Document:

EXHIBIT 10.1

 

FUNDING AND INDEMNIFICATION AGREEMENT

 

THIS
FUNDING AND INDEMNIFICATION AGREEMENT (this “Agreement”)
is made as of September 27, 2009, between Gander Mountain Company, a
Minnesota corporation (the “Company”), and
Holiday Stationstores, Inc.  (the “Principal Shareholder”).

 

RECITALS

 

A.            A Special Committee of the
Board of Directors of the Company (the “Special Committee”)
and the full Board of Directors of the Company has approved, and the Company
intends to complete, a 1-for-30,000 reverse split of its outstanding common
stock, par value $.01 per share (the “Common Stock”)
(the “Reverse  Stock Split”)
that will result in certain of its shareholders holding less than one whole
share but holding fractional interest shares (“Fractional
Shares”).

 

B.            Pursuant to Minnesota
Business Corporation Act (“MBCA”) Section 302A.423
(“Section 423”), in accordance with
the terms of this Agreement, the Company intends to elect to cause the
cancellation of the Fractional Shares held by shareholders holding Fractional
Shares following the Reverse Stock Split in exchange for the payment by the
Principal Shareholder and the Other Principal Shareholder (as defined below) of
cash consideration for each Fractional Share at the rate of $5.15 per whole
share (calculated on a pre-Reverse Stock Split basis) (the “Cancellation Price”).

 

C.            Following the Reverse Stock
Split and the cancellation of Fractional Shares for those shareholders holding
less than one whole share, the Company will effect a forward stock split at a
30,000-for-1 ratio (the “Forward Stock Split”)
to restore the share ownership of all remaining shareholders to the number of
shares held by them prior to the Reverse Stock Split.

 

D.            The Principal Shareholder is
currently one of the Company’s two largest shareholders and, by virtue of the
Reverse Stock Split, will increase its percentage ownership in the Company.

 

E.             The Company wishes to assign
and delegate, and the Principal Shareholder is willing to accept and assume and
be responsible for, the obligation to fund and make payments to be made in
consideration of cancellation of Fractional Shares as provided herein.

 

F.             In consideration of the
Principal Shareholder’s assumption of the obligation to fund and make payments
to be made in consideration of cancellation of the Fractional Shares, the
Company has agreed to issue to the Principal Shareholder such number of whole
shares of Common Stock as is determined by dividing the amount of such
obligation funded by the Principal Shareholder by the Cancellation Price (calculated
on a pre-Reverse Stock Split basis).

 

G.            The Principal Shareholder
has agreed, following the Reverse Stock Split and the Forward Stock Split, to
make an offer to purchase certain shares of Common Stock that remain
outstanding.

 

H.            The Principal Shareholder’s
objective is to own, as a result of the transactions contemplated by this
Agreement, together with (a) individual beneficial or record holders of
shares of Common Stock who are descendants of Arthur T. and Elsie P. Erickson
or Alfred W. and Rose E. Erickson and/or the spouses of these descendants, (b) trusts
holding shares of Common Stock established primarily for the benefit of such
descendants and/or their spouses 

 

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and/or
(c) entities existing as of the date hereof or formed after the date
hereof that hold or have voting rights with respect to any of the foregoing
shares (collectively, “Erickson Family Members”
and, together with the Principal Shareholder, the “Holiday
Shareholders”), a number of shares of Common Stock equal to the
number of shares of Common Stock collectively owned by David C. Pratt, Gratco
LLC (“Gratco”) and the David C. Pratt
Irrevocable Grantor Retained Annuity Trust (collectively, the “Gratco Shareholders”  or the “Other Principal Shareholder”).

 

I.              The Principal Shareholder is
willing to indemnify the Company, and make the resulting payments directly on
behalf of the Company, if the Company is required to pay current or former
shareholders any amounts in excess of the Cancellation Price paid for the
Fractional Shares cancelled following the Reverse Stock Split or any amounts in
exchange for such shareholders’ shares that are not cancelled as a result of
the Reverse Stock Split.

 

TERMS AND CONDITIONS

 

In
consideration of the premises and the mutual covenants contained herein, the
parties agree as follows:

 

1.             ASSIGNMENT, DELEGATION AND
ASSUMPTION.  The Company
hereby assigns, delegates, conveys and transfers to the Principal Shareholder,
and the Principal Shareholder hereby acquires, accepts and assumes from the
Company, all right, title and interest in, and all responsibility for, the
obligations of the Company to (a) make payments of the Cancellation Price
for Fractional Shares in connection with the Reverse Stock Split and (b) pay
amounts to current or former shareholders of the Company which are subject to
indemnification pursuant to Sections 5 and 6, subject, in each case, to
the limitations on such obligations set forth in this Agreement.

 

2.             FUNDING FOR CANCELLATION OF FRACTIONAL
SHARES.

 

(a)           The Principal Shareholder
severally assumes and agrees to pay, perform, discharge and fund a portion of
the payments to be made to shareholders of the Company in consideration of the
cancellation of Fractional Shares as a result of the Reverse Stock Split, as
set forth in this Section 2.

 

(b)           At least five business days
before the date established by the Company for the effectiveness of the Reverse
Stock Split (the “Reverse Split Effective
Date”), the Company will deliver to the Principal Shareholder the
Company’s good faith estimate of the amount of funds potentially needed to fund
the cancellation of Fractional Shares as a result of the Reverse Stock
Split.  The parties agree that such
funding estimate by the Company will be based, among other things, on (i) the
Company’s good faith estimate of (x) the number of shares of Common Stock
to be held by the Company’s record and beneficial shareholders as of the
Reverse Split Effective Date and (y) the likelihood of shareholders
reducing or increasing their shareholdings in order to receive cash or retain
their shares as a result of the Reverse Stock Split and (ii) the
requirement that sufficient funds be available so that additional funds from
the Company are not needed to fund the cancellation of the Fractional Shares as
a result of the Reverse Stock Split.  The
amount the Company determines should be available to potentially fund the
cancellation of Fractional Shares as a result of the Reverse Stock Split is
referred to herein as the “Initial Total Funding
Amount”.

 

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(c)           No later than 10 business
days before the Reverse Split Effective Date, the Company shall (i) appoint
a bank or trust company reasonably satisfactory to the Principal Shareholder
(the “Paying Agent”), and (ii) enter
into a paying agent agreement, in form and substance reasonably satisfactory to
the Principal Shareholder, with the Paying Agent for the payments to be made in
consideration of the cancellation of the Fractional Shares.  At least two business days before the Reverse
Split Effective Date, the Principal Shareholder shall deposit, or cause to be
deposited, into an escrow account with the Paying Agent (the “Escrow Account”), for the benefit of the holders of the
Fractional Shares, cash in an amount at least equal to the Initial Funding
Amount.  “Initial
Funding Amount” shall mean the payment required to be made by the
Principal Shareholder to the Escrow Account pursuant to this paragraph such
that both (x) the sum of such payment made by the Principal Shareholder
and the payment made by the Other Principal Shareholder to the Escrow Account
pursuant to Section 2 of the Other Funding Agreement (as defined in Section 14)
equals the Initial Total Funding Amount, and (y) if shares of Common Stock
were issued to the Principal Shareholder under Section 3 of this Agreement
and the Other Principal Shareholder under Section 3 of the Other Funding
Agreement as a result of all of the Initial Total Funding Amount being used to
fund the cancellation of Fractional Shares as a result of the Reverse Stock
Split, then immediately after the Reverse Split Effective Date and based on the
number of shares of Common Stock expected to be owned by the Holiday
Shareholders and the Gratco Shareholders immediately after the Reverse Split
Effective Date, the Holiday Shareholders would beneficially own the same number
of shares of Common Stock as beneficially owned by the Gratco Shareholders.

 

(d)           On the tenth business day
after the Reverse Split Effective Date (the “Final
Funding Determination Date”), the Company or the Paying Agent shall
notify the Principal Shareholder of the aggregate amount of payments actually
made from the Escrow Account to the holders of the Common Stock after the
Reverse Split Effective Date for the cancellation of Fractional Shares and any
additional amount necessary to pay for the cancellation of any Fractional
Shares for which a duly executed letter of transmittal has not as of the Final
Funding Determination Date been received by the Company (such aggregate amount,
the “Final Total Funding Amount”).  The Company shall cause the Paying Agent to
promptly deliver to the Principal Shareholder the amount of any excess of the
Initial Funding Amount over the Final Funding Amount (as defined below), and
the Principal Shareholder shall promptly deliver to the Paying Agent the amount
of any excess of the Final Funding Amount over the Initial Funding Amount.  The “Final Funding Amount”
shall mean the payment required to be made by the Principal Shareholder to the
Escrow Account pursuant to this paragraph such that both (x) the sum of
such payment made by the Principal Shareholder and the payment made by the
Other Principal Shareholder to the Escrow Account pursuant to Section 2 of
the Other Funding Agreement (as defined in Section 14) equals the Final
Total Funding Amount, and (y) if shares of Common Stock were issued to the
Principal Shareholder under Section 3 of this Agreement and the Other
Principal Shareholder under Section 3 of the Other Funding Agreement as a
result of all of the Final Total Funding Amount being used to fund the
cancellation of Fractional Shares as a result of the Reverse Stock Split, then
immediately after the Reverse Split Effective Date and based on the number of shares
of Common Stock expected to be owned by the Holiday Shareholders and the Gratco
Shareholders immediately after the Reverse Split Effective Date, the Holiday
Shareholders would beneficially own the same number of shares of Common Stock
as beneficially owned by the Gratco Shareholders.  Any unclaimed funds in the Escrow Account
after the Final Funding Determination Date will be handled as set forth in the
paying agent

 

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agreement,
but will not be returned to the Principal Shareholder (and no adjustment will
be made in the number of Funding Consideration Shares issued to the Principal
Shareholder pursuant to Section 3 as a result of the ultimate disposition
of any such unclaimed funds).

 

3.             ISSUANCE OF SHARES TO PRINCIPAL
SHAREHOLDER.  Within five
business days after the Final Funding Determination Date and in consideration of the Principal Shareholder’s
assumption of the obligations of the Company as set forth in Section 2,
the Company agrees to issue to the Principal Shareholder a number of shares of
Common Stock (calculated on a pre-Reverse Stock Split basis) equal to the Final
Funding Amount divided by the Cancellation Price (rounded down to the nearest
whole share) (the “Funding Consideration
Shares”).  Notwithstanding the
foregoing, if no less than five days before the Reverse Split Effective Date
the Principal Shareholder has deposited $3,503,133.00 in the Escrow Account and
this Agreement has not been terminated, the Company will issue 680,220 of the Funding
Consideration Shares to the Principal Shareholder (the “Preliminary
Shares”) at 10:00 a.m. Eastern Time on the business day
immediately prior to the Reverse Split Effective Date.  If the Reverse Stock Split is not completed
for any reason and the Preliminary Shares have been issued to the Principal
Shareholder, $3,503,133.00 will be transferred from the Escrow Account to the
Company and the Preliminary Shares will be deemed to have been purchased by the
Principal Shareholder from the Company for such consideration.  If upon the Reverse Split Effective Date the
Holiday Shareholders do not beneficially own the same number of shares of
Common Stock as beneficially owned by the Gratco Shareholders, then the Principal
Shareholder agrees to use its commercially reasonable efforts to achieve such
parity, which efforts will include, without limitation, an adjustment of the
Principal Shareholder’s Final Funding Amount and the Final Funding Amount of
the Other Principal Shareholder pursuant to Section 2 of the Other Funding
Agreement so that, as a result of the issuance of the Funding Consideration
Shares, the Holiday Shareholders will beneficially own the same number of
shares of Common Stock as the Gratco Shareholders.

 

4.             CONDITIONS FOR REVERSE  STOCK SPLIT.  The
obligations of the Company and the Principal Shareholder to complete the
transactions required to be completed by them at or prior to the Reverse Split
Effective Date shall be subject to the satisfaction of the following
conditions:  (a) the ratio to be
used in the Reverse Stock Split shall not be adjusted without the consent of
the Company and the Principal Shareholder, (b) the Reverse Stock Split
shall not result in the cancellation of in excess of 20% of the outstanding
shares of Common Stock in violation of Section 423, (c) the Reverse
Stock Split shall result in the Company ceasing to be an Issuing Public
Corporation, as defined in MBCA Section 302A.011, subd. 39, (d) unless
waived by the Company and the Principal Shareholder, the Other Principal Shareholder
shall have funded in full the Initial Funding Amount under (and as defined in)
the Other Funding Agreement and shall not be in material breach of (or have
disclaimed its obligations under) the Other Funding Agreement, unless in such
case the Principal Shareholder has exercised its right to assume the
obligations of Gratco under the Other Funding Agreement in accordance with Section 24
and shall have funded in full all amounts payable thereunder, (e) the
Schedule 13E-3 Filings (as hereinafter defined) in form and substance
consistent with the terms of this Agreement shall have been cleared by the U.S.
Securities and Exchange Commission (the “SEC”), (f) unless
waived by the Company, (i) the representations and warranties of the
Principal Shareholder set forth in this Agreement shall be true and correct in
all material respects as of the Reverse Split Effective Date, and (ii) the
covenants and agreements of the Principal Shareholder required to be performed
at or prior to the Reverse Split Effective Date shall have 

 

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been
performed in all material respects, and (g) unless waived by the Principal
Shareholder, (x) the representations and warranties of the Company set
forth in this Agreement shall be true and correct in all material respects as
of the Reverse Split Effective Date, and (y) the covenants and agreements
of the Company required to be performed at or prior to the Reverse Split
Effective Date shall have been performed in all material respects.

 

5.             INDEMNIFICATION.  If, as a result of an action, suit or
proceeding by a current or former shareholder of the Company, the Company is
required to pay such shareholder (a) any per share amount in excess of the
Cancellation Price as compensation for the cancellation of such shareholder’s
Fractional Shares or (b) any per share amount in exchange for such
shareholder’s shares that are not cancelled as a result of the Reverse Stock
Split (any such amounts under clause (a) or clause (b), the “Excess Price”), the Principal Shareholder severally agrees
to indemnify the Company for, and hold the Company harmless against, an amount
equal to 50% of the Excess Price.  The
Principal Shareholder will not be liable for any attorneys’ fees, expenses or
other costs incurred by the Company in connection with such actions, suits or
proceedings, except for an amount equal to 50% of the Excess Price.  The Principal Shareholder’s obligation under
the first sentence of this Section 5 will only arise upon the
determination of an Excess Price amount subject to the indemnity described
herein as a result of a final Order of a court of competent jurisdiction not
subject to further appeal or as a result of a final binding settlement
consented to by the Principal Shareholder (which consent shall not be
unreasonably withheld, delayed or conditioned), with payment to be made
promptly following demand by the Company. 
The indemnity obligations of the Principal Shareholder hereunder shall
apply irrespective of the truth or untruth of the representations and
warranties of the Company hereunder or, after the Reverse Split Effective Date,
any defense to enforcement that the Principal Shareholder may have, except that
the Principal Shareholder shall have no further liability under this Section 5
or any other section of this Agreement in the event this Agreement is
terminated pursuant to Section 27 and the Other Principal Shareholder
assumes all of the obligations of this Agreement under the Other Funding
Agreement pursuant to Section 24 of the Other Funding Agreement (it being
understood that the Other Principal Shareholder will have that liability).

 

6.             PROCEDURES FOR INDEMNIFICATION.  The Principal Shareholder and the Other
Principal Shareholder will jointly have the right to control, at their own cost,
the defense of any actions, suits or proceedings that may result in indemnity
pursuant to Section 5 (an “Excess Price Proceeding”) with counsel
reasonably satisfactory to the Company. 
If the Principal Shareholder and the Other Principal Shareholder do not
jointly elect to assume the control of an Excess Price Proceeding within three (3) days
after the commencement of any such Excess Price Proceeding, then the Company
will assume and have the right to control, at its own cost, the defense of any
Excess Price Proceeding.  If the Company
controls the defense of any Excess Price Proceeding, the Company shall (a) obtain
the written consent of the Principal Shareholder to the selection of legal
counsel to the Company for the defense of any such claims (which consent shall
not be unreasonably withheld, delayed or conditioned), (b) reasonably
consult, and cause the Company’s legal counsel to reasonably consult, with the
Principal Shareholder and its legal counsel regarding such defense upon the
Principal Shareholder’s reasonable request, (c) keep the Principal
Shareholder and its legal counsel reasonably informed of any material
developments in such action, suit or proceeding, and (d) prior to
compromising or settling any Excess Price Proceeding, obtain the prior written
consent of the Principal Shareholder (which consent will not be unreasonably
withheld, delayed or conditioned).  The
Company will have the right, at its own expense, to engage legal counsel to
participate in the defense of such action, suit or proceeding. 

 

5

 

If
the Principal Shareholder and the Other Principal Shareholder jointly control
the defense of any Excess Price Proceeding, the Principal Shareholder and the
Other Principal Shareholder shall (a) obtain the written consent of the
Company to the selection of legal counsel to the Principal Shareholder and the
Other Principal Shareholder for the defense of any such claims (which consent
shall not be unreasonably withheld, delayed or conditioned), (b) reasonably
consult, and cause their legal counsel to reasonably consult, with the Company
and its legal counsel regarding such defense upon the Company’s reasonable
request, (c) keep the Company and its legal counsel reasonably informed of
any material developments in such action, suit or proceeding, and (d) prior
to compromising or settling any Excess Price Proceeding, obtain the prior
written consent of the Company (which consent will not be unreasonably
withheld, delayed or conditioned). The Company will give the Principal
Shareholder written notice of all claims for indemnification under this
Agreement and the amount of such claims promptly upon their determination,
provided that the failure to provide any such notice shall not prejudice the
rights of the Company to indemnification hereunder.  All such claims shall be satisfied by the
Principal Shareholder by payment of such obligation directly to the current or
former shareholder of the Company entitled to such indemnifiable amount within
five business days of receipt of such notice by wire transfer of immediately
available funds to an account or accounts specified by such current or former
shareholder, or at such other time and in such other manner as may otherwise be
provided in any final Order not subject to further appeal or any final binding
settlement agreement.

 

7.             OFFER TO PURCHASE.

 

(a)           Within 30 days following the
latest to occur of (a) the Reverse Split Effective Date, (b) deregistration
of the Common Stock under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and (c) delisting
of the Common Stock from the Nasdaq Global Market, the Principal Shareholder
agrees to make a binding and irrevocable written offer to purchase (the “Offer to Purchase”) all of the shares of outstanding Common
Stock, other than shares held by the Holiday Shareholders or by the Gratco
Shareholders (such shares that are subject to the offer to purchase, the “Eligible Shares”), at a per share price equal to the
Cancellation Price, on the following terms:

 

(i)            The Principal Shareholder
will offer to purchase 50% of all Eligible Shares.

 

(ii)           The Offer to Purchase shall
remain open for no less than 60 days following the first date of mailing
thereof to the holders of Eligible Shares, and, except as required by Law,
shall not be extended or amended without the consent of the Principal
Shareholder.

 

(iii)          The disclosure contained in
the Offer to Purchase shall be determined by the Principal Shareholder, subject
to the consent of the Company (which consent shall not be unreasonably
withheld, delayed or conditioned).

 

(iv)          All payments to holders of
Eligible Shares accepting the Offer to Purchase described in this Section 7
will be made in cash by the Principal Shareholder promptly (and in no event
more than five business days) following reasonable and customary demonstration
of unencumbered ownership of such shares by the shareholder accepting the Offer
to Purchase and the transmittal of such shares to the Company’s transfer agent
for the benefit of the Principal Shareholder pursuant to a transmittal letter
in reasonable and customary form. 
Notwithstanding

 

6

 

anything
to the contrary contained in this Agreement, except as otherwise set forth in
this clause (iv), the Offer to Purchase shall not be subject to any other
conditions and shall not require any holder of Eligible Shares to make any
representation, warranty, covenant or agreement in connection with accepting
such Offer to Purchase.

 

(v)           The Principal Shareholder
will comply with the requirements of Regulation 14E under the Exchange Act, to
the extent applicable, and any other applicable Laws in connection with the
Offer to Purchase.

 

(vi)          Upon the expiration of the
Offer to Purchase, assuming compliance by the Principal Shareholder with the
terms of this Agreement, the Principal Shareholder shall be under no further
obligation to offer to purchase any remaining outstanding shares of Common
Stock held by Eligible Holders at the Cancellation Price, or at any price.

 

(b)           If
upon completion of the Offer to Purchase the Holiday Shareholders do not
beneficially own the same number of shares of Common Stock as beneficially
owned by the Gratco Shareholders, then the Principal Shareholder agrees to use
its commercially reasonable efforts to achieve such parity, which efforts will
include, without limitation, selling shares of Common Stock to the Other
Principal Shareholder (or buying shares from the Other Principal Shareholder)
at a per share price equal to the Cancellation Price so that the Holiday
Shareholders beneficially own the same number of shares of Common Stock as the
Gratco Shareholders.

 

8.             SEC AND SHAREHOLDER DISCLOSURE.  The Reverse Stock Split, the Forward Stock
Split, the cancellation of the Fractional Shares, the payments to be made in
consideration of such cancellation and the transactions related thereto,
including the Offer to Purchase described in Section 7, shall be carried
out in the manner described in the final Information Statement of the Company
and the Transaction Statement on Schedule 13E-3 to be filed with the SEC under
Schedule 13E-3 (collectively, the “Schedule 13E-3 Filings”).  The Company and Principal Shareholder agree
to join in, and reasonably cooperate with respect to the preparation of, and
file each Schedule 13E-3 Filing, each amended Schedule 13E-3 Filing, and any
other document or correspondence with the SEC required to be filed in
connection with the transactions contemplated by this Agreement.  The Principal Shareholder agrees to provide
the Company with any information with respect to the Principal Shareholder that
is required to be included in any Schedule 13E-3 Filing or amendment thereto or
any other document or correspondence with the SEC required to be filed in
connection with the transactions contemplated by this Agreement.  The Company shall provide the Principal
Shareholder with the opportunity to review and comment upon all disclosures in
the Schedule 13E-3 Filings, and the Company shall give due and reasonable
consideration to such comments.  The
Company further agrees to cause the final Information Statement of the Company
included on a Schedule 13E-3 Filing, as filed with the SEC, to be mailed to all
shareholders of the Company.

 

9.             LIMITATION ON OBLIGATIONS.  Except as expressly set forth herein, the
Holiday Shareholders and their respective successors do not agree to assume or
accept responsibility for any liabilities of the Company or any of the
Company’s shareholders of any nature whatsoever (whether accrued, absolute,
contingent, known, unknown, asserted, unasserted, liquidated, unliquidated or
otherwise, and whether due or to become due).

 

10.           REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL SHAREHOLDER.  The
Principal Shareholder represents and warrants to the Company that:

 

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(a)           ORGANIZATION AND
QUALIFICATION.  The
Principal Shareholder is duly formed, validly existing and in good standing
under the Laws of its state of organization, with full power and authority (corporate
and other) to own, lease, use and operate its properties, if any, and to carry
on its business as and where now owned, leased, used, operated and
conducted.  The Principal Shareholder is
duly qualified to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified or in good standing
would not have a material adverse effect on its business or ability to complete
its obligations under this Agreement.

 

(b)           AUTHORIZATION; ENFORCEMENT.  (i) The Principal Shareholder has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby; (ii) the execution, delivery and performance of this
Agreement by the Principal Shareholder and the consummation by it of the
transactions contemplated hereby have been duly authorized by all required
parties and no further consent or authorization of the Principal Shareholder,
its board of directors or its shareholders or members is required; (iii) this
Agreement has been duly executed and delivered by the Principal Shareholder;
and (iv) assuming the valid and binding execution of this Agreement by the
Company and compliance with the terms of this Agreement by the Company, this
Agreement constitutes a legal, valid and binding obligation of the Principal
Shareholder enforceable against the Principal Shareholder by the Company in
accordance with its terms, except as may be limited by any applicable
bankruptcy, insolvency, reorganization, or moratorium or similar Laws affecting
the rights of creditors generally and the application of general principles of
equity.

 

(c)           NO CONFLICTS; NO VIOLATIONS.  The execution, delivery and performance of
this Agreement by the Principal Shareholder, and the consummation by the
Principal Shareholder of the transactions contemplated hereby do not and will
not (i) conflict with or result in a violation of any provision of the
Principal Shareholder’s articles of incorporation or bylaws or other
organizational documents, (ii) violate or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Principal Shareholder is a
party, or (iii) result in a violation of any Law or Order (including U.S.
federal and state securities Laws and regulations of any self-regulatory
organizations to which the Principal Shareholder or its securities are subject)
applicable to the Principal Shareholder or by which any property or asset of
the Principal Shareholder is bound or affected.

 

(d)           AVAILABLE FUNDS.  The Principal Shareholder will have, at the
times required  pursuant to this
Agreement, cash sufficient to (i) permit the Principal Shareholder to
consummate the transactions contemplated by this Agreement, including payment
for the Fractional Shares in accordance with Section 2 of this Agreement,
and (ii) consummate the Offer to Purchase in accordance with Section 7
of this Agreement.

 

(e)           COMPANY DISCLOSURE DOCUMENTS.  The information supplied by the Principal
Shareholder regarding the Principal Shareholder for inclusion in each document
required to be filed by the Company with the SEC in connection with the
transactions contemplated by this Agreement, the Reverse Stock Split and the
Forward Stock Split shall not contain any untrue statement of material fact, or
omit to state any material fact required to be

 

8

 

stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they are made, not misleading, at the time of
the filing thereof and at the time of any distribution thereof.  If, at any time prior to the Reverse Split
Effective Date, any event or circumstance relating to the Principal Shareholder
should be discovered by the Principal Shareholder which should be set forth in
an amendment to any document required to be filed by the Company with the SEC
in connection with the transactions contemplated by this Agreement, the Reverse
Stock Split and the Forward Stock Split, the Principal Shareholder shall
promptly inform the Company.

 

(f)            NO LITIGATION.  There is no claim, action, suit, proceeding
or governmental investigation pending or, to the knowledge of the Principal
Shareholder, threatened against the Principal Shareholder, by or before any
Governmental Authority or by any third party which challenges the validity of
this Agreement, the Reverse Stock Split, the Forward Stock Split or the
issuance of the Funding Consideration Shares, or which would be reasonably
likely to adversely affect or restrict the Principal Shareholder’s ability to
consummate the transactions contemplated by this Agreement.

 

(g)           BROKERS, ETC.  No broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission payable by the
Company in connection with the transactions contemplated by this Agreement, the
Reverse Stock Split or the Forward Stock Split 
based upon arrangements made by or on behalf of the Principal
Shareholder or any of its affiliates or associates.

 

(h)           NO CONSENTS.  No consent, approval, authorization or order
of, or registration, qualification or filing with, any Governmental Authority
will be required by the Principal Shareholder in connection with the execution,
delivery or performance by the Principal Shareholder of this Agreement and the
transactions contemplated hereby.

 

(i)            INVESTMENT PURPOSE.  The Principal Shareholder is acquiring the
Funding Consideration Shares for its own account and not with a present view
toward the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the Securities Act of 1933 , as
amended (the “Securities Act”).

 

(j)            ACCREDITED INVESTOR STATUS.  The Principal Shareholder is an “accredited
investor” as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act (“Regulation D”).

 

(k)           RELIANCE ON EXEMPTIONS.  The Principal Shareholder understands that
the Funding Consideration Shares are being offered and issued to it in reliance
upon specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Principal Shareholder’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Principal Shareholder set forth herein in order to determine the
availability of such exemptions and the eligibility of the Principal
Shareholder to acquire the Funding Consideration Shares.

 

(l)            INFORMATION AND
SOPHISTICATION.  The
Principal Shareholder and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company, and
materials relating to the offer and issuance of the Funding Consideration
Shares, that have been requested by the Principal Shareholder or its advisors,
if

 

9

 

any.  The Principal Shareholder and its advisors,
if any, have been afforded the opportunity to ask questions of the
Company.  The Principal Shareholder
acknowledges and understands that its investment in the Common Stock involves a
significant degree of risk, including the risks reflected in the Company’s
reports on file with the SEC.  The
Principal Shareholder is experienced and knowledgeable in financial and
business matters, is capable of evaluating the merits and risks of investing in
the Common Stock, and does not need or desire the assistance of a knowledgeable
representative to aid in the evaluation of such risks who the Principal
Shareholder intends to use in connection with a decision as to whether to
receive the Funding Consideration Shares. 
The Principal Shareholder acknowledges and agrees that, except as set
forth in Section 11 of this Agreement, the Company is not making to the
Principal Shareholder any representations or warranties, express or implied,
regarding the Company or its business, assets, liabilities or financial
condition.

 

(m)          GOVERNMENTAL REVIEW.  The Principal Shareholder understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the Common
Stock or an investment therein.

 

(n)           TRANSFER OR RESALE.  The Principal Shareholder understands that:

 

(i)            the issuance of the Funding Consideration Shares has
not been and is not being registered under the Securities Act or any applicable
state securities laws and, consequently, the Principal Shareholder may have to
bear the risk of owning the Funding Consideration Shares for an indefinite
period of time because the Funding Consideration Shares may not be transferred
unless (i) the resale of the Funding Consideration Shares is registered
pursuant to an effective registration statement under the Securities Act; (ii) the
Principal Shareholder has delivered to the Company an opinion of counsel
satisfactory to the Company (in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the Funding
Consideration Shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; or (iii) the Funding
Consideration Shares are sold or transferred pursuant to Rule 144;

 

(ii)           any sale of the Funding
Consideration Shares made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and, if Rule 144 is not
applicable, any resale of the Funding Consideration Shares under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the Securities Act) may
require compliance with another exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and

 

(iii)          neither the Company nor any
other person is under any obligation to register the Funding Consideration
Shares under the Securities Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder.

 

(o)           LEGENDS.  The Principal Shareholder understands that
until (i) all of the Funding Consideration Shares may be sold by the
Principal Shareholder without compliance with the requirements of Rule 144
or (ii) such time as the resale of the Funding Consideration Shares has
been registered under the Securities Act, the certificates representing the
Funding Consideration Shares will bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
the certificates for such Funding Consideration Shares):

 

10

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES (COLLECTIVELY, THE “ACTS”).  THE SECURITIES MAY NOT BE SOLD,
DISTRIBUTED, OFFERED, PLEDGED, ENCUMBERED, ASSIGNED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF THE FOLLOWING: (1) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE ACTS COVERING THE TRANSACTION, (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACTS, OR (3) THE COMPANY OTHERWISE
SATISFIES ITSELF THAT REGISTRATION IS NOT REQUIRED UNDER THE ACTS.

 

The
legend set forth above will be removed and the Company will issue a certificate
without the legend to the holder of any certificate upon which it is stamped,
in accordance with the terms of Section 13(g).

 

(p)           RESIDENCY.  The Principal Shareholder is a resident of,
or domiciled in, the jurisdiction set forth in the address for the Principal
Shareholder contained in Section 15.

 

(q)           NO
OTHER REPRESENTATIONS OR WARRANTIES.  Except as set forth in this Section 10,
neither the Principal Shareholder nor any of its officers, director, employees,
agents or representatives makes any representations or warranties, express or
implied, in connection with the transactions contemplated by this Agreement.

 

11.           REPRESENTATIONS AND WARRANTIES OF
THE COMPANY.  The Company
represents and warrants to the Principal Shareholder that:

 

(a)           ORGANIZATION AND QUALIFICATION.  The Company is duly incorporated, validly
existing and in good standing under the Laws of the state of Minnesota.

 

(b)           CAPITALIZATION.  The authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, and (ii) 5,000,000
shares of preferred stock, par value $0.01 per share (“Company Preferred
Stock”).  As of the date hereof, (w) 24,197,732
shares of Common Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and non-assessable, (x) no shares
of Common Stock are held by any subsidiaries of the Company, (y) 1,889,380
shares of Common Stock were reserved for future issuance pursuant to
outstanding stock options granted pursuant to Company stock option plans, and (z) no
shares of Company Preferred Stock were issued or outstanding.  Except as set forth above or as set forth in
the Company’s publicly filed reports with the SEC, there are no options,
warrants, convertible debt or other convertible instruments or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company.

 

(c)           AUTHORIZATION; ENFORCEMENT.  (i) The Company has all requisite
corporate power and authority to enter into and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby; (ii) the
execution, delivery and performance of this Agreement by the Company and the
consummation by it of the transactions

 

11

 

contemplated
hereby have been duly authorized by its board of directors; (iii) this
Agreement has been duly executed and delivered by the Company; and (iv) assuming
the valid and binding execution of this Agreement by the Principal Shareholder
and compliance with the terms of this Agreement by the Principal Shareholder,
this Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company by the Principal Shareholder in
accordance with its terms, except as may be limited by any applicable
bankruptcy, insolvency, reorganization, or moratorium or similar Laws affecting
the rights of creditors generally and the application of general principles of
equity.

 

(d)           NO CONFLICTS; NO VIOLATION.

 

(i)            The execution, delivery and
performance of this Agreement by the Company, and the consummation by the
Company of the transactions contemplated hereby (including the issuance of the
Funding Consideration Shares) do not and will not (A) conflict with or
result in a violation of any provision of the Company’s articles of
incorporation or bylaws, or (B) result in a violation of any Law or Order
(including U.S. federal and state securities Laws and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or by which any property or asset of the
Company is bound or affected (except, in the case of clause (B), for such
violations as would not, individually or in the aggregate, have a material
adverse effect on the business or financial condition of the Company and its
subsidiaries taken as a whole or on the ability of the Company to perform its obligations
under this Agreement).

 

(ii)           The Company is not in
violation of its articles of incorporation, bylaws or other organizational
documents.

 

(e)           NO LITIGATION.  There is no claim, action, suit, proceeding
or governmental investigation pending or, to the knowledge of the Company,
threatened against the Company, by or before any Governmental Authority or by
any third party which challenges the validity of this Agreement or the Reverse
Stock Split or the Forward Stock Split, or which would be reasonably likely to
adversely affect or restrict the Company’s ability to consummate the
transactions contemplated by this Agreement.

 

(f)            FAIRNESS OPINION.  The Special Committee has received the
opinion of Greene Holcomb & Fisher LLC, dated the date hereof, to the
effect that, as of this date, and based upon and subject to the assumptions and
limitations set forth in its opinion, (including the fact that the Offer to
Purchase will occur at a date subsequent to the Reverse Stock Split) that (i) the
Cancellation Price to be received in the Reverse Stock Split by holders of
Fractional Shares (other than the Principal Shareholder, the Erickson Family
Members and the Other Principal Shareholder) is fair, from a financial point of
view, to those holders of Fractional Shares, and (ii) the Cancellation
Price to be offered to the holders of Eligible Shares pursuant to the Offer to
Purchase is fair, from a financial point of view, to those holders of Eligible
Shares.

 

(g)           ISSUANCE OF FUNDING
CONSIDERATION SHARES.  The Funding
Consideration Shares have been duly authorized and, upon issuance in accordance
with the terms of this Agreement, will be validly issued, fully paid and
non-assessable and free from all taxes, liens, claims, encumbrances and charges
with respect to the issuance thereof (other than liens, claims, encumbrances or
charges created or imposed by the Principal Shareholder).

 

12

 

(h)           NO OTHER REPRESENTATIONS OR
WARRANTIES.  Except as
set forth in this Section 11, none of the Company or any of its officers,
director, employees, agents or representatives makes any representations or
warranties, express or implied, in connection with the transactions
contemplated by this Agreement.

 

12.            COMPANY SHARES.  As of the date hereof, the Holiday
Shareholders own an aggregate of 8,308,672 shares of Common Stock, which
represent the only shares of Common Stock over which any of the Holiday
Shareholders has beneficial ownership. 
On and following the date hereof, except as otherwise provided by this
Agreement and except for transactions among the Holiday Shareholders, neither
the Principal Shareholder nor any of its affiliates or associates shall (a) transfer,
sell, dispose or acquire beneficial ownership of any shares of Common Stock or (b) form,
join or in any way participate in a “group” (as defined in Rule 13(d)(3) promulgated
under the Exchange Act) including any members other than the Holiday
Shareholders with respect to any voting securities of the Company, other than
such actions described in clause (a) or (b) of this Section 12
as are taken with the prior written consent of the Company and Gratco.

 

13.           OTHER AGREEMENTS.

 

(a)           Directors’ and
Officers’ Indemnification and Insurance.

 

(i)            The Bylaws of the Company shall, and the
Principal Shareholder shall cause such Bylaws to, contain provisions no less
favorable with respect to indemnification than are set forth in the Bylaws of
the Company as of the date of this Agreement, which provisions shall not be
amended, repealed or otherwise modified after the date hereof in any manner
that would affect adversely the rights thereunder of individuals who, at or
prior to the Reverse Split Effective Date, were directors, officers, employees,
fiduciaries or agents of the Company.

 

(ii)           The Company shall, and the Principal
Shareholder shall cause the Company to, maintain in effect for six years from
the date of the later of the Reverse Split Effective Date or the consummation
of the Offer to Purchase the current directors’ and officers’ liability
insurance policies maintained by the Company (provided that the Company may
substitute therefor policies with an insurer of equal or greater claims paying
ratings and of at least the same coverage containing terms and conditions that
are not less favorable) with respect to matters occurring prior to the later of
the Reverse Split Effective Date or the consummation of the Offer to Purchase.

 

(iii)          The
provisions set forth in this Section 13(a) shall not be exclusive of
any other rights with respect to indemnification, insurance or expense
advancement which any person may have or hereafter acquire under any Law,
agreement or otherwise.  Following the
Reverse Split Effective Date, the Principal Shareholder shall use its best
efforts to cause the Company to, assume, honor and comply with all agreements
and contracts between the Company and its directors, officers, employees,
fiduciaries or agents requiring the Company to provide indemnification,
insurance or expense advancement.

 

(iv)          If the Company or any of its successors
or assigns (x) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such consolidation
or merger or (y) transfers all or substantially all of its properties and
assets to any person, then, and in each such case, proper provision shall be
made so that the 

 

13

 

successors and assigns of the Company shall assume the
obligations set forth in this Section 13(a).

 

(b)           Covenants by the Company. 
Except as contemplated by this Agreement, between the date hereof and
the Reverse Split Effective Date, the Company will not:

 

(i)            issue, reissue, sell, deliver or pledge
or authorize or propose the issuance, reissuance, sale, delivery or pledge of
any capital stock or other equity securities of the Company, or securities
convertible into capital stock or other equity securities of the Company, or
any rights, warrants or options to acquire any convertible securities or
capital stock of the Company, other than the issuance of shares of Common Stock
upon the exercise of stock options outstanding as of the date hereof;

 

(ii)           adjust, split, combine, subdivide,
reclassify or redeem, purchase or otherwise acquire, or propose to redeem or
purchase or otherwise acquire, any capital stock or equity securities of the
Company; or

 

(iii)          declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of the capital stock or equity
interests of the Company, redeem or otherwise acquire any shares of the capital
stock or equity interests of the Company.

 

(c)           Deregistration and Delisting. 
As soon as practicable following the Reverse Split Effective Date, the
Principal Shareholder and the Company will use their commercially reasonable efforts to
complete the deregistration of the Common Stock under the Securities Exchange
Act of 1934 and the delisting of the Common Stock from the Nasdaq Global
Market.

 

(d)           Shareholder Parity.  The Principal Shareholder acknowledges and
agrees that its objective upon the completion of the Reverse Stock Split
pursuant to Sections 2 and 3 and the Offer to Purchase pursuant to Section 7
is that the Holiday Shareholders beneficially own a number of shares of Common
Stock equal to the number of shares of Common Stock beneficially owned by the
Gratco Shareholders.  If such parity is
not achieved upon either the completion of the Reverse Stock Split pursuant to
Sections 2 and 3 or the Offer to Purchase pursuant to Section 7, each of
the Company and the Principal Shareholder agrees to use their respective
commercially reasonable efforts to achieve such parity.

 

(e)           Form D; Blue Sky Laws.  The Company will file a Notice of Sale of
Securities on Form D with respect to the Funding Consideration Shares, as
required under Regulation D.  The Company
will take such action as it reasonably determines to be necessary to qualify
the Funding Consideration Shares for sale to the Principal Shareholder under
this Agreement under applicable securities (or “blue sky”) laws of the states
of the United States (or to obtain an exemption from such qualification).

 

(f)            Sales by Principal Shareholder.  The Principal Shareholder will sell any
Funding Consideration Shares sold by it in compliance with applicable
prospectus delivery requirements, if any, or otherwise in compliance with the
requirements for an exemption from registration under the Securities Act and
the rules and regulations promulgated thereunder.  The Principal Shareholder will not make any
sale, transfer or other disposition of the Funding Consideration Shares in
violation of federal or state securities laws or the restrictive provisions set
forth in this Agreement.

 

14

 

(g)           Transfer Agent Instructions; Removal of Legends.  The Company will instruct its transfer agent
to issue a certificate, registered in the name of the Principal Shareholder,
for the Funding Consideration Shares. 
Such certificate will bear the restrictive legend described in Section 10(o).
If, unless otherwise required by applicable state securities laws, (i) the
resale of the Funding Consideration Shares represented by such certificate has
been registered under an effective registration statement filed under the
Securities Act, (ii) the holder of Funding Consideration Shares provides
the Company and the Company’s transfer agent with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Funding
Consideration Shares may be made without registration under the Securities Act
and such sale either may occur without restriction on the manner of such sale
or transfer, or (iii) such holder provides the Company and the Company’s
transfer agent with reasonable assurances that such Funding Consideration
Shares can be sold under Rule 144, the Company will permit the transfer of
the Funding Consideration Shares, and the Company’s transfer agent will issue
one or more certificates, free from any restrictive legend, in such name and in
such denominations as specified by such holder.

 

14.           CERTAIN DEFINITIONS.  As used in this Agreement, the following
terms shall have the following meanings:

 

(a)           “Governmental
Authority” shall mean any United States federal, state, provincial,
supranational, city, county or local or any foreign government, governmental,
regulatory, self-regulatory or administrative authority, agency,
instrumentality or commission and any court, tribunal or judicial or arbitral
body (including private bodies) and any political or other subdivision,
department or branch of any of the foregoing.

 

(b)           “Law”
shall mean any United States or foreign, federal, state, city or local statute,
law, rule, ordinance, code or regulation, any Order, and any rule,
interpretation, guidance or directive of any Governmental Authority.

 

(c)           “Order”
shall mean any award, writ, stipulation, injunction, judgment, order, decree,
ruling, subpoena or verdict entered, issued, made or rendered by, or any
contract with, any Governmental Authority.

 

(d)           “Other
Funding Agreement” shall mean the Funding and Indemnification
Agreement dated of even date herewith between the Company and the Other
Principal Shareholder.

 

15.           NOTICES.  All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telefax
or email or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 15):

 

if to the Principal Shareholder:

 

4567 American
Boulevard West

Minneapolis, MN
55437

Attention: Lynn M.
Anderson

 

15

 

with a copy to:

 

Oppenheimer Wolff &
Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh
Street

Minneapollis,
MN  55402,

Attention:  Bruce A. Machmeier

                   bmachmeier @oppenheimer.com

 

if to the Company:

 

Gander Mountain
Company

180 East Fifth
Street, Suite 1300

St. Paul, MN  55101

Attention:  Eric R. Jacobsen, EVP and General Counsel

and

                   Marshall Day, Chairman of
the Special Committee

 

with a copy to:

 

Faegre & Benson LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN  55402-3901

Attention:  W. Morgan Burns
                   mburns@faegre.com

 

and

 

King &
Spalding LLP

1180 Peachtree Street

Atlanta, Georgia  30309

Attention:  C. William Baxley
                   bbaxley@kslaw.com

 

16.            SPECIFIC PERFORMANCE.  The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at
Law or in equity.

 

17.           PARTIES IN INTEREST.  Nothing in this Agreement, express or
implied, is intended to or shall confer upon any person or entity other than
the parties hereto any right, benefit or remedy of any nature whatsoever under
or by reason of this Agreement other than (a) the rights of the
individuals who benefit from the indemnification, insurance and other
provisions as set forth in Section 13(a) to enforce the provisions of
Section 13(a), (b) following the Reverse Split Effective Date, the
rights of the holders of the Fractional Shares to receive payment for the 

 

16

 

Fractional
Shares by the Principal Shareholder in accordance with Section 2, and (c) following
the Reverse Split Effective Date, the rights of the holders of the Eligible
Shares to enforce the obligations of the Principal Shareholder under Section 7(a).
Notwithstanding the foregoing, Bank of America, N.A., as agent under the
Company’s current senior credit facility together with its succesors and
assigns including any agent under a replacement credit facility (the “Bank Agent”), is an intended third-party beneficiary of Sections
2, 5 and 17 of this Agreement.

 

18.           COUNTERPARTS.  This Agreement may be executed by facsimile
signature or other means of electronic transmission (including e-mail) and in
one or more counterparts each of which shall be deemed to constitute an original
and shall become effective when one or more counterparts have been signed by
each of the parties hereto.

 

19.           CHANGES,
WAIVERS, ETC.  Neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.  In addition, none of Sections 2,
5 or 17 of this Agreement may be changed or waived without the prior written
consent of the Bank Agent, so long as the Bank Agent is the agent for the
Company’s senior credit facility. Any consent, waiver, amendment or other
determination to be made, or action to be taken, by the Company under or with
respect to this Agreement prior to the Reverse Split Effective Date (including
with respect to any termination of this Agreement pursuant to Section 27)
shall be made or taken only at the direction and upon the approval of the
Special Committee.

 

20.           GOVERNING LAW.  This Agreement shall be governed by and
construed and enforced in accordance with the Laws of the State of Minnesota
without regard to its conflicts of law rules. 
All actions and proceedings arising out of or relating to this Agreement
shall be heard and determined in any state or federal court sitting in the
State of Minnesota.

 

21.           SEVERABILITY.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
Law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect, so long as the economic or
legal substance of the transactions contemplated by this Agreement or the
Reverse Stock Split or the Forward Stock Split is not affected in any manner
adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated by this Agreement, the Reverse Stock Split and the Forward Stock
Split be consummated as originally contemplated to the fullest extent possible.

 

22.           PUBLIC ANNOUNCEMENTS.   The initial press release relating to this Agreement
shall be a joint press release the text of which has been agreed to by the
Principal Shareholder and the Company. 
Thereafter, unless otherwise required by applicable Law or the
requirements of any national securities exchange, the Principal Shareholder and
the Company shall use reasonable efforts to consult with each other before
issuing any press release or otherwise making any public statements with
respect to this Agreement, the Reverse Stock Split, the Forward Stock Split or
any of the other transactions contemplated by this Agreement.

 

23.           FURTHER ASSURANCES.  Each party to this Agreement will do and
perform, or cause to be done and performed, all such further acts and things,
and will execute and deliver all 

 

17

 

other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, entering into such escrow, disbursement,
exchange agent and other agreements with the Company’s transfer agent or the
Paying Agent as are reasonably requested by the Company’s transfer agent or the
Paying Agent and entering into such agreements as are reasonably necessary to
effect the Offer to Purchase.

 

24.           ENTIRE AGREEMENT; ASSIGNMENT OR
DELEGATION; ASSUMPTION.  This
Agreement constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof. 
Neither this Agreement nor any of the rights or obligations under this
Agreement shall be assigned or delegated (whether pursuant to a merger, by
operation of Law or otherwise). 
Notwithstanding the preceding sentence, the Principal Shareholder has
the right to assume all obligations of Gratco under the Other Funding Agreement
by delivery of written notice of such assumption to the Company and Gratco
including an unqualified undertaking in favor of the Company to perform all
obligations of Gratco thereunder in the event a notice of intent to terminate
as the result of a material breach of such Agreement by Gratco is delivered by
the Company in accordance with Section 27(f) of the Other Funding
Agreement as a result of the material breach by the Other Principal Shareholder
of its funding obligations pursuant to Section 2 of the Other Funding
Agreement, which is not cured pursant to such Section 27(f).  Written notice of the exercise of this right
to assume must be delivered by the Principal Shareholder within three business
days of receipt of the notice of intent to terminate from the Company.  The Principal Shareholder acknowledges and
agrees that Gratco shall have the same right to assume the Principal
Shareholder’s obligations under this Agreement in the event a notice of intent
to terminate as the result of a material breach of this Agreement by the
Prinicpal Shareholder is delivered to Gratco in accordance with Section 27(f) as
a result of the material breach by the Principal Shareholder of its funding
obligations pursuant to Section 2 of this Agreement, which is not cured
pursuant to such Section 27(f).  If
the Principal Shareholder exercises its rights under this Section 24, it
may, with the Company’s advance written consent, assign the assumed rights and
obligations under the Other Funding Agreement, in whole or in part, to a
third-party.

 

25.           HEADINGS.  The descriptive headings
contained in this Agreement are included for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.

 

26.           EXPENSES.  All expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.

 

27.           TERMINATION.  This Agreement may be terminated and the Reverse Stock
Split and the Forward Stock Split and the other transactions contemplated by
this Agreement may be abandoned at any time prior to the Reverse Split
Effective Date as follows:

 

(a)           by the Company or the Principal Shareholder
if any claim, action, suit or proceeding is brought by any Governmental
Authority that has the effect of making consummation of the transactions
contemplated by this Agreement, the Reverse Stock Split, the Forward Stock
Split or the Offer to Purchase illegal or otherwise preventing or prohibiting
consummation of the transactions contemplated by this Agreement, the Reverse
Stock Split, the Forward Stock Split or the Offer to Purchase; or

 

18

 

(b)           by either the Principal
Shareholder or the Company if the Reverse Split Effective Date shall not have
occurred on or before March 31, 2010; provided, however,
that the right to terminate this Agreement under this paragraph (c) shall
not be available to any party whose material breach of any representation,
warranty, covenant or agreement under this Agreement has been the cause of, or
resulted in, the failure of the Reverse Split Effective Date to occur on or
before such date; or

 

(c)           by either the Principal
Shareholder or the Company if any Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any Order which is then in
effect and has the effect of making consummation of the transactions
contemplated this Agreement or the Reverse Stock Split or the Forward Stock
Split illegal or otherwise preventing or prohibiting consummation of the
transactions contemplated by this Agreement or the Reverse Stock Split or the
Forward Stock Split, and such Order has become final and nonappealable; or

 

(d)           by the Company if (1) the
Special Committee determines, in its good faith judgment and after consultation
with outside legal counsel, that it is in the best interests of the Company’s
shareholders (other than the Holiday Shareholders and the Gratco Shareholders)
to withdraw its recommendation of this Agreement, the Reverse Stock Split or
the Forward Stock Split, (2) Gratco is in material breach of its funding
obligations pursuant to Section 2 of the Other Funding Agreement, and the Principal
Shareholder has not agreed to assume the obligations of Gratco under
the Other Funding Agreement in accordance with the terms of Section 24
within three business days of being provided with written notice of the
Company’s intent to terminate this Agreement pursuant to Section 27(f) of
the Other Funding Agreement, or (3) the Other Funding Agreement is
otherwise terminated; or

 

(e)           by the Principal Shareholder
upon a material breach of any representation, warranty, covenant or agreement
on the part of the Company set forth in this Agreement (“Terminating Company
Breach”); provided, however, that, if such Terminating
Company Breach is curable by the Company, the Principal Shareholder may not
terminate this Agreement under this paragraph (e) unless such breach is
not cured within 30 days after notice of such breach is provided by the
Principal Shareholder to the Company; provided, further, that the
Principal Shareholder may not terminate this Agreement under this paragraph (e) if
(x) such Terminating Company Breach is attributable to action or failure
to take required action on the part of the Principal Shareholder or its
affiliates or associates, or (y) with respect to a breach of a
representation or warranty  by the
Company, the Principal Shareholder or its affiliates or associates had
knowledge of the breach or the facts underlying the breach on or prior to the
date hereof; or

 

(f)            by the Company upon a
material breach of any representation, warranty, covenant or agreement on the
part of the Principal Shareholder set forth in this Agreement (“Terminating
Principal Shareholder Breach”); provided, however, that, if
such Terminating Principal Shareholder Breach is curable by the Principal
Shareholder, the Company may not terminate this Agreement under this paragraph
(f), unless such breach is not cured within 30 days after notice of such breach
is provided by the Company to Parent (five business days for any material
breach by the Principal Shareholder of its funding obligation pursuant to Section 2
of this Agreement); or

 

19

 

(g) at any time, by
mutual written consent of (i) the Principal Shareholder, Other Principal
Shareholder (who is a third-party beneficiary of this provision) and the
Company or (ii) the Principal Shareholder and the Company if the Other
Principal Shareholder is in breach or default under the Other Funding
Agreement.

 

In the event of the
termination of this Agreement pursuant to Section 27, this Agreement shall
forthwith become void, and there shall be no liability under this Agreement on
the part of any party hereto, except nothing herein shall relieve any
party from liability for any willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement prior to such
termination.

 

[signature page follows]

 

20

 

IN WITNESS WHEREOF, the parties have caused this
Funding and Indemnification Agreement to be executed and delivered as of the
date and year first above written.

 

	
   

  	
  GANDER MOUNTAIN COMPANY

  
	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Vold

  
	
   

  	
   

  	
  Name: Robert Vold

  
	
   

  	
   

  	
  Its: CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOLIDAY STATIONSTORES, INC.

  
	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald A. Erickson

  
	
   

  	
   

  	
  Name: Ronald A. Erickson

  
	
   

  	
   

  	
  Its: Chief Executive Officer

  

 

21EXHIBIT
10.2

 

FUNDING
AND INDEMNIFICATION AGREEMENT

 

THIS FUNDING AND
INDEMNIFICATION AGREEMENT (this “Agreement”) is
made as of September 27, 2009, between Gander Mountain Company, a
Minnesota corporation (the “Company”), and
Gratco LLC  (the “Principal Shareholder”).

 

RECITALS

 

A.            A Special Committee of the Board of Directors of the
Company (the “Special Committee”) and the full
Board of Directors of the Company has approved, and the Company intends to
complete, a 1-for-30,000 reverse split of its outstanding common stock, par
value $.01 per share (the “Common Stock”)
(the “Reverse  Stock Split”)
that will result in certain of its shareholders holding less than one whole
share but holding fractional interest shares (“Fractional
Shares”).

 

B.            Pursuant to Minnesota Business Corporation Act (“MBCA”) Section 302A.423 (“Section 423”),
in accordance with the terms of this Agreement, the Company intends to elect to
cause the cancellation of the Fractional Shares held by shareholders holding
Fractional Shares following the Reverse Stock Split in exchange for the payment
by the Principal Shareholder and the Other Principal Shareholder (as defined
below) of cash consideration for each Fractional Share at the rate of $5.15 per
whole share (calculated on a pre-Reverse Stock Split basis) (the “Cancellation Price”).

 

C.            Following the Reverse Stock Split and the cancellation
of Fractional Shares for those shareholders holding less than one whole share,
the Company will effect a forward stock split at a 30,000-for-1 ratio (the “Forward Stock Split”) to restore the share ownership of all
remaining shareholders to the number of shares held by them prior to the
Reverse Stock Split.

 

D.            The Principal Shareholder is currently one of the
Company’s two largest shareholders and, by virtue of the Reverse Stock Split,
will increase its percentage ownership in the Company.

 

E.             The Company wishes to assign and delegate, and the
Principal Shareholder is willing to accept and assume and be responsible for,
the obligation to fund and make payments to be made in consideration of
cancellation of Fractional Shares as provided herein.

 

F.             In consideration of the Principal Shareholder’s
assumption of the obligation to fund and make payments to be made in
consideration of cancellation of the Fractional Shares, the Company has agreed
to issue to the Principal Shareholder such number of whole shares of Common
Stock as is determined by dividing the amount of such obligation funded by the
Principal Shareholder by the Cancellation Price (calculated on a pre-Reverse
Stock Split basis).

 

G.            The Principal Shareholder has agreed, following the
Reverse Stock Split and the Forward Stock Split, to make an offer to purchase
certain shares of Common Stock that remain outstanding.

 

H.            The Principal Shareholder’s objective is to own, as a
result of the transactions contemplated by this Agreement, together with David
C. Pratt and the David C. Pratt Irrevocable Grantor Retained Annuity Trust
(together with the Principal Shareholder, the “Gratco
Shareholders”), a number of shares of Common Stock equal to the
number of shares of Common Stock collectively owned by (a) Holiday
Stationstores, Inc. (“Holiday”), (b) individual
beneficial or record holders of shares of Common Stock who are descendants of
Arthur T. and Elsie P. Erickson or Alfred W. and Rose E. Erickson and/or the
spouses of these descendants, (c) trusts holding shares of Common Stock
established primarily for the benefit of such descendants and/or their spouses
and/or (d) entities existing as of the date hereof or formed after the
date hereof that hold or have voting rights with respect to any of the
foregoing shares (collectively, the “Holiday Shareholders”
or the “Other Principal Shareholder”).

 

I.              The Principal Shareholder is willing to indemnify the
Company, and make the resulting payments directly on behalf of the Company, if
the Company is required to pay current or former shareholders any amounts in
excess of the Cancellation Price paid for the Fractional Shares cancelled
following the Reverse Stock Split or any amounts in exchange for such
shareholders’ shares that are not cancelled as a result of the Reverse Stock
Split.

 

TERMS AND
CONDITIONS

 

In consideration of the
premises and the mutual covenants contained herein, the parties agree as
follows:

 

1

 

1.             ASSIGNMENT, DELEGATION AND ASSUMPTION.  The Company
hereby assigns, delegates, conveys and transfers to the Principal Shareholder,
and the Principal Shareholder hereby acquires, accepts and assumes from the
Company, all right, title and interest in, and all responsibility for, the
obligations of the Company to (a) make payments of the Cancellation Price
for Fractional Shares in connection with the Reverse Stock Split and (b) pay
amounts to current or former shareholders of the Company which are subject to
indemnification pursuant to Sections 5 and 6, subject, in each case, to
the limitations on such obligations set forth in this Agreement.

 

2.             FUNDING FOR CANCELLATION OF FRACTIONAL SHARES.

 

(a)           The Principal Shareholder severally assumes and agrees
to pay, perform, discharge and fund a portion of the payments to be made to
shareholders of the Company in consideration of the cancellation of Fractional
Shares as a result of the Reverse Stock Split, as set forth in this Section 2.

 

(b)           At least five business days before the date
established by the Company for the effectiveness of the Reverse Stock Split
(the “Reverse Split Effective Date”), the
Company will deliver to the Principal Shareholder the Company’s good faith estimate
of the amount of funds potentially needed to fund the cancellation of
Fractional Shares as a result of the Reverse Stock Split.  The parties agree that such funding estimate
by the Company will be based, among other things, on (i) the Company’s good
faith estimate of (x) the number of shares of Common Stock to be held by
the Company’s record and beneficial shareholders as of the Reverse Split
Effective Date and (y) the likelihood of shareholders reducing or
increasing their shareholdings in order to receive cash or retain their shares
as a result of the Reverse Stock Split and (ii) the requirement that
sufficient funds be available so that additional funds from the Company are not
needed to fund the cancellation of the Fractional Shares as a result of the
Reverse Stock Split.  The amount the
Company determines should be available to potentially fund the cancellation of
Fractional Shares as a result of the Reverse Stock Split is referred to herein
as the “Initial Total Funding Amount”.

 

(c)           No later than 10 business days before the Reverse
Split Effective Date, the Company shall (i) appoint a bank or trust
company reasonably satisfactory to the Principal Shareholder (the “Paying Agent”), and (ii) enter into a paying agent
agreement, in form and substance reasonably satisfactory to the Principal
Shareholder, with the Paying Agent for the payments to be made in consideration
of the cancellation of the Fractional Shares. 
At least two business days before the Reverse Split Effective Date, the
Principal Shareholder shall deposit, or cause to be deposited, into an escrow
account with the Paying Agent (the “Escrow Account”),
for the benefit of the holders of the Fractional Shares, cash in an amount at
least equal to the Initial Funding Amount. 
“Initial Funding Amount” shall mean the
payment required to be made by the Principal Shareholder to the Escrow Account
pursuant to this paragraph such that both (x) the sum of such payment made
by the Principal Shareholder and the payment made by the Other Principal Shareholder
to the Escrow Account pursuant to Section 2 of the Other Funding Agreement
(as defined in Section 14) equals the Initial Total Funding Amount, and (y) if
shares of Common Stock were issued to the Principal Shareholder under Section 3
of this Agreement and the Other Principal Shareholder under Section 3 of
the Other Funding Agreement as a result of all of the Initial Total Funding
Amount being used to fund the cancellation of Fractional Shares as a result of
the Reverse Stock Split, then immediately after the Reverse Split Effective
Date and based on the number of shares of Common Stock expected to be owned by
the Holiday Shareholders and the Gratco Shareholders immediately after the
Reverse Split Effective Date, the Holiday Shareholders would beneficially own
the same number of shares of Common Stock as beneficially owned by the Gratco
Shareholders.

 

(d)           On the tenth business day after the Reverse Split
Effective Date (the “Final Funding
Determination Date”), the Company or the Paying Agent shall notify
the Principal Shareholder of the aggregate amount of payments actually made
from the Escrow Account to the holders of the Common Stock after the Reverse
Split Effective Date for the cancellation of Fractional Shares and any
additional amount necessary to pay for the cancellation of any Fractional
Shares for which a duly executed letter of transmittal has not as of the Final
Funding Determination Date been received by the Company (such aggregate amount,
the “Final Total Funding Amount”).  The Company shall cause the Paying Agent to
promptly deliver to the Principal Shareholder the amount of any excess of the
Initial Funding Amount over the Final Funding Amount (as defined below), and
the Principal Shareholder shall promptly deliver to the Paying Agent the amount
of any excess of the Final Funding Amount over the Initial Funding Amount.  The “Final Funding Amount”
shall mean the payment required to be made by the Principal Shareholder to the
Escrow Account pursuant to this paragraph such that both (x) the sum of
such payment made by the Principal Shareholder and the payment made by the
Other Principal Shareholder to the Escrow Account pursuant to Section 2 of
the Other Funding Agreement (as defined in Section 14) equals the Final
Total Funding

 

2

 

Amount, and (y) if
shares of Common Stock were issued to the Principal Shareholder under Section 3
of this Agreement and the Other Principal Shareholder under Section 3 of
the Other Funding Agreement as a result of all of the Final Total Funding
Amount being used to fund the cancellation of Fractional Shares as a result of
the Reverse Stock Split, then immediately after the Reverse Split Effective
Date and based on the number of shares of Common Stock expected to be owned by
the Holiday Shareholders and the Gratco Shareholders immediately after the
Reverse Split Effective Date, the Holiday Shareholders would beneficially own
the same number of shares of Common Stock as beneficially owned by the Gratco
Shareholders.  Any unclaimed funds in the
Escrow Account after the Final Funding Determination Date will be handled as
set forth in the paying agent agreement, but will not be returned to the
Principal Shareholder (and no adjustment will be made in the number of Funding
Consideration Shares issued to the Principal Shareholder pursuant to Section 3
as a result of the ultimate disposition of any such unclaimed funds).

 

3.             ISSUANCE OF SHARES TO PRINCIPAL SHAREHOLDER.  Within
five business days after the Final Funding Determination Date and in consideration of the Principal Shareholder’s
assumption of the obligations of the Company as set forth in Section 2,
the Company agrees to issue to the Principal Shareholder a number of shares of
Common Stock (calculated on a pre-Reverse Stock Split basis) equal to the Final
Funding Amount divided by the Cancellation Price (rounded down to the nearest
whole share) (the “Funding Consideration
Shares”).  If upon the Reverse
Split Effective Date the Holiday Shareholders do not beneficially own the same
number of shares of Common Stock as beneficially owned by the Gratco
Shareholders, then the Principal Shareholder agrees to use its commercially
reasonable efforts to achieve such parity, which efforts will include, without
limitation, an adjustment of the Principal Shareholder’s Final Funding Amount
and the Final Funding Amount of the Other Principal Shareholder pursuant to Section 2
of the Other Funding Agreement so that, as a result of the issuance of the
Funding Consideration Shares, the Holiday Shareholders will beneficially own
the same number of shares of Common Stock as the Gratco Shareholders.

 

4.             CONDITIONS FOR REVERSE  STOCK SPLIT.  The obligations of the Company and the
Principal Shareholder to complete the transactions required to be completed by
them at or prior to the Reverse Split Effective Date shall be subject to the
satisfaction of the following conditions: 
(a) the ratio to be used in the Reverse Stock Split shall not be
adjusted without the consent of the Company and the Principal Shareholder, (b) the
Reverse Stock Split shall not result in the cancellation of in excess of 20% of
the outstanding shares of Common Stock in violation of Section 423, (c) the
Reverse Stock Split shall result in the Company ceasing to be an Issuing Public
Corporation, as defined in MBCA Section 302A.011, subd. 39, (d) unless
waived by the Company and the Principal Shareholder, the Other Principal
Shareholder shall have funded in full the Initial Funding Amount under (and as
defined in) the Other Funding Agreement and shall not be in material breach of
(or have disclaimed its obligations under) the Other Funding Agreement, unless
in such case the Principal Shareholder has exercised its right to assume the
obligations of Holiday under the Other Funding Agreement in accordance with Section 24
and shall have funded in full all amounts payable thereunder, (e) the
Schedule 13E-3 Filings (as hereinafter defined) in form and substance
consistent with the terms of this Agreement shall have been cleared by the U.S.
Securities and Exchange Commission (the “SEC”), (f) unless
waived by the Company, (i) the representations and warranties of the
Principal Shareholder set forth in this Agreement shall be true and correct in
all material respects as of the Reverse Split Effective Date, and (ii) the
covenants and agreements of the Principal Shareholder required to be performed
at or prior to the Reverse Split Effective Date shall have been performed in
all material respects, and (g) unless waived by the Principal Shareholder,
(x) the representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as of the Reverse
Split Effective Date, and (y) the covenants and agreements of the Company
required to be performed at or prior to the Reverse Split Effective Date shall
have been performed in all material respects.

 

5.             INDEMNIFICATION.  If, as a result of an action,
suit or proceeding by a current or former shareholder of the Company, the
Company is required to pay such shareholder (a) any per share amount in
excess of the Cancellation Price as compensation for the cancellation of such
shareholder’s Fractional Shares or (b) any per share amount in exchange
for such shareholder’s shares that are not cancelled as a result of the Reverse
Stock Split (any such amounts under clause (a) or clause (b), the “Excess Price”), the Principal Shareholder severally agrees
to indemnify the Company for, and hold the Company harmless against, an amount
equal to 50% of the Excess Price.  The
Principal Shareholder will not be liable for any attorneys’ fees, expenses or
other costs incurred by the Company in connection with such actions, suits or
proceedings, except for an amount equal to 50% of the Excess Price.  The Principal Shareholder’s obligation under
the first sentence of this Section 5 will only arise upon the
determination of an Excess Price amount subject to the indemnity described
herein as a result of a final Order of a court of competent jurisdiction not
subject to further appeal or as a result of a final binding settlement
consented to 

 

3

 

by the Principal
Shareholder (which consent shall not be unreasonably withheld, delayed or
conditioned), with payment to be made promptly following demand by the
Company.  The indemnity obligations of
the Principal Shareholder hereunder shall apply irrespective of the truth or
untruth of the representations and warranties of the Company hereunder or,
after the Reverse Split Effective Date, any defense to enforcement that the
Principal Shareholder may have, except that the Principal Shareholder shall
have no further liability under this Section 5 or any other section of
this Agreement in the event this Agreement is terminated pursuant to Section 27
and the Other Principal Shareholder assumes all of the obligations of this
Agreement under the Other Funding Agreement pursuant to Section 24 of the
Other Funding Agreement (it being understood that the Other Principal
Shareholder will have that liability).

 

6.             PROCEDURES FOR INDEMNIFICATION.  The Principal
Shareholder and the Other Principal Shareholder will jointly have the right to
control, at their own cost, the defense of any actions, suits or proceedings
that may result in indemnity pursuant to Section 5 (an “Excess Price
Proceeding”) with counsel reasonably satisfactory to the Company.  If the Principal Shareholder and the Other
Principal Shareholder do not jointly elect to assume the control of an Excess
Price Proceeding within three (3) days after the commencement of any such
Excess Price Proceeding, then the Company will assume and have the right to
control, at its own cost, the defense of any Excess Price Proceeding.  If the Company controls the defense of any
Excess Price Proceeding, the Company shall (a) obtain the written consent
of the Principal Shareholder to the selection of legal counsel to the Company
for the defense of any such claims (which consent shall not be unreasonably
withheld, delayed or conditioned), (b) reasonably consult, and cause the Company’s
legal counsel to reasonably consult, with the Principal Shareholder and its
legal counsel regarding such defense upon the Principal Shareholder’s
reasonable request, (c) keep the Principal Shareholder and its legal
counsel reasonably informed of any material developments in such action, suit
or proceeding, and (d) prior to compromising or settling any Excess Price
Proceeding, obtain the prior written consent of the Principal Shareholder
(which consent will not be unreasonably withheld, delayed or conditioned).  The Company will have the right, at its own
expense, to engage legal counsel to participate in the defense of such action,
suit or proceeding. If the Principal Shareholder and the Other Principal Shareholder
jointly control the defense of any Excess Price Proceeding, the Principal
Shareholder and the Other Principal Shareholder shall (a) obtain the
written consent of the Company to the selection of legal counsel to the
Principal Shareholder and the Other Principal Shareholder for the defense of
any such claims (which consent shall not be unreasonably withheld, delayed or
conditioned), (b) reasonably consult, and cause their legal counsel to
reasonably consult, with the Company and its legal counsel regarding such
defense upon the Company’s reasonable request, (c) keep the Company and
its legal counsel reasonably informed of any material developments in such
action, suit or proceeding, and (d) prior to compromising or settling any
Excess Price Proceeding, obtain the prior written consent of the Company (which
consent will not be unreasonably withheld, delayed or conditioned). The Company
will give the Principal Shareholder written notice of all claims for
indemnification under this Agreement and the amount of such claims promptly
upon their determination, provided that the failure to provide any such notice
shall not prejudice the rights of the Company to indemnification
hereunder.  All such claims shall be
satisfied by the Principal Shareholder by payment of such obligation directly
to the current or former shareholder of the Company entitled to such
indemnifiable amount within five business days of receipt of such notice by
wire transfer of immediately available funds to an account or accounts
specified by such current or former shareholder, or at such other time and in
such other manner as may otherwise be provided in any final Order not subject
to further appeal or any final binding settlement agreement.

 

7.             OFFER TO PURCHASE.

 

(a)           Within 30 days following the latest to occur of (a) the
Reverse Split Effective Date, (b) deregistration of the Common Stock under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and (c) delisting of the Common Stock from the Nasdaq Global Market, the
Principal Shareholder agrees to make a binding and irrevocable written offer to
purchase (the “Offer to Purchase”) all of the
shares of outstanding Common Stock, other than shares held by the Gratco
Shareholders or by the Holiday Shareholders (such shares that are subject to
the offer to purchase, the “Eligible Shares”),
at a per share price equal to the Cancellation Price, on the following terms:

 

(i)            The Principal Shareholder will offer to purchase 50%
of all Eligible Shares.

 

(ii)           The Offer to Purchase shall remain open for no less
than 60 days following the first date of mailing thereof to the holders of
Eligible Shares, and, except as required by Law, shall not be extended or
amended without the consent of the Principal Shareholder.

 

4

 

(iii)          The disclosure contained in the Offer to Purchase
shall be determined by the Principal Shareholder, subject to the consent of the
Company (which consent shall not be unreasonably withheld, delayed or
conditioned).

 

(iv)          All payments to holders of Eligible Shares accepting
the Offer to Purchase described in this Section 7 will be made in cash by
the Principal Shareholder promptly (and in no event more than five business
days) following reasonable and customary demonstration of unencumbered
ownership of such shares by the shareholder accepting the Offer to Purchase and
the transmittal of such shares to the Company’s transfer agent for the benefit
of the Principal Shareholder pursuant to a transmittal letter in reasonable and
customary form.  Notwithstanding anything
to the contrary contained in this Agreement, except as otherwise set forth in
this clause (iv), the Offer to Purchase shall not be subject to any other
conditions and shall not require any holder of Eligible Shares to make any
representation, warranty, covenant or agreement in connection with accepting
such Offer to Purchase.

 

(v)           The Principal Shareholder will comply with the
requirements of Regulation 14E under the Exchange Act, to the extent
applicable, and any other applicable Laws in connection with the Offer to
Purchase.

 

(vi)          Upon the expiration of the Offer to Purchase, assuming
compliance by the Principal Shareholder with the terms of this Agreement, the
Principal Shareholder shall be under no further obligation to offer to purchase
any remaining outstanding shares of Common Stock held by Eligible Holders at
the Cancellation Price, or at any price.

 

(b)           If upon completion of the Offer
to Purchase the Holiday Shareholders do not beneficially own the same number of
shares of Common Stock as beneficially owned by the Gratco Shareholders, then
the Principal Shareholder agrees to use its commercially reasonable efforts to
achieve such parity, which efforts will include, without limitation, selling
shares of Common Stock to the Other Principal Shareholder (or buying shares
from the Other Principal Shareholder) at a per share price equal to the
Cancellation Price so that the Holiday Shareholders beneficially own the same
number of shares of Common Stock as the Gratco Shareholders.

 

8.             SEC AND SHAREHOLDER DISCLOSURE.  The Reverse
Stock Split, the Forward Stock Split, the cancellation of the Fractional
Shares, the payments to be made in consideration of such cancellation and the
transactions related thereto, including the Offer to Purchase described in Section 7,
shall be carried out in the manner described in the final Information Statement
of the Company and the Transaction Statement on Schedule 13E-3 to be filed with
the SEC under Schedule 13E-3 (collectively, the “Schedule
13E-3 Filings”).  The Company
and Principal Shareholder agree to join in, and reasonably cooperate with
respect to the preparation of, and file each Schedule 13E-3 Filing, each
amended Schedule 13E-3 Filing, and any other document or correspondence with
the SEC required to be filed in connection with the transactions contemplated
by this Agreement.  The Principal
Shareholder agrees to provide the Company with any information with respect to
the Principal Shareholder that is required to be included in any Schedule 13E-3
Filing or amendment thereto or any other document or correspondence with the
SEC required to be filed in connection with the transactions contemplated by
this Agreement.  The Company shall
provide the Principal Shareholder with the opportunity to review and comment
upon all disclosures in the Schedule 13E-3 Filings, and the Company shall give
due and reasonable consideration to such comments.  The Company further agrees to cause the final
Information Statement of the Company included on a Schedule 13E-3 Filing, as
filed with the SEC, to be mailed to all shareholders of the Company.

 

9.             LIMITATION ON OBLIGATIONS.  Except as
expressly set forth herein, the Gratco Shareholders and their respective
successors do not agree to assume or accept responsibility for any liabilities
of the Company or any of the Company’s shareholders of any nature whatsoever
(whether accrued, absolute, contingent, known, unknown, asserted, unasserted,
liquidated, unliquidated or otherwise, and whether due or to become due).

 

10.           REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDER. 
The Principal Shareholder represents and warrants to the Company that:

 

(a)           ORGANIZATION AND QUALIFICATION. 
The Principal Shareholder is duly formed, validly existing and in good
standing under the Laws of its state of organization, with full power and
authority (corporate and other) to own, lease, use and operate its properties,
if any, and to carry on its business as and where now owned, leased, used,
operated and conducted.  The Principal
Shareholder is duly qualified to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a material adverse effect on its business or ability to
complete its obligations under this Agreement.

 

5

 

(b)           AUTHORIZATION; ENFORCEMENT.  (i) The
Principal Shareholder has all requisite corporate power and authority to enter
into and to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby; (ii) the execution, delivery and
performance of this Agreement by the Principal Shareholder and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
required parties and no further consent or authorization of the Principal
Shareholder, its board of directors or its shareholders or members is required;
(iii) this Agreement has been duly executed and delivered by the Principal
Shareholder; and (iv) assuming the valid and binding execution of this
Agreement by the Company and compliance with the terms of this Agreement by the
Company, this Agreement constitutes a legal, valid and binding obligation of
the Principal Shareholder enforceable against the Principal Shareholder by the
Company in accordance with its terms, except as may be limited by any
applicable bankruptcy, insolvency, reorganization, or moratorium or similar
Laws affecting the rights of creditors generally and the application of general
principles of equity.

 

(c)           NO CONFLICTS; NO VIOLATIONS. 
The execution, delivery and performance of this Agreement by the
Principal Shareholder, and the consummation by the Principal Shareholder of the
transactions contemplated hereby do not and will not (i) conflict with or
result in a violation of any provision of the Principal Shareholder’s articles
of incorporation or bylaws or other organizational documents, (ii) violate
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Principal Shareholder is a party, or (iii) result in a violation of
any Law or Order (including U.S. federal and state securities Laws and
regulations of any self-regulatory organizations to which the Principal
Shareholder or its securities are subject) applicable to the Principal
Shareholder or by which any property or asset of the Principal Shareholder is
bound or affected.

 

(d)           AVAILABLE FUNDS.  The Principal
Shareholder will have, at the times required 
pursuant to this Agreement, cash sufficient to (i) permit the
Principal Shareholder to consummate the transactions contemplated by this
Agreement, including payment for the Fractional Shares in accordance with Section 2
of this Agreement, and (ii) consummate the Offer to Purchase in accordance
with Section 7 of this Agreement.

 

(e)           COMPANY DISCLOSURE DOCUMENTS. 
The information supplied by the Principal Shareholder regarding the
Principal Shareholder for inclusion in each document required to be filed by
the Company with the SEC in connection with the transactions contemplated by
this Agreement, the Reverse Stock Split and the Forward Stock Split shall not
contain any untrue statement of material fact, or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading, at the time of the filing thereof and at the time of any
distribution thereof.  If, at any time
prior to the Reverse Split Effective Date, any event or circumstance relating
to the Principal Shareholder should be discovered by the Principal Shareholder
which should be set forth in an amendment to any document required to be filed
by the Company with the SEC in connection with the transactions contemplated by
this Agreement, the Reverse Stock Split and the Forward Stock Split, the
Principal Shareholder shall promptly inform the Company.

 

(f)            NO LITIGATION.  There is no
claim, action, suit, proceeding or governmental investigation pending or, to
the knowledge of the Principal Shareholder, threatened against the Principal
Shareholder, by or before any Governmental Authority or by any third party
which challenges the validity of this Agreement, the Reverse Stock Split, the
Forward Stock Split or the issuance of the Funding Consideration Shares, or
which would be reasonably likely to adversely affect or restrict the Principal
Shareholder’s ability to consummate the transactions contemplated by this
Agreement.

 

(g)           BROKERS, ETC.  No broker,
finder or investment banker is entitled to any brokerage, finder’s or other fee
or commission payable by the Company in connection with the transactions
contemplated by this Agreement, the Reverse Stock Split or the Forward Stock
Split  based upon arrangements made by or
on behalf of the Principal Shareholder or any of its affiliates or associates.

 

(h)           NO CONSENTS.  No consent,
approval, authorization or order of, or registration, qualification or filing
with, any Governmental Authority will be required by the Principal Shareholder
in connection with the execution, delivery or performance by the Principal
Shareholder of this Agreement and the transactions contemplated hereby.

 

(i)            INVESTMENT PURPOSE.  The Principal
Shareholder is acquiring the Funding Consideration Shares for its own account
and not with a present view toward the public sale or distribution thereof,

 

6

 

except pursuant to sales
registered or exempted from registration under the Securities Act of 1933 , as
amended (the “Securities Act”).

 

(j)            ACCREDITED INVESTOR STATUS. 
The Principal Shareholder is an “accredited investor” as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act (“Regulation D”).

 

(k)           RELIANCE ON EXEMPTIONS.  The Principal
Shareholder understands that the Funding Consideration Shares are being offered
and issued to it in reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Principal
Shareholder’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Principal Shareholder set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Principal Shareholder to acquire the Funding Consideration
Shares.

 

(l)            INFORMATION AND SOPHISTICATION. 
The Principal Shareholder and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company, and materials relating to the offer and issuance of the Funding
Consideration Shares, that have been requested by the Principal Shareholder or
its advisors, if any.  The Principal
Shareholder and its advisors, if any, have been afforded the opportunity to ask
questions of the Company.  The Principal
Shareholder acknowledges and understands that its investment in the Common
Stock involves a significant degree of risk, including the risks reflected in
the Company’s reports on file with the SEC. 
The Principal Shareholder is experienced and knowledgeable in financial
and business matters, is capable of evaluating the merits and risks of
investing in the Common Stock, and does not need or desire the assistance of a
knowledgeable representative to aid in the evaluation of such risks who the
Principal Shareholder intends to use in connection with a decision as to
whether to receive the Funding Consideration Shares.  The Principal Shareholder acknowledges and
agrees that, except as set forth in Section 11 of this Agreement, the
Company is not making to the Principal Shareholder any representations or
warranties, express or implied, regarding the Company or its business, assets,
liabilities or financial condition.

 

(m)          GOVERNMENTAL REVIEW.  The Principal
Shareholder understands that no United States federal or state agency or any
other government or governmental agency has passed upon or made any
recommendation or endorsement of the Common Stock or an investment therein.

 

(n)           TRANSFER OR RESALE.  The Principal
Shareholder understands that:

 

(i)            the issuance of the Funding Consideration Shares has
not been and is not being registered under the Securities Act or any applicable
state securities laws and, consequently, the Principal Shareholder may have to
bear the risk of owning the Funding Consideration Shares for an indefinite
period of time because the Funding Consideration Shares may not be transferred
unless (i) the resale of the Funding Consideration Shares is registered
pursuant to an effective registration statement under the Securities Act; (ii) the
Principal Shareholder has delivered to the Company an opinion of counsel
satisfactory to the Company (in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the Funding
Consideration Shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; or (iii) the Funding
Consideration Shares are sold or transferred pursuant to Rule 144;

 

(ii)           any sale of the Funding Consideration Shares made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and, if Rule 144 is not applicable, any resale of the Funding
Consideration Shares under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the Securities Act) may require compliance with another exemption
under the Securities Act or the rules and regulations of the SEC
thereunder; and

 

(iii)          neither the Company nor any other person is under any
obligation to register the Funding Consideration Shares under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.

 

(o)           LEGENDS.  The Principal
Shareholder understands that until (i) all of the Funding Consideration
Shares may be sold by the Principal Shareholder without compliance with the
requirements of Rule 144 or (ii) such time as the resale of the
Funding Consideration Shares has been registered under the Securities Act, the
certificates representing the Funding Consideration Shares will bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Funding
Consideration Shares):

 

7

 

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES (COLLECTIVELY, THE “ACTS”).  THE SECURITIES MAY NOT BE SOLD,
DISTRIBUTED, OFFERED, PLEDGED, ENCUMBERED, ASSIGNED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF THE FOLLOWING: (1) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE ACTS COVERING THE TRANSACTION, (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACTS, OR (3) THE COMPANY OTHERWISE
SATISFIES ITSELF THAT REGISTRATION IS NOT REQUIRED UNDER THE ACTS.

 

The legend set
forth above will be removed and the Company will issue a certificate without
the legend to the holder of any certificate upon which it is stamped, in
accordance with the terms of Section 13(g).

 

(p)           RESIDENCY.  The Principal
Shareholder is a resident of, or domiciled in, the jurisdiction set forth in
the address for the Principal Shareholder contained in Section 15.

 

(q)           NO OTHER REPRESENTATIONS OR
WARRANTIES.  Except as set
forth in this Section 10, neither the Principal Shareholder nor any of its
officers, director, employees, agents or representatives makes any
representations or warranties, express or implied, in connection with the
transactions contemplated by this Agreement.

 

11.           REPRESENTATIONS AND WARRANTIES OF THE COMPANY. 
The Company represents and warrants to the Principal Shareholder that:

 

(a)           ORGANIZATION AND QUALIFICATION. 
The Company is duly incorporated, validly existing and in good standing
under the Laws of the state of Minnesota.

 

(b)           CAPITALIZATION.  The
authorized capital stock of the Company consists of (i) 100,000,000 shares
of Common Stock, and (ii) 5,000,000 shares of preferred stock, par value
$0.01 per share (“Company Preferred Stock”). 
As of the date hereof, (w) 24,197,732 shares of Common Stock were
issued and outstanding, all of which are duly authorized, validly issued, fully
paid and non-assessable, (x) no shares of Common Stock are held by any
subsidiaries of the Company, (y) 1,889,380 shares of Common Stock were
reserved for future issuance pursuant to outstanding stock options granted
pursuant to Company stock option plans, and (z) no shares of Company
Preferred Stock were issued or outstanding. 
Except as set forth above or as set forth in the Company’s publicly
filed reports with the SEC, there are no options, warrants, convertible debt or
other convertible instruments or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
of the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company.

 

(c)           AUTHORIZATION; ENFORCEMENT.  (i) The
Company has all requisite corporate power and authority to enter into and to
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby; (ii) the execution, delivery and performance of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by its board of directors; (iii) this
Agreement has been duly executed and delivered by the Company; and (iv) assuming
the valid and binding execution of this Agreement by the Principal Shareholder
and compliance with the terms of this Agreement by the Principal Shareholder,
this Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company by the Principal Shareholder in
accordance with its terms, except as may be limited by any applicable
bankruptcy, insolvency, reorganization, or moratorium or similar Laws affecting
the rights of creditors generally and the application of general principles of
equity.

 

(d)           NO CONFLICTS; NO VIOLATION.

 

(i)            The execution, delivery and performance of this
Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby (including the issuance of the Funding
Consideration Shares) do not and will not (A) conflict with or result in a
violation of any provision of the Company’s articles of incorporation or
bylaws, or (B) result in a violation of any Law or Order (including U.S.
federal and state securities Laws and regulations of any self-regulatory
organizations to which the Company or its

 

8

 

securities are subject)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except, in the case of clause (B), for such violations as
would not, individually or in the aggregate, have a material adverse effect on
the business or financial condition of the Company and its subsidiaries taken
as a whole or on the ability of the Company to perform its obligations under
this Agreement).

 

(ii)           The Company is not in violation of its articles of
incorporation, bylaws or other organizational documents.

 

(e)           NO LITIGATION.  There is no claim,
action, suit, proceeding or governmental investigation pending or, to the
knowledge of the Company, threatened against the Company, by or before any
Governmental Authority or by any third party which challenges the validity of
this Agreement or the Reverse Stock Split or the Forward Stock Split, or which
would be reasonably likely to adversely affect or restrict the Company’s
ability to consummate the transactions contemplated by this Agreement.

 

(f)            FAIRNESS OPINION.  The Special
Committee has received the opinion of Greene Holcomb & Fisher LLC,
dated the date hereof, to the effect that, as of this date, and based upon and
subject to the assumptions and limitations set forth in its opinion, (including
the fact that the Offer to Purchase will occur at a date subsequent to the
Reverse Stock Split) that (i) the Cancellation Price to be received in the
Reverse Stock Split by holders of Fractional Shares (other than the Principal
Shareholder, the Erickson Family Members and the Other Principal Shareholder) is
fair, from a financial point of view, to those holders of Fractional Shares,
and (ii) the Cancellation Price to be offered to the holders of Eligible
Shares pursuant to the Offer to Purchase is fair, from a financial point of
view, to those holders of Eligible Shares.

 

(g)           ISSUANCE OF FUNDING CONSIDERATION SHARES. 
The Funding Consideration Shares have been duly authorized and, upon
issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable and free from all taxes, liens, claims,
encumbrances and charges with respect to the issuance thereof (other than
liens, claims, encumbrances or charges created or imposed by the Principal
Shareholder).

 

(h)           NO OTHER REPRESENTATIONS OR WARRANTIES.  Except
as set forth in this Section 11, none of the Company or any of its
officers, director, employees, agents or representatives makes any
representations or warranties, express or implied, in connection with the
transactions contemplated by this Agreement.

 

12.            COMPANY SHARES.  As of the date hereof, the
Gratco Shareholders own an aggregate of 10,167,860 shares of Common Stock,
which represent the only shares of Common Stock over which any of the Gratco
Shareholders has beneficial ownership. 
On and following the date hereof, except as otherwise provided by this
Agreement and except for transactions among the Gratco Shareholders, neither
the Principal Shareholder nor any of its affiliates or associates shall (a) transfer,
sell, dispose or acquire beneficial ownership of any shares of Common Stock or (b) form,
join or in any way participate in a “group” (as defined in Rule 13(d)(3) promulgated
under the Exchange Act) including any members other than the Gratco
Shareholders  with respect to any voting
securities of the Company, other than such actions described in clause (a) or
(b) of this Section 12 as are taken with the prior written consent of
the Company and Holiday.

 

13.           OTHER AGREEMENTS.

 

(a)           Directors’ and Officers’ Indemnification and Insurance.

 

(i)            The Bylaws of the Company shall, and the
Principal Shareholder shall cause such Bylaws to, contain provisions no less
favorable with respect to indemnification than are set forth in the Bylaws of
the Company as of the date of this Agreement, which provisions shall not be amended,
repealed or otherwise modified after the date hereof in any manner that would
affect adversely the rights thereunder of individuals who, at or prior to the
Reverse Split Effective Date, were directors, officers, employees, fiduciaries
or agents of the Company.

 

(ii)           The Company shall, and the Principal
Shareholder shall cause the Company to, maintain in effect for six years from
the date of the later of the Reverse Split Effective Date or the consummation
of the Offer to Purchase the current directors’ and officers’ liability
insurance policies maintained by the Company (provided that the Company may
substitute therefor policies with an insurer of equal or greater claims paying
ratings and of at least the same coverage containing terms and conditions that
are not less favorable) with respect to matters occurring prior to the later of
the Reverse Split Effective Date or the consummation of the Offer to Purchase.

 

9

 

(iii)          The
provisions set forth in this Section 13(a) shall not be exclusive of
any other rights with respect to indemnification, insurance or expense
advancement which any person may have or hereafter acquire under any Law,
agreement or otherwise.  Following the
Reverse Split Effective Date, the Principal Shareholder shall use its best
efforts to cause the Company to, assume, honor and comply with all agreements
and contracts between the Company and its directors, officers, employees,
fiduciaries or agents requiring the Company to provide indemnification,
insurance or expense advancement.

 

(iv)          If the Company or any of its successors
or assigns (x) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such consolidation
or merger or (y) transfers all or substantially all of its properties and
assets to any person, then, and in each such case, proper provision shall be
made so that the successors and assigns of the Company shall assume the
obligations set forth in this Section 13(a).

 

(b)           Covenants by the Company. 
Except as contemplated by this Agreement, between the date hereof and
the Reverse Split Effective Date, the Company will not:

 

(i)            issue, reissue, sell, deliver or pledge
or authorize or propose the issuance, reissuance, sale, delivery or pledge of
any capital stock or other equity securities of the Company, or securities
convertible into capital stock or other equity securities of the Company, or
any rights, warrants or options to acquire any convertible securities or capital
stock of the Company, other than the issuance of shares of Common Stock upon
the exercise of stock options outstanding as of the date hereof;

 

(ii)           adjust, split, combine, subdivide,
reclassify or redeem, purchase or otherwise acquire, or propose to redeem or
purchase or otherwise acquire, any capital stock or equity securities of the
Company; or

 

(iii)          declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of the capital stock or equity
interests of the Company, redeem or otherwise acquire any shares of the capital
stock or equity interests of the Company.

 

(c)           Deregistration and Delisting. 
As soon as practicable following the Reverse Split Effective Date, the
Principal Shareholder and the Company will use their commercially reasonable
efforts to complete the deregistration of the Common Stock under the Securities
Exchange Act of 1934 and the delisting of the Common Stock from the Nasdaq
Global Market.

 

(d)           Shareholder Parity.  The Principal Shareholder acknowledges and
agrees that its objective upon the completion of the Reverse Stock Split
pursuant to Sections 2 and 3 and the Offer to Purchase pursuant to Section 7
is that the Holiday Shareholders beneficially own a number of shares of Common
Stock equal to the number of shares of Common Stock beneficially owned by the
Gratco Shareholders.  If such parity is
not achieved upon either the completion of the Reverse Stock Split pursuant to
Sections 2 and 3 or the Offer to Purchase pursuant to Section 7, each of
the Company and the Principal Shareholder agrees to use their respective
commercially reasonable efforts to achieve such parity.

 

(e)           Form D; Blue Sky Laws. 
The Company will file a Notice of Sale of Securities on Form D with
respect to the Funding Consideration Shares, as required under Regulation
D.  The Company will take such action as
it reasonably determines to be necessary to qualify the Funding Consideration
Shares for sale to the Principal Shareholder under this Agreement under
applicable securities (or “blue sky”) laws of the states of the United States
(or to obtain an exemption from such qualification).

 

(f)            Sales by Principal Shareholder. 
The Principal Shareholder will sell any Funding Consideration Shares
sold by it in compliance with applicable prospectus delivery requirements, if
any, or otherwise in compliance with the requirements for an exemption from
registration under the Securities Act and the rules and regulations
promulgated thereunder.  The Principal
Shareholder will not make any sale, transfer or other disposition of the
Funding Consideration Shares in violation of federal or state securities laws
or the restrictive provisions set forth in this Agreement.

 

(g)           Transfer Agent Instructions; Removal of Legends. 
The Company will instruct its transfer agent to issue a certificate,
registered in the name of the Principal Shareholder, for the Funding
Consideration Shares.  Such certificate
will bear the restrictive legend described in Section 10(o). If, unless otherwise
required by applicable state securities laws, (i) the resale of the
Funding Consideration Shares represented by such certificate has

 

10

 

been registered under an effective registration
statement filed under the Securities Act, (ii) the holder of Funding
Consideration Shares provides the Company and the Company’s transfer agent with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or
transfer of such Funding Consideration Shares may be made without registration
under the Securities Act and such sale either may occur without restriction on
the manner of such sale or transfer, or (iii) such holder provides the
Company and the Company’s transfer agent with reasonable assurances that such
Funding Consideration Shares can be sold under Rule 144, the Company will
permit the transfer of the Funding Consideration Shares, and the Company’s
transfer agent will issue one or more certificates, free from any restrictive
legend, in such name and in such denominations as specified by such holder.

 

14.           CERTAIN DEFINITIONS.  As used in
this Agreement, the following terms shall have the following meanings:

 

(a)           “Governmental Authority”
shall mean any United States federal, state, provincial, supranational, city,
county or local or any foreign government, governmental, regulatory,
self-regulatory or administrative authority, agency, instrumentality or
commission and any court, tribunal or judicial or arbitral body (including
private bodies) and any political or other subdivision, department or branch of
any of the foregoing.

 

(b)           “Law “ shall
mean any United States or foreign, federal, state, city or local statute, law,
rule, ordinance, code or regulation, any Order, and any rule, interpretation,
guidance or directive of any Governmental Authority.

 

(c)           “Order” shall
mean any award, writ, stipulation, injunction, judgment, order, decree, ruling,
subpoena or verdict entered, issued, made or rendered by, or any contract with,
any Governmental Authority.

 

(d)           “Other Funding Agreement”
shall mean the Funding and Indemnification Agreement dated of even date
herewith between the Company and the Other Principal Shareholder.

 

15.           NOTICES. 
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by telefax or email or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section 15):

 

if to the Principal Shareholder:

 

Gratco LLC

Suite 1125

7701 Forsyth Boulevard

Saint Louis, MO 63105

Attention: David C. Pratt

 

with a copy to:

 

Greensfelder, Hemker & Gale, P.C.

Suite 2000

Ten South Broadway

Saint Louis, Missouri 63102

Attention: Mark R. Gale

 

if to the Company:

 

Gander Mountain
Company

180 East Fifth
Street, Suite 1300

St. Paul, MN 55101

Attention:  Eric R. Jacobsen, EVP and General Counsel

and

Marshall Day, Chairman of the Special Committee

 

11

 

with a copy to:

 

Faegre & Benson LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 55402-3901

Attention:  W. Morgan Burns

mburns@faegre.com

 

and

 

King &
Spalding LLP

1180 Peachtree Street

Atlanta, Georgia 30309

Attention:  C. William Baxley

bbaxley@kslaw.com

 

16.           SPECIFIC PERFORMANCE.  The parties
hereto agree that irreparable damage would occur if any provision of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at Law or in equity.

 

17.           PARTIES IN INTEREST.  Nothing in
this Agreement, express or implied, is intended to or shall confer upon any
person or entity other than the parties hereto any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement other than (a) the
rights of the individuals who benefit from the indemnification, insurance and
other provisions as set forth in Section 13(a) to enforce the
provisions of Section 13(a), (b) following the Reverse Split
Effective Date, the rights of the holders of the Fractional Shares to receive
payment for the Fractional Shares by the Principal Shareholder in accordance
with Section 2, and (c) following the Reverse Split Effective Date,
the rights of the holders of the Eligible Shares to enforce the obligations of
the Principal Shareholder under Section 7(a). Notwithstanding the
foregoing, Bank of America, N.A., as agent under the Company’s current senior credit
facility together with its successors and assigns including any agent under a
replacement credit facility (the “Bank Agent”),
is an intended third-party beneficiary of Sections 2, 5 and 17 of this
Agreement.

 

18.           COUNTERPARTS.  This Agreement may be executed by facsimile
signature or other means of electronic transmission (including e-mail) and in
one or more counterparts each of which shall be deemed to constitute an
original and shall become effective when one or more counterparts have been
signed by each of the parties hereto.

 

19.           CHANGES, WAIVERS, ETC. 
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by a statement in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.  In addition, none
of Sections 2, 5 or 17 of this Agreement may be changed or waived without the
prior written consent of the Bank Agent, so long as the Bank Agent is the agent
for the Company’s senior credit facility. Any consent, waiver, amendment or
other determination to be made, or action to be taken, by the Company under or
with respect to this Agreement prior to the Reverse Split Effective Date
(including with respect to any termination of this Agreement pursuant to Section 27)
shall be made or taken only at the direction and upon the approval of the
Special Committee.

 

20.           GOVERNING LAW.  This Agreement shall be
governed by and construed and enforced in accordance with the Laws of the State
of Minnesota without regard to its conflicts of law rules.  All actions and proceedings arising out of or
relating to this Agreement shall be heard and determined in any state or
federal court sitting in the State of Minnesota.

 

21.           SEVERABILITY.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
Law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect, so long as the economic or
legal substance of the transactions contemplated by this Agreement or the
Reverse Stock Split or the Forward Stock Split is not affected in any manner
adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original 

 

12

 

intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement, the Reverse Stock Split and the
Forward Stock Split be consummated as originally contemplated to the fullest
extent possible.

 

22.           PUBLIC ANNOUNCEMENTS.   The initial press release relating to this Agreement
shall be a joint press release the text of which has been agreed to by the
Principal Shareholder and the Company. 
Thereafter, unless otherwise required by applicable Law or the
requirements of any national securities exchange, the Principal Shareholder and
the Company shall use reasonable efforts to consult with each other before
issuing any press release or otherwise making any public statements with
respect to this Agreement, the Reverse Stock Split, the Forward Stock Split or
any of the other transactions contemplated by this Agreement.

 

23.           FURTHER ASSURANCES.  Each party to
this Agreement will do and perform, or cause to be done and performed, all such
further acts and things, and will execute and deliver all other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, entering into such escrow, disbursement,
exchange agent and other agreements with the Company’s transfer agent or the
Paying Agent as are reasonably requested by the Company’s transfer agent or the
Paying Agent and entering into such agreements as are reasonably necessary to
effect the Offer to Purchase.

 

24.           ENTIRE AGREEMENT; ASSIGNMENT OR DELEGATION; ASSUMPTION. 
This Agreement constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof. 
Neither this Agreement nor any of the rights or obligations under this
Agreement shall be assigned or delegated (whether pursuant to a merger, by
operation of Law or otherwise). 
Notwithstanding the preceding sentence, the Principal Shareholder has
the right to assume all obligations of Holiday under the Other Funding
Agreement by delivery of written notice of such assumption to the Company and
Holiday including an unqualified undertaking in favor of the Company to perform
all obligations of Holiday thereunder in the event a notice of intent to
terminate as the result of a material breach of such Agreement by Holiday is
delivered by the Company in accordance with Section 27(f) of the
Other Funding Agreement as a result of the material breach by the Other
Principal Shareholder of its funding obligations pursuant to Section 2 of
the Other Funding Agreement, which is not cured pursant to such Section 27(f).  Written notice of the exercise of this right
to assume must be delivered by the Principal Shareholder within three business
days of receipt of the notice of intent to terminate from the Company.  The Principal Shareholder acknowledges and
agrees that Holiday shall have the same right to assume the Principal
Shareholder’s obligations under this Agreement in the event a notice of intent
to terminate as the result of a material breach of this Agreement by the
Prinicpal Shareholder is delivered to Holiday in accordance with Section 27(f) as
a result of the material breach by the Principal Shareholder of its funding
obligations pursuant to Section 2 of this Agreement, which is not cured
pursuant to such Section 27(f).  If
the Principal Shareholder exercises its rights under this Section 24, it
may, with the Company’s advance written consent, assign the assumed rights and
obligations under the Other Funding Agreement, in whole or in part, to a
third-party.

 

25.           HEADINGS.  The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.

 

26.           EXPENSES.  All expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be
paid by the party incurring such expenses.

 

27.           TERMINATION. 
This Agreement may be terminated and the Reverse Stock Split and the
Forward Stock Split and the other transactions contemplated by this Agreement
may be abandoned at any time prior to the Reverse Split Effective Date as
follows:

 

(a)           by the Company or the Principal Shareholder if any claim, action, suit
or proceeding is brought by any Governmental Authority that has the effect of
making consummation of the transactions contemplated by this Agreement, the
Reverse Stock Split, the Forward Stock Split or the Offer to Purchase illegal
or otherwise preventing or prohibiting consummation of the transactions
contemplated by this Agreement, the Reverse Stock Split, the Forward Stock
Split or the Offer to Purchase; or

 

(b)           by either the Principal Shareholder or
the Company if the Reverse Split Effective Date shall not have occurred on or
before March 31, 2010; provided, however, that the right to
terminate this Agreement under this paragraph (c) shall not be available
to any party whose material breach of any representation, warranty, 

 

13

 

covenant or agreement under this Agreement has been
the cause of, or resulted in, the failure of the Reverse Split Effective Date
to occur on or before such date; or

 

(c)           by either the Principal Shareholder or
the Company if any Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Order which is then in effect and has the
effect of making consummation of the transactions contemplated this Agreement
or the Reverse Stock Split or the Forward Stock Split illegal or otherwise
preventing or prohibiting consummation of the transactions contemplated by this
Agreement or the Reverse Stock Split or the Forward Stock Split, and such Order
has become final and nonappealable; or

 

(d)           by the Company if (1) the Special
Committee determines, in its good faith judgment and after consultation with
outside legal counsel, that it is in the best interests of the Company’s
shareholders (other than the Holiday Shareholders and the Gratco Shareholders)
to withdraw its recommendation of this Agreement, the Reverse Stock Split or
the Forward Stock Split, (2) Holiday is in material breach of its funding
obligations pursuant to Section 2 of the Other Funding Agreement, and the
Principal Shareholder has not agreed to assume the obligations of Holiday under
the Other Funding Agreement in accordance with the terms of Section 24
within three business days of being provided with written notice of the Company’s
intent to terminate this Agreement pursuant to Section 27(f) of the
Other Funding Agreement, or (3) the Other Funding Agreement is otherwise
terminated; or

 

(e)           by the Principal Shareholder upon a
material breach of any representation, warranty, covenant or agreement on the
part of the Company set forth in this Agreement (“Terminating Company Breach”);
provided, however, that, if such Terminating Company Breach is
curable by the Company, the Principal Shareholder may not terminate this
Agreement under this paragraph (e) unless such breach is not cured within
30 days after notice of such breach is provided by the Principal Shareholder to
the Company; provided, further, that the Principal Shareholder
may not terminate this Agreement under this paragraph (e) if (x) such
Terminating Company Breach is attributable to action or failure to take
required action on the part of the Principal Shareholder or its affiliates or
associates, or (y) with respect to a breach of a representation or
warranty by the Company, the Principal Shareholder or its affiliates or
associates had knowledge of the breach or the facts underlying the breach on or
prior to the date hereof; or

 

(f)            by the Company upon a material breach of
any representation, warranty, covenant or agreement on the part of the
Principal Shareholder set forth in this Agreement (“Terminating Principal
Shareholder Breach”); provided, however, that, if such
Terminating Principal Shareholder Breach is curable by the Principal
Shareholder, the Company may not terminate this Agreement under this paragraph
(f), unless such breach is not cured within 30 days after notice of such breach
is provided by the Company to Parent (five business days for any material
breach by the Principal Shareholder of its funding obligation pursuant to Section 2
of this Agreement); or

 

(g) at any time, by mutual written consent of (i) the
Principal Shareholder, Other Principal Shareholder (who is a third-party
beneficiary of this provision) and the Company or (ii) the Principal
Shareholder and the Company if the Other Principal Shareholder is in breach or
default under the Other Funding Agreement.

 

In the event of the
termination of this Agreement pursuant to Section 27, this Agreement shall
forthwith become void, and there shall be no liability under this Agreement on
the part of any party hereto, except nothing herein shall relieve any party
from liability for any willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement prior to such
termination.

 

[signature
page follows]

 

14

 

IN
WITNESS WHEREOF, the parties have caused this Funding and Indemnification
Agreement to be executed and delivered as of the date and year first above
written.

 

	
   

  	
  GANDER
  MOUNTAIN COMPANY

  
	
   

  	
  a Minnesota
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Robert Vold

  
	
   

  	
   

  	
  Name: Robert
  Vold

  
	
   

  	
   

  	
  Its: CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRATCO
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David C. Pratt

  
	
   

  	
   

  	
  Name: David C.
  Pratt

  
	
   

  	
   

  	
  Its: Sole Manager

  

 

15

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