Document:

Exhibit 10.10

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT, INCLUDING AGREEMENT TO

ARBITRATE, NONCOMPETITION AGREEMENT AND

NONDISCLOSURE AGREEMENT

 

This Agreement
is made and entered into on September   , 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

 

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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.

 

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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;

 

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(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.

 

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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,

 

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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

 

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“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

 

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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,

 

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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

 

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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

 

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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

 

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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

 

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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/ Michael
  W. Hessong

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Michael W.
  Hessong

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Chief
  Financial Officer

  	
   

  	
   

  	
   

  

 

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 10.12

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT, INCLUDING AGREEMENT TO

ARBITRATE, NONCOMPETITION AGREEMENT AND

NONDISCLOSURE AGREEMENT

 

This Agreement is made and entered into on September     ,
2006 (effective as of May 19, 2006), by and between Charles D. Beery
(“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
Senior Vice President – Global Sales of the Company
pursuant to an Employment Agreement dated as of November 23, 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
Senior Vice President – Global Sales 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. But
if Employee is terminated for Cause under Section 5(a)(xi), Company shall also
pay Employee any commissions payable on bona fide purchase orders received by
Company prior to the date of termination, and such commissions will be paid
when otherwise payable had Employee continued as an employee of the Company.

 

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, a pro-rated bonus under the Company’s Bonus
Plan through the date of death or disability and any commissions payable on
bona fide purchase orders received by Company prior to 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 and the commissions will be paid when otherwise payable had he continued
as an employee of the Company) and (ii) an amount equal to one times the
Employee’s annual base salary which amount shall be payable in cash in 12 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 

 

4

 

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.

 

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, a pro-rated bonus under the
Company’s Bonus Plan through the date of termination Without Cause and any
commissions payable on bona fide purchase orders received by Company prior to
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 and the commissions will
be paid when otherwise payable had he continued as an employee of the Company)
and (ii) one 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 12 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 

 

5

 

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,
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 

 

6

 

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 “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).

 

7

 

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 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.

 

8

 

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, 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 

 

9

 

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 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 

 

10

 

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 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 

 

11

 

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 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 

 

12

 

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 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 

 

13

 

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, 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.

 

14

 

(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.

 

(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 

 

15

 

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 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:

  	
   

  	
  Charles D. Beery

  
	
   

  	
   

  	
   

  	
  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.

 

16

 

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.

 

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.,

  	
   

  
	
   

  	
  its sole general partner

  	
  Charles D. Beery

  

 

17

 

	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
					

 

18

 

Exhibit 1

 

Salary and Benefits

 

Reference Section 4, part a.

 

1.               Salary to be $11,603 per month - $139,236 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
20% of Employee’s then current base salary.

 

3.               Commission Override:  Employee will be entitled to receive a
commission override of up to .5% of all of the Company’s net sales, all as
determined by the Company’s Compensation Committee on an annual basis. The
percentage amount of the commission override and the net sales included and
excluded from the commission override shall be determined by the Company’s
Compensation Committee on an annual basis.

 

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.

 

19

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