RELEASE AND SETTLEMENT AGREEMENT
Exhibit
10.1
This
Release and Settlement Agreement (this “Agreement”) is entered into as of July
23, 2009 (the “Effective Date”) by and between On2 Technologies, Inc., a
Delaware corporation with its principal place of business in Xxxxxxx Park, NY
(the “Company”), and Islandia, L.P., a Delaware limited partnership with its
principal place of business in New York, New York (“Islandia,” and, collectively
with the Company, the “Parties”).
WHEREAS,
pursuant to a Securities Purchase Agreement dated as of October 27, 2004 by and
among the Company, Islandia and the other purchasers set forth therein, Islandia
purchased 1,500 shares of the Company’s Series D Convertible Preferred Stock
that were convertible into shares of the Company’s common stock (the “Common
Stock”), at an effective conversion price of $0.70 per share (subsequently
adjusted pursuant to anti-dilution provisions set forth in the Certificate of
Designation of Preferences, Rights and Limitations of Series D Convertible
Preferred Stock, filed by the Company on October 28, 2004); and
WHEREAS,
on August 14, 2008, Islandia filed a complaint against the Company in the
Supreme Court of the State of New York in the County of New York alleging
certain claims related to, among other things, the redemption and conversion of
the Series D Convertible Preferred Stock (the “Litigation” and, together with
any and all other claims related thereto or arising out of the subject matter
thereof, the “Dispute”); and
WHEREAS,
the Company denied liability on all claims in the Litigation; and
WHEREAS,
the Parties recognize the uncertainties involved in the Dispute, and have
determined that it is in their respective best interests to resolve the
differences between them by compromise and final settlement of the Dispute,
without any admission of liability on the part of either of the Parties and/or
their affiliates;
NOW,
THEREFORE, in consideration of the mutual covenants, promises, warranties,
representations and undertakings set forth below and other good and valuable
consideration, the receipt and sufficiency of which hereby is acknowledged, the
Parties agree as follows:
1. ISSUANCE
OF CONVERTIBLE NOTE.
A. The
Company shall authorize the issuance of a convertible note (the “Note”) to
Islandia to be dated July 23, 2009 (the “Issue Date”) and to mature on July 23,
2010 (the “Maturity Date”) in the form attached as Exhibit A hereto,
which Note is being issued to Islandia in full and complete satisfaction and
settlement of the Dispute, subject to section 5(C), below.
2. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. In connection with the issuance
of the Note, the Company hereby represents and warrants to Islandia as of the
date of this Agreement, as follows:
A. This
Agreement and the Note, when executed and delivered by the Company will
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by applicable bankruptcy, insolvency and similar statutes affecting
creditors’ rights generally and judicial limits on equitable
remedies.
B. All
corporate action necessary for the execution and performance of the transactions
contemplated by this Agreement and the Note have been duly taken, and the
Company has obtained all consents necessary for it to enter into this Agreement
and perform its obligations hereunder and under the Note.
3. REPRESENTATIONS
AND WARRANTIES OF ISLANDIA. In connection with the issuance of
the Note, Islandia hereby represents and warrants to the Company as of the date
of this Agreement, as follows:
A. This
Agreement, when executed and delivered by Islandia will constitute the legal,
valid and binding obligation of Islandia, enforceable against Islandia in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and similar statutes affecting creditors’ rights
generally and judicial limits on equitable remedies.
B. All
corporate action necessary for the execution and performance of the transactions
contemplated by this Agreement have been duly taken and Islandia has obtained
all consents necessary for it to enter into this Agreement and perform its
obligations hereunder.
C. Islandia
has not assigned, transferred, granted or purported to assign, transfer or grant
any of the claims, demands and causes of action settled by this
Agreement.
D. Islandia
accepts the Note as full and complete consideration for the claims, demands and
causes of action settled by this Agreement, subject to the terms of section
5(C), below.
E. The
Note will be acquired by Islandia for its own account for investment and not
with a view toward resale in connection with any distribution thereof or with
any present intention of sale or distribution.
F. Islandia
understands that the Note has not been registered under either the Securities
Act of 1933, as amended (the “Securities Act”) or the securities laws of any
state. The Note is being issued on the basis of the statutory
exemption provided by Section 4(2) of the Securities Act, or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company’s reliance thereon is based
in part upon the representations made by Islandia in this
Agreement. Islandia acknowledges that it has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the Securities Act and the rules and regulations thereunder on the transfer
of the Note.
G. Islandia
is an “accredited investor” as that term is defined in Section 501(a) of
Regulation D promulgated under the Securities Act. Islandia
acknowledges that it has reviewed the Company’s public filings and has been
given the opportunity to (i) ask questions and receive satisfactory answers
concerning the terms and conditions of the Note and Payment Shares (as defined
in the Note) and (ii) obtain additional information in order to evaluate the
merits and risks of receipt of the Note and Payment Shares and to verify the
accuracy of the information contained in this Agreement. Islandia (i)
is a sophisticated investor with such knowledge and experience in business and
financial matters as will enable it to evaluate the merits and risks of
investment in the Note and Payment Shares and (ii) is able to bear the economic
risks of an investment in the Note and Payment Shares.
4. DISMISSAL
OF LAWSUIT. In connection with the execution of this Agreement
by both parties, Islandia and the Company shall execute a copy of the
Stipulation of Discontinuance Without Prejudice in the form attached hereto as
Exhibit B (the
“Stipulation”). Within two (2) business days of the issuance of the
Note, Islandia shall deliver to the Company evidence of due filing of the
Stipulation with the Court.
5. MUTUAL
RELEASES.
A. Subject
to subparagraph C of this section, in consideration of the mutual releases and
other terms and conditions of this Agreement, Islandia on its own behalf and on
behalf of its present and former partners, principals, officers, directors,
employees, agents, receivers, trustees, attorneys, predecessors, successors,
assigns, successors in interest, parents, subsidiaries, affiliates and
divisions, does hereby acknowledge full and complete satisfaction of, and hereby
does, finally and forever, release, acquit, and discharge the Company, its
subsidiaries, affiliates, and its respective past and present heirs, successors,
predecessors and assigns, and each of its respective current and former
officers, directors, stockholders, owners, partners, managers, members,
employees, servants, agents and attorneys and their respective insurers of and
from any and all demands, obligations, actions, causes of action, counterclaims,
rights, damages, losses, costs, contribution claims, claims for restitution,
suits, claims for sums of money, contracts, controversies, agreements,
judgments, expenses, compensation and demands of any nature whatsoever, rights,
liabilities, actions and causes of action of any nature, whether at law or in
equity, known or unknown, whether suspected or unsuspected, including, without
limitation, any individual claims and any claims in a representative capacity it
has, had or may have at any time up to and including the date and execution of
this Agreement including those based on, arising out of or relating to the
Dispute.
B. Subject
to subparagraph C of this section, in consideration of the mutual releases and
other terms and conditions of this Agreement, the Company on its own behalf and
on behalf of its present and former directors, officers, employees, agents,
receivers, trustees, attorneys, predecessors, successors, assigns, successors in
interest, parents, subsidiaries, affiliates and divisions, does hereby
acknowledge full and complete satisfaction of, and hereby does, finally and
forever, release, acquit, and discharge Islandia, its subsidiaries, affiliates,
and parents, its respective past and present heirs, successors, predecessors and
assigns, and each of their respective current and former officers, directors,
shareholders, owners, partners, managers, members, employees, servants, agents
and attorneys and their respective insurers of and from any and all demands,
obligations, actions, causes of action, counterclaims, rights, damages, losses,
costs, contribution claims, claims for restitution, suits, claims for sums of
money, contracts, controversies, agreements, judgments, expenses, compensation
and demands of any nature whatsoever, rights, liabilities, actions and causes of
action of any nature, whether at law or in equity, known or unknown, whether
suspected or unsuspected, including, without limitation, any individual claims
and any claims in a representative capacity it has had or may have at any time
up to and including the date and execution of this Agreement including those
based on, arising out of or relating to the Dispute.
C. It
is hereby understood and agreed, by and between the Parties, that the above
releases are given in anticipation of the satisfaction by the Company of the
Note in accordance with its terms. So long as the Company is not
subject to Bankruptcy, in the event that the Company defaults on its obligations
to pay the principal amount of the Note on the Intended Payment Date (as such
term is defined in the Notes) or its obligations to pay interest on the Note
when due as specified in the Note, and such default has not been cured by the
Company within 60 days after Islandia has delivered written notice of such
default to the Company (the “Notice Period”), then such releases shall become
null and void, and of no effect whatsoever, and Islandia may bring an action
against the Company (the “Recommenced Lawsuit”) based upon the events and
transactions underlying the allegations in the lawsuit brought by Islandia in
the Supreme Court of the State of New York (Index. No. 650318/2008) (the
“Initial Lawsuit”). In the limited circumstance that the Company is
subject to Bankruptcy and the Company fails to comply with any of its
obligations under the Note, and such failure to comply has not been cured by the
Company during the Notice Period, then such releases shall become null and void,
and of no effect whatsoever, and Islandia may bring the Recommenced
Lawsuit. Furthermore, Islandia and the Company agree that if
Islandia opts in its sole discretion to bring the Recommenced Lawsuit, and in
the event that the Company becomes liable to Islandia in the Recommenced
Lawsuit, the Company shall receive full credit for any and all amounts paid on
the Note (assuming that all conditions of such payment (as defined in the terms
of the Note) are satisfied, provided that (i) acceptance of any and all cash
payments by Islandia or (ii) the earlier of the holding of any and all Payment
Shares (as defined in the terms of the Note) for a six-month period or the
liquidation of any and all stock payments by Islandia shall be conclusive
evidence that all conditions of such payments have been
satisfied). As set forth in this Section 5(C), “Bankruptcy” shall be
defined as any proceeding instituted by or against the Company seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief or protection of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian, or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
shall remain undismissed or unstayed for a period of ninety (90)
days.
D. All
applicable statutes of limitations and other time-based defenses relating to, or
that might be asserted with respect to the Recommenced Lawsuit, are hereby
suspended and tolled as of the date of commencement of the Initial Lawsuit,
through and including the date that is 90 days after the Maturity Date of the
Note, as designated in the Note (the “Tolling Period”). The time
elapsed during the Tolling Period shall be excluded from the computation of time
for purposes of any time-based argument, defense or right with respect to the
Recommenced Lawsuit, including, without limitation, statutes of limitation,
laches, estoppel and waiver. The Company hereby waives and agrees not
to plead or invoke in any other way the statute of limitations and any other
time-based argument or time-based defense with respect to the Recommenced
Lawsuit based on the passage of time during the Tolling Period. At
the expiration of the Tolling Period or at such time as Islandia chooses to file
the Recommenced Lawsuit, all of Islandia’s rights and claims with respect to the
transactions and events underlying the Initial Lawsuit and the Recommenced
Lawsuit shall be as they were on the date the Initial Lawsuit was
commenced. The Parties, intending to be bound, acknowledge, represent
and warrant that the terms of this subparagraph and the extent and duration of
the Tolling Period are reasonable, and the Parties will not challenge or contest
the authority of the Parties to agree to toll and suspend the running of any
applicable statutes of limitations or time-based defenses as set forth
herein.
E. Nothing
herein shall be deemed to constitute a release by either of the Parties of any
obligation arising under this Agreement or the Note.
6. ASSUMPTION
OF RISK AND WAIVER OF UNKNOWN CLAIMS. The Parties hereby
assume the above-mentioned risks and agree that the mutual releases contained in
this Agreement SHALL APPLY TO ALL CLAIMS AT ANY TIME UP TO AND INCLUDING THE
DATE AND EXECUTION OF THIS AGREEMENT INCLUDING THOSE BASED ON, ARISING OUT OF OR
RELATING TO THE DISPUTE THAT ARE UNKNOWN AND UNANTICIPATED AT THE TIME OF THE
EXECUTION OF THIS AGREEMENT, AND TO ANY AND ALL LOSSES, DAMAGES OR INJURIES THAT
ARE IN SOME WAY CAUSED BY OR RELATED TO OR ARISE FROM SUCH CLAIMS, AND/OR ANY
FACT, MATTER, CAUSE, THING, OMISSION OR COMMISSION WHATSOEVER INCLUDING THOSE
RELATED TO THE DISPUTE FROM THE BEGINNING OF TIME TO THE EXECUTION OF THIS
AGREEMENT and upon advice of legal counsel, the Parties, respectively, each
waive any and all rights against each other under California Civil Code Section
1542, or similar federal laws or laws of any other state, which reads as
follows:
"A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR."
7. CONFIDENTIALITY. The
Parties and their respective counsel agree to maintain the confidentiality of
the terms and conditions of this Agreement and the negotiations leading to this
Agreement, except (i) to the extent such confidential information is required to
be disclosed for accounting, auditing, insurance or tax purposes, pursuant to
regulatory obligations, pursuant to an order of the court of competent
jurisdiction or other legal process, (ii) for disclosure by either Party in any
of its filings with the Securities and Exchange Commission, stock exchange, NYSE
Alternext US, Inc. or any other regulatory body that asserts authority over such
Party, (iii) for disclosure by the Company to other parties that are bound by
written agreement regarding confidentiality that would satisfy the terms and
conditions of this Agreement, (iv) in the event that Islandia transfers or
assigns the Note pursuant to the terms of the Note, for disclosure by Islandia
to such transferee or assignee or (v) to enforce any terms of this
Agreement. If either Party is required by court order or other legal
entity to disclose any such confidential information, the disclosing Party will
first notify the other Party of the request or requirement so that the
non-disclosing Party may seek an appropriate protective order or waive
compliance with the provisions of this Section 7. If, in the absence
of a protective order or the receipt of a waiver hereunder, a Party hereto is,
on the advice of counsel, compelled to disclose any such confidential
information to any tribunal or else stand liable for contempt, the disclosing
Party may disclose such confidential information to the tribunal; provided, however, that such disclosing
Party shall use its reasonable best efforts to obtain, at the reasonable request
of, and at the expense of, the non-disclosing Party, an order or other assurance
that confidential treatment will be afforded to such portion of such
confidential information required to be disclosed as the non-disclosing Party
shall designate.
8. NO
ADMISSIONS. The Parties understand and agree that this is a
compromise and settlement of disputed claims. Each of the Parties
specifically denies any liability or wrongdoing whatsoever on its
part. Neither this Agreement or any of its provisions, terms or
conditions (i) shall be construed to be an admission of liability under the
Litigation, or an admission of the validity or enforceability of any matters
that are released pursuant to this Agreement, nor (ii) may be offered or
received in evidence in any other action, proceeding, claim, or settlement
negotiation as evidence of an admission of liability or wrongdoing, or for any
other purpose; provided, however, that this Agreement, proof of its execution,
and payment of the consideration under its terms shall be admissible, or may be
offered or received in evidence (i) to prove settlement and release of the
claims set forth herein, and/or (ii) to enforce this Agreement.
9. ATTORNEYS’
FEES AND COSTS. Each of the Parties shall bear its own
attorneys’ fees and costs arising from the claims that were asserted or that
could have been asserted in the Litigation and arising from the negotiation and
preparation of this Agreement.
10. FINAL
ACCORD AND SATISFACTION. This Agreement is intended to be
final and binding upon the Parties and is intended as a full and final accord
and satisfaction among the Parties, and each Party expressly relies on the
finality of this Agreement as a substantial, material factor inducing such
Party’s execution of this Agreement.
11. LEGAL
COUNSEL. The Parties acknowledge that they have been
represented by counsel of their own choice throughout all negotiations which
preceded the execution of this Agreement and that this Agreement was executed
after a full opportunity to consult with such legal counsel.
12. NO OTHER
REPRESENTATION. Neither Party is relying on any statement,
representation or promise of any other Party (or of such party's agent,
employee, representative or attorney) in executing this Agreement, or in
reaching the settlement provided for herein, except as expressly stated in this
Agreement or in the exhibits referenced herein. Further, both Parties
acknowledge that they have made such investigation of the facts and the law
pertaining to the matters being settled as they and their attorneys deem
necessary, and each Party therefore assumes any risk that its understanding of
the facts and/or the law is incorrect or incomplete.
13. CONSIDERATION. The
Parties hereto expressly acknowledge and agree that this Agreement has been
entered into in good faith in order to resolve the Dispute. The Parties hereto
expressly acknowledge that all terms of this Agreement are supported by good,
valid and legally sufficient consideration so as to make this Agreement binding
and valid.
14. COUNTERPARTS. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original and all of which shall constitute one and the same
agreement. The exchange of facsimile copies shall suffice for
purposes of establishing the Parties’ execution of this Agreement, provided that
original signatures shall subsequently be exchanged.
15. SEVERABILITY. If any provision of this
Agreement is held to be unenforceable for any reason, the remaining parts of
this Agreement shall remain in full force and effect.
16. ENTIRE
AGREEMENT. This Agreement and the exhibits referenced herein
contain the entire agreement between the Parties with regard to the matters set
forth in it and may only be amended, modified or waived by a written instrument
executed by each of the Parties. The mutual obligations and
undertakings of the Parties expressly set forth in this Agreement and the
exhibits referenced herein are the sole consideration for this Agreement, and no
representations, promises, or inducements of any nature whatsoever have been
made by either of the Parties other than those expressly appearing in this
Agreement and the exhibits referenced herein. Each of the Parties and
counsel for each of the Parties has reviewed and revised this Agreement, and
accordingly, the rule of construction that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
17. WAIVER. A
waiver of any term or condition of this Agreement will not be deemed to be, and
may not be construed as, a waiver of any other term or condition
hereof.
18. GOVERNING
LAW. This Agreement shall be governed by, and construed and
enforced in accordance with the laws of the State of New York, without regard to
principles of conflicts of laws to the extent they would result in the
application of the laws of another jurisdiction.
19. ENFORCEMENT. Any
dispute arising out of or relating to this Agreement shall be adjudicated
exclusively in the Court of the State and located in the County of New York and
each of the Parties hereby irrevocably consents to the jurisdiction and venue of
such court for the purpose of any such dispute(s), and waives any claim or
defense that any such court lacks jurisdiction or that such forum is not
convenient or proper.
20. SUCCESSORS
AND ASSIGNS. This Agreement
shall be binding upon and shall inure to the benefit of the Parties hereto and
their respective successors and assigns.
21. HEADINGS. Paragraph
headings contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or interpretation of this
Agreement.
22. NOTICES. All
notices or other communications under this Agreement shall be in writing and
deemed to be duly delivered if delivered in person, by overnight mail, or by
confirmed fax or electronic delivery, followed by hard copy
delivery.
If to the
Company, such notice or communication shall be delivered to:
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Attention:
Xxx Reusing, General Counsel
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0
Xxxxxxxxx Xxxxx, Xxxxx 000
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Xxxxxxx
Xxxx, XX 00000
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With
a copy to:
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Xxx
Xxxxxx
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Xxxxxxxx
& Xxxx LLP
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000
Xxxxx Xxxxxx, Xxxxx 0000
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Xxx
Xxxx, Xxx Xxxx 00000
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If to
Islandia, such notice or communication shall be delivered to:
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Xxxxx
Xxxxxxx, CFO
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Xxxx
Xxxx, Inc.
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000
Xxxxxxx Xxxxxx, 00xx Xxxxx
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Xxx
Xxxx, Xxx Xxxx 00000
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With
a copy to:
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Xxxxx
X. Xxxxxxx
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Golenbock
Xxxxxxx Xxxxx Xxxx & Xxxxxx LLP
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000
Xxxxxxx Xxxxxx
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Xxx
Xxxx, Xxx Xxxx 00000
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IN WITNESS WHEREOF, the
Parties have executed this Agreement as of July 23, 2009.
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/s/ Xxxx Xxxxx
By:
Xxxx Xxxxx
Title:
CEO
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ISLANDIA,
L.P.
/s/ Xxxxx X. Xxxxxx
By:
Xxxxx X. Xxxxxx
Title:
VP of Xxxx Xxxx, Inc.,
G.P.
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Exhibit
A
Form
of Note
NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN THE
SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN
ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH LAWS. NEITHER THIS NOTE NOR THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION IS AVAILABLE
THEREFROM.
8% CONVERTIBLE
NOTE
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$500,000
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July
23, 2009
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FOR VALUE
RECEIVED, ON2 TECHNOLOGIES, INC., a Delaware corporation with its principal
place of business in Xxxxxxx Park, NY (the “Company”), hereby promises to pay to
the order of Islandia, L.P. (the “Holder”), the
principal sum of five hundred thousand dollars ($500,000) (the “Principal
Amount”), together with accrued and unpaid interest thereon, due and payable on
July 23, 2010 (the “Maturity Date”). By acceptance of this 8%
Convertible Note (the “Note”), the Holder represents, warrants, covenants and
agrees that it will abide by and be bound by its terms.
This Note
is issued pursuant to that certain Release and Settlement Agreement dated as of
July 23, 2009 by and between the Company and the Holder (the “Settlement
Agreement”). Additional rights and obligations of the Company and the
Holder are set forth in the Settlement Agreement. Capitalized terms
used and not otherwise defined herein shall have the meanings given them in the
Settlement Agreement.
1. Interest. During
the period commencing on the date hereof and terminating on the Maturity Date,
interest shall accrue at a rate equal to eight percent (8%) per
annum. Interest shall be due and payable on the six-month anniversary
of the date hereof and on the Maturity Date, and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
2. Principal. The
Principal Amount and all accrued and unpaid interest shall be due and payable to
the Holder on the Maturity Date.
3. Payments. Unless
the indebtedness outstanding under this Note is converted in accordance with
Section 5 hereof, all payments of principal or interest shall be made by the
Company in lawful money of the United States of America, by wire transfer or by
any other method approved in advance by the Holder to the account of the Holder
at the address of the Holder set forth in Section 9 hereof or at such other
place designated by the Holder in writing to the Company in immediately
available and freely transferable funds at such place of payment.
4. Prepayment
Events. If any of the following events occur prior to
the Maturity Date, the Principal Amount and all accrued and unpaid interest
shall become due and payable to the Holder. The date of the events
described in Section 4(a) and 4(b) herein, along with the Maturity Date, shall
be referred to as the “Intended Payment Date”.
(a) Change of
Control. The Principal Amount plus accrued and unpaid interest
shall become immediately due and payable upon a change of control of the Company
which is defined as (i) the acquisition, by a person, entity or group (other
than the present stockholders of the Company or any of such stockholders’
subsidiaries or affiliates) of beneficial ownership, directly or indirectly, of
securities representing thirty percent (30%) or more of the total voting power
represented by the Company’s then outstanding voting securities; (ii) the
consummation of the sale or disposition by the Company of all or substantially
all of its assets; or (iii) the consummation of a merger or consolidation of the
Company with any other entity resulting in the voting securities of the Company
outstanding immediately prior thereto representing less than seventy percent
(70%) of the total voting power of the entity surviving such merger or
consolidation.
(b) Optional
Prepayment. The Company shall have the right to prepay the
Note in the full Principal Amount plus accrued and unpaid interest without
penalty upon five (5) calendar days written notice to the Holder.
5. Conversion.
(a) Optional
Conversion. Notwithstanding the provisions set forth in
Section 3, at the option of the Company in its sole discretion and subject to
the Equity Conditions set forth in Section 5(b) herein, upon no less than
twenty-one (21) calendar days’ written notice in advance of an Intended Payment
Date (the “Notice Date”), the Principal Amount and any accrued and unpaid
interest outstanding under this Note (the “Conversion Amount”) may be paid to
the Holder in shares of the Company’s common stock, par value $0.01 per share
(the “Common Stock”). The Company will have the right to pay the
Conversion Amount in shares of Common Stock at a conversion price calculated by
dividing the Conversion Amount by a price per share equal to 85% of the average
of the 20 trading day daily volume weighted average price (“VWAP”) of a share of
Common Stock on NYSE Alternext US, Inc. (or other applicable Principal Market)
ending one trading day prior to the date of payment (the “Conversion
Price”). The number of shares of Common Stock payable pursuant to
this section 5(a) shall be determined by dividing the Conversion Amount by the
Conversion Price and rounding downward to the nearest whole share (the “Payment
Shares”).
(b) Equity
Conditions. The Company shall have the option to pay the
Conversion Amount in Payment Shares, if all of the following conditions (the
“Equity Conditions”) are satisfied:
(A) The
Payment Shares, as of the delivery date shall be unlegended and eligible for
resale pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”)
without regard to any volume restrictions, provided that the Holder is not, and
has not within the prior 90 days been, an affiliate of the
Company. If such Payment Shares are not eligible for resale pursuant
to Rule 144, the Company may issue the Payment Shares only if there is an
effective, current registration statement for the resale of the Payment Shares
that includes a prospectus relating thereto naming the Holder or its assignee as
the selling stockholder; provided, however, that the Holder furnishes to the
Company such information in writing as may be necessary to comply with federal
and applicable state securities laws. The Company’s obligation to
maintain an effective registration statement and current resale prospectus for
the Payment Shares as described in this Section 5(b)(A) shall terminate when the
Payment Shares may be sold pursuant to Rule 144 without regard to any volume
restrictions.
(B) The
Common Stock shall be listed for trading on the NYSE Alternext US, Inc., New
York Stock Exchange, the NASDAQ National Market or the NASDAQ SmallCap Market or
traded on the OTC Bulletin Board (each, a “Principal Market”).
(C) The
Company shall be current in its reporting requirements under Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, at the time of issuance of
the Payment Shares. Only in the limited event that the Company is
prepaying the Note with Payment Shares pursuant to Section 4(b) herein, the
Company shall not issue the Payment Shares to the Holder within six weeks before
the filing due date of its annual report on Form 10-K or a quarterly report on
Form 10-Q.
(D) The
Payment Shares issued to the Holder shall not exceed 4.99% of the aggregate
issued and outstanding shares of Common Stock.
(E) The
Common Stock shall not be suspended from trading or shall not be subject to a
notice from the Principal Market indicating that the Company or the Common Stock
does not satisfy a rule or standard for continued listing on such Principal
Market.
(F) The
Company shall reserve a sufficient number of authorized but unissued shares of
Common Stock for issuance upon the conversion of the Note.
(G) The
Company shall not be in material default of the Settlement Agreement (or any
related documentation) and shall not have failed to pay the Principal Amount and
any accrued and unpaid interest on the Intended Payment Date.
(H) For
the 30 trading day period prior to the commencement of the VWAP period there
shall not have been a reverse or forward split affecting the issued and
outstanding shares of Common Stock and, during such 30 trading day period, the
trading volume of the Common Stock shall be at least 10,000 shares per day as
reported by the Principal Market.
(I) As
of the Notice Date, and through the date the Payment Shares are delivered, the
Company shall have made public the non-public Information that the Company has
provided to the Holder pursuant to the Investor Non-Disclosure Agreement dated
as of July 22, 2009 by and between the Company and the Holder (the
“Non-Disclosure Agreement”) attached hereto as Appendix
A. The term “Information” shall have the meaning set forth in
the Non-Disclosure Agreement.
(c) Mechanics of
Conversion. On or prior to the Intended Payment Date, the
Holder shall surrender the original of this Note, duly endorsed, to the Company
at its principal office. The Company shall, as soon as practicable
thereafter, issue and deliver to the Holder, at the address set forth in Section
9, a certificate or certificates for the Payment Shares.
6. Termination of
Rights. All rights with respect to this Note shall terminate
upon a payment or conversion of the Conversion Amount in full, whether or not
this Note has been surrendered.
7. Transfer;
Assignment.
(a) To
Affiliates. This Note, and the rights and obligations of the
Holder hereunder, may be assigned in whole, but not in part, by the Holder to
any Affiliate of the Holder; provided that the transferor provides prior written
notice of such transfer to the Company, provided, further, that if the Holder
assigns the Note within the first six months after the date of issuance of the
Note, the transferee shall be an “accredited investor” as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act. For
the purposes of this Note, “Affiliate” means any other person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with the referenced person or entity and includes without limitation,
(a) any person who is an officer, director, or direct or indirect beneficial
holder of at least 5% of the then outstanding capital stock of the referenced
person or entity and (b) any person of which the referenced person or entity
and/or its Affiliates (as defined in clause (a) above), directly or indirectly,
either beneficially own(s) at least 5% of the then outstanding equity securities
or constitute(s) at least a 5% equity participant.
(b) To
Non-Affiliates. This Note, and the rights and obligations of
the Holder hereunder, may otherwise be assigned in whole, but not in part, by
the Holder; provided that the transferor provides prior written notice of such
transfer to the Company. However, the Holder agrees that no
assignment or transfer of the Note shall be valid or effective, and the Company
shall not be required to give any force or effect to any such assignment or
transfer, unless (i) the assignment or transfer of the Note is registered under
the Securities Act (it being understood that this Note is not currently
registered and that the Company has no obligation or intention to so register
the Note), or (ii) such assignment or transfer is otherwise exempt from
registration under the Securities Act.
(c) Holder of
Record. The Company may deem and treat the person in whose
name this Note is recorded upon the books of the Company as the record owner of
this Note.
8. Governing
Law. This Note shall be governed by, and construed and
enforced in accordance with the laws of the State of New York, without regard to
principles of conflicts of laws to the extent they would result in the
application of the laws of another jurisdiction.
9. Notices. All
notices or other communications under this Note shall be in writing and deemed
to be duly delivered if delivered in person, by overnight mail, or by confirmed
fax or electronic delivery, followed by hard copy delivery.
If to the
Company, such notice or communication shall be delivered to:
|
|
0
Xxxxxxxxx Xxxxx
|
|
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Xxxxx
000
|
|
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Xxxxxxx
Xxxx, XX 00000
|
|
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With
a copy to:
|
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Xxx
Xxxxxx
|
|
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Xxxxxxxx
& Xxxx LLP
|
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000
Xxxxx Xxxxxx, Xxxxx 0000
|
|
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Xxx
Xxxx, Xxx Xxxx 00000
|
If to the
Holder, such notice or communication shall be delivered to:
Xxxxx
Xxxxxxx, CFO
Xxxx
Xxxx, Inc.
000
Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx,
Xxx Xxxx 00000
|
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With
a copy to:
|
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Xxxxx
X. Xxxxxxx
|
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Golenbock
Xxxxxxx Xxxxx Xxxx & Xxxxxx LLP
|
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000
Xxxxxxx Xxxxxx
|
|
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Xxx
Xxxx, Xxx Xxxx 00000
|
10. Usury
Laws. This Note is intended to be performed in accordance
with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or the application thereof to any
person or circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the application of such provision to any other person or
circumstance nor the remainder of the instrument in which such provision is
contained shall be affected thereby and shall be enforced to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the
intent of the Holder hereof to at all times comply with the usury and other
applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever
revised, repealed or judicially interpreted so as to render usurious any amount
called for under this Note, or contracted for, charged, taken, reserved or
received with respect to the indebtedness evidenced by this Note, or if any
prepayment by the Company results in the Company having paid any interest in
excess of that permitted by law, then it is the express intent of the Company
and the Holder that all excess amounts theretofore collected by the Holder be
credited on the principal balance of the Note (or, if the Note has been paid in
full, refunded to the Company), and the provisions of this Note immediately be
deemed reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums
paid, or agreed to be paid, by the Company for the use, forbearance, detention,
taking, charging, receiving or reserving of the indebtedness of the Company to
the Holder under this Note shall, to the maximum extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of interest
on account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding.
11. Standing. The
Note shall rank pari
passu with the Company’s most senior indebtedness for borrowed money and
shall accelerate in full (i) upon a failure to make payments when due with
respect to the Company’s most senior indebtedness at maturity or (ii) which
results in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of such indebtedness for borrowed money of the Company,
in each case, in an aggregate amount in excess of One Hundred Thousand Dollars
($100,000).
12. Amendments. This
Note may be amended by the written consent of the Company and
Holder.
13. Headings. The
headings of the sections of this Note are inserted for convenience only and do
not constitute a part of this Note.
14. Successors. This
Note shall be a binding obligation of any
successor
of the Company.
IN WITNESS WHEREOF, On2 Technologies,
Inc. has caused this Note to be signed and to be dated the day and year first
above written.
| ON2 TECHNOLOGIES, INC. | |||
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By:
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| Name | |||
| Title | |||
Exhibit
B
Form
of Stipulation
|
SUPREME
COURT OF THE STATE OF NEW YORK
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||
|
COUNTY
OF NEW YORK
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||
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________________________________________x
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||
|
ISLANDIA,
LP,
|
:
|
Index
No. 650318/2008
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:
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Xxx.
Xxxxxx X. Xxxxxxxx
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Plaintiff,
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:
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:
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||
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-against-
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:
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STIPULATION
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:
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OF
DISCONTINUANCE
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:
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WITHOUT
PREJUDICE
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:
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Defendant.
|
:
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________________________________________x
|
Whereas
no party to this action is an infant, incompetent person for whom a committee
has been appointed or conservatee and no person not a party has an interest in
the subject matter of this action, the undersigned parties, by their respective
counsel, hereby stipulate and agree that, pursuant to CPLR 3217(a), the
above-captioned action, and all claims that have been or could have been
asserted therein, is dismissed, without prejudice and without costs to any
party.
Dated:
New York, New
York
___________, 2009
___________, 2009
