Document:

Exhibit
10.1

LOAN
AGREEMENT

THIS LOAN AGREEMENT (“Agreement”)
is made and entered into this 15th day of August, 2007 (“Closing Date”), by and
between Anchor Bank Saint Paul, N.A. (“Lender”) and Ballistic Recovery Systems,
Inc., a Minnesota corporation (“Borrower”).

NOW, THEREFORE, Lender and
Borrower hereby agree as follows:

ARTICLE I

Loan
Commitment

Section 1.01: 
Subject to the terms and conditions hereinafter set forth, Lender agrees
to make Advances, as defined below, to Borrower in an aggregate principal
amount which shall not exceed at any given time the amount of Eight Hundred
Twenty Thousand and no/100ths Dollars (U.S. $820,000.00) (the “Loan”).  For purposes of this Agreement, “Advance”
shall mean an advance by Lender to Borrower pursuant to Article II hereof.

Section 1.02: 
The Advances made by Lender shall be evidenced by and payable with
interest thereon in accordance with the terms and conditions of that certain
promissory note, of even date herewith, in the maximum principal amount of
Eight Hundred Twenty Thousand and no/100ths Dollars (U.S. $820,000.00) (the “Note”).

Section 1.03: 
The payment of the Advances made under the Note shall be secured by,
among other things, (i) that certain Security Agreement, of even date herewith,
between Lender and Borrower (the “Asset Security Agreement”), encumbering the
assets of Borrower, as more fully described in the Asset Security Agreement;
and (ii) that certain Security Agreement, of even date herewith, between Lender
and Borrower (the “Airplane Security Agreement”), encumbering that certain
Cessna airplane owned by Borrower, as more fully described in the Airplane
Security Agreement.  The Asset Security
Agreement and the Airplane Security Agreement are referred to herein collectively
as the “Security Agreements”.  All
collateral described in the Security Agreements is referred to herein
collectively as the “Collateral”.

Section 1.04:  This Agreement, the Note, the Security
Agreements, and any and all related agreements are collectively referred to
herein as the “Loan Documents”.

Section 1.05: 
Notwithstanding anything to the contrary herein the aggregate balance of
all Advances outstanding on the Note and owing hereunder and pursuant to the
Loan Documents, shall not, except at the sole discretion of Lender, exceed at
any one time the sum of Eight Hundred Twenty Thousand and no/100ths Dollars
(U.S. $820,000.00).

Section 1.06:  Borrower shall use the proceeds of the Loan for Borrower’s business
working capital and to reimburse the repayment of all outstanding indebtedness
owing to Charles F. Parsons and Aerospace Marketing, Inc.

ARTICLE II

Advances,
Disbursements, and Draw Requests

Section 2.01:  Advances.  Lender agrees, subject to the conditions set
forth in this Agreement, to make Advances to the Borrower from time to time
prior to the Maturity Date (as defined in the Note) in an aggregate amount not
to exceed Eight Hundred Twenty Thousand and no/100ths Dollars (U.S.
$820,000.00).  The obligation of Borrower to repay the
Advances shall be evidenced by the Note. 
All Advances are secured by the Loan Documents.  Notwithstanding any provision of the Note,
interest shall

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be payable at the rates
provided therein only on such amounts as actually have been disbursed by Lender
pursuant to this Agreement.

Section 2.02:  Requests
for Advance.  Each time Borrower
desires to obtain an Advance, Borrower shall submit, to Lender, a request for
such Advance (“Request for Advance”), stating the amount requested and the
purpose, in terms sufficiently detailed to Lender in its discretion, for which
such Advance is to be used.  If a request
for an Advance is received by 11:00 o’clock a.m. Minnesota time, then, subject
to the remaining terms and conditions of this Agreement, such Advance shall be
made on the date the request is received. 
If a request for an Advance is received after 11:00 o’clock a.m.
Minnesota time, then, subject to the remaining terms and conditions of this
Agreement, such Advance shall be made on the next business day.  All funds so advanced under this Agreement for
any purpose shall be deemed advanced hereunder, shall be evidenced by and owing
under the Note, and shall be secured by the Loan Documents.

Section 2.03:  Advances
Without Receipt of Request for Advance. 
Notwithstanding anything herein to the contrary, Lender shall have the
irrevocable right, at any time and from time to time, to make Advances
hereunder to pay any and all of the reasonable expenses incurred by Lender or
otherwise in connection with this Agreement or in connection with the
transactions contemplated by this Agreement, including, without limitation, any
and all fees for recording fees, insurance premiums, reasonable attorneys’
fees, and all other fees and costs incurred by Lender pursuant to Article IX of
this Agreement or otherwise in connection to the transactions contemplated by
this Agreement, all without receipt of a Request for Advance or other
authorization from Borrower.

Section 2.04:  Payments.  All payments of principal and interest made
by Borrower with respect to the Note shall be made to Lender at 66 Thompson
Avenue East, West St. Paul, Minnesota 55118, and in funds there current not
later than 5:00 p.m. Central Standard Time on the date such payment is due, or
at such other place and time as Lender may otherwise direct.  Any payments received after 5:00 p.m. Central
Standard Time (or after the time Lender may otherwise direct) shall be deemed
received on the following Business Day. 
For purposes of this Agreement, a “Business Day” shall mean any day
which is not a Saturday, Sunday, or bank holiday.

Section 2.05:  Prepayment.  Notwithstanding anything in this Agreement to
the contrary, Borrower may prepay the unpaid principal balance of the Note
without penalty or premium.

Section 2.06:  Application.  Lender, in its sole discretion, may apply any
payment received to any obligation of Borrower that is due and payable.

Section 2.07:  Advance Rates.  Notwithstanding any language to the contrary
in any of the Loan Documents, Advances under the Note shall be governed by a
monthly borrowing base requirement that shall consist of a borrowing base
certificate with Advances not to exceed (a) seventy five percent (75%) of eligible accounts receivable; (b) sixty
five percent (65%) of eligible
accounts receivable from certain high concentration customers (which, for
purposes of this Agreement, means any customer which generates accounts
receivable greater than fifty percent (50%) of the total accounts receivable); (c) fifty percent (50%) of eligible inventory (with a cap of
$410,000.00 against total eligible inventory); and (d) fifty percent (50%) of eligible net fixed assets.  All of the foregoing (referred to herein as
the “borrowing base”) shall be determined by Lender in its sole discretion.

Section 2.07:  Definitions.  For purposes of this Agreement, the following
definitions shall apply:

a.                                       “eligible
accounts receivable” shall mean, at any time, accounts receivable of Borrower
evidencing indebtedness of persons and/or entities to Borrower for goods
actually sold and delivered or services actually performed in the ordinary
course of business by Borrower to or for

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such persons
and/or entities, as to which goods or services no notice has been received by
Borrower from such persons and/or entities to the effect that such goods or
services are not acceptable and which accounts receivable have been outstanding
for less than ninety (90) days since their respective due dates (provided that
such due dates shall in no event be more than thirty (30) days after receipt by
such person and/or entity of an invoice for such accounts receivable), but
excluding, however, (i) accounts receivable owing by officers, directors,
shareholders, or employees of Borrower; (ii) accounts receivable with respect
to which goods are placed on consignment, guaranteed sale, “bill and hold”, or
other terms by reason of which the payment by the account debtor may be
conditional; (iii) accounts receivable owing by the United States or any
agency, department, or instrumentality thereof unless such accounts are freely
assignable to Lender under
the United States Assignment of Claims Act and Borrower has separately assigned
each such account to Lender in
compliance with such Act; (iv) accounts receivable owing by any subsidiary or affiliate
of Borrower; (v) accounts receivable with respect to which Borrower or any subsidiary
or affiliate is liable to the account debtor for goods sold or services
provided to Borrower or any subsidiary or affiliate by such account debtor to
the extent of Borrower’s or any subsidiary’s or affiliate’s liability to such
account debtor; (vi) accounts receivable which are due and payable to Borrower
from an account debtor located outside the United States of America; (vii) any
accounts receivable as to which the account debtor has claimed any setoff or
dispute to the extent of the amount in dispute; (viii) any accounts receivable
subject to any lien other than Lender’s perfected, first priority security
interest, or those expressly permitted by Lender in writing; (ix) any accounts
receivable owing by any person or entity which is insolvent and/or the subject
of any bankruptcy, receivership, or other insolvency proceeding; (x) any
accounts receivable deemed by the Lender
in its sole discretion exercised in good faith uncollectible; (xi) any
accounts receivable arising out of progress billings and/or bills for customer
deposits; and (xii) all accounts receivable from any account debtor where ten
percent (10%) or more of the accounts receivable from such account debtor have
been outstanding for more than ninety (90) days since their respective due
dates (where such due dates are not more than thirty (30) days after receipt by
such person and/or entity of an invoice for such accounts receivable).

b.                                      “eligible
inventory” shall mean, at any time, all inventory of raw materials and finished
products then owned by (and in the possession or under the control of) Borrower
and held for sale or disposition in the ordinary course of Borrower’s business,
in which Lender has a perfected, first priority security interest and which are
subject to no other liens other than those expressly permitted by Lender in
writing, valued at the lower of actual cost or fair market value, but
excluding, however, (i) inventory that has been shipped or delivered to a
customer on consignment, a sale or return basis, or on the basis of any similar
understanding; (ii) inventory with respect to which a claim exists disputing
Borrower’s title to or right to possession of such inventory; (iii) inventory
that is not in good condition or does not comply with any applicable laws,
rules, or regulations or the standards imposed by any governmental authority
with respect to its manufacture, use, or sale; and (iv) inventory that Lender,
in its sole discretion, has determined to be unmarketable (including, but not
limited to, inventory that is held outside of the United States and inventory
that is obsolete).

c.                                       “eligible
net fixed assets” shall mean, at any time, the net book value of all furniture,
fixtures, and equipment (excluding leasehold improvements) of Borrower as set
forth on the most recent balance sheet of the Borrower prepared in accordance
with generally accepted accounting principles (“GAAP”), consistently applied,
in which Lender has a perfected, first priority security interest and which are
subject to no other liens other than those expressly permitted by Lender in
writing; provided, however, that Lender may, in its sole discretion, add
additional eligibility criteria or reserves with respect to “eligible net fixed
assets” based upon the results of the most recent collateral audit performed
pursuant to Section 5.01(h).

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d.                                      “borrowing
base certificate” means a certificate by an officer of Borrower, in form and
substance acceptable to Lender, setting forth the calculation of the borrowing
base, including a calculation of each component thereof, all in such detail as
shall be reasonably satisfactory to Lender. 
All calculations of the borrowing base in connection with the
preparation of any borrowing base certificate shall originally be made by Borrower
and certified to Lender; provided, however, that Lender shall have the right to
review and adjust, in the exercise of its reasonable credit judgment, any such
calculation (i) to reflect its reasonable estimate of declines in value of any
of the collateral described therein, and/or (ii) to the extent that such
calculation is not in accordance with this Agreement.

ARTICLE III

Conditions
to Lending

Section 3.01: 
As a condition precedent to the obligation of Lender to make any
Advances hereunder, Borrower shall have delivered the following documents to
Lender:

a.                                       The
Note, duly executed by Borrower;

b.                                      The
Security Agreements, duly executed by Borrower and the related Financing
Statements covering the collateral described therein;

c.                                       Current
audited financial statements of Borrower, prepared in accordance with GAAP,
consistently applied, in form and substance acceptable to Lender, for the 2004,
2005, and 2006 calendar years;

d.                                      Certificate
or policy for all insurance required to be maintained by Borrower under the
Loan Documents;

e.                                       Copy
of the resolutions adopted by all of the shareholders and directors of
Borrower, authorizing and directing the execution of this Agreement and any
documents and instruments incidental thereto;

f.                                         Copies of the Articles of Incorporation,
Bylaws, and any Shareholder/Buy-Sell Agreement of Borrower, currently certified
as correct by an officer of Borrower;

g.                                      Certificate
of Good Standing, or other acceptable evidence establishing Borrower’s good
standing, from the Minnesota Secretary of State;

h.                                      Searches
for state and federal tax liens, bankruptcies, and judgments against Borrower,
in form and substance acceptable to Lender;

i.                                          Landlord
waivers, in form and substance acceptable to Lender, from the landlord with
respect to any and all leases for which Borrower is a tenant and with respect
to any and all locations at which any Collateral (as defined in any of the Loan
Documents) is currently located, or will be located during the term of the
Loan;

j.                                          A
Certification by the Secretary of Borrower, in form and substance acceptable to
Lender, certifying that the resolutions of Borrower authorizing Borrower to
enter into the Loan and the Loan Documents are truthful and accurate, and that
Larry E. Williams, as Chief Executive Officer of Borrower, has been duly
authorized and directed to execute the Loan Documents on

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behalf
of Borrower;

k.                                       UCC-3
Financing Statement Amendment terminating the lien held by Charles F. Parsons and Aerospace Marketing,
Inc. (including, but not limited to, filing numbers 200518124771 and
20051814270 with the Minnesota Secretary of State); and

l.                                          Borrower
agrees to execute and deliver to Lender such other documents as may be
reasonably necessary to effectuate the provisions of this Agreement.

Section 3.02: 
The obligations of Lender to make any Advances hereunder, including,
without limitation, the initial Advance, shall be subject to the following
additional conditions precedent at the time of each Advance hereunder:

a.                                       No
Event of Default hereunder, or event which would constitute an Event of Default
upon the giving of notice or the passage of time or both, shall have occurred
and be continuing and all representations and warranties made by Borrower under
this Agreement shall continue to be true and correct as of the date of such
Advance;

b.                                      Borrower
shall have provided to Lender such evidence of compliance with any provisions
of this Agreement as Lender may reasonably request; and

c.                                       Lender
shall have received, from Borrower, (i) a copy of Borrower’s current financial
statements, prepared in accordance with GAAP, consistently applied, in form and
substance acceptable to Lender, and (ii) Borrower’s borrowing base certificate,
in form and substance acceptable to Lender.

ARTICLE IV

Representations
and Warranties

Section 4.01: 
Borrower represents and warrants to Lender as follows:

a.                                       Borrower
is a corporation validly existing and in good standing under the laws of the
State of Minnesota;

b.                                      Borrower has full power and authority to
conduct its business; to own its properties; to enter into this Agreement and
the Loan Documents; to borrow the monies hereunder; and to execute, deliver,
and perform all of Borrower’s obligations under the Loan Documents and
instruments incidental to this Agreement;

c.                                       The
execution and delivery of this Agreement and the Loan Documents and instruments
incidental thereto have been duly authorized by all necessary persons on behalf
of Borrower;

d.                                      This Agreement and the Loan Documents and
instruments incidental thereto shall not violate any contract or agreement
concerning the operation of Borrower or its Articles of Incorporation, Bylaws,
and/or Shareholder/Buy-Sell Agreement, nor result in a breach of the terms or
conditions of or constitute a default under or result in the creation or
imposition of any lien, charge, or encumbrance upon, any property or assets of
Borrower pursuant to any agreement to which it is a party or by which Borrower
may be bound;

e.                                       This Agreement and the Loan Documents
constitute the legal, binding, and valid obligation of Borrower, and shall be
enforceable against Borrower according to their respective

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terms;

e.                                       Borrower
has filed, or caused to be filed, all federal and state income tax returns
which are required to be filed, and Borrower has paid or caused to be paid all
taxes as shown on said returns or any assessment therefore received by Borrower
to the extent such taxes have become due;

f.                                         Except
as expressly disclosed in Borrower’s audited financial statements, no actions, suits, or proceedings, including,
but not limited to, tax claims or governmental proceedings, are pending or
threatened against Borrower, its owners and/or properties before any court or
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, and no judgment or order of any court or administrative
agency is outstanding against Borrower, its owners and/or properties, which, if
determined adversely to Borrower, would have a material adverse effect on the
financial conditions, properties, or operations of Borrower;

g.                                      All
financial statements and other financial reports and information delivered by
Borrower to Lender shall be truthful and in compliance with GAAP, consistently
applied;

h.                                      Borrower
will not make any distribution, dividend, gift, repayment, loan, transfer,
pledge, or other payment of any kind or nature to any shareholder of Borrower
or to any other party except as is expressly provided for herein without the
prior written consent of Lender.

ARTICLE V

Covenants

Section 5.01: 
While any part of the credit granted to Borrower hereunder is available
and while any part of the principal, interest, or other amounts with respect to
the Agreement, the Note, the Security Agreements, or the other Loan Documents
remains unpaid, Borrower covenants to Lender as follows:

a.                                       Borrower
shall (i) maintain proper books and records in which full, true, and correct
entries shall be made of all of its business affairs in accordance with GAAP
consistently applied; (ii) permit Lender, its agents or employees, to examine
such books and records, and to make copies thereof; and (iii) upon the request
of Lender, promptly advise Lender in writing of the location of such books and
records;

b.                                      Borrower
shall furnish the following, prepared in accordance with GAAP, consistently
applied, and in form and substance acceptable to Lender: (i) quarterly
financial statements of Borrower prepared and compiled by an independent
certified public accountant; (ii) annual financial statements of Borrower
prepared and audited by an independent certified public accountant; and (iii)
state and federal tax returns of Borrower, along with all schedules attached
thereto and copies of any extensions filed in connection therewith;

c.                                       Borrower shall maintain, and provide Lender
with written evidence, satisfactory to Lender, of all insurance required under
the Loan Documents, including, but not limited to, a Comprehensive General
Public Liability policy with a coverage amount not less than One Million and
no/100ths Dollars (U.S. $1,000,000.00), naming Lender as an additional insured;

d.                                      All insurance required by subsection c.,
above, shall (a) be written by a company or companies acceptable to Lender; (b)
be subject to Lender’s approval as to form, substance, and amount; (c) provide
that the insurer shall give Lender no less than thirty (30) days prior written
notice of cancellation, termination, amendment, or non-renewal thereof; and (d)
be in an amount

 6
 

sufficient to prevent Borrower from becoming a
co-insurer thereunder;

e.                                       No payments of principal shall be made on any
debt or other obligation of Borrower that is subordinate to the Loan and the
Security Agreements, and no distributions of cash or property shall be made to
any shareholder of Borrower;

f.                                         Borrower
shall furnish the following, in form and substance acceptable to Lender, on a
monthly basis: (i) Borrower’s borrowing base certificate; (ii) Borrower’s
accounts receivable listing; (iii) Borrower’s inventory listing;

g.                                      Borrower
shall furnish, in form and substance acceptable to Lender, on an annual basis,
Borrower’s furniture, fixtures, and equipment listing;

h.                                      Lender shall have the right, at any time and
from time to time, to perform, at Borrower’s expense, a collateral audit of
Borrower’s Collateral, as defined in the Security Agreements; provided, however,
that unless an Event of Default shall have occurred and be continuing, Lender
shall have the right to perform or cause to be performed no more than two (2)
such collateral audits per calendar year, nor shall the reimbursable costs of
such audits exceed Two Thousand Five Hundred and no/100ths Dollars ($2,500.00)
per audit;

i.                                          Borrower covenants and agrees that, in the
event that Borrower requests an Advance to reimburse the repayment of that
certain obligation of Borrower to Charles F. Parsons and Aerospace Marketing,
Inc. (the “Parsons Advance”), Borrower will repay the Parsons Advance, on an
annual basis, in an amount no less than Five Thousand and no/100ths Dollars
($5,000.00) per year; and

j.                                          Borrower
shall maintain (i) a debt to tangible net worth (computed by dividing (a) total
debt by (b) total equity minus intangible assets) ratio less than or equal to
1:1, measured as of each fiscal quarter end; (ii) a minimum tangible net worth
(computed by subtracting intangible assets from total equity) of Two Million
Two Hundred Fifty Thousand and no/100ths Dollars ($2,250,000.00), measured as
of September 30, 2006, and increasing, on a quarterly basis, by fifty percent
(50%) of Borrower’s net income (determined in accordance with GAAP,
consistently applied); and (iii) a debt service coverage ratio (defined herein
as (a) net income plus depreciation plus interest plus extraordinary non-cash losses
less dividends and distributions less extraordinary non-cash gains; divided by
(b) all principal and interest payments) of 1.15:1, measured as of each fiscal
year end.

Section 5.02: 
While any part of the credit granted to Borrower hereunder is available
and while any part of the principal or interest on the Note or this Agreement
remains unpaid, Borrower shall not, without the prior written consent of
Lender, do the following:

a.                                       Create
or permit to be created any encumbrance or other lien upon any of the
Collateral without the prior written
consent of Lender, other than purchase money liens so long as such liens (i) do
not result in a violation of Section 5.01(j) above; and (ii) do not exceed Five
Hundred Thousand and no/100ths Dollars ($500,000.00) in the aggregate;

b.                                      Enter into any secondary financing which is
secured by a lien or other encumbrance against any of the Collateral without
the prior written consent of Lender, other than purchase money liens so long as
such liens (i) do not result in a violation of Section 5.01(j) above; and (ii)
do not exceed Five Hundred Thousand and no/100ths Dollars ($500,000.00) in the
aggregate; or

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c.                                       Sell,
assign, exchange, lease, or otherwise transfer the Collateral, other than in
the ordinary course of business or as permitted by the Loan Documents, without the prior written consent of Lender.

ARTICLE VI

Indemnity

Section 6.01:  Borrower agrees to defend, hold harmless, and
indemnify Lender along with its successors, assigns, officers, directors,
shareholders, representatives, and attorneys (all of the foregoing, with their
respective successors and assigns, “Indemnified Parties”) from and against any
and all liability, loss, damages, costs, and expenses of whatever kind or
nature, including, but not limited to, reasonable attorneys’ fees, which
Indemnified Parties may sustain or incur, arising out of, incidental to, or in
connection with the misrepresentation or breach of any term in any of the Loan
Documents, whether or not due to any act or omission, including negligence, of
Borrower and its agents, employees, or servants.  The liability of Borrower hereunder shall not
be limited to the extent of insurance carried by or provided by Borrower or
subject to any exclusion from coverage in any insurance policy.

Section 6.02: 
The obligations of Borrower under Section 6.01 shall survive the payment
of the Note.

ARTICLE VII

Closing
Costs; Fees; and Expenses

Section 7.01: 
Borrower agrees to pay Lender, in good funds, a loan origination fee
(the “Loan Fee”) of Two Thousand Five Hundred and no/100ths Dollars (U.S. $2,500.00).  At Closing, Borrower shall pay Lender, in
good funds, all of Lender’s reasonable closing costs in connection to the
transaction contemplated by this Agreement, including, but not limited to, the
Loan Fee, Lender’s attorneys’ fees in the amount of Three Thousand Nine Hundred
and no/100ths Dollars (U.S. $3,900.00), and closing costs.  In the event that Borrower fails to pay such
fees and expenses, Lender may, at its option, advance the same under the Note
without further authorization by the Borrower and the payment thereof shall be
secured by the Loan Documents.

Section 7.02: 
Borrower may request to renew the Loan, on an annual basis, upon written
notice to Lender no less than thirty (30) days prior to the Maturity Date (or
any extension thereof).  Any such renewal
shall be at Lender’s sole discretion.  In
the event Lender elects to renew the Loan, Borrower shall pay, upon such
renewal, a renewal fee (“Renewal Fee”) in an amount equal to ten (10) basis
points on the total amount committed, as of the renewal, under the Note, this
Agreement, and the other Loan Documents; provided, however, that Lender may
increase the Renewal Fee in the event that Borrower wishes to renew the Loan
for an amount greater than the original principal amount of the Loan.

ARTICLE VIII

Events
of Default

Section 8.01: 
Each of the following occurrences shall constitute an event of default (“Event
of Default”) under this Agreement:

a.                                       Borrower
shall fail to observe or perform any of the terms or conditions to be kept or
performed by Borrower under this Agreement, the Note, the Security Agreements,
and/or the Loan Documents; provided that (1) Borrower shall have a ten (10) day
period in which to cure any monetary default under this Agreement, the Note,
the Security Agreements, and/or the Loan Documents, and (2) a thirty (30) day
period in which to cure any non-monetary default under this Agreement, the
Note, the Security Agreements, and/or the Loan Documents, which period may,

 8
 

in the
sole discretion of Lender, be extended in the event that any non-monetary
default is not capable of being cured within the thirty (30) day period,
provided that Borrower promptly commences the cure process within the thirty (30)
day period and diligently pursues the cure process to completion;

b.                                      Any
representation or warranty made by Borrower herein is untrue or misleading in
any material respect, or any statement, certificate, or report furnished
hereunder by or on behalf of Borrower is untrue or misleading in any material
respect, each on the date when made or as of which the facts set forth therein are
stated or certified;

c.                                       Borrower
becomes insolvent or unable to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or any proceedings are initiated by or
against Borrower, alleging that Borrower is insolvent or unable to pay its
debts as they mature or a petition is filed by or against Borrower under any of
the provisions of the United States Bankruptcy Code;

d.                                      Borrower
shall fail to observe or perform any of the terms or conditions to be kept or
performed by Borrower under any other contract or agreement with Lender, now
existing or hereafter arising, subject to the cure rights of Borrower provided
for therein, if any;

e.                                       Entry
of any final judgment against Borrower in excess of Twenty Five Thousand and
no/100ths Dollars (U.S. $25,000.00) unless, within thirty (30) days following
entry of judgment, said judgment is paid in full or is appealed and enforcement
thereof is stayed during the period of appeal;

f.                                         Any
Change of Control shall occur.  As used
herein, “Change of Control” means the occurrence of any of the following
events:

(a)                                  Any
Person or “group” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a Person will be deemed to have “beneficial ownership” of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than ten percent (10%) of the voting power of all classes
of voting stock of the Borrower; or

(b)                                 During any consecutive six (6) month period,
individuals who at the beginning of such period constituted the board of directors
of the Borrower (together with any new directors whose election to such board
of directors, or whose nomination for election by the owners of the Borrower,
was approved by a vote of two-thirds (2¤3) of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of the Borrower then in office.

As
used herein, the term “Person” shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof;

g.                                      Dissolution,
liquidation, merger, consolidation, or similar disposition of Borrower without
the prior written consent of Lender;

h.                                      Sale
of all or substantially all of the assets of Borrower or a similar disposition
without

 9
 

the
prior written consent of Lender;

i.                                          Borrower
sells, assigns, exchanges, leases, transfers, or otherwise disposes of, or
mortgages, hypothecates, creates a security interest in, or otherwise
encumbers, all or a part of the Collateral (other than in the ordinary course
of business or as otherwise provided in this Agreement or any of the other Loan
Documents), whether such transfer or encumbrance is voluntary or involuntary,
without the prior written consent of Lender;

j.                                          Commencement
of any action or proceeding involving, affecting, or bringing into question the
title to, interest in, or lien created by the Security Agreements upon, any
material portion of the Collateral; or

k.                                       Execution
or attachment shall have been levied against any material portion of the
Collateral or any part thereof and shall continue without stay and in effect
for a period of more than thirty (30) consecutive days.

ARTICLE IX

Remedies

Section 9.01: 
Upon the occurrence of an Event of Default, Lender may, at its option,
exercise any and all of the following rights and remedies:

a.                                       Lender
may immediately discontinue making Advances hereunder to Borrower and terminate
Lender’s obligations to Borrower under this Agreement, without notice to
Borrower;

b.                                      Lender
may declare immediately due and payable the entire unpaid balance owed under
this Agreement, the Note, the Security Agreements, and/or the Loan Documents,
together with accrued interest thereon, and the same shall thereupon be
immediately due and payable without demand, or notice of any kind, all of which
are expressly waived by Borrower;

c.                                       Lender
may exercise any rights and remedies under the Security Agreements and/or any
of the other Loan Documents;

d.                                      Lender
may perform in its discretion, but without obligation to do so, any covenants
or agreements of Borrower contained in this Agreement, the Note, the Security
Agreements, or in any other documents executed in connection with the Loan, and
the amounts so expended by Lender, together with interest thereon from the date
of advancement at the Default Rate (as defined in the Note), shall be payable
by Borrower, upon demand, and the payment thereof shall be considered an
Advance under the Note and secured by the Loan Documents;

e.                                       Lender
may commence an action to specifically enforce the performance by Borrower of
its obligations under this Agreement, the Note, the Security Agreements, or the
Loan Documents; and/or

f.                                         Lender
may exercise any and all other rights and remedies available at law or in
equity;

Section 9.02: 
The rights and remedies provided Lender herein or otherwise afforded at
law or in equity are distinct and cumulative, and any forbearance by Lender in
exercising any right or remedy shall not be a waiver of or preclude the
exercise of any other right or remedy; and

Section 9.03: 
In an Event of Default, Borrower, upon demand, agrees to pay all reasonable
expenses and

 10
 

costs of collection at any time incurred by Lender
under this Agreement, including, but not limited to, reasonable attorneys’
fees, whether or not in connection with a judicial proceeding and whether or
not in connection with an original or appellate proceeding.

ARTICLE X

Miscellaneous

Section 10.01:  Notice.  Any notice provided for in this Agreement shall be in writing and shall
be given by mailing such notice to the other party.  Any notice to Borrower shall be given by
mailing such notice by certified mail to Ballistic Recovery Systems, Inc.,
Attn: Larry E. Williams, 300 Airport Road, South St. Paul, Minnesota 55075, or
to such other address as Borrower may designate by notice to Lender as provided
herein.  Any notice to Lender shall be
given by mailing such notice by certified mail, return receipt requested, to
Anchor Bank Saint Paul, N.A., Attn: Gregory W. Drehmel, 66 Thompson Avenue
East, West St. Paul 55118, or to such other address as Lender may designate by
notice to Borrower as provided herein.  Any
notice provided for in this Agreement shall be deemed to have been given when postmarked, postage prepaid, certified
mail, return receipt requested, and properly addressed to the other party.

Section 10.02:  Governing
Law; Venue.  This Agreement is issued
in and shall be governed by the substantive laws of the State of Minnesota,
without reference to its conflicts of laws provisions.  All disputes and collections relating to this
Agreement shall be exclusively venued in any state or federal court in Ramsey
County, Minnesota, or in such other court as Lender may designate in its sole
discretion, and Borrower specifically consents to the venue and jurisdiction of
said courts as chosen by Lender.

Section 10.03:  Time
of Essence.  Time is expressly declared
to be of the essence in the performance of Borrower’s obligations to Lender
under this Agreement.

Section 10.04:  Assignment.  Borrower shall not assign its rights under
this Agreement without the prior written consent of Lender.

Section 10.05:  Binding
Effect.  This Agreement shall inure
to and bind the parties hereto and their respective successors and permitted
assigns.

Section 10.06:  No
Third-Party Rights.  This Agreement
is made for the sole benefit of Lender, its successors and assigns, and Borrower
and its permitted assigns, and no other person shall have any rights or
remedies under this Agreement.  Lender
shall not have any obligation or liability of any kind to any third party by
reason of this Agreement or any of Lender’s actions or omissions pursuant
thereto.  Lender shall have no duty
whatsoever for payment of any expenses incurred in connection with the exercise
of any right or remedy available to Lender or for the performance or
non-performance of any other obligation of Borrower.

Section 10.07:  Severability.  The provisions of this Agreement shall be
severable and the invalidity or unenforceability of anyone or more of the
provisions of this Agreement shall not affect the validity and enforceability
of the other provisions.

Section 10.08:  Amendment
and Waiver.  No change, addition, or
modification of this Agreement shall be valid or binding unless it is in
writing and signed by the party to be charged. 
No waiver of any provision of this Agreement shall be valid unless it is
in writing and signed by the party against whom the waiver is sought to be
enforced.  No valid waiver of any
provision of this Agreement shall be deemed a waiver of any other provision of
this Agreement.

 11
 

Section 10.09:  Headings.  Headings are for reference purposes only and
shall not be considered in the interpretation of this Agreement.

Section 10.10:  WAIVER OF JURY TRIAL.  BORROWER ACKNOWLEDGES THAT THE RIGHT TO TRIAL
BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED AND THAT THE TIME
AND EXPENSE REQUIRED FOR TRIAL BY A JURY MAY EXCEED THE TIME AND EXPENSE
REQUIRED FOR TRIAL WITHOUT A JURY. 
BORROWER, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT)
WITH COUNSEL OF BORROWER’S CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE
MUTUAL BENEFIT OF LENDER AND BORROWER, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE
EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY
RELATED TO, THIS AGREEMENT, THE NOTE, THE SECURITY AGREEMENTS, THE LOAN
DOCUMENTS AND ANY RELATED AGREEMENTS, OR OBLIGATIONS THEREUNDER.  BORROWER HAS READ ALL OF THIS AGREEMENT AND
UNDERSTANDS ALL OF THE PROVISIONS OF THIS AGREEMENT.  BORROWER ALSO AGREES THAT COMPLIANCE BY
LENDER WITH THE EXPRESS PROVISIONS OF THIS AGREEMENT SHALL CONSTITUTE GOOD
FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.

Section 10.11:  Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but a single instrument.

IN WITNESS WHEREOF, Lender and
Borrower have entered into this Agreement as of the date first set forth above.

	
  LENDER: Anchor
  Bank Saint Paul, N.A.

  
	
   

  
	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  ;

  
	
  Its:

  	
   

  	
  .

  
	
   

  
	
   

  
	
  BORROWER: Ballistic Recovery Systems, Inc.

  
	
   

  
	
   

  
	
  /s/ Larry E.
  Williams

  	
   

  
	
  By:  Larry
  E. Williams;

  
	
  Its:  Chief
  Executive Officer / President.

  
					

 

 12Exhibit 10.2

PROMISSORY NOTE

	
  U.S. $820,000.00

  	
  August 15, 2007

  

 

FOR VALUE RECEIVED, on the Maturity Date (as defined below) the undersigned, Ballistic
Recovery Systems, Inc., a Minnesota corporation (“Borrower”) hereby promises to
pay to the order of Anchor Bank Saint Paul, N.A. (the “Lender”) the sum of
Eight Hundred Twenty Thousand and no/100ths Dollars (U.S. $820,000.00)
including all Advances, interest, fees, points, expenses, and other costs, or,
if less, the aggregate unpaid principal amount of all Advances made by Lender
to Borrower pursuant to that certain Loan Agreement, of even date herewith,
between Borrower and Lender (the Loan Agreement, as amended, modified,
supplemented, or restated from time to time referred to herein as the “Loan
Agreement”), along with all interest, fees, points, expenses, and other
costs.  All capitalized terms not
otherwise defined herein shall have the meanings and definitions set forth in
the Loan Agreement.  Except as provided
herein, subject to the discretion of Lender, the aggregate balance of all
Advances, costs, expenses, fees, points, and accrued interest outstanding on
this Note shall not exceed Eight Hundred Twenty Thousand and no/100ths Dollars
(U.S. $820,000.00).

Borrower promises to pay interest (applying the ratio of the annual
interest rate over a year of 360 days, times the outstanding principal balance,
times the actual number of days the principal balance is outstanding) on all
amounts due and owing hereunder and pursuant to the Loan Agreement from the
date hereof until all such amounts due and owing are paid in full.  Each Advance by Lender under the Loan
Agreement shall bear interest, from the date of such Advance until the Loan is
paid in full, at the variable rate per annum (the “Interest Rate”) equal to the
“Prime Rate” of interest as published each business day in the money rates
section of the Wall Street Journal (the “Index”).  The Interest Rate shall increase or decrease
in the same manner and effective on the same date as any increase or decrease
in the Index.  If the Index ceases to be
published in the Wall Street Journal, Lender may
designate a substitute index after notice to Borrower.  The Interest Rate as of the date of this Note
is eight and one-quarter percent (8.25%).

All sums due under this Note shall be due and payable according to the
following terms:

1.                                       Borrower shall make, to Lender, monthly
payments of interest only, with the first such payment shall be due and payable
on September 1, 2007, and subsequent payments shall be due and payable on the first
(1st) day of each calendar month thereafter until the Maturity Date; and

2.                                       Borrower shall make, to Lender, on the
Maturity Date, a balloon payment, consisting of all unpaid principal and
interest, along with all costs, expenses, penalties, and all other fees
(including, but not limited to, reasonable attorneys’ fees).  For purposes of this Note, the “Maturity Date”
shall be April 30, 2008.

Borrower may prepay the unpaid principal balance of this Note without
penalty or premium.

In consideration of Lender making the loan evidenced by this Note,
Borrower agrees to reimburse Lender, upon demand, for all of its costs incurred
in making such loan, including, but not limited to, Lender’s legal fees and recording
fees.

In the event that Borrower does not pay any payment due under this Note
(excluding any payment due at maturity, whether at the stated maturity of by
acceleration) in full on the date on which said payment is due (“Due Date”) and
said failure continues for ten (10) days after the Due Date, Borrower shall pay
Lender, upon demand, a late fee equal to five percent (5%) of the payment which was not paid in full
on the Due Date.

Notwithstanding anything to the contrary contained herein, upon the
occurrence and during the continuance of any Default or Event of Default, the
rate of interest hereunder shall be equal to the Interest Rate plus four percent
(4%).

 1
 

This Note is the Note referred to in, and is entitled to the benefits
and conditions of, the Loan Agreement.

Presentment and demand for payment, notice of dishonor, protest, and
notice of protest are hereby waived. 
Upon an Event of Default, Borrower agrees to pay to Lender, upon demand,
all of Lender’s costs of collection and reasonable attorneys’ fees (whether or not
suit is commenced), including, but not limited to, reasonable attorneys’ fees
and legal expenses incurred in connection with any appeal of a lower court’s
judgment or order.

This Note is issued in and shall be governed by the substantive laws of
the State of Minnesota, without reference to its conflicts of laws
provisions.  All disputes and collections
relating to this Note shall be exclusively venued in any state or federal court
in Ramsey County, Minnesota, or in such other court as Lender may designate in
its sole discretion, and Borrower specifically consents to the venue and
jurisdiction of said courts as chosen by Lender.

BORROWER ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED AND THAT THE TIME AND EXPENSE
REQUIRED FOR TRIAL BY A JURY MAY EXCEED THE TIME AND EXPENSE REQUIRED FOR TRIAL
WITHOUT A JURY.  BORROWER, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF BORROWER’S
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF LENDER AND
BORROWER, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
NOTE, THE LOAN AGREEMENT, AND ANY OTHER LOAN DOCUMENTS, OR ANY OBLIGATIONS
THEREUNDER.

Both principal and interest are payable in lawful money of the United
States of America to Lender at 66 Thompson Avenue East, West St. Paul,
Minnesota 55118 (or such other location specified by Lender in writing) in
immediately available funds.

	
  BORROWER: Ballistic Recovery Systems, Inc.

  
	
   

  
	
   

  
	
  /s/ Larry E. Williams

  	
   

  
	
  By:  Larry E. Williams;

  
	
  Its:  Chief Executive Officer / President.

  
	
   

  
	
   

  
	
  STATE OF MINNESOTA

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF 

  	
  )

  
			

 

The foregoing instrument was acknowledged before me this      
day of August, 2007, by Larry E. Williams, as Chief Executive Officer and
President of Ballistic Recovery Systems, Inc., on behalf of said corporation.

	
  

  	
   

  	
   

  
	
   

  	
  Notary Public

  

 

 2

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