispute between them, including, but not limited to any disputes arising out of this Agreement, Executive’s employment with Heelys and work for Heelys and any issues involving Executive’s competition against Heelys, Executive and Heelys agree to exclusive, mandatory and sole jurisdiction and venue in Dallas, Texas.  Heelys and Executive agree and consent to have all such disputes resolved in the courts of Dallas County, Texas.  Heelys and Executive hereby consent to the exclusive jurisdiction and venue in said courts.  Heelys and Executive hereby waive all challenges to personal jurisdiction and venue of such courts, including, but not limited to, the claim or defense that such courts constitute an inconvenient forum.

  

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8.           Entire Agreement; Modification. This Agreement incorporates the complete understanding and agreement between the parties with respect to the subject matter hereof and supersedes any and all other prior or contemporaneous agreements, written or oral, between Executive and Heelys with respect to such subject matter. No provision hereof may be modified or waived except by a duly written instrument duly executed by Executive and Heelys.  Furthermore, the Heelys and Executive agree that the failure of any party to enforce any provision of this Agreement shall not constitute a waiver of that particular provision, or of any other provisions of this Agreement.

 

9.           Employment Rights. Nothing expressed or implied in this Agreement will create any right of Executive to remain in the employment of Heelys.

 

10.         Applicable Taxes.   Heelys may deduct and withhold from all compensation payable to Executive pursuant to this Agreement all amounts required to be deducted and withheld therefrom pursuant to any present or future law, regulation or ordinance of the United States of America or any state or local jurisdiction therein.

 

11.        Successors; Binding Affect. This Agreement will inure to the benefit of and be binding upon Heelys and any successors and assigns. Following a Change in Control (defined below), Heelys will require any successor by agreement and in such form as is reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent Heelys would be required to perform if no such Change in Control had taken place (an "Assumption"). Executive shall be bound by any Assumption of this Agreement and any Assumption shall not be deemed to be a termination of Executive's employment or by itself to constitute Good Reason. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors and heirs.

 

“Change in Control” means: (a) any person or group within the meaning of the Exchange Act (excluding any employee benefit plan, or related trust, sponsored or maintained by Heelys or any of its affiliates), other than Capital Southwest Venture Corporation and its affiliates, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 50.1% or more of the combined voting power of Heelys’ then outstanding securities; (b) any change or changes in the composition of Heelys’ Board within any two-year period as a result of which less than a majority of Heelys’ directors are persons who were directors at the beginning of that two-year period or persons who were elected or nominated for election as its directors with the affirmative vote or consent of at least a majority of Heelys’ incumbent directors at the time of that election or nomination, but not including any person whose election or nomination as a director was or is in connection with an actual or threatened proxy contest regarding the election of Heelys’ directors; (c) Heelys is merged or consolidated with another corporation or other entity (other than Capital Southwest Venture Corporation, any of its affiliates or an entity controlled by it or its affiliates) 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 our outstanding voting securities immediately before the merger or consolidation; or (d) all or substantially all of Heelys’ assets are transferred, sold or otherwise disposed of to another unrelated corporation or entity.

  

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12.           Captions.  The captions contained in this Agreement are for convenience only, and shall not be construed to limit, define or modify the substantive terms contained in this Agreement.

 

13.           Execution.  This Agreement is effective once signed by all the parties and can be executed in multiple identical counterparts and via email and fax.

 

    IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above.

 

	  	
HEELING SPORTS LIMITED

	 	 
	  	
By:   

	
Heeling Management Corp., its Sole General Partner

	  	  	  
	  	  	  
	  	
By:   

	
/s/ Thomas C. Hansen

	  	  	
      Name: Thomas C. Hansen

	  	  	
      Title:    Chief Executive Officer

	  	  	  
	  	  	  
	  	
EXECUTIVE

	  	  	  
	  	  	  
	  	
By:   

	
/s/ Craig D. Storey­­­­­­­­­­­­­­

	  	  	
      Name:  Craig D. Storey

	  	  	
      Title:    Chief Operating Officer and Chief Financial Officer

 

 

9ex10_1.htm

EXHIBIT 10.1

 

HEELYS, INC.

2012 MANAGEMENT INCENTIVE PLAN

 

1.  PURPOSES.  This Plan is established (i) to offer selected Employees, Directors and Consultants of the Company or its Affiliates an opportunity to participate in the growth and financial success of the Company, (ii) to provide the Company an opportunity to attract and retain the best available personnel for positions of substantial responsibility, (iii) to provide incentives to such Employees, Directors and Consultants by means of performance-related incentives to achieve short-term performance goals, and (iv) to promote the growth and success of the Company’s business by aligning the financial interests of Employees, Directors and Consultants with that of the other stockholders of the Company.  Toward these objectives, this Plan provides for the grant of cash-based Performance Bonuses.

 

2.  DEFINITIONS.  As used herein, unless the context requires otherwise, the following terms shall have the meanings indicated below:

 

(a)          “Affiliate” means (i) any corporation, partnership or other entity which owns, directly or indirectly, a majority of the voting equity securities of the Company, and (ii) any corporation, partnership or other entity of which a majority of the voting equity securities or equity interest is owned, directly or indirectly, by the Company.

 

(b)          “Award” means any right to a cash Performance Bonus granted under this Plan, whether granted singly or in combination, to a Grantee pursuant to the terms, conditions and limitations that the Committee may establish.

 

(c)          “Award Agreement” means the document issued, either in writing or an electronic medium, to a Grantee evidencing the grant of an Award, and setting forth the terms, conditions and limitations applicable to that Award, including any amendments thereto.  Each Award Agreement shall be subject to the terms and conditions of this Plan.

 

(d)          “Board” means the Board of Directors of the Company, as duly elected from time to time.

 

(e)          “Cause” means the meaning set forth in a then-effective written employment agreement between the Grantee and the Company or an Affiliate or, in the absence of such a definition in a then-effective written employment agreement (in the determination of the Committee), shall mean (i) a failure by the Grantee to perform reasonably assigned duties to the Company or an Affiliate, but only if the failure by the Grantee to perform such duties continues after he or she has received notice from the Company that his or her failure to perform constitutes “cause” for terminating his or her Continuous Service, (ii) dishonesty, willful misconduct or gross neglect by the Grantee in the discharge or performance of his or her duties to the Company or an Affiliate, (iii) an intentional violation or failure by the Grantee to satisfy any policy or written agreement with the Company or an Affiliate, (iv) the involvement by the Grantee in a transaction or act in connection with the performance of duties to the Company or any Affiliate which transaction or act is adverse to the interests of the Company or any Affiliate, (v) the engagement by the Grantee in unfair competition with the Company or any Affiliate, (vi) the use of alcohol or drugs by the Grantee in a manner that affects his or her job performance or could reasonably be expected to adversely affect the reputation of the Company or any Affiliate, or (vii) the conviction of, or plea of nolo contendere by the Grantee to, a charge of fraud, embezzlement, misappropriation, theft or other criminal conduct constituting a felony, or commission of a misdemeanor involving a crime of moral turpitude.

 

  

  

  

 

(f)           “Change in Control” of the Company means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty (50) percent of the combined total voting power of the Company’s then outstanding securities; (ii) any change or changes in the composition of the Board within a twelve-month period as a result of which a majority of the directors are replaced by directors whose appointment or election is not endorsed by a majority of the directors before the date of appointment or election; (iii) the Company is merged or consolidated with another corporation or other entity and, as a result of the merger or consolidation, less than seventy (70) percent 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 Company immediately before the merger or consolidation; or (iv) the Company 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 Company.  It is intended that a Change in Control constitute a “change in control” under Section 409A of the Code.

 

(g)          “Chief Executive Officer” means the individual serving at any relevant time as the chief executive officer of the Company.

 

(h)          “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.  Reference in this Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any Treasury regulations promulgated under such section.

 

(i)           “Committee” means the Compensation Committee, as constituted from time to time, of the Board that is appointed by the Board to administer this Plan, or if no such committee is appointed (or no such committee shall be in existence at any relevant time), the term “Committee” for purposes of this Plan shall mean the Board.  The Board may assume any or all of the powers and responsibilities prescribed for the Committee, and to the extent it does so, the term “Committee” as used herein shall also be applicable to the Board.

 

(j)           “Company” means Heelys, Inc., a Delaware corporation, or such other corporation which, pursuant to a spinoff, merger, consolidation or similar corporate transaction adopts and assumes this Plan with the consent of the Company and agrees to accept the duties, responsibilities and obligations of the Company under this Plan.  References in this Plan to the Company shall refer to any such corporation which adopts and assumes this Plan.

 

(k)          “Consultant” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Affiliate to render consulting or advisory services to the Company or such Affiliate and who is a “consultant or advisor” within the meaning of Rule 701 promulgated under the Securities Act or Form S-8 promulgated under the Securities Act.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 2

 

  

 

  

 

(l)           “Continuous Service” means the provision of services to the Company or an Affiliate as an Employee, Director or Consultant which is not interrupted or terminated.  Except as otherwise provided in a particular Award Agreement, service shall not be considered interrupted or terminated for this purpose in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Affiliate, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or an Affiliate as an Employee, Director or Consultant.  An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

 

(m)         “Director” means a member of the Board.

 

(n)          “Disability” means the “disability” of a person (i) as defined in a then-effective written employment agreement with the Company or an Affiliate that covers such person, (ii) if such person is not covered by a then-effective written employment agreement with the Company or an Affiliate, as defined in a then-effective long-term disability plan maintained by the Company that covers such person, or (iii) if neither a then-effective written employment agreement or a long-term disability plan exists at any relevant time covering such person, “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.  Notwithstanding the preceding, it is intended that a Disability under this Plan will constitute a Disability for purposes of Section 409A of the Code.

 

(o)          “Employee” means any person, including an Officer, who is employed, within the meaning of Section 3401 of the Code, by the Company or an Affiliate, including any person who is considered a co-employee of the Company or an Affiliate and a professional employee organization.  The payment of compensation by the Company or an Affiliate to a Director or Consultant solely with respect to such individual rendering services in the capacity of a Director or Consultant, however, shall not be sufficient to constitute “employment” by the Company or that Affiliate.

 

(p)          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute.  Reference in this Plan to any section of the Exchange Act shall be deemed to include any amendments or successor provisions to such section and any rules and regulations relating to such section.

 

(q)          “Grantee” means an Employee, Director or Consultant to whom an Award has been granted under this Plan.

 

(r)           “Officer” means a person who is an “officer” of the Company or any Affiliate within the meaning of Section 16 of the Exchange Act (whether or not the Company is subject to the requirements of the Exchange Act).

 

(s)          “Performance Bonus” means an Award of cash granted under Section 4 of this Plan that is paid solely on account of the attainment of a specified performance target in relation to one or more Performance Goals, and which is subject to such applicable terms, conditions, and limitations as the Committee may establish and set forth in the applicable Award Agreement in order to fulfill the objectives of this Plan.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 3

 

  

  

  

 

(t)           “Performance Goals” mean, with respect to any Performance Bonus, the business criteria (and related factors) selected by the Committee to measure the level of performance of the Company during the Performance Period, in each case, prepared on the same basis as the financial statements published for financial reporting purposes, except as adjusted pursuant to Section 4(c)(iii).

 

(u)          “Performance Period” means that period established by the Committee at the time any Performance Bonus is granted.

 

(v)          “Plan” means this Heelys, Inc. 2012 Management Incentive Plan, effective January 1, 2012, as set forth herein, and as it may be amended from time to time.

 

(w)          “Section” means a section of this Plan unless otherwise stated or the context otherwise requires.

 

(x)           “Securities Act” means the Securities Act of 1933, as amended, and any successor statute.  Reference in this Plan to any section of the Securities Act shall be deemed to include any amendments or successor provisions to such section and any rules and regulations relating to such section.

 

3.  ELIGIBILITY.  Awards may be granted to Employees, Directors or Consultants.  The Committee (or the Chief Executive Officer with respect to Employees) shall select the recipients of Awards.  A Grantee may be granted more than one Award under this Plan and Awards may be granted at any time or times during the term of this Plan.  The grant of an Award to an Employee, Director or Consultant shall not be deemed either to entitle that individual to, or to disqualify that individual from, participation in any other grant of Awards under this Plan.

 

4.  PERFORMANCE BONUSES.

 

(a)          Performance Bonuses.  The Committee (or the Chief Executive Officer with respect to Employees) may grant Performance Bonuses under this Plan to the eligible Employees, Directors or Consultants determined under Section 3 in the amounts and pursuant to the terms and conditions that the Committee (or Chief Executive Officer if applicable) may determine and set forth in the applicable Award Agreement, subject to the provisions of this Section 4.  The Performance Bonuses granted under this Plan are not intended to be treated as “performance-based compensation” for purposes of Section 162(m) of the Code.

 

(b)          Eligible Grantees.  The Committee (except as otherwise provided with respect to the Chief Executive Officer) will generally determine the Employees, Directors or Consultants who will be eligible to receive a Performance Bonus under this Plan with respect to the Performance Period.  An Award Agreement shall be provided to each Grantee under this Plan as soon as administratively feasible after such Grantee becomes eligible for the Performance Period.  An Award Agreement shall specify the applicable Performance Goals, specific performance factors and targets related to the Performance Goals, award criteria, and the targeted amount of his or her Performance Bonus, as well as any other applicable terms of the Performance Bonus for which he or she is eligible.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 4

 

  

  

  

 

(c)          Performance Goals; Specific Performance Targets; Award Criteria.

 

(i)           Within ninety (90) days after commencement of the Performance Period, the Committee shall fix and establish in writing (A) the Performance Goals that will apply to the Performance Period; (B) with respect to Performance Goals, the specific performance factors and targets related to each Grantee and, if achieved, the targeted amount of his or her Performance Bonus; and (C) subject to Subsection (iii) below, the criteria for computing the amount that will be paid with respect to each level of attained performance.  The Committee shall also set forth the minimum level of performance, based on objective factors and criteria, that must be attained during the Performance Period before any Performance Goal is deemed to be attained and any Performance Bonus will be earned and become payable, and the percentage of the Performance Bonus that will be earned and become payable upon attainment of various levels of performance that equal or exceed the minimum required level.

 

(ii)          The Committee may, in its discretion, select Performance Goals and specific performance factors and targets that measure the performance of the Company or one or more business units, divisions or Affiliates of the Company.  The Committee may select Performance Goals and specific performance targets that are absolute or relative to the performance of one or more peer companies or an index of peer companies.

 

(iii)         In order to assure the incentive features of this Plan and to avoid distortion in the operation of this Plan, the Committee may make adjustments in the Performance Goals, specific performance factors and targets related to those Performance Goals and award criteria established by it for the Performance Period under this Section 4(c)(iii) whether before or after the end of the Performance Period to the extent it deems appropriate in its sole discretion, which shall be conclusive and binding upon all parties concerned, to compensate for or reflect any extraordinary changes which may have occurred during the Performance Period which significantly affect factors that formed part of the basis upon which such Performance Goals, specific performance targets related to those Performance Goals and award criteria were determined.  Such changes may include, without limitation, changes in accounting practices, tax, regulatory or other laws or regulations, or economic changes not in the ordinary course of business cycles.  The Committee also reserves the right to adjust Performance Bonus Awards to insulate them from the effects of unanticipated, extraordinary, major business developments, e.g., unusual events such as a special asset writedown, sale of a division, etc.  The determination of financial performance achieved for the Performance Period may, but need not be, adjusted by the Committee to reflect such extraordinary, major business developments.  Any such determination shall not be affected by subsequent adjustments or restatements.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 5

 

  

  

  

 

(d)           Achievement of Performance Goals; Determination.  As soon as administratively feasible after the end of the Performance Period, the Committee shall determine whether the Performance Goals applicable to Performance Bonuses for such Performance Period were satisfied and, if such Performance Goals were satisfied in whole or in part, the amount payable for each Grantee granted a Performance Bonus.  In applying Performance Goals, the Committee may, in its discretion, exclude unusual or infrequently occurring items, and may determine no later than ninety (90) days after the commencement of the Performance Period to exclude other items, each determined in accordance with GAAP (to the extent applicable) and as identified in the financial statements, notes to the financial statements or discussion and analysis of management.

 

(e)           Forfeiture Restrictions.  Awards may be subject to an obligation of the Grantee to forfeit and surrender the Award to the Company under certain circumstances (the “Forfeiture Restrictions”).  The Forfeiture Restrictions shall be determined by the Committee in its sole discretion, and the Committee may provide that the Forfeiture Restrictions shall lapse on the passage of time, the attainment of one or more performance targets (which may be Performance Goals) established by the Committee, or the occurrence of such other event or events determined to be appropriate by the Committee.  A Performance Bonus performance factor, if any, shall be based upon the achievement of performance goals by the Company, Affiliate, or upon such individual performance factors or upon such other criteria as the Committee may deem appropriate.  Restriction periods may overlap and Grantees may participate simultaneously with respect to Performance Bonuses that are subject to different restriction periods and different time and/or performance factors and criteria.  The Forfeiture Restrictions applicable to a particular Performance Bonus (which may differ from any other Performance Bonus) shall be stated in the applicable Award Agreement.

 

(f)            Forfeiture.  Unless otherwise provided in an Award Agreement, on termination of the Grantee’s Continuous Service prior to lapse of the Forfeiture Restrictions, the portion of the Performance Bonus which is still subject to the Forfeiture Restrictions under the Award shall be forfeited by the Grantee.  Upon any forfeiture, all rights of the Grantee with respect to the portion of the Performance Bonus forfeited shall cease and terminate, without any further obligation on the part of the Company.

 

(g)           Time and Form of Payment.  Except as provided in Section 4(h) below, each Performance Bonus will be paid in cash in a single lump sum within ninety (90) days following the last day of the Performance Period, with the exact date of payment determined by the Company in its sole discretion.

 

(h)            Acceleration.  Each Grantee who has been granted a Performance Bonus that is outstanding as of the date of a Change in Control will have his or her Performance Bonus interpreted as if the specific targets related to the Performance Goals have been achieved to a level of performance, as of the date of the Change in Control, that would cause one-hundred (100) percent of the Grantee’s targeted amount under the Performance Bonus to become payable.  Payment of the accelerated Performance Bonus will be in cash in a single lump sum within ninety (90) days following the date of the Change in Control, with the exact date of payment determined by the Company in its sole discretion.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 6

 

  

  

  

 

(i)            Disqualification of Award; Clawback.  This Plan is intended to align Grantee and stockholder interests.  Occasionally unusual circumstances may arise that are not anticipated by this Plan.  Should a situation occur where a Grantee is deemed to have (i) breached the Company’s code of business conduct or ethics policy, (ii) materially breached any other policy of the Company, (iii) experienced a significant incident involving a fatal or serious injury to an Employee under the supervision of the Grantee or significant damage to the property of the Company and its Affiliates or the environment which is caused by the actions or inactions of the Grantee or one or more Employees under his or her supervision, or (iv) engaged in conduct which directly contributes to the Company having to restate all or a portion of its financial statements, the Committee, in its sole discretion, may disqualify the Grantee from earning or receiving payment of any Award for the Performance Period in whole or in part.  In addition, the Committee may require a Grantee to reimburse the Company in the event an Award is paid to a Grantee based on achievement of financial results that are subsequently the subject of restatement on account of the Grantee’s intentional misconduct.

 

(j)            Tax Withholding.  Performance Bonuses under this Plan will be subject to tax withholding as required by law.

 

5.  ALIENATION AND SUBORDINATION OF BENEFITS.  No benefit or payment under this Plan may be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, lien or charge, by operation of law or otherwise, including levy, garnishment, pledge, or bankruptcy, except by will or the laws of descent and distribution, and any attempt to treat otherwise shall be void.  No payment or benefit shall be in any manner liable for or subject to the recipient’s debts, contracts, liabilities, or torts except where legislation provides for regulatory action or court order (garnishment, etc.) to supersede this restriction.

 

6.  NO EMPLOYMENT RIGHTS.  No provisions of this Plan or under any Award Agreement shall be construed to give any Grantee any right to remain an Employee of, or provide services to, the Company or any of its Affiliates or to affect the right of the Company to terminate any Employee’s service at any time, with or without Cause.

 

7.  ADMINISTRATION.  This Plan shall be administered by the Committee.  The Committee shall interpret this Plan and any Awards granted pursuant to this Plan and shall prescribe such rules and regulations in connection with the operation of this Plan as it determines to be advisable for the administration of this Plan.  The Committee may rescind and amend its rules and regulations from time to time.  The interpretation by the Committee of any of the provisions of this Plan or any Award granted under this Plan shall be final and binding upon the Company and all persons having an interest in any Award or other payments received pursuant to an Award.  Notwithstanding the authority hereby delegated to the Committee to grant Awards to Employees, Directors and Consultants under this Plan, the Board shall have full authority, subject to the express provisions of this Plan, to grant Awards to Employees, Directors and Consultants under this Plan, to interpret this Plan, to provide, modify and rescind rules and regulations relating to this Plan, to determine the terms and provision of Awards granted to Employees, Directors and Consultants under this Plan and to make all other determinations and perform such actions as the Board deems necessary or advisable to administer this Plan.  No member of the Committee or the Board shall be liable for any action taken or determination made in good faith with respect to this Plan or any Award granted hereunder.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 7

 

  

  

  

 

8.  EFFECT OF PLAN.  Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any Employee, Director or Consultant any right to be granted an Award or any other rights except as may be evidenced by the Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and on the terms and conditions expressly set forth therein.  Nothing contained in this Plan or in any Award Agreement or in other related documents shall confer upon any Employee, Director or Consultant any right with respect to such person’s Continuous Service or interfere or affect in any way with the right of the Company or an Affiliate to terminate such person’s Continuous Service at any time, with or without cause.

 

9.  NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS.  Except as specifically provided in a retirement or other benefit plan of the Company or an Affiliate, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or an Affiliate, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation.

 

10. FUNDING AND STATUS OF PLAN.  This Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.  This Plan is not funded in the sense of a “funded plan” under ERISA, or Internal Revenue Service or other government regulations, which prescribe certain Grantee rights and fiduciary obligations.  Funding for this Plan will be equivalent to the sum of individual Awards.  Funding is for accounting purposes only and does not confer any rights to Grantees to any portion of such funds or any other Company assets except under this Plan rules and Award guidelines.  To the extent that a Grantee acquires a right to receive payment from the Company under this Plan, such right shall be no greater than the rights of any unsecured creditor of the Company.

 

11. AMENDMENT OR TERMINATION OF PLAN.  The Board, in its discretion may, at any time or from time to time after the date of adoption of this Plan, terminate or amend this Plan in any respect, including amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan.  No Award may be granted after termination of this Plan.  Any amendment or termination of this Plan shall not affect Awards previously granted, and, except to the extent specifically provided otherwise by this Plan or the Award Agreements, such Awards shall otherwise remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise in a writing (including an Award Agreement) signed by the Grantee and the Company.

 

12. TERM OF PLAN.  Unless sooner terminated by action of the Board, this Plan shall terminate on the tenth (10th) anniversary of January 1, 2012.

 

	Heelys, Inc. 2012 Management Incentive Plan 	Page 8

 

  

  

  

 

13. SEVERABILITY AND REFORMATION.  The Company intends all provisions of this Plan to be enforced to the fullest extent permitted by law.  Accordingly, should a court of competent jurisdiction determine that the scope of any provision of this Plan is too broad to be enforced as written, the court should reform the provision to such narrower scope as it determines to be enforceable.  If, however, any provision of this Plan is held to be wholly illegal, invalid, or unenforceable under present or future law, such provision shall be fully severable and severed, and this Plan shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof, and the remaining provisions of this Plan shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance.

 

14. GOVERNING LAW.  This Plan and all issues or matters relating to this Plan shall be governed by, determined and enforced under, and construed and interpreted in accordance with the laws of the State of Texas.

 

15. INTERPRETIVE MATTERS.  Whenever required by the context, pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, and the singular shall include the plural, and visa versa.  The term “include” or “including” does not denote or imply any limitation.  The term “business day” means any Monday through Friday other than such a day on which banks are authorized to be closed in the State of Texas.  The captions and headings used in this Plan are inserted for convenience and shall not be deemed a part of this Plan for construction or interpretation.

 

  

	Heelys, Inc. 2012 Management Incentive Plan 	Page 9

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