Document:

Exhibit
10.4

 

SEVERANCE AND GENERAL RELEASE AGREEMENT

 

This Severance and General
Release Agreement (“ Agreement ”) is made and entered into effective as
of February 1, 2008 (the “ Effective Date ”) by and between the
following Parties:  (i) Heeling Sports Limited, a Texas limited
partnership (the “ Company ”) and (ii) Michael G. Staffaroni (the “
Employee ”).  The Company and the Employee are collectively
referred to herein as the “ Parties .”

 

WHEREAS, beginning on or
about July 24, 2000, the Employee was engaged by the Company as Chief
Executive Officer, and then became employed as Chief Executive Officer as of
January 16, 2001 and as President in 2006;

 

WHEREAS, effective as of
May 19, 2006, the Employee and the Company entered into an AMENDED AND
RESTATED EMPLOYMENT AGREEMENT, INCLUDING AGREEMENT TO ARBITRATE,
NONCOMPETITION AGREEMENT, AND NONDISCLOSURE AGREEMENT, a true and correct
conformed copy of which is attached as Exhibit A to this Agreement (the “ Employment
Agreement ”);

 

WHEREAS, as of the Effective
Date, the Employee’s employment with the Company ended due to Employee’s
resignation;

 

WHEREAS, the Employee, on
the one hand, and the Company, on the other hand, desire to compromise and
settle fully and finally, by the execution of this Agreement, all claims and
causes of action of any kind whatsoever, whether known or unknown, which have
arisen prior to or at the time of the execution of this Agreement, for any
matter, including, but in no way limited to, any and all claims, controversies
and causes of action arising out of or related to the Employee’s employment
with and/or departure from the Company, and the terms and amount of severance
payable to Employee under the Employment Agreement, and the Parties are
desirous of reducing this Agreement to writing;

 

NOW, THEREFORE, in full
compromise, release and settlement, accord and satisfaction, and discharge of
all claims and causes of action, known or unknown, possessed by or belonging to
the Employee on the one hand, and the Company on the other hand, for and in
consideration of the above recitals and the mutual promises, covenants and
agreements set forth herein, and the benefits flowing therefrom, and other good
and valuable consideration, the adequacy of which the Parties hereby
acknowledge for all purposes, including the purpose of enforcing this
Agreement, the Parties to this Agreement covenant and agree as follows:

 

1.                          Mutual
General Releases :

 

a.                          Employee,
individually, and on behalf of, as applicable, Employee’s current, former, and
successor attorneys, representatives, guardians, heirs, assigns, successors,
executors, administrators, insurers, servants, agents, employees, affiliates,
and entities does hereby GENERALLY RELEASE, ACQUIT, AND DISCHARGE the Company,
and as applicable, its respective current, former, and successor officers,
employees, agents, attorneys, assigns, representatives, directors,
shareholders, owners, servants, administrators, insurers, parents,

 

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subsidiaries, affiliates,
and related corporations, firms, associations, partnerships, and entities,
specifically including the Other Heelys Releasees (as defined below), from any
and all Claims and Controversies (as defined below), including without limitation,
any and all obligations under the Employment Agreement; provided, however
, that nothing in this Agreement will be considered a release of Employee’s
claims, if any, for vested employment benefits pursuant to the Employee
Retirement Income Security Act of 1974 as amended, worker’s compensation
insurance coverage, and/or unemployment insurance coverage, or the Company’s
breach of this Agreement.

 

b.                          The
Company does hereby GENERALLY RELEASE, ACQUIT, AND DISCHARGE the Employee,
individually, and as applicable, Employee’s current, former, and successor
attorneys, representatives, guardians, heirs, assigns, successors, executors,
administrators, insurers, servants, agents, employees, affiliates, and
entities, from any and all Claims and Controversies; provided, however ,
that nothing in this Agreement will be considered a release of the Company’s
claims, if any, for the Employee’s breach of this Agreement.

 

c.                          Notwithstanding
anything to the contrary herein, the Company or Heelys, Inc.’s obligations
to Employee under that certain Indemnification Agreement, effective
August 31, 2006 (the “ Indemnification Agreement ”), and this
Agreement are not released, are not affected, and expressly survive the release
herein in all respects.  Similarly, the Company or Heelys, Inc.’s
indemnification obligations to Employee under Heelys, Inc.’s Articles of
Incorporation and ByLaws or at law are not released, are not affected, and
expressly survive the release herein.  As of the Effective Date of this
Agreement, to the Company’s knowledge, Employee has fully complied with the
Indemnification Agreement.

 

2.                          Definitions
:

 

a.                          For
the purposes of this Agreement, including without limitation Section 1 of
this Agreement, the term “ Other Heelys Releasees ” means all affiliates
of the Company and all of their respective officers and directors.

 

b.                          For
the purpose of this Agreement, the term “ Claims and Controversies ”
means the following:  all claims, debts, damages, demands, liabilities,
benefits, suits in equity, complaints, grievances, obligations, promises,
agreements, rights, controversies, costs, losses, remedies, attorneys’ fees and
expenses, back pay, front pay, severance pay, percentage recovery, injunctive
relief, lost profits, emotional distress, mental anguish, personal injuries,
liquidated damages, punitive damages, disability benefits, fraud, interest,
expert fees and expenses, reinstatement, other compensation, suits, appeals,
actions, and causes of action, of whatever kind or character, including, but
not limited to, any dispute, claim, charge, or cause of action arising under
the Civil Rights Act of 1964, Title VII, 42 U.S.C. §§ 2000e et seq ., as amended (including the Civil
Rights Act of 1991), the Civil Rights Act of 1866, 42 U.S.C. §§ 1981 et seq. , as amended, the Equal Pay Act,
29 U.S.C. §§ 201 et seq ., as
amended, the Americans with Disabilities Act of

 

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1990, 42 U.S.C. §§ 12101 et seq. , as amended, the Age Discrimination in Employment Act, 29 U.S.C. §§
621 et seq ., as
amended, the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001
et seq. , as amended, the Fair
Labor Standards Act of 1938, 29 U.S.C. §§ 201 et
seq. , as amended, the Family and Medical Leave Act, 29 U.S.C. §§
2601 et seq. , as amended, the
Labor Management Relations Act, 29 U.S.C. §§ 141 et seq. , as amended, the Employee Polygraph Protection Act,
29 U.S.C. §§ 2001 et seq ., as
amended, RICO, 18 U.S.C. §§ 1961 et seq
.., as amended, the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq ., as amended, the Texas
discrimination, retaliation, and wrongful discharge laws, including without
limitation Tex. Lab. Code §§ 21.001 et seq
.., 451.001, and 411.082, as amended, Tex. Civ. Prac. & Rem. Code §
122.001, as amended, Tex. Gov’t. Code §§ 431.005, 431.006, 554.001, and
554.002, as amended, Tex. Elec. Code §§ 253.102, 276.001, and 276.004, as
amended, and Tex. Health & Safety Code §§ 81.102 and 165.002, as
amended, the Texas pay day laws, including without limitation Tex. Lab. Code §§
61.001 et seq. and 62.001 et seq ., as amended, and all other
constitutional, federal, state, local, and municipal law claims, whether
statutory, regulatory, common law or otherwise, arising out of or relating to
any and all disputes now existing between Employee and the Company, whether
related to or in any way growing out of, resulting from, or to result from the
Employee’s employment with the Company and/or termination or resignation from
employment with the Company, for or because of any matter or thing done,
omitted, or allowed to be done by, the Employee, the Company or the Other
Heelys Releasees, for any incidents, including those past and present, which
existed at any time prior to and/or contemporaneously with the Effective Date
of this Agreement, including all past, present, and future damages, injuries,
costs, expenses, fees, effects, and results in any way related to or connected
with such incidents.

 

c.                          Notwithstanding
anything to the contrary herein, the Company or Heelys, Inc.’s obligations
to Employee under the Indemnification Agreement and this Agreement are not
released, are not affected, and expressly survive the release herein in all
respects.  Similarly, the Company or Heelys, Inc.’s indemnification
obligations to Employee under Heelys, Inc.’s Articles of Incorporation and
ByLaws or at law are not released, are not affected, and expressly survive the
release herein.  As of the Effective Date of this Agreement, to the
Company’s knowledge, Employee has fully complied with the Indemnification
Agreement.

 

3.                           Severance
Compensation Terms :  Subject to the terms of Sections 7 and 15 herein
, the Parties agree to the following terms of severance compensation (“ Severance
Compensation ”):

 

a.                          The
Company shall pay Employee or his Estate fourteen (14) months severance
amounting to the total sum of FOUR HUNDRED AND SIXTY-SIX THOUSAND, SIX HUNDRED
AND SIXTY-SIX AND 67/100 DOLLARS ($466,666.67), minus tax-related deductions
(the “ Severance Proceeds ”), in full compromise and settlement. 
The Severance Proceeds will be paid out (i) over a five month period, in
ten (10) semi-monthly installments of SIXTEEN

 

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THOUSAND, SIX HUNDRED AND
SIXTY-SIX AND 67/100 DOLLARS ($16,666.67), in accordance with the normal
payroll practices and policies of the Company, beginning six (6) months
after the Effective Date, followed by (ii) one lump sum payment of THREE HUNDRED
THOUSAND AND 00/100 DOLLARS ($300,000.00), in the month following the
completion of the installment payments, in all cases minus tax-related
deductions.  The Severance Proceeds are in addition to any compensation
previously accrued or paid to Employee.

 

b.                          If
Employee elects continuation coverage (with respect to Employee’s coverage
and/or any eligible dependent coverage) under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“ COBRA Continuation Coverage ”) with
respect to the Company’s group health insurance plan, Employee will be
responsible for payment of the monthly cost of COBRA Continuation Coverage, provided,
however , the Company will reimburse Employee for the monthly cost of all
COBRA Continuation Coverage net of all co-pay amounts (if any) Employee would
have paid had Employee’s employment continued pursuant to Exhibit A. 
Such COBRA Continuation Coverage payments by the Company will apply to the
fourteen (14) month period following the Effective Date; provided, however
, that nothing herein will affect Employee’s rights to COBRA Continuation
Coverage, at Employee’s expense, following the Effective Date.

 

c.                          The
Company will reimburse Employee for the cost of the $500,000 life insurance
policy from First Colony Life Insurance Company.  Such reimbursement by
the Company will apply to the fourteen (14) month period following the
Effective Date; provided, however , that nothing herein will affect
Employee’s rights to obtain life insurance at Employee’s expense, following the
Effective Date.  The Company will reimburse Employee for the monthly cost
of such life insurance policy on the first regular payroll date of the Company
each month.  Notwithstanding the preceding sentence, or any provision in
this Agreement to the contrary, no reimbursement for the cost of the life
insurance policy will be paid within six (6) months following the
Effective Date, in order for this Agreement to satisfy the requirements with
respect to a “specified employee” as provided under Section 409A of the
Internal Revenue Code of 1986, as amended, and the Treasury Regulations
promulgated thereunder (“ Section 409A ”).  A single sum cash
payment will be made on the date that is six (6) months and one
(1) day from the Effective Date.  Such single sum cash payment will
include the cumulative amounts that would have otherwise been paid to Employee
during the six (6) month delay period, without interest.  Thereafter,
monthly reimbursement payments will resume as described above.

 

4.                          Expenses
and Accrued Leave :

 

a.                          Subject
to Employee’s compliance with all applicable expense policies and procedures,
the Company will reimburse Employee for all reasonable accrued but unpaid
travel, lodging, long distance telephone and other business costs and expenses
reasonably incurred by Employee while rendering Services pursuant to

 

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Exhibit A, through and
including the Effective Date.  Notwithstanding the preceding sentence, or
any provision in the applicable expense reimbursement policy or procedure to
the contrary, if an expense reimbursement would constitute taxable income to
Employee:  (i) the amount of expenses eligible for reimbursement
during any calendar year shall not affect the amount of expenses eligible for
reimbursement in any other calendar year; (ii) the reimbursement of an
eligible expense shall be made on or before December 31 of the calendar
year following the calendar year in which the expense was incurred; and
(iii) the right to reimbursement for expenses shall not be subject to
liquidation or exchange for another benefit.

 

b.                          The
Company will pay Employee an amount equal to all accrued and unused vacation
and personal day pay through and including the Effective Date, calculated in
accordance with the Company’s vacation and personal day policies, practices,
and procedures.  Such payment will be made in a single sum payment within
sixty (60) days of the Effective Date.

 

5.                           No
Admission of Liability :  The Parties stipulate that by discussing
and/or entering into this Agreement, the Parties do not admit, and they
specifically deny, any violation of any constitutional, federal, state, local,
or municipal law, whether, statutory, regulatory, common law, or
otherwise.  Neither the proposal of this Agreement nor the Parties’
execution of it shall in any way be construed as an admission of liability in
any legal, arbitral, or administrative proceeding.  This Agreement has
been entered into in release and compromise of the Claims and Controversies and
other matters as stated herein and to avoid the expense and burden of dispute
resolution.

 

6.                          Statement
of Understanding :  By executing this Agreement, Employee acknowledges
that (a) Employee has been given at least twenty-one (21) days to consider
the terms of this Agreement, and has either considered it for that period of
time or knowingly and voluntarily waived the right to do so; (b) Employee
has been advised by virtue of this part of the Agreement to consult with an
attorney regarding the terms of this Agreement; (c) Employee has consulted
with, or had sufficient opportunity to consult with, an attorney of 
Employee’s own choosing regarding the terms of this Agreement;
(d) Employee has read this Agreement and fully understands the terms of
this Agreement and their import; (e) except as provided by this Agreement,
Employee has no contractual right or claim to the payments and benefits
described herein; (f) the consideration provided for herein is good and
valuable; and (g) Employee is entering into this Agreement voluntarily, of
Employee’s own free will, and without any coercion, undue influence, threat, or
intimidation of any kind.

 

7.                          Revocation
:  Within the seven (7) consecutive calendar days following Employee’s
execution of this Agreement (the “ Revocation Period ”), Employee may
revoke this Agreement by written notice sent by BOTH fax and first class mail
to the Company in care of its attorney, Kenneth C. Broodo, Gardere Wynne Sewell
LLP, 1601 Elm Street, Suite 3000, Dallas, Texas  75201-4761, fax
number (214) 999-3626.  If

 

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Employee
revokes this Agreement, the Employee shall have no right or entitlement to
receive (as applicable) any of the Severance Compensation described in
Section 3 of this Agreement.   Employee understands
that if the Company does not receive notice of revocation prior to the
expiration of the Revocation Period, Employee shall have forever waived the
right to revoke this Agreement, and this Agreement and all of its terms shall
have full force and effect.

 

8.                          Return
of Property :  The Employee shall return to the Company all of its
property and that of the Other Heelys Releasees within Employee’s possession,
custody, or control, including without limitation, all originals and copies of
all materials and documents, all equipment, and all hardcopy and/or
computer-based documents, books, records, videos, disks, data files, audio and
video recordings, and other things pertaining to the Company or containing its
information, whether obtained directly or indirectly from the Company and with
or without its knowledge or consent (collectively, “ the Company Information
”).  The Employee warrants and represents that he will not directly or
indirectly duplicate, replicate, or otherwise retain any copies of any Company
Information in any form or fashion.  Within three (3) business days
of executing this Agreement, the Employee will return the Company Information
by hand delivery to Heelys, c/o Kenneth C. Broodo, Gardere Wynne Sewell LLP,
1601 Elm Street, Suite 3000, Dallas, Texas  75201-4761. 
Notwithstanding the foregoing provisions in this paragraph 8, Employee’s
attorney(s) may retain information and documents provided to them by
Employee in connection with seeking legal advice relating to this Agreement and
his employment with the Company.

 

9.                          Protection
of Confidential Information :

 

a.                          Employee
acknowledges that he has had access to and has become familiar with various
trade secrets and proprietary and confidential information of the Company,
including, but not limited to, the identity, responsibility, and/or income of
employees, costs of doing business, financial information, formulas, processes,
and suppliers, compilations of information, records, customer information,
methods of doing business, information about past, present, pending, and/or
planned transactions, and other confidential information (collectively referred
to as “ Confidential Information ”), which are owned by the Company and
regularly used in the operation of its business, and as to which the Company
takes precautions to prevent dissemination to persons other than certain
directors, officers, and employees.  Employee acknowledges that the
Confidential Information (i) is secret and not known in the industry;
(ii) gives the Company an advantage over competitors who do not know or
use the Confidential Information; (iii) is of such value and nature as to
make it reasonable and necessary to protect and preserve the confidentiality
and secrecy of the Confidential Information; and (iv) constitutes a
valuable, special, and unique asset of the Company, the disclosure of which
could cause substantial injury and loss of profits and goodwill to the Company.

 

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b.                          Employee
shall not in any way use or disclose any Confidential Information, directly or
indirectly, at any time in the future, and shall otherwise protect such
information from unauthorized use or disclosure by others.  All files,
records, documents, information, data, and similar items relating to the
business of the Company, whether prepared by Employee or otherwise coming into
his possession, will remain the exclusive property of Company, and in any event
must be promptly delivered to the Company upon execution of this
Agreement.  Confidential Information does not include material, data,
documents, and/or information that the Company has voluntarily placed in the
public domain; that has been lawfully and independently developed and publicly
disclosed by third parties; that constitutes the general knowledge and skills
gained by Employee during the time period of his employment with the Company;
or that otherwise enters the public domain through lawful means.

 

10.                        Survival
of Employment Terms; Restrictive Covenants :

 

a.                          The
contractual terms stated in Exhibit A that apply post-employment,
including without limitation such terms stated in paragraphs 6, 7, 8, 9, 10,
11, 12, 13, 14, 15, 16, 17, 18, 19, 20, and 21 of Exhibit A (including
subparts), shall survive the execution of this Agreement and continue in full
force and effect, subject to the modifications stated in this Agreement. 
The Employment Period as referenced in paragraphs 8 and 9 of Exhibit A is
deemed to end on the date of this Agreement.

 

b.                          The
Noncompetition Term defined in paragraph 11 of Exhibit A (“ Noncompetition
Term ”) is hereby modified from one (1) year to six (6) months
with regard to competitive business activities other than that based on wheeled
footwear products that compete with products of the Company; provided,
however , that the Noncompetition Term shall continue to apply for the full
year stated in Exhibit A, with regard to competitive business activities
based on any and all wheeled footwear products that compete with products of
the Company and for purposes of paragraph 12 of Exhibit A; provided
further , that the terms of paragraphs 11 and 12 of Exhibit A shall
otherwise survive the execution of this Agreement and continue in full force
and effect.  The post-employment portion of the Noncompetition Term, as
partially modified by this Agreement, shall commence upon the Effective Date of
this Agreement.

 

c.                          The
Company acknowledges the Employee’s disclosure of business discussions with a
third party (the “ Third Party ”) over a possible licensing agreement
for the use of a brand name in conjunction with a line of Company footwear, as
disclosed through Employee’s weekly report to the Board of the Company in
January 2008, with terms to be negotiated (“ Licensing Discussions ”). 
The Employee shall not engage in any similar Licensing Discussions of any kind
with the Third Party, during the twelve (12) month period following the
Effective Date; provided that , the restrictive covenants referenced in
Exhibit A and in this Agreement shall continue to apply at all times
within the Noncompetition Term, as partially modified by this Agreement.

 

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11.                        Mutual
Non-Disparagement :  Employee, on his own behalf, and the Company,
solely on behalf of its employees at the vice president level and above who
have actual authority to speak or act on the subject described herein, shall
not make any statements, comments, or communications in any form, oral,
written, or electronic, which would constitute libel, slander, or disparagement
of one another; provided, however , that the terms of this Section shall
not apply to communications between the Parties and as applicable, their
attorneys or other persons with whom communications would be subject to a claim
of privilege existing under common law, statute, or rule of
procedure.  Where applicable, this mutual non-disparagement agreement
applies to any public or private statements, comments, or communications in any
form, oral, written, or electronic.  The Parties shall not in any way
solicit any such statements, comments or communications from others.  Subject
to the terms of this provision, the Company may issue a press release regarding
Employee’s resignation from the Company.  Prior to issuance of the
referenced press release Employee shall be permitted to review the release and
to provide comments to it.  The Parties shall mutually agree on the
language concerning Employee’s resignation and related matters.

 

12.                        Payment
Termination; Liquidated Damages :  In the event that Employee commits
a material breach of the terms of the foregoing Sections 9 and/or 10 of this
Agreement (including the restrictive covenants stated in Exhibit A), the
Company may forever terminate payment of all remaining Severance Compensation
payments, and the Employee shall become immediately liable to the Company for
liquidated damages in the amount of ninety percent (90%) of all Severance
Compensation paid to Employee by the Company.  The Parties stipulate that
such liquidated damages are reasonable considering that this Agreement has
intrinsic value for the Company because of its complete confidentiality and
other protections, and further considering that in the event of such a breach,
the Company’s actual damages will be difficult and impractical to ascertain, so
that the stated liquidated damages will be just and proper compensation for any
damages caused by any breach for which this Section applies; provided,
however , that the Company may make an election of remedies for actual
damages, to the extent that it can prove recoverable actual damages in excess
of the liquidated damages stated in this Section of the Agreement. 
Notwithstanding any requirement that the Employee pay damages as provided in
this Section, the remaining provisions of this Agreement will remain in full
force and effect.

 

13.                        Resignation;
Securities Filings :  As of the Effective Date, the Employee resigns
from his employment with the Company and all Company affiliates and
subsidiaries, as applicable, and from any and all positions as an officer or
director, or both, of the Company and all Company affiliates and
subsidiaries.  This Agreement will be disclosed in an 8-K filing and/or
other required securities filings with the Securities and Exchange Commission,
as applicable.

 

14.                        Waiver
of Re-employment :  The Employee waives and releases forever any right
or rights he might have to employment, reemployment, or reinstatement with the
Company or the Other Heelys Releasees, for now and any time in the future, and

 

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agrees not to seek or make
application for employment with either the Company or the Other Heelys
Releasees.

 

15.                        Section 409A
Compliance :  This Agreement shall be construed and interpreted to the
maximum extent possible in a manner to avoid any adverse tax consequences to
Employee under Section 409A.  If the Company or Employee reasonably
determines that any compensation or benefits payable under this Agreement may
be subject to Section 409A, the Company and Employee shall work together
to adopt such amendments to this Agreement or adopt other policies or
procedures (including amendments, policies and procedures with retroactive
effect), or take any other commercially reasonable actions necessary or
appropriate to:  (a) exempt the compensation and benefits payable
under this Agreement from Section 409A and/or to preserve the intended tax
treatment of the compensation and benefits provided with respect to this
Agreement or (b) comply with the requirements of Section 409A.

 

16.                        Entire
Agreement :  This Agreement constitutes the entire Agreement of the
Parties with regard to the subject matter of this Agreement, and supersedes all
prior and contemporaneous negotiations and agreements, oral or written, with
regard to the same subject matter, except for the contractual terms
stated in Exhibit A that apply post-employment, including without
limitation such terms stated in paragraphs 6, 7, 8, 9, 10, 11, 12, 13, 14, 15,
16, 17, 18, 19, 20, and 21 of Exhibit A (including subparts), subject to
the modifications stated in this Agreement.   All prior and
contemporaneous negotiations and agreements regarding the subject matter of
this Agreement are deemed incorporated and merged into this Agreement and are
deemed to have been abandoned if not so incorporated, subject to the
exceptions stated in this Section.  In the event of an irreconcilable
conflict between the surviving provisions of Exhibit A and the provisions
of this Agreement, this Agreement shall govern.  No representations, oral
or written, are being relied upon by either Party in executing this Agreement
other than the express representations set forth in this Agreement.  The
Parties have each entered into this Agreement based on their own independent
judgment.  This Agreement cannot be changed or terminated without the
express written consent of the Parties.

 

17.                        Other
Documentation :  The Parties agree to promptly execute, acknowledge
and deliver all further documents and instruments that may be necessary or
convenient to consummate this Agreement; and to execute, acknowledge, attest
and deliver all additional documents, instruments, consents and approvals
necessary or advisable to more fully evidence and perfect each Party’s rights
and obligations described in this Agreement.

 

18.                        Non-Waiver
:  One or more waivers of a breach of any covenant, term, or provision of
this Agreement by any Party shall not be construed as a waiver of a subsequent
breach of the same covenant, term or provision; nor shall it be considered a
waiver of any other then existing, preceding, or subsequent breach of a
different covenant, term, or provision.

 

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19.                        Authority
:  The Employee hereby acknowledges and expressly warrants and represents
for himself, and for his predecessors, successors, assigns, heirs, executors,
administrators, and legal representatives, as applicable, that he (a) is
legally competent and authorized to execute this Agreement; (b) has not
assigned, pledged, or otherwise in any manner, sold or transferred, either by
instrument in writing or otherwise, any right, title, interest, or claim that
he may have by reason of any matter described in this Agreement; (c) has
the full right and authority to enter into this Agreement and to consummate the
covenants contemplated herein; and (d) will execute and deliver such
further documents and undertake such further actions as may reasonably be
required to effect any of the agreements and covenants in this Agreement. 
The Company hereby represents that this Agreement has been duly authorized by
the Company and that the person executing this Agreement on behalf of the
Company is authorized to execute this Agreement..

 

20.                        Severability
:  If any provision or term of this Agreement is held to be illegal,
invalid, or unenforceable, such provision or term shall be fully severable;
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance from this Agreement.  Furthermore, in lieu of each
such illegal, invalid, or unenforceable provision or term there shall be added
automatically as a part of this Agreement another provision or term as similar
to the illegal, invalid, or unenforceable provision as may be possible and that
is legal, valid, and enforceable.

 

21.                        Attorneys’
Fees in the Event of Breach :  The Parties agree that should a Party
to this Agreement make a claim against another Party to this Agreement for a
breach of any provision of this Agreement, the prevailing Party shall be
entitled to recover its attorneys’ fees, expenses, and costs.  The Parties
hereby agree that each Party shall have the right to seek specific performance
of this Agreement, and declaratory and injunctive relief.

 

22.                        Governing
Law; Exclusive Venue :  All questions concerning the construction,
validity and interpretation of this Agreement and its exhibits will be governed
by and construed in accordance with the laws of the State of Texas without
giving effect to any choice of law or conflict of law provision or rule (whether
of Texas or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than Texas, unless preempted by federal law or
otherwise stated in this Agreement.  The Parties consent, stipulate and
agree that the exclusive venue of any lawsuit, arbitration, or other proceeding
referenced in, arising from, or related to this Agreement shall be Dallas,
Texas.

 

23.                        No
Assignment :  The Employee shall not assign any of his rights under
this Agreement, or delegate the performance of any of his duties hereunder,
without the prior written consent of the Company.

 

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24.                        Successors
and Assigns : All of the provisions of this Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective heirs, if
any, successors, and permitted assigns.  The merger or consolidation of the
Company into or with any other entity shall not terminate this Agreement.

 

25.                        Construction
:  The Parties were each fully represented by counsel in negotiating this
Agreement.  The language of all parts of this Agreement shall in all cases
be construed as a whole, according to its fair meaning, and not strictly for or
against any Party.  As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so indicates
or requires.

 

26.                        Counterparts
:  It is understood and agreed that this Agreement may be executed in
multiple originals and/or counterparts, each of which shall be deemed an
original for all purposes, but all such counterparts together shall constitute
one and the same instrument.

 

27.                        Headings
:  The headings of this Agreement are for purposes of reference only and
shall not limit or define the meaning of the provisions of this Agreement.

 

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11

 

IN WITNESS WHEREOF, THE
PARTIES, INTENDING TO BE LEGALLY BOUND BY THIS AGREEMENT, HAVE DULY
EXECUTED THIS AGREEMENT, AS OF THE DATES INDICATED BELOW:

 

	
  COMPANY: 

  	
   

  	
  HEELING SPORTS LIMITED, A
  TEXAS LIMITED PARTNERSHIP

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  By:

  	
  Heeling Management Corp.,

  
	
   

  	
   

  	
   

  	
  Its sole general partner

  
	
  3200 Belmeade Drive

  	
   

  	
   

  	
   

  
	
  Suite 100

  	
   

  	
  By:

  	
  /s/ Gary L. Martin

  
	
  Carrollton TX 75006

  	
   

  	
  Name:

  	
  Gary L. Martin

  
	
   

  	
   

  	
  Title:

  	
  Chairman

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date: 

  	
  February 1, 2008

  
	
   

  	
   

  	
   

  	
   

  
	
  EMPLOYEE:

  	
   

  	
  MICHAEL G. STAFFARONI

  
	
  Address:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ MICHAEL G. STAFFARONI

  
	
  2817 Milton

  	
   

  	
   

  	
   

  
	
  Dallas TX 75205

  	
   

  	
  Date: February 1,
  2008

  

 

12

 

EXHIBIT A

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT, INCLUDING AGREEMENT TO

ARBITRATE, NONCOMPETITION AGREEMENT AND

NONDISCLOSURE AGREEMENT

 

This Agreement is made and
entered into on September 18, 2006 (effective as of May 19, 2006), by
and between Michael G. Staffaroni (“Employee”) and Heeling Sports Limited, a
Texas limited partnership (the “Company”).

 

R E C I T A L S

 

A.
            Employee is
currently serving as Chief Executive Officer and President of the Company
pursuant to an Employment Agreement dated as of November 14, 2005 (the “Prior
Agreement”).

 

B.
            Employee and
the Company want to amend and restate the Prior Agreement in its entirety.

 

C.
            In the
course of Employee’s employment with the Company, Employee has and will
continue to gain access to Confidential Information, as hereinafter defined,
relating to the business of the Company.

 

D.
            Company and
Employee desire a speedy, economical and impartial dispute resolution
procedure.

 

E.
            
Employee’s performance of services to the Company may result in Discoveries, as
hereinafter defined.

 

F.
             The
parties hereto desire to enter into this Agreement in order to amend and
restate the Prior Agreement and to set forth the respective rights, limitations
and obligations of both the Company and Employee with respect to Employee’s
employment with the Company, the Confidential Information, the Discoveries,
arbitration and the other matters set forth herein.

 

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

 

1.              
EMPLOYMENT.    The Company agrees to continue to
employ Employee and Employee hereby accepts such continued employment from the
Company upon the terms and conditions set forth in this Agreement for the
period which begins on the date hereof and continuing through December 31,
2008 (“Employment Period”) which shall be automatically renewable in one year
increments at the end of such period and each anniversary date thereafter,
unless

 

1

 

terminated by either party
in writing at least 90 days prior to the end of such term or terminated earlier
in accordance with Section 5 hereof.

 

2.              
SERVICES.    During the Employment Period, Employee
will render the services to the Company as Chief Executive Officer and
President, and/or such other position as agreed to by the Board of Directors
and Employee. Employee covenants that he will devote his best efforts,
knowledge, skill and entire productive time and attention (except for vacation
or other leave periods) to the business of the Company and will faithfully and
diligently carry out such duties and have such responsibilities as are
customary for persons employed in a substantially similar capacity for similar
companies. Employee shall also use his best efforts to initiate, preserve and
maintain the favorable relationships of the Company with its customers,
suppliers and stockholders. During the Employment Period, Employee shall not
render services of a business, professional or commercial nature to any other
entity or person without the written consent of the board of directors (the “Board
of Directors”) of Heelys, Inc., successor by merger to Heeling, Inc.
and the owner of all of the equity interests of the Company (the “Parent”),
which consent may be withheld in the Board of Director’s sole discretion.
Employee will report to the Board of Directors and shall faithfully and
diligently comply with all reasonable and lawful directives.

 

3.              
ADHERENCE TO COMPANY RULES.    Employee, at all times
during the performance of this Agreement, shall adhere to and obey all of the
Company’s rules, regulations and policies which are now in effect, or as
subsequently adopted or modified by the Company which govern the operation of
the Company’s business and the conduct of employees of the Company.

 

4.              
COMPENSATION.

 

a.              
Salary and Bonus.   During the Employment Period, the
Company will pay Employee the compensation set forth in Exhibit 1
hereto. Employee’s compensation shall be reviewed annually by the compensation
committee of the Board of Directors, but may not be reduced below the amount
set forth in Exhibit 1 hereto. Employee’s compensation will be
payable in accordance with the Company’s customary payroll practices.

 

b.              
Benefits.   During the Employment Period, Employee shall
be entitled to the Benefits as set forth on Exhibit 1 hereto.
Notwithstanding anything in this Section 4(b) to the contrary, all
Benefit obligations are subject to guidance issued by the U.S. Department of
Treasury under Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”). To the extent required, the Company may modify the
Benefits provided under this Section 4(b) to comply with such
guidance; provided, however, that the aggregate value of Benefits provided to
Employee after such modification shall not be less than the aggregate value of
the Benefits provided to him prior to the modification.

 

2

 

5.              
TERMINATION. Employee’s employment with the Company will continue
throughout the Employment Period unless earlier terminated pursuant to any of
the following provisions:

 

a.              
Termination by the Company for Cause. The Company shall have the
right to immediately terminate Employee’s employment at any time for any of the
following reasons (each of which is referred to herein as “Cause”) by giving
Employee written notice of termination (the effective date of which may be the
date of such notice):

 

(i)            
willful breach by Employee of any provision of this Agreement and failure to
cure such breach (to the extent practicable) within 15 days after the date he
is given written notice thereof by the Company;

 

(ii)           
any willful act by Employee of fraud or dishonesty, including but not limited
to stealing or falsification of Company records, with respect to any aspect of
the Company’s business;

 

(iii)          
knowing violation of state, federal or international laws applicable to the
Company;

 

(iv)          
drug or alcohol use of Employee in violation of Company policy or that
materially impedes Employee’s job performance or brings Employee or Employer
into disrepute in the community;

 

(v)           
substantial failure by Employee to perform any specific directive of the Board
of Directors after 30 days notice of such failure and explanation of such
failure of performance;

 

(vi)          
willful (x) misappropriation of funds or of any corporate opportunity or (y) acts
disloyal to the Company;

 

(vii)         
conviction of Employee of a felony, or of a crime that the Company, in its sole
discretion, determines involves a subject matter which may reflect negatively
on the Company’s reputation or business (or a plea of nolo contendere thereto);

 

(viii)        
acts by Employee attempting to secure or securing any personal profit not fully
disclosed to and approved by the Board of Directors of the Company in
connection with any transaction entered into on behalf of the Company;

 

(ix)           
gross, willful or wanton negligence, or conduct which constitutes a breach of
any fiduciary duty owed to the Company by Employee;

 

3

 

(x)            
conduct on the part of Employee, even if not in connection with the performance
of his duties contemplated under this Agreement, that could result in serious
prejudice to the interests of the Company, and Employee fails to cease such
conduct immediately within 30 days of receipt of notice to cease such conduct;

 

(xi)           
voluntary termination initiated by Employee; or

 

(xii)          
acceptance of employment with any other employer.

 

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

 

b.              
Termination Upon Death or Disability. If Employee shall die or
become disabled during the Employment Period, Employee’s employment hereunder
shall terminate (such termination being treated for purposes of this Agreement
as if Employee had not been terminated for “Cause” pursuant to subsection (a) above)
and the Company shall pay to Employee or his estate, as applicable, (i) any
compensation (including accrued vacation time and a pro-rated bonus under the Company’s
Bonus Plan through the date of death or disability) due that would otherwise
have been payable through the date of death or disability promptly after the
death or disability (but the pro-rated bonus will be paid when otherwise
payable had he continued as an employee of the Company) and (ii) an amount
equal to two times the Employee’s annual base salary which amount shall be
payable in cash in 24 equal monthly payments commencing with the month
following the month of his death or disability and shall be paid when otherwise
payable had he continued as an Employee. For purposes of this Agreement,
Employee shall become “disabled” if (A) he is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or (B) he
is, by reason of any medically determinable physical or mental impairment which
can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a
period of not less than three months under an accident or health plan covering
employees of the Company.

 

4

 

c.              
Termination Without Cause. The Company shall have the right to
terminate Employee’s employment Without Cause at any time. Upon termination,
the Company shall pay to Employee (i) any compensation (including accrued
vacation time and a pro-rated bonus under the Company’s Bonus Plan through the
date of termination Without Cause) due that would otherwise have been payable
through the date of termination Without Cause promptly after the date of
termination Without Cause (but the pro-rated bonus will be paid when otherwise
payable had he continued as an employee of the Company) and (ii) two year’s
base salary plus, if Employee has completed more than five years of service,
including service as a member of the Board of Directors, an additional amount
equal to his monthly base salary for each year of completed service in excess
of five years which shall be paid in 24 equal monthly payments commencing with
the month following the month in which his employment is terminated Without
Cause and shall be paid when otherwise payable had he continued as an Employee
and the Company shall have no further obligations to Employee under this
Agreement. If Employee is a Specified Employee on the date his employment is
terminated Without Cause, the monthly payments under Section 5(c)(ii) shall
not commence until the first month next following the six-month anniversary of
the date his employment so terminated. For purposes of this Agreement, an
Employee shall be considered a “Specified Employee” as provided in Code §409A
and the Treasury regulations promulgated thereunder. If Employee dies after his
employment is terminated Without Cause and before his receipt of all salary
continuation payments due Employee under this Section 5(c), the balance shall
be paid to his estate in the same manner and at the same time as specified in
this Section 5(c). During the required period of continuation coverage
within the meaning of Code §4980B(f)(2)(B)(i)(I), Employee shall be reimbursed
by the Company within five days of each payment by Employee of the monthly
premium payable to continue coverage of Employee and his dependents under the
Company’s group health plan or plans following the date his employment is
terminated Without Cause in an amount equal to the amount of that monthly
premium payable by Employee for such continuation coverage. Termination “Without
Cause” means the termination of Employee’s employment either (i) by the
Company for a reason other than for Cause or (ii) by the Company or
Employee resulting from a “Change of Control.” For purposes of this Agreement,
a “Change of Control” means the occurrence of any of the following events: (A) any
“person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than
one or more Permitted Holders, is or becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Parent representing (1) 50% or more of the combined voting
power of the Parent’s then outstanding securities prior to a “Qualified Public
Offering” (which, for purposes of this Agreement,

 

5

 

means the first firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offering
and sale of the Parent’s common stock for the account of the Parent in which
the aggregate net proceeds to the Parent equals or exceeds $20 million) or (2) 25%
or more of the combined voting power of the Parent’s then outstanding
securities after a Qualified Public Offering; (B) any change or changes in
the composition of the Parent’s Board of Directors within a two-year period as
a result of which less than a majority of the directors are (1) persons
who were directors at the beginning of that two-year period or (2) persons
who were elected or nominated for election as directors with the affirmative
vote or consent of at least a majority of the incumbent directors at the time
of that election or nomination, but not including any person whose election or
nomination was or is in connection with an actual or threatened proxy contest
regarding the election of the Parent’s directors; (C) the Parent is merged
or consolidated with another corporation or other entity (other than one or
more Permitted Holders or any entity controlled by one or more Permitted
Holders) and, as a result of the merger or consolidation, less than 75% of the
outstanding voting securities of the surviving or resulting corporation or
other entity, as the case may be, are “beneficially owned” (within the meaning
of Rule 13d-3 under the Exchange Act), directly or indirectly, immediately
after the merger or consolidation by persons who or which beneficially owned
the outstanding voting securities of the Parent immediately before the merger
or consolidation; or (D) the Parent transfers, sells or otherwise disposes
of all or substantially all of its assets to another corporation or other
entity which is not an affiliate of the Parent. “Permitted Holders” means
Capital Southwest Venture Corporation and its affiliates and Roger R. Adams and
his affiliates. For purposes of this Agreement, any termination of Employee’s
employment by the Company which occurs within 12 months following such Change
of Control shall be conclusively presumed to have resulted from such Change of
Control unless the Company demonstrates to an arbitrator, or Employee agrees,
that the termination was with Cause. Should the Company fail to comply in a
material respect with this Agreement, and such failure is not cured (if
practicable) within 30 days after the Company is given written notice of such
noncompliance, Employee may resign and receive the benefits of this Section 5(c).
If, whether before or after a Change of Control, without Employee’s consent the
Company reduces the Employee’s base salary or “Target” amount for purposes of
the Company’s Bonus Plan, materially changes his title, reduces the scope of
the assigned work responsibilities, or relocates its offices in excess of 50
miles from the address set forth herein, Employee shall be deemed to have been
constructively terminated Without Cause.

 

d.              
Limitation on Payments. If any severance payment or other benefits
received or to be received by Employee under Section 5(c) of this
Agreement or any other of the Total Severance Benefits constitute

 

6

 

“parachute payments” within
the meaning of Code §280G and would be subject to the excise tax imposed by
Code §4999 (the “Excise Tax”), then Employee’s payments and benefits under Section 5(c) of
this Agreement shall be either

 

(i)            
paid in full, or

 

(ii)           
paid as to such lesser extent which would result in no portion of such payments
or benefits being subject to the Excise Tax,

 

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

 

6.              
NONDISCLOSURE. Employee acknowledges that during the course of his
employment by the Company, the Company and its affiliates have provided and
will provide, and the Employee has acquired and will acquire, technical
knowledge with respect to the Company’s and its affiliates’ business
operations, including, by way of illustration, the Company’s and its affiliates’
existing and contemplated product line, trade secrets, compilations, business
and financial methods or practices, plans, pricing, marketing, merchandising
and selling techniques and information, customer lists, supplier lists and
confidential

 

7

 

information relating to the
Company’s and its affiliates’ policies and/or business strategy (all of such
information herein referenced to as the “Confidential Information”). The
protection of the Confidential Information against unauthorized disclosure or
use is of critical importance to the Company. Employee agrees that Employee
will not, during the Employment Period, divulge to any person, directly or
indirectly, except to the Company or its officers and agents or as reasonably
required in connection with Employee’s duties on behalf of the Company, or use,
except on behalf of the Company, any Confidential Information acquired by the
Employee during the Employment Period. Employee agrees that Employee will not,
for a period of three years after the Employment Period has ended, use or
divulge to any person directly or indirectly any Confidential Information, or
use any Confidential Information in subsequent employment.

 

7.              
RETURN OF DOCUMENTS.    Employee’s relationship with
the Company is terminated (for whatever reason), Employee shall not take with
Employee, but will leave with the Company, all work product, records, files,
memoranda, reports, price lists, customer lists, supplier lists, documents and
other information, in whatever form (including on computer disc), and any
copies thereof, relating to the Confidential Information or if such items are
not on the premises of the Company, Employee agrees to return such items
immediately upon Employee’s termination). Employee acknowledges that all such
items are and remain the property of the Company.

 

8.              
DISCOVERIES.    Employee will promptly and freely
disclose to the Company, in writing, any and all ideas, conceptions,
inventions, improvements and discoveries (collectively, “Discoveries”), whether
patentable or not, that are conceived or made by Employee, solely or jointly
with another, during the Employment Period, and that relate to the business or
activities of, or the products sold by, the Company. Employee hereby assigns to
the Company all of Employee’s interest in any such Discoveries. Upon the
request of the Company, whether during or after the Employment Period, Employee
will execute any and all applications, assignments and other instruments that
the Company shall, in its sole discretion, deem necessary to apply for and
obtain protection, including, without limitation, patent protection, for the
Discoveries in all countries of the world. The obligations of the parties under
this Section 8 shall survive the termination of this Agreement.

 

9.              
COPYRIGHT.    If, during the Employment Period,
Employee creates any original work of authorship fixed in any tangible medium
of expression, which is the subject matter of copyright, including, without
limitation, video tapes, written presentations, computer programs, drawings,
models, manuals, brochures and the like, that relate to the Company’s business,
products sold or services, whether such work is created solely by Employee or
jointly with others, the Company shall be deemed to be the author of such work
if the work is prepared by Employee within the scope of Employee’s employment;
or if the work is not prepared by Employee within the scope of Employee’s
employment,

 

8

 

but is specially ordered by
the Company, including, without limitation, as a contribution to a collective
work, or as a part of an audio-visual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, or is
created using any resources or property of the Company, the work shall be
considered a work made for hire, and the Company shall be the author of the
work. If such work is neither prepared by Employee within the scope of
employment, nor as a work made for hire, Employee hereby assigns to the Company
all of Employee’s world-wide right, title and interest in and to such work and
all rights of copyright therein. Employee agrees to, upon the request of the
Company, whether during or after the period of Employee’s employment by the
Company, assist the Company in the protection of the Company’s world-wide
right, title and interest in and to the work and all rights of copyright
therein, including, without limitation, the execution of all formal assignment
documents requested by the Company, and the execution of all lawful oaths and
applications for registration of copyright in the United States and foreign
countries. The obligations of the parties under this Section 9 shall
survive the termination of this Agreement.

 

10.           
NO EXCLUSIONS.    Employee hereby represents that
Employee has not heretofore made any Discoveries or prepared any work which is
the subject of copyrights that Employee wishes to exclude from the provisions
of Sections 8 and 9 above.

 

11.           
NONCOMPETITION.    The business of the Company is
relatively unique and Employee acknowledges that he is being provided and will
continue to be provided by the Company with significant information, trade
secrets and opportunities, which are confidential and proprietary in nature.
Employee further acknowledges that such information and opportunities would
have significant value to any current or prospective competitor of the Company.
In recognition of the Company’s agreement to provide to Employee such information
and opportunities, of the need to fully protect such information and
opportunities from unauthorized disclosure or use, and in consideration of the
numerous mutual promises contained in this Agreement between the Company and
the Employee, including, without limitation, those involving Confidential
Information, compensation, termination and arbitration, and in order to protect
the Company’s Confidential Information and to reduce the likelihood of
irreparable damage which would occur in the event such information is provided
to or used by a competitor of the Company, during the Employment Period and for
an additional period of one year immediately following the Employment Period
(the “Noncompetition Term”), Employee will not, directly or indirectly, either
through any form of ownership or as a director, officer, principal, agent,
employee, employer, adviser, consultant, shareholder, partner, or in any other
individual or representative capacity whatsoever, either for his own benefit or
for the benefit of any other person, firm, corporation, governmental or private
entity, or any other entity of whatever kind, without the prior written consent
of the Company (which consent may be withheld in its sole discretion), compete
with the Company or its affiliates, in North and South America, Mexico, Western
and Eastern Europe, the

 

9

 

Middle East, and the Far
East including Japan, Malaysia, South Korea, China, Taiwan or Asia
(“Noncompetition Territory”) in any business activity of the Company existing
or contemplated as of, or conducted or contemplated by the Company prior to,
the date of this Agreement, and/or during the Employment Period. Any such acts
during the Noncompetition Term in the Non-competition Territory shall be
considered breaches and violations of this Agreement. Additionally, during the
Noncompetition Term, Employee shall not directly or indirectly request or
advise any customer or supplier of the Company to withdraw, curtail or cancel
its business activities with the Company.

 

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

 

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

 

12.           
NO INTERFERENCE WITH EMPLOYEES.    During the
Noncompetition Term, without the consent of the Board of Directors, neither
Employee nor any individual, partners, limited partnership, corporation or
other entity or business with which Employee is in any way affiliated,
including, without limitation, any partner, limited partner, director, officer,
shareholder or employee of any such entity or business, will (i) request,
induce or attempt to influence, directly or indirectly, any employee of the
Company to terminate his employment with the Company or (ii) employ any
person who as of the date hereof was, or after such date is or was, an employee
of the Company.

 

13.           
REFORMATION OF SECTIONS 11 AND 12.    The Company and
Employee agree and stipulate that the agreements and covenants not to compete
contained in Sections 11 and 12 hereof are fair and reasonable in light of all
of the facts and circumstances of the relationship between Employee and the
Company; however, Employee and the Company are aware that in certain
circumstances courts have refused to enforce certain agreements not to compete.
Therefore, in furtherance of, and not in derogation of the provisions of
Sections 11 and 12, that in the event a court should decline to enforce the
provisions of Sections 11 and/or 12, Sections 11 and/or 12, as applicable,
shall be deemed to be modified or reformed to restrict Employee’s competition
with the Company or its affiliates to the maximum extent, as to time, geography
and business scope, which the court shall find enforceable; provided, however,
in no event shall the

 

10

 

provisions of Sections 11
and/or 12, as applicable, be deemed to be more restrictive to Employee than
those contained herein.

 

14.           
INJUNCTIVE RELIEF.    Employee acknowledges that
breach of any of the agreements contained herein, including, without
limitation, any of the noncompetition and confidentiality covenants specified
in Sections 6 through 12, will give rise to irreparable injury to the Company,
inadequately compensable in damages. Accordingly, notwithstanding Section 15
below, the Company shall be entitled, without the posting of any bond, to
injunctive relief to prevent or cure breaches or threatened breaches of the
provisions of this Agreement and to enforce specific performance of the terms
and provisions hereof in any court of competent jurisdiction, in addition to
any other legal or equitable remedies which may be available. Employee further
acknowledges and agrees that in the event of the termination of this Agreement,
his experience and capabilities are such that he can obtain employment in
business activities which are of a different or noncompeting nature with his
activities as an employee of the Company; and that the enforcement of a remedy
hereunder by way of injunction shall not prevent Employee from earning a
reasonable livelihood. Employee further acknowledges and agrees that the
covenants contained herein are necessary for the protection of the Company’s
legitimate business interests and are reasonable in scope and content.

 

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

 

a.              
THIS SECTION 15 SHALL APPLY TO ALL DISPUTES OR CONTROVERSIES, WHETHER OR
NOT ARISING OUT OF EMPLOYEE’S EMPLOYMENT (OR TERMINATION OF THAT EMPLOYMENT),
THAT COMPANY MAY HAVE AGAINST EMPLOYEE, OR THAT EMPLOYEE MAY HAVE
AGAINST COMPANY OR AGAINST (AS APPLICABLE) ITS PAST OR PRESENT OFFICERS,
DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES, ADVISORS OR AGENTS (COLLECTIVELY,
“CLAIMS”), EXCEPT FOR INJUNCTIVE RELIEF TO BE PURSUED BY COMPANY PURSUANT TO
SECTION (b) BELOW. THE CLAIMS INCLUDE, BUT ARE NOT LIMITED TO,
CONTROVERSIES RELATING TO: COMPENSATION OR BENEFITS, BREACH OF ANY CONTRACT,
TORTS, DISCRIMINATION UNDER STATE, FEDERAL OR LOCAL LAW, AND VIOLATION OF ANY
FEDERAL, STATE, OR OTHER GOVERNMENTAL LAW, STATUTE, REGULATION, OR ORDINANCE.
HOWEVER, THIS SECTION 15 SHALL NOT APPLY TO ANY CLAIM: (I) FOR
WORKERS’ COMPENSATION OR

 

11

 

UNEMPLOYMENT BENEFITS; OR
(II) BY COMPANY FOR INJUNCTIVE AND/OR OTHER EQUITABLE RELIEF FOR UNFAIR
COMPETITION AND/OR THE USE AND/OR UNAUTHORIZED DISCLOSURE OF TRADE SECRETS OR
CONFIDENTIAL INFORMATION, INCLUDING BUT NOT LIMITED TO, MATTERS DESCRIBED
IN SECTIONS 6 AND 11 ABOVE. WITH RESPECT TO MATTERS REFERRED TO IN THE
FOREGOING SUB-PARAGRAPH (II), COMPANY MAY SEEK AND OBTAIN INJUNCTIVE
RELIEF IN COURT, AND THEN PROCEED WITH ARBITRATION UNDER THIS SECTION 15.

 

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

 

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

 

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

 

(ii)           
THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE THEN-CURRENT MODEL
EMPLOYMENT ARBITRATION PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION
(“AAA”) BEFORE A SINGLE ARBITRATOR. THE ARBITRATION

 

12

 

SHALL TAKE PLACE IN OR NEAR
THE CITY IN WHICH EMPLOYEE IS OR WAS LAST WORKING WITH COMPANY.

 

(A)          
THE ARBITRATOR SHALL BE SELECTED IN THE FOLLOWING MANNER. THE AAA SHALL GIVE
EACH PARTY A LIST OF AT LEAST SIX ARBITRATORS DRAWN FROM ITS PANEL OF LABOR AND
EMPLOYMENT ARBITRATORS. EACH SIDE MAY STRIKE ALL NAMES ON THE LIST IT DEEMS
UNACCEPTABLE. IF ONLY ONE COMMON NAME REMAINS ON THE LISTS OF ALL PARTIES, THAT
INDIVIDUAL SHALL BE THE ARBITRATOR. IF MORE THAN ONE COMMON NAME REMAINS ON THE
LISTS OF ALL PARTIES, THE PARTIES SHALL STRIKE NAMES ALTERNATELY UNTIL ONLY ONE
REMAINS. IF NO COMMON NAME REMAINS ON THE LISTS OF ALL PARTIES, THE AAA SHALL
FURNISH ONE ADDITIONAL LIST, AND THE ABOVE PROCEDURE WILL BE UTILIZED. IF NO
ARBITRATOR IS DESIGNATED FROM THE SECOND LIST, THE PROCEDURE OF THE AAA RULES
WILL BE UTILIZED TO SELECT THE ARBITRATOR. IN NO EVENT WILL THE ARBITRATOR BE
THEN AFFILIATED IN ANY MANNER WITH A COMPETITOR OF THE COMPANY.

 

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

 

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

 

(D)          
AT LEAST 14 DAYS BEFORE THE ARBITRATION, THE PARTIES MUST EXCHANGE LISTS OF
WITNESSES, INCLUDING ANY EXPERT,

 

13

 

AND COPIES OF ALL EXHIBITS
INTENDED TO BE USED AT THE ARBITRATION.

 

(iii)          
THE ARBITRATOR WILL HAVE NO AUTHORITY TO:  ADOPT NEW COMPANY POLICIES OR
PROCEDURES, MODIFY THIS SECTION 15 OR EXISTING COMPANY POLICIES, PROCEDURES,
WAGES OR BENEFITS, OR IN THE ABSENCE OF A WRITTEN WAIVER PURSUANT TO PARAGRAPH
(ix) BELOW, HEAR OR DECIDE ANY MATTER THAT WAS NOT PROCESSED IN ACCORDANCE
WITH THIS SECTION 15. THE ARBITRATOR SHALL HAVE EXCLUSIVE AUTHORITY TO
RESOLVE ANY CLAIM, INCLUDING, BUT NOT LIMITED TO, A DISPUTE RELATING TO
THE INTERPRETATION, APPLICABILITY, ENFORCEABILITY OR FORMATION OF THIS SECTION 15,
OR ANY CONTENTION THAT ALL OR ANY PART OF THIS SECTION 15 IS VOID OR
VOIDABLE. THE ARBITRATOR WILL HAVE THE AUTHORITY TO AWARD ANY FORM OF
REMEDY OR DAMAGES THAT WOULD BE AVAILABLE IN A COURT.

 

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

 

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

 

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

 

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

 

14

 

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

 

16.           
SEVERABILITY AND REFORMATION. Subject to the reformation provision
in Section 13, if any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future law, and if the rights or
obligations of Employee or the Company under this Agreement would not be
materially and adversely affected thereby, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom, and in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible, and the Company
and Employee hereby request the court or any arbitrator to whom disputes
relating to this Agreement are submitted to reform the otherwise unenforceable
covenant in accordance with this Section 16.

 

17.           
HEADINGS, GENDER, ETC. The headings used in this Agreement have
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (i) words of any gender shall be deemed to
include each other gender; (ii) words using the singular or plural number
shall also include the plural or singular number, respectively; and (iii) the
terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words
shall refer to this entire Agreement.

 

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

 

19.           
SURVIVAL. Employee’s termination from employment, for whatever
reason, shall not reduce or terminate Employee’s or the Company’s covenants and
agreements set forth herein.

 

20.           
NOTICES. Any notice necessary under this Agreement shall be in
writing and shall be considered delivered three days after mailing if sent

 

15

 

certified mail, return
receipt requested, or when received, if sent by telecopy, prepaid courier,
express mail or personal delivery to the following addresses:

 

	
  If to the Company:

  	
   

  	
  Heelys, Inc.

  
	
   

  	
   

  	
  3200 Belmeade Dr.,
  Suite 100

  
	
   

  	
   

  	
  Carrollton, Texas 75006

  
	
   

  	
   

  	
  Telecopy:  (214)
  390-1661

  
	
   

  	
   

  	
  Attention:  Chairman
  of the Board

  
	
   

  	
   

  	
   

  
	
  If to the Employee:

  	
   

  	
  Michael G. Staffaroni

  
	
   

  	
   

  	
  3200 Belmeade Dr.,-
  Suite 100

  
	
   

  	
   

  	
  Carrollton, Texas 75006

  
	
   

  	
   

  	
  Telecopy: 
  214-390-1661

  

 

21.           
ATTORNEYS’ FEES.     The prevailing party in any
legal proceedings brought by or against the other party to enforce any
provision of this Agreement shall be entitled to recover against the
non-prevailing party the reasonable attorneys’ fees, court costs, arbitration
fees and other expenses incurred by the prevailing party. This Section shall
not apply to arbitration, which is governed by Section 15(c)(viii).

 

22.           
ENTIRE AGREEMENT.     This Agreement, including
the Recitals and introductions and all Exhibits referred to, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein and supersedes all prior conflicting or
inconsistent agreements, consents and understandings relating to such subject
matter. Employee acknowledges and agrees that there is no oral or other
agreement between the Company and Employee relating to the employment
relationship which has not been incorporated in this Agreement.

 

23.           
NO WAIVER.     The forebearance or failure of
one of the parties hereto to insist upon strict compliance by the other with
any provisions of this Agreement, whether continuing or not, shall not be
construed as a waiver of any rights or privileges hereunder. No waiver of any
right or privilege of a party arising from any default or failure hereunder of
performance by the other shall affect such party’s rights or privileges in the
event of a further default or failure of performance.

 

24.           
ASSIGNMENT.     This Agreement may not be
assigned by the Company without the Employee’s approval, but no approval shall
be required for the Company to assign this Agreement to any affiliate or
successor in interest to the Company’s business or in connection with a Change
of Control. This Agreement may not be assigned by Employee. Any assignment made
by either party in contravention of this Section shall be null and void
for all purposes.

 

16

 

25.           
BINDING EFFECT.     This Agreement shall be
binding on and inure to the benefit of the parties and their respective
successors and permitted assigns.

 

26.           
MODIFICATION.     This Agreement may be modified
only by a written agreement signed by both parties. Any such written
modification must be authorized by the Board of Directors of the Company.

 

27.           
COUNTERPARTS.     This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
instrument, and all of which together shall constitute one and the same
Agreement.

 

28.           
CODE §409A COMPLIANCE .    It is the intention
of the Company and Employee that this Agreement not result in unfavorable tax
consequences to Employee under Code §409A.  The Company and Employee
acknowledge that only limited guidance has been issued by the Internal Revenue
Service with respect to the application of Code §409A to certain arrangements,
such as this Agreement. It is expected by the Company and Employee that the
Internal Revenue Service will provide further guidance regarding the
interpretation and application of Code §409A in connection with finalizing its
current proposed regulations. The Company and Employee acknowledge further
that the full effect of Code §409A on potential payments pursuant to this
Agreement cannot be determined at the time that the Company and Employee are
entering into this Agreement. The Company and Employee agree to work together
in good faith in an effort to comply with Code §409A including, if necessary,
amending the Agreement based on further guidance issued by the Internal Revenue
Service from time to time, provided that neither party shall be required to
assume an economic burden beyond what is already required by this Agreement.

 

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

 

	
  HEELING SPORTS LIMITED

  	
   

  	
  EMPLOYEE

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  HEELING
  MANAGEMENT CORP. ,

  	
   

  	
  /s/ Michael G. Staffaroni

  
	
   

  	
   

  	
  its sole general partner

  	
   

  	
  Michael G. Staffaroni

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Patrick F. Hamner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Patrick F. Hamner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Chairman of the Board

  	
   

  	
   

  

 

17

 

Exhibit 1

 

Salary and Benefits

 

Reference
Section 4, part a.

 

1.
              
Salary to be $19,833.33 per month - $238,200 per year.

 

2.
              
Bonus Plan:    An Annual Bonus amount as determined by the
Company’s Compensation Committee and for purposes of such Bonus Plan,
Employee’s “Target” amount is 50% of Employee’s then current base salary.

 

Reference
Section 4, part b.

 

1.
              
Employee to receive four weeks paid vacation each calendar year.

 

2.
              
Employee to receive life, medical and dental insurance through the plan adopted
by the Company for its full time employees.

 

3.
              
Employee shall be entitled to participate in a 401(k) plan adopted by the
Company for its full time employees, including any matching arrangements in
effect from time to time.

 

18Exhibit
10.5

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS
EXECUTIVE EMPLOYMENT AGREEMENT (the “ Agreement ”),
is entered into as of July 17, 2008 (the “ Effective Date ”) by and
between DON CARROLL, a resident of the State of Texas (“ Executive ”),
and Heeling Sports Limited, a Texas limited partnership (“ Company ”,
and together with Executive, the “ Parties ” and each a “ Party ”).

 

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

 

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

 

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

 

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

 

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

 

1.                    
Scope of Employment .

 

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

 

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

 

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

 

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

 

1

 

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

 

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

 

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

 

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

 

3.                   
Duties and Responsibilities .

 

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

 

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

 

2

 

any of Parent’s subsidiaries
or affiliates.  If Executive is employed by Company on January 1,
2009, Company shall cause Executive to be elected to the Board.

 

4.                   
Employment Term; Termination .

 

4.1               
Employment Term .  Subject to the terms and conditions of
this Agreement, Executive’s employment under this Agreement commences on the
Effective Date, and will continue through and until December 31, 2009 (the
“ Employment Term ”), subject to prior termination pursuant to the
provisions of Section 4.2 .  The Employment Term will
automatically renew for a period of one (1) year (a “ Renewal Term ”)
beginning on January 1, 2010, and thereafter on each anniversary of such
date, without the need for any action by either Party, unless Executive’s
employment is terminated in accordance with the provisions of Section 4.2
..  For the purposes of this Agreement:  (a) the term “ Employment
Term ” includes any Renewal Term that has occurred or that is in effect, as
applicable according to the provisions of this Agreement; and (b) the last
date of Executive’s employment with Company is referred to herein as the “ Termination
Date .”

 

4.2               
Termination .

 

(a)          
Death . This Agreement will automatically and immediately terminate upon
the death of Executive, and Executive (e.g., Executive’s heirs or estate) will
be entitled to limited Severance Benefits (as defined below).

 

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

 

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

 

3

 

Executive has otherwise
materially violated any provision of this Agreement, including, without
limitation, violation of Company policies regarding drugs and alcohol,
discrimination, harassment, retaliation, honesty, confidentiality, and/or other
employee misconduct, whether now in effect or subsequently promulgated or
revised; (iii) Executive’s conviction for, or entry of a plea of no
contest with respect to, any felony, crime of moral turpitude, or other crime
that adversely affects or (in Company’s reasonable judgment) may adversely
affect Company, the ability of Executive to provide the Services, or any of the
other Company Parties (as defined below); (iv) any act or omission of
Executive involving fraud, theft, dishonesty, disloyalty, or illegality with
respect to, or that harms or embarrasses or (in Company’s reasonable judgment)
may harm or embarrass, Company or any of the other Company Parties; or
(v) any act or omission of Executive constituting the knowing or
intentional violation of applicable law with respect to, or that harms or
embarrasses or (in Company’s reasonable judgment) may harm or embarrass,
Company or any of the other Company Parties; provided, however , that
with respect to clauses (i) and (ii) of this Section, if such breach
or violation is susceptible to cure, Company may not terminate Executive’s
employment for Cause unless Company provides Executive with written notice
specifying such breach or violation, in reasonable detail, and Executive fails
to cure or remedy such breach or violation within fifteen (15) days after
receipt of such notice; provided further , that the Board of Company
shall have the sole discretion to determine whether such a breach or violation
is subject to cure, and if so, whether the Executive successfully effected a
cure following notice.

 

(d)               
Good Reason .  Executive may terminate employment with Good Reason
at any time upon notice to Company.  For the purpose of this Agreement, “ Good
Reason ” means, in the absence of Executive’s consent:  (A) the
material breach by Company of any material compensation or material benefit
obligation to Executive under this Agreement; or (B) a material reduction
in Executive’s Base Salary within one (1) year following a Change of
Control (as defined below); or (C) a material diminution in Executive’s
job duties within one (1) year following a Change of Control, provided,
however , that Good Reason shall only exist if the Company fails to correct
or cure the Good Reason condition within a period of forty-five (45) days,
after being provided with written notice (describing the Good Reason condition
in reasonable detail) by Executive within thirty (30) days of the initial
existence of the alleged Good Reason condition.  Should it be determined
by Company, by a court of competent jurisdiction, or by a duly authorized
arbitrator that Executive has resigned for Good Reason, Executive will
be entitled to the Severance Benefits provided in Section 7.2(a) .

 

(i)                   
Change of Control .  For the purpose of this Agreement, “ Change
of Control ” means the occurrence of any of the following events:
(w) any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange
Act ”)), other than one or more Permitted Holders (as defined below), is or
becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Parent representing
twenty-five percent (25%) or more of the combined voting power of the Parent’s
then outstanding securities; (x) any change or changes are made in the
composition of the Parent’s Board of Directors within a two-year period as a
result of which less than a majority of the directors are (1) persons who
were directors at the beginning of that two-year period or (2) persons who
were elected or nominated for election as directors with the affirmative vote
or consent of at least a majority of the incumbent directors at the time

 

4

 

of that election or
nomination, but not including any person whose election or nomination was or is
in connection with an actual or threatened proxy contest regarding the election
of the Parent’s directors; (y) the Parent is merged or consolidated with
another corporation or other entity (other than one or more Permitted Holders
or any entity controlled by one or more Permitted Holders) and, as a result of
the merger or consolidation, less than seventy-five percent (75%) of the
outstanding voting securities of the surviving or resulting corporation or
other entity, as the case may be, are “beneficially owned” (within the meaning
of Rule 13d-3 under the Exchange Act), directly or indirectly, immediately
after the merger or consolidation by persons who or which beneficially owned
the outstanding voting securities of the Parent immediately before the merger
or consolidation; or (z) the Parent transfers, sells or otherwise disposes
of all or substantially all of its assets to another corporation or other
entity which is not an affiliate of the Parent.  “ Permitted Holders
” means Capital Southwest Venture Corporation and its affiliates and Roger R.
Adams and his affiliates.

 

(e)               
Discretionary .

 

(i)           
By Executive Upon Notice .  Executive may terminate his employment
effective as of the end of the Employment Term, by providing Company with a
written notice of non-renewal at least ninety (90) days prior to the end of the
Employment Term, in which event Executive will not be entitled to any
Severance Benefits.  If such a notice of non-renewal is given, then
employment pursuant to this Agreement will continue until the end of the
Employment Term; provided, however , that upon receipt of such a notice,
Company may instruct Executive in writing to cease work pursuant to this
Agreement, not to report to Company’s offices, and/or not to attend any Company
business functions, ceasing Executive’s compensation and benefits pursuant to
this Agreement as of the effective date of such instructions, and creating an
earlier Termination Date than noticed by Executive, without otherwise affecting
the denial of Severance Benefits; provided further , that Executive will
receive compensation and benefits pursuant to this Agreement for two
(2) weeks following the effective date of such instructions.

 

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

 

(iii)         
By Company Upon Notice .  Company may terminate Executive’s
employment effective as of the end of the Employment Term, by providing
Executive with a written notice of non-renewal at least ninety (90) days prior
to the end of the Employment Term, in which event Executive will not be
entitled to any Severance

 

5

 

Benefits.  If such a
notice of non-renewal is given, then employment pursuant to this Agreement will
continue until the end of the Employment Term, provided, however , that
upon or after delivery of such a notice, Company may instruct Executive to
cease work pursuant to this Agreement, not to report to Company’s offices,
and/or not to attend any Company business functions from the date of the notice
of such non-renewal through the end of the Employment Term, while continuing to
pay compensation and benefits to Executive pursuant to this Agreement, without
otherwise affecting the denial of Severance Benefits.

 

(iv)         
By Company Without Notice .  Company may terminate Executive’s
employment at any time without Cause and without the notice and completion of
the Employment Term as required by Section 4.2(e)(ii) , in
which event Executive will be entitled to the Severance Benefits
provided in Section 7.2(a) .

 

(f)                 
Change of Control .  If Company terminates Executive’s employment
without Cause (with or without notice) within one (1) year following a
Change of Control, Executive will be entitled to the Severance Benefits
provided in Section 7.2(b) .  If Company effectuates such
a termination upon delivery of an advance written notice, Company may instruct
Executive to cease work pursuant to this Agreement, not to report to Company’s
offices, and/or not to attend any Company business functions from the date of
such notice through the through the end of the notice period, while continuing
to pay Executive compensation and benefits pursuant to this Agreement during
the term of the notice period, without otherwise affecting the Executive’s
right to Severance Benefits.

 

5.                    
Salary, Bonus, and Business Expenses .

 

5.1         
Base Salary .  During the Term, Company
will pay Executive a base salary at the rate of THREE HUNDRED THOUSAND DOLLARS
AND NO/100 ($300,000.00) per annum (the “ Base Salary ”), payable in
regular installments in accordance with Company’s general payroll practices and
subject to all applicable deductions and withholdings as allowed by law. 
Executive’s Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year.  Executive’s pay may be changed by
Company from time to time, as Company deems appropriate in its sole discretion
(but may not be decreased without Executive’s consent), by way of an addendum
or other documentation, without otherwise affecting this Agreement (except as
may be set forth in such addendum or other documentation). 
Notwithstanding any change in pay, the employment of Executive will be
construed as continuing under this Agreement, without the necessity of
Executive’s execution of any further instrument.

 

5.2         
2008 Mid-Year Bonus .  If Executive remains
continuously employed pursuant to this Agreement through at least July 1,
2008, then Company will pay Executive a one-time bonus of SIXTY-FIVE THOUSAND
DOLLARS AND NO/100 ($65,000.00) (the “ 2008 Mid-Year Bonus ”).  Payment
of the 2008 Mid-Year Bonus will be made in a single sum cash payment on or
before July 31, 2008.

 

5.3         
2008 Year-End Discretionary Bonus .   If Executive remains
continuously employed pursuant to this Agreement through at least
December 31, 2008, then Executive will

 

6

 

be eligible for a one-time
discretionary bonus, at a level commensurate with the responsibilities of the
President and CEO position (the “ 2008 Year-End Discretionary Bonus ”). 
Executive acknowledges that the payment and amount of the 2008 Year-End
Discretionary Bonus will be discretionary, with sole discretion resting with
the Board or Compensation Committee of Parent.  Payment of the 2008
Year-End Discretionary Bonus, if any, will be made in a single sum cash payment
between January 1 and March 15, 2009.

 

5.4         
Annual Bonus .   During the Employment Term (beginning
with the 2009 calendar year and thereafter), Executive will be eligible for an
annual incentive bonus consisting of up to fifty percent (50%) of annual Base
Salary, as determined by the Board or Compensation Committee of Parent in its
sole discretion (collectively, “ Annual Bonus ”).  The opportunity
to earn an Annual Bonus and the amount of any Annual Bonus will be determined
in accordance with criteria (“ Bonus Criteria ”) established by the
Board or Compensation Committee of Parent.  Executive acknowledges that
application of the Bonus Criteria will be discretionary, with discretion
resting with the Board or Compensation Committee of Parent.  Payment of
the Annual Bonus, if any, will be made in a single sum cash payment between
January 1 and March 15 of the calendar year following the calendar
year in which the Annual Bonus is earned.  The amount and/or basis for
earning the Annual Bonus may be changed by Company from time to time, as
Company deems appropriate in its sole discretion, by way of an addendum or
other documentation, without otherwise affecting this Agreement (except as may
be set forth in such addendum or other documentation).  Notwithstanding
any such change in the Annual Bonus, the employment of Executive will be
construed as continuing under this Agreement, without the necessity of
Executive’s execution of any further instrument.

 

5.5         
Business Expenses .   Subject to Executive’s
compliance with all applicable expense policies and procedures, Company will
reimburse Executive for all reasonable travel, lodging, long distance
telephone, and other business costs and expenses reasonably incurred by
Executive to render Services pursuant to this Agreement.  Notwithstanding
the preceding sentence, or any provision in the applicable expense
reimbursement policy or procedure to the contrary, if an expense reimbursement
would constitute taxable income to Executive:  (a) the amount of
expenses eligible for reimbursement during any calendar year shall not affect
the amount of expenses eligible for reimbursement in any other calendar year;
(b) the reimbursement by Company of an eligible expense shall be made on
or before December 31 of the calendar year following the calendar year in
which the expense is incurred; and (c) the right to reimbursement for
expenses shall not be subject to liquidation or exchange for another benefit.

 

5.6         
Tax Withholding; Offsets .  Company may deduct
from any compensation or other amount payable to Executive under this
Agreement, social security (FICA) taxes and all federal, state, municipal, or
other such taxes or governmental charges as may now be in effect or that may
hereafter be enacted or required.  Executive further authorizes Company to
make deductions from Executive’s compensation, including, without limitation,
Executive’s final paycheck, that are necessary for Company to recover for
property damages or property not returned by Executive, and/or to recover
overpayments, improper expenses, loans, and/or advances paid to Executive.

 

7

 

6.                    
Benefits .

 

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

 

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

 

6.3         
Stock Options, Restricted Stock Award or Stock Appreciation Rights .   On or
before January 31, 2009, Company shall grant to Executive, as determined
in the sole discretion of the Board or the Compensation Committee of Parent,
pursuant to the terms of the Heelys, Inc. 2006 Stock Incentive Plan
(a) an option to purchase 100,000 shares of Parent’s common stock, at a
purchase price per share equal to 100% of the fair market value per share of
common stock on the date of such grant, such options shall vest and become
exercisable in four equal cumulative annual installments of one-fourth (1/4 th ) each on each successive anniversary of the
date of such grant, or (b) 100,000 restricted shares of Parent’s common
stock, and the restrictions relating thereto shall lapse in four equal
cumulative annual installments of one-fourth (1/4 th ) each on
each successive anniversary of the date of such grant, or (c) stock
appreciation rights equivalent to 100,000 shares of Parent’s common stock,
which will vest in four equal cumulative annual installments of one-fourth (1/4
th ) each on each successive anniversary of the
date of such grant.

 

7.                    
Rights On Termination .

 

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

 

8

 

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

 

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

 

(c)          
all unpaid reimbursable expenses due to Executive under this Agreement as of
the Termination Date, subject to Executive’s compliance with Company’s expense
reimbursement policies, paid in accordance with the terms of Company’s
policies, practices, and procedures regarding reimbursable expenses, and
subject to the provisions in Section 5.5 as applicable to
reimbursements of expenses that constitute taxable income to Executive;

 

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

 

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

 

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

 

(a)          
If Executive’s employment under this Agreement is terminated by Executive for
Good Reason pursuant to Section 4.2(d) , or by Company without
Cause pursuant to Section 4.2(e)(iv) , then Company will not
pay any amounts pursuant to Sections 7.2(b) or 7.2(c) , but will
pay Executive (or as applicable, Executive’s heirs or estate) the following
severance benefits:

 

9

 

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

 

(ii)          
Executive’s Base Salary for a period of one (1) year, plus an additional
period equivalent to four (4) weeks for every year of Executive’s
employment with the Company in excess of five (5) years, including any
years of such employment prior to the Effective Date, prorated for partial
years of such employment (collectively referred to as the “ Severance Period
”), as severance pay, capped at a total combined maximum of seventy-eight (78)
weeks of Base Salary severance, based upon Executive’s Base Salary as of the
Termination Date, and paid in equal installments in accordance with the normal
payroll policies of Company, less applicable taxes, commencing on the first
regular payroll date of Company following the Release Date (as defined below); provided,
however  , that in the event
Executive enters into business or accepts employment with another employer
following the Termination Date, the severance payments pursuant to this
Section shall be reduced to the difference (if any) between Executive’s
Base Salary as of the Termination Date and Executive’s base compensation with
such new business or employer, paid in equal installments during the remainder
of the Severance Period; and

 

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

 

(b)                
If Executive’s employment under this Agreement is terminated by Company without
Cause following a Change of Control pursuant to Section 4.2(f) ,
then Company will not pay any amounts pursuant to Sections
7.2(a) or 7.2(c) , but will pay Executive (or as
applicable, Executive’s heirs or estate) the following severance benefits:

 

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

 

(ii)          
Executive’s Base Salary for a period of one (1) year plus a period
equivalent to one (1) month for every year of Executive’s service to
Company in excess of five (5) years as an employee and/or Director,
including any years of such service prior to the Effective Date, prorated for
partial years of such service, as severance

 

10

 

pay, based upon Executive’s
Base Salary as of the Termination Date, and paid in equal installments in
accordance with the normal payroll policies of Company, less applicable taxes,
commencing on the first regular payroll date of Company following the Release
Date; and

 

(iii)
              
if Executive elects COBRA Continuation Coverage (with respect to Executive’s
coverage and/or any eligible dependent coverage) with respect to Company’s
group health insurance plan, Executive will be responsible for payment of the
monthly cost of such COBRA Continuation Coverage; provided, however ,
that commencing on the first regular payroll date of Company following the
Release Date, to the extent allowed by applicable law, Company will reimburse
Executive for the monthly premium cost for all COBRA Continuation Coverage
(including the premium cost for the period between the Termination Date and the
Release Date) for the maximum period required under COBRA for COBRA
Continuation Coverage, within five (5) days of each payment of such cost
by the Executive.

 

(c)
                   
If Executive’s employment under this Agreement is terminated by reason of
Executive’s death pursuant to Section 4.2(a) , then Company will not
pay any amounts pursuant to Sections 7.2(a) or 7.2(b) , but will
pay Executive (e.g., Executive’s heirs or estate) the following severance
benefits:

 

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

 

(ii)
              
Executive’s Base Salary for a period equivalent to nine (9) weeks, paid in
installments in accordance with the normal payroll policies of Company, less
applicable taxes, commencing on the first regular payroll date of Company
following the Release Date (as defined below).

 

7.3         
General Release Requirement .   As a condition
precedent to Executive’s entitlement to any Severance Benefits, Executive (or
as applicable, Executive’s heirs or estate) must execute and effectuate a
general release agreement (“ General Release Agreement ”) satisfactory
to Company, within forty-five (45) days of the Termination Date, that may
include without limitation, terms (as applicable) of (a) Executive’s (or
as applicable, Executive’s heirs’ or estate’s) general release of Company (with
a broad definition of claims released); (b) understanding of General
Release Agreement; (c) no Company admission of liability;
(d) Executive revocation rights; (e) confidentiality of General
Release Agreement; (f) severance payments and benefits contingent on
Executive compliance with Sections 8 and 9 of this Agreement;
(g) return of Company property; and (h) liquidated damages in the
amount of ninety percent (90%) of Severance Benefits actually paid, in the
event of Executive’s breach of the terms of Sections 8 and/or 9 of this
Agreement.  For purposes of this Agreement, the “ Release Date ”
shall be defined as the date that is sixty (60) days from the Termination Date.

 

7.4         
Section 409A: Separation From Service; Delay of Payments .  
Notwithstanding any provision to the contrary in this Agreement, no payment or
benefit shall be paid pursuant to Section 7 (including subparts)
that would be considered “deferred compensation” under Section 409A of the
Internal Revenue Code of 1986, as amended (the

 

11

 

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

 

7.5         
Limitation on Payments .   If any Severance
Benefits or any other of the Total Severance Benefits (as defined in this
Section) constitute “parachute payments” within the meaning of
Section 280G of the Code and would be subject to the excise tax imposed by
Section 4999 of the Code (the “ Excise Tax ”), then Executive’s
payments and benefits under Section 7.2 of this Agreement shall be
either (i) paid in full, or (ii) paid as to such lesser extent which
would result in no portion of such payments or benefits being subject to the
Excise Tax, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income and payroll taxes and the Excise
Tax, results in the receipt by Executive on an after-tax basis, of the greatest
amount of Total Severance Benefits, notwithstanding that all or some portion of
such benefits may be subject to the Excise Tax under Section 4999 of the
Code, and further notwithstanding the fact that the Severance Benefits may be
reduced to zero after the application of this Section.  For purposes of
this Agreement, “ Total Severance Benefits ” means the severance
payments and benefits under Section 7.2 of this Agreement and all
other payments and benefits received or to be received by Executive under this
Agreement and all payments and benefits (if any) to which Executive may be
entitled under any plan, agreement or otherwise upon or as the result of a
Change of Control or the termination of his employment with Company, or
both.  This Section is not intended to prevent and shall not result
in the prevention of the acceleration and full vesting of any outstanding stock
option, restricted stock or stock appreciation right held by Executive if any
such acceleration is provided for under the terms of

 

12

 

the award or grant agreement
related to such stock option, restricted stock or stock appreciation
right.  Any determination required under this Section shall be made
in writing by Company’s independent public accountants (the “ Accountants
”), whose determination shall be conclusive and binding upon Executive and
Company for all purposes.  For purposes of making the calculations
required by this Section, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code.  Company and Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section.  Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.

 

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

 

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

 

8.1                  
Confidential Information .

 

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

 

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

 

13

 

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

 

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

 

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

 

14

 

(f)
                    
Return and Review.

 

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

 

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

 

(iii)
          Response to Third
Party Requests .  Upon receipt of any formal or informal request, by
legal process or otherwise, seeking Executive’s direct or indirect disclosure
or production of any Confidential Information to any Person, Executive will
promptly and timely notify Company and provide a description and, if
applicable, deliver a copy of such request to Company.  Executive
irrevocably nominates and appoints Company as Executive’s true and lawful
attorney-in-fact, to act in Executive’s name, place, and stead to perform any
act that Executive might perform to defend and protect against any disclosure
or production of Confidential Information.

 

8.2                   
Work Product/Intellectual Property .

 

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

 

(b)
           Assignment.   Subject to the terms of Section 8.2(d)
, Executive hereby assigns to Company all right, title, and interest to all
Work Product that (i) relates to any of the Company Parties’ actual or
anticipated Business, research and development, or existing or future products
or services, or (ii) is conceived, reduced to practice, developed, or made
using

 

15

 

any equipment, supplies,
facilities, assets, information, or resources of any of the Company Parties
(including, without limitation, any intellectual property rights).

 

(c)
           Disclosure.  Subject to the terms of Section 8.2(d)
, Executive will promptly disclose all Work Product to Company and perform all
actions reasonably requested by Company (whether during or after the Employment
Term) to establish and confirm the ownership and proprietary interest of any of
the Company Parties, as applicable, in any Work Product (including, without
limitation, the execution of assignments, consents, powers of attorney,
applications, and other instruments).  Executive will not file any patent
or copyright applications related to any Work Product except with the written
consent of Company.

 

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

 

	
  DATE

  	
   

  	
  DESCRIPTION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

(b)
           The term “ Capacity
” means and includes, without limitation, owning, taking a financial interest
in, managing, operating, controlling, being employed by, being associated or
affiliated with, providing services as a consultant or independent contractor
to, or participating in the ownership, management, operation, or control
of;  provided, however , that this definition does not preclude
ownership of less than 5% of the outstanding equity securities of any publicly
reporting company.

 

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

 

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

 

(e)
           The term “ Geographic
Area ” means the geographic area encompassed by Executive’s job duties and
actual job activities for the Company Parties during the Reference
Period.  The term Geographic Area includes, without limitation,
(i) the counties encompassing the Assigned Offices, and (ii) the area
described in Exhibit 1 to this
Agreement.

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

9.              
Statements .

 

9.1           
Media Nondisclosure .   The Executive agrees that during
and after the Employment Term, except as may be authorized in writing by
Company, the Executive will not directly or indirectly disclose or release to
the Media (as defined below) any information concerning or relating to any
aspect of the Executive’s employment or termination from employment with
Company, any non-public information  related to the business of Company or
the other Company Parties, and/or any aspect of any dispute that is the subject
of this Agreement.

 

18

 

For the purposes of this
Agreement, the term “ Media ” includes, without limitation, any news
organization, station, publication, show, website, web log (blog), bulletin
board, chat room and/or program (past, present and/or future), whether
published through the means of print, radio, television and/or the Internet or
otherwise, and any member, representative, agent and/or employee of the same.

 

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

 

10.            
Miscellaneous .

 

10.1          Binding
Effect .  This Agreement will be binding upon and will
inure to the benefit of the Parties and their respective successors,
representatives, heirs, and permitted assigns, except that Executive’s rights,
benefits, duties, and responsibilities hereunder are of a personal nature and
shall not be assignable in whole or in part by Executive.  Executive
specifically acknowledges that Company shall have the right to assign this
Agreement to Company’s successors or assigns, and hereby consents to such
assignment with the need for further execution of any instrument.

 

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

 

(a)
           In addition to
other remedies available at law, injunctive relief may be sought in
arbitration.  However, as a narrow exception to binding arbitration under
this Agreement, the Executive and Company shall each have the right to initiate
an action in a court of competent jurisdiction in the Agreed Venue (as defined
below) to request injunctive or other

 

19

 

equitable relief regarding
the terms of this Agreement.  Evidence adduced in such a proceeding may be
used in arbitration as well.  The following claims are excluded
from binding arbitration under this Agreement:  claims for workers’
compensation benefits or unemployment benefits; claims for replevin; claims
arising under the National Labor Relations Act, 29 U.S.C. §§ 151-169, including
but not limited to 29 U.S.C. § 157; and claims for which a binding arbitration
agreement is invalid as a matter of law.

 

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

 

(c)
           The fees charged
by the arbitration administrator and/or the individual arbitrator shall be
borne by Company, except for any initial registration fee, which the Executive
and Company shall bear equally.  Otherwise, subject to the terms of this
Section and Section 10.13(c)  the Executive and Company
shall each bear their own costs, expenses, and attorneys’ fees incurred in
arbitration.  Executive may but is not required to have the representation
of counsel in arbitration.  Within the arbitrator’s discretion, the Party
that prevails in arbitration may recover its arbitration expenses, its portion
of the fees and costs charged by the arbitration administrator, and the fees of
the arbitrator, as applicable, no matter which Party made the initial
complaint.

 

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

 

10.3          Settlement
of Existing Rights .   In exchange for the other terms of
this Agreement, Executive acknowledges and agrees that: (a) Executive’s
entry into this Agreement

 

20

 

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

 

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

 

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

 

21

 

10.6           Notices
..

 

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

 

If
to Company:

 

Heeling
Sports Limited

c/o Chief Executive Officer

3200 Belmeade Drive,
Suite 100

Carrollton, TX 75006

 

with a copy to:

 

Heelys, Inc.

c/o Chief Executive Officer

3200 Belmeade Drive

Suite 100

Carrollton TX  75006

 

If to Executive:

 

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

 

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

 

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

 

22

 

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

 

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

 

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

 

10.12        Applicable Law .

 

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

 

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

 

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

 

23

 

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

 

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

 

[Intentionally
Blank;  Continue to Signature Page]

 

24

 

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

 

IN WITNESS
WHEREOF , the Parties have executed this Agreement to be effective as of the
date first above written.

 

	
   

  	
  “Company”

  
	
   

  	
   

  	
   

  
	
   

  	
  Heeling
  Sports Limited, a Texas limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Heeling
  Management Corp.,

  
	
   

  	
   

  	
  its Sole
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary L. Martin

  
	
   

  	
   

  	
  Name:

  	
  Gary L. Martin

  
	
   

  	
   

  	
  Title:

  	
  Chairman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “Executive”

  
	
   

  	
   

  	
   

  
	
   

  	
  Donald K.
  Carroll

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald K. Carroll

  
					

 

25

 

Exhibit 1

 

Geographic Area

 

Worldwide.

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