THIS CONVERTIBLE SUBORDINATED NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS CONVERTIBLE SUBORDINATED NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT. IN ADDITION, THIS CONVERTIBLE NOTE
IS NOT TRANSFERABLE OR ASSIGNABLE EXCEPT AS SPECIFIED IN THE CONVERTIBLE NOTE
PURCHASE AGREEMENT REFERRED TO HEREIN.
NET PERCEPTIONS, INC.
2% CONVERTIBLE SUBORDINATED NOTE DUE APRIL 21, ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ Issue Date: April 21, 2004
FOR VALUE RECEIVED, the undersigned, NET PERCEPTIONS, INC. (the
"Company"), a Delaware corporation, hereby promises to pay to OLDEN ACQUISITION
LLC, a Delaware limited liability company, or registered permitted assigns (the
"Holder"), the principal sum of Two Million Five-Hundred And Thirty-Two Thousand
Seven Hundred And Thirty-Five Dollars ($2,532,735) (the "Principal Sum") on
April 21, 2014 (the "Maturity Date," which term includes any accelerated due
date as hereinafter provided), with interest (computed on the basis of a 360-day
year of twelve 30-day months and compounded semi-annually) on the unpaid balance
of the Principal Sum from Issue Date at the interest rate of 2% per annum,
accruing semi-annually on the last day of June and December in each year,
commencing on June 30, 2004, which interest shall be payable, together with the
Principal Sum, in full on the Maturity Date, whether at the stated maturity as
aforesaid or by acceleration or otherwise. Notwithstanding the foregoing,
accrued but unpaid interest with respect to any portion of the Principal Sum
which is converted into Common Stock as provided in Section 4 hereof shall not
be paid and shall be cancelled as provided in such Section. In addition, the
Principal Sum shall be automatically reduced (x) by the amount of any
indemnification payment(s) made by the Company in respect of indemnification
Claims (as defined in Section 7.2(a) of the Purchase Agreement (as defined
below)) pursuant to Section 7.2(a) of the Purchase Agreement and/or (y) by the
aggregate amount for which the Purchaser is determined to be liable under
Section 7.2(b) and Section 7.3 of the Purchase Agreement for any indemnification
Claims made by the Company pursuant to Section 7.2(b) of the Purchase AGREEMENT.
1. Payments. Payments of principal and interest shall be made in lawful
money of the United States of America at the principal office of the Company in
Edina, Minnesota, or at such other place as the Company shall have designated
for such purpose to the Holder in writing and may be paid by check mailed, or
wire transfer as provided in the Purchase Agreement referred to below, to the
registered address designated by the Holder for such purpose.
2. Purchase Agreement. This Note is issued pursuant to a certain Note
Purchase Agreement (hereinafter called the "Purchase Agreement") dated as of the
Issue Date
between the Company and the Holder. This Note is subject to the provisions of,
and the Holder is entitled to the benefits of, the Purchase Agreement. The term
"Note" as used herein refers only to the notes issued pursuant to the Purchase
Agreement, including any note(s) issued upon conversion of less than all the
Principal Sum of this Note, note(s) issued in substitution for this Note as
provided in Section 1.1(c) of the Purchase Agreement and note(s) issued to any
lawful successor or permitted assignee of the Holder in accordance with the
Purchase Agreement. Capitalized terms used but not otherwise defined herein
shall have their respective meanings as set forth in the Purchase Agreement.
3. Transfer. This Note is transferable only as provided in Section 1.2
of the Purchase Agreement. Notwithstanding the foregoing, however, this Note is
registered with the Company as to both principal and interest, and any permitted
transfer of this Note may be effected only by surrender of this Note and either
reissuance by the Company of this Note or by issuance by the Company of a new
Note. The Company shall maintain a register for the registration and transfer of
this Note (the "Schedule"), containing the name and address of any holder(s) of
this Note.
4. Conversion.
(a) General. (i) On or after April 21, 2005, and prior to the Maturity
Date or, if sooner, the Call Date (as hereinafter defined), the Holder shall
have the right, at the option of the Holder, subject to the terms and provisions
of this Section 4, to convert all or any lesser portion of the Principal Sum of
the Note held by such Holder into the number of fully paid and nonassessable
shares of Common Stock as shall be equal to the aggregate Principal Sum of Notes
then being converted divided by the Conversion Price then in effect; provided,
however, that such right of conversion shall be exercisable by Holder at any
time on or after the date hereof if (i) there has been any call of the Notes by
the Company in accordance with Section 5 hereof, (ii) any person or entity
commences a tender offer within the meaning of Rule 14d-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended, for
percent (20%) or more of the Company's outstanding voting securities, which is
not recommended by the Company's Board of Directors or otherwise acquires twenty
percent (20%) or more of the outstanding Common Stock, (iii) if, in connection
with a meeting of stockholders, a proposal to be voted upon by the Company's
stockholders has been made in compliance with law or the Company's bylaws but
has not been approved by the Company's board of directors, or (iv) a person has
been nominated for election to the Company's board of directors in compliance
with law or the Company's bylaws and such nomination has not been approved by
the Company's board of directors. Such right of conversion shall be exercised by
the Holder's delivery of the Notes to the Company at the office of the Company
together with a notice signed by the Holder setting forth the amount of the
Principal Sum to be converted; provided, however, that the Holder shall exercise
its rights with respect to partial conversions as herein described in multiples
of Five Thousand and 00/100 ($5,000.00) Dollars of the Principal Sum of Notes;
provided, further, that the Company shall not be required to issue any
fractional shares in connection with any conversion pursuant to this Note. If
the Holder elects to convert less than the entire aggregate Principal Sum
outstanding of the Note, the Company shall, or shall direct its transfer agent
to, issue to the Holder certificates for the shares of Common Stock for which
such Note is being converted, in such denominations as are requested for
delivery to the Holder, and the Company shall, or shall direct its transfer
agent to, thereupon deliver such certificates to or in
2
accordance with the instructions of the Holder, and the Company shall issue to
the Holder a new Note, duly executed by the Company, in form and substance
identical to the Note surrendered by the Holder, for the balance of the
aggregate Principal Sum of Note that has not been so converted.
(ii) As of the date hereof, the Conversion Price is $0.45 per share of
Common Stock, which is the price determined by multiplying the average closing
selling price per share of Common Stock for the twenty (20) consecutive trading
days ending on the fifth trading day prior to the Issue Date by 1.1. The
Conversion Price shall be adjusted hereafter in accordance with the provisions
of paragraph (d) below.
(b) Delivery of Stock Certificates; Time Conversion Effective; No
Adjustment for Interest or Dividends. (i) As promptly as practicable after the
surrender (as herein provided) of a Note for conversion, the Company shall
deliver or cause to be delivered to or upon the written order of the holder of
the Note so surrendered, certificates representing the number of fully paid and
nonassessable shares of Common Stock into which the Note has been converted.
Subject to the further provisions of this paragraph (b), such conversion shall
be deemed to have been made at the close of business on the date that such Note
shall have been surrendered for conversion at the office of the Company as
provided in paragraph 4(a) (the "Conversion Date"), so that the rights of the
Holder as a holder of this Note, to the extent of the amount of the Principal
Sum so converted, shall cease at such time, and the person or persons entitled
to receive any of the shares of Common Stock upon conversion of the Notes shall
be treated for all purposes as having become the record holder or holders of
such shares of Common Stock at such time; provided, however, that no such
surrender on any date when the stock transfer books of the Company shall be
closed shall be effective to constitute the person or persons entitled to
receive shares of Common Stock upon such conversion as the record holder or
holders of such shares of Common Stock on such date, but such surrender shall be
effective to constitute the person or persons entitled to receive such shares of
Common Stock as the record holder or holders thereof for all purposes at the
close of business on the next succeeding day on which such stock transfer books
are open or the Company is required to convert Notes. The Company will, at the
time of such conversion, upon request of the Holder, acknowledge in writing its
continuing obligation to the Holder in respect of any rights (including, without
limitation, any right of registration of the shares of Common Stock issued upon
such conversion) to which such Holder shall continue to be entitled under this
Note and/or the Purchase Agreement after such conversion, provided, that the
failure of the Holder to make any such requests or the failure or refusal of the
Company to so acknowledge shall not affect the continuing obligation of the
Company to such Holder in respect of such rights.
(ii) If the day for the exercise of the conversion right shall not be a
business day, then such conversion right will automatically be deemed to be
effective on the next succeeding day which is a business day.
(iii) No adjustment or payment in respect of interest or cash dividends
shall be made upon conversion of any Note. All unpaid interest on any Note, to
the extent such Note is converted, which has accrued to and including the date
upon which such conversion is deemed to have been effected in accordance with
this Section 4.2, shall automatically be cancelled.
3
(iv) Each of the certificates representing shares of Common Stock
issued upon conversion of a Note shall be subject to stop transfer instructions
against the transfer of legended certificates representing such shares and shall
bear a legend substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be transferred or otherwise disposed of unless they
have been registered under such Act or pursuant to an
exemption from registration under such Act."
(c) Notice to Holders of Election. Upon the Company's receipt of an
election to convert from a Holder pursuant hereto, the Company shall, as soon as
practicable, notify the other Holders, if any, of the other outstanding Notes of
such election.
(d) Adjustment of Conversion Price. The Conversion Price as of the
Issue Date shall be subject to adjustment as follows:
(i) In case the Company, after the Issue Date, shall (A) pay a stock
dividend or make a distribution in shares of its capital stock (whether shares
of its Common Stock or of capital stock of any other class), (B) subdivide its
outstanding shares of Common Stock, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, or (D) issue by reclassification of its
shares of Common Stock any shares of capital stock of the Company, the
Conversion Price in effect immediately prior to such action shall be adjusted so
that the holder of a Note thereafter surrendered for conversion shall be
entitled to receive an equivalent number of shares of capital stock of the
Company which he would have owned immediately following such action had such
Note been converted immediately prior thereto. Any adjustment made pursuant to
this subsection (i) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(ii) In case the Company, after the Issue Date, shall distribute to all
holders of its outstanding Common Stock any shares of capital stock (other than
Common Stock), evidences of its indebtedness or assets (including securities and
cash, but excluding any cash dividend paid out of current or retained earnings
of the Company and dividends or distributions payable in stock for which
adjustment is made pursuant to subparagraph (d)(i)) or warrants, options or
rights to subscribe for or purchase securities of the Company, then in each such
case the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the record date of such distribution by a fraction of which the numerator
shall be the Conversion Price then in effect less the fair market value on such
record date (as determined in good faith by the Board of Directors of the
Company, with the concurrence of a majority of Independent Directors, which
determination shall be conclusive) of the portion of the capital stock or the
evidences of indebtedness or the assets so distributed to the holder of one
share of Common Stock or of such warrants, options or subscription rights
applicable to one share of Common Stock and of which the denominator shall be
the Conversion Price then in effect. Such adjustment shall become effective
immediately after the record date for the determination of stockholders entitled
to
4
receive such distribution. If at the end of the period during which warrants,
options or rights described in this subparagraph (d)(ii) are exercisable not all
such warrants, options or rights shall have been exercised, the adjusted
Conversion Price shall be immediately readjusted to what it would have been
based on the number of warrants, options or rights actually exercised.
Notwithstanding anything in this subparagraph(d)(ii) to the contrary, with
respect to any warrants, options or rights covered by this subparagraph(d)(ii),
if such warrants, options or rights are only exercisable upon the occurrence of
certain triggering events, then for purposes of this subparagraph (d)(ii), such
warrants, options or rights shall not be deemed issued or distributed, and any
adjustment to the Conversion Price required by this subparagraph (d)(ii) shall
not be made until such triggering events occur and such warrants, options or
rights become exercisable.
(iii) In case the Company, after the Issue Date, shall issue shares of
its Common Stock pursuant to the exercise of those rights (including conversion
rights), warrants, options, shares of capital stock convertible into Common
Stock or evidences of its indebtedness convertible into Common Stock, any of
which were outstanding immediately prior to the Issue Date ("Convertible
Securities") at a price per share less than the Conversion Price in effect on
the date the Company issues such Common Stock, the Conversion Price shall be
reduced immediately thereafter so that it shall equal the price determined by
multiplying such Conversion Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares plus the
number of shares of Common Stock which the aggregate consideration, if any,
received by the Company upon such issuance would purchase at the Conversion
Price then in effect, and the denominator shall be the number of shares of
Common Stock that would be outstanding immediately after the issuance of such
additional shares. Such adjustments shall be made successively whenever such an
issuance is made.
(iv) In any case in which this Section 4 shall require that an
adjustment be made immediately following a record date or an effective date, the
Company may elect to defer (but only until five (5) business days following the
mailing by the Company to the Holders of Notes of the certificate required by
subparagraph (d)(vi)) issuing to the holder of any Note converted after such
record date or effective date the shares of Common Stock issuable upon such
conversion over and above the shares of Common Stock issuable upon such
conversion on the basis of the Conversion Price prior to adjustment, and paying
to such holder any amount of cash in lieu of a fractional share.
(v) No adjustment in the Conversion Price shall be required to be made
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this subparagraph (d)(v) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 4 shall be made and rounded to the nearest whole cent or
share, as applicable.
(vi) Whenever the Conversion Price is adjusted as provided in Section
4(d) herein, the Company will promptly mail to the Holders of the Notes, a
certificate of the Company's Treasurer or Chief Financial Officer setting forth
the Conversion Price as so adjusted and a brief statement of facts accounting
for such adjustment.
5
(vii) Irrespective of any adjustment in the Conversion Price and the
number of shares of Common Stock into which the Notes are convertible as a
result of such adjustment, the Notes theretofore and thereafter issued may
continue to express the Conversion Price per share of Common Stock and the
number of shares of Common Stock into which the Notes are convertible as the
Conversion Price per share of Common Stock and the number of shares of Common
Stock into which the Notes are convertible as expressed upon the Notes when
initially issued.
(e) Company's Consolidation or Merger. If the Company shall at any time
consolidate or merge with or into another corporation, the Holder of a Note
shall thereafter be entitled to receive, upon the conversion thereof, the
securities or property to which a holder of the number of shares of Common Stock
then deliverable upon the conversion thereof would have been entitled upon such
consolidation or merger, and the Company shall take such steps in connection
with such consolidation or merger as may be reasonably necessary to assure the
Holder that the provisions of this Note, the Purchase Agreement and the
Registration Rights Agreement shall thereafter be applicable, as nearly as
reasonably may be in relation to any securities or property thereafter
deliverable upon the conversion of the Note including, but not limited to,
obtaining a written acknowledgment from the continuing corporation or other
appropriate corporation of its obligation to supply such securities or property
upon such conversion.
(f) Reserve of Sufficient Shares. The Company will reserve and keep
available a sufficient number of shares of its Common Stock to satisfy the
conversion requirements of all outstanding Notes. The Company will take all such
action as may be necessary such that all shares of Common Stock issued upon
conversion of the Notes will be duly and validly authorized and issued and fully
paid and nonassessable.
(g) Taxes on Conversion. The issuance of certificates for shares of
Common Stock upon the conversion of Notes shall be made without charge to the
holders of Notes converting such Notes for any issue or stamp tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
respective names of, or in such names as may be directed by, the holders of the
Notes converted; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
named holder of the Note, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(h) Cancellation of Converted Notes. All Notes which have been
converted shall be cancelled by the Company to the extent of the Principal Sum
converted, and no Notes shall be issued in lieu thereof.
(i) Notice to Holders of Notes. In case at any time:
(i) the Company shall take any action which would require an adjustment
in the Conversion Price pursuant to paragraph (d); or
6
(ii) there shall be any capital reorganization or reclassification of
the Common Stock (other than a change in par value or from par value to no par
value or from no par value to par value of the Common Stock), whether or not
such reorganization or reclassification results in an adjustment in the
Conversion Price, or any consolidation or merger to which the Company and its
Subsidiaries is a party and for which approval of any stockholders of the
Company is required; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the Holders of the Notes, not less than fifteen (15) days before any record date
for, or the expected effectiveness of, such action, reorganization,
reclassification, consolidation, merger, dissolution, liquidation or winding up,
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the current Conversion Price and the kind and amount
of the shares of Common Stock or other securities or property deliverable upon
conversion of the Notes. Such notice shall, if applicable, also specify the date
as of which the holders of the Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such action, reorganization, reclassification, sale, consolidation, merger,
dissolution, liquidation or winding up, as the case may be (on which date, in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company, the right to convert the Notes into shares of Common Stock shall
terminate). Without limiting the obligation of the Company to provide notice to
the Holders of Notes or shares of Common Stock of corporate action hereunder, it
is agreed that failure of the Company to give such notice shall not invalidate
such corporate action of the Company.
5. Call Of Notes By The Company. (a) The Company shall not, directly or
indirectly, call for redemption, redeem, prepay, repurchase, or otherwise
acquire (any such event referred to herein as a "call") any Notes or any portion
thereof except as set forth in this Section 5.
(b) Optional Conversion or Redemption Upon Call by the Company.
(i) Company Election. The Company may, at its option, call the Notes,
either in whole or in part on a pro-rata basis, at a price equal to the
outstanding Principal Sum of, plus accrued but unpaid interest on, the Notes as
of the date immediately prior to the date of payment of such Principal Sum plus
interest pursuant to such call (the "Call Price"), only if:
(A) the closing price of the Company's Common Stock on a
national securities exchange, the NASDAQ National
Market, the Nasdaq SmallCap Market or the OTC
Bulletin Board shall be equal to or in excess of 150%
of the Conversion Price, for at least twenty (20)
consecutive
7
trading days prior to the Call Notice Date (as
hereinafter defined); and
(B) for a period of at least thirty (30) days following
the Call Notice Date, the Holders of the Notes shall
be entitled to exercise their conversion rights under
Section 4 hereof.
(ii) Holder Option. In the event of a call by the Company pursuant to
this Section 5, the Holders, at their option, may for a period of thirty (30)
days following the Call Notice Date require the Company to convert their Notes
into fully paid and nonassessable shares of the Company's Common Stock at the
Conversion Price (the "Holder's Option").
(iii) Notice of Call. The right of the Company to call any Notes
pursuant to this Section 5 shall be conditioned upon the Company's giving notice
of such call (the "Call Notice", and the date the Call Notice is given being
referred to as the "Call Notice Date"), by personal delivery, overnight courier,
certified mail or by facsimile, signed by an authorized officer, to the Holders
of Notes, not less than thirty (30) days prior to the date upon which the call
is to be effective (the "Call Effective Date"). The Call Notice shall be
irrevocable and shall specify (A) the Call Price and (B) the Call Effective
Date, which may not be less than 30 days after the Call Notice Date. Within
thirty (30) days after the Call Notice Date, each Holder severally shall notify
the Company, by personal delivery, overnight courier, certified mail or by
facsimile, signed by the Holder, whether such Holder wishes such Holder's Notes
to be converted pursuant to paragraph 5(b)(ii) hereof or redeemed in accordance
with this Section 5. If a Holder fails to respond in the manner provided herein
to the Call Notice on or before the Call Effective Date, the Holder's right to
require conversion of such Holder's Note, to the extent such Note has been
called in accordance with this Section 5, shall become void and of no further
effect, and the Company shall redeem such Holder's Notes at the Call Price as
provided in Section 5(b)(i).
(c) Partial Call. In the event of a partial call by the Company
pursuant to this Section 5, the aggregate Call Price shall be allocated among
the Notes as to which the Call Price is being paid as provided herein, in
proportion, as nearly as practicable, to the respective Call Prices for such
Notes.
(d) Surrender of Notes Upon Call. In the event that any Notes shall be
surrendered to the Company upon conversion as provided in this Section 5,
interest shall cease to accrue upon such Notes so surrendered and any previously
accrued and unpaid interest shall be cancelled upon such surrender and
conversion as provided in Section 4(b)(iii).
6. Subordination.
(a) Agreement to Be Bound. The Company covenants and agrees, and each
Holder of Notes, by the Holder's acceptance hereof, likewise covenants and
agrees, that the Notes shall be issued subject to the provisions contained in
this Section 6; and each person holding any Notes, whether upon original issue
or upon transfer or assignment thereof, accepts
8
and agrees to be bound by such provisions for the benefit of any holder of any
Senior Indebtedness.
(b) Subordination. All Notes shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full of all Senior Indebtedness (as defined herein). Except as
set forth in the first sentence of Section 6(i) hereof, the Notes shall be pari
passu in right of payment to the Company's trade creditors and general unsecured
creditors.
(c) Priority of Senior Indebtedness. (i) No payment on account of the
Principal Sum or interest on the Notes shall be made, nor shall any assets be
applied to the purchase or other acquisition or retirement of the Notes, if, at
the time of such payment or application or immediately after giving effect
thereto, there shall exist a default in the payment of any amount due on any
Senior Indebtedness. Within ten (10) business days after becoming aware of any
such default referred to in this paragraph 6(c), the Company shall provide
written notice thereof to each holder of the Notes.
(ii) If there shall have occurred an event of default (other than a
default in the payment of any amount due) with respect to any issue of Senior
Indebtedness, or in the instrument under which the same has been issued,
permitting the holders thereof, whether or not after notice or lapse of time, or
both, to accelerate the maturity thereof, then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no
payment on account of principal or interest on the Notes shall be made, nor
shall any assets be applied to the redemption or other acquisition or retirement
of the Notes until the earliest to occur of (A) the date on which the Senior
Indebtedness to which such event of default relates is discharged in accordance
with its terms, or (B) the date such event of default is waived by the holders
of such Senior Indebtedness or otherwise cured. Within ten (10) business days
after becoming aware of any event of default referred to in this paragraph
6(c)(ii), the Company shall provide written notice thereof to each holder of the
Notes.
(iii) Upon (A) the occurrence and during the continuance of any Event
of Default under this Note, or (B) the occurrence of an event described in
paragraphs (6(c)(i) or (ii) which gives rise to the non-payment of principal or
interest due on the Notes, and notwithstanding any other provision contained
herein or in the Notes to the contrary, each Holder hereby agrees, for the
benefit of the holders of Senior Indebtedness, not to ask for, demand, ▇▇▇ for,
take or receive, including by way of set off, any amount owing under the Notes
or exercise any remedy (whether pursuant hereto, including, without limitation,
acceleration of the Notes, at law, in equity or otherwise) with respect thereto
(1) in the case of clause (A), until the earliest of (x) 60 days after the
occurrence of such Event of Default or (y) any voluntary or involuntary petition
in bankruptcy filed by or against the Company that has not been dismissed and
(2) if clause (B) is applicable (even if and whether or not clause (A) is
applicable), until the earliest to occur of (x) the date on which the Senior
Indebtedness to which such event of default related is discharged in accordance
with its terms or (y) such event of default is waived by the holders of such
Senior Indebtedness or otherwise cured. Within ten (10) business days after
becoming aware of any Event of Default under this Note, the Company shall
provide written notice thereof to the holders of Senior Indebtedness in the
manner and at the addresses specified in the documents and/or agreements
evidencing the applicable Senior Indebtedness.
9
(d) Acceleration of Notes; Insolvency. Upon (i) any acceleration of the
principal amount due on the Notes or Senior Indebtedness or (ii) any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution or winding up or total
or partial liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due upon all Senior Indebtedness shall first be paid in
full, or payment thereof duly provided for, to the full satisfaction of the
holders of Senior Indebtedness before the holders of the Notes shall be entitled
to receive or retain any assets so paid or distributed in respect thereof; and
upon any such dissolution or winding up or liquidation or reorganization, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Notes would
be entitled, except for these provisions, shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of the Notes if received
by them or it, as the case may be, directly to the holders of Senior
Indebtedness, to the extent necessary to pay all such Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness before any payment or distribution is made to
the holders of the Notes, except that the holders of Senior Indebtedness of the
type described in clause (i) of the definition of Senior Indebtedness shall be
entitled to receive payment in full of such Senior Indebtedness (or provisions
satisfactory to the holders of such Senior Indebtedness shall be made for such
payment) before the holders of other types of Senior Indebtedness shall be
entitled to receive payment on such other Senior Indebtedness. Nothing contained
in this Section 5(d) or any other provision of this Note shall be construed to
limit Holder's right to convert the Note in full in accordance with Sections
4(a) and (b) of this Note, notwithstanding the occurrence and continuance of any
Event of Default (as defined below).
(e) Payments in Trust. In the event that, notwithstanding the
provisions of Sections 6(c) and 6(d), any payment or distribution of assets of
the Company prohibited by such Sections shall be received by the Holders of the
Notes before all Senior Indebtedness is paid in full, or provision made for such
payment, to the full satisfaction of the holders of Senior Indebtedness, in
accordance with its terms, such payment or distribution shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness. All payments
applied to Senior Indebtedness pursuant to this paragraph shall be allocated
among the holders of Senior Indebtedness in accordance with the provisions of
Section 6(d).
(f) Subrogation, Etc. Upon payment in full of all Senior Indebtedness,
the Holders of Notes shall be subrogated to the rights of the holders of Senior
Indebtedness, pro rata in proportion to the respective amounts then owing to the
Holders of Notes; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of Notes would be entitled except for the
provisions of this Section 6, and no payment over pursuant to such
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provisions to the holders of Senior Indebtedness, shall, as between the Company
and its creditors (other than the Holders of Notes and the holders of the Senior
Indebtedness), be deemed to be a payment by the Company to or on account of
Senior Indebtedness, it being understood that the provisions of this Section 6
are and are intended solely for the purpose of defining the relative rights of
the holders of Notes on the one hand and the holders of Senior Indebtedness on
the other hand. Any holder of Senior Indebtedness may amend, modify and
otherwise deal with Senior Indebtedness without any notice to or approval of any
holder of indebtedness ranking junior to Senior Indebtedness (including, without
limitation, the Holders of any Notes).
(g) Enforcement. The foregoing subordination provisions shall be for
the benefit of the holders of Senior Indebtedness and may be enforced directly
by such holders against the Holders of the Notes. Each Holder of Notes by its
acceptance thereof shall be deemed to acknowledge and agree that the
subordination provisions of this Section 6 are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Notes, to acquire and continue to hold, or to continue to hold,
such Senior Indebtedness and each holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness.
(h) Certificate of receiver, et al. Upon any payment or distribution of
assets of the Company, the Holders of the Notes shall be entitled to rely upon a
certificate of the receiver, trustee in bankruptcy, liquidation trustee,
Company, agent or other person making such payment or distribution, delivered to
the Holders of the Notes, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertaining
thereto or to the provisions of this Section 6.
(i) Obligations Unimpaired. Nothing contained in this Section 6 or
elsewhere in this Note is intended to or shall impair as between the Company and
its creditors other than the holders of Senior Indebtedness and the Holders of
the Notes, the obligation of the Company, which shall be absolute and
unconditional, to pay the holders of the Notes the principal of and interest on
the Notes as and when the same shall become due and payable in accordance with
the terms thereof, or, except as provided in the second sentence of Section
6(b), affect the relative rights of the Holders of the Notes and other creditors
of the Company other than the holders of Senior Indebtedness. Without limitation
of the second sentence of Section 6(b), nothing contained in this Section 6 or
elsewhere in this Note shall prevent the Company from making payment of the
principal of or interest on the Notes at any time except under the conditions
described in Section 6(c) or 6(d) or during the pendency of any dissolution,
winding up, liquidation or reorganization of the Company.
(j) Definition of Senior Indebtedness. The term "Senior Indebtedness"
shall mean the principal and interest on (i) all indebtedness of the Company and
its Subsidiaries for money borrowed from time to time, including that owing to
banks or other financial institutions, an agency or agencies of the federal
government or other institutions engaged in the business of lending money, (ii)
all capital leases of the Company and its Subsidiaries, (iii)
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obligations of the Company for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction, and (iv) any
deferrals, renewals and extensions of any indebtedness described in clauses (i)
through (iii) above, unless under the express provisions of the instrument
creating or evidencing any such indebtedness, or pursuant to which the same is
outstanding, such indebtedness is not superior in right of payment to the Notes;
provided, however, that Senior Indebtedness shall not include indebtedness owed
or owing to any Subsidiary or any officer, director or employee of the Company
or any Subsidiary.
7. Events of Default; Acceleration of Maturity Date. If any of the
following events (herein called an "Event of Default") shall occur and be
continuing:
(a) If the Company shall default in the payment of any part of the
Principal Sum of or interest on any Note when the same shall become due and
payable, whether at maturity or by acceleration in accordance with the terms
hereof; or
(b) If the Company shall (1) make an assignment for the benefit of
creditors; (2) admit in writing its inability to pay its debts; (3) suffer the
appointment of a receiver or trustee for it or substantially all of its assets
and, if appointed without its consent, not to be discharged or stayed within
sixty (60) days; (4) suffer proceedings under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors to be instituted by or
against it, and, if contested by it, not to be dismissed or stayed within sixty
(60) days; or (5) fail generally to pay its debts as they become due;
then and in each such event the Holders of twenty-five (25%) percent or more in
aggregate principal amount of the Notes then outstanding may at any time (unless
all defaults shall theretofore have been remedied) at its or their option, by
written notice or notices to the Company, declare all the Notes to be due and
payable, whereupon the same shall forthwith mature and become due and payable,
together with all interest accrued thereon, without presentment, demand, protest
or notice, all of which are hereby waived; provided, however, that this
provision is subject to the condition that if, at any time after the principal
of the Notes shall so become due and payable, any arrears of principal and
interest on the Notes (with interest at the rate specified in the Notes on any
overdue principal and, to the extent legally enforceable, on any interest
overdue) shall be paid by or for the account of the Company, then the holder or
holders of at least fifty-one percent (51%) in aggregate principal amount of the
Notes then outstanding, by written notice or notices to the Company, may waive
such Event of Default and its consequences (other than non-payment of any
portion of the Principal Sum or interest) and rescind or annul such declaration,
but no such waiver shall extend to or affect any subsequent Event of Default or
impair any right resulting therefrom; provided, further, that notwithstanding
the foregoing, if there shall occur an Event of Default under clause (b) above,
then the Notes, together with all interest accrued thereon, shall immediately
mature and become due and payable, without the necessity of any action by the
Holders or notice to the Company. If any Holder of a Note shall give any notice
or take any other action with respect to a claimed default, the Company,
forthwith upon receipt of such notice or obtaining knowledge of such other
action, will give written notice thereof to all other holders of the Notes then
outstanding, describing such notice or other action and the nature of the
claimed default. Nothing herein shall preclude any Holder (including any Holder
who has elected to accelerate the Maturity Date of the Notes) from
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electing, in such Holder's discretion, to convert all or any lesser portion of
the Principal Sum at any time prior to payment in full thereof.
8. Absolute Obligation. Subject to Section 6 hereof, no reference
herein to the Purchase Agreement and no provision hereof or thereof, shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the Principal Sum and interest thereon at the respective times and places
set forth herein.
9. Governing Law. This Note is delivered in and shall be construed and
enforced in accordance with and governed by the laws of the State of New York,
without giving effect to any conflict of laws rule which would result in the
application of any laws other than those of the State of New York.
10. Successors and Assigns. The Company may treat the person in whose
name this Note is registered as the owner and holder of this Note for the
purpose of receiving payment of principal and interest on this Note and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
11. No Third Party Beneficiary. Nothing expressed or implied in this
Note is intended, or shall be construed, to confer upon or give any person other
than the Company and the Holders and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Note.
[SIGNATURE PAGE FOLLOWS:]
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IN WITNESS WHEREOF, NET PERCEPTIONS, INC. has caused this Convertible
Subordinated Note to be dated, and to be executed on its behalf by its officer
thereunto duly authorized.
NET PERCEPTIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President and CFO