**Exhibit 10.1**
**CONVERTIBLE NOTE PURCHASE AGREEMENT**
**dated as of**
**April 21, 2004**
**by and among**
**Net Perceptions, Inc., a Delaware corporation, as Issuer and Seller**
**and**
**Olden Acquisition LLC, as Purchaser**
 

 

     **CONVERTIBLE NOTE PURCHASE AGREEMENT**(this “Agreement”) dated as ofApril 21, 2004, by and among Net Perceptions, Inc., a Delaware corporation (the“Seller”), and Olden Acquisition, LLC, a Delaware limited liability company(the “Purchaser”).
**WITNESSETH:**
     **WHEREAS,**the Purchaser is willing to purchase from the Seller, and theSeller desires to sell to the Purchaser, for the Purchase Price (as definedbelow), a convertible subordinated promissory note which is convertible into upto 5,628,300 shares of the Seller’s common stock, $0.0001 par value per share(the “Common Stock”), such number of shares constituting 19.9% of the number ofshares of Common Stock outstanding as of the Closing Date (as defined below).
     **NOW, THEREFORE,**in consideration of the mutual promises andrepresentations, warranties, covenants and agreements set forth herein, theparties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
**PURCHASE AND SALE**
     **1.1 Purchase and Sale; Purchase Price.**(a) On the terms and subject tothe conditions set forth in this Agreement, at the Closing (as defined below)the Seller will sell, and the Purchaser will purchase, for $2,532,735 (the“Purchase Price”), which is the price determined by multiplying (x) the5,628,300 shares of Common Stock constituting 19.9% of the number of shares ofCommon Stock outstanding as of the Closing Date by (y) the product of (i) theaverage closing selling price per share of Common Stock for the twenty (20)consecutive trading days ending on the fifth trading day prior to the ClosingDate, and (ii) 1.1, a convertible subordinated promissory note in the originalprincipal amount of $2,532,735, bearing interest at the rate of 2% per annum,due April 21, 2014, which is convertible into shares of Common Stock, insubstantially the form attached hereto as Exhibit 1.1(a) hereto (the “Note” or“Notes”).
          (b) Upon a reduction in the Principal Sum (as defined in the Note) asprovided in the Note in connection with either (x) any payment(s) made by theSeller to any of Purchaser’s Indemnified Persons (as defined in Section 7.2(a)hereof) in respect of indemnification Claims (as defined in Section 7.2(a)hereof) of the Purchaser pursuant to Section 7.2(a) or (y) the satisfaction ofany indemnification Claims of the Seller by means of a reduction in thePrincipal Sum of the Note pursuant to Section 7.2(b), the parties shall executea new Note or Notes in substitution of the then outstanding Note(s) (whichoutstanding Note(s) shall be cancelled) having an aggregate principal amountequal to the Principal Sum as so reduced. In all other respects thesubstituted Note(s) shall be identical to the previously outstanding Note(s).
     **1.2 Transfers; Legend.**
          (a) Without limitation of transfer restrictions imposed by applicablesecurities laws, the Note may not be transferred or assigned, in whole or inpart, except to an Affiliate (as defined below) of the Purchaser. Purchasermay effect any permitted transfer or assignment of the Note by deliveringwritten transfer instructions to the Seller, and the Seller shall reflect suchtransfer or assignment on its books and records, provided that if Sellerdetermines in good faith that under applicable securities laws an opinion ofcounsel should be obtained in connection with such transfer or assignment, thenit may condition its reflecting such transfer or assignment on its books andrecords on
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receipt of such opinion. Any permitted transferee which acquires at least20% of the aggregate principal amount of the Note issued at the Closing shallhave the rights of a Purchaser under this Agreement and the Registration RightsAgreement (as defined below). The Seller shall reissue notes evidencing theNote upon surrender of notes evidencing the Note being transferred inaccordance with this Section 1.2(a). Any such transfer shall be made by aPurchaser in accordance with applicable law. An “Affiliate” means any Person(as such term is defined below) that, directly or indirectly through one ormore intermediaries, controls or is controlled by or is under common controlwith a Person, as such terms are used in and construed under Rule 144 under theSecurities Act of 1933, as amended (the “Securities Act”). A “Person” meansany individual or corporation, partnership, trust, incorporated orunincorporated association, joint venture, limited liability company, jointstock company, government (or an agency or subdivision of any thereof) or otherentity of any kind.
          (b) At the Closing, and so long as the Notes have not been registeredunder the Securities Act or until such time as the sale of the Notes to thepublic does not require such registration, the Notes shall bear the followinglegend:
THIS CONVERTIBLE SUBORDINATED NOTE AND THE SHARES OF COMMONSTOCK ISSUABLE UPON CONVERSION OF THIS CONVERTIBLESUBORDINATED NOTE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERREDOR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTEREDUNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATIONUNDER SUCH ACT. IN ADDITION, THIS CONVERTIBLE NOTE IS NOTTRANSFERABLE OR ASSIGNABLE EXCEPT AS SPECIFIED IN THECONVERTIBLE NOTE PURCHASE AGREEMENT REFERRED TO HEREIN.
ARTICLE II
**CLOSING**
     **2.1 The Closing.**The closing of the transactions contemplated under thisAgreement (the “Closing”) shall take place at the offices of Kane Kessler,P.C., 1350 Avenue of the Americas, 26th Floor, New York, New York 10036 on thedate hereof (the actual date of Closing, the “Closing Date”).
     **2.2 Deliveries.**
          **(a) Deliveries by the Seller.**At the Closing, the Seller shall deliver orcause to be delivered to the Purchaser the following:
1. The Note; 2. The Registration Rights Agreement, inthe form attached hereto as Exhibit 2.2(a)(2) (the“Registration Rights Agreement”), duly executed by theSeller. 3. The legal opinion of Skadden, Arps,Slate, Meagher & Flom LLP (“Seller’s Counsel”), counselto the Seller, in the form previously agreed upon by theparties.
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4. A certificate of the Secretary of theSeller (the “Secretary’s Certificate”), in form andsubstance reasonably satisfactory to the Purchaser,certifying, on behalf of the Seller as follows:
(i) that attached to the Secretary’sCertificate is a true and complete copy of thecertificate of incorporation of the Seller anda true and complete copy of the Bylaws of theSeller, each as in effect on the Closing Date;
(ii) that attached to the Secretary’sCertificate are true and complete copies ofthe resolutions of the Seller’s Board ofDirectors authorizing the execution, deliveryand performance by the Seller of thisAgreement and the Related Documents (asdefined below), and approving the consummationby the Seller of the transactions contemplatedhereby, including the authorization andissuance of the Note, and that saidresolutions are in full force and effect as ofthe Closing Date without amendment ormodification; and
(iii) the names and true signatures of theofficers of the Seller signing this Agreement onbehalf of the Seller and all other documents to bedelivered at the Closing pursuant to this Agreement.
5. A certificate of the President of theSeller (the “President’s Certificate”), in form andsubstance reasonably satisfactory to the Purchaser,certifying, on behalf of the Seller as follows:
(i) based on the number of shares of CommonStock outstanding immediately prior to the Closingas advised by the Seller’s transfer agent, whichequals the number of shares of Common Stockoutstanding as of December 31, 2003 plus the numberof shares of Common Stock issued upon exercise ofoutstanding options since December 31, 2003, themaximum number of shares of Common Stock into whichthe Note is convertible as of the Closing Dateconstitutes 19.9% of the number of shares of CommonStock outstanding as of the Closing Date;
(ii) such other matters as required by thisAgreement; and
(iii) such othermatters as the Purchaser may reasonablyrequest.
6. The resignation of the director of theSeller identified pursuant to Section 6.1(c) hereof. 7. Such other documents as the Purchasershall reasonably request.
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          **(b) Deliveries by the Purchaser.**At the Closing, the Purchaser shalldeliver or cause to be delivered to the Seller the following:
1. Payment of the full amount of thePurchase Price, in cash by wire transfer of immediatelyavailable funds to an account designated in writing bythe Seller, subject to such deductions as are required orauthorized in accordance with the terms hereof or thewritten directions of the Seller. 2. The Registration Rights Agreement dulyexecuted by the Purchaser. 3. Such other documents as the Sellershall reasonably request.
ARTICLE III
**REPRESENTATIONS AND WARRANTIES OF THE SELLER**
     The Seller hereby represents and warrants to the Purchaser, as of the datehereof, as follows:
     **3.1 Corporate Existence and Power; Subsidiaries.**Except as set forth inSection 3.1 of the Seller Disclosure Schedule previously delivered by theSeller to Purchaser (the “Seller Disclosure Schedule”), the Seller and each ofits Subsidiaries is a corporation duly organized, validly existing and in goodstanding under the laws of the jurisdiction of its organization and has allcorporate powers required to carry on its business as now conducted. TheSeller is duly qualified to do business as a foreign corporation and is in goodstanding in each jurisdiction where the character of the property owned orleased by it or the nature of its activities makes such qualificationnecessary, except for those jurisdictions where the failure to be so qualifiedwould not reasonably be expected to have a Material Adverse Effect on theSeller. For purposes of this Agreement, the term “Material Adverse Effect”means, when used in connection with any party, any change, effect, event,occurrence, condition or development or state of facts that is or wouldreasonably be expected to be materially adverse to the assets or financialcondition of such party and its Subsidiaries, taken as a whole. True andcomplete copies of the Seller’s Certificate of Incorporation, as amended, andBylaws, as amended (collectively, the “Charter and Bylaws”) have been providedto the Purchaser. For purposes of this Agreement, the term “Subsidiary” or“Subsidiaries” means, with respect to any entity, any corporation or otherorganization of which securities or other ownership interests having ordinaryvoting power to elect a majority of the board of directors or other personsperforming similar functions are directly or indirectly owned by such entity orof which such entity is a partner or is, directly or indirectly, the beneficialowner of 50% or more of any class of equity securities or equivalent profitparticipation interests. The Seller has no Subsidiaries other than as setforth in Exhibit 21 to the Seller’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2003 (the “2003 10-K”).
     **3.2 Corporate Authorization; Rights Plan.**(a) The execution, deliveryand performance by the Seller of this Agreement, the Registration RightsAgreement, and each of the other documents executed pursuant to and inconnection with this Agreement (the “Related Documents”), and the consummationby the Seller of the transactions contemplated hereby and thereby (including,but not limited to, the sale and delivery of the Notes) have been dulyauthorized by the Seller, and no additional corporate action is required forthe approval by the Seller of this Agreement or the Related Documents. TheSeller has reserved 6,000,000 shares of Common Stock for issuance as CommonStock upon conversion of the Notes. This Agreement and the Related Documentshave been or, to the extent contemplated hereby or by the Related Documents,will be duly executed and delivered and constitute the legal, valid and bindingagreement of the Seller, enforceable against the Seller in accordance with
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their terms, except as may be limited by bankruptcy, reorganization,insolvency, moratorium and similar laws of general application relating to oraffecting the enforcement of rights of creditors, and except as enforceabilityof its obligations hereunder are subject to general principles of equity.
          (b) The Note that will be issued to the Purchaser at Closing, when issuedand delivered in accordance with the terms hereof, will be duly authorized andvalidly issued and free of restrictions on transfer other than as provided inSection 1.2 and under applicable state and federal securities laws.
          (c) The issuance of the Note will not result in or obligate the Seller to(i) issue or offer to issue, with or without consideration, any securities orrights to acquire any securities to any person, whether as a pre-emptive right,or pursuant to any rights plan, or pursuant to any agreement, undertaking orother obligation of any nature, or (ii) adjust the number or kind of securitiesheld by or issuable (with or without the payment of any consideration) to anyperson.
     **3.3 Charter, Bylaws and Corporate Records.**Except as set forth in Section3.3 of the Seller Disclosure Schedule, the minute books of the Seller containcomplete and accurate records of all meetings and other corporate actions ofthe board of directors, committees of the board of directors, incorporators andshareholders of the Seller and its Subsidiaries from the date of theirincorporation to the date hereof. All material corporate decisions and actionshave been validly made or taken.
     **3.4 Non-Contravention.**Except as otherwise specifically contemplated inthis Agreement and the Related Documents, the execution, delivery andperformance by the Seller of this Agreement and the Related Documents, and theconsummation by the Seller of the transactions contemplated hereby and thereby(including, but not limited to, the issuance, sale and delivery of the Note bythe Seller) do not and will not (a) contravene or conflict with the Charter andBylaws of the Seller or any of its Subsidiaries or any material agreement towhich the Seller or any of its Subsidiaries is a party or bound; (b) contraveneor conflict with or constitute a violation of any provision of any law,regulation, judgment, injunction, order or decree binding upon or applicable tothe Seller or any of its Subsidiaries; (c) constitute a default under or giverise to a right of termination, cancellation or acceleration or loss of anybenefit under any Material Contract (as defined herein) or under any materiallicense, franchise, permit or other similar authorization held by the Seller orany of its Subsidiaries; (d) require any action by or in respect of, or filingwith, any governmental body, agency, official or authority, other than filingsunder the Exchange Act (as defined below); or (e) result in the creation orimposition of any Lien (as defined below) on any asset of the Seller or any ofits Subsidiaries, except, in the case of (b) through (e), as would not have aMaterial Adverse Effect on the Seller. For purposes of this Agreement, theterm “Lien” means, with respect to any asset, any mortgage, lien, pledge,charge, security interest, claim or encumbrance of any kind in respect of suchasset.
     **3.5 SEC Documents.**The Seller is obligated under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), to file with the Securities andExchange Commission (the “Commission” or the “SEC”) reports and other documentspursuant to Sections 13 and 15(d) thereof (all reports filed or required to befiled by the Seller with the SEC, including all exhibits thereto orincorporated therein by reference, and all documents filed by the Seller underthe Securities Act, or any other provisions of the Exchange Act (other than theSeller’s Proxy Statement filed with the SEC on February 12, 2004, assupplemented (the “Proxy Statement”) and Seller’s Schedule 14D-9 filed with theSEC on December 31, 2003, as amended) are hereinafter called the “SECDocuments,” and all SEC Documents with respect to any period ending on or afterDecember 31, 2002, are hereinafter called the “Recent Reports”). The Sellerhas filed all reports or other documents required to be filed under theExchange Act. All Recent Reports filed by the Seller with the SEC (i) wereprepared in all material
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respects in accordance with the requirements of the Exchange Act and theSecurities Act and (ii) did not at the time they were filed (or, if amended orsuperseded by a filing prior to the date hereof, then on the date of suchfiling) contain any untrue statement of a material fact or omit to state amaterial fact required to be stated therein or necessary in order to make thestatements therein, in light of the circumstances under which they were made,not misleading.
     **3.6 Financial Statements.**Each of the Seller’s consolidated balance sheetand related consolidated statements of income, cash flows and changes instockholders’ equity (including the related notes), as contained in the RecentReports (collectively, the “Seller’s Financial Statements” or the “FinancialStatements”) (x) present fairly in all material respects the financial positionof the Seller and its consolidated Subsidiaries as of the dates thereof and theresults of operations, cash flows and stockholders’ equity as of and for eachof the periods then ended, except that any unaudited financial statements aresubject to normal year-end adjustments, and (y) were prepared in accordancewith GAAP (except, in the case of unaudited statements, as permitted by Form10-Q or 8-K), applied on a consistent basis throughout the periods involved, ineach case, except as otherwise indicated in the notes thereto.
     **3.7 Compliance with Law.**(a) The Seller and its Subsidiaries are incompliance and have conducted their business and offerings and issuance’s ofsecurities so as to comply with all laws, rules and regulations, judgments,decrees or orders of any court, administrative agency, commission, selfregulatory organization, regulatory authority or other governmental authorityor instrumentality, domestic or foreign, applicable to its operations except asin each case would not in the aggregate have a Material Adverse Effect on theSeller. There are no judgments or orders, injunctions, decrees, stipulationsor awards (whether rendered by a court or administrative agency or byarbitration), including any such actions relating to affirmative action claimsor claims of discrimination, against the Seller or its Subsidiaries or againstany of their properties or businesses. Except as set forth in Section 3.7 ofthe Seller Disclosure Schedule, without limiting the generality of theforegoing, the Seller has no liability arising out of the termination of anyemployee or any employee benefit plan, other than such liabilities as are fullydisclosed in the Financial Statements and for which the Seller has madeadequate reserves.
          (b) The Seller and its Subsidiaries hold all authorizations, consents,approvals, franchises, licenses and permits required under applicable law orregulation for the operation of the business of the Seller and its Subsidiariesas presently operated (the “Governmental Authorizations”), other than suchGovernmental Authorizations the loss or absence of which would not have aMaterial Adverse Effect on the Seller (“Material Governmental Authorizations”).The Seller and its Subsidiaries are in material compliance with the terms ofall the Material Governmental Authorizations. The Seller and its Subsidiarieshave not engaged in any activity that would be reasonably expected to causerevocation or suspension of any Material Governmental Authorizations. TheSeller and its Subsidiaries have no knowledge of any facts which wouldreasonably be expected to cause them to believe that the Material GovernmentalAuthorizations will not be renewed by the appropriate governmental authoritiesin the ordinary course. Neither the execution, delivery nor performance ofthis Agreement by the Seller will adversely affect in a material respect thestatus of any of the Material Governmental Authorizations.
     **3.8 No Defaults.**The Seller and its Subsidiaries are not, nor will theybe solely as a result of the passage of time, giving of notice, or both, (i) inviolation of any provision of their Charter and Bylaws (ii) in default orviolation of any term, condition or provision of (A) any judgment, decree,order, injunction or stipulation applicable to the Seller or its Subsidiariesor (B) any agreement, note, mortgage, indenture, contract, lease or instrument,permit, concession, franchise or license to which the Seller or itsSubsidiaries are a party or by which the Seller or its Subsidiaries or theirproperties or assets
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may be bound, except, in the case of (A) or (B) as would not have aMaterial Adverse Effect on the Seller.
     **3.9 Litigation.**Except as disclosed in the 2003 10-K, there is no action,suit, proceeding, judgment, claim or investigation pending or, to the knowledgeof the Seller, threatened against the Seller and any of its Subsidiaries which,would, individually or in the aggregate, have a Material Adverse Effect on theSeller. There is no action, suit, proceeding, judgment, claim or investigationof which the Seller has received notice pending or, to the knowledge of theSeller, threatened, which in any manner challenges or seeks to prevent, enjoin,alter or materially delay any of the transactions contemplated hereby. Thereare no claims or complaints existing or, to the knowledge of the Seller or itsSubsidiaries, threatened for product liability in respect of any product of theSeller or its Subsidiaries, and the Seller and its Subsidiaries are not awareof any basis for the assertion of any such claim.
     **3.10 Absence of Certain Changes.**Except as set forth in the RecentReports (including matters covered by the agreements disclosed in the RecentReports) or Section 3.10 of the Seller Disclosure Schedule, since December 31,2003 there has not occurred:
          (a) Any event that would, individually or in the aggregate, have aMaterial Adverse Effect on the Seller;
          (b) Any amendments or changes in the Charter or Bylaws of the Seller;
          (c) Any damage, destruction or loss, whether or not covered by insurance,that would, individually or in the aggregate, have a Material Adverse Effect onthe Seller and its Subsidiaries;
          (d) Any
          (i) incurrence, assumption or guarantee by the Seller or itsSubsidiaries of any debt for borrowed money (other than for equipmentleases or working capital lines of credit);
          (ii) issuance or sale of any securities convertible into orexchangeable for securities of the Seller (other than to directors,employees and consultants pursuant to existing equity compensation orstock purchase plans of the Seller in accordance with past businesspractices);
          (iii) issuance or sale of options or other rights to acquire from theSeller or its Subsidiaries, directly or indirectly, securities of theSeller or any securities convertible into or exchangeable for any suchsecurities, other than options issued to directors, employees andconsultants in the ordinary course of business pursuant to existing equitycompensation or stock purchase plans of the Seller in accordance with pastpractices;
          (iv) issuance or sale of any stock, bond or other corporate security(other than to directors, or employees pursuant to existing equitycompensation or stock purchase plans of the Seller in accordance with pastbusiness practices);
          (v) declaration or making any dividend, payment or other distributionto shareholders or purchase or redemption of any share of its capitalstock or other security;
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          (vi) cancellation of any debt or claim except in the ordinary courseof business in accordance with past practices;
          (vii) waiver of any right of substantial value whether or not in theordinary course of business;
          (viii) material change in officer compensation; or
          (ix) other commitment (contingent or otherwise) to do any of theforegoing.
          (e) Any creation, sufferance or assumption by the Seller or any of itsSubsidiaries of any Lien on any asset or any making of any loan, advance orcapital contribution to or investment in any Person in an aggregate amountwhich exceeds $10,000 outstanding at any time;
          (f) Any entry into, amendment of, relinquishment, termination ornon-renewal by the Seller or its Subsidiaries of any Material Contract or anymaterial license, transaction, commitment or other right or obligation, otherthan in the ordinary course of business;
          (g) The adoption or implementation of any plan of liquidation of theSeller or any Subsidiary; or
          (h) Any transfer or grant of a right with respect to the patents, patentapplications, patent licenses, trademarks, trade names, service marks, tradesecrets, copyrights or other intellectual property rights owned or licensed bythe Seller or its Subsidiaries, except as among the Seller and itsSubsidiaries.
     **3.11 No Undisclosed Liabilities.**The Seller and its Subsidiaries do nothave any direct or indirect indebtedness, liabilities, claim, loss, damage,deficiency, obligation or responsibility, known or unknown, fixed or unfixed,choate or inchoate, liquidated or unliquidated, secured or unsecured, absolute,accrued, contingent or otherwise, required by GAAP to be set forth in financialstatements, including but not limited to off-balance sheet financings,guarantees and similar transactions (“Liabilities”) which are not reflected tothe extent required by GAAP in the December 31, 2003 balance sheet of theSeller (or the notes thereto) contained in the 2003 10-K, except for (i)Liabilities incurred since December 31, 2003 in connection with the Seller’songoing activities and the wind down of its business which either have beensatisfied as of the Closing Date or individually are less than $5,000, (ii)Liabilities of $5,000 or more (excluding any Liabilities owed to the Purchaseras a result of this Agreement) as set forth in Section 3.11 of the SellerDisclosure Schedule, and (iii) Liabilities incurred in connection with thematters described in the Recent Reports or the Proxy Statement. The Seller hasnot guaranteed the debt or other obligations of any unaffiliated person orentity and has not engaged in any off-balance sheet financing transactions.
     **3.12 Taxes.**Except as set forth in Section 3.12 of the Seller DisclosureSchedule: (i) all tax returns and tax reports required to be filed withrespect to the income, operations, business or assets of the Seller and itsSubsidiaries have been filed (or appropriate extensions have been obtained)with the appropriate governmental agencies in all jurisdictions in which suchreturns and reports are required to be filed, and all of the foregoing as filedare correct and complete in all material respects and, in all materialrespects, reflect accurately all liability for taxes of the Seller and itsSubsidiaries for the periods to which such returns relate, and all amountsshown as owing thereon have been paid; (ii) all income, profits, franchise,sales, use, value added, occupancy, property, excise, payroll, withholding,FICA,
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FUTA and other taxes (including interest and penalties), if any,collectible or payable by the Seller and its Subsidiaries or relating to orchargeable against any of its material assets, revenues or income or relatingto any employee, independent contractor, creditor, stockholder or, other thirdparty through the Closing Date, were fully collected and paid by such date ifdue by such date or provided for by reserves in the Financial Statements to theextent required by GAAP as of and for the periods ended December 31, 2003 andall similar items due through the Closing Date will have been fully paid bythat date or provided for by reserves to the extent required for GAAP, whetheror not any such taxes were reported or reflected in any tax returns or filings;(iii) no taxation authority has sought to audit the records of the Seller orany of its Subsidiaries for the purpose of verifying or disputing any taxreturns, reports or related information and disclosures provided to suchtaxation authority, or for the Seller’s or any of its Subsidiaries’ allegedfailure to provide any such tax returns, reports or related information anddisclosure; (iv) to the knowledge of the Seller and its Subsidiaries, nomaterial claims or deficiencies have been asserted against or inquiries raisedwith the Seller or any of its Subsidiaries with respect to any taxes or othergovernmental charges or levies which have not been paid or otherwise satisfied,including claims that, or inquiries whether, the Seller or any of itsSubsidiaries has not filed a tax return that it was required to file, and tothe knowledge of the Seller there exists no reasonable basis for the making ofany such claims or inquiries; and (v) neither the Seller nor any of itsSubsidiaries has waived any restrictions on assessment or collection of taxesor consented to the extension of any statute of limitations relating totaxation. Neither the Seller nor any of its Subsidiaries is a party to any taxsharing or indemnification agreement, and none of them is liable for the taxesof any other Person (other than Subsidiaries) whether as a transferee,successor, by contract or otherwise.
     **3.13 Exchange Act Registration; No Adverse Order.**The Common Stock isregistered pursuant to Section 12(g) of the Exchange Act. No order prohibitingthe issuance and/or sale of the Note is in effect and no proceedings for suchpurpose are pending or threatened.
     **3.14 Restrictions on Business Activities.**Other than as set forth inSection 3.14 of the Seller Disclosure Schedule and the agreements relating totransactions set forth in the Recent Reports or as would not have a MaterialAdverse Effect on Seller, there is no agreement, judgment, injunction, order ordecree binding upon the Seller or its Subsidiaries which has or wouldreasonably be expected to have the effect of prohibiting or materiallyimpairing any business practice of the Seller or its Subsidiaries, anyacquisition of property by the Seller or its Subsidiaries or the conduct ofbusiness by the Seller or its Subsidiaries as currently conducted.
     **3.15 No Preemptive Rights.**Other than pursuant to the Registration RightsAgreement and as provided in the Note, no Person possesses any preemptiverights, registration rights or anti-dilution rights (other than customaryadjustments for stock splits, stock dividends and the like provided for in theSeller’s stock option plans or agreements), in respect of the Note or inrespect of the issuance of any Common Stock.
     **3.16 Application of Takeover Protection.**The Seller’s board of directorshas taken all necessary action in order to render inapplicable, and hasrendered inapplicable, any control share acquisition, business combination,poison pill (including any distribution under a rights agreement) or othersimilar anti- takeover provisions under the Charter and By-laws, the laws ofthe state of its incorporation or any rights plan or similar arrangement whichwould otherwise become applicable as a result of the transactions contemplatedby this Agreement, including, without limitation, the Seller’s issuance of theNote and the Purchaser’s ownership thereof.
     **3.17 Subsidiaries and Investments.**Except as set forth in the RecentReports or in Section 3.17 of the Seller Disclosure Schedule, the Seller has noSubsidiaries or Investments. For purposes of
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this Agreement, the term “Investments” shall mean, with respect to anyPerson, all advances, loans or extensions of credit to any other Person, allpurchases or commitments to purchase any stock, bonds, notes, debentures orother securities of any other Person, and any other investment in any otherPerson, including partnerships or joint ventures (whether by capitalcontribution or otherwise) or other similar arrangement (whether written ororal) with any Person, including but not limited to arrangements in which (i)the Person shares profits and losses, (ii) any such other Person has the rightto obligate or bind the Person to any third party, or (iii) the Person may bewholly or partially liable for the debts or obligations of such partnership,joint venture or other arrangement.
     **3.18 Capitalization.**The authorized capital stock of the Seller consistsof 100,000,000 shares of common stock, $0.0001 par value per share (“CommonStock”), of which 28,283,347 shares are issued and outstanding as of the datehereof, and 5,000,000 shares of preferred stock, issuable in one or moreclasses or series, with such relative rights and preferences as the Board ofDirectors may determine, of which 1,500,000 shares have been designated asSeries A Junior Participating Preferred Stock. No shares of preferred stockhave been issued. All shares of the Seller’s issued and outstanding capitalstock have been duly authorized, are validly issued and outstanding, and arefully paid and nonassessable. There are no dividends which have accrued orbeen declared but are unpaid on the capital stock of the Seller. All taxesrequired to be paid by the Seller in connection with the issuance and anytransfers of the Seller’s capital stock have been paid. All securities of theSeller have been issued in compliance in all material respects with theprovisions of all applicable securities or other laws.
     **3.19 Options, Warrants, Rights.**Except as set forth in Section 3.18, theRecent Reports or Section 3.19 of the Seller Disclosure Schedule, and exceptfor the Note, there are no outstanding (a) securities, notes or instrumentsconvertible into or exercisable for any of the capital stock or other equityinterests of the Seller or its Subsidiaries; (b) options, warrants,subscriptions or other rights to acquire capital stock or other equityinterests of the Seller or its Subsidiaries; or (c) commitments, agreements orunderstandings of any kind, including employee benefit arrangements, relatingto the issuance or repurchase by the Seller or its Subsidiaries of any capitalstock or other equity interests of the Seller or its Subsidiaries, any suchsecurities or instruments convertible into or exercisable for securities or anysuch options, warrants or rights. Neither the Seller nor any Subsidiary hasgranted anti-dilution rights to any person or entity in connection with anyoption, warrant, subscription or any other instrument convertible into orexercisable for the securities of the Seller or any of its Subsidiaries. Otherthan the rights granted to the Purchaser under the Registration RightsAgreement, there are no outstanding rights which permit the holder thereof tocause the Seller or the Subsidiaries to file a registration statement under theSecurities Act or which permit the holder thereof to include securities of theSeller or any of its Subsidiaries in a registration statement filed by theSeller or any of its Subsidiaries under the Securities Act, and there are nooutstanding agreements or other commitments which otherwise relate to theregistration of any securities of the Seller or any of its Subsidiaries forsale or distribution in any jurisdiction.
     **3.20 Employees, Employment Agreements and Employee Benefit Plans.**(a)Except as disclosed in the Recent Reports or in Section 3.20(a) of the SellerDisclosure Schedule, there are no employment, consulting, severance orindemnification arrangements, agreements, or understandings in effect as of thedate hereof between the Seller or its Subsidiaries and any officer, director,consultant or employee of the Seller or its Subsidiaries (the “EmploymentAgreements”). Except as disclosed in the Recent Reports, no EmploymentAgreement provides for the acceleration or change in the award, grant orvesting of options, warrants, rights, severance payments, or other contingentobligations of any nature whatsoever of the Seller or its Subsidiaries in favorof any such parties in connection with the
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transactions contemplated by this Agreement. Except as disclosed in theRecent Reports or in Section 3.20(a) of the Seller Disclosure Schedule, theterms of employment or engagement of all directors, officers, employees,agents, consultants and professional advisors of the Seller and itsSubsidiaries are such that their employment or engagement may be terminatedupon not more than two weeks’ notice given at any time without liability forpayment of compensation or damages and the Seller and its Subsidiaries have notentered into any agreement or arrangement for the management of their businessor any part thereof other than with their directors or employees.
          (b) Except as set forth in Section 3.20(b) of the Seller DisclosureSchedule or Recent Reports, the Seller and its Subsidiaries have no pension,retirement, stock purchase, stock bonus, stock ownership, stock option, profitsharing, savings, medical, disability, hospitalization, insurance, deferredcompensation, bonus, incentive, welfare or any other employee benefit plan,agreement, commitment or arrangement currently maintained or contributed to bythe Seller or its Subsidiaries for any of its directors, officers, consultants,employees or former employees (the “Seller Plans”). The Seller has previouslymade available to Purchaser, to the extent applicable, (i) a true and completecopy of all of the Seller Plans (or, if oral, a true and complete writtensummary thereof); (ii) a current summary plan description (plus summaries ofany subsequent modifications thereto) for each Seller Plan; (iii) the latestIRS determination letter obtained with respect to any Seller Plan qualifiedunder Section 401 or 501 of the Code; and (iv) Forms 5500 for the last three(3) plan years for each Seller Plan required to file such form. Except as setforth in Section 3.20(b) of the Seller Disclosure Schedule, none of the SellerPlans is subject to the Employee Retirement Income Security Act of 1974, asamended (“ERISA”), and, except as set forth in Section 3.20(b) of the SellerDisclosure Schedule, neither the Seller nor any of its Subsidiaries hasestablished, maintained, made or been required to make any contributions to, orterminated, and has no liability with respect to, any “employee benefit plan”within the meaning of ERISA. The Seller and its Subsidiaries do not have anyliability to the Pension Benefit Guaranty Corporation (the “PBGC”), and nofacts or circumstances exist which might give rise to any liability of theSeller or its Subsidiaries to the PBGC or which could reasonably be anticipatedto result in any claims being made against the Purchaser, the Seller or theirSubsidiaries by the PBGC. The Seller and its Subsidiaries have paid allamounts required under applicable law and any Seller Plan to be paid as acontribution to any Seller Plan through the date hereof. The Seller has setaside adequate reserves to meet contributions which are not yet due under anySeller Plan. Neither the Seller, its Subsidiaries nor, to the Seller’sknowledge, any other Person has engaged in any transaction with respect to anySeller Plan which would subject the Seller to any tax, penalty or liability forprohibited transactions with respect to a Seller Plan. To the Seller’sknowledge, no director, officer or employee of the Seller or its Subsidiaries,to the extent he or she is a fiduciary with respect to any Seller Plan, hasbreached any of his/her responsibilities or obligations imposed uponfiduciaries or which could result in any claim being made under, by or onbehalf of any Seller Plan. No Seller Plan provides post-employment medical,health, or life insurance benefits for present or future retirees or present orfuture terminated employees, except for continuation coverage provided pursuantto the requirements of Section 4980B of the Code or Sections 601-608 of ERISAor a similar state law.
          (c) No material labor dispute with employees of the Seller exists or, tothe best knowledge of the Seller is imminent.
     **3.21 Absence of Certain Business Practices.**Neither the Seller, nor tothe Seller’s knowledge (i) any Affiliate of the Seller (including, but notlimited to, its Subsidiaries), (ii) any agent or employee of the Seller, (iii)any other Person acting on behalf of or associated with the Seller, or (iv) anyindividual related to any of the foregoing Persons, acting alone or together,has: (a) received, directly or indirectly, any rebates, payments, commissions,promotional allowances or any other
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economic benefits, regardless of their nature or type, from any customer,supplier, trading company, shipping company, governmental employee or otherPerson with whom the Seller or its Subsidiaries has done business directly orindirectly; or (b) directly or indirectly, given or agreed to give any gift orsimilar benefit to any customer, supplier, trading company, shipping company,governmental employee or other Person who is or may be in a position to help orhinder the business of the Seller or its Subsidiaries (or assist the Seller orits Subsidiaries in connection with any actual or proposed transaction) which(in the case of (a) or (b)) would have a Material Adverse Effect on the Seller.
     **3.22 Change in Board Composition.**The change in the membership of theSeller’s board of directors contemplated by Section 6.1(c) will not give riseto a right of termination, cancellation, severance or similar payments, oracceleration or loss of any benefit under any Material Contract or under anymaterial license, franchise, permit or other similar authorization held by theSeller or any of its Subsidiaries or under any agreement or arrangement betweenthe Seller or any of its Subsidiaries and their directors, officers, employeesor consultants.
     **3.23 Environmental Matters.**None of the premises or any other propertyowned, occupied or leased by the Seller or its Subsidiaries (the “Premises”)has been used by the Seller or its Subsidiaries, or to the Seller’s knowledge,by any other Person, to manufacture, treat, store, or dispose of any waste,pollutant or toxic or hazardous substance (including, without limitation,asbestos, radioactive material and pesticides) or any other substance that hasbeen designated to be a “hazardous substance” under Environmental Laws(“Hazardous Substances”) other than substances customarily used in the Seller’sor its Subsidiaries’ businesses and in accordance with applications laws andregulations. The Seller and its Subsidiaries have not disposed of, discharged,emitted or released any Hazardous Substances which would require, underapplicable Environmental Laws, remediation, investigation or similar responseactivity. No Hazardous Substances are present as a result of the actions ofthe Seller or its Subsidiaries or, to the Seller’s or its Subsidiaries’knowledge, any other Person, in, on or under the Premises which would give riseto any liability or clean-up obligations of the Seller or its Subsidiariesunder applicable Environmental Laws. The Seller and its Subsidiaries and, tothe Seller’s and its Subsidiaries’ knowledge, any other Person for whoseconduct it may be responsible, are in material compliance with all laws,regulations and other federal, state or local governmental requirements, andall applicable judgments, orders, writs, notices, decrees, permits, licenses,approvals, consents or injunctions in effect on the Closing Date relating tothe generation, management, handling, transportation, treatment, disposal,storage, delivery, discharge, release or emission of any waste, pollutant ortoxic or hazardous substance (including, without limitation, asbestos,radioactive material and pesticides) or to any other actions, omissions orconditions affecting the environment (the “Environmental Laws”). Neither theSeller nor its Subsidiaries nor, to the Seller’s or its Subsidiaries’knowledge, any other Person for whose conduct it may be responsible hasreceived any complaint, notice, order, or citation of any actual, threatened oralleged noncompliance with any of the Environmental Laws, and there is noproceeding, suit or investigation pending or, to the Seller’s or itsSubsidiaries knowledge, threatened against the Seller or its Subsidiaries orany such Person with respect to any violation or alleged violation of theEnvironmental Laws, and, to the Seller’s knowledge, there is no basis for theinstitution of any such proceeding, suit or investigation.
     **3.24 Brokers.**No broker, finder or investment banker is entitled to anybrokerage, finder’s or other fee or commission in connection with thetransactions contemplated by this Agreement, based upon any arrangement,contract or agreement of the Seller or any of its Affiliates, except asprovided in Section 8.2.
     **3.25 Material Contracts.**Each of the Seller’s and its Subsidiaries’material contracts, agreements, notes, mortgages, indentures, leases and otherbinding instruments and commitments which
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(x) are filed as exhibits to the 2003 10-K or (y) which have been executedafter December 31, 2003 and would have been required to be filed as exhibitsto the 2003 10-K if they had been in effect on December 31, 2003(collectively, the “Material Contracts”) are in full force and effect on thedate hereof, and none of the Seller, its Subsidiaries nor, to the Seller’s orany Subsidiary’s knowledge, any other party to such Material Contracts is inbreach of or default under any of such Material Contracts. Section 3.25 ofSeller’s Disclosure Schedule lists any Material Contract not listed as anexhibit to the 2003 10-K.
     **3.26 Investment Company Status.**Neither the Seller nor any of itsSubsidiaries is, nor immediately upon the Closing will be, an “investmentcompany”, as such term is defined in the Investment Company Act of 1940, asamended.
     **3.27 No Ownership Change.**The Seller has not issued or redeemed any stockwithin the past 36 months which issuance or redemption was not publiclydisclosed and which, to its knowledge, caused the Seller to experience an“ownership change” within the meaning of Section 382 of the Internal RevenueCode, as amended, immediately following and as a result of such issuance.Notwithstanding any other term or provision of this Agreement, Seller makes noother representation or warranty as to whether it has experienced such anownership change, and makes no representation or warranty as to the existenceor amount of any federal or state net operating loss or net operating losscarryforwards.
ARTICLE IV
**REPRESENTATIONS AND WARRANTIES OF THE PURCHASER**
     The Purchaser represents and warrants to the Seller as follows:
     **4.1 Existence and Power.**The Purchaser is duly organized, validlyexisting and in good standing under the laws of the State of Delaware. ThePurchaser has all powers required to carry on the Purchaser’s business as nowconducted.
     **4.2 Authorization.**The execution, delivery and performance by thePurchaser of this Agreement, the Related Documents to which the Purchaser is aparty, and the consummation by the Purchaser of the transactions contemplatedhereby and thereby have been duly authorized by the Purchaser, and noadditional action is required for the approval by the Purchaser of thisAgreement or the Related Documents to which the Purchaser is a party. ThisAgreement and the Related Documents to which the Purchaser is a party have beenor, to the extent contemplated hereby, will be duly executed and delivered andconstitute valid and binding agreements of the Purchaser, enforceable againstthe Purchaser in accordance with their terms, except as may be limited bybankruptcy, reorganization, insolvency, moratorium and similar laws of generalapplication relating to or affecting the enforcement of rights of creditors andexcept that enforceability of their obligations thereunder are subject togeneral principles of equity.
     **4.3 Investment.**The Purchaser is acquiring the Note for its own accountfor investment and not with a view to, or for sale in connection with, anydistribution thereof, nor with the intention of distributing or reselling thesame, provided, however, that by making the representation herein, thePurchaser does not agree to hold any of the securities for any minimum or otherspecific term and, subject to Section 1.2(a), reserves the right to dispose ofthe Note at any time in accordance with or pursuant to a registration statementor an exemption under the Securities Act. The Purchaser is aware that neitherthe Note nor the shares of Common Stock into which the Note is convertible (the“Conversion Shares”) have been registered under the Securities Act or underapplicable state securities
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or blue sky laws. The Purchaser is an “Accredited Investor” as such termis defined in Rule 501 of Regulation D, as promulgated under the SecuritiesAct.
     **4.4 Noncontravention.**Neither the execution, the delivery and performanceby the Purchaser of this Agreement, nor the consummation by the Purchaser ofthe transactions contemplated hereby, will violate any constitution, statute,regulation, rule, injunction, judgment, order, decree, ruling, charge, or otherrestriction of any government, governmental agency, or court to which Purchaseris subject or any provision of its charter or bylaws.
     **4.5 No Registration.**The Purchaser understands that the Note is beingoffered and sold to the Purchaser, and upon conversion of the Note theConversion Shares will be issued, in reliance upon specific exemptions from theregistration requirements of United States federal and state securities lawsand that the Seller is relying upon the truth and accuracy of, and thePurchaser’s compliance with, the representations, warranties, agreements,acknowledgments and understandings of the Purchaser set forth herein in orderto determine the availability of such exemptions and the eligibility of thePurchaser to acquire the Note.
     **4.6 Business or Financial Expertise.**Purchaser has, by reason ofPurchaser’s business or financial expertise or the business or financialexperience of its professional advisors who are unaffiliated with and who arenot, to the Purchaser’s knowledge, compensated by the Seller or any affiliateor selling agent of the Seller, directly or indirectly, the capacity to protectits own interests in connection with its acquisition of the Note and anyConversion Shares.
     **4.7 Brokers’ Fees.**Purchaser has no liability or obligation to pay anyfees or commissions to any broker, finder, or other agent with respect to thetransactions contemplated by this Agreement for which the Seller could becomeliable or obligated, except as provided in Section 8.2.
ARTICLE V
**COVENANTS OF THE SELLER AND PURCHASER**
     **5.1 Reporting Obligations.**At any time when the Seller is not obligatedto file reports with the Commission under Section 13 or 15(d) under theExchange Act, the Seller shall furnish to the Purchaser promptly upon theirbecoming available (but not later than 45 days after the end of the relevantperiod), quarterly financial statements reviewed by an independent auditor, andannual financial statements audited by an independent auditor, not later than90 days after the end of the relevant year, together with such certificationsof the chief executive officer and chief financial officer as the Purchaser mayreasonably require.
     **5.2 Reservation of Shares.**So long as any principal amount of the Note isoutstanding, the Seller shall take all action necessary to at all times haveauthorized, and reserved for the purpose of issuance, such number of shares ofCommon Stock as shall be sufficient to enable the Seller to issue theConversion Shares.
     **5.3 Listing of Securities.**Promptly after the Seller has completed itstransfer from the Nasdaq National Market to the Nasdaq SmallCap Market, theSeller shall prepare and file a Notification Form for Listing of AdditionalShares to effect the listing on the Nasdaq SmallCap Market of the ConversionShares. Following the Seller’s transfer from the Nasdaq National Market to theNasdaq SmallCap Market, the Seller shall use its reasonable best efforts tocause the Seller to maintain the listing of the Common Stock, including theConversion Shares, on the Nasdaq SmallCap Market.
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     **5.4 Registration Rights Agreement.**The Seller shall carry out and observeall the terms of the Registration Rights Agreement executed simultaneously withthe execution of this Agreement covering the Conversion Shares.
     **5.5 Investigation.**The representations, warranties, covenants andagreements set forth in this Agreement shall not be affected or diminished inany way by any investigation (or failure to investigate) at any time by or onbehalf of the party for whose benefit such representations, warranties,covenants and agreements were made. Without limiting the generality of theforegoing, the inability or failure of the Purchaser to discover any breach,default or misrepresentation by the Seller under this Agreement or the RelatedDocuments (including under any certificate furnished pursuant to thisAgreement) shall not in any way diminish any liability hereunder.
     **5.6 Certain Business Combinations.**Neither the Purchaser nor any of itsAffiliates shall, at any time prior to the fifth anniversary of the ClosingDate, directly or indirectly, propose, publicly disclose any intention topropose, vote for or otherwise act to consummate any Rule 13e-3 transaction (asdefined in Rule 13e-3 under the Exchange Act) unless such transaction has beenapproved by a majority of the Seller’s Independent Directors. For purposes ofthis Agreement, an “Independent Director” shall have the meaning given suchterm in the rules and regulations of the national securities exchange on whichthe Common Stock is listed at the time of such approval, or, if the CommonStock is not so listed on a national securities exchange at such time, themeaning given the term in the rules and regulations of the NASDAQ NationalMarket.
ARTICLE VI
**CONDITIONS TO THE CLOSING**
     **6.1 Conditions to Obligations of the Purchaser**. The obligation of thePurchaser to purchase the Note at the Closing is subject to the fulfillment orsatisfaction, on and as of the Closing Date, except as otherwise expresslyindicated below or in Section 2.2 hereof, of each of the following conditions(any one or more of which may be waived by the Purchaser, in its solediscretion, but only in a writing signed by the Purchaser):
          **(a) Opinion.**The Purchaser shall have received the opinion of Seller’sCounsel, described in Section 2.2(a)(3).
          **(b) Board Approval.**The Board of Directors of the Seller shall haveapproved the sale of the Note to the Purchaser in accordance with thisAgreement and shall have adopted such resolutions as will satisfy therequirements of Section 203 of the Delaware General Corporation Law.
          **(c) Appointment of Board of Directors*****.***Effective as of the Closing, (i)the Board of Directors of the Seller shall have increased the size of the Boardfrom three to four members, (ii) one current Board member, to be identified bythe Seller, and subject to approval by Buyer, shall have resigned, and (iii)the remaining Board members shall have nominated and appointed as new directorsto the Board effective as of the Closing two persons designated by Buyer.
          **(d) Officers’ Certificate.**The Purchaser shall have received theCertificate(s) described in paragraph 4 and 5 of Section 2.2(a).
          **(e) Convertible Promissory Note.**The Seller shall have executed anddelivered the Note.
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          **(f) Registration Rights Agreement.**The Seller shall have executed anddelivered the Registration Rights Agreement.
          **(g) No Injunction.**No order or decree of any court, arbitration panel orgovernmental authority or official, and no statute, rule or regulation of anyforeign or domestic, national or local government or agency thereof shall havebeen enacted, and no judicial or administrative decision shall have beenrendered which enjoins or prohibits, or seeks to enjoin or prohibit, theconsummation of all or any of the transactions contemplated by this Agreement.
     **6.2 Conditions to Obligations of the Seller.**The obligations of theSeller hereunder to issue and sell the Note at the Closing are subject to thefulfillment or satisfaction, on and as of the Closing Date, of the followingcondition (which may be waived by the Seller, in its sole discretion, but onlyin a writing signed by the Seller): The Purchaser shall have performed andcomplied in all respects with all agreements and conditions contained in thisAgreement which are required to be performed or complied with by the Purchaserprior to or at the Closing.
ARTICLE VII
**INDEMNIFICATION**
     **7.1 Survival of Representations.**Except as otherwise provided herein, therepresentations and warranties of the Seller and the Purchaser contained in ormade pursuant to this Agreement shall survive the execution and delivery ofthis Agreement and the Closing Date and shall continue in full force and effectfor a period of 12 months after the Closing Date and shall in no way beaffected by any investigation of the subject matter thereof made by or onbehalf of the Seller or the Purchaser.
     **7.2 Indemnification.**(a) The Seller agrees to indemnify and holdharmless the Purchaser, its Affiliates, and each of their officers, directors,employees and agents and their respective successors and assigns, from andagainst any losses, damages, or expenses (net of any related insuranceproceeds) due to any and all actions, suits, proceedings, claims, demands,judgments, costs and expenses (including reasonable legal fees and expenses)(all of the foregoing, “Claims”) which are caused by or arise out of (i) anybreach or default in the performance by the Seller of any covenant or agreementmade by the Seller in this Agreement or in any of the Related Documents; and(ii) any breach of warranty or representation made by the Seller in thisAgreement or in any of the Related Documents; provided however, that (x) theSeller shall have no liability for any Claims until the aggregate amount ofsuch claims exceeds $175,000, whereupon all Claims shall be indemnified fromthe first dollar, and (y) the Seller’s maximum liability under this Section7.2(a) shall not exceed twenty-five percent (25%) of the Purchase Price,excluding breaches of Sections 3.2, 3.12, 3.16, 3.20(b), 3.23 and 3.27 forwhich the limitation on the Seller’s liability under this Section 7.2(a) shallbe the Purchase Price.
          (b) The Purchaser agrees to indemnify and hold harmless the Seller, itsAffiliates, each of their officers, directors, employees and agents and theirrespective successors and assigns, from and against any Claims (net of anyrelated insurance proceeds) which are caused by or arise out of (i) any breachor default in the performance by it of any covenant or agreement made by it inthis Agreement or in any of the Related Documents; (ii) any breach of warrantyor representation made by it in this Agreement or in any of the RelatedDocuments; *provided, however,*that (x) the Purchaser shall have no liabilityfor any Claims until the aggregate amount of such claims exceeds $175,000,whereupon all Claims shall be indemnified from the first dollar, and (y) thePurchaser’s maximum liability under this Section 7.2(b) shall not exceed thePurchase Price. Any indemnification Claims of
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the Seller against the Purchaser pursuant to this Section 7.2(b) while the Noteis outstanding shall be satisfied by reducing the Principal Sum (as defined inthe Note) by the aggregate amount for which the Purchaser is determined to beliable under this Section 7.2(b) and Section 7.3, provided that Purchaser shallbe fully liable (subject to the limitations set forth in this Section 7.2(b))for such indemnification Claim(s) to the extent such a reduction in thePrincipal Sum is not available.
          (c) The indemnification provided in this Section shall be the parties’sole and exclusive remedy for any breach or default in the performance byeither party of any covenant or agreement made in this Agreement or in any ofthe Related Documents and for any breach of warranty or representation made bythe parties in this Agreement or in any of the Related Documents, but shall notbe the parties’ sole and exclusive remedy for fraud.
     **7.3 Indemnity Procedure.**The party or parties responsible to indemnifypursuant to Section 7.2 of this Agreement is referred to herein as the“Indemnifying Party” and the other party or parties claiming indemnity isreferred to as the “Indemnified Party”.
     An Indemnified Party under this Agreement shall, with respect to claimsasserted against such party by any third party, give written notice to theIndemnifying Party of any liability which might give rise to a claim forindemnity under this Agreement within sixty (60) business days of the receiptof any written claim from any such third party, but not later than twenty (20)days prior to the date any answer or responsive pleading is due, and withrespect to other matters for which the Indemnified Party may seekindemnification, give prompt written notice to the Indemnifying Party of anyliability which might give rise to a claim for indemnity; provided, however,that any failure to give such notice will not waive any rights of theIndemnified Party except to the extent the rights of the Indemnifying Party arematerially prejudiced.
     The Indemnified Party shall have the right to conduct and control, throughcounsel of its choosing, the defense, compromise or settlement of any thirdPerson claim, action or suit against such Indemnified Party as to whichindemnification will be sought by any Indemnified Party from any IndemnifyingParty hereunder, and in any such case the Indemnifying Party shall cooperate inconnection therewith and shall furnish such records, information and testimonyand attend such conferences, discovery proceedings, hearings, trials andappeals as may be reasonably requested by the Indemnified Party in connectiontherewith; provided, that the Indemnifying Party may participate, throughcounsel chosen by it and at its own expense, in the defense of any such claim,action or suit as to which the Indemnified Party has so elected to conduct andcontrol the defense thereof; and provided, further, that the Indemnified Partyshall not, without the written consent of the Indemnifying Party (which writtenconsent shall not be unreasonably withheld), pay, compromise or settle any suchclaim, action or suit, except that no such consent shall be required if,following a written request from the Indemnified Party, the Indemnifying Partyshall fail, within 14 days after the making of such request, to acknowledge andagree in writing that, if such claim, action or suit shall be adverselydetermined, such Indemnifying Party has an obligation to provideindemnification hereunder to such Indemnified Party. Notwithstanding theforegoing, the Indemnified Party shall have the right to pay, settle orcompromise any such claim, action or suit without such consent, provided, thatin such event the Indemnified Party shall waive any right to indemnity thereforhereunder unless such consent is unreasonably withheld.
     The parties agree to cooperate in defending such third party claims andthe Indemnified Party shall provide such cooperation and such access to itsbooks, records and properties as the Indemnifying Party shall reasonablyrequest with respect to any matter for which indemnification is soughthereunder; and the parties hereto agree to cooperate with each other in orderto ensure the proper and adequate defense thereof.
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     With regard to claims of third parties for which indemnification ispayable hereunder, such indemnification shall be paid by the Indemnifying Partyupon the earlier to occur of: (i) the entry of a judgment against theIndemnified Party and the expiration of any applicable appeal period, or ifearlier, five (5) days prior to the date that the judgment creditor has theright to execute the judgment; (ii) the entry of an unappealable judgment orfinal appellate decision against the Indemnified Party; or (iii) a settlementof the claim. Notwithstanding the foregoing, the reasonable expenses ofcounsel to the Indemnified Party shall be reimbursed on a current basis by theIndemnifying Party if such expenses are required to be paid pursuant to thisAgreement. With regard to other claims for which indemnification is payablehereunder, such indemnification shall be paid promptly by the IndemnifyingParty upon demand by the Indemnified Party.
     **7.4 Independent Director(s) Requirement.**In connection with any claim bythe Purchaser for indemnification, no material decision of the Seller, and nopayment of any indemnification amount to Purchaser, shall be made without theprior written consent or approval of a majority of the Seller’s IndependentDirectors.
ARTICLE VIII
**MISCELLANEOUS**
     **8.1 Further Assurances.**After the Closing, each party agrees to cooperatefully with the other party and to execute such further instruments, documentsand agreements and to give such further written assurances as may be reasonablyrequested by the other party to better evidence and reflect the transactionsdescribed herein and contemplated hereby and to carry into effect the intentsand purposes of this Agreement, including taking all actions, and promptlydoing, or causing to be done, all things necessary, proper or advisable underapplicable law to make effective the transactions contemplated hereby, for thepurpose of securing to the parties hereto the benefits contemplated by thisAgreement.
     **8.2 Fees and Expenses.**The Seller shall pay or reimburse fifty percent ofall reasonable and documented out of pocket expenses incurred by the Purchaserand Kanders & Company, Inc. since April 9, 2004 through the Closing Date inconnection with the consummation of the transaction contemplated by thisAgreement, including, but not limited to, the review, analysis and duediligence examination of the Seller, travel expenses, banking fees andexpenses, and the fees and expenses of accountants, financial advisors,attorneys and other advisors (inclusive of the finder’s fee in the amount of$100,000 payable to an unaffiliated third party), up to a maximum amount forsuch reimbursement payment of $125,000. Such expenses reimbursement may, uponthe written direction of the Seller, be paid out of the funds due from thePurchaser at the Closing.
     **8.3 Notices.**Any and all notices or other communications or deliveriesrequired or permitted to be provided hereunder shall be in writing and shall bedeemed given and effective on the earliest of (a) the date of transmission, ifsuch notice or communication is delivered via facsimile at the facsimile numberspecified in this Section prior to 5:00 p.m. (New York City time) on a businessday, (b) the next business day after the date of transmission, if such noticeor communication is delivered via facsimile at the facsimile number specifiedin this Section on a day that is not a business day or later than 5:00 p.m.(New York City time) on any business day, or (c) the business day following thedate of mailing, if sent by U.S. nationally recognized overnight courierservice such as Federal Express. The address for such notices andcommunications shall be as follows:
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   *If to the Purchaser, to:* *If to the Seller, to:*Olden Acquisition LLC Net Perceptions, Inc.1 Pickwick Plaza 7700 France Avenue SouthGreenwich, Connecticut 06830 Edina, Minnesota 55435Att’n: Mr. Warren B. Kanders Att’n: PresidentFax: 203-552-9607 Fax: 952-842-5005   *With a copy in each case to:* *With a copy in each case to:*Kane Kessler, P.C. Skadden, Arps, Slate, Meagher & Flom LLP1350 Avenue of the Americas - 26th Floor One Beacon StreetNew York, New York 10019 31st FloorAtt’n: Robert L. Lawrence, Esq. Boston, MA 02108Fax No.: (212) 245-3009 Att’n: Kent A. Coit Fax: 617-573-4822
Unless otherwise stated above, such communications shall be effective when theyare received by the addressee thereof in conformity with this Section. Anyparty may change its address for such communications by giving notice thereofto the other parties in conformity with this Section.
     **8.4 Governing Law.**All questions concerning the construction, validity,enforcement and interpretation of this Agreement shall be governed by andenforced in accordance with the laws of the State of New York without givingeffect to the principles of conflicts of law thereof that would require theapplication of any other law.
     **8.5 Jurisdiction and Venue.**This Agreement shall be subject to theexclusive jurisdiction of the Federal and State Courts located in New YorkCounty, New York. The parties to this Agreement agree that any breach of anyterm or condition of this Agreement shall be deemed to be a breach occurring inthe State of New York by virtue of a failure to perform an act required to beperformed in the State of New York and irrevocably and expressly agree tosubmit to the jurisdiction of the Federal District Court, Southern District ofNew York and if such court does not have proper jurisdiction, the State Courtsof New York County, New York for the purpose of resolving any disputes amongthe parties relating to this Agreement or the transactions contemplated hereby.The parties irrevocably waive, to the fullest extent permitted by law, anyobjection which they may now or hereafter have to the laying of venue of anysuit, action or proceeding arising out of or relating to this Agreement, or anyjudgment entered by any court in respect hereof brought in New York County, NewYork, and further irrevocably waive any claim that any suit, action orproceeding brought in Federal or State Courts located in New York County, NewYork has been brought in an inconvenient forum.
     **8.6 Successors and Assigns.**This Agreement is personal to each of theparties and may not be assigned without the written consent of the otherparties; provided, however, that the Purchaser shall be permitted to assign itsrights under this Agreement to any permitted transferee of the Purchaser towhom it assigns or transfers the Note, to the extent provided in Section 1.2hereof.
     **8.7 Severability.**If any provision of this Agreement, or the applicationthereof, shall for any reason or to any extent be invalid or unenforceable, theremainder of this Agreement and application of such provision to other personsor circumstances shall continue in full force and effect and in no way beaffected, impaired or invalidated.
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     **8.8 Entire Agreement.**This Agreement and the other agreements andinstruments referenced herein constitute the entire understanding and agreementof the parties with respect to the subject matter hereof and thereof andsupersede all prior agreements and understandings.
     **8.9 Amendment and Waivers.**Any term or provision of this Agreement may beamended, and the observance of any term of this Agreement may be waived (eithergenerally or in a particular instance and either retroactively orprospectively) only by a writing signed by the Seller and Purchaser; providedthat any such writing by Seller may be signed by Seller only if such writinghas been approved by a majority of Seller’s Independent Directors. The waiverby a party of any breach hereof or default in the performance hereof shall notbe deemed to constitute a waiver of any other default or any succeeding breachor default.
     **8.10 No Waiver.**The failure of any party to enforce any of the provisionshereof shall not be construed to be a waiver of the right of such partythereafter to enforce such provisions.
     **8.11 Construction of Agreement; Knowledge.**For purposes of thisAgreement, the term “knowledge,” when used in reference to a corporation meansthe knowledge of the executive officers of such corporation assuming suchofficers shall have made inquiry that is customary and appropriate under thecircumstances to which reference is made, and when used in reference to anindividual means the knowledge of such individual assuming the individual shallhave made inquiry that is customary and appropriate under the circumstances towhich reference is made.
     **8.12 Counterparts; Facsimile.**This Agreement may be executed incounterparts, each of which shall be an original and which together shallconstitute one and the same instrument. This Agreement shall become bindingwhen counterparts hereof, individually or taken together, shall bear thesignatures of the parties reflected hereon as signatories. In the event thatany signature is delivered by facsimile transmission, such signature shallcreate a valid and binding obligation of the party executing (or on whosebehalf such signature is executed) with the same force and effect as if suchfacsimile signature page were an original thereof.
     **8.13 No Third Party Beneficiary.**Nothing expressed or implied in thisAgreement is intended, or shall be construed, to confer upon or give any personother than the parties hereto and their respective heirs, personalrepresentatives, legal representatives, successors and permitted assigns, anyrights or remedies under or by reason of this Agreement, other than Section 7.2(which is intended to be for the benefit of the persons covered thereby).
**[Signature Pages Follow:]**
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     **In Witness Whereof,**the parties hereto have executed this Convertible NotePurchase Agreement as of the date first above written.   **Olden Acquisition LLC,**a Delaware