Document:

Exhibit 10.40

 

EMPLOYMENT AGREEMENT

 

	
  THIS EMPLOYMENT AGREEMENT is entered into
  as of the 17th
  day of April, 2008, by and between SEALY CORPORATION,
  a Delaware corporation (the “Company”), and the Employee (as defined below).

  
	
   

  	
   

  	
   

  
	
  W I T N E S S E T H:

  
	
   

  	
   

  	
   

  
	
  WHEREAS, the Company and the Employee
  (collectively “the Parties”) desire to enter into this Employment Agreement
  (the “Agreement”) as hereinafter set forth;

  
	
   

  	
   

  	
   

  
	
  NOW, THEREFORE, the Company and Employee
  agree as follows:

  
	
   

  	
   

  	
   

  
	
   

  	
  1.

  	
  MAJOR DEFINED TERMS.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  “Annual Base
  Salary” shall be Two
  Hundred Forty Thousand dollars ($240,000), subject to annual
  review by the Human Resources Committee of the Board and may during the
  Employment Term be increased, but not decreased, to the extent, if any, that
  said Committee may determine.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  “Cause”
  shall be as defined in Subsection 4(b) below.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  “Good
  Reason” shall be as defined in Subsection 4(g) below.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
  “Employee”
  shall mean Louis Bachicha.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  “Employee
  Address” is:

  	
  One Office Parkway

  
	
   

  	
   

  	
  Trinity, North Carolina 27370.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)

  	
  “Employment
  Term” shall:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  be for an initial one (1) year term commencing on the date of
  this Agreement, which term shall automatically be extended one calendar day
  for each calendar day that the Employee is employed by the Company after the
  date of this Agreement so that the remaining Employment Term shall always be
  one (1) year;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  provided that the Employment Term, as provided in Section 4
  hereof, may be terminated prior to the date specified above in this
  Subsection 1(f).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (g)

  	
  “Position”
  shall mean: Executive
  Vice President Sales.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (h)

  	
  “Target
  Annual Bonus Percentage” shall be thirty-five percent (35%)
  of Employee’s Annual Base Salary with a range of zero percent (0%) to seventy percent (70%) of Annual Base
  Salary.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  POSITION, DUTIES, AND RESPONSIBILITIES.
  Subject to the conditions set forth herein, at all times during the 

  
	
  Employment Term, the Employee shall:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  Hold the Position reporting to the Chief Executive Officer, President
  or Chief Operating Officer of the Company (the “Chief Executive Officer”) or
  a corporate officer who reports directly to the Chief Executive Officer;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  Have those duties and responsibilities, and the authority, customarily
  possessed by the Position at comparable size corporations and such additional
  duties as may be assigned to the Employee from time to time by the Board of
  Directors of the Company (the “Board”) or the Chief Executive Officer which
  are consistent with the Position at a major corporation;

  
								

 

1

 

	
   

  	
   

  	
  (c)

  	
  Adhere to such reasonable written policies and directives, and such
  reasonable unwritten policies and directives as are of common knowledge to
  executive officers of the Company, as may be promulgated from time to time by
  the Board or the Chief Executive Officer and which are applicable to
  executive officers of the Company;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Invest in the Company only in accordance with any insider trading
  policy of the Company in effect at the time of the investment; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  Devote the Employee’s entire business time,
  energy, and talent to the business, and to the furtherance of the purposes
  and objectives, of the Company, and neither directly nor indirectly act as an
  employee of or render any business, commercial, or professional services to
  any other person, firm or organization for compensation, without the prior
  written approval of the Board or the Chief Executive Officer.

  
	
   

  	
   

  	
   

  	
   

  
	
  Nothing in this Agreement shall preclude the Employee from devoting
  reasonable periods of time to charitable and community activities or the
  management of the Employee’s investment assets, provided such activities do
  not interfere with the performance by the Employee of the Employee’s duties
  hereunder.

  

 

                 3.          SALARY,
BONUS AND BENEFITS. For services rendered by the Employee on behalf of the
Company during the Employment Term, the following salary, bonus and benefits
shall be provided to the Employee by the Company:

 

	
   

  	
   

  	
  (a)

  	
  The Company shall pay to the Employee, in equal installments,
  according to the Company’s then current practice for paying its executive
  officers in effect from time to time during the Employment Term, the Annual
  Base Salary.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  The Employee shall participate in the Sealy Corporation Annual Bonus
  Plan (the “Bonus Plan”) in accordance with the provisions of that Plan as in
  effect as of the date of this Agreement based on the Target Annual Bonus
  Percentage.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  The Employee shall be eligible for participation in such other
  benefit plans, including, but not limited to, the Company’s Profit Sharing
  Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan,
  Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan,
  Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit
  Sharing Plan and the 1998 Stock Option Plan, as the Board may adopt from time
  to time and in which the Company’s executive officers are eligible to
  participate. Such participation shall be subject to the terms and conditions
  set forth in the applicable plan documents. As is more fully set forth in
  Section 6 hereof, the Employee shall not be entitled to duplicative
  payments under this Agreement and the Executive Severance Benefit Plan.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Without limiting the generality of Subsection 3(c) above, for so
  long as such coverage shall be available to the executive officers of the
  Company, the Employee shall be eligible to participate in the Company’s Group
  Term Life Insurance Plan with a death benefit to be provided at the level of
  one and one half (1 1⁄2) times annual base salary at Company expense, plus
  extended coverage with a death benefit to be provided of at least the level
  in effect on the date of this Agreement for the Employee under such Plan at
  the Employee’s discretion and expense.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  The Employee shall be entitled to take, during each calendar year
  period during the Employment Term, vacation time equal to four (4) weeks
  per year.

  

 

2

 

	
   

  	
   

  	
  (f)

  	
  In addition, the Parties do hereby further confirm that any shares of
  Class A Common Stock of the Company (“Class A Shares”), and any
  options to purchase additional Class A Shares previously granted to
  Employee are in addition to, and not in lieu of, any shares or options which
  may be granted under any other plan or arrangement of the Company after the
  date of this Agreement, and (b) the various stock agreements and stock
  option agreements, and any related Stockholder Agreement (the “Stockholder
  Agreement”) between the Parties (such agreements being hereinafter referred
  to collectively as the “Pre-existing Agreements”), all remain in full force
  and effect except as otherwise provided herein.  Notwithstanding the foregoing, to the
  extent that any provision contained herein is inconsistent with the terms of
  any of the Pre-existing Agreements, the terms of this Agreement shall be
  controlling.

  

 

                 4.          TERMINATION
OF EMPLOYMENT.  As indicated in
Subsection 1(b)(ii), the Employment Term may terminate prior to the date
specified in Subsection 1(b)(i) as follows:

 

	
   

  	
   

  	
  (a)

  	
  The Employee’s employment hereunder will terminate without further
  notice upon the death of the Employee.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  The Company may terminate the Employee’s employment hereunder
  effective immediately upon giving written notice of such termination for
  “Cause”. For these purposes, “Cause” shall mean the following:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  Commission by the Employee (evidenced by a conviction or written,
  voluntary and freely given confession) of a criminal act constituting a
  felony;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  Commission by the Employee of a material breach or material default
  of any of the Employee’s agreements or obligations under any provision of
  this Agreement, including, without limitation, the Employee’s agreements and
  obligations under Subsections 2(a) through 2(e) and Sections 8
  and 9 of this Agreement, which is not cured in all material respects within
  thirty (30) days after the Chief Executive Officer or the designee thereof gives
  written notice thereof to the Employee; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
  Commission by the Employee, when carrying out the Employee’s duties
  under this Agreement, of acts or the omission of any act, which both:
  (A) constitutes gross negligence or willful misconduct and
  (B) results in material economic harm to the Company or has a materially
  adverse effect on the Company’s operations, properties or business
  relationships.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  The Employee’s employment hereunder may be terminated by the Company
  upon the Employee’s disability, if the Employee is prevented from performing
  the Employee’s duties hereunder by reason of physical or mental incapacity
  for a period of one hundred eighty (180) consecutive days in any period of
  two consecutive fiscal years of the Company, but the Employee shall be
  entitled to full compensation and benefits hereunder until the close of such
  one hundred and eighty (180) day period.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
  The Company may terminate the Employee’s employment hereunder without
  Cause at any time upon thirty (30) days written notice.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  The Employee may terminate employment hereunder effective immediately
  upon giving written notice of such termination for “Good Reason”, as defined
  in Subsection 4(g) below.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)

  	
  The Employee may terminate employment hereunder without Good Reason
  at any time upon thirty (30) days written notice.

  

 

3

 

	
   

  	
   

  	
  (g)

  	
  For purposes of this Agreement, “Good Reason” means the occurrence of
  (i) any reduction in either the annual base salary of the Employee or
  the Target Annual Bonus Percentage or maximum annual bonus percentage
  applicable to the Employee under the Bonus Plan, (ii) any material
  reduction in the position, authority or office of the Employee,
  (iii) any material reduction in the Employee’s responsibilities or
  duties for the Company, (iv) any material adverse change or reduction in
  the aggregate “Minimum Benefits,” as hereinafter defined, provided to the
  Employee as of the date of this Agreement (provided that any material reduction
  in such aggregate Minimum Benefits that is required by law or applies
  generally to all employees of the Company shall not constitute “Good Reason”
  as defined hereunder), (v) any relocation of the Employee’s principal
  place of work with the Company to a place more than twenty-five (25) miles
  from the geographical center of Greensboro, North Carolina, or (vi) the
  material breach or material default by the Company of any of its agreements
  or obligations under any provision of this Agreement. As used in this Subsection
  4(g), an “adverse change or material reduction” in the aggregate Minimum
  Benefits shall be deemed to result from any reduction or any series of
  reductions which, in the aggregate, exceeds five percent (5%) of the value of
  such aggregate Minimum Benefits determined as of the date of this Agreement.
  As used in this Subsection 4(g), Minimum Benefits are life insurance,
  accidental death, long term disability, short term disability, medical,
  dental, and vision benefits and the Company’s expense reimbursement policy
  The Employee within ninety (90) days of obtaining notice of Good Reason shall
  give written notice to the Company on or before the date of termination of
  employment for Good Reason stating that the Employee is terminating
  employment with the Company and specifying in detail the reasons for such
  termination. If the Company does not object to such notice by notifying the
  Employee in writing within five (5) days following the date of the
  Company’s receipt of the Employee’s notice of termination, the Company shall
  be deemed to have agreed that such termination was for Good Reason. The
  parties agree that “Good Reason” will not be deemed to have occurred merely
  because the Company becomes a subsidiary or division of another entity
  provided the Employee continues to serve in the position set forth in
  Section 2 above of such subsidiary or division and such subsidiary or
  division is comparable in size to the organization consisting of the Company
  and its subsidiaries. The parties further agree that “Good Reason” will be
  deemed to have occurred if the purchaser, in connection with the sale or
  transfer of all or substantially all of the assets of the Company, does not
  assume this Agreement in accordance with Section 11 hereof. If the
  Employee does not give a written termination notice to the Company within
  ninty (90) days of the Employee obtaining notice of such Good Reason, then
  such Good Reason shall no longer provide a basis for the employee’s
  termination of employment with the Company.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5.

  	
  SEVERANCE COMPENSATION. If the Employee’s
  employment is terminated, the following severance provisions will apply:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  If the Employee’s employment is terminated by the Company other than
  for Cause or is terminated by the Employee for Good Reason, then, through the
  remaining Employment Term as specified in Subsection 1(f) hereof, (such
  remaining Employment Term is hereinafter referred to as the “Payment Term”)
  the Company shall:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  continue to pay the Employee’s annual base salary in the then prevailing
  amount and at the times specified in Subsection 3(a) hereof, or if such
  annual base salary has decreased during the one year period ending on the
  Employee’s termination of employment, at the highest rate in effect during
  such one year period;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  continue the Employee’s participation in the Bonus Plan as provided
  in Subsection 3(b) hereof provided that the Company will:

  

 

4

 

	
   

  	
   

  	
   

  	
   

  	
  (A)

  	
  pay the Employee a prorated bonus under the Bonus Plan for the partial
  year period ending on the date of the Employee’s termination of employment
  calculated as if the Employee had continued to be employed for the entire
  year except that the Employee’s bonus percentage (calculated at the time and
  in the manner customary as of the date of this Agreement, but disregarding
  the termination of employment of the Employee) shall be applied to the
  Employee’s annual base salary payable in accordance with Subsection 3(a) hereof
  for the partial year period ending on the Employee’s termination of
  employment; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (B)

  	
  thereafter, during the remainder of the Payment Term, a bonus equal
  to the Employee’s Target Annual Bonus Percentage, multiplied by the
  Employee’s annual base salary in the amount specified in Subsection 5(a)(i) payable
  during the year (or portion thereof) for which the bonus is being calculated;
  with such amounts being payable when bonuses under the Bonus Plan are
  customarily payable, except that the final bonus shall be payable with the
  final payment of the annual base salary under Subsection 5(a)(i) hereof;

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
  continue in effect the medical and dental coverage, and any life
  insurance protection (including life insurance protection being paid for by
  the Employee), being provided to the Employee immediately prior to the
  Employee’s termination of employment, or if any of such benefits have
  decreased during the one year period ending on the Employee’s termination of
  employment, at the highest level in effect during such one year period, as
  long as the Employee continues to make the applicable employee contributions
  in effect during the Payment Term based on the most senior level contribution
  rate; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iv)

  	
  pay for executive outplacement services for the Employee from a
  nationally recognized executive outplacement firm at the level provided for
  vice-presidents of comparable size corporations, provided that such
  outplacement services will be provided for a one year period commencing on
  the date of termination of employment regardless of the Payment Term.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  If the Employee’s employment hereunder
  terminates due to the Employee’s death, disability, termination by the
  Company for Cause or termination by the Employee other than for Good Reason,
  then no further compensation or benefits will be provided to the Employee by
  the Company under this Agreement following the date of such termination of
  employment other than payment of compensation earned to the date of
  termination of employment but not yet paid. As more fully and generally
  provided in Section 15 hereof, this Subsection 5(b) shall not be
  interpreted to deny the Employee any benefits to which he may be entitled
  under any plan or arrangement of the Company applicable to the Employee.
  Likewise, this Subsection 5(b) shall not be interpreted to entitle the
  Employee to a bonus under the Bonus Plan following his termination of
  employment except as provided in the Bonus Plan which requires employment on
  the last day of the Company’s taxable year as a condition to receipt of a
  bonus thereunder for such year except in the cases of death, disability or
  retirement at or after either age 62 with ten years of service with the
  Company or age 65.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  Notwithstanding anything contained in this Agreement to the contrary,
  other than Section 15 hereof, if the Employee breaches any of the
  Employee’s obligations under Section 8 or 9 hereof, no further severance
  payments or other benefits will be payable to the Employee under this
  Section 5.

  

 

5

 

6.             SEVERANCE PLAN.  It is the intention of the Parties that this
Agreement provide special benefits to the Employee.  If at any time the Company’s Executive
Severance Benefit Plan would provide better cash severance benefits to the
Employee than this Agreement, the Employee may elect to receive such better
cash severance benefits in lieu of the cash severance benefits provided under
Subsections 5(a)(i) and 5(a)(ii) this Agreement, while
continuing to receive any other benefits or coverages available under this Agreement.  If this Agreement would provide better cash
severance benefits to the Employee than the Company’s Executive Severance
Benefit Plan, the Employee shall receive the cash severance benefits under this
Agreement, as well as any other benefits or coverages available under this
Agreement.  In such case, the cash
severance benefits under this Agreement shall be in lieu of the cash severance
benefits payable under the Company’s Executive Severance Benefit Plan.

 

7.             PLAN AMENDMENTS.  To the extent any provisions of this
Agreement modify the terms of any existing plan, policy or arrangement
affecting the compensation or benefits of the Employee, as appropriate, (a) such
modification as set forth herein shall be deemed an amendment to such plan,
policy or arrangement as to the Employee, and both the Company and the Employee
hereby consent to such amendment, (b) the Company will appropriately
modify such plan, policy or arrangement to correspond to this Agreement with
respect to the Employee, or (c) the Company will provide an “Alternative
Benefit,” as defined in Section 13 hereof, to or on behalf of the Employee
in accordance with the provisions of such Section 13.

 

8.             CONFIDENTIAL INFORMATION.  The Employee agrees that the Employee will
not, during the Employment Term or at any time thereafter, either directly or
indirectly, disclose or make known to any other person, firm, or corporation
any confidential information, trade secret or proprietary information of the
Company that the Employee may acquire in the performance of the Employee’s
duties hereunder (except in good faith in the ordinary course of business for
the Company to a person who will be advised by the Employee to keep such
information confidential) or make use of any of such confidential information except
in the performance of the Employee’s duties or when required to do so by legal
process, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body (including
a committee thereof) that requires the Employee to divulge, disclose or make
accessible such information.  In the
event that the Employee is so ordered, the Employee shall so advise the Company
in order to allow the Company the opportunity to object to or otherwise resist such
order.  Upon the termination of the
Employee’s employment with the Company, the Employee agrees to deliver
forthwith to the Company any and all proprietary literature, documents,
correspondence, and other proprietary materials and records furnished to or
acquired by the Employee during the course of such employment. In the event of
a breach or threatened breach of this Section 8 by the Employee, the
Company will be entitled to preliminary and permanent injunctive relief,
without bond or security, sufficient to enforce the provisions hereof and the
Company will be entitled to pursue such other remedies at law or in equity
which it deems appropriate.

 

9.             NON-COMPETITION.   In consideration of this Agreement, the
Employee agrees that, during the Employment Term, and for one year thereafter,
the Employee shall not act as a proprietor, investor, director, officer,
employee, substantial stockholder, consultant, or partner in any mattress
retailer which does not sell Sealy products or with any of the following mattress
manufacturing companies or their affiliates: Simmons, Serta, Spring Air,
Kingsdown, Tempurpedic, and Select Comfort. The Employee understands that the
foregoing restrictions may limit the Employee’s ability to engage in certain
business pursuits during the period provided for above, but acknowledges that
the Employee will receive sufficiently higher remuneration and other benefits
from the Company hereunder than the Employee would otherwise receive to justify
such restriction.  The Employee acknowledges
that the Employee understands the effect of the provisions of this Section 9,
and that the Employee has had reasonable time to consider the effect of these
provisions, and that the Employee was encouraged to and had an opportunity to
consult an attorney with respect to these provisions.  The Company and the Employee consider the
restrictions contained in this Section 9 to be reasonable and
necessary.  Nevertheless, if any aspect
of these restrictions is found to be unreasonable or otherwise unenforceable by
a court of competent jurisdiction, the Parties intend for such restrictions to
be modified by such court so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.  
In the event of a breach or threatened breach of this Section 9 by
the Employee, the Company will be entitled to preliminary and permanent
injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and the Company will be entitled to pursue such other
remedies at law or in equity which it deems appropriate.

 

6

 

10.           NOTICES.  For purposes of this Agreement, all
communications provided for herein shall be in writing and shall be deemed to
have been duly given when hand delivered or mailed by United States registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

 

	
   

  	
  (a)

  	
  If the
  notice is to the Company:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
  Sealy
  Corporation

  
	
   

  	
   

  	
  One Office
  Parkway

  
	
   

  	
   

  	
  Trinity,
  North Carolina 27370

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy
  to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Mr. Kenneth
  L. Walker

  
	
   

  	
   

  	
  Senior Vice
  President, General Counsel & Secretary

  
	
   

  	
   

  	
  Sealy
  Corporation

  
	
   

  	
   

  	
  One Office
  Parkway

  
	
   

  	
   

  	
  Trinity, NC  27370

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  If the
  notice is to the Employee:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  At the
  Employee Address

  

 

or to such other address as either party may
have furnished to the other in writing and in accordance herewith; except that
notices of change of address shall be effective only upon receipt.

 

11.           ASSIGNMENT; BINDING EFFECT.  This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs (in the case of the Employee) and permitted assigns.  No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred in connection with the
sale or transfer of all or substantially all of the assets of the Company,
provided that the assignee or transferee is the successor to all or substantially
all of the assets of the Company and such assignee or transferee expressly
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law.  The Company further agrees that, in the event
of a sale or transfer of assets as described in the preceding sentence, it
shall be a condition precedent to the consummation of any such transaction that
the assignee or transferee expressly assumes the liabilities, obligations and
duties of the Company hereunder.  No
rights or obligations of the Employee under this Agreement may be assigned or
transferred by the Employee other than the Employee’s rights to compensation
and benefits, which may be transferred only by will or operation of law, except
as provided in this Section 11.

 

The Employee shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following the Employee’s death by giving the Company written notice
thereof.  In the absence of such a
selection, any compensation or benefit payable under this Agreement following
the death of the Employee shall be payable to the Employee’s spouse, or if such
spouse shall not survive the Employee, to the Employee’s estate.  In the event of the Employee’s death or a
judicial determination of his incompetence, reference in this Agreement to the
Employee shall be deemed, where appropriate, to refer to the Employee’s
beneficiary, estate or other legal representative.

 

12.           INVALID PROVISIONS.  Any provision of this Agreement that is
prohibited or unenforceable shall be ineffective to the extent, but only to the
extent, of such prohibition or unenforceability without invalidating the remaining
portions hereof and such remaining portions of this Agreement shall continue to
be in full force and effect.  In the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable, the Parties will negotiate in good faith to replace such
provision with another provision that will be valid or enforceable and that is
as close as practicable to the provisions held invalid or unenforceable.

 

7

 

13.           ALTERNATIVE SATISFACTION OF COMPANY’S
OBLIGATIONS.  In the event this
Agreement provides for payments or benefits to or on behalf of the Employee
which cannot be provided under the Company’s benefit plans, policies or
arrangements either because such plans, policies or arrangements no longer
exist or no longer provide such benefits or because provision of such benefits
to the Employee would adversely affect the tax qualified or tax advantaged
status of such plans, policies or arrangements for the Employee or other
participants therein, the Company may provide the Employee with an “Alternative
Benefit,” as defined in this Section 13, in lieu thereof.  The Alternative Benefit is a benefit or
payment which places the Employee and the Employee’s dependents in at least as
good of an economic position as if the benefit promised by this Agreement (a) were
provided exactly as called for by this Agreement, and (b) had the
favorable economic, tax and legal characteristics customary for plans, policies
or arrangements of that type. 
Furthermore, if such adverse consequence would affect the Employee or
the Employee’s dependents, the Employee shall have the right to require that
the Company provide such an Alternative Benefit.

 

14.           ENTIRE AGREEMENT, MODIFICATION.  Subject to the provisions of Section 15
hereof, this Agreement contains the entire agreement between the Parties with
respect to the employment of the Employee by the Company and supersedes all
prior and contemporaneous agreements, representations, and understandings of
the Parties, whether oral or written.  No
modification, amendment, or waiver of any of the provisions of this Agreement
shall be effective unless in writing, specifically referring hereto, and signed
by both Parties.

 

15.           NON-EXCLUSIVITY OF RIGHTS.  Notwithstanding the foregoing provisions of Section 14,
nothing in this Agreement shall prevent or limit the Employee’s continuing or
future participation in any benefit, bonus, incentive or other plan, program,
policy or practice provided by the Company for its executive officers, nor
shall anything herein limit or otherwise affect such rights as the Employee has
or may have under any stock option, restricted stock or other agreements with
the Company or any of its subsidiaries. 
Amounts which the Employee or the Employee’s dependents or beneficiaries
are otherwise entitled to receive under any such plan, policy, practice or
program shall not be reduced by this Agreement except as provided in Section 6
hereof with respect to payments under the Executive Severance Benefit Plan if
cash payments of annual base salary are made hereunder.

 

16.           WAIVER OF BREACH.  The failure at any time to enforce any of the
provisions of this Agreement or to require performance by the other party of
any of the provisions of this Agreement shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part of this Agreement or the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with the terms of this
Agreement.

 

17.           GOVERNING LAW.  This Agreement has been made in, and shall be
governed and construed in accordance with the laws of, the State of North
Carolina.  The Parties agree that this
Agreement is not an “employee benefit plan” or part of an “employee benefit
plan” which is subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended.

 

18.           TAX WITHHOLDING.  The Company may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.  Where withholding applies to Class A
Shares, the Company shall make cashless withholding available to the Employee.

 

19.           EXPENSE OF ENFORCEMENT.  The Company shall reimburse reasonable
attorney fees and expenses incurred by the Employee to enforce the provisions
of this Agreement, even if his claims are not successful, provided they are not
ultimately determined by the court to be frivolous.

 

20.           REPRESENTATION.  The Company represents and warrants that it
is fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.

 

21.           SUBSIDIARIES AND AFFILIATES.  Notwithstanding any contrary provision of
this Agreement, to the extent it does not adversely affect the Employee, the
Company may provide the compensation and benefits to which the Employee is
entitled hereunder through one or more subsidiaries or affiliates, including,
without limitation, Sealy, Inc.

 

8

 

22.           NO MITIGATION OR OFFSET.   In the event of any termination of
employment, the Employee shall be under no obligation to seek other employment.  Amounts due the Employee under this Agreement
shall not be offset by any remuneration attributable to any subsequent
employment he may obtain.

 

23.           SOLE REMEDY.  The Parties agree that the remedies of each
against the other for breach of this Agreement shall be limited to enforcement
of this Agreement and recovery of the amounts and remedies provided for
herein.  The Parties, however, further
agree that such limitation shall not prevent either Party from proceeding
against the other to recover for a claim other than under this Agreement.

 

IN WITNESS WHEREOF, the Company and the
Employee have executed this Agreement as of the day and year first above
written.

 

	
   

  	
  SEALY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Jeffrey C.
  Claypool

  
	
   

  	
  Jeffrey C.
  Claypool

  
	
   

  	
  Corporate
  Vice President Human Resources

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   “EMPLOYEE”

  
	
   

  	
   

  
	
   

  	
   Louis Bachicha

  
				

 

9Exhibit 10.1 

SUPPLY AGREEMENT 

This Supply Agreement (this
“Agreement”) is made and entered into as of May 30, 2007 (the
“Effective Date”), by and between  Perfect Circle Projectiles, LLC, an Illinois limited liability company,
 with offices at  28101 Ballard Drive, Unit C, Lake Forest, Illinois 60045
(“Seller”), and Security With Advanced Technology, Inc., a Colorado
corporation, with offices at 10855 Dover Street, Suite 1000, Westminster, Colorado
80021-3936 (“Buyer”). 

Recitals  

Whereas, Buyer wishes to
purchase from Seller, and Seller wishes to sell to Buyer, certain
quantities of spherical tactical projectiles, such sales and purchases to be implemented on the terms and
conditions set forth in this Agreement. 

Now, Therefore, Seller and
Buyer agree as follows: 

	1.	TERM;
TERMINATION 

	a) 	This
Agreement shall commence on the Effective Date and shall remain in force
               and effect (the “Term”) until the earlier of (i) the
fourth                anniversary of the Effective Date, (ii)  the
closing of Buyer’s acquisition of all or substantially all of Seller's assets necessary to manufacture
Product (as defined herein) (the “Acquisition”), and (iii) the earlier termination of
this Agreement                pursuant to Section 1.b).  

	b) 	Either
party may terminate this Agreement upon giving the other party notice of
               an event of default (“Event of Default”), which will
exist with                respect to a party if:  

	 	(i)  	a
decree or order is made by a court having jurisdiction over such party
               adjudging it to be a bankrupt under applicable law;  

	 	(ii)  	a
decree or order is made by a court having jurisdiction over such party
               appointing a receiver, or receiver-manager, who is not bound by the terms
of                this Agreement, or a liquidator or trustee or assignee in bankruptcy of
such                party or of its property, or directing the winding-up or liquidation
of its                affairs;  

	 	(iii)  	any
other decree or order has been made by a court of competent jurisdiction by
               which such party is deprived of the right to manage its undertakings and
has                remained in force undischarged and unstayed for 45 business days;  

	 	(iv)  	if
such party:  

	 	A.  	institutes
proceedings to be adjudicated a voluntary bankrupt; 

	 	B.  	consents
to                the filing of a bankruptcy proceeding against it;  

	 	C.  	consents
to the appointment of a receiver, liquidator or trustee or assignee in
               bankruptcy or insolvency of itself or its property; or  

	 	D.  	makes
an assignment for the benefit of creditors, or admits in writing its
               inability to pay its debts generally as they become due.  

          	 	(v) 	
               such party has committed a material default in the performance of its
               obligations under this Agreement, written notice has been given to such party
               specifying such default and declaring the intention of the other party to
               exercise its right to terminate this Agreement if the default is not duly
               remedied, and 

               

	 	A.  	more
than 15 business days have elapsed since the expiration of such period
               following the giving of such notice and such default remains unremedied,
or  

	 	B.  	in
case of a default that is not capable of being remedied, by the exercise of
               reasonable diligence within the period described in Section 1.(b.)(v)A.,
the                earlier of  

	 	I)  	the
day on which the party fails or refuses to act diligently to remedy the
               default, and  

	 	II)  	the
day on which it becomes evident to the other party, acting reasonably, that
               such default could not be remedied in a reasonably timely manner
regardless of                the actions to be taken by such party.  

	c) 	In
the event this Agreement is terminated by Buyer due to an Event of Default
               caused by Seller, the remaining Escrow Amount (as defined herein), if any,
shall                be returned to Buyer in accordance with the terms of the Escrow
Agreement (as                defined herein). In the event this Agreement is terminated
by Seller due to an                Event of Default caused by Buyer, the remaining Escrow
Amount (as defined                herein), if any, shall be paid to Seller as liquidated
damages in accordance                with the terms of the Escrow Agreement (as defined
herein).  

	2.	PRODUCTS 

The product covered by this Agreement
shall be .50 Caliber and .68 Caliber spherical projectiles filled with an inert powder or
PAVA powder to be provided by Buyer (“ Product ”). Parties agree that Buyer will
provide at their cost and responsibility, powder fills and packaging materials. 

Buyer shall maintain at least a 45
day supply of powder fills at Seller’s plant. Seller shall notify Buyer at least
monthly as to the quantity of fills in inventory at Seller’s plant. 

	3.	PRODUCT
QUANTITY FORECASTING; PRICING; EXCLUSIVE ARRANGEMENT 

	a) 	During
the Term, Seller agrees to sell to Buyer, and Buyer agrees to buy from
               Seller, Product upon the terms set forth in this Agreement.  

	b) 	During the Term, Buyer will provide Seller with purchase orders for Product six calendar months in
advance, with the initial six-month purchase orders and pricing of Product set forth on Exhibit A
attached hereto. The purchase orders shall be issued every 60 days, beginning 10 days from the Effective
Date. All purchase orders of Buyer shall be deemed to incorporate the terms of this Agreement. The
purchase orders issued by Buyer shall not modify or alter the terms of this Agreement or of the purchase
transaction without the written consent of Seller. Purchase orders also shall not be cancelled, revoked,
delayed or reduced by Buyer unless consented to in writing by Seller; provided, however, that all
unfilled purchase orders shall be cancelled on the date of termination of this Agreement pursuant to
Section 1(a). Purchase orders shall not exceed Seller's maximum stated capacity of 50,000 projectiles
per week, without Seller’s written consent. Seller's maximum stated capacity will be updated by Seller's
notice of change to Buyer.  

	c) 	
Buyer agrees that Seller shall be the sole supplier of Product to Buyer during the Term.
 If Seller fails
to                fulfill any purchase order within ninety (90) days of its requested
delivery                date, Seller shall be deemed to have materially breached this
Agreement (and                such default shall not be entitled to any cure period by
Seller under Section                1(b)).  

	4.  	DELIVERY;
TITLE  

Once Seller notifies Buyer that a shipment is ready, Buyer shall arrange for shipment, FOB Seller’s
location, and all shipping charges will go directly to Buyer The Products will be deemed shipped and
shall be invoiced by Seller at the time of such notification.
 Notice pursuant to this paragraph may be served by Seller via email or fax as
provided to in Exhibit C (or at such other email address as is provided by Buyer to Seller
from time to time) and not otherwise subject to the terms of paragraph 15. 

	5.  	TAXES  

Taxes, duties or other charges of any
nature imposed by any governmental authority that become payable by reason of a sale or
delivery of Product under this Agreement will be paid by Buyer. 

	6.	QUALITY;
WARRANTY 

	a) 	Seller
warrants that Product purchased hereunder  (other than Seller's fill material) shall conform to the
specifications set                forth on Exhibit B.  

	b) 	In
the event that 2% or more of any Product shipment received by Buyer at any
               time fails to conform to the specifications set forth on Exhibit B,
Buyer                shall promptly notify Seller and Seller shall replace or credit
Buyer for any                and all defective Product. If Seller fails to cure material
defects within 60                days of such notice, Seller shall be deemed to have
materially breached this                Agreement (and such default shall not be entitled
to any cure period by Seller                under Section 1.(b.)).  

	c) 	Notwithstanding
any provision of this Agreement to the contrary, the Seller                warranty
contained in Section 6(a) is the only warranty extended by Seller in
               connection with the Products and such warranty shall be extended to Buyer
only                and not to any successive buyers, users, third parties or employees
and is in                lieu of all other warranties, express or implied, including
warranties of                merchantability and fitness for a particular purpose.  

	7.	PAYMENT
TERMS; ESCROW 

	a) 	Within
three days of the Effective Date, Buyer shall deposit $1,000,000 in cash or in the
form of an                irrevocable letter of credit (the “Escrow Amount”)
into an                escrow account maintained by American National Bank, as escrow agent (“Escrow Agent”),
pursuant to an                Escrow Agreement in the form attached hereto as Exhibit C (the
               “Escrow Agreement”).  

	b)	         Payments
for Product purchased by Buyer shall be made as follows:  

	 	(i)  	50%
of the purchase price shall be paid to Buyer from the Escrow Amount upon
          shipment of such Product and the remaining 50% of the purchase price shall be
          paid on a net 30-day basis from the date of shipment.  

	 	(ii)  	Upon
the exhaustion of the Escrow Amount, Buyer shall then pay 100% of the           purchase
price on a net 30-day basis from the date of shipment, subject to Buyer
          maintaining a satisfactory credit profile. Credit terms may be withdrawn or
          revised, if in Seller’s reasonable discretion, Buyer is or becomes a
credit           risk.  

	c) 	
Upon termination of this Agreement at the Closing of the Acquisition, the remaining Escrow Amount, if
any, shall be paid to Seller and applied to the purchase price payable by Buyer to Seller in connection
with the Acquisition. In the event this
               Agreement is terminated upon the expiration of the Term, the remaining
Escrow                Amount, if any, shall be paid to Seller.  

	d) 	In
the event that amounts due to Seller are not paid when due, then the unpaid
               balance shall accrue interest at the rate of 1% per month until paid.
Invoices                of Seller for Products shall bear interest as provided above if
not paid within                30 days of the date of invoice which shall
 be the same date that Seller notifies Buyer that project is ready for shipment.  

	8.  	PERMITS
AND LICENSES  

Buyer will be solely responsible for
obtaining any permits and licenses and preparing any necessary paperwork for the export
and import of Product to Buyer’s location. 

	9.  	INDEMNITY  

Buyer will, at its expense, defend,
indemnify and hold Seller and its Affiliates (as defined below), employees and agents
harmless from any and all Loss incurred as a result of any claim or action by Pepper Ball
Technologies, Inc. (“Pepper Ball”) regarding (i) Buyer’s purchase of
Product from Seller, (ii) the Product’s infringement upon any patent, copyright,
trade secret, trademark, mask work right or other proprietary right of Pepper Ball, or
(iii) the infringement upon any patent, copyright, trade secret, trademark, mask work
right or other right of Pepper Ball resulting from Seller’s production of projectiles
for FN Herstal, S.A. “Affiliate” means any person or entity directly or
indirectly controlling, controlled by, or under direct or indirect common control with,
Seller. The term “control” (including, with correlative meanings, the terms
“controlling”, “controlled by”, and “under common control
with”) means the possession, directly or indirectly, of 10% or more of the ownership
interest, beneficial or otherwise of Seller or the power otherwise to direct or cause the
direction of the management and policies of Seller, whether through voting, by contract or
otherwise. All members of the board of managers and executive officers of Seller shall be
deemed to b Affiliates of Seller. 

Notwithstanding the foregoing, in the
event that Pepper Ball prevails in litigation against Seller regarding Seller’s
infringement upon any patent, copyright, trade secret, trademark, mask work right or other
right of Pepper Ball resulting from Seller’s production of projectiles for FN
Herstal, S.A; then in that event, Seller and not Buyer shall be responsible for any and
all damage awards payable to Pepper Ball in connection with the FN Herstal projectiles. 

“Loss” means any liability,
demand, claim, action, cause of action, cost, damage, deficiency, penalty, fine or other
loss or expense, including all interest, penalties, reasonable attorneys’ fees and
expenses and all amounts paid or incurred in connection with any action, demand,
proceeding, investigation or claim. “Loss” shall not include any indirect,
punitive or consequential damages, including, without limitation, lost profits. 

	10.  	INDEPENDENT
CONTRACTOR  

This Agreement shall not constitute
or give rise to a partnership, joint venture or other affiliation between the parties. All
activities of Seller under the terms of this Agreement shall be carried on by Seller as an
independent contractor and not as an agent for Buyer. Seller shall have no right to
obligate or bind Buyer in any manner, and Seller agrees not to make any representation to
any person to the contrary. 

	11.  	GOVERNING
LAW; JURISDICTION  

THIS AGREEMENT WILL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
(REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS THEREOF) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF
VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES. 

	12.  	NON-WAIVER  

The failure of either party to insist
in any one or more instances upon strict performance of any of the provisions of this
Agreement or to take advantage of any of its rights hereunder shall not be construed as a
waiver of any such provisions or the relinquishment of any such rights, but the same shall
continue and remain in full force and effect. 

	13.  	NO
THIRD PARTY BENEFICIARIES  

This Agreement is solely for the
benefit of Buyer, and its successors and permitted assigns, with respect to the
obligations of Seller under this Agreement, and for the benefit of Seller, and its
respective successors and permitted assigns, with respect to the obligations of Buyer
under this Agreement, and this Agreement shall not be deemed to confer upon or give to any
other third party any remedy, claim liability, reimbursement, cause of action or other
right. 

	14.  	ASSIGNMENT  

This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned, directly or
indirectly, including, without limitation, by operation of law, by any party hereto
without the prior written consent of the other party hereto, which consent shall not be
unreasonably withheld, except that, in any case, the assignee shall assume in writing the
obligations of the assigning party. 

	15.  	NOTICES  

All notices, requests, demands,
waivers and other communications required or permitted to be given under this Agreement
shall be in writing and may be given by any of the following methods: a) personal
delivery, or b) overnight delivery service. Notices shall be sent to the appropriate party
at its address given below (or at such other address for such party as shall be specified
by notice given hereunder): 

		
	If to Seller to:

If to Buyer to:

                  

                  

                  

                  

                  

                  

                  

                  

                  

                  

                  
	

Perfect Circle Projectiles, LLC

28101 Ballard Drive, Unit C

Lake Forest, Illinois 60045

Fax No.: (847) 367-8980

Attention: Gary E. Gibson

with a copy to:

Shadle & Associates, Ltd.

1019 W. Wise Road, Suite 200

Schaumburg, IL 60193

Fax No: (847) 891-3038

Attention: Ronald E. Shadle

Security With Advanced Technology, Inc.

10855 Dover Street, Suite 1000

Westminster, Colorado  80021-3936

Fax No.:  (303) 439-0414

Attention:  Jeffrey G. McGonegal

with a copy to:

Brownstein Hyatt Farber Schreck, P.C.

410 Seventeenth Street, Suite 2200

Denver, Colorado  80202

Fax No.: (303) 223-1111

Attention: Adam J. Agron

All such notices, requests, demands,
waivers and communications shall be deemed received i) in the case of personal delivery,
upon actual receipt thereof by the addressee, or ii) in the case of overnight delivery, on
the business day following delivery to the overnight delivery service. 

	16.  	CONFIDENTIAL
INFORMATION  

Except as provided below, all
information disclosed between the parties pursuant to, or relating to any provision of,
this Agreement, including information relating to third parties (including Buyer’s
customers), is deemed confidential (“Confidential Information”). A party
receiving Confidential Information (the “Receiving Party”) will not use
such information for any purpose other than for which it was disclosed and shall prevent
the disclosure to third parties of any and all Confidential Information provided that the
Receiving Party’s obligation hereunder shall not apply to information that: 

	a)	       is
already in the Receiving Party’s possession at the time of disclosure
          thereof;  

	b)	is
or subsequently becomes part of the public domain through no action of the
          Receiving Party;  

	c) 	is
subsequently received by the Receiving Party from a third party having no
               obligation of confidentiality to the party disclosing the confidential
               information;  

	d) 	is
disclosed to third parties as required by law; or  

	e) 	is
delivered to customers of Buyer’s business in the context of
               understanding the nature of the sale of the business; provided that, such
               communication to customers may not occur without the prior written consent
of                Seller.  

	17.	INSURANCE 

Buyer shall within 45 days of the
Effective Date of this Agreement or upon first shipment of the Products by Buyer to its
customers, (whichever shall first occur) obtain and maintain during the Term of this
Agreement and for six years thereafter, at its own expense, Products Liability/Completed
Operations insurance, to cover any product defect or liability, with a minimum and
aggregate limit of $2,000,000. Such insurance will carry a deductible not to exceed
$50,000. Buyer shall cause the insurance company issuing such policy to issue a
certificate to Seller which (i) confirms that such policies have been issued and are in
full force and effect providing coverage of Seller as required by this paragraph; (ii)
states the amount of the deductible for each such policy; and (iii) confirms that before
any cancellation or material change in coverage of any such policy, the insurance company
shall give Seller thirty (30) days prior written notice of such proposed cancellation or
material change. Such insurance company shall have a rating of at least [A-:IX],
as published by Best’s Insurance Reports. Buyer shall name Seller as an additional
insured under such insurance policies.  

	18.  	ENTIRE
AGREEMENT  

This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the parties or
any of them with respect to the subject matter hereof. This Agreement may not be amended
except by an instrument in writing signed on behalf of all the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. 

	19.  	SEVERABILITY  

Should any provision of this
Agreement for any reason be declared invalid or unenforceable, such decision shall not
affect the validity or enforceability of any of the other provisions of this Agreement,
which remaining provisions shall remain in full force and effect and the application of
such invalid or unenforceable provision to persons or circumstances other than those as to
which it is held invalid or unenforceable shall be valid and enforced to the fullest
extent permitted by law. 

	20.  	COUNTERPARTS  

This Agreement may be executed
simultaneously in counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument. 

	21.  	ARBITRATION  

     	a)	
          All disputes and controversies of every kind and nature between the parties
          hereto arising out of or in connection with this Agreement as to the existence,
          construction, validity, interpretation or meaning, performance, non-performance,
          enforcement, operation, breach, continuance, or termination thereof shall be
          submitted to arbitration pursuant to the following procedure: 

          

	 	(i)  	Either
party may demand arbitration after a controversy arises, which                arbitration
shall be submitted to, and conducted under the auspices of the                American
Arbitration Association, by a panel of three (3) Arbitrators (one of                whom
shall be selected by Seller, one of whom shall be selected by Buyer and the
               third shall be selected by mutual agreement of the arbitrators so
selected).  

	 	(ii)  	Each
party shall bear its own arbitration costs and expenses.  

	 	(iii)  	The
arbitration hearing shall be held in Chicago, Illinois, pursuant to the commercial arbitration rules and procedures of the
American Arbitration Association, which are incorporated by reference herein, and the laws of evidence of the State of Delaware shall
govern the                presentation of evidence therein.  

	 	(iv)  	An
award rendered by the arbitrator(s) appointed pursuant to this Agreement
               shall be final and binding on all parties to the proceeding, and judgment
on                such award may be entered by any court, state or federal, having
jurisdiction.  

     	b)	
          The parties stipulate that the provisions hereof shall be a complete defense to
          any suit, action, or proceeding in any court or before any administrative
          tribunal with respect to any controversy or dispute arising under this Agreement
          and which is arbitrable as herein set forth. The arbitration provisions hereof
          shall, with respect to such controversy or dispute, survive the termination or
          expiration of this Agreement. 

          

     	c)	
          Nothing herein contained shall be deemed to give the arbitrators any authority,
          power, or right to alter, change, amend, modify, add to, or subtract from any of
          the provisions of this Agreement. 

          

	 	d) 	The
arbitrators shall not be authorized to award punitive or consequential           damages
or attorneys’ fees. Nothing in this Section shall prohibit any           party
hereto from instituting litigation to enforce any final judgment, award or
          determination of the arbitration.  

*  *  *  *  

IN WITNESS WHEREOF, Seller and Buyer
have executed this Supply Agreement as of the Effective Date. 

		
		SELLER:

Perfect Circle Projectiles, LLC

By: /s/ Gary E. Gibson

Name: Gary E. Gibson

Title: Manager

BUYER:

Security With Advanced Technology, Inc.

By: /s/ Scott Sutton 

Name: Scott Sutton

Title: CEO and President 

        EXHIBIT A

         

        PRODUCT QUANTITY AND PRICE

         

        Initial forecasted purchase order quantities:

         

             A. .50 Caliber Products

         

        

        	
                    Month

                	
                    Live Rounds

                	 	
                    Inert Rounds

                
	 	
                    Quantity

                	
                    Price

                	 	
                    Quantity

                	
                    Price

                
	
                    May 2007

                	
                    20,000

                	
                    $6,000

                	 	
                    25,000

                	
                    $4,000

                
	
                    June 2007

                	
                    20,000

                	
                    $6,000

                	 	
                    25,000

                	
                    $4,000

                
	
                    July 2007

                	
                    25,000

                	
                    $7,500

                	 	
                    30,000

                	
                    $4,800

                
	
                    August 2007

                	
                    25,000

                	
                    $7,500

                	 	
                    30,000

                	
                    $4,800

                
	
                    September 2007

                	
                    30,000

                	
                    $9,000

                	 	
                    35,000

                	
                    $5,600

                
	
                    October 2007

                	
                    30,000

                	
                    $9,000

                	 	
                    35,000

                	
                    $5,600

                
	 	
                    150,000

                	
                    $45,000

                	 	
                    180,000

                	
                    $28,800

                

        

        

        

             B. .68 Caliber Products

         

        

        	
                    Month

                	
                    Live Rounds

                	 	
                    Inert Rounds

                
	 	
                    Quantity

                	
                    Price

                	 	
                    Quantity

                	
                    Price

                
	
                    May 2007

                	
                    10,000

                	
                    $3,000

                	 	
                    15,000

                	
                    $2,400

                
	
                    June 2007

                	
                    15,000

                	
                    $4,500

                	 	
                    20,000

                	
                    $3,200

                
	
                    July 2007

                	
                    15,000

                	
                    $4,500

                	 	
                    20,000

                	
                    $3,200

                
	
                    August 2007

                	
                    20,000

                	
                    $6,000

                	 	
                    25,000

                	
                    $4,000

                
	
                    September 2007

                	
                    20,000

                	
                    $6,000

                	 	
                    25,000

                	
                    $4,000

                
	
                    October 2007

                	
                    30,000

                	
                    $9,000

                	 	
                    35,000

                	
                    $5,600

                
	 	
                    110,000

                	
                    $33,000

                	 	
                    140,000

                	
                    $22,400

                

        

        

         

        
            

        

         

        

EXHIBIT B  

PRODUCT SPECIFICATIONS 

Projectiles manufactured by Perfect
Circle Projectiles (PC) will conform to the following specifications: 

All projectiles produced for SWAT
will use SWAT’s supplied proprietary powder fills. 

Inert projectiles will have clear shells. 

PAVA filled projectiles will have 1⁄2
the shell orange and the other half clear. 

.68 caliber 

	 	
Approximate
diameter: .68"
Approximate weight: 3 grams 
When impacting a DO-JO brand rubber target
at greater than 150 FPS the projectile will break.  

.50 caliber  

	 	
Approximate
diameter: .50"
Approximate weight: 1 gram 
When impacting a DO-JO brand rubber target
at greater than 200 FPS the projectile will break.  

EXHIBIT C  

FORM OF ESCROW
AGREEMENT 

Attached. 

ESCROW AGREEMENT 

        THIS
ESCROW AGREEMENT (this “Agreement”) is dated as of May 30, 2007 (the
“Effective Date”), by and among Security With Advanced Technology, Inc.,
a Colorado corporation (“Buyer”), Perfect Circle Projectiles, LLC, an
Illinois limited liability company (“Seller”), and American National Bank
(the “Escrow Agent”). Capitalized terms used but not defined herein shall
have the meaning set forth in the Supply Agreement (as defined below). 

RECITALS 

        WHEREAS,
Seller and Buyer have entered into a Supply Agreement dated as of May 29, 2007 (the
“Supply Agreement”); and 

        WHEREAS,
in accordance with the Supply Agreement, Buyer is depositing with the Escrow Agent the sum
of $1,000,000 (the “Escrow Funds”), which sum shall be disbursed
in accordance with the provisions of the Supply Agreement and this Agreement. 

        NOW,
THEREFORE, for and in consideration of the mutual covenants contained in the Supply
Agreement and herein, and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Buyer, Seller and Escrow Agent hereby agree
as follows: 

        1.    Deposit
of Cash. Upon the execution of this Agreement, Buyer will cause           to be
delivered to the Escrow Agent by wire transfer of immediately available           funds
the Escrow Funds.  

        2.    Methods
of Disposition of Escrow Funds. The Escrow Agent will hold the           Escrow Funds
in its possession and will disburse such Escrow Funds, or a portion           thereof, as
follows:  

        
        (a)              Upon
Escrow Agent’s receipt of Seller’s notice that a shipment of           Product
is ready and the related invoice to Buyer, 50% of the invoice amount for           such
Product shall be disbursed to Seller. The Notice and invoice may be served           on
the Escrow Agent via email or fax provided that a copy is simultaneously
          delivered to Buyer via email or fax.  

        
        (b)              Upon
the termination of the Supply Agreement due to the closing of the           Acquisition
(as defined in the Supply Agreement), the remaining Escrow Funds, if           any, shall
be applied to the purchase price payable by Buyer to Seller in           connection with
the Acquisition and disbursed to Seller. In such event, Buyer           and Seller shall
deliver to the Escrow Agent a certificate in the form attached           hereto as Schedule
I;  

        
        (c)              Upon
the fourth anniversary of the Effective Date of this Agreement, the           remaining
Escrow Funds, if any, shall be disbursed to Seller;  

        
        (d)              In
the event the Supply Agreement is terminated by Buyer due to an Event of
          Default (as defined in the Supply Agreement) caused by Seller, the remaining
          Escrow Funds, if any, shall be disbursed to Buyer. In such event, Buyer and
          Seller shall deliver to the Escrow Agent a certificate in the form attached
          hereto as Schedule I;  

        
        (e)              In
the event the Supply Agreement is terminated by Seller due to an Event of
          Default (as defined in the Supply Agreement) caused by Buyer, the remaining
          Escrow Funds, if any, shall be disbursed to Seller. In such event, Buyer and
          Seller shall deliver to the Escrow Agent a certificate in the form attached
          hereto as Schedule I; or  

        
        (f)              As
directed by Section 4 herein.  

        3.    Execution
of Certificate. To the extent all or any portion of the Escrow           Funds are
required pursuant to the Supply Agreement to be delivered to either           Buyer or
Seller, Buyer and Seller agree to promptly (but in no event more than           two
business days after such amount is determined) execute and deliver to the
          Escrow Agent a certificate as contemplated by Section 2 herein.  

        4.    Disputes.
If a dispute occurs between the parties hereto and Buyer or           Seller has served a
demand for arbitration in accordance with Section 21 of the           Supply Agreement,
then the Escrow Agent shall be entitled to take all actions           provided for in
Section 6(l) herein and thereupon be discharged from all further           duties and
liabilities under this Agreement. The filing of any such demand for           arbitration
shall not deprive the Escrow Agent of its compensation earned prior           to such
filing and the provisions of this Section 4 shall survive as to such           action.  

        5.    Investments;
Disposition of Income. The Escrow Agent shall invest the           Escrow Funds in
the SEI Daily Income Trust Treasury Fund unless otherwise           directed in
writing by Seller and Buyer. A sweep fee of 0.25% annually will           apply to the
average daily balances. Any income received by the Escrow Agent           from
investments of the Escrow Funds pursuant to this Section 5 shall be added           to
the Escrow Funds and distributed as part of the Escrow Funds.  

        6.    Concerning
the Escrow Agent.  

        
        (a)              The
Escrow Agent shall not be under any duty to give the Escrow Funds held by it
          hereunder any greater degree of care than it gives its own similar property and
          shall not be required to invest any funds held hereunder except as directed
          pursuant to Section 5 herein.  

        
        (b)              This
Agreement expressly sets forth all the duties of the Escrow Agent with           respect
to any and all matters pertinent hereto. No implied duties or           obligations shall
be read into this Agreement against the Escrow Agent. The           Escrow Agent shall
not be bound by the provisions of any other agreement among           the parties hereto
except this Agreement.  

        
        (c)              The
Escrow Agent shall not be liable, except for its own gross negligence or
          willful misconduct, and, except with respect to claims based upon such gross
          negligence or willful misconduct that are successfully asserted against the
          Escrow Agent, the other parties hereto shall jointly and severally indemnify
and           hold harmless the Escrow Agent (and any successor Escrow Agent) from and
against           any and all losses, liabilities, claims, actions, damages and expenses,
          including reasonable attorney’s fees and disbursements, arising out of and
          in connection with this Agreement. Without limiting the foregoing, the Escrow
          Agent shall in no event be liable in connection with its investment or
          reinvestment of any Escrow Funds held by it hereunder in good faith, in
          accordance with the terms hereof, including, without limitation, any liability
          for any delays (not resulting from its gross negligence or willful misconduct)
          in the investment or reinvestment of the Escrow Funds, or any loss of interest
          incident to any such delays.  

        
        (d)              The
Escrow Agent shall be entitled to rely upon any arbitration award, order,
          judgment, certification, demand, notice, instrument or other writing delivered
          to it hereunder without being required to determine the authenticity or the
          correctness of any fact stated therein or the proprieties, validity or the
          service thereof. The Escrow Agent may act in reliance upon any instrument or
          signature reasonably believed by it to be genuine and may assume that any
person           purporting to give notice or advice, accept receipt of or execute any
document,           or make any statement in connection with the provisions hereof, has
been duly           authorized to do so.  

        
        (e)              The
Escrow Agent may act pursuant to the reasonable advice of counsel with           respect
to any matter relating to this Agreement and, except for its own gross
          negligence or willful misconduct, the Escrow Agent shall not be liable for any
          action taken or omitted in accordance with such advice.  

        
        (f)              The
Escrow Agent is serving as escrow holder only and has no interest in the           Escrow
Funds deposited hereunder. Any payments of income from this Agreement           shall be
subject to withholding regulations then in force with respect to United           States
Taxes. The parties hereto will provide the Escrow Agent with appropriate           W-9
forms for tax identification number certification or nonresident alien
          certifications. This Section 6(f) and Section 6(c) herein shall survive
          notwithstanding any termination of this Agreement or the resignation of the
          Escrow Agent.  

        
        (g)              The
Escrow Agent makes no representation as to the validity, value, genuineness           or
the collectibility of any security or other documents or instrument held by           or
delivered to it.  

        
        (h)              The
Escrow Agent shall not be called upon to advise any party as to the wisdom           in
selling or retaining or taking or refraining from any action with respect to
          any securities or other property deposited hereunder.  

        
        (i)              The
Escrow Agent (and any successor Escrow Agent) may at any time resign as such           by
delivering the Escrow Funds to any successor Escrow Agent jointly designated           by
the other parties hereto in writing, or to any court of competent           jurisdiction,
whereupon the Escrow Agent shall be discharged of and from any and           all further
obligations arising in connection with this Agreement. The           resignation of the
Escrow Agent will take effect on the earlier of (i) the           appointment of a
successor (including a court of competent jurisdiction) or (ii)           the day which
is thirty days after the date of delivery of its written notice of           resignation
to the other parties hereto. If at that time the Escrow Agent has           not received
a designation of a successor Escrow Agent, the Escrow Agent’s           sole
responsibility after that time shall be to safekeep the Escrow Funds until
          receipt of a designation of successor Escrow Agent or a joint written
          disposition instruction by the other parties hereto or a final order of a court
          of competent jurisdiction.  

        
        (j)              The
Escrow Agent shall have no responsibility for the contents of any writing of
          the court or any third party contemplated herein as a means to resolve disputes
          and may rely without any liability upon the contents thereof.  

        
        (k)              In
the event of any disagreement between the other parties hereto resulting in
          adverse claims or demands being made in connection with the Escrow Funds, or in
          the event that the Escrow Agent in good faith is in doubt as to what action it
          should take hereunder, the Escrow Agent shall be entitled to retain the Escrow
          Funds until the Escrow Agent shall have received (i) a final nonappealable
order           of a court of competent jurisdiction directing delivery of the Escrow
Funds or           (ii) a written agreement executed by the other parties hereto
directing delivery           of the Escrow Funds, in which event the Escrow Agent shall
disburse the Escrow           Funds in accordance with such order or agreement. Any court
order referred to in           (i) above shall be accompanied by a legal opinion of
counsel for the presenting           party satisfactory to the Escrow Agent to the effect
that said court order is           final and nonappealable. The Escrow Agent shall act on
such court order and           legal opinions without further question.  

        
        (l)              Notwithstanding
anything to the contrary contained herein, in the event of any           dispute between
the parties hereto as to the facts of default, the validity or           meaning of these
instructions or any other fact or matter relating to the           transaction between
the parties, the Escrow Agent is instructed as follows:  

        
        
        (i)              That
it shall be under no obligation to act, except under process or order of           court,
or until it has been adequately indemnified to its full satisfaction, and           shall
sustain no liability for its failure to act pending such process or court           order
or indemnification; and  

        
        
        (ii)              That
it may in its sole and absolute discretion, deposit the property herein or           so
much thereof as remains in its hands with the then Clerk, or acting Clerk, of
          the District Court of the City and County of Denver, State of Colorado,
          interplead the parties hereto, and upon so depositing such property and filing
          its complaint in interpleader it shall be relieved of all liability under the
          terms hereof as to the property so deposited, and furthermore, the parties
          hereto for themselves, their heirs, legal representatives, successors and
          assigns do hereby submit themselves to the jurisdiction of said court. The
          institution of any such interpleader action shall not impair the rights of the
          Escrow Agent under Section 6(c) above. The right of the Escrow Agent to file
          such an interpleader action shall not alter the fact that the dispute shall be
          resolved by arbitration by the American Arbitration Association as provided in
          the Supply Agreement.  

        
        (m)              Seller
agrees to pay the Escrow Agent’s compensation for the services           hereunder,
which is an aggregate of $500 per year. All reasonable expenses,           disbursements
and advances incurred or made by the Escrow Agent in performance           of its duties
hereunder (including reasonable fees, expenses and disbursements           of its
counsel), shall be paid by Buyer.  

        
        (n)              No
printed or other matter in any language (including, without limitation,
          prospectuses, notices, reports and promotional materials) which mentions the
          Escrow Agent’s name or the rights, powers or duties of the Escrow Agent
          shall be issued by the other parties hereto or on such parties’ behalf
          unless the Escrow Agent shall first have given its specific written consent
          thereto.  

        7.    Notices.
Any notice, request, demand, waiver, consent, approval or other           communication
which is required or permitted hereunder shall be in writing. All           such notices
shall be delivered personally, by facsimile, by email or by           reputable overnight
courier (costs prepaid), and shall be deemed given or made           when delivered
personally, the business day sent if sent by facsimile or email           or one business
day after delivery to the overnight courier for next business           day delivery. All
such notices are to be given or made to the parties at the           following addresses
(or to such other address as any party may designate by a           notice given in
accordance with the provisions of this Section):  

	 	
If
to Seller: 

	 	
Perfect Circle Projectiles, LLC 
28101 Ballard Drive, Unit C
 Lake Forest,
Illinois 60045
 Fax No.: (847) 367-8980
 Attention: Gary E. Gibson

Email: gary@airgun.com 

	 	
With
a copy (which shall          
not constitute notice) to: 

	 	
Shadle & Associates, Ltd. 
1019 W. Wise Road, Suite 200 
Schaumburg, Illinois
60193 
Fax No: (847) 891-3176 
Attention: Ronald E. Shadle 
Email:
shadlelaw1@sbcglobal.net 

	 	
If
to Buyer: 

	 	
Security With Advanced Technology, Inc. 
10855 Dover Street, Suite 1000

Westminster, Colorado 80021-3936 
Fax No.: (303) 439-0414 
Attention: [Jeffrey G.
McGonegal] 
Email: jmcgonegal@aol.com 

	 	
With
a copy (which shall          
not constitute notice) to: 

	 	
Brownstein Hyatt Farber Schreck, P.C. 
410 Seventeenth Street, Suite 2200 
Denver,
Colorado 80202 
Fax No.: (303) 223-1111 
Attention: Adam J. Agron 
Email:
aagron@bhfs.com 

	 	
If
to the Escrow Agent: 

	 	
American National Bank 
3033 East First Avenue 
Denver, Colorado 80206-5698
Attention: Kathleen Connelly 
Facsimile: (303) 394-5320 
Email:
kconnelly@anbbank.com 

        8.    Waivers
and Amendments. This Agreement may be amended, superseded,           canceled,
renewed or extended and the terms hereof may be waived only by a           written
instrument signed by Buyer and Seller.  

        9.    Counterparts.
This Agreement may be executed in one or more counterparts,           each of which shall
be deemed an original, but all of which together shall           constitute one and the
same instrument.  

        10.    Governing
Law; Severability. This Agreement shall be governed by, and           construed in
accordance with, the internal laws of the State of Delaware,           without reference
to the choice of law or conflicts of law principles thereof.           Should any clause,
section or part of this Agreement be held or declared to be           void or illegal for
any reason, all other clauses, sections or parts of this           Agreement shall
nevertheless continue in full force and effect.  

        11.    Assignment.
Neither the rights nor the obligations of any party to this           Agreement may be
transferred or assigned, except by the express written           agreement of the parties
hereto. Any purported assignment of this Agreement           shall be null, void and of
no effect.  

        12.    Termination.
This Agreement shall terminate upon the complete           distribution of the Escrow
Funds in accordance with the terms hereof. If any           Escrow Funds are subject to a
dispute under Section 4 herein, this Agreement           shall remain in full force and
effect until such dispute is resolved in           accordance with Section 4 herein.  

        13.    Binding
Effect. This Agreement shall inure to the benefit of and be           binding upon
the parties hereto and their respective representatives, successors           and
permitted assigns.  

     *  *  *  *  * 

        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed on the date
and year first written above. 

		
		
SELLER:

PERFECT CIRCLE PROJECTILES, LLC

By:         /s/ Gary E. Gibson

Name:    Gary E. Gibson

Title:      Manager

BUYER:

SECURITY WITH ADVANCED TECHNOLOGY, INC.

By:          /s/ Scott G. Sutton

Name:    Scott G. Sutton

Title:      CEO & President

ESCROW AGENT:

AMERICAN NATIONAL BANK

By:          /s/ Kathleen Connelly

Name:    Kathleen Connelly

Title:      Vice President 

SCHEDULE I  

CERTIFICATE 

        Reference
is hereby made to the Escrow Agreement dated as of May 29, 2007, by and among Security
With Advanced Technology, Inc., a Colorado corporation (“Buyer”), Perfect
Circle Projectiles, LLC, an Illinois limited liability company
(“Seller”), and American National Bank (the “Escrow
Agent”). Capitalized terms used herein but not defined herein have the meaning
assigned such terms in the Escrow Agreement. 

         1.       
          Buyer and Seller acknowledge and agree that Escrow Funds shall be released to
          [Buyer / Seller] pursuant to Section [2(b), (d) or (e)] of the Escrow Agreement;
          and 

         2.       
          Accordingly, Buyer and Seller hereby instruct the Escrow Agent to disburse
          [$________] of the Escrow Funds to [Buyer / Seller] as follows: 

[Add Buyer’s or
Seller’s wire transfer instructions] 

[Remainder of page
intentionally left blank; signature page to follow] 

        IN
WITNESS WHEREOF, Buyer and Seller have executed this certificate as of _____________. 

		
		SELLER:

PERFECT CIRCLE PROJECTILES, LLC

By:          __________________________

Name:     __________________________

Title:       __________________________

BUYER:

SECURITY WITH ADVANCED TECHNOLOGY, INC.

By:          __________________________

Name:    __________________________

Title:      __________________________

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