On2 Technologies issues $500,000 8% convertibles to settle lawsuit

By Devika Patel

Knoxville, Tenn., July 29 - On2 Technologies, Inc. settled a lawsuit with Islandia, LP in connection with an October 2004 placement of series D convertible preferred stock, according to an 8-K filed Wednesday with the Securities and Exchange Commission.

On July 23, On2 negotiated a release and settlement agreement with the investor to resolve the lawsuit, which was filed in August.

Islandia had bought 1,500 of the preferreds in the private placement and alleged in the suit that the company failed to make the required monthly redemptions and failed to pay certain dividends on the securities. The investor was seeking damages of $4.6 million plus interest and attorneys' fees.

Under the settlement agreement, Islandia received a $500,000 8% convertible note. The note may be redeemed by the company at any time and matures on July 23, 2010.

Interest will be paid in cash or shares, at the company's option. If the company opts to pay in common stock, the note's conversion price will be equal to 85% of the average of the 20 trading day daily volume-weighted average price of the stock at the time of conversion.

On2 is a New York-based company that develops full-motion, full-screen compression and streaming video technologies used via the internet.

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