Document:

ex10_1.htm

    
      

    

    Exhibit
10.1

    

    PURCHASE
AGREEMENT

    

    THIS PURCHASE AGREEMENT
(“Agreement”) is made and entered into as of this 10th day of March, 2008
between NATURE VISION, INC.,
a Minnesota corporation (“Seller”), and NATZEL, LLC, a Minnesota
limited liability company, its successors and assigns (“Purchaser”). For purposes of
this Agreement, the term “Effective Date” shall mean
March 11, 2008.

    

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

     

    
      
        	
                1.

              	
                Premises; Existing
      Leases.

              

      

       

    

    
      	
               
      

            	
              A.

            	
              Premises.
      Subject to compliance with the terms and conditions of this Agreement,
      Seller shall sell to Purchaser and Purchaser shall purchase from Seller
      the following (collectively, the “Premises”):

            

    

    

    
      	
               
      

            	
              1.

            	
              The
      real property located at 4800 Quebec Avenue North, in the City of New
      Hope, County of Hennepin, State of Minnesota, depicted as the
      cross-hatched area in attached EXHIBIT
      A-1, and legally described in attached EXHIBIT
      A-2, consisting of approximately 3.42 acres of real property
      together with all easements, tenements, hereditaments, and appurtenances
      belonging thereto (the “Land”);

            

    

    

    
      	
               
      

            	
              2.

            	
              All
      buildings, structures and other improvements erected or placed on the
      Land, including, without limitation, an office/warehouse commercial
      building consisting of approximately 55,372 square feet (the “Improvements”);

            

    

    

    
      	
               
      

            	
              3.

            	
              All
      of the personal property situated in or about the Land and Improvements as
      of the Effective Date owned by Seller and used in connection with the
      operation, use or maintenance of the Land and Improvements which are
      listed on attached EXHIBIT
      A-3  ("Personal
      Property")

            

    

     

    
      
        	
                 
      

              	
                4.

              	
                The
      premises are not subject to any leases, licenses, or other rights to use
      or occupancy held by third parties.

              

      

       

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              B.

            	
              Excluded
      Assets; Liabilities of
Seller.

            

    

    

    
      	
               
      

            	
              1.

            	
              Seller
      shall retain and not sell to Purchaser any personal property located on
      the Premises other than the Personal Property and fixtures and equipment
      which comprise a part of the Improvements (“Debris and Excluded
      Property”)  Prior to the Closing Date, Seller shall be
      responsible for removing and disposing of all Debris and Excluded Property
      from the Premises, including without limitation, all tanks, cans or
      containers for the use and/or storage of gasoline, oil, grease, petroleum
      products, cleaning supplies, chemicals, paint, paint thinners, solvents,
      and any other item included within the definition of Hazardous Materials
      (defined in Section 6.0. herein).

            

    

    

    
      	
               
      

            	
              2.

            	
              Except
      as specifically set forth herein, Purchaser shall not assume, pay, perform
      or discharge (or cause to be paid, performed or discharged) any
      liabilities, expenses, or other obligations of
  Seller.

            

    

    

    
      	
              2.

            	
              Purchase Price;
      Payment.

            

    

    

    
      	
               
      

            	
              A.

            	
              Purchase
      Price. The purchase price for the Premises shall be Two Million
      Four Hundred Thousand and No/100 Dollars ($2,400,000.00) Dollars (“Purchase
      Price”).

            

    

    

    
      	
               
      

            	
              B.

            	
              Payment.

            

    

    

    
      	
               
      

            	
              1.

            	
              Earnest
      Money. The sum of Fifty Thousand and No/i00 Dollars ($50,000.00)
      refundable earnest money (“Earnest Money”) shall be
      deposited by Purchaser with Commercial Partners, LLC
      (ATTN:  Sharon Ruane, Phone: 612-337-2472;  Fax:
      612-337-2471) (“Escrow
      Agent”) simultaneously with the execution  of this
      Agreement. The Earnest Money shall be placed and held by Escrow Agent in
      its commercial interest bearing account in accordance with the terms of
      this Agreement and shall be credited against the Purchase Price in favor
      of Purchaser at Closing. Any and all interest accruing on the Earnest
      Money pursuant to this Agreement shall be paid to Purchaser and shall
      accrue solely for Purchaser’s benefit. If Purchaser provides Seller with
      written notice of Purchaser’s waiver or satisfaction of all the conditions
      to closing set forth in Section 7 of this Agreement, then the Earnest
      Money shall be deemed non-refundable to Purchaser, except as otherwise
      provided in Sections 3.0., 5.B., 5.C., 14.A. or elsewhere in this
      Agreement.

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              2.

            	
              Cash. The balance of the
      Purchase Price shall be paid (subject to prorations, reductions and
      credits as provided below) by wire transfer, certified or cashier’s check
      at the closing.

            

    

    

    
      	
              3.

            	
              Title To Be Delivered;
      Commitment; Survey; Title
Objections.

            

    

    

    
      	
               
      

            	
              A.

            	
              Title
      To Be Delivered. At Closing, Seller agrees to convey Marketable Fee
      Simple Title in the Premises. For purposes of this Agreement, the term
      “Marketable Fee Simple Title” means title to the Premises that, when
      acquired by Purchaser, will be insurable by the Escrow Agent under its
      standard ALTA (Form 10/17/92) Owner’s Title Insurance Policy, at standard
      rates and free and clear of all liens, encumbrances, easements, covenants,
      conditions and restrictions other than the Permitted Exceptions (defined
      herein).

            

    

    

    
      	
               
      

            	
              B.

            	
              Commitment. As soon hereafter as
      reasonably possible, Seller at its sole cost and expense shall cause to be
      issued and delivered to Purchaser a commitment (“Commitment”) covering
      the Premises issued by Escrow Agent wherein Escrow Agent agrees to issue
      to Purchaser upon the recording of the Deed (defined herein) and the
      conveyance documents described herein an ALTA (Form 10/17/92) Owner’s
      Title Insurance Policy, with standard coverage, in the full amount of the
      purchase price. The Commitment shall have an effective date after the date
      of this Agreement, shall be accompanied by copies of all recorded
      documents affecting the Premises, and shall include searches for real
      estate taxes and pending and levied special assessments. Seller shall
      deliver a copy of the Survey (defined herein) to Escrow Agent so that the
      initial Commitment may be amended or supplemented to contain any survey
      exceptions to title.

            

    

    

    
      	
               
      

            	
              C.

            	
              Survey.
      As soon hereafter as reasonably possible the Seller shall provide
      Purchaser with a copy of any survey in the Seller’s
      possession.  The , Purchaser at its sole cost and expense may
      obtain a current, properly certified ALTA/ACSM Land Title Survey of the
      Premises, (the “Survey”).

            

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              D.

            	
              Title
      Objections. Purchaser shall have until ten (10) days from the date
      it receives the latter of the Commitment or Survey (or any update or
      supplement thereto) to make its objections to matters disclosed in the
      Commitment or Survey (or any update or supplement thereto) in writing to
      Seller. Any exception disclosed in the Commitment or Survey (or any update
      or supplement thereto) and not timely objected to by Purchaser within the
      applicable ten (10) day period shall be deemed a “Permitted Exception”
      hereunder. Seller shall have until ten (10) days after it receives such
      objections to have the same removed or satisfied. If Seller shall fail to
      have such objections removed within that time, then Purchaser may, at its
      sole discretion, either (a) terminate this Agreement without any liability
      on its part and receive the Earnest Money (together with interest) back,
      or (b) waive such objections in writing and proceed to closing with the
      understanding that such uncured objections shall be deemed Permitted
      Exceptions at closing. Notwithstanding anything contained herein to the
      contrary, Seller shall be obligated to cure (i) mortgage or deed of trust
      financing or similar liens given for security or collateral purposes, (ii)
      state, federal or local tax liens or liens for the nonpayment of special
      assessments, and (iii) any other judgment liens or non-consensual liens
      (collectively, “Liens”), it being the understanding and agreement that any
      such Liens will be satisfied out of Seller’s proceeds at closing, if not
      sooner paid.

            

    

    

    
      	
              4.

            	
              Seller’s
      Property Information; Purchasers
      Inspections.

            

    

    

    
      	
               
      

            	
              A.

            	
              Seller’s
      Property Information. Concurrently with Seller’s acceptance and
      delivery of this Agreement to Purchaser, Seller shall deliver to
      Purchaser, at no cost to Purchaser, complete and accurate copies of any
      contracts, leases , licenses or other agreements pertaining to the
      Premises, including any amendments thereof, and copies of all permits,
      plats, authorizations, notices, consents, approvals, plans,
      specifications, surveys, engineering studies, analysis, soil test borings,
      environmental studies and other documentation pertaining to the physical
      condition, development and operation of the Premises and any other
      information reasonably requested by Purchaser (whether prepared by Seller,
      Seller’s agents or independent contractors, any governmental authority or
      agency, federal, state or local, or any other third party), to the extent
      that Seller has the same in its possession (“Property
      Information”).

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              B.

            	
              Purchaser’s
      Inspections. Purchaser, its
      counsel, accountants, agents and other representatives, shall have full
      and continuing access to the Premises and all parts thereof, as well as to
      such papers and documents of Seller that relate to the title, physical
      condition, development and operation of the Premises. Purchaser and its
      agents and representatives shall also have the right to enter upon the
      Premises at any time after the execution and delivery hereof for any
      purpose  reasonably related to the investigation of the physical
      condition of the Premises and fitness for the Purchaser’s intended use,
      including inspecting, surveying, engineering, test boring, performance of
      environmental tests and such other work as Purchaser shall consider
      appropriate and shall have the further right to make such inquiries of
      governmental agencies and utility companies, etc., and to make such
      feasibility studies and analyses as it considers appropriate (collectively
      the “Inspections”). Purchaser
      shall indemnify and hold harmless Seller from and against any liabilities
      or damages to persons or property arising from Purchaser’s entry onto the
      Premises hereunder, unless such liabilities or damages arise from the
      negligence or willful misconduct of Seller, and provided, however, that
      Purchaser’s indemnification and hold harmless obligations shall not apply
      to any liabilities or damages arising out of or in any way related to
      contaminated soil, asbestos, or other environmental hazards discovered
      during the Inspections and not introduced onto the Premises by Purchaser
      or its agents, employees or contractors.  The indemnity in this
      Article shall survive the termination or cancellation of this
      Agreement.  Purchaser's obligations under Article 4 are
      guarantied by the Guarantor indicated below, and the liability and
      obligations of the Guarantor will survive any cancellation or termination
      of this Agreement.

            

    

    

    
      	
              5.

            	
              Control of Premises;
      Condemnation.

            

    

    

    
      	
               
      

            	
              A.

            	
              Control
      of Premises. Until the Closing, except for Purchaser’s
      indemnification obligations set forth in Section 4.B. above, Seller shall
      have the full responsibility and the entire liability for any and all
      damages or injury of any kind whatsoever to the Premises, the Improvements
      thereon, and all persons, whether employees or otherwise, and all property
      from and connected to the Premises. Seller agrees to keep the Premises
      continually insured during the term of this Agreement under policies of
      (i) commercial general liability insurance with policy limits of not less
      than $1,000,000 per incident, and (ii) fire, hazard and all risk property
      insurance in amount equal to one hundred percent (100%) of the replacement
      value of the Improvements. Until the Closing, Seller shall have the full
      responsibility for the continued operation, maintenance and repair of the
      Premises, including leasing activity, provided, however, Seller shall not
      (i) enter into any new leases or any amendments, modifications, extensions
      or renewals of existing leases, or (ii) approve of any assignment or
      sublease of an existing lease, without the prior written consent of the
      Purchaser, which may be withheld in Purchaser’s sole
      discretion.

            

    

    

    
      	
               
      

            	
              B.

            	
              Condemnation.
      If, prior to Closing, the Premises shall be the subject of an action in
      eminent domain or a proposed taking by a governmental authority, whether
      temporary or permanent, Purchaser, at its sole discretion, shall have the
      right to terminate this Agreement upon notice to Seller without liability
      on its part by so notifying Seller and the Earnest Money (with interest)
      shall be refunded to Purchaser. If Purchaser does not exercise its right
      of termination, (I) any and all proceeds arising out of any such eminent
      domain or taking shall be held in trust by Seller for the benefit of
      Purchaser and paid to Purchaser at closing; and (ii) the “Premises” shall
      thereafter be defined to mean the Premises less the portion taken by
      eminent domain or condemnation. In no event shall the Purchaser be paid
      any amount in excess of the Purchase Price, all such excess shall be the
      property of the Seller .

            

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              C.

            	
              Casualty.
      If, prior to the closing, the Premises or the Improvements are materially
      damaged or destroyed, Purchaser, at its sole discretion, shall have the
      right to terminate this Agreement upon notice to Seller without liability
      on its part by so notifying Seller and the Earnest Money (with interest)
      shall be refunded to Purchaser. If the Premises or Improvements are not
      materially damaged or destroyed or Purchaser does not exercise its right
      of termination, Seller shall proceed forthwith to repair the damage to the
      Premises and Improvements and any and all proceeds arising out of such
      damage or destruction, if the same be insured, shall be held in trust by
      Seller for the benefit of such repair. In no event shall the Purchaser be
      paid any amount in excess of the Purchase Price, all such excess shall be
      the property of the Seller.

            

    

    

    
      	
              6.

            	
              Representations
      and Warranties by Seller. Seller hereby represents and warrants to
      Purchaser that:

            

    

    

    
      	
               
      

            	
              A.

            	
              (i)
      Seller is a duly organized and validly existing Minnesota corporation (ii)
      Seller is qualified to do business in the state in which the Premises are
      located, (iii) Seller as full right and authority to enter into this
      Agreement, (iv) each person signing on behalf of Seller is authorized to
      do so, (v) the execution and delivery of this Agreement by Seller will not
      constitute a default under any indenture, agreement, contract, mortgage or
      other instrument to which Seller is a party, (vi) Seller is not a “foreign
      person” as that term is defined under Internal Revenue Code Section
      1445(F)(3), and (vii) the sale of the Premises is not subject to any
      withholding requirements imposed by the internal Revenue Code, including,
      without limitation, Section
1445(F)(3).

            

    

    

    
      	
               
      

            	
              B.

            	
              Seller
      is the owner of good and marketable fee title to the Premises except the
      Permitted Exceptions, and will convey good and marketable fee simple title
      to the Premises, free and clear of any and all liens, mortgages, pledges,
      security interests, leases, charges, encumbrances, easements, joint
      ownerships, or restrictions of any kind, except for the Permitted
      Exceptions. There shall not be any labor or materials furnished to the
      Premises by or through Seller which shall remain unpaid as of
      Closing.

            

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              C.

            	
              To
      the best knowledge of Seller, no toxic or hazardous substances or wastes,
      pollutants or contaminants (including, without limitation, asbestos, urea
      formaldehyde, the group of organic compounds known as polychlorinated
      biphenyls, petroleum products including gasoline, fuel oil, crude oil and
      various constituents of such products, and any other hazardous substance
      as defined in the Comprehensive Environmental Response, Compensation and
      Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 960 1-9657, as amended) have
      been generated, treated, stored, released, spilled or disposed of, or
      otherwise placed, deposited in or located on the Premises, except as
      disclosed in any environmental report delivered by Seller to Purchaser
      prior to the Effective Date.

            

    

    

    
      	
               
      

            	
              D.

            	
              To
      Seller’s best knowledge, no above ground or underground tanks, are located
      on or about the Premises, or have been located on or about the Premises
      and subsequently been removed or filled, except as disclosed in any
      environmental report delivered by Seller to Purchaser prior to the
      Effective Date.

            

    

    

    
      	
               
      

            	
              E.

            	
              To
      the best knowledge  of Seller there is no: litigation,
      proceeding, claim, or investigation, pending or, to Seller’s best
      knowledge and belief, threatened, and there is no contract or agreement to
      which Seller is currently a party, which, at or after Closing, would
      adversely affect the Premises or might result in a materially adverse
      effect on the Premises, nor Seller bankruptcy proceeding or assignment in
      favor of creditors that might affect the Premises or Purchaser’s rights
      with respect thereto. Seller has provided all unrecorded agreements of
      which it is aware, if any, affecting the Premises to Purchaser pursuant to
      Section 4 of
      this Agreement.

            

    

    

    
      	
               
      

            	
              F.

            	
              To
      the best knowledge of Seller,  the Premises are  in
      compliance with all applicable laws, ordinances, rules, regulations, and
      requirements of all governmental authorities having jurisdiction thereof,
      including, without limitation, those pertaining to zoning, subdivision,
      safety, fire and health, and Seller has not received any notice of
      non-compliance.

            

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              G.

            	
              To
      Seller’s best knowledge, there is no action, suit, proceeding or
      investigation existing, pending, or threatened, before any agency, court,
      or other governmental authority, including eminent domain proceeding,
      which relates to the ownership, maintenance, operation, or condition
      (including environmental condition) of the
  Premises.

            

    

    

    
      	
               
      

            	
              H.

            	
              As
      of Closing there shall be no leases or possessory rights in favor of any
      party, service or maintenance contracts regarding any of the Premises,
      except for the Existing Leases and the
Lease.

            

    

    

    
      	
               
      

            	
              I.

            	
              There
      is no “well” (as defined in Minnesota Statutes § 1031.005, Subd. 21)
      located on the Premises.

            

    

    

    
      	
               
      

            	
              J.

            	
              There
      is no “individual sewage treatment system” (as defined in Minnesota
      Statutes § 115.55, Subd. 1(g)) located on the
  Premises.

            

    

    

    
      	
               
      

            	
              K.

            	
              Seller
      is not aware of any warranties that exist for the Improvements on the
      Premises, including, without limitation, the roof and any mechanical,
      electrical, plumbing, utility, fire sprinkler or HVAC systems serving the
      Improvements.

            

    

    

    The
knowledge of Seller, as used herein, shall refer only to the knowledge of David
Kolkind  and not to any other person, or employee, agent, contractor
or representative of Seller.

    

    The
representations and warranties set forth in this Section 6 shall be continuing
and shall be true and correct on and as of the Closing Date with the same force
and effect as if made at that time.

    

    Seller
will indemnify Purchaser, its successors and assigns, against and will hold
Purchaser, its successors and assigns, harmless from, any expenses or damages,
including reasonable attorneys’ fees and court costs, which Purchaser incurs
because of the breach of any of the above representations and warranties,
whether such breach is discovered before or after the Closing Date. Each of the
representations and warranties herein contained shall survive the Closing for
six months (6) months. Except as herein expressly stated, Purchaser is
purchasing the Premises based upon its own investigations and inquiry and is not
relying on any representation of Seller or other person; and is agreeing to
accept and purchase the Premises “AS IS, WHERE IS” subject only to the
conditions set forth in this Agreement and the express representations and
warranties contained in this Section 6 or elsewhere in this
Agreement.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    
      	
              7.

            	
              Conditions
      to Closing. The closing of the
      transaction contemplated by this Agreement and all the obligations of
      Purchaser under this Agreement are subject to fulfillment, on or before
      the dates set forth below, of the following conditions
      precedent:

            

    

    

    
      	
               
      

            	
              A.

            	
              On
      or before the date that is twenty (20) business days after the Effective
      Date (the “Condition
      Date”), Purchaser shall have determined that the Commitment and
      Survey and  physical status or condition of the Premises,
      including without limitation, environmental, geotechnical (soil), wetland,
      floodplain, drainage and availability of adequate access and utilities,
      shall be satisfactory to Purchaser in its sole
  discretion.

            

    

    

    
      	
               
      

            	
              B.

            	
              Purchaser
      may give notice that of any of the foregoing conditions have not been met,
      only by delivering written notice of the same to Seller on or before the
      date set forth above. If Purchaser does not give notice that one or more
      of the foregoing conditions have not been met  on or before the
      dates set forth above, then such conditions shall automatically be deemed
      waived., If Purchaser gives notice that any of the foregoing conditions
      have not been met, then, without action required of either party, the
      Earnest Money (and all interest) shall be returned to Purchaser, and
      Purchaser and Seller shall thereafter be released from any liability or
      obligation hereunder.

            

    

     

    Notwithstanding
anything contained herein to the contrary, it shall be a condition of
Purchaser’s obligation to close this transaction that (i) the representations
and warranties made by Seller in Section 6 shall be correct as of the Closing
Date with the same force and effect as if such representations were made at such
time, and (ii) the status and marketability of title shall have been established
to Purchaser’s satisfaction in accordance with this Agreement.

     

    
      
        	
              	
                8.

              	
                Closing
      Date.
      Subject to the fulfillment or waiver of the conditions hereof, and
      provided that all of the covenants, representations and warranties of
      Seller are true and correct on the closing date as though made on such
      date, the closing of the purchase and sale (the “Closing”) shall take
      place on or before April 15,  2008or such other date as agreed
      to by the parties in writing (the “Closing Date”). The
      Closing shall take place at the offices of Escrow Agent or at such other
      place as Seller and Purchaser may mutually determine. Possession of the
      Premises shall be delivered to Purchaser on the Closing Date, free of the
      leasehold or possessory interest of any tenants, licensees or occupants
      thereof, except the tenants under the Existing Leases and Seller under the
      Lease.

              

      

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    
      	
              9.

            	
              Seller’s
      Obligations At Closing. At or prior to the
      Closing Date, subject to Purchaser’s performance of Purchaser’s
      obligations hereunder, Seller shall execute and deliver to Purchaser the
      following:

            

    

    

    
      	
               
      

            	
              A.

            	
              A
      recordable General Warranty Deed (the “Deed”) to the Premises
      (in a form reasonably satisfactory to Purchaser) and subject only to the
      Permitted Exceptions;

            

    

    

    
      	
               
      

            	
              B.

            	
              A
      standard affidavit of Seller confirming that Seller is not a “foreign
      corporation” within the meaning of Section 1445 of the Internal Revenue
      Code.

            

    

    

    
      
        
          	
                	
                  C.

                	
                  A
      standard affidavit of Seller in form and content sufficient to allow
      Escrow Agent to delete the standard exceptions contained in Purchaser’s
      Owners Title Insurance Policy relative to (i) parties in possession
      (except for the tenants under the Existing Leases), (ii) liens for labor,
      materials, or services, and (iii) unrecorded easements or other
      instruments (other than the Existing
Leases).

                

        

      

    

    

    
      	
               
      

            	
              D.

            	
              An
      assignment and assumption of any service contracts assignable to Purchaser
      and which Purchaser elects to have assigned to it in a form satisfactory
      to Purchaser.

            

    

    

    
      	
               
      

            	
              E.

            	
              A
      certificate at closing confirming that the representations and warranties
      set forth in Section 6 of this Agreement are true and correct as of the
      Closing Date as though made as of such
date.

            

    

    

    
      	
               
      

            	
              F.

            	
              An
      Assignment of all Warranties and Licenses with respect to the
      Premises.

            

    

    

    
      	
               
      

            	
              G.

            	
              A
      Warranty Bill of Sale transferring the Personal
  Property.

            

    

    

    
      	
               
      

            	
              H.

            	
              Such
      other documents as may be reasonably required by this Agreement
      (including, without limitation, authorizing resolutions of Seller), all in
      a form reasonably satisfactory to Purchaser, Seller and Escrow
      Agent.

            

    

    

    
      	
              10.

            	
              Delivery
      of Purchase Price; Obligations At Closing. At Closing, subject to
      the terms, conditions, and provisions hereof and the performance by Seller
      of its obligations as set forth herein, the Earnest Money shall be
      delivered to Seller (except any interest accrued thereon) and credited
      against the Purchase Price, and Purchaser shall deliver the balance of the
      Purchase Price to Seller pursuant to Section 2
  above.

            

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
      	
              11.

            	
              Closing
      Costs. The
      following costs and expenses shall be paid as follows in connection with
      the Closing:

            

    

    

    
      	
               
      

            	
              A.

            	
              Seller
      shall pay:

            

    

    

    
      	
               
      

            	
              1.

            	
              The
      cost to prepare and deliver to Purchaser the Commitment (including,
      without limitation, the cost of any title search and exam by Escrow
      Agent); all fees to record all of the documents necessary to permit Seller
      to convey Marketable Fee Simple Title to the Premises to Purchaser (other
      than the fee to record the Deed); and one-half (1/2) of the closing fee
      and/or escrow fee charged by Escrow Agent in connection with the escrow of
      Earnest Money and the closing of this
  transaction.

            

    

    

    
      	
               
      

            	
              2.

            	
              All
      state deed taxes or other transfer tax regarding the deed to be delivered
      by Seller to Purchaser.

            

    

    

    
      	
               
      

            	
              3.

            	
              Any
      deferred or delinquent real estate taxes or utilities and Seller’s
      pro-rata share of those costs and expenses set forth in Section 12
      below.

            

    

    

    
      	
               
      

            	
              4.

            	
              Attorneys’
      fees and costs of Seller’s attorneys and the brokerage fee of Broker
      pursuant to Section 13 below

            

    

    

    
      	
               
      

            	
              B.

            	
              Purchaser
      shall pay the following costs in connection with the
    Closing:

            

    

    

    
      	
               
      

            	
              1.

            	
              The
      documentary fee necessary to record the
Deed.

            

    

    

    
      	
               
      

            	
              2.

            	
              The
      mortgage registration tax, if any.

            

    

    

    
      	
               
      

            	
              3.

            	
              The
      premiums and cost of the Owner’s Title Insurance Policy and
      endorsements.

            

    

    

    
      	
               
      

            	
              4.

            	
              Attorneys’
      fees and costs of Purchaser’s
attorneys.

            

    

    

    
      	
               
      

            	
              5.

            	
              One-half
      (1/2) of the closing fee and/or escrow fee charged by Escrow Agent in
      connection with the escrow of Earnest Money and the closing of this
      transaction.

            

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              6.

            	
              All
      special assessments existing as of the Closing Date, whether levied,
      pending, deferred or assessed, including without limitation, the unpaid
      balance of special assessments and/or installments of special assessments
      certified for payment to the real estate
taxes.

            

    

    

    
      	
               
      

            	
              7.

            	
              The
      sum of $1,000.00 shall be paid by the Purchaser to the Seller for each day
      which elapses after April 7th,
      2008 through the date of Closing.

            

    

     

    
      	
              12.

            	
              Prorations. The following
      prorations shall be made as of the Closing
Date:

            

    

    

    
      	
               
      

            	
              A.

            	
              Seller
      shall pay all real estate taxes and installments of special assessments
      due and payable in years prior to the year of closing. Purchaser shall
      assume responsibility for the payment of all such taxes due and payable in
      the year of Closing and all subsequent
years.

            

    

    

    
      	
               
      

            	
              B.

            	
              All
      rents and income of the Premises, if any, shall be pro-rated between
      Seller and Purchaser to the Closing Date. All utilities and operating
      expenses for the Premises shall be pro-rated between Seller and Purchaser
      to the Closing Date.

            

    

    

    
      	
              13.

            	
              Brokerage. Seller and Purchaser
      represent and warrant to each other that they have not engaged the
      services of any broker in connection with the sale and purchase
      contemplated by this Agreement, except that Seller has engaged the
      services of CB Richard Ellis (“Broker”), which services
      Seller agrees to pay only upon the closing of this transaction pursuant to
      separate agreement between Seller and Broker. Broker shall have no right
      to any portion of the Earnest Money if this Agreement is terminated,
      canceled or rescinded. Seller hereby agrees to indemnify, defend and hold
      Purchaser harmless for any claim (including reasonable expenses incurred
      in defending such claim) made by Broker in connection with this
      transaction. Each party hereby agrees to indemnify, defend and hold
      harmless the other party for any claim (including reasonable expenses
      incurred in defending such claim) made by a broker, sales agent or similar
      party (other than Broker) claiming to be entitled to a commission in
      connection with this transaction by reason of the acts of the indemnifying
      party. Broker shall execute this Agreement for purposes of evidencing its
      consent and agreement with the terms of this Section 13. Failure of Broker
      to execute this Agreement shall not affect the validity of this Agreement
      as between Seller and Purchaser. The terms of this Section 13 shall
      survive the closing of the transaction contemplated herein for one (i)
      year.

            

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    
      	
              14.

            	
              Remedies.

            

    

    

    
      	
               
      

            	
              A.

            	
              Purchaser’s
      Remedies. If Seller defaults in performing any of Seller’s closing
      obligations under the terms of this Agreement on the Closing Date for any
      reason other than Purchaser’s default, Purchaser shall be entitled as its
      exclusive remedies to (i) terminate this Agreement and to receive a refund
      of the Earnest Money (including all interest thereon, if any)., in which
      event Seller shall promptly reimburse Purchaser for all of the third party
      costs it incurred in conducting its due diligence, not to exceed
      $10,000.00, or (ii) to sue for specific performance of this Agreement,
      provided Purchaser commences said action within six months of the date
      scheduled as the Closing Date.

            

    

    

    
      	
               
      

            	
              B.

            	
              Seller’s
      Remedies. If Purchaser defaults in performing any of Purchaser’s
      closing obligations under the terms of this Agreement on the Closing Date
      for any reason other than Seller’s default, Seller shall be entitled, as
      its exclusive remedies to (i) terminate this Agreement and to retain the
      Earnest Money (including all interest thereon, if any) or (ii) to sue for
      specific performance of this Agreement, provided Seller commences said
      action within six months of the date scheduled as the Closing
      Date.

            

    

    

    
      	
              15.

            	
              Escrow.  Escrow
      Agent is authorized and agrees by acceptance thereof to promptly deposit
      the Earnest Money as provided herein and to hold same in escrow and to
      disburse the same in accordance with the terms and conditions of this
      Agreement. The sole duties of Escrow Agent regarding the Earnest Money
      shall be those described herein, and Escrow Agent shall be under no
      obligation to determine whether the other parties hereto are complying
      with any requirements of law or the terms and conditions of any other
      agreements among said parties. Escrow Agent may conclusively rely upon and
      shall be protected in acting upon any written notice, consent, order or
      other document believed by it to be genuine and to have been signed or
      presented by the proper party or parties to this Agreement. Escrow Agent
      shall have no duty or liability to verify any such written notice,
      consent, order or other document, and its sole responsibility shall be to
      act as expressly set forth in this Agreement. Escrow Agent shall be under
      no obligation to institute or defend any action, suit or proceeding in
      connection with this Agreement. If Purchaser and Seller execute any
      separate escrow instructions or an escrow agreement with Escrow Agent,
      then in the event of a conflict between the terms of such escrow
      instructions or escrow agreement and the terms of this Agreement, the
      terms of this Agreement shall control. Escrow Agent shall also execute
      this Agreement solely for the purpose of acknowledging its agreement with
      and understanding of the terms of this Section 15 and the other provisions
      of this Agreement relative to receipt, escrow, investment and disbursement
      of the Earnest Money. Failure of Escrow Agent to execute this Agreement
      shall not affect the validity of this Agreement as between Seller and
      Purchaser.

            

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    
      	
            	
              16.

            	
              Time
      for Acceptance.  This
      Agreement, when duly executed by all of the parties hereto, shall be
      binding upon the parties hereto, their heirs, representatives, successors
      and assigns. In the event this Agreement has not been duly executed by
      Seller and delivered to Purchaser or its agent on or
      before  March 11, 2008 at 5:00 p.m., then the offer herein and
      herewith made by Purchaser shall automatically and unconditionally
      terminate and this Agreement shall be null and void, and Escrow Agent
      shall immediately return to Purchaser the Earnest
  Money.

            

    

    

    
      
        
          	
                  17.

                	
                  Miscellaneous.  The
      following general provisions govern this
  Agreement.

                

        

      

    

    

    
      	
               
      

            	
              A.

            	
              No
      Waivers.
      The waiver by either party hereto of any condition or the breach of any
      term, covenant or condition herein contained shall not be deemed to be a
      waiver of any other condition or of any subsequent breach of the same or
      of any other term, covenant or condition herein contained. Purchaser, in
      its sole discretion may waive any right conferred upon Purchaser by this
      Agreement; provided that such waiver shall only be made by Purchaser
      giving Seller written notice specifically describing the right
      waived.

            

    

    

    
      	
               
      

            	
              B.

            	
              Time
      of Essence. Time is of the essence of this
    Agreement.

            

    

    

    
      	
               
      

            	
              C.

            	
              Governing
      Law. This
      Agreement is made and executed under and in all respects to be governed
      and construed by the laws of the State of Minnesota and the parties hereto
      hereby agree and consent and submit themselves to any court of competent
      jurisdiction situated in the State of
Minnesota.

            

    

    

    
      	
               
      

            	
              D.

            	
              Notices. All notices and
      demands given or required to be given by any party hereto to any other
      party shall be deemed to have been properly given if and when delivered in
      person, the next business day after being sent by reputable overnight
      commercial courier (e.g. U.P.S. or Federal Express), sent by facsimile
      (with verification of receipt) or three (3) business days after having
      been deposited in any U.S. Postal Service and sent by registered or
      certified mail, postage prepaid, addressed as follows (or sent to such
      other address as any party shall specify to the other party pursuant to
      the provisions of this Section):

            

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

    

     

    
      	
               
      

            	
              To
      Seller:

            	
              Nature
      Vision, Inc.

            

    

    ATTN:  David
Kolkind

    1480
Northern Pacific Road

    Brainerd
MN  56401

    FAX:
____________________

    

    
      	
               
      

            	
              w/copy
      to:

            	
              _________________________

            

    

    ATTN:  __________________

    _________________________

    _________________________

    FAX:
____________________

    

    
      	
               
      

            	
              To
      Purchaser:

            	
              NATZEL,
      LLC

            

    

    ATTN:  Howard
Natzel

    2928
Second Street North

    Minneapolis
MN  55411

    FAX:  612-522-8741

    

    
      	
               
      

            	
              w/copy
      to:

            	
              Peterson,
      Fram and Bergman

            

    

    ATTN:  Glenn
A. Bergman

    55 East
5th
Street

    Suite
800

    St. Paul,
MN 55101

    FAX:
651-228-1753

     

    In the
event either party delivers a notice by facsimile, as set forth above, such
party agrees to deposit the originals of the notice in a post office, branch
post office, or mail depository maintained by the U.S. Postal Service, postage
prepaid and addressed as set forth above. Such deposit in the U.S. Mail shall
not affect the deemed delivery of the notice by facsimile, provided that the
procedures set forth above are fully complied with.

    

    Any
party, by notice given as aforesaid, may change the address to which subsequent
notices are to be sent to such party.

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              E.

            	
              Successors
      and Assigns. This Agreement shall be binding upon and inure to the
      benefit of the successors and assigns of each of the parties hereto. This
      Agreement may be assigned or transferred by Purchaser at any time without
      consent of Seller, including, without limitation, to a lender of
      Purchaser, provided the assignee agrees to be bound by the terms of this
      Agreement and Purchaser and Guarantor remain liable under this
      Agreement.   Any assignment made in violation of this
      provision shall be void.

            

    

    

    
      	
               
      

            	
              F.

            	
              Invalidity.
      If for any reason any term or provision of this Agreement shall be
      declared void and unenforceable by any court of law or equity it shall
      only affect such particular term or provision of this Agreement and the
      balance of this Agreement shall remain in full force and effect and shall
      be binding upon the parties hereto.

            

    

    

    
      	
               
      

            	
              G.

            	
              Complete
      Agreement. All understandings and agreements heretofore had between
      the parties are merged into this Agreement which alone fully and
      completely expresses their agreement. This Agreement may be changed only
      in writing signed by both of the parties hereto and shall apply to and
      bind the successors and assigns of each of the parties hereto and shall
      not merge with the deed delivered to Purchaser at
  closing.

            

    

    

    
      	
               
      

            	
              H.

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

            

    

    

    
      	
               
      

            	
              I.

            	
              Calculation
      of Time Periods. Unless otherwise specifically provided herein, in
      computing any period of time described in this Agreement, the day of the
      act or event after which the designated period of time begins to run is
      not to be included and the last day of the period so computed is to be
      included, unless such last day is a Saturday, Sunday or legal holiday
      under the laws of the State of Minnesota, in which event the period shall
      run until the end of the next day which is neither a Saturday, Sunday or
      legal holiday. The final day of such period shall be deemed to end at 5:00
      p.m., Minnesota time.

            

    

    

    
      	
               
      

            	
              J.

            	
              Attorneys’
      Fees. If
      any dispute arises between the parties regarding this Agreement or the
      subject matter thereof, the prevailing party in any court action,
      administrative proceeding or alternative dispute resolution commenced or
      maintained to resolve such dispute, shall be entitled to an award of
      reasonable attorneys’ fees, disbursements and court costs in addition to
      any other remedy to which the parties are
  entitled.

            

    

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              K.

            	
              Survival. All of the warranties,
      covenants, and representations made herein by either Seller or Purchaser
      shall survive closing and the delivery of the Deed to Purchaser, or the
      earlier termination of this Agreement for six
  months.

            

    

    

    
      	
               
      

            	
              M.

            	
              Tax
      Petition.  Seller and Purchaser acknowledge that the
      Purchase Price is less than the current assessed value of the
      Premises.  Seller shall cooperate, at no expense to itself, with
      the Purchaser in filing a petition to reduce the assessed valuation of the
      Premises prior to March 31, 2008 at Purchaser’s sole
      expense.  All rights with respect to the petition and any refund
      of taxes payable as a result thereof shall be the sole property of the
      Purchaser.

            

    

    

    
      	
               
      

            	
              N.

            	
              Consulting.  Seller
      shall consent to Purchaser retaining at its expense the services of former
      building superintendent/facility manager, John Theringer provided that
      such services shall not be scheduled so as to impair his abilities to
      perform his customary duties in the employment of Seller.  The
      terms and conditions of such employment shall be determined between the
      Purchaser and John Theringer and Seller shall have no responsibility or
      liability with respect thereto.

            

    

    

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

    

    
      	
              Seller:

            	 
      	
              Purchaser:

            	 
	
              NATURE
      VISION, INC.

            	 
      	
              NATZEL,
      LLC

            	 
	 
      	 
      	 
      	 
      	 
      	 
	
              By:

            	
              /s/ David Kolkind

            	 
      	
              By:

            	
              /s/ Howard Natzel

            	 
      
	
              Name: 
      

            	
              David
      Kolkind

            	 
      	
              Name: 
      

            	
              Howard
      Natzel

            	 
	
              Its:

            	
              CFO

            	 
      	
              Its:

            	
              President

            	 

    

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    CORPORATE
GUARANTY

    

    All-Pac, Inc. ("Guarantor") is a
related entity of the Purchaser named above.  Guarantor understands
that the Seller has entered into the foregoing Purchase Agreement in reliance
upon said Guarantor’s execution of this Guaranty, and that but for such
Guaranty, Seller would have been unwilling to enter into the Purchase
Agreement.  Therefore, and in consideration thereof, the undersigned
Guarantor, as indicated in Article 4 above, hereby absolutely and
unconditionally guaranty the payment and performance by Purchaser of all of
Purchaser's obligations, debts, liabilities and undertakings, including, without
limitation, the indemnification and reimbursement obligations incident thereto,
arising under or in any manner connected with Article 4 of the foregoing
Purchase Agreement.

    

    
      	 
      	
              ALL-PAC,
      INC.

            	 
      
	 
      	 
      	 
      
	 
      	
              /s/ Howard Natzel

            	 
      
	 
      	
              Howard
      Natzel, President

            	 
      

    

    

    

    

    

    

    ACCEPTANCE BY ESCROW
AGENT

    

    The
undersigned, being the Escrow Agent referred to in the above Agreement, hereby
acknowledges and accepts the terms of this Agreement as its escrow instructions
and agrees to act in accordance herewith.

    

    Acknowledged
and agreed to this ____ day of ________, 2008.

    

    Escrow
Agent:

    

    COMMERCIAL
PARTNERS, LLC

    

    

    
      	
              By:

            	 
      	 
      	 
      	 
      
	 
      	
              Name:

            	 
      	 
      	 
      
	 
      	
              Its:

            	 
      	 
      	 
      

    

    

     

    18EMPLOYMENT
      AGREEMENT

    

    THIS
      EMPLOYMENT AGREEMENT (“Agreement”),
      executed this 2nd
      day of
      January 2008 (the “Effective
      Date”)
      is
      between ATSI Communications, Inc., a Nevada corporation (the “Employer”),
      and
Arthur
      L. Smith,
      an
      individual resident of the State of Texas (“Employee”).

    

    RECITALS:

    

    
      	A.	
              Employer
                considers the maintenance of a sound and effective management team,
                including Employee, essential to protecting and enhancing its best
                interests and those of its
                stockholders.

            

    

    

    
      	B.	
              Employer
                desires to offer employment to Employee and Employee desires to be
                employed by Employer.

            

    

    

    
      	C.	
              Employer
                and Employee agree to enter into an Employment Agreement providing
                for a
                one-year term with automatic annual renewal on the terms and conditions
                herein provided.

            

    

    

    NOW,
      THEREFORE, in consideration of Employer’s agreement to employ Employee pursuant
      to the terms of this Agreement and Employee’s future employment with Employer,
      and other good and valuable consideration, the parties agree as
      follows:

    

    Section
      1. Employment.  Employer
      hereby employs Employee, and Employee hereby accepts employment, upon the terms
      and subject to the conditions stated in this Agreement. 

    

    Section
      2. Duties.  Employee
      shall be employed as the CEO
      & President of
      Employer, or such other comparable positions with Employer to which he may
      be
      appointed by the Board of Directors of Employer (the “Board”).
      Employee shall have such duties and responsibilities as are normally associated
      with the foregoing position and such additional duties and responsibilities
      as
      he may be assigned from time to time by the Board. It is understood that
      Employee may be requested from time to time to provide assistance or services
      to
      subsidiary and affiliated companies of Employer or other company that are wholly
      or partially owned by Employer (each an “Affiliate”).
      Employee shall perform such services without additional compensation other
      than
      the compensation set forth in this Agreement. Employee agrees to devote his
      full
      work time and best efforts to the performance of the duties as an employee
      of
      Employer and to the performance of such other duties as assigned him from time
      to time by Employer.

    

    Section
      3. Term.  The
      Agreement shall commence on the Effective Date and continue until the last
      day
      of the fiscal year in which the Effective Date occurs (the “Initial
      Term”).
      Unless Employer or Employee shall provide the other with at least 60 days
      written notice, this Agreement shall automatically renew thereafter on the
      first
      day of each fiscal year of Employer for an additional one year term commencing
      on such first day of each fiscal year and continuing until the last day of
      such
      fiscal year (each, an “Extension
      Term”
and
      together with the Initial Term, the “Employment
      Period”).
      The
      foregoing notwithstanding, the Employment Period may be terminated early in
      accordance with Section 6 of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    Section
      4. Compensation
      and Benefits.  In
      consideration for the services of Employee hereunder, Employer shall compensate
      Employee as follows during the Employment Period:

    

    (a) Base
      Salary.  Employer
      shall pay Employee a base salary at the rate of at least $150,000 per year,
      payable in accordance with the regular payroll practices of Employer for
      executives. The Base Salary shall be reviewed annually by the Board during
      the
      first quarter of each fiscal year and shall be increased by such amount as
      the
      Board shall deem appropriate effective as of the first day of such fiscal year;
      provided that such increase shall be in an amount of not less than the increase,
      if any, in the Consumer Price Index as of the previous December 31 using the
      December 31, 2007 as the base year. The Base Salary may not be decreased at
      any
      time during the Employment Period. 

    

    (b) Executive
      Bonus Plan.  Employee
      shall be eligible to receive from Employer such management incentive bonuses
      as
      may be provided in management incentive bonus plans adopted from time to time
      by
      Employer or approved by the Board. 

    

    (c) Stock Options.  Employee
      shall participate in the stock compensation plan adopted by the Board to provide
      management and employees with long-term stock-based compensation. The number
      and
      terms of any options or other stock compensation granted to Employee under
      the
      stock compensation plan shall be determined by the Board in its discretion.
      

    

    (d) Vacation.  Employee
      shall be entitled time off in accordance with Employee’s vacation and absence
      policy, as it may be modified from time to time during Employee’s employment
      hereunder; provided that Employee will have no less than three (3) weeks of
      paid
      vacation during the Initial Term or any Extension Term of this Agreement. Any
      time off not used within the Initial Term or any Extension Term shall be
      accumulated and may be used during any subsequent Extension Term up to an
      aggregate amount of five (5) weeks during any Extension Term.

    

    (e) Group
      Insurance Benefits.  Employee
      shall be entitled to participate in Employer’s group health, life and disability
      programs as are made available to Employer’s other
      executives and Employee’s participation in such programs shall be at the same
      rates that are available to Employer’s other executives. Nothing herein shall be
      deemed to require Employer to adopt and maintain a group health, life and
      disability program or to limit or prohibit Employer’s right to amend or
      terminate any group health, life or disability program adopted by
      Employer.

    

    (f) Savings
      Plans.  Employee
      shall be entitled to participate in Employer’s 401(k) savings plan, profit
      sharing plan, or other retirement or savings plans as are made available to
      Employer’s other executives on the same terms that are available to Employer’s
      other executives. Nothing herein shall be deemed to require Employer to adopt
      and maintain a 401(k) savings plan or other retirement or savings plans or
      to
      limit or prohibit Employer’s right to amend or terminate any 401(k) savings plan
      or other retirement or savings plans adopted by Employer.

     

    
      
        
        

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

     

    Section
      5. Expenses.  The
      parties anticipate that in connection with the services to be performed by
      Employee pursuant to the terms of this Agreement, Employee will be required
      to
      make payments for travel, entertainment of business associates and similar
      expenses. Employer shall reimburse Employee for all appropriate and reasonable
      expenses authorized by Employer and incurred by Employee in the performance
      of
      his duties hereunder. Employee shall comply with such budget limitations and
      approval and reporting requirements with respect to expenses as Employer may
      establish from time to time.

    

    Section 6. Termination.

    

    (a) General.  Employee’s
      employment hereunder shall commence on the Effective Date and continue until
      the
      end of the Employment Period, except that the employment of Employee hereunder
      shall terminate prior to such time in accordance with the
      following:

    

    (i) Death
      or Disability.  Upon
      the death of Employee during the Employment Period or, at the option of
      Employer, in the event of Employee’s Disability, upon 30 days’ notice to
      Employee. “Disability” with respect to Employee shall be deemed to exist if
      Employee meets the definition of either “disabled” or “disability” under the
      terms of Employer’s long-term disability benefit program (including the
      definitions for total or partial disability) or if there is no such definition
      or program, if Employee is unable to perform his obligations under this
      Agreement for a period of 30 consecutive days or 60 days in any twelve month
      period. Any refusal by Employee to submit to a reasonable medical examination
      to
      determine whether Employee is so disabled shall be deemed to constitute
      conclusive evidence of Employee’s disability.

    

    (ii) For
      Cause.  Immediately
      upon written notice from Employer specifying that one or more of the following
      events has occurred (except that Employee shall have 30 days after such notice
      to cure or otherwise resolve the occurrence of the events set forth in
      paragraphs 3, 4 or 5):

    

    
      	
            	(1)	
              Employee
                is convicted of fraud, bribery, embezzlement or other material dishonesty
                with the respect to the business of Employer, or Employer discovers
                that
                Employee has been convicted of any such act in the past with respect
                to a
                previous employer; or

            

    

    

    
      	
            	(2)	
              Employee
                is convicted of a felony or any criminal act involving moral turpitude
                or
                Employer discovers that Employee has been convicted of any such act
                in the
                past; or

            

    

    

    
      	
            	(3)	
              Employee
                commits a material breach of any of the covenants, representations,
                terms
                or provisions hereof; or 

            

    

     

    
      
        
        

      

      
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            	(4)	
              Employee
                violates any material instructions or policies of Employer with respect
                to
                the operation of its business or affairs or Employee fails in a material
                way to obey written directions delivered to Employee by the Board;
                or

            

    

    

    
      	 	
              (5)

            	
              Employee
                commits or omits to perform any act the performance of which, or
                the
                omission of which, constitutes substantial failure of Employee to
                diligently and effectively perform his duties to Employer or has
                a
                material adverse effect or could materially adversely affect Employer’s
                business reputation; or

            

    

    

    
      	 	
              (6)

            	
              Employee
                uses illegal drugs.

            

    

     

    (iii) By
      Employee for Good Reason.  Employee
      may terminate his employment hereunder for Good Reason upon written notice
      to
      the Company setting forth the nature of such Good Reason in reasonable detail
      (except that Employer shall have 15 days after such notice to cure or otherwise
      resolve the occurrence of the events set forth in paragraphs 1, 2, 3). “Good
      Reason” shall mean:

    

    
      	 	
              (1)

            	
              Employer
                commits a material breach of any of the covenants, representations,
                terms
                or provisions hereof or fails to provide Employee the Base Salary
                and
                incentive compensation and benefits in accordance with the terms
                of
                Section 4 herein; or

            

    

    

    
      	 	
              (2)

            	
              any
                material and adverse diminution in Employee’s duties or responsibilities
                with Employer; or

            

    

    

    
      	 	
              (3)

            	
              any
                relocation of Employee from San Antonio, Texas without Employee’s consent;
                or

            

    

    

    
      	 	
              (4)

            	
              at
                any time upon written notice by Employee to Employer within 12 months
                after (A) a merger or consolidation of Employer with any person; or
                (B) the sale, lease, or other disposition of all or substantially all
                of Employer’s assets to any person; unless in each case, the board of
                directors or other governing body of the surviving person or acquirer,
                as
                the case may be, is the same as the Board immediately before such
                transaction; or

            

    

    

    
      	 	
              (5)

            	
              the
                acquisition by any person of voting securities constituting 20% or
                more of
                the outstanding voting securities issued by Employer or the right
                to
                elect, by ownership of voting securities or otherwise, more than
                33% of
                the persons that make up the Board.

            

    

     

    
      
        
        

      

      
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          4 -

        
          

        

      

      
        
        

      

    

     

    (iv) Voluntary
      Termination.  Either
      Party may voluntarily terminate the employment of Employee upon thirty (30)
      days’ written notice to the other. Any such termination by Employer shall be
      without Cause if the notice of termination fails to specify one of the reasons
      set forth in Section 6(a)(ii) (or if any such reason is specified that may
      be cured by Employee has been cured within the applicable cure period). Any
      such
      termination by Employee shall be without Good Reason if the notice of
      termination fails to specify one of the reasons set forth in
      Section 6(a)(iii) (or if any such reason is specified that may be cured by
      Employer has been cured within the applicable cure period). 

    

    (b) Severance
      Benefits.  

    

    (i) In
      the
      event that Employee’s employment hereunder is terminated as a result of
      Employee’s death or disability pursuant to Section 6(a)(i), Employer shall
      pay Employee (or his estate) a cash amount equal to Employee’s Base Salary for
      the lesser of (A) the period prior to the commencement of benefits under
      any death or disability insurance provided by Employer; or (B) the
      remaining term of this Agreement or sixty (60) days from the date of such death
      or disability, whichever is greater. In addition to the payment under the first
      sentence of this subsection, Employer shall pay all unpaid expense
      reimbursements under Section 5 for expenses incurred in accordance with the
      terms hereof prior to termination and compensation and all accrued and unused
      vacation time as of the date of termination. 

    

    (ii) In
      the
      event that Employee’s employment hereunder is terminated by Employer for Cause
      pursuant to Section 6(a)(ii), Employee provides Employer notice that
      Employee that the Agreement will not be renewed for any Extension Term, or
      voluntarily by Employee pursuant to Section 6(a)(iv), Employer shall have
      no obligation to make any payments to Employee except for payments of Employee’s
      Base Salary accruing prior to the date of termination.

    

    (iii) In
      the
      event that Employee’s employment hereunder is terminated by Employee for Good
      Reason pursuant to Section 6(a)(iii), Employer provides Employee with
      notice that the Agreement will not be renewed for any Extension Term, or
      voluntarily by Employer pursuant to Section 6(a)(iv), Employer shall pay
      Employee a cash amount equal to Employee’s Base Salary for a period of twelve
      (12) months plus one (1) month for each year of employment by Employer;
      (B) Employer shall continue coverage under Employer’s group health, life
      and disability plan and contribute the Employer’s cost of such coverage for a
      period of twelve (12) months plus one (1) month for each year of employment
      by
      Employer (or pay such amount to Employee as reimbursement for the costs of
      continuing coverage under COBRA or obtaining comparable independent coverage);
      and (C) all options, grants, or other rights issued to Employee under
      Employer’s Stock Compensation Plan, incentive compensation plan, or other
      benefit plans shall immediately vest and be exercisable for the lesser of twelve
      (12) months plus one (1) month for each year of employment by Employer or the
      remaining term of such rights, whichever is less. For the purposes of this
      paragraph 6(b)(iii), Employee will be deemed to have been employed by Employer
      on December 16, 1993. 

    

    
      
        
        

      

      
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          5 -

        
          

        

      

      
        
        

      

    

    Section 7. Inventions;
      Assignment.

    

    (a) Inventions
      Defined.  All
      rights to discoveries, inventions, improvements, designs and innovations
      (including all data and records pertaining thereto) that relate to the business
      of Employer, including its Affiliates, whether or not able to be patented,
      copyrighted or reduced to writing, that Employee may discover, invent or
      originate during the term of his employment hereunder, and for a period of
      six
      (6) months thereafter, either alone or with others and whether or not during
      working hours or by the use of the facilities of Employer (“Inventions”),
      shall
      be the exclusive property of Employer. Employee shall promptly disclose all
      Inventions to Employer, shall execute at the request of Employer any assignments
      or other documents Employer may deem necessary to protect or perfect its rights
      therein, and shall assist Employer, at Employer’s expense, in obtaining,
      defending and enforcing Employer’s rights therein. Employee hereby appoints
      Employer as his attorney-in-fact to execute on his behalf any assignments or
      other documents deemed necessary by Employer to protect or perfect its rights
      to
      any Inventions.

    

    (b) Covenant
      to Assign and Cooperate.  Without
      limiting the generality of the foregoing, Employee shall assign and transfer
      to
      Employer the worldwide right, title and interest of Employee in the Inventions.
      Employee agrees that Employer may apply for and receive patent rights (including
      Letters Patent in the United States) for the Inventions in Employer’s name in
      such countries as may be determined solely by Employer. Employee shall
      communicate to Employer all facts known to Employee relating to the Inventions
      and shall cooperate with Employer’s reasonable requests in connection with
      vesting title to the Inventions and related patents exclusively in Employer
      and
      in connection with obtaining, maintaining and protecting Employer’s exclusive
      patent rights in the Inventions.

    

    (c) Successors
      and Assigns.  Employee’s
      obligations under this Section 7 shall inure to the benefit of Employer, its
      Affiliates and their respective successors and assigns and shall survive the
      expiration of the term of this Agreement for such time as may be necessary
      to
      protect the proprietary rights of Employer and its Affiliates in the
      Inventions.

    

    Section
      8. Confidential
      Information.

    

    (a) Acknowledgment
      of Proprietary Interest.  Employee
      acknowledges the proprietary interest of Employer and its Affiliates in all
      Confidential Information (as defined below). Employee agrees that all
      Confidential Information learned by Employee during his employment with Employer
      or otherwise, whether developed by Employee alone or in conjunction with others
      or otherwise, is and shall remain the exclusive property of Employer. Employee
      further acknowledges and agrees that his disclosure of any Confidential
      Information will result in irreparable injury and damage to
      Employer.

    

    (b) Confidential
      Information Defined.  “Confidential
      Information” means all trade secrets, copyrightable works, confidential or
      proprietary information of Employer or its Affiliates, including without
      limitation, (i) information derived from reports, investigations,
      experiments, research and work in progress, (ii) methods of operation,
      (iii) market data, (iv) proprietary computer programs and codes,
      (v) drawings, designs, plans and proposals, (vi) marketing and sales
      programs, (vii) the identities of clients or customers,
      (viii) historical financial information and financial projections,
      (ix) pricing formulae and policies, (x) all other concepts, ideas,
      materials and information prepared or performed for or by Employer and
      (xi) all information related to the business, services, products, purchases
      or sales of Employer or any of its suppliers and customers, other than
      information that is publicly available.

     

    
      
        
        

      

      
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          6 -

        
          

        

      

      
        
        

      

    

     

    (c) Covenant
      Not To Divulge Confidential Information.  Employer
      is entitled to prevent the disclosure of Confidential Information. As a portion
      of the consideration for the employment of Employee and for the compensation
      being paid to Employee by Employer, Employee agrees to hold in strict confidence
      and not to disclose or allow to be disclosed to any person, firm or corporation,
      other than to persons engaged by Employer to further the business of Employer,
      and not to use except in the pursuit of the business of Employer, the
      Confidential Information, without the prior written consent of
      Employer.

    

    (d) Return
      of Materials at Termination.  In
      the event of any termination or cessation of his employment with Employer for
      any reason, Employee shall promptly deliver to Employer all documents, data
      and
      other information derived from or otherwise pertaining to Confidential
      Information. Employee shall not take or retain any documents or other
      information, or any reproduction or excerpt thereof, containing or pertaining
      to
      any Confidential Information.

    

    Section 9. Non-Solicitation.

    

    (a) Solicitation
      of Employees.  During
      Employee’s employment with Employer and for a period equal to the greater of
      (i) six (6) months after termination of such employment at any time and for
      any reason, or (ii)  the term of any severance benefits payable under
      Section 6 hereof, Employee shall not solicit, participate in or promote the
      solicitation of any person who was employed by Employer or any of its Affiliates
      at the time of Employee’s termination of employment with Employer to leave the
      employ of Employer or any of its Affiliates, or, on behalf of himself or any
      other person, hire, employ or engage any such person. Employee further agrees
      that, during such time, if an employee of Employer or any of its Affiliates
      contacts Employee about prospective employment, Employee will inform such
      employee that he or she cannot discuss the matter further without the consent
      of
      Employer (and the applicable affiliate).

    

    (b) Solicitation
      of Clients, Customers, Etc.  During
      Employee’s employment with Employer and for a period of six (6) months after
      termination of Employee’s employment at any time and for any reason, Employee
      shall not, directly or indirectly, solicit any person who either during any
      portion of the time of Employee’s employment or at the time of termination of
      Employee’s employment with Employer, was a client, customer, policyholder,
      vendor, consultant or agent of Employer or its Affiliates to discontinue
      business, in whole or in part, with Employer or its Affiliates. Employee further
      agrees that, during such time, if such a client, customer, policyholder, vendor,
      or consultant or agent contacts Employee about discontinuing business with
      Employer or moving that business elsewhere, Employee will inform such client,
      customer, policyholder, vendor, consultant or agent that he or she cannot
      discuss the matter further without the consent of Employer (and the applicable
      affiliate).

     

    
      
        
        

      

      
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          7 -

        
          

        

      

      
        
        

      

    

     

    Section
      10. Non-Compete.  Employer
      agrees to disclose to Employee and Employee agrees to receive from Employer
      Confidential Information (as set forth above) which would provide competitors
      of
      Employer with an unfair advantage. In consideration for such disclosure by
      Employer, Employee agrees as follows:

    

    (a) Competition
      During Employment.  Employee
      agrees that during the term of his employment with Employer, neither he nor
      any
      of his Affiliates (Employee’s Affiliates is defined as any legal entity in which
      Employee owns, controls, holds a financial interest in or is the beneficiary
      of)
      will directly or indirectly compete with Employer or its Affiliates in any
      way
      in any business in which Employer or its Affiliates is engaged or intends to
      engage, and that he will not act as an officer, director, employee, consultant,
      shareholder, lender, or agent of any entity which is engaged in any business
      of
      the same nature as, or in competition with, the businesses in which Employer
      and
      its Affiliates are now engaged or in which Employer or its Affiliates become
      engaged during the term of employment; provided, however, that this
      Section 10(a) shall not prohibit Employee or any of his Affiliates from
      purchasing or holding an aggregate equity interest of up to 10% in any publicly
      traded business in competition with Employer and its Affiliates, so long as
      Employee and his Affiliates combined do not purchase or hold an aggregate equity
      interest of more than 10%. Furthermore, Employee agrees that during the term
      of
      employment, he will not accept any board of director seat or undertake any
      planning for the organization of any business activity competitive with Employer
      and Employee will not combine or conspire with any other employees of Employer
      and its Affiliates for the purpose of the organization of any such competitive
      business activity.

    

    (b) Competition
      Following Employment.  In
      order to protect Employer against the unauthorized use or the disclosure of
      any
      Confidential Information of Employer and its Affiliates presently known or
      hereinafter obtained by Employee during his employment under this Agreement,
      Employee agrees that for a period equal to the greater of (i) six (6)
      months after the termination or cessation of his employment with Employer at
      any
      time and for any reason, other than cessation of his employment caused by
      Employer’s filing for reorganization under the bankruptcy laws of the United
      States, and regardless of whether any payments are made to Employee under this
      Agreement as a result of such termination, or (ii) the period for which any
      severance benefits are payable under Section 6 hereof, neither Employee nor
      any of his Affiliates, shall, directly or indirectly, for itself or himself
      or
      on behalf of any other corporation, person, firm, partnership, association,
      or
      any other entity (whether as an individual, agent, servant, employee, employer,
      officer, director, shareholder, investor, principal, consultant or in any other
      capacity):

    

    (i) engage
      or
      participate in any business which engages in competition with such businesses
      being conducted by Employer or any of its Affiliates during the term of
      employment anywhere in any state in the United States or in any foreign country
      where Employer or any of its Affiliates is engaged; or

    

    (ii) assist
      or
      finance any person or entity in any manner or in any way inconsistent with
      the
      intents and purposes of this Agreement.

     

    
      
        
        

      

      
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    Section
      11. General.

    

    (a) Notices.  All
      notices and other communications hereunder shall be in writing or by written
      telecommunication, and shall be deemed to have been duly given if delivered
      personally or if mailed by certified mail, return receipt requested or by
      written telecommunication, to the relevant address set forth below, or to such
      other address as the recipient of such notice or communication shall have
      specified to the other party in accordance with this Section 11(a):

    

    If
      to
      Employer, to:

    

    ATSI
      Communications, Inc.

    3201
      Cherry Ridge, Suite C300

    San
      Antonio, Texas, 78230

    Attention:
      President 

     

    If
      to
      Employee, to Employee’s last known address appearing on Employer’s
      records.

    

    (b) Withholding.  All
      payments required to be made to Employee by Employer under this Agreement shall
      be subject to the withholding of such amounts, if any, relating to federal,
      state and local taxes as may be required by law and such amounts, if any, as
      Employee shall authorize in connection with benefit plans in which Employee
      is a
      participant.

    

    (c) Equitable
      Remedies.  Each
      of the parties hereto acknowledges and agrees that upon any breach by Employee
      of his obligations under any of Sections 7, 8, 9, and 10 Employer shall suffer
      immediate, great and irreparable injury and shall have no adequate remedy at
      law. Accordingly, in event of such breach or threatened breach, Employer shall
      be entitled, in addition to other remedies and without showing actual damages,
      to specific performance and other appropriate injunctive and equitable relief.
      Employer shall not be obligated to provide a bond for any such
      injunction.

    

    (d) Severability.  If
      any provision of this Agreement is held to be illegal, invalid or unenforceable,
      such provision shall be modified as to duration or geography to the minimum
      extent necessary to make it legal, valid and enforceable and as so modified
      enforced. If any such provision cannot be modified to be made legal, valid
      and
      enforceable, such provisions shall be fully severable, and this Agreement shall
      be construed and enforced as if such illegal, invalid or unenforceable provision
      never comprised a part hereof, and the remaining provisions hereof shall remain
      in full force and effect and shall not be affected by the illegal, invalid
      or
      unenforceable provision or by its severance. Furthermore, in lieu of such
      illegal, invalid or unenforceable provision, there shall be added automatically
      as part of this Agreement a provision as similar in its terms to such illegal,
      invalid or unenforceable provision as may be possible and be legal, valid and
      enforceable.

    

    (e) Effect
      on Other Agreements.  This
      Agreement modifies and amends, to the extent necessary to give effect to the
      provisions hereof, any Stock Option Agreement, Stock Grant, or other contract
      relating to the issuance of benefits under Employer’s benefit
      plans.

     

    
      
        
        

      

      
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          9 -

        
          

        

      

      
        
        

      

    

     

    (f) Waivers.  No
      delay or omission by either party in exercising any right, power or privilege
      hereunder shall impair such right, power or privilege, nor shall any single
      or
      partial exercise of any such right, power or privilege preclude any further
      exercise thereof or the exercise of any other right, power or
      privilege.

    

    (g) Counterparts.  This
      Agreement may be executed in multiple counterparts, each of which shall be
      deemed an original, and all of which together shall constitute one and the
      same
      instrument.

    

    (h) Captions.  The
      captions in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect any of the terms or provisions hereof.

    

    (i) Interpretation
      of Agreement.  This
      Agreement shall be construed according to its fair meaning and not for or
      against either party. The Parties have each been represented by counsel (or
      advised of their right to be represented by counsel and waived such right)
      and
      have participated in the drafting of this Agreement. No rule of construction
      or
      interpretation shall be applied that construes any provision against a Party
      because it was drafted by such Party. Use of the words “herein,” “hereof,”
“hereto,” “hereunder” and the like in this Agreement refer to this Agreement
      only as a whole and not to any particular section or subsection of this
      Agreement, unless otherwise noted. The masculine gender shall be deemed to
      denote the feminine or neuter genders, the singular to denote the plural, and
      the plural to denote the singular, where the context so permits.

    

    (j) Binding
      Agreement;
      Assignment.  This
      Agreement shall be binding upon and inure to the benefit of the parties and
      shall be enforceable by the personal representatives and heirs of Employee
      and
      the successors and assigns of Employer. The Affiliates of Employer shall be
      considered third party beneficiaries of this Agreement with respect to any
      services provided by Employee to them and in connection with Employee’s
      covenants in Sections 7, 8, 9 and 10 hereof. Employer may assign this Agreement
      to any person. If Employee dies while any amounts would still be payable to
      him
      hereunder, such amounts shall be paid to Employee’s estate. This Agreement is
      not otherwise assignable by Employee.

    

    (k) Entire
      Agreement.  This
      Agreement contains the entire understanding of the parties, supersedes all
      prior
      agreements and understandings relating to the subject matter hereof and may
      not
      be amended except by a written instrument hereafter signed by each of the
      parties hereto. 

    

    (l) Governing
      Law.  This
      Agreement and the performance hereof shall be construed and governed in
      accordance with the laws of the State of Texas, without regard to its choice
      of
      law principles.

     

    
      
        
        

      

      
        -
          10 -

        
          

        

      

      
        
        

      

    

     

    (m) Arbitration.  Without
      limiting Employer’s right to seek equitable remedies under Section 11(c)
      above, Employer and Employee agree that any dispute or controversy arising
      under
      or in connection with this Agreement shall be settled first by attendance at
      a
      mandatory mediation process and, if not resolved by mediation, by arbitration.
      If the parties are unable to agree on a mediator, either party may petition
      a
      Bexar County state district court judge for assistance in selecting a mediator.
      Arbitration under this Agreement shall be governed by the Federal Arbitration
      Act and proceed in San Antonio, Texas in accordance with the rules of the
      American Arbitration Association (“AAA”).
      Arbitration will be conducted before a panel of three neutral arbitrators
      selected from an AAA list of proposed arbitrators with business law experience.
      Either party may take any legal action needed to protect any right pending
      completion of the arbitration. The arbitrator will determine whether an issue
      is
      arbitrate able and will give effect to applicable statutes of limitation. The
      arbitrator has the discretion to decide, upon documents only or with a hearing,
      any motion to dismiss for failure to state a claim or any motion for summary
      judgment. Discovery shall be governed by the Federal Rules of Civil Procedure
      and the Federal Rules of Evidence. All information developed by the arbitration
      or litigation shall be held in confidence subject to such protective orders
      as
      the arbitrator deems useful to ensure complete confidentiality. The decision
      of
      the arbitrator shall be final and binding on all parties to this Agreement,
      and
      judgment thereon may be entered in any court having jurisdiction over the
      parties. The party against whom the arbitrator decides shall pay all costs
      of
      the arbitration proceeding or litigation to enforce the arbitration
      award.

    

    (n) Employee
      Representations.  Employee
      represents and certifies to Employer that he: (i) has received a copy of
      this Agreement for review and study and has had ample time to review it before
      signing; (ii) has read this Agreement carefully; (iii) has been given
      a fair opportunity to discuss and negotiate the terms of this Agreement;
      (iv) understands its provisions; (v) has had the opportunity to
      consult his attorney; (vi) has determined that it is in his best interest
      to enter into his Agreement; (vii) has not been influenced to sign this
      Agreement by any statement or representation by Employer or its counsel not
      contained in this Agreement; and (viii) enters into this Agreement
      knowingly and voluntarily.

      

    EXECUTED
      as of the date and year first above written.

     

    
      	 	EMPLOYER:
	 	 	 
	 	ATSI
              Communications, Inc.
	 
 	 
 	 
 
	 	By:  	/s/ John
              Fleming
	 	 	Name: John Fleming
	 	 	Title: Interim Chairman 
	 	 	 
	 	 	 
	 	EMPLOYEE:
	 	 	 
	 	 	 
	 	/s/ Arthur
              L. Smith
	 	Arthur
              L. Smith 
	 	 	 

    

     

    
      
        
        

      

      
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          11 -

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