Exhibit 10.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSET PURCHASE AGREEMENT

between

WINLAND ELECTRONICS, INC.

and

NORTECH SYSTEMS, INC.

Dated as of November 15, 2010

 
 

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TABLE OF CONTENTS
 
ARTICLE 1 DEFINITIONS AND TERMS
 
1
 
1.1
 
Certain Definitions                             
 
1
 
1.2
 
Other Terms
 
6
 
1.3
 
Other Definitional Provisions
 
6
 
ARTICLE 2 PURCHASE AND SALE
 
7
 
2.1
 
Purchase and Sale of Conveyed Assets and Assumption of Liabilities
 
7
 
2.2
 
Purchase Price
 
8
 
2.3
 
Working Capital Adjustment
 
8
 
2.4
 
Inventory Obligations
 
9
 
2.5
 
Allocation of Purchase Price
 
9
 
2.6
 
Closing; Delivery and Payment
 
9
 
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER
 
11
 
3.1
 
Organization
 
11
 
3.2
 
Authority; Binding Effect
 
11
 
3.3
 
Noncontravention
 
11
 
3.4
 
Governmental Consents and Approvals
 
11
 
3.5
 
Financial Information; Books and Records
 
11
 
3.6
 
Absence of Certain Changes or Events
 
11
 
3.7
 
Litigation and Claims
 
12
 
3.8
 
Compliance with Laws
 
12
 
3.9
 
Material Contracts
 
12
 
3.10
 
Intellectual Property
 
13
 
3.11
 
Assets
 
13
 
3.12
 
Taxes
 
13
 
3.13
 
Employee Benefits
 
13
 
3.14
 
Brokers
 
14
 
3.15
 
Environmental Matters
 
14
 
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
15
 
4.1
 
Organization and Qualification
 
15
 
4.2
 
Corporate Authorization
 
15
 
4.3
 
Binding Effect
 
15
 
4.4
 
Noncontravention
 
15
 
4.5
 
Consents and Approvals
 
15
 
4.6
 
Litigation and Claims
 
15
 
4.7
 
Financial Capability
 
16
 
4.8
 
Brokers
 
16
 
ARTICLE 5 COVENANTS
 
16
 
5.1
 
Access
 
16
 
5.2
 
Seller's Conduct of Business
 
16
 
5.3
 
Purchaser’s Conduct of Business
 
16
 
5.4
 
Reasonable Best Efforts; Certain Governmental Matters
 
17
 
5.5
 
Employees
 
17
 
5.6
 
Further Assurances; Consents
 
18
 
5.7
 
Purchaser’s Investigation; No Additional Representations
 
18
 
5.8
 
Bulk Transfer Laws
 
18
 
5.9
 
Covenant-Not-To-Compete Agreement
 
18
 
5.10
 
Purchaser Lease Agreement
 
18
 
5.11
 
Seller Sublease Agreement
 
19
 
5.12
 
Manufacturing Agreement
 
19
 
5.13
 
Compliance with WARN, Etc.
 
19
 
5.14
 
Litigation Support
 
19
 
5.15
 
Tax Matters
 
19
 
5.16
 
Trademarks; Names
 
20
 
5.17
 
Post-Closing Reconciliation of Accounts
 
20
 
5.18
 
Payment of Assumed Liabilities
 
20
 
5.19
 
No Solicitation
 
20
 
ARTICLE 6 CONDITIONS TO CLOSING
 
20
 
6.1
 
Conditions to the Obligations of Purchaser and Seller
 
20
 
6.2
 
Conditions to the Obligations of Purchaser
 
21
 
6.3
 
Conditions to the Obligations of Seller
 
21
 

 
 
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ARTICLE 7 SURVIVAL AND INDEMNIFICATION
 
22
 
7.1
 
Survival
 
22
 
7.2
 
Indemnification by Purchaser
 
22
 
7.3
 
Indemnification by Seller
 
22
 
7.4
 
Indemnification Procedures
 
22
 
7.5
 
Exclusive Remedy; Limitation of Remedy
 
23
 
7.6
 
Characterization of Indemnification Payments
 
23
 
7.7
 
Computation of Losses Subject to Indemnification
 
23
 
7.8
 
Limitations on Liability
 
23
 
7.9
 
Mitigation
 
23
 
7.10
 
Waiver of Conditions; Indemnity
 
23
 
ARTICLE 8 TERMINATION
 
24
 
8.1
 
Termination
 
24
 
8.2
 
Effect of Termination
 
24
 
ARTICLE 9 MISCELLANEOUS
 
24
 
9.1
 
Notices
 
24
 
9.2
 
Specific Performance
 
25
 
9.3
 
Amendment; Waiver
 
25
 
9.4
 
Assignment
 
25
 
9.5
 
Entire Agreement
 
25
 
9.6
 
Fulfillment of Obligations
 
25
 
9.7
 
Parties in Interest
 
25
 
9.8
 
Public Disclosure
 
25
 
9.9
 
Return of Information
 
26
 
9.10
 
Expenses
 
26
 
9.11
 
Schedules
 
26
 
9.12
 
Governing Law
 
26
 
9.13
 
Consent to Jurisdiction
 
26
 
9.14
 
Waiver of Jury Trial
 
26
 
9.15
 
Counterparts
 
27
 
9.16
 
Headings
 
27
 
9.17
 
Severability
 
27
 

 
List of Schedules
     
1.1(a)
 
Excluded Names, Logo and Marks
1.1(b)
 
Other Excluded Assets
1.1( c)
 
Permitted Encumbrances
2.1(a)(i) 
 
Equipment
2.1(a)(ii)
 
Assumed Contracts
2.1(a)(iii)
 
Inventory
2.1(a)(iv)
 
Accounts Receivable
2.1( c)
 
Assumed Liabilities
2.5
 
Allocation of Purchase Price
3.4
 
Required Governmental Consents
3.5
 
Financial Statements

3.6
 
Material Occurrences
3.7
 
Pending or Threatened Litigation
3.9
 
Material Contracts
3.10(a)
 
Intellectual Property
3.10(b)
 
Claims Against Intellectual Property
3.12
 
Taxes
3.13
 
Employee Benefit Plans
3.15
 
Environmental Matters
4.5 
 
Purchaser Required Governmental Consents
4.6
 
Purchaser Pending or Threatened Litigation
5.5(e)
 
Current Employees
5.5(f)
 
Former Employees

 
 
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List of Exhibits
     
A
 
Form of Bill of Sale
B
 
Form of Assignment and Assumption Agreement
C
 
Form of Seller’s Secretary’s Certificate
D
 
Form of Seller’s Officer’s Certificate
E
 
Form of Purchaser’s Secretary’s Certificate
F
 
Form of Purchaser’s Officer’s Certificate
G
 
Form of Covenant-Not-To-Compete Agreement
H
 
Purchaser Lease Agreement
I
 
Seller Sub1ease Agreement
J
 
Manufacturing Agreement

 
 
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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is dated as of November 15,
2010 by and between Winland Electronics, Inc., a Minnesota corporation
(“Seller”), and Nortech Systems, Inc., a Minnesota corporation (“Purchaser”).

RECITALS:

WHEREAS, the Seller is engaged in the Business (as defined below) and owns the
Conveyed Assets (as defined below); and

WHEREAS, the parties hereto desire that the Seller shall sell and transfer to
Purchaser and Purchaser shall purchase from the Seller all of the Conveyed
Assets and assume all of the Assumed Liabilities (as defined below), upon the
terms and conditions set forth herein;

AGREEMENT

NOW, THEREFORE, in consideration of the above recitals, which are hereby
incorporated by reference herein, of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS AND TERMS

1.1           Certain Definitions.  As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:
 
 
“Affiliate” shall mean, with respect to any Person, any other person directly or
indirectly controlling, controlled by, or under common control with, such Person
specified.  The term “control” as used in the immediately preceding sentence,
means the ownership of more than 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation and more than 50% of the
voting power in the case of a business entity other than a corporation.

“Agreement” shall mean this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof, and all
Exhibits and Schedules hereto.

“Allocation” shall have the meaning set forth in Section 2.5 hereof.

“Alternative Proposal” shall have the meaning set forth in Section 5.19 hereof.

“Assignment and Assumption Agreement” shall have the meaning set forth in
Section 2.6(b)(ii) hereof.

“Assumed Contracts” shall have the meaning set forth in Section 2.1(a)(ii)
hereof.

“Assumed Liabilities” shall have the meaning set forth in Section 2.1(c) hereof.

“Benefit Plans” shall mean each "employee benefit plan", as such term is defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), and each personnel policy, employee manual or other statement of
rules or policies concerning employment, stock option plan, stock purchase plan,
stock appreciation rights plan, collective bargaining agreement, bonus plan,
incentive award plan, workers' compensation, vacation and sick leave policy,
fringe benefit plan, life, health, dental, vision, hospitalization or disability
plan, severance pay plan, deferred compensation agreement, employment or
consulting agreement, change in control arrangement, and other Contracts and
commitments concerning employment.

“Bill of Sale” shall have the meaning set forth in Section 2.6(b)(i) hereof.

 
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“Business” shall mean Seller’s Electronics Manufacturing Services (EMS) business
in the manner conducted by Seller with the Conveyed Assets on the date
hereof.  For clarification, the Business shall not include Seller’s proprietary
monitoring device assets.

“Business Day” shall mean any day other than a Saturday, a Sunday or a day on
which banks in Minneapolis, Minnesota, USA are authorized or obligated by law or
executive order to close.

“Claim” shall have the meaning set forth in Section 7.4 hereof.

“Claim Notice” shall have the meaning set forth in Section 7.4 hereof.

“Closing” shall mean the closing of the transactions contemplated by this
Agreement.

“Closing Date” shall have the meaning set forth in Section 2.6(a) hereof.

“Code” shall mean the United States Internal Revenue Code of 1986, as amended.

“Confidentiality Agreement” shall mean that certain letter agreement regarding
confidential materials, dated June 15, 2010 between Seller and Purchaser
relating to the Business.

“Conveyed Assets” shall have the meaning set forth in Section 2.1(a) hereof, it
being understood that the Conveyed Assets do not include the Excluded Assets.

“Covenant-Not-To Compete Agreements” shall have the meaning set forth in Section
5.9 hereof.

“Current Employees” shall have the meaning set forth in Section 5.5(a) hereof.

“Disclosure Schedules” shall have the meaning set forth in the preamble to
Article 3 hereof.

“Employee” shall mean all individuals employed by the Business and listed on
Schedule 5.5(e) hereto or hired or designated for the Business after the date of
such Schedule, who, as of the Business Day immediately preceding the Closing
Date are employed by the Business.

“Environment” shall mean soil, land surface or subsurface strata, surface waters
(including navigable waters and ocean waters), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plan and animal
life and any other environmental medium or natural resource.

“Environmental, Health and Safety Liabilities” shall mean any cost, damages,
expense, liability, obligation or other responsibility arising from or under any
Environmental Law or Occupational Safety and Health Law, including those
consisting of or relating to:

(a)             any environmental, health or safety matter or condition
(including on-site or off-site contamination, occupational safety and health
regulation of any chemical substance or product);

(b)             any fine, penalty, judgment, award, settlement, legal or
administrative proceeding, damages, loss, claim, demand or response, remedial or
inspection cost or expense arising under any Environmental Law or Occupational
Safety and Health Law;

(c)             financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any cleanup, removal, containment or other remediation or response
actions (“Cleanup”) required by any Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resources damages; or

(d)             any other compliance, corrective or remedial measure required
under any Environmental Law or Occupational Safety and Health Law.

 
 
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The terms “removal,” “remedial” and “response action” include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA).

“Environmental Law” means any Legal Requirement that requires or relates to:

(a)             advising appropriate authorities, employees 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, that could have a
significant impact on the Environment;

(b)             preventing or reducing to acceptable levels the release of
pollutants or hazardous characteristics of wastes that are generated;

(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, oil 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
them, 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 assets.

“Equipment” shall have the meaning set forth in Section 2.1(a)(i) hereof.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated)
that together with Seller would have been deemed a “single employer” within the
meaning of Section 4001(b) of ERISA at any time within the five-year period
ending on the Closing Date.

“Excluded Assets” shall mean, (i) all cash and cash equivalents, (ii) all
losses, loss carryforwards and rights to receive refunds, credits and credit
carryforwards with respect to any and all Taxes, to the extent attributable to a
taxable period ending on or prior to the Closing Date, including, without
limitation, interest thereon, (iii) its corporate books and records, (iv) all
insurance recoveries due to it and relating to periods prior to the Closing
Date, (v) except as expressly set forth herein, all assets of any of its
employee benefit plans, (vi) the “Winland Electronics” name and logo and any and
all rights to the trade names and trademarks listed on Schedule 1.1(a), (vii)
stock, shares, units, interests and other ownership and/or equity or debt
securities held by Seller in another entity, (viii) any and all assets not used
exclusively in the Business, (ix) all assets to be retained by Seller but made
available to Purchaser pursuant to the Purchaser Lease Agreement or other
agreements hereunder, (x) all rights existing under all contracts to which
Seller is a party, except for any Assumed Contracts, (xi) any Seller’s rights
under or pursuant to this Agreement and agreements entered into pursuant to this
Agreement, (xii) control of the attorney-client privilege with respect to
Seller, (xii) any assets listed on Schedule 1.1(b) hereto, and (xiv) assets not
specifically listed and identified on Schedule 2.1(a).

“Excluded Liabilities” shall have the meaning set forth in Section 2.1(d)
hereof.
 
 
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“Facility” shall mean Seller’s office and manufacturing facility and
improvements located at 1950 Excel Drive, Mankato Minnesota, 56001.

“Final Net Receivables” shall have the meaning set forth in Section 2.3(c)
hereof.

“Financial Statements” shall mean the financial data set forth in Schedule 3.5
hereto.

“Governmental Authority” shall mean any supranational, national, federal, state
or local judicial, legislative, executive or regulatory authority.

“Governmental Authorization” shall mean all licenses, permits, certificates and
other authorizations and approvals required to carry on the Business as
conducted as of the date of this Agreement under the applicable laws, ordinances
or regulations of any Governmental Authority.

“Governmental Order” shall mean any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.

“Hazardous Activity” shall mean the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Material in, on, under,
about or from the Facility or any part thereof into the Environment and any
other act, business, operation or thing that increases the danger, or risk of
danger, or pose an unreasonable risk of harm, to persons or property on or off
the Facility.

“Hazardous Material” shall mean any substance, material or waste which is or
will foreseeably be regulated by any Governmental Authority, including any
material, substance or waste which is defined as “hazardous waste,” hazardous
material,” hazardous substance,” “extremely hazardous waste,” “restricted
hazardous waste,” containment,” “toxic waste” or “toxic substance” under any
provision of Environmental Law, and including petroleum, petroleum products,
asbestos, presumed asbestos-containing material or asbestos-containing material,
urea formaldehyde and polychlorinated biphenyls.

“Hired Employees” shall have the meaning set forth in Section 5.5(b) hereof.

“Income Tax” or “Income Taxes” shall mean all Taxes based upon, measured by, or
calculated with respect to (i) gross or net income or gross or net receipts or
profits (including, but not limited to, any capital gains, minimum taxes and any
Taxes on items of tax preference, but not including sales, use, real or personal
property transfer or other similar Taxes), (ii) multiple bases (including, but
not limited to, corporate franchise, doing business or occupation Taxes) if one
or more of the bases upon which such Tax may be based, measured by, or
calculated with respect to is described in clause (i) above, or (iii)
withholding taxes measured by, or calculated with respect to, distributions
(other than wages).

“Indemnified Parties” shall have the meaning set forth in Section 7.3(a) hereof.

“Indemnifying Party” shall have the meaning set forth in Section 7.4 hereof.

“Independent Accounting Firm” shall have the meaning set forth in Section 2.3(c)
hereof.

“Intellectual Property” shall mean patents, patent applications, trade secrets,
trademarks, service marks, trade dress and copyrights.

“Inventories” shall mean all inventory, including raw materials, packaging
supplies, work-in-process or finished goods owned by Seller and used exclusively
in the Business.

“IRS” shall mean the Internal Revenue Service of the United States.

“Key Employees  Thomas J. de Petra and Glenn Kermes.
 
 
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“Knowledge of Seller” shall mean, and shall be restricted to, the actual
knowledge of only the Key Employees.

“Laws” shall include any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, injunction, judgment or decree.

“Liabilities” shall mean any and all debts, liabilities and obligations, whether
accrued or fixed, known or unknown, absolute or contingent, matured or unmatured
or determined or determinable.

“Liens” shall mean any lien, security interest, mortgage, charge or similar
encumbrance.

“Losses” shall have the meaning set forth in Section 7.2 hereof.

“Manufacturing Agreement” shall have the meaning set forth in Section 5.12
hereof.

“Material Adverse Effect” shall mean any change or effect that has occurred
prior to the date of determination of the occurrence of the Material Adverse
Effect, that is materially adverse to the Business taken as a whole; provided,
however, in no event shall any of the following, alone or in combination, be
deemed to constitute, nor shall any adverse circumstance, change or effect
arising out of any of the following be, a Material Adverse Effect: (i) any
change or effect resulting from compliance with the terms and conditions of this
Agreement; (ii) any change or effect that results from changes affecting any of
the industries in which the Business operates generally or the United States or
worldwide economy generally; (iii) any natural disaster or any acts of
terrorism, sabotage, military action or war (whether or not declared) or any
escalation or worsening thereof; (iv) failure to meet internal forecasts or
published financial projections, forecasts or revenue or earning predictions;
(v) any change or effect resulting from the announcement or pendency of the
transactions contemplated by this Agreement, including loss of any employees,
customers, suppliers, partners or distributors; or (vi) any change, effect or
development arising from or related to items listed on or set forth in a
schedule referenced in connection with and setting forth disclosures and/or
exceptions with respect to any of Seller’s representations or warranties herein.

“Material Contracts” shall have the meaning set forth in Section 3.9(a) hereof.

“Minimum Inventory Consumption Amount” shall have the meaning set forth in
Section 2.4(b) hereof.

“Net Receivables of the Business” shall mean in the aggregate, the accounts
receivable of the Business less the accounts payable of the Business.

“Net Receivables Statement” shall have the meaning set forth in Section 2.3(a)
hereof.

“Notice of Disagreement” shall have the meaning set forth in Section 2.3(b)
hereof.

“Notice Period” shall have the meaning set forth in Section 7.4 hereof.

“Permits” shall have the meaning set forth in Section 3.8(b) hereof.

“Permitted Encumbrances” shall mean (i) all liens, security interests,
mortgages, charges or encumbrances set forth on Schedule 1.1(c) hereto, (ii)
statutory liens, charges or encumbrances arising out of operation of Law with
respect to an Assumed Liability incurred in the ordinary course of business and
which is not delinquent, (iii) such liens, charges or encumbrances and other
imperfections of title as do not detract from the value or impair the use of the
property subject thereto, or (iv) liens for Taxes not yet due or which are being
actively contested in good faith by appropriate proceedings.

“Person” shall mean an individual, a corporation, a partnership, an association,
a trust or other entity or organization.

“Purchase Price” shall have the meaning set forth in Section 2.2 hereof.
 
 
5

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“Purchaser” shall have the meaning set forth in the heading of this Agreement
and shall include its Affiliates.

“Purchaser Indemnified Parties” shall have the meaning set forth in Section
7.3(a) hereof.

“Purchaser Lease Agreement” shall have the meaning set forth in Section 5.10
hereof.

“Qualified Plans” shall have the meaning set forth in Section 3.13(c) hereof.

“Seller” shall have the meaning set forth in the heading of this Agreement.

“Seller Indemnified Parties” shall have the meaning set forth in Section 7.2
hereof.

“Seller Sublease Agreement” shall have the meaning set forth in Section 5.11
hereof.

“Straddle Taxable Period” shall have the meaning set forth in Section 5.15(b)
hereof.

“Subsidiary” shall mean an entity as to which Seller or Purchaser or any other
relevant entity, as the case may be, owns directly or indirectly fifty percent
(50%) or more of the voting power or other similar interests.

“Target Net Receivables” shall mean the amount of Six Hundred Thousand Dollars
($600,000).

“Tax” or “Taxes” shall mean all taxes, charges, duties, fees, levies or other
assessments, including but not limited to, income, excise, property, sales,
value added, profits, license, withholding (with respect to compensation or
otherwise), payroll, employment, net worth, capital gains, transfer, stamp,
social security, environmental, occupation and franchise taxes, imposed by any
Governmental Authority, and including any interest, penalties and additions
attributable thereto.

“Tax Return” or “Tax Returns” shall mean any return, report, declaration,
information return, statement or other document filed or required to be filed
with any Governmental Authority in connection with the determination, assessment
or collection of any Tax or the administration of any Laws relating to any Tax.

“Treasury Regulations” means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

“WARN” shall mean the Worker Adjustment and Retraining Notification Act.

1.2           Other Terms.  Other terms may be defined elsewhere in the text of
this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.

1.3           Other Definitional Provisions.

(a)           The words “hereof,” “herein,” “hereto” and “hereunder” and words
of similar import, when used in this Agreement, shall refer to this Agreement as
a whole and not to any particular provision of this Agreement.

(b)           The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.

(c)           The terms “dollars” and “$” shall mean United States dollars.

 
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ARTICLE 2
PURCHASE AND SALE

2.1           Purchase and Sale of Conveyed Assets and Assumption of Liabilities

(a)           On the terms and subject to the conditions set forth herein, at
the Closing, Seller agrees to sell convey to Purchaser and Purchaser agrees to
purchase, acquire and accept from Seller, free and clear of all Liens, other
than Permitted Encumbrances and Liens created in connection with the
transactions contemplated herein, all of the right, title and interest of Seller
in and to the assets, properties and rights identified and listed on Schedule
2.1(a) for each of the categories set forth in the following clauses, as the
same shall exist as of the Closing, but with the exception of the Excluded
Assets (collectively, the “Conveyed Assets”):

(i) the furniture, equipment, machinery, supplies, personal property and other
tangible property owned, leased or licensed by Seller set forth on Schedule
2.1(a)(i) (collectively, the “Equipment”);

(ii) the contracts, licenses, agreements and commitments set forth on Schedule
2.1(a)(ii) (“Assumed Contracts”);

(iii) the Inventories of the Business set forth on Schedule 2.1(a)(iii);

(iv) all billed and unbilled accounts receivable and all correspondence with
respect thereto, including without limitation, all trade accounts receivable,
notes receivable from customers, vendor credits and all other obligations from
customers with respect to sales of services, whether or not evidenced by a note
as set forth on Schedule 2.1(a)(iv);

(v) all rights of Seller under or pursuant to all warranties, representations
and guaranties made by suppliers, manufacturers and contractors only to the
extent relating to the Business or affecting the Conveyed Assets and only to the
extent transferable;

(vi) all customer and vendor lists only to the extent relating to the Business,
and all files and documents (including credit information) only to the extent
relating to customers and vendors of the Business, and other business and
financial records, files, books and documents (whether in hard copy or computer
format) only to the extent relating to the Conveyed Assets or the Business;
provided, however, that the Seller may redact any information not related to the
Business therein; and

(vii) the goodwill and going concern value of the Business.

Notwithstanding the foregoing, but subject to the provisions of Section 2.1(b)
and Section 5.6, Seller shall be required to transfer, assign or convey any of
its interest in any Assumed Contract only to the extent that Seller has the
right and ability to make such transfer and no action hereunder shall constitute
an assignment thereof except to such extent.

(b)           Notwithstanding anything to the contrary contained in this
Agreement or in any other agreement described herein, all risk of loss or damage
with respect to the Conveyed Assets shall pass to Purchaser and Purchaser’s
Affiliates upon the Closing and Seller shall not be liable for any loss or
injury to the Conveyed Assets thereafter.  Following the Closing, the Conveyed
Assets shall not be insured by Seller against loss or injury however
caused.  Where loss or injury occurs to Conveyed Assets, for which Seller is
liable, Seller shall be responsible for the cost of removing and disposing of
such Conveyed Assets and the cost of any clean up and remediation resulting from
the loss or injury to the Conveyed Assets.

(c)           Upon the terms and subject to the conditions of this Agreement,
Purchaser agrees, effective at the Closing, to assume and agree to pay, and
perform and discharge when due, all Liabilities of Seller set forth on Schedule
2.1(c) (collectively, the “Assumed Liabilities”).  Such Assumed Liabilities,
which are the same Assumed Liabilities as were presented and disclosed to
Purchaser on September 30, 2010, shall be paid, performed and discharged by
Purchaser on the same terms as conditions as apply to Seller prior to the
Closing Date.  Assumed Liabilities shall also include all lawsuits or other
proceedings arising after the Closing to the extent resulting from the conduct
of the Business or the ownership of the Conveyed Assets on, or after the Closing
Date and all Liabilities arising from the development, manufacture, distribution
or sale of any product of the Business on, or after the Closing Date, including
warranty obligations.
 
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(d)           Notwithstanding any provision in this Agreement or any other
writing to the contrary, Purchaser is not assuming the following Liabilities of
Seller with respect to the Business, and Seller shall be responsible for the
satisfaction or discharge of such Liabilities (collectively, the “Excluded
Liabilities”):  (i) Liabilities resulting from indebtedness for borrowed money;
(ii) Liabilities for which Seller expressly has responsibility pursuant to the
terms of this Agreement; (iii) Liabilities associated with the Excluded Assets;
and (iv) Liabilities to Employees with respect to periods prior to the Closing,
except as provided herein.

2.2           Purchase Price.  In consideration of the sale and transfer of the
Conveyed Assets, Purchaser shall pay to Seller at Closing, in accordance with
the provisions of this Agreement, One Million Five Hundred Thousand Dollar
($1,500,000) in cash (the “Initial Payment”), by wire transfer of immediately
available funds to an account or accounts designated by Seller, Two Hundred
Fifty Thousand Dollars ($250,000) on July 1, 2011, and Two Hundred Fifty
Thousand Dollars ($250,000) on October 1, 2011 (the “Deferred Payments”), which
shall be adjusted as described in Section 2.3 below and allocated among the
Conveyed Assets as described in Section 2.5 below.  The Initial Payment and the
Deferred Payments shall constitute the “Purchase Price.”

2.3           Net Receivables Adjustment.

(a)           Seller shall prepare a statement of the Net Receivables of the
Business (the “Net Receivables Statement”) and will deliver a copy of the Net
Receivables Statement to Purchaser at Closing.  The Net Receivables Statement,
which will be unaudited, shall be prepared and the valuations therein made on a
basis consistent with the calculation of the Target Net Receivables.  Purchaser
shall assist Seller in the preparation of the Net Receivables Statement.  If
Purchaser agrees with the Net Receivables Statement, the Initial Payment shall
be adjusted to the extent that the Net Receivables Statement is less than or
greater than the Target Net Receivables.

(b)           If Purchaser disagrees with the Net Receivables Statement,
Purchaser may, within ten (10) Business Days after its receipt of the Net
Receivables Statement, deliver a written notice to Seller disagreeing with the
Net Receivable Statement (a “Notice of Disagreement”).  Any such Notice of
Disagreement shall specify those items or amounts as to which Purchaser
disagrees, and Purchaser shall be deemed to have agreed with all other items and
amounts contained in the Net Receivables Statement.

(c)           If a Notice of Disagreement shall be timely delivered pursuant to
Section 2.3(b) above, the parties shall, during the ten (10) Business Days
following such delivery (as such time period may be extended by the mutual
agreement of the parties), use their reasonable best efforts to reach agreement
on the disputed items.  If, during such period (or extension thereof), the
parties are unable to reach agreement, KPMG LLP (the “Independent Accounting
Firm”) shall promptly review this Agreement and the disputed items or
amounts.  In connection therewith, the Independent Accounting Firm shall
consider only those items or amounts in the applicable Net Receivables Statement
as to which Purchaser has disagreed.  The Independent Accounting Firm shall
deliver to Seller and Purchaser, as promptly as possible, a report prepared and
the valuations therein made on a basis consistent with the calculation of the
Target Net Receivables and shall set forth therein its adjustments, if any, to
the applicable Net Receivables Statement and the calculations supporting such
adjustments.  Such report shall be final and binding on the parties.  The cost
of such review and report shall be borne by Seller and Purchaser in inverse
proportion as they may prevail on matters resolved by the Independent Accounting
Firm, which proportionate allocation also shall be determined by the Independent
Accounting Firm at the time such report is rendered by the Independent
Accounting Firm.  As used herein, “Final Net Receivables” shall mean (i) if no
Notice of Disagreement is delivered by Seller within the period provided in
Section 2.3(b) above, the Net Receivables of the Business as shown in the Net
Receivables Statement as prepared pursuant to Section 2.3(a), or (ii) if such a
Notice of Disagreement is delivered by Seller, either (A) the Net Receivables of
the Business as agreed to in writing by Seller and Purchaser or (B) the Net
Receivables of the Business as shown in the Independent Accounting Firm’s
calculation delivered pursuant to this Section 2.3(c).
 
 
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(d)           Following the determination of the Final Net Receivables (i) in
the event the Final Net Receivables is less than the Target Net Receivables,
then Seller shall pay to Purchaser or Purchaser may deduct from the Deferred
Payments, as an adjustment to the Purchase Price, the amount of such deficiency,
and (ii) in the event the Final Net Receivables is greater than the Target Net
Receivables, then Purchaser shall pay to Seller, as an adjustment to the
Purchase Price, the amount of such surplus.  Any payments required pursuant to
this Section 2.3(d) shall be made by wire transfer of immediately available
funds to an account or accounts designated by Seller or Purchaser, as
applicable, on or before the fifth (5th) Business Day following the date on
which the Final Net Receivables was determined pursuant to Section 2.3(c) above.

(e)           Purchaser shall make commercially reasonable efforts to collect
the acquired receivable.  To the extent that Purchaser is unable to collect any
receivables, the amount of such uncollectible receivables shall be deducted from
the Deferred Payments, and such receivables shall be reassigned to Seller.

2.4           Inventory Obligations.

(a)           Purchaser agrees to purchase Inventory, as it is consumed by
Purchaser, from Seller for a period of twenty-four (24) months after the Closing
Date.  Purchaser will purchase Inventory from Seller pursuant to Purchaser’s
normal purchasing cycles and will give Seller a detailed report of such
Inventory purchases to date on the first day of each month after the Closing;

(b)           The Inventory consumed by Purchaser from Seller as set forth in
Section 2.4(a), shall be subject to a minimum consumption total by Purchaser of
at least Two Million Two Hundred Thousand Dollars ($2,200,000) (the “Minimum
Inventory Consumption Amount”);

(c)           Until the Minimum Inventory Consumption Amount is reached,
Purchaser shall consume the Inventory from Seller on a first priority basis
before it looks to third parties for Inventory.  After the  Minimum Inventory
Consumption Amount is reached, Purchaser shall not be obligated to purchase
additional Inventory from Seller; and

(d)           If any Inventory is not consumed by Purchaser within the
twenty-four (24) month period after the Closing Date, at Seller’s option, the
Inventory will be returned to Seller or Seller will give Purchaser disposition
instructions for the remaining Inventory.  Purchaser shall execute such
disposition instructions and remit to Seller any funds received from the
disposition of the remaining Inventory, after deducting its reasonable expenses.

2.5           Allocation of Purchase Price.  As of the Closing Date, Seller and
Purchaser shall have agreed to the allocation of the Purchase Price among the
Conveyed Assets as set forth in Schedule 2.5 (the “Allocation”).  Seller on the
one hand and Purchaser on the other shall (a) be bound by the Allocation for
purposes of determining any Taxes, (b) prepare and file, and cause its
Affiliates to prepare and file, its Tax Returns on a basis consistent with the
Allocation, and (c) take no position, and cause its Affiliates to take no
position, inconsistent with the Allocation on any applicable Tax Return or in
any proceeding before any taxing authority or otherwise.  In the event that the
Allocation is disputed by any taxing authority, the party receiving notice of
the dispute shall promptly notify the other party hereto concerning resolution
of the dispute.  Seller and Purchaser acknowledge that the Allocation was done
at arm’s length based upon a good faith estimate of fair market values.

2.6           Closing; Delivery and Payment.

(a)           The Closing shall take place at the offices of Fredrikson & Byron,
P.A. in Minneapolis, Minnesota at 10:00 A.M., Central time, on the later of
January 1, 2011 or the third (3rd) Business Day following the satisfaction or
waiver of the conditions precedent specified in Article 6, or at such other
times and places as the parties hereto may mutually agree.  The “Closing Date”
shall be January 1, 2011.  The Closing shall be deemed to occur and be effective
as of 12:01 a.m. on the Closing Date.

(b)           At the Closing, Seller shall deliver to Purchaser:

 
(i)  
a bill of sale for the Conveyed Assets that are tangible personal property, in
the form attached hereto as Exhibit A (the “Bill of Sale”), executed by Seller;

(ii)  
an assignment agreement for the Conveyed Assets that are intangible personal
property, in the form attached hereto as Exhibit B, which assignment shall also
contain Purchaser’s undertaking and assumption of the Assumed Liabilities (the
“Assignment and Assumption Agreement”), executed by Seller;

(iii)  
the Secretary’s Certificate, in the form attached hereto as Exhibit C, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of Seller;

(iv)  
the Officer’s Certificate, in the form attached hereto as Exhibit D, dated the
Closing Date and signed by a duly authorized officer of Seller;

(v)  
the Covenant-Not-To-Compete Agreements, in the form attached hereto as Exhibit
G, executed by Seller and each Key Employee;

(vi)  
the Purchaser Lease Agreement, as attached hereto as Exhibit H, executed by
Seller;

 
 
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(vii)  
the Seller Sublease Agreement, as attached hereto as Exhibit I, executed by
Seller;

 
(viii)  
the Manufacturing Agreement, as attached hereto as Exhibit J, executed By
Seller;

(ix)  
copies of the resolutions of the Board of Directors of Seller authorizing and
approving the transactions contemplated herein;

(x)  
a certification of Seller that the Seller’s shareholders have authorized and
approved the transactions contemplated herein; and

(xi)  
such other instruments and documents that may be reasonably requested or
required by Purchaser to consummate the transfer of the Conveyed Assets and
assignment and assumption of the Assumed Liabilities pursuant to this Agreement.

 
(c)           At the Closing, Purchaser shall deliver to Seller:

(i.)  
the Purchase Price by wire transfer in immediately available funds to one or
more accounts specified in writing by Seller on or prior to the Closing Date;

(ii.)  
the certificate referred to in Section 6.3(a) hereof;

(iii.)  
the Assignment and Assumption Agreement, as attached hereto as Exhibit B
executed by Purchaser;

(iv.)  
the Secretary’s Certificate, in the form attached hereto as Exhibit E, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of Purchaser;

(v.)  
the Officer’s Certificate, in the form attached hereto as Exhibit F, dated the
Closing Date and signed by a duly authorized officer of Purchaser;

(vi.)  
the Purchaser Lease Agreement, as attached hereto as Exhibit H, executed by
Seller;

 
(vii.)  
the Seller Sublease Agreement, as attached hereto as Exhibit I, executed by
Seller;

(viii.)  
the Manufacturing Agreement, as attached hereto as Exhibit J, executed By
Seller;

(ix.)  
copies of the resolutions of the board of directors of Purchaser authorizing and
approving the transactions contemplated herein; and

(x.)  
such other instruments and documents that may be reasonably requested or
required by Seller to consummate the transfer of the Conveyed Assets and
assignment and assumption of the Assumed Liabilities pursuant to this Agreement.

 
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser that the statements contained
in this Article 3 are true, correct and complete, subject to and except as
otherwise expressly set forth in this Article 3 or in Seller’s Disclosure
Schedules attached hereto and incorporated herein by reference (the “Disclosure
Schedules”), as of the date hereof.

3.1           Organization.  Seller is duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its organization.

3.2           Authority; Binding Effect.

(a)           Seller has full organizational power and organizational authority
to carry on its business as is now being conducted and to execute and deliver
this Agreement and to perform its obligations hereunder.  The execution and
delivery of this Agreement and the performance by Seller of its obligations
hereunder, have been duly authorized by all requisite corporate or
organizational action, and no other corporate proceedings are required in
connection with its execution, delivery and performance of this Agreement.

(b)           This Agreement constitutes a valid and legally binding obligation
of Seller, enforceable against it in accordance with its terms, except to the
extent that such enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors’ rights generally or by general equitable principles.

3.3           Noncontravention.  The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions contemplated hereby
does not and will not (a) violate any provision of its articles of
incorporation, bylaws or other comparable organizational documents, (b) conflict
with, or result in the breach of, or constitute a default under, or result in
the termination, cancellation or acceleration (whether after the giving of
notice or the lapse of time or both) of any right or obligation of Seller with
respect to the Business under, any agreement, contract, understanding, or other
instrument to which Seller is a party or to which its material assets are
subject, (c) assuming compliance with the matters set forth in Sections 3.4 and
4.5, violate or result in a breach of or constitute a default under any Law or
other restriction of any court or Governmental Authority to which Seller is
subject, including any Governmental Authorization, or (d) result in the creation
or imposition of any Lien, other than Permitted Encumbrances.

3.4           Governmental Consents and Approvals.  Except as set forth in
Schedule 3.4 of the Disclosure Schedules, the execution, delivery and
performance of this Agreement by Seller does not require any consent or approval
of any Governmental Authority.

3.5           Financial Information; Books and Records.  The Financial
Statements as set forth on Schedule 3.5 are complete and correct in all material
respects according to the books of Seller, have been recorded in accordance with
Seller’s policies and procedures, consistently applied, and present fairly, in
accordance with such policies and procedures, the results of operations of the
Business in all material respects for the periods covered thereby.  The accounts
receivable of the Business reflected in the Financial Statements arose in the
ordinary course of business from bona fide transactions.  The Inventories
reflected in the Financial Statements consist of materials, work in progress and
finished goods, valued consistent with Seller’s accounting policies used in the
Business.  Seller has no liabilities except for liabilities reflected or
reserved on the balance sheet of the Financial Statements and liabilities
incurred in the ordinary course of business since the date of the Financial
Statements.
 
3.6           Absence of Certain Changes or Events.  To the Knowledge of Seller,
except to the extent arising out of transactions contemplated by this Agreement
or as set forth in Schedule 3.6 of the Disclosure Schedules, since the date of
the latest Financial Statements, the Business has been conducted in the ordinary
course consistent with recent trends and performance as reflected in the
Financial Statements for the first two fiscal quarters of 2010 and the Business
has not suffered a Material Adverse Effect.
 
 
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3.7           Litigation and Claims.  Schedule 3.7 of the Disclosure Schedules
sets forth a true, correct and complete list of every civil, criminal or
administrative action, suit, hearing, proceeding or investigation pending or, to
the Knowledge of Seller, threatened in writing against Seller with respect to
the Business or the transactions contemplated hereby.

3.8           Compliance with Laws.

(a)           There are, and during the two (2) years preceding the date of this
Agreement, there have been, no violations by Seller of applicable Laws or
Governmental Orders that would have a Material Adverse Effect.

(b)           Seller possesses all permits, licenses, authorizations,
certificates, exemptions and approvals of Governmental Authorities
(collectively, “Permits”) necessary for the conduct of the Business as it is
currently conducted, and all such Permits are being complied with by Seller,
except for such failures to possess or comply with that would not have a
Material Adverse Effect.

3.9           Material Contracts.

(a)           Schedule 3.9 of the Disclosure Schedules lists each of the
following contracts and agreements of Seller used exclusively in the Business
(such contracts and agreements being “Material Contracts”):

(i)           each contract, agreement and other arrangement for the purchase of
Inventories, or other personal property with any supplier or for the furnishing
of services to the Business extending beyond twelve (12) months or the terms of
which provide for purchases thereunder in excess of Ten Thousand Dollars
($10,000) on an annual basis;

(ii)           each contract, agreement and other arrangement for the sale of
Inventories or other personal property or for the furnishing of services by the
Business with firm commitments in excess of one year from the date of this
Agreement;

(iii)           all broker, distributor, dealer, manufacturer’s representative,
franchise and agency agreements related to the Business;

(iv)           all contracts and agreements relating to indebtedness for
borrowed money, factoring arrangements, sale and leaseback transactions,
deferred purchase price of property and other similar financing transactions
relating to the Business with respect to which Seller is an obligor;

(v)           all patent and technology licenses and trademark licenses and
agreements, and research and development agreements relating to the Business;
and

(vi)           all agreements entered into since January 1, 2010 providing for
the acquisition or disposition of any Conveyed Assets outside of the ordinary
course of business.

(b)           (i) each Material Contract is valid and binding on Seller, and to
the Knowledge of Seller, the other party thereto, and is in full force and
effect, (ii) each Material Contract by its terms does not prohibit or in any way
restrict or penalize assignment to Purchaser, and (iii) Seller is not in breach
of, or default under, any such Material Contract, which breach or default would
result in a Material Adverse Effect.
 
 
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3.10           Intellectual Property.

(a)           Schedule 3.10(a) sets forth a list, as of the date hereof, of all
material patents, patent applications, trademark applications, trademark
registrations, copyright applications and copyright registrations that are owned
by Seller, or for which Seller has a belief that it has an ownership interest
in.

(b)           Except as disclosed in Schedule 3.10(b), with respect to the
Business: (i) Seller has title or an ownership interest in the patents and
trademarks, (ii) Seller’s intellectual property counsel has not received any
unresolved material written claim in the last four (4) years from any third
party charging Seller with infringement of any Intellectual Property in
connection with Seller’s conduct of the Business.

3.11           Assets.

(a)           Seller owns, leases or has the legal right to use all of its
Conveyed Assets.  Seller has good and marketable title to (or in the case of
leased Conveyed Assets, valid leasehold interests in) all its Conveyed Assets
except for Permitted Encumbrances.

(b)           To the Knowledge of Seller, assuming sufficient liquidity is
available to Purchaser, and a sufficient workforce of Employees continues
employment with Purchaser following the Closing, the Conveyed Assets (with the
Excluded Assets and the Excluded Liabilities), as of the date hereof and those
assets used by the Business that are to be retained by Seller but made available
to Purchaser pursuant to the Purchaser Lease Agreement (assuming performance by
Purchaser under such agreements) constitute all the properties, assets and
rights sufficient to conduct the Business immediately at the effectiveness of
the Closing in all material respects as conducted as of the date of this
Agreement; provided, however, that this Section 3.11(b) is not intended to
provide, and does not provide, any representations or warranties regarding (i)
any future results or success of the Business following the Closing, (ii) any
anticipated or actual future operating or financial performance of the Business
and/or the Purchaser following the Closing, (iii) the availability or
sufficiency of any insurance for the benefit of the Business and/or (iv) the
sufficiency of the Conveyed Assets for any period following the effectiveness of
the Closing.

3.12           Taxes.  Except as set forth in Schedule 3.12 of the Disclosure
Schedules, (a) all material Tax Returns that are required to be filed on or
before the date hereof by or on behalf of Seller with respect to the Business or
the Conveyed Assets have been filed, (b) all Taxes shown to be due and payable
on such Tax Returns have been paid and (c) all Tax Returns are true, correct and
complete.  There are no Tax Liens upon any of the assets of the Business, except
for Liens for Taxes not yet due and payable or being contested in good
faith.  Except as set forth on Schedule 3.12 of the Disclosure Schedules, no Tax
Return that includes Seller with respect to the Business or the Conveyed Assets
is currently being examined by any taxing authority, and there are no
outstanding agreements or waivers extending the statute of limitations
applicable to any such Tax Return.  Except as expressly set forth in Section
3.13, this Section 3.12 constitutes all of Seller’s representations and
warranties with respect to Taxes and no other representation or warranty in this
Agreement shall be construed or interpreted to apply to any matter relating to
Taxes.

3.13           Employee Benefits.

(a)           Schedule 3.13 sets forth a list of each of the Plans in effect as
of the date hereof.

(b)           To the Knowledge of Seller, with respect to the Business, neither
Seller nor any ERISA Affiliate has incurred any material liability under,
arising out of or by operation of Title IV of ERISA.  To the Knowledge of
Seller, no complete or partial termination has occurred within the five years
preceding the date hereof with respect to any Plan.

(c)           Each of the Plans intended to qualify under Section 401 of the
Code (“Qualified Plans”) has received a favorable determination letter from the
IRS that such plan is so qualified, and to the Knowledge of Seller, since the
date of such IRS determination, nothing has occurred with respect to the
operation of any such plan that, either individually or in the aggregate, would
likely cause the loss of such qualification.
 
 
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(d)           To the Knowledge of Seller, all material contributions and
premiums required by Law or by the terms of any Plan or any agreement relating
thereto have been timely made and to the Knowledge of Seller, no material
accumulated funding deficiencies exist in any of the Plans subject to Section
412 of the Code.

(e)           To the Knowledge of Seller, there has been no “reportable event”
as that term is defined in Section 4043 of ERISA and the regulations thereunder
with respect to any of the Plans subject to Title IV of ERISA that would require
the giving of notice, or any event requiring notice to be provided under Section
4063(a) of ERISA.

(f)           To the Knowledge of Seller, there has occurred no violation of
ERISA with respect to the filing of applicable returns, reports, documents and
notices regarding any of the Plans with the Secretary of Labor or the Secretary
of the Treasury or the furnishing of such notices or documents to the
participants or beneficiaries of the Plans, which violations, either
individually or in the aggregate, would result in a Material Adverse Effect.

(g)           Complete and correct copies of the following documents, with
respect to each of the Plans (as applicable), have been delivered to Purchaser
or will be delivered as soon as practicable following the Closing Date:  (i) the
most recent IRS determination letter; and (ii) the most recent summary plan
description.

(h)           To the Knowledge of Seller, each of the Plans and its
administration is, and, since its inception, has been maintained, in all
material respects, in compliance with its terms and all provisions of applicable
Laws.

3.14           Brokers.  Other than Lincoln International LLC, no broker, finder
or investment banker is entitled to any brokerage, finder’s or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Seller.

3.15           Environmental Matters.  Except as disclosed on Schedule 3.15:

(a)           Seller is, and at all times has been, in full compliance with, and
has not been and is not in violation or liable under, any Environmental
Law.  Seller has not received and to the Knowledge of Seller, there is no actual
or threatened order, notice or other communication from (i) any Governmental
Authority or private citizen acting in the public interest or (ii) the current
or prior owner or operator of the Facility, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to the Facility or other property or asset (whether
real, personal or mixed) in which Seller has or had an interest, or with respect
to any property or facility at or which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used or processed by Seller, or
from which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.

(b)           There are no pending, or to the Knowledge of Seller, threatened
claims, encumbrances, or other restrictions of any nature resulting from any
Environmental, Health and Safety Liabilities or arising under or pursuant to any
Environmental Law with respect to or affecting the Facility or arising or
pursuant to any Environmental Law with respect to or affecting the Facility or
any property or asset (whether real, personal or mixed) in which Seller has or
had an interest.

(c)           To the Knowledge of Seller, Seller has no basis to expect, any
citation, directive, inquiry, notice, order, summons, warning or other
communication that relates to Hazardous Materials, or of any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual or potential obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to the Facility or
property or asset (whether real, personal or mixed) in which Seller has or had
an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used or
processed by Seller have been transported, treated, stored, hauled, transferred,
disposed, recycled or received.
 
 
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(d)           Seller has no Environmental, Health and Safety Liabilities with
respect to the Facility or, to the Knowledge of Seller, with respect to any
other property or asset (whether real, personal or mixed) in which Seller (or
any predecessor) has or had an interest.

(e)           There are no Hazardous Materials present on or in the Environment
at the Facility, including any Hazardous Materials contained in barrels,
aboveground or underground storage tanks, landfills, land deposits, dumps,
equipment (whether movable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facility, or incorporated into any structure therein or thereon.  Seller has
not permitted or conducted, or is aware of, any Hazardous Activity conducted
with respect to the Facility or any other property or asset (whether real,
personal or mixed) in which Seller has or had an interest except in full
compliance with all applicable Environmental Laws.

(f)           There has been no release or, to the Knowledge of Seller, threat
of release, of any Hazardous Material at or from the Facility or at any other
location where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the Facility, or
from any other property or asset (whether real, personal or mixed) in which
Seller has or had an interest.

(g)           Seller has delivered by Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by Seller pertaining to Hazardous Materials or Hazardous Activities in, on, or
under the Facility, or concerning compliance, by Seller, with Environmental
Laws.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller that the statements contained
in this Article 4 are true, correct and complete, except as otherwise expressly
set forth in this Article 4 or in the referenced schedules attached hereto and
incorporated herein by reference, as of the date hereof.

4.1           Organization and Qualification.  Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation.

4.2           Corporate Authorization.  Purchaser has full corporate power and
authority to execute and deliver this Agreement, and to perform its obligations
hereunder.  The execution, delivery and performance by Purchaser of this
Agreement have been duly authorized by all requisite corporate action on the
part of Purchaser and no other corporate proceedings on the part of Purchaser
are required in connection with the execution, delivery and performance by
Purchaser of this Agreement.

4.3           Binding Effect.  This Agreement constitutes a valid and legally
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except to the extent that such enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors’ rights generally or by general equitable
principles.

4.4           Noncontravention.  The execution, delivery and performance by
Purchaser of this Agreement, and the consummation of the transactions
contemplated hereby, do not and will not (a) violate any provision of the
certificate of incorporation, bylaws or other organizational documents of
Purchaser, or (b) assuming compliance with the matters set forth in Sections 3.4
and 4.5, violate or result in a breach of or constitute a default under any Law
or other restriction of any court or Governmental Authority to which Purchaser
is subject, including any Governmental Authorization.

4.5           Consents and Approvals.  Other than as set forth in Schedule 4.5,
the execution and delivery of this Agreement by Purchaser do not and will not,
require any material consent or approval of any Governmental Authority.

4.6           Litigation and Claims.   Schedule 4.6 sets forth a true, correct
and complete list of every civil, criminal or administrative action, suit,
hearing, proceeding or investigation pending or threatened against Purchaser or
any of its Subsidiaries that would reasonably be expected to have a materially
adverse effect on Purchaser.
 
 
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4.7           Financial Capability.  Purchaser (a) currently has and will have
at the Closing all funds or financing commitments sufficient to consummate the
Closing of the transactions contemplated by this Agreement, including, without
limitation, the payment of the Purchase Price and the payment of any fees and
expenses in connection with the transactions contemplated hereby or the
financing thereof, and (b) will have sufficient liquid assets and funds to
satisfy its post-closing obligations under this Agreement and the other
documents and agreements contemplated herein, and the payment of any fees and
expenses in connection therewith.

4.8           Brokers.  No broker, finder or investment banker is entitled to
any brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Purchaser or its Affiliates, and in no way will any such fees or
expenses be deemed an Excluded Asset or Excluded Liability.

ARTICLE 5
COVENANTS AND OTHER AGREEMENTS

5.1           Access.

(a)           Prior to the Closing, Seller shall permit Purchaser and its
representatives to have access, during regular business hours and upon
reasonable advance notice, to the assets, customers, the employees listed on
Schedule 5.5(e), books and records of Seller relating only to the Business, and
shall furnish, or cause to be furnished, to Purchaser, such financial, tax and
operating data and other available information with respect to the Business as
Purchaser shall from time to time reasonably request.

(b)           All information provided to Purchaser by or on behalf of Seller or
in connection with this Agreement and the transactions contemplated hereby will
be held by Purchaser and its Affiliates, agents and representatives as
Confidential Information, as defined in, and pursuant to the terms of, the
Confidentiality Agreement.

5.2           Seller’s Conduct of Business.  During the period from the date
hereof to the Closing, except as otherwise contemplated by this Agreement or as
Purchaser shall otherwise consent in writing, which consent shall not be
unreasonably withheld, delayed or conditioned, Seller agrees that it will
conduct the Business, and will cause the Business to be conducted, in the
ordinary and usual course consistent with past practice (including as reflected
in the Financial Statements for the first two fiscal quarters of 2010).  During
the period from the date hereof to the Closing, except as otherwise contemplated
by this Agreement, or as Purchaser shall otherwise consent in writing, which
consent shall not be unreasonably withheld, delayed or conditioned, and except
as may be necessary with respect to the Excluded Assets, Seller covenants and
agrees that it shall, with respect to the Business:

(a)           not incur, create or assume any Lien with respect to any Conveyed
Asset other than Permitted Encumbrances;

(b)           not amend any term of, or waive any right under, any Assumed
Contract, other than in the ordinary course of business consistent with past
practice;

(c)           not enter into, terminate, amend or modify any agreements,
commitments or contracts that would come within the definition of Material
Contract, other than in the ordinary course of business consistent with past
practice; and

(d)           not agree to take any of the foregoing actions.

5.3           Purchaser’s Conduct of Business. During the period from the date
hereof to the Closing, except as otherwise contemplated by this Agreement or in
connection with the transactions contemplated hereby, or as Seller otherwise
agrees in writing in advance, Purchaser shall not, directly or indirectly, take,
authorize or enter into any agreement or commitment to take any of the following
actions:
 
 
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(a)           amend any of the organizational documents of Purchaser in a manner
that could be reasonably likely to prevent, delay or materially impair the
consummation of the transactions contemplated hereby;

(b)           adopt a plan of complete or partial liquidation or authorize or
undertake a dissolution, consolidation, restructuring, recapitalization or other
reorganization that could be reasonably likely to prevent, delay or materially
impair the consummation of the transactions contemplated hereby;

(c)           acquire (by merger, consolidation, acquisition of stock or assets
or otherwise) any corporation, partnership or other business organization or
division thereof or any equity interest therein if such acquisition could be
reasonably likely to prevent, delay or materially impair the consummation of the
transactions contemplated hereby;

(d)           knowingly do any other act which would cause any representation or
warranty of Purchaser in this Agreement to be or become untrue in any material
respect or knowingly omit to take any action necessary to prevent any such
representation or warranty from being untrue in any material respect at such
time; and

(e)           agree to take any of the foregoing actions.

5.4           Reasonable Best Efforts; Certain Governmental Matters.  Upon the
terms and subject to the conditions herein provided, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, (i) to comply
promptly with all legal requirements that may be imposed on it with respect to
this Agreement and the transactions contemplated hereby (which actions shall
include, without limitation, furnishing all information required by applicable
Law in connection with approvals of or filings with any Governmental Authority),
(ii) to satisfy the conditions precedent to the obligations of such party
hereto, (iii) to obtain any consent, authorization, order or approval of, or any
exemption by, any Governmental Authority or other public or private third party
required to be obtained or made by Purchaser or Seller in connection with the
acquisition of the Conveyed Assets or the taking of any action contemplated by
this Agreement, (iv) to effect all necessary registrations and filings, and (v)
to take any action reasonably necessary to vigorously defend, lift, mitigate,
rescind the effect of any litigation or administrative proceeding adversely
affecting the acquisition of the Conveyed Assets or this Agreement, including
promptly appealing any adverse court or administrative decision.

5.5           Employees.

(a) At Closing, Seller shall terminate all of its employees.  Purchaser shall
not be obligated to hire any of Seller’s former employees.  As of the Closing,
Purchaser may offer employment to Seller's former employees regularly employed
in the Business ("Current Employees").  Seller shall provide Purchaser with
access to the Current Employees no later than fourteen (14) days prior to the
Closing Date to discuss employment matters.  Any offers of employment will be
contingent upon the Closing and satisfaction by those Current Employees
receiving employment offers of Purchaser’s normal employment standards and
required training. Current Employees who accept offers of employment from
Purchaser are hereinafter referred to as "Hired Employees";

(b) Seller represents that it has obtained Forms I-9 from all of its Current
Employees as required by law prior to Closing;

(c)           Seller shall pay all Employees for or make provision for all work
performed as employees through the Closing Date and for all vacation earned or
accrued and not taken before the Closing Date, and shall otherwise discharge all
of its obligations to its Employees, including its obligations to such Employees
under the Benefit Plans.  Purchaser shall have no Liability for any wages,
vacation pay, sick pay, pension, sales or management incentives or bonuses,
profit sharing, welfare or other benefit owed to any Employee that relates to
service as an Employee prior to the Closing Date, except as provided in this
Section 5.5;

(d)           Seller shall be liable for all costs compensable under any
applicable Workers' Compensation law attributable to any illness of or injury to
an Employee arising prior to the Closing Date.  Purchaser shall be liable for
all costs compensable under any applicable Workers' Compensation law
attributable to any illness of or injury to any Hired Employee arising on or
after the Closing Date;
 
 
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(e)           Schedule 5.5(e) contains a complete and accurate list of the
following information for each employee, director, independent contractor,
consultant and agent of Seller, including each employee on leave of absence or
layoff status: employer; name; job title; date of hiring or engagement; date of
commencement of employment or engagement; current compensation paid or payable
and any change in compensation since January 1, 2010; sick and vacation leave
that is accrued but unused; and service credited for purposes of vesting and
eligibility to participate under any Benefits Plan, or any other employee or
director benefit plan;

(f)           Schedule 5.5(f) states the number of employees terminated by
Seller since January 1 2010, and contains a complete and accurate list of the
following information for each employee of Seller who has been terminated or
laid off, or whose hours of work have been reduced by more than fifty percent
(50%) by Seller, in the six (6) months prior to the date of this Agreement: (i)
the date of such termination, layoff or reduction in hours; (ii) the reason for
such termination, layoff or reduction in hours; and (iii) the location to which
the employee was assigned.

5.6           Further Assurances; Consents.  Subject and in addition to Section
2.1(b), at any time after the Closing Date, Seller shall execute, acknowledge
and deliver any further deeds, assignments, conveyances and other assurances and
documents and instruments of transfer reasonably requested by Purchaser and
necessary for Seller to comply with its covenants contained herein and, at
Purchaser’s expense, will take any action consistent with the terms of this
Agreement that may reasonably be requested by Purchaser for the purpose of
assigning, transferring, granting, conveying, vesting and confirming ownership
in or to Purchaser, or reducing to Purchaser’s possession, any or all of the
Conveyed Assets.

5.7           Purchaser’s Investigation; No Additional
Representations.  Purchaser acknowledges and agrees that, except as specifically
set forth in Article 3 of this Agreement, Seller has not made and shall have no
Liability for any representation or warranty, express or implied, in connection
with the transactions contemplated by this Agreement, including, without
limitation, any representation or warranty as to the accuracy or completeness of
any information regarding the Business or the Conveyed Assets furnished to
Purchaser or its representatives in connection with Purchaser’s due diligence
review of the Business or the Conveyed Assets.  Without limiting the generality
of the foregoing, except as specifically set forth in Article 3 of this
Agreement, neither Purchaser nor any Purchaser Indemnified Parties shall have
any claim or right to recovery pursuant to Article 7 or otherwise, and none of
Seller, the Seller Indemnified Parties or any other person shall have or be
subject to any liability to Purchaser, any of the Purchaser Indemnified Parties
or any other person, with respect to (i) any information, documents or materials
furnished, delivered or made available by Seller or its officers, directors,
employees, agents or advisors to Purchaser or its Affiliates, in certain “data
rooms,” management presentations or any other form in contemplation of the
transactions contemplated hereby, including, without limitation, the
confidential memoranda and/or other information prepared or delivered by Seller
and any of its advisors, or (ii) any projections, forecasts, estimates, plans or
budgets of future revenue, expenses or expenditures, future results of
operations (or any component thereof), future cash flows (or any component
thereof) or future financial condition (or any component thereof) of the
Business or the future business, operations or affairs of the Business
heretofore or hereafter delivered to or made available to Purchaser or its
representatives or Affiliates.

5.8           Bulk Transfer Laws.  Purchaser acknowledges that Seller has not
taken, and do not intend to take, any action required to comply with any
applicable bulk sale or bulk transfer Laws or similar Laws and Purchaser waives
Seller’s compliance with such Laws.

5.9           Covenant-Not-To-Compete Agreement.  At the Closing, Purchaser, the
Key Employees and Seller shall enter into, execute and deliver a
covenant-not-to-compete agreement relating to the Business in substantially the
form set forth as Exhibit G (the “Covenant-Not-To-Compete Agreement”).

5.10           Purchaser Lease Agreement.  At the Closing, Purchaser and Seller
shall enter into, execute and deliver the Purchaser a six year lease agreement
in substantially the form set forth as Exhibit H (the “Purchaser Lease
Agreement”).
 
 
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5.11           Seller Sublease Agreement.  At the Closing, Purchaser and Seller
shall enter into, execute and deliver the Seller a one year lease agreement in
substantially the form set forth as Exhibit I (the “Seller Sublease Agreement”).

5.12           Manufacturing Agreement.  At the Closing, Purchaser and Seller
shall enter into, execute and deliver the manufacturing agreement for Purchaser
to be the exclusive supplier on Seller’s proprietary monitoring devices in
substantially the form set forth as Exhibit J (the “Manufacturing Agreement”).

5.13           Compliance with WARN, Etc.  With respect to WARN or other similar
statutes or regulations of any jurisdiction, if any are available, Seller will
timely give any notices if required to be given thereunder.

5.14           Litigation Support.  Purchaser and its Affiliates on the one hand
and Seller on the other hand will cooperate with each other in the defense or
settlement of any lawsuit involving the Business for which they have
responsibility by providing the other party and such other party’s legal counsel
and other Persons reasonable access to employees, records, documents, data,
equipment, facilities, products, parts, prototypes and other information
regarding the Business and its products as such other party may request, to the
extent maintained or under the possession or control of the requested
party.  The requesting party shall reimburse the other party for its reasonable
out-of-pocket expenses paid to third parties in performing its obligations under
this Section 5.14.  Seller shall keep Purchaser informed of the status of the
pendency of the lawsuits involving the Business for which it has responsibility
under this Agreement, will advise Purchaser of material issues involved in the
litigation and will use its reasonable best efforts to seek a confidentiality
agreement with respect to any settlements of such lawsuits.  For so long as any
lawsuits involving the Business for which any Seller has responsibility remain
outstanding, Purchaser will advise Seller of material issues involved in the
lawsuits involving the Business for which Seller has responsibility and will use
its reasonable best efforts to seek a confidentiality agreement with respect to
any settlements of such lawsuits.

5.15           Tax Matters.

(a)           Notwithstanding any other provisions of this Agreement to the
contrary, all transfer, documentary, recording, sales, use, registration, stamp
and other similar Taxes (including all applicable real estate transfer Taxes,
but excluding any Taxes based on or attributable to income or capital gains)
together with any notarial and registry fees and recording costs imposed by any
Tax authority or other Governmental Authority in connection with the transfer of
the Conveyed Assets will be shared equally by Purchaser and Seller, regardless
of what Person is obligated to pay such Taxes under applicable Law.  The parties
and their respective Affiliates will cooperate in timely preparing and filing
all Tax Returns that may be required to comply with Law relating to such
Taxes.  To the extent that one party claims any exemptions from any such Taxes
(it being understood that each party shall claim any such exemptions available
to it), such party shall provide to the other party the appropriate exemption
certificates.

(b)           The parties will make payments to each other to the extent
necessary so that Seller shall bear the cost of personal property and other
similar Taxes imposed on the Conveyed Assets which are due and payable during
the Tax periods ending prior to or on the Closing Date (and, with respect to any
Straddle Taxable Period, on a per diem basis up to and including the Closing
Date) and Purchaser shall bear the cost of real property, personal property, and
other similar Taxes imposed on the Conveyed Assets which are due and payable
during Tax periods ending after the Closing Date (and, with respect to any
Straddle Taxable Period, on a per diem basis following the Closing Date), such
payments to be made as soon as practicable after the Closing in each case after
the amount of such Taxes has been determined.  For purposes of this Agreement,
“Straddle Taxable Period” means any Taxable period beginning before the Closing
Date and ending on or after the Closing Date.

(c)           Each of the parties shall provide the other party with such
information and records and make such of its officers, directors, employees and
agents available as may reasonably be requested by such other party in
connection with the preparation of any Tax Return or any audit or other
proceeding that relates to the Conveyed Assets.

 
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5.16           Trademarks; Names.  From and after the Closing, Purchaser shall
not, and shall ensure that its employees and representatives do not, represent
itself or themselves as Seller or as employees or representatives of
Seller.  Purchaser shall take appropriate action to (a) remove, cease to use
and/or cover the “Winland Electronics” name and logo, and those certain names
and marks listed on Schedule 3.10(a) hereto, from all materials (including
invoices, packaging and other promotional material), signage, telephone
listings, letterhead, and other similar materials and documentation used in
connection with the Business, and (b) redesign and reformat any internet or
website content used in connection with the Business to avoid any similarity or
basis for confusion with Seller’s internet and website content.  Notwithstanding
the foregoing, for a period of three months following the Closing (or longer
with Seller’s consent), Purchaser may continue to use packaging and other
written promotional material included in the Conveyed Assets and existing as of
the Closing in connection with the sale of finished goods Inventories, and
Seller hereby grants to Purchaser a limited trademark license solely to the
extent required for such use during such three-month period.

5.17           Post-Closing Reconciliation of Accounts.  Seller and Purchaser
acknowledge and agree that all accounts receivable related to the Conveyed
Assets and the Business arising pre-Closing and post-Closing shall be the sole
property of Purchaser.  Seller shall cause any payments for pre-Closing and
post-Closing accounts receivable received by it on and after the Closing Date to
be promptly delivered to Purchaser.  Purchaser shall be solely responsible for
collection efforts with respect to outstanding accounts receivable to which it
is entitled pursuant to this Section 5.17 and the terms of this Agreement.

5.18           Payment of Assumed Liabilities.  Purchaser will pay, or make
adequate provision for the payment, in full all of the Assumed Liabilities and
any other Liabilities of Purchaser under this Agreement when due and payable.

5.19           No Solicitation.  Neither the Seller nor any of its officers,
directors, employees, representatives, agents, or affiliates (including, but not
limited to any investment banker, attorney, or accountant retained by Seller),
shall, directly or indirectly, solicit, encourage, initiate, or participate in
any way in discussions or negotiations with, or knowingly provide any
information to, any corporation, partnership, person, or other entity or group
(other than Purchaser or any affiliate or agent of Purchaser) concerning any
merger, sale or licensing of any significant portion of the assets, sale of
shares of capital stock (including without limitation any proposal or offer to
Seller’s shareholders), or similar transactions involving Seller (an
“Alternative Proposal”), or otherwise facilitate any effort or attempt to make
or implement an Alternative Proposal; provided, however, that this section shall
not prohibit the Board of Directors of Seller from (i) furnishing information to
or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide Alternative Proposal, if, and only to the extent
that, (a) the Board of Directors of Seller determines in good faith that such
action is so required for the Board of Directors to comply with its fiduciary
duties to shareholders imposed by law, the Board of Directors has been so
advised in writing by outside counsel, in its judgment and opinion, as being so
required and the Board of Directors so represents to Purchaser that the Board of
Directors has been so advised, (b) prior to furnishing information to, or
entering into discussions and negotiations with, such person or entity, Seller
promptly provides written notice to Purchaser to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity, and (c) Seller keeps Purchaser informed of all material
terms and events with respect to any such Alternative Proposal; and (ii) to the
extent applicable, complying with Rule 14e-2 promulgated under the 1934 Act with
regard to an Alternative Proposal.  Nothing in this section shall (x) permit
Seller to terminate this Agreement, (y) permit Seller to enter into any
agreement with respect to an Alternative Proposal for as long as this Agreement
remains in effect (it being agreed that for as long as this Agreement remains in
effect, Seller shall not enter into any agreement with any person that provides
for, or in any way facilitates, an Alternative Proposal), or (z) affect any
other obligation of Seller under this Agreement.

ARTICLE 6
CONDITIONS TO CLOSING

6.1           Conditions to the Obligations of Purchaser and Seller.  The
obligations of the parties hereto to effect the Closing are subject to the
satisfaction prior to the Closing of the following conditions:

(a)           Competition Laws.  Any waiting period (and any extension thereof)
or approval required under any Competition Law where there is a pre-Closing
filing requirement with respect to the transfer of the Conveyed Assets shall
have expired or shall have been earlier terminated and any investigations by a
Governmental Authority relating to the transfer of the Conveyed Assets
contemplated hereby (by means of a request for additional information or
otherwise), shall have been terminated.
 
 
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(b)           No Injunctions.  There shall not be in effect any statute,
regulation, order, decree or judgment that makes illegal or enjoins or prevents
in any respect the consummation of the transactions contemplated by this
Agreement.

6.2           Conditions to the Obligations of Purchaser.  The obligation of
Purchaser to effect the Closing is subject to the satisfaction (or waiver by
Purchaser) prior to the Closing, of the following conditions:

(a)           Representations and Warranties.  The representations and
warranties of Seller contained herein shall have been true and correct when
made, subject to the delivery of the corresponding Schedules, and shall be true
and correct as of the Closing, as if made as of the Closing (except that
representations and warranties that are made as of a specific date need be true
only as of such date), except for such failures as would not have a Material
Adverse Effect.  Purchaser shall have received a certificate of Seller, dated as
of the Closing Date and signed by an officer of Seller, certifying as to the
fulfillment of the condition set forth in this Section 6.2(a).

(b)           Covenants.  The covenants and agreements of Seller to be performed
on or prior to the Closing shall have been duly performed in all material
respects.

(c)           Deliveries.  Seller shall have made or caused to be made delivery
to Purchaser of the items required by Section 2.6(b).

(d)           Government Authorizations.  The parties shall have obtained any
and all Governmental Authorizations or other consents necessary to sell,
transfer and convey the Conveyed Assets to Purchaser in accordance with the
terms of this Agreement.

(e)           Wells Fargo Approval.  Purchaser shall have obtained approval of
the transaction from its lender, Wells Fargo Bank, National Association.

6.3           Conditions to the Obligations of Seller.  The obligation of Seller
to effect the Closing is subject to the satisfaction (or waiver by Seller) prior
to the Closing of the following conditions:

(a)           Representations and Warranties.  The representations and
warranties of Purchaser contained herein shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing, as if made as of the Closing (except that
representations and warranties that are made as of a specific date need be true
in all material respects only as of such date).  Seller shall have received a
certificate of Purchaser, dated as of the Closing Date and signed by an officer
of Purchaser, certifying as to the fulfillment of the conditions set forth in
this Section 6.3(a).

(b)           Covenants.  The covenants and agreements of Purchaser to be
performed on or prior to the Closing shall have been duly performed in all
material respects.

(c)           Deliveries.  Purchaser shall have made or caused to be made
delivery to Seller of the items required by Section 2.5(c).

(d)           Government Authorizations.  The parties shall have obtained any
and all Governmental Authorizations or other consents necessary to sell,
transfer and convey the Conveyed Assets to Purchaser in accordance with the
terms of this Agreement.

(e)           Consents and Approvals; Release of Liens.  Seller shall have
obtained all authorizations, consents and approvals required to be obtained by
Seller to consummate the transactions contemplated by this Agreement.  Seller
shall have obtained releases pursuant to UCC-3’s, as applicable, or otherwise,
of all Liens with respect to the Conveyed Assets.
 
 
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(f)           Shareholder Approval.  Seller shall have duly called a meeting of
its shareholder and have obtained shareholder approval in order for Seller to
enter into this Agreement, sell the Conveyed Assets and consummate the
transactions contemplated in this Agreement.

ARTICLE 7
SURVIVAL AND INDEMNIFICATION

7.1           Survival.  The representations and warranties contained in this
Agreement shall survive the Closing until the date twelve (12) months following
the Closing Date, and no party may first raise a claim based thereon for any
Losses (defined below) after the expiration of such twelve (12) month period not
directly related to or arising out of a claim asserted by such party in writing
and received by the other party prior to the expiration of such twelve (12)
month period.

7.2           Indemnification by Purchaser.  Purchaser hereby agrees that it
shall indemnify, defend and hold harmless Seller, and, if applicable, their
respective directors, officers, shareholders, partners, attorneys, accountants,
agents and employees and their heirs, successors and assigns (the “Seller
Indemnified Parties”) from, against and in respect of any damages, claims,
losses, charges, actions, suits, proceedings, deficiencies, interest, penalties,
and reasonable costs and expenses (including without limitation reasonable
attorneys’ and consultants’ fees) (collectively, “Losses”) imposed on,
sustained, incurred or suffered by or asserted against any of the Seller
Indemnified Parties by reason of (i) any breach of any representation or
warranty made by Purchaser contained in this Agreement; (ii) the breach of any
covenant or agreement of Purchaser contained in this Agreement; (iii) the
Assumed Liabilities; and (iv) the operation of the Business and ownership of and
activities involving the Conveyed Assets from and after the Closing Date.

7.3           Indemnification by Seller.

(a)           Seller hereby agrees that it shall indemnify, defend and hold
harmless Purchaser, its Affiliates and, if applicable, their respective
directors, officers, shareholders, partners, attorneys, accountants, agents and
employees and their heirs, successors and assigns (the “Purchaser Indemnified
Parties” and, collectively with the Seller Indemnified Parties, the “Indemnified
Parties”) from, against and in respect of any Losses imposed on, sustained,
incurred or suffered by or asserted against any of the Purchaser Indemnified
Parties by reason of (i) any breach of any representation or warranty made by
Seller contained in this Agreement; (ii) the breach of any covenant or agreement
of an Seller made in this Agreement; and (iii) the Excluded Liabilities.

(b)           Notwithstanding the provisions of this Article 7, Seller shall not
be liable to the Purchaser Indemnified Parties for any Losses with respect to
the matters contained in Section 7.3(a) or elsewhere in this Agreement except to
the extent the Losses therefrom exceed Twenty-Five Thousand Dollars ($25,000),
in which event Seller shall be liable to the Purchaser Indemnified Parties for
all such Losses in excess of such amount up to an aggregate amount equal to
Seven Hundred Fifty Thousand Dollars ($750,000).

7.4           Indemnification Procedures. All claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 7.4.  In the event that any claim or demand by a third party for which
an indemnifying party, Seller or Purchaser, as the case may be (an “Indemnifying
Party”), may be liable to any Indemnified Party hereunder (a “Claim”) is
asserted against or sought to be collected from any Indemnified Party by a third
party, such Indemnified Party shall as promptly as practicable notify the
Indemnifying Party in writing of such Claim and the amount or the estimated
amount thereof and such notice shall state with reasonable specificity the
basis, if known, under which the claim is made (the “Claim Notice”).  The
failure on the part of the Indemnified Party to give any such Claim Notice in a
reasonably prompt manner shall not relieve the Indemnifying Party of any
indemnification obligation hereunder unless, and only to the extent that, the
Indemnifying Party is materially prejudiced thereby.  The Indemnifying Party
shall have sixty (60) days from the delivery of the Claim Notice (the “Notice
Period”) to notify the Indemnified Party (a) whether or not the Indemnifying
Party disputes the liability of the Indemnifying Party to the Indemnified Party
hereunder with respect to such Claim and (b) whether or not it desires to defend
the Indemnified Party against such Claim.  All costs and expenses incurred by
the Indemnifying Party in defending such Claim shall be a liability of, and
shall be paid by, the Indemnifying Party; provided, however, that the amount of
such costs and expenses that shall be a liability of the Indemnifying Party
hereunder shall be subject to the limitations set forth in Section 7.3(b)
hereof.  Except as hereinafter provided, in the event that the Indemnifying
Party notifies the Indemnified Party within the Notice Period that it desires to
defend the Indemnified Party against such Claim, the Indemnifying Party shall,
at its sole cost and expense, have the right to defend the Indemnified Party by
appropriate proceedings and shall have the sole power to direct and control such
defense.  If any Indemnified Party desires to participate in any such defense,
it may do so at its sole cost and expense.  The Indemnified Party shall not
settle a Claim for which it is indemnified by the Indemnifying Party without the
written consent of the Indemnifying Party, unless the Indemnifying Party elects
not to defend the Indemnified Party against such Claim.
 
 
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Notwithstanding the foregoing, the Indemnified Party shall have the sole right
to defend, settle or compromise any Claim with respect to which it has agreed in
writing to waive its right to indemnification pursuant to this
Agreement.  Notwithstanding the foregoing, the Indemnified Party, during the
period the Indemnifying Party is determining whether to elect to assume the
defense of a matter covered by this Section 7.4, may take such reasonable
actions as it deems necessary to preserve any and all rights with respect to the
matter, without such actions being construed as a waiver of the Indemnified
Party’s rights to defense and indemnification pursuant to this Agreement.  If
the Indemnifying Party elects not to defend the Indemnified Party against such
Claim, whether by failing to give the Indemnified Party timely notice as
provided above or otherwise, then the amount of any such Claim, or, if the same
be contested by the Indemnified Party, then that portion thereof as to which
such defense is unsuccessful (and the reasonable costs and expenses pertaining
to such defense) shall be the liability of the Indemnifying Party hereunder,
subject to the limitations set forth in Section 7.3(b) hereof.  To the extent
the Indemnifying Party shall direct, control or participate in the defense or
settlement of any third party claim or demand, the Indemnified Party will give
the Indemnifying Party and its counsel access to, during normal business hours,
the relevant business records and other documents, and shall permit them to
consult with the employees and counsel of the Indemnified Party.  The
Indemnified Party shall use its reasonable best efforts in the defense of all
such claims.

7.5           Exclusive Remedy; Limitation of Remedy.  Except as described in
Sections 2.3 and 9.2, and except in case of fraud by either party, the parties
agree that the sole and exclusive remedy with respect to any and all claims
relating to the subject matter of this Agreement and the transactions
contemplated hereby shall be pursuant to the indemnification provisions set
forth in this Article 7, whether arising in contract, tort or otherwise.

7.6           Characterization of Indemnification Payments.  All amounts paid by
Seller or Purchaser to the other under this Article 7 shall be treated for all
Tax purposes as adjustments to the Purchase Price.

7.7           Computation of Losses Subject to Indemnification.  The amount of
any Loss for which indemnification is provided under this Article 7 or otherwise
in this Agreement shall be computed net of any insurance proceeds when actually
received by the Indemnified Party from the Indemnifying Party’s insurance
carrier(s); provided that such indemnification amounts shall be paid when due
pursuant to the terms hereof and the Indemnified Party, upon receipt of such
proceeds, shall transfer to the Indemnifying Party the entire amount of such
proceeds.

7.8           Limitations on Liability.  Except in case of fraud by either
party, notwithstanding any provision herein, neither Seller on the one hand, nor
Purchaser, on the other hand, shall in any event be liable to the other party or
such party’s Affiliates, officers, directors, employees, shareholders, agents or
representatives on account of any indemnification obligation set forth in this
Article 7 for any indirect, consequential, special, incidental or punitive
damages (including, without limitation, lost profits, loss of use, diminution in
value, damage to goodwill or loss of business).

7.9           Mitigation. An Indemnified Party will use commercially reasonable
efforts to mitigate the Losses to which it may become entitled to
indemnification hereunder.

7.10           Waiver of Conditions; Indemnity.  The parties acknowledge and
agree that if Purchaser has knowledge of a failure of any condition set forth in
Section 6.2 and/or Section 6.3 above, or of any breach by Seller of any
representation, warranty or covenant contained in this Agreement, and Purchaser
proceeds with the Closing, Purchaser shall be deemed to have waived such
condition or breach and Purchaser and any and all of the Purchaser Indemnified
Parties shall not be entitled to be indemnified by Seller under Section 7.3
above, to sue for damages or to assert any other right or remedy for losses
arising from any matters relating to such condition or breach, notwithstanding
anything to the contrary contained in this Agreement or in any certificate
delivered pursuant hereto.
 
 
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ARTICLE 8
TERMINATION

8.1           Termination.  This Agreement may be terminated at any time prior
to the Closing:

(a)           by written agreement of Purchaser and Seller;

(b)           by either Purchaser or Seller, by giving written notice of such
termination to the other party, if the Closing shall not have occurred on or
prior to January 1, 2011 (unless the failure to consummate the Closing by such
date (i) shall be due to the failure of the party seeking to terminate this
Agreement to have fulfilled any of its obligations under this Agreement,
including, without limitation, the obligations of Purchaser and Seller under
Section 5.2 and Section 5.3 hereof, or (ii) is due to the continuance of a
waiting period or lack of an approval required under or an injunction or
equivalent thereof entered based upon any Competition Law, in which event
Purchaser may not rely upon this Section 8.1(b) to terminate this Agreement
until the one-year anniversary of the date of this Agreement); or

(c)           by either Seller or Purchaser if any court of competent
jurisdiction or other competent Governmental Authority shall have issued a
statute, rule, regulation, order, decree or injunction or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Closing and such
statute, rule, regulation, order, decree or injunction or other action shall
have become final and nonappealable.

8.2           Effect of Termination.  In the event of the termination of this
Agreement in accordance with Section 8.1 hereof, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability to
the other party hereto or their respective Affiliates, directors, officers or
employees, except for the obligations of the parties hereto contained in this
Section 8.2 and in Sections 5.1(b), 9.1, 9.8, 9.9, 9.10 and 9.12 hereof, and
except that nothing herein will relieve any party from liability for any breach
of any covenant set forth in Article 5 of this Agreement prior to such
termination.

ARTICLE 9
MISCELLANEOUS

9.1           Notices.  All notices or other communications hereunder shall be
deemed to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended, if delivered by registered or
certified mail, return receipt requested, or by a national courier service, or
if sent by facsimile, provided that the facsimile is promptly confirmed by
confirmation of transmission thereof, to the person at the address set forth
below, or such other address as may be designated in writing hereafter, in the
same manner, by such person:

To Seller:

Winland Electronics, Inc.
1950 Excel Drive
Mankato, MN 56001
Attention: Chief Executive Officer
Facsimile: (507) 625-7231

With a copy to:

Fredrikson & Byron, P.A.
200 South Sixth Street
Minneapolis, MN  55402-1425
Attn:  Thomas F. Steichen
Facsimile: (612) 492-7338
 
 
 
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To Purchaser:

Nortech Systems, Inc.
1120 Wayzata Boulevard East, # 201
Wayzata, MN 55391
Attn.: Michael J. Degan
Facsimile: (952) 449-0442

With a copy to:

Bert M. Gross
7201 Metro Boulevard
Edina, MN 55439
Facsimile: (952) 918-4161

A notice shall be deemed given on the day when actually delivered as provided
above (if delivered personally, by courier or by facsimile) or on the day shown
on the return receipt (if delivered by mail).

9.2           Specific Performance.  Purchaser acknowledges and agrees that in
the event of any breach of this Agreement by Purchaser, Seller would be
irreparably harmed and could not be made whole by monetary damages.  Purchaser,
on behalf of itself and its Affiliates, accordingly hereby waives the defense in
any action for specific performance that a remedy at law would be adequate and
hereby agrees that Seller, in addition to any other remedy to which it may be
entitled at law or in equity, shall be entitled to compel specific performance
of this Agreement.

9.3           Amendment; Waiver.  Except as described in Section 7.10 above, any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
Purchaser and Seller, or in the case of a waiver, by the party against whom the
waiver is to be effective.  Except as described in Section 7.10 above, no
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.

9.4           Assignment.  No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto.

9.5           Entire Agreement.  This Agreement (including all Schedules and
Exhibits hereto) contains the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters, except for the
Confidentiality Agreement which will remain in full force and effect for the
term provided for therein and other than any written agreement of the parties
that expressly provides that it is not superseded by this Agreement.

9.6           Fulfillment of Obligations.  Any obligation of any party to any
other party under this Agreement, which obligation is performed, satisfied or
fulfilled by an Affiliate of such party, shall be deemed to have been performed,
satisfied or fulfilled by such party.

9.7           Parties in Interest.  This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns.  Nothing in this Agreement, express or implied, is intended
to confer upon any Person other than Purchaser, Seller, or their successors or
permitted assigns, any rights or remedies under or by reason of this Agreement.

9.8           Public Disclosure.  Notwithstanding anything herein to the
contrary, each of the parties to this Agreement hereby agrees with the other
party hereto that no press release or similar public announcement or
communication shall be made or caused to be made concerning the execution or
performance of this Agreement unless the parties shall have agreed in advance as
to the contents thereof, except as such release or announcement may be required
by Law or the rules or regulations of any applicable United States securities
exchange or regulatory or governmental body to which the relevant party is
subject or submits, in which case the party required to make the release or
announcement shall use its reasonable best efforts to allow each other party
reasonable time to comment on such release or announcement in advance of such
issuance, it being understood that the final form and content of any such
release or announcement, to the extent so required, shall be at the final
discretion of the disclosing party.
 
 
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9.9           Return of Information.  If for any reason whatsoever the
transactions contemplated by this Agreement are not consummated, Purchaser shall
promptly return to Seller all books and records furnished by Seller or any of
its agents, employees, or representatives (including all copies, summaries and
abstracts, if any, thereof) in accordance with the terms of the Confidentiality
Agreement.

9.10           Expenses.  Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the party incurring
such expenses. Notwithstanding the foregoing, all Taxes (including, without
limitation, any value added Taxes but excluding any Income Taxes) and fees
relating to the transfer of the Conveyed Assets shall be paid by the person
liable therefor but the liability for such Taxes as between Seller and Purchaser
shall be borne by Purchaser.

9.11           Schedules.  The disclosure of any matter in any Schedule to this
Agreement, as may be amended or supplemented prior to the Closing, shall be
deemed to be a disclosure for all purposes of this Agreement to which such
matter could reasonably be expected to be pertinent, but shall expressly not be
deemed to constitute an admission by Seller or Purchaser, or to otherwise imply,
that any such matter is material for the purposes of this Agreement.

9.12           Governing Law.   This Agreement shall be governed by the laws of
the State of Minnesota, its rules of conflict of laws notwithstanding.

9.13           Consent to Jurisdiction.  Each of the parties hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the District of Minnesota, for the purpose of any action or proceeding arising
out of or relating to this Agreement and each of the parties hereby irrevocably
agrees that all claims in respect to such action or proceeding shall be heard
and determined exclusively in any Minnesota state or federal court sitting in
the County of Hennepin.  Each party irrevocably waives, and agrees not to asset
by way of motion, defense or otherwise, in any such action or proceeding, any
claim that it is not subject personally to the jurisdiction of the above-named
courts, that its property is immune from attachment or execution, that the
action or proceeding is or has been brought in an inconvenient forum, that the
venue of the action or proceeding is improper, or that this Agreement and the
transactions contemplated hereby may not be enforced by any of the above-named
courts.  Each of the parties agrees that a final judgment in any action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

Each of the parties irrevocably consents to the service of the summons and
complaint and any other process in any other action or proceeding relating to
the transactions contemplated by this Agreement, on behalf of itself or its
property, by the personal delivery of copies of such process to such
party.  Nothing in this Section 9.13 shall affect the right of any party to
serve legal process in any other manner permitted by Law.

9.14           Waiver of Jury Trial.  Each party hereby waives its rights to a
jury trial of any claim or cause of action based upon or arising out of or
related to this Agreement or the subject matter hereof.  The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of the transactions
contemplated hereby, including, without limitation, contract claims, tort
claims, breach of duty claims, and all other common law and statutory
claims.  This Section 9.14 has been fully discussed by each of the parties and
these provisions shall not be subject to any exceptions.  Each party hereby
further warrants and represents that such party has reviewed this waiver with
its legal counsel and that such party knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel.  This waiver is
irrevocable, meaning that it may not be modified either orally or in writing,
and this waiver shall apply to any subsequent amendments, supplements or
modifications to (or assignments of) this Agreement.  In the event of
litigation, this Agreement maybe filed as a written consent to a trial (without
a jury) by the court.
 
 
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9.15           Counterparts.   This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.  A facsimile or PDF signature of
this Agreement shall be valid and have the same force and effect as a manually
signed original.

9.16           Headings.  The heading references herein and the table of
contents hereto are for convenience purposes only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

9.17           Severability.  In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto.  The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the greatest extent possible, the
economic, business and other purposes of such void or unenforceable provision.

[The remainder of this page has been intentionally left blank]

 
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IN WITNESS WHEREOF, the parties have executed or caused this Asset Purchase
Agreement to be executed as of the date first written above.

SELLER:
 
Winland Electronics, Inc.,
a Minnesota corporation
 
By:           
Name:                                                                
Title:                                                                
 
PURCHASER:
 
Nortech Systems, Inc.,
a Minnesota corporation
 
 
By:           
Name:                                                                
Title: