According to SEC filings, video-compression vendor On2 Technologies appears to have settled its differences with dissident shareholders who had launched lawsuits over how and at what price Google had bid to acquire the company this past summer.
In their litigation, the unhappy shareholders alleged, among other things, that On2’s directors violated their fiduciary duty in not seeking another prospective buyer and in failing to negotiate a higher price from Google.
In the Form 8-K regarding the proposed shareholder settlement, the key legalese text reads as follows:
As previously disclosed in a Form 8-K filed by the Company on August 10, 2009, and as discussed in the Registration Statement under the caption “On2 Proposal 1 – The Merger – Litigation Related to the Merger,” since the proposed merger was announced on August 5, 2009, On2 has been served with five purported class action complaints, four filed in the Court of Chancery of the State of Delaware, which have been consolidated into a single action (the “Delaware Action”), and another filed in the Supreme Court of the State of New York, County of Queens (the “New York Action”). On September 17, 2009, plaintiffs in the Delaware Action filed a Consolidated Verified Class Action Complaint and plaintiff in the New York Action filed an Amended Class Action Complaint. In general, these pleadings allege, among other things, that the members of the On2 board of directors breached their fiduciary duties to the stockholders of On2 in connection with negotiating and entering into the merger agreement and by making materially misleading disclosures about the merger negotiations and merger terms in the initial preliminary proxy statement/prospectus and that Google and On2 aided and abetted in such alleged breaches of the directors’ duties. Both actions seek similar relief, including, among other things, declaratory and injunctive relief (including enjoining the closing of the proposed merger) and also seek damages in an unspecified amount.
Although On2, the On2 directors and Google believe that the Delaware Action and the New York Action are entirely without merit and that they have valid defenses to all claims, to minimize the costs associated with this litigation, on October 23, 2009, On2 and the On2 directors and the plaintiffs to each of the Delaware Action and the New York Action entered into a memorandum of understanding (“MOU”) contemplating the settlement of all claims in each of the Delaware Action and the New York Action. Under the MOU, the plaintiffs, on behalf of themselves and the putative class, agreed to settle all the aforementioned litigation and release the named defendants in the actions (including Google, which is not participating in the settlement) and their affiliates from, among other things, claims related to the merger. Pursuant to the terms of the MOU, On2 agreed to provide additional supplemental disclosures that are reflected in the proxy statement/prospectus, which forms a part of the Registration Statement. The settlement is contingent upon, among other things, further definitive documentation, approval of the settlement and the dismissal with prejudice of the actions by, respectively, the Delaware Court of Chancery and the Supreme Court of the State of New York. The proposed settlement is not in any way an admission of any wrongdoing or liability in connection with the plaintiffs’ allegations and the On2 directors maintain that they diligently and scrupulously complied with their fiduciary and other legal duties.
Neither the press release accompanying the SEC filing nor the filing itself discloses what recompense, if any, might have been agreed between the plaintiffs and defendants. The restive shareholders were vehemently adamant in their opposition to the deal, and I do not imagine they relented passively. Perhaps more information will be divulged — one way or another — shortly.
Just to recap, Google announced in early August that it would acquire On2 in a stock-based transaction valued at approximately $106.5 million, with each outstanding share of On2 common stock converted into $0.60 worth of Google class A common stock.
When the acquisition was first announced, Sundar Pichai, Google vice president of product management, said the following:
“Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform, We are committed to innovation in video quality on the web, and we believe that On2’s team and technology will help us further that goal.”