Document:

exv4w10

 

Exhibit 4.10

REGISTRATION RIGHTS AGREEMENT

          This Registration Rights Agreement (this “Agreement”) is made and entered
into as of April 21, 2004, among Net Perceptions, Inc., a Delaware corporation
(the “Company”), and Olden Acquisition LLC, a Delaware limited liability
company (the “Purchaser”).

WITNESSETH:

          
 WHEREAS, the parties hereto are parties to a certain Convertible Note
Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”);

          
WHEREAS, pursuant to the terms of the Purchase Agreement, the Purchaser is
purchasing from the Company a 2% Convertible Subordinated Promissory Note (the
“Note”), which is convertible into up to 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 of shares of Common Stock outstanding
as of the Closing Date.

          
NOW, THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound, hereby agree as follows:

     1. Definitions.

          Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

          “Advice” shall have the meaning set forth in Section 3(m).

          “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, “control,” when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of “affiliated,” “controlling” and “controlled” have
meanings correlative to the foregoing.

          “Agreement” shall have the meaning set forth in the Preamble.

          “Blackout Period” shall have the meaning set forth in Section 3(n).

          “Board” shall have the meaning set forth in Section 3(n).

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          “Business Day” means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government
actions to close.

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” shall have the meaning set forth in the second “WHEREAS”
clause.

          “Company” shall have the meaning set forth in the Preamble.

          “Effectiveness Period” shall have the meaning set forth in Section 2.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          “Filing Date” means the 45th day following the receipt by the Company of
the written request of the Holders holding a majority of the outstanding
Registrable Securities that the Registrable Securities be registered under the
Securities Act.

          “Holder” or “Holders” means the holder or holders, as the case may be,
from time to time of Registrable Securities, including without limitation the
Purchaser and its assignees.

          “Indemnified Party” shall have the meaning set forth in Section 5(c).

          “Indemnifying Party” shall have the meaning set forth in Section 5(c).

          “Losses” shall have the meaning set forth in Section 5(a).

          “NASDAQ” shall mean the National Association of Securities Dealers
Automatic Quotation System.

          “Note” shall have the meaning set forth in the second “WHEREAS” clause.

          “Person” means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

          “Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

          “Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the

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terms of the offering of any portion of the Registrable Securities covered
by the Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.

          “Purchase Agreement” shall have the meaning set forth in the first
“WHEREAS” clause.

          “Purchaser” shall have the meaning set forth in the Preamble.

          “Registrable Securities” means (i) the shares of Common Stock issued or
issuable upon conversion of the Note and (ii) any other securities (whether
issued by the Company or any other Person) distributed as a dividend or other
distribution with respect to, issued upon conversion or exchange of, or in
replacement of, Registrable Securities referred to in clause (i), provided that
(A) such term shall not include any Registrable Securities transferred in a
transaction in which, under the terms of this Agreement, rights hereunder may
not be, or are not properly, assigned and (B) as to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when: (1)
a registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement, provided, however, new
certificates therefore not bearing a legend restricting further transfer shall
have been delivered by the Company or its transfer agent, and subsequent
transfer or disposition of such securities shall not require their registration
or qualification under the Securities Act or any similar state law then in
force; (2) such securities shall have been transferred pursuant to Rule 144
under the Securities Act (or any successor provision thereto) or are
transferable in accordance with paragraph (k) of such Rule 144 (or any
successor provision thereto), provided, however, new certificates therefore not
bearing a legend restricting further transfer shall have been delivered by the
Company or its transfer agent, and subsequent transfer or disposition of such
securities shall not require their registration or qualification under the
Securities Act or any similar state law then in force; (3) such securities
shall have been otherwise transferred or disposed of; or (4) such securities
shall have ceased to be outstanding.

          “Registration Statement” means the registration statements and any
additional registration statements contemplated by Section 2, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference into such
registration statement.

          “Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

          “Rule 158” means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

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          “Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

          “Securities Act” means the Securities Act of 1933, as amended.

          “Special Counsel” means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.

     2. Registration. On or prior to the Filing Date, the Company shall
prepare and file with the Commission a “shelf” Registration Statement covering
all Registrable Securities (but in no event less than 1,860,000 shares of
Common Stock, as adjusted as permitted herein) for a secondary or resale
offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 (or on another form appropriate for
such registration in accordance herewith). The Company shall (i) not permit
any securities other than the Registrable Securities to be included in the
Registration Statement, and (ii) use its commercially reasonable efforts to
cause the Registration Statement to be declared effective under the Securities
Act (including filing with the Commission a request for acceleration of
effectiveness in accordance with Rule 12dl-2 promulgated under the Exchange
Act) by the earlier of (i) five (5) Business Days after the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be “reviewed,” or not be
subject to further review or (ii) the 60th day after the Filing Date, and to
keep such Registration Statement continuously effective under the Securities
Act until such date as is the earlier of (x) the date when all Registrable
Securities covered by such Registration Statement have been sold or (y) as to
any particular Holder, the date on which all such Holder’s Registrable
Securities may be sold without any restriction pursuant to Rule 144(k),
provided that if a Holder requests, the Company shall deliver unlegended
certificates evidencing the Registrable Securities to such Holder (the
“Effectiveness Period”).

     3. Registration Procedures.

          In connection with the Company’s registration obligations hereunder, the
Company shall:

          (a) Prepare and file with the Commission on or prior to the Filing Date a
Registration Statement on Form S-3 (or on another form appropriate for such
registration in accordance herewith) in accordance with the method or methods
of distribution thereof as specified by the Holders, and cause the Registration
Statement to become effective and remain effective as provided herein;
provided, however, that not less than five (5) Business Days prior to the
filing of the Registration Statement or any related Prospectus and not less
than three (3) Business Days prior to the filing of any amendment or supplement
thereto (including any document that would be incorporated therein by
reference), the Company shall (i) furnish to the Holders and any Special
Counsel, copies of all such documents proposed to be filed, which documents
(other than those incorporated by reference) will be subject to the review of
such Holders and such Special Counsel, and (ii) at the request of any Holder,
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable

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opinion of counsel to such Holders, to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities or any
Special Counsel shall reasonably object in writing within three (3) Business
Days after their receipt thereof, in which event the Filing Date shall be
extended until five business days after the parties hereto reach agreement on
the content of the applicable Registration Statement, Prospectus, or amendment
or supplement thereto.

          (b) (i) If necessary to keep such Registration Statement accurate and
complete, prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously (but for the filing of such
post-effective amendment) effective as to the applicable Registrable Securities
for the Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; (iii)
respond as promptly as reasonably practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as reasonably practicable provide the Holders true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.

          (c) Notify the Holders of Registrable Securities to be sold and any
Special Counsel as promptly as reasonably practicable (A) when a Prospectus or
any Prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) when the Commission notifies the Company
whether there will be a “review” of such Registration Statement and whenever
the Commission comments in writing on such Registration Statement; and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, and thereafter: (i) of any request by the
Commission or any other Federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus or for additional
information; (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iii) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction, or the initiation
or threatening of any Proceeding for such purpose; and (iv) of the occurrence
of any event that makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to

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state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.

          (d) Use its commercially reasonable efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of, (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction within the United States, at the earliest practicable moment.

          (e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information
regarding a Holder or the plan of distribution as such majority of Holders may
reasonably request, provided that such information is true and complete in all
material respects, and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.

          (f) Furnish to each Holder and any Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

          (g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form
of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto in
conformity with the requirements of the Securities Act.

          (h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the Holders and any Special
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer
and sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action that would subject the
Company to general service of process in any jurisdiction were it is not then
so subject.

          (i) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities sold pursuant to a
Registration Statement, which

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certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any Holder may request.

          (j) Upon the occurrence of any event contemplated by Section 3(c)(iv), as
promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

          (k) Use its commercially reasonable efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on NASDAQ or
any other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed.

          (l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 3-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.

          (m) (i) Require each Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, Prospectus,
supplemented Prospectus and/or amended Registration Statement, including any
information necessary to allow the Company to fulfill its undertakings made in
accordance with Item 512 of Regulation S-K, and the Company may exclude from
such registration the Registrable Securities of any such Holder who fails to
furnish such information within a reasonable time prior to the filing of each
Registration Statement, Prospectus, supplemented Prospectus and/or amended
Registration Statement.

               (ii) If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed at a time when such reference is
not required.

               (iii) Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii) or 3(c)(iv), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder’s receipt of copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or

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until it is advised in writing (the “Advice”) by the Company that the use
of the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide stop orders to enforce the provisions of
this paragraph, provided that the Company shall promptly remove any such stop
orders as soon as such stop orders are no longer necessary.

          (n) If (i) there is material non-public information regarding the Company
which the Company’s Board of Directors (the “Board”) reasonably determines not
to be in the Company’s best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company’s best
interest to disclose and which the Company would be required to disclose under
the Registration Statement, then, notwithstanding anything to the contrary in
this Agreement, the Company may postpone or suspend filing or effectiveness of
a registration statement for a period not to exceed 60 consecutive days,
provided that the Company may not postpone or suspend its obligation under this
Section 3(n) for more than 90 days in the aggregate during any 12 month period
(each, a “Blackout Period”).

     4. Registration Expenses

          All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The
fees and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with NASDAQ or any other securities exchange, quotation system, market or
over-the-counter bulletin board on which Registrable Securities are required
hereunder to be listed, (B) with respect to filings required to be made with
the Commission, (C) with respect to filings required to be made under NASDAQ
and any other securities exchange, quotation system, market or over-the-counter
bulletin board and (D) in compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of the
Holders’ Special Counsel in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the Holders
of a majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the Holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) Securities Act liability insurance, if the Company
so desires such insurance, and (v) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
independent public accountants (including the expenses of any comfort letters
or costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters, if requested by any underwriter) and legal
counsel. In addition, the

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Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder and the
reasonable fees and expenses of Special Counsel.

     5. Indemnification

          (a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys’ fees) and expenses (collectively,
“Losses”), as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained or incorporated by reference in
(i) the Registration Statement, (ii) any Prospectus or any form of prospectus,
(iii) any amendment or supplement thereto, or (iv) any preliminary prospectus,
or arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading,
except to the extent, but only to the extent, that (A) such untrue statements
or omissions are based solely upon information regarding such Holder furnished
in writing to the Company by such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto, or (B) such Losses arise in connection with the use by such
Holder of a Prospectus (x) after the Company has notified such Holder of the
occurrence of an event as described in Section 3(n) and prior to receipt by
such notice, or (y) during a Blackout Period of which the Holder has received
written notice from the Company. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an Indemnified Party and shall survive
the transfer of the Registrable Securities by the Holders.

          (b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and
the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the

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Registration Statement, any Prospectus, or any form of prospectus, or
arising solely out of or based solely upon any omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in the
light of the circumstances under which they were made) not misleading, to the
extent, but only to the extent, that (i) such untrue statement or omission is
contained in or omitted from any information furnished in writing by such
Holder to the Company specifically for inclusion in the Registration Statement
or such Prospectus and that such information was reasonably relied upon by the
Company for use in the Registration Statement, such Prospectus or such form of
prospectus or to the extent that such information relates to such Holder or
such Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus
Supplement, or (ii) such Losses arise in connection with the use by such Holder
of a Prospectus (x) after the Company has notified such Holder of the
occurrence of an event as described in Section 3(n) and prior to receipt of
such notice, or (y) during a Blackout Period of which the Holder has received
written notice from the Company. Notwithstanding anything to the contrary
contained herein, the Holder shall be liable under this Section 5(b) for only
that amount as does not exceed the net proceeds to such Holder as a result of
the sale of Registrable Securities pursuant to such Registration Statement.

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the “Indemnifying Party) in writing, and the
Indemnifying Party shall diligently assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant
to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

          An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly,
diligently and appropriately to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; (3) the Indemnified Party shall reasonably determine that there may
be legal defenses available to it which are not available to the Indemnifying
Party; or (4) the Indemnified Party shall reasonably determine that there is an
actual or potential conflict of interest between it and the Indemnifying Party,
including, without limitation, situations in which there are one or more legal
defenses available to the Indemnified Party that are antithetical or in
opposition to those available to the Indemnifying Party, and in any of such
cases, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be

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unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding and does not
impose any monetary or other obligation or restriction on the Indemnified
Party.

          All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless
of whether it is ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder; provided, that the Indemnifying Party
may require such Indemnified Party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).

          (d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party because of a failure or refusal of
a governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses
shall be deemed to include, subject to the limitations set forth in Section
5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred
by such party in connection with any Proceeding to the extent such party would
have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.
Notwithstanding anything to the contrary contained herein, the Holder shall be
liable or required to contribute under this Section 5(c) for only that amount
as does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.

          The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

11

 

          The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. The indemnity and contribution agreements herein are in
addition to and not in diminution or limitation of any indemnification
provisions under the Purchase Agreement.

     6. Rule 144.

          As long as any Holder owns Registrable Securities or the Note, the Company
covenants to timely file all reports required to be filed by the Company after
the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long
as any Holder owns Registrable Securities or the Note, if the Company is not
required to file reports pursuant to Section 13(a) or 15(d) of the Exchange
Act, it will prepare and furnish to the Holders and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required
thereby, in the time period that such filings would have been required to have
been made under the Exchange Act. The Company further covenants that it will
take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable such Person to sell Registrable
Securities or the Note without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of any Holder, the Company shall deliver to
such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.

     7. Miscellaneous.

          (a) Remedies. In the event of a breach by the Company or by a Holder of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted
by law and under this Agreement, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of
any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.

          (b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof, entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Without limiting the generality
of the foregoing, without the written consent of the Holders of a majority of
the then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in
all respects to the prior rights in full of the Holders set forth herein, and
are not otherwise in conflict with the provisions of this Agreement.

12

 

          (c) No Piggyback on Registrations. Except as expressly permitted herein,
neither the Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto) may include securities of the Company in the
Registration Statement, and the Company shall not after the date hereof enter
into any agreement providing such right to any of its security holders, unless
the right so granted is subject in all respects to the prior rights in full of
the Holders set forth herein, and is not otherwise in conflict with the
provisions of this Agreement.

          (d) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all of the Registrable Securities,
the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within twenty (20) days after receipt of
such notice, any such Holder shall so request in writing (which request shall
specify the Registrable Securities intended to be disposed of by the Holders),
the Company will cause the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holder, to the extent required to permit the disposition of the Registrable
Securities so to be registered, provided that if at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holders and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities being registered
pursuant to this Section 7(d) for the same period as the delay in registering
such other securities. The Company shall include in such registration statement
all or any part of such Registrable Securities such Holder requests to be
registered; provided, however, that the Company shall not be required to
register any Registrable Securities pursuant to this Section 7(d) that are
eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case
of an underwritten public offering, if the managing underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the
managing underwriter should reasonably determine that the inclusion of such
Registrable Securities would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer or none of the
Registrable Securities of the Holders, then (x) the number of Registrable
Securities of the Holders to be included in such registration statement shall
be reduced pro-rata among such Holders (based upon the number of Registrable
Securities requested to be included in the registration), if the Company after
consultation with the underwriter(s) recommends the inclusion of fewer
Registrable Securities, or (y) none of the Registrable Securities of the
Holders shall be included in such registration statement, if the Company after
consultation with the underwriter(s) recommends the inclusion of none of such
Registrable Securities; provided,

13

 

however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent
a greater fraction of the number of Registrable Securities intended to be
offered by the Holders than the fraction of similar reductions imposed on such
other persons or entities (other than the Company). The right of any Holder to
participate in an underwritten public offering hereunder shall be conditioned
upon such Holder’s entering into the underwriting agreement and lock-up
agreement with the representative of the underwriter or underwriters on the
same terms as required of other selling securities holders in such offering.
Notwithstanding the foregoing, this subsection 7(d) shall automatically
terminate and be of no further force or effect as to any Holder of Registrable
Securities when the Effectiveness Period has expired with respect to such
Holder.

          (e) Specific Enforcement, Consent to Jurisdiction.

               (i) The Company and the Holders acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the Purchase Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches
of the provisions of this Agreement or the Purchase Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.

               (ii) Each of the Company and the Holders (i) hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts located in New York
County, New York, for the purposes of any suit, action or proceeding arising
out of or relating to this Agreement or the Purchase Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Holders consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
in this Section 7(f) shall affect or limit any right to serve process in any
other manner permitted by law.

          (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and each
of the Holders. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

          (g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on

14

 

the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice prior to 5:00 p.m., Eastern United States time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., Eastern United States time,
on any date and earlier than 11:59 p.m., Eastern United States time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be:

     with respect to the Holder:

	 	 	 	Olden Acquisition LLC

One Pickwick Plaza, 1st Floor

Greenwich, CT 06830

Facsimile: (203) 552-9607

Attention: Warren B. Kanders

     with a copy to:

	 	 	 	Kane Kessler PC

1350 Avenue of the Americas

New York, NY 10019

Facsimile: (212) 245-3009

Attention: Robert L. Lawrence, Esq.

     with respect to the Company:

	 	 	 	Net Perceptions, Inc.

7700 France Avenue South

Edina, Minnesota 55435

Attention: CEO

Facsimile No.: (952) 842-5005

     with a copy to:

	 	 	 	Skadden, Arps, Slate, Meagher & Flop LLP

One Beacon Street

31st Floor

Boston, MA 02108

Attention: Kent A. Coit, Esq.

Facsimile No. : (617) 573-4822

or to such other address or addresses or facsimile number or numbers as any
such party may most recently have designated in writing to the other parties
hereto by such notice.

15

 

          (h) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns.
The Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder. A Holder may
assign its rights hereunder to a transferee of Registrable Securities to the
extent provided in Section 7(i) below.

          (i) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
assignable by each Holder to any transferee of such Holder of Registrable
Securities or the Note held by such Holder, if such transferee acquires
(through a permitted whole or partial transfer of the Note in accordance with
Section 1.2(a) of the Purchase Agreement and/or of Registrable Securities
outright) at least 20% of the total number of Registrable Securities into which
the Note was convertible as of the Closing Date, and if: (i) the Holder agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, and (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned. In addition,
each Holder shall have the right to assign its rights hereunder to any other
Person with the prior written consent of a majority of the Independent
Directors (as such term is defined in the Purchase Agreement) of the Company,
which consent shall not be unreasonably withheld. The foregoing rights to
assignment shall apply to the Holders (and to subsequent) successors and
assigns.

          (j) Counterparts; Facsimile. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

          (k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law thereof which would require the application of the laws of
any other jurisdiction. The Company hereby irrevocably consents to the
exclusive jurisdiction of the State and Federal Courts located in New York
County, New York in connection with any action or proceeding arising out of or
relating to this Agreement.

          (l) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

          (m) Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in

16

 

no way be affected, impaired or invalidated, and the parties hereto shall
use their reasonable efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

          (n) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

          (o) Shares Held by the Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its
Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

          (p) Notice of Effectiveness. Within two (2) Business Days after the
Registration Statement which includes the Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and if requested by the
Company’s transfer agent, shall use commercially reasonable efforts to cause
legal counsel for the Company in connection with such Registration Statement to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Holders whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the Commission substantially in the form attached hereto as
Exhibit A.

[Signature Page Follows:]

17

 

     In Witness Whereof, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.

	 	 	 	 	 	 	 
	

	 	 	 	COMPANY:
	 
	 	 	 	 	 	 
	Olden Acquisition LLC

	 	Net Perceptions, Inc.
	 
	 	 	 	 	 	 
	By:

	 	/s/ Warren Kanders
	 	By:
	 	/s/ Thomas Donnelly
	

	 	
 
	 	 	 	
 
	

	 	Name: Warren Kanders
	 	 	 	Name: Thomas Donnelly
	

	 	Title: Manager
	 	 	 	Title: President and CFO

 

 

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and Address of Transfer Agent]

[Date]

          Re: Net Perceptions, Inc.

Dear [                   ]:

     We are special counsel to Net Perceptions, Inc. a Delaware corporation
(the “Company”), and have represented the Company in connection with the
preparation of a Registration Statement pursuant to a Registration Rights
Agreement between the Company and Olden Acquisition LLC (the “Registration
Rights Agreement”) pursuant to which the Company agreed, among other things,
to register the Registrable Securities (as defined in the Registration Rights
Agreement), under the Securities Act of 1933, as amended (the “1933 Act”) upon
the demand of the Purchaser. In connection with the Company’s obligations
under the Registration Rights Agreement, on
          , 200   , the Company
filed a Registration Statement on Form S-3 (File
No. 333-     ) (the
“Registration Statement”) with the Securities and Exchange Commission (the
“SEC”) relating to the Registrable Securities which may be sold under such
Registration Statement by the selling stockholder(s) named therein.

     In connection with the foregoing, we advise you that a member of the SEC’s
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC.

	 	 	 	 	 
	 

	 	Very truly yours,
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	

cc: [LIST NAMES OF HOLDERS]exv10w1

 

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 of
April 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 the
Seller desires to sell to the Purchaser, for the Purchase Price (as defined
below), a convertible subordinated promissory note which is convertible into up
to 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 of
shares of Common Stock outstanding as of the Closing Date (as defined below).

     NOW, THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements set forth herein, the
parties 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 to
the 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) the
5,628,300 shares of Common Stock constituting 19.9% of the number of shares of
Common Stock outstanding as of the Closing Date by (y) the product of (i) 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 Closing
Date, and (ii) 1.1, a convertible subordinated promissory note in the original
principal 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, in
substantially 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) as
provided in the Note in connection with either (x) any payment(s) made by the
Seller 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 of
any indemnification Claims of the Seller by means of a reduction in the
Principal Sum of the Note pursuant to Section 7.2(b), the parties shall execute
a new Note or Notes in substitution of the then outstanding Note(s) (which
outstanding Note(s) shall be cancelled) having an aggregate principal amount
equal to the Principal Sum as so reduced. In all other respects the
substituted Note(s) shall be identical to the previously outstanding Note(s).

     1.2 Transfers; Legend.

          (a) Without limitation of transfer restrictions imposed by applicable
securities laws, the Note may not be transferred or assigned, in whole or in
part, except to an Affiliate (as defined below) of the Purchaser. Purchaser
may effect any permitted transfer or assignment of the Note by delivering
written transfer instructions to the Seller, and the Seller shall reflect such
transfer or assignment on its books and records, provided that if Seller
determines in good faith that under applicable securities laws an opinion of
counsel should be obtained in connection with such transfer or assignment, then
it may condition its reflecting such transfer or assignment on its books and
records on

1

 

receipt of such opinion. Any permitted transferee which acquires at least
20% of the aggregate principal amount of the Note issued at the Closing shall
have the rights of a Purchaser under this Agreement and the Registration Rights
Agreement (as defined below). The Seller shall reissue notes evidencing the
Note upon surrender of notes evidencing the Note being transferred in
accordance with this Section 1.2(a). Any such transfer shall be made by a
Purchaser in accordance with applicable law. An “Affiliate” means any Person
(as such term is defined below) that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act of 1933, as amended (the “Securities Act”). A “Person” means
any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision of any thereof) or other
entity of any kind.

          (b) At the Closing, and so long as the Notes have not been registered
under the Securities Act or until such time as the sale of the Notes to the
public does not require such registration, the Notes shall bear the following
legend:

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.

ARTICLE II

CLOSING

     2.1 The Closing. The closing of the transactions contemplated under this
Agreement (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 the
date hereof (the actual date of Closing, the “Closing Date”).

     2.2 Deliveries.

          (a) Deliveries by the Seller. At the Closing, the Seller shall deliver or
cause to be delivered to the Purchaser the following:

	1.	 	The Note;
	 
	2.	 	The Registration Rights Agreement, in
the form attached hereto as Exhibit 2.2(a)(2) (the
“Registration Rights Agreement”), duly executed by the
Seller.
	 
	3.	 	The legal opinion of Skadden, Arps,
Slate, Meagher & Flom LLP (“Seller’s Counsel”), counsel
to the Seller, in the form previously agreed upon by the
parties.

2

 

	4.	 	A certificate of the Secretary of the
Seller (the “Secretary’s Certificate”), in form and
substance reasonably satisfactory to the Purchaser,
certifying, on behalf of the Seller as follows:

(i) that attached to the Secretary’s
Certificate is a true and complete copy of the
certificate of incorporation of the Seller and
a true and complete copy of the Bylaws of the
Seller, each as in effect on the Closing Date;

(ii) that attached to the Secretary’s
Certificate are true and complete copies of
the resolutions of the Seller’s Board of
Directors authorizing the execution, delivery
and performance by the Seller of this
Agreement and the Related Documents (as
defined below), and approving the consummation
by the Seller of the transactions contemplated
hereby, including the authorization and
issuance of the Note, and that said
resolutions are in full force and effect as of
the Closing Date without amendment or
modification; and

(iii) the names and true signatures of the
officers of the Seller signing this Agreement on
behalf of the Seller and all other documents to be
delivered at the Closing pursuant to this Agreement.

	5.	 	A certificate of the President of the
Seller (the “President’s Certificate”), in form and
substance reasonably satisfactory to the Purchaser,
certifying, on behalf of the Seller as follows:

(i) based on the number of shares of Common
Stock outstanding immediately prior to the Closing
as advised by the Seller’s transfer agent, which
equals the number of shares of Common Stock
outstanding as of December 31, 2003 plus the number
of shares of Common Stock issued upon exercise of
outstanding options since December 31, 2003, the
maximum number of shares of Common Stock into which
the Note is convertible as of the Closing Date
constitutes 19.9% of the number of shares of Common
Stock outstanding as of the Closing Date;

(ii) such other matters as required by this
Agreement; and

(iii) such other
matters as the Purchaser may reasonably
request.

	6.	 	The resignation of the director of the
Seller identified pursuant to Section 6.1(c) hereof.
	 
	7.	 	Such other documents as the Purchaser
shall reasonably request.

3

 

          (b) Deliveries by the Purchaser. At the Closing, the Purchaser shall
deliver or cause to be delivered to the Seller the following:

	1.	 	Payment of the full amount of the
Purchase Price, in cash by wire transfer of immediately
available funds to an account designated in writing by
the Seller, subject to such deductions as are required or
authorized in accordance with the terms hereof or the
written directions of the Seller.
	 
	2.	 	The Registration Rights Agreement duly
executed by the Purchaser.
	 
	3.	 	Such other documents as the Seller
shall reasonably request.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller hereby represents and warrants to the Purchaser, as of the date
hereof, as follows:

     3.1 Corporate Existence and Power; Subsidiaries. Except as set forth in
Section 3.1 of the Seller Disclosure Schedule previously delivered by the
Seller to Purchaser (the “Seller Disclosure Schedule”), the Seller and each of
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
corporate powers required to carry on its business as now conducted. The
Seller is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not reasonably be expected to have a Material Adverse Effect on the
Seller. 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 would
reasonably be expected to be materially adverse to the assets or financial
condition of such party and its Subsidiaries, taken as a whole. True and
complete copies of the Seller’s Certificate of Incorporation, as amended, and
Bylaws, as amended (collectively, the “Charter and Bylaws”) have been provided
to the Purchaser. For purposes of this Agreement, the term “Subsidiary” or
“Subsidiaries” means, with respect to any entity, any corporation or other
organization of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are directly or indirectly owned by such entity or
of which such entity is a partner or is, directly or indirectly, the beneficial
owner of 50% or more of any class of equity securities or equivalent profit
participation interests. The Seller has no Subsidiaries other than as set
forth in Exhibit 21 to the Seller’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 (the “2003 10-K”).

     3.2 Corporate Authorization; Rights Plan. (a) The execution, delivery
and performance by the Seller of this Agreement, the Registration Rights
Agreement, and each of the other documents executed pursuant to and in
connection with this Agreement (the “Related Documents”), and the consummation
by the Seller of the transactions contemplated hereby and thereby (including,
but not limited to, the sale and delivery of the Notes) have been duly
authorized by the Seller, and no additional corporate action is required for
the approval by the Seller of this Agreement or the Related Documents. The
Seller has reserved 6,000,000 shares of Common Stock for issuance as Common
Stock upon conversion of the Notes. This Agreement and the Related Documents
have been or, to the extent contemplated hereby or by the Related Documents,
will be duly executed and delivered and constitute the legal, valid and binding
agreement of the Seller, enforceable against the Seller in accordance with

4

 

their terms, except as may be limited by bankruptcy, reorganization,
insolvency, moratorium and similar laws of general application relating to or
affecting the enforcement of rights of creditors, and except as enforceability
of its obligations hereunder are subject to general principles of equity.

          (b) The Note that will be issued to the Purchaser at Closing, when issued
and delivered in accordance with the terms hereof, will be duly authorized and
validly issued and free of restrictions on transfer other than as provided in
Section 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 or
rights 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 or
other obligation of any nature, or (ii) adjust the number or kind of securities
held by or issuable (with or without the payment of any consideration) to any
person.

     3.3 Charter, Bylaws and Corporate Records. Except as set forth in Section
3.3 of the Seller Disclosure Schedule, the minute books of the Seller contain
complete and accurate records of all meetings and other corporate actions of
the board of directors, committees of the board of directors, incorporators and
shareholders of the Seller and its Subsidiaries from the date of their
incorporation to the date hereof. All material corporate decisions and actions
have been validly made or taken.

     3.4 Non-Contravention. Except as otherwise specifically contemplated in
this Agreement and the Related Documents, the execution, delivery and
performance by the Seller of this Agreement and the Related Documents, and the
consummation by the Seller of the transactions contemplated hereby and thereby
(including, but not limited to, the issuance, sale and delivery of the Note by
the Seller) do not and will not (a) contravene or conflict with the Charter and
Bylaws of the Seller or any of its Subsidiaries or any material agreement to
which the Seller or any of its Subsidiaries is a party or bound; (b) contravene
or conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
the Seller or any of its Subsidiaries; (c) constitute a default under or give
rise to a right of termination, cancellation or acceleration or loss of any
benefit under any Material Contract (as defined herein) or under any material
license, franchise, permit or other similar authorization held by the Seller or
any of its Subsidiaries; (d) require any action by or in respect of, or filing
with, any governmental body, agency, official or authority, other than filings
under the Exchange Act (as defined below); or (e) result in the creation or
imposition of any Lien (as defined below) on any asset of the Seller or any of
its Subsidiaries, except, in the case of (b) through (e), as would not have a
Material Adverse Effect on the Seller. For purposes of this Agreement, the
term “Lien” means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, claim or encumbrance of any kind in respect of such
asset.

     3.5 SEC Documents. The Seller is obligated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), to file with the Securities and
Exchange Commission (the “Commission” or the “SEC”) reports and other documents
pursuant to Sections 13 and 15(d) thereof (all reports filed or required to be
filed by the Seller with the SEC, including all exhibits thereto or
incorporated therein by reference, and all documents filed by the Seller under
the Securities Act, or any other provisions of the Exchange Act (other than the
Seller’s Proxy Statement filed with the SEC on February 12, 2004, as
supplemented (the “Proxy Statement”) and Seller’s Schedule 14D-9 filed with the
SEC on December 31, 2003, as amended) are hereinafter called the “SEC
Documents,” and all SEC Documents with respect to any period ending on or after
December 31, 2002, are hereinafter called the “Recent Reports”). The Seller
has filed all reports or other documents required to be filed under the
Exchange Act. All Recent Reports filed by the Seller with the SEC (i) were
prepared in all material

5

 

respects in accordance with the requirements of the Exchange Act and the
Securities Act and (ii) did not at the time they were filed (or, if amended or
superseded by a filing prior to the date hereof, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

     3.6 Financial Statements. Each of the Seller’s consolidated balance sheet
and related consolidated statements of income, cash flows and changes in
stockholders’ equity (including the related notes), as contained in the Recent
Reports (collectively, the “Seller’s Financial Statements” or the “Financial
Statements”) (x) present fairly in all material respects the financial position
of the Seller and its consolidated Subsidiaries as of the dates thereof and the
results of operations, cash flows and stockholders’ equity as of and for each
of the periods then ended, except that any unaudited financial statements are
subject to normal year-end adjustments, and (y) were prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form
10-Q or 8-K), applied on a consistent basis throughout the periods involved, in
each case, except as otherwise indicated in the notes thereto.

     3.7 Compliance with Law. (a) The Seller and its Subsidiaries are in
compliance and have conducted their business and offerings and issuance’s of
securities so as to comply with all laws, rules and regulations, judgments,
decrees or orders of any court, administrative agency, commission, self
regulatory organization, regulatory authority or other governmental authority
or instrumentality, domestic or foreign, applicable to its operations except as
in each case would not in the aggregate have a Material Adverse Effect on the
Seller. There are no judgments or orders, injunctions, decrees, stipulations
or awards (whether rendered by a court or administrative agency or by
arbitration), including any such actions relating to affirmative action claims
or claims of discrimination, against the Seller or its Subsidiaries or against
any of their properties or businesses. Except as set forth in Section 3.7 of
the Seller Disclosure Schedule, without limiting the generality of the
foregoing, the Seller has no liability arising out of the termination of any
employee or any employee benefit plan, other than such liabilities as are fully
disclosed in the Financial Statements and for which the Seller has made
adequate reserves.

          (b) The Seller and its Subsidiaries hold all authorizations, consents,
approvals, franchises, licenses and permits required under applicable law or
regulation for the operation of the business of the Seller and its Subsidiaries
as presently operated (the “Governmental Authorizations”), other than such
Governmental Authorizations the loss or absence of which would not have a
Material Adverse Effect on the Seller (“Material Governmental Authorizations”).
The Seller and its Subsidiaries are in material compliance with the terms of
all the Material Governmental Authorizations. The Seller and its Subsidiaries
have not engaged in any activity that would be reasonably expected to cause
revocation or suspension of any Material Governmental Authorizations. The
Seller and its Subsidiaries have no knowledge of any facts which would
reasonably be expected to cause them to believe that the Material Governmental
Authorizations will not be renewed by the appropriate governmental authorities
in the ordinary course. Neither the execution, delivery nor performance of
this Agreement by the Seller will adversely affect in a material respect the
status of any of the Material Governmental Authorizations.

     3.8 No Defaults. The Seller and its Subsidiaries are not, nor will they
be solely as a result of the passage of time, giving of notice, or both, (i) in
violation of any provision of their Charter and Bylaws (ii) in default or
violation of any term, condition or provision of (A) any judgment, decree,
order, injunction or stipulation applicable to the Seller or its Subsidiaries
or (B) any agreement, note, mortgage, indenture, contract, lease or instrument,
permit, concession, franchise or license to which the Seller or its
Subsidiaries are a party or by which the Seller or its Subsidiaries or their
properties or assets

6

 

may be bound, except, in the case of (A) or (B) as would not have a
Material 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 knowledge
of the Seller, threatened against the Seller and any of its Subsidiaries which,
would, individually or in the aggregate, have a Material Adverse Effect on the
Seller. There is no action, suit, proceeding, judgment, claim or investigation
of which the Seller has received notice pending or, to the knowledge of the
Seller, threatened, which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay any of the transactions contemplated hereby. There
are no claims or complaints existing or, to the knowledge of the Seller or its
Subsidiaries, threatened for product liability in respect of any product of the
Seller or its Subsidiaries, and the Seller and its Subsidiaries are not aware
of any basis for the assertion of any such claim.

     3.10 Absence of Certain Changes. Except as set forth in the Recent
Reports (including matters covered by the agreements disclosed in the Recent
Reports) 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 a
Material 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 on
the Seller and its Subsidiaries;

          (d) Any

          (i) incurrence, assumption or guarantee by the Seller or its
Subsidiaries of any debt for borrowed money (other than for equipment
leases or working capital lines of credit);

          (ii) issuance or sale of any securities convertible into or
exchangeable for securities of the Seller (other than to directors,
employees and consultants pursuant to existing equity compensation or
stock purchase plans of the Seller in accordance with past business
practices);

          (iii) issuance or sale of options or other rights to acquire from the
Seller or its Subsidiaries, directly or indirectly, securities of the
Seller or any securities convertible into or exchangeable for any such
securities, other than options issued to directors, employees and
consultants in the ordinary course of business pursuant to existing equity
compensation or stock purchase plans of the Seller in accordance with past
practices;

          (iv) issuance or sale of any stock, bond or other corporate security
(other than to directors, or employees pursuant to existing equity
compensation or stock purchase plans of the Seller in accordance with past
business practices);

          (v) declaration or making any dividend, payment or other distribution
to shareholders or purchase or redemption of any share of its capital
stock or other security;

7

 

          (vi) cancellation of any debt or claim except in the ordinary course
of business in accordance with past practices;

          (vii) waiver of any right of substantial value whether or not in the
ordinary course of business;

          (viii) material change in officer compensation; or

          (ix) other commitment (contingent or otherwise) to do any of the
foregoing.

          (e) Any creation, sufferance or assumption by the Seller or any of its
Subsidiaries of any Lien on any asset or any making of any loan, advance or
capital contribution to or investment in any Person in an aggregate amount
which exceeds $10,000 outstanding at any time;

          (f) Any entry into, amendment of, relinquishment, termination or
non-renewal by the Seller or its Subsidiaries of any Material Contract or any
material license, transaction, commitment or other right or obligation, other
than in the ordinary course of business;

          (g) The adoption or implementation of any plan of liquidation of the
Seller or any Subsidiary; or

          (h) Any transfer or grant of a right with respect to the patents, patent
applications, patent licenses, trademarks, trade names, service marks, trade
secrets, copyrights or other intellectual property rights owned or licensed by
the Seller or its Subsidiaries, except as among the Seller and its
Subsidiaries.

     3.11 No Undisclosed Liabilities. The Seller and its Subsidiaries do not
have 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 financial
statements, including but not limited to off-balance sheet financings,
guarantees and similar transactions (“Liabilities”) which are not reflected to
the extent required by GAAP in the December 31, 2003 balance sheet of the
Seller (or the notes thereto) contained in the 2003 10-K, except for (i)
Liabilities incurred since December 31, 2003 in connection with the Seller’s
ongoing activities and the wind down of its business which either have been
satisfied 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 Purchaser
as a result of this Agreement) as set forth in Section 3.11 of the Seller
Disclosure Schedule, and (iii) Liabilities incurred in connection with the
matters described in the Recent Reports or the Proxy Statement. The Seller has
not guaranteed the debt or other obligations of any unaffiliated person or
entity 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 Disclosure
Schedule: (i) all tax returns and tax reports required to be filed with
respect to the income, operations, business or assets of the Seller and its
Subsidiaries have been filed (or appropriate extensions have been obtained)
with the appropriate governmental agencies in all jurisdictions in which such
returns and reports are required to be filed, and all of the foregoing as filed
are correct and complete in all material respects and, in all material
respects, reflect accurately all liability for taxes of the Seller and its
Subsidiaries for the periods to which such returns relate, and all amounts
shown as owing thereon have been paid; (ii) all income, profits, franchise,
sales, use, value added, occupancy, property, excise, payroll, withholding,
FICA,

8

 

FUTA and other taxes (including interest and penalties), if any,
collectible or payable by the Seller and its Subsidiaries or relating to or
chargeable against any of its material assets, revenues or income or relating
to any employee, independent contractor, creditor, stockholder or, other third
party through the Closing Date, were fully collected and paid by such date if
due by such date or provided for by reserves in the Financial Statements to the
extent required by GAAP as of and for the periods ended December 31, 2003 and
all similar items due through the Closing Date will have been fully paid by
that date or provided for by reserves to the extent required for GAAP, whether
or 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 or
any of its Subsidiaries for the purpose of verifying or disputing any tax
returns, reports or related information and disclosures provided to such
taxation authority, or for the Seller’s or any of its Subsidiaries’ alleged
failure to provide any such tax returns, reports or related information and
disclosure; (iv) to the knowledge of the Seller and its Subsidiaries, no
material claims or deficiencies have been asserted against or inquiries raised
with the Seller or any of its Subsidiaries with respect to any taxes or other
governmental charges or levies which have not been paid or otherwise satisfied,
including claims that, or inquiries whether, the Seller or any of its
Subsidiaries has not filed a tax return that it was required to file, and to
the knowledge of the Seller there exists no reasonable basis for the making of
any such claims or inquiries; and (v) neither the Seller nor any of its
Subsidiaries has waived any restrictions on assessment or collection of taxes
or consented to the extension of any statute of limitations relating to
taxation. Neither the Seller nor any of its Subsidiaries is a party to any tax
sharing or indemnification agreement, and none of them is liable for the taxes
of 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 is
registered pursuant to Section 12(g) of the Exchange Act. No order prohibiting
the issuance and/or sale of the Note is in effect and no proceedings for such
purpose are pending or threatened.

     3.14 Restrictions on Business Activities. Other than as set forth in
Section 3.14 of the Seller Disclosure Schedule and the agreements relating to
transactions set forth in the Recent Reports or as would not have a Material
Adverse Effect on Seller, there is no agreement, judgment, injunction, order or
decree binding upon the Seller or its Subsidiaries which has or would
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Seller or its Subsidiaries, any
acquisition of property by the Seller or its Subsidiaries or the conduct of
business by the Seller or its Subsidiaries as currently conducted.

     3.15 No Preemptive Rights. Other than pursuant to the Registration Rights
Agreement and as provided in the Note, no Person possesses any preemptive
rights, registration rights or anti-dilution rights (other than customary
adjustments for stock splits, stock dividends and the like provided for in the
Seller’s stock option plans or agreements), in respect of the Note or in
respect of the issuance of any Common Stock.

     3.16 Application of Takeover Protection. The Seller’s board of directors
has taken all necessary action in order to render inapplicable, and has
rendered inapplicable, any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other
similar anti- takeover provisions under the Charter and By-laws, the laws of
the state of its incorporation or any rights plan or similar arrangement which
would otherwise become applicable as a result of the transactions contemplated
by this Agreement, including, without limitation, the Seller’s issuance of the
Note and the Purchaser’s ownership thereof.

     3.17 Subsidiaries and Investments. Except as set forth in the Recent
Reports or in Section 3.17 of the Seller Disclosure Schedule, the Seller has no
Subsidiaries or Investments. For purposes of

9

 

this Agreement, the term “Investments” shall mean, with respect to any
Person, all advances, loans or extensions of credit to any other Person, all
purchases or commitments to purchase any stock, bonds, notes, debentures or
other securities of any other Person, and any other investment in any other
Person, including partnerships or joint ventures (whether by capital
contribution or otherwise) or other similar arrangement (whether written or
oral) 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 right
to obligate or bind the Person to any third party, or (iii) the Person may be
wholly 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 consists
of 100,000,000 shares of common stock, $0.0001 par value per share (“Common
Stock”), of which 28,283,347 shares are issued and outstanding as of the date
hereof, and 5,000,000 shares of preferred stock, issuable in one or more
classes or series, with such relative rights and preferences as the Board of
Directors may determine, of which 1,500,000 shares have been designated as
Series A Junior Participating Preferred Stock. No shares of preferred stock
have been issued. All shares of the Seller’s issued and outstanding capital
stock have been duly authorized, are validly issued and outstanding, and are
fully paid and nonassessable. There are no dividends which have accrued or
been declared but are unpaid on the capital stock of the Seller. All taxes
required to be paid by the Seller in connection with the issuance and any
transfers of the Seller’s capital stock have been paid. All securities of the
Seller have been issued in compliance in all material respects with the
provisions of all applicable securities or other laws.

     3.19 Options, Warrants, Rights. Except as set forth in Section 3.18, the
Recent Reports or Section 3.19 of the Seller Disclosure Schedule, and except
for the Note, there are no outstanding (a) securities, notes or instruments
convertible into or exercisable for any of the capital stock or other equity
interests of the Seller or its Subsidiaries; (b) options, warrants,
subscriptions or other rights to acquire capital stock or other equity
interests of the Seller or its Subsidiaries; or (c) commitments, agreements or
understandings of any kind, including employee benefit arrangements, relating
to the issuance or repurchase by the Seller or its Subsidiaries of any capital
stock or other equity interests of the Seller or its Subsidiaries, any such
securities or instruments convertible into or exercisable for securities or any
such options, warrants or rights. Neither the Seller nor any Subsidiary has
granted anti-dilution rights to any person or entity in connection with any
option, warrant, subscription or any other instrument convertible into or
exercisable for the securities of the Seller or any of its Subsidiaries. Other
than the rights granted to the Purchaser under the Registration Rights
Agreement, there are no outstanding rights which permit the holder thereof to
cause the Seller or the Subsidiaries to file a registration statement under the
Securities Act or which permit the holder thereof to include securities of the
Seller or any of its Subsidiaries in a registration statement filed by the
Seller or any of its Subsidiaries under the Securities Act, and there are no
outstanding agreements or other commitments which otherwise relate to the
registration of any securities of the Seller or any of its Subsidiaries for
sale 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 Seller
Disclosure Schedule, there are no employment, consulting, severance or
indemnification arrangements, agreements, or understandings in effect as of the
date hereof between the Seller or its Subsidiaries and any officer, director,
consultant or employee of the Seller or its Subsidiaries (the “Employment
Agreements”). Except as disclosed in the Recent Reports, no Employment
Agreement provides for the acceleration or change in the award, grant or
vesting of options, warrants, rights, severance payments, or other contingent
obligations of any nature whatsoever of the Seller or its Subsidiaries in favor
of any such parties in connection with the

10

 

transactions contemplated by this Agreement. Except as disclosed in the
Recent Reports or in Section 3.20(a) of the Seller Disclosure Schedule, the
terms of employment or engagement of all directors, officers, employees,
agents, consultants and professional advisors of the Seller and its
Subsidiaries are such that their employment or engagement may be terminated
upon not more than two weeks’ notice given at any time without liability for
payment of compensation or damages and the Seller and its Subsidiaries have not
entered into any agreement or arrangement for the management of their business
or any part thereof other than with their directors or employees.

          (b) Except as set forth in Section 3.20(b) of the Seller Disclosure
Schedule or Recent Reports, the Seller and its Subsidiaries have no pension,
retirement, stock purchase, stock bonus, stock ownership, stock option, profit
sharing, savings, medical, disability, hospitalization, insurance, deferred
compensation, bonus, incentive, welfare or any other employee benefit plan,
agreement, commitment or arrangement currently maintained or contributed to by
the Seller or its Subsidiaries for any of its directors, officers, consultants,
employees or former employees (the “Seller Plans”). The Seller has previously
made available to Purchaser, to the extent applicable, (i) a true and complete
copy of all of the Seller Plans (or, if oral, a true and complete written
summary thereof); (ii) a current summary plan description (plus summaries of
any subsequent modifications thereto) for each Seller Plan; (iii) the latest
IRS determination letter obtained with respect to any Seller Plan qualified
under 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 set
forth in Section 3.20(b) of the Seller Disclosure Schedule, none of the Seller
Plans is subject to the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), and, except as set forth in Section 3.20(b) of the Seller
Disclosure Schedule, neither the Seller nor any of its Subsidiaries has
established, maintained, made or been required to make any contributions to, or
terminated, and has no liability with respect to, any “employee benefit plan”
within the meaning of ERISA. The Seller and its Subsidiaries do not have any
liability to the Pension Benefit Guaranty Corporation (the “PBGC”), and no
facts or circumstances exist which might give rise to any liability of the
Seller or its Subsidiaries to the PBGC or which could reasonably be anticipated
to result in any claims being made against the Purchaser, the Seller or their
Subsidiaries by the PBGC. The Seller and its Subsidiaries have paid all
amounts required under applicable law and any Seller Plan to be paid as a
contribution to any Seller Plan through the date hereof. The Seller has set
aside adequate reserves to meet contributions which are not yet due under any
Seller Plan. Neither the Seller, its Subsidiaries nor, to the Seller’s
knowledge, any other Person has engaged in any transaction with respect to any
Seller Plan which would subject the Seller to any tax, penalty or liability for
prohibited transactions with respect to a Seller Plan. To the Seller’s
knowledge, 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, has
breached any of his/her responsibilities or obligations imposed upon
fiduciaries or which could result in any claim being made under, by or on
behalf of any Seller Plan. No Seller Plan provides post-employment medical,
health, or life insurance benefits for present or future retirees or present or
future terminated employees, except for continuation coverage provided pursuant
to the requirements of Section 4980B of the Code or Sections 601-608 of ERISA
or a similar state law.

          (c) No material labor dispute with employees of the Seller exists or, to
the best knowledge of the Seller is imminent.

     3.21 Absence of Certain Business Practices. Neither the Seller, nor to
the Seller’s knowledge (i) any Affiliate of the Seller (including, but not
limited 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) any
individual 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

11

 

economic benefits, regardless of their nature or type, from any customer,
supplier, trading company, shipping company, governmental employee or other
Person with whom the Seller or its Subsidiaries has done business directly or
indirectly; or (b) directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, trading company, shipping company,
governmental employee or other Person who is or may be in a position to help or
hinder the business of the Seller or its Subsidiaries (or assist the Seller or
its 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 the
Seller’s board of directors contemplated by Section 6.1(c) will not give rise
to a right of termination, cancellation, severance or similar payments, or
acceleration or loss of any benefit under any Material Contract or under any
material license, franchise, permit or other similar authorization held by the
Seller or any of its Subsidiaries or under any agreement or arrangement between
the Seller or any of its Subsidiaries and their directors, officers, employees
or consultants.

     3.23 Environmental Matters. None of the premises or any other property
owned, 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 has
been designated to be a “hazardous substance” under Environmental Laws
(“Hazardous Substances”) other than substances customarily used in the Seller’s
or its Subsidiaries’ businesses and in accordance with applications laws and
regulations. The Seller and its Subsidiaries have not disposed of, discharged,
emitted or released any Hazardous Substances which would require, under
applicable Environmental Laws, remediation, investigation or similar response
activity. No Hazardous Substances are present as a result of the actions of
the 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 rise
to any liability or clean-up obligations of the Seller or its Subsidiaries
under applicable Environmental Laws. The Seller and its Subsidiaries and, to
the Seller’s and its Subsidiaries’ knowledge, any other Person for whose
conduct it may be responsible, are in material compliance with all laws,
regulations and other federal, state or local governmental requirements, and
all applicable judgments, orders, writs, notices, decrees, permits, licenses,
approvals, consents or injunctions in effect on the Closing Date relating to
the generation, management, handling, transportation, treatment, disposal,
storage, delivery, discharge, release or emission of any waste, pollutant or
toxic or hazardous substance (including, without limitation, asbestos,
radioactive material and pesticides) or to any other actions, omissions or
conditions affecting the environment (the “Environmental Laws”). Neither the
Seller nor its Subsidiaries nor, to the Seller’s or its Subsidiaries’
knowledge, any other Person for whose conduct it may be responsible has
received any complaint, notice, order, or citation of any actual, threatened or
alleged noncompliance with any of the Environmental Laws, and there is no
proceeding, suit or investigation pending or, to the Seller’s or its
Subsidiaries knowledge, threatened against the Seller or its Subsidiaries or
any such Person with respect to any violation or alleged violation of the
Environmental Laws, and, to the Seller’s knowledge, there is no basis for the
institution of any such proceeding, suit or investigation.

     3.24 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement, based upon any arrangement,
contract or agreement of the Seller or any of its Affiliates, except as
provided in Section 8.2.

     3.25 Material Contracts. Each of the Seller’s and its Subsidiaries’
material contracts, agreements, notes, mortgages, indentures, leases and other
binding instruments and commitments which

12

 

(x) are filed as exhibits to the 2003 10-K or (y) which have been executed
after December 31, 2003 and would have been required to be filed as exhibits
to 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 the
date hereof, and none of the Seller, its Subsidiaries nor, to the Seller’s or
any Subsidiary’s knowledge, any other party to such Material Contracts is in
breach of or default under any of such Material Contracts. Section 3.25 of
Seller’s Disclosure Schedule lists any Material Contract not listed as an
exhibit to the 2003 10-K.

     3.26 Investment Company Status. Neither the Seller nor any of its
Subsidiaries is, nor immediately upon the Closing will be, an “investment
company”, as such term is defined in the Investment Company Act of 1940, as
amended.

     3.27 No Ownership Change. The Seller has not issued or redeemed any stock
within the past 36 months which issuance or redemption was not publicly
disclosed and which, to its knowledge, caused the Seller to experience an
“ownership change” within the meaning of Section 382 of the Internal Revenue
Code, as amended, immediately following and as a result of such issuance.
Notwithstanding any other term or provision of this Agreement, Seller makes no
other representation or warranty as to whether it has experienced such an
ownership change, and makes no representation or warranty as to the existence
or amount of any federal or state net operating loss or net operating loss
carryforwards.

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, validly
existing and in good standing under the laws of the State of Delaware. The
Purchaser has all powers required to carry on the Purchaser’s business as now
conducted.

     4.2 Authorization. The execution, delivery and performance by the
Purchaser of this Agreement, the Related Documents to which the Purchaser is a
party, and the consummation by the Purchaser of the transactions contemplated
hereby and thereby have been duly authorized by the Purchaser, and no
additional action is required for the approval by the Purchaser of this
Agreement or the Related Documents to which the Purchaser is a party. This
Agreement and the Related Documents to which the Purchaser is a party have been
or, to the extent contemplated hereby, will be duly executed and delivered and
constitute valid and binding agreements of the Purchaser, enforceable against
the Purchaser in accordance with their terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting the enforcement of rights of creditors and
except that enforceability of their obligations thereunder are subject to
general principles of equity.

     4.3 Investment. The Purchaser is acquiring the Note for its own account
for investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with the intention of distributing or reselling the
same, provided, however, that by making the representation herein, the
Purchaser does not agree to hold any of the securities for any minimum or other
specific term and, subject to Section 1.2(a), reserves the right to dispose of
the Note at any time in accordance with or pursuant to a registration statement
or an exemption under the Securities Act. The Purchaser is aware that neither
the Note nor the shares of Common Stock into which the Note is convertible (the
“Conversion Shares”) have been registered under the Securities Act or under
applicable state securities

13

 

or blue sky laws. The Purchaser is an “Accredited Investor” as such term
is defined in Rule 501 of Regulation D, as promulgated under the Securities
Act.

     4.4 Noncontravention. Neither the execution, the delivery and performance
by the Purchaser of this Agreement, nor the consummation by the Purchaser of
the transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Purchaser
is subject or any provision of its charter or bylaws.

     4.5 No Registration. The Purchaser understands that the Note is being
offered and sold to the Purchaser, and upon conversion of the Note the
Conversion Shares will be issued, in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Seller is relying upon the truth and accuracy of, and the
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Note.

     4.6 Business or Financial Expertise. Purchaser has, by reason of
Purchaser’s business or financial expertise or the business or financial
experience of its professional advisors who are unaffiliated with and who are
not, to the Purchaser’s knowledge, compensated by the Seller or any affiliate
or selling agent of the Seller, directly or indirectly, the capacity to protect
its own interests in connection with its acquisition of the Note and any
Conversion Shares.

     4.7 Brokers’ Fees. Purchaser has no liability or obligation to pay any
fees or commissions to any broker, finder, or other agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable 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 obligated
to file reports with the Commission under Section 13 or 15(d) under the
Exchange Act, the Seller shall furnish to the Purchaser promptly upon their
becoming available (but not later than 45 days after the end of the relevant
period), quarterly financial statements reviewed by an independent auditor, and
annual financial statements audited by an independent auditor, not later than
90 days after the end of the relevant year, together with such certifications
of the chief executive officer and chief financial officer as the Purchaser may
reasonably require.

     5.2 Reservation of Shares. So long as any principal amount of the Note is
outstanding, the Seller shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, such number of shares of
Common Stock as shall be sufficient to enable the Seller to issue the
Conversion Shares.

     5.3 Listing of Securities. Promptly after the Seller has completed its
transfer from the Nasdaq National Market to the Nasdaq SmallCap Market, the
Seller shall prepare and file a Notification Form for Listing of Additional
Shares to effect the listing on the Nasdaq SmallCap Market of the Conversion
Shares. Following the Seller’s transfer from the Nasdaq National Market to the
Nasdaq SmallCap Market, the Seller shall use its reasonable best efforts to
cause the Seller to maintain the listing of the Common Stock, including the
Conversion Shares, on the Nasdaq SmallCap Market.

14

 

     5.4 Registration Rights Agreement. The Seller shall carry out and observe
all the terms of the Registration Rights Agreement executed simultaneously with
the execution of this Agreement covering the Conversion Shares.

     5.5 Investigation. The representations, warranties, covenants and
agreements set forth in this Agreement shall not be affected or diminished in
any way by any investigation (or failure to investigate) at any time by or on
behalf of the party for whose benefit such representations, warranties,
covenants and agreements were made. Without limiting the generality of the
foregoing, the inability or failure of the Purchaser to discover any breach,
default or misrepresentation by the Seller under this Agreement or the Related
Documents (including under any certificate furnished pursuant to this
Agreement) shall not in any way diminish any liability hereunder.

     5.6 Certain Business Combinations. Neither the Purchaser nor any of its
Affiliates shall, at any time prior to the fifth anniversary of the Closing
Date, directly or indirectly, propose, publicly disclose any intention to
propose, vote for or otherwise act to consummate any Rule 13e-3 transaction (as
defined in Rule 13e-3 under the Exchange Act) unless such transaction has been
approved by a majority of the Seller’s Independent Directors. For purposes of
this Agreement, an “Independent Director” shall have the meaning given such
term in the rules and regulations of the national securities exchange on which
the Common Stock is listed at the time of such approval, or, if the Common
Stock is not so listed on a national securities exchange at such time, the
meaning given the term in the rules and regulations of the NASDAQ National
Market.

ARTICLE VI

CONDITIONS TO THE CLOSING

     6.1 Conditions to Obligations of the Purchaser. The obligation of the
Purchaser to purchase the Note at the Closing is subject to the fulfillment or
satisfaction, on and as of the Closing Date, except as otherwise expressly
indicated 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 sole
discretion, but only in a writing signed by the Purchaser):

          (a) Opinion. The Purchaser shall have received the opinion of Seller’s
Counsel, described in Section 2.2(a)(3).

          (b) Board Approval. The Board of Directors of the Seller shall have
approved the sale of the Note to the Purchaser in accordance with this
Agreement and shall have adopted such resolutions as will satisfy the
requirements 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 Board
from three to four members, (ii) one current Board member, to be identified by
the Seller, and subject to approval by Buyer, shall have resigned, and (iii)
the remaining Board members shall have nominated and appointed as new directors
to the Board effective as of the Closing two persons designated by Buyer.

          (d) Officers’ Certificate. The Purchaser shall have received the
Certificate(s) described in paragraph 4 and 5 of Section 2.2(a).

          (e) Convertible Promissory Note. The Seller shall have executed and
delivered the Note.

15

 

          (f) Registration Rights Agreement. The Seller shall have executed and
delivered the Registration Rights Agreement.

          (g) No Injunction. No order or decree of any court, arbitration panel or
governmental authority or official, and no statute, rule or regulation of any
foreign or domestic, national or local government or agency thereof shall have
been enacted, and no judicial or administrative decision shall have been
rendered which enjoins or prohibits, or seeks to enjoin or prohibit, the
consummation of all or any of the transactions contemplated by this Agreement.

     6.2 Conditions to Obligations of the Seller. The obligations of the
Seller hereunder to issue and sell the Note at the Closing are subject to the
fulfillment or satisfaction, on and as of the Closing Date, of the following
condition (which may be waived by the Seller, in its sole discretion, but only
in a writing signed by the Seller): The Purchaser shall have performed and
complied in all respects with all agreements and conditions contained in this
Agreement which are required to be performed or complied with by the Purchaser
prior to or at the Closing.

ARTICLE VII

INDEMNIFICATION

     7.1 Survival of Representations. Except as otherwise provided herein, the
representations and warranties of the Seller and the Purchaser contained in or
made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing Date and shall continue in full force and effect
for a period of 12 months after the Closing Date and shall in no way be
affected by any investigation of the subject matter thereof made by or on
behalf of the Seller or the Purchaser.

     7.2 Indemnification. (a) The Seller agrees to indemnify and hold
harmless the Purchaser, its Affiliates, and each of their officers, directors,
employees and agents and their respective successors and assigns, from and
against any losses, damages, or expenses (net of any related insurance
proceeds) 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) any
breach or default in the performance by the Seller of any covenant or agreement
made 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 this
Agreement or in any of the Related Documents; provided however, that (x) the
Seller shall have no liability for any Claims until the aggregate amount of
such claims exceeds $175,000, whereupon all Claims shall be indemnified from
the first dollar, and (y) the Seller’s maximum liability under this Section
7.2(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 for
which the limitation on the Seller’s liability under this Section 7.2(a) shall
be the Purchase Price.

          (b) The Purchaser agrees to indemnify and hold harmless the Seller, its
Affiliates, each of their officers, directors, employees and agents and their
respective successors and assigns, from and against any Claims (net of any
related insurance proceeds) which are caused by or arise out of (i) any breach
or default in the performance by it of any covenant or agreement made by it in
this Agreement or in any of the Related Documents; (ii) any breach of warranty
or representation made by it in this Agreement or in any of the Related
Documents; provided, however, that (x) the Purchaser shall have no liability
for any Claims until the aggregate amount of such claims exceeds $175,000,
whereupon all Claims shall be indemnified from the first dollar, and (y) the
Purchaser’s maximum liability under this Section 7.2(b) shall not exceed the
Purchase Price. Any indemnification Claims of

16

 

the Seller against the Purchaser pursuant to this Section 7.2(b) while the Note
is outstanding shall be satisfied by reducing the Principal Sum (as defined in
the Note) by the aggregate amount for which the Purchaser is determined to be
liable under this Section 7.2(b) and Section 7.3, provided that Purchaser shall
be 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 the
Principal 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 by
either party of any covenant or agreement made in this Agreement or in any of
the Related Documents and for any breach of warranty or representation made by
the parties in this Agreement or in any of the Related Documents, but shall not
be the parties’ sole and exclusive remedy for fraud.

     7.3 Indemnity Procedure. The party or parties responsible to indemnify
pursuant to Section 7.2 of this Agreement is referred to herein as the
“Indemnifying Party” and the other party or parties claiming indemnity is
referred to as the “Indemnified Party”.

     An Indemnified Party under this Agreement shall, with respect to claims
asserted against such party by any third party, give written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within sixty (60) business days of the receipt
of 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 with
respect to other matters for which the Indemnified Party may seek
indemnification, give prompt written notice to the Indemnifying Party of any
liability which might give rise to a claim for indemnity; provided, however,
that any failure to give such notice will not waive any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
materially prejudiced.

     The Indemnified Party shall have the right to conduct and control, through
counsel of its choosing, the defense, compromise or settlement of any third
Person claim, action or suit against such Indemnified Party as to which
indemnification will be sought by any Indemnified Party from any Indemnifying
Party hereunder, and in any such case the Indemnifying Party shall cooperate in
connection therewith and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested by the Indemnified Party in connection
therewith; provided, that the Indemnifying Party may participate, through
counsel 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 and
control the defense thereof; and provided, further, that the Indemnified Party
shall not, without the written consent of the Indemnifying Party (which written
consent shall not be unreasonably withheld), pay, compromise or settle any such
claim, action or suit, except that no such consent shall be required if,
following a written request from the Indemnified Party, the Indemnifying Party
shall fail, within 14 days after the making of such request, to acknowledge and
agree in writing that, if such claim, action or suit shall be adversely
determined, such Indemnifying Party has an obligation to provide
indemnification hereunder to such Indemnified Party. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit without such consent, provided, that
in such event the Indemnified Party shall waive any right to indemnity therefor
hereunder unless such consent is unreasonably withheld.

     The parties agree to cooperate in defending such third party claims and
the Indemnified Party shall provide such cooperation and such access to its
books, records and properties as the Indemnifying Party shall reasonably
request with respect to any matter for which indemnification is sought
hereunder; and the parties hereto agree to cooperate with each other in order
to ensure the proper and adequate defense thereof.

17

 

     With regard to claims of third parties for which indemnification is
payable hereunder, such indemnification shall be paid by the Indemnifying Party
upon the earlier to occur of: (i) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if
earlier, five (5) days prior to the date that the judgment creditor has the
right to execute the judgment; (ii) the entry of an unappealable judgment or
final appellate decision against the Indemnified Party; or (iii) a settlement
of the claim. Notwithstanding the foregoing, the reasonable expenses of
counsel to the Indemnified Party shall be reimbursed on a current basis by the
Indemnifying Party if such expenses are required to be paid pursuant to this
Agreement. With regard to other claims for which indemnification is payable
hereunder, such indemnification shall be paid promptly by the Indemnifying
Party upon demand by the Indemnified Party.

     7.4 Independent Director(s) Requirement. In connection with any claim by
the Purchaser for indemnification, no material decision of the Seller, and no
payment of any indemnification amount to Purchaser, shall be made without the
prior written consent or approval of a majority of the Seller’s Independent
Directors.

ARTICLE VIII

MISCELLANEOUS

     8.1 Further Assurances. After the Closing, each party agrees to cooperate
fully with the other party and to execute such further instruments, documents
and agreements and to give such further written assurances as may be reasonably
requested by the other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement, including taking all actions, and promptly
doing, or causing to be done, all things necessary, proper or advisable under
applicable law to make effective the transactions contemplated hereby, for the
purpose of securing to the parties hereto the benefits contemplated by this
Agreement.

     8.2 Fees and Expenses. The Seller shall pay or reimburse fifty percent of
all reasonable and documented out of pocket expenses incurred by the Purchaser
and Kanders & Company, Inc. since April 9, 2004 through the Closing Date in
connection with the consummation of the transaction contemplated by this
Agreement, including, but not limited to, the review, analysis and due
diligence examination of the Seller, travel expenses, banking fees and
expenses, 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 for
such reimbursement payment of $125,000. Such expenses reimbursement may, upon
the written direction of the Seller, be paid out of the funds due from the
Purchaser at the Closing.

     8.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a business
day, (b) the next business day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified
in 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 the
date of mailing, if sent by U.S. nationally recognized overnight courier
service such as Federal Express. The address for such notices and
communications shall be as follows:

18

 

	 	 	 
	If to the Purchaser, to:

	 	If to the Seller, to:
	Olden Acquisition LLC

	 	Net Perceptions, Inc.
	1 Pickwick Plaza

	 	7700 France Avenue South
	Greenwich, Connecticut 06830

	 	Edina, Minnesota 55435
	Att’n: Mr. Warren B. Kanders

	 	Att’n: President
	Fax: 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 LLP
	1350 Avenue of the Americas - 26th Floor

	 	One Beacon Street
	New York, New York 10019

	 	31st Floor
	Att’n: Robert L. Lawrence, Esq.

	 	Boston, MA 02108
	Fax No.: (212) 245-3009

	 	Att’n: Kent A. Coit
	

	 	Fax: 617-573-4822

Unless otherwise stated above, such communications shall be effective when they
are received by the addressee thereof in conformity with this Section. Any
party may change its address for such communications by giving notice thereof
to 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 and
enforced in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law thereof that would require the
application of any other law.

     8.5 Jurisdiction and Venue. This Agreement shall be subject to the
exclusive jurisdiction of the Federal and State Courts located in New York
County, New York. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the State of New York by virtue of a failure to perform an act required to be
performed in the State of New York and irrevocably and expressly agree to
submit to the jurisdiction of the Federal District Court, Southern District of
New York and if such court does not have proper jurisdiction, the State Courts
of New York County, New York for the purpose of resolving any disputes among
the parties relating to this Agreement or the transactions contemplated hereby.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in New York County, New
York, and further irrevocably waive any claim that any suit, action or
proceeding brought in Federal or State Courts located in New York County, New
York has been brought in an inconvenient forum.

     8.6 Successors and Assigns. This Agreement is personal to each of the
parties and may not be assigned without the written consent of the other
parties; provided, however, that the Purchaser shall be permitted to assign its
rights under this Agreement to any permitted transferee of the Purchaser to
whom it assigns or transfers the Note, to the extent provided in Section 1.2
hereof.

     8.7 Severability. If any provision of this Agreement, or the application
thereof, shall for any reason or to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall continue in full force and effect and in no way be
affected, impaired or invalidated.

19

 

     8.8 Entire Agreement. This Agreement and the other agreements and
instruments referenced herein constitute the entire understanding and agreement
of the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings.

     8.9 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the Seller and Purchaser; provided
that any such writing by Seller may be signed by Seller only if such writing
has been approved by a majority of Seller’s Independent Directors. The waiver
by a party of any breach hereof or default in the performance hereof shall not
be deemed to constitute a waiver of any other default or any succeeding breach
or default.

     8.10 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.

     8.11 Construction of Agreement; Knowledge. For purposes of this
Agreement, the term “knowledge,” when used in reference to a corporation means
the knowledge of the executive officers of such corporation assuming such
officers shall have made inquiry that is customary and appropriate under the
circumstances to which reference is made, and when used in reference to an
individual means the knowledge of such individual assuming the individual shall
have made inquiry that is customary and appropriate under the circumstances to
which reference is made.

     8.12 Counterparts; Facsimile. This Agreement may be executed in
counterparts, each of which shall be an original and which together shall
constitute one and the same instrument. This Agreement shall become binding
when counterparts hereof, individually or taken together, shall bear the
signatures of the parties reflected hereon as signatories. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile signature page were an original thereof.

     8.13 No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights 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:]

20

 

     In Witness Whereof, the parties hereto have executed this Convertible Note
Purchase Agreement as of the date first above written.

	 	 	 
	Olden Acquisition LLC, a Delaware

limited liability company

	 	Net Perceptions, Inc., a Delaware
corporation

	 	 	 	 	 	 	 
	By:

	 	/s/ Warren Kanders
	 	By:
	 	/s/ Thomas Donnelly
	

	 	
 
	 	 	 	
 
	

	 	Name: Warren Kanders
	 	 	 	Name: Thomas Donnelly
	

	 	Title: Manager
	 	 	 	Title: President and CFO

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