AGREEMENT TO PURCHASE LIMITED LIABILITY COMPANY MEMBERSHIP INTEREST, SETTLEMENT AND MUTUAL RELEASES

Exhibit 10.1

AGREEMENT TO PURCHASE LIMITED LIABILITY COMPANY MEMBERSHIP
INTEREST, SETTLEMENT AND MUTUAL RELEASES

THIS AGREEMENT to Purchase Limited Liability Company Membership Interest, Settlement and Mutual Releases (this “Agreement”), is made this 21 st  day of September, 2006, by and between Explorer Gear USA, Inc., a California corporation (“Explorer Gear” or “Seller”), Explorer Headgear, Inc., a Canadian corporation (“Explorer Headgear”), and Sport-Haley, Inc., a Colorado corporation (“Sport-Haley” or “Purchaser”).

RECITALS

WHEREAS, Seller is the owner of a 49% Percentage Interest in Reserve Apparel Group, LLC, a Colorado limited liability company (the “Company”‘) and Purchaser is the owner of a 51% Percentage Interest in the Company;

WHEREAS, Seller and Purchaser are the only two members of the Company;

WHEREAS, the Company is governed by the provisions of an Operating Agreement which became effective November 3, 2005, by and between Seller and Purchaser (the “Operating Agreement”);

WHEREAS, Seller desires by this Agreement to sell, transfer and assign to Purchaser all of Seller’s Percentage Interest and membership rights in the Company (“Percentage Interest”), and Purchaser desires by this Agreement to purchase, accept and assume the same, according to the terms set forth herein;

WHEREAS, Sport-Haley and its Affiliates have asserted certain Claims against Seller, Explorer Headgear and their Affiliates, related to the formation of the Company, the operation of the Company’s business and the potential acquisition of Sport-Haley by Explorer Headgear and its Affiliates;

WHEREAS, Seller, Explorer Headgear and their Affiliates have disputed the Claims asserted by Sport-Haley and its Affiliates, and in turn, have asserted certain Claims against Sport-Haley and its Affiliates related to the formation of the Company, the operation of the Company and certain alleged statements made by one or more officers of Sport-Haley, and Sport-Haley and its Affiliates have disputed such Claims; and

WHEREAS, Seller, Explorer Headgear and their Affiliates, on the one hand, and Sport-Haley and its Affiliates, on the other hand, wish to settle, resolve and compromise their respective Claims, whether known or unknown, concerning the past business dealings between the parties;

NOW, THEREFORE, FOR AND IN CONSIDERATION of the above recitals and the mutual agreements stated in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged by each party, the parties agree as follows:

Section 1.               Certain Definitions.

In addition to the terms defined elsewhere in this Agreement, the following capitalized terms, when used in this Agreement, shall have the meaning set forth below. All other capitalized terms, to the extent defined in the Operating Agreement, shall have the meaning as defined in Section 1.2 of the Operating Agreement, except as modified in this Agreement.

1.1            Act . As defined in the Operating Agreement.

1.2            Affiliate . Any individual, partnership, corporation, limited liability company, trust, or other Entity or association, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with a party to this Agreement. The term “control,” as used in the immediately preceding sentence, means, with respect to a corporation the right to exercise, directly or indirectly, more than 10% of the voting rights attributable to the controlled corporation, and, with respect to any Person, individual, partnership, trust, other Entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Entity. In addition, with respect to Sport-Haley, “Affiliate” shall include, without limitation, its officers, directors, employees and agents, and with respect to Explorer Gear and Explorer Headgear, shall include, without limitation, its officers, directors, managers, employees, partners and agents.

1.3            Assets . All of the assets, properties, businesses, and rights of a Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person’s business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located.

1.4            Business Day . Any day other than Saturday, Sunday or a day on which banking institutions in Denver, Colorado are required or authorized to be closed.

1.5            Claim . Any actual or threatened claim, action, suit, arbitration, hearing, inquiry, proceeding (including administrative and informal proceedings), complaint, charge, investigation or audit by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing.

1.6            Dollar . As used herein, “dollar” or the symbol “$” refers to United States dollars.

1.7            Effective Date . The date set forth above; i.e. , August 31, 2006.

1.8            Encumbrance . Any security interest, interest retained by the transferor under a conditional sale or other title retention agreement, mortgage, lien, pledge, option, encumbrance, adverse interest, exception to or defect in title or other ownership interest (including reservations, rights of entry, possibilities of reverter, encroachments, easements, rights-of-way, restrictive covenants, leases and licenses) of any kind, which constitutes an interest in or claim against property, whether arising pursuant to any legal requirement, governmental permit, contract or otherwise.

1.9            GAAP . United States generally accepted accounting principles, as amended from time to time.

1.10          Governmental Entity . Any United States or Canadian court, federal, state, provincial, local or foreign government or any administrative agency or commission or any other governmental authority or instrumentality whatsoever.

1.11          Indebtedness . When used with reference to any Person, without duplication, (i) any Liability of such Person created or assumed by such Person, or any subsidiary thereof, (A) for borrowed money, (B) evidenced by a bond, note, debenture, or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property acquired and consumed in the Ordinary Course of Business), including securities and other indebtedness, (C) in respect of letters of credit issued for such Person’s account and “swaps” of interest and currency, exchange rates (and other interest and currency exchange rate hedging agreements) to which such Person is a party or (D) for the payment of money as lessee under leases that should be, in accordance with GAAP recorded as capital leases for financial reporting purposes; (ii) any Liability

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of others described in the preceding clause (i) guaranteed as to payment of principal or interest by such Person or in effect guaranteed by such Person through an agreement, contingent or otherwise, to purchase, repurchase, or pay the related Indebtedness or to acquire the security therefor; (iii) all Liabilities or obligations secured by a lien upon property owned by such Person and upon which Liabilities or obligations such Person customarily pays interest or principal, whether or not such Person has assumed or become liable for the payment of such Liabilities or obligations; and (iv) any amendment, renewal, extension, revision or refunding of any such Liability or obligation.

1.12          Knowledge . As used with respect to a Person shall mean those facts that are actually known by, or should have been known through the exercise of such due diligence as a prudent business person would have made or exercised in the management of his or her business affairs, including due inquiry of those employees, officers, or directors of such Person who could reasonably be expected to have actual knowledge of the matters in question. “Known” shall have a correlative meaning.

1.13          Liability . Any liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including, but not limited to, any liability for Taxes.

1.14          Losses . Any Claims, losses, Liabilities, damages, penalties, costs and expenses, including interest that may be imposed in connection therewith, expenses of investigation, reasonable fees and disbursements of counsel and other experts, and settlement costs, in each case net of insurance proceeds.

1.15          Material Adverse Effect . A material adverse effect on the aggregate operations, assets, or financial condition of the Company, taken as a whole, but without taking into account any effect resulting from changes in conditions (including economic conditions, or federal, state or local governmental actions, legislation or regulations) that are applicable to the economy or the golf apparel industry on a national, regional, state or local basis or any changes in competition affecting the Company’s business.

1.16          Operating Agreement . The Operating Agreement of the Company effective November 3, 2005, between Sport-Haley and Explorer Gear.

1.17          Ordinary Course of Business . The ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency and, where appropriate, in accordance with formulas).

1.18          Percentage Interest . As defined in the Operating Agreement. With respect to Explorer Gear, it’s Percentage Interest at the time of this Agreement is 49% (“Seller’s Percentage Interest”) and Sport-Haley’s is 51%. Percentage Interest shall include all relative rights of membership in the Company appurtenant to ownership of the Percentage Interest, whether under the terms of the Operating Agreement or pursuant to applicable law.

1.19          Person . An individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, business enterprise, or a governmental entity (or any department, agency, or political subdivision thereof), or any other legal entity, whether acting in an individual, fiduciary or other capacity.

Section 2.               Sale of Member Percentage Interest.

2.1            Effective as of the Effective Date, Seller sells, transfers, and assigns to Purchaser and Purchaser purchases, accepts and assumes from Seller (a) all of Seller’s Percentage Interest in the

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Company (so that from and after the Effective Date, Seller shall have no Percentage Interest, shall no longer be a member of the Company and shall have no further right to participate in the business and affairs of the Company and Purchaser shall have a 100% Percentage Interest and shall be the sole member of the Company) and (b) any and all right, title, and interest which Seller has under the provisions of the Operating Agreement, or in and to any of the Company’s assets, with respect to Seller’s Percentage Interest so assigned.

2.2            From and after the Effective Date, all equitable and legal rights, title and interests in and to Seller’s Percentage Interest shall be owned, held and exercised by Purchaser. As of the Effective Date, all capital calls, obligations and liabilities, if any, under the Company’s Operating Agreement related to Seller’s Percentage Interest shall be the sole responsibility of Purchaser.

2.3            As of the Effective Date, Seller shall have no balance in its Capital Account. Seller’s Capital Account balance prior to the sale of its Percentage Interest herein shall be transferred to Purchaser’s Capital Account. Seller agrees and consents that regardless of its Capital Account balance prior to the Effective Date, Seller forfeits any right to the return or distribution of such Capital Account balance in consideration for receiving the Purchase Price.

2.4            As of the Effective Date, Seller shall no longer be entitled to any pro rata apportionment of profits and shall not be required to assume any pro rata portion of losses, to which Seller would have otherwise been entitled or obligated, as applicable, pursuant to the terms of the Operating Agreement.

2.5            As of the Effective Date, Seller is no longer entitled to any distributions, return of Capital, or any other payments of any kind from the Company, including, but not limited to, any reimbursement of expenses or payment of member loans, if any, to which Seller might have otherwise been entitled. Any entitlement by Seller to any distributions, return of Capital or other payments, if any, as of the Effective Date are hereby transferred and assigned to Purchaser. Seller’s entitlement, if any, to any reimbursement of expenses related to the Company or member loans prior to the Effective Date, is extinguished.

Section 3.               Purchase Price.

Purchaser shall pay to Seller, within five Business Days of the Effective Date, for Seller’s Percentage Interest and as consideration for the other covenants and agreements contained herein, the sum of $375,000.00 US (the “Purchase Price”). Such payment will be paid by Purchaser’s check which shall be delivered to Seller at 70 East Beaver Creek Road, North Building, Unit 202, Richmond Hill, Ontario L4B 3B2.

Section 4.               Representations and Warranties.

Each party’s obligations to consummate the transactions contemplated by this Agreement are conditioned upon the respective Representations and Warranties of each party being true and correct at the Effective Date.

4.1            By Seller and Explorer Headgear . To induce Purchaser to accept the delivery of this Agreement, Seller’s Percentage Interest being sold, transferred and assigned, give the releases herein, and make the payment required hereunder, Seller hereby represents and warrants the following to Purchaser, on the Effective Date hereof and at the time of such delivery:

4.1.1         Seller and Explorer Headgear are corporations duly organized, validly existing and in good standing under the laws of the State or Canadian Province of organization and have all

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requisite corporate power and authority to own, lease and use the Assets owned, leased or used by it and to conduct its business as presently conducted.

4.1.2         Seller has good and marketable title to, and is the sole legal and beneficial owner of Seller’s Percentage Interest being sold, transferred and assigned to Purchaser. Seller has not sold, transferred, or encumbered any or all of Seller’s Percentage Interest. Seller is transferring and assigning Seller’s Percentage Interest to Purchaser free and clear of any and all right, title, interest or Encumbrance of any other Person whatsoever. Other than this Agreement, there is no agreement between Seller and any Person with respect to the disposition of Seller’s Percentage Interest or otherwise relating to Seller’s Percentage Interest.

4.1.3         Except as disclosed to Purchaser in the attached Schedule 4.1.3, neither Seller nor its Affiliates have entered into any contracts, agreements or arrangements with any Person relating to, or on behalf of, the Company.

4.1.4         Seller, or its Affiliates, have not, on behalf of the Company, made an election under Section 754 of the Internal Revenue Code of 1986, as amended.

4.1.5         Seller and its Affiliates have no Knowledge of any present, pending or threatened Claims of or by any Person or Governmental Entity concerning the Company’s trade practices, including, but not limited to, proper garment labeling, payment of quota, duty, handling or transit fees or other trade expenses, or alleging any violations of trade regulations or laws, in connection with Seller’s (or Affiliates’) procurement of orders for or on behalf of the Company.

4.1.6         Except as disclosed to Purchaser in the attached Schedule 4.1.6, Seller and its Affiliates have taken no action, or failed to take any action, on behalf of the Company, which has or could reasonably incur Liability or Indebtedness, or which had caused a Person to assert a Claim for Liability or Indebtedness against the Company, in an amount exceeding $5,000.

4.1.7         Except as disclosed to Purchaser in the attached Schedule 4.1.7, Seller and its Affiliates, have no Knowledge of any third-party Claims relating to the design, manufacture, shipment, importation, sale or use of the Top-Flite® Apparel made and/or sold by the Company, nor any third-party Claims related to the negligence, product liability, breach of warranty or willful misconduct by the Company or its employees, managers, suppliers, subcontractors, independent contractors or agents, including but not limited to, Losses arising out of third-party Claims relating to the development, manufacture, advertising, marketing, distribution, sale or handling of the Top-Flite® Apparel made and/or sold by the Company or any improper or unauthorized use of the Top-Flite® trademarks or any breach or violation of any warranty, representation, term or condition of the License Agreement by the Company.

4.1.8         Seller has no Knowledge of any unpaid duty, quota, handling or transit fees or other trade expenses due, or claimed to be due, to any Governmental Entity or other Person with respect to any orders procured by Explorer Gear and/or Explorer Headgear and/or their Affiliates for or on behalf of the Company.

4.1.9         Seller, except as disclosed to Purchaser in the attached Schedule 4.1.9, has no Knowledge of any Claims asserted or threatened, or which could be asserted or threatened, against the Company by its suppliers in an amount exceeding $5,000.

4.1.10       Seller, except as disclosed to Purchaser in the attached Schedule 4.1.10, has no Knowledge of any existing or potential Claims against the Company related to actions or the failures to act by Seller or its Affiliates with respect to the employment or purported employment of any Person by the Company.

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4.1.11       Neither Seller, Explorer Headgear, nor their respective Affiliates, have taken any action to create any lien or Encumbrance upon the Assets of the Company, and to Seller’s Knowledge, no liens or Encumbrances exist with respect to the Company’s Assets.

4.1.12       With respect to any contracts, arrangements or agreements entered into by the Company, whether at the direction of Seller or not, Seller has no Knowledge that either the Company, Seller, or any other party thereto is in breach or default of any material terms or conditions thereunder.

4.1.13       Seller has all requisite power and authority to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and all other documents and instruments to be executed and delivered in connection with the transactions contemplated by this Agreement (collectively, the “Transaction Documents”) to which Seller is a party. The execution and delivery by Seller of, the performance by Seller of its obligations under, and the consummation by Seller of the transactions contemplated by, this Agreement and the Transaction Documents to which Seller is a party have been duly and validly authorized by all necessary action by or on behalf of Seller. This Agreement has been, and when executed and delivered by Seller the Transaction Documents will be, duly and validly executed and delivered by Seller and the valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to the enforcement of creditors’ rights generally or by principles governing the availability of equitable remedies.

4.2            By Purchaser . To induce Seller to accept the delivery of this Agreement, to sell, transfer and assign Seller’s Percentage Interest, and give the releases herein, Purchaser hereby represents and warrants the following to Seller, on the Effective Date hereof and at the time of such delivery:

4.2.1         Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite corporate power and authority to own, lease and use the Assets owned, leased or used by it and to conduct its business as presen