Document:

Exhibit 4.3

MGP INGREDIENTS, INC.

NON-EMPLOYEE DIRECTORS’ RESTRICTED STOCK PLAN

Introduction

1.1 The
Plan; Effective Date; Duration.  This MGP Ingredients, Inc. Non-Employee
Directors’ Restricted Stock Plan (the “Plan”) shall be effective as of the date
of the 2006 Annual Meeting of Stockholders, if approved by stockholders at such
Annual Meeting.  No award shall be made
under the Plan after October 31, 2016. 
This Plan is intended to be exempt from the provisions of Section 409A
of the Internal Revenue Code of 1986, as amended, as a plan which provides for
the transfer of restricted property as described in Prop. Reg. §
1.409A-1(b)(6), and is to be construed in accordance with this intent.

1.2 Purpose.  The purpose of the Plan is to provide each
non-employee member (“Director”) of the Board of Directors (the “Board”) of MGP
Ingredients, Inc. (the “Company”) with awards (“Restricted Stock Awards”) of
shares of common stock, no par value (“Stock”), of the Company, subject to the
restrictions and other provisions of the Plan. 
It is intended that the plan will (a) provide a means of compensating
Directors that will help attract and retain qualified candidates to serve as
Directors, and (b) permit Directors to increase their stock ownership and
proprietary interest in the Company and their identification with the interests
of the Company’s stockholders.

1.3 Shares
of Stock Available Under the Plan.

(a)  Subject to the provisions of clause (c) below,
the number of shares of Stock that may be delivered under the Plan during the
term of the Plan is seventy-five (75,000). 
If there is an insufficient number of shares available to deliver to all
Directors on any date as of which an award is made, the available shares shall
be delivered to Directors on such date pro-rata.

(b)  Shares of Stock awarded under the Plan (“Restricted
Stock”) will be previously-issued shares of Stock reacquired by the Company,
including shares purchased in the open market.

(c)  Appropriate and equitable adjustment shall be
made in the number and kind of shares of Stock available under the Plan and
covered by Restricted Stock Awards in the event of any recapitalization,
reorganization, merger, consolidation, spin-off, combination, repurchase,
exchange of shares or other securities of the Company, stock split, reverse
stock split, stock dividend, extraordinary dividend, liquidation, dissolution,
or other similar corporate transaction or event affecting the Company. If any
such adjustment would result in a fractional security being (i) available under
this Plan, such fractional security shall be disregarded; or (ii) subject
to an award under this Plan, the 

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Company shall pay the holder of such award an
amount in cash determined by multiplying (x) the fraction of such security
(rounded to the nearest hundredth) by (y)  the Fair Market Value
thereof on the date of such adjustment. The decision of the Committee (as
defined in Section 3.1) regarding such adjustment or substitution shall be
final, binding and conclusive.

Restricted
Stock Awards

2.1 Award
Dates.

(a)  During the term of this Plan, commencing in
2006, each Director in office on the first business day following the date of
each annual meeting of stockholders (“Annual Meeting”) shall be awarded shares
of Restricted Stock with a Fair Market Value of $12,500, as determined on such
first business day following the Annual Meeting, subject in all cases to the
limits imposed in Section 1.3.

(b)  A Director who is elected or appointed to the
Board on a date other than the date of an Annual Meeting shall be awarded
shares of Restricted Stock as of the first business day following such date of
election or appointment with a Fair Market Value of $12,500, as determined on
such first business day following the date of election or appointment, subject
in all cases to the limits imposed in Section 1.3

(c)  The “Fair Market Value” of a share of
Restricted Stock on the date as of which fair market value is to be determined
shall be: (a) if the Stock is reported on the NASDAQ Stock Market., the closing
price of a share of  Stock as reported by
NASDAQ as of the day on which the award was made; or (b) if the Stock is listed
on another established securities exchange or exchanges, the highest reported
closing price of a share of Stock on such exchange or exchanges as of day on
which the award was made.  The Fair
Market Value of the Restricted Stock, if not so reported or listed, and the
Fair Market Value of any other property on the date as of which Fair Market
Value is to be determined, shall mean the fair market value as determined by
the Committee in its sole discretion, using a reasonable valuation method
consistently applied as provided in Prop. Reg. § 1.409A-1(b)(5)(iv)(B).

2.2 Issuance
of Stock.  As
promptly as practical after the date as of which an award is made, the Company
shall issue a certificate (“Certificate”), registered in the name of each
Director receiving an award, representing the number of shares of Restricted
Stock covered by the Director’s award.

2.3 Rights
of Holders of Restricted Stock.  Upon issuance of a Certificate, the Director
in whose name the Certificate is registered shall, subject to the provisions of
the Plan, have all of the rights of a stockholder with respect to the shares of
Restricted Stock represented by the Certificate, including the right to vote
the shares and receive cash dividends and other cash distributions thereon.

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2.4 Vesting
Period.  The
Restricted Stock shall be subject to the restrictions set forth in Sections 2.5
and 2.7 of the Plan. The Restricted Stock shall also be subject to a vesting
period (the “Vesting Period”) commencing on the date as of which the Restricted
Stock is awarded (the “Award Date”). The Restricted Stock becomes fully vested
on the occurrence of one of the following events (the “Vesting Events”): (1)
the third anniversary of the Award Date with respect to an award of Restricted
Stock to a Director; (2) the death of the Director; or (3) a Change in Control,
as defined below. Further, the Committee is authorized to accelerate vesting in
any given case in the event of the following terminations of the Director’s
Board service:

(a)  the retirement of the Director from the Board
at the end of the Director’s term;

(b)  the termination of the Director’s service on
the Board as a result of the Director’s not standing for reelection for the
Board; or

(c)  the termination of the Director’s service on
the Board because of the Director’s inability to perform substantially such
Director’s duties and responsibilities as a Director of the Company due to a
physical or mental condition, as determined in the discretion of the Committee.

As used herein
the term “Change in Control” means:

(x)            The acquisition (other than from the
Company) by any person, entity or “group,” within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, (excluding, for this purpose, the
Company or its subsidiaries, any employee benefit plan of the Company or its
subsidiaries, trustees of the MGP Ingredients, Inc. Voting Trust or of the Cray
Family Trust, or any person who acquires Common or Preferred Stock from Cloud
L. Cray, Jr. or from any trust controlled by or for the benefit of Cloud L.
Cray, Jr. prior to or as a result of his death) of beneficial ownership,
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of at
least 30% of the then outstanding shares of common stock and 50% of the then
outstanding shares of preferred stock, par value $10 per share,  or 30% of the combined voting power of the
Company’s then outstanding voting securities entitled to vote generally in the election
of directors; or

(y)           Individuals who, as of the date
hereof, constitute the Board (as of the date hereof the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company)
shall be, for purposes of this Plan, considered as though such person were a
member of the Incumbent Board; or

(z)            Approval by the stockholders of the
Company of a reorganization, merger, consolidation, in each case, with respect
to which persons who were the stockholders of the Company immediately prior to
such reorganization, merger or consolidation do not, 

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immediately thereafter, own collectively as a
group more than 50% of the combined voting power entitled to vote generally in
the election of directors of the reorganized, 
merged or consolidated company’s then outstanding voting securities, or
a liquidation or dissolution of the Company or of the sale of all or
substantially all of the assets of the Company.

If any of the events
enumerated in clauses (x) through (z) occur, the Committee shall determine the
effective date of the Change in Control resulting therefrom for purposes of the
Plan.

2.5 Forfeiture
of Restricted Stock. 
As of the date (“Resignation Date”) a Director resigns from the Board
during the Director’s term, the Director shall forfeit to the Company all
Restricted Stock awarded to the Director for which the Vesting Period has not
ended as of or prior to the Resignation Date.

2.6 Release
of Restricted Stock. 
Restricted Stock shall be released to the Director, free and clear of
all restrictions and other provisions of the Plan, on the first business day
immediately following the last day of the Vesting Period with respect to such
Restricted Stock.

2.7 Restrictions.  Restricted Stock shall be subject to the
following restrictions during the Vesting Period:

(a)  The Restricted Stock shall be subject to
forfeiture to the Company as provided in Section 2.5 of the Plan.

(b)  The Restricted Stock may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, and
neither the right to receive Restricted Stock nor any interest under the Plan
may be assigned by a Director, and any attempted assignment shall be void.

(c)  Each Certificate representing shares of
Restricted Stock shall be held by the Company and shall, at the option of the
Company, bear an appropriate restrictive legend and be subject to appropriate “stop
transfer” orders.  The Director shall
deliver to the Company a stock power endorsed in blank to the Company to be
used by the Company in the event the Restricted Stock is forfeited.

(d)  Any additional Stock or other securities or
property (other than cash) that may be issued with respect to Restricted Stock
as a result of any stock dividend, stock split, business combination or other
event, shall be subject to the restrictions and other provisions of the Plan.

(e)  The issuance of any Restricted Stock award
shall be subject to and contingent upon (i) completion of any registration or
qualification of the Stock under any federal or state law or government rule or
regulation that the Company, in its sole discretion, determines to be necessary
or advisable; and (ii) the execution by the Director and delivery to the
Company of (A) any agreement reasonably required by the Company, and (B) the
stock power referred to in Section 2.7(c).

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General
Provisions.

3.1 Administration.  The Plan shall be administered by a committee
(the “Committee”) that shall be the Human Resources and Compensation Committee
of the Board.  The Committee shall have
full power, discretion and authority to interpret and administer the Plan.  The Committee’s interpretations and actions
shall be final, conclusive and binding upon all persons for all purposes.  No member of the Board or the Committee, nor
any officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board and the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect to any such action,
determination or interpretation.

3.2 No
Retention Rights. 
Neither the establishment of the Plan nor the awarding of Restricted
Stock to a Director shall be considered to give the Director the right to be
retained on, or nominated for reelection to, the Board, or to any benefits or
awards not specifically provided for by the Plan.

3.3 Interests
Not Transferable. 
Except as to withholding of any tax required under the laws of the
United States or any state or locality, no benefit payable at any time under
the Plan shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment, or other legal process, or encumbrance of any
kind.  Any attempt to alienate, sell,
transfer, assign, pledge, attach or otherwise encumber any such benefits
whether currently or thereafter payable, shall be void.  No benefit shall, in any manner, be liable
for or subject to the debts or liabilities of any person entitled to such
benefits.  If any person shall attempt
to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber
such person’s benefits under the Plan, or if by reason of such person’s
bankruptcy or any other event, such benefits would devolve upon any other
person or would not be enjoyed by the person entitled thereto under the Plan,
then the Committee, in its discretion, may terminate the interest in any such
benefits of the person entitled thereto under the Plan and hold or apply them
to or for the benefit of such person entitled thereto under the Plan or such
person’s spouse, children or other dependents, or any of them, in such manner
as the Committee may deem proper.

3.4 Amendment
and Termination. 
The Board may at any time amend or terminate the Plan; provided that:

(a)  no amendment or termination shall, without the
written consent of a Director, adversely affect the Director’s rights under
outstanding awards of Restricted Stock; and

(b)  Stockholder approval of any amendment shall be
required if stockholder approval is required under applicable law or the rules
of any national securities exchange or automated quotation system on which are
listed or quoted any of the Company’s equity securities.

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3.5 Severability.  If all or any part of the Plan is declared by
any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of the
Plan not declared to be unlawful or invalid. 
Any Section or part thereof so declared to be unlawful or invalid shall,
if possible, be construed in a manner which will give effect to the terms of
such Section or part thereof to the fullest extent possible while remaining
lawful and valid.

3.6 Controlling
Law.  The law of
Kansas, except its law with respect to choice of law, shall be controlling in all matters relating to the Plan.

 A-6Exhibit 10.1

 

AGREEMENT TO PURCHASE LIMITED LIABILITY COMPANY MEMBERSHIP

INTEREST, SETTLEMENT AND MUTUAL RELEASES

THIS AGREEMENT to Purchase Limited Liability Company
Membership Interest, Settlement and Mutual Releases (this “Agreement”), is made
this 21st day
of September, 2006, by and between Explorer Gear USA, Inc., a California
corporation (“Explorer Gear” or “Seller”), Explorer Headgear, Inc., a Canadian
corporation (“Explorer Headgear”), and Sport-Haley, Inc., a Colorado
corporation (“Sport-Haley” or “Purchaser”).

RECITALS

WHEREAS, Seller is the owner of a 49% Percentage
Interest in Reserve Apparel Group, LLC, a Colorado limited liability company
(the “Company”‘) and Purchaser is the owner of a 51% Percentage Interest in the
Company;

WHEREAS, Seller and Purchaser are the only two members
of the Company;

WHEREAS, the Company is governed by the provisions of
an Operating Agreement which became effective November 3, 2005, by and between
Seller and Purchaser (the “Operating Agreement”);

WHEREAS, Seller desires by this Agreement to sell,
transfer and assign to Purchaser all of Seller’s Percentage Interest and
membership rights in the Company (“Percentage Interest”), and Purchaser desires
by this Agreement to purchase, accept and assume the same, according to the
terms set forth herein;

WHEREAS, Sport-Haley and its Affiliates have asserted
certain Claims against Seller, Explorer Headgear and their Affiliates, related
to the formation of the Company, the operation of the Company’s business and
the potential acquisition of Sport-Haley by Explorer Headgear and its Affiliates;

WHEREAS, Seller, Explorer Headgear and their
Affiliates have disputed the Claims asserted by Sport-Haley and its Affiliates,
and in turn, have asserted certain Claims against Sport-Haley and its
Affiliates related to the formation of the Company, the operation of the
Company and certain alleged statements made by one or more officers of
Sport-Haley, and Sport-Haley and its Affiliates have disputed such Claims; and

WHEREAS, Seller, Explorer Headgear and their
Affiliates, on the one hand, and Sport-Haley and its Affiliates, on the other
hand, wish to settle, resolve and compromise their respective Claims, whether
known or unknown, concerning the past business dealings between the parties;

NOW, THEREFORE, FOR AND IN CONSIDERATION of the above
recitals and the mutual agreements stated in this Agreement, and for other good
and valuable consideration, the receipt and adequacy of which are acknowledged
by each party, the parties agree as follows:

Section 1.              Certain Definitions.

In addition to the terms defined elsewhere in this
Agreement, the following capitalized terms, when used in this Agreement, shall
have the meaning set forth below. All other capitalized terms, to the extent
defined in the Operating Agreement, shall have the meaning as defined in
Section 1.2 of the Operating Agreement, except as modified in this Agreement.

1.1           Act.
As defined in the Operating Agreement.

 

1.2           Affiliate.
Any individual, partnership, corporation, limited liability company, trust, or
other Entity or association, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with a
party to this Agreement. The term “control,” as used in the immediately
preceding sentence, means, with respect to a corporation the right to exercise,
directly or indirectly, more than 10% of the voting rights attributable to the
controlled corporation, and, with respect to any Person, individual,
partnership, trust, other Entity or association, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies
of the controlled Entity. In addition, with respect to Sport-Haley, “Affiliate”
shall include, without limitation, its officers, directors, employees and
agents, and with respect to Explorer Gear and Explorer Headgear, shall include,
without limitation, its officers, directors, managers, employees, partners and
agents.

1.3           Assets.
All of the assets, properties, businesses, and rights of a Person of every
kind, nature, character and description, whether real, personal or mixed,
tangible or intangible, accrued or contingent, or otherwise relating to or
utilized in such Person’s business, directly or indirectly, in whole or in
part, whether or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate of such Person
and wherever located.

1.4           Business
Day. Any day other than Saturday, Sunday or a day on which banking institutions
in Denver, Colorado are required or authorized to be closed.

1.5           Claim.
Any actual or threatened claim, action, suit, arbitration, hearing, inquiry, proceeding
(including administrative and informal proceedings), complaint, charge,
investigation or audit by or before any Governmental Entity or arbitrator and
any appeal from any of the foregoing.

1.6           Dollar.
As used herein, “dollar” or the symbol “$” refers to United States dollars.

1.7           Effective
Date. The date set forth above; i.e.,
August 31, 2006.

1.8           Encumbrance.
Any security interest, interest retained by the transferor under a conditional
sale or other title retention agreement, mortgage, lien, pledge, option,
encumbrance, adverse interest, exception to or defect in title or other
ownership interest (including reservations, rights of entry, possibilities of
reverter, encroachments, easements, rights-of-way, restrictive covenants,
leases and licenses) of any kind, which constitutes an interest in or claim
against property, whether arising pursuant to any legal requirement,
governmental permit, contract or otherwise.

1.9           GAAP.
United States generally accepted accounting principles, as amended from time to
time.

1.10         Governmental
Entity. Any United States or Canadian court, federal, state, provincial, local
or foreign government or any administrative agency or commission or any other
governmental authority or instrumentality whatsoever.

1.11         Indebtedness.
When used with reference to any Person, without duplication, (i) any Liability
of such Person created or assumed by such Person, or any subsidiary thereof,
(A) for borrowed money, (B) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation, deed of trust or mortgage)
given in connection with the acquisition of, or exchange for, any property or
assets (other than inventory or similar property acquired and consumed in the
Ordinary Course of Business), including securities and other indebtedness, (C)
in respect of letters of credit issued for such Person’s account and “swaps” of
interest and currency, exchange rates (and other interest and currency exchange
rate hedging agreements) to which such Person is a party or (D) for the payment
of money as lessee under leases that should be, in accordance with GAAP
recorded as capital leases for financial reporting purposes; (ii) any Liability

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of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase, or pay the related Indebtedness or to acquire the
security therefor; (iii) all Liabilities or obligations secured by a lien upon
property owned by such Person and upon which Liabilities or obligations such
Person customarily pays interest or principal, whether or not such Person has
assumed or become liable for the payment of such Liabilities or obligations;
and (iv) any amendment, renewal, extension, revision or refunding of any such
Liability or obligation.

1.12         Knowledge.
As used with respect to a Person shall mean those facts that are actually known
by, or should have been known through the exercise of such due diligence as a
prudent business person would have made or exercised in the management of his
or her business affairs, including due inquiry of those employees, officers, or
directors of such Person who could reasonably be expected to have actual
knowledge of the matters in question. “Known” shall have a correlative meaning.

1.13         Liability.
Any liability (whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including, but not limited to, any liability for Taxes.

1.14         Losses.
Any Claims, losses, Liabilities, damages, penalties, costs and expenses, including
interest that may be imposed in connection therewith, expenses of
investigation, reasonable fees and disbursements of counsel and other experts,
and settlement costs, in each case net of insurance proceeds.

1.15         Material
Adverse Effect. A material adverse effect on the aggregate operations, assets,
or financial condition of the Company, taken as a whole, but without taking
into account any effect resulting from changes in conditions (including
economic conditions, or federal, state or local governmental actions,
legislation or regulations) that are applicable to the economy or the golf apparel
industry on a national, regional, state or local basis or any changes in
competition affecting the Company’s business.

1.16         Operating
Agreement. The Operating Agreement of the Company effective November 3,
2005, between Sport-Haley and Explorer Gear.

1.17         Ordinary
Course of Business. The ordinary course of business consistent with past custom
and practice (including with respect to quantity and frequency and, where
appropriate, in accordance with formulas).

1.18         Percentage
Interest. As defined in the Operating Agreement. With respect to Explorer
Gear, it’s Percentage Interest at the time of this Agreement is 49% (“Seller’s
Percentage Interest”) and Sport-Haley’s is 51%. Percentage Interest shall
include all relative rights of membership in the Company appurtenant to
ownership of the Percentage Interest, whether under the terms of the Operating
Agreement or pursuant to applicable law.

1.19         Person.
An individual, a partnership, a corporation, a limited liability company, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, business enterprise, or a governmental entity (or any department,
agency, or political subdivision thereof), or any other legal entity, whether
acting in an individual, fiduciary or other capacity.

Section 2.              Sale of Member Percentage Interest.

2.1           Effective
as of the Effective Date, Seller sells, transfers, and assigns to Purchaser and
Purchaser purchases, accepts and assumes from Seller (a) all of Seller’s
Percentage Interest in the 

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Company (so that from and after the Effective Date,
Seller shall have no Percentage Interest, shall no longer be a member of the
Company and shall have no further right to participate in the business and
affairs of the Company and Purchaser shall have a 100% Percentage Interest and
shall be the sole member of the Company) and (b) any and all right, title, and
interest which Seller has under the provisions of the Operating Agreement, or
in and to any of the Company’s assets, with respect to Seller’s Percentage
Interest so assigned.

2.2           From and
after the Effective Date, all equitable and legal rights, title and interests
in and to Seller’s Percentage Interest shall be owned, held and exercised by
Purchaser. As of the Effective Date, all capital calls, obligations and
liabilities, if any, under the Company’s Operating Agreement related to Seller’s
Percentage Interest shall be the sole responsibility of Purchaser.

2.3           As of the
Effective Date, Seller shall have no balance in its Capital Account. Seller’s Capital
Account balance prior to the sale of its Percentage Interest herein shall be
transferred to Purchaser’s Capital Account. Seller agrees and consents that
regardless of its Capital Account balance prior to the Effective Date, Seller
forfeits any right to the return or distribution of such Capital Account
balance in consideration for receiving the Purchase Price.

2.4           As of the
Effective Date, Seller shall no longer be entitled to any pro rata apportionment
of profits and shall not be required to assume any pro rata portion of losses,
to which Seller would have otherwise been entitled or obligated, as applicable,
pursuant to the terms of the Operating Agreement.

2.5           As of the
Effective Date, Seller is no longer entitled to any distributions, return of Capital,
or any other payments of any kind from the Company, including, but not limited
to, any reimbursement of expenses or payment of member loans, if any, to which
Seller might have otherwise been entitled. Any entitlement by Seller to any
distributions, return of Capital or other payments, if any, as of the Effective
Date are hereby transferred and assigned to Purchaser. Seller’s entitlement, if
any, to any reimbursement of expenses related to the Company or member loans
prior to the Effective Date, is extinguished.

Section 3.              Purchase Price.

Purchaser shall pay to Seller, within five Business
Days of the Effective Date, for Seller’s Percentage Interest and as
consideration for the other covenants and agreements contained herein, the sum
of $375,000.00 US (the “Purchase Price”). Such payment will be paid by
Purchaser’s check which shall be delivered to Seller at 70 East Beaver Creek
Road, North Building, Unit 202, Richmond Hill, Ontario L4B 3B2.

Section 4.              Representations and Warranties.

Each party’s obligations to consummate the
transactions contemplated by this Agreement are conditioned upon the respective
Representations and Warranties of each party being true and correct at the
Effective Date.

4.1           By
Seller and Explorer Headgear. To induce Purchaser to accept the delivery of
this Agreement, Seller’s Percentage Interest being sold, transferred and
assigned, give the releases herein, and make the payment required hereunder,
Seller hereby represents and warrants the following to Purchaser, on the
Effective Date hereof and at the time of such delivery:

4.1.1        Seller
and Explorer Headgear are corporations duly organized, validly existing and in
good standing under the laws of the State or Canadian Province of organization
and have all 

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requisite corporate power and authority to own, lease
and use the Assets owned, leased or used by it and to conduct its business as
presently conducted.

4.1.2        Seller
has good and marketable title to, and is the sole legal and beneficial owner of
Seller’s Percentage Interest being sold, transferred and assigned to Purchaser.
Seller has not sold, transferred, or encumbered any or all of Seller’s
Percentage Interest. Seller is transferring and assigning Seller’s Percentage
Interest to Purchaser free and clear of any and all right, title, interest or
Encumbrance of any other Person whatsoever. Other than this Agreement, there is
no agreement between Seller and any Person with respect to the disposition of
Seller’s Percentage Interest or otherwise relating to Seller’s Percentage
Interest.

4.1.3        Except
as disclosed to Purchaser in the attached Schedule 4.1.3, neither Seller nor
its Affiliates have entered into any contracts, agreements or arrangements with
any Person relating to, or on behalf of, the Company.

4.1.4        Seller,
or its Affiliates, have not, on behalf of the Company, made an election under
Section 754 of the Internal Revenue Code of 1986, as amended.

4.1.5        Seller
and its Affiliates have no Knowledge of any present, pending or threatened
Claims of or by any Person or Governmental Entity concerning the Company’s
trade practices, including, but not limited to, proper garment labeling,
payment of quota, duty, handling or transit fees or other trade expenses, or
alleging any violations of trade regulations or laws, in connection with Seller’s
(or Affiliates’) procurement of orders for or on behalf of the Company.

4.1.6        Except
as disclosed to Purchaser in the attached Schedule 4.1.6, Seller and its
Affiliates have taken no action, or failed to take any action, on behalf of the
Company, which has or could reasonably incur Liability or Indebtedness, or
which had caused a Person to assert a Claim for Liability or Indebtedness against
the Company, in an amount exceeding $5,000.

4.1.7        Except
as disclosed to Purchaser in the attached Schedule 4.1.7, Seller and its
Affiliates, have no Knowledge of any third-party Claims relating to the design,
manufacture, shipment, importation, sale or use of the Top-Flite® Apparel made
and/or sold by the Company, nor any third-party Claims related to the
negligence, product liability, breach of warranty or willful misconduct by the
Company or its employees, managers, suppliers, subcontractors, independent contractors
or agents, including but not limited to, Losses arising out of third-party
Claims relating to the development, manufacture, advertising, marketing,
distribution, sale or handling of the Top-Flite® Apparel made and/or sold by
the Company or any improper or unauthorized use of the Top-Flite® trademarks or
any breach or violation of any warranty, representation, term or condition of the
License Agreement by the Company.

4.1.8        Seller
has no Knowledge of any unpaid duty, quota, handling or transit fees or other
trade expenses due, or claimed to be due, to any Governmental Entity or other
Person with respect to any orders procured by Explorer Gear and/or Explorer
Headgear and/or their Affiliates for or on behalf of the Company.

4.1.9        Seller,
except as disclosed to Purchaser in the attached Schedule 4.1.9, has no
Knowledge of any Claims asserted or threatened, or which could be asserted or
threatened, against the Company by its suppliers in an amount exceeding $5,000.

4.1.10      Seller,
except as disclosed to Purchaser in the attached Schedule 4.1.10, has no
Knowledge of any existing or potential Claims against the Company related to
actions or the failures to act by Seller or its Affiliates with respect to the
employment or purported employment of any Person by the Company.

 5
 

 

4.1.11      Neither
Seller, Explorer Headgear, nor their respective Affiliates, have taken any
action to create any lien or Encumbrance upon the Assets of the Company, and to
Seller’s Knowledge, no liens or Encumbrances exist with respect to the Company’s
Assets.

4.1.12      With
respect to any contracts, arrangements or agreements entered into by the Company,
whether at the direction of Seller or not, Seller has no Knowledge that either
the Company, Seller, or any other party thereto is in breach or default of any
material terms or conditions thereunder.

4.1.13      Seller
has all requisite power and authority to execute and deliver, to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement and all other documents and instruments to be executed and delivered
in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction Documents”) to which Seller is a party. The
execution and delivery by Seller of, the performance by Seller of its
obligations under, and the consummation by Seller of the transactions
contemplated by, this Agreement and the Transaction Documents to which Seller
is a party have been duly and validly authorized by all necessary action by or
on behalf of Seller. This Agreement has been, and when executed and delivered
by Seller the Transaction Documents will be, duly and validly executed and
delivered by Seller and the valid and binding obligations of Seller,
enforceable against Seller in accordance with their terms, except as the same
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect relating to the enforcement of
creditors’ rights generally or by principles governing the availability of equitable
remedies.

4.2           By
Purchaser. To induce Seller to accept the delivery of this Agreement, to
sell, transfer and assign Seller’s Percentage Interest, and give the releases
herein, Purchaser hereby represents and warrants the following to Seller, on
the Effective Date hereof and at the time of such delivery:

4.2.1        Purchaser
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its organization and has all requisite corporate power
and authority to own, lease and use the Assets owned, leased or used by it and
to conduct its business as presently conducted.

4.2.2        Purchaser
has all requisite power and authority to execute and deliver, to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement and all other documents and instruments to be executed and delivered
in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction Documents”) to which Purchaser is a party. The
execution and delivery by Purchaser of, the performance by Purchaser of its
obligations under, and the consummation by Purchaser of the transactions
contemplated by, this Agreement and the Transaction Documents to which
Purchaser is a party have been duly and validly authorized by all necessary
action by or on behalf of Purchaser. This Agreement has been, and when executed
and delivered by Seller the Transaction Documents will be, duly and validly
executed and delivered by Purchaser and the valid and binding obligations of Purchaser,
enforceable against Purchaser in accordance with their terms, except as the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to the
enforcement of creditors’ rights generally or by principles governing the
availability of equitable remedies.

4.2.3        Since
June 30, 2006 (a) the Company has not incurred any non-ordinary course
obligation or liability, the performance of which would be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect, (b) there
has not been any event or circumstance 

 6
 

 

which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect, and (c) the Company’s
business has been conducted only in the Ordinary Course of Business.

4.2.4        Purchaser
(i) understands that Seller’s Percentage Interest being purchased herein has
not been registered under the Securities Act of 1933, as amended (the “Securities
Act”) or under any state securities law or Blue Sky Law of any jurisdiction (“Blue
Sky Law”) and that Seller’s Percentage Interest is being offered and sold in
reliance upon federal and State exemptions for transactions not involving a
public offering; (ii) has had the opportunity to obtain information as desired
in order to evaluate the merits and risks inherent in holding Seller’s
Percentage Interest; (iii) is able to bear the economic risk in holding Seller’s
Percentage Interest; and (iv) is acquiring Seller’s Percentage Interest solely
for investment and not with a view to the distribution or resale thereof. The
term “solely for investment” used in this Section has the meaning given to that
term for purposes of determining the availability of an exemption from
registration under Section 4(2) of the Securities Act. Further, Purchaser will
not sell, assign, transfer or otherwise dispose of Seller’s Percentage Interest
being acquired herein without registration under the Securities Act and under applicable
Blue Sky Law unless an exemption from registration thereunder is available.

4.2.5        As
of the Effective Date, to Purchaser’s Knowledge, the Company has no present
orders from Wal-Mart.

Section 5.              Additional Covenants.

5.1.1        Seller
agrees that after the Effective Date, neither Seller, Explorer Headgear or
their respective Affiliates will communicate by any means with Wal-Mart Stores,
Inc. (“Wal-Mart”) concerning the business of the Company, unless specifically
requested by Sport-Haley. Seller and Explorer Headgear agree that a violation
or threatened violation of this section 5.1.1 would cause irreparable harm to
the Company or, as the case may be, to Sport-Haley and there is no adequate remedy
at law for such violation or threatened violation. Accordingly, in the event of
an actual or threatened breach of this section 5.1.1, the Company and/or
Sport-Haley shall be entitled to seek an injunction restraining the breaching
party without proof of actual damages and without the need to post any bond or
other security. For purposes of this paragraph, the parties to this Agreement consent
to the personal and subject matter jurisdiction of the state Denver District
Court and the United States District Court for the District of Colorado located
in Denver, Colorado.  Nothing stated herein
shall be construed to prohibit the Company or Sport-Haley from pursuing any
other remedies available to them for such breach or threatened breach.

5.1.2        If
requested by Purchaser, for a period not to exceed six months from the Effective
Date, Explorer Gear and Explorer Headgear shall provide reasonable assistance
to and cooperation with Purchaser concerning information regarding orders
caused to be placed by Explorer Gear and/or Explorer Headgear on behalf of or
for the benefit of the Company with Wal-Mart.

5.1.3        If
requested by Purchaser, for a period not to exceed twelve months from the Effective
Date, Explorer Gear and Explorer Headgear shall provide reasonable assistance
to and cooperation with Purchaser regarding matters pertaining to business of
the Company prior to the Effective Date, including, but not limited to
information required for the preparation of financial statements and tax
returns.

5.1.4        Prior
to the Effective Date, Purchaser confirms that it has notified Callaway Golf
Corporation (“Callaway”), which licensed Purchaser to market Top-Flite® Apparel
and approved of the use of such license by the Company, concerning the purchase
of Seller’s Percentage Interest in the Company, and Callaway has acknowledged
and consented to the purchase.

 7
 

 

5.1.5        Seller
acknowledges and agrees that it has been provided all information and documents
requested from Purchaser and the Company and has been afforded the opportunity
to examine the books and other records of the Company and to ask questions of
the Operating Manager and other employees or agents of the Company concerning
the financial and operating status of the Company. Seller has received and
reviewed the unaudited financial statements of the Company as of June 30, 2006,
which are attached to this Agreement as Exhibit
1, which accurately reflect the Company’s financial results, prior
to any audit adjustments. As a result, Seller is cognizant of the financial
condition, current operations, material agreements and financing of the
Company, and has available full information concerning the Company’s affairs.
In evaluating the merits of the sale of Seller’s Percentage Interest, Seller
has not relied upon any representations or other information (whether oral or
written) from Purchaser, the Company or any person acting on their behalf,
other than as set forth in this Agreement.

5.1.6        The
Company shall cause to have prepared, and distributed to Seller, a Schedule
K-1, in order to properly report a reconciliation of Seller’s Capital Account
balance activity up through the Effective Date. Seller acknowledges and agrees
that it is responsible for any and all tax consequences related to the
ownership of Seller’s Percentage Interest up through the Effective Date.

Section 6.              Continuing Application of Certain
Provisions of Operating Agreement

6.1           The
parties intend by this Agreement that all of Seller’s rights, interest and participation
in the Company shall cease and immediately terminate as of the Effective Date,
except as provided herein. However, while as of the Effective Date, Seller is
no longer a member of the Company and except as stated in this Section 6, the
Operating Agreement is no longer applicable to it, Seller agrees that the
following provisions of the Operating Agreement shall remain applicable to it and
its Affiliates as described in Section 6.2.

6.2           The
following provisions of the Operating Agreement shall continue to apply to
Seller and its Affiliates after the Effective Date, as provided below:

6.2.1        The
confidentiality of Sport-Haley’s, Callaway’s, Wal-Mart’s and each member’s
product manufacturers and suppliers, as set forth in Article 9 of the Operating
Agreement, shall continue to apply to Explorer Gear and its Affiliates.

6.2.2        The
non-competition provisions of Section 10.1 of the Operating Agreement shall
continue to apply to Explorer Gear and its Affiliates for one year following
the Effective Date.

6.2.3        The
non-solicitation of member employees provisions of Section 10.2 of the Operating
Agreement shall continue to apply to Explorer Gear and its Affiliates for one
year following the Effective Date.

6.2.4        Pursuant
to Section 10.3 of the Operating Agreement, Explorer Gear and its Affiliates
continue to acknowledge and agree that they may not sell Top-Flite® Apparel in
the United States or the Territory, as defined in the License Agreement, at any
time.

6.2.5        The
remedies for violation of the provisions of Article 9 and 10, as set forth in
Section 10.4 of the Operating Agreement, shall continue to apply to Explorer
Gear and its Affiliates.

6.3           The
following provisions of the Operating Agreement shall continue to apply to Purchaser
after the Effective Date, as provided below:

 8

 

6.3.1        The
confidentiality of Explorer Gear’s and each member’s product manufacturers and
suppliers, as set forth in Article 9 of the Operating Agreement, shall continue
to apply to Purchaser and its Affiliates.

6.3.2        The
non-solicitation of member employees provisions of Section 10.2 of the
Operating Agreement shall continue to apply to Purchaser and its Affiliates for
one year following the Effective Date.

6.4           The
following provisions of the Operating Agreement will no longer have any effect
as to Sport-Haley as of the Effective Date: Operating Agreement Sections 10.1
and 10.3

Section 7.              Survival of Representations, Warranties,
Etc./Indemnification.

7.1           Survival
of Representations and Warranties, Covenants and Agreements. The
representations, warranties covenants and agreements of Seller in this
Agreement (other than covenants and agreements which by their terms are to be
performed after the Effective Date) will survive until one year after the
Effective Date. The representations, warranties, covenants and agreements
(other than the covenants and agreements which by their terms are to be
performed after the Effective Date) of Purchaser in this Agreement will survive
until one year after the Effective Date. The covenants and agreements of the
parties in this Agreement that are by their terms intended to be performed
after Effective Date will survive the Effective Date and will continue in full
force and effect in accordance with their terms, subject to applicable statutes
of limitation. The applicable periods of survival of the representations,
warranties, covenants and agreements prescribed by this Section 7.1 are
referred to as the “Survival Period.” The liabilities of the parties under
their respective representations, warranties, covenants and agreements will
expire as of the expiration of the applicable Survival Period; provided,
however, that such expiration will not include, extend or apply to any breach
of which has been asserted by Purchaser in a written notice to Seller before
such expiration or about which Seller has given Purchaser written notice before
such expiration indicating that facts or conditions exist that, with the
passage of time or otherwise, can reasonably be expected to result in a breach
(and describing such potential breach in reasonable detail).

7.2           Seller.
Seller shall defend, indemnify, and hold harmless Purchaser, and its directors,
officers, employees, agents, successors and assigns and any Person claiming by
or through any of them, as the case may be, from and against any and all Losses,
Liability, Claim of Liability, or expense resulting from or arising out of: (a)
any breach of any covenant, agreement or obligation of Seller contained in this
Agreement, including, but not limited to those provisions of the Operating
Agreement which are continuing as to Seller, as set forth in Section 6.2; (b)
any and all Losses, Liability, Claim of Liability, or expense incurred by, or
threatened against, Purchaser or the Company and arising before the Effective
Date, caused by the willful misconduct of Seller, Explorer Headgear or their
Affiliates concerning the Company and (c) any breach of any representation or
warranty made by Seller, or, as applicable, Explorer Headgear or their
respective Affiliates, contained in Section 4.

7.3           By
Purchaser. Purchaser shall defend, indemnify, and hold harmless Seller, and
its directors, officers, employees, agents, successors and assigns and any
Person claiming by or through any of them, as the case may be, from and against
any and all Losses, Liability, Claim of Liability, or expense resulting from or
arising out of: (a) any breach of any covenant, agreement or obligation of
Purchaser contained in this Agreement, including, but not limited to those
provisions of the Operating Agreement which are continuing as to Purchaser, as
set forth in Section 6.3; and (b) any breach of any representation or warranty
made by Purchaser or its Affiliates, contained in Section 4.

 9
 

 

7.4           Third-Party
Claims. In the event any third party asserts any Claim with respect to any
matter as to which the indemnities in this Agreement relate, the party or
Person against whom the Claim is asserted (the “Indemnified Party”) shall give
prompt notice to the other party or Person (the “Indemnifying Party”), and the
Indemnifying Party shall have the right at its election to take over the
defense or settlement of the third-party Claim at its own expense by giving
prompt notice to the Indemnified Party. If the Indemnifying Party does not give
such notice and does not proceed diligently so to defend the third-party Claim
within thirty (30) days after receipt of the notice of the third-party Claim,
the Indemnifying Party shall be bound by any defense or settlement that the
Indemnified Party may make as to those claims and shall reimburse the
Indemnified Party for its Losses related to the defense or settlement of the
third-party Claim. The parties shall cooperate in defending against any
asserted third-party Claims.

7.5           Indemnification
Non-Exclusive. The indemnification provisions of this Section 7 are in
addition to, and not in derogation of, any statutory, equitable or common-law
remedy any Party may have for breach of representation, warranty, covenant or
agreement.

7.6           Access
and Information. With respect to any Claim for indemnification hereunder,
the Indemnified Party will give to the Indemnifying Party and its counsel,
accountants and other representatives full and free access during normal
business hours and upon the giving of reasonable prior notice to their books
and records relating to such Claims, and to their employees, accountants,
counsel and other representatives, all without charge to the Indemnifying
Party, except for reimbursement of reasonable out-of-pocket expenses. The
Indemnified Party agrees to maintain any of its books and records which may
relate to a Claim for indemnification hereunder for such period of time as may
be necessary to enable the Indemnifying Party to resolve such Claim; provided
that the failure to do so shall not relieve the Indemnifying Party of any
obligation hereunder unless the Indemnifying Party demonstrates that the
failure to do so substantially prejudiced the Indemnifying Party in the defense
of any third-party proceeding, and then only to the extent so prejudiced.

Section 8.              Settlement and Mutual Releases.

8.1           It is the
intent of Sport-Haley, the Company, and their Affiliates, on the one hand, and
Explorer Headgear and Explorer Gear, and their Affiliates, on the other hand,
to resolve, compromise, settle and release all asserted or non-asserted Claims
between the parties, whether know or unknown, arising from or out of the
transactions and past business dealings between the parties up through the
Effective Date, including, but not limited to any Claims that have arisen or
could have arisen concerning the Company and the parties’ negotiations and
discussions of a potential acquisition.

8.2           For and in
consideration of the payment of the Purchase Price to Seller by Purchaser,
Seller, Explorer Headgear, their respective Affiliates, including, but not
limited to their respective officers, directors, employees, agents and assigns
(the “Seller Releasing Parties”), do hereby release, remise and forever
discharge Purchaser, the Company, their respective Affiliates, and, as
applicable, their respective heirs, personal representatives, agents,
executors, administrators, attorneys, partners, officers, directors, managers,
shareholders, successors, assigns and insurers, of and from any and all Claims,
actions or causes of action, demands, rights, Liabilities and damages, in law
or in equity, whether as of this date known or unknown, asserted or unasserted,
of whatsoever kind or character, which the Seller Releasing Parties now have or
may claim to have in the future, arising from, or based in whole or in part
upon, any act, omission, event, transaction, matter or thing involved, alleged
or referred to, or arising directly or indirectly from or in connection with,
any or all of the parties’ past business dealings up through the Effective
Date, including, without limitation, all agreements, associations and/or
relationships 

 10
 

 

and any Claims involving or relating to the Company
and the Operating Agreement, except as provided in Section 8.4 below.

8.3           For and in
consideration of the mutual covenants and agreements contained herein, Purchaser,
the Company, and their respective Affiliates, including, but not limited to,
their respective officers, directors, managers, employees, agents and assigns
(the “Purchaser Releasing Parties”), do hereby release, remise and forever
discharge Seller, Explorer Headgear, their respective Affiliates, and, as
applicable, their respective heirs, personal representatives, agents,
executors, administrators, attorneys, partners, officers, directors,
shareholders, successors, assigns and insurers, of and from any and all Claims,
actions or causes of action, demands, rights, Liabilities and damages, in law
or in equity, whether as of this date known or unknown, asserted or unasserted,
of whatsoever kind or character, which the Purchaser Releasing Parties now have
or may claim to have in the future, arising from, or based in whole or in part
upon, any act, omission, event, transaction, matter or thing involved, alleged
or referred to, or arising directly or indirectly from or in connection with,
any or all of the parties’ past business dealings up through the Effective
Date, including, without limitation, all agreements, associations and/or
relationships and any Claims involving or relating to the Company and the
Operating Agreement, except as provided in Section 8.4 below.

8.4           The
foregoing provisions of release shall in no way impair or limit the enforcement
and validity of the covenants and agreements which are continuing and the
representations and warranties set forth in this Agreement, which shall remain
effective and enforceable as provided in Section 7.1 above.

8.5           Consent
and Release of Company. This Agreement is subject to and conditioned upon
(1) the Company’s delivery of its consent hereto and (2) the release by the
Company of any Liability for capital contributions to the Company by Seller,
whether arising from the Operating Agreement or otherwise. By its signature
below, the Company agrees to the transactions contemplated by this Agreement
and the releases contained in Section 8.

Section 9.              General Provisions.

9.1           Notices.
All notices and other communications required or permitted hereunder shall be
in writing and shall be deemed effectively given (i) if delivered personally
(including by overnight express or messenger), upon delivery; (ii) if delivered
by registered or certified mail, return receipt requested, upon the earlier of
actual delivery or three (3) days after being mailed; or (iii) if given by
facsimile, upon confirmation of transmission by facsimile, in each case to the
parties at the following addresses: (a) If to Purchaser, addressed to:

	
  

  	
  (a)

  	
  If to Purchaser, addressed to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sport-Haley,
  Inc.

  
	
   

  	
   

  	
  4600 E. 48th
  Avenue

  
	
   

  	
   

  	
  Denver, CO
  80216-3215

  
	
   

  	
   

  	
  Attn: Donald W.
  Jewell, Chief Executive Officer and President

  
	
   

  	
   

  	
  Facsimile: (303)
  320-8806

  

 

 11
 

 

 

	
  

  	
   

  	
  With copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Berliner
  McDonald P.C.

  
	
   

  	
   

  	
  Attn: Steven W.
  McDonald, Esq.

  
	
   

  	
   

  	
  5670 Greenwood
  Plaza Blvd.

  
	
   

  	
   

  	
  Suite 418

  
	
   

  	
   

  	
  Greenwood
  Village, Colorado 80111-2408

  
	
   

  	
   

  	
  Facsimile: (303)
  830-1705

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  If to Seller and/or Explorer Headgear, Inc.,
  addressed to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Explorer Gear
  USA, Inc.

  
	
   

  	
   

  	
  Explorer
  Headgear, Inc.

  
	
   

  	
   

  	
  Attn: Gerard
  Lee, Chief Executive Officer

  
	
   

  	
   

  	
  70 East Beaver
  Creek Road,

  
	
   

  	
   

  	
  North Building,
  Unit 202

  
	
   

  	
   

  	
  Richmond Hill,
  Ontario

  
	
   

  	
   

  	
  L4B 3B2

  
	
   

  	
   

  	
  Canada

  
	
   

  	
   

  	
  Facsimile: (905)
  480-9722

  

 

9.2           Entire
Agreement. Except as otherwise expressly provided herein, this Agreement,
and any Exhibits and Schedules hereto, and the continuing provisions of the
Operating Agreement, constitute the full and entire understanding and agreement
among the parties with regard to the subject matter hereof and no party shall
be liable or bound to any other party in any manner by any representations,
warranties, covenants, or agreements except as specifically set forth herein or
therein. Nothing in this Agreement, express or implied, is intended to confer
upon any Person, other than the parties hereto and their respective successors
and assigns, any rights, remedies, obligations, or Liabilities under or by
reason of this Agreement, except as expressly provided herein.

9.3           Amendment.
To the extent permitted by law, this Agreement may be amended by a subsequent
writing signed by each of the parties.

9.4           Waiver.
No party shall be deemed to have waived any right which it holds hereunder
unless the waiver is made expressly and in writing (and, without limiting the
generality of the foregoing, no delay or omission by any party in exercising
any such right shall be deemed a waiver of its future exercise). No waiver
shall be deemed a waiver as to any other instance or any other right.

9.5           Applicable
law. All questions concerning the construction, validity, and
interpretation of this Agreement and the performance of the obligations imposed
hereby shall be governed by the internal law, but not the law pertaining to
conflicts or choice of law, of the State of Colorado. Each of the parties to
this agreement hereby irrevocably and unconditionally submits to the
jurisdiction of the United States District Court for Colorado or any state
court of competent jurisdiction sitting in Denver County, Colorado for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby, and agrees not to commence any legal
proceedings related thereto except in such court. Service of process in any
such proceeding may be made by certified mail, return receipt requested, or its
international equivalent, directed to the respective party at the address at
which it is to receive notice as provided herein. Each of the parties to this
Agreement irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the 

 12
 

 

jurisdiction or venue of any proceeding brought in any
such court or any claim that a legal proceeding commenced in such court has
been brought in an inconvenient forum.

9.6           Attorneys’
Fees. In the event of any action or suit based upon or arising out of any
alleged breach by any party of any representation, warranty, covenant or
agreement contained in this Agreement, the prevailing party will be entitled to
recover reasonable attorneys’ fees and other costs of such action or suit from
the other party.

9.7           Right
to Specific Performance. Each party acknowledges that the unique nature of
the transactions contemplated by this Agreement and the circumstances under
which this Agreement has been entered into renders money damages for a breach
of the parties’ respective obligations to consummate the transactions
contemplated by this Agreement an inadequate remedy, and the parties agree that
either party will be entitled to pursue specific performance as a remedy for
such breach without the requirement of posting a bond or other security
therefor.

9.8           Rights
Cumulative. All rights and remedies of each of the parties under this
Agreement will be cumulative, and the exercise of one or more rights or
remedies will not preclude the exercise of any other right or remedy available
under this Agreement or applicable law.

9.9           Further
Assurances. The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement and complying with the
provisions of all applicable laws and regulations.

9.10         Severability.
In the event any provision of this Agreement shall be invalid, illegal, or
unenforceable, it shall, to the extent practicable, be modified so as to make
it valid, legal and enforceable and to retain as nearly as practicable the
intent of the parties, and the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

9.11         Headings.
The headings of the Sections, subsections, paragraphs, and subparagraphs hereof
are provided herein for and only for convenience of reference, and shall not be
considered in construing their contents.

9.12         Expenses.
Except as otherwise expressly provided in this Agreement, each party will pay
all of its expenses, including attorneys’ and accountants’ fees, in connection
with the negotiation of this Agreement, the performance of its obligations and
the consummation of the transactions contemplated by this Agreement.

9.13         Construction.
Parties to this Agreement have participated jointly in the negotiation and
drafting of this Agreement and have had competent counsel of their own
choosing. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.

9.14         Assignment.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by any party hereto (whether by operation of law or
otherwise) without the prior written consent of the other party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the Parties and their respective successors and
assigns, heirs, personal representatives and executors.

 13
 

 

9.15         Counterparts.
This Agreement may be executed by facsimile and in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one instrument.

9.16         Captions.
The captions of this Agreement are for convenience only and do not constitute a
part of this Agreement.

IN WITNESS WHEREOF, each party hereto has executed
this Agreement or caused it to be executed on its behalf by its duly authorized
representatives, the day and year first above written.

	
  EXPLORER GEAR USA, INC.,

  	
  EXPLORER HEADGEAR, INC.,

  
	
  A CALIFORNIA
  CORPORATION

  	
  A CANADIAN
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Gerard Lee

  	
   

  	
  /s/ Gerard Lee

  	
   

  
	
  By:

  	
  Gerard Lee,
  Chief Executive

  	
  By:

  	
  Gerard Lee,
  Chief Executive

  
	
   

  	
  Officer and
  President

  	
   

  	
  Officer and
  President

  
	
   

  	
   

  
	
  SPORT-HALEY, INC.,

  	
   

  
	
  A COLORADO
  CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Patrick W. Hurley, Chief Financial

  	
   

  	
   

  
	
  Officer, for
  Donald W. Jewell

  	
   

  	
   

  
	
  By:

  	
  Donald W.
  Jewell, Chief Executive

  	
   

  
	
   

  	
  Officer and
  President

  	
   

  
							

 

With respect to the covenant in Section 5.1.6, the
mutual releases in Section 8 and the consent contained in Section 8.6:

	
  RESERVE APPAREL GROUP, LLC,

  	
   

  
	
  A COLORADO
  LIMITED LIABILITY COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Patrick W. Hurley, Chief Financial Officer,

  	
   

  
	
  for Tom
  Tomlinson

  	
   

  
	
  By:

  	
  George E.
  (“Tom”) Tomlinson,

  
	
   

  	
  Operating
  Manager

  
				

 14

 

Exhibit
1

 

Disclosure
Schedules of Seller

The following disclosures are made by Explorer Gear
USA, Inc., Explorer Headgear, Inc. and their respective Affiliates, as an
attachment to, and incorporated into, the Agreement to Purchase Limited
Liability Company Membership Interest, Settlement and Mutual Releases (the “Agreement”),
to which these Disclosure Schedules of Seller are attached. The following
disclosures are made as of the Effective Date of the Agreement, to the
Knowledge of Explorer Gear USA, Inc., Explorer Headgear, Inc. and their
Affiliates.

All capitalized terms used herein are as defined in
the Agreement.

Schedule 4.1.3

No exceptions.

Schedule 4.1.6

No exceptions.

Schedule 4.1.7

No exceptions.

Schedule 4.1.9

Explorer Gear USA, Inc. and Explorer Headgear, Inc.
were notified by Originals Apparel Group Co. of Markham, Ontario, Canada, that
Reserve Apparel has cancelled and not paid for approximately 73,000 shirts
ordered from Originals Apparel Group for Wal-Mart’s Fall Program. The amount of
the invoice is USD $266,506.20, which invoice is attached. Currently no claim
has been asserted or threatened by Original Apparel against Sport-Haley, Inc.,
Reserve Apparel, Explorer Gear USA, Inc. or Explorer Headgear, Inc. 

Schedule 4.1.10

Explorer Headgear, Inc. entered into an Employment
Agreement with Jeff Lieberman dated and effective December 19, 2005, which
Agreement was duly executed by the parties and to Explorer Headgear, Inc.’s
Knowledge is a valid agreement, in full force and effective to bind the parties
to the terms thereof. Mr. Lieberman was hired by Explorer Headgear, Inc. to
work on matters related to Reserve Apparel and the marketing of Top-Flite®
apparel to Wal-Mart Stores in the United States. The Operating Manager of
Reserve Apparel sent a letter to Mr. Lieberman dated May 26, 2006, which
stated, among other things: “The purpose of this letter is to confirm to you
that your employment, to the extent it ever existed, which was not approved by
Reserve Apparel in the first instance, has ceased and any contract you may have
entered into with Gerrard Lee or other representatives of Explorer Gear USA,
Inc. without the authorization of Reserve Apparel is a null and void.” Mr.
Lieberman continues to work for Explorer Headgear, Inc. on matters not related
to Reserve Apparel. Mr. Lieberman has not asserted or threatened any claim
arising out of his Employment Agreement, or in connection with his purported
association with Reserve Apparel, against Reserve Apparel, Sport-Haley, Inc.,
Explorer Gear USA, Inc. or Explorer Headgear, Inc.

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