ASSET PURCHASE AND SOFTWARE LICENSE AGREEMENT

 

ASSET PURCHASE AND SOFTWARE LICENSE AGREEMENT

 

By and between

 

WILDFORM, INC.

(Seller)

 

and

 

ON2 TECHNOLOGIES, INC.

(Buyer)

 

 

Dated as of April 4, 2005

 

 

 

Confidential portions of this exhibit have been omitted and filed separately

with the Securities and Exchange Commission with a request for confidential

treatment pursuant to Rule 24b-2. The location of an omitted portion is

indicated by an asterisk within brackets ("[*]").

 

 

TABLE OF CONTENTS

 

 

 

 

 

ASSET PURCHASE AND SOFTWARE LICENSE AGREEMENT

THIS ASSET PURCHASE AND SOFTWARE LICENSE AGREEMENT is made and entered into as of this 4 ^th day of April, 2005, by and between Wildform, Inc., a corporation organized and existing under the laws of the State of California, and On2 Technologies, Inc., a corporation organized and existing under the laws of the State of Delaware. Unless otherwise defined herein, terms the first letter of which are capitalized herein shall have the meanings ascribed to them in Article 1.

W I T N E S S E T H:

WHEREAS, Seller develops and sells licenses to certain computer software products that encode video in the Flash format; and

WHEREAS, Seller desires to sell and assign to Buyer, and Buyer desires to purchase and assume from Seller, the Purchased Assets and the Assumed Liabilities and to receive a license to the Licensed Intellectual Property, subject to all of the terms and conditions hereof; and

WHEREAS, Seller desires to continue to develop and sell licenses to New Products.

NOW, THEREFORE, Buyer and Seller, in consideration of the representations, warranties and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, and intending to be legally bound, do hereby agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement:

1.1.    "Action" means any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or other tribunal, including without limitation any arbitrator.

1.2.    "Affiliate" means, with respect to any Entity, any other Entity directly or indirectly controlling, controlled by, or under common control with such other Entity. For purposes of the immediately preceding sentence, the term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with" as used with respect to any Entity) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Entity whether through ownership of voting securities, by contract or otherwise.

1.3.    "Agreement" means this Asset Purchase And Software License Agreement.

1.4.    "Assignment and Assumption Agreement" shall have the meaning set forth in Section 11.2(d).

1.5.    "Assumed Liabilities" shall have the meaning set forth in Section 3.1.

1.6.    “Attorneys' Fees” means all reasonable outside attorneys’ fees and out-of-pocket expenses. 

1.7.    “Autodesk” means Autodesk, Inc., a corporation organized under the laws of Delaware.

1.8.    “Blank” means Jonathan Blank, an individual with the following mailing address: c/o Wildform, Inc., 8725 Venice Boulevard, Los Angeles, California 90034.

1.9.    “Books and Record Event” means the occurrence of any of the following two events: (a) On2 being required under applicable SEC rules to conduct an audit of historical financial information relating to the Purchased Assets or Licensed Assets or (b) a claim asserted against Buyer or any other member of Buyer Group by a third party for which Buyer or any other member of Buyer Group is entitled to indemnification from Seller pursuant to Section 13.1 hereof.

1.10    "Buyer" means On2 Technologies, Inc., with its principal place of business located at 21 Corporate Drive, Suite 103, Clifton Park, New York.

1.11.    "Buyer Group" shall have the meaning set forth in Section 13.1.

1.12.     “Buyer License” means the licenses granted by Buyer to Seller under Sections 9.2(a) and (b).

1.13.    “Buyer Licensed Software” means (i) the object and source code of the Purchased Flix Software and, (ii) when made generally available for commercial licenses, [*] and related documentation.

1.14.    “Change of Control” shall have the meaning set forth in Section 15.2.

1.15.    "Closing" shall have the meaning set forth in Section 4.2.

1.16.    "Closing Date" shall have the meaning set forth in Section 11.1.

1.17.    "Closing Date Payment Amount" means One Million Fifteen Thousand Dollars ($1,015,000).

1.18.    "Contracts" means all written non-click through license agreements and royalty bearing agreements ( whether currently-effective or expired or terminated during the last 18 months prior to the Effective Date ) relating to the Licensed Flix Software or Purchased Flix Software.

1.19.    "Damages" means any and all debts, losses, claims, damages, costs, fines, judgments, penalties, obligations, payments, expenses and liabilities of every type and nature (including without limitation those arising out of any Action), together with any reasonable costs and expenses (including, without limitation, Attorneys' Fees) incurred in connection with any of the foregoing, including, without limitation, the reasonable cost of the investigation, preparation or defense of any Action in connection therewith; provided, however, that the foregoing shall be net of tax benefits, insurance proceeds or other recoveries from third parties.

1.20.    “Devitt” means Colby Devitt, an individual with the following mailing address: c/o Wildform, Inc., 8725 Venice Boulevard, Los Angeles, California 90034.

1.21.    “Discreet Contract” means that certain License Agreement by and between Seller and Autodesk, Inc., dated as of March 17, 2005.

1.22.    “Dollars” or “$” means the lawful money of the United States of America.

1.23.    "Effective Date" shall the date first set forth above.

1.24.    “Employee” means any employee of Seller.

1.25.    "Entity" means any individual, corporation, partnership, limited liability company, trust or unincorporated organization or other entity.

1.26.    “Escrow Agreement” means an escrow agreement substantially in the form attached hereto as Exhibit B.

1.27.    “Escrow Amount” means $200,000.

1.29    “Flash Format” shall mean the Macromedia .flv and . swf file formats and any successor thereto or derivative thereof used from time to time for rich media files capable of being decoded, played and/or displayed on a Flash Player.

1.30.    [*]

1.31.    “Flash Video” means video compressed using a video codec and stored or streamed in the Flash Format, but specifically not Flash Screen Capture Video or video in any other format.

1.32.    “Flash Screen Capture Video” means video compressed using a video codec that is specifically designed and optimized for the recording of a computer screen in action and is stored or streamed in the Flash Format.

1.33.    “Flix Intellectual Property” has the meaning set forth in Section 5.11.

1.34    “Flash Player” means any past, present or future generation of Macromedia’s rich client software capable of displaying video, text, graphics, animations, sound, application forms and other two-way communications.

1.35.    “Flix Agreement” means the Flix Support and Maintenance Agreement to be executed by the Parties at the Closing substantially in the form attached hereto as Exhibit C.

1.36.    “Flix Logos” means all right in the logos set forth on Schedule 1.33.

1.37.    “Flix Mark” means all rights in the trademark “FLIX”, including, without limitation, the following registration: “FLIX”, USPTO Reg. No. 2,717,548, Registered May 20, 2003.

1.38.    “Foreign Patent Rights” mean all patents granted by or patent applications pending before government patent authorities outside of the United States.

1.39.    "Intellectual Property" means domestic and foreign letters patent, patents, patent applications, docketed patent disclosures, patent licenses, other patent rights, trademarks, trademark registrations, trademark applications, trademark licenses, other trademark rights, service marks, service mark registrations, service mark applications, service mark licenses, other service mark rights, company names, trade names, trade name licenses, trade dress, brand names, brand marks, logos, slogans, ideas, processes, copyrights, copyright registrations, copyright applications, Know-How, Know-How licenses, computer software owned, computer software licenses, computer data, licenses and sublicenses granted and obtained with respect thereto, and any divisions, extensions, renewals, reissues, continuations, or continuations in part, and rights thereunder, remedies against infringement thereof, and rights to protection of interests therein under the laws of all jurisdictions with respect to any of the foregoing.

1.40.    "Know-How” means trade secrets, know-how (including product know-how and use and application know-how), formulas, algorithms, product designs, tool designs, inventions, specifications, quality control procedures, manufacturing, cost and pricing data, engineering and other drawings, technology, technical information, engineering data and design and engineering specifications, research records, market surveys and promotional literature, and supplier lists and similar data, including all depictions, descriptions, drawings and plans thereof.

1.41.    “Licensed Assets” means the Licensed Flix Software and Licensed E-Commerce Software.

1.42.    “Licensed E-Commerce Software” means the object and source code of the computer software listed on Schedule 1.40 to this Agreement, and related documentation.

1.43.    “Licensed Flix Software” means the object and source code of the computer software listed on Schedule 1.41 to this Agreement, and related documentation.

1.44.    “Licensed Intellectual Property” means Seller’s rights in Intellectual Property used in the design, development, production and commercialization of the Licensed Assets, but not including the Licensed Patent Rights

1.45.    “Licensed Patent Rights” means Seller’s patent rights in the invention claimed in U.S. Patent Application No. 09/880,169.

1.46.    "Lien" means any lien, mortgage, security interest, charge, pledge, retention of title agreement, adverse claim, easement, encroachment, restrictive covenant or other encumbrance affecting title to any property of any sort.

1.47.    “Macromedia” means Macromedia, Inc.

 1.48.    "Material Adverse Effect" means (a) an adverse effect on the, the Purchased Assets, Assumed Liabilities, Licensed Intellectual Property, financial condition or results of operations of Seller, taken as a whole (without giving effect to any effect on the Retained Assets or the Retained Liabilities), or (b) a material adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement.

1.50.    “Non-Competition Agreements” shall mean non-competition agreements between Buyer and each of Blank and Devitt containing the restrictions set forth in Article 14 hereof.

1.51.    "Party" means Buyer or Seller, referred to individually, and "Parties" means Buyer and Seller, referred to collectively.

1.52.    "Permits" means the permits, licenses, certificates, orders, consents, authorizations, franchises and other approvals from, or required by, any governmental authority that are used by or necessary to own and to commercialize the Purchased Assets, as currently configured and normally operated (or as proposed or required to be configured or operated), together with any applications for the issuance, renewal, modification, extension or expansion thereof and all supporting information and analyses.

1.53    “Permitted Activities” shall have the meaning set forth in Section 14.1.

1.54.    "Purchase Price" shall have the meaning set forth in Section 4.1.

1.55.    "Purchased Assets" shall have the meaning set forth in Section 2.1.

1.56.    “Purchased Intellectual Property” shall have the meaning set forth in Section 5.9(a).

1.57.    “Purchased Flix Software” means the object code and source code of those portions of the Flix Pro software product listed on Schedule 1.37 to this Agreement, and related documentation.

1.58.    “Registration Rights Agreement” means the agreement to be executed by the Parties at the Closing substantially in the form set forth in Exhibit E.

1.59.    "Retained Assets" shall have the meaning set forth in Section 2.2.

1.60.    "Retained Liabilities" shall have the meaning set forth in Section 3.2.

1.61.    "Returns" shall have the meaning set forth in Section 5.6(a).

1.62.    "Sale" means the purchase of the Purchased Assets and the assumption of the Assumed Liabilities by Buyer at the Closing.

1.63.    "Seller" means Wildform, Inc., a corporation organized and existing under the laws of the State of California, with its principal place of business located at 8725 Venice Boulevard, Los Angeles, California 90034.

1.64.    "Seller Group" shall have the meaning set forth in Section 13.2.

1.65.    "Survival Period" shall have the meaning set forth in Section 13.6(c).

1.66.    "Tax" or "Taxes" means (a) all income, profits, franchise, gross receipts, capital, sales, use, withholding, municipal license (patents), value added, ad valorem, transfer, employment, social security, disability, occupation, property, severance, production, excise and other taxes, duties and other similar governmental charges and assessments imposed by or on behalf of any government or taxing authority (including interest and penalties thereon and additions thereto), and (b) any obligations under any agreements or arrangements with respect to any Taxes described in clause (a) above.

1.67.    “Third Party Intellectual Property” shall have the meaning set forth in Section 5.9(b).

1.68.    "United States" means the 50 states of the United States of America and the District of Columbia.

1.69.    “Update” means changes or additions to [*] made generally commercially available by Buyer, including, without limitation, revisions, patches and bug fixes and maintenance releases, but not new versions.

ARTICLE 2

 

SALE AND PURCHASE OF PURCHASED ASSETS; LICENSE OF LICENSED ASSETS

2.1.     Purchased Assets . 

Subject to the terms and conditions hereof, Seller shall sell, assign, transfer and deliver to Buyer, and Buyer shall purchase, pay for and accept from Seller, the Purchased Assets. The sale, assignment, transfer and delivery of the Purchased Assets shall be free and clear of all Liens. Without limiting the generality of the foregoing, the term “Purchased Assets” shall mean, as the same exist on the Closing Date: 

2.2.     Retained Assets . 

Notwithstanding anything contained herein to the contrary, Seller shall not sell, and Buyer shall not acquire any and all assets of Seller not included in the Purchased Assets (the “Retained Assets”). Without limiting the generality of the foregoing, the Retained Assets shall include the Licensed Assets and all accounts and notes receivables arising from the Purchased Assets prior to the Closing Date.

2.3.     Licensed Assets . Subject to the terms and conditions hereof, Seller, as licensor, shall license to Buyer, as licensee, the Licensed Assets pursuant to the terms of Article 9 hereof.

ARTICLE 3

LIABILITIES

3.1.     Assumed Liabilities . On the Closing Date, Buyer shall assume and agree to pay, perform and discharge only (i) those liabilities and obligations accruing or arising after the Closing Date in respect of ownership of the Purchased Assets and (ii) the obligations arising under the Discreet Contract (collectively, the "Assumed Liabilities”) except for the First Year Discreet Support Obligation to the extent assumed by Seller pursuant to Section 8.5 hereof. Except as specifically set forth in the preceding sentence, Buyer shall not assume any other liabilities or obligations whatsoever of Seller.

3.2.     Retained Liabilities . Notwithstanding anything herein to the contrary, Seller agrees that it shall retain, and acknowledges that Buyer has not agreed to pay, shall not assume and shall not have any liability or obligation with respect to, any and all liabilities and obligations of Seller, whether fixed, absolute or contingent, material or immaterial, matured or unmatured, other than the Assumed Liabilities (the “Retained Liabilities”). Without limiting the generality of the foregoing, Retained Liabilities shall include the following:

(a)     All liabilities and obligations for Taxes in respect of the ownership or use of the Purchased Assets and the Licensed Flix Software prior to the Closing Date; 

ARTICLE 4

PRICE

4.1.     Purchase Price . 

The aggregate purchase price to be paid by Buyer to Seller pursuant to this Agreement (the "Purchase Price") shall consist of (a) the Closing Date Payment Amount, (b) the Escrow Amount, and (c) the assumption of the Assumed Liabilities. 

4.2.     Payment of Purchase Price . 

(a)     Closing Date Payment Amount . At the closing of the transactions contemplated hereby (the "Closing"), Buyer shall wire transfer, or cause to be wire transferred, to a bank account designated by Seller in writing at least three (3) business days prior to the Closing, in immediately available funds in Dollars, the Closing Date Payment Amount.

 

(b)     Escrow Amount . In addition, at the Closing, Buyer shall deposit with McGuireWoods LLP (the "Escrow Agent"), the Escrow Amount in immediately available funds in Dollars pursuant to the terms of the Escrow Agreement.

ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller makes the following representations and warranties to Buyer, each of which is true and correct on the date hereof, and shall survive after the Closing in accordance with Section 13.6(b).

5.1.     Organization; Power and Authority . Seller is a corporation duly organized, validly existing and in good standing under the laws of California. The Seller owns no equity interest in any other Entity. Seller has all requisite corporate power and authority to own or lease the Purchased Assets and Licensed Assets, to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

5.2.     Due Authorization and Execution; Effect of Agreement . The execution, delivery and performance by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action required to be taken on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller and constitutes the valid and binding obligation of Seller, enforceable in accordance with its terms.

 

5.3.     Financial Information . Schedule 5.3 annexed hereto contains a copy of the unaudited schedule of Seller’s revenue for the fiscal year ended December 31, 2004 (the “Revenue”), and a good faith estimate of the allocation of such revenue to the Purchased Assets and Licensed Assets (the “Financial Schedule”). The Financial Schedule was prepared in accordance with the books and records of Seller and presents fairly the Revenues on a cash basis (when payment was received by Seller). The books and records of Seller are in all material respects complete and correct and have been maintained in accordance with good business practice.   All amounts reflected on the Financial Schedule arose from bona fide transactions with unrelated parties in the ordinary course of business.

 

5.4.     Title to Purchased Assets . Except as set forth on Schedule 5.4 , Seller has good and exclusive title to the Purchased Assets and Licensed Assets free and clear of all Liens. As of the Closing Date, the Purchased Assets shall be free and clear of all Liens.

 

5.5.     Contracts .  Schedule 5.5 sets forth all of the Contracts. True and correct copies of all Contracts and any amendments thereto have been delivered to Buyer.

5.6.     Litigation . Except as set forth on Schedule 5.7 , no judgment, order, writ, injunction or decree of any court or other governmental agency is in effect against or with respect to Seller noris any Action related to the Purchased Assets pending or, to Seller’s best knowledge, threatened.

5.7.     Taxes . All federal, state, local, foreign and other tax returns, estimates, reports, declarations and forms (collectively, "Returns") relating to the Purchased Assets required to be filed have been accurately prepared and timely filed. Except for Taxes that are being contested in good faith and by appropriate proceedings, the following Taxes have (or by the Closing Date will have) been duly and timely paid: (i) all Taxes shown to be due on the Returns; and (ii) all deficiencies and assessments of Taxes of which written notice has (or by the Closing Date will have) been received by Seller that are or may become chargeable as a Lien upon the assets thereof. All Taxes required to be withheld with respect to the Purchased Assets and by or on behalf of Seller have been withheld, and such withheld Taxes have either been duly and timely paid to the proper governmental agencies or authorities or, if such payment is not yet due, set aside in accounts for such purpose and will be paid when due. No state or local sales taxes have been collected or are required to be collected in connection with the Purchased Assets.

5.8.     Compliance with Laws . Seller is in material compliance with all federal, state, territorial, local and foreign laws, statutes, rules, regulations, judgments, orders, writs, injunctions and decrees applicable to the Purchased Assets. To Seller’s best knowledge, there is no Action pending or threatened relating to the foregoing.

5.9.     Permits . Seller has obtained all Permits.

5.10.     Intellectual Property .

(a)     Schedule 5.10 (a) sets forth a complete and correct list of Seller’s Intellectual Property used in the design, development, production and commercialization of the Purchased Assets (the “Purchased Intellectual Property” and, collectively with the Licensed Intellectual Property, the “Flix Intellectual Property”). None of the Flix Intellectual Property is the subject of any claim of invalidity and each is in full force and effect.

(b)     Schedule 5.10 (b) hereto sets forth a complete and correct list of all licenses to and from third parties for Intellectual Property used in the design, development, production and commercialization of the Purchased Assets and Licensed Assets (the “Third Party Intellectual Property”).

 

(c)     Seller owns all right, title and interest in the Purchased Intellectual Property. Except as set forth in Schedule 5.10(c), Seller owns all right, title and interest in and to, or holds valid licenses (as of the Effective Date) from third parties for, Intellectual Property necessary for or used in the design, development, production and commercialization of the Purchased Assets and the Licensed Assets.

 

(d)     Except with respect to Foreign Patent Rights and only to the extent set forth in the second sentence of this subsection 5.10(d), the Purchased Assets and Licensed Assets, do not (as of the Effective Date) infringe or, to the best of Seller’s knowledge, allegedly infringe upon any rights owned or held by any other Entity. Notwithstanding the foregoing sentence, to the best of Seller’s knowledge, the Purchased Assets and Licensed Assets do not infringe or allegedly infringe upon any Foreign Patent Rights owned or held by any other Entity. There is not pending or, to Seller’s best knowledge, threatened any claim or Action against Seller or any Seller Affiliate contesting their rights to any Intellectual Property or the validity of the Intellectual Property, and there is to the best of Seller’s knowledge no infringement of the Purchased Intellectual Property or Licensed Intellectual Property by any other Entity.

 

5.11.     No Conflict . Except as set forth on Schedule 5.11, the execution, delivery and performance by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby: (a) will not result in a violation by Seller of any provision of any law, rule or regulation, order, writ, injunction, judgment or decree applicable to Seller with respect to any Purchased Asset or Licensed Asset; (b) will not require any consent or approval of, or filing with or notice to, any governmental or regulatory authority under any provisions of law applicable to Seller; (c) will not violate any provisions of the Certificate of Incorporation or By-Laws or comparable documents of Seller; (d) will not require any consent, approval or notice under, and will not conflict with, or result in the breach or termination of, or constitute a default, or an event which with notice or lapse of time or both would constitute a default under, or result in the acceleration of the performance by Seller under, any Contract or Permit; and (e) will not result in the creation of any Lien upon any of the Purchased Assets. No Entity has any right of first refusal, preemptive right, option or other right to acquire any of the Purchased Assets.

5.12.     Absence of Certain Changes . Except as disclosed in Schedule 5.12, since December 31, 2004, there has been no change or event that has had or could reasonably be expected to have a Material Adverse Effect.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer makes the following representations and warranties to Seller, each of which is true and correct on the date hereof, and shall survive after the Closing in accordance with Section 13.6(b).

6.1.     Organization; Power and Authority . 

Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Buyer has, or as of the Closing Date will have, all requisite power and authority, corporate and otherwise, to execute, deliver and perform the obligations of Buyer under this Agreement and to consummate the transactions contemplated hereby.

6.2.     Due Authorization and Execution; Effect of Agreement . 

The execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby have been or will be as of the Closing Date duly authorized by all necessary corporate action required to be taken on the part of Buyer. This Agreement has been duly and validly executed and delivered