On2 Reports Proposed Settlement with Shareholders Fighting Google Deal

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.”

8 responses to “On2 Reports Proposed Settlement with Shareholders Fighting Google Deal

  1. As a long-term shareholder, I will be voting NO! If there is a box for HELL NO!, I’ll be checking that as well. If managements want a yes they had better figure out that we don’t like NDA’s. We don’t like being lied to in conference calls and we don’t like it when senior management and directors put their interests ahead of shareholders. We don’t like it that On2 is spending their precious cash to do Google’s due diligence. If they can’t figure out the real worth of On2 then they should take the cap off this bid and let the market decide what it’s worth. That why they call it a stock market…

    Thanks for posting your story here and allowing me input…

  2. Thanks for the comment, John.

    I have two questions:

    1) Do you believe a significant number of On2 shareholders agree with your position?

    2) Can you prove the allegations you make above regarding lies on conference calls and alleged fiduciary-trust violations by company directors and executives?

  3. Yes I believe most will vote no and you only need to listen to the last cc where the CEO clearly stated that we were not being positioned to be bought out. Judge for yourself…

  4. You write the following and I think you are way off base. You do not seem to have followed what is happening. You are posting a company PR as a
    story.
    “According to SEC filings, video-compression vendor On2 Technologies appears to have settled its settled its differences with dissident shareholders who had launched lawsuits over how and at what price the company was sold to Google during the summer.”

    ONT has not been sold to google at this time!

    Google wants to take control of the ON2 (ONT)technology. Over 50,000,000 ONT shares represent they will vote against the takeover.
    The company issue is almost 180,000,000 shares.

    In 5 cases ON2 was dragged into court. ON2 has now aggreed to provide discovery information AND STOP FIGHTING THAT FIGHT AGAINST FIVE OF ITS SHAREHOLDERS. In a court case ON2 would have to provide discovery or be ordered to by the judge which may have happened in this case. I don’t know because ON2 is reluctant to discuss stuff with loyal investors who have stayed the course for years.

    Why is management fighting the shareholders and taking jobs at google and trying to sell the company for 60 cents on last years dollar is my question? The company is almost profitable now.

    “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.” ”

    The ON2 hantro division just released a chipset that provides 1080P clarity. (on2.com)

    Just this week ON2 announced that it had a good last quarter. It would have shown a $400,000 profit. But it had legal expenses from the google deal of almost $2,000,000. It lost $1,600,000 in the quarter and would have been profitable if it did not incur these costs that will help google take over the little company.

    It had a sizable sale that takes months of development time but it suggests that it does not know if it has similar sized deals ongoing so this deal is a kinda abberation. Talk about company gobbledegook ….why not kick yourself in the shins?

    It is clear that you are only superficially aware or barely aware of the huge level of discomfort between millions of ON2 shares holders and the takeover proposal. Many see google as the purchaser of last resort and expect this takeover at this price to fail. Even though Google has been evaluating the technolgy since October of 2008 and surely knows why it wants to control the technology it it only willing to offer 50 cents plus a dime.(60)

    The surpise is that competitors of Google and Android OS do not see themselves at risk and are sittting by the side of the road.

    If the company would stop spending 1/3 of quarterly revenue on oddball litigation and try to stand on its own it seems as though it could stand on its own now. It would be a toddler instead of a crawler. But it would be barely standing on it’s own.

    Someone who feels like a fool for believing that his investment would defended by the company he invested in. In Jan of 2008 ONT sold 20,000,000 shares and said that they were a good investment at a dollar a share. They also said that the synergy from hantro (12/2007) would take perhaps 18 months to generate recurring revenue streams the business model.

    Now they say 60 cents is what that dollar is worth. That is why I feel like a fool. Remember they could have been profitable last quarter.

    • Bruce,

      Thanks for the comment. You wrote: “ONT has not been sold to google at this time!”

      You are absolutely right. I had not intended to suggest that the deal was done, and I have modified the text accordingly.

  5. Is there anything else in the history as I lived through it that surprises you besides how follish I appear to have been?

    They do say that 60 cents is good value for last years dollar. They found two firms to publish similar stuff but the firms also frequently say DO NOT quote us in their paperwork.

    Some say that a PHd means you have learned to pile it higher and deeper. You must know that you can publish 100 pages but with cavates you still haven’t said much definitely. If then of course that might happen. Who wants to be out standing in the field when they could be outstanding in their field.

    Simple answers to straight forward questions are better.

  6. On2’s management and BOD is complicit in violating every confidence that a shareholder should expect in an equity that “they” own. This management team has spent over 25% of the last two quarter’s revenues in legal fees in supporting an action by them and Google in an effort to allow Google to steal this company for next to nothing. This (merger) has not been approved by the shareholders and the shareholders have yet to even see the official proxy.

    How can a public company’s management run it’s coffers dry in the attempt for said management’s personal gain and this not be construed as (at best) fiduciary irresponsibility and, more candidly, orchestrated embezzlement?

    Without these yet to be explained legal fees, ON2 would have shown a profit for the last two quarters. The management of this company seems surprised that we are gaining traction and recording sales that are amking us profitable. As such, they’ve spent close to $3 million in legal fees and case settlements in the last two quarters while withholding significant PRs that would have had this stock trading north of $2/share if they would just get out of their own way. They can’t do that, evidently. For to do so might jeopardize the sweetheart deals that they have been promised in consumating this deal.

    If one looks at the mandatory $0.60 cap on our share price since August 5th and Google’s 22% increase in their share price since the same day, one doesn’t have to be a slueth to witness, feel and smell the malfeasance.

  7. An Open Letter to Google Regarding the Proposed Acquisition of On2 Technologies

    http://www.prweb.com/releases/2009/11/prweb3231634.htm

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