Document:

EXHIBIT
10.1

 

MEMORANDUM
OF AGREEMENT

 

BETWEEN

 

THE
CSIR,

 

a statutory council established in terms of Act 46 of 1988,

herein represented by Mr. André Johan Nepgen, in his

capacity as Director of the Operating Unit of Defence, Peace,

Safety & Security (“DPSS”) of the CSIR,

he being duly authorized thereto.

(hereinafter referred to as “the CSIR”)

 

and

 

FORCE PROTECTION INDUSTRIES, INC.

 

A
corporation incorporated and registered in the State of Nevada, United States
of America and

with
its address at 9801 Highway 78, Ladson, South Carolina, United States

(previously
named Technical Solutions Group, Inc.),

with
Registration Number:
            

(hereinafter referred to as FPI)

 

Herein represented by Mr. Gordon McGilton in
his capacity as Chief Executive Officer.

 

 

WHEREAS

 

•                                          FPI and CSIR desire to further develop their business and contractual relationship
initiated under Memoranda of Agreement dated March 8, 2002 (“prior agreement/s”)
(FPI being previously named Technical Solutions Group Inc, the party named in
such former agreement);

 

1

 

•                                          Pursuant to such
prior agreements, CSIR irrevocably transferred to FPI certain proprietary Information
and technology relating to the SYSTEMS
in exchange for FPI’s agreement to pay CSIR a royalty in the event that FPI
sold and delivered the SYSTEMS based on such technology during the term of such
agreement;

 

•                                          In the prior agreements, CSIR agreed to continually transfer information and technology relating to the SYSTEMS exclusively to FPI for a period
of five years, terminating on 7 March 2007 (during which period CSIR agreed not
to transfer the same information or technology to any third party), and the
Parties now wish to extend the period of such exclusivity during the term hereof;

 

•                                          TSG manufactured
and sold mine protected and up armoured vehicle systems, such as LION, COUGAR
and BUFFALO, to the USA and elsewhere.

 

•                                          Mechem and TSG
jointly developed mine protected and up armoured vehicles systems, such as
LION, COUGAR, and BUFFALO.

 

•                                          The CSIR acquired
Mechem’s R&D, and particularly the vehicles design and testing, capability
on 1 April 2001, which included the mine protected and up armoured vehicles
development capability.

 

•                                          The CSIR
continues to research, develop, test and evaluate up armoured vehicle systems.

 

•                                          FPI
and the CSIR have each, in their own right, developed and are employing certain
proprietary market intelligence, vehicle designs and technologies, or otherwise
have the requisite capabilities and capital equipment that are to be used in
executing the intent of this agreement.

 

•                                          FPI
and the CSIR desire to exploit world wide market opportunities by exclusively
developing, manufacturing and selling the SYSTEMS in the United States and
elsewhere through FPI and using its combined proprietary information and
intellectual property rights, capabilities, expertise, proprietary
intelligence, hardware and software designs and technologies to attain these
objectives.

 

•                                          FPI
and the CSIR are desirous to formulate the terms and conditions of which the
aforementioned will be done.

 

 

NOW THEREFORE THE PARTIES
HERETO AGREE AS FOLLOWS:

 

	
  1.

  	
   

  	
  The preamble hereto shall
  form an integral part of this Agreement.

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  DEFINITIONS

  
	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  “Agreement” means this
  Memorandum of Agreement’

  

 

2

 

	
  2.2

  	
   

  	
  “Effective Date” means,
  notwithstanding date of signature hereof, 8 March 2007.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.3

  	
   

  	
  “SYSTEMS” means the TEMPEST, COUGAR (including
  HEV, JERRV, ILAV, MRAP and other variants hereof) and BUFFALO
  vehicles (including vehicles with different names previously used to
  designate such vehicles), which specifications have been jointly developed by
  Mechem and TSG to manufacture and market the vehicles as well as vehicle
  capsules, and excludes any other product or service offered by the CSIR or
  FPI not developed jointly by both Parties including but not limited to the
  CHEETAH.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.4

  	
   

  	
  “Information” means:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.4.1

  	
  technical and scientific
  information including but not limited to design specifications, design
  criteria, drawings, design data, design methodology and design parameters;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.4.2

  	
  commercial information
  including but not limited to market intelligence, information about contracts
  or prospective clients, and competitor information, or information about a
  party’s in-house capability and/or research programmes;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.4.3

  	
  information disclosed in
  such a way that it could reasonable be deducted to be confidential in nature;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.4.4

  	
  information clearly
  identified or marked as confidential or secret.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.5

  	
   

  	
  “Parties” means FPI and
  the CSIR.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.6

  	
   

  	
  “Intellectual Property
  Rights” means

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.6.1

  	
  Intellectual property
  rights thereto recognized by statute and/or registrable in terms of statutory
  provisions including patents, registered designs, copyright, utility models
  and trademarks;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.6.2

  	
  Intellectual property
  rights thereto recognized by statute, but not registrable in terms of
  statutory provisions including copyright and unregistered designs;

  
							

 

3

 

	
   

  	
   

  	
  2.6.3

  	
  Intellectual property
  rights thereto not recognized by statute and not registrable under statute,
  but recognized by and protected under common law, such as know how and trade
  secrets.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.7

  	
   

  	
  “TSG” means Technical
  Solutions Groups, Inc, which changed its name to  Force Protection
  Industries, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.8

  	
   

  	
  Any reference to the
  singular includes the plural and vice versa, if appropriate;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.9

  	
   

  	
  Any reference to a gender
  includes the other gender, if appropriate.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  OBJECTIVE OF THE
  AGREEMANT

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  FPI and the CSIR agree
  that FPI is exclusively responsible for the manufacture of the SYSTEMS, by
  manufacturing the SYSTEMS at its facility in the United States of America or
  elsewhere, or by manufacturing sub-systems thereof at the CSIR’s facilities
  in Pretoria or anywhere else in South Africa under direction of the CSIR, or
  enter into agreements with a third party to manufacture the SYSTEMS
  elsewhere, depending on market and business conditions at the time.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  CONFIDENTIALITY

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  The Parties shall:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.1.1

  	
  Treat as strictly
  confidential and secret all Information given or made known to them arising
  from this association;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.1.2

  	
  Keep all such Information
  obtained secret towards third parties and only use it in co-operation with
  each other for the purpose expressly agreed upon by the Parties and to
  disclose same to their employees only on the basis of the need to know;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.1.3

  	
  Accept responsibility for
  the observance of these secrecy provisions by their employees.

  

 

4

 

	
  4.2

  	
   

  	
  The above undertakings
  shall not apply to:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.2.1

  	
  Information that at the
  time of disclosure is published or otherwise generally available to the
  public.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.2.2

  	
  Information which after
  disclosure by the disclosing party is published or becomes generally
  available to the public; otherwise than through any act or omission on the
  part of the receiving party.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.2.3

  	
  Information that the
  Parties can show was in their possession at the time of disclosure and which
  was not acquired directly or indirectly from each other.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.2.4

  	
  Information rightfully
  acquired from others who did not obtain it under pledge of secrecy to either of
  the Parties.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.2.5

  	
  Information which a party
  is obliged to disclose in terms of an order of court, subpoena or other legal
  process.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.3

  	
   

  	
  The provisions in respect
  of this clause 4 shall endure, notwithstanding expiration or termination of
  this Agreement, for a period of 5 years following its expiration or
  termination.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  RIGHTS AND OBLIGATIONS
  OF THE CSIR

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The CSIR has transferred
  to FPI, on exclusive basis for five years in terms of the prior agreement,
  all proprietary Information and Intellectual Property Rights pertaining to
  the SYSTEMS including, but not limited to, designs, drawings, full technical
  specifications, test data, suppliers lists, know-how, and data relevant to
  the SYSTEMS. The CSIR shall not transfer this Information and Intellectual
  Property Rights to any other party for the duration of this Agreement.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  RIGHTS AND OBLIGATIONS
  OF FPI

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  FPI has the right, as of
  the Effective Date of this Agreement, to sub-license the rights pertaining to
  the SYSTEMS acquired from the CSIR in terms of the prior agreement, to a

  
							

 

5

 

	
   

  	
   

  	
  third party without the
  prior written permission of the CSIR provided that such sub-licence is
  subject to all the applicable terms of this Agreement and that there is no
  change in any royalty payments to CSIR as per clause 7.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
   

  	
  FPI agrees not to cede,
  transfer, change ownership, declare, reveal, disclose or otherwise dispose of
  its own proprietary Information and Intellectual Property Rights pertaining
  to the SYSTEMS without advising the CSIR in writing beforehand.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  VEHICLE FEE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  In full consideration of
  the transfer by the CSIR to FPI of Information and Intellectual Property
  Rights pertaining to the SYSTEMS, FPI undertakes and agrees to pay a royalty
  fee to the CSIR in US Dollars for all vehicles sold and/or manufactured by
  FPI

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •

  	
  from date of the
  termination of the agreement between the CSIR and TSG and the signature date
  of this Agreement; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •

  	
  For a period of five years
  from the Effective Date.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  at the following rate for
  each vehicle sold by FPI as foreseen in paragraph 3.1:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7.1.1

  	
  COUGAR (4x4 and 6x6) and
  any variants including, without limitation, the Hardened Engineer Vehicle
  (HEV), the Joint Explosive Ordnance Disposal Rapid Response Vehicle (JERRV)
  the Iraqi Light Armoured Vehicle (ILAV), and the Mine Resistant Ambush
  Protected Vehicle (MRAP) :          US$750.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7.1.2

  	
  BUFFALO:

  	
  US$3,000.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7.1.3

  	
  TEMPEST:

  	
  US$1,500.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
   

  	
  Payment of the vehicle fee
  by FPI to the CSIR for the period between the Effective Date and the date of
  signature by the last Party to sign (“the signature date”), will be effected
  within 30 days of the signature date and for payments due thereafter will be
  effected within 45 days of the end of each quarter, subject to receipt of
  full payment for vehicles delivered to a customer.

  
										

 

6

 

	
  7.3

  	
   

  	
  In the event of total or
  partial non-fulfilment of a contract or, in the case of force majeure, the
  CSIR will only be entitled to a vehicle fee on that part of a contract that
  has actually been executed and in proportion to payments actually received.

  
	
   

  	
   

  	
   

  
	
  7.4

  	
   

  	
  An audited certificate
  shall be supplied by FPI to the CSIR every six months from the Effective Date
  of this Agreement of the quantities of the SYSTEMS by category manufactured,
  delivered and paid for by customers as well as a forecast for the following
  six months.

  
	
   

  	
   

  	
   

  
	
  7.5

  	
   

  	
  FPI shall permit the CSIR
  at any time during business hours to have a representative of the CSIR’s
  choice, provided that he/she is a qualified chartered accountant or lawyer,
  examine those books of account and records (including information stored in
  computer readable form) and to take copies of all such documents, books and
  records to determine whether all appropriate accounting of vehicle fees
  hereunder and payments thereof have been made, subject to U.S. Government
  Regulations (including export controls) and execution of a confidentiality
  agreement with such a representative.

  
	
   

  	
   

  	
   

  
	
  7.6

  	
   

  	
  After the validity of this
  Agreement has expired or after it has been terminated in terms of clause 13,
  the CSIR shall be entitled, on the basis stipulated in 7.1 to 7.3 above, to all
  royalty fees due in terms of this Agreement on any contracts concluded prior
  to this Agreement having expired or terminated.

  
	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  INTELLECTUAL PROPERTY
  RIGHTS

  
	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  FPI  agrees
  to take all the necessary steps to protect and support the Intellectual
  Property Rights that it has acquired from the CSIR under the prior
  agreements.

  
	
   

  	
   

  	
   

  
	
  8.2

  	
   

  	
  Any new Intellectual
  Property Rights, as a result of a modification, development, enhancement or
  improvement of the SYSTEMS by FPI will remain the exclusive property of FPI.
  Similarly any new Intellectual Property Rights created as a result of a
  modification, development, enhancement or improvement of the SYSTEMS by the
  CSIR will remain the exclusive property of the CSIR provided that FPI will
  have the right to use any such new Intellectual Property Rights relating to
  the SYSTEMS with respect to the SYSTEMS. Except as expressly provided in this Agreement, FPI shall not use the

  

 

7

 

	
   

  	
   

  	
  CSIR’s
  modifications, developments, enhancements or improvements without the express prior
  written consent of CSIR.

  
	
   

  	
   

  	
   

  
	
  8.3

  	
   

  	
  The CSIR does not warrant
  the novelty of any of its Intellectual Property Rights nor any possible
  patent to be valid and likewise does not warrant that the exploitation
  thereof will not constitute an infringement of any third party’s intellectual
  property. The CSIR, however, declares that as far as it is aware no such
  prior infringement exists.

  
	
   

  	
   

  	
   

  
	
  8.4

  	
   

  	
  Should any claim be made
  claiming patent or trademark infringement of any Intellectual Property Rights
  acquired by FPI from the CSIR, the CSIR may elect, at its sole discretion, to
  defend such claims at its cost.

  
	
   

  	
   

  	
   

  
	
  8.5

  	
   

  	
  Notwithstanding any
  indication to the contrary in this Agreement, CSIR acknowledges and agrees
  that nothing contained herein shall be construed as a limitation on FPI’s
  sole and exclusive right to design, develop, manufacture, market, test ,
  sell, service and repair the BUFFALO, TEMPEST, COUGAR and CHEETAH. CSIR
  confirms that, except as may be otherwise provided for in any other agreement
  in force between the Parties, it has no claim of right, title or interest in
  or to FPI’s past, present, or future vehicles or other products, and
  acknowledges that as far as CSIR is reasonably aware of FPI exclusively owns
  all right, title and interest in and to the BUFFALO, TEMPEST, COUGAR, CHEETAH
  and the variants thereof and all Intellectual Property Rights embodied in the
  BUFFALO, TEMPEST, COUGAR and CHEETAH, and action it so desires with respect
  to its technology, Intellectual Property Rights and Information, and/or with
  respect to the design, data and technical information relating to the
  BUFFALO, TEMPEST, COUGAR and CHEETAH.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The only obligations
  between the Parties with respect to the subject matter of this Agreement are
  set forth in this Agreement and there is no other right, claim, interest,
  entitlement, license, commitment or ownership with respect thereto between
  the Parties. CSIR agrees that it shall not grant or purport to grant to any
  third party any rights of whatever kind in or to the BUFFALO, TEMPEST, COUGAR
  or any of FPI’s other products, and shall not disclose or use for any purpose
  other than as provided in this Agreement any of FPI’s Information or
  Intellectual Property Rights in its possession. Unless otherwise provided for
  elsewhere, the obligations of this paragraph regarding the

  

 

8

 

	
   

  	
   

  	
  protection of FPI’s
  Information and Intellectual Property Rights shall remain in effect during
  the term of this Agreement.

  
	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  SYSTEMS SUPPORT AND
  PRODUCT LIABILITY

  
	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  The CSIR may, at the
  request of FPI, provide manufactured components, services, personnel and such
  equipment and training that may be required enabling FPI to design, develop,
  modify, upgrade, manufacture, test or market the SYSTEMS worldwide. This
  shall be at the cost of FPI.

  
	
   

  	
   

  	
   

  
	
  9.2

  	
   

  	
  The Parties acknowledge
  that the SYSTEMS and the application thereof may potentially involve and/or
  result in damage to property and injury to or death of persons. FPI expressly
  acknowledges and accepts full liability for the manufactured SYSTEMS and the
  CSIR shall not be held responsible for guarantees given by FPI for the
  SYSTEMS or any part thereof including design or material guarantees.

  
	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  INDEMNITY

  
	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Having previously
  transferred all of the CSIR’s Information and Intellectual Property Rights
  pertaining to the SYSTEMS to FPI, the CSIR shall be not be held responsible
  for any damage, loss caused by any actions, omissions, death or injury sustained
  by FPI or any third party caused by any faulty designs, material used,
  actions, omissions, negligence or misconduct by FPI.

  
	
   

  	
   

  	
   

  
	
  10.2

  	
   

  	
  The CSIR, in terms of this
  Agreement, is exempted from liability towards persons due to damage,
  suffering or otherwise, resulting from any cause ascribable to the neglect or
  wilful misconduct of FPI, its employees, agents or representatives, or
  ascribable to the manufacture or use of the SYSTEMS or any part thereof.

  
	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  APPLICABLE LAW

  
	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  This agreement shall be
  governed by and construed in all respects, in accordance with the laws of
  England and Wales, excluding its conflicts of laws provisions.

  

 

9

 

	
  12.

  	
   

  	
  DURATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  12.1

  	
   

  	
  This Agreement shall
  endure for a period of five years from the Effective Date, unless terminated
  by mutual consent of the Parties or in terms of Article 13 or 14 below.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.2

  	
   

  	
  The Parties, in accordance
  with Article 17.1, may after expiry hereof, renew this Agreement.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  TERMINATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Either the CSIR or FPI
  shall be entitled to terminate this Agreement forthwith:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  13.1.1

  	
  Upon the commencement or
  happening of any occurrence connected with the insolvency, dissolution,
  administration, receivership or liquidations of the other party;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  13.1.2

  	
  Upon any change in the
  control of and/or management constitution and/or circumstances of the other
  party which is detrimental to the terminating party’s interest hereunder
  except, subject to the provisions of clause 16 hereafter, pursuant to a
  merger, consolidation, sale on other transfer of all or substantially all the
  assets of either party. In such case the terminating party will only exercise
  its rights after full consultation with the other party.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  13.1.3

  	
  Should an interdict be
  granted in either the Republic of South Africa or the United States
  interdicting either of the Parties to use or utilize the technology on which
  the SYSTEMS are based.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  13.1.4

  	
  Should the Government of
  either the Republic of South Africa or the United States decline to issue the
  necessary import/ export permits or decline to issue other permits or
  approvals necessary for the execution of this Agreement.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.2

  	
   

  	
  In the case of termination
  as envisaged above, the Parties will have no claims or liability against or
  towards each other, other than with respect to existing agreements and
  liabilities at the date of termination.

  
									

 

10

 

	
  14.

  	
   

  	
  BREACH

  
	
   

  	
   

  	
   

  
	
  14.1

  	
   

  	
  In the event of either
  party committing a material breach of the terms and conditions of this
  Agreement, the aggrieved party shall, without prejudice to any other rights
  which it might have been entitled to, give written notice to the breaching
  party to rectify the breach within fourteen days and after failing to correct
  the breach according to a corrective action plan, give further written notice
  to rectify the breach within thirty says and failing to do so, cancel this
  Agreement and claim damages.

  
	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  DISPUTES

  
	
   

  	
   

  	
   

  
	
  15.1

  	
   

  	
  It is the intent of the
  parties that any dispute be resolved informally and promptly through good
  faith negotiation between them. Either Party may initiate negotiation
  proceedings by written notice to the other party setting forth the
  particulars of the dispute. The Parties agree to meet in good faith to
  jointly define the scope and a method to remedy the dispute. If these
  proceedings are not successful, a representative of the senior management
  from each party shall meet personally in good faith attempt to resolve the
  matter. Should any disputes remain unresolved after completion of the
  two-step resolution process set forth above, the Parties shall promptly
  submit any dispute to arbitration with an independent arbitrator, save for a
  dispute relating purely to non-payment in which event the aggrieved party may
  in its sole discretion submit such a dispute or claim to a court with
  jurisdiction to hear the matter.

  
	
   

  	
   

  	
   

  
	
  15.2

  	
   

  	
  Any dispute arising out of
  this Agreement or the interpretation thereof not resolved in accordance with
  paragraph 15.1 , both while in force and after its termination, shall be
  submitted to and determined by arbitration in accordance with the rules of
  Conciliation and Arbitration of the International Chamber of Commerce (ICC).

  
	
   

  	
   

  	
   

  
	
  15.3

  	
   

  	
  The arbitration shall be
  held in London, England, unless otherwise agreed to and shall be held in a
  summary manner with a view to it being completed as soon as possible.

  
	
   

  	
   

  	
   

  
	
  15.4

  	
   

  	
  There shall be one
  arbitrator appointed by ICC in accordance with its rules.

  

 

11

 

	
  15.5

  	
   

  	
  The arbitration
  proceedings shall be held in the English language.

  
	
   

  	
   

  	
   

  
	
  15.6

  	
   

  	
  The decision of the
  arbitrator shall be final and binding on the Parties, and may at the request
  of either party be made an order of court of competent jurisdiction, and each
  of the Parties hereby agrees to submit itself to the jurisdiction of such
  court.

  
	
   

  	
   

  	
   

  
	
  15.7

  	
   

  	
  If any arbitration is
  brought to enforce or interpret any part of this Agreement, the arbitrator
  shall make a ruling which the arbitrator considers just and equitable in the
  circumstances, which may include a ruling that the prevailing party will be
  entitled to reasonable attorneys’ fees and costs, including, without
  limitation, discovery costs, witness fees, expert fees, and any other related
  to the preparation and presentation of proof, which shall be set by the
  arbitrator in the same action, in addition to any other relief to which the
  party may be entitled. The award of such costs, including a determination as
  to the “prevailing party”, if deemed applicable by the arbitrator, shall be
  determined, at the conclusion of any arbitration, by the arbitrator before
  whom the dispute was brought, based on the assessment of which party’s major
  arguments or positions taken in the, arbitration could fairly be said to have
  prevailed over the other Party’s major arguments or positions on major
  disputed issues, as to the final award.

  
	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  ASSIGNMENT

  
	
   

  	
   

  	
   

  
	
  16.1

  	
   

  	
  Except pursuant to a
  merger, consolidation, sale or other transfer of all or substantially all the
  assets of either Party, the Parties’ rights and obligations under this
  Agreement may not be transferred either in whole or part to any third party,
  without the prior written consent of the other party, which consent will not
  be withheld unless the circumstances are directly detrimental to the other
  party. This restriction shall not apply to assignments made to either Party’s
  corporate parent, or subsidiary.

  
	
   

  	
   

  	
   

  
	
  16.2

  	
   

  	
  In the event of an
  assignment by FPI, such assignment shall only be of force and effect if FPI
  agrees to remain surety for the payment obligations of royalties due under
  this Agreement.

  

 

12

 

	
  17.

  	
   

  	
  AMENDMENTS

  
	
   

  	
   

  	
   

  
	
  17.1

  	
   

  	
  No alteration, variation,
  addiction or agreed cancellation of this Agreement shall be of any force or
  effect unless reduced to writing as an addendum to this Agreement and signed
  by the Parties or their duly authorized signatories.

  
	
   

  	
   

  	
   

  
	
  18.

  	
   

  	
  SEVERABILITY

  
	
   

  	
   

  	
   

  
	
  18.1

  	
   

  	
  If any provision of this
  Agreement is or becomes illegal, void or invalid, it shall not affect the
  legality and validity of the other provisions.

  
	
   

  	
   

  	
   

  
	
  19.

  	
   

  	
  AGENCY AND PARTNERSHIP

  
	
   

  	
   

  	
   

  
	
  19.1

  	
   

  	
  No party shall present
  itself as the representative or agent of the other party for any business,
  legal or any other reason, nor shall it have the power of authority to commit
  the other party, unless it receives the other party’s prior written consent.

  
	
   

  	
   

  	
   

  
	
  19.2

  	
   

  	
  Nothing in this Agreement
  shall be interpreted as establishing a partnership or joint venture between
  the Parties and both Parties shall act as independent contractors.

  
	
   

  	
   

  	
   

  
	
  20.

  	
   

  	
  GENERAL

  
	
   

  	
   

  	
   

  
	
  20.1

  	
   

  	
  The foregoing constitutes
  the entire agreement between the Parties with respect to the subject matter
  hereof and supersedes and cancels all prior representations, understandings
  and commitments (whether verbal or written) made between the Parties, with
  respect to or in connection with, any matters or things to which this
  agreement applies.

  
	
   

  	
   

  	
   

  
	
  20.2

  	
   

  	
  The Parties hereby agree
  that two original copies of this Agreement will be signed by each of the
  Parties and that each party will be entitled to an original signed copy of
  the Agreement.

  
	
   

  	
   

  	
   

  
	
  20.3

  	
   

  	
  No failure or delay on the
  part of any Party in exercising any right, power or privilege hereunder shall
  operate as a waiver thereof, nor shall any single or partial exercise of any
  right, power or privilege preclude another or further exercise thereof, or
  the exercise of any other right, power or privilege. The rights and remedies
  herein expressly provided are

  

 

13

 

	
   

  	
   

  	
  cumulative and not
  exclusive of any rights or remedies that the Parties would otherwise have.

  
	
   

  	
   

  	
   

  
	
  20.4

  	
   

  	
  No indulgence, leniency or
  extension of time that either party (“the grantor”) may grant or show to the
  other shall in any way prejudice the grantor or prevent the grantor from
  exercising any of its rights in the future.

  
	
   

  	
   

  	
   

  
	
  20.5

  	
   

  	
  The Parties shall pay
  their own costs relating to the preparation and settlement of this Agreement.

  
	
   

  	
   

  	
   

  
	
  20.6

  	
   

  	
  Notices hereunder shall be
  deemed to be validly given, if delivered by hand or sent by telex, telefax,
  e-mailed or by recorded delivery post to the duly authorized representatives
  signing this Agreement. Such notices shall be deemed effective on the date of
  receipt at the following address:

  
	
   

  	
   

  	
   

  

 

FPI

9801 Highway 78, Building # 1

Ladson, South Carolina
29456

United States

Marked for the attention of: Chief Executive Officer

 

	
  Telefax:

  	
   

  	
  (843) 553-1311

  
	
  E-mail:

  	
   

  	
  gordon.mcgilton@forceprotection.net

  

 

The CSIR (DPSS)

 

Physical address:   Meiring Naude Road,
Scientia, Pretoria, South Africa

Postal:            P O Box 395,
Pretoria, 0001

Marked for the attention of: The Executive Director:
DPSS

 

	
  Telefax:

  	
   

  	
  +27 12 841 4683

  
	
  E-mail:

  	
   

  	
  anepgen@csir.co.za

  

 

 

14

 

	
  20.7

  	
   

  	
  Either party shall be
  entitled to change its domicilium citandi et executandi by giving written
  notice thereof to the other, provided that such change shall not take effect
  until receipt by such other party of such notice.

  
	
   

  	
   

  	
   

  
	
  20.8

  	
   

  	
  The headings appearing in
  this Agreement have been used for reference purposes only and shall not
  affect the interpretation of this Agreement.

  
	
   

  	
   

  	
   

  
	
  20.9

  	
   

  	
  This Agreement shall only
  become effective and legally binding on the parties once it has been signed
  by both Parties.

  
	
   

  	
   

  	
   

  
	
  20.10

  	
   

  	
  Whether due to delay,
  breach of contract or warranty, tort (including but not limited to negligence
  and strict liability), or any other cause, neither shall be liable to the
  other for an special, indirect, incidental, punitive, or consequential
  damages of any nature, including but not limited to loss of actual or
  anticipated profits, except for any breach of the confidential provisions
  hereunder.

  

 

 

Signed at Pretoria, South Africa this 19th day of October 2007

 

	
   

  	
   

  	
  /s/ AJ Nepgen

  	
   

  
	
  Witness 1

  	
   

  	
  For the CSIR:

  	
   

  
	
   

  	
   

  	
  AJ Nepgen, Executive
  Director:

  	
   

  
	
   

  	
   

  	
  Defence, Peace, Safety
  & Security

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wistness 2

  	
   

  	
   

  	
   

  

 

 

 

        Signed at Charleston, South Carolina
this 29th day of October 2007

 

	
   

  	
   

  	
  /s/ G McGilton

  	
   

  
	
  Witsness 1

  	
   

  	
  For FPI

  	
   

  
	
   

  	
   

  	
  G McGilton, Chief
  Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Witness 2

  	
   

  	
   

  	
   

  

 

 

15EXHIBIT
10.1

SEPARATION,
CONSULTING AND GENERAL RELEASE AGREEMENT

 

This Separation, Consulting and General Release
Agreement (this “Agreement”) is being entered into by and between Source
Interlink Companies, Inc. (“Source” or the “Company”) and Jason Flegel (“Flegel”)
(collectively, the “Parties”) as of the date of Flegel’s execution of this
Agreement (the “Date of this Agreement”), subject to the provisions of Section
5(b) below.

WHEREAS, Flegel was employed by the Company pursuant
to an Executive Employment Agreement dated as of February 28, 2005 (the “Employment
Agreement”);

WHEREAS, subject to the provisions of Section 5(b)
below, the Parties wish to terminate their employment relationship and the
Employment Agreement on mutually acceptable terms and conditions effective as
of October 31, 2007; and

THEREFORE in consideration of the foregoing promises
and the terms and conditions set forth below, the Parties agree as follows:

1.                  Termination.  Subject to the provisions of Section 5(b)
below, Flegel acknowledges (a) the termination of the Employment Agreement, and
(b) the termination of his employment from any and all positions within the
Company or any of its affiliates, as an employee and/or officer effective as of
5:00 p.m. on October 31, 2007 (the “Termination Date”), and hereby resigns from
such positions.  In consideration of the
foregoing, the Company shall pay to Flegel the sum of One Hundred Twenty
Thousand ($120,000) (the “Termination Fee”) which shall be payable in six equal
installments of $20,000 each on the 15th day of each calendar month
commencing on November 15, 2007 such that the final installment shall be paid
on April 15, 2008.  Subject to the
provisions of Section 4 below, Flegel understands that he is giving up any right
or claim to compensation or benefits of employment with the Company beyond the
Termination Date, including without limitation, any compensation, benefits or
other rights under the Employment Agreement, except that he shall be entitled
to the compensation and benefits provided in this Agreement.

2.                  Consulting Agreement.  Provided that Flegel timely signs and
delivers, and does not revoke, this Agreement, Flegel shall become a consultant
to the Company upon the terms set forth herein.

a.             Term.  The term of Flegel’s consulting arrangement
shall begin on the Termination Date and end on April 30, 2008, unless earlier
terminated due to Flegel’s death or disability (the “Term”).

b.             In
the event of a termination of Flegel’s consulting services for Disability or
death, the Company shall have no obligation to provide any future payments or
benefits 

 

pursuant to this Agreement after the date of Disability or
death, except the Company shall remain obligated to pay the Termination Fee as
set forth in Section 1, any Earned but Unpaid Compensation as set forth in
Section 2(e) and any un-reimbursed expenses incurred during the Term as set
forth in Section 2(i).  For purposes of
the preceding sentence, “Disability” shall mean a determination by the Board
that Flegel has been unable to perform consulting services effectively for
thirty (30) or more consecutive days, or for sixty (60) or more days in any
calendar year. For purposes of this Section 2(b) and Section 11(c) below, “Earned
but Unpaid” with respect to the compensation provided for in Section 2(e) shall
mean that all events required to have occurred for Flegel to be entitled to
payment of compensation have occurred during the Term and within the time frame
required under Section 2(e), but the compensation has not yet been paid.

                                c.             Reporting Relationship.  Flegel shall report to James R. Gillis or
such senior-level executive(s) as James R. Gillis may designate from time to
time (the “Supervisor”).

                                d.             Duties.  The Company hereby appoints Flegel as an
independent consultant to the Company, and Flegel hereby accepts such
appointment.  During the Term, Flegel
shall provide such consulting services to the Company and its subsidiaries, as
the Supervisor may reasonably request, from time to time, in connection with
the business opportunities described in Schedule A to this Agreement.  This Agreement does not create any employment
or agency relationship between Flegel and the Company.  The relationship of Flegel during the Term
will be solely as an independent contractor to the Company.  The Company has not authorized Flegel to, and
Flegel acknowledges that he has no authority to, commit, bind or speak for the
Company, and Flegel shall not knowingly do any act which might cause any third
party to reasonably believe that Flegel has the power or authority to contract
or incur any commitment on behalf of Company, or that Flegel is an employee or
agent of Company.  Subject to Section 11
below, the Company agrees and acknowledges that Flegel shall be permitted to
have a financial interest in, work for, consult with, advise, assist or
otherwise be connected with any other business or enterprise during the
Term.  In addition, the Company agrees
that Flegel’s employment by or performance of services for or on behalf of his
father, S. Leslie Flegel (“SLF”) or another party on behalf of SLF, or the
solicitation of Flegel’s employment or service by, for or on behalf of SLF or
by another party on behalf of SLF will not be a violation of Section 13d of the
Separation, Consulting and General Release Agreement between SLF and the
Company dated November 10, 2006, and the Company shall provide a letter to SLF
to such effect. The foregoing sentence shall not constitute a consent to or
waiver of any provision of this Agreement, including those set forth in Sections
10 and 11 hereof.

                                e.             Consulting Compensation
Payments.  As compensation to Flegel for
the services to be performed by him during the Term under the consulting
arrangement with the Company, Flegel shall receive from the Company the four payments
described in Schedule A, in each case payable not later than 15 days after the
execution of the agreement or agreements which are described as being part of
the project to be completed under the applicable part of Schedule A.

 

The Company shall have sole and absolute discretion to
determine whether or not to pursue the 
agreement or agreements which are described as being part of the project
to be completed under Schedule A and nothing in this Agreement shall be
interpreted to obligate the Company to pursue such agreement(s) or approve or
agree to any such agreement(s); provided however that the Company and Flegel
agree to deal with each other in good faith with respect to the pursuit of the
projects by the stated completion date, as is described in Schedule A.  If the Company pursues such any such
agreement or or agreements, then the Company shall have sole and absolute
discretion to accept or reject any proposed terms related thereto and to elect
not to enter into any definitive agreement(s). 
If the Company elects for any reason not to pursue any such agreement or
agreements, or pursues but ultimately elects for any reason not to enter into
definitive agreement(s) on or before the stated completion date, the Company
shall have no liability to Flegel and no obligation pay Flegel any of the
compensation payments referenced above.

                                f.              Healthcare Insurance.  During the Term, the Company shall provide
Flegel with healthcare insurance substantially similar to that provided to
Flegel immediately prior to the execution of this Agreement under and subject
to the same terms and conditions (including without limitation contribution to
premiums, deductibles, co-payments and caps) as are applicable to executive
officers generally during the Term. 
Flegel shall not be entitled to participate in the Execucare
Program.  To accomplish this provision,
the Company shall, if at all possible, provide for Flegel’s participation in
the Company’s healthcare insurance plan. In the event that the Company cannot
include Flegel in the Company’s healthcare insurance plan, the Company may
satisfy its obligations under this Section by paying a proportionate part of
Flegel’s COBRA premium so long as he remains eligible for COBRA benefits during
the Term.  Flegel may elect to continue
or commence COBRA coverage at the end of the Term.

                                g.             Except as set forth in Section
2(f), Flegel acknowledges that during the Term and as an independent
contractor, Flegel will not be eligible for or receive any benefits for which
employees of the Company are eligible. 
Notwithstanding the above, Flegel will assume responsibility and pay for
the three life insurance policies (issued by First Colony) on his life owned
and/or paid for by the Company and the Company agrees to cooperate with Flegel
to effectuate his assumption of ownership and responsibility for such policies.

                                h.             Expense Reimbursement.  The Company shall pay directly, or shall
reimburse Flegel for, reasonable and necessary expenses approved in advance by
the Supervisor and incurred by Flegel during the Term in the interest of the
business of the Company.  The Company
acknowledges that Flegel is likely to be required to travel to perform his
duties under Section 2(d) of this Agreement. 
Flegel’s travel expenses and accommodations shall be consistent with Company’s
regular practices for senior executives’ travel.  All such expenses paid by Flegel shall be
promptly reimbursed by the Company upon presentation by Flegel of an itemized
account of such expenditures, sufficient to support their deductibility by the
Company for federal income tax purposes (without regard to whether or not the
Company’s deduction for such

 

 

expenses is limited for federal
income tax purposes), such submissions to be made within thirty (30) days after
the date such expenses are incurred.

                                i.              Accrued Vacation.  Notwithstanding Section 4.6 of the Employment
Agreement, the Company shall pay Flegel a total of $18,269.60 as full
compensation for Flegel’s unused vacation days that have accrued for 2007
through the Termination Date.  Subject to
Section 4 of this Agreement, such payment shall be paid to Flegel on the same
date as the payment of his final paycheck due under the Employment Agreement.

3.                  Sole Financial Obligation.  The compensation and benefits set forth in
Section 1 and 2 of this Agreement are the sole and exclusive financial
obligations of the Company to Flegel under this Agreement or otherwise in
connection with Flegel’s employment, consulting, or the termination of his
employment or consulting. 
Notwithstanding the above, Flegel’s rights under any applicable
retirement, deferred compensation, 401k, pension, stock, stock option or
restricted stock plan shall not be modified by this Agreement, and his rights
shall be consistent with the provisions of such plans and agreements entered
into pursuant to those plans.  Flegel
understands that, leaving aside any rights under any applicable retirement,
deferred compensation, 401k, pension, stock, stock option or restricted stock
plan and leaving aside Flegel’s right to indemnification under applicable law
and the Company’s articles and bylaws for claims brought against him arising
out of his service as an officer of the Company and its subsidiaries and
affiliates, he is otherwise giving up any and all rights and benefits of
employment.

4.                  Tax Withholding.  The Company shall withhold from any payment
or benefit under Section 2 of this Agreement any and all withholding taxes it
believes are required by applicable law, and to otherwise take all actions it
believes necessary to satisfy it obligations to pay such withholding
taxes.  With regard to payments and
benefits provided under Section 2 of this Agreement and subject to the
foregoing sentence, the Company will not withhold any state or federal FICA or
other withholding taxes, social security taxes, Medicare taxes, disability or
other insurance payments or any other taxes, assessments or payments
(collectively, “Employment Taxes”).  To
the extent applicable, the Company will issue to Flegel an Internal Revenue
Service Form 1099 at the time, in the manner and containing the information
required by the Internal Revenue Code of 1985, as amended (the “Code”).  To the extent not withheld, Flegel shall be
solely responsible for the payment of any and all Employment Taxes and any
other taxes, assessments or payments owed in connection with its receipt of
compensation paid by Company hereunder.

5.                  Release by Flegel.

a.             General Release. In exchange
for the payments and benefits provided in this Agreement, Flegel does hereby
settle, waive, release and forever discharge the Company, its parent,
subsidiary and affiliate corporations, and each of their respective past and
present parents, subsidiaries, affiliates, associates, owners, members,
stockholders, predecessors, successors, assigns, employees, agents, directors,
officers, partners, representatives, lawyers, and all persons acting by,
through, under, or in concert with them, or any of them (collectively, the “Company
Releasees”), of and from any and all manner of claims or causes of action, in
law or 

 

 

in
equity, of any nature whatsoever, known or unknown, fixed or contingent
(hereinafter called “Claims”), that Flegel now has or may hereafter have
against the Company Releasees by reason of any and all contracts, agreements,
acts, omissions, events or facts occurring or existing prior to the date
hereof.  The Claims released hereunder
include, without limitation, any alleged breach of the Employment Agreement;
any express or implied employment agreement; any alleged torts or other alleged
legal restrictions relating to Flegel’s employment and the termination thereof;
and any alleged violation of any federal, state or local statute or ordinance
including, without limitation, Title VII of the Civil Rights Act of 1964, as
amended, 42 USC Section 2000, et  seq.; Americans with
Disabilities Act, as amended, 42 U.S.C. § 12101 et  seq.;
the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et
seq.; Age Discrimination in Employment Act, as amended, 29 USC Section
621, et  seq.; Civil Rights Act of 1866, and Civil Rights Act of
1991; 42 USC Section 1981, et  seq.; Equal Pay Act, as amended, 29
USC Section 206(d); regulations of the Office of Federal Contract Compliance,
41 CFR Section 60, et  seq.; the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. § 2101 et seq.; the Family
and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.;
the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et
seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C.
§ 1001 et  seq.; the Rehabilitation Act of 1973, as amended;
the Florida Human Relations Act; the Florida Civil Rights Act of 1992; any
applicable collective bargaining agreements; and/or any other local, state or
federal law, regulation or ordinance governing or relating to the employment
relationship.  This release shall not
apply to the Company’s obligations hereunder, to any vested retirement, 401k,
pension, stock, stock option, or restricted stock plan benefits, rights under
the Company’s Nonqualified Excess Plan effective January 1, 1997, rights under
the Company’s Deferred Compensation Plan effective July 1, 2005 or to Flegel’s
right to indemnification under applicable law and the Company’s articles and
bylaws for claims brought against him arising out of his service as an officer
of the Company and its subsidiaries and affiliates.

b.             Older Worker’s Benefit
Protection Act.

Flegel agrees and expressly acknowledges that this
Agreement includes a waiver and release of all claims which he has or may have
under the Age Discrimination in Employment Act of 1967, as amended, 29
U.S.C. § 621, et  seq. (“ADEA”).  The following terms and conditions apply to
and are part of the waiver and release of the ADEA claims under this Agreement:

                                (1)           This paragraph and this Agreement are
written in a manner calculated to be understood by him.

 

                                (2)           The waiver and release of claims
under the ADEA contained in this Agreement does not cover rights or claims that
may arise after the date on which he signs this Agreement.

 

                                (3)           This Agreement provides for
consideration in addition to anything of value to which he is already entitled.

 

                                (4)           Flegel has been advised to consult an
attorney before signing this Agreement.

 

 

                                                                                                (5)           Flegel
has been granted twenty-one (21) days after he is presented with this Agreement
to decide whether or not to sign this Agreement.  If he executes this Agreement prior to the
expiration of such period, he does so voluntarily and after having had the
opportunity to consult with an attorney, and hereby waives the remainder of the
twenty-one (21) day period.

 

                                                                                                (6)           Flegel
has the right to revoke this general release within seven (7) days of
signing this Agreement.  In the event
this general release is revoked, this Agreement will be null and void in its
entirety.

 

If he wishes to revoke this agreement, Flegel shall
deliver written notice stating his intent to revoke this Agreement to the
Supervisor on or before 5:00 p.m. on the seventh (7th) day after the
date on which he signs this Agreement.

c.             No Assignment.  Flegel represents and warrants to the Company
Releasees that there has been no assignment or other transfer of any interest
in any Claim that Flegel may have against the Company Releasees, or any of
them.  Flegel agrees to indemnify and
hold harmless the Company Releasees from any liability, claims, demands,
damages, costs, expenses and attorneys’ fees incurred as a result of any person
asserting such assignment or transfer of any right or claims under any such
assignment or transfer from Flegel.

d.             No Actions.  Flegel represents and warrants that he is not
presently aware of any injury for which he may be eligible for workers’
compensation benefits.  Flegel agrees
that if Flegel hereafter commences, joins in, or in any manner seeks relief
through any suit arising out of, based upon, or relating to any of the Claims
released hereunder or in any manner asserts against the Company Releasees any
of the Claims released hereunder, then Flegel will pay to the Company Releasees
against whom such claim(s) is asserted, in addition to any other damages caused
thereby, all attorneys’ fees incurred by such Company Releasees in defending or
otherwise responding to said suit or Claim. 
Provided, however, that Flegel shall not be obligated to pay the Company
Releasees’ attorneys’ fees to the extent such fees are attributable to claims
under the Age Discrimination in Employment Act or a challenge to the validity
of the release of claims under the Age Discrimination in Employment Act.  Notwithstanding the foregoing, Flegel does
not limit, waive or release any (and specifically reserves) all rights and
remedies, in law and in equity, to enforce the terms of this Agreement.

6.                  No Admission.  Flegel and the Company further understand and
agree that neither the payment of money nor the execution of this Release shall
constitute or be construed as an admission of any liability whatsoever by
Flegel or the Company Releasees.  The
Company further agrees that Flegel’s performance of his duties and
responsibilities was at all times satisfactory and in accordance with the
Employment Agreement.

7.                  Severability.  The provisions of this Agreement are
severable, and if any part of this Agreement is found to be unenforceable, the
other paragraphs (or portions thereof) shall remain fully valid and
enforceable.

 

8.                  Confidentiality.  The terms of this Agreement are to be kept
confidential by Flegel and the Company. 
Notwithstanding the foregoing, nothing shall prevent or restrict Flegel
from disclosing the terms of this Agreement to (i) immediate family and/or professionals
who advise Flegel with respect to financial or legal matters after Flegel has
obtained such persons’ agreement to respect the confidentiality provisions
herein, (ii) local, state or federal tax authorities, and/or (iii) as required
by applicable law.  The Parties
acknowledge, however, that the Company may have an obligation to disclose this
Agreement, or the terms thereof, by law and/or rule or regulation of the SEC
and/or NASDAQ and, as such, the Agreement, or the terms thereof, may not, in
fact, be kept confidential by the Company. 
Accordingly, to the extent the Company is obligated to disclose this
Agreement, or the terms thereof, Flegel shall be permitted to disclose the same
information.

9.                  No
Disparagement/Professional Conduct. 
Flegel further agrees not to disparage the Company, its products or any
Company Releasees.  Company further
agrees, as a condition to Flegel’s execution of this Agreement, not to
disparage Flegel.

10.                Protection of Confidential
Information and Property.

a.             Flegel acknowledges that, except
for information that from time to time has been properly disclosed by the
Company in public filings and announcements and commercial dealings, the
Company has or may have a legitimate need for and/or interest in protecting the
confidentiality of all information and data pertaining to the business and
affairs of the Company and its subsidiaries, including without limitation
information and data relating to (i) manufacturing operations and costs, (ii)
distribution and servicing methods and costs, (iii) merchandising techniques,
(iv) sales and promotional methods, (v) customer, vendor and personnel
relationships and arrangements, (vi) research and development projects, (vii)
information and data processing technologies, and (viii) strategic and tactical
plans and initiatives (all such information and data, other than that which has
been properly disclosed as aforesaid, being hereinafter referred to as “Confidential
Information”).

b.             Flegel acknowledges that, in the
course of his employment and consultancy, (i) he has participated and/or will
participate in the development of Confidential Information, (ii) he has been
and/or will be involved in the use and application of Confidential Information
for corporate purposes, and (iii) he otherwise has been and/or will be given
access to and entrusted with Confidential Information for corporate purposes.

c.             Flegel agrees that, during the
Term, he shall possess and use the Confidential Information solely and
exclusively to protect and advance the interests of the Company and the Company’s
controlled subsidiaries; and that at all times thereafter, he (i) shall
continue to treat the Confidential Information as proprietary to the Company,
and (ii) shall not make use of, or divulge to any third party, all or any part
of the Confidential Information unless and except to the extent so authorized
in writing by the Company or required by judicial, legislative or regulatory
process.  Flegel may use Confidential
Information in connection with the business opportunities described in Schedule
A, unless the Company notifies Flegel in writing that such use is prohibited.

 

d.             Flegel acknowledges that during his
employment he created and/or was furnished with, and during the Term, he will
create and/or be furnished with (i) materials that embody or contain
Confidential Information (in written and electronic form) and (ii) other
tangible items that are the property of the Company and its subsidiaries.  Flegel agrees that, upon expiration, or other
termination of the Term, or sooner if the Company so requests, he shall
promptly deliver to the Company all such materials and other tangible items so
created and/or furnished, including without limitation drawings, blueprints,
sketches, manuals, letters, notes, notebooks, reports, lists of customers and
vendors, personnel lists, computer disks and printouts, computer hardware and
printers, and that he shall not retain any originals or copies of such
materials, or any of such tangible items, unless and except to the extent so authorized
in writing by the Company.

e.             Flegel agrees to inform all
prospective employers and consulting clients of the content of this Section 10
and of Section 11 of this Agreement prior to his acceptance of employment and
consulting engagements.

11.                Restrictions against
Competition and Solicitation.

a.             Flegel agrees that, during the Term
and the Restricted Period (defined in Section 11(b)(1) below), he shall not in
any way, directly or indirectly, manage, operate, control, accept employment or
a consulting position with or otherwise advise or assist or be connected with,
or own or have any financial interest in, any Competitive Enterprise (defined
in Section 11(b)(2) below).

b.             For purposes of this Section 11:

                                                                (1)           “Restricted Period” means the twenty
four (24) month period beginning on May 1, 2008;

                                                                (2)           “Competitive Enterprise” means any
person or business organization engaged, directly or indirectly, in the
business of (i) designing, manufacturing and marketing front-end fixtures,
shelving and other display equipment and accessories for use by retail stores;
(ii) distribution and fulfillment of magazines, books, pre-recorded music and
video and video games, (iii) rendering third party billing and collection
services with respect to claims for manufacturer rebates and incentive payments
payable to retailers respecting the sale of magazines, periodicals, confections
and general merchandise, and/or (iv) providing sales and marketing data
and analyses to retailers and vendors of products distributed by the Company.

 

It is understood and agreed
that Flegel shall not be deemed to violate the provisions of this Section 11
solely by virtue of his performance of the duties described in Section 2.d. of
this Agreement during the Term.

c.             Without limitation of the Company’s
rights and remedies under this Agreement or as otherwise provided by law or in
equity, it is understood and agreed between the parties that the right of
Flegel to receive any future payments otherwise due under this Agreement shall
be suspended and canceled if and for so long as he is in violation of the 

 

foregoing
covenant not to compete, except the Company shall remain obligated to pay any
Earned but Unpaid Termination Fee as set forth in Section 1, any Earned but
Unpaid Compensation as set forth in Section 2(e), and any un-reimbursed
expenses incurred during the Term as set forth in Section 2(h).

d.             Flegel agrees further that, during
the Term and the Restricted Period, he will not, directly or indirectly, either
for himself or on behalf of any other person or entity, employ or attempt to
employ or solicit the employment or services of any person who is at that time,
or has been within six (6) months immediately prior thereto, employed by the
Company or any subsidiary of the Company.

12.                Injunctive Relief and Costs.

a.             Flegel acknowledges that any
violation of the provisions of Sections 10 and 11 of this Agreement may cause
substantial and irreparable harm to the Company and its subsidiaries (and their
constituencies), and that the nature and magnitude of the harm may be difficult
or impossible to measure precisely or to compensate adequately with monetary
damages.

b.             Flegel agrees that the Company
shall have the right to enforce his performance of and compliance with any and
all provisions of Sections 10 and 11 by seeking a restraining order and/or an
order of specific performance and/or other injunctive relief against Flegel
from a Florida court of competent jurisdiction, at any time or from time to
time, if it appears that Flegel has violated or is about to violate any such
provision.

c.             The provisions of this Section 12
are in addition to, and not in lieu of, any other rights and remedies that may
be available to the Company for breach of any portion of this Agreement.

13.                Choice of Law.  The Parties acknowledge and agree that this
Agreement shall be interpreted in accordance with Florida law without regard to conflict of laws principles.  All disputes arising under or relating to
this Agreement or the breach of this Agreement shall be brought exclusively in
the federal or state courts of Florida, only if such disputes are not subject
to arbitration under Section 19 of this Agreement.

14.                Compliance With Company
Policies.  Flegel acknowledges that
he has received and read and understands the intent and purposes of the Company’s
Code of Business Conduct and Ethics. 
Flegel shall comply with all lawful rules and policies of the Company,
as in effect from time to time.

15.                Successors and Assigns.  This Agreement shall be binding upon, and
shall inure to the benefit of, Flegel and the Company and their respective
heirs, legal representatives, successors and assigns.

16.                Effect of Business
Combination Transactions.  In the
event of the merger or consolidation of the Company with any unrelated
corporation or corporations, or of 

 

the sale by the Company of a major
portion of its assets or of its business and good will, to an unrelated third
party, this Agreement shall remain in effect and be assigned and transferred to
the Company’s successor in interest as an asset of the Company, and the Company
shall cause such assignee to assume the Company’s obligations hereunder.

17.                Sole and Entire Agreement.  This Agreement (including the schedules
hereto) represents the sole and entire agreement among the Parties and
supersedes all prior agreements (including the Employment Agreement),
negotiations, and discussions between the Parties hereto and/or their
respective counsel.  Any agreement
amending or superseding this Agreement must be in writing, signed by duly authorized
representatives of the Parties, specifically reference this Agreement; and
state the intent of the Parties to amend or supersede this Agreement.

18.                Arbitration.  Except as provided in Section 12 regarding
the Company’s right to seek an injunction, the Parties hereby agree to submit
any claim or dispute arising out of or relating to the terms of this Agreement,
as to Flegel’s employment, or as to the termination of Flegel’s employment to
private and confidential arbitration by a single neutral arbitrator.  Subject to the terms of this Section, the
arbitration proceedings shall be governed by the rules of AAA applicable to
employment disputes as they may be in effect from time to time, and shall take
place in Miami, Florida.  The arbitrator
shall be appointed by agreement of the Parties hereto or, if no agreement can
be reached, by AAA pursuant to its rules. 
The decision of the arbitrator shall be rendered in writing and be final
and binding on all Parties to this Agreement, and judgment thereon may be
entered in any court having jurisdiction. 
The arbitrator’s fees and/or any other fees payable to AAA shall be
shared in accordance with the rules of AAA. 
The Parties shall each bear their own attorneys’ fees, witness expenses,
expert fees and other costs, except to the extent they may be awarded otherwise
by the arbitrator in accordance with applicable law.  This arbitration procedure is intended to be
the sole and exclusive method of resolving any claim between the Parties, and
each of the Parties hereby waives any right to a jury trial with respect to
such claims.

19.                Headings.  The headings in this Agreement are provided
solely for the Parties’ convenience, and are not intended to be part of, nor to
affect or alter the interpretation or meaning of this Agreement.

20.                Construction of Agreement.  Both Parties have been represented by, or had
the opportunity to be represented by counsel in connection with this
Agreement.  Any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.

21.                Counterparts.  For the convenience of the Parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.

 

Date: 10.27.07

	
   

  	
  SOURCE INTERLINK
  COMPANIES, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Wm D. Bailey

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Its:

  	
  CAO

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  FLEGEL

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: 10.30.07

  	
  /s/ Jason Flegel

  	
   

  
	
   

  	
  Jason Flegel

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