On2 Technologies, Inc. board of directors hit by shareholder lawsuit

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Company Name(s): 
On2 Technologies
Case Name: 
On2 Technologies Inc. Dealcase Lawsuit
Case Status: 
Lawsuit Filed
Affected Securities
AMEX: ONT
Lawsuit Overview
Type of Lawsuit: 
Other
Class Period End: 
08/05/2009
Court of Filing: 
Delaware Chancery Court
Summary: 

Angry investors say On2 Technologies sold out too cheaply to Google in a $107 million sale that favors "certain insider shareholders". A On2 investor has filed a proposed securities class action lawsuit in Delaware Chancery Court on behalf of current investors of On2 Technologies, Inc. (Public, AMEX:ONT), who purchased the shares before August 5, 2009, over alleged breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover.

According to the complaint the plaintiff alleges breaches of fiduciary duty by the Board of Directors of On2 Technologies, Inc. (AMEX:ONT) arising out of their attempt to sell On2 Technologies to Google, Inc. The plaintiff alleges that "defendants rushed to announce the proposed transaction at $0.60 per share on August 5th ahead of the positive earnings results announced the next day, thereby placing a cap on the company's stock price".

On2 Technologies, Inc. (NYSE Amex: ONT) and Google Inc. (NASDAQ: GOOG) announced on Wednesday, August 05, 2009, that they have entered into a definitive agreement under which Google will acquire On2 Technologies, Inc. On2 Technologies announced that each outstanding share of On2 common stock will be converted into $0.60 worth of Google class A common stock in a stock-for-stock transaction and that the transaction is valued at approximately $106.5 million.

Google reportedly declined to comment on the lawsuit. The plaintiff is angry about various provisions, including a "no shop" clause and a $2 million termination fee if On2's board accepts a superior deal to ensure that no competing offers emerge. A previous investigation of a law firm said that “the transaction appears to be unfair” to current investors of On2 Technologies, Inc. (AMEX:ONT) “by failing to conduct an open and fair auction process for the Company” and the “offer to purchase On2 Technologies for $0.60 per share appears opportunistically timed to take advantage of the current economic downturn”. Therefore the investigation is primarily focused on whether Board of Directors of On2 Technologies, Inc.fulfilled their fiduciary duties to maximize shareholder value in connection with the proposal. Another investigation said the deal is unfair because “On2 Technologies stock traded at $0.65 per share as recently as May 13, 2009”.

On2 Technologies, Inc., located in Clifton Park, NY, a developer of video compression technology and technology that enables the creation, transmission, and playback of multimedia in resource-limited environments, such as cellular networks transmitting to battery operated mobile handsets or high definition (HD) video transmitted over the Internet. On2 Technologies, Inc. reported in 2007 Total Revenue of $13.24million and in 2008 Total Revenue of $16.27million. Shares of On2 Technologies, Inc. (Public, AMEX:ONT) traded at $ 0.599 per share after the announcement and at $0.39 per share the day before the announcement. Shares of On2 Technologies, Inc. (AMEX:ONT) were down from a 52weekHigh of $0.65 per share and over $3.40 per share in 2007.