Document:

EXHIBIT 10.1

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement is effective as of November
16, 2007 (the “Effective Date”), by and
among Advanced Tactical Fabrication, Inc. (the “Buyer”),
Head Lites Corporation (the “Seller”),
Gary Lesley (“Lesley”), and Arthur Petrie (“Petrie”).

 

A.            Seller operates a business involving cut-and-sew
operations, sewing for reflective vests, and other sewing products under the
brands Vis-Mat, Vis-Tac, Elmo and Head Lites (the “Business”),
and a business relating to the development, manufacture, and sale of VORTEX
brand releasable body armor vest system and IQRIS brand quick-release products
(herein referred to as the “Excluded
Business”). The assets of Seller comprising the Excluded
Business are included on Schedule 1.2 hereto. Lesley and Petrie own 100% of the
outstanding capital stock of Seller.

 

B.            Buyer, a Minnesota corporation 90% owned by Ballistic
Recovery Systems, Inc. (“BRS”) and 10%
owned by Seller, was formed pursuant to that certain Master Agreement between
BRS, Buyer, Seller and Lesley dated the date hereof (the “Master
Agreement”).

 

C.            Seller desires to sell, and Buyer desires to purchase, certain
assets of Seller in accordance with the terms set forth herein.

 

D.            On the date hereof, Buyer will enter into a consulting
agreement with Seller pursuant to which Seller will provide services to Buyer
(the “Consulting Agreement”).

 

E.             Seller, Lesley and Petrie will substantially benefit
from the consummation of the transactions contemplated by this agreement and are
willing to abide by the non-competition and non-solicitation covenants
contained herein, which are a material inducement for Buyer to enter into this agreement
and BRS’ entry into the Master Agreement.

 

Now, therefore, the parties hereto hereby agree as follows:

 

Article
1

Purchase and Sale of Assets

 

1.1           Generally. Pursuant to the
terms of this agreement, Seller hereby sells, transfers, conveys and delivers
to Buyer, and Buyer hereby purchases from Seller, on and as of the Effective Date,
all property and assets of Seller, of every kind and description, wherever
located, real or personal, tangible or intangible included, but not limited to,
those assets on the Capital Asset Summary attached as Schedule 1.1 hereto (the “Assets”). The Assets
include, without limitation, the following:

 

(a)           all of the intangible rights and property of
Seller, including all intellectual property, designs, and rights of Seller
including, without limitation, patents, trademarks, trade names (including the
name “Head Lites” and Head Lites Corporation”), copyrights, going concern value, goodwill, telephone,
telecopy and e-mail addresses and listings associated with the Business
(collectively, the “Intellectual
Property”);

 

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(b)           all current and past customer and prospect lists
and databases used in connection with the Business;

 

(c)           all of Seller’s current and expected production
backlog of orders related to the Business;

 

(d)           all sales and marketing materials of Seller related
to the Business;

 

(e)           all fixtures, equipment, machinery, and other
tangible personal property used or held in the Business contained in the
Capital Asset Summary, including but not limited to those items of personal
property related to the components and trims, Vis-Mat, Vis-Tac, Elmo and Head
Lites brands;

 

(f)            all finished work, deliverables, inventory,
materials in final form, works-in-process, raw materials and supplies, wherever
located, including, but not limited to, all rights of Seller as to all
suppliers associated with the Business (collectively, the “Inventory”). An itemized list
of the Inventory, stating the cost of the Inventory as of the Effective Date,
is set forth on Schedule 1.1(f) hereof;

 

(g)           cash and cash equivalents of Seller on the date
hereof in excess of $25,000 as set forth on Schedule 1.1(g) hereof,
provided that such cash or cash equivalents will be used by Buyer to dispose of
the Accounts Payable (as defined below) on a timely basis;

 

(h)           all accounts receivable of Seller relating to the Business
that are outstanding as of the Effective Date (“Accounts Receivable”); provided that upon receipt of
Accounts Receivable not to exceed $190,000 in the aggregate, Buyer shall use
such proceeds as received to satisfy on a dollar for dollar basis up to $190,000
of the Accounts Payable. An itemized list of the Accounts Receivable is set
forth on Schedule 1.1(h) hereof;

 

(i)            all right, title and interest of Seller, and any
affiliate of Seller, in and to those contracts, agreements, arrangements,
commitments and undertakings, whether oral or in writing (the “Assigned Contracts”);

 

(j)            all books, records, and project files, held for
use in the conduct of the Business, including without limitation, client and
customer records, research and development records, production reports and
records, service and warranty records, equipment logs, guides and manuals,
creative materials, advertising materials, promotional materials and financial
and accounting records relating to the Business;

 

(k)           all rights of Seller under any warranty or
guarantee by any manufacturer, supplier or other transferor of the Assets;

 

(l)            to
the extent legally transferable, all permits, licenses and approvals received
from any governmental entity;

 

(m)          all leasehold improvements, signage and prepaid
rights to participate in trade shows, trade fairs or similar industry or retail
events; and

 

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(n)           any and all other properties, assets and rights of
Seller which are used in Seller’s conduct of the Business and are not expressly
listed or referred to in Section 0 below.

 

On the Effective Date, Seller will transfer the Assets
to Buyer in accordance with this agreement by delivering those documents
specified in Article 4 together with all required consents of any and all third
parties, free and clear of all liabilities, obligations, liens, security
interests, encumbrances or any other adverse claims.

 

1.2           Excluded Assets. The following
property and assets of Seller are excluded from the sale to Buyer and are
indicated on Schedule 1.2 hereto (the “Excluded Assets”):

 

(a)           any of the rights of Seller under
this agreement or any other agreement between Seller and Buyer entered into on
or after the date of this agreement in accordance with the terms hereof and
thereof, respectively;

 

(b)           Seller’s minute books, stock-transfer
journals, tax returns, corporate seal and, except as pertaining directly to the
Business, books of account and financial records; and

 

(c)           Seller’s assets which (i) are solely
and directly related to the Excluded Business and (ii) do not in any way relate
to any of the Assets.

 

(d)           The name “HLC.”

 

Article
2

No Assumption of Liabilities

 

Except for the assumption by Buyer of (a) certain
accounts payable in the amounts set forth on Schedule 2 hereof (the “Accounts Payable”) and (b) Seller’s
obligations under the Assigned Contracts, Buyer does not assume any liabilities
or obligations of Seller. Buyer and Seller will cooperate with each other and
use reasonable efforts to pay down and satisfy in full the Accounts Payable
prior to April 30, 2008. Seller shall be solely liable for all liabilities and
obligations arising from ownership of the Assets, including the Assigned
Contracts, operation of the Business and incidents and occurrences prior to the
Effective Date, whether or not reflected in Seller’s books and records and
whether or not such incidents or occurrences first became known following the
Effective Date.

 

Article
3

Purchase Price and Contingent Payments

 

3.1           Purchase Price. The total purchase
price paid to Seller for the Assets (the “Purchase Price”) is $648,400, payable by
certified check or immediately available funds.

 

3.2           Contingent Gross Margin Payments.
Provided that the Buyer is current on its payment obligations under certain Secured
Senior Note (as defined in the Master Agreement), on an annual basis Buyer will
pay to Seller a cash payment equal to 8% of the gross margins in connection
with the sale by Buyer of products relating to the Business (the “Earnout Products”) during
the fiscal year (the “Margin
Payments”). To the extent that sales of Earnout Products 

 

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exceed Buyer’s budgeted sales for any fiscal
year, the Margin Payment percentage owed in the subsequent fiscal year shall be
increased 1% of the gross margins (“Increased Margin Payment”). If there is an
Increased Margin Payment for any fiscal year and if gross margin exceeds
budgeted gross margin for such fiscal year, the Margin Payment percentage owed
in the subsequent fiscal year shall be increased an additional 1%. Once
increased, the Margin Payment percentage shall not be decreased. In the event,
and to the extent, Buyer is deficient in its payment obligation on the Secured
Senior Notes, the amount of any Margin Payment shall be reduced in an amount
equal to such deficiency. The Margin Payments will be due no later than 90 days
following the end of the applicable fiscal year. Buyer shall make the five
Margin Payments, with the last payment following and in connection with the
fiscal year ending September 30, 2012. For the purposes hereof, “gross margin” means
the sum of the total income minus costs of goods sold and production expenses.

 

3.3           Seller’s Right to Contingent
Payments. The right of Seller to receive any contingent payment under this
Article 3 (a) is solely a contractual right, and is not a security for purposes
of any federal or state securities laws, (b) is only a right to receive cash
from Buyer subject to the terms set forth herein and (c) may not be sold, assigned,
pledged, gifted, conveyed, or otherwise transferred, except by operation of law
or in connection with the dissolution of Seller and any such transfer of such
right in violation of this Article shall be null and void.

 

3.4           Competing Products. Buyer and
its affiliates may, in their sole discretion, decide to acquire, research,
develop and/or market products and/or services that compete with the Earnout
Products. Seller further acknowledges, understands and agrees that whether or
not Buyer or any of its affiliates make any sales of Earnout Products after the
Effective Date, neither Buyer nor any of its affiliates is prohibited from
manufacturing, marketing, or selling other products that may reduce Margin
Payments. Seller and Lesley agree that Buyer’s prior written consent is
required, prior to the use or development, of any Vortex-branded product
developed, introduced, manufactured or sold after the Effective Date that a) is
not part of the Excluded Business and b) was not developed, introduced, manufactured
or sold as of the Effective Date. Seller and Lesley acknowledge that Buyer may
reject and not consent to any Vortex-branded product developed, introduced or
manufactured after the Effective Date that was not developed, introduced,
manufactured or sold prior to the Effective Date and, in the judgment of Buyer,
directly competes with any releasable body armor vest system offered by Buyer.

 

3.5           Restrictive Covenant Payments.
In consideration for Lesley abiding by the restrictive covenants set forth in Article
8 hereof, Buyer shall make monthly payments of $3,024.49 to Lesley the first
year from the Effective Date and monthly payments of $2,000 to Lesley for a
period of four years following such first year of payments (the “Restrictive Covenant Payments”).
In the event Lesley breaches or threatens to breach any covenant contained in Article
8 hereof, Buyer shall be entitled to immediately end making the Restrictive
Covenant Payments, and Lesley shall be required to reimburse Buyer for all Restrictive
Covenant Payments made prior to his breach of any covenant contained in Article
8 hereof. Notwithstanding the above, the taking of any such action by Buyer
will not in any way limit Buyer’s other rights or remedies available under this
agreement or applicable law. Petrie acknowledges that Lesley or his designee is
receiving the entire benefit to the Restrictive Covenant Payments payable
hereunder and waives any rights or claims he may have related to the Restrictive
Covenant Payments as a shareholder of Seller or party to this agreement.

 

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3.6           Inventory Adjustment. In the
event that any of the Inventory held by Seller on the Effective Date and sold
hereunder to Buyer remains unsold after September 30, 2008, such Inventory will
be considered to be obsolete and Buyer shall have a right to set-off the amount
of the Inventory (as determined by the book value of such Inventory), as set
forth on Schedule 1.1(f) hereto, of such obsolete Inventory on a
dollar-for-dollar basis against, in Buyer’s sole discretion, any future Margin
Payments, Restrictive Covenant Payments, any amounts due under the Consulting
Agreement, any dividends owed on the Escrowed HLC Shares or by reduction of the
Escrowed HLC Shares as provided in Section 10.2.

 

3.7           Accounts Receivable Adjustment.
In the event that any of the Accounts Receivable remain uncollected by Buyer as
of January 1, 2008, such Accounts Receivable will be considered to be uncollectible
and Buyer shall have a right to set-off an amount equal to such uncollected
Accounts Receivable on a dollar-for-dollar basis against, in Buyer’s sole
discretion, any future Margin Payments, Restrictive Covenant Payments, any
amounts due under the Consulting Agreement, any dividends owed on the Escrowed
HLC Shares or by reduction of the Escrowed HLC Shares as provided in Section
10.2.

 

3.8           Accounts Payable Adjustment. In
the event that any of the Accounts Payable exceed the amount indicated on
Schedule 2 as of April 30, 2008, Buyer shall have the right to offset any such
excess Accounts Payable on a dollar-for-dollar basis against, in Buyer’s sole
discretion, any future Margin Payments, Restrictive Covenant Payments, any
amount due under the Consulting Agreement, any dividends owed on the Escrowed
HLC Shares or by reduction of the Escrowed HLC Shares as provided in Section
10.2.

 

3.9           BRS Accounts Payable. HLC and
Lesley acknowledges that HLC has an accounts payable as of the Effective Date
of $74,752.31 owed to BRS (the “BRS Accounts Payable”). In the event that BRS
Accounts Payable is outstanding as of September 30, 2008, Buyer shall have the
right to offset any amount outstanding on a dollar-for-dollar basis against, in
Buyer’s sole discretion, any future Margin Payments, Restrictive Covenant
Payments, any amounts due under the Consulting Agreement, any dividends owed on
the Escrowed HLC Shares, or by reduction of the Escrowed HLC Shares as provided
in Section 10.2.

 

Article
4

Closing Deliveries

 

On the Effective Date, the parties shall execute and
deliver the following documents, as applicable (all such documents, together
with this agreement, are collectively referred to hereinafter as the “Transaction Documents”):

 

(a)           a certified check, or other
immediately available funds, in the amount specified in Section Article 3,
payable by Buyer to Seller;

 

(b)           a Bill of Sale executed by Seller in
the form attached hereto as Exhibit A;

 

(c)           a Consulting Agreement between Buyer
and Seller in the form attached hereto as Exhibit B;

 

(d)           Seller shall deliver a certificate of
an authorized officer attaching (i) articles of incorporation certified by the Minnesota
Secretary of State, (ii) a true and 

 

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correct copy of corporate bylaws, and (iii)
resolutions of Seller’s board of directors and shareholders, as necessary,
authorizing the execution and delivery of the Transaction Documents and the
entering into and performance of the transactions contemplated thereby; and

 

(e)           A payoff letter from Anchor Bank in
connection with the termination of all security interests relating to the
Assets.

 

(f)            An executed Satisfaction of the
Confidential Settlement Agreement and Mutual and General Release in a form
acceptable to Buyer releasing any and all security interests of Gregory W. Zeno
(“Zeno”) with respect to assets owned by Seller.

 

Article
5

Labor and Employment Matters

 

Buyer shall not assume any employment obligations,
wage or salary payment obligations, including without limitation those arising
under any pension, profit-sharing, deferred-compensation, severance, welfare,
sick leave, accrued or earned vacation, wage or other employee-benefit plan,
procedure, policy or practice of Seller regardless of whether such plan,
procedure, policy or practice is disclosed in this agreement. Notwithstanding
the foregoing, Buyer may in its sole and absolute discretion make offers of
employment to certain of Seller’s employees, pursuant to terms determined by Buyer.
In such event, Seller will furnish to Buyer such information in Seller’s personnel
files as Buyer may reasonably request regarding Seller’s former employees that
are hired by Buyer to the extent that sharing such information is permitted by
law.

 

Article
6

Representations and Warranties of Seller and Lesley

and Petrie (with respect to Section 6.2 and 6.5 only)

 

Seller and Lesley hereby represent and warrant to Buyer
as follows:

 

6.1           Organization; Good Standing, Etc.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota, and has the requisite corporate
authority to carry on its business as it is now being conducted and as it is
proposed to be conducted after the transactions contemplated by this agreement.

 

6.2           Ownership. Lesley and Petrie
are the holders of all outstanding capital stock and any other equity interests
in Seller. There are no outstanding subscriptions, options, warrants, calls,
contracts, demands, commitments, convertible securities or other agreements or
arrangements of any character or nature under which Seller is obligated to
issue any securities of any kind representing an ownership interest in Seller.

 

6.3           Business Activities; Subsidiaries.
Seller has performed all acts necessary to operate the Business under
applicable law. Seller does not own, directly or indirectly, any outstanding
capital stock of any class of any other corporation, nor is Seller a party to
any partnership or joint venture related to the Assets or the Business.

 

6

 

6.4           Authority. The Transaction
Documents have been duly authorized by all necessary action of the shareholders
and the board of directors of Seller, are duly executed and delivered by
authorized individuals or officers, as applicable, are valid and binding agreements
on the part of Seller.

 

6.5           No Conflict; Governmental Consents.
The execution and delivery by Seller, Lesley and Petrie of this agreement and all
other Transaction Documents and the performance or observance by Seller, Lesley
and Petrie of any of the terms of the Transaction Documents, will not, with or
without notice or lapse of time (a) conflict with, result in a breach or
violation of the terms or conditions of, constitute a default under, or result
in the creation of any lien on, any of the Assets pursuant to any arbitration
award, indenture, contract, agreement, instrument, order, judgment, decree,
statute, law, rule or regulation, or (b) require any filing or
registration with, or any consent or approval of, any federal, state or local
governmental agency or authority, or (c) contravene, conflict with, or result
in a violation or breach of any provision of, or give any person or entity the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify, any contract or
other arrangement to which Seller, Lesley or Petrie is a party or by which a
Seller, Lesley or Petrie is bound or to which any of the Assets is subject (or
result in the imposition of any security interest upon any of the Assets).

 

6.6           Actions, Suits and Proceedings.
Except as set forth on Schedule 6.6, there are no actions, suits or proceedings
pending or threatened against Seller or any of the Assets in any court or
before any federal, state, municipal or other governmental agency or before any
other private or public tribunal or quasi-tribunal which, (a) if decided
adversely to Seller, would have a materially adverse effect upon the Business
or Assets, (b) seek to restrain or prohibit the transaction contemplated hereby
or obtain any damages in connection therewith, or (c) in any way call into
question the validity of this agreement or the other Transaction Documents. Moreover,
Seller is not in default with respect to any order of any court or governmental
agency entered against it in respect of the Business or Assets. Seller has not
received notice, formally or otherwise, of any judgments, orders, decrees,
stipulations, settlement agreements, liens or injunctions, relating in any way
to the Assets, which have not been wholly and completely settled, complied with
and discharged.

 

6.7           No Material Violations. Seller
is not in violation of any applicable law, rule or regulation relating to the
Business that would reasonably be expected to have a materially adverse effect
on the Business, and, to the knowledge of Seller, there are no requests,
claims, notices, investigations, demands, administrative proceedings, hearings
or other governmental claims against Seller alleging the existence of any such
violation. For the purposes of this agreement, “knowledge of Seller” means the knowledge
of Gary Lesley, after inquiry and investigation.

 

6.8           Title; Security Interests. Seller
has good and marketable title to all property included in the Assets, free and
clear of all liability, obligations, mortgages, liens, pledges, charges and
encumbrances (other than property taxes not yet due and payable). Immediately
after the Effective Date, Buyer will own all of the rights, title and interest
in and to the Assets.

 

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6.9           Condition of Assets. All of
the Assets have been maintained in accordance with normal industry practice,
and are in good operating condition and repair, subject to normal wear and
tear.

 

6.10         Assigned Contracts. Seller and,
to the knowledge of Seller, each other party thereto, has performed all
obligations required to be performed under the Assigned Contracts to date, and
are not in default under any Assigned Contract. The Assigned Contracts are each
in full force and effect and are assignable to Buyer without the consent of
third parties, and Seller has not waived or assigned to any other person any of
its rights thereunder. True, correct and complete copies of all Assigned
Contracts, including all amendments or supplements thereto, have been delivered
to Buyer. All amounts due up through and including the Effective Date under
each of the Assigned Contracts have been paid. No Assigned Contract shall
prohibit or limit the ability of Seller to engage in any business activity or
compete with any person in connection with the Business and/or other activities
of the Buyer.

 

6.11         Inventory. The Inventory is
current, in good and marketable condition, is good quality material and, except
with regard to works-in-process, raw materials and supplies, is saleable in the
ordinary course of business. The quantities of Inventory are reasonable and
warranted in the present circumstances of the Business. The Inventory is not
obsolete or damaged and is merchantable and fit for its particular use.

 

6.12         Intellectual Property. The
Intellectual Property includes all intellectual property owned by Seller and
used in the Business that is, individually or in the aggregate, material to the
Business. With respect to the Intellectual Property:  (a) no interference actions or other judicial
or adversary proceedings, or other disputes, concerning such intellectual
property are outstanding or pending and, to Seller’s knowledge, no such action
or proceeding is threatened; (b) Seller has the right and authority to use such
intellectual property in connection with the conduct of the Business in the
manner presently conducted and has not received notice that such use conflicts
with, infringes upon or violates any rights of any other person, firm or
corporation; and (c) Seller’s execution and delivery of this agreement and the
Transaction Documents will not infringe upon or violate the rights of any other
person, firm or corporation.

 

6.13         Personal Property Leases. True
and complete copies of all personal property leases have been made available to
Buyer, including all amendments supplements and modifications thereof. All
personal property leases are valid, binding and enforceable against Seller and,
to Seller’s knowledge, against the other parties thereto, in accordance with
their respective terms and there does not exist under any such personal
property lease any default or any event which with notice or the lapse of time
or both would constitute a material default thereunder against Seller, and to
Seller’s knowledge, against the other parties thereto.

 

6.14         Taxes. Seller and/or Lesley have
paid all taxes, including federal, state and local income, profits, franchise,
sales, use, property, excise, payroll, and other taxes and assessments
(including interest and penalties) relating to or for Seller, the Assets or the
Business, in each case to the extent that such have become due and are not
being contested in good faith. No claims for additional taxes have been
asserted against Seller (or Lesley with respect to the Business) and no audits
are pending with respect to any tax liabilities of Seller (or Lesley with
respect to the Business).

 

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6.15         Labor and Employment Matters.

 

(a)           Seller is not party to any
collective-bargaining agreement or other material written or oral agreement
providing an employee of the Business with rights to employment, severance pay,
profit sharing, deferred compensation, a bonus, stock option, stock-purchase
right, pension, retainer, consulting, retirement, health, vacation, sick leave,
incentive pay, holiday leave, salary continuation during short absences for
illness or other reasons, and any other plan, agreement, arrangement or
commitment by Seller to provide benefits to an employee of the Business to
which Seller is a party, or by which it is or may be bound (other than benefits
under ERISA Plans, as defined below in Section 6.15(f)).

 

(b)           Seller has complied in all material
respects with all applicable laws, rules and regulations relating to the employment
of the employees of the Business, including but not limited to those relating
to wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by appropriate governmental authorities;

 

(c)           During the three-year period
preceding the date hereof, no unfair labor practice charge or complaint of
unfair labor practice has been brought or threatened against Seller with
respect to any employees or former employees of the Business or any labor
organization with respect to the Business before any federal, state or local
agency; and no complaint of such unfair labor practices has been issued, no
work stoppage affecting the Seller’s operation of the Business has been brought
or threatened, and no grievance has been brought;

 

(d)           No organizational, strike,
representation, decertification or deauthorization proceeding has been brought
or threatened, respecting the employees of the Business, and no such proceeding
has been brought within the three-year period prior to the date of this agreement;

 

(e)           All accrued obligations of Seller,
whether arising by operation of law, contract or past custom, for
unemployment-compensation benefits, pension benefits, salaries, bonuses, sick
leave, severance, vacation, worker-compensation claims and other forms of
compensation payable to the employees or former employees of the Business, or
to trusts or other funds or to any governmental agency, in respect of the
services rendered by any such individuals prior to the date hereof, have been paid;
and

 

(f)            No trade union, council of trade
unions, affiliated bargaining agency, employee-bargaining agency or labor
organization has bargaining rights for any of employees of the Business
pursuant to the provisions of all applicable laws, rules or regulations
relating to the employment of labor.

 

6.16         Pension and Welfare Plans.

 

(a)           Seller has provided Buyer with true
and correct copies of each (i) employee-benefit plan, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including without
limitation each group insurance and self-insured health plan, severance-pay
plan, non-qualified deferred-

 

9

 

compensation plan and retirement plan
intended to be qualified under Code Section 401(a), and that is maintained or
contributed to by Seller for its employees engaged in the operation of the
Business, former employees of the Business and/or dependents and beneficiaries
of such employees and/or former employees (collectively, the “ERISA Plans”); and (ii) trust
fund maintained by the Corporation or any subsidiary in connection with any
such ERISA Plan and each other plan providing compensation (other than salaries
or wages),  benefits or perquisites to
any class of employees engaged in the operation of the Business, former
employees or directors of Seller, including without limitation any incentive,
bonus, stock-option, restricted-stock, vacation-pay and sick-pay plan
(collectively, the “Compensation
Plans”); and any “cafeteria plan” (“125 Plan”) governed by Code Section 125.

 

(b)           None of the ERISA Plans is a multi-employer
Plan, as defined in ERISA Section 4001(a)(3), or is a defined-benefit pension
plan subject to Title IV of ERISA. Seller is not delinquent in any obligation
to make contributions to any ERISA Plan subject to Code Section 412 or Title IV
of ERISA and has not terminated or withdrawn from participation in any such
ERISA Plan.

 

(c)           Seller does not maintain any group
life insurance or health-benefit coverage for former employees or directors of
Seller, other than group life insurance or health-benefit coverage mandated by
applicable law. Seller has timely complied with all of its “COBRA” obligations
under ERISA Section 602, Code Section 4980B and applicable state insurance
laws, with respect to all group life insurance, health, and benefit
continuation coverage to be provided by those of its ERISA Plans and any 125
Plan that provide such benefits; Seller represents that it is not terminating
any of such coverage in connection with the transactions contemplated hereby;
and Seller warrants that it will continue, after the Effective Date, to comply
with such obligations with respect to any of its employees, former employees or
their beneficiaries who are or become entitled to such continuation coverage,
and are not hired by Buyer as of that date or the following business day, for
as long Seller continues the Welfare Plans providing such coverage.

 

Buyer shall not become responsible for any obligation
of Seller to provide any “parachute payment,” as defined in Section 280G of the
Code, or provide any severance, termination allowance or similar payments as a
direct result of the transactions contemplated hereby.

 

6.17         Environmental Matters. Seller
is, and at all times has been, in full compliance with, and has not been in
violation of or liable under, any Environmental Law (as defined below) such
that non-compliance or violation would reasonably be expected to have a
materially adverse effect on the Facilities or the Business. Lesley has no
basis to expect, nor have any of Lesley or Seller received, any actual or
threatened order, notice or other communication from any governmental agency,
office or body, or any private citizen, acting in the public interest, or the current
or prior owner or operator of any building in which Seller conducts the
Business, of any actual or potential violations or failure to comply with any
Environmental Law. For purposes of this agreement, the term “Environmental Law”
means any legal requirement that requires or relates to: (a) advising
appropriate authorities, employees and/or the public of intended or actual
releases of pollutants or hazardous substances or materials, violations of
discharge limits or other prohibitions, and the commencement of activities,
such as resource extraction or construction, 

 

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that could have a significant impact on the
environment; (b) preventing or reducing to acceptable levels the release or
existence of pollutants or hazardous materials or substances in the
environment; (c) reducing the quantities, preventing the release or minimizing
the hazardous characteristics of wastes that are generated; (d) assuring that
products are designed, formulated, packaged and used so that they do not
present unreasonable risks to human health or the environment when used or
disposed of; (e) protecting resources, species or ecological amenities; (f)
reducing to acceptable levels the risks inherent in the transportation of hazardous
substances, pollutants or other potentially harmful substances; (g) cleaning up
pollutants that have been released, preventing the threat of release, or paying
the costs of such clean up or prevention; or (h) making responsible parties pay
private parties or groups of private parties for damages done to their health
or the environment, or permitting self-appointed representatives of the public
interest to recover for injuries done to public property or assets.

 

6.18         Financial Statements. Attached
hereto as Schedule 6.18 are the financial statements of Seller as of February
28, 2007, which financial statements include a balance sheet as of such date
and an income statement for the twelve month periods then ended (such financial
statements shall be referred to herein as the “Financial Statements”). The Financial
Statements are true and correct, based upon the information contained in the
books and records of Seller, and fairly present the financial condition of
Seller as of the date thereof and, as applicable, the results of operations and
cash flows for the periods referred to therein. The Financial Statements have
been prepared in accordance with past practices, consistently applied.

 

6.19         No Undisclosed Liabilities. Seller
has no liability or obligation of any nature or kind whatsoever, liquidated or
unliquidated, known or unknown, absolute, accrued, contingent or otherwise, and
whether due or to become due (and Lesley and/or Petrie have no knowledge of any
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against Seller giving rise
to any liability), except for (i) liabilities that have been disclosed in
writing to Buyer, and (ii) liabilities that have arisen since such disclosure
in the ordinary course of business (none of which results from, arises out of,
relates to, is in the nature of or was caused by any breach of contract, breach
of warranty, tort, infringement or violation of applicable law).

 

6.20         Operation of Business. Since February
28, 2007, Seller has operated the Business in the ordinary course and
consistent with past practices. Except as set forth on Schedule 6.20, since February
28, 2007, there has not been:

 

(a)           any dividend or other distribution;

 

(b)           declared or paid with respect to any
shares of Seller’s capital stock, or any redemption or purchase, directly or
indirectly, by the Seller of any shares of Seller’s capital stock;

 

(c)           any increase in encumbrance against
any of the Assets, or change in the condition (financial or other), properties,
assets or liabilities of the Business, except changes in the ordinary course of
business, none of which has had or will have a material adverse effect on the
financial condition, operating results, customer, employee or supplier relations
or business condition of the Assets or the Business;

 

11

 

(d)           any change in the methods or terms
used by Seller in the Business for collecting accounts receivable;

 

(e)           any sale, transfer, lease, abandonment
or other disposition by Seller, other than in the ordinary course of the
Business, of any inventory, supplies, vehicles, machinery, equipment or other
operating properties or other assets included among the Assets;

 

(f)            any change in Seller’s methods of
accounting with respect to the Business;

 

(g)           any business interruption, damage,
loss or other occurrence having a material adverse effect on the financial
condition, operating results, customer, employee or supplier relations or
business condition of the Assets or the Business, whether or not covered by
insurance, as a result of any accident, fire, casualty, act of God or the
public enemy, any labor dispute or disturbance, or other force majeure;

 

(h)           any conduct of the Business other
than in the ordinary course or as otherwise contemplated herein, including,
without limitation, any material reduction in efforts or funds expended by
Seller to (i) repair and maintain equipment to be sold to Buyer hereunder, or
(ii) perform all other activities required to maintain the long-term viability
and quality of the Business;

 

(i)            any other occurrence, event or
condition with respect to Seller, the Business or the Assets which could have a
material adverse effect on the financial condition, operating results, customer,
employee or supplier relations or business condition of the Assets or the
Business.

 

6.21         Product Liability. Seller has no
liability (and Seller has no knowledge of any basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against Seller giving rise to any liability) arising out of any injury
to individuals or property as a result of the ownership, possession or use of
any product manufactured, sold or delivered by Seller.

 

6.22         Insurance. Seller has provided Buyer
with a true and complete list of all policies of casualty, liability, theft,
fidelity, life and other forms of insurance held by Seller at
any time during the last three years through the date hereof (specifying for each such
insurance policy the insurer, the policy period, the policy number or covering note
number with respect to binders, and each pending claim thereunder of more than
$10,000, and setting forth the aggregate amounts paid out under each such
policy during the last three years through the date hereof)
and indicating which such policies are currently in effect (“Current Policies”). Each Current Policy is valid and binding, and
is and has been in effect during its respective policy period. All Current Policies are in the name of Seller
and all premiums with respect to such policies are currently paid. Seller has
not received notice of cancellation or termination of any Current Policy, nor has it been denied or
had revoked or rescinded any policy of insurance, nor borrowed against any such
policies. No claim under any insurance policy of Seller (whether a Current
Policy or a past policy) is pending.

 

12

 

6.23         Disclosure. The representations
and warranties contained in this Article 6 do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements and information contained in this Article 6 not misleading.

 

6.24         Accounts Receivables. All Accounts
Receivable are valid, genuine and fully collectible.

 

6.25         Accounts Payables. The Accounts
Payables assumed by Buyer do not exceed the amounts indicated on Schedule 2
hereof.

 

6.26         Reservation of Rights. Neither
the representations and warranties of Lesley contained in this agreement nor
the indemnification obligations of Lesley set forth in Article 9, shall be
affected by (a) any due diligence or other investigation conducted by Buyer,
BRS or their respective agents, (b) any knowledge on the part of Buyer, BRS or
their respective agents of any circumstances resulting from such investigation
or otherwise, including without limitation Buyer’s, BRS’ or their respective
agent’s knowledge that a representation or warranty of Lesley is or might be
untrue.

 

6.27         Schedules. All schedules
attached hereto are accurate and complete as of the date hereof.

 

Article
7

Representations and Warranties of Buyer

 

Buyer hereby represents and warrants to Seller as
follows:

 

7.1           Organization. Buyer is a
corporation duly incorporated and existing and in good standing under the laws
of the State of Minnesota and has the corporate power to execute and deliver
this agreement and to consummate the transactions contemplated hereby.

 

7.2           Corporate Authority. The
execution and delivery of this agreement, and the Transaction Documents, and
the consummation of transactions contemplated hereby or thereby have been duly
authorized by all necessary corporate action and will not violate or conflict
with any agreement or order by which Buyer is bound. This agreement and the
Transaction Documents are, or when delivered will be, legally, valid and
binding obligations of Buyer, enforceable in accordance with their respective
terms.

 

Article
8

Restrictive Covenants

 

8.1           Non-competition. Seller, Lesley,
and Petrie will not for the period commencing on the Effective Date and ending five
years from such date (the “Non-compete
Period”), engage or be interested, directly or indirectly,
whether alone or together with or on behalf of or through any other person,
firm, association, trust, venture or corporation whether as partner,
stockholder, agent, officer, director, employee, technical adviser, lender,
trustee, beneficiary, or otherwise, in any phase of the Restricted Business (as
hereinafter defined) in the Restricted Area (as hereinafter defined).

 

13

 

8.2           Non-solicitation. During the
Non-compete Period, Seller, Lesley, and Petrie will not, for themselves or any
other person or entity, employ or otherwise engage, or offer to employ or
otherwise engage, or solicit any person who has been an employee, sales
representative or agent of Buyer at any time within the one-year period prior
to the date hereof or during the term of the Non-compete Period (the “Non-solicitation Time Period”),
nor during the Non-compete Period will Seller, Lesley, or Petrie contact or
solicit any Restricted Business (as defined herein) from any person or entity
that has been or is a customer or client of Seller or Buyer at any time during
the Non-solicitation Time Period.

 

8.3           Certain Definitions. The
following capitalized terms shall have, for purposes of this agreement, the
meanings set forth below.

 

(a)           The term “Restricted Business” means any business any part of
which consists of the manufacture, sale or delivery of products that are in
direct or indirect competition with the products of Buyer and related cut-and-sew
operations and sewing for parachutes. The term “Restricted Business” includes
the Business as it is conducted after the Effective Date, but shall not include
the mere passive ownership of up to 1% in a publicly traded company through a
mutual fund or similar investment vehicle. The term “Restricted Business” shall
not include the Excluded Business.

 

(b)           The term “Restricted Area” means the United States of America and
any countries in which Seller has transacted business within the one year
preceding the Effective Date.

 

(c)           The term “engage or be interested, directly or indirectly” shall
include giving advice or technical or financial assistance, by loan,
guarantees, stock transactions or in any other manner to any person, firm,
association, trust, venture or corporation doing or proposing to undertake such
“Restricted Business” in the Restricted Area.

 

8.4           Injunctive Relief. In the event
that the covenant set forth in Sections Article 8 and 8.1 is considered by a
court of competent jurisdiction to be excessive in its duration or in the area
to which it applies, it shall be considered modified and valid for such
duration and for such area as said court may determine reasonable under the
circumstances. In recognition of the irreparable harm that a violation of said
covenants would cause to Buyer, Seller agrees that Buyer shall have the right
to enforce this agreement by specific remedies, which shall include, among
other things, temporary restraining orders and temporary and permanent
injunctions. In the event of any such violation, Lesley and Petrie (as the case
may be) agree to pay the reasonable attorneys’ fees incurred by Buyer in pursuing
any of its rights with respect to such violation or violations in addition to
the actual damages sustained by Buyer as a result thereof. Buyer’s rights under
this Section 8.4 shall not be exclusive and shall not limit Buyer’s right to
obtain any other remedy available to it.

 

8.5           Other Remedies. In addition to
any other rights and remedies available to Buyer at law or in equity, in the
event Seller, Lesley or Petrie breach the terms of this Article 8, Buyer shall
be entitled to redeem or offset all or any portion of the shares of common
stock of Buyer held by Seller in accordance with the terms of the HLC Subscription
Agreement (as defined in Section 10.2) or, at the election of Buyer, pursuant
to Section 10.1 hereof.

 

14

 

8.6           Extension for Breach. The
duration of the foregoing covenants will be extended beyond the time period set
forth herein for a period equal to the duration of any breach or default of
such covenant by Seller.

 

8.7           Confidential Information. Seller
acknowledges that it has, will or may have access to and become informed of
Confidential Information which is a competitive asset of Buyer, BRS or the
Business. As used herein, “Confidential
Information” means information that is proprietary to Buyer, BRS, or
the Restricted Business or proprietary to others and entrusted to Buyer or BRS whether
or not constituting a trade secret. Confidential Information includes, but is
not limited to, information relating to business plans and to business as conducted
or anticipated to be conducted by Buyer and BRS and to their past, current or
anticipated businesses (including without limitation information relating to
the Restricted Business). Confidential Information also includes, without
limitation, customer lists and information concerning purchasing, accounting,
marketing, selling, products and services of Buyer and BRS, and shall further
include the same aforementioned Confidential Information with respect to the
Assets. Seller, Lesley, and Petrie agree that each will keep all Confidential
Information in strict confidence and never directly or indirectly make known,
divulge, reveal, furnish, make available or use any Confidential Information. Confidential
Information shall not include information which is generally publicly known or
which is independently obtained from a source that is not under an obligation
of confidentiality to the Buyer.

 

Article
9

Indemnification

 

9.1           Indemnification of Buyer. Seller
and Lesley shall jointly and severally indemnify, defend and hold harmless Buyer
and its directors, officers, employees, agents, consultants, representatives,
affiliates, successors, transferees and assigns (individually a “Buyer Indemnified Party”,
and collectively the “Buyer
Indemnified Parties”), promptly upon demand, at any time and
from time to time, from, against and in respect of any and all demands, claims,
losses, damages, judgments, liabilities, assessments, suits, actions,
proceedings, interest, penalties and expenses (including without limitation
settlement costs and any legal, accounting and other expenses for investigating
or defending any actions or threatened actions or for enforcing such rights of
indemnity and defense) incurred or suffered by the Buyer Indemnified Parties,
in connection with, arising out of or as a result of each and all of the
following:

 

(a)           any breach of any covenant,
obligation, agreement, representation or warranty made in this agreement or any
other Transaction Document or instrument delivered to Buyer or entered into as
part of the transaction contemplated hereby;

 

(b)           any misrepresentation or omission
contained in any document, statement or certificate furnished to Buyer pursuant
to the Transaction Documents or otherwise in connection with transaction
contemplated hereby; and

 

(c)           any and all liabilities and
obligations of Seller and any and all liabilities and obligations arising from
ownership of the Assets, the operation of the Business and incidents and
occurrences on or prior to the Effective Date.

 

15

 

9.2           Non-Waiver, Non-Exclusive Remedy.
Failure of the Buyer Indemnified Parties to give reasonably prompt notice of
any claim or claims shall not release, waive or otherwise affect the
obligations of Seller and Lesley with respect thereto except to the extent that
Seller and Lesley can demonstrate actual loss and prejudice as a result of such
failure. The indemnification provisions contained in this Article 9 and the
representations and warranties contained in this agreement and other
obligations contained in this agreement which by their nature are to be
performed after the Effective Date shall forever survive and are in addition
to, and not in derogation of, any statutory, common law or equitable rights or
remedies any party may have for breach of any representation, warranty,
covenant or agreement.

 

Article
10

Other Agreements/Right to Setoff

 

10.1         Setoff. If Seller or Lesley fail
to pay any amounts they owe or fail to perform any obligations they owe Buyer
or any affiliate of Buyer in any manner pursuant to this agreement (including,
without limitation, obligations of Seller and Lesley under Article 9 hereof),
any other document or agreement related to this transaction (including, without
limitation, the Consulting Agreement, the Master Agreement, and the HLC Subscription
Agreement (as defined in Section 10.2), Buyer will have the right to set-off
such amounts which have not been paid or the value of the obligation so owed
against all amounts which are owed by Buyer or any affiliate of Buyer to Seller
or Lesley, including, without limitation and in Buyer’s sole discretion, Margin
Payments, Restrictive Covenant Payments, any amount due under the Consulting
Agreement and dividends owed on the Escrowed HLC Shares and by a reduction of
Escrowed HLC Shares as provided in Section 10.2. Neither the exercise of, nor
the failure to exercise such right of set-off will constitute an election of
remedies or limit Buyer or BRS in any manner in the enforcement of any other
remedies that may be available to it hereunder. Any failure by Buyer or BRS to
pay all or any portion of a Margin Payment, Restrictive Covenant Payment, any
amount due under the Consulting Agreement or dividends on the Escrowed HLC
Shares or of Buyer to redeem the Escrowed HLC Shares by virtue of exercising
its set-off rights herein shall not constitute a default under or a breach of
this agreement, the Master Agreement, the Consulting Agreement or the HLC
Subscription Agreement for any reason.

 

10.2         Escrowed HLC Shares. The shares
of Buyer Common Stock issued to Seller pursuant to that certain Subscription
Agreement by and between the Buyer and Seller dated the date hereof (the “HLC
Subscription Agreement”) shall be beneficially owned by Seller, provided
however, that for a two year period following the Effective Date, such shares
(the “Escrowed HLC Shares”) shall be held in escrow by Buyer to satisfy claims
and obligations of Buyer pursuant to Sections 3.6, 3.7, 3.8, 3.9, 8.5 or 10.1
hereof. During such two year escrow period, Seller shall retain voting rights
and rights to dividends and distributions to the Escrowed HLC Shares (subject
to offset rights provided herein) but shall not have the right to sell,
transfer, pledge, grant or option in, hypothecate or gift the Escrowed HLC
Shares. Any required offset pursuant to Sections 3.6, 3.7, 3.8, 3.9, 8.5 or
10.1 hereof shall be determined by offsetting the amount owed to Buyer pursuant
to such Sections on a dollar-for-dollar basis by redeeming an amount of
Escrowed HLC Shares equal to the amount of required offset divided by $540.33,
the per share price of the Escrowed HLC Shares on the date of issuance pursuant
to the HLC Subscription Agreement. Any Escrowed HLC Shares redeemed hereby
shall be cancelled and Buyer shall have no rights with respect to such redeemed
Escrowed HLC Shares. During this escrow period, stock certificates representing
the Escrowed HLC Shares shall be retained by the 

 

16

 

Secretary of the Buyer. Following the end of
the two year escrow period, any and all remaining shares of Escrowed HLC Shares
shall be promptly returned to Seller.

 

10.3         Rights to Corporate Name. Buyer
and Seller acknowledge and agree that Seller does not have rights to, and shall
not utilize, the names “Head Lites Corporation,” “Head Lites” or any derivative
thereof (with the exception of the name “HLC” as set forth in Section 1.2
hereof), and further that Seller has transferred such rights to Buyer pursuant
to the terms of Section 1.1 hereof. Notwithstanding such transfer, Buyer
acknowledges and agrees that it will not utilize the name “Head Lites
Corporation,” but is entitled to use any derivative thereof.

 

Article
11

General Provisions

 

11.1         Assignment. No party hereto may
assign its rights in this agreement without the prior written consent of the
other parties hereto. The terms of this agreement are binding upon and inure to
the benefit of the parties hereto, their successors and permitted assigns, and
no person, firm or corporation other than the parties, their successors and
assigns, shall acquire or have any rights under or by virtue of this agreement.

 

11.2         Further Assurances. Notwithstanding
any provision herein to the contrary, without further consideration, Seller, Lesley,
and/or Petrie shall execute and deliver to Buyer and/or BRS such further
instruments of sale, transfer, conveyance, assignment and confirmation, as
shall be helpful, necessary, and/or appropriate to effectuate the terms of this
agreement, including the transfer of the Assets, regardless of whether or not
such documents are prepared as of the Effective Date. With regard thereto,
Seller hereby constitutes and appoints Buyer the true and lawful attorney of
Seller, with full power of substitution, in the name of Seller or Buyer, but on
behalf of the benefit of Buyer, to enforce any and all Assigned Contracts,
and/or, after reasonable notice to the Seller, to take such further action as
shall be necessary, helpful and/or appropriate to effectuate the terms of this agreement
and to consummate the transactions contemplated hereby.

 

11.3         Survival. All representations
and warranties contained herein and all other obligations which by their terms
require or may require action after the Effective Date (including but not
limited to the obligations contained in Article 9), and all other written
representations and warranties contained in the Transaction Documents, shall
forever survive the execution and delivery of this agreement and the
consummation of the transactions contemplated hereby.

 

11.4         Entire Agreement. This agreement,
including the exhibits and schedules attached hereto, constitutes the entire agreement
and understanding between parties hereto with respect to the sale and purchase
of the Assets. The parties hereby agree that all prior representations,
understandings and agreements between the parties with respect to the sale and
purchase of the Assets, and the other transactions contemplated hereby, are
superseded by the terms of this agreement.

 

11.5         Choice of Law; Venue. This agreement
shall be construed and interpreted in accordance with the laws of the State of
Minnesota, without regard to its conflicts-of-law provisions, as though all
acts and omissions related to this agreement occurred in the State of Minnesota.
All disputes related to or arising under this agreement must be brought in
either the 

 

17

 

United States District Court for the District
of Minnesota or the State of Minnesota Fourth Judicial District Court with each
party consenting to the exclusive jurisdiction of such courts and hereby
waiving any personal jurisdiction defenses. Each party hereby (i) waives any
objection which it might have now or hereafter to the foregoing venue of any
such litigation, action or proceeding, (ii) irrevocably submits to the
exclusive jurisdiction of any such court set forth above in any such
litigation, action or proceeding, and (iii) waives any claim or defense of
inconvenient forum. Each party hereby consents to service of process by
registered mail, return receipt requested, at such party’s address set forth in
this agreement (as modified by written notice of a party from time to time) and
hereby expressly waives the benefit of any contrary provision of law.

 

11.6         Injunctive Relief. The parties
hereto acknowledge and agree that the other parties would be damaged
irreparably in the event any of the provisions of this agreement are not
performed substantially in accordance with their specific terms. Accordingly,
each of the parties agrees that the other parties shall be entitled to
injunctive relief to prevent breaches of this agreement and to enforce
specifically the substantial performance of this agreement.

 

11.7         Severability. The provisions of
this agreement shall, where possible, be interpreted so as to sustain their
legality and enforceability, and for that purpose the provisions of this agreement
shall be read as if they cover only the specific situation to which they are
being applied. The invalidity or unenforceability of any provision of this agreement
in a specific situation shall not affect the validity or enforceability of that
provision in other situations or of other provisions of this agreement.

 

11.8         Taxes and Fees. Seller shall be
responsible for and shall pay all sales, transfer or similar taxes or
governmental charges, if any, and all deed taxes and recording fees with
respect to the sale and purchase of the Assets, whether levied against the
Assets, Seller, Buyer, or BRS.

 

11.9         Expenses. Each party will bear its
own expenses related to the transactions contemplated hereby, including but not
limited to those of legal counsel and other professional advisers.

 

11.10       Counterparts; Third Party
Beneficiaries. This agreement may be executed in counterparts, each of which
shall be considered an original, and signatures for this agreement may be
delivered by facsimile or other means of electronic transmission, and any such
signature shall be considered valid and binding to the same extent as delivered
original signatures. With the exception of the rights conferred to BRS herein,
no provision of this agreement is intended to confer any rights, benefits,
remedies, obligations, or liabilities hereunder upon any person other than the
parties hereto and their respective successors and assigns.

 

11.11       Notices. All notices given
pursuant to this agreement shall be delivered in writing by overnight courier
or sent by United States registered mail, postage prepaid, addressed as set
forth below:

 

	
  If
  to Buyer:

  	
  Advanced
  Tactical Fabrication, Inc.

  300 Airport Road

  South St. Paul,
  MN  55075

  Attn: President

  

 

18

 

	
  with
  a copy to:

  	
  Maslon Edelman
  Borman & Brand, LLP

  c/o Douglas T. Holod, Esq.

  3300 Wells Fargo
  Center

  90 South Seventh
  Street

  Minneapolis,
  MN  55402

  
	
   

  	
   

  
	
  If
  to Seller or Lesley:

  	
  Head Lites
  Corporation

  
	
   

  	
   

  
	
  If
  to Petrie:

  	
  Arthur Petrie

  

 

11.12       Non-disparagement. Seller Parties
will refrain from disparaging Buyer or BRS and any of their respective
shareholders, directors, officers and affiliates. Similarly, the Buyer and its
shareholders, directors, officers and affiliates will refrain from disparaging Seller,
Lesley, and Petrie.

 

Signature Page Follows

 

19

 

IN WITNESS WHEREOF, the parties have caused this Asset
Purchase Agreement to be executed and delivered by their duly authorized
officers as of the date first above written.

 

	
   

  	
   

  	
  BUYER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ADVANCED TACTICAL FABRICATION, INC.,

  
	
   

  	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Larry E. Williams

  
	
   

  	
   

  	
  By: Larry E. Williams

  
	
   

  	
   

  	
         Its: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SELLER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HEAD LITES CORPORATION,

  
	
   

  	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Gary Lesley

  
	
   

  	
   

  	
  By: Gary Lesley

  
	
   

  	
   

  	
         Its:
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LESLEY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Gary Lesley

  
	
   

  	
   

  	
  Gary Lesley

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PETRIE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Arthur Petrie

  
	
   

  	
   

  	
  Arthur PetrieEXHIBIT 10.2

 

MASTER
AGREEMENT

 

THIS MASTER AGREEMENT (the “Agreement”) is made and
entered into effective as of November 16, 2007, by and among Ballistic Recovery
Systems, Inc., a Minnesota corporation (“BRS”),  Head Lites Corporation, a Minnesota corporation
(“HLC”), Advanced Tactical Fabrication, Inc., a Minnesota corporation (the “Company”),
and Gary Lesley, Chief Executive Officer, a director and 89% shareholder of the
outstanding securities of HLC (“Lesley”).

 

INTRODUCTION

 

A.            BRS, HLC and Lesley entered into a non-binding letter of
intent on September 14, 2007 (the “Letter of Intent”) pursuant to which the
parties thereto proposed to establish the Company for, among other things, the
purpose of acquiring certain assets beneficially owned by HLC and operating
such assets as a subsidiary of BRS.

 

B.            The Letter of Intent contains a series of transactions related
to the Company (collectively referred to herein as the “Transaction”),
including, but not limited to: formation of the Company; contributions to the
Company by its shareholders; loans to the Company by BRS; and acquisition of
certain assets of HLC by the Company pursuant to the terms of the Asset
Purchase Agreement (as defined in Section 4.1 hereto).

 

C.            The purpose of this Agreement is to outline those various
transactions and documents that must be executed in connection with the
Transaction.

 

AGREEMENT

 

NOW, THEREFORE,  in
consideration of the foregoing facts and premises hereby made a part of this
Agreement, the mutual promises of the parties contained herein, the mutual
benefits to be gained by the performance of this Agreement and the Ancillary
Agreements (as defined herein), and for other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:

 

Article 1

Closing

 

1.1           Closing.
The closing of the Transactions described herein shall take place at the
offices of Maslon Edelman Borman & Brand, LLP on or prior to November 16,
2007 (the “Closing”), or at such other time or in such other manner as may be
mutually agreed to by the parties.

 

1.2           Closing
Deliveries. On the Closing Date, the parties shall execute and deliver the “Ancillary
Documents” as defined herein.

 

1

 

Article 2

Corporate Formation

 

2.1           Company
Formation. Prior to the Closing, BRS shall incorporate the Company as a
Minnesota corporation by executing, or causing to be executed, delivered and/or
filed, as appropriate,  the following documents:

 

(a)           Articles
of Incorporation, a form of which is attached as Exhibit 2.1(a)
(filed and accepted by the Minnesota Secretary of State);

 

(b)           Bylaws,
a form of which is attached as Exhibit 2.1(b);

 

(c)           Subscription
Agreement of BRS, a form of which is attached as Exhibit 2.1
(c), pursuant to which BRS would contribute
(i) $648,400 in cash and (ii) agree to commit up to $450,000 as secured senior
loans to the Company in exchange for an 90% interest in the Company.

 

(d)           Subscription
Agreement of HLC, a form of which is attached as Exhibit
2.1(d), pursuant to which HLC would enter
into the agreements contemplated by the Transaction in exchange for a 10%
interest in the Company.

 

(e)           Organizational
written actions of Shareholders and Directors, a form of which is attached as Exhibit 2.1 (e).

 

Article 3

Secured Loan

 

3.1           Loan
Commitment. Contemporaneous with the Closing, BRS agrees that it will
provide up to $450,000 in senior secured loans to the Company for the purpose
of the Company’s establishment of operations in North Carolina. Such senior
secured loans will be in denominations of $300,000 (the “Operations Loan”) and
$150,000 (the “Transition Loan” together with the Operations Loan, the “Loans”).
The Loans will be evidenced by the form of Senior Secured Notes issued by the
Company, forms of which are attached as Exhibits 3.1 (a) and
3.1 (b), respectively  (the “Secured Senior Notes”). The Senior Secured Notes will
bear interest of at least 100 basis points above the cost of such funds to BRS,
will have a approximately 36 month terms, and will be secured by all of the
assets of the Company pursuant to a Security Agreement , a form of which is attached
as Exhibit 3.1(c).

 

Article 4

HLC Asset Purchase

 

4.1           Asset
Purchase Agreement. At Closing, the Company, HLC, Lesley and Art Petrie shall
enter into an Asset Purchase Agreement, the form of which is attached as Exhibit 4.1, that provides for the purchase by the Company
of certain assets of HLC (the “Asset Purchase Agreement”). The Asset Purchase
Agreement shall also provide, in addition to the representations, warranties, conditions,
covenants and indemnities contained therein, that HLC and each of its
shareholders shall be subject to a five year non-competition agreement with the
Company in connection with the Transaction.

 

4.2           Lesley
Consulting Agreement. At Closing, the Company and Lesley shall enter into a
five year Consulting Agreement, a form of which is attached as Exhibit 4.2, pursuant to which Lesley would provide certain
consulting services to the Company (the “Consulting Agreement”).

 

2

 

4.3           Management
Fees. In consideration of BRS’ payment of administrative expenses on behalf
of the Company, the Company shall pay an annual management fee to BRS in an
amount equal to 2.5% of the Company’s gross revenues during the applicable
fiscal year. The annual management fee will be paid in cash within 30 days
following the end of the applicable fiscal year. The annual management fee for
the fiscal year ending September 30, 2008 will be prorated accordingly.

 

4.4           Ancillary
Agreements. The Articles of Incorporation of the Company, the Bylaws of the
Company, the Subscription Agreements for the Company of each of BRS and HLC,
the Organizational Minutes of the Company, the Senior Secured Notes, the
Security Agreement, the Asset Purchase Agreement, the Consulting Agreement and
any and all such other related agreements reasonably required by BRS to
complete the Transaction shall be know as the “Ancillary Agreements”.

 

4.5           HLC
Corporate Name Change. In addition
to other covenants contained in the Ancillary Agreements, HLC agrees that at Closing
and as a condition to Closing, it shall change its corporate name to one
dissimilar to “Head Lites Corporation” and reasonably acceptable to BRS.

 

4.6           HLC
Audit Costs. The Company shall pay 50% of the fees of an independent audit
firm, not to exceed $20,000, in connection with the audit of the historical
financial statements of HLC. HLC and Lesley shall be responsible for the
remainder of the audit costs and shall use their best efforts to cause the
audit to be completed in a timely manner.

 

Article 5

Representations and Warranties

 

To induce the parties to enter into this Agreement and
the Ancillary Agreements and engage in the other transactions contemplated
herein, the parties hereby represent and warrant as follows:

 

5.1           Representations
and Warranties of BRS. BRS hereby represents and warrants to each of HLC
and Lesley as follows:

 

(a)           Organization;
Good Standing, Etc. BRS is a corporation duly organized, validly existing
and in good standing under the laws of Minnesota, and has the requisite power
and authority to carry on its business as it is now being conducted.

 

(b)           Authorization.
This Agreement and all other Ancillary Documents to which BRS is a party, have
been, or shall be as of the Closing, duly authorized by all necessary action on
behalf of BRS, have been duly executed and delivered by authorized officers,
are valid and binding agreements on the part of BRS and are enforceable against
BRS in accordance with their respective terms.

 

5.2           Representations
and Warranties of HLC and Lesley. HLC and Lesley hereby represent and
warrant to BRS and the Company as follows:

 

(a)           Organization;
Good Standing, Etc. HLC is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota, and has the
requisite power and authority to carry on its business as it is now being
conducted.

 

(b)           Authorization.
This Agreement and the Ancillary Documents relating to the Closing have been,
or shall be as of the Closing, (i) duly authorized by all necessary company
action on behalf of HLC,  (ii) shall have
been approved by all of the HLC shareholders,  (iii) have been duly executed and delivered by
authorized officers of HLC and by Lesley,  (iv) are valid and binding agreements on the
part 

 

3

 

of HLC and Lesley and (v) are enforceable against HLC and Lesley in
accordance with their respective terms.

 

(c)           Capitalization
of HLC. There are 500,000 shares of HLC capital stock authorized of which 15,337
shares of HLC Common Stock are outstanding (the “HLC Shares”). Other than the
HLC shares, there are no other securities issued by HLC, including but not
limited to stock options, convertible debt,  warrants or other convertible securities
convertible into capital stock of the Company. All of outstanding capital stock
of HLC is owned as follows:  Gary Lesley owns
13,689 HLC Shares, and Art Petrie owns 1,648 HLC Shares.

 

(d)           No
Conflict. Neither the execution and the delivery of this Agreement,  the Ancillary Agreements, or the consummation
or performance of the Transaction will directly or indirectly (with or without
notice or lapse of time):  (i)
contravene, conflict with or result in a violation of or default under any
provision of the charter documents of HLC or any agreement to which HLC is a
party, or any resolution adopted by the shareholders or directors of HLC;  (ii) contravene, conflict with or result in a
violation of or default under, or give any governmental body or other person
the right to challenge the Transaction or to exercise any remedy or obtain any
relief under, any legal requirement or any order to which HLC is subject; or
(iii) contravene, conflict with or result in a violation or breach of or
default under any provision of, or give any person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify any contract or other
arrangement to which HLC is a party or by which HLC is bound. HLC will not be
required to give any notice to or obtain any consent from any person in order
for HLC to consummate the Transaction. The assets purchased pursuant to the
Asset Purchase Agreement will be free and clear of all liens and encumbrances
at Closing.

 

(e)           No
Brokers or Finders. No Person has or will have, as a result of any
contractual undertaking by HLC, Lesley or Petrie, any right, interest or valid
claim against HLC, Lesley or Petrie, BRS or the Company for any commission, fee
or other compensation as a finder or broker, or in any similar capacity, in
connection with the Transaction.

 

(f)            Absence
of Restrictive Agreements. There are no agreements or other obligations by
which HLC is bound, which restrict the ability of HLC to enter into this
Agreement, to form, organize or operate the Company, or to perform the Transaction.

 

Article 6

General Provisions

 

6.1           Oral
Changes, Waivers, Etc. Neither this Agreement nor any provision hereof may
be changed, waived, discharged or terminated orally, but only pursuant to a
written statement signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.

 

6.2           Governing
Law; Jurisdiction and Venue. This Agreement and the rights of the parties
hereunder shall be governed by, interpreted and enforced in accordance with the
laws of the State of Minnesota without regard to conflicts-of-law principles.

 

6.3           Binding
Effect. Except as herein otherwise specifically provided, this Agreement
shall be binding upon and inure to the benefit of the parties and their legal
representatives, heirs, administrators, executors, successors and permitted
assigns.

 

6.4           Severability.
If any provision of this Agreement or the application of such provision to any
Person or circumstances, shall be held invalid, the remainder of the Agreement,
or the application of such 

 

4

 

provision to Persons or circumstances other than those
to which it is held invalid, shall not be affected thereby.

 

6.5           Further
Assurances. Each party hereby agrees to execute and deliver such additional
documents and instruments and to perform such additional acts as may be
necessary or appropriate to effectuate, carry out and perform all of the terms,
provisions and conditions of this Agreement and the  Transactions.

 

6.6           No
Third-Party Beneficiary. This Agreement is made solely and specifically
among and for the benefit of the parties hereto and their respective successors
and assigns, and other than as specifically set forth herein, no other Person
will have any rights, interest or claims hereunder or be entitled to any
benefits under or on account of this Agreement as a third-party beneficiary or
otherwise.

 

Signature Page Follows

 

5

 

IN WITNESS WHEREOF, the undersigned have set their
hands to this Master Agreement to be effective as of the date first set forth
above.

 

 

	
   

  	
   

  	
  BRS:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Ballistic Recovery Systems, Inc.,

  	
   

  
	
   

  	
   

  	
  a Minnesota corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Larry Williams

  	
   

  
	
   

  	
   

  	
  Larry Williams, Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HLC:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Head Lites Corporation

  	
   

  
	
   

  	
   

  	
  a Minnesota corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Gary Lesley

  	
   

  
	
   

  	
   

  	
  Gary Lesley, Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Company:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Advanced Tactical Fabrication, Inc.,

  	
   

  
	
   

  	
   

  	
  a Minnesota corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Larry Williams

  	
   

  
	
   

  	
   

  	
  Larry Williams, Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Gary Lesley

  	
   

  
	
   

  	
   

  	
  Gary Lesley

  	
   

  

 

6

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