Document:

Exhibit
10.7

REAL
PROPERTY SALES CONTRACT

SEMORAN FINANCIAL
CORPORATION, a Florida corporation (“Buyer”), whose principal address is 1211
State Road 436, Suite 127, Casselberry, Florida 32727 (“Buyer’s Address”)
hereby agrees to buy and WENDY’S OF N.E. FLORIDA, INC., a Florida corporation (“Seller”),
whose principal address is P.O. Box 256, 4288 West Dublin-Granville Road,
Dublin, Ohio 43017 (“Seller’s Address”) hereby agrees to sell for the
consideration and upon the terms hereinafter set forth, the real property (the “Real
Property”) located in the State of Florida, County of Seminole, and City of
Casselberry, as depicted on Exhibit A attached hereto and make a part
hereof, which Real Property forms a part of the Wendy’s Old Fashioned
Hamburgers Restaurant commonly known as 386 Highway 435 East, Casselberry,
Florida and legally described on Exhibit B attached hereto and made a
part hereof (the “Wendy’s Parcel”).

Together with all
easements, rights and appurtenances relating to the above-described Real Property,
all buildings, improvements and fixtures located thereon, and all Seller’s
right, title, and interest in and to any streets, roadways, alleys, and/or
sidewalks, both public and private, adjacent to the Real Property (hereinafter,
with the Real Property, collectively called the “Premises”).

ARTICLE 1
– PURCHASE PRICE

1.01.        The purchase price for the Premises
shall be Two Hundred Thousand and no/100 Dollars ($200,000.00) (the “Purchase
Price”), payable in immediately available funds in the form of cash, cashier’s
check or certified check on the day of closing (the “Closing Date”).

ARTICLE 2
- CLOSING

2.01.        Unless otherwise extended by the
provisions of this Real Property Sales Contract (the “Contract”), the closing
of this transaction (the “Closing”) shall be held at the local office of the
title insurance company (the “Title Insurance Company”) issuing the title
insurance commitment specified in Article 7.01(a) not later than ten (10) days
following the satisfaction or waiver of the contingencies specified in Article
7 below.

2.02.        The “Effective Date” of this Contract
shall be the date of full execution hereof. 
The date of full execution hereof shall be deemed to be the last date on
which this Contract has been signed by a party hereto and all changes to the
printed form of this Contract shall have been initiated by the parties;
provided, that the fully executed Contract is received by the other party
hereto within three (3) days of the Effective Date.  If the fully executed Contract is not
received by the other party within said three (3) day period, then the
Effective Date of the Contract shall be deemed to be the date the fully
executed Contract is received by the other party.

ARTICLE 3 – POSSESSION

3.01.        Possession of the Premises shall be
given to Buyer at the Closing in an as-is condition.

3.02.        Seller hereby represents and warrants
that on the Closing Date the Real Property shall be unoccupied and free of any
lease or other right of possession or claim of right of possession by any
person or entity other than Buyer.

ARTICLE 4
– DEED AND OTHER DOCUMENTS

4.01.        Seller shall convey the Premises to
Buyer by recordable limited or special warranty deed (the “Deed”), conveying
good and indefeasible title of record to the Real Property, in fee simple,
warranting title only against claims of those persons claiming by, through or
under Seller, but not otherwise, and subject to the lien of real estate taxes
not yet due and payable, matters of survey, and such restrictions,
reservations, rights-of-way, easements and other matters of record approved in
writing by Buyer or deemed approved as provided in Article 7.01(a) (the “Permitted
Exceptions”).

4.02.        Notwithstanding local practice or custom
to the contrary, all local, municipal, county, state and federal transfer and
conveyance taxes and fees, recording costs and all closing/escrow fees shall be
paid by Buyer at the Closing.

4.03.        The Deed shall contain the following
disclaimer of any further warranties:

Grantor does not warrant either expressly or
impliedly, the condition or fitness of the Premises conveyed, any such warranty
being hereby expressly negated.  Grantee,
acknowledges that it has made a complete inspection of the Premises and is in
all respects satisfied with the Premises and accepts the same “as is”.

4.04.        The Real Property shall be subject to
and the Deed shall contain the restriction that the Real Property shall not be
used for a restaurant use, the primary business of which is the sale of
hamburgers, hamburger products, hot dogs, roast beef, or chicken sandwiches (or
any combination thereof).  For the
purpose of this restriction, as restaurant has the aforesaid products as its
primary business if fifteen percent (15%) or more of its gross sales, exclusive
of taxes, beverage and dairy product sales, consists of sales of hamburgers,
hamburger products, hot dogs, roast beef, or chicken sandwiches (or any
combination thereof).  This restriction
shall burden and run with the Real Property for a period of twenty (20) years
from the date of the Closing, and shall burden the Real Property and the
owners, successors, and assigns thereof.

ARTICLE 5 – TAXES AND ASSESSMENTS

5.01.        Seller shall pay or credit against the
Purchase Price all real estate taxes and assessments, including penalties and
interest, for all tax years preceding the Closing Date, and shall credit a
portion of such taxes and assessments for the tax year in which the Closing is
held, prorated through the Closing Date. 
The proration of such taxes and assessments shall be based on a 365-day
year and on the most recently available rate and valuation and the amount so
computed and adjusted shall be final.

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ARTICLE 6
– RISK OF LOSS

6.01.        The risk of loss, damage or destruction
to the Premises and any improvements thereon through condemnation, fire or otherwise
shall be borne by Seller until the Closing.

ARTICLE 7
– CONTINGENCIES TO CLOSING

7.01.        Buyer’s obligation to close this
transaction is subject to the satisfaction or waiver by Buyer of the following
contingencies:

(a)           Title
Insurance.  Buyer, at Buyer’s option
and expense, obtaining a title insurance commitment (the “Title Commitment”)
for an ALTA standard coverage owner’s title insurance policy (the “Title Policy”).  If the Title Commitment shows any exceptions
to title which are not acceptable to Buyer (“Title Defect”), Buyer shall notify
Seller, in writing, of the Title Defect within the “Inspection Period” (as
defined below).  All matters on the Title
Commitment which are not Title Defects shall automatically be deemed Permitted
Exceptions.  In the event Buyer notifies
Seller of a Title Defect, Seller shall have the privilege, but not the
obligation, to remove and/or satisfy any Title Defect, and shall for this
purpose have a reasonable time not to exceed thirty (30) days following receipt
of Buyer’s written notice of the Title Defect, Seller shall not be required to
bring any action or proceeding or otherwise incur any expense to render the
title to the Real Property acceptable to Buyer. 
Buyer agrees that any Title Defect shall be deemed cured if Seller shall
cause the Title Defect to be deleted from the Title Commitment and the Title
Policy to be delivered to Buyer or shall obtain affirmative title insurance
protection with respect thereto.

(b)           Survey
and Soils Tests.  Buyer, at Buyer’s
option and expense, (i) obtaining and approving a current survey and (ii)
conducting and approving borings, percolations tests, toxic or hazardous
substance tests and other tests (collectively the “Soils Tests”), which survey
and Soils Tests, in Buyer’s reasonable judgment, do not disclose any conditions
rendering the Premises unstable for the intended purpose of Buyer.  Seller grants to Buyer and persons designated
by Buyer the right and permission to enter upon the Premises to survey the
Premises and make Soils Tests, provided that said Soils Tests and survey shall
be conducted so as not to damage the Premises. 
Buyer agrees to indemnify and hold Seller harmless from and against any
cost, damage, or expense Seller may suffer or incur including court costs or
attorney fees arising out of or in connection with such surveying and Soils
Tests.  If said survey or Soils Tests are
unsatisfactory (“Site Defect”), Buyer shall notify Seller, in writing, of the
Site Defect within the Inspection Period. 
Seller shall have the privilege, but not the obligation, of correcting
any Site Defect within a reasonable time not to exceed thirty (30) days
following receipt of written notice from Buyer of such Site Defect.  Seller shall not be required to bring any
action or proceeding or otherwise incur any expense to correct such Site
Defect.

(c)           Environmental
Assessment.  Buyer, at Buyer’s option
and expense, obtaining and approving an environmental assessment of the
Premises, which environmental assessment, in Buyer’s reasonable judgment, does
not disclose any conditions either rendering the Premises unusable for the
intended purpose of Buyer or showing the same to contain asbestos or other
hazardous substances in amounts or levels that are in violation of, or under
threat of violation of, any applicable laws, orders, rules and regulations
related to protection of the environment. 
Seller 

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grants
to Buyer and persons designated by Buyer the right and permission to enter upon
the Premises to conduct such assessment, provided that such assessment shall be
so conducted as not to damage the Premises. 
Buyer agrees to indemnify and hold Seller harmless from and against any
cost, damage, or expense Seller may suffer or incur, including court costs or
attorneys fees, arising out of or in connection with the conduct of such
assessment.  Buyer shall not disclose the
results of such assessment to anyone other than Seller or Buyer’s lender, if
any, and Buyer and Buyer’s lender, if any, shall keep such results
confidential, except to the extent Buyer is obligated to disclose the same by
applicable law, order, rule or regulation, or the same becomes an issue in any
legal proceeding between Seller and Buyer. 
If buyer purchases the Real Property, Buyer shall be entitled to freely
disclose the results of its assessments. 
If such assessment is unsatisfactory (“Environmental Defect”), Buyer
shall notify Seller, in writing, of the Environmental Defect within the
Inspection Period, Seller shall have the privilege, but not the obligation, of
correcting any Environmental Defect within a reasonable time not to exceed
thirty (30) days following receipt of written notification from Buyer of such
Environmental Defect.

(d)           Architectural
and Economic Feasibility.  Buyer, at
Buyer’s expense, determining within the Inspection Period that the development
of the Premises for Buyer’s intended purpose is architecturally and
economically feasible.

(e)           Subdivision.  Buyer, at Buyer’s expense, obtaining any
subdivision which may be required by the appropriate governmental authorities
as a condition to the transfer of title to the Real Property, which Subdivision
will designate separate parcels for the Real Property and the Wendy’s
parcel.  The proposed plan of Subdivision
and the legal descriptions of each parcel must be approved by Wendy’s and
accepted by the appropriate governmental authorities as a condition to the
transfer of title to the Real Property as a separate parcel.  Buyer covenants and agrees to use its best
efforts and all due diligence to obtain the subdivision within the Inspection
Period.

(f)            Site
Plan.  Buyer obtaining Seller’s
approval of Buyer’s sign location and site plan (collectively, the “Site Plan”)
for development of the Premises.  Buyer
shall submit the Site Plan to Seller for approval within thirty (30) days after
the Effective Date.  If Seller fails to
provide Buyer with written approval of the Site Plan within fifteen (15) days
after Seller’s receipt of the Site Plan, the Site Plan shall automatically be
deemed rejected by Seller.  If Seller
fails to approve the Site Plan, and Seller and Buyer cannot resolve Seller’s
objections to their mutual satisfaction within thirty (30) days following the
submission of the Site Plan to Seller, then this Contract shall automatically
terminate, the Deposit shall be refunded to Buyer and both parties shall be
relieved from any obligations and/or liabilities under this Contract, unless
Seller and Buyer shall mutually agree to extend the time for obtaining approval
of the Site Plan by Seller, or Seller, by written notice to Buyer, waives
Seller’s right to require approval of the Site Plan.

7.02.        Buyer shall have ninety (90) days
following the Effective Date of this Contract in which to satisfy itself as to
the contingencies referred to in paragraphs 7.01(a), (b), (c), (d), (e), and
(f) (said 90-day period shall hereinafter be referred to as the “Inspection
Period”).  In the event any of the
aforesaid contingencies have not been satisfied within the Inspection Period
and Seller is unable to cure a Title Defect, Site Defect or Environmental
Defect as heretofore provided, this 

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Contract
shall automatically terminate, the Deposit shall be refunded to buyer and both
parties shall be relieved from any obligations and/or liabilities under this
contract unless Buyer shall accept such conditions as Seller may be able to
deliver, without reduction of the Purchase Price or any credit against the
Purchase Price and without liability on the part of the Seller.  In the event Buyer fails to give Seller
notice of its failure to satisfy any of the foregoing contingencies, then Buyer
shall be conclusively deemed to have waived its rights under this Article 7 and
the contingencies shall be deemed satisfied.

7.03.        In the event the foregoing contingencies
are satisfied or waived as provided above, both parties shall proceed to the
Closing.

ARTICLE 8
– BROKER

8.01.        Buyer and Seller represent that they
have not dealt with any brokers who claim a commission hereunder except L. S.
Simmons, whose commission shall be paid by Seller upon the Closing of this
transaction.  Buyer and Seller represent
and warrant to one another that no other real estate brokers or agents have
been used or consulted in connection with the purchase and sale of the Real
Property and each covenants and agrees to indemnify and save the other harmless
from any actions, damages, fees, real estate commissions, costs, and/or
expenses (including reasonable attorneys’ fees) resulting from or claimed to be
due on account of the purchase and sale of the Real Property due to the acts of
the indemnifying party.

ARTICLE 9
– NOTICES

9.01.        All notices, demands and requests by
either party to the other shall be in writing signed by the party serving the
same and shall be deemed affective upon (a) actual delivery, if delivered by personal
delivery, or (b) five (5) business days after deposit in the United States
Registered or certified mail, postage prepaid, return receipt requested, or (c)
one (1) day after deposit with an overnight courier service for next day
delivery, with postage prepaid, or (d) actual delivery if transmitted by
facsimile during normal business hours (8:00 a.m. – 5:00 p.m.) for the
recipient; provided, however, that the same notice is also deposited on the
same day with an overnight courier for next day delivery, with postage
prepaid.  If the notice is intended for
Seller, it shall be delivered to P.O. Box 256 (U. S. Mail only), 4288 West
Dublin-Granville Road, Dublin, Ohio 43017 Attention: Legal Department, Seller’s
facsimile number is (614) 764-3243.  If
the notice is intended for Buyer, it shall be sent to Buyer’s Address as
provided above.  Buyer’s facsimile number
is (407) 830-6538.  Either party may
change its notice address hereunder by written notice to the other party.

ARTICLE
10 - DEPOSIT

10.01.      Buyer will deposit with the Title
Insurance Company, within three (3) days after the Effective Date, the sum of
Five Thousand and no/100 Dollars ($5,000.00) by cash, cashier’s check or
certified check (the “Deposit”) which Buyer and Seller agree shall be held in trust.  At the Closing, the amount of the Deposit
shall be credited against the Purchase Price or returned to Buyer.

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ARTICLE
11 - DEFAULT

11.01.      If Seller defaults and fails to cure any
default within fifteen (15) days after receipt of written notice from Buyer,
then, upon demand of Buyer, the Deposit shall be refunded and this Contract
shall automatically terminate and both parties shall be relieved from any
obligations and/or liabilities under this Contract or Buyer may sue for
specific performance.  If Buyer defaults
and fails to cure any default within fifteen (15) days after receipt of written
notice from Seller, then the Deposit shall be paid to Seller as liquidated
damages, this Contract shall automatically terminate, and both parties shall be
relieved from any obligations and/or liabilities under this Contract.

ARTICLE
12 – Intentionally Omitted

ARTICLE
13 – GENERAL PROVISIONS

13.01.      This Contract (including the exhibits
hereto, all of which are specifically incorporated herein) constitutes the
entire agreement between the parties and there are no representations, oral or
written, relating to the Premises or to this transaction which have not been
incorporated herein.  Any agreement
hereafter made shall be ineffective to change, modify or discharge this
Contract in whole or in part unless such agreement is in writing and signed by
a duly authorized officer or duly authorized person on behalf of the party
against whom enforcement of any change, modification or discharge is sought.

13.02.      The headings of the Articles in the
Contract have been inserted for convenience only and shall in no way modify or
restrict any provisions hereof or be used to construe any such provisions.

13.03.      If two or more persons constitute the
Buyer, the word “Buyer” shall be construed as if it reads “Buyers” throughout
the Contract.

13.04.      In the event of the bringing of any action
or suit by either party against the other or arising out of this Contract, the
party in whose favor final judgment shall have been entered shall be entitled
to recover from the other party all costs and expenses of suit including
reasonable attorney’s fees.

13.05.      This Contract and the rights granted in
this Contract are personal unto Buyer and may not be assigned, transferred or
conveyed by Buyer in whole or in part without the prior written consent of
Seller.

13.06.      Time is of the essence with respect to the
performance of any obligation or the delivery of any Notice required in this
Contract.

13.07.      This Contract may be executed in multiple
counterparts, each of which shall be considered to be an original document.

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13.08.      This Contract shall inure to the benefit
of and bind the parties hereto, their respective heirs, executors,
administrators, personal and/or legal representatives, successors and assigns.

13.09.      The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision, and to this end the provisions of this Contract are declared
to be severable.  It is the intention of
the parties that, if any provision of this Contract is susceptible of two or
more constructions, one which would render the provision enforceable and the
other or others of which would render the provision unenforceable, then the
provision shall have the meaning that renders it enforceable.

13.10.      Unless otherwise expressly provided in
this Contract, a party shall not be liable to the other party for delays or
failures in performance of any of its obligations under this Contract because
of acts of God; acts of a public enemy; acts of war, whether declared or
undeclared; instructions; riots; fires; explosions; accidents; epidemics;
quarantine restrictions; acts of government; failures of transportation;
freight embargoes; strikes or other labor disputes causing work to be stopped,
slowed or interrupted; or any other force majeure, provided that such delays or
failures were beyond that party’s reasonable control and were not caused by its
fault or negligence.  If a delay or
failure of performance occurs that is excusable under this provision, the
period for performance shall be extended for a time equal to the time lost
because of the force majeure.

13.11.      Buyer and Seller agree to execute such
instruments and documents and to undertake such actions as may be reasonably
required in order to consummate the purchase and sale herein contemplated and
shall use their commercially reasonable efforts to accomplish the purchase and
sale in accordance with the provisions hereof.

13.12.      If any date hereunder fails on a Saturday,
Sunday or legal holiday, such date shall automatically be extended until the
next following business day.  For purpose
of this Contract, Saturday is not a “business day.”

13.13.      The waiver or failure to enforce any
provision of this Contract shall not operate as a waiver of any future breach
of any such provision or any other provision hereof.

13.14.      Except as otherwise provided herein, each
of the parties shall pay its own fees and expenses in connection with this
Contract.

13.15.      The provisions of this Contract are for
the benefit of Buyer or Seller, and no other parties shall have any right or
claim against Buyer or Seller by reason of this Contract or be entitled to
benefit therefrom or to enforce any of the provisions thereof.

ARTICLE
14 – CONSTRUCTION OF CONTRACT

14.01.      Seller and Buyer hereby acknowledge that
they have each read, understood and had the opportunity to be advised by legal
counsel as to all of the provisions of this Contract.  Should any provision of this Contract require
judicial interpretation, it is agreed that any court interpreting this Contract
shall not apply a presumption that the terms hereof should be construed 

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more
strictly against one party than the other by reason of the rule that a document
is to be more strictly construed against the party who prepared the document or
the initial draft of the document.  Both
parties acknowledge that this Contract is the product of extensive negotiations
between the parties and that both parties have contributed substantially to the
final preparation of the terms and provisions of this Contract.  Typewritten or handwritten provisions
inserted in this Contract and initialed by both parties, and any amendment or
addenda initialed or signed by both parties, shall control in the event of any
conflict or inconsistency with any other provisions of this Contract, and
handwritten provisions initialed by both parties shall control over typewritten
provisions.

ARTICLE
15 – AUTHORITY

15.01.      By execution of this Contract, the
undersigned, signing on behalf of Buyer, hereby represents and warrants that
(i) this Contract has been duly authorized and executed on behalf of Buyer, and
constitutes a valid and binding agreement of Buyer; (ii) Buyer has obtained all
consents, releases and permissions and given all required notifications related
to the transactions herein contemplated and required under any covenant,
agreement or encumbrance to which Buyer is a party or by which Buyer is bound;
(iii) Buyer now has, and on the date of Closing will have, full right and
authority to execute and deliver this Contract, and all documents and
instruments required of it for the performance of this Contract; and (iv) Buyer
is now; and on the date of Closing will be, a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.

15.02.      By execution of this Contract, the
undersigned, signing on behalf of Seller, hereby represents and warrants that
(i) this Contract has been duly authorized and executed on behalf of Seller,
and constitutes a valid and binding agreement of Seller, (ii) Seller has
obtained all consents, releases and permissions and given all required
notifications related to the transactions herein contemplated and required
under any covenant, agreement or encumbrance to which Seller is a party or by
which Seller is bound; (iii) Seller now has, and on the date of Closing will
have, full right and authority to execute and deliver this Contract and all
documents and instruments required of it for the performance of this Contract,
and (iv) Seller is now, and on the date of Closing will be a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation.

ARTICLE
16 – ACCEPTANCE

16.01.      Although Buyer and Seller have negotiated
this Contract in full, this Contract shall be considered to be an offer made by
the part first executing it, which offer shall expire at midnight EDT on               ,
2007, unless fully executed counterparts of this Contract, executed by the party
to whom this offer had been made, shall have been received by the offering
party (in accordance with Article 9 hereof).

	
  Signed by Buyer this 27

  	
  Signed by Seller this

  	
   

  	
   

  
	
  day of February,
  2007.

  	
  day of

  	
   

  	
  , 2007

  
						

 

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  BUYER:

  	
  SELLER:

  	
   

  
	
   

  	
   

  	
   

  
	
  SEMONRAN
  FINANCIAL

  	
  WENDY’S OF N.E. FLORIDA, INC.

  
	
  CORPORATION

  	
   

  	
   

  
	
  Tax I.D. No.

  	
   

  	
   

  	
  Tax I.D/ No. 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Law Dept.

  	
   

  	
   

  
												

 

 9Application for confidential treatment for
a portion of this document has been submitted to the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.  This document omits the
information subject to the confidentiality request.  Omissions are
designated by the symbol “**”.  A complete version of this document has
been filed separately with the Securities and Exchange Commission.

Exhibit 10.1

HEELYS,
INC.

ANNUAL
INCENTIVE PLAN

SECTION 1

ESTABLISHMENT AND PURPOSE

(a)                                  Purpose.  The Plan is established to (i) offer
selected Employees, including officers, of the Company and its Subsidiaries an
opportunity to participate in the growth and financial success of the Company
and its Subsidiaries, (ii)  provide the Company and its Subsidiaries an
opportunity to attract and retain the best available personnel for positions of
substantial responsibility, (iii)  provide incentives to such Employees by
means of performance-related incentives to achieve short-term performance goals,
and (iv) promote the growth and success of the business of the Company and
its Subsidiaries by aligning the financial interests of Employees with that of
the other stockholders of the Company. 
Toward these objectives, the Plan provides for the grant of Annual
Performance Bonuses and Discretionary Bonuses.

(b)                                 Effective Date.  The Plan is effective as of January 1,
2007.

SECTION 2

DEFINITIONS

For purposes of the Plan, the following terms shall
have the following meanings, unless another definition is clearly indicated by
particular usage and context:

“Annual Performance Bonus”
shall mean an Award granted under Section 5 that is paid solely on account of
the attainment of one or more specific performance targets in relation to one
or more Performance Goals.

“Award” shall mean any
Annual Performance Bonus or Discretionary Bonus, whether granted singularly, in
combination or in tandem, to a Participant pursuant to such applicable terms,
conditions and limitations as the Committee may establish and set forth in the
applicable Plan Schedule and Award Notice in order to fulfill the objectives of
the Plan.

“Award Notice” shall mean
the document issued, either in writing or an electronic medium, by the
Committee to a Participant evidencing the grant of an Award, and setting forth
the terms, conditions and limitations applicable to that Award, including any
amendments thereto.

 “Board”
shall mean the board of directors of the Company, as duly elected from time to
time.

“Cause” shall have the
meaning set forth in a then-effective written employment agreement between the
Employee and the Company or a Subsidiary or, in the absence of such a
definition in a then-effective written employment agreement (in the
determination of the Committee), shall mean termination of an Employee’s
employment by the Company or a 

 1
 

Subsidiary for any
of the following reasons by giving the Employee written notice of such
termination (the effective date of which may be the date of such notice):

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

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

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

(d)                                 substantial
failure by the Employee to perform any specific directive of the Board or of
the board of directors of the Subsidiary that employs the Employee after thirty
(30) days notice of such failure and explanation of such failure of
performance;

(e)                                  willful
(i) misappropriation of funds or of any corporate opportunity or (ii) acts
disloyal to the Company or the Subsidiary;

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

(g)                                 acts
by the Employee attempting to secure or securing any personal profit not fully
disclosed to and approved by the Board or by the board of directors of the
Subsidiary that employs the Employee in connection with any transaction entered
into on behalf of the Company or the Subsidiary;

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

(i)                                     conduct
on the part of the Employee, even if not in connection with the performance of
the Employee’s duties with the Company or the Subsidiary, that could result in
serious prejudice to the interests of the Company or the Subsidiary, and the
Employee fails to cease such conduct immediately within thirty (30) days of
receipt of notice to cease such conduct;

(j)                                     voluntary
termination of employment initiated by the Employee; or

(k)                                  acceptance
of employment with any employer other than the Company and its Subsidiaries.

“Change of Control” of
the Company shall mean 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 Exchange Act), 

 2
 

other than one or more
Permitted Holders (as defined herein), is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company’s then outstanding securities; (b) any
change or changes in the composition of the Board within a two (2)-year period
as a result of which less than a majority of the Directors are (i) persons who
were Directors at the beginning of that two (2)-year period or (ii) 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 Directors; (c) the Company is merged or
consolidated with another corporation or other entity (other than one or more
Permitted Holders or any entity controlled by one or more Permitted Holders)
and, as a result of the merger or consolidation, less than seventy-five percent
(75% )of the outstanding voting securities of the surviving or resulting
corporation or other entity, as the case may be, are “beneficially owned”
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, immediately after the merger or consolidation by persons who or
which beneficially owned the outstanding voting securities of the Company
immediately before the merger or consolidation; or (d) the Company transfers,
sells or otherwise disposes of all or substantially all of its assets to
another corporation or other entity which is not an affiliate of the
Company.  “Permitted Holders” means
Capital Southwest Venture Corporation and its affiliates and Roger R. Adams and
his affiliates.

“Chief Executive Officer”
shall mean the chief executive officer of the Company.

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

“Committee” shall mean
the Compensation Committee, as constituted from time to time, of the Board, or
such other committee as may be appointed by the Board from time to time to
administer the Plan, which shall be comprised solely of two or more persons who
are Disinterested Directors.  The Chief
Executive Officer, or such other officer or officers of the Company as may be
designated by the Chief Executive Officer from time to time, may assume any or
all of the powers and responsibilities prescribed for the Committee with
respect to Awards to Employees who are not Covered Employees or officers of the
Company, and to that extent, the term “Committee” as used herein shall also be
applicable to the Chief Executive Officer or such other designated officer or
officers.

“Company” shall mean
Heelys, Inc., a Delaware corporation, or any successor thereto.

“Covered Employee” shall
mean an Employee who would be subject to Section 162(m) of the Code such that
on the last day of the taxable year, the Employee is the Chief Executive
Officer (or is acting in such capacity) or is an Employee who is among the four
highest compensated officers (other than the Chief Executive Officer) of the
Company as determined pursuant to Section 162(m) of the Code.

 “Director”
shall mean a member of the Board.

 3
 

“Discretionary Bonuses”  shall mean the amount, if
any, awarded to a Participant during a Performance Period by the Committee
pursuant to Section 6.

“Disinterested Director”
shall mean a member of the Board who is (a) a “non-employee director”
within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange
Act, (b) an “outside director” within the meaning of Section
162(m)(4)(C)(i) of the Code, and (c) “independent” within the meaning of the
applicable rules and regulations of the Securities and Exchange Commission and
the Nasdaq Global Market (or, in each case, any successor provision or term).

“Effective Date” shall
mean January 1, 2007.

“Employee” shall include
every individual performing Services for the Company or its Subsidiaries if the
relationship between such individual and the Company or the Subsidiary is the
legal relationship of employer and employee. 
The definition of “Employee” is qualified in its entirety and is subject
to the definition set forth in Section 3401(c) of the Code.

“Exchange Act” shall mean
the Securities Exchange Act of 1934, as amended, and any successor
statute.  References in the Plan to any
section of the Exchange Act shall be deemed to include any amendments or
successor provisions to such section and the rules and regulations relating to
such section.

“GAAP” shall mean
generally accepted accounting principles.

“Incentive Award” shall
mean the total of each Participant’s Annual Performance Bonus Award for a
Performance Period plus the Participant’s Discretionary Bonus Award, if any,
for that Performance Period.

“Participants” shall mean
those Employees described in Section 1 who are selected by the Committee
under Section 4 as eligible for grants of Awards.

“Performance Goals” shall
mean, with respect to any Annual Performance Bonus, the business criteria (and
related factors) selected by the Committee and specified in the applicable Plan
Schedule to measure the level of performance of the Company during the
Performance Period, in each case, prepared on the same basis as the financial
statements published for financial reporting purposes, except as adjusted
pursuant to Section 5(f).  The Committee
may select as the Performance Goal for a Performance Period any one or
combination of the following Company measures, as defined and interpreted by
the Committee, which measures (to the extent applicable) will be determined in
accordance with GAAP:

(a)                                  Net income as a
percentage of revenue;

(b)                                 Earnings per share;

(c)                                  Diluted earnings per
share;

(d)                                 Return on net assets
employed before interest and taxes (RONAEBIT);

 4
 

(e)                                  Operating margin as a
percentage of revenue;

(f)                                    Safety performance
relative to industry standards and the Company annual target;

(g)                                 Strategic team goals;

(h)                                 Net operating profit
after taxes;

(i)                                     Net operating
profit after taxes per share;

(j)                                     Return on invested
capital;

(k)                                  Return on assets or
net assets;

(l)                                     Total stockholder
return;

(m)                               Relative
total stockholder return (as compared with a peer group of the Company);

(n)                                 Earnings before income
taxes;

(o)                                 Net income;

(p)                                 Free cash flow;

(q)                                 Free cash flow per
share;

(r)                                    Revenue (or any
component thereof);

(s)                                  Revenue growth; or

(t)                                    Any
other performance objective approved by the stockholders of the Company in
accordance with Section 162(m) of the Code.

“Performance Period”
shall mean that period established by the Committee at the time an Annual
Performance Bonus is awarded during which the Performance Goals specified by
the Committee in the Plan Schedule with respect to such Award are to be
measured.

“Permanent and Total Disability”
shall mean that an individual is (a) 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 twelve (12) months, or (b) 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 twelve (12) months, receiving income replacement benefits for
a period of not less than three (3) months under an accident or health plan
covering employees of the Company or the Subsidiary.

“Plan” shall mean this
Heelys, Inc. Annual Incentive Plan, as amended from time to time.

 5
 

“Plan Schedule” shall
mean a schedule that constitutes a part of the Plan and details certain
particulars with respect to the Plan and Annual Performance Bonus Awards
hereunder for one or more Performance Periods, including the relative
Performance Goals, specific performance factors and targets related to those
Performance Goals, award criteria, and the targeted amounts of each Annual
Performance Bonus Award to a Participant. 
The Plan Schedule for the 2007 Performance Period is attached to the
Plan as Exhibit A.

“Services” shall mean
services rendered to the Company or any of its Subsidiaries as an Employee.

“Subsidiary” shall mean
any “subsidiary corporation” of the Company within the meaning of Section
424(e) of the Code.

“Without Cause” shall
mean the termination of an Employee’s employment either (a) by the Company or a
Subsidiary for a reason other than with Cause or (b) by the Company, a
Subsidiary or the Employee resulting from a Change of Control.  For purposes of the Plan, any termination of
the Employee’s employment by the Company or a Subsidiary which occurs within
twelve (12) months  following a
Change of Control shall be conclusively presumed to have resulted from such
Change of  Control unless the
Company or the Subsidiary demonstrates to an arbitrator, or the Employee
agrees, that the termination was with Cause. 
Should the Company or a Subsidiary fail to comply in a material respect
with the terms of the Employee’s then-effective written employment agreement,
and such failure is not cured (if practicable) within thirty (30) days after
the Company or the Subsidiary is given written notice of such noncompliance,
the Employee may resign and the Employee’s resignation shall be deemed to have
been constructively terminated Without Cause. 
If, whether before or after a Change of Control, without the Employee’s
consent the Company or a Subsidiary reduces the Employee’s base salary or the “target”
amount of the Employee’s Annual Performance Bonus Award for purposes of the Plan,
materially changes the Employee’s title, reduces the scope of the Employee’s
assigned work responsibilities, or the Company or Subsidiary employing the
Employee relocates its offices to a location in excess of fifty (50) miles from
the address of the Company or Subsidiary employing the Employee on the date the
Employee’s employment commences, shall be deemed to have been constructively
terminated Without Cause.

SECTION 3

ADMINISTRATION

(a)                                  General Administration.  The Plan shall be administered by the Committee.

(b)                                 Authority of Committee.  The Committee shall administer the Plan so as
to comply at all times with the Exchange Act and, subject to the Code, shall
otherwise have sole and absolute and final authority to interpret the Plan and
to make all determinations specified in or permitted by the Plan or deemed
necessary or desirable for its administration or for the conduct of the
Committee’s business, including, without limitation, the authority to take the
following actions:

(i)                                     To
interpret and administer the Plan and to apply its provisions;

 6
 

(ii)                                  To
adopt, amend or rescind rules, procedures and forms relating to the Plan;

(iii)                               To
authorize any person to execute, on behalf of the Company, any instrument
required to carry out the purposes of the Plan;

(iv)                              To
determine when Awards are to be granted under the Plan;

(v)                                 To
select the Employees and Participants to whom Awards may be awarded from time
to time;

(vi)                              To
determine the type or types of Award to be granted to each Participant
hereunder;

(vii)                           To
determine the potential cash bonus to be made subject to each Award;

(viii)                        To
prescribe the terms, conditions and restrictions, not inconsistent with the
provisions of the Plan, of any Award granted hereunder;

(ix)                                To
determine whether, to what extent, and under what circumstances Awards may be
settled in cash, reduced, varied, canceled or suspended;

(x)                                   To
determine whether, to what extent and under what circumstances payment of cash
with respect to an Award made under the Plan shall be deferred either
automatically or at the election of the Participant;

(xi)                                To
amend or modify any outstanding Awards, in its discretion, in accordance with
Section 5(f);

(xii)                             To
establish and interpret Performance Goals and the specific performance factors
and targets in relation to the Performance Goals in connection with any Award
of an Annual Performance Bonus; provided that in any case, the Performance
Goals may be based on either a single period or cumulative results, aggregate
or per-share data or results computed independently or with respect to a peer
group;

(xiii)                          Evaluate
the level of performance over a Performance Period and certify the level of
performance attained with respect to Performance Goals and specific performance
factors and targets related to Performance Goals;

(xiv)                         Waive or
amend any terms, conditions, restrictions or limitations on an Award, except
that (A) this Subsection 3(b)(xiv) shall not apply to an Annual Performance
Bonus Award held by a Covered Employee, and (B) the terms and conditions of
Awards to an Employee who is subject to the reporting requirements of Section
16(a) of the Exchange Act cannot be modified, amended, or waived other than on
account of death, disability, retirement, a change in control, or a termination
of employment in connection with a business transfer;

(xv)                            Appoint
such agents as it shall deem appropriate for proper administration of the Plan;
and

 7
 

(xvi)                         To take
any other actions deemed necessary or advisable for the administration of the
Plan.

The Committee may, in its sole and absolute
discretion, and subject to the provisions of the Plan, from time to time
delegate any or all of its authority to administer the Plan to any other
person, persons or committee as it deems necessary or appropriate for the
proper administration of the Plan, except that no such delegation shall be made
in the case of Awards intended to be qualified under Section 162(m) of the Code
or Awards held by Employees who are subject to the reporting requirements of
Section 16(a) of the Exchange Act.  All
interpretations and determinations of the Committee made with respect to the
granting of Awards shall be final, conclusive and binding on all interested
parties.  The Committee may make grants
of Awards on an individual or group basis.

(c)                                  Employment of Advisors.  The Committee may employ attorneys,
consultants, accountants and other advisors, and the Committee, the Company and
the officers and directors of the Company may rely upon the advice, opinions or
valuations of the advisors employed.

(d)                                 Limitation of Liability/Rights of Indemnification.  No member of the Committee or any person
acting as a delegate of the Committee with respect to the Plan shall be liable
for any action that is taken or is omitted to be taken or for any losses
resulting from any action, interpretation, construction or omission made in
good faith with respect to the Plan or any Award granted under the Plan.  In addition to such other rights of
indemnification as they may have as directors, members of the Committee shall
be indemnified by the Company against any reasonable expenses, including
attorneys’ fees actually and necessarily incurred, which they or any of them
may incur by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted thereunder, and against all
amounts paid by them in settlement of any claim related thereto (provided such
settlement is approved by independent legal counsel selected by the Company),
or paid by them in satisfaction of a judgment in any such action, suit or
proceeding that such director or Committee member is liable for negligence or
misconduct in the performance of such director’s duties; provided that within
sixty (60) days after institution of any such action, suit or proceeding the
director or Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle the defense of the same.

SECTION 4

ELIGIBILITY

Initially, the Plan covers as Employees eligible for
an Annual Performance Bonus Award for the 2007 Performance Period the
individuals specified in the Plan Schedule for the 2007 Performance Period
attached to the Plan as Exhibit A.  The
Committee or, if authorized, the Chief Executive Officer, may determine from
time to time to revise or expand the Employees eligible for an Award under the
Plan.

SECTION 5

ANNUAL PERFORMANCE BONUSES

(a)                                  Annual Performance Bonuses.  The Committee may grant Annual Performance
Bonuses to one or more eligible Employees determined under Section 4 in
the amounts and 

 8
 

pursuant to the terms and conditions that the Committee may determine
and set forth in the applicable Plan Schedule and Award Notice, subject to the
provisions of this Section 5.

(b)                                 Performance Periods.  Annual Performance Bonuses will be awarded in
connection with a Performance Period. It is intended that the Performance
Period will coincide with the fiscal year of the Company.

(c)                                  Eligible Participants.  Prior to the commencement of a Performance
Period, the Committee shall determine the Employees, if any, who will be
eligible to receive an Annual Performance Bonus with respect to that
Performance Period.  The Committee may,
in its discretion, determine the eligibility of any Employee after the
commencement of the Performance Period. 
An Award Notice shall be provided to each Participant under the Plan as
soon as administratively feasible after such Participant becomes eligible for a
Performance Period.  The Award Notice
shall specify the applicable Performance Period, and the Performance Goals,
specific performance factors and targets related to the Performance Goals,
award criteria, and the targeted amount of the Participant’s Annual Performance
Bonus, as well as any other applicable terms of the Annual Performance Bonus
for which the Participant is eligible.

(d)                                 Performance Goals; Specific Performance Targets; Award
Criteria; Plan Schedule.

(i)                                     Prior to the
commencement of each Performance Period (or such later date permitted by
Subsection (c) above), the Committee shall fix and establish in writing
(A) the Performance Goals that will apply to that Performance Period;
(B) with respect to each such Performance Goal, the specific performance
factors and targets related to each Participant and, if achieved, the targeted
amount of the Participant’s Annual Performance Bonus and such other applicable
terms of the Annual Performance Bonus as may be determined necessary by the
Committee; and (C) subject to Subsection (f) below, the criteria for
computing the amount that will be paid with respect to each level of attained
performance.  The Committee shall also
set forth the minimum level of performance, based on objective factors and
criteria, that must be attained during the Performance Period before any
Performance Goal is deemed to be attained and any Annual Performance Bonus will
be earned and become payable, and the percentage of the Annual Performance
Bonus that will be earned and become payable upon attainment of various levels
of performance that equal or exceed the minimum required level.  Except as provided in Subsection (c) above, the
Committee shall adopt the Plan Schedule for a particular Performance Period
prior to the commencement of that Performance Period.

(ii)                                  The Committee may, in
its discretion, select Performance Goals and specific performance factors and
targets that measure the performance of the Company or one or more business
units, divisions or Subsidiaries of the Company.  The Committee may select Performance Goals
and specific performance factors and targets that are absolute or relative to
the performance of one or more peer companies or an index of peer
companies.  Annual Performance Bonuses
awarded to Participants who are not Covered Employees shall be based on the
Performance Goals and payment formulas that the Committee, in its discretion,
may establish for these purposes.  These
Performance Goals and formulas may be the same as or different than the
Performance Goals and formulas that apply to Covered Employees.

 9
 

(e)                                  Plan Schedule.  Each Plan Schedule that is applicable to
Covered Employees and officers of the Company shall be adopted by the Committee
or shall be prepared by the appropriate officers of the Company based on
resolutions, minutes or consents adopted by the Committee.  Each Plan Schedule that is applicable to Employees
who are not Covered Employees or officers of the Company shall be adopted by
the Committee, or, if applicable, by the Chief Executive Officer or such other
officer or officers of the Company as may be designated by the Chief Executive
Officer from time to time.  There may be
more than one Plan Schedule under the Plan for a Performance Period.  Each Plan Schedule is incorporated herein by
reference and thereby made a part of the Plan, and references herein to the
Plan shall include the Plan Schedule. 
The Plan Schedule for the 2007 Performance Period is attached to the
Plan as Exhibit A.

(f)                                    Adjustments.

(i)                                     In order to assure
the incentive features of the Plan and to avoid distortion in the operation of
the Plan, the Committee may make adjustments in the Performance Goals, specific
performance factors and targets related to those Performance Goals and award
criteria established by it for any Performance Period under this Section 5,
whether before or after the end of the Performance Period, to the extent it
deems appropriate, in its sole discretion, which shall be conclusive and
binding upon all parties concerned, to compensate for or reflect extraordinary
changes which occur during the Performance Period and significantly affect
factors that formed part of the basis upon which such Performance Goals,
specific performance targets related to those Performance Goals and award
criteria were determined.  Such changes
may include, without limitation, changes in accounting practices, tax,
regulatory or other laws or regulations, or economic changes not in the
ordinary course of business cycles.  The
Committee shall also have the right to adjust Annual Performance Bonus Awards
to insulate them from the effects of unanticipated, extraordinary, major
business developments, e.g., unusual events such as a special asset writedown,
sale of a division, etc.  The
determination of financial performance achieved for any Performance Period may,
but need not be, adjusted by the Committee to reflect such extraordinary, major
business developments.  Any such determination
shall not be affected by subsequent adjustments or restatements.

(ii)                                  In the event of any
change in outstanding shares of the Company by reason of any stock dividend or
split, recapitalization, merger, consolidation, combination or exchange of
shares or other similar corporate change, the Committee shall make such
adjustments, if any, that it deems appropriate in the Performance Goals,
specific performance factors and targets related to those Performance Goals and
award criteria established by it under this Section 5 for any Performance
Period not then completed; any and all such adjustments to be conclusive and
binding upon all parties concerned.

(g)                                 Payment, Certification.  As soon as administratively feasible after
the end of each Performance Period and not later than a date that would prevent
timely payment under Section 7(a), the Committee shall determine whether the
Performance Goals applicable to Annual Performance Bonus Awards for such
Performance Period were satisfied and, if such Performance Goals were
satisfied, in whole or in part, the amount earned and payable for each
Participant granted an Annual Performance Bonus Award.  No Annual Performance Bonus shall be deemed
to be earned and payable with respect to any Covered Employee or other Employee

 10
 

subject to the reporting requirements of Section 16(a) of the Exchange
Act until the Committee certifies in writing the level of performance attained
for the Performance Period in relation to the applicable Performance Goals.  For purposes of this Subsection (g), approved
minutes of the Committee meeting in which the certification is made shall be
treated as a written certification.  In
applying Performance Goals, the Committee may, in its discretion, exclude unusual
or infrequently occurring items (including the cumulative effect of changes in
the law, regulations or accounting rules), and it may determine no later than
ninety (90) days after the commencement of any applicable Performance Period to
exclude other items, each determined in accordance with GAAP (to the extent
applicable) and as identified in the financial statements, notes to the
financial statements or discussion and analysis of management.

(h)                                 Form of Payment.  Annual Performance Bonuses shall be paid in
cash in accordance with Section 7.

(i)                                     Promotion or Transfer.  In the event of promotion or transfer of a
Participant during the Performance Period, each Incentive Award which is based
or determined in some respect on the Participant’s job level, unit or unit
sector within the Company or a Subsidiary shall be determined on a pro rata
basis for the Performance Period in which that promotion or transfer is
effective at the different job levels and/or different units or unit
sectors.  Promotion or transfer after the
Performance Period shall not affect determination of the Incentive Award amount
for that Performance Period.

SECTION 6

DISCRETIONARY BONUSES

The Committee has designed the Plan with the intent to
ensure that the Plan design regarding Annual Performance Bonus Awards will
eliminate or minimize the need for the Award of any Discretionary Bonuses.  The Committee recognizes, however, that
unusual circumstances may occur that prevent payment of appropriate rewards to
a few key eligible Employees.  In
recognition of truly extraordinary performance, occasional Discretionary
Bonuses Awards may be appropriate and granted by the Committee.  In summary, while Discretionary Bonus Awards
are made entirely at the discretion of the Committee, they are primarily
intended to provide a means of redressing rare inequities in Annual Performance
Bonus Award determinations or to reward exemplary performance on a very limited
basis.  Discretionary Bonuses shall be
paid in cash in accordance with Section 7.

SECTION 7

PAYMENT; TAX WITHHOLDING

(a)                                  Eligibility for Non-Tax Deferred Payment.  Upon the Committee’s written certification in
accordance with Section 5(g) that a payment for an Annual Performance Bonus
Award with respect to a Performance Period is due under the Plan, each
Participant who (i) has been granted such an Annual Performance Bonus Award
and/or a Discretionary Bonus Award with respect to such Performance Period, and
(ii) except as provided in Subsections (c) and (e) below, has remained
continuously employed by the Company or a Subsidiary until the last day of such
Performance Period shall be entitled to the payment amount applicable to the
total of such Participant’s Annual Performance Bonus Award certified by the
Committee for such 

 11
 

Performance Period and the Participant’s Discretionary Bonus Award, if
any.  The amount of a Participant’s
Incentive Award for a Performance Period shall be pro-rated as provided in
Subsection (c) and Subsection (e), if applicable.  Payments under the Plan shall be made in one
lump sum payment.  It is intended that payments
of Incentive Awards under the Plan will be made as soon as administratively
feasible after the end of the Performance Period following written
certification by the Committee under Section 5(g) that payment of Annual
Performance Bonus Awards are due and in no event later than the March 15th immediately following such Performance Period
in order to ensure that the Plan does not constitute a “nonqualified deferred
compensation plan” within the meaning of Section 409A(d)(1) of the Code.

(b)                                 Tax Deferred Payment.  If an Award recipient for any Performance
Period is eligible to participate in any deferred compensation plan or program
sponsored and administered by the Company or a Subsidiary, such Participant may
elect, prior to the first day of that Performance Period, to defer all or any
portion of that Award payment under the terms and conditions, and up to the
limits, determined in the discretion of the Committee and as permitted by the
terms of that deferred compensation plan or program.  Any portion of any Award not deferred under
this Subsection (b) shall be paid as described under Subsection (a).

(c)                                  Permanent and Total Disability, Death or Termination
Without Cause.  If a
Participant has been granted an Incentive Award for a Performance Period during
which the Participant’s employment with the Company and its Subsidiaries
terminates by reason of death, Permanent and Total Disability, or Without
Cause, the Incentive Award for such Participant shall be determined on a
pro-rated basis for that Performance Period, and shall become payable as
provided in Subsection (a).  The
pro-rated portion of the Participant’s Annual Performance Bonus Award shall be
determined (i) by measuring satisfaction of the specific targets related to the
Performance Goals established for that Performance Period based on the twelve
(12)-month period ending on the last day of the calendar quarter in which the
Participant’s employment terminates, and (ii) if the Participant’s Annual
Performance Bonus for that Performance Period is determined by comparison of
Performance Goals established for that Performance Period to comparable
performance measures for the twelve (12)-month period ending on the day
immediately preceding the first day of that Performance Period, by comparing
the Performance Goals for the twelve (12)-month period ending on the last day
of the calendar quarter in which the Participant’s employment terminates to
comparable performance measures for the twelve (12)-month period ending on the
day immediately preceding the first day of that twelve (12)-month period.  The amount of such pro-rated portion of the
Annual Performance Bonus determined pursuant to the preceding sentence and the
amount of the Participant’s Discretionary Bonus Award, if any, shall be
multiplied by a fraction, the numerator of which is the number of days in the
Performance Period that had elapsed as of the date the Participant’s employment
terminated and the denominator of which is 365. 
In the event of death, payment will be made to the beneficiary or beneficiaries
as designated on the Participant’s beneficiary designation form under the
Company’s group term life insurance program. 
In the absence of a beneficiary designation form, payment of the
Incentive Award will be made to the estate of the deceased Participant.  Any amount of the Participant’s Incentive
Award that has been deferred as provided under Subsection (b) shall be
processed in accordance with the applicable deferred compensation plan or
program.

 12
 

(d)                                 Employee Termination For Cause or Resignation.  Except as provided in Subsection (c) above or
in Subsection (e) below, if a Participant resigns or is terminated
involuntarily with Cause during a Performance Period, then such Participant
shall forfeit that unpaid Incentive Award and shall not be entitled to receive
any payment under the Plan with respect to the Participant’s Incentive Award
for such Performance Period.

(e)                                  Change of Control—Determination of Incentive Awards.  If a Participant has been granted an
Incentive Award for a Performance Period during which a Change of Control
occurs, the Incentive Awards shall be determined on a pro-rated basis for that
Performance Period, and shall become payable as provided in Subsection
(a).  The pro-rated portion of the Annual
Performance Bonus Awards shall be determined (i) by measuring satisfaction of
the specific targets related to the Performance Goals established for that
Performance Period based on the twelve (12)-month period ending on the last day
of the calendar quarter immediately preceding the date of the Change of
Control, and (ii) if an Annual Performance Bonus for that Performance Period is
determined by comparison of Performance Goals established for that Performance
Period to comparable performance measures for the twelve (12)-month period
ending on the day immediately preceding the first day of that Performance
Period, by comparing the Performance Goals for the twelve (12)-month period
ending on the last day of the calendar quarter immediately preceding the date
of the Change of Control to comparable performance measures for the twelve
(12)-month period ending on the day immediately preceding the first day of that
twelve (12)-month period.  The amount of
such pro-rated portion of the Annual Performance Bonus determined pursuant to
the preceding sentence and the amount of the Participant’s Discretionary Bonus
Award, if any, shall be multiplied by a fraction, the numerator of which is the
number of days in the Performance Period that had elapsed as of the Change of
Control date and the denominator of which is 365.

(f)                                    Tax Withholding.  Incentive Awards payable under the Plan shall
be subject to tax withholding as required by law.  Any deferred payments pursuant to Subsection
(b) shall be subject to tax withholding as provided in the applicable deferred
compensation plan or program.

(g)                                 Impact on Employee Benefits.  Incentive Awards paid under the Plan shall
not be included in the determination of an Employee’s eligible compensation for
purposes of determining benefits under other benefit programs sponsored or
maintained by the Company or any Subsidiary.

SECTION 8

NO EMPLOYMENT RIGHTS

No provisions of the Plan under any Award Notice shall
be construed to give any Participant any right to remain an Employee of, or
provide Services to, the Company or any of its Subsidiaries or to affect the
right of the Company or any Subsidiary to terminate any Employee’s Service at
any time, for Cause or Without Cause.

 13
 

SECTION 9

FUNDING AND STATUS OF PLAN

The Plan is a payroll practice of the Company and its
Subsidiaries and is not an employee benefit plan within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  The Plan is not funded in the sense of a “funded
plan” under ERISA, or Internal Revenue Service or other government regulations,
which prescribe certain Participant rights and fiduciary obligations.  Funding for the Plan will be equivalent to
the sum of individual Incentive Awards. 
Funding is for accounting purposes only and does not confer any rights
to Participants to any portion of such funds or any other Company or Subsidiary
assets except under rules of the Plan and Award guidelines.  To the extent that a Participant acquires a
right to receive payment from the Company or a Subsidiary under the Plan, such
right shall be no greater than the rights of any unsecured creditor of the
Company or that Subsidiary.

SECTION
10

TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION

(a)                                  Effective Date; Term of Plan.  The Plan shall continue in effect until
terminated under this Section 10.

(b)                                 Amendment and Termination.  The Committee, in its sole discretion, may
terminate the Plan at any time and may amend the Plan at any time in such
respects as the Committee may deem advisable; provided, no amendment,
suspension or termination of the Plan shall materially adversely affect the
rights of any Participant with respect to compensation previously earned and
not yet paid.  In the event that the Plan
shall be suspended or terminated during the course of a Performance Period, an
Incentive Award shall calculated in accordance with the terms of the Plan prior
to such event will be paid to Participants on a pro rata basis.

SECTION
11

ALIENATION AND SUBORDINATION OF BENEFITS

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

SECTION
12

GOVERNING LAW

THE PLAN AND ANY AND ALL AWARD NOTICES PROVIDED IN
CONNECTION WITH THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 14
 

Exhibit A

Plan Schedule for 2007 Performance Period

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Annual Performance Bonus As A Percentage of

  2007 Adjusted Salary

  	
   

  
	
  Participants

  	
   

  	
  Title

  	
   

  	
  2007

  Adjusted

  Salary

  	
   

  	
  50% of Target 

  Bonus-

  15% 2007 Diluted

  EPS Growth over

  2006 Diluted EPS

  	
   

  	
  Bonus

  Amount

  	
   

  	
  Target Bonus-

  20% 2007 Diluted

  EPS Growth over 

  2006 Diluted EPS

  	
   

  	
  Bonus

  Amount

  	
   

  	
  Maximum Bonus-

  30% 2007 Diluted

  EPS Growth over

  2006 Diluted EPS

  	
   

  	
  Bonus

  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  M. Staffaroni*

  	
   

  	
  CEO, President

  	
   

  	
  400,000

  	
   

  	
   

  	
  37.5

  	
  %

  	
   

  	
  150,000

  	
   

  	
   

  	
  75

  	
  %

  	
   

  	
  300,000

  	
   

  	
   

  	
  150

  	
  %

  	
   

  	
  600,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C. Beery*

  	
   

  	
  Sr. VP-Global Sales

  	
   

  	
  250,000

  	
   

  	
   

  	
  25

  	
  %

  	
   

  	
  62,500

  	
   

  	
   

  	
  50

  	
  %

  	
   

  	
  125,000

  	
   

  	
   

  	
  100

  	
  %

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  M. Hessong*

  	
   

  	
  CFO, Secretary

  	
   

  	
  231,000

  	
   

  	
   

  	
  25

  	
  %

  	
   

  	
  57,750

  	
   

  	
   

  	
  50

  	
  %

  	
   

  	
  115,500

  	
   

  	
   

  	
  100

  	
  %

  	
   

  	
  231,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  R. Adams

  	
   

  	
  Dir – R&D

  	
   

  	
  150,000

  	
   

  	
   

  	
  17.5

  	
  %

  	
   

  	
  26,250

  	
   

  	
   

  	
  35

  	
  %

  	
   

  	
  52,500

  	
   

  	
   

  	
  70

  	
  %

  	
   

  	
  105,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  P. Hamner*

  	
   

  	
  Chm. Of Board

  	
   

  	
  231,000

  	
   

  	
   

  	
  25

  	
  %

  	
   

  	
  57,750

  	
   

  	
   

  	
  50

  	
  %

  	
   

  	
  115,500

  	
   

  	
   

  	
  100

  	
  %

  	
   

  	
  231,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C. Amador

  	
   

  	
  Controller

  	
   

  	
  **

  	
   

  	
   

  	
  5

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  10

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  20

  	
  %

  	
   

  	
  **

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Nagy

  	
   

  	
  Dir – Accounting

  	
   

  	
  **

  	
   

  	
   

  	
  10

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  20

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  40

  	
  %

  	
   

  	
  **

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C. Callahan

  	
   

  	
  Dir – Customer Svc

  	
   

  	
  **

  	
   

  	
   

  	
  5

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  10

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  20

  	
  %

  	
   

  	
  **

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  G. Coggins

  	
   

  	
  Dir – IT

  	
   

  	
  **

  	
   

  	
   

  	
  5

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  10

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  20

  	
  %

  	
   

  	
  **

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Byrne

  	
   

  	
  VP-Development

  	
   

  	
  **

  	
   

  	
   

  	
  12.5

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  25

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  50

  	
  %

  	
   

  	
  **

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  J. Peliotes

  	
   

  	
  VP-Marketing

  	
   

  	
  **

  	
   

  	
   

  	
  12.5

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  25

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  50

  	
  %

  	
   

  	
  **

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  W. Albers

  	
   

  	
  VP-Sourcing

  	
   

  	
  **

  	
   

  	
   

  	
  12.5

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  25

  	
  %

  	
   

  	
  **

  	
   

  	
   

  	
  50

  	
  %

  	
   

  	
  **

  	
   

  

 

·                  2006 Diluted EPS was $1.16.

·                  Maximum Annual Performance
Bonus is capped at two times the Target Annual Performance Bonus.

·                  Target Annual Performance
Bonus is earned if 2007 Diluted EPS is $1.392 – 20% growth.

·                  Maximum Annual Performance
Bonus is earned if 2007 Diluted EPS is at least $1.508 – 30% growth.

 15
 

·                  50% of Target Annual
Performance Bonus is earned if 2007 Diluted EPS is $1.334 – 15% growth.

·                  No Annual Performance Bonus
is earned if 2007 Diluted EPS is $1.276 or less – 10% growth.

·                  An interpolated amount of
Annual Performance Bonus is earned if 2007 Diluted EPS is more than $1.276 with
that amount to be determined by multiplying the percentage of Target Annual
Performance Bonus to be earned if 2007 Diluted EPS was equal to the dollar
amount required at the next highest threshold, e.g., 15%, 20% or 30% 2007
Diluted EPS Growth over 2006 Diluted EPS, by a fraction, the numerator of which
is 2007 Diluted EPS and the denominator of which is the dollar amount required
at that next highest threshold.  To
illustrate, if 2007 Diluted EPS is $1.30, the Annual Performance Bonus would be
97.45% of the 50% of Target Annual Performance Bonus, e.g., 36.54% for Mr.
Staffaroni, 24.36% for Mssrs. Beery, Hessong and Hamner and 12.19% for Mssrs.
Peliotes and Albers.  If 2007 Diluted EPS
is $1.45, the Annual Performance Bonus would be 96.15% of the Maximum Annual
Performance Bonus, e.g., 144.23% for Mr. Staffaroni, 96.15% for Mssrs. Beery,
Hessong and Hamner, and 48.1% for Mssrs. Peliotes and Albers.

·                  * Compensation approved by
Compensation Committee.  Approval for all
others delegated to President/CEO.

                      **  Confidential
treatment has been requested for certain portions of this document pursuant to
an application for confidential treatment sent to the Securities and Exchange
Commission. Such portions are omitted from this filing and filed separately
with the Securities and Exchange Commission.

 16

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