Document:

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                                                                    EXHIBIT 10.1

                         FAMOUS DAVE'S OF AMERICA, INC.

                   EXECUTIVE ELECTIVE DEFERRED STOCK UNIT PLAN

      FAMOUS DAVE'S OF AMERICA, INC., a Minnesota Company (the "Company"),
hereby establishes this Elective Deferred Stock Unit Plan (the "Plan"),
effective as of February 18, 2004, for the benefit of certain of its Executives
as defined herein.

1.    Definitions.

      1.1   Affiliate. "Affiliate," means a corporation or other entity
controlled by, controlling, or under common control with a party. For the
purpose of this Agreement, "control" or "controlling" shall mean (a) the
ownership, directly or indirectly, of more than fifty percent (50%) of the
voting stock or analogous interest in such corporation or other entity; or (b)
the existence of any other relationship between a party hereto and such other
corporation or entity which results in effective managerial control by one over
the other, regardless of whether such control is continuously exercised.

      1.2   Beneficiary. "Beneficiary" means that person designated in
accordance with Section 5.4.3.

      1.3   Board. The "Board" means the Board of Directors of the Company.

      1.4   Bonus Compensation. "Bonus Compensation" means the bonus which a
Participating Executive is entitled to receive but for the election by the
Executive pursuant to this Plan to defer the receipt of all or a portion of the
Executive's Bonus Compensation.

      1.5   Bonus Deferred Compensation. "Bonus Deferred Compensation" means the
portion of the Executive's Bonus Compensation which a Participating Executive
has elected to defer pursuant to this Plan.

      1.6   Commencement Date. "Commencement Date" means the date determined
under Section 5.1.

      1.7   Company Stock. "Company Stock" means the Company's common stock,
which is registered and publicly traded in accordance with applicable securities
laws.

      1.8   Declared Rate. "Declared Rate" means the rate of interest payable
from time to time on United States Treasury Bills with initial maturities of
three (3) months.

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      1.9   Deferred Compensation. "Deferred Compensation" means the portion of
the Executive's Bonus Compensation and Stock Grant Compensation which a
Participating Executive has elected not to receive pursuant to this Plan.

      1.10  Deferral Account. "Deferral Account" means the account(s) maintained
on the books of the Company for each Participating Executive pursuant to Section
4.

      1.11  Determination Date. "Determination Date" means the last day of each
Plan Year and shall be the date on which the amount of a Participating
Executive's Deferral Account is determined as provided in Section 4 and any
other date necessary for the calculation of additional deferrals or a
distribution pursuant to this Plan.

      1.12  Election Form. "Election Form" means a written agreement in the form
of Exhibit A between a Participating Executive and the Company regarding the
Participating Executive's benefits and deferral of Compensation under this Plan.

      1.13  Executive. "Executive" means an employee of the Company designated
by the Board of the Company as eligible to participate in this Plan.

      1.14  Involuntary Termination of Employment. "Involuntary Termination of
Employment" means (a) the Company's termination of the Participating Executive's
employment by the Company or any Affiliate thereof for any reason whatsoever,
(b) the Participating Executive's death or (c) the Participating Executive's
disability as such term is defined in the Company's disability policies
applicable to the Executive.

      1.15  Participating Executive. "Participating Executive" means an
Executive who elects pursuant to this Plan to defer a portion of his/her
Deferred Compensation.

      1.16  Payout Period. "Payout Period" means the period set forth in a
Participating Executive's Election Form over which the value of a Deferral
Account will be paid beginning on the Commencement Date.

      1.17  Per Phantom Share Value. "Per Phantom Share Value" means as of any
date the average of the closing price of the Company's Stock on the stock
exchange on which it is regularly traded over the five (5) trading days ending
on the last trading day immediately prior to the date on which the Per Phantom
Share Value is being determined.

      1.18  Phantom Shares. "Phantom Share" means the fictitious shares of
Company's Stock used solely for the purpose of determining the amount
distributable to a Participating Executive pursuant to this Plan. Phantom Shares
are not actual share of stock of the Company and carry no voting or other rights
or privileges of any kind or nature.

      1.19  Plan. "Plan" means this Plan.

      1.20  Plan Year. "Plan Year" means the Company's fiscal year, except that
the initial Plan Year shall commence February 18, 2004.

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      1.21  Primary Beneficiary. "Primary Beneficiary" means the Beneficiary or
Beneficiaries listed as the Primary Beneficiary or Beneficiaries on the
Participating Executive's Election Form

      1.22  Secondary Beneficiary. "Secondary Beneficiary" means the Beneficiary
or Beneficiaries listed as the Secondary Beneficiary or Beneficiaries on the
Participating Executive's Election Form

      1.23  Stock Grant Compensation. "Stock Grant Compensation" means any
Company Stock grant, which a Participating Executive is entitled to receive
pursuant to any of the Company's stock grant plans.

      1.24  Stock Grant Deferred Compensation. "Stock Grant Deferred
Compensation" means the portion of the Executive's Stock Grant Compensation
which a Participating Executive has elected to defer pursuant to this Plan.

      1.25 Termination of Employment. "Termination of Employment" means the
voluntary or involuntary termination of the Participating Executive's employment
with the Company.

2.    Eligibility. Only those Executives who are designated by the Board as
eligible to participate in this Plan may participate in this Plan.

3.    Participating Executive Deferral.

      3.1   Deferral Election.

            3.1.1 A Participating Executive may elect to defer all or a portion
      of the Executive's Bonus Compensation and/or Stock Grant Compensation for
      a Plan Year by filing an executed Election Form with the Chief Financial
      Officer of the Company or his/her designee or such other officer as may be
      appointed from time to time by the Board.

            3.1.2 An Election Form shall be effective only with respect to
      Compensation otherwise payable to the Executive after the date the
      Executive delivers an Election Form to the Chief Financial Officer or
      his/her designee and only if accepted by the Company in its sole
      discretion.

            3.1.3 The Board or its designee may specify one or more dates or
      deadlines for receipt of all or any Election Forms.

      3.2   Election to Defer Irrevocable. A Participating Executive's election
to defer the Executive's Deferred Compensation shall be irrevocable for a Plan
Year for which an Election Form has been filed with the Company unless the
Company, in its sole discretion, consents to such revocation.

      3.3   Maximum Deferrals. The Election Form shall specify the amount and
type of Compensation the Participating Executive elects to defer during a Plan
Year. Such amount may be limited in the sole discretion of the Board or its
designee.

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      3.4   Reduction of Compensation. The Participating Executive's Bonus
Compensation and Stock Grant Compensation otherwise payable during the Deferral
Period shall be reduced respectively by the amount of the Executive's Bonus
Deferred Compensation and Stock Grant Deferred Compensation.

4.    Deferral Accounts.

      4.1   Establishment and Crediting of Deferral Accounts. For each Plan
Year, the Company shall establish one or more Deferral Accounts on its books for
each Participating Executive submitting an Election Form for the Plan Year who
elects to defer all or part of the Executive's Bonus Compensation or Stock Grant
Compensation. The Company shall credit to such Deferral Account the following
Deferred Compensation at the times specified:

            4.1.1 Bonus Deferrals. The Executive's Bonus Deferred Compensation
      that the Participating Executive elects to defer on the Executive's
      Election Form for the Plan Year shall be credited to the Executive's
      Deferral Account for such Plan Year as of the date the Participating
      Executive would otherwise have received such Bonus Deferred Compensation.
      The Company shall deduct from the Participating Executive's Compensation
      that is not deferred pursuant to this Plan, any amounts it is required to
      withhold under any state, federal or local law for taxes or other charges
      relating to any Bonus Deferred Compensation.

            4.1.2 Conversion of Bonus Deferred Compensation to Phantom Shares.
      The amount of any Bonus Deferred Compensation allocated to the Deferral
      Account for any Plan Year shall be converted immediately into a number of
      Phantom Shares determined by dividing the amount of Bonus Deferred
      Compensation which the Executive elects to defer by the Per Phantom Share
      Value as of the date the Deferred Compensation is credited to the Bonus
      Deferral Account.

            4.1.3 Stock Grant Deferrals. The Participating Executive's Stock
      Grant Deferred Compensation that the Participating Executive elects to
      defer on the Participating Executive's Election Form for the Plan Year
      shall be credited to the Participating Executive's Deferral Account as of
      the date the Participating Executive would otherwise have received such
      Stock Grant Deferred Compensation. The Company shall deduct from the
      Participating Executive's Compensation that is not deferred pursuant to
      this Plan, any amounts it is required to withhold under any state, federal
      or local law for taxes or other charges relating to the Stock Grant
      Deferred Compensation. The Participating Executive's Deferral Account
      shall be credited with the same number of Phantom Shares as the number of
      shares of Company Stock that the Participating Executive elects not to
      receive pursuant to the Participating Executive's Election Form.

            4.1.4 Reduction of Phantom Shares in Deferral Account for
      Distributions. Upon making a distribution to a Participating Executive or
      his Beneficiary, as the case may be, of all or part of the value of a
      Participating Executive's Deferral Account, the number of Phantoms Shares
      in such account shall be immediately reduced by an amount equal to the
      amount of such distribution divided by the Per Phantom Share Value as of
      the date of the distribution.

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            4.1.5 Conversion of Phantom Shares upon Termination of Employment or
      End of Deferral Period.

                  4.1.5.1 If the Company, pursuant to Section 5.1.2, elects to
            pay to a Participating Executive the value of his or her Deferral
            Accounts in connection with the Participating Executive's
            Termination of Employment, the value of all of the Participating
            Executive's Deferral Accounts shall be determined by using the date
            of the Participating Executive's Termination of Employment as a
            Determination Date and the Deferral Accounts shall cease to be
            credited with Phantom Shares and all Phantom Shares shall be
            converted to a value pursuant to Section 4.2.

                  4.1.5.2 At the end of a Deferral Period of a Deferral Account,
            the value of the corresponding Deferral Accounts shall be determined
            by using the last day of the Deferral Period as the Determination
            Date. The Deferral Account shall cease to be credited with Phantom
            Shares and all Phantom Shares shall be converted to a value pursuant
            to 4.2 for the purpose of making distributions to the Participating
            Executive.

      4.2   Value of Deferral Accounts. The value of a Participating Executive's
Deferral Account as of a Determination Date shall be equal to the product of (a)
the number of Phantom Shares credited to such Deferral Account multiplied by (b)
the Per Phantom Share Value as of the Determination Date.

      4.3   Statement of Accounts. The Company shall provide to each
Participating Executive, within one hundred twenty (120) days after the close of
each Plan Year, a statement in such form as the Company selects setting forth
the number of Phantom Shares in each Deferral Account, the Per Phantom Share
Value as of the close of the Plan Year and the value of each Deferral Account as
of the last day of the Plan Year just ended.

      4.4   Accounting Device Only. A Participating Executive's Deferral
Accounts shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to the Participating Executive under
this Plan. A Participating Executive's Deferral Account shall not constitute or
be treated as a trust fund of any kind or give any Participating Executive any
right to any of the assets of the Company other than as a general creditor of
the Company.

5.    Payment of Benefits.

      5.1   Commencement of Benefits. The payment of the value of a
Participating Executive's Deferral Account shall commence on the dates set forth
below (the "Commencement Date"):

            5.1.1 Except as provided below with respect to a Termination of
      Employment under Section 5.1.2, the value of a Participating Executive's
      Deferral Account will be distributed commencing on the first day of the
      first month which is at least forty-five (45) days after the last day of
      the Participating Executive's Deferral Period (including extensions
      pursuant to Section 5.2) with respect to the Deferral Account.

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            5.1.2 The value of all of a Participating Executive's Deferral
      Accounts may at the sole discretion of the Company be distributed to the
      Participating Executive beginning on the date which is the first day of
      the first month beginning at least forty-five (45) days after the
      Participating Executive's Termination of Employment.

            5.1.3 Notwithstanding the foregoing, the payment of benefits with
      respect to any Deferral Account which is payable to the Participating
      Executive's estate need not commence until the date which is (a) thirty
      (30) days after the date on which the Company is notified of the
      appointment of an executor or personal representative for such estate or
      (b) nine (9) months after the Participating Executive's death, whichever
      is earlier.

      5.2   Extension of Deferral Period. Prior to the Commencement Date, the
Company, in its sole discretion, and the Participating Executive may agree to
extend the Deferral Period with respect to any Deferral Account in which event
the Deferral Account shall not be converted to a value but shall continue to
consist of Phantom Shares until the end of the Deferral Period as extended. Any
such extension must be in writing and executed prior to the Commencement Date.

      5.3   Form of Payment.

            5.3.1 Normal Form. The payment of any Deferral Account balance shall
      be made in the form and in the manner specified in the Participating
      Executive's Election Form with respect to such Deferral Account. The
      unpaid balance shall bear interest at the Declared Rate in effect from
      time to time during the Payout Period. Accrued interest shall be due and
      payable at the same time as each payment of the Deferral Account is paid.

            5.3.2 Alternative Forms. After the Election Form is filed, the
      Company may, in its sole discretion and upon the Participating Executive's
      request, permit the Participating Executive to change the form of benefit
      payment.

            5.3.3 Form of Request. A request to the Company under Section 5.3.2
      must be made in writing to the Company.

      5.4   Recipients of Payments.

            5.4.1 Participant. All benefits payable pursuant to this Plan shall
      be made to the Participating Executive, if living.

            5.4.2 Survivorship Benefits. If a Participating Executive dies prior
      to receiving all benefits payable under this Plan, which the Participating
      Executive would have received, but for his death, all payments made under
      the Plan after the Participating Executive's death shall be paid to the
      Participating Executive's Primary Beneficiary or Beneficiaries. If all of
      the Primary Beneficiaries die before the Participating Executive or before
      receiving all the payments due to such Primary Beneficiary pursuant to
      this Plan, then the remaining payments shall be paid to the Secondary
      Beneficiary designated by the Participating Executive and, if none, to the
      legal representatives of the Participating Executive's estate. If a
      Participating Executive has not designated a Primary Beneficiary or
      Secondary Beneficiary, the

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      Beneficiary shall be deemed to be the Participating Executive's estate. In
      the case of multiple Primary Beneficiaries, on the death of one such
      Primary Beneficiary the payment of which would otherwise be paid to such
      Primary Beneficiary but for the Primary Beneficiary's death shall be paid
      to the other Primary Beneficiaries unless the Participating Executive's
      Election Form provides for a different disposition.

            5.4.3 Beneficiary Designations. The Participating Executive shall
      designate one or more Primary or Secondary Beneficiaries by filing a
      written notice of such designation with the Company. The Participating
      Executive may revoke or modify said designation at any time by a further
      written designation. However, no such designation, revocation or
      modification shall be effective unless executed by the Participating
      Executive and accepted by the Company during the Participating Executive's
      lifetime. The Participating Executive's beneficiary designation shall be
      deemed automatically revoked as to a Beneficiary in the event of (i) the
      death of the beneficiary prior to the Participating Executive's death, or
      (ii) if the beneficiary is the Participating Executive's spouse, in the
      event of dissolution of marriage.

            5.4.4 Facility of Payment. If a benefit is payable to a minor or
      person declared incompetent or to a person incapable of handling the
      disposition of his or her property, the Company may pay such benefit to
      the guardian, legal representative or person having the care or custody of
      such minor, incompetent or person. The Company may require proof of
      incompetency, minority or guardianship, as it may deem appropriate prior
      to distribution of the benefit. Such distribution shall completely
      discharge the Company from all liability with respect to such benefit.

            5.4.5 QDROs. The Company, in its sole discretion, may recognize a
      court order in the event of a divorce if such order would constitute a
      qualified domestic relations order if the Plan were a qualified plan under
      Section 401 of the Internal Revenue Code of 1984 as amended.

      5.5   Hardship Distribution. Upon a finding by the Company that the
Participating Executive has suffered an unforeseen financial emergency, in its
sole discretion the Company may do the following:

            5.5.1 Incomplete Deferrals. If the Participating Executive has not
      completely deferred the amount specified for the Plan Year, the Company
      may release the Participating Executive from his or her obligation to make
      further deferrals. After releasing the Participating Executive from
      further deferrals, the Company shall adjust such Deferral Account as if
      the date of the release were a Determination Date. The Participating
      Executive may request that the Company, in its sole discretion, permit the
      Participating Executive to remain a Participating Executive in the Plan.
      If the Participating Executive makes no such request, or if the Company
      denies the request, the Company shall then distribute to the Participating
      Executive an amount equal to the balance of the Deferral Account.

            5.5.2 Form of Distribution. The Company, in its sole discretion,
      shall determine the form of any distribution under this Section 5.5.

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            5.5.3 Waiver of Benefits. The Participating Executive, and the
      Participating Executive's spouse and beneficiary waive all rights under
      this Plan with respect to amounts distributed to the Participating
      Executive under this Section. The Participating Executive shall have no
      right to make-up any amount distributed or transferred under this Section
      5.5.

            5.5.4 Financial Emergency. Financial emergency means a financial
      need resulting from a serious personal or family emergency beyond the
      control of the Participating Executive, such as an act of God, an adverse
      business or financial transaction, divorce, serious illness or accident,
      or death in the family.

6.    Administration and Interpretation of the Plan. The Board or its designee
shall administer and interpret the Plan. The Board's or its designee's
interpretation shall be final and binding upon the Participating Executives and
their beneficiaries. The Board or its designee may adopt rules and regulations
relating to the Plan as it may deem necessary or advisable for the
administration of the Plan.

7.    Miscellaneous Provisions.

      7.1   Unsecured Rights. The rights of the Participating Executive, or his
or her beneficiary or estate, to benefits under the Plan shall be solely those
of an unsecured creditor of the Company. Any insurance policy on the life of a
Participating Executive, annuity contract or other assets acquired by or held by
the Company shall not be deemed to be held under any trust for the benefit of
the Participating Executive or for his or her beneficiary or estate, or to be
security for the performance of the obligations of the Company but shall be, and
remain, a general, unpledged, and unrestricted asset of the Company.

      7.2   Assignment of Benefits. Neither the Participating Executive nor any
beneficiary under the Plan shall have any right to assign, transfer, pledge, or
otherwise encumber his/her right to receive any benefits hereunder (or agree to
do any of the foregoing), and any attempted assignment, transfer, pledge, or
other encumbrance (and any agreement to do) shall be null and void and of no
force or effect on the Company and the Company shall have no liability for not
recognizing any such assignment, transfer, pledge or other encumbrance or an
agreement to do so.

      7.3   Taxes. The Company shall deduct from all payments made hereunder all
applicable federal or state taxes required by law to be withheld from such
payments, if any.

      7.4   Amendment and Termination.

            7.4.1 The Board may, at any time, amend, suspend or terminate the
      Plan, provided that the Board may not reduce or modify any benefit payable
      to a Participating Executive based on deferrals already made, without the
      prior consent of the Participating Executive.

            7.4.2 If the Plan is terminated, any remaining deferrals under an
      Election Form shall not be made, and the amount in each Participating
      Executive's Deferral Account shall be payable either in a single lump-sum
      payment within sixty (60) days of the date the Plan is terminated, or in
      thirty-six (36) equal monthly installments commencing within sixty (60)
      days of the date the Plan is terminated, as determined by the Company in
      its sole discretion.

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      If the Company determines to pay the amount in the Deferral Account over
      thirty-six (36) months, such amount shall be credited with interest
      compounded annually at the Declared Rate.

            7.4.3 Notwithstanding any provision herein to the contrary, the
      Company may, in its sole discretion, amend the Plan to comply with any
      provision of the Internal Revenue Code of 1984 as amended, even if such
      amendment has retroactive effect.

      7.5   Construction. The Plan shall be construed according to the laws of
the State of Minnesota without regard to such State's conflict of law rules
except to the extent that those laws are pre-empted by the laws of the United
States of America.

      7.6   Form of Communication. Any election, application, claim, notice or
other communication required or permitted to be made by a Participating
Executive to the Company shall be made in writing and in such form as the
Company shall prescribe. Such communication shall be effective upon mailing, if
sent by first class mail, postage pre-paid, and addressed to the Company's main
office.

      7.7   Captions. The captions at the head of the Sections of this Plan are
designed for convenience of reference only and are not to be resorted to for the
purpose of interpreting any provision of this Plan.

      7.8   Severability. The invalidity of any portion of this Plan shall not
invalidate the remainder thereof, and said remainder shall continue in full
force and effect.

      7.9   Claims and Review Procedure.

            7.9.1 Claims Procedure. If the Participating Executive or the
      Participant's beneficiary (hereinafter referred to as a "Claimant") is
      denied all or a portion of an expected benefit under this Plan for any
      reason, he or she may file a claim with the Company. The Company shall
      notify the Claimant within ninety (90) days of allowance or denial of the
      claim, unless the Claimant receives written notice from the Company prior
      to the end of the ninety (90)-day period stating that special
      circumstances require an extension of the time for decision for an
      additional period not to exceed ninety (90) days. The notice of the
      Company's decision shall be in writing, sent by mail to the Claimant's
      last known address, and, if a denial of the claim, must contain the
      following information:

                  7.9.1.1 the specific reasons for the denial;

                  7.9.1.2 specific reference to pertinent provisions of the Plan
            on which the denial is based; and

                  7.9.1.3 if applicable, a description of any additional
            information or material necessary to perfect the claim, an
            explanation of why such information or material is necessary, and an
            explanation of the claims review procedure.

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            7.9.2 Review Procedure. A Claimant is entitled to request a review
      of any claim denial. The request for review must be submitted in writing
      within sixty (60) days of mailing of notice of the denial. The Company
      shall afford the Claimant or his or her representative the opportunity to
      review all pertinent documents and submit issues and comments in writing,
      and may, in its sole discretion, conduct one or more hearings on a request
      for review of a denied claim. The Company shall render a review decision
      in writing within sixty (60) days after receipt of a request for a review,
      provided that the Company may, in special circumstances (such as the
      necessity of holding a hearing), extend the time for decision by not more
      than sixty (60) days upon written notice to the Claimant. The Claimant
      shall receive written notice of the Company's review decision, together
      with specific reasons for the decision and reference to the pertinent
      provisions of the Plan.

            7.9.3 Arbitration. If a Claimant should disagree with any provision
      of this Plan or any decision under Section 7.9.2, the dispute shall be
      arbitrated in Minneapolis, Minnesota, under the rules of the American
      Arbitration Association except as provided herein but only after the
      Claimant shall have materially complied with the requirement of Sections
      7.9.1 and 7.9.2. The decision of the arbitrators shall be final and
      binding. Each dispute shall be heard by a panel of not less than three,
      one of which one shall be a lawyer. The arbitrators shall allow for
      reasonable discovery.

      7.10  Binding Agreement. The provisions of this Plan shall be binding upon
the Participating Executive, his or her heirs, personal representatives and
beneficiaries, and upon the Company, its successors and assigns.

      IN WITNESS WHEREOF, and pursuant to a resolution of the Board of Directors
of the Company, the Company has caused this document to be executed by its duly
authorized officer effective as of the date of this Plan.

                                      FAMOUS DAVE'S OF AMERICA, INC.

                                      By  /s/ David Goronkin
                                         ---------------------------------------
                                         David Goronkin, Chief Executive Officer

                                       10exv4w9

 

Exhibit 4.9

THIS CONVERTIBLE SUBORDINATED NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS CONVERTIBLE SUBORDINATED NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT. IN ADDITION, THIS CONVERTIBLE NOTE
IS NOT TRANSFERABLE OR ASSIGNABLE EXCEPT AS SPECIFIED IN THE CONVERTIBLE NOTE
PURCHASE AGREEMENT REFERRED TO HEREIN.

NET PERCEPTIONS, INC.

2% Convertible Subordinated Note Due April 21, 2014

	 	 	 
	Edina, Minnesota

	 	Issue Date: April 21, 2004

     For Value Received, the undersigned, Net Perceptions, Inc. (the
“Company”), a Delaware corporation, hereby promises to pay to Olden Acquisition
LLC, a Delaware limited liability company, or registered permitted assigns (the
“Holder”), the principal sum of Two Million Five-Hundred And Thirty-Two
Thousand Seven Hundred And Thirty-Five Dollars ($2,532,735) (the “Principal
Sum”) on April 21, 2014 (the “Maturity Date,” which term includes any
accelerated due date as hereinafter provided), with interest (computed on the
basis of a 360-day year of twelve 30-day months and compounded semi-annually)
on the unpaid balance of the Principal Sum from Issue Date at the interest rate
of 2% per annum, accruing semi-annually on the last day of June and December in
each year, commencing on June 30, 2004, which interest shall be payable,
together with the Principal Sum, in full on the Maturity Date, whether at the
stated maturity as aforesaid or by acceleration or otherwise. Notwithstanding
the foregoing, accrued but unpaid interest with respect to any portion of the
Principal Sum which is converted into Common Stock as provided in Section 4
hereof shall not be paid and shall be cancelled as provided in such Section.
In addition, the Principal Sum shall be automatically reduced (x) by the amount
of any indemnification payment(s) made by the Company in respect of
indemnification Claims (as defined in Section 7.2(a) of the Purchase Agreement
(as defined below)) pursuant to Section 7.2(a) of the Purchase Agreement and/or
(y) by the aggregate amount for which the Purchaser is determined to be liable
under Section 7.2(b) and Section 7.3 of the Purchase Agreement for any
indemnification Claims made by the Company pursuant to Section 7.2(b) of the
Purchase Agreement.

          1. Payments. Payments of principal and interest shall be made in lawful
money of the United States of America at the principal office of the Company in
Edina, Minnesota, or at such other place as the Company shall have designated
for such purpose to the Holder in writing and may be paid by check mailed, or
wire transfer as provided in the Purchase Agreement referred to below, to the
registered address designated by the Holder for such purpose.

 

 

          2. Purchase Agreement. This Note is issued pursuant to a certain Note
Purchase Agreement (hereinafter called the “Purchase Agreement”) dated as of
the Issue Date between the Company and the Holder. This Note is subject to the
provisions of, and the Holder is entitled to the benefits of, the Purchase
Agreement. The term “Note” as used herein refers only to the notes issued
pursuant to the Purchase Agreement, including any note(s) issued upon
conversion of less than all the Principal Sum of this Note, note(s) issued in
substitution for this Note as provided in Section 1.1(c) of the Purchase
Agreement and note(s) issued to any lawful successor or permitted assignee of
the Holder in accordance with the Purchase Agreement. Capitalized terms used
but not otherwise defined herein shall have their respective meanings as set
forth in the Purchase Agreement.

          3. Transfer. This Note is transferable only as provided in Section 1.2 of
the Purchase Agreement. Notwithstanding the foregoing, however, this Note is
registered with the Company as to both principal and interest, and any
permitted transfer of this Note may be effected only by surrender of this Note
and either reissuance by the Company of this Note or by issuance by the Company
of a new Note. The Company shall maintain a register for the registration and
transfer of this Note (the “Schedule”), containing the name and address of any
holder(s) of this Note.

          4. Conversion.

               (a) General. On or after April 21, 2005, and prior to the Maturity Date
or, if sooner, the Call Date (as hereinafter defined), the Holder shall have
the right, at the option of the Holder, subject to the terms and provisions of
this Section 4, to convert all or any lesser portion of the Principal Sum of
the Note held by such Holder into the number of fully paid and nonassessable
shares of Common Stock as shall be equal to the aggregate Principal Sum of
Notes then being converted divided by the Conversion Price then in effect;
provided, however, that such right of conversion shall be exercisable by Holder
at any time on or after the date hereof if (i) there has been any call of the
Notes by the Company in accordance with Section 5 hereof, (ii) any person or
entity commences a tender offer within the meaning of Rule 14d-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, for percent (20%) or more of the Company’s outstanding voting
securities, which is not recommended by the Company’s Board of Directors or
otherwise acquires twenty percent (20%) or more of the outstanding Common
Stock, (iii) if, in connection with a meeting of stockholders, a proposal to be
voted upon by the Company’s stockholders has been made in compliance with law
or the Company’s bylaws but has not been approved by the Company’s board of
directors, or (iv) a person has been nominated for election to the Company’s
board of directors in compliance with law or the Company’s bylaws and such
nomination has not been approved by the Company’s board of directors. Such
right of conversion shall be exercised by the Holder’s delivery of the Notes to
the Company at the office of the Company together with a notice signed by the
Holder setting forth the amount of the Principal Sum to be converted;
provided, however, that the Holder shall exercise its rights with respect to
partial conversions as herein described in multiples of Five Thousand and
00/100 ($5,000.00) Dollars of the Principal Sum of Notes; provided, further,
that the Company shall not be required to issue any fractional shares in
connection with any conversion pursuant to this Note. If the Holder elects to
convert less than the entire aggregate Principal Sum outstanding of the Note,
the Company shall, or shall direct its transfer agent to, issue to the Holder
certificates for the shares of Common Stock for which such

2

 

Note is being converted, in such denominations as are requested for
delivery to the Holder, and the Company shall, or shall direct its transfer
agent to, thereupon deliver such certificates to or in accordance with the
instructions of the Holder, and the Company shall issue to the Holder a new
Note, duly executed by the Company, in form and substance identical to the Note
surrendered by the Holder, for the balance of the aggregate Principal Sum of
Note that has not been so converted.

                    (ii) As of the date hereof, the Conversion Price is $0.45 per share of
Common Stock, which is the price determined by multiplying the average closing
selling price per share of Common Stock for the twenty (20) consecutive trading
days ending on the fifth trading day prior to the Issue Date by 1.1. The
Conversion Price shall be adjusted hereafter in accordance with the provisions
of paragraph (d) below.

               (b) Delivery of Stock Certificates; Time Conversion Effective; No
Adjustment for Interest or Dividends. (i) As promptly as practicable after
the surrender (as herein provided) of a Note for conversion, the Company shall
deliver or cause to be delivered to or upon the written order of the holder of
the Note so surrendered, certificates representing the number of fully paid and
nonassessable shares of Common Stock into which the Note has been converted.
Subject to the further provisions of this paragraph (b), such conversion shall
be deemed to have been made at the close of business on the date that such Note
shall have been surrendered for conversion at the office of the Company as
provided in paragraph 4(a) (the “Conversion Date”), so that the rights of the
Holder as a holder of this Note, to the extent of the amount of the Principal
Sum so converted, shall cease at such time, and the person or persons entitled
to receive any of the shares of Common Stock upon conversion of the Notes shall
be treated for all purposes as having become the record holder or holders of
such shares of Common Stock at such time; provided, however, that no such
surrender on any date when the stock transfer books of the Company shall be
closed shall be effective to constitute the person or persons entitled to
receive shares of Common Stock upon such conversion as the record holder or
holders of such shares of Common Stock on such date, but such surrender shall
be effective to constitute the person or persons entitled to receive such
shares of Common Stock as the record holder or holders thereof for all purposes
at the close of business on the next succeeding day on which such stock
transfer books are open or the Company is required to convert Notes. The
Company will, at the time of such conversion, upon request of the Holder,
acknowledge in writing its continuing obligation to the Holder in respect of
any rights (including, without limitation, any right of registration of the
shares of Common Stock issued upon such conversion) to which such Holder shall
continue to be entitled under this Note and/or the Purchase Agreement after
such conversion, provided, that the failure of the Holder to make any such
requests or the failure or refusal of the Company to so acknowledge shall not
affect the continuing obligation of the Company to such Holder in respect of
such rights.

                    (ii) If the day for the exercise of the conversion right shall not be a
business day, then such conversion right will automatically be deemed to be
effective on the next succeeding day which is a business day.

                    (iii) No adjustment or payment in respect of interest or cash dividends
shall be made upon conversion of any Note. All unpaid interest on any Note, to
the extent such Note is converted, which has accrued to and including the date
upon which such

3

 

conversion is deemed to have been effected in accordance with this Section
4.2, shall automatically be cancelled.

                    (iv) Each of the certificates representing shares of Common Stock issued
upon conversion of a Note shall be subject to stop transfer instructions
against the transfer of legended certificates representing such shares and
shall bear a legend substantially as follows:

	 	 	 	“The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be transferred or otherwise disposed of unless they
have been registered under such Act or pursuant to an
exemption from registration under such Act.”

               (c) Notice to Holders of Election. Upon the Company’s receipt of an
election to convert from a Holder pursuant hereto, the Company shall, as soon
as practicable, notify the other Holders, if any, of the other outstanding
Notes of such election.

               (d) Adjustment of Conversion Price. The Conversion Price as of the Issue
Date shall be subject to adjustment as follows:

                    (i) In case the Company, after the Issue Date, shall (A) pay a stock
dividend or make a distribution in shares of its capital stock (whether shares
of its Common Stock or of capital stock of any other class), (B) subdivide its
outstanding shares of Common Stock, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, or (D) issue by reclassification
of its shares of Common Stock any shares of capital stock of the Company, the
Conversion Price in effect immediately prior to such action shall be adjusted
so that the holder of a Note thereafter surrendered for conversion shall be
entitled to receive an equivalent number of shares of capital stock of the
Company which he would have owned immediately following such action had such
Note been converted immediately prior thereto. Any adjustment made pursuant to
this subsection (i) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.

                    (ii) In case the Company, after the Issue Date, shall distribute to all
holders of its outstanding Common Stock any shares of capital stock (other than
Common Stock), evidences of its indebtedness or assets (including securities
and cash, but excluding any cash dividend paid out of current or retained
earnings of the Company and dividends or distributions payable in stock for
which adjustment is made pursuant to subparagraph (d)(i)) or warrants, options
or rights to subscribe for or purchase securities of the Company, then in each
such case the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior to the record date of such distribution by a fraction of which the
numerator shall be the Conversion Price then in effect less the fair market
value on such record date (as determined in good faith by the Board of
Directors of the Company, with the concurrence of a majority of Independent
Directors, which determination shall be conclusive) of the portion of the
capital stock or the evidences of indebtedness or the assets so distributed to
the holder of one share of Common Stock or of such warrants, options or
subscription rights applicable to one share of Common Stock and of which

4

 

the denominator shall be the Conversion Price then in effect. Such
adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution. If at the
end of the period during which warrants, options or rights described in this
subparagraph (d)(ii) are exercisable not all such warrants, options or rights
shall have been exercised, the adjusted Conversion Price shall be immediately
readjusted to what it would have been based on the number of warrants, options
or rights actually exercised. Notwithstanding anything in this
subparagraph(d)(ii) to the contrary, with respect to any warrants, options or
rights covered by this subparagraph(d)(ii), if such warrants, options or rights
are only exercisable upon the occurrence of certain triggering events, then for
purposes of this subparagraph (d)(ii), such warrants, options or rights shall
not be deemed issued or distributed, and any adjustment to the Conversion Price
required by this subparagraph (d)(ii) shall not be made until such triggering
events occur and such warrants, options or rights become exercisable.

                    (iii) In case the Company, after the Issue Date, shall issue shares of its
Common Stock pursuant to the exercise of those rights (including conversion
rights), warrants, options, shares of capital stock convertible into Common
Stock or evidences of its indebtedness convertible into Common Stock, any of
which were outstanding immediately prior to the Issue Date (“Convertible
Securities”) at a price per share less than the Conversion Price in effect on
the date the Company issues such Common Stock, the Conversion Price shall be
reduced immediately thereafter so that it shall equal the price determined by
multiplying such Conversion Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares plus
the number of shares of Common Stock which the aggregate consideration, if any,
received by the Company upon such issuance would purchase at the Conversion
Price then in effect, and the denominator shall be the number of shares of
Common Stock that would be outstanding immediately after the issuance of such
additional shares. Such adjustments shall be made successively whenever such
an issuance is made.

                    (iv) In any case in which this Section 4 shall require that an adjustment
be made immediately following a record date or an effective date, the Company
may elect to defer (but only until five (5) business days following the mailing
by the Company to the Holders of Notes of the certificate required by
subparagraph (d)(vi)) issuing to the holder of any Note converted after such
record date or effective date the shares of Common Stock issuable upon such
conversion over and above the shares of Common Stock issuable upon such
conversion on the basis of the Conversion Price prior to adjustment, and paying
to such holder any amount of cash in lieu of a fractional share.

                    (v) No adjustment in the Conversion Price shall be required to be made
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this subparagraph (d)(v) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 4 shall be made and rounded to the nearest whole cent or
share, as applicable.

                    (vi) Whenever the Conversion Price is adjusted as provided in Section 4(d)
herein, the Company will promptly mail to the Holders of the Notes, a
certificate of

5

 

the Company’s Treasurer or Chief Financial Officer setting forth the
Conversion Price as so adjusted and a brief statement of facts accounting for
such adjustment.

              
      (vii) Irrespective of any adjustment in the Conversion Price and the
number of shares of Common Stock into which the Notes are convertible as a
result of such adjustment, the Notes theretofore and thereafter issued may
continue to express the Conversion Price per share of Common Stock and the
number of shares of Common Stock into which the Notes are convertible as the
Conversion Price per share of Common Stock and the number of shares of Common
Stock into which the Notes are convertible as expressed upon the Notes when
initially issued.

             
  (e) Company’s Consolidation or Merger. If the Company shall at any time
consolidate or merge with or into another corporation, the Holder of a Note
shall thereafter be entitled to receive, upon the conversion thereof, the
securities or property to which a holder of the number of shares of Common
Stock then deliverable upon the conversion thereof would have been entitled
upon such consolidation or merger, and the Company shall take such steps in
connection with such consolidation or merger as may be reasonably necessary to
assure the Holder that the provisions of this Note, the Purchase Agreement and
the Registration Rights Agreement shall thereafter be applicable, as nearly as
reasonably may be in relation to any securities or property thereafter
deliverable upon the conversion of the Note including, but not limited to,
obtaining a written acknowledgment from the continuing corporation or other
appropriate corporation of its obligation to supply such securities or property
upon such conversion.

         
      (f) Reserve of Sufficient Shares. The Company will reserve and keep
available a sufficient number of shares of its Common Stock to satisfy the
conversion requirements of all outstanding Notes. The Company will take all
such action as may be necessary such that all shares of Common Stock issued
upon conversion of the Notes will be duly and validly authorized and issued and
fully paid and nonassessable.

           
    (g) Taxes on Conversion. The issuance of certificates for shares of
Common Stock upon the conversion of Notes shall be made without charge to the
holders of Notes converting such Notes for any issue or stamp tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
respective names of, or in such names as may be directed by, the holders of the
Notes converted; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
named holder of the Note, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.

           
    (h) Cancellation of Converted Notes. All Notes which have been converted
shall be cancelled by the Company to the extent of the Principal Sum converted,
and no Notes shall be issued in lieu thereof.

           
    (i) Notice to Holders of Notes. In case at any time:

6

 

          
          (i) the Company shall take any action which would require an adjustment in
the Conversion Price pursuant to paragraph (d); or

        
            (ii) there shall be any capital reorganization or reclassification of the
Common Stock (other than a change in par value or from par value to no par
value or from no par value to par value of the Common Stock), whether or not
such reorganization or reclassification results in an adjustment in the
Conversion Price, or any consolidation or merger to which the Company and its
Subsidiaries is a party and for which approval of any stockholders of the
Company is required; or

        
            (iii) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;

then, in any one or more of said cases, the Company shall give written notice
to the Holders of the Notes, not less than fifteen (15) days before any record
date for, or the expected effectiveness of, such action, reorganization,
reclassification, consolidation, merger, dissolution, liquidation or winding
up, as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the current Conversion Price and the kind and
amount of the shares of Common Stock or other securities or property
deliverable upon conversion of the Notes. Such notice shall, if applicable,
also specify the date as of which the holders of the Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such action, reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be (on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to convert the Notes into
shares of Common Stock shall terminate). Without limiting the obligation of
the Company to provide notice to the Holders of Notes or shares of Common Stock
of corporate action hereunder, it is agreed that failure of the Company to give
such notice shall not invalidate such corporate action of the Company.

          5. Call Of Notes By The Company. (a) The Company shall not, directly or
indirectly, call for redemption, redeem, prepay, repurchase, or otherwise
acquire (any such event referred to herein as a “call”) any Notes or any
portion thereof except as set forth in this Section 5.

               (b) Optional Conversion or Redemption Upon Call by the Company.

                    (i) Company Election. The Company may, at its option, call the Notes,
either in whole or in part on a pro-rata basis, at a price equal to the
outstanding Principal Sum of, plus accrued but unpaid interest on, the Notes as
of the date immediately prior to the date of payment of such Principal Sum plus
interest pursuant to such call (the “Call Price”), only if:

	 	(A)	 	the closing price of
the Company’s Common Stock on a national
securities exchange, the NASDAQ National Market,
the Nasdaq SmallCap Market or the OTC Bulletin

7

 

	 	 	 	Board shall be equal to or in excess of 150% of
the Conversion Price, for at least twenty (20)
consecutive trading days prior to the Call Notice
Date (as hereinafter defined); and
	 
	 	(B)	 	for a period of at
least thirty (30) days following the Call Notice
Date, the Holders of the Notes shall be entitled
to exercise their conversion rights under
Section 4 hereof.

          
          (ii) Holder Option. In the event of a call by the Company pursuant to
this Section 5, the Holders, at their option, may for a period of thirty (30)
days following the Call Notice Date require the Company to convert their Notes
into fully paid and nonassessable shares of the Company’s Common Stock at the
Conversion Price (the “Holder’s Option”).

         
           (iii) Notice of Call. The right of the Company to call any Notes pursuant
to this Section 5 shall be conditioned upon the Company’s giving notice of
such call (the “Call Notice”, and the date the Call Notice is given being
referred to as the “Call Notice Date”), by personal delivery, overnight
courier, certified mail or by facsimile, signed by an authorized officer, to
the Holders of Notes, not less than thirty (30) days prior to the date upon
which the call is to be effective (the “Call Effective Date”). The Call Notice
shall be irrevocable and shall specify (A) the Call Price and (B) the Call
Effective Date, which may not be less than 30 days after the Call Notice Date.
Within thirty (30) days after the Call Notice Date, each Holder severally shall
notify the Company, by personal delivery, overnight courier, certified mail or
by facsimile, signed by the Holder, whether such Holder wishes such Holder’s
Notes to be converted pursuant to paragraph 5(b)(ii) hereof or redeemed in
accordance with this Section 5. If a Holder fails to respond in the manner
provided herein to the Call Notice on or before the Call Effective Date, the
Holder’s right to require conversion of such Holder’s Note, to the extent such
Note has been called in accordance with this Section 5, shall become void and
of no further effect, and the Company shall redeem such Holder’s Notes at the
Call Price as provided in Section 5(b)(i).

               (c) Partial Call. In the event of a partial call by the Company pursuant
to this Section 5, the aggregate Call Price shall be allocated among the Notes
as to which the Call Price is being paid as provided herein, in proportion, as
nearly as practicable, to the respective Call Prices for such Notes.

               (d) Surrender of Notes Upon Call. In the event that any Notes shall be
surrendered to the Company upon conversion as provided in this Section 5,
interest shall cease to accrue upon such Notes so surrendered and any
previously accrued and unpaid interest shall be cancelled upon such surrender
and conversion as provided in Section 4(b)(iii).

          6. Subordination.

               (a) Agreement to Be Bound. The Company covenants and agrees, and each
Holder of Notes, by the Holder’s acceptance hereof, likewise covenants and
agrees, that the Notes shall be issued subject to the provisions contained in
this Section 6; and each person

8

 

holding any Notes, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions for the
benefit of any holder of any Senior Indebtedness.

               (b) Subordination. All Notes shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full of all Senior Indebtedness (as defined herein). Except
as set forth in the first sentence of Section 6(i) hereof, the Notes shall be
pari passu in right of payment to the Company’s trade creditors and general
unsecured creditors.

               (c) Priority of Senior Indebtedness. (i) No payment on account of the
Principal Sum or interest on the Notes shall be made, nor shall any assets be
applied to the purchase or other acquisition or retirement of the Notes, if, at
the time of such payment or application or immediately after giving effect
thereto, there shall exist a default in the payment of any amount due on any
Senior Indebtedness. Within ten (10) business days after becoming aware of any
such default referred to in this paragraph 6(c), the Company shall provide
written notice thereof to each holder of the Notes.

            
        (ii) If there shall have occurred an event of default (other than a
default in the payment of any amount due) with respect to any issue of Senior
Indebtedness, or in the instrument under which the same has been issued,
permitting the holders thereof, whether or not after notice or lapse of time,
or both, to accelerate the maturity thereof, then, unless and until such event
of default shall have been cured or waived or shall have ceased to exist, no
payment on account of principal or interest on the Notes shall be made, nor
shall any assets be applied to the redemption or other acquisition or
retirement of the Notes until the earliest to occur of (A) the date on which
the Senior Indebtedness to which such event of default relates is discharged in
accordance with its terms, or (B) the date such event of default is waived by
the holders of such Senior Indebtedness or otherwise cured. Within ten (10)
business days after becoming aware of any event of default referred to in this
paragraph 6(c)(ii), the Company shall provide written notice thereof to each
holder of the Notes.

         
           (iii) Upon (A) the occurrence and during the continuance of any Event of
Default under this Note, or (B) the occurrence of an event described in
paragraphs (6(c)(i) or (ii) which gives rise to the non-payment of principal or
interest due on the Notes, and notwithstanding any other provision contained
herein or in the Notes to the contrary, each Holder hereby agrees, for the
benefit of the holders of Senior Indebtedness, not to ask for, demand, sue for,
take or receive, including by way of set off, any amount owing under the Notes
or exercise any remedy (whether pursuant hereto, including, without limitation,
acceleration of the Notes, at law, in equity or otherwise) with respect thereto
(1) in the case of clause (A), until the earliest of (x) 60 days after the
occurrence of such Event of Default or (y) any voluntary or involuntary
petition in bankruptcy filed by or against the Company that has not been
dismissed and (2) if clause (B) is applicable (even if and whether or not
clause (A) is applicable), until the earliest to occur of (x) the date on which
the Senior Indebtedness to which such event of default related is discharged in
accordance with its terms or (y) such event of default is waived by the holders
of such Senior Indebtedness or otherwise cured. Within ten (10) business days
after becoming aware of any Event of Default under this Note, the Company shall
provide written notice thereof

9

 

to the holders of Senior Indebtedness in the manner and at the addresses
specified in the documents and/or agreements evidencing the applicable Senior
Indebtedness.

               (d) Acceleration of Notes; Insolvency. Upon (i) any acceleration of the
principal amount due on the Notes or Senior Indebtedness or (ii) any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to creditors upon any dissolution or winding up
or total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full, or payment thereof duly provided for, to the full
satisfaction of the holders of Senior Indebtedness before the holders of the
Notes shall be entitled to receive or retain any assets so paid or distributed
in respect thereof; and upon any such dissolution or winding up or liquidation
or reorganization, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the
holders of the Notes would be entitled, except for these provisions, shall be
paid by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, or by the
holders of the Notes if received by them or it, as the case may be, directly to
the holders of Senior Indebtedness, to the extent necessary to pay all such
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness before any payment or
distribution is made to the holders of the Notes, except that the holders of
Senior Indebtedness of the type described in clause (i) of the definition of
Senior Indebtedness shall be entitled to receive payment in full of such Senior
Indebtedness (or provisions satisfactory to the holders of such Senior
Indebtedness shall be made for such payment) before the holders of other types
of Senior Indebtedness shall be entitled to receive payment on such other
Senior Indebtedness. Nothing contained in this Section 5(d) or any other
provision of this Note shall be construed to limit Holder’s right to convert
the Note in full in accordance with Sections 4(a) and (b) of this Note,
notwithstanding the occurrence and continuance of any Event of Default (as
defined below).

               (e) Payments in Trust. In the event that, notwithstanding the provisions
of Sections 6(c) and 6(d), any payment or distribution of assets of the Company
prohibited by such Sections shall be received by the Holders of the Notes
before all Senior Indebtedness is paid in full, or provision made for such
payment, to the full satisfaction of the holders of Senior Indebtedness, in
accordance with its terms, such payment or distribution shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness. All payments
applied to Senior Indebtedness pursuant to this paragraph shall be allocated
among the holders of Senior Indebtedness in accordance with the provisions of
Section 6(d).

               (f) Subrogation, Etc. Upon payment in full of all Senior Indebtedness,
the Holders of Notes shall be subrogated to the rights of the holders of Senior
Indebtedness, pro rata in proportion to the respective amounts then owing to
the Holders of

10

 

Notes; and for purposes of such subrogation, no payments or distributions
to the holders of Senior Indebtedness of any cash, property or securities to
which the holders of Notes would be entitled except for the provisions of this
Section 6, and no payment over pursuant to such provisions to the holders of
Senior Indebtedness, shall, as between the Company and its creditors (other
than the Holders of Notes and the holders of the Senior Indebtedness), be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that the provisions of this Section 6 are and are intended
solely for the purpose of defining the relative rights of the holders of Notes
on the one hand and the holders of Senior Indebtedness on the other hand. Any
holder of Senior Indebtedness may amend, modify and otherwise deal with Senior
Indebtedness without any notice to or approval of any holder of indebtedness
ranking junior to Senior Indebtedness (including, without limitation, the
Holders of any Notes).

               (g) Enforcement. The foregoing subordination provisions shall be for the
benefit of the holders of Senior Indebtedness and may be enforced directly by
such holders against the Holders of the Notes. Each Holder of Notes by its
acceptance thereof shall be deemed to acknowledge and agree that the
subordination provisions of this Section 6 are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Notes, to acquire and continue to hold, or to continue to hold,
such Senior Indebtedness and each holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness.

               (h) Certificate of receiver, et al. Upon any payment or distribution of
assets of the Company, the Holders of the Notes shall be entitled to rely upon
a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
Company, agent or other person making such payment or distribution, delivered
to the Holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertaining thereto or to the provisions of this Section 6.

               (i) Obligations Unimpaired. Nothing contained in this Section 6 or
elsewhere in this Note is intended to or shall impair as between the Company
and its creditors other than the holders of Senior Indebtedness and the Holders
of the Notes, the obligation of the Company, which shall be absolute and
unconditional, to pay the holders of the Notes the principal of and interest on
the Notes as and when the same shall become due and payable in accordance with
the terms thereof, or, except as provided in the second sentence of Section
6(b), affect the relative rights of the Holders of the Notes and other
creditors of the Company other than the holders of Senior Indebtedness.
Without limitation of the second sentence of Section 6(b), nothing contained in
this Section 6 or elsewhere in this Note shall prevent the Company from making
payment of the principal of or interest on the Notes at any time except under
the conditions described in Section 6(c) or 6(d) or during the pendency of any
dissolution, winding up, liquidation or reorganization of the Company.

               (j) Definition of Senior Indebtedness. The term “Senior Indebtedness”
shall mean the principal and interest on (i) all indebtedness of the Company
and its Subsidiaries

11

 

for money borrowed from time to time, including that owing to banks or
other financial institutions, an agency or agencies of the federal government
or other institutions engaged in the business of lending money, (ii) all
capital leases of the Company and its Subsidiaries, (iii) obligations of the
Company for the reimbursement of any obligor on any letter of credit, banker’s
acceptance or similar credit transaction, and (iv) any deferrals, renewals and
extensions of any indebtedness described in clauses (i) through (iii) above,
unless under the express provisions of the instrument creating or evidencing
any such indebtedness, or pursuant to which the same is outstanding, such
indebtedness is not superior in right of payment to the Notes; provided,
however, that Senior Indebtedness shall not include indebtedness owed or owing
to any Subsidiary or any officer, director or employee of the Company or any
Subsidiary.

          7. Events of Default; Acceleration of Maturity Date. If any of the
following events (herein called an “Event of Default”) shall occur and be
continuing:

               (a) If the Company shall default in the payment of any part of the
Principal Sum of or interest on any Note when the same shall become due and
payable, whether at maturity or by acceleration in accordance with the terms
hereof; or

               (b) If the Company shall (1) make an assignment for the benefit of
creditors; (2) admit in writing its inability to pay its debts; (3) suffer the
appointment of a receiver or trustee for it or substantially all of its assets
and, if appointed without its consent, not to be discharged or stayed within
sixty (60) days; (4) suffer proceedings under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors to be instituted by or
against it, and, if contested by it, not to be dismissed or stayed within sixty
(60) days; or (5) fail generally to pay its debts as they become due;

then and in each such event the Holders of twenty-five (25%) percent or more in
aggregate principal amount of the Notes then outstanding may at any time
(unless all defaults shall theretofore have been remedied) at its or their
option, by written notice or notices to the Company, declare all the Notes to
be due and payable, whereupon the same shall forthwith mature and become due
and payable, together with all interest accrued thereon, without presentment,
demand, protest or notice, all of which are hereby waived; provided, however,
that this provision is subject to the condition that if, at any time after the
principal of the Notes shall so become due and payable, any arrears of
principal and interest on the Notes (with interest at the rate specified in the
Notes on any overdue principal and, to the extent legally enforceable, on any
interest overdue) shall be paid by or for the account of the Company, then the
holder or holders of at least fifty-one percent (51%) in aggregate principal
amount of the Notes then outstanding, by written notice or notices to the
Company, may waive such Event of Default and its consequences (other than
non-payment of any portion of the Principal Sum or interest) and rescind or
annul such declaration, but no such waiver shall extend to or affect any
subsequent Event of Default or impair any right resulting therefrom; provided,
further, that notwithstanding the foregoing, if there shall occur an Event of
Default under clause (b) above, then the Notes, together with all interest
accrued thereon, shall immediately mature and become due and payable, without
the necessity of any action by the Holders or notice to the Company. If any
Holder of a Note shall give any notice or take any other action with respect to
a claimed default, the Company, forthwith upon receipt of such notice or
obtaining knowledge of such other action, will give written notice thereof to
all other holders of the Notes then outstanding, describing such

12

 

notice or other action and the nature of the claimed default. Nothing herein
shall preclude any Holder (including any Holder who has elected to accelerate
the Maturity Date of the Notes) from electing, in such Holder’s discretion, to
convert all or any lesser portion of the Principal Sum at any time prior to
payment in full thereof.

          8. Absolute Obligation. Subject to Section 6 hereof, no reference herein
to the Purchase Agreement and no provision hereof or thereof, shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the Principal Sum and interest thereon at the respective times and places
set forth herein.

          9. Governing Law. This Note is delivered in and shall be construed and
enforced in accordance with and governed by the laws of the State of New York,
without giving effect to any conflict of laws rule which would result in the
application of any laws other than those of the State of New York.

          10. Successors and Assigns. The Company may treat the person in whose
name this Note is registered as the owner and holder of this Note for the
purpose of receiving payment of principal and interest on this Note and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.

          11. No Third Party Beneficiary. Nothing expressed or implied in this Note
is intended, or shall be construed, to confer upon or give any person other
than the Company and the Holders and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Note.

[Signature Page Follows:]

13

 

     In Witness Whereof, NET PERCEPTIONS, INC. has caused this Convertible
Subordinated Note to be dated, and to be executed on its behalf by its officer
thereunto duly authorized.

	 	 	 	 	 
	 	NET PERCEPTIONS, INC.

 	 
	 	By:  	     /s/ Thomas Donnelly
 	 
	 	 	Name:  	Thomas Donnelly 	 
	 	 	Title:  	President and CFO

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