EXHIBIT 10.1

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement is effective as of November 16, 2007 (the
“Effective Date”), by and among Advanced Tactical Fabrication, Inc. (the
“Buyer”), Head Lites Corporation (the “Seller”), Gary Lesley (“Lesley”), and
Arthur Petrie (“Petrie”).

 

A.            Seller operates a business involving cut-and-sew operations,
sewing for reflective vests, and other sewing products under the brands Vis-Mat,
Vis-Tac, Elmo and Head Lites (the “Business”), and a business relating to the
development, manufacture, and sale of VORTEX brand releasable body armor vest
system and IQRIS brand quick-release products (herein referred to as the
“Excluded Business”). The assets of Seller comprising the Excluded Business are
included on Schedule 1.2 hereto. Lesley and Petrie own 100% of the outstanding
capital stock of Seller.

 

B.            Buyer, a Minnesota corporation 90% owned by Ballistic Recovery
Systems, Inc. (“BRS”) and 10% owned by Seller, was formed pursuant to that
certain Master Agreement between BRS, Buyer, Seller and Lesley dated the date
hereof (the “Master Agreement”).

 

C.            Seller desires to sell, and Buyer desires to purchase, certain
assets of Seller in accordance with the terms set forth herein.

 

D.            On the date hereof, Buyer will enter into a consulting agreement
with Seller pursuant to which Seller will provide services to Buyer (the
“Consulting Agreement”).

 

E.             Seller, Lesley and Petrie will substantially benefit from the
consummation of the transactions contemplated by this agreement and are willing
to abide by the non-competition and non-solicitation covenants contained herein,
which are a material inducement for Buyer to enter into this agreement and BRS’
entry into the Master Agreement.

 

Now, therefore, the parties hereto hereby agree as follows:

 

ARTICLE 1
PURCHASE AND SALE OF ASSETS

 

1.1           GENERALLY. PURSUANT TO THE TERMS OF THIS AGREEMENT, SELLER HEREBY
SELLS, TRANSFERS, CONVEYS AND DELIVERS TO BUYER, AND BUYER HEREBY PURCHASES FROM
SELLER, ON AND AS OF THE EFFECTIVE DATE, ALL PROPERTY AND ASSETS OF SELLER, OF
EVERY KIND AND DESCRIPTION, WHEREVER LOCATED, REAL OR PERSONAL, TANGIBLE OR
INTANGIBLE INCLUDED, BUT NOT LIMITED TO, THOSE ASSETS ON THE CAPITAL ASSET
SUMMARY ATTACHED AS SCHEDULE 1.1 HERETO (THE “ASSETS”). THE ASSETS INCLUDE,
WITHOUT LIMITATION, THE FOLLOWING:

 

(A)           ALL OF THE INTANGIBLE RIGHTS AND PROPERTY OF SELLER, INCLUDING ALL
INTELLECTUAL PROPERTY, DESIGNS, AND RIGHTS OF SELLER INCLUDING, WITHOUT
LIMITATION, PATENTS, TRADEMARKS, TRADE NAMES (INCLUDING THE NAME “HEAD LITES”
AND HEAD LITES CORPORATION”), COPYRIGHTS, GOING CONCERN VALUE, GOODWILL,
TELEPHONE, TELECOPY AND E-MAIL ADDRESSES AND LISTINGS ASSOCIATED WITH THE
BUSINESS (COLLECTIVELY, THE “INTELLECTUAL PROPERTY”);

 

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(B)           ALL CURRENT AND PAST CUSTOMER AND PROSPECT LISTS AND DATABASES
USED IN CONNECTION WITH THE BUSINESS;

 

(C)           ALL OF SELLER’S CURRENT AND EXPECTED PRODUCTION BACKLOG OF ORDERS
RELATED TO THE BUSINESS;

 

(D)           ALL SALES AND MARKETING MATERIALS OF SELLER RELATED TO THE
BUSINESS;

 

(E)           ALL FIXTURES, EQUIPMENT, MACHINERY, AND OTHER TANGIBLE PERSONAL
PROPERTY USED OR HELD IN THE BUSINESS CONTAINED IN THE CAPITAL ASSET SUMMARY,
INCLUDING BUT NOT LIMITED TO THOSE ITEMS OF PERSONAL PROPERTY RELATED TO THE
COMPONENTS AND TRIMS, VIS-MAT, VIS-TAC, ELMO AND HEAD LITES BRANDS;

 

(F)            ALL FINISHED WORK, DELIVERABLES, INVENTORY, MATERIALS IN FINAL
FORM, WORKS-IN-PROCESS, RAW MATERIALS AND SUPPLIES, WHEREVER LOCATED, INCLUDING,
BUT NOT LIMITED TO, ALL RIGHTS OF SELLER AS TO ALL SUPPLIERS ASSOCIATED WITH THE
BUSINESS (COLLECTIVELY, THE “INVENTORY”). AN ITEMIZED LIST OF THE INVENTORY,
STATING THE COST OF THE INVENTORY AS OF THE EFFECTIVE DATE, IS SET FORTH ON
SCHEDULE 1.1(F) HEREOF;

 

(G)           CASH AND CASH EQUIVALENTS OF SELLER ON THE DATE HEREOF IN EXCESS
OF $25,000 AS SET FORTH ON SCHEDULE 1.1(G) HEREOF, PROVIDED THAT SUCH CASH OR
CASH EQUIVALENTS WILL BE USED BY BUYER TO DISPOSE OF THE ACCOUNTS PAYABLE (AS
DEFINED BELOW) ON A TIMELY BASIS;

 

(H)           ALL ACCOUNTS RECEIVABLE OF SELLER RELATING TO THE BUSINESS THAT
ARE OUTSTANDING AS OF THE EFFECTIVE DATE (“ACCOUNTS RECEIVABLE”); PROVIDED THAT
UPON RECEIPT OF ACCOUNTS RECEIVABLE NOT TO EXCEED $190,000 IN THE AGGREGATE,
BUYER SHALL USE SUCH PROCEEDS AS RECEIVED TO SATISFY ON A DOLLAR FOR DOLLAR
BASIS UP TO $190,000 OF THE ACCOUNTS PAYABLE. AN ITEMIZED LIST OF THE ACCOUNTS
RECEIVABLE IS SET FORTH ON SCHEDULE 1.1(H) HEREOF;

 

(I)            ALL RIGHT, TITLE AND INTEREST OF SELLER, AND ANY AFFILIATE OF
SELLER, IN AND TO THOSE CONTRACTS, AGREEMENTS, ARRANGEMENTS, COMMITMENTS AND
UNDERTAKINGS, WHETHER ORAL OR IN WRITING (THE “ASSIGNED CONTRACTS”);

 

(J)            ALL BOOKS, RECORDS, AND PROJECT FILES, HELD FOR USE IN THE
CONDUCT OF THE BUSINESS, INCLUDING WITHOUT LIMITATION, CLIENT AND CUSTOMER
RECORDS, RESEARCH AND DEVELOPMENT RECORDS, PRODUCTION REPORTS AND RECORDS,
SERVICE AND WARRANTY RECORDS, EQUIPMENT LOGS, GUIDES AND MANUALS, CREATIVE
MATERIALS, ADVERTISING MATERIALS, PROMOTIONAL MATERIALS AND FINANCIAL AND
ACCOUNTING RECORDS RELATING TO THE BUSINESS;

 

(K)           ALL RIGHTS OF SELLER UNDER ANY WARRANTY OR GUARANTEE BY ANY
MANUFACTURER, SUPPLIER OR OTHER TRANSFEROR OF THE ASSETS;

 

(L)            TO THE EXTENT LEGALLY TRANSFERABLE, ALL PERMITS, LICENSES AND
APPROVALS RECEIVED FROM ANY GOVERNMENTAL ENTITY;

 

(M)          ALL LEASEHOLD IMPROVEMENTS, SIGNAGE AND PREPAID RIGHTS TO
PARTICIPATE IN TRADE SHOWS, TRADE FAIRS OR SIMILAR INDUSTRY OR RETAIL EVENTS;
AND

 

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(N)           ANY AND ALL OTHER PROPERTIES, ASSETS AND RIGHTS OF SELLER WHICH
ARE USED IN SELLER’S CONDUCT OF THE BUSINESS AND ARE NOT EXPRESSLY LISTED OR
REFERRED TO IN SECTION 0 BELOW.

 

On the Effective Date, Seller will transfer the Assets to Buyer in accordance
with this agreement by delivering those documents specified in Article 4
together with all required consents of any and all third parties, free and clear
of all liabilities, obligations, liens, security interests, encumbrances or any
other adverse claims.

 

1.2           EXCLUDED ASSETS. THE FOLLOWING PROPERTY AND ASSETS OF SELLER ARE
EXCLUDED FROM THE SALE TO BUYER AND ARE INDICATED ON SCHEDULE 1.2 HERETO (THE
“EXCLUDED ASSETS”):

 

(A)           ANY OF THE RIGHTS OF SELLER UNDER THIS AGREEMENT OR ANY OTHER
AGREEMENT BETWEEN SELLER AND BUYER ENTERED INTO ON OR AFTER THE DATE OF THIS
AGREEMENT IN ACCORDANCE WITH THE TERMS HEREOF AND THEREOF, RESPECTIVELY;

 

(B)           SELLER’S MINUTE BOOKS, STOCK-TRANSFER JOURNALS, TAX RETURNS,
CORPORATE SEAL AND, EXCEPT AS PERTAINING DIRECTLY TO THE BUSINESS, BOOKS OF
ACCOUNT AND FINANCIAL RECORDS; AND

 

(C)           SELLER’S ASSETS WHICH (I) ARE SOLELY AND DIRECTLY RELATED TO THE
EXCLUDED BUSINESS AND (II) DO NOT IN ANY WAY RELATE TO ANY OF THE ASSETS.

 

(D)           THE NAME “HLC.”

 

ARTICLE 2
NO ASSUMPTION OF LIABILITIES

 

Except for the assumption by Buyer of (a) certain accounts payable in the
amounts set forth on Schedule 2 hereof (the “Accounts Payable”) and (b) Seller’s
obligations under the Assigned Contracts, Buyer does not assume any liabilities
or obligations of Seller. Buyer and Seller will cooperate with each other and
use reasonable efforts to pay down and satisfy in full the Accounts Payable
prior to April 30, 2008. Seller shall be solely liable for all liabilities and
obligations arising from ownership of the Assets, including the Assigned
Contracts, operation of the Business and incidents and occurrences prior to the
Effective Date, whether or not reflected in Seller’s books and records and
whether or not such incidents or occurrences first became known following the
Effective Date.

 

ARTICLE 3
PURCHASE PRICE AND CONTINGENT PAYMENTS

 

3.1           PURCHASE PRICE. THE TOTAL PURCHASE PRICE PAID TO SELLER FOR THE
ASSETS (THE “PURCHASE PRICE”) IS $648,400, PAYABLE BY CERTIFIED CHECK OR
IMMEDIATELY AVAILABLE FUNDS.

 

3.2           CONTINGENT GROSS MARGIN PAYMENTS. PROVIDED THAT THE BUYER IS
CURRENT ON ITS PAYMENT OBLIGATIONS UNDER CERTAIN SECURED SENIOR NOTE (AS DEFINED
IN THE MASTER AGREEMENT), ON AN ANNUAL BASIS BUYER WILL PAY TO SELLER A CASH
PAYMENT EQUAL TO 8% OF THE GROSS MARGINS IN CONNECTION WITH THE SALE BY BUYER OF
PRODUCTS RELATING TO THE BUSINESS (THE “EARNOUT PRODUCTS”) DURING THE FISCAL
YEAR (THE “MARGIN PAYMENTS”). TO THE EXTENT THAT SALES OF EARNOUT PRODUCTS

 

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EXCEED BUYER’S BUDGETED SALES FOR ANY FISCAL YEAR, THE MARGIN PAYMENT PERCENTAGE
OWED IN THE SUBSEQUENT FISCAL YEAR SHALL BE INCREASED 1% OF THE GROSS MARGINS
(“INCREASED MARGIN PAYMENT”). IF THERE IS AN INCREASED MARGIN PAYMENT FOR ANY
FISCAL YEAR AND IF GROSS MARGIN EXCEEDS BUDGETED GROSS MARGIN FOR SUCH FISCAL
YEAR, THE MARGIN PAYMENT PERCENTAGE OWED IN THE SUBSEQUENT FISCAL YEAR SHALL BE
INCREASED AN ADDITIONAL 1%. ONCE INCREASED, THE MARGIN PAYMENT PERCENTAGE SHALL
NOT BE DECREASED. IN THE EVENT, AND TO THE EXTENT, BUYER IS DEFICIENT IN ITS
PAYMENT OBLIGATION ON THE SECURED SENIOR NOTES, THE AMOUNT OF ANY MARGIN PAYMENT
SHALL BE REDUCED IN AN AMOUNT EQUAL TO SUCH DEFICIENCY. THE MARGIN PAYMENTS WILL
BE DUE NO LATER THAN 90 DAYS FOLLOWING THE END OF THE APPLICABLE FISCAL YEAR.
BUYER SHALL MAKE THE FIVE MARGIN PAYMENTS, WITH THE LAST PAYMENT FOLLOWING AND
IN CONNECTION WITH THE FISCAL YEAR ENDING SEPTEMBER 30, 2012. FOR THE PURPOSES
HEREOF, “GROSS MARGIN” MEANS THE SUM OF THE TOTAL INCOME MINUS COSTS OF GOODS
SOLD AND PRODUCTION EXPENSES.

 

3.3           SELLER’S RIGHT TO CONTINGENT PAYMENTS. THE RIGHT OF SELLER TO
RECEIVE ANY CONTINGENT PAYMENT UNDER THIS ARTICLE 3 (A) IS SOLELY A CONTRACTUAL
RIGHT, AND IS NOT A SECURITY FOR PURPOSES OF ANY FEDERAL OR STATE SECURITIES
LAWS, (B) IS ONLY A RIGHT TO RECEIVE CASH FROM BUYER SUBJECT TO THE TERMS SET
FORTH HEREIN AND (C) MAY NOT BE SOLD, ASSIGNED, PLEDGED, GIFTED, CONVEYED, OR
OTHERWISE TRANSFERRED, EXCEPT BY OPERATION OF LAW OR IN CONNECTION WITH THE
DISSOLUTION OF SELLER AND ANY SUCH TRANSFER OF SUCH RIGHT IN VIOLATION OF THIS
ARTICLE SHALL BE NULL AND VOID.

 

3.4           COMPETING PRODUCTS. BUYER AND ITS AFFILIATES MAY, IN THEIR SOLE
DISCRETION, DECIDE TO ACQUIRE, RESEARCH, DEVELOP AND/OR MARKET PRODUCTS AND/OR
SERVICES THAT COMPETE WITH THE EARNOUT PRODUCTS. SELLER FURTHER ACKNOWLEDGES,
UNDERSTANDS AND AGREES THAT WHETHER OR NOT BUYER OR ANY OF ITS AFFILIATES MAKE
ANY SALES OF EARNOUT PRODUCTS AFTER THE EFFECTIVE DATE, NEITHER BUYER NOR ANY OF
ITS AFFILIATES IS PROHIBITED FROM MANUFACTURING, MARKETING, OR SELLING OTHER
PRODUCTS THAT MAY REDUCE MARGIN PAYMENTS. SELLER AND LESLEY AGREE THAT BUYER’S
PRIOR WRITTEN CONSENT IS REQUIRED, PRIOR TO THE USE OR DEVELOPMENT, OF ANY
VORTEX-BRANDED PRODUCT DEVELOPED, INTRODUCED, MANUFACTURED OR SOLD AFTER THE
EFFECTIVE DATE THAT A) IS NOT PART OF THE EXCLUDED BUSINESS AND B) WAS NOT
DEVELOPED, INTRODUCED, MANUFACTURED OR SOLD AS OF THE EFFECTIVE DATE. SELLER AND
LESLEY ACKNOWLEDGE THAT BUYER MAY REJECT AND NOT CONSENT TO ANY VORTEX-BRANDED
PRODUCT DEVELOPED, INTRODUCED OR MANUFACTURED AFTER THE EFFECTIVE DATE THAT WAS
NOT DEVELOPED, INTRODUCED, MANUFACTURED OR SOLD PRIOR TO THE EFFECTIVE DATE AND,
IN THE JUDGMENT OF BUYER, DIRECTLY COMPETES WITH ANY RELEASABLE BODY ARMOR VEST
SYSTEM OFFERED BY BUYER.

 

3.5           RESTRICTIVE COVENANT PAYMENTS. IN CONSIDERATION FOR LESLEY ABIDING
BY THE RESTRICTIVE COVENANTS SET FORTH IN ARTICLE 8 HEREOF, BUYER SHALL MAKE
MONTHLY PAYMENTS OF $3,024.49 TO LESLEY THE FIRST YEAR FROM THE EFFECTIVE DATE
AND MONTHLY PAYMENTS OF $2,000 TO LESLEY FOR A PERIOD OF FOUR YEARS FOLLOWING
SUCH FIRST YEAR OF PAYMENTS (THE “RESTRICTIVE COVENANT PAYMENTS”). IN THE EVENT
LESLEY BREACHES OR THREATENS TO BREACH ANY COVENANT CONTAINED IN ARTICLE 8
HEREOF, BUYER SHALL BE ENTITLED TO IMMEDIATELY END MAKING THE RESTRICTIVE
COVENANT PAYMENTS, AND LESLEY SHALL BE REQUIRED TO REIMBURSE BUYER FOR ALL
RESTRICTIVE COVENANT PAYMENTS MADE PRIOR TO HIS BREACH OF ANY COVENANT CONTAINED
IN ARTICLE 8 HEREOF. NOTWITHSTANDING THE ABOVE, THE TAKING OF ANY SUCH ACTION BY
BUYER WILL NOT IN ANY WAY LIMIT BUYER’S OTHER RIGHTS OR REMEDIES AVAILABLE UNDER
THIS AGREEMENT OR APPLICABLE LAW. PETRIE ACKNOWLEDGES THAT LESLEY OR HIS
DESIGNEE IS RECEIVING THE ENTIRE BENEFIT TO THE RESTRICTIVE COVENANT PAYMENTS
PAYABLE HEREUNDER AND WAIVES ANY RIGHTS OR CLAIMS HE MAY HAVE RELATED TO THE
RESTRICTIVE COVENANT PAYMENTS AS A SHAREHOLDER OF SELLER OR PARTY TO THIS
AGREEMENT.

 

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3.6           INVENTORY ADJUSTMENT. IN THE EVENT THAT ANY OF THE INVENTORY HELD
BY SELLER ON THE EFFECTIVE DATE AND SOLD HEREUNDER TO BUYER REMAINS UNSOLD AFTER
SEPTEMBER 30, 2008, SUCH INVENTORY WILL BE CONSIDERED TO BE OBSOLETE AND BUYER
SHALL HAVE A RIGHT TO SET-OFF THE AMOUNT OF THE INVENTORY (AS DETERMINED BY THE
BOOK VALUE OF SUCH INVENTORY), AS SET FORTH ON SCHEDULE 1.1(F) HERETO, OF SUCH
OBSOLETE INVENTORY ON A DOLLAR-FOR-DOLLAR BASIS AGAINST, IN BUYER’S SOLE
DISCRETION, ANY FUTURE MARGIN PAYMENTS, RESTRICTIVE COVENANT PAYMENTS, ANY
AMOUNTS DUE UNDER THE CONSULTING AGREEMENT, ANY DIVIDENDS OWED ON THE ESCROWED
HLC SHARES OR BY REDUCTION OF THE ESCROWED HLC SHARES AS PROVIDED IN SECTION
10.2.

 

3.7           ACCOUNTS RECEIVABLE ADJUSTMENT. IN THE EVENT THAT ANY OF THE
ACCOUNTS RECEIVABLE REMAIN UNCOLLECTED BY BUYER AS OF JANUARY 1, 2008, SUCH
ACCOUNTS RECEIVABLE WILL BE CONSIDERED TO BE UNCOLLECTIBLE AND BUYER SHALL HAVE
A RIGHT TO SET-OFF AN AMOUNT EQUAL TO SUCH UNCOLLECTED ACCOUNTS RECEIVABLE ON A
DOLLAR-FOR-DOLLAR BASIS AGAINST, IN BUYER’S SOLE DISCRETION, ANY FUTURE MARGIN
PAYMENTS, RESTRICTIVE COVENANT PAYMENTS, ANY AMOUNTS DUE UNDER THE CONSULTING
AGREEMENT, ANY DIVIDENDS OWED ON THE ESCROWED HLC SHARES OR BY REDUCTION OF THE
ESCROWED HLC SHARES AS PROVIDED IN SECTION 10.2.

 

3.8           ACCOUNTS PAYABLE ADJUSTMENT. IN THE EVENT THAT ANY OF THE ACCOUNTS
PAYABLE EXCEED THE AMOUNT INDICATED ON SCHEDULE 2 AS OF APRIL 30, 2008, BUYER
SHALL HAVE THE RIGHT TO OFFSET ANY SUCH EXCESS ACCOUNTS PAYABLE ON A
DOLLAR-FOR-DOLLAR BASIS AGAINST, IN BUYER’S SOLE DISCRETION, ANY FUTURE MARGIN
PAYMENTS, RESTRICTIVE COVENANT PAYMENTS, ANY AMOUNT DUE UNDER THE CONSULTING
AGREEMENT, ANY DIVIDENDS OWED ON THE ESCROWED HLC SHARES OR BY REDUCTION OF THE
ESCROWED HLC SHARES AS PROVIDED IN SECTION 10.2.

 

3.9           BRS ACCOUNTS PAYABLE. HLC AND LESLEY ACKNOWLEDGES THAT HLC HAS AN
ACCOUNTS PAYABLE AS OF THE EFFECTIVE DATE OF $74,752.31 OWED TO BRS (THE “BRS
ACCOUNTS PAYABLE”). IN THE EVENT THAT BRS ACCOUNTS PAYABLE IS OUTSTANDING AS OF
SEPTEMBER 30, 2008, BUYER SHALL HAVE THE RIGHT TO OFFSET ANY AMOUNT OUTSTANDING
ON A DOLLAR-FOR-DOLLAR BASIS AGAINST, IN BUYER’S SOLE DISCRETION, ANY FUTURE
MARGIN PAYMENTS, RESTRICTIVE COVENANT PAYMENTS, ANY AMOUNTS DUE UNDER THE
CONSULTING AGREEMENT, ANY DIVIDENDS OWED ON THE ESCROWED HLC SHARES, OR BY
REDUCTION OF THE ESCROWED HLC SHARES AS PROVIDED IN SECTION 10.2.

 

ARTICLE 4
CLOSING DELIVERIES

 

On the Effective Date, the parties shall execute and deliver the following
documents, as applicable (all such documents, together with this agreement, are
collectively referred to hereinafter as the “Transaction Documents”):

 

(A)           A CERTIFIED CHECK, OR OTHER IMMEDIATELY AVAILABLE FUNDS, IN THE
AMOUNT SPECIFIED IN SECTION ARTICLE 3, PAYABLE BY BUYER TO SELLER;

 

(B)           A BILL OF SALE EXECUTED BY SELLER IN THE FORM ATTACHED HERETO AS
EXHIBIT A;

 

(C)           A CONSULTING AGREEMENT BETWEEN BUYER AND SELLER IN THE FORM
ATTACHED HERETO AS EXHIBIT B;

 

(D)           SELLER SHALL DELIVER A CERTIFICATE OF AN AUTHORIZED OFFICER
ATTACHING (I) ARTICLES OF INCORPORATION CERTIFIED BY THE MINNESOTA SECRETARY OF
STATE, (II) A TRUE AND

 

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CORRECT COPY OF CORPORATE BYLAWS, AND (III) RESOLUTIONS OF SELLER’S BOARD OF
DIRECTORS AND SHAREHOLDERS, AS NECESSARY, AUTHORIZING THE EXECUTION AND DELIVERY
OF THE TRANSACTION DOCUMENTS AND THE ENTERING INTO AND PERFORMANCE OF THE
TRANSACTIONS CONTEMPLATED THEREBY; AND

 

(E)           A PAYOFF LETTER FROM ANCHOR BANK IN CONNECTION WITH THE
TERMINATION OF ALL SECURITY INTERESTS RELATING TO THE ASSETS.

 

(F)            AN EXECUTED SATISFACTION OF THE CONFIDENTIAL SETTLEMENT AGREEMENT
AND MUTUAL AND GENERAL RELEASE IN A FORM ACCEPTABLE TO BUYER RELEASING ANY AND
ALL SECURITY INTERESTS OF GREGORY W. ZENO (“ZENO”) WITH RESPECT TO ASSETS OWNED
BY SELLER.

 

ARTICLE 5
LABOR AND EMPLOYMENT MATTERS

 

Buyer shall not assume any employment obligations, wage or salary payment
obligations, including without limitation those arising under any pension,
profit-sharing, deferred-compensation, severance, welfare, sick leave, accrued
or earned vacation, wage or other employee-benefit plan, procedure, policy or
practice of Seller regardless of whether such plan, procedure, policy or
practice is disclosed in this agreement. Notwithstanding the foregoing, Buyer
may in its sole and absolute discretion make offers of employment to certain of
Seller’s employees, pursuant to terms determined by Buyer. In such event, Seller
will furnish to Buyer such information in Seller’s personnel files as Buyer may
reasonably request regarding Seller’s former employees that are hired by Buyer
to the extent that sharing such information is permitted by law.

 

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLER AND LESLEY
AND PETRIE (WITH RESPECT TO SECTION 6.2 AND 6.5 ONLY)

 

Seller and Lesley hereby represent and warrant to Buyer as follows:

 

6.1           ORGANIZATION; GOOD STANDING, ETC. SELLER IS A CORPORATION DULY
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF
MINNESOTA, AND HAS THE REQUISITE CORPORATE AUTHORITY TO CARRY ON ITS BUSINESS AS
IT IS NOW BEING CONDUCTED AND AS IT IS PROPOSED TO BE CONDUCTED AFTER THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

6.2           OWNERSHIP. LESLEY AND PETRIE ARE THE HOLDERS OF ALL OUTSTANDING
CAPITAL STOCK AND ANY OTHER EQUITY INTERESTS IN SELLER. THERE ARE NO OUTSTANDING
SUBSCRIPTIONS, OPTIONS, WARRANTS, CALLS, CONTRACTS, DEMANDS, COMMITMENTS,
CONVERTIBLE SECURITIES OR OTHER AGREEMENTS OR ARRANGEMENTS OF ANY CHARACTER OR
NATURE UNDER WHICH SELLER IS OBLIGATED TO ISSUE ANY SECURITIES OF ANY KIND
REPRESENTING AN OWNERSHIP INTEREST IN SELLER.

 

6.3           BUSINESS ACTIVITIES; SUBSIDIARIES. SELLER HAS PERFORMED ALL ACTS
NECESSARY TO OPERATE THE BUSINESS UNDER APPLICABLE LAW. SELLER DOES NOT OWN,
DIRECTLY OR INDIRECTLY, ANY OUTSTANDING CAPITAL STOCK OF ANY CLASS OF ANY OTHER
CORPORATION, NOR IS SELLER A PARTY TO ANY PARTNERSHIP OR JOINT VENTURE RELATED
TO THE ASSETS OR THE BUSINESS.

 

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6.4           AUTHORITY. THE TRANSACTION DOCUMENTS HAVE BEEN DULY AUTHORIZED BY
ALL NECESSARY ACTION OF THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF SELLER,
ARE DULY EXECUTED AND DELIVERED BY AUTHORIZED INDIVIDUALS OR OFFICERS, AS
APPLICABLE, ARE VALID AND BINDING AGREEMENTS ON THE PART OF SELLER.

 

6.5           NO CONFLICT; GOVERNMENTAL CONSENTS. THE EXECUTION AND DELIVERY BY
SELLER, LESLEY AND PETRIE OF THIS AGREEMENT AND ALL OTHER TRANSACTION DOCUMENTS
AND THE PERFORMANCE OR OBSERVANCE BY SELLER, LESLEY AND PETRIE OF ANY OF THE
TERMS OF THE TRANSACTION DOCUMENTS, WILL NOT, WITH OR WITHOUT NOTICE OR LAPSE OF
TIME (A) CONFLICT WITH, RESULT IN A BREACH OR VIOLATION OF THE TERMS OR
CONDITIONS OF, CONSTITUTE A DEFAULT UNDER, OR RESULT IN THE CREATION OF ANY LIEN
ON, ANY OF THE ASSETS PURSUANT TO ANY ARBITRATION AWARD, INDENTURE, CONTRACT,
AGREEMENT, INSTRUMENT, ORDER, JUDGMENT, DECREE, STATUTE, LAW, RULE OR
REGULATION, OR (B) REQUIRE ANY FILING OR REGISTRATION WITH, OR ANY CONSENT OR
APPROVAL OF, ANY FEDERAL, STATE OR LOCAL GOVERNMENTAL AGENCY OR AUTHORITY, OR
(C) CONTRAVENE, CONFLICT WITH, OR RESULT IN A VIOLATION OR BREACH OF ANY
PROVISION OF, OR GIVE ANY PERSON OR ENTITY THE RIGHT TO DECLARE A DEFAULT OR
EXERCISE ANY REMEDY UNDER, OR TO ACCELERATE THE MATURITY OR PERFORMANCE OF, OR
TO CANCEL, TERMINATE OR MODIFY, ANY CONTRACT OR OTHER ARRANGEMENT TO WHICH
SELLER, LESLEY OR PETRIE IS A PARTY OR BY WHICH A SELLER, LESLEY OR PETRIE IS
BOUND OR TO WHICH ANY OF THE ASSETS IS SUBJECT (OR RESULT IN THE IMPOSITION OF
ANY SECURITY INTEREST UPON ANY OF THE ASSETS).

 

6.6           ACTIONS, SUITS AND PROCEEDINGS. EXCEPT AS SET FORTH ON SCHEDULE
6.6, THERE ARE NO ACTIONS, SUITS OR PROCEEDINGS PENDING OR THREATENED AGAINST
SELLER OR ANY OF THE ASSETS IN ANY COURT OR BEFORE ANY FEDERAL, STATE, MUNICIPAL
OR OTHER GOVERNMENTAL AGENCY OR BEFORE ANY OTHER PRIVATE OR PUBLIC TRIBUNAL OR
QUASI-TRIBUNAL WHICH, (A) IF DECIDED ADVERSELY TO SELLER, WOULD HAVE A
MATERIALLY ADVERSE EFFECT UPON THE BUSINESS OR ASSETS, (B) SEEK TO RESTRAIN OR
PROHIBIT THE TRANSACTION CONTEMPLATED HEREBY OR OBTAIN ANY DAMAGES IN CONNECTION
THEREWITH, OR (C) IN ANY WAY CALL INTO QUESTION THE VALIDITY OF THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS. MOREOVER, SELLER IS NOT IN DEFAULT WITH
RESPECT TO ANY ORDER OF ANY COURT OR GOVERNMENTAL AGENCY ENTERED AGAINST IT IN
RESPECT OF THE BUSINESS OR ASSETS. SELLER HAS NOT RECEIVED NOTICE, FORMALLY OR
OTHERWISE, OF ANY JUDGMENTS, ORDERS, DECREES, STIPULATIONS, SETTLEMENT
AGREEMENTS, LIENS OR INJUNCTIONS, RELATING IN ANY WAY TO THE ASSETS, WHICH HAVE
NOT BEEN WHOLLY AND COMPLETELY SETTLED, COMPLIED WITH AND DISCHARGED.

 

6.7           NO MATERIAL VIOLATIONS. SELLER IS NOT IN VIOLATION OF ANY
APPLICABLE LAW, RULE OR REGULATION RELATING TO THE BUSINESS THAT WOULD
REASONABLY BE EXPECTED TO HAVE A MATERIALLY ADVERSE EFFECT ON THE BUSINESS, AND,
TO THE KNOWLEDGE OF SELLER, THERE ARE NO REQUESTS, CLAIMS, NOTICES,
INVESTIGATIONS, DEMANDS, ADMINISTRATIVE PROCEEDINGS, HEARINGS OR OTHER
GOVERNMENTAL CLAIMS AGAINST SELLER ALLEGING THE EXISTENCE OF ANY SUCH VIOLATION.
FOR THE PURPOSES OF THIS AGREEMENT, “KNOWLEDGE OF SELLER” MEANS THE KNOWLEDGE OF
GARY LESLEY, AFTER INQUIRY AND INVESTIGATION.

 

6.8           TITLE; SECURITY INTERESTS. SELLER HAS GOOD AND MARKETABLE TITLE TO
ALL PROPERTY INCLUDED IN THE ASSETS, FREE AND CLEAR OF ALL LIABILITY,
OBLIGATIONS, MORTGAGES, LIENS, PLEDGES, CHARGES AND ENCUMBRANCES (OTHER THAN
PROPERTY TAXES NOT YET DUE AND PAYABLE). IMMEDIATELY AFTER THE EFFECTIVE DATE,
BUYER WILL OWN ALL OF THE RIGHTS, TITLE AND INTEREST IN AND TO THE ASSETS.

 

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6.9           CONDITION OF ASSETS. ALL OF THE ASSETS HAVE BEEN MAINTAINED IN
ACCORDANCE WITH NORMAL INDUSTRY PRACTICE, AND ARE IN GOOD OPERATING CONDITION
AND REPAIR, SUBJECT TO NORMAL WEAR AND TEAR.

 

6.10         ASSIGNED CONTRACTS. SELLER AND, TO THE KNOWLEDGE OF SELLER, EACH
OTHER PARTY THERETO, HAS PERFORMED ALL OBLIGATIONS REQUIRED TO BE PERFORMED
UNDER THE ASSIGNED CONTRACTS TO DATE, AND ARE NOT IN DEFAULT UNDER ANY ASSIGNED
CONTRACT. THE ASSIGNED CONTRACTS ARE EACH IN FULL FORCE AND EFFECT AND ARE
ASSIGNABLE TO BUYER WITHOUT THE CONSENT OF THIRD PARTIES, AND SELLER HAS NOT
WAIVED OR ASSIGNED TO ANY OTHER PERSON ANY OF ITS RIGHTS THEREUNDER. TRUE,
CORRECT AND COMPLETE COPIES OF ALL ASSIGNED CONTRACTS, INCLUDING ALL AMENDMENTS
OR SUPPLEMENTS THERETO, HAVE BEEN DELIVERED TO BUYER. ALL AMOUNTS DUE UP THROUGH
AND INCLUDING THE EFFECTIVE DATE UNDER EACH OF THE ASSIGNED CONTRACTS HAVE BEEN
PAID. NO ASSIGNED CONTRACT SHALL PROHIBIT OR LIMIT THE ABILITY OF SELLER TO
ENGAGE IN ANY BUSINESS ACTIVITY OR COMPETE WITH ANY PERSON IN CONNECTION WITH
THE BUSINESS AND/OR OTHER ACTIVITIES OF THE BUYER.

 

6.11         INVENTORY. THE INVENTORY IS CURRENT, IN GOOD AND MARKETABLE
CONDITION, IS GOOD QUALITY MATERIAL AND, EXCEPT WITH REGARD TO WORKS-IN-PROCESS,
RAW MATERIALS AND SUPPLIES, IS SALEABLE IN THE ORDINARY COURSE OF BUSINESS. THE
QUANTITIES OF INVENTORY ARE REASONABLE AND WARRANTED IN THE PRESENT
CIRCUMSTANCES OF THE BUSINESS. THE INVENTORY IS NOT OBSOLETE OR DAMAGED AND IS
MERCHANTABLE AND FIT FOR ITS PARTICULAR USE.

 

6.12         INTELLECTUAL PROPERTY. THE INTELLECTUAL PROPERTY INCLUDES ALL
INTELLECTUAL PROPERTY OWNED BY SELLER AND USED IN THE BUSINESS THAT IS,
INDIVIDUALLY OR IN THE AGGREGATE, MATERIAL TO THE BUSINESS. WITH RESPECT TO THE
INTELLECTUAL PROPERTY:  (A) NO INTERFERENCE ACTIONS OR OTHER JUDICIAL OR
ADVERSARY PROCEEDINGS, OR OTHER DISPUTES, CONCERNING SUCH INTELLECTUAL PROPERTY
ARE OUTSTANDING OR PENDING AND, TO SELLER’S KNOWLEDGE, NO SUCH ACTION OR
PROCEEDING IS THREATENED; (B) SELLER HAS THE RIGHT AND AUTHORITY TO USE SUCH
INTELLECTUAL PROPERTY IN CONNECTION WITH THE CONDUCT OF THE BUSINESS IN THE
MANNER PRESENTLY CONDUCTED AND HAS NOT RECEIVED NOTICE THAT SUCH USE CONFLICTS
WITH, INFRINGES UPON OR VIOLATES ANY RIGHTS OF ANY OTHER PERSON, FIRM OR
CORPORATION; AND (C) SELLER’S EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE
TRANSACTION DOCUMENTS WILL NOT INFRINGE UPON OR VIOLATE THE RIGHTS OF ANY OTHER
PERSON, FIRM OR CORPORATION.

 

6.13         PERSONAL PROPERTY LEASES. TRUE AND COMPLETE COPIES OF ALL PERSONAL
PROPERTY LEASES HAVE BEEN MADE AVAILABLE TO BUYER, INCLUDING ALL AMENDMENTS
SUPPLEMENTS AND MODIFICATIONS THEREOF. ALL PERSONAL PROPERTY LEASES ARE VALID,
BINDING AND ENFORCEABLE AGAINST SELLER AND, TO SELLER’S KNOWLEDGE, AGAINST THE
OTHER PARTIES THERETO, IN ACCORDANCE WITH THEIR RESPECTIVE TERMS AND THERE DOES
NOT EXIST UNDER ANY SUCH PERSONAL PROPERTY LEASE ANY DEFAULT OR ANY EVENT WHICH
WITH NOTICE OR THE LAPSE OF TIME OR BOTH WOULD CONSTITUTE A MATERIAL DEFAULT
THEREUNDER AGAINST SELLER, AND TO SELLER’S KNOWLEDGE, AGAINST THE OTHER PARTIES
THERETO.

 

6.14         TAXES. SELLER AND/OR LESLEY HAVE PAID ALL TAXES, INCLUDING FEDERAL,
STATE AND LOCAL INCOME, PROFITS, FRANCHISE, SALES, USE, PROPERTY, EXCISE,
PAYROLL, AND OTHER TAXES AND ASSESSMENTS (INCLUDING INTEREST AND PENALTIES)
RELATING TO OR FOR SELLER, THE ASSETS OR THE BUSINESS, IN EACH CASE TO THE
EXTENT THAT SUCH HAVE BECOME DUE AND ARE NOT BEING CONTESTED IN GOOD FAITH. NO
CLAIMS FOR ADDITIONAL TAXES HAVE BEEN ASSERTED AGAINST SELLER (OR LESLEY WITH
RESPECT TO THE BUSINESS) AND NO AUDITS ARE PENDING WITH RESPECT TO ANY TAX
LIABILITIES OF SELLER (OR LESLEY WITH RESPECT TO THE BUSINESS).

 

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6.15         LABOR AND EMPLOYMENT MATTERS.

 

(A)           SELLER IS NOT PARTY TO ANY COLLECTIVE-BARGAINING AGREEMENT OR
OTHER MATERIAL WRITTEN OR ORAL AGREEMENT PROVIDING AN EMPLOYEE OF THE BUSINESS
WITH RIGHTS TO EMPLOYMENT, SEVERANCE PAY, PROFIT SHARING, DEFERRED COMPENSATION,
A BONUS, STOCK OPTION, STOCK-PURCHASE RIGHT, PENSION, RETAINER, CONSULTING,
RETIREMENT, HEALTH, VACATION, SICK LEAVE, INCENTIVE PAY, HOLIDAY LEAVE, SALARY
CONTINUATION DURING SHORT ABSENCES FOR ILLNESS OR OTHER REASONS, AND ANY OTHER
PLAN, AGREEMENT, ARRANGEMENT OR COMMITMENT BY SELLER TO PROVIDE BENEFITS TO AN
EMPLOYEE OF THE BUSINESS TO WHICH SELLER IS A PARTY, OR BY WHICH IT IS OR MAY BE
BOUND (OTHER THAN BENEFITS UNDER ERISA PLANS, AS DEFINED BELOW IN SECTION
6.15(F)).

 

(B)           SELLER HAS COMPLIED IN ALL MATERIAL RESPECTS WITH ALL APPLICABLE
LAWS, RULES AND REGULATIONS RELATING TO THE EMPLOYMENT OF THE EMPLOYEES OF THE
BUSINESS, INCLUDING BUT NOT LIMITED TO THOSE RELATING TO WAGES, HOURS,
COLLECTIVE BARGAINING AND THE PAYMENT AND WITHHOLDING OF TAXES AND OTHER SUMS AS
REQUIRED BY APPROPRIATE GOVERNMENTAL AUTHORITIES;

 

(C)           DURING THE THREE-YEAR PERIOD PRECEDING THE DATE HEREOF, NO UNFAIR
LABOR PRACTICE CHARGE OR COMPLAINT OF UNFAIR LABOR PRACTICE HAS BEEN BROUGHT OR
THREATENED AGAINST SELLER WITH RESPECT TO ANY EMPLOYEES OR FORMER EMPLOYEES OF
THE BUSINESS OR ANY LABOR ORGANIZATION WITH RESPECT TO THE BUSINESS BEFORE ANY
FEDERAL, STATE OR LOCAL AGENCY; AND NO COMPLAINT OF SUCH UNFAIR LABOR PRACTICES
HAS BEEN ISSUED, NO WORK STOPPAGE AFFECTING THE SELLER’S OPERATION OF THE
BUSINESS HAS BEEN BROUGHT OR THREATENED, AND NO GRIEVANCE HAS BEEN BROUGHT;

 

(D)           NO ORGANIZATIONAL, STRIKE, REPRESENTATION, DECERTIFICATION OR
DEAUTHORIZATION PROCEEDING HAS BEEN BROUGHT OR THREATENED, RESPECTING THE
EMPLOYEES OF THE BUSINESS, AND NO SUCH PROCEEDING HAS BEEN BROUGHT WITHIN THE
THREE-YEAR PERIOD PRIOR TO THE DATE OF THIS AGREEMENT;

 

(E)           ALL ACCRUED OBLIGATIONS OF SELLER, WHETHER ARISING BY OPERATION OF
LAW, CONTRACT OR PAST CUSTOM, FOR UNEMPLOYMENT-COMPENSATION BENEFITS, PENSION
BENEFITS, SALARIES, BONUSES, SICK LEAVE, SEVERANCE, VACATION,
WORKER-COMPENSATION CLAIMS AND OTHER FORMS OF COMPENSATION PAYABLE TO THE
EMPLOYEES OR FORMER EMPLOYEES OF THE BUSINESS, OR TO TRUSTS OR OTHER FUNDS OR TO
ANY GOVERNMENTAL AGENCY, IN RESPECT OF THE SERVICES RENDERED BY ANY SUCH
INDIVIDUALS PRIOR TO THE DATE HEREOF, HAVE BEEN PAID; AND

 

(F)            NO TRADE UNION, COUNCIL OF TRADE UNIONS, AFFILIATED BARGAINING
AGENCY, EMPLOYEE-BARGAINING AGENCY OR LABOR ORGANIZATION HAS BARGAINING RIGHTS
FOR ANY OF EMPLOYEES OF THE BUSINESS PURSUANT TO THE PROVISIONS OF ALL
APPLICABLE LAWS, RULES OR REGULATIONS RELATING TO THE EMPLOYMENT OF LABOR.

 

6.16         PENSION AND WELFARE PLANS.

 

(A)           SELLER HAS PROVIDED BUYER WITH TRUE AND CORRECT COPIES OF EACH (I)
EMPLOYEE-BENEFIT PLAN, AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), INCLUDING WITHOUT LIMITATION
EACH GROUP INSURANCE AND SELF-INSURED HEALTH PLAN, SEVERANCE-PAY PLAN,
NON-QUALIFIED DEFERRED-

 

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COMPENSATION PLAN AND RETIREMENT PLAN INTENDED TO BE QUALIFIED UNDER CODE
SECTION 401(A), AND THAT IS MAINTAINED OR CONTRIBUTED TO BY SELLER FOR ITS
EMPLOYEES ENGAGED IN THE OPERATION OF THE BUSINESS, FORMER EMPLOYEES OF THE
BUSINESS AND/OR DEPENDENTS AND BENEFICIARIES OF SUCH EMPLOYEES AND/OR FORMER
EMPLOYEES (COLLECTIVELY, THE “ERISA PLANS”); AND (II) TRUST FUND MAINTAINED BY
THE CORPORATION OR ANY SUBSIDIARY IN CONNECTION WITH ANY SUCH ERISA PLAN AND
EACH OTHER PLAN PROVIDING COMPENSATION (OTHER THAN SALARIES OR WAGES),  BENEFITS
OR PERQUISITES TO ANY CLASS OF EMPLOYEES ENGAGED IN THE OPERATION OF THE
BUSINESS, FORMER EMPLOYEES OR DIRECTORS OF SELLER, INCLUDING WITHOUT LIMITATION
ANY INCENTIVE, BONUS, STOCK-OPTION, RESTRICTED-STOCK, VACATION-PAY AND SICK-PAY
PLAN (COLLECTIVELY, THE “COMPENSATION PLANS”); AND ANY “CAFETERIA PLAN” (“125
PLAN”) GOVERNED BY CODE SECTION 125.

 

(B)           NONE OF THE ERISA PLANS IS A MULTI-EMPLOYER PLAN, AS DEFINED IN
ERISA SECTION 4001(A)(3), OR IS A DEFINED-BENEFIT PENSION PLAN SUBJECT TO TITLE
IV OF ERISA. SELLER IS NOT DELINQUENT IN ANY OBLIGATION TO MAKE CONTRIBUTIONS TO
ANY ERISA PLAN SUBJECT TO CODE SECTION 412 OR TITLE IV OF ERISA AND HAS NOT
TERMINATED OR WITHDRAWN FROM PARTICIPATION IN ANY SUCH ERISA PLAN.

 

(C)           SELLER DOES NOT MAINTAIN ANY GROUP LIFE INSURANCE OR
HEALTH-BENEFIT COVERAGE FOR FORMER EMPLOYEES OR DIRECTORS OF SELLER, OTHER THAN
GROUP LIFE INSURANCE OR HEALTH-BENEFIT COVERAGE MANDATED BY APPLICABLE LAW.
SELLER HAS TIMELY COMPLIED WITH ALL OF ITS “COBRA” OBLIGATIONS UNDER ERISA
SECTION 602, CODE SECTION 4980B AND APPLICABLE STATE INSURANCE LAWS, WITH
RESPECT TO ALL GROUP LIFE INSURANCE, HEALTH, AND BENEFIT CONTINUATION COVERAGE
TO BE PROVIDED BY THOSE OF ITS ERISA PLANS AND ANY 125 PLAN THAT PROVIDE SUCH
BENEFITS; SELLER REPRESENTS THAT IT IS NOT TERMINATING ANY OF SUCH COVERAGE IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY; AND SELLER WARRANTS THAT
IT WILL CONTINUE, AFTER THE EFFECTIVE DATE, TO COMPLY WITH SUCH OBLIGATIONS WITH
RESPECT TO ANY OF ITS EMPLOYEES, FORMER EMPLOYEES OR THEIR BENEFICIARIES WHO ARE
OR BECOME ENTITLED TO SUCH CONTINUATION COVERAGE, AND ARE NOT HIRED BY BUYER AS
OF THAT DATE OR THE FOLLOWING BUSINESS DAY, FOR AS LONG SELLER CONTINUES THE
WELFARE PLANS PROVIDING SUCH COVERAGE.

 

Buyer shall not become responsible for any obligation of Seller to provide any
“parachute payment,” as defined in Section 280G of the Code, or provide any
severance, termination allowance or similar payments as a direct result of the
transactions contemplated hereby.

 

6.17         ENVIRONMENTAL MATTERS. SELLER IS, AND AT ALL TIMES HAS BEEN, IN
FULL COMPLIANCE WITH, AND HAS NOT BEEN IN VIOLATION OF OR LIABLE UNDER, ANY
ENVIRONMENTAL LAW (AS DEFINED BELOW) SUCH THAT NON-COMPLIANCE OR VIOLATION WOULD
REASONABLY BE EXPECTED TO HAVE A MATERIALLY ADVERSE EFFECT ON THE FACILITIES OR
THE BUSINESS. LESLEY HAS NO BASIS TO EXPECT, NOR HAVE ANY OF LESLEY OR SELLER
RECEIVED, ANY ACTUAL OR THREATENED ORDER, NOTICE OR OTHER COMMUNICATION FROM ANY
GOVERNMENTAL AGENCY, OFFICE OR BODY, OR ANY PRIVATE CITIZEN, ACTING IN THE
PUBLIC INTEREST, OR THE CURRENT OR PRIOR OWNER OR OPERATOR OF ANY BUILDING IN
WHICH SELLER CONDUCTS THE BUSINESS, OF ANY ACTUAL OR POTENTIAL VIOLATIONS OR
FAILURE TO COMPLY WITH ANY ENVIRONMENTAL LAW. FOR PURPOSES OF THIS AGREEMENT,
THE TERM “ENVIRONMENTAL LAW” MEANS ANY LEGAL REQUIREMENT THAT REQUIRES OR
RELATES TO: (A) ADVISING APPROPRIATE AUTHORITIES, EMPLOYEES AND/OR THE PUBLIC OF
INTENDED OR ACTUAL RELEASES OF POLLUTANTS OR HAZARDOUS SUBSTANCES OR MATERIALS,
VIOLATIONS OF DISCHARGE LIMITS OR OTHER PROHIBITIONS, AND THE COMMENCEMENT OF
ACTIVITIES, SUCH AS RESOURCE EXTRACTION OR CONSTRUCTION,

 

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THAT COULD HAVE A SIGNIFICANT IMPACT ON THE ENVIRONMENT; (B) PREVENTING OR
REDUCING TO ACCEPTABLE LEVELS THE RELEASE OR EXISTENCE OF POLLUTANTS OR
HAZARDOUS MATERIALS OR SUBSTANCES IN THE ENVIRONMENT; (C) REDUCING THE
QUANTITIES, PREVENTING THE RELEASE OR MINIMIZING THE HAZARDOUS CHARACTERISTICS
OF WASTES THAT ARE GENERATED; (D) ASSURING THAT PRODUCTS ARE DESIGNED,
FORMULATED, PACKAGED AND USED SO THAT THEY DO NOT PRESENT UNREASONABLE RISKS TO
HUMAN HEALTH OR THE ENVIRONMENT WHEN USED OR DISPOSED OF; (E) PROTECTING
RESOURCES, SPECIES OR ECOLOGICAL AMENITIES; (F) REDUCING TO ACCEPTABLE LEVELS
THE RISKS INHERENT IN THE TRANSPORTATION OF HAZARDOUS SUBSTANCES, POLLUTANTS OR
OTHER POTENTIALLY HARMFUL SUBSTANCES; (G) CLEANING UP POLLUTANTS THAT HAVE BEEN
RELEASED, PREVENTING THE THREAT OF RELEASE, OR PAYING THE COSTS OF SUCH CLEAN UP
OR PREVENTION; OR (H) MAKING RESPONSIBLE PARTIES PAY PRIVATE PARTIES OR GROUPS
OF PRIVATE PARTIES FOR DAMAGES DONE TO THEIR HEALTH OR THE ENVIRONMENT, OR
PERMITTING SELF-APPOINTED REPRESENTATIVES OF THE PUBLIC INTEREST TO RECOVER FOR
INJURIES DONE TO PUBLIC PROPERTY OR ASSETS.

 

6.18         FINANCIAL STATEMENTS. ATTACHED HERETO AS SCHEDULE 6.18 ARE THE
FINANCIAL STATEMENTS OF SELLER AS OF FEBRUARY 28, 2007, WHICH FINANCIAL
STATEMENTS INCLUDE A BALANCE SHEET AS OF SUCH DATE AND AN INCOME STATEMENT FOR
THE TWELVE MONTH PERIODS THEN ENDED (SUCH FINANCIAL STATEMENTS SHALL BE REFERRED
TO HEREIN AS THE “FINANCIAL STATEMENTS”). THE FINANCIAL STATEMENTS ARE TRUE AND
CORRECT, BASED UPON THE INFORMATION CONTAINED IN THE BOOKS AND RECORDS OF
SELLER, AND FAIRLY PRESENT THE FINANCIAL CONDITION OF SELLER AS OF THE DATE
THEREOF AND, AS APPLICABLE, THE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE
PERIODS REFERRED TO THEREIN. THE FINANCIAL STATEMENTS HAVE BEEN PREPARED IN
ACCORDANCE WITH PAST PRACTICES, CONSISTENTLY APPLIED.

 

6.19         NO UNDISCLOSED LIABILITIES. SELLER HAS NO LIABILITY OR OBLIGATION
OF ANY NATURE OR KIND WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN,
ABSOLUTE, ACCRUED, CONTINGENT OR OTHERWISE, AND WHETHER DUE OR TO BECOME DUE
(AND LESLEY AND/OR PETRIE HAVE NO KNOWLEDGE OF ANY BASIS FOR ANY PRESENT OR
FUTURE ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT,
CLAIM, OR DEMAND AGAINST SELLER GIVING RISE TO ANY LIABILITY), EXCEPT FOR (I)
LIABILITIES THAT HAVE BEEN DISCLOSED IN WRITING TO BUYER, AND (II) LIABILITIES
THAT HAVE ARISEN SINCE SUCH DISCLOSURE IN THE ORDINARY COURSE OF BUSINESS (NONE
OF WHICH RESULTS FROM, ARISES OUT OF, RELATES TO, IS IN THE NATURE OF OR WAS
CAUSED BY ANY BREACH OF CONTRACT, BREACH OF WARRANTY, TORT, INFRINGEMENT OR
VIOLATION OF APPLICABLE LAW).

 

6.20         OPERATION OF BUSINESS. SINCE FEBRUARY 28, 2007, SELLER HAS OPERATED
THE BUSINESS IN THE ORDINARY COURSE AND CONSISTENT WITH PAST PRACTICES. EXCEPT
AS SET FORTH ON SCHEDULE 6.20, SINCE FEBRUARY 28, 2007, THERE HAS NOT BEEN:

 

(A)           ANY DIVIDEND OR OTHER DISTRIBUTION;

 

(B)           DECLARED OR PAID WITH RESPECT TO ANY SHARES OF SELLER’S CAPITAL
STOCK, OR ANY REDEMPTION OR PURCHASE, DIRECTLY OR INDIRECTLY, BY THE SELLER OF
ANY SHARES OF SELLER’S CAPITAL STOCK;

 

(C)           ANY INCREASE IN ENCUMBRANCE AGAINST ANY OF THE ASSETS, OR CHANGE
IN THE CONDITION (FINANCIAL OR OTHER), PROPERTIES, ASSETS OR LIABILITIES OF THE
BUSINESS, EXCEPT CHANGES IN THE ORDINARY COURSE OF BUSINESS, NONE OF WHICH HAS
HAD OR WILL HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION, OPERATING
RESULTS, CUSTOMER, EMPLOYEE OR SUPPLIER RELATIONS OR BUSINESS CONDITION OF THE
ASSETS OR THE BUSINESS;

 

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(D)           ANY CHANGE IN THE METHODS OR TERMS USED BY SELLER IN THE BUSINESS
FOR COLLECTING ACCOUNTS RECEIVABLE;

 

(E)           ANY SALE, TRANSFER, LEASE, ABANDONMENT OR OTHER DISPOSITION BY
SELLER, OTHER THAN IN THE ORDINARY COURSE OF THE BUSINESS, OF ANY INVENTORY,
SUPPLIES, VEHICLES, MACHINERY, EQUIPMENT OR OTHER OPERATING PROPERTIES OR OTHER
ASSETS INCLUDED AMONG THE ASSETS;

 

(F)            ANY CHANGE IN SELLER’S METHODS OF ACCOUNTING WITH RESPECT TO THE
BUSINESS;

 

(G)           ANY BUSINESS INTERRUPTION, DAMAGE, LOSS OR OTHER OCCURRENCE HAVING
A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION, OPERATING RESULTS,
CUSTOMER, EMPLOYEE OR SUPPLIER RELATIONS OR BUSINESS CONDITION OF THE ASSETS OR
THE BUSINESS, WHETHER OR NOT COVERED BY INSURANCE, AS A RESULT OF ANY ACCIDENT,
FIRE, CASUALTY, ACT OF GOD OR THE PUBLIC ENEMY, ANY LABOR DISPUTE OR
DISTURBANCE, OR OTHER FORCE MAJEURE;

 

(H)           ANY CONDUCT OF THE BUSINESS OTHER THAN IN THE ORDINARY COURSE OR
AS OTHERWISE CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, ANY MATERIAL
REDUCTION IN EFFORTS OR FUNDS EXPENDED BY SELLER TO (I) REPAIR AND MAINTAIN
EQUIPMENT TO BE SOLD TO BUYER HEREUNDER, OR (II) PERFORM ALL OTHER ACTIVITIES
REQUIRED TO MAINTAIN THE LONG-TERM VIABILITY AND QUALITY OF THE BUSINESS;

 

(I)            ANY OTHER OCCURRENCE, EVENT OR CONDITION WITH RESPECT TO SELLER,
THE BUSINESS OR THE ASSETS WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
FINANCIAL CONDITION, OPERATING RESULTS, CUSTOMER, EMPLOYEE OR SUPPLIER RELATIONS
OR BUSINESS CONDITION OF THE ASSETS OR THE BUSINESS.

 

6.21         PRODUCT LIABILITY. SELLER HAS NO LIABILITY (AND SELLER HAS NO
KNOWLEDGE OF ANY BASIS FOR ANY PRESENT OR FUTURE ACTION, SUIT, PROCEEDING,
HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND AGAINST SELLER
GIVING RISE TO ANY LIABILITY) ARISING OUT OF ANY INJURY TO INDIVIDUALS OR
PROPERTY AS A RESULT OF THE OWNERSHIP, POSSESSION OR USE OF ANY PRODUCT
MANUFACTURED, SOLD OR DELIVERED BY SELLER.

 

6.22         INSURANCE. SELLER HAS PROVIDED BUYER WITH A TRUE AND COMPLETE LIST
OF ALL POLICIES OF CASUALTY, LIABILITY, THEFT, FIDELITY, LIFE AND OTHER FORMS OF
INSURANCE HELD BY SELLER AT ANY TIME DURING THE LAST THREE YEARS THROUGH THE
DATE HEREOF (SPECIFYING FOR EACH SUCH INSURANCE POLICY THE INSURER, THE POLICY
PERIOD, THE POLICY NUMBER OR COVERING NOTE NUMBER WITH RESPECT TO BINDERS, AND
EACH PENDING CLAIM THEREUNDER OF MORE THAN $10,000, AND SETTING FORTH THE
AGGREGATE AMOUNTS PAID OUT UNDER EACH SUCH POLICY DURING THE LAST THREE YEARS
THROUGH THE DATE HEREOF) AND INDICATING WHICH SUCH POLICIES ARE CURRENTLY IN
EFFECT (“CURRENT POLICIES”). EACH CURRENT POLICY IS VALID AND BINDING, AND IS
AND HAS BEEN IN EFFECT DURING ITS RESPECTIVE POLICY PERIOD. ALL CURRENT POLICIES
ARE IN THE NAME OF SELLER AND ALL PREMIUMS WITH RESPECT TO SUCH POLICIES ARE
CURRENTLY PAID. SELLER HAS NOT RECEIVED NOTICE OF CANCELLATION OR TERMINATION OF
ANY CURRENT POLICY, NOR HAS IT BEEN DENIED OR HAD REVOKED OR RESCINDED ANY
POLICY OF INSURANCE, NOR BORROWED AGAINST ANY SUCH POLICIES. NO CLAIM UNDER ANY
INSURANCE POLICY OF SELLER (WHETHER A CURRENT POLICY OR A PAST POLICY) IS
PENDING.

 

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6.23         DISCLOSURE. THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
ARTICLE 6 DO NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO
STATE ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS AND
INFORMATION CONTAINED IN THIS ARTICLE 6 NOT MISLEADING.

 

6.24         ACCOUNTS RECEIVABLES. ALL ACCOUNTS RECEIVABLE ARE VALID, GENUINE
AND FULLY COLLECTIBLE.

 

6.25         ACCOUNTS PAYABLES. THE ACCOUNTS PAYABLES ASSUMED BY BUYER DO NOT
EXCEED THE AMOUNTS INDICATED ON SCHEDULE 2 HEREOF.

 

6.26         RESERVATION OF RIGHTS. NEITHER THE REPRESENTATIONS AND WARRANTIES
OF LESLEY CONTAINED IN THIS AGREEMENT NOR THE INDEMNIFICATION OBLIGATIONS OF
LESLEY SET FORTH IN ARTICLE 9, SHALL BE AFFECTED BY (A) ANY DUE DILIGENCE OR
OTHER INVESTIGATION CONDUCTED BY BUYER, BRS OR THEIR RESPECTIVE AGENTS, (B) ANY
KNOWLEDGE ON THE PART OF BUYER, BRS OR THEIR RESPECTIVE AGENTS OF ANY
CIRCUMSTANCES RESULTING FROM SUCH INVESTIGATION OR OTHERWISE, INCLUDING WITHOUT
LIMITATION BUYER’S, BRS’ OR THEIR RESPECTIVE AGENT’S KNOWLEDGE THAT A
REPRESENTATION OR WARRANTY OF LESLEY IS OR MIGHT BE UNTRUE.

 

6.27         SCHEDULES. ALL SCHEDULES ATTACHED HERETO ARE ACCURATE AND COMPLETE
AS OF THE DATE HEREOF.

 

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Seller as follows:

 

7.1           ORGANIZATION. BUYER IS A CORPORATION DULY INCORPORATED AND
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF MINNESOTA AND HAS
THE CORPORATE POWER TO EXECUTE AND DELIVER THIS AGREEMENT AND TO CONSUMMATE THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

7.2           CORPORATE AUTHORITY. THE EXECUTION AND DELIVERY OF THIS AGREEMENT,
AND THE TRANSACTION DOCUMENTS, AND THE CONSUMMATION OF TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY CORPORATE ACTION
AND WILL NOT VIOLATE OR CONFLICT WITH ANY AGREEMENT OR ORDER BY WHICH BUYER IS
BOUND. THIS AGREEMENT AND THE TRANSACTION DOCUMENTS ARE, OR WHEN DELIVERED WILL
BE, LEGALLY, VALID AND BINDING OBLIGATIONS OF BUYER, ENFORCEABLE IN ACCORDANCE
WITH THEIR RESPECTIVE TERMS.

 

ARTICLE 8
RESTRICTIVE COVENANTS

 

8.1           NON-COMPETITION. SELLER, LESLEY, AND PETRIE WILL NOT FOR THE
PERIOD COMMENCING ON THE EFFECTIVE DATE AND ENDING FIVE YEARS FROM SUCH DATE
(THE “NON-COMPETE PERIOD”), ENGAGE OR BE INTERESTED, DIRECTLY OR INDIRECTLY,
WHETHER ALONE OR TOGETHER WITH OR ON BEHALF OF OR THROUGH ANY OTHER PERSON,
FIRM, ASSOCIATION, TRUST, VENTURE OR CORPORATION WHETHER AS PARTNER,
STOCKHOLDER, AGENT, OFFICER, DIRECTOR, EMPLOYEE, TECHNICAL ADVISER, LENDER,
TRUSTEE, BENEFICIARY, OR OTHERWISE, IN ANY PHASE OF THE RESTRICTED BUSINESS (AS
HEREINAFTER DEFINED) IN THE RESTRICTED AREA (AS HEREINAFTER DEFINED).

 

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8.2           NON-SOLICITATION. DURING THE NON-COMPETE PERIOD, SELLER, LESLEY,
AND PETRIE WILL NOT, FOR THEMSELVES OR ANY OTHER PERSON OR ENTITY, EMPLOY OR
OTHERWISE ENGAGE, OR OFFER TO EMPLOY OR OTHERWISE ENGAGE, OR SOLICIT ANY PERSON
WHO HAS BEEN AN EMPLOYEE, SALES REPRESENTATIVE OR AGENT OF BUYER AT ANY TIME
WITHIN THE ONE-YEAR PERIOD PRIOR TO THE DATE HEREOF OR DURING THE TERM OF THE
NON-COMPETE PERIOD (THE “NON-SOLICITATION TIME PERIOD”), NOR DURING THE
NON-COMPETE PERIOD WILL SELLER, LESLEY, OR PETRIE CONTACT OR SOLICIT ANY
RESTRICTED BUSINESS (AS DEFINED HEREIN) FROM ANY PERSON OR ENTITY THAT HAS BEEN
OR IS A CUSTOMER OR CLIENT OF SELLER OR BUYER AT ANY TIME DURING THE
NON-SOLICITATION TIME PERIOD.

 

8.3           CERTAIN DEFINITIONS. THE FOLLOWING CAPITALIZED TERMS SHALL HAVE,
FOR PURPOSES OF THIS AGREEMENT, THE MEANINGS SET FORTH BELOW.

 

(A)           THE TERM “RESTRICTED BUSINESS” MEANS ANY BUSINESS ANY PART OF
WHICH CONSISTS OF THE MANUFACTURE, SALE OR DELIVERY OF PRODUCTS THAT ARE IN
DIRECT OR INDIRECT COMPETITION WITH THE PRODUCTS OF BUYER AND RELATED
CUT-AND-SEW OPERATIONS AND SEWING FOR PARACHUTES. THE TERM “RESTRICTED BUSINESS”
INCLUDES THE BUSINESS AS IT IS CONDUCTED AFTER THE EFFECTIVE DATE, BUT SHALL NOT
INCLUDE THE MERE PASSIVE OWNERSHIP OF UP TO 1% IN A PUBLICLY TRADED COMPANY
THROUGH A MUTUAL FUND OR SIMILAR INVESTMENT VEHICLE. THE TERM “RESTRICTED
BUSINESS” SHALL NOT INCLUDE THE EXCLUDED BUSINESS.

 

(B)           THE TERM “RESTRICTED AREA” MEANS THE UNITED STATES OF AMERICA AND
ANY COUNTRIES IN WHICH SELLER HAS TRANSACTED BUSINESS WITHIN THE ONE YEAR
PRECEDING THE EFFECTIVE DATE.

 

(C)           THE TERM “ENGAGE OR BE INTERESTED, DIRECTLY OR INDIRECTLY” SHALL
INCLUDE GIVING ADVICE OR TECHNICAL OR FINANCIAL ASSISTANCE, BY LOAN, GUARANTEES,
STOCK TRANSACTIONS OR IN ANY OTHER MANNER TO ANY PERSON, FIRM, ASSOCIATION,
TRUST, VENTURE OR CORPORATION DOING OR PROPOSING TO UNDERTAKE SUCH “RESTRICTED
BUSINESS” IN THE RESTRICTED AREA.

 

8.4           INJUNCTIVE RELIEF. IN THE EVENT THAT THE COVENANT SET FORTH IN
SECTIONS ARTICLE 8 AND 8.1 IS CONSIDERED BY A COURT OF COMPETENT JURISDICTION TO
BE EXCESSIVE IN ITS DURATION OR IN THE AREA TO WHICH IT APPLIES, IT SHALL BE
CONSIDERED MODIFIED AND VALID FOR SUCH DURATION AND FOR SUCH AREA AS SAID COURT
MAY DETERMINE REASONABLE UNDER THE CIRCUMSTANCES. IN RECOGNITION OF THE
IRREPARABLE HARM THAT A VIOLATION OF SAID COVENANTS WOULD CAUSE TO BUYER, SELLER
AGREES THAT BUYER SHALL HAVE THE RIGHT TO ENFORCE THIS AGREEMENT BY SPECIFIC
REMEDIES, WHICH SHALL INCLUDE, AMONG OTHER THINGS, TEMPORARY RESTRAINING ORDERS
AND TEMPORARY AND PERMANENT INJUNCTIONS. IN THE EVENT OF ANY SUCH VIOLATION,
LESLEY AND PETRIE (AS THE CASE MAY BE) AGREE TO PAY THE REASONABLE ATTORNEYS’
FEES INCURRED BY BUYER IN PURSUING ANY OF ITS RIGHTS WITH RESPECT TO SUCH
VIOLATION OR VIOLATIONS IN ADDITION TO THE ACTUAL DAMAGES SUSTAINED BY BUYER AS
A RESULT THEREOF. BUYER’S RIGHTS UNDER THIS SECTION 8.4 SHALL NOT BE EXCLUSIVE
AND SHALL NOT LIMIT BUYER’S RIGHT TO OBTAIN ANY OTHER REMEDY AVAILABLE TO IT.

 

8.5           OTHER REMEDIES. IN ADDITION TO ANY OTHER RIGHTS AND REMEDIES
AVAILABLE TO BUYER AT LAW OR IN EQUITY, IN THE EVENT SELLER, LESLEY OR PETRIE
BREACH THE TERMS OF THIS ARTICLE 8, BUYER SHALL BE ENTITLED TO REDEEM OR OFFSET
ALL OR ANY PORTION OF THE SHARES OF COMMON STOCK OF BUYER HELD BY SELLER IN
ACCORDANCE WITH THE TERMS OF THE HLC SUBSCRIPTION AGREEMENT (AS DEFINED IN
SECTION 10.2) OR, AT THE ELECTION OF BUYER, PURSUANT TO SECTION 10.1 HEREOF.

 

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8.6           EXTENSION FOR BREACH. THE DURATION OF THE FOREGOING COVENANTS WILL
BE EXTENDED BEYOND THE TIME PERIOD SET FORTH HEREIN FOR A PERIOD EQUAL TO THE
DURATION OF ANY BREACH OR DEFAULT OF SUCH COVENANT BY SELLER.

 

8.7           CONFIDENTIAL INFORMATION. SELLER ACKNOWLEDGES THAT IT HAS, WILL OR
MAY HAVE ACCESS TO AND BECOME INFORMED OF CONFIDENTIAL INFORMATION WHICH IS A
COMPETITIVE ASSET OF BUYER, BRS OR THE BUSINESS. AS USED HEREIN, “CONFIDENTIAL
INFORMATION” MEANS INFORMATION THAT IS PROPRIETARY TO BUYER, BRS, OR THE
RESTRICTED BUSINESS OR PROPRIETARY TO OTHERS AND ENTRUSTED TO BUYER OR BRS
WHETHER OR NOT CONSTITUTING A TRADE SECRET. CONFIDENTIAL INFORMATION INCLUDES,
BUT IS NOT LIMITED TO, INFORMATION RELATING TO BUSINESS PLANS AND TO BUSINESS AS
CONDUCTED OR ANTICIPATED TO BE CONDUCTED BY BUYER AND BRS AND TO THEIR PAST,
CURRENT OR ANTICIPATED BUSINESSES (INCLUDING WITHOUT LIMITATION INFORMATION
RELATING TO THE RESTRICTED BUSINESS). CONFIDENTIAL INFORMATION ALSO INCLUDES,
WITHOUT LIMITATION, CUSTOMER LISTS AND INFORMATION CONCERNING PURCHASING,
ACCOUNTING, MARKETING, SELLING, PRODUCTS AND SERVICES OF BUYER AND BRS, AND
SHALL FURTHER INCLUDE THE SAME AFOREMENTIONED CONFIDENTIAL INFORMATION WITH
RESPECT TO THE ASSETS. SELLER, LESLEY, AND PETRIE AGREE THAT EACH WILL KEEP ALL
CONFIDENTIAL INFORMATION IN STRICT CONFIDENCE AND NEVER DIRECTLY OR INDIRECTLY
MAKE KNOWN, DIVULGE, REVEAL, FURNISH, MAKE AVAILABLE OR USE ANY CONFIDENTIAL
INFORMATION. CONFIDENTIAL INFORMATION SHALL NOT INCLUDE INFORMATION WHICH IS
GENERALLY PUBLICLY KNOWN OR WHICH IS INDEPENDENTLY OBTAINED FROM A SOURCE THAT
IS NOT UNDER AN OBLIGATION OF CONFIDENTIALITY TO THE BUYER.

 

ARTICLE 9
INDEMNIFICATION

 

9.1           INDEMNIFICATION OF BUYER. SELLER AND LESLEY SHALL JOINTLY AND
SEVERALLY INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES, AFFILIATES, SUCCESSORS,
TRANSFEREES AND ASSIGNS (INDIVIDUALLY A “BUYER INDEMNIFIED PARTY”, AND
COLLECTIVELY THE “BUYER INDEMNIFIED PARTIES”), PROMPTLY UPON DEMAND, AT ANY TIME
AND FROM TIME TO TIME, FROM, AGAINST AND IN RESPECT OF ANY AND ALL DEMANDS,
CLAIMS, LOSSES, DAMAGES, JUDGMENTS, LIABILITIES, ASSESSMENTS, SUITS, ACTIONS,
PROCEEDINGS, INTEREST, PENALTIES AND EXPENSES (INCLUDING WITHOUT LIMITATION
SETTLEMENT COSTS AND ANY LEGAL, ACCOUNTING AND OTHER EXPENSES FOR INVESTIGATING
OR DEFENDING ANY ACTIONS OR THREATENED ACTIONS OR FOR ENFORCING SUCH RIGHTS OF
INDEMNITY AND DEFENSE) INCURRED OR SUFFERED BY THE BUYER INDEMNIFIED PARTIES, IN
CONNECTION WITH, ARISING OUT OF OR AS A RESULT OF EACH AND ALL OF THE FOLLOWING:

 

(A)           ANY BREACH OF ANY COVENANT, OBLIGATION, AGREEMENT, REPRESENTATION
OR WARRANTY MADE IN THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR
INSTRUMENT DELIVERED TO BUYER OR ENTERED INTO AS PART OF THE TRANSACTION
CONTEMPLATED HEREBY;

 

(B)           ANY MISREPRESENTATION OR OMISSION CONTAINED IN ANY DOCUMENT,
STATEMENT OR CERTIFICATE FURNISHED TO BUYER PURSUANT TO THE TRANSACTION
DOCUMENTS OR OTHERWISE IN CONNECTION WITH TRANSACTION CONTEMPLATED HEREBY; AND

 

(C)           ANY AND ALL LIABILITIES AND OBLIGATIONS OF SELLER AND ANY AND ALL
LIABILITIES AND OBLIGATIONS ARISING FROM OWNERSHIP OF THE ASSETS, THE OPERATION
OF THE BUSINESS AND INCIDENTS AND OCCURRENCES ON OR PRIOR TO THE EFFECTIVE DATE.

 

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9.2           NON-WAIVER, NON-EXCLUSIVE REMEDY. FAILURE OF THE BUYER INDEMNIFIED
PARTIES TO GIVE REASONABLY PROMPT NOTICE OF ANY CLAIM OR CLAIMS SHALL NOT
RELEASE, WAIVE OR OTHERWISE AFFECT THE OBLIGATIONS OF SELLER AND LESLEY WITH
RESPECT THERETO EXCEPT TO THE EXTENT THAT SELLER AND LESLEY CAN DEMONSTRATE
ACTUAL LOSS AND PREJUDICE AS A RESULT OF SUCH FAILURE. THE INDEMNIFICATION
PROVISIONS CONTAINED IN THIS ARTICLE 9 AND THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS AGREEMENT AND OTHER OBLIGATIONS CONTAINED IN THIS AGREEMENT
WHICH BY THEIR NATURE ARE TO BE PERFORMED AFTER THE EFFECTIVE DATE SHALL FOREVER
SURVIVE AND ARE IN ADDITION TO, AND NOT IN DEROGATION OF, ANY STATUTORY, COMMON
LAW OR EQUITABLE RIGHTS OR REMEDIES ANY PARTY MAY HAVE FOR BREACH OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT.

 

ARTICLE 10
OTHER AGREEMENTS/RIGHT TO SETOFF

 

10.1         SETOFF. IF SELLER OR LESLEY FAIL TO PAY ANY AMOUNTS THEY OWE OR
FAIL TO PERFORM ANY OBLIGATIONS THEY OWE BUYER OR ANY AFFILIATE OF BUYER IN ANY
MANNER PURSUANT TO THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, OBLIGATIONS OF
SELLER AND LESLEY UNDER ARTICLE 9 HEREOF), ANY OTHER DOCUMENT OR AGREEMENT
RELATED TO THIS TRANSACTION (INCLUDING, WITHOUT LIMITATION, THE CONSULTING
AGREEMENT, THE MASTER AGREEMENT, AND THE HLC SUBSCRIPTION AGREEMENT (AS DEFINED
IN SECTION 10.2), BUYER WILL HAVE THE RIGHT TO SET-OFF SUCH AMOUNTS WHICH HAVE
NOT BEEN PAID OR THE VALUE OF THE OBLIGATION SO OWED AGAINST ALL AMOUNTS WHICH
ARE OWED BY BUYER OR ANY AFFILIATE OF BUYER TO SELLER OR LESLEY, INCLUDING,
WITHOUT LIMITATION AND IN BUYER’S SOLE DISCRETION, MARGIN PAYMENTS, RESTRICTIVE
COVENANT PAYMENTS, ANY AMOUNT DUE UNDER THE CONSULTING AGREEMENT AND DIVIDENDS
OWED ON THE ESCROWED HLC SHARES AND BY A REDUCTION OF ESCROWED HLC SHARES AS
PROVIDED IN SECTION 10.2. NEITHER THE EXERCISE OF, NOR THE FAILURE TO EXERCISE
SUCH RIGHT OF SET-OFF WILL CONSTITUTE AN ELECTION OF REMEDIES OR LIMIT BUYER OR
BRS IN ANY MANNER IN THE ENFORCEMENT OF ANY OTHER REMEDIES THAT MAY BE AVAILABLE
TO IT HEREUNDER. ANY FAILURE BY BUYER OR BRS TO PAY ALL OR ANY PORTION OF A
MARGIN PAYMENT, RESTRICTIVE COVENANT PAYMENT, ANY AMOUNT DUE UNDER THE
CONSULTING AGREEMENT OR DIVIDENDS ON THE ESCROWED HLC SHARES OR OF BUYER TO
REDEEM THE ESCROWED HLC SHARES BY VIRTUE OF EXERCISING ITS SET-OFF RIGHTS HEREIN
SHALL NOT CONSTITUTE A DEFAULT UNDER OR A BREACH OF THIS AGREEMENT, THE MASTER
AGREEMENT, THE CONSULTING AGREEMENT OR THE HLC SUBSCRIPTION AGREEMENT FOR ANY
REASON.

 

10.2         ESCROWED HLC SHARES. THE SHARES OF BUYER COMMON STOCK ISSUED TO
SELLER PURSUANT TO THAT CERTAIN SUBSCRIPTION AGREEMENT BY AND BETWEEN THE BUYER
AND SELLER DATED THE DATE HEREOF (THE “HLC SUBSCRIPTION AGREEMENT”) SHALL BE
BENEFICIALLY OWNED BY SELLER, PROVIDED HOWEVER, THAT FOR A TWO YEAR PERIOD
FOLLOWING THE EFFECTIVE DATE, SUCH SHARES (THE “ESCROWED HLC SHARES”) SHALL BE
HELD IN ESCROW BY BUYER TO SATISFY CLAIMS AND OBLIGATIONS OF BUYER PURSUANT TO
SECTIONS 3.6, 3.7, 3.8, 3.9, 8.5 OR 10.1 HEREOF. DURING SUCH TWO YEAR ESCROW
PERIOD, SELLER SHALL RETAIN VOTING RIGHTS AND RIGHTS TO DIVIDENDS AND
DISTRIBUTIONS TO THE ESCROWED HLC SHARES (SUBJECT TO OFFSET RIGHTS PROVIDED
HEREIN) BUT SHALL NOT HAVE THE RIGHT TO SELL, TRANSFER, PLEDGE, GRANT OR OPTION
IN, HYPOTHECATE OR GIFT THE ESCROWED HLC SHARES. ANY REQUIRED OFFSET PURSUANT TO
SECTIONS 3.6, 3.7, 3.8, 3.9, 8.5 OR 10.1 HEREOF SHALL BE DETERMINED BY
OFFSETTING THE AMOUNT OWED TO BUYER PURSUANT TO SUCH SECTIONS ON A
DOLLAR-FOR-DOLLAR BASIS BY REDEEMING AN AMOUNT OF ESCROWED HLC SHARES EQUAL TO
THE AMOUNT OF REQUIRED OFFSET DIVIDED BY $540.33, THE PER SHARE PRICE OF THE
ESCROWED HLC SHARES ON THE DATE OF ISSUANCE PURSUANT TO THE HLC SUBSCRIPTION
AGREEMENT. ANY ESCROWED HLC SHARES REDEEMED HEREBY SHALL BE CANCELLED AND BUYER
SHALL HAVE NO RIGHTS WITH RESPECT TO SUCH REDEEMED ESCROWED HLC SHARES. DURING
THIS ESCROW PERIOD, STOCK CERTIFICATES REPRESENTING THE ESCROWED HLC SHARES
SHALL BE RETAINED BY THE

 

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SECRETARY OF THE BUYER. FOLLOWING THE END OF THE TWO YEAR ESCROW PERIOD, ANY AND
ALL REMAINING SHARES OF ESCROWED HLC SHARES SHALL BE PROMPTLY RETURNED TO
SELLER.

 

10.3         RIGHTS TO CORPORATE NAME. BUYER AND SELLER ACKNOWLEDGE AND AGREE
THAT SELLER DOES NOT HAVE RIGHTS TO, AND SHALL NOT UTILIZE, THE NAMES “HEAD
LITES CORPORATION,” “HEAD LITES” OR ANY DERIVATIVE THEREOF (WITH THE EXCEPTION
OF THE NAME “HLC” AS SET FORTH IN SECTION 1.2 HEREOF), AND FURTHER THAT SELLER
HAS TRANSFERRED SUCH RIGHTS TO BUYER PURSUANT TO THE TERMS OF SECTION 1.1
HEREOF. NOTWITHSTANDING SUCH TRANSFER, BUYER ACKNOWLEDGES AND AGREES THAT IT
WILL NOT UTILIZE THE NAME “HEAD LITES CORPORATION,” BUT IS ENTITLED TO USE ANY
DERIVATIVE THEREOF.

 

ARTICLE 11
GENERAL PROVISIONS

 

11.1         ASSIGNMENT. NO PARTY HERETO MAY ASSIGN ITS RIGHTS IN THIS AGREEMENT
WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTIES HERETO. THE TERMS OF THIS
AGREEMENT ARE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO, THEIR
SUCCESSORS AND PERMITTED ASSIGNS, AND NO PERSON, FIRM OR CORPORATION OTHER THAN
THE PARTIES, THEIR SUCCESSORS AND ASSIGNS, SHALL ACQUIRE OR HAVE ANY RIGHTS
UNDER OR BY VIRTUE OF THIS AGREEMENT.

 

11.2         FURTHER ASSURANCES. NOTWITHSTANDING ANY PROVISION HEREIN TO THE
CONTRARY, WITHOUT FURTHER CONSIDERATION, SELLER, LESLEY, AND/OR PETRIE SHALL
EXECUTE AND DELIVER TO BUYER AND/OR BRS SUCH FURTHER INSTRUMENTS OF SALE,
TRANSFER, CONVEYANCE, ASSIGNMENT AND CONFIRMATION, AS SHALL BE HELPFUL,
NECESSARY, AND/OR APPROPRIATE TO EFFECTUATE THE TERMS OF THIS AGREEMENT,
INCLUDING THE TRANSFER OF THE ASSETS, REGARDLESS OF WHETHER OR NOT SUCH
DOCUMENTS ARE PREPARED AS OF THE EFFECTIVE DATE. WITH REGARD THERETO, SELLER
HEREBY CONSTITUTES AND APPOINTS BUYER THE TRUE AND LAWFUL ATTORNEY OF SELLER,
WITH FULL POWER OF SUBSTITUTION, IN THE NAME OF SELLER OR BUYER, BUT ON BEHALF
OF THE BENEFIT OF BUYER, TO ENFORCE ANY AND ALL ASSIGNED CONTRACTS, AND/OR,
AFTER REASONABLE NOTICE TO THE SELLER, TO TAKE SUCH FURTHER ACTION AS SHALL BE
NECESSARY, HELPFUL AND/OR APPROPRIATE TO EFFECTUATE THE TERMS OF THIS AGREEMENT
AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY.

 

11.3         SURVIVAL. ALL REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN AND
ALL OTHER OBLIGATIONS WHICH BY THEIR TERMS REQUIRE OR MAY REQUIRE ACTION AFTER
THE EFFECTIVE DATE (INCLUDING BUT NOT LIMITED TO THE OBLIGATIONS CONTAINED IN
ARTICLE 9), AND ALL OTHER WRITTEN REPRESENTATIONS AND WARRANTIES CONTAINED IN
THE TRANSACTION DOCUMENTS, SHALL FOREVER SURVIVE THE EXECUTION AND DELIVERY OF
THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

11.4         ENTIRE AGREEMENT. THIS AGREEMENT, INCLUDING THE EXHIBITS AND
SCHEDULES ATTACHED HERETO, CONSTITUTES THE ENTIRE AGREEMENT AND UNDERSTANDING
BETWEEN PARTIES HERETO WITH RESPECT TO THE SALE AND PURCHASE OF THE ASSETS. THE
PARTIES HEREBY AGREE THAT ALL PRIOR REPRESENTATIONS, UNDERSTANDINGS AND
AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE SALE AND PURCHASE OF THE
ASSETS, AND THE OTHER TRANSACTIONS CONTEMPLATED HEREBY, ARE SUPERSEDED BY THE
TERMS OF THIS AGREEMENT.

 

11.5         CHOICE OF LAW; VENUE. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA, WITHOUT
REGARD TO ITS CONFLICTS-OF-LAW PROVISIONS, AS THOUGH ALL ACTS AND OMISSIONS
RELATED TO THIS AGREEMENT OCCURRED IN THE STATE OF MINNESOTA. ALL DISPUTES
RELATED TO OR ARISING UNDER THIS AGREEMENT MUST BE BROUGHT IN EITHER THE

 

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA OR THE STATE OF
MINNESOTA FOURTH JUDICIAL DISTRICT COURT WITH EACH PARTY CONSENTING TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS AND HEREBY WAIVING ANY PERSONAL
JURISDICTION DEFENSES. EACH PARTY HEREBY (I) WAIVES ANY OBJECTION WHICH IT MIGHT
HAVE NOW OR HEREAFTER TO THE FOREGOING VENUE OF ANY SUCH LITIGATION, ACTION OR
PROCEEDING, (II) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH
COURT SET FORTH ABOVE IN ANY SUCH LITIGATION, ACTION OR PROCEEDING, AND (III)
WAIVES ANY CLAIM OR DEFENSE OF INCONVENIENT FORUM. EACH PARTY HEREBY CONSENTS TO
SERVICE OF PROCESS BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT SUCH PARTY’S
ADDRESS SET FORTH IN THIS AGREEMENT (AS MODIFIED BY WRITTEN NOTICE OF A PARTY
FROM TIME TO TIME) AND HEREBY EXPRESSLY WAIVES THE BENEFIT OF ANY CONTRARY
PROVISION OF LAW.

 

11.6         INJUNCTIVE RELIEF. THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT
THE OTHER PARTIES WOULD BE DAMAGED IRREPARABLY IN THE EVENT ANY OF THE
PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED SUBSTANTIALLY IN ACCORDANCE WITH
THEIR SPECIFIC TERMS. ACCORDINGLY, EACH OF THE PARTIES AGREES THAT THE OTHER
PARTIES SHALL BE ENTITLED TO INJUNCTIVE RELIEF TO PREVENT BREACHES OF THIS
AGREEMENT AND TO ENFORCE SPECIFICALLY THE SUBSTANTIAL PERFORMANCE OF THIS
AGREEMENT.

 

11.7         SEVERABILITY. THE PROVISIONS OF THIS AGREEMENT SHALL, WHERE
POSSIBLE, BE INTERPRETED SO AS TO SUSTAIN THEIR LEGALITY AND ENFORCEABILITY, AND
FOR THAT PURPOSE THE PROVISIONS OF THIS AGREEMENT SHALL BE READ AS IF THEY COVER
ONLY THE SPECIFIC SITUATION TO WHICH THEY ARE BEING APPLIED. THE INVALIDITY OR
UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN A SPECIFIC SITUATION
SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THAT PROVISION IN OTHER
SITUATIONS OR OF OTHER PROVISIONS OF THIS AGREEMENT.

 

11.8         TAXES AND FEES. SELLER SHALL BE RESPONSIBLE FOR AND SHALL PAY ALL
SALES, TRANSFER OR SIMILAR TAXES OR GOVERNMENTAL CHARGES, IF ANY, AND ALL DEED
TAXES AND RECORDING FEES WITH RESPECT TO THE SALE AND PURCHASE OF THE ASSETS,
WHETHER LEVIED AGAINST THE ASSETS, SELLER, BUYER, OR BRS.

 

11.9         EXPENSES. EACH PARTY WILL BEAR ITS OWN EXPENSES RELATED TO THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO THOSE OF LEGAL
COUNSEL AND OTHER PROFESSIONAL ADVISERS.

 

11.10       COUNTERPARTS; THIRD PARTY BENEFICIARIES. THIS AGREEMENT MAY BE
EXECUTED IN COUNTERPARTS, EACH OF WHICH SHALL BE CONSIDERED AN ORIGINAL, AND
SIGNATURES FOR THIS AGREEMENT MAY BE DELIVERED BY FACSIMILE OR OTHER MEANS OF
ELECTRONIC TRANSMISSION, AND ANY SUCH SIGNATURE SHALL BE CONSIDERED VALID AND
BINDING TO THE SAME EXTENT AS DELIVERED ORIGINAL SIGNATURES. WITH THE EXCEPTION
OF THE RIGHTS CONFERRED TO BRS HEREIN, NO PROVISION OF THIS AGREEMENT IS
INTENDED TO CONFER ANY RIGHTS, BENEFITS, REMEDIES, OBLIGATIONS, OR LIABILITIES
HEREUNDER UPON ANY PERSON OTHER THAN THE PARTIES HERETO AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS.

 

11.11       NOTICES. ALL NOTICES GIVEN PURSUANT TO THIS AGREEMENT SHALL BE
DELIVERED IN WRITING BY OVERNIGHT COURIER OR SENT BY UNITED STATES REGISTERED
MAIL, POSTAGE PREPAID, ADDRESSED AS SET FORTH BELOW:

 

If to Buyer:

Advanced Tactical Fabrication, Inc.

300 Airport Road

South St. Paul, MN  55075

Attn: President

 

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with a copy to:

Maslon Edelman Borman & Brand, LLP
c/o Douglas T. Holod, Esq.

3300 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN  55402

 

 

If to Seller or Lesley:

Head Lites Corporation

 

 

If to Petrie:

Arthur Petrie

 

11.12       NON-DISPARAGEMENT. SELLER PARTIES WILL REFRAIN FROM DISPARAGING
BUYER OR BRS AND ANY OF THEIR RESPECTIVE SHAREHOLDERS, DIRECTORS, OFFICERS AND
AFFILIATES. SIMILARLY, THE BUYER AND ITS SHAREHOLDERS, DIRECTORS, OFFICERS AND
AFFILIATES WILL REFRAIN FROM DISPARAGING SELLER, LESLEY, AND PETRIE.

 

Signature Page Follows

 

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IN WITNESS WHEREOF, the parties have caused this Asset Purchase Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

 

 

 

BUYER:

 

 

 

 

 

ADVANCED TACTICAL FABRICATION, INC.,

 

 

a Minnesota corporation

 

 

 

 

 

/s/ Larry E. Williams

 

 

By: Larry E. Williams

 

 

       Its: President

 

 

 

 

 

 

 

 

SELLER:

 

 

 

 

 

HEAD LITES CORPORATION,

 

 

a Minnesota corporation

 

 

 

 

 

/s/ Gary Lesley

 

 

By: Gary Lesley

 

 

       Its: President

 

 

 

 

 

 

 

 

LESLEY:

 

 

 

 

 

/s/ Gary Lesley

 

 

Gary Lesley

 

 

 

 

 

PETRIE:

 

 

 

 

 

/s/ Arthur Petrie

 

 

Arthur Petrie

 

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