Document:

Exhibit 10.2

 

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

 

SETTLEMENT AGREEMENT

 

This
Settlement Agreement (“Agreement”), effective as of the 11th day of
March, 2008 (“the Effective Date”), is made and entered into by and between
Heeling Sports Limited, a Texas limited partnership having its principal place
of business at 3200 Belmeade Drive, Suite 100, Carrollton, Texas 75006
(hereinafter “Heeling”), and Elan-Polo, Inc., a Missouri corporation
having its principal place of business at 2005 Walton Road, Saint Louis,
Missouri 63114, (hereinafter “Elan-Polo”) (Heeling and Elan-Polo are each
sometimes referred to hereinafter as a “Party” and collectively sometimes
referred to hereinafter as the “Parties”).

 

WITNESSETH:

 

WHEREAS,
Heeling is the owner of record of U.S. Patent Nos.: 6,698,769 B2; 6,406,038 B2;
6,450,509 B2; 6,739,602 B2; 6,746,026 B2; 6,979,003 B2; 7,165,773 B2; 7,063,336
B2; and 7,165,774 B2 (all of which patents, published patent applications, and
all parents, continuations, continuations-in-part, divisionals and reissues of
any of the foregoing, including without limitation all foreign patents and
foreign patent applications corresponding to any of the foregoing, are referred
to hereinafter collectively as the “Heeling Patents”);

 

WHEREAS,
Heeling is the owner of various US and foreign trademark registrations and
common law trademarks that include, among others, the HEELYS trademark and the
Heelys logo, such as that illustrated in US Trademark Reg. No. 3339689
(all of which are collectively referred to as “Heeling Trademarks”);

 

 

WHEREAS,
Heeling sells or licenses wheeled footwear branded with the Heeling Trademarks
and that contain one or more wheels in the sole of the heel (“HEELYS Skates”);

 

WHEREAS,
Elan-Polo manufactured 1,210,000 pairs of wheeled skates that contained a wheel
configuration on the bottom of the sole as shown in the photographs of Exhibit A
(“Shoe Skates”) and that displayed the brand name “Spinners” as well as a
spiral design element (“Spinners Logo”);

 

WHEREAS, the
Shoe Skates are covered by one or more claims of one or more of the Heeling
Patents;

 

WHEREAS,
Heeling agrees that Elan-Polo has acted at all times in good faith and without
malice, bad faith, or willful disregard of the Heeling Patents;

 

WHEREAS, a
lawsuit is presently pending between Heeling and Elan-Polo that is styled as Heeling Sports Limited v. Wal-Mart Stores, Inc., and Elan-Polo, Inc.,
Civil Action No. 3:07-CV-1695 in the United States District Court for the
Northern District of Texas, Dallas Division (the “Lawsuit”); and

 

WHEREAS, the Parties desire to settle the Lawsuit on the terms and
conditions stated herein, and including all Exhibits hereto.

 

NOW,
THEREFORE, in consideration of the mutual covenants, promises and conditions
set forth above and herein, the Parties further agree as follows:

 

1.             Upon the execution of
this Agreement, the attorneys for the Parties will execute a Final Judgment in
the form attached hereto as Exhibit B (the “Final Judgment”) and
will promptly cause the Final Judgment to be entered in the Lawsuit after the
Initial Payment, which is defined below, is fully received by Heeling.

 

2

 

2.             Elan-Polo,
including its affiliates, officers and representatives, agrees that the issues
of patent validity and enforceability of U.S. Patent Nos. 6,698,769 B2;
6,406,038 B2; 6,450,509 B2; 6,739,602 B2; 6,746,026 B2; 6,979,003 B2; 7,165,773
B2; 7,063,336 B2; and 7,165,774 B2 are hereby fully and finally concluded and
disposed of, and that all such patents are valid and enforceable.  Accordingly, Elan-Polo, including its
affiliates, officers and representatives, shall not directly or indirectly,
unless required by a court order, participate, sponsor or assist in any action
or assist others, either directly or indirectly, in contesting the validity or
enforceability of any of the patents referenced above, either now or in the future.  While the Technology Agreement, which is
defined below, is still in force between the parties, and for a period of five
years thereafter, Elan-Polo shall inform Heeling in writing within a reasonably
timely manner of any inquires or requests made to or through an officer or
senior executive of Elan-Polo or its affiliates, either directly or indirectly,
in connection with the development, sales or importation of wheeled footwear or
skates.  During this same period, Elan
Polo shall notify Heeling in a reasonably timely manner of any third party
infringers to which Elan-Polo becomes aware and shall supply all supporting
evidence in the possession or control of Elan-Polo.

 

3.             Elan-Polo, including
its affiliates, officers and representatives, admits that all of the claims of
the issued Heeling Patents are valid, enforceable and patentably distinct from
the cited references and other available art. 
Elan-Polo, including its affiliates, officers and representatives, further
covenants and agrees to waive and relinquish, and does hereby waive and
relinquish, now and forever, the right to assert or claim that any of the
claims of the Heeling Patents are invalid or unenforceable for any reason,
regardless of whether any such assertions or claims would be made or initiated
in any court, any arbitration, the U.S. Patent and Trademark 

 

3

 

Office (“PTO”), or other
judicial or administrative proceeding, such as the U.S. International Trade
Commission, and regardless of whether any such assertions or claims would be
made or initiated directly or indirectly, including by way of claim, defense,
counterclaim, offset, interference, reexamination, protest, reissue or the
like.  It is the intent of the Parties
and the provisions of this paragraph that, to the fullest and broadest extent
permitted by law, Elan-Polo, including its affiliates, officers and
representatives, shall never challenge the validity or enforceability of the
Heeling Patents or any of the claims thereof, and Elan-Polo, including its
affiliates, officers and representatives, will never assist any third party,
either directly or indirectly, in a challenge to the validity or enforceability
of the Heeling Patents, or assist others with wheeled footwear that would be covered
by any claims of the Heeling Patents. 
Elan-Polo, including its affiliates, officers and representatives,
acknowledges and agrees that such preclusion is intended to be broader than the
prohibition on such challenges arising from the doctrines of res judicata  and
collateral estoppel.

 

4.             Elan-Polo, including
its affiliates and officers, represents and warrants the following:

 

4.1           Elan-Polo,
including its affiliates, officers and agents, had a total of 1,210,000 pairs
of Shoe Skates manufactured in 2007 by two factories in **, identified by name,
address/location as detailed below. 
Elan-Polo shall also provide Heeling with contact information for each
such factory upon request.

 

First Factory:        **

 

**

 

**

 

TEL **

 

FAX **

 

4

 

Second
Factory:  **

 

**

 

Tel: **

 

Fax: **

 

Vice General Manager: **

 

M-Phone: **

 

4.2           The
1,210,000 pairs of Shoe Skates made in the two just identified ** factories are
the only Shoe Skates or wheeled footwear of any kind that Elan-Polo, including
its affiliates, officers and agents, has ever manufactured, had manufactured,
sold, marketed or distributed.

 

4.3           As
of March 10, 2008, Elan-Polo had delivered 1,200,000 pairs of Shoe Skates
to Wal-Mart Stores, Inc. (“Wal-Mart”) in the United States and had
provided 10,000 pairs of Shoe Skates to Wal-Mart Canada, and had not provided
or delivered Shoe Skates to any other third party.  **.

 

4.4           Elan-Polo,
including its affiliates, officers and representatives, represents that no more
Shoe Skates will be made, sourced or acquired anywhere in the world without the
prior written permission of Heeling.

 

4.5           Based
on sell through projections and past experience in dealing with Wal-Mart,
Elan-Polo estimates that by June 30, 2008, no more of the Shoe Skates
shall be available for purchase at Wal-Mart. 
Any returns or refusals of the Shoe Skates by 

 

5

 

Wal-Mart shall
be promptly reported to Heeling, and Elan-Polo and Heeling shall mutually agree
on a disposal plan for such Shoe Skates, which may include either the agreed
upon destruction or other sales of the returned Shoe Skates.

 

4.6           Elan-Polo,
including its affiliates, officers and agents, has not filed and will not file
for any patent protection or other invention protection in connection with any
aspect of the Shoe Skates.  Elan-Polo,
including its affiliates, officers and agents, hereby assigns to Heeling any
and all intellectual property rights, including, for example, any patent,
copyright, or trade secret rights, Elan-Polo, including its affiliates,
officers and agents, has in any invention or innovation related to (i) the
Shoe Skates, and (ii) any rights in any improvements to wheeled footwear,
and wheeled footwear that include one or more wheels in the heel that are made
now or in the future, and whether documented in tangible or intangible
form.  Elan-Polo shall not retain any “shop-right,”
right to practice, or any other use or other rights in such assigned
rights.  As to Elan-Polo’s obligations to
assign improvements or innovations in wheeled footwear based solely on
Elan-Polo’s developments, Elan-Polo’s obligations shall continue until the
later of (i) March 10, 2013, or (ii) two years after the
termination or expiration of this Technology Agreement, but in no event shall
Elan-Polo be entitled to use or disclose any intellectual property rights
owned, assigned to or licensed by Heeling. 
Elan-Polo, including its affiliates, officers and agents, agrees to sign
necessary documents requested by Heeling to effect the transfer of such rights
to Heeling, and Elan-Polo, including its affiliates, officers and agents,
agrees to testify as necessary in legal and administrative proceedings as to
such transfer of rights.  Elan-Polo shall
not use or reveal any such improvements or innovations in wheeled footwear to
any third party without the prior written consent of 

 

6

 

Heeling.  Elan-Polo, including its affiliates, officers
and agents, agrees to timely provide a detailed description of any such
improvements or innovations, and all corresponding documentation to Heeling.

 

4.7           There
is no material fact known to Elan-Polo, including its affiliates, officers and
agents, that materially and adversely affects the ownership of any of the
Heeling Patents.

 

5.             Elan-Polo shall pay Heeling a
non-refundable payment of $1,400,000 according to the following payment
terms:  (i) at the execution of this
Agreement, electronically transfer $750,000 USD to Heeling in a bank account
specified by Heeling in writing (“Initial Payment”); (ii) in April of
2008, electronically transfer $250,000 USD to Heeling in a bank account
specified by Heeling; (iii) in February of 2009, electronically
transfer $250,000 USD to Heeling in a bank account specified by Heeling, and (iv) in
February of 2010, electronically transfer $150,000 USD to Heeling in a
bank account specified by Heeling.  In
the event Heeling and Elan-Polo agree in writing to extend the Technology
Agreement for a Fourth Year (as defined in the Technology Agreement), in February of
2011 Elan-Polo shall electronically transfer $150,000 USD to Heeling in a bank
account specified by Heeling.  Elan-Polo
acknowledges and agrees that such payments in this Agreement shall be due and
payable, without recourse to Heeling, and without respect to any of the Heeling
Trademarks or the Heeling Patents.

 

6.             Upon the execution of this Agreement, the Parties shall
execute a Technology License Agreement in the form attached hereto as Exhibit C
(the “Technology Agreement”) pursuant to which Elan-Polo will be granted
limited, exclusive patent rights and know-how rights of Heeling for the purpose
of permitting Elan-Polo to manufacture, import, offer to sell, and sell 

 

7

 

up to 750,000 pairs per year of Shoe Skates
configured only as shown in Exhibit A with non-removable wheels
secured by fasteners not readily removable to certain mass retailers in the
U.S. for the first two years, and up to 150,000 pairs per year of Shoe Skates
configured only as shown in Exhibit A with non-removable wheels
secured by fasteners not readily removable to certain mass retailers in the
U.S. for the third year, all in exchange for the payment of certain amounts,
which shall include, among other payment terms outlined in the Technology
Agreement, the greater of $** per pair or **% per pair of the wholesale price
paid to Elan-Polo for quantities of Shoe Skates that Heeling permits Elan-Polo
to sell over the annual limitations.

 

7.             Elan-Polo, including
its affiliates, officers and agents, agrees that it shall not sell, distribute
or make available replacement wheels for any of the Shoe Skates or any other
wheeled footwear.

 

8.             DELETED PARAGRAPH/

 

9.             Except as permitted
by this Agreement including Paragraph 6 above, the Parties acknowledge and
agree that any sales of Shoe Skates in the future by Elan-Polo, including its
affiliates, officers and agents, that are not authorized by Heeling shall
result in an agreed upon payment to Heeling by Elan-Polo of at least $** per
pair.  The Parties further acknowledge
and agree that any sales of wheeled footwear in the future by Elan-Polo,
including its affiliates, officers and agents, that are not authorized by Heeling
and are not Shoe Skates but include a wheel or wheels in the heel and can be
used for walking and rolling on one or more wheels in the heel, shall result in
a payment to Heeling by Elan-Polo of at least $15 per pair.  Elan-Polo, including its affiliates, officers
and agents, acknowledges and agrees that the designation of these payment
amounts represent a fair analysis of damages to Heeling.  The Parties acknowledge and agree that the
payment amounts represent the minimum that Heeling will be entitled without 

 

8

 

proving any damages, but that Heeling is
expressly permitted to prove additional and enhanced damages, if
applicable.  Further, Heeling shall be
entitled to full compensation for any attorney fees in enforcing this paragraph,
or any other provision of this Agreement or the Technology Agreement.  This paragraph shall not be interpreted as
either an express or an implied license to any existing or future intellectual
property rights of Heeling, such as the Heeling Patents, the Heeling Trademarks
or any other intellectual property rights.

 

10.           Upon the execution of this Agreement, and with the exception of the 1,210,000
pairs of Shoes Skates sold to Wal-Mart in the United States and Canada as set
forth above, Elan-Polo, including its affiliates, officers and agents,  shall
cease all use of the Spinners Logo on advertising material, websites, and any
Shoe Skates manufactured and sold in the future.  Notwithstanding anything else herein to the
contrary, Elan-Polo shall cease all use of the Spinners Logo on its website by April 30,
2008.

 

11.           Elan-Polo, including
its affiliates, officers and agents, 
represents and warrants that it will not manufacture, sell or distribute
any Shoe Skates, other skates or wheeled footwear anywhere in the world in the
future without Heeling’s prior written consent or as detailed in the Technology
Agreement.  In the event that Elan-Polo
is provided written permission by Heeling to manufacture and/or sell Shoe
Skates or other wheeled footwear, Elan-Polo, including its affiliates, officers
and agents, hereby provides Heeling with the right to conduct quarterly
accounting and financial audits related in any manner to the manufacture,
importation, shipping, receiving, pricing, inventory, and sales of such products.  Further, Elan-Polo, including its affiliates,
officers and agents,  shall provide
detailed information on approved manufacturing and shipping facilities related
to the manufacture or shipping of any such products, and shall ensure

 

9

 

that Heeling is provided access to fully inspect such facilities at
least once a month as desired by Heeling.

 

12.                                 Elan-Polo, including its
affiliates, officers and agents,  agrees
never to use the marks HEELYS, HEELIES, WHEELIES, WHEELYS or any mark that may
be confusingly similar to any of the Heeling Trademarks.

 

13.                                 Elan-Polo, and its officers,
directors, shareholders, employees, agents, representatives, attorneys,
successors and assigns, hereby release, relinquish, and forever discharge
Heeling, and its affiliates, officers, directors, shareholders, employees,
agents, representatives, attorneys, vendors, vendees, customers, advertisers,
insurers, successors and assigns, from any and all obligations, debts,
agreements, promises, demands, liabilities, claims, actions and causes of
action of any and every kind or character, whether known or unknown, suspected
or unsuspected, now existing or heretofore existing, or which may hereafter
exist, that arise out of or relate in any way to the facts or circumstances
giving rise to or made the basis of any of the claims or defenses asserted in
the Lawsuit, including, but not limited to, any claims and causes of action
alleged in the Lawsuit or which by pleading, amendment or supplement, could be
or could have been alleged therein; provided, however, that nothing in this
paragraph shall be construed to release Heeling from any obligations it has
expressly assumed hereunder.

 

14.                                 Effective upon the timely
payment of the Initial Payment, and contingent upon the truth of the
representations provided herein, Heeling, and its officers, directors,
shareholders, employees, agents, representatives, attorneys, successors and
assigns, hereby release, relinquish, and forever discharge Elan-Polo and its
officers, directors, shareholders, employees, agents, representatives,
attorneys, vendors, vendees, customers, including Wal-Mart as it relates to the
Shoe Skates manufactured and sold by Elan-Polo as described herein in Paragraph
4.1, 

 

10

 

advertisers, insurers, successors and assigns, from any and all
obligations, debts, agreements, promises, demands, liabilities, claims, actions
and causes of action of any and every kind or character, whether known or
unknown, suspected or unsuspected, now existing or heretofore existing, or
which may hereafter exist, that arise out of or relate in any way to the facts
or circumstances giving rise to or made the basis of any of the claims or
defenses asserted in the Lawsuit, including, but not limited to, any claims and
causes of action alleged in the Lawsuit or which by pleading, amendment or
supplement, could be or could have been alleged therein; including, e.g.,
claims for trademark infringement, trade dress infringement, or unfair trade
practices; provided, however, that nothing in this paragraph shall be construed
to release Elan-Polo from any obligations under this Agreement, the Exhibits,
or from any obligations under the Final Judgment entered in the Lawsuit.

 

15.                                 Elan-Polo’s representations
and warranties provided in this Agreement shall be true and correct on the
Effective Date and shall survive the Effective Date.

 

16.                                 Elan-Polo, including its
affiliates, officers and agents, acknowledges and agrees that Heeling and its
affiliates shall have no liability or responsibility, whatsoever, in connection
with the Shoe Skates, including, for example, the Existing Inventory and any
future skates or wheeled footwear sold by Elan-Polo, , including its
affiliates, officers and agents, whether covered or produced under the
Technology Agreement or otherwise.

 

17.                                 Elan-Polo, including its
affiliates, officers and agents, shall fully and completely defend, indemnify
and hold harmless Heeling, including its affiliates, officers, directors,
shareholders, employees, agents, representatives, attorneys, vendors, vendees,
customers, advertisers, insurers, successors and assigns, from and against any
and all claims, demands, causes of action, liabilities, damages, losses, costs
and expenses of any nature (including 

 

11

 

reasonable attorney fees) arising out of or relating to in any manner
whatsoever: (a) any false representation by Elan-Polo or any of its
officers, directors, agents, sub-contractors, employees, invitees, or sponsors,
(b) any breach of warranty hereunder by Elan-Polo, including its
affiliates, officers and agents, or (c) the Shoe Skates, the Existing
Inventory, or any skate or wheeled footwear made or sold by Elan-Polo or its
affiliates, officers and agents and including any wheeled footwear or other
products sold under the Technology Agreement. 
Elan-Polo’s, including its affiliates, officers and agents,  obligations to defend, indemnify and hold
harmless in this paragraph shall include, without limitation, any claim,
demand, cause of action or damages, including personal injury claims and
product liability claims related in any manner to the Shoe Skates, the Existing
Inventory, or any skate or wheeled footwear made or sold by Elan-Polo,
including its affiliates, officers, agents and assignees, and including, for
example, related to the sales, use, advertising, and marketing of the Shoe
Skates, the Existing Inventory, or any skate or wheeled footwear made or sold
by Elan-Polo, including its affiliates, officers and agents, previously or in
the future, such as under the Technology Agreement.  In the event any claim or threat is made
against Heeling that is related in any manner to any item addressed in this
paragraph, Elan-Polo, including its affiliates, officers and agents, agrees to
promptly and fully, and on a monthly basis, reimburse Heeling for costs
incurred in using legal counsel agreeable to Heeling and Elan-Polo, who should
not unreasonably withhold consent of Heeling’s legal counsel of choice, to
immediately advise Heeling in defending and settling such claim, threat, or
action.  Further, Elan-Polo, including
its affiliates, officers and agents, agrees to promptly notify Heeling in
writing of any claim by any third party that any wheeled footwear made or sold
by Elan-Polo, including the Shoe Skates, are defective or were somehow
responsible for any type of personal injury or damage to property.  Heeling agrees to timely notify Elan-Polo of
any 

 

12

 

occurrence that might lead to an obligation by Elan-Polo to defend,
indemnify and hold harmless Heeling as set forth in this paragraph.

 

18.                                 Unless barred by the statute
of limitations, Elan-Polo shall, throughout the term of this Agreement and the
Technology Agreement, and as long as the Shoe Skates or other wheeled footwear
or skates made or sold by Elan-Polo are still in use by consumers, obtain and
maintain at its own cost and expense from a qualified insurance company
licensed to do business in Texas and having both a Moody’s rating of B+ or
better and an A.M. Best rating of A-VII or better, product liability
insurance for all such wheeled footwear, including the Shoe Skates, with
coverage from claims for personal injury (including bodily injury and death)
and property damage, and naming Heelys, Inc., Heeling and its affiliates,
officers, directors, employees, agents and shareholders, as additional
insureds, and shall contain a waiver of subrogation with respect to the
additional insureds.  An endorsement
listing Heeling, and its affiliates, such as Heelys Inc., as additional
insureds shall be provided in the form as shown in the attached Exhibit D.  Such policy shall provide protection against
all claims, demands, and causes of action related to or arising out of wheeled
footwear, including, for example, any defect, alleged defect or otherwise, of
any such products, including the Shoe Skates, the Existing Inventory, or any
skate or wheeled footwear made or sold by Elan-Polo or at its direction,
including any material used in connection therewith or any use thereof.  The amount of coverage shall not be less than
$1,000,000 per occurrence and $2,000,000 in the aggregate.  The policy shall provide for at least 30 days
unrestricted notice to Heeling from the insurer by registered or certified
mail, return receipt requested, in the event of any modification, cancellation,
or termination thereof.  The policy shall
be primary and not contributory, and shall be on an occurrence basis.  Elan-Polo shall furnish Heeling at all times
(including on the Effective Date) a current copy of such policy, 

 

13

 

as well as a certificate of insurance evidencing same.  In no event shall Elan-Polo manufacture, have
made, distribute, or sell any Shoe Skates or other skates or wheeled footwear
under this Agreement or the Technology Agreement prior to receipt and
acceptance by Heeling of such evidence of insurance.  Elan-Polo acknowledges and agrees that its
obligations set forth in this Agreement, including, for example, Elan-Polo’s
obligations to indemnify, defend and hold harmless of Paragraph 17 or elsewhere
in this Agreement, shall not be limited by the insurance requirements of
this  paragraph.

 

19.                                 Each of the Parties agree,
immediately upon request therefor, to prepare, execute, acknowledge, deliver,
or file such other and further papers, forms, instruments, and documents, and
to take such other and further action, as  may
be necessary or convenient to evidence, perfect, or enforce any of the rights
and obligations arising under or in connection herewith or with any document or
agreement referred to herein or otherwise to consummate or carry out the intent
of this Agreement.

 

20.                                 Elan-Polo, including its
affiliates, officers and agents, will not provide or disclose to any third
party the terms or provisions of this Agreement or the Technology Agreement;
provided, however, that Elan-Polo is not precluded from providing or disclosing
the terms or provisions of this Agreement (a) in connection with federal
or state income tax matters, (b) in connection with financial statements
or reports prepared in the usual course of business, including without
limitation such statements or reports prepared for submission to its banks,
lenders, lending institutions, insurers or prospective insurers, or (c) in
connection with any court proceeding, provided that Elan-Polo shall first make
reasonable efforts to contact Heeling before disclosing and to obtain issuance
of a protective order to maintain the confidentiality of these 

 

14

 

documents.  Within ten days of
the Effective Date of this Agreement, Elan-Polo and Heeling shall mutually
agree on a joint press release communicating the settlement of the Lawsuit.

 

21.                                 Heeling shall not disclose
this Agreement or the Technology Agreement to third parties except where noted
herein.  Heeling and its affiliates shall
be free to disclose the Agreement and the Technology Agreement in connection
with any regulatory filings it deems appropriate, such as for example, filings
to any governmental patent office, in connection with any lawsuit or court
proceeding, or in connection with any US Securities and Exchange Commission
filing or foreign equivalent, and shall issue any press releases it deems
appropriate not inconsistent with the content disclosed in any such regulatory
filing.  Heeling and its affiliates shall
be free to disclose the Agreement and the Technology Agreement in connection
with any discussions, communications or conferences reporting financial results
or performance, or in connection with any communications with a stock
analyst.  Heeling and its affiliates
shall be free to disclose the Agreement and the Technology Agreement in
connection with any negotiations with third parties to license technology or to
settle a dispute with Heeling or any of its affiliates, in connection with any
potential acquisition, sale of assets, or in connection with any potential
purchase or sale of securities.  Finally,
Heeling and its affiliates shall be free to disclose the Agreement and the
Technology Agreement (a) in connection with federal or state income tax
matters, (b) in connection with financial statements or reports prepared
in the usual course of business, including, without limitation, such statements
or reports prepared for submission to any of the Parties’ banks, lenders,
lending institutions, insurers or prospective insurers.  To the extent all or a portion of this
Agreement or the Technology Agreement becomes publicly available by the lawful
disclosure by a Party, the other Party is free to disclose such portion that is
now publicly available.

 

15

 

22.                                 The provisions of this
Agreement are severable and, in the event any paragraph or provision hereof is
declared illegal or unenforceable by a court of competent jurisdiction, the
Agreement shall be construed, interpreted and enforced as if such paragraph or
provision were never a part hereof and the remainder of the Agreement shall be
effective and binding on the Parties.

 

23.                                 This Agreement, together
with the Exhibits hereto, contain the entire agreement of the Parties and all
prior negotiations and agreements pertaining to the subject matter hereof are
merged in this Agreement.  Each Party
expressly disclaims reliance upon any facts, promises, undertakings or
representations made by any other Party, or the agents or attorneys of any
other Party, prior to the execution hereof and not included in this Agreement.

 

24.                                 This Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns.  Elan-Polo,
including its affiliates, officers and agents, acknowledges and agrees that
that this Agreement and the Technology Agreement are personal.  As such, Elan-Polo may not assign this
Agreement or the Technology Agreement, by operation of law or otherwise,
without the prior written approval of Heeling.

 

25                                    Any notice or communication
required or permitted to be given by either Party hereunder shall be deemed
sufficiently given if mailed by registered mail or by nationally recognized
courier (Federal Express, UPS, or the like) and addressed to the party to whom
notice is given as follows:

 

	
   

  	
  If to Elan-Polo:

  	
  Elan-Polo, Inc.

  
	
   

  	
   

  	
  Joseph V. Russell, Co-CEO

  
	
   

  	
   

  	
  603 Melrose Avenue

  
	
   

  	
   

  	
  Nashville, TN 37211

  

 

With a copy (which shall not
constitute notice) faxed to attorney Tim F. Williams, Esq. at (864)
233-7342, and emailed to timw@dority-manning.com

 

16

 

	
   

  	
  If to Heeling:

  	
  Heeling Sports Limited

  
	
   

  	
   

  	
  Michael Hessong, CFO

  
	
   

  	
   

  	
  3200 Belmeade

  
	
   

  	
   

  	
  Carrollton, Texas 75006

  

 

With a copy  (which shall not constitute notice) faxed to
attorney Robert J. Ward, Esq. at (214) 999-3266, and emailed to
rward@gardere.com.

 

26.                                 No breach of any provision
of this Agreement can be waived unless done so expressly and in writing.
Express waiver of any one breach shall not be deemed a waiver of any other
breach of the same or of any other provision hereof. This Agreement may be amended
or modified only by a written agreement executed by the Parties hereto.

 

27.                                 Each person executing this
Agreement warrants that he is authorized to execute the Agreement on behalf of
the Party for whom he signs.

 

28.                                 This Agreement shall be
governed, interpreted and enforced in accordance with the laws of the State of
Texas, without regard to its or other jurisdictions choice of law rules.  It is agreed that the United States District
Court for the Northern District of Texas, Dallas Division, shall have exclusive
jurisdiction and venue to decide any disputes regarding this Agreement, the
Technology Agreement, or any related dispute among the Parties.

 

29.                                 The term “affiliates” and “representatives”
as used in this Agreement shall mean any person or entity that directly or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control (through the power to direct or cause the direction of
the management or policies of such person or entity through ownership of voting
securities, by contract or otherwise) with such person or entity.

 

30.                                 This Agreement may be signed
in one or more counterparts, and each fully executed counterpart shall be
deemed an original of this Agreement which, when taken together, 

 

17

 

represent a fully executed and complete Agreement.  Facsimile signatures shall be deemed original
signatures.

 

31.                                 Except where a shorter time
period is expressly specified above, the obligations of the Parties under this
Agreement shall expire after the expiration of the last remaining of U.S.
Patent Nos. 6,698,769 B2; 6,406,038 B2; 6,450,509 B2; 6,739,602 B2; 6,746,026
B2; 6,979,003 B2; 7,165,773 B2; 7,063,336 B2; and 7,165,774 B2.

 

IN WITNESS WHEREOF, the
Parties hereto have caused this Agreement to be executed in duplicate as of the
date written adjacent to the signatures below by their duly authorized
representatives.

 

 

	
   

  	
  HEELING
  SPORTS LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  By:

  	
  /s/
  Ralph T. Parks

  
	
   

  	
  Name:
  Ralph T. Parks

  
	
   

  	
  Title:
  CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ELAN-POLO,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  By:

  	
  /s/
  Joseph V. Russell

  
	
   

  	
  Name:
  Joseph V. Russell

  
	
   

  	
  Title:
  Co-CEO

  
						

 

18

 

Exhibit
A

 

 

 

 

Exhibit B

 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS
DIVISION

 

	
  HEELING
  SPORTS LIMITED,

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  Plaintiff,

  	
  §

  	
   

  
	
   

  	
  §

  	
  Civil
  Action No. 3:07-CV-1695

  
	
  v.

  	
  §

  	
   

  
	
   

  	
  §

  	
  ECF

  
	
  WAL-MART
  STORES, INC., and

  	
  §

  	
   

  
	
  ELAN-POLO,
  INC.

  	
  §

  	
   

  
	
   

  	
  §

  	
  JURY TRIAL
  DEMANDED

  
	
  Defendants.

  	
   

  	
   

  

 

FINAL
JUDGMENT

 

On this date, came the
parties in this action, and announced, prior to trial, that they had reached a
settlement agreeing, among other things, to the entry of this Final Judgment;
and, the Court being of the opinion that this judgment should be entered as
agreed to by the parties, it is ORDERED as follows:

 

1.             Plaintiff Heeling Sports Limited (“Heeling Sports”) is a
Texas limited partnership having its principal place of business in Carrollton,
Texas.

 

2.             Defendant Wal-Mart Stores, Inc., a Delaware
corporation with its principal place of business in Bentonville, Arkansas, was
previously dismissed with prejudice.

 

3.             Defendant Elan-Polo, Inc. (“Elan-Polo”) is a
Missouri corporation with its  principal
place of business in Saint Louis, Missouri.

 

4.             The Court has jurisdiction of the subject matter and of
the parties in this action.

 

5.             Heeling Sports is the owner of record of U.S. Patent No. 6,698,769
B2, and such patent is valid and enforceable.

 

6.             Elan-Polo, its officers, agents, servants, employees and
attorneys, and all other persons in active concert or participation with them
who receive actual notice hereof by personal 

 

 

service or otherwise, are
enjoined and restrained from infringing, inducing infringement of and
contributorily infringing any of the claims of U.S. Patent No. 6,698,769
B2 (“the ‘769 Patent”), and from making, having made, importing, using, selling
or offering to sell products covered by any of the claims of the ‘769 Patent.

 

7.             Unless Elan-Polo is specifically authorized to do so
pursuant to a prior written agreement with Heeling Sports, Elan-Polo, its
officers, agents, servants, employees and attorneys, and all other persons in
active concert or participation with them who receive actual notice hereof by
personal service or otherwise, are enjoined and restrained from making,
importing, selling and offering to sell “Shoe Skates,” which are those skates
shown in the attached photographs of Exhibit A, as well as wheeled
footwear with one or more wheels in the heel that allow a user to walk on the
forefoot and transition to rolling on the one or more wheels in the heel.

 

8.             Elan-Polo agrees that the issues of patent validity and
enforceability are hereby fully and finally concluded and disposed of.  Accordingly, Elan-Polo shall not participate
in any action or assist others, either directly or indirectly, in contesting
the validity or enforceability of the ‘769 Patent.

 

9.             Nothing herein shall be construed in any manner as an
implied or express license or consent for Elan-Polo under any existing, pending
or future intellectual property rights of Heeling Sports.

 

10.           The parties have resolved this action
and other related pending actions between them by entering into, among other
things, a confidential Settlement Agreement. 
Any disputes regarding or relating to, and any proceedings to enforce,
this Final Judgment, as well as the Settlement Agreement and related
agreements, shall be exclusively resolved in this action by the 

 

2

 

U. S. District Court for
the Northern District of Texas, Dallas Division, in which both parties
acknowledge and agree they are subject to personal jurisdiction.

 

11.           Each party shall pay its own attorney
fees and costs.

 

SO ORDERED on this
                day
of
                                              ,
2008.

 

	
   

  	
   

  
	
   

  	
  Honorable Judge Reed C. O’Connor

  
	
   

  	
  United States District Judge

  

 

3

 

APPROVED AND AGREED TO

AS TO FORM AND CONTENT:

 

Respectfully submitted this
             day of
March, 2008.

 

	
   

  	
   

  	
   

  
	
  Craig B. Florence

  	
   

  	
  Tim Williams

  
	
  Attorney-in-Charge

  	
   

  	
  South Carolina Bar No.

  
	
  Texas Bar
  No. 07158010

  	
   

  	
  timw@dority-manning.com

  
	
  cflorence@gardere.com

  	
   

  	
  DORITY &
  MANNING, P.A.

  
	
  Thomas C. Wright

  	
   

  	
  One Liberty Square

  
	
  Texas Bar
  No. 24028146

  	
   

  	
  55 Beattie Place,
  Suite 1600

  
	
  twright@gardere.com

  	
   

  	
  Greenville, South
  Carolina 29601

  
	
  GARDERE WYNNE SEWELL,
  L.L.P.

  	
   

  	
  Telephone: (864)
  271-1592

  
	
  1601 Elm Street,
  Suite 3000

  	
   

  	
  Facsimile: (864)
  233-7342

  
	
  Dallas, Texas 75201

  	
   

  	
   

  
	
  Telephone: (214)
  999-3000

  	
   

  	
  ATTORNEYS FOR DEFENDANT

  
	
  Facsimile: (214)
  999-4667

  	
   

  	
  ELAN-POLO, INC.

  
	
   

  	
   

  	
   

  
	
  ATTORNEYS
  FOR PLAINTIFF

  	
   

  	
   

  
	
  HEELING
  SPORTS LIMITED

  	
   

  	
   

  

 

4

 

EXHIBIT C

 

 

Exhibit C

 

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

 

TECHNOLOGY LICENSE AGREEMENT

 

This
Technology License Agreement (the “Technology Agreement”), effective as of the
11th day of March, 2008 (“the Effective Date”), is made and entered into by and
between Heeling Sports Limited, a Texas limited partnership having its
principal place of business at 3200 Belmeade Drive, Suite 100, Carrollton,
Texas 75006 (hereinafter “Heeling”), and Elan-Polo, Inc., a Missouri
corporation having its principal place of business at 2005 Walton Road, Saint
Louis, Missouri 63114 (hereinafter “Elan-Polo”) (Heeling and Elan-Polo are each
sometimes referred to hereinafter as a “Party” and collectively sometimes
referred to hereinafter as the “Parties”).

 

WITNESSETH:

 

WHEREAS,
Heeling and Elan-Polo entered into a confidential Settlement Agreement (“Settlement
Agreement”) on the Effective Date, and concurrently into this Technology
Agreement, in connection with a lawsuit pending between Heeling and Elan-Polo
that is styled as Heeling Sports Limited v. Wal-Mart Stores, Inc.,
and Elan-Polo, Inc., Civil Action No. 3:07-CV-1695 in the
United States District Court for the Northern District of Texas, Dallas
Division (the “Lawsuit”);

 

WHEREAS,
as part of the settlement of the Lawsuit, the Parties agreed to enter into this
Technology Agreement;

 

WHEREAS,
the Parties acknowledge and agree that all defined terms from the Settlement
Agreement are fully incorporated into this Technology Agreement, all provisions
of 

 

 

the
Settlement Agreement are hereby incorporated by reference fully into this
Technology Agreement, and that the terms of the Settlement Agreement shall prevail
over any terms of this Technology Agreement that introduce any inconsistency or
conflict with any provision of the Settlement Agreement;

 

WHEREAS,
Elan-Polo desires to obtain a license from Heeling as provided below to sell,
to select retailers, a limited number of wheeled footwear that have a wheel
configuration on the bottom of the sole as shown in the photographs of Exhibit A  (“Shoe Skates” or “Licensed Products”), with
said license not being limited to the shoe upper shown in the photos of Exhibit A;

 

WHEREAS,
Heeling is the owner of intellectual property rights in the United States and
Canada related to certain wheeled footwear, and may in the future obtain
additional intellectual property rights in the United States and elsewhere; and

 

WHEREAS,
Heeling and Elan-Polo desire to enter into this Technology Agreement as
detailed herein.

 

NOW,
THEREFORE, in consideration of the mutual promises, covenants and agreements
set forth above and hereinafter, the sufficiency of which is hereby
acknowledged, the Parties hereto, intending to be legally bound for themselves,
their successors and assigns, further agree as follows:

 

1                             LICENSE GRANT

 

1.1           License.  Subject to the other provisions and
limitations of this Technology Agreement, Heeling hereby grants Elan-Polo a
limited, exclusive license to manufacture, make, 

 

2

 

have made, import, offer to
sell and sell only Licensed Products to retailers listed in the attached Exhibit B
(“Approved Retailers”) that are located in the United States and Canada, and
for such Licensed Products to be sold by these retailers to end-user consumers
located only in the United States and Canada. 
The Licensed Products subject to this license grant must include
non-removable wheels secured by fasteners that include either one-way heads or
rivets, and may contain only one wheel for each of the two openings located as
shown in Exhibit A.

 

1.2           Quantity of Licensed
Products.  Unless
previously agreed to by Heeling in a writing, Elan-Polo agrees to produce, sell
and deliver to Approved Retailers the following quantities:  no more than 750,000 pairs of the Licensed
Products in the first year of this Technology Agreement ending March 10,
2009 (“First Year”), no more than 750,000 pairs of the Licensed Products in the
second year of this Technology Agreement ending March 10, 2010 (“Second
Year”), and no more than 150,000 pairs of the Licensed Products in the third
year of this Technology Agreement ending March 10, 2011 (“Third Year”).  If both parties agree in a writing at least
90 days prior to March 10, 2011, Elan-Polo agrees to produce, sell and
deliver to Approved Retailers no more than 150,000 pairs of the Licensed
Products in the fourth year of this Technology Agreement ending March 10,
2012 (“Fourth Year”).  Except as
expressly authorized by Heeling in a prior writing, Elan-Polo agrees not to
produce or ask others to manufacture or purchase any Licensed Products anywhere
in the world in excess of the maximum quantities specified herein.  Any portion of the maximum quantity of
Licensed Products for a given year of this Technology Agreement, such as the
First Year or Second Year, that is not produced, sold, or delivered during such
year may not be reserved or applied to a subsequent year.  Elan-Polo agrees that all Licensed Products
shall be manufactured only by Approved Manufacturers at locations as specified
below.  Elan-Polo shall provide Heeling
with 

 

3

 

the quantity, delivery
terms, price and other terms as requested for any Licensed Products to be sold
to any of the Approved Retailers prior to the manufacture and delivery of such
Licensed Products.

 

1.3           License of Alternative
Embodiments.  Heeling
hereby grants Elan-Polo a license to explore interest from the Approved
Retailers to possibly place an order to purchase wheeled footwear with a wheel
configuration on the bottom of the sole that is different from the Licensed
Products, and specifically includes one of the following two configurations:  (a)  having external wheels adjacent and
external to the heel of the footwear as shown in Exhibit C (“External
Wheel Configuration”); and (b) having a removable wheel in an opening in
the bottom of the heel of the sole, and a removable wheel in an opening in the
bottom of the forefoot of the sole of the footwear as shown in Exhibit D
(“Front/Back Removable Configuration”). 
Elan-Polo shall be permitted only to use Approved Manufacturers, defined
below, to make no more than a minimum number of prototypes and samples for use
in discussing possible interest from the Approved Retailers in accordance with
this paragraph.  At the expiration or
termination of this Technology Agreement, Elan-Polo shall provide all available
samples and prototypes to Heeling.  Although the Parties acknowledge and agree
that Heeling is under no obligation to approve any sales of either the External
Wheel Configuration or the Front/Back Removable Configuration, Elan-Polo agrees
that all such sales must be pre-approved in writing by Heeling, after providing
Heeling with adequate disclosure, including sales price and volume, of the
terms of any potential transaction with one of the Approved Retailers.  Elan-Polo agrees to first obtain Heeling’s
prior, written permission before approaching a retailer that is not one of the
Approved Retailers or before approaching any other third party, either directly
or indirectly, in connection with any possible interest in wheeled footwear or
Licensed Products.

 

4

 

1.4           License of Know-How.  If requested by Elan-Polo, Heeling shall
provide additional expertise to assist Elan-Polo with possible wheel assembly
designs, but Heeling shall have no liability to Elan-Polo or any third parties
related to any claim, cause of action or other alleged injuries or damages in
connection with any product sold by Elan-Polo. 
Elan-Polo agrees that it shall fully and completely defend, indemnify
and hold harmless Heeling for any such claim, cause of action or other alleged
injuries or damages.  Heeling shall have
no obligation or duty, whatsoever, to inspect or monitor any of Elan-Polo’s
Licensed Products or wheeled footwear. 
If Heeling requests a construction design change or modification to any
of the Licensed Products or other wheeled footwear, Elan-Polo shall make such
design change unless Elan-Polo can affirmatively demonstrate that such
requested design change is unsafe, or that the existing design is safe, and
fully and clearly meets the Approved Retailers safety requirements and
guidelines.

 

1.5           Assignment and Sub-License.  Elan-Polo may not assign or sub-license its
rights under this Technology Agreement to third parties, either by operation of
law or otherwise, and any such right is expressly withheld from this Technology
Agreement.  Elan-Polo, however, is
granted the right to allow the manufacturers listed in Exhibit E (“Approved
Manufacturers”) to manufacture the Licensed Products in accordance with the
terms and conditions of this Technology Agreement.  Elan-Polo agrees not to manufacture, either
directly or indirectly, the Licensed Products, or any other wheeled footwear,
either partially or completely, at any other facility other than the locations
listed in Exhibit E. 
Elan-Polo shall notify Heeling in writing of any proposed amendment to Exhibit E
prior to the tooling, production or manufacture of any Licensed Products or
wheeled footwear by a manufacturer or third party other than those shown in Exhibit E,
and Heeling shall have thirty (30) days to approve or reject such a proposed
amendment.  Elan-Polo also agrees that
Heeling shall have the right to audit and inspect such 

 

5

 

facilities, if requested, at
least five times annually, provided however that Heeling shall give three (3) days
written notice of such audit and inspection. 
In the event of material and repeated (at least three for a particular
quality control issue) quality control complaints reported to Elan-Polo by
Elan-Polo customers within a six month period, Heeling may remove a factory
from the approved manufacturers list by providing to Elan-Polo ninety (90) days
written notice of such removal.

 

1.6           Heeling’s Rights.  Notwithstanding any of the license grants
herein, or anything else herein to the contrary, Heeling expressly retains the
right to manufacture, sell and import any and all wheeled footwear, including,
for example, Licensed Products and the alternative embodiment wheeled footwear,
throughout the world.

 

1.6.1       To the extent Heeling desires to license
a third party to sell wheeled footwear during the term of this Technology
Agreement directly to one of the mass-retailers listed in Exhibit B,
Heeling shall make such offer to Elan-Polo by providing Elan-Polo with the
specifications, pricing terms, and quantity for such footwear as would be
offered to or by a third party. 
Elan-Polo shall then have thirty days to agree to make and deliver such
footwear for the same or better terms. 
In the event Elan-Polo shall not accept the proposal within said thirty
days, Heeling may then proceed as desired.

 

1.7           Implied License or Transfer
of Rights.  Elan-Polo
agrees and acknowledges that nothing in this Agreement shall provide Elan-Polo
with any implied rights, ownership in any of the Heeling Patents, the Heeling
Trademarks, Heeling’s know-how, or in any other intellectual property of
Heeling.  Elan-Polo expressly disclaims
any and all such implied rights.

 

6

 

2                             OWNERSHIP AND PROTECTION OF HEELING
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS, AND CONFIDENTIALITY

 

2.1           Marking.  Unless otherwise specified by Heeling in
writing, Elan-Polo agrees that it shall specify on all Licensed Products and
other wheeled footwear it manufactures and/or sells that such products are
covered by one of more applicable Heeling Patents, along with a listing of
applicable patents.  A proposed marking
notice shall be prepared by Elan-Polo, and presented to Heeling for
pre-approval at least thirty day (30) prior to shipment from the manufacturing
facility.  When it is not possible to
mark such products directly on the products, Elan-Polo shall provide marking on
applicable packaging and other advertising material.  Elan-Polo shall be liable for injury caused
Heeling based upon Elan-Polo’s failure to properly mark the Licensed Products.

 

2.2           Elan-Polo Name.  Elan-Polo shall place its own name or
identifying mark(s) on the Licensed Products and other wheeled footwear in
a manner pre-approved in writing by Heeling so that Heeling can readily
identify the source of such products. 
Before using any trademark, logos or designs on any wheeled footwear
made, sold or distributed by Elan-Polo, Heeling shall obtain the prior, written
approval of Heeling, and such consent shall not be unreasonably withheld.

 

2.3           Use of Heeling Trademarks.  Elan-Polo, including its affiliates, officers
and agents, shall not use any of the Heeling Trademarks without the prior,
express prior written consent of Heeling.

 

2.4           Wheeled Footwear
Developments and Improvements.  While this Technology Agreement is still in
force and effect and extending for a period of time as detailed below, or if
based on Heeling’s trade secret or confidential information, to the extent that
Elan-Polo, 

 

7

 

including its affiliates,
officers and agents, has or does develop improvements or innovations related to
or based in any manner on the subject matter of the Heeling Patents or wheeled
footwear, whether by testing, observation, development, or otherwise, and
whether documented in tangible or intangible form, Elan-Polo, including its
affiliates, officers and agents, hereby irrevocably assigns its complete right,
title, and interest to any and all such intellectual property rights to Heeling.  Such intellectual property shall include,
without limitation, all inventions, developments, improvements, trade secrets,
copyrights, patent applications, patents, and the like, but not including
trademarks.  Elan-Polo shall not retain
any “shop-right,” right to practice, or any other use or other rights in such
assigned rights.  As to Elan-Polo’s
obligations under this paragraph to assign improvements or innovations in
wheeled footwear based solely on Elan-Polo’s developments, Elan-Polo’s
obligations shall continue until the later of (i) March 10, 2013, or (ii) two
years after the termination or expiration of this Technology Agreement, but in
no event shall Elan-Polo be entitled  to
use or disclose any intellectual property rights owned, assigned to or licensed
by Heeling.

 

2.5           Confidentiality.  Elan-Polo, including its affiliates, officers
and agents, agrees it will maintain all information received from Heeling and
its affiliates in confidence and not disclose any such confidential information
and know-how to any person or entity, except employees and advisors of
Elan-Polo who have a need to know, who have been informed of the confidential
nature of the information, and who have signed an agreement to maintain such
information in confidence and not to use such information outside of the
purposes of this Technology Agreement. 
Elan-Polo shall use at least the same degree of care to avoid disclosure
of such confidential information as they use for their own confidential
information of like importance and in any event will use no less than a
reasonable degree of care.  Elan-Polo,
including its 

 

8

 

affiliates, officers and
agents, shall be strictly liable for any unauthorized disclosure or use of the
confidential information.

 

2.6           Confidentiality.  Heeling agrees it will maintain all
confidential information received from Elan-Polo in confidence and not disclose
any such confidential information and know-how to any person or entity, except
employees and advisors of Heeling who have a need to know, who have been
informed of the confidential nature of the information, and who have signed an
agreement to maintain such information in confidence and not to use such
information outside of the purposes of this Technology Agreement.  Heeling shall use at least the same degree of
care to avoid disclosure of such confidential information as they use for their
own confidential information of like importance and in any event will use no less
than a reasonable degree of care.

 

2.7           Enforcing Heeling Patents
and Heeling Trademarks. 
Elan-Polo, including its affiliates, officers and agents, shall not have
the right to enforce any of the Heeling Patents or Heeling Trademarks.  Heeling shall have the right, but no
obligation to Elan-Polo or anyone else, to enforce any of the Heeling Patents
or Heeling Trademarks.

 

3                             ROYALTIES

 

3.1           Elan-Polo shall accrue and
pay royalties to Heeling for all Licensed Products at a full royalty rate that
is the greater of either:  (a) **
per pair of the Licensed Products; or (b) ** of the wholesale price agreed
to be paid to Elan-Polo from an Approved Retailer for each of the Licensed
Products.  Royalties shall be owed for
Licensed Products when manufactured by or on behalf of Elan-Polo, and such
royalties shall be paid quarterly as described below in Paragraph 3.2.  Licensed Products or wheeled footwear shall
not be manufactured prior to Elan-Polo first

 

9

 

providing Heeling with
written terms of the planned transaction with an Approved Retailer or other
previously approved retailer.

 

3.2           All royalties are due each
calendar quarter under this Agreement shall be paid to Heeling no more than
thirty (30) days after the end of each calendar quarter, in United States
Dollars, and shall be remitted to Heeling either electronically to an account
designated by Heeling, or at Heeling’s address of record provided herein, along
with a detailed report of all Licensed Products or other wheeled footwear
manufactured during the relevant calendar quarter, along with projections of
anticipated units to be manufactured during the next calendar quarter.  All royalties due and not paid shall be
grounds for termination of this Technology Agreement, and shall accrue interest
at the rate of 1.5% per month (or some lesser rate in the event the stated
interest rate is not in compliance with all applicable laws).

 

3.3           During the First Year,
Second Year, Third Year, and Fourth Year (assuming the parties mutually agree
to extend to a Fourth Year), royalties due from Elan-Polo to Heeling shall
accrue and be paid at the royalty rate that is the greater of ** per pair of
the Licensed Products, or (b) ** of the wholesale price agreed to be paid
to Elan-Polo from an Approved Retailer for each of the Licensed Products, as
discussed above in Paragraph 3.1.  In the
First Year and the Second Year, the first $250,000 of accrued royalties shall
not be owed to Heeling.  If during the
First Year the total accrued royalties do not equal at least $250,000, the
amount equal to the difference between $250,000 and the total accrued royalties
for the First Year may be added to the first $250,000 of accrued royalties in
the Second Year that shall not be owed to Heeling.  In the Third Year and the Fourth Year (if
applicable), the first $150,000 of accrued royalties shall not be owed to
Heeling.

 

10

 

4                             RESTRICTIONS, RECORDS AND QUALITY

 

4.1           Restrictions.  Except where otherwise expressly authorized,
Elan-Polo, including its affiliates, officers and agents, agrees to cease all
manufacture, production, sales, importation and deliveries of Licensed Products
and/or wheeled footwear upon the termination or expiration of the Technology
Agreement.  Upon the expiration of, but
not the termination of, the Technology Agreement, Elan-Polo shall have the
right to sell and deliver only to Approved Retailers in the United States and
Canada for a period of 120 days the Licensed Products and/or wheeled footwear
previously reported and previously manufactured in accordance with the terms of
this Technology Agreement.  Elan-Polo,
including its affiliates, officers and agents, acknowledges and agrees that all
other sales and deliveries of Licensed Products and/or wheeled footwear shall
fully cease thereafter, and that all inventory of Licensed Products and wheeled
footwear shall be promptly delivered to Heeling, at no charge to Heeling, at
this time or in the event Heeling terminates the Technology Agreement for
cause.

 

4.1.1        As to wheeled footwear only, but not
including wheeled skates that contain a wheeled configuration on the bottom of
the sole as shown in the photographs of Exhibit A, Elan-Polo’s
obligations not to make, use or sell wheeled footwear under paragraph 4.1 shall
continue until the later of (i) March 1 of 2014, or (ii) three
years after the expiration of any renewal of the Technology License Agreement,
whichever is longer, but in no event shall Elan-Polo be entitled to use or
disclose any intellectual property rights owned, assigned to or licensed by
Heeling.  Provided, however, that during
such three year period Elan-Polo may request in writing Heeling’s consent for
Elan-Polo to offer to sell, sell, make, and import any wheeled footwear having
a wheel configuration the same as that being sold in the United States or
Canada to mass retailers by a third-party at the time of Elan-Polo’s request,
and provided such wheeled 

 

11

 

footwear does not (i) infringe,
either directly or indirectly, any patent, trademark or trade secret right
owned by Heeling or assigned to Heeling by Elan Polo, or (ii) is covered,
in whole or in part, in a pending patent application owned or licensed by Heeling.  In such a case, Heeling agrees that its
consent to such a request shall not be unreasonably withheld.  Nothing in here, however, shall be construed
to provide Elan-Polo any implied or express rights to any intellectual property
rights owned by Heeling, including, for example, patent, trade secret,
trademark, and copyright rights, and Elan-Polo shall be expressly prohibited
from using such rights at the expiration or termination of this Technology
Agreement.

 

4.2           Records.  Elan-Polo shall keep updated
and accurate records sufficient to permit a determination of the production,
procurement, importation, sales and current inventory of all Licensed Products
and other wheeled footwear manufactured by the Approved Manufacturers (or any
other manufacturer) both during and after the expiration or termination of this
Technology Agreement.  If requested by
Heeling at any time, Elan-Polo shall provide an oral report that is later
confirmed by written report of any of the foregoing, and, upon thirty days
prior written notice, Elan-Polo shall make its records available for
inspection, by an independent accountant or auditor designated by Heeling, and
shall provide Heeling a written overview of such accounting records, both
during and after the Term of the Agreement. 
Elan-Polo shall provide Heeling with a duplicate original of each of the
purchase orders and invoices for the purchase of the Licensed Products or other
wheeled footwear from the Approved Retailers.

 

4.3           Quality.  Elan-Polo, including its
affiliates, officers and agents, agrees to sell Licensed Products and wheeled
footwear that are safe, and in full compliance with all applicable laws and
regulations.

 

12

 

5                             REPRESENTATIONS AND WARRANTIES

 

Warranty.  Elan-Polo,
including its affiliates, officers and agents, represents and warrants that:

 

5.1           Elan-Polo, including its
affiliates, officers and agents, is free to enter into this Agreement and that
its performance hereunder will not conflict with any other agreement to which
Elan-Polo, including its affiliates, officers and agents, may be a party;

 

5.2           Elan-Polo will use its best
efforts to market and sell Licensed Products in the United States and Canada;

 

5.3           Elan-Polo, including its
affiliates, officers and agents, acknowledges and agrees that Heeling is the
sole and exclusive owner of all right, title and interest in and to the Heeling
Patents and Heeling Trademarks;

 

5.4           Elan-Polo, including its
affiliates, officers and agents, agrees that its use of any of the Heeling
Trademarks, assuming prior written permission provided by Heeling, shall inure
to the benefit of Heeling, and that any use of the Heeling Trademarks by
Elan-Polo that provides any trademark rights or other rights to Elan-Polo are
hereby assigned to Heeling;

 

5.5           Elan-Polo agrees to
discontinue all use of the Heeling Trademarks and other intellectual property
assigned to Heeling, after the termination or expiration of this Agreement;

 

5.6           Except as otherwise
expressly provided herein, Elan-Polo shall not make, use or sell the Licensed
Products after the expiration or termination of this Technology Agreement; and

 

5.7           Elan-Polo shall not disclose
any confidential information or trade secrets of Heeling, and shall not use any
confidential information or trade secrets of Heeling for any purpose
inconsistent with compliance with this Technology Agreement.

 

13

 

6                             INDEMNIFICATION and INSURANCE

 

6.1           Indemnify, Defend and Hold
Harmless, and Insurance Obligations.  Elan-Polo, including its affiliates, officers
and agents, agrees to defend, indemnify, and hold harmless Heeling, its
officers, managers, directors, agents, attorneys, employees and customers,
against all costs, expenses, and losses (including attorney fees and costs)
arising, in whole or in part, from any claim related to the manufacture, use,
sale, importation or distribution of the Licensed Products, or other wheeled
footwear, footwear or any other products made or sold under the direction of
Elan-Polo.  The Parties acknowledge and
agree that all provisions outlining Elan-Polo’s obligations to indemnify,
defend and hold harmless Heeling in the Settlement Agreement are still in full
force and effect under this Technology Agreement, as well as Elan-Polo’s
insurance obligations outlined in the Settlement Agreement, and all such
obligations shall apply to the manufacture and sales of the Licensed Products
and all wheeled footwear with the alternative embodiments, or otherwise allowed
by Heeling to be made and/or sold by Elan-Polo.

 

7                             DEFAULT AND CURE

 

7.1           Default And Cure.  Upon any alleged material default, the
non-breaching Party shall communicate such alleged default by written notice to
the other Party specifying the occurrence. 
The alleged breaching Party shall have thirty (30) days after receipt of
such written notice to remedy such default under this Agreement.  If the alleged breaching Party fails to
timely remedy such default, this Agreement shall be terminated pursuant to the
terms of this Technology Agreement.

 

8                             TERM AND TERMINATION

 

8.1           Term.  This Agreement shall commence on the
Effective Date and shall remain in force until March 10, 2011 (“Initial
Term”), unless earlier terminated as permitted herein.  Upon 

 

14

 

the expiration of the
Initial Term, the  Technology Agreement
shall be automatically renewed on an annual basis for each year thereafter
unless either Party provides the other written notice, at the address written above
or through electronic means with verified delivery, of non-renewal at least
ninety (90) days prior to the expiration of the Initial Term or any subsequent
annual renewal term.

 

8.2           Termination For Cause.  This Technology Agreement may be terminated
by either Party for a material breach by the other of this Technology Agreement
according to the terms herein.

 

8.3           Remaining Inventory.  In the event of inventory remaining in the
possession or control of Elan-Polo at the termination or expiration of this
Technology Agreement, Paragraph 4.1 of this Technology Agreement shall prevail.  Any and all quantities of
Licensed Products or other wheeled footwear to be sold by Elan-Polo after the
Initial Term shall be previously agreed to by Heeling in writing, in Heeling’s
sole discretion, even if the term of this Technology Agreement is extended
beyond the Initial Term.

 

9                             LIMITATIONS ON LIABILITY

 

9.1           IN NO EVENT SHALL HEELING
HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES IN ANY WAY ARISING OUT OF THIS TECHNOLOGY AGREEMENT AND HOWEVER CAUSED
AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO LOSS OF
PROFITS, EVEN IF HEELING HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

15

 

10                      DISPUTES

 

10.1         Resolution of Disputes.  THE PARTIES AGREE ON BEHALF OF THEMSELVES AND
ANY PERSON CLAIMING BY OR THROUGH THEM TO SUBMIT TO THE SOLE AND EXCLUSIVE
JURISDICTION AND VENUE OF THE FEDERAL COURTS IN THE NORTHERN DISTRICT IN THE
STATE OF TEXAS FOR ANY LITIGATION OR DISPUTES ARISING FROM OR RELATING TO THIS
TECHNOLOGY AGREEMENT OR THE SUBJECT MATTER HEREOF.

 

11                      GENERAL PROVISIONS

 

11.1         Governing Law.  This Technology Agreement shall be governed
by and construed in accordance with, the laws of the State of Texas pertaining
to contracts made and performed entirely therein without regard to choice of
law or conflict of law provisions thereof that would result in the application
of another jurisdictions laws.

 

11.2         Assignment.  Elan-Polo acknowledges and agrees that that
this Technology Agreement is personal, and Elan-Polo shall not assign this
Technology Agreement or any of its rights or obligations under this Technology
Agreement to any other entity, whether by operation of law or otherwise,
without the prior written consent of Heeling.

 

11.3         Amendment and Modification.  No term or provision of this Technology
Agreement may be amended, waived, released, discharged or modified in any
respect except in a prior writing, signed by a duly authorized officer of each
of the Parties hereto.

 

11.4         Counterparts.  This Technology Agreement may be executed in
one or more counterparts, each of which shall be deemed an original and shall
become effective and binding 

 

16

 

upon the Parties at such
time as all of the signatories hereto have signed each counterpart of this
Technology Agreement.

 

11.5         Captions.  Paragraph titles, section titles or captions
contained in this Technology Agreement are used for reference purposes only and
are not intended to and shall not in any way enlarge, define, limit, extend or
describe the rights or obligations of the Parties or affect the meaning or
construction of this Technology Agreement or any provision hereof.

 

11.6         Severability.  If any term or provision of this Technology
Agreement or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder or this Technology
Agreement or the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term and provision of this Technology Agreement shall
be valid and be enforceable to the fullest extent permitted by law according to
the purposes of this Technology Agreement.

 

11.7         Partial Invalidity.  Should any provision of this Technology
Agreement be held to be void, invalid or inoperative, the invalid provision
shall be deemed modified to the least degree necessary to remedy such invalidity.

 

11.8         Costs Of Enforcement.  The prevailing Party in any proceeding
brought to interpret or enforce any provision of this Technology Agreement or
to recover for breach thereof shall be entitled to recover the reasonable fees,
expenses and costs of counsel, plus all other costs and expenses of such
proceeding.

 

17

 

11.9         Third Party Beneficiaries.  The Parties agree that this Technology
Agreement is for the benefit of the Parties hereto and is not intended to
confer any rights or benefits on any third party, and that there are no third
party beneficiaries as to this Technology Agreement or any part or specific
provision of this Technology Agreement.

 

11.10       No Agency or Joint Venture.  The Parties agree and acknowledge that the
relationship of the Parties is in the nature of an independent contractor.  This Technology Agreement shall not be deemed
to create a partnership or joint venture and neither Party is the other’s
agent, partner, employee, or representative.

 

11.11       Force Majeure.  Neither Party shall be deemed in default of
this Technology Agreement to the extent that performance of its obligations or
attempts to cure any breach are delayed or prevented by reason of any act of
God provided that such Party gives the other Party written notice thereof
promptly upon discovery thereof and uses its best efforts to cure the delay.

 

11.12       No Waiver.  The failure of either Party to partially or
fully exercise any right or the waiver by either Party of any breach, shall not
prevent a subsequent exercise of such right or be deemed a waiver of any
subsequent breach of the same or any other Term of this Technology Agreement.

 

18

 

11.13       Notices.  All notices under this Technology Agreement
shall be given as provided in the Settlement Agreement.

 

IN WITNESS WHEREOF, the Parties hereto have caused this Technology
Agreement to be executed in duplicate as of the date written adjacent to the
signatures below by their duly authorized representatives.

 

 

	
   

  	
  HEELING
  SPORTS LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  By:

  	
  /s/
  Ralph T. Parks

  
	
   

  	
   

  	
  Name:
  Ralph T. Parks

  
	
   

  	
   

  	
  Title:
  CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ELAN-POLO,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  By:

  	
  /s/
  Joseph V. Russell

  
	
   

  	
   

  	
  Name:
  Joseph V. Russell

  
	
   

  	
   

  	
  Title:
  Co-CEO

  

 

19

 

Exhibit
A

 

 

 

EXHIBIT B

 

“Approved Retailers”

 

1.  **;

 

2.  **

 

3.  **;

 

4.  **;

 

5.  **;

 

6.  **

 

 

EXHIBIT C

 

“External Wheel Configuration”

 

 

EXHIBIT D

 

“Front/Back Removable Configuration”

 

 

EXHIBIT E

 

“Approved Manufacturers”

(with specific addresses where manufacturing will take place)

 

	
  1.

  	
  **

  
	
   

  	
   

  
	
   

  	
  **

  
	
   

  	
   

  
	
   

  	
  **

  
	
   

  	
   

  
	
   

  	
  TEL **

  
	
   

  	
   

  
	
   

  	
  FAX
  **

  
	
   

  	
   

  
	
  2.

  	
  **

  
	
   

  	
   

  
	
   

  	
  **

  
	
   

  	
   

  
	
   

  	
  Tel:
  **

  
	
   

  	
   

  
	
   

  	
  Fax:
  **

  
	
   

  	
   

  
	
   

  	
  Vice
  General Manager: **

  
	
   

  	
   

  
	
   

  	
  M-Phone:
  **

  
			

 

 

ENDORSEMENT

 

This
endorsement forms a part of the policy to which it is attached. Please read it
carefully.

 

ADDITIONAL INSURED – SPECIFIC CONTRACTOR

 

This
endorsement modifies insurance provided under the following:

 

PRODUCTS/COMPLETED
OPERATIONS LIABILITY

 

SCHEDULE

 

Name of
Person or Organization:

 

“Heeling
Sports Limited and Heelys, Inc., including all subsidiaries and related
companies of each.

 

Who
is An Insured (Section II) is amended to include as an additional insured
any person(s) or organization(s) shown on the Schedule but only with
respect to “bodily injury” or “property damage” arising out of “your products.”

 

The
coverage provided hereunder shall be primary and not contributing with any
other insurance available to those designated above under any other third party
liability policy.Exhibit
10.3

 

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

 

TERMINATION
AGREEMENT

 

THIS TERMINATION AGREEMENT (the “Termination Agreement”) is dated
as of March 13, 2008, but to be effective as of March 31, 2008 (the “Effective
Date”), by and between Heeling Sports Limited,
a Texas limited partnership (the “Company”), The
Territory Distribution GmbH, a German Company (the “Distributor”)
and Achim Lippoth, a German individual and
the sole owner of the Distributor (the “Owner”).  The Company, Distributor and Owner are
sometimes collectively referred to herein as the “Parties” and individually as
a “Party.”

 

WHEREAS, the
Company and the Distributor entered into that certain Distributor Agreement,
dated as of March 8, 2007 (the “Distributor Agreement”); and

 

WHEREAS, the
Parties desire to terminate the Distributor Agreement and to evidence their
agreement to certain other matters as set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing
premises and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Parties hereby agree as follows:

 

1.                                       Defined Terms.  Capitalized terms used but not
defined herein and defined in the Distributor Agreement shall have the meanings
ascribed to such terms in the Distributor Agreement.

 

2.                                       Termination.

 

(a)                                  Subject to Section 2(b), the Distributor Agreement shall terminate in all respects on the Effective Date and thereafter
have no further force and effect.

 

(b)                                 Notwithstanding Section 2(a), the Parties agree that the covenants and
obligations set forth in Sections 3(f), 3(m), 3(n), 3(s), 3(t), 3(u), 5, 6, 7,
8, 9, 10, 11, 12, 13 and 14 of the Distributor Agreement shall survive the
termination of the Distributor Agreement.

 

3.                                       Product/Inventory Re-Purchase and Payment.  Upon the
Effective Date, the Company shall purchase from Distributor, and Distributor
shall sell, assign, transfer, convey,  to
the Company, free and clear of any and all liens, claims and encumbrances, all
of Distributor’s unsold Products as of the Effective Date, as confirmed via
inventory within five business days prior to the Effective Date, and such other
inventory and other incidental assets of Distributor related to the
distribution operations as described on Exhibit A attached hereto
(collectively, the “Purchase Items”). 
The Company will arrange for transportation of the Purchase Items.  The Company shall not 

 

1

 

assume any liabilities of Distributor and Distributor shall indemnify,
defend and hold Company harmless from and against any such liabilities.

 

(a)                                  The Company
shall pay Distributor in full by April 30, 2008.  Payment shall be by means of a check or a
wire transfer of immediately available funds to a bank account of Distributor,
specified in writing to the Company.  The
Parties agree that the Company shall pay the historical price (e.g., the booked
landed cost) for the Purchase Items, as set forth on Exhibit A.

 

(b)                                 Distributor
will make the Purchase Items available for pickup by the Company and will hold
such Purchase Items separate and apart from all other Distributor
property.  Company will pick up the
Purchase Items on or before  April 30,
2008.

 

4.                                       Re-Purchase of Distributor’s Unshipped Orders.  On the Effective
Date, the Company shall purchase the valid, executable unshipped orders on
Distributor’s order book as of the Effective Date (the “Unshipped Orders”).  The Company shall pay Distributor the net
wholesale margin on the Unshipped Orders on or before the last day of the month
following the month the Company receives the original payment for the Unshipped
Orders.

 

(a)                                  Except for
the order contemplated in Section 4(b), the Company’s payments for
Unshipped Orders will be for all valid orders scheduled for shipment on or
before June 30, 2008. If as of the Effective Date the Distributor has
Unshipped Orders and has inventory on order for those Unshipped Orders that
arrives after June 30, 2008, the Company will ship those orders to the
customer and pay the Distributor the net wholesale margin for those orders on
or before the last day of the month following the month the Company receives
the original payment for such Unshipped Orders.

 

(b)                                 With respect
to an order for up to 3,000 pairs for Kauhof, the Company will pay the net
wholesale margin for shipments scheduled for after June 30, 2008 but
before December 31, 2008.

 

(c)                                  Distributor
shall be responsible for the payment of all commissions, bonuses and any other
amounts payable to or to be paid to the Distributor’s sales agents or any other
person or entity relating directly or indirectly to unshipped orders and the
sales contemplated in this Section 4. 
Distributor will indemnify, defend and hold the Company harmless from
and against any such commissions, bonuses and all other amounts payable or to
be paid and any liability arising therefrom.

 

5.                                       Covenant Not to Compete.  During the Restriction Period (defined
below), Owner and Distributor:  (a) shall not directly or indirectly
engage in any manner
(including, without limitation, as a principal, owner, agent, associate,
consultant, employee, investor, equity holder, lender, partner or board member)
in a Competing Business (as defined below) anywhere in the Territory (as
defined below); and (b) shall not enter into any employment, consulting,
advisory, lending or other business relationship with any person, firm, entity,
company or business organization that is engaged in a Competing Business
anywhere in the Territory. 
Notwithstanding the foregoing sentence, Distributor shall not be
restricted from directly or indirectly owning or acquiring an equity interest
of less than five percent (5%) of a publicly-traded entity.

 

2

 

(a)                                  Compensation.  This covenant not to compete is for the
benefit of Owner and Distributor.  In
consideration thereof, the Company shall pay Distributor (or at its election,
Owner)  ** on the first and second anniversary
of this Termination Agreement.

 

(b)                                 Definitions
of Territory, Competing Business and Restriction Period.

 

(i)                                     “Territory”
means any country in the world.

 

(ii)                                  “Competing
Business” means using, importing, distributing, selling, or manufacturing any
product that is identical or similar to the Products that they could be viewed
as competitive with any of the Products.

 

(iii)                               “Restriction
Period” means the period extending through the second anniversary of the
Effective Date.

 

(c)                                  Injunctive
Relief.  It is hereby understood and agreed that
damages shall be an inadequate remedy in the event of a breach by Distributor
of any of said covenants and that any such breach by Distributor will cause the
Company great and irreparable injury and damage.  Accordingly, Distributor agrees that the
Company shall be entitled, without waiving any additional rights or remedies
otherwise available to the Company at law or in equity or by statute, to
injunctive and other equitable relief in the event of a breach or intended or
threatened breach by Distributor of any of said covenants.

 

6.                                       Indemnification.  Distributor and Owner hereby
agree to jointly and severally indemnify and hold harmless the Company and its
current and former parent, subsidiary and affiliated entities, their successors
and assigns, and the current and former owners, shareholders, members,
managers, partners, directors, officers, employees, agents, attorneys,
representatives and insurers (collectively, the “Company Parties”) from and
against any and all claims, actions liabilities, losses, damages and expenses,
including reasonable attorneys’ fees and such fees on appeal, incurred by any
of them in investigating and/or defending against any claims, actions or
liabilities for which indemnification is provided in the Distributor Agreement,
arising out of or in connection with:  (a) the
sale, license, servicing and related activities pursuant to the Distributor
Agreement with respect to the Products by Distributor; (b) the failure of
Distributor to comply with any laws, rules and/or regulations; (c) Distributor’s
attachment to the products of any trade name, trademark or logo that is
challenged as an infringement of the proprietary rights of any third party; (d) any
warranties granted under the laws of the Territory in excess of those
warranties contained in Section 35 of the Distributor Agreement; or (e) the
failure of Distributor to comply with each and every term of the Distributor
Agreement.  As of the Effective Date,
Owner and Distributor hereby release all Company Parties from any duty,
obligation or requirement to make any indemnity payments to Owner and/or
Distributor and/or any of Distributor’s sales agents.  Distributor agrees to pay any and all such
indemnity payments and shall hold the Company Parties harmless from and against
same.  Distributor shall be responsible
for paying any indemnity payments pursuant to the law, including, but not
limited to, payments pursuant to Section 89 b of the German Commercial
Code.  Distributor 

 

3

 

shall also be
responsible for paying any and all taxes relating directly or indirectly to
this Agreement or the performance hereof.

 

Distributor shall
give written notice to the Company within ten (10) days of learning of any
such claim, action or liability for which indemnification is provided in the
Distributor Agreement.  Distributor
agrees that any Company Party may employ an attorney of its own selection to
defend and/or appeal the claim or action on behalf of such Company Party, at
the expense of Distributor.  Distributor
further agrees that such Company Party may elect to allow Distributor, at
Distributor’s expense, to employ an attorney reasonably satisfactory to such
Company Party to defend the indemnified party; provided, however, that such
Company Party reserves the right reasonably to disapprove of any such attorney.

 

7.                                       Release by
Distributor.  As of the Effective Date,
without any further action by Distributor or Owner, Distributor and Owner
fully, unconditionally and irrevocably release and discharge the Company
Parties from any and all actions, causes of
action, suits, debts, liens, contracts, injuries, agreements, obligations,
promises, liabilities, claims, rights, demands, damages, controversies, losses,
costs, and expenses (including, but not limited to, court costs and attorneys’
fees) of any and all kinds, whether known or unknown, suspected or unsuspected,
fixed or contingent, in law or in equity, which Distributor ever had, now has,
owns, holds, or claims to have, own, or hold, or at any time heretofore had,
owned, held, or claimed to have, own, or hold, against any Company Party, in any way arising
with respect to periods and events up to and including the Effective Date.

 

8.                                       Waiver of
Legal Rights.  Distributor and Owner
acknowledge and agree that the waivers and releases set forth in this
Termination Agreement are in exchange for valuable consideration which
Distributor and Owner would not otherwise be entitled to receive.  In entering into this Termination Agreement,
Distributor and Owner expressly waive any and all rights either of them have
under any laws, rules, statutes or any common law principle of similar effect
that provides that their respective waivers and releases do not extend to
claims that Distributor and/or Owner do not know or suspect to exist in their
favor at the time of execution and delivery of this Termination Agreement,
which if known by Distributor and/or Owner would have materially affected its
decision to execute and deliver this Termination Agreement.  The consequences of the foregoing waiver have
been explained by legal counsel to Distributor and Owner.  Each of Distributor and Owner acknowledge
that it may hereafter discover facts different from, or in addition to, those
which it knows or believes to be true with respect to the claims released
pursuant to this Termination Agreement, and Distributor and Owner agree that
this Termination Agreement and the provisions contained herein shall be and
remain effective in all respects notwithstanding such different or additional
facts or the discovery thereof.

 

9.                                       Protection
of Confidential Information.  Distributor and Owner
acknowledge and agree that they have had access to certain confidential
information and trade secrets (“Trade Secrets”) of the Company pursuant to the
Distributor Agreement.  Distributor and
Owner agree not to disclose to any party or use any of the Trade Secrets for
any purpose and to keep the Trade Secrets confidential.

 

4

 

10.                                 Confidentiality
Covenant.  The Distributor and Owner
hereby agree to keep confidential and not divulge, disseminate, deliver,
publish, describe or communicate the terms and conditions of this Termination
Agreement or any part hereof, specifically or in general, in qualitative or
descriptive terms, to any other person, except to their attorneys and
accountants, without the prior written consent of the Company, unless ordered
by a court or governmental authority, provided that reasonable written notice is
given to the Company prior to any such disclosure compelled by court order or
governmental authority.  The Distributor
and Owner understand that disclosure of any portion of this Termination
Agreement will constitute a breach of its terms and will entitle the aggrieved
Party to injunctive relief and damages.

 

11.                                 Governing
Law and Language.  This Termination Agreement
shall be governed by, and construed in accordance with, the laws of the U.S.
and the state of Texas (without regard to conflicts of laws principles),
including the Uniform Commercial Code as enacted in the state of Texas.  The United Nations Convention on Contracts
for the International Sale of Goods shall not apply to this Termination
Agreement (or the rights or obligations of the Parties) and is disclaimed.  The governing language of this Termination
Agreement shall be English as spoken in the U.S., which shall control the
interpretation of this Termination Agreement in the event this Termination
Agreement is translated into a language other than English as spoken in the
U.S.

 

12.                                 Submission to Jurisdiction. 
By its signature to this Termination Agreement, each Party
hereunder irrevocably submits to the exclusive jurisdiction and venue of the
state or federal courts located in Dallas County, State of Texas as to any
disputes between the Parties and/or this Termination Agreement.  Each of the Parties hereto agrees that any
judgment (i) rendered either by a court of competent jurisdiction in
accordance with this Termination Agreement; and (ii) entered in any court
of record of the United States, in Dallas, Texas may be executed against the
assets of such party in any jurisdiction or country.  By its signature to this Termination
Agreement, each Party hereunder irrevocably submits to the exclusive
jurisdiction and venue of any of the state or federal courts in Dallas County,
State of Texas in any legal action or proceeding relating to such execution.

 

13.                                 Waiver of Immunity and Inconvenient Forum.  Each Party
irrevocably waives all immunity from jurisdiction, attachment and execution,
whether on the basis of sovereignty or otherwise, to which it might otherwise
be entitled in any legal action or proceeding in any state or federal court of
competent jurisdiction, including such courts located in Dallas County, State
of Texas, arising out of this Termination Agreement.  Distributor, Owner and the Company each
represents that its obligations hereunder are commercial activities.  Each Party hereby irrevocably waives, to the
fullest extent permitted by law, any objection that it may now or hereafter
have to any suit, action or proceeding arising out of or relating to this
Termination Agreement being brought in the federal or state courts of competent
jurisdiction located in Dallas County, State of Texas, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum.

 

14.                                 Legal Construction.  Regardless of which Party may have drafted
this Termination Agreement, or any portion thereof, no rule of strict
construction shall be applied against either Party. Except as expressly
provided in this Termination Agreement, all rights and remedies conferred under

 

5

 

this Termination Agreement or by any other instrument or law shall be
cumulative and may be exercised singularly or concurrently.  In the interpretation of this Termination
Agreement, except where the context otherwise requires, “including” or “include”
does not denote or imply any limitation; “or” has the inclusive meaning “and/or”;
“and/or” means “or” and is used for emphasis only; the singular includes the
plural, and vice versa, and each gender includes each of the others; captions
or headings are only for reference and are not to be considered in interpreting
the Termination Agreement; “Section” refers to a Section of this
Termination Agreement, unless otherwise stated in this Termination Agreement;
and all times set forth herein are deemed to be the time in Dallas, Texas.  If any provision of this Termination
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, such provision shall be fully severable, and this Termination
Agreement shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part thereof, the remaining provisions of this
Termination Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision, there shall be
added automatically as a part of this Termination Agreement, a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible, and the Parties request the court to whom
disputes relating to this Termination Agreement are submitted to reform the
otherwise illegal, invalid or unenforceable provision in accordance with this
Section.

 

15.                                 Waiver.  Any waiver by any Party of any provision of
this Termination Agreement must be in writing from the waiving Party and shall
not imply a subsequent waiver of the same provision or any other provision.

 

16.                                 Expenses.  Each Party
shall pay its own expenses, including, but not limited to, travel,
administration, compensation of employees, the fees and disbursements of its
counsel in connection with the negotiation, preparation and execution of this
Termination Agreement and the consummation of the transactions contemplated
herein, except as otherwise provided herein.

 

17.                                 Expenses for Enforcement.  In the event either Party is required to
employ an attorney to enforce the provisions of this Termination Agreement or
is required to commence legal proceedings to enforce the provisions of this
Termination Agreement, the prevailing Party shall be entitled to recover from
the other Party reasonable attorney’s fees and court costs incurred in
connection with such enforcement, including collection agency fees, attorney
litigation fees, suit fees, and costs of investigation and litigation.

 

18.                                 Entire Agreement.  This Termination Agreement and the Exhibits
to this Termination Agreement embody the entire agreement of the Parties in
relation to the subject matter in this Termination Agreement, supersedes all
prior understandings or agreements with respect to the subject matter in this
Termination Agreement, and there is no other oral or written agreement or
understanding between the Parties at the time of execution under this
Termination Agreement.  Further, this
Termination Agreement cannot be modified except by the written agreement of all
Parties.

 

6

 

19.                                 Headings.  The section and subsection headings contained
in this Termination Agreement are included for convenience only, and shall not
limit or otherwise affect the terms hereof.

 

20.                                 Notices.  Any notice provided for in this Termination
Agreement must be in writing and must be either personally delivered, mailed by
first class mail (postage prepaid and return receipt requested), sent by
reputable overnight courier service (charges prepaid), or faxed to the
recipient at the address below indicated:

 

To
the Company:

 

Heeling
Sports Limited

3200 Belmeade Drive, Suite 100

Carrollton, Texas  75006

Attention:  John O’Neil

Telecopy:  (214) 390-1661

 

with a copy (which shall not
constitute notice) to:

 

Gardere Wynne Sewell LLP

1601 Elm Street, Suite 3000

Dallas, Texas  75201-4761

Attention:  Robert J. Ward, Esq.

Telecopy:  (214) 999-3266

 

To
Distributor or Owner:

 

c/o The Territory Distribution GmbH

Pasteurstrasse la

D 50735 Köln, Germany

Attn:  Achim Lippoth

Telecopy:  49-221-294-3821

 

with a copy (which shall not
constitute notice) to:

 

Heller Anwaltskanzlei

Freidheimweg 14

6353 Weggis, Schweiz

Attention:  Sven Heller

Telecopy:  +41 413910405

 

or such other address or to the attention of such other person as the
recipient Party shall have specified by prior written notice to the sending
Party.  Any notice under this Termination
Agreement shall be deemed given if delivered in writing to the intended
recipient in person, transmitted by mail (and will be deemed given one week
after the date transmitted), or by recognized international 

 

7

 

delivery service to the intended recipient at the address set forth in
this Section or such other address as such intended recipient may give
notice from time to time or by fax to the fax number set forth in this Section (with
a confirmation copy simultaneously mailed and will be deemed given when
transmitted).

 

21.                                 Severability.  In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Termination Agreement, and this
Termination Agreement shall be construed as if such provision(s) had never
been contained herein, provided that such provision(s) shall be curtailed,
limited or eliminated only to the extent necessary to remove the invalidity,
illegality or unenforceability.

 

22.                                 Counterparts.  This Termination Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute a single agreement.

 

[signature
page follows]

 

8

 

IN WITNESS WHEREOF, each of the Parties has executed this
Termination Agreement as of the date first written above.

 

 

	
   

  	
  HEELING SPORTS LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Heeling Management Corporation

  
	
   

  	
   

  	
  Its sole general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ John O’Neil

  
	
   

  	
  Name:

  	
      John O’Neil

  
	
   

  	
  Title:

  	
      Vice President

  

 

 

	
   

  	
  THE TERRITORY DISTRIBUTION

  GMBH

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Achim Lippoth

  
	
   

  	
  Name:

  	
      Achim Lippoth

  
	
   

  	
  Title:

  	
      Chief Executive Officer

  

 

 

	
   

  	
  ACHIM LIPPOTH

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Achim Lippoth

  
	
   

  	
  Name:

  	
     
  Achim Lippoth

  

 

9

 

EXHIBIT A

 

PURCHASE ITEMS

 

All
patents, trademarks, service marks, trade names, copyrights, designs, “doing
business as” names, Internet domain names and other intellectual property
rights being used and/or registered by Distributor and relating to “Heeling,” “Heelys”
or the Products.

 

See
attached for other Purchase Items.

 

1

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