Document:

Exhibit 10.1

 

EXECUTIVE
EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”), is entered
into as of the date shown on the signature page, with employment to commence on
or before August 1, 2009 (the date such employment commences is the “Effective
Date”) by and between THOMAS C. HANSEN,
a resident of the State of Texas (“Executive”), and HEELING
SPORTS LIMITED, a Texas limited partnership (“Company”, and
together with Executive, the “Parties” and each a “Party”).

 

WHEREAS, Company is engaged in the commercial
enterprise of selling wheeled footwear, other athletic footwear, and related
products and services (the “Business”);

 

WHEREAS, Company recognizes that Executive’s
substantial skills and expertise will be useful to the Business and desires to
provide for the employment of Executive on the terms and conditions provided in
this Agreement;

 

WHEREAS, Executive is willing to commit to serve
Company in the capacity and on the terms and conditions provided in this
Agreement; and

 

WHEREAS, in order to effect the foregoing,
Company and Executive wish to enter into an employment agreement on the terms
and conditions set forth below;

 

NOW, THEREFORE, in consideration of the premises and
the mutual promises and agreements contained herein, the Parties, intending to
be legally bound, hereby agree as follows:

 

1.                                      Scope of Employment.

 

1.1          Employment.  Subject to the terms and conditions set forth herein,
Company agrees to employ Executive during the Employment Term (as defined
below), and Executive hereby commits to accept such employment as set forth in Section 4.1.  Executive will hold the office of “President
and Chief Executive Officer” (“President and CEO”) of Heelys, Inc.,
a Delaware corporation (“Parent”), during the Employment Term, and will
perform the services described in Section 3 (the “Services”)
as assigned to Executive by the Board of Directors (the “Board”) of the
Parent, its designee, the Chairman of the Board (“COB”), or the COB’s
designee.

 

1.2          Place
of Performance.  Executive will perform the Services based out
of an office at Company headquarters (currently in Carrollton, Texas), but
Executive will be required to travel as reasonably required for performance of
the Services.

 

2.             Representations, Warranties,
Covenants, and Acknowledgements.  Executive hereby
represents, warrants, covenants, and acknowledges to Company as follows:

 

2.1          No Conflict or Breach.  The execution,
delivery, and performance of this Agreement by Executive does not and will not
conflict with, breach, violate, or cause a default under any contract,
agreement, instrument, order, judgment, or decree by which Executive is bound.

 

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2.2          Disclosed Previous
Agreements.  Prior to the Effective Date, Executive has
provided Company a true and correct copy of Executive’s employment agreement(s) with
previous employer(s), and, as of the Effective Date, Executive has not violated
any lawful obligations to any previous employer.  Executive acknowledges Company’s instructions
not to breach any such lawful obligations.

 

2.3          No Use of Previous
Employer Information.  During the Employment Term and thereafter,
Executive will not use or disclose to Company, Parent, affiliate, subsidiary,
investor, owner, shareholder, franchisee, franchisor or other related entity
(each a “Related Entity”) of Company, or to any other Person (as defined
below), any confidential or proprietary information or trade secrets of any of
Executive’s previous employer(s) or any Related Entity of such employer(s),
and will not bring onto Company’s premises, or access, such confidential or
proprietary information or trade secrets, unless consented to in writing by
such employer(s) or Related Entity and then only with the prior written
authorization of Company.  For purposes
of this Agreement, “Person” means an individual, a partnership, a
limited liability company, a corporation, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization, and/or a
governmental entity or any department, agency, or political subdivision
thereof.

 

2.4          Understands Agreement.  Executive
acknowledges that Executive has read this Agreement before signing it, has
consulted and been advised by counsel about it, and fully understands its
purposes, terms, and provisions, which Executive hereby expressly acknowledges
to be reasonable in all respects.

 

2.5          Material Breach.  Executive
acknowledges that any breach of Section 2 (including subparts) by
Executive will constitute a material breach of this Agreement.

 

3.             Duties and Responsibilities.

 

3.1          President
and CEO.  During the Employment Term, Executive’s
duties and responsibilities will be those typically performed by a President
and CEO of a nationwide commercial enterprise in the Business, and otherwise as
reasonably and lawfully directed by the Board, its designee, by the COB or the
COB’s designee.  Company may adjust the
duties and responsibilities of the Executive notwithstanding the specific title
set forth in Section 1.1, based upon Company’s needs from time to
time; provided that such adjusted duties are consistent with duties and
responsibilities of a senior executive officer of an enterprise of comparable
size to the Company.  Executive will
devote substantially all of Executive’s business time, energy, and skill to
performing the Services and will perform all obligations hereunder diligently,
faithfully, and to the best of Executive’s abilities, except during times of
vacation, illness, incapacity, or other approved leave.  Executive shall strictly adhere to and obey
all applicable policies and practices now in effect or subsequently promulgated
or revised governing the conduct of employees of Company.  In the event of conflict or inconsistency
between this Agreement and the employee policies and written manuals of
Company, the terms of this Agreement shall govern.  Company will review Executive’s performance
on an annual basis, through the COB or the COB’s designee.

 

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3.2          Board.  During the Employment Term, Executive shall serve, if
elected or appointed, as a director of Parent, as a director and officer of any
subsidiary or affiliate of Parent, and as a member of any committee of the
Board or any committee of the board of directors of any of Parent’s
subsidiaries or affiliates.

 

4.                                      Employment Term; Termination.

 

4.1          Employment Term.  Subject to the terms and conditions of this
Agreement, unless terminated earlier in accordance with the provisions of Section 4.2,
Executive’s employment under this Agreement commences on the Effective Date and
will continue through and until December 31, 2010 (the “Initial Term”)
and shall automatically and repeatedly renew for successive periods of one (1) year
each thereafter (each a “Renewal Term” and together with the Initial
term, the “Employment Term”) The last date of Executive’s employment with
Company is referred to herein as the “Termination Date.”

 

4.2          Termination.

 

(a)           Death.
This Agreement will automatically and immediately terminate upon the death of
Executive, and Executive (e.g., Executive’s heirs or estate) will not be
entitled to any Severance Benefits (as defined below).

 

(b)           Disability.  This Agreement may be terminated by either
Party upon written notice to the other in the event Executive becomes unavailable
to work due to a Disability (as defined in this Section).  As used herein, “Disability” means
Executive’s becoming incapacitated by accident, sickness, or other
circumstances that, in the reasonable judgment of Company, renders or is
expected to render Executive mentally or physically incapable of performing the
essential duties and services required hereunder, where (i) such
incapacity has been determined to exist by the disability insurance carrier for
Company, or (ii) a written determination by a physician mutually agreeable
to the Company and Executive (or, in the event of Executive’s total physical or
mental incapacity, Executive’s legal representative) that such incapacity has
continued or will continue for at least ninety (90) consecutive calendar days,
or 180 non-consecutive calendar days, within a calendar year, or in the absence
of agreement by the Company and Executive (or his legal representative), each
party shall designate a physician and the two physicians will select a third
physician who will make the determination as to Executive’s incapacity.  If Executive’s employment is terminated due
to a Disability, Executive will not be entitled to any Severance
Benefits.  In conjunction with
determining mental and/or physical disability for purposes of this Agreement,
the Executive hereby consents to (x) any examinations that the Board or
Compensation Committee of Parent deems relevant to a determination of whether
the Executive is mentally and/or physically disabled, or are required by any
such designated physician, (y) furnish such medical information as may be
reasonably requested, and (z) waive any applicable privilege that may
arise because of such examination.

 

(c)           Cause.  In addition to any other rights or remedies
available to Company during the Employment Term, in its sole discretion Company
may terminate Executive’s employment for Cause (as defined in this Section)
effective immediately upon delivery of written notice to Executive, and
Executive will not be entitled to any Severance Benefits.  As used herein, “Cause” means any of
the following:  (i)  that Executive
has materially 

 

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neglected, failed, or refused to render the Services or perform any
other material duties or obligations under this Agreement; (ii) that
Executive has otherwise materially violated any provision of this Agreement,
including, without limitation, violation of Company 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 Company’s reasonable judgment) may
adversely affect Company, the ability of Executive to provide the Services, or
any of the other Company Parties (as defined below); (iv) any act or
omission of Executive involving fraud, theft, dishonesty, disloyalty, or
illegality with respect to, or that harms or embarrasses or (in Company’s
reasonable judgment) may harm or embarrass, Company or any of the other Company
Parties; 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 Company’s reasonable judgment) may harm or embarrass,
Company or any of the other Company Parties; provided, however, that with respect to clauses (i) and
(ii) of this Section, if such breach or violation is susceptible to cure,
Company may not terminate Executive’s employment for Cause unless Company
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 Company 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.

 

(d)           Good
Reason.  Executive may terminate
employment with Good Reason at any time upon notice to Company.  For the purpose of this Agreement, “Good
Reason” means, in the absence of Executive’s consent:  (A) the material breach by Company of
any material compensation or material benefit obligation to Executive under
this Agreement; or (B) a material reduction in Executive’s Base Salary; (C) a
material diminution in Executive’s authority, duties or responsibilities; or (D) a
change in the location of the headquarters of the Company 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 the Company 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.   If Executive has resigned
for Good Reason in accordance with this paragraph, then Executive will
be entitled to the Severance Benefits provided in Section 7.2(a).

 

(e)           Discretionary.

 

(i)            By Executive
Upon Notice.  Executive may terminate
his employment effective as of the end of the Employment Term, by providing
Company with a written notice of non-renewal at least ninety (90) days prior to
the end of the Employment Term, in which event Executive will not be
entitled to any Severance Benefits.  If
such a notice of non-renewal is given, then employment pursuant to this
Agreement will continue until the end of the Employment Term; provided,
however, that upon receipt of such a notice, Company may instruct Executive
in writing to cease work pursuant to this Agreement, not to report to Company’s
offices, and/or not to attend any Company business functions, ceasing Executive’s
compensation and benefits pursuant to 

 

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this Agreement as
of the effective date of such instructions, and creating an earlier Termination
Date than noticed by Executive, without otherwise affecting the denial of
Severance Benefits; provided further, that Executive will receive
compensation and benefits pursuant to this Agreement for two (2) weeks
following the effective date of such instructions.

 

(ii)           By Executive
Without Notice.  Executive may
terminate employment at any time without Good Reason and without the formal
notice and completion of the Employment Term as provided in Section 4.2(e)(i),
in which event Executive will not be entitled to any Severance
Benefits.  In response to such a
termination by Executive, Company may instruct Executive to cease work pursuant
to this Agreement, not to report to Company’s offices, and/or not to attend any
Company business functions, ceasing Executive’s compensation and benefits
pursuant to this Agreement as of the effective date of such instructions, and
creating an earlier Termination Date than planned or noticed by Executive,
without otherwise affecting the denial of Severance Benefits.

 

(iii)          By Company
Without Notice.  Company may
terminate Executive’s employment at any time without Cause upon written notice
to Executive in which event Executive will be entitled to the Severance
Benefits provided in Section 7.2(a).

 

5.                                      Salary, Bonus, and Business Expenses.

 

5.1          Base
Salary.  During the Employment Term, Company will
pay Executive a base salary at the rate of FOUR HUNDRED THIRTY THOUSAND DOLLARS
AND NO/100 ($430,000.00) per annum (the “Base Salary”), payable in
regular installments in accordance with Company’s general payroll practices and
subject to all applicable deductions and withholdings as allowed by law.  Executive’s Base Salary for any partial year
will be prorated based upon the number of days elapsed in such year.  Executive’s pay may be changed by Company
from time to time, as Company deems appropriate in its sole discretion (but may
not be decreased without Executive’s consent), by way of an addendum or other
documentation, without otherwise affecting this Agreement (except as may be set
forth in such addendum or other documentation). 
Notwithstanding any change in pay, the employment of Executive will be
construed as continuing under this Agreement, without the necessity of
Executive’s execution of any further instrument.

 

5.2          2009
Bonus.  If Executive remains continuously
employed pursuant to this Agreement through December 31, 2009, then
Company will pay Executive a one-time bonus of SEVENTY-FIVE THOUSAND DOLLARS
AND NO/100 ($75,000.00) to be made in a single sum cash payment on or before March 15,
2010 (the “Guaranteed Bonus”).

 

5.3          Annual
Bonus.  During the Employment Term (beginning with
the 2010 calendar year and thereafter), Executive will be eligible for an
annual incentive bonus (the “Annual Bonus”).  The opportunity to earn an Annual Bonus and
the amount of any Annual Bonus will be determined in accordance with criteria (“Bonus
Criteria”) established by the Board or Compensation Committee of
Parent.  Executive acknowledges that
application of the Bonus 

 

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Criteria will be discretionary, with discretion resting with the Board
or Compensation Committee of Parent. 
Payment of the Annual Bonus, if any, will be made in a single sum cash
payment between January 1 and March 15 of the calendar year following
the calendar year in which the Annual Bonus is earned.  The amount and/or basis for earning the
Annual Bonus may be changed by Company from time to time, as Company deems
appropriate in its sole discretion, by way of an addendum or other
documentation, without otherwise affecting this Agreement (except as may be set
forth in such addendum or other documentation). 
Notwithstanding any such change in the Annual Bonus, the employment of
Executive will be construed as continuing under this Agreement, without the
necessity of Executive’s execution of any further instrument.

 

5.4          Business
Expenses.  Subject to Executive’s compliance with all
applicable expense policies and procedures, Company will reimburse Executive
for all reasonable travel, lodging, long distance telephone, and other business
costs and expenses reasonably incurred by Executive to render Services pursuant
to this Agreement.  Notwithstanding the
preceding sentence, or any provision in the applicable expense reimbursement
policy or procedure to the contrary, if an expense reimbursement would
constitute taxable income to Executive:  (a) the
amount of expenses eligible for reimbursement during any calendar year shall
not affect the amount of expenses eligible for reimbursement in any other
calendar year; (b) the reimbursement by Company of an eligible expense
shall be made on or before December 31 of the calendar year following the
calendar year in which the expense is incurred; and (c) the right to
reimbursement for expenses shall not be subject to liquidation or exchange for
another benefit.

 

5.5          Tax
Withholding; Offsets.  Company may
deduct from any compensation or other amount payable to Executive under this
Agreement, social security (FICA) taxes and all federal, state, municipal, or
other such taxes or governmental charges as may now be in effect or that may
hereafter be enacted or required.  Executive
further authorizes Company to make deductions from Executive’s compensation,
including, without limitation, Executive’s final paycheck, that are necessary
for Company to recover for property damages or property not returned by
Executive, and/or to recover overpayments, improper expenses, loans, and/or
advances paid to Executive.

 

6.                                      Benefits.

 

6.1          Benefit
Plans.  During the Employment Term, Executive
will be entitled to participate in all employee benefit plans and programs and
to receive all benefits for which similarly situated executives within Company
generally are eligible under any plan or program now in place or established
later by Company, on the same basis as such executives.  Executive’s benefits may be changed by
Company from time to time, as Company deems appropriate in its sole discretion,
without otherwise affecting this Agreement. 
Nothing in this Agreement will preclude Company from amending or
terminating any of the benefit plans or programs applicable to Executive as
long as such amendment or termination is applicable to all similarly situated
employees.  Notwithstanding any change in
benefits, the employment of Executive will be construed as continuing under
this Agreement, without the necessity of Executive’s execution of any further
instrument.

 

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6.2          Vacation.  While employed by Company, Executive will be entitled
to four (4) weeks of paid vacation per calendar year, to be accrued and
taken in accordance with Company’s normal vacation policy applicable to senior
executives.  Executive’s vacation term
for any partial year will be prorated based upon the number of days of
Executive’s employment in such year. 
Accumulation and payment of vacation benefits, and loss of unused
vacation time, if any, shall be determined and governed in accordance with
Company policy and procedure.

 

6.3          Stock
Options, Restricted Stock Award or Stock Appreciation Rights. 
Within 180 days of the date of this Agreement, Company shall grant to
Executive pursuant to the terms of the Heelys, Inc. 2006 Stock Incentive
Plan an option to purchase 350,000 shares of Parent’s common stock, at a
purchase price per share equal to 100% of the fair market value per share of
common stock on the date of such grant, such options shall vest and become
exercisable in four equal cumulative annual installments of one-fourth (1/4th) each on each successive anniversary of the Effective
Date and shall contain such other vesting provisions as are provided in the
option agreements, which shall be in a form substantially the same as the form
of option agreement previously provided to Executive.

 

7.                                      Rights On Termination.

 

7.1          Without
Severance Benefits.  If Executive’s employment under
this Agreement is terminated by reason of Executive’s death or Disability
pursuant to Sections 4.2(a) or 4.2(b), by Company for Cause
pursuant to Section 4.2(c), by Executive without Good Reason
pursuant to Sections 4.2(e)(i) or 4.2(e)(ii), then all
further rights of Executive (or as applicable, of Executive’s heirs or estate)
to employment and/or compensation and benefits from Company under this
Agreement shall cease as of the Termination Date, except that Company will pay
Executive (or as applicable, Executive’s heirs or estate) the following:

 

(a)           any
amount of unpaid Base Salary earned by Executive through the Termination Date,
paid in the same manner and on the same date as would have occurred if
Executive’s employment under this Agreement had not ceased;

 

(b)           any
amount of unpaid Guaranteed Bonus, Annual Bonus or other bonus that Company in
its sole discretion may deem to be earned by Executive through the Termination
Date, paid in the same manner and on the same date as would have occurred if
Executive’s employment under this Agreement had not ceased; provided,
however, that no Annual Bonus will be paid for any partial year of work
(i.e. for any year during which the Executive was not employed with Company
throughout that year, through and including the last day of the year);

 

(c)           all
unpaid reimbursable expenses due to Executive under this Agreement as of the
Termination Date, subject to Executive’s compliance with Company’s expense
reimbursement policies, paid in accordance with the terms of Company’s
policies, practices, and procedures regarding reimbursable expenses, and
subject to the provisions in Section 5.4 as applicable to
reimbursements of expenses that constitute taxable income to Executive;

 

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(d)           all
unpaid benefits that have been earned by or vested in Executive under, and
subject to the terms of, the employee benefit plans, insurance policies, or
arrangements of Company in which Executive participated through the Termination
Date, paid in accordance with the terms of the employee benefit plans,
insurance policies, or arrangements under which such amounts are due to
Executive; and

 

(e)           an
amount equal to all accrued and unused vacation pay, calculated in accordance
with Company’s vacation policies, practices, and procedures, earned by
Executive through the Termination Date, paid in accordance with the terms of
Company’s policies, practices, and procedures regarding vacation pay; provided, however, that such
payment will be made in a single sum cash payment within sixty (60) days after
the Termination Date.

 

7.2          With
Severance Benefits.  Subject to the requirements of Section 7.3,  if Executive’s employment under this Agreement is
terminated by Executive for Good Reason pursuant to Section 4.2(d) within
ninety (90) days of the initial existence of the Good Reason condition, or by
Company without Cause, then all further rights of Executive (or as applicable,
of Executive’s heirs or estate) to employment and/or compensation and benefits
from Company under this Agreement shall cease as of the Termination Date,
except that Company will pay Executive (or as applicable, Executive’s heirs or
estate) the following severance benefits (“Severance Benefits”), as
applicable:

 

(a)           all
payments and compensation pursuant to Section 7.1;

 

(b)           Executive’s
Base Salary for a period of one (1) year, plus an additional period
equivalent to four (4) weeks for every year of Executive’s employment with
the Company in excess of five (5) years, prorated for partial years of
such employment (collectively referred to as the “Severance Period”), as
severance pay, capped at a total combined maximum of seventy-eight (78) weeks
of Base Salary severance, based upon Executive’s Base Salary as of the
Termination Date, and paid in equal installments in accordance with the normal
payroll policies of Company, less applicable taxes, payable over the Severance
Period commencing on the first regular payroll date of Company following the
Release Date (as defined below), without any obligation of Executive to
mitigate damages and, no subsequent employment of Executive shall reduce the amount
of Severance Benefits provided hereunder; and

 

(c)           if
Executive elects continuation coverage (with respect to Executive’s coverage
and/or any eligible dependent coverage) (“COBRA Continuation Coverage”)
under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”)
with respect to Company’s group health insurance plan, Executive will be
responsible for payment of the monthly cost of such COBRA Continuation
Coverage; provided, however,
that commencing on the first regular payroll date of Company following the
Release Date, to the extent allowed by applicable law, Company will reimburse
Executive for the monthly premium cost for all COBRA Continuation Coverage
(including the premium cost for the period between the Termination Date and the
Release Date) net of all premium cost (if any) Executive would have paid had
Executive’s employment under this Agreement continued through the Severance
Period, within thirty (30) days of each payment of such cost by the Executive, provided
further, that such COBRA Continuation Coverage reimbursement payments by
Company shall terminate upon the earlier of: (A) the expiration of the
maximum period required under COBRA for 

 

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COBRA Continuation Coverage, (B) the completion of the Severance
Period, or (C) the date Executive becomes eligible for benefits coverage
through a new business or employer.

 

7.3          General
Release Requirement.  As a condition precedent to
Executive’s entitlement to any Severance Benefits, Executive (or as applicable,
Executive’s heirs or estate) must execute and effectuate a general release
agreement (“General Release Agreement”) satisfactory to Company, within
forty-five (45) days of the Termination Date, that may include without
limitation, terms (as applicable) of (a) Executive’s (or as applicable,
Executive’s heirs’ or estate’s) general release of Company (with a broad
definition of claims released); (b) understanding of General Release
Agreement; (c) no Company admission of liability; (d) Executive
revocation rights; (e) confidentiality of General Release Agreement; (f) severance
payments and benefits contingent on Executive compliance with Sections 8 and
9 of this Agreement; (g) return of Company property; and (h) liquidated
damages in the amount of ninety percent (90%) of Severance Benefits actually
paid, in the event of Executive’s breach of the terms of Sections 8 and/or 9
of this Agreement. The release shall not, however, include releases of the
Company for any indemnification claims by Executive for indemnification of
claims brought by other parties against the Executive.  For purposes of this Agreement, the “Release
Date” shall be defined as the date that is sixty (60) days from the
Termination Date.

 

7.4          Section 409A:
Separation From Service; Delay of Payments. 
Notwithstanding any provision to the contrary in this Agreement, no
payment or benefit shall be paid pursuant to Section 7 (including
subparts) that would be considered “deferred compensation” under Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), or the
Treasury regulations or other guidance issued thereunder (“Section 409A”)
until Executive has incurred a “separation from service” (as such term is
defined under Section 409A). 
Further, no payments contemplated by Section 7.2 of this
Agreement will be paid during the six-month period following Executive’s
Termination Date unless the Company determines that Executive is not a “specified
employee” (as that term is defined under Section 409A), or if the Company
determines that Executive is a “specified employee,” that paying such amounts
would not cause the Executive to incur an additional tax under Section 409A.  The six-month delay described in the
preceding sentence shall not apply to the extent (a) the amount of such
payment, or any portion thereof, constitutes a “short-term deferral” within the
meaning of Section 409A, and (b) to the extent the amount of such
payment does not constitute a “short-term deferral,” the amount of such
payment, or any portion thereof, does not exceed two times the lesser of (i) the
Executive’s annualized compensation based upon the Executive’s annual rate of
pay for services provided to the Company for the taxable year of the Executive
preceding the taxable year in which the Termination Date occurs (adjusted for
any increase during that year that was expected to continue indefinitely had no
separation from service occurred), or (ii) the maximum amount of
compensation that may be taken into account under a qualified plan pursuant to Section 401(a)(17)
of the Code for the year in which the Termination Date occurs.  If the payment of any amount under Section 7.2
is delayed as a result of this Section, on the first regularly scheduled
payroll date following the end of the six-month delay period, the Company will
pay the Executive a single lump-sum amount in cash equal to the cumulative
amounts that would have otherwise been previously paid to Executive under this
Agreement during such six-month period, without interest.  Thereafter, payments will resume in
accordance with this Agreement.  The provisions of this Section shall apply only to the minimum
extent necessary, after application of Section 409A, to avoid the
Executive’s incurrence of any additional taxes or 

 

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penalties under Section 409A. 
Notwithstanding anything to the contrary contained herein, the Company
shall not be responsible for, or have any obligation to reimburse or pay (as
damages or otherwise) any taxes or interest charges imposed on the Executive
pursuant to Section 409A.  For
purposes of Section 409A (including, without limitation, for purposes of
Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that
Executive may be eligible to receive under this Agreement shall be treated as a
separate and distinct payment and shall not collectively be treated as a single
payment.

 

7.5          Limitation
on Payments.  If any Severance Benefits or any other of the
Total Severance Benefits (as defined in this Section) constitute “parachute
payments” within the meaning of Section 280G of the Code and would be
subject to the excise tax imposed by Section 4999 of the Code (the “Excise
Tax”), then Executive’s payments and benefits under Section 7.2
of this Agreement shall be either (i) paid in full, or (ii) paid as
to such lesser extent which would result in no portion of such payments or
benefits being subject to the Excise Tax, whichever of the foregoing amounts,
taking into account the applicable federal, state and local income and payroll
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of Total Severance Benefits, notwithstanding that
all or some portion of such benefits may be subject to the Excise Tax under Section 4999
of the Code, and further notwithstanding the fact that the Severance Benefits
may be reduced to zero after the application of this Section.  For purposes of this Agreement, “Total
Severance Benefits” means the severance payments and benefits under Section 7.2
of this Agreement and all other payments and benefits received or to be
received by Executive under this Agreement and all payments and benefits (if
any) to which Executive may be entitled under any plan, agreement or otherwise
upon or as the result of a change of control or the termination of his
employment with Company, or both.  This Section is
not intended to prevent and shall not result in the prevention of the
acceleration and full vesting of any outstanding stock option, restricted stock
or stock appreciation right held by Executive if any such acceleration is
provided for under the terms of the award or grant agreement related to such
stock option, restricted stock or stock appreciation right.  Any determination required under this Section shall
be made in writing by Company’s independent public accountants (the “Accountants”),
whose determination shall be conclusive and binding upon Executive and Company
for all purposes.  For purposes of making
the calculations required by this Section, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code.  Company and
Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section.  Company shall bear all
costs the Accountants may reasonably incur in connection with any calculations
contemplated by this Section.

 

7.6          Position
Resignations.  Upon cessation or termination of employment
hereunder (unless Executive continues otherwise to be employed by Company or
one of its Related Entities), Executive will resign or will be deemed to have
resigned from any and all positions as an officer or director, or both, of
Company and each of its Related Entities, unless otherwise agreed by the
Parties.  If for any reason this Section is
deemed to be insufficient to effectuate such resignations, then Executive will,
upon Company’s request, execute any documents or instruments that Company may
deem necessary or desirable to effectuate such resignations.

 

10

 

8.                                      Non-Disclosure,
Non-Competition and Non-Solicitation Covenants.

 

8.1          Confidential
Information.

 

(a)           Definition. 
As used herein, “Confidential Information” means any and all
material, data, ideas, inventions, formulae, patterns, compilations, programs,
devices, methods, techniques, processes, know how, plans (marketing, business,
strategic, technical, or otherwise), arrangements, pricing, and/or other
information of, or relating to Company or any of its Related Entities, as well
as any of their Customers (collectively including Company, the “Company
Parties”), that is confidential, proprietary, and/or a trade secret (i) by
its nature, (ii) based on how it is treated or designated by any of the
Company Parties (including without limitation, designation in this Agreement), (iii) such
that its appropriation, use, or disclosure would have a material adverse effect
on the business or planned business of any of the Company Parties, and/or (iv) as
a matter of law.  All Confidential
Information is the property of the respective Company Parties, as applicable,
the appropriation, use, and/or disclosure of which is governed and restricted
by this Agreement.

 

(b)           Exclusions. 
Confidential Information does not include material, data, and/or
information:  (i) that any of the
Company Parties has voluntarily placed in the public domain; (ii) that has
been lawfully and independently developed and publicly disclosed by third
parties; (iii) that constitutes the general non-specialized knowledge and
skills gained by Executive during the Employment Term; or (iv) that
otherwise enters the public domain through lawful means; provided, however, that the
unauthorized appropriation, use, or disclosure of Confidential Information by
Executive, directly or indirectly, will not affect the protection and relief
afforded by this Agreement regarding such information.

 

(c)           Examples. 
Examples of Confidential Information include, without limitation, the
following information (including, without limitation, compilations or
collections of such information) relating or belonging to any of the Company
Parties:  (i) product and
manufacturing information, such as manufacturing processes; (ii) scientific
and technical information, such as research and development, tests and test
results, formulas and formulations, and studies and analysis; (iii) financial
and cost information, such as operating and production costs, costs of goods
sold, costs of supplies and manufacturing materials, non-public financial
statements and reports, profit and loss information, margin information, and
financial performance information; (iv) Customer related information, such
as contracts, engagement and scope of work letters, proposals and
presentations, contacts, lists, identities, and prospects, practices, plans,
histories, requirements, and needs, price information and formulae, and
information concerning Customer products, services, businesses, or equipment
specifications;  (v) sales,
marketing, and price information, such as marketing and sales programs and
related data, sales and marketing strategies and plans, sales and marketing
procedures and processes, pricing methods, practices, and techniques, and
pricing schedules and lists; (vi) database, software, and other computer
related information, such as computer programs, data, compilations of
information and records, software and computer files, presentation software,
and computer-stored or backed-up information including, but not limited to,
e-mails, databases, word processed documents, spreadsheets, notes, schedules, task
lists, images, and video; (vii) employee related information, such as
lists or directories identifying employees, representatives and contractors,
and information regarding the competencies (knowledge, skill, abilities, and
experience), 

 

11

 

compensation and needs of employees, representatives, and contractors,
and training methods; (viii) business and operations related information,
such as operating methods, procedures, techniques, practices and processes,
information about acquisition(s), corporate or business opportunities,
information about partners and potential investors, strategies, projections and
related documents, contracts and licenses, and business records, files,
equipment, notebooks, documents, memoranda, reports, notes, sample books,
correspondence, lists, and other written and graphic business records; and (ix) Work
Product (as defined below).

 

(d)           Provision. 
In consideration of Executive’s obligations and promises in this
Agreement, including without limitation Section 8.1(e), Company
promises to provide Executive access to Confidential Information as reasonably
necessary for the performance of the Services, during the Employment Term.

 

(e)           Protection. 
Both during and after the Employment Term, Executive will not, in any
manner, directly or indirectly:  (i) appropriate,
download, print, copy, remove, use, disclose, divulge, and/or communicate any
Confidential Information to any Person, including (without limitation)
originals or copies of any Confidential Information, in any media or format,
except for the benefit of the Company Parties within the course and scope of
Executive’s employment; or (ii) take or encourage any action which would
circumvent, interfere with, or otherwise diminish the value or benefit of
Confidential Information to any of the Company Parties.  Executive will use utmost diligence to
protect and safeguard the Confidential Information as prescribed in Section 8.1
(including subparts).

 

(f)            Return and Review.

 

(i)            At Any Time.  All Confidential Information, and all other
information and property affecting or relating to the Business and/or other
Company Parties, within Executive’s possession, custody, or control, regardless
of form or format, will remain, at all times, the property of the applicable
Company Parties.  At any time Company may
request, during or after the Employment Term, Executive will deliver to Company
all originals and copies of Confidential Information, and all other information
and property affecting or relating to the Business of any of the Company
Parties, within Executive’s possession, custody, or control, regardless of form
or format.  Both during and after the
Employment Term, Company will have the right of reasonable access to review,
inspect, copy, and/or confiscate any Confidential Information, and any other
information and property affecting or relating to the Business of any of the
Company Parties, which is within Executive’s possession, custody, or control.

 

(ii)           Upon Termination.  Upon the Termination Date, Executive shall
not retain, and shall immediately return to Company, any and all originals and
copies of Confidential Information, and all other information and property
affecting or relating to the businesses of other Company Parties, within
Executive’s possession, custody, or control, regardless of form or format, without
the necessity of a prior Company request.

 

(iii)          Response to
Third Party Requests.  Upon receipt
of any formal or informal request, by legal process or otherwise, seeking
Executive’s direct or 

 

12

 

indirect
disclosure or production of any Confidential Information to any Person,
Executive will promptly and timely notify Company and provide a description
and, if applicable, deliver a copy of such request to Company.  Executive irrevocably nominates and appoints
Company as Executive’s true and lawful attorney-in-fact, to act in Executive’s
name, place, and stead to perform any act that Executive might perform to
defend and protect against any disclosure or production of Confidential
Information.

 

8.2          Work
Product/Intellectual Property.

 

(a)           Definition. 
As used in this Agreement, the term “Work Product” means all
patents and patent applications, all inventions, innovations, improvements,
developments, methods, designs, analyses, drawings, reports, creative works,
discoveries, software, computer programs, modifications, enhancements,
know-how, formulations, concepts and ideas, all similar or related information
(in each case whether patentable or not), all copyrights and copyrightable
works, all trade secrets, confidential information, and all other intellectual
property and intellectual property rights, that are written, conceived, reduced
to practice, developed, and/or made by Executive, either alone or with others
in the course of Executive’s employment with or other services to Company
(including employment or services prior to the Effective Date).

 

(b)           Assignment. 
Subject to the terms of Section 8.2(d), Executive hereby
assigns to Company all right, title, and interest to all Work Product that (i) relates
to any of the Company Parties’ actual or anticipated Business, research and
development, or existing or future products or services, or (ii) is
conceived, reduced to practice, developed, or made using any equipment,
supplies, facilities, assets, information, or resources of any of the Company
Parties (including, without limitation, any intellectual property rights).

 

(c)           Disclosure.  Subject
to the terms of Section 8.2(d), Executive will promptly disclose
all Work Product to Company and perform all actions reasonably requested by
Company (whether during or after the Employment Term), but at no cost to
Executive to establish and confirm the ownership and proprietary interest of any
of the Company Parties, as applicable, in any Work Product (including, without
limitation, the execution of assignments, consents, powers of attorney,
applications, and other instruments). 
Executive will not file any patent or copyright applications related to
any Work Product except with the written consent of Company.

 

(d)           Exclusions.  Except for any matter(s) listed in the
following table, there is no Work Product in existence that Executive
claims to be excluded from this Agreement, whether from prior employment with
or service to Company, or otherwise.

 

	
  DATE

  	
   

  	
  DESCRIPTION

  
	
   

  	
   

  	
  None

  
	
   

  	
   

  	
  None

  

 

13

 

8.3          Restrictive
Covenants.  The restrictive covenants stated in this Section 8.3
(including subparts) are independent of and severable from one another.

 

(a)           Non-Competition During Employment.  During the Employment Term, Executive will
not, in any Capacity (as defined below), directly or indirectly, on Executive’s
own behalf or on behalf of any other Person, (i) engage in any activity,
business, or employment which may detract from Executive’s full performance of
the Services or the duties hereunder, or which compete in any manner with
Company, or (ii) render any services of a business, commercial, or
professional nature, to any other Person, without the prior written consent of
the Board or CEO of Company.

 

(b)           Non-Competition Post-Employment.  During Restricted Period A (as defined
below), Executive will not directly or indirectly, in any Capacity, on
Executive’s own behalf or on behalf of any other Person, engage in Restricted
Activities (as defined below) for a Competing Business (as defined below)
within the Geographic Area (as defined below).

 

(c)           Customer/Other Non-Solicitation.  During Restricted Period A, Executive will
not directly or indirectly, in any Capacity, on Executive’s own behalf or on
behalf of any other Person, induce, or attempt to induce, any Customer (i) to
do business with a Competing Business, regardless of whether Executive
initiates contact for such purposes, or (ii) to reduce, cease, restrict,
terminate, or otherwise adversely alter business or business relationships with
any of the Company Parties, regardless of whether Executive initiates contact
for such purposes.

 

(d)           Executive Non-Solicitation and No-Hire.  During the Employment Term (except to the
extent consistent with performance of the Services) and otherwise during
Restricted Period B (as defined below), Executive will not directly or
indirectly, in any Capacity, on Executive’s own behalf or on behalf of any
other Person, (i) solicit, recruit, persuade, influence, or induce, or
attempt to solicit, recruit, persuade, influence, or induce, any Person
employed or otherwise retained by any of the Company Parties (including any
independent contractor or consultant) to cease or leave their employment,
contractual, or consulting relationship with any Company Party, regardless of
whether Executive initiates contact for such purposes, or (ii) hire,
employ, or otherwise attempt to establish any employment, agency, consulting,
independent contractor, or other business relationship with, any individual who
is or was employed or otherwise retained by any of the Company Parties
(including any independent contractor or consultant) at any time during the
Reference Period.

 

8.4          Definitions. 
The following definitions are for the purposes of this Agreement,
including without limitation, Section 8 (including subparts).

 

(a)           The
term “Assigned Offices” means all offices of Company and/or other
Company Parties where Executive worked, was based, was supported, and/or for
which Executive was responsible during the Reference Period.

 

(b)           The
term “Capacity” means and includes, without limitation, owning, taking a
financial interest in, managing, operating, controlling, being employed by,
being associated or affiliated with, providing services as a consultant or
independent contractor 

 

14

 

to, or participating in the ownership, management, operation, or
control of; provided, however,
that this definition does not preclude ownership of less than 5% of the
outstanding equity securities of any publicly reporting company.

 

(c)           The
term “Competing Business” means the business of providing, selling,
manufacturing, producing, and/or marketing products and/or services that are
the same or substantially similar to the products and/or services that Company
and/or any of its Related Entities provided, sold, manufactured, produced,
and/or marketed during the Reference Period.

 

(d)           The
term “Customer” means any client, customer, contractor, sub-contractor,
vendor, supplier, dealer, franchisee, licensor, investor, or other Person in a
business relationship with Company (a) for which Executive, or any
employees or contractors working under Executive’s supervision, had any direct
or indirect responsibility during the Employment Term, or (b) about which
Executive learned Confidential Information, or for which Executive had access
to Confidential Information, during the Employment Term.

 

(e)           The
term “Geographic Area” means the geographic area encompassed by
Executive’s job duties and actual job activities for the Company Parties during
the Reference Period.  The term
Geographic Area includes, without limitation, (i) the counties encompassing
the Assigned Offices, and (ii) any place in the world the Company engages
in the Business.

 

(f)            The
term “Reference Period” means the lesser of (a) the Employment
Term, or (b) the eighteen (18) months prior to the Termination Date.

 

(g)           The
term “Restricted Activities” means work activities and/or duties that
are or include activities or duties that are the same or substantially similar
to Executive’s work activities and/or duties for Company and/or any of the
other Company Parties during the Reference Period.

 

(h)           The
term “Restricted Period A” means the Employment Term and the twelve (12)
month period commencing on the Termination Date.  Restricted Period A will be extended by one
day for each day that Executive is determined to be in violation of any
restrictive covenant stated in Section 8.3(b) or (c), as
determined by a court or arbitrator of competent jurisdiction.

 

(i)            The
term “Restricted Period B” means the Employment Term and the eighteen
(18) month period commencing on the Termination Date.  Restricted Period B will be extended by one
day for each day that Executive is determined to be in violation of any
restrictive covenant stated in Section 8.3(d), as determined by a
court or arbitrator of competent jurisdiction.

 

(j)            The
term “indirect,” in reference to the Executive’s actions, includes without
limitation, any act by Executive’s spouse, ancestor, lineal descendant, lineal
descendant’s spouse, sibling, or other member of Executive’s family.

 

15

 

8.5          Continuous
Application.  The restrictive covenants set forth in this
Agreement will continue in force even in the event of change in Executive’s job
title, position, or duties, unless a new agreement is signed to replace this
Agreement.

 

8.6          Remedies. 
Because Executive’s services are unique and Executive has and will have
access to Confidential Information, money damages would be an inadequate remedy
for any breach of this Agreement.  The
restrictive covenants stated in the provisions of Section 8 (including
subparts) are without prejudice to Company’s other rights and causes of action
at law.  In the event of a breach of this
Agreement by Executive, Company will be entitled to all appropriate equitable
and legal relief, including, but not limited to: (i) injunctive or other
equitable relief to enforce this Agreement or prevent conduct in violation of
this Agreement, without the necessity of posting bond or other security (unless
otherwise required by applicable law), and (ii) compensatory relief including
damages incurred as a result of the breach. 
Further, without prejudice to any of Company’s rights or remedies stated
herein, in the event of Executive’s breach of any of the covenants stated in Section 8
(including subparts), Company may suspend or terminate payment or other
provision of Severance Benefits, and recover as damages the value of all
Severance Benefits previously paid or otherwise provided.

 

9.                                      Statements.

 

9.1          Media
Nondisclosure.  The Executive agrees that during and after
the Employment Term, except as may be authorized in writing by Company, the
Executive will not directly or indirectly disclose or release to the Media (as
defined below) any information concerning or relating to any aspect of the
Executive’s employment or termination from employment with Company, any
non-public information  related to the
business of Company or the other Company Parties, and/or any aspect of any
dispute that is the subject of this Agreement. 
For the purposes of this Agreement, the term “Media” includes,
without limitation, any news organization, station, publication, show, website,
web log (blog), bulletin board, chat room and/or program (past, present and/or
future), whether published through the means of print, radio, television and/or
the Internet or otherwise, and any member, representative, agent and/or
employee of the same.

 

9.2          Non-Disparagement. 
The Executive agrees that during and after the Employment Term, the
Executive will not make any statements, comments or communications in any form,
oral, written or electronic to any Media or any Customer, which would
constitute libel, slander or disparagement of Company or any other Company
Party; provided, however, that the terms of this Section shall not
apply to communications between the Executive and, as applicable, the Executive’s
attorneys or other persons with whom communications would be subject to a claim
of privilege existing under common law, statute or rule of procedure.  The Executive further agrees that the
Executive will not in any way solicit any such statements, comments or
communications from others.

 

10.                               Miscellaneous.

 

10.1        Binding
Effect.  This Agreement will be binding upon and will
inure to the benefit of the Parties and their respective successors,
representatives, heirs, and permitted assigns, except that Executive’s rights,
benefits, duties, and responsibilities hereunder are of a 

 

16

 

personal nature and shall not be assignable in whole or in part by
Executive.  Executive specifically acknowledges that
Company shall have the right to assign this Agreement to Company’s successors
or assigns, and hereby consents to such assignment with the need for further
execution of any instrument.

 

10.2        DISPUTES.  SUBJECT TO THE TERMS OF, AND ANY EXCEPTIONS PROVIDED
IN, THIS AGREEMENT, ANY AND ALL DISPUTES (AS DEFINED BELOW) WILL BE RESOLVED
EXCLUSIVELY THROUGH BINDING ARBITRATION. 
THE PARTIES HERETO EACH WAIVE THE RIGHT TO A JURY TRIAL AND EACH WAIVE
THE RIGHT TO ADJUDICATE THEIR DISPUTES OUTSIDE THE ARBITRATION FORUM PROVIDED
FOR IN THIS AGREEMENT, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT OR
REQUIRED BY APPLICABLE LAW.  For the
purposes of this Agreement, “Disputes” means any controversy or claim
(including without limitation all claims pursuant to common and statutory law)
between Executive and Company or any other Company Party, including without
limitation, all controversies and claims relating to this Agreement or arising
out of or relating to the subject matter of this Agreement, Executive’s
employment with Company, and/or Executive’s termination or resignation from
employment with Company, regardless of whether the employment termination or
resignation is voluntary, involuntary, for Cause, or not for Cause.  The consideration for this Agreement includes
the Parties’ mutual agreement to arbitrate their Disputes.  Section 10.2 (including
sub-parts) shall be construed and enforced under the Federal Arbitration Act, 9
U.S.C. §§ 1 et seq.

 

(a)           In
addition to other remedies available at law, injunctive relief may be sought in
arbitration.  However, as a narrow
exception to binding arbitration under this Agreement, the Executive and
Company shall each have the right to initiate an action in a court of competent
jurisdiction in the Agreed Venue (as defined below) to request injunctive or
other equitable relief regarding the terms of this Agreement.  Evidence adduced in such a proceeding may be
used in arbitration as well.  The
following claims are excluded from binding arbitration under this Agreement:  claims for workers’ compensation benefits or
unemployment benefits; claims for replevin; claims arising under the National
Labor Relations Act, 29 U.S.C. §§ 151-169, including but not limited to 29
U.S.C. § 157; and claims for which a binding arbitration agreement is invalid
as a matter of law.

 

(b)           The
arbitration shall be administered by a single local arbitrator with JAMS in
accordance with its then-current applicable rules and procedures for
employment disputes.  If for any reason
JAMS cannot serve as the arbitration administrator, then the American
Arbitration Association (AAA) shall serve as arbitration administrator under
all applicable terms of this Agreement. 
Subject to the procedures of the arbitration administrator, the
arbitrator shall render a decision in arbitration strictly in accordance with
applicable law.

 

(c)           The
fees charged by the arbitration administrator and/or the individual arbitrator
shall be borne by Company, except for any initial registration fee, which the
Executive and Company shall bear equally. 
Otherwise, subject to the terms of this Section and Section 10.12(c) the
Executive and Company shall each bear their own costs, expenses, and attorneys’
fees incurred in arbitration.  Executive
may but is not required to have the representation of counsel in
arbitration.  Within the arbitrator’s
discretion, the Party that prevails in arbitration may recover its arbitration
expenses, its portion of the fees and costs charged by the 

 

17

 

arbitration administrator, and the fees of the arbitrator, as
applicable, no matter which Party made the initial complaint.

 

(d)           Both
during and after the entire arbitration process as contemplated herein, the
arbitration itself and information and discovery disclosed in the arbitration
process (“Arbitration Information”) shall be maintained in strictest
confidence by the Parties and their counsel and by the authorized party to whom
Arbitration Information is disclosed. 
Arbitration Information may be used, possessed, and disclosed only as
allowed in this Agreement, and only for the purposes of arbitration and related
proceedings pursuant to this Agreement, and for no other purpose
whatsoever.  Accordingly, without
limitation, Arbitration Information may not be disclosed:  (1) to any judicial, governmental,
regulatory, administrative, arbitral, corporate, or other entity not
administering arbitration under this Agreement or hearing a review of the
arbitration decision (to the extent such review is allowed by applicable law); (2) to
any member of the general public; or (3) to the Media; provided,
however, that Arbitration Information may be disclosed:  (A) to the Parties and their respective
advisors, consultants and experts (and such Parties’ authorized employees and
agents); (B) to the arbitrator and arbitration administrator (and their
authorized staffs); (C) to fact witnesses reasonably expected to offer
relevant evidence in an arbitration proceeding; (D) as ordered by or for
the purpose of an arbitration appeal to a court of competent jurisdiction; and (E) to
any Person by Company or any of its Related Entities, to the extent required by
law or the rules and regulations of the Securities and Exchange Commission
or any applicable stock exchange.  The arbitrator
shall, upon request, issue all prescriptive orders as may be required to
enforce and maintain this covenant of confidentiality during the course of the
arbitration and after the conclusion of same.

 

10.3        Settlement
of Existing Rights.  In exchange for the other terms
of this Agreement, Executive acknowledges and agrees that: (a) Executive’s
entry into this Agreement is a condition of employment with Company; (b) except
as otherwise provided herein, this Agreement will replace any existing similar or
overlapping agreement between the Parties and thereby act as a novation, if
applicable; (c) in consideration for this Agreement, Executive will be
provided with access to proprietary information, trade secrets, and other
Confidential Information to which Executive has not previously had access; (d) all
Work Product developed by Executive during any past employment with Company,
and all goodwill developed with the Customers and/or other business contacts by
Executive during any past employment with Company is the exclusive property of
Company; and (e) all Company information and/or specialized training
accessed, created, received, or utilized by Executive during any past
employment with Company, will be subject to the restrictions on Confidential
Information described in this Agreement, as applicable, whether previously so
agreed or not.

 

10.4        Section 409A
Compliance.  If Company or Executive reasonably
determines that any compensation or benefits payable under this Agreement may
be subject to Section 409A, Company and Executive shall work together to
adopt such amendments to this Agreement or adopt other policies or procedures
(including amendments, policies and procedures with retroactive effect), or
take any other commercially reasonable actions necessary or appropriate to (i) exempt
the compensation and benefits payable under this Agreement from Section 409A
and/or to preserve the intended tax treatment of the compensation and benefits
provided with respect to this Agreement or (ii) comply with the requirements
of Section 409A.

 

18

 

10.5        Headings. 
The titles, captions and headings contained in this Agreement are
inserted for convenience of reference only and are not intended to be a part of
or to affect in any way the meaning or interpretation of this Agreement.

 

19

 

10.6        Notices.

 

(a)           All notices, consents, requests and
other communications hereunder will be in writing and will be sent by hand
delivery or by FedEx or another recognized national overnight courier service
as set forth below:

 

If to Company:

 

Heeling Sports Limited

c/o Chief Executive Officer

3200 Belmeade Drive, Suite 100

Carrollton, TX 75006

 

with a copy to:

 

Heelys, Inc.

c/o
Chief Executive Officer

3200
Belmeade Drive

Suite 100

Carrollton
TX  75006

 

If to Executive:

 

Thomas C. Hansen

At such address as Executive advises the Company from
time to time

[

 

(b)           Notices delivered pursuant to Section 10.6
(including subparts) will be deemed given: 
(i) at the time delivered, if personally delivered; and (ii) one
(1) business day after timely delivery to the courier, if sent overnight
(next day) by FedEx or other overnight courier service.  Any Party may change the address to which
notice is to be sent by written notice to the other Party in accordance with Section 10.6.

 

10.7        Counterparts;
Fax Signatures.  This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all of which
together will constitute the same Agreement. 
Any signature page of any such counterpart, or any electronic
facsimile thereof, may be attached or appended to any other counterpart to
complete a fully executed counterpart of this Agreement, and any telecopy or
other facsimile transmission of any signature will be deemed an original and
will bind such Party.

 

10.8        Entire
Agreement.  This Agreement and all other agreements
specifically incorporated herein are intended by the Parties to be the final
and complete expression of their agreement with respect to the subject matter
hereof and are the complete and exclusive statement of the terms and conditions
thereof, notwithstanding any representations, statements, or agreements to the
contrary heretofore or simultaneously made. 
This Agreement may be modified only by a written instrument signed by
each of the Parties.

 

20

 

10.9        Severability. 
The unenforceability or invalidity of any provision of this Agreement
will not affect the validity or enforceability of any remaining provisions
hereof, but such remaining provisions will be construed and interpreted in such
a manner as to carry out fully the intent of the Parties hereto; provided, however, that should
any judicial or arbitral authority interpreting this Agreement deem any
provision hereof to be unreasonably broad in time, territory, scope, or
otherwise, it is the intent and desire of the Parties that such judicial or
arbitral authority reduce the breadth of such provision to the maximum legally
allowable parameters rather than deeming such provision totally unenforceable
or invalid.  A determination that any
provision of this Agreement is unenforceable or invalid in one jurisdiction
will not affect the enforceability or validity of such provision in another
jurisdiction.

 

10.10      Waiver. 
No waiver, termination, or discharge of this Agreement, or any of the
terms or provisions hereof, will be binding upon either Party unless confirmed
in writing.  No waiver by either Party of
any term or provision of this Agreement or of any default hereunder will affect
such Party’s right thereafter to enforce such term or provision or to exercise
any right or remedy in the event of any other default, whether or not similar.

 

10.11      Interpretation. 
Should a provision of this Agreement require judicial or arbitral
interpretation, the judicial or arbitral authority interpreting or construing
the Agreement will not apply the assumption that the terms hereof will be more
strictly construed against one Party by reason of the rule of construction
that an instrument is to be construed more strictly against the Party which
itself or through its agents prepared this Agreement, it being agreed that both
Parties and/or their attorneys and other agents have participated in the
preparation of this Agreement equally.

 

10.12      Applicable
Law.

 

(a)           Choice
of Law.  All questions concerning the construction,
validity, and interpretation of this Agreement will be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.  Should any provision of this Agreement,
including, without limitation, any provision relating to compensation, be found
to be in violation of any applicable law, rule, or regulation, the Parties will
execute an amendment to this Agreement to bring such provision into compliance
with any such law, rule or regulation, as the case may be.

 

(b)           EXCLUSIVE
VENUE.  THE PARTIES CONSENT AND
STIPULATE THAT THE EXCLUSIVE VENUE OF ANY ARBITRATION PROCEEDING AND OF ANY
OTHER PROCEEDING, INCLUDING ANY COURT PROCEEDING, UNDER THIS AGREEMENT SHALL BE
DALLAS COUNTY, TEXAS (the “Agreed Venue”). For this purpose, the Parties
also expressly consent to personal jurisdiction in the Agreed Venue.

 

(c)           Attorneys’
Fees and Costs.  If either party
hereto brings any action in arbitration or in court to enforce any rights
hereunder, the prevailing party shall be entitled to receive from the
non-prevailing party in any such action its costs and reasonable attorneys fees
incurred in connection with such action, including any appeals.

 

21

 

10.13      No
Third Party Beneficiaries. 
Notwithstanding any other term or provision of this Agreement, there are
no third party beneficiaries to this Agreement, and none are intended.  No third party has standing to enforce this
Agreement.

 

10.14      Survival. 
The terms of this Agreement, to the extent that they apply
post-employment, shall survive the termination of this Agreement (regardless of
the basis for termination), and remain in full force and effect based on the terms
as stated.

 

[Intentionally Blank; 
Continue to Signature Page]

 

22

 

THIS AGREEMENT INCLUDES PROVISIONS FOR BINDING
ARBITRATION AND RESTRICTIVE NON-COMPETE COVENANTS.

 

IN WITNESS WHEREOF, the Parties have executed this
Agreement on July 17, 2009, to be effective as of the Effective Date.

 

	
   

  	
  “Company”

  
	
   

  	
  Heeling Sports Limited, a Texas limited
  partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  Heeling Management Corp.,

  
	
   

  	
   

  	
  its Sole General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lisa K. Peterson

  
	
   

  	
   

  	
  Name:     Lisa
  K. Peterson

  
	
   

  	
   

  	
  Title:       Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  *************************

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Executive”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Thomas C. Hansen

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Thomas C. Hansen

  

 

23United States Securities and Exchange Commission Edgar Filing

Exhibit 10.1

FIRST AMENDING AGREEMENT

TO THE PROTECTIVE PRODUCTS OF AMERICA, INC.

FORBEARANCE AGREEMENT

DATED AS OF JANUARY 30, 2009

THIS FIRST AMENDING AGREEMENT is made effective as of June 30, 2009,

BETWEEN:

PROTECTIVE PRODUCTS OF AMERICA, INC.

(the "Borrower")

- and -

CANADIAN IMPERIAL BANK OF COMMERCE

("CIBC", in its capacity as Agent and Lender)

PREAMBLE:

A.

Pursuant to a Forbearance Agreement dated as of January 30, 2009 between the Borrower and CIBC (the "Forbearance Agreement"), CIBC agreed to forbear from exercising any of its "Remedies" (as defined in the Forbearance Agreement) under the credit agreement dated as of September 21, 2004, as amended, between the Borrower (formerly Ceramic Protection Corporation) and CIBC and as amended and restated pursuant to an amended and restated credit agreement dated as of January 30, 2009, as the same may be further amended, supplemented, restated, replaced or otherwise modified from time to time, collectively, the "Credit Agreement") until the earlier of (i) June 30, 2009 and (ii) the occurrence of a "Termination Event" (as defined in the Forbearance Agreement).

B.

CIBC has agreed to, inter alia, extend the "Forbearance Period" (as defined in the Forbearance Agreement) and to provide a Temporary Bulge (as hereinafter defined) to the Revolving Loan on the terms and conditions provided for herein and the parties have agreed to amend the Forbearance Agreement on the terms and conditions herein provided.

AGREEMENT:

In consideration of the premises, the covenants and the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged between the parties, the parties hereto agree as follows:

1.

Definitions.  Capitalized terms used in this First Amending Agreement will, unless otherwise defined herein, have the meanings attributed to such terms in the Credit Agreement.

2.

Acknowledgements and Confirmations.  The Borrower on behalf of itself and each Material Subsidiary hereby acknowledges, agrees and confirms to CIBC as follows:

- 2 -

(i)

As of June 25, 2009, the Borrower is indebted to CIBC under the Credit Agreement in the principal amount of U.S. $5,867,714.48, together with any accrued and unpaid interest thereon, plus all fees, service charges, legal fees and expenses and other costs, and the Borrower affirms its absolute and unconditional obligation and promise to repay the "Obligations" (as defined in the Forbearance Agreement) to CIBC in accordance with the terms of the Credit Agreement and the Forbearance Agreement, as amended hereby;

(ii)

The "Existing Defaults" (as defined in the Forbearance Agreement, as amended hereby) have occurred and are continuing under the Credit Agreement, and, subject to the terms and conditions of this Forbearance Agreement, as amended hereby, CIBC is entitled to immediately exercise its Remedies;

(iii)

All existing Security given to CIBC (including the additional security Documents delivered pursuant to Section 7 of the Forbearance Agreement) is binding upon the Borrower and the Material Subsidiaries, and are valid and enforceable according to its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or similar statutes affecting the enforcement of creditors' rights generally and by general principles of equity;

(iv)

Subject to the Forbearance Agreement, as amended hereby, CIBC has the right to terminate any further obligation to make Advances under the Credit Agreement and demand immediate repayment of the Obligations and CIBC has no obligation to make any further Advances under the Credit Agreement; and

(v)

All obligations of the Borrower and each Material Subsidiary under the Forbearance Agreement, as amended by this First Amending Agreement, including, without limitation, the obligations of the Borrower with respect to the Temporary Bulge of the Revolving Loan established hereunder, are secured by the Security and guaranteed under the guarantees previously delivered by each Material Subsidiary.

3.

Credit Agreement Temporary Bulge.  Subject to the terms and conditions of this First Amending Agreement, CIBC hereby agrees to provide to the Borrower an Advance under the Revolving Loan in the form of a temporary increase to the Revolving Loan by way of a one-time draw down in the maximum amount of U.S. $650,000 (the "Temporary Bulge").  The Temporary Bulge is deemed to form part of the Revolving Loan and shall bear interest at the rates set forth in the Credit Agreement for U.S. Base Rate Loans.  Notwithstanding anything to the contrary in the Credit Agreement, any prepayment or repayment by the Borrower of any amount outstanding under the Credit Agreement shall be to first repay principal outstanding under the Temporary Bulge.  CIBC shall not be obligated to re-advance any amounts of the Temporary Bulge that have been repaid. The Temporary Bulge will be made available to the Borrower by one-time drawdown of the Revolving Loan provided a notice of borrowing, in form and substance satisfactory to CIBC (including a Notice of Borrowing with such amendments satisfactory to CIBC), is received from the Borrower by CIBC in accordance with the terms and conditions of the Credit Agreement. 

- 3 -

4.

Amendments.  Subject to completion of the deliveries set out in Section 6 below, the Forbearance Agreement is amended as follows:

(a)

The reference to "June 30, 2009" in Section 3(a)(i) of the Forbearance Agreement is hereby deleted and replaced with "October 31, 2009";

(b)

Clause (ii) of Section 3(b) of the Forbearance Agreement is hereby amended by deleting the reference to "Section 10.2(a) or (b) of the Credit Agreement as of the fiscal quarter ending March 31, 2009 and June 30, 2009" and replace such reference with "Sections 10.2(a) or (b) of the Credit Agreement as of the fiscal quarters ending March 31, 2009, June 30, 2009 and September 30, 2009";

(c)

Section 4(b) of the Forbearance Agreement is hereby amended to add the following parenthetical to the end of such section:

"(other than the failure of the Borrower or any Material Subsidiary to comply with Section 7(g) hereof; provided that such failure of the Borrower or any Material Subsidiary to comply with Section 7(g) shall only be until the earlier of (i) the occurrence of any other Termination Event, and (ii) expiry of the Forbearance Period)";

(d)

The last sentence of  Section 4(c) of the Forbearance Agreement is hereby deleted in its entirety;

(e)

Section 7(b) of the Forbearance Agreement is hereby deleted in its entirety and replaced with the following:

"(b) 

on Borrower's receipt of its income tax refund for the year ended December 31, 2006 from the United States Department of Treasury in connection with the Borrower's 2006 form 1120X filings (the "2006 Income Tax Refund"):

(i)

within five Business Days, the Borrower shall (A) provide to CIBC a Borrowing Base Certificate, (B) pay the Amendment Fee, and (C) permanently repay (I) the Temporary Bulge and (II) the difference between the amount by which the Aggregate Principal Amount exceeds the Borrowing Base; and

(ii)

within ten Business Days, the Borrower shall (A) deliver updated Cash Projections to CIBC, and (B) repay to CIBC an amount equal to (I) (x) the aggregate amount of the 2006 Income Tax Refund minus (y) the amount paid to CIBC pursuant to Section 7(b)(i), (II) multiplied by 0.5, unless the Borrower and CIBC mutually agree to such other proportion of the remainder of the 2006 Income Tax Refund to be owing to CIBC.

- 4 -

(f)

The reference to "June 30, 2009" in Section 7(c) of the Forbearance Agreement is hereby deleted and replaced with "October 31, 2009";

(g)

Section 7(h) of the Forbearance Agreement is hereby amended by adding "or interest" immediately after the word "principal" in the second line thereof;  

(h)

Section 7(i) of the Forbearance Agreement is hereby amended by (i) deleting the reference to "March 31, 2009" and replacing it with "July 15, 2009" and (ii) deleting the reference to "the Projections for the Borrower and each Material Subsidiary provided to CIBC in November, 2008"; 

(i)

Section 7(k) of the Forbearance Agreement is hereby amended by deleting the reference to "April 30, 2009" and replacing it with "September 30, 2009"; 

(j)

Section 7(n) of the Forbearance Agreement is hereby amended by deleting the reference to "." and replacing it with "; and";

(k)

A Section 7(o) is hereby added to the Forbearance Agreement as follows:

"(o) the Borrower shall, every Friday before 4:00 p.m. EST, deliver to CIBC by facsimile or other electronic transmission setting a detailed list of the cash on deposit as of such day in each account at each financial institution at which the Borrower and each Material Subsidiary has deposit accounts, including, without limitation:

(i)

Protective Products International Corp.'s cash on deposit in account no. 2710003307 established at Northern Trust, NA; 

(ii)

CPC Holdings Corporation of America's cash on deposit in account no. 1284042454 established at Northern Trust, NA; and

(iii)

each additional bank account of the Borrower or any Material Subsidiary that may be opened or established from time to time.

(l)

Schedule "A" to the Forbearance Agreement is hereby deleted and replaced with the attached as Schedule "A" hereto; and

(m)

Schedule "B" to the Forbearance Agreement is hereby deleted and replaced with the projections attached as Schedule "B" hereto.

5.

First Amending Agreement Fee.  The Borrower shall pay to CIBC a first amending agreement fee of U.S. $50,000.00 (the "Amendment Fee"), which shall be fully earned on the execution and delivery of this First Amending Agreement and paid to CIBC on the earlier of: (i) 5 Business Days after receipt by the Borrower of the 2006 Income Tax Refund; and (ii) October 31, 2009.  The Amendment Fee shall constitute Indebtedness of the Borrower under the Credit Agreement.

- 5 -

6.

Deliveries by the Borrower.  The Borrower shall deliver or cause to be delivered to CIBC the following items, and this First Amending Agreement will only become effective upon the receipt thereof by CIBC:

(a)

a fully executed copy of this First Amending Agreement;

(b)

a Compliance Certificate dated as of the date hereof;

(c)

a Borrowing Base Certificate dated as of the date hereof;

(d)

all invoiced amounts payable pursuant to Section 7(f) of the Forbearance Agreement, as amended by this First Amending Agreement; and

(e)

such other documents as CIBC may reasonably request.

7.

Representations and Warranties.  The Borrower and each of the Material Subsidiaries represents and warrants to CIBC as follows:

(a)

The Borrower and each Material Subsidiary has the power and authority and all government licenses, authorizations, consents, registrations and approvals required to own its assets, to conduct the business in which it is engaged and to enter into and perform its obligations under the Forbearance Agreement, as amended hereby, the Credit Agreement and the Documents; 

(b)

This First Amending Agreement has been duly authorized, executed and delivered by the Borrower and each Material Subsidiary and does not contravene any law, rule or regulation applicable to the Borrower or any Material Subsidiary or any of its charter documents, by-laws or other governing document or any indenture, agreement or undertaking to which the Borrower or any Material Subsidiary is a party;

(c)

The obligations of the Borrower and each Material Subsidiary under the Forbearance Agreement, as amended hereby, the Credit Agreement and the Documents constitute legal, valid and binding obligations of the Borrower and such Material Subsidiary enforceable in accordance with their terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or similar statutes affecting the enforcement of creditors' rights generally and by general principles of equity;

(d)

There is no matter, fact or event which is known to the Borrower or any Material Subsidiary which has not been disclosed to CIBC which is likely to have a Material Adverse Effect;

(e)

Any amount described in Section 7(f) of the Forbearance Agreement, as amended hereby, owing by the Borrower or any Material Subsidiary has been paid in full or is current and in good standing;

- 6 -

(f)

The Projections and the Cash Projections are based upon estimates and assumptions stated therein, all of which Borrower believes to be reasonable and fair in light of current conditions and current facts known to the Borrower and, as of the delivery of each Compliance Certificate, reflect the Borrower's good faith and reasonable estimates of its future financial performance, including future projections of Excess Cash Flow, and of the other information projected therein for the period set forth therein; 

(g)

The accounts listed in Section 7(o)(i) and (ii) of the Forbearance Agreement, as amended by this First Amending Agreement, are the only accounts which are established by the Borrower or any Material Subsidiary. The Borrower and each Material Subsidiary have not taken or are not contemplating taking any actions or steps to establish any additional account(s) at any financial institution as of the date hereof;

(h)

All of the representations and warranties of the Borrower set forth in the Credit Agreement are true and correct as of the date hereof, except to the extent such representation and warranty may be rendered untrue by the existence of the  Existing Defaults; and

(i)

Except for the Existing Defaults listed in Schedule "A", as of the date hereof no Default or Event of Default has occurred and is continuing.

8.

Continuing Effect.  Each of the parties hereto acknowledges and agrees that the Forbearance Agreement, as amended by this First Amending Agreement, and all other documents entered into in connection therewith, will be and continue in full force and effect and are hereby confirmed and the rights and obligations of all parties thereunder will not be effected or prejudiced in any manner except as specifically provided herein.

9.

Further Assurance.  The Borrower will from time to time forthwith at CIBC's request and at the Borrower's own cost and expense make, execute and deliver, or cause to be done, made, executed and delivered, all such further documents, financing statements, assignments, acts, matters and things which may be reasonably required by CIBC and as are consistent with the intention of the parties as evidenced herein, with respect to all matters arising under this First Amending Agreement.

10.

Expenses.  The Borrower will be liable for all expenses of CIBC including, without limitation, reasonable legal fees (on a solicitor and his own client full indemnity basis) and other out-of-pocket expenses in connection with the negotiation, preparation, establishment, operation or enforcement of the Credit Agreement and the Forbearance Agreement, as amended by this First Amending Agreement (whether or not consummated) by CIBC.

11.

No Waiver; Reservation of Rights.

(a)

Nothing in the Forbearance Agreement, as amended by this First Amending Agreement waives or shall be deemed to waive any Default or Event of Default 

- 7 -

(including without limitation, the Existing Defaults) or any right, entitlement, privilege, benefit or remedy which CIBC may have now or at any time in the future as a result of or in connection with any such Default or Event of Default. 

(b)

No waiver by CIBC of any default, breach or non-compliance under the Forbearance Agreement, as amended by this First Agreement or any Document will be effective unless in writing and signed by an authorized representative of CIBC.  No waiver will be inferred from or implied by any failure to act or delay in acting by CIBC in respect of any default, breach of non-observance or by anything done or omitted to be done by the Borrower or any Material Subsidiary.  No waiver by CIBC will operate as a waiver of any rights of CIBC rights under the Forbearance Agreement, as amended by the First Amending Agreement or any Document in respect of any subsequent default, breach or non-observance (whether of the same or any other nature).

(c)

Without limiting the foregoing, CIBC reserves the right, in its sole and unfettered discretion, to exercise any or all of its rights or remedies under the Credit Agreement, the Security, the Uniform Commercial Code or other applicable law following any Termination Event.  CIBC has not waived any such rights or remedies, and nothing in the Forbearance Agreement, as amended by this First Amending Agreement or in any Document and no delay on the part of CIBC in exercising any such rights or remedies, shall be construed as a waiver of any such rights or remedies.

12.

Borrower's Waiver and Release.

(a)

The Borrower and each Material Subsidiary acknowledges and agrees that the actions of CIBC in connection with the Credit Agreement and the Documents and the obligations of the Borrower and each Material Subsidiary thereunder and in entering into this First Amending Agreement have been fair and reasonable and that CIBC (i) has not acted in a managerial capacity with respect to the Borrower or any Material Subsidiary, and (ii) has no fiduciary duty to the Borrower or any Material Subsidiary in connection with this First Amending Agreement or the Credit Agreement.  The Borrower and each Material Subsidiary confirms that it has had the benefit of independent legal counsel in connection with the preparation and negotiation of this First Amending Agreement.  Furthermore, the Borrower and each Material Subsidiary acknowledges that, in executing and delivering this First Amending Agreement, the Borrower and each Material Subsidiary has acted and continues to act freely and without duress.

(b)

In consideration of the agreements of CIBC contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower and each Material Subsidiary on behalf of itself and its respective successors and assigns, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges CIBC and each of its successors and assigns, participants, affiliates, subsidiaries, branches, divisions, predecessors, directors, officers, attorneys, employees, and other representatives 

- 8 -

and advisors (CIBC and all such other Persons being hereinafter referred to collectively as the "Releasees" and each individually as a "Releasee"), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defences, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected, both arising at law and in equity, which the Borrower or any one or more of the Material Subsidiaries or any of their successors, assigns or other legal representatives may now own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this First Amending Agreement, including, without limitation, for or on account of, or in relation to, or in any way in connection with, any of the Forbearance Agreement, as amended by this First Amending Agreement, the Credit Agreement, the Security or any of the other Documents or transactions or related thereto.

13.

Effect of this First Amending Agreement.  Except as expressly provided in this First Amending Agreement, no other changes or modifications to the terms of the Credit or the Forbearance Agreement are intended or implied and in all other respects the terms of the Credit Agreement and the Forbearance Agreement, as amended hereby are confirmed. To the extent there is any inconsistency between the terms of the Credit Agreement and the Forbearance Agreement, as amended hereby, the Forbearance Agreement, as amended hereby shall control.

14.

No Novation. This First Amending Agreement will not discharge or constitute novation of any debt, obligation, covenant or agreement contained in the Credit Agreement or the Documents but same shall remain in full force and effect save to the extent same are amended by the provisions of the Forbearance Agreement, as amended hereby.

15.

No Set-Off, Etc.  The Borrower and each Material Subsidiary reaffirms that each of the Credit Agreement and the Security remains in full force and effect and acknowledges and agrees that there is no defence, set-off, or counterclaim of any kind, nature or description to its obligations arising under any of the Credit Agreement or the Security as a result of the execution of this First Amending Agreement or otherwise.

16.

Counterparts.  This First Amending Agreement may be executed in any number of counterparts (including by facsimile or other electronic transmission), each of which when executed and delivered will be deemed to be an original, but all of which when taken together constitutes one and the same instrument.  Any party hereto may execute this First Amending Agreement by signing any counterpart.

- 9 -

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

					
	 
	 
	PROTECTIVE PRODUCTS OF AMERICA, INC.

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	By:

	 /s/ Brian L. Stafford

	 

	 
	 
	Name:

	Brian L. Stafford

	 

	 
	 
	Title:

	Chief Executive Officer

	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	By:

	 /s/ Jason Williams

	 

	 
	 
	Name:

	Jason Williams

	 

	 
	 
	Title:

	Chief Financial Officer

	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	CANADIAN IMPERIAL BANK OF COMMERCE 

	 
	 
	 
	 
	 

	 
	 
	By:

	/s/ J. S. McMurray

	 

	 
	 
	 
	Authorized Officer

	 

- 10 -

THIS FIRST AMENDING AGREEMENT is acknowledged, agreed with and consented to by each Material Subsidiary of the Borrower, as guarantors, who each confirm that their respective guarantees of the obligations and liabilities of the Borrower under the Credit Agreement remains in full force and effect and is a valid and binding obligation of each of the undersigned. 

EFFECTIVE as of the date first written above.

					
	CERAMIC PROTECTION 

CORPORATION OF AMERICA

	 
	CPC HOLDING CORPORATION 

OF AMERICA

	 
	 
	      

	 
	 

	 
	 
	 
	 
	 

	By:

	 /s/ Brian L. Stafford

	 
	By:

	 /s/ Brian L. Stafford

	Name:

	Brian L. Stafford

	 
	Name:

	Brian L. Stafford

	Title:

	Chief Executive Officer

	 
	Title:

	Chief Executive Officer

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	By:

	 /s/ Jason Williams

	 
	By:

	 /s/ Jason Williams

	Name:

	Jason Williams

	 
	Name:

	Jason Williams

	Title:

	Chief Financial Officer

	 
	Title:

	Chief Financial Officer

					
	PROTECTIVE PRODUCTS

INTERNATIONAL CORP.

	 
	PROTECTIVE PRODUCTS OF NORTH 

CAROLINA, LLC

	 
	 
	      

	 
	 

	 
	 
	 
	 
	 

	By:

	 /s/ Brian L. Stafford

	 
	By:

	 /s/ Brian L. Stafford

	Name:

	Brian L. Stafford

	 
	Name:

	Brian L. Stafford

	Title:

	Chief Executive Officer

	 
	Title:

	Chief Executive Officer

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	By:

	 /s/ Jason Williams

	 
	By:

	 /s/ Jason Williams

	Name:

	Jason Williams

	 
	Name:

	Jason Williams

	Title:

	Chief Financial Officer

	 
	Title:

	Chief Financial Officer

- 11 -

SCHEDULE "A"

EXISTING DEFAULTS

For purposes of this Schedule "A", each section reference in this Schedule  "A" is a reference to the section in the Amended and Restated Credit Agreement dated as of the date hereof.  The Borrower and each Material Subsidiary hereby acknowledges, confirms, and agrees that the following Defaults or Events of Default have occurred and are continuing:

(i)

Event of Default occurring under Section 11.1(a) of the Credit Agreement due to the failure to pay the outstanding balance of the Revolving Loan on the Revolving Loan Termination Date (as defined (x) prior to giving effect to the amendment and restatement of the Credit Agreement as of January 30, 2009 and (y) as currently set forth in the Credit Agreement) as required by Article 2 of the Credit Agreement;

(ii)

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to pay the outstanding balance of the Revolving Loan on the Revolving Loan Termination Date (as defined prior to giving effect to the amendment and restatement of the Credit Agreement as of the date hereof) as required by Section 10.1(a) of the Credit Agreement;

(iii)

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to notify the Agent of any of the "Existing Defaults" set forth on this Schedule "A", in each case, as required by Section 10.1(c) of the Credit Agreement;

(iv)

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to observe, and cause each Material Subsidiary to observe, the terms of and obligations under each of the Documents to the extent that the failure of observe any such provision is described in items (i) through (iii) and (v) through (xix) on this Schedule "A", in each case, as required by Section 10.1(h) of the Credit Agreement;

(v)

Default or Event of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to deliver a compliance certificate with respect to the fiscal quarter ended September 30, 2008 as required by Section 10.1(i) of the Credit Agreement (as in effect prior to giving effect to the amendment and restatement of the Credit Agreement as of the date hereof);

 (vi)

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to furnish any Borrowing Base Certificates required to be delivered pursuant to such section prior to the date hereof as required by Section 10.1(l) of the Credit Agreement;

(vii)

Default or Event of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to cause Protective Products of North Carolina, LLC to deliver the documents required to be delivered thereunder within 

- 12 -

10 days of Protective Products of North Carolina, LLC becoming a Material Subsidiary as required by Section 10.1(w) of the Credit Agreement;

(viii) 

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement due to the failure of the Borrower to comply with Section 10.2(a) of the Credit Agreement on the last day of the fiscal quarters ended on the following dates: September 30, 2007, December 31, 2007, March 31, 2008, June 30, 2008, September 30, 2008, December 31, 2008, March 31, 2009 and June 30, 2009;  

(ix) 

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement due to the failure of the Borrower to comply with Section 10.2(b) of the Credit Agreement on the last day of the fiscal quarters ended on the following dates:  June 30, 2008, September 30, 2008, December 31, 2008, March 31, 2009 and June 30, 2009;  

(x) 

Defaults or Events of Default occurring under Section 11.1(c) of the Credit Agreement due to the failure of the Borrower to comply with Section 10.2(c) of the Credit Agreement on the last day of the fiscal quarters ended on the following dates:  September 30, 2007 and December 31, 2007, December 31, 2008, March 31, 2009 and June 30, 2009;

(xi)

Default or Event of Default occurring under Section 11.1(c) of the Credit Agreement arising because the Borrower changed the location of its chief executive office to 1649 NW 136th Ave, Sunrise, Florida 33323 without giving the Agent 30 days' prior written notice thereof as required by Section 10.3(j) of the Credit Agreement;

(xii)

Default or Event of Default occurring under Section 11.1(c) of the Credit Agreement arising due to the failure of the Borrower to obtain prior written consent of all of the Lenders prior to selling four furnaces for approximately U.S.$280,000 in December 2008;

(xiii)

Default or Event of Default occurring under Section 11.1(c) of the Credit Agreement arising because Ceramic Protection Corporation amended its constating documents and by-laws when Ceramic Protection Corporation domesticated under the laws of the State of Delaware as Protective Products of America, Inc. in violation of Section 10.3(f) of the Credit Agreement; 

(xiv)

Event of Default occurring under Section 11.1(l) of the Credit Agreement because Protective Products of North Carolina, LLC ceased to carry on its business prior to the date hereof;

(xv)

Event of Default occurring under Section 11.1(r) of the Credit Agreement due to the failure of the Borrower to comply with the terms thereof by August 8, 2008; and

(xvi)

Event of Default occurring under Section 11.1(s) of the Credit Agreement due to the failure of the Borrower to comply with the terms thereof by August 8, 2008.

- 13 -

SCHEDULE "B"

CASH PROJECTIONS

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