PROPOSED MERGER WITH GOOGLE ENDORSED BY
THREE LEADING
INDEPENDENT PROXY ADVISORY
FIRMS
TIME IS SHORT--VOTE
FOR
THE PROPOSED MERGER
TODAY!
December
7, 2009
Dear On2
Stockholder:
Your
Board of Directors believes the proposed merger with Google is in the best
interests of On2 stockholders and provides a significant opportunity for On2
stockholders to receive greater value now for their shares than any uncertain
near- and long-term value that might be realized were On2 to remain
independent. The transaction delivers a significant premium to On2
stockholders, in the form of $0.60 worth of Google Class A Common Stock based
upon an exchange ratio in exchange for each share of On2 Common Stock and/or
cash payable in lieu of any fractional shares. The merger
consideration represents a premium of:
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Approximately
57% over the closing price of On2 Common Stock on August 4, 2009 (the
trading day on which the Board of Directors approved the merger
agreement);
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Approximately
62% over the average closing price of On2's Common Stock for the 6-month
period ending on August 4, 2009;
and
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Approximately
70% over the average closing price of On2 Common Stock over the 12-month
period ending on August 4, 2009.
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As
discussed in prior materials, there are a number of risks related to On2’s
business if the proposed merger is not consummated. Even though your
Board of Directors negotiated for the right to engage in discussions and
negotiations with third parties making unsolicited, written acquisition
proposals, you should be aware that since announcement of the merger agreement,
no such acquisition proposals or interest from third parties have been received
to date by On2.
VOTE
FOR
THE PROPOSED MERGER THAT HAS BEEN
ENDORSED BY
THREE LEADING INDEPENDENT PROXY ADVISORY
FIRMS
The
nation’s three leading independent proxy advisory firms--RiskMetrics Group,
Glass Lewis & Co. and PROXY Governance, Inc.--each recommend to their
subscribers that On2 stockholders vote to approve the proposed merger.
The
analyses and reports of these independent firms are relied upon by hundreds of
major institutional investment firms, mutual and pension funds and other
fiduciaries.
Most
recently, RiskMetrics stated in its December 4, 2009 report: “Given
the substantial premium, the growth potential opportunity for On2 shareholders
given their equity ownership in Google, and the reasonable breakup fee as a
percentage of enterprise value, the merger agreement warrants shareholder
support.”*
Both
Glass Lewis and PROXY Governance also recommend their clients vote FOR the
proposed merger. In its report, Glass Lewis believed that “On2 would
have a difficult time finding a buyer willing to pay a significantly higher
price than Google's offer, despite the value of On2's proprietary technology,
and that the purchase price is fair…. We also view the termination fee as a low
barrier for another potential buyer to step forward. Based on these
factors and the unanimous support of the board, we believe the proposed
transaction is in the best interests of shareholders.” In its
analysis, PROXY Governance stated: “[w]e support this transaction because it
appears to make strategic sense and place a fair value on the company based on
the overall market reaction and the premium offered. We also support
the board’s early and active engagement in the process.”*
* Permission to use quotations was
neither sought nor obtained.
MAKE SURE YOU KNOW THE
FACTS
We have
recently posted an investor presentation and some questions and answers about
the proposed merger, which include certain questions On2 has received from its
stockholders since the merger agreement was announced. If you have
not yet voted FOR the proposed merger, we urge you to carefully review these
materials at http://www.on2.com/. We have also included a selection
of those questions and answers for your convenience below:
Since the announcement of the merger
agreement, has the Board of Directors received any offers to acquire the
company?
No. Since the announcement of
the merger agreement, no other companies or entities have approached either the
Board of Directors or
the
company to inquire about a potential acquisition of On2.
Has
On2 received any indication that Google would raise its price or that it would
enter into a license agreement with On2 if the merger is not
approved?
No. On2
has not received any indication that Google would raise its price or that it
would enter into a license agreement with On2 in lieu of consummating the
merger. In fact, Google has indicated that $0.60 is the maximum
amount of consideration that it is willing to offer. In addition, and
as indicated above, Google has been operating without use of On2's VPx products
to date and can certainly conduct its business without the use of such
products. Moreover, based on prior discussions, we assume that if the
merger is not consummated Google may undertake to build or acquire its own codec
that would compete with On2 rather than pursue a significant license or other
material relationship with On2.
Was
the decision to accept Google’s proposal to enter into the merger agreement a
Board decision or a management decision?
The
decision to enter into the merger agreement was made by the Board of Directors,
and the merger agreement was approved by the Board of Directors as required
under Delaware law. The Board of Director’s determination was made
after deliberating in a total of 13 meetings covering a span of approximately
five months. The Board of Directors was advised by two independent
financial advisors and two leading law firms, and engaged in active and thorough
consultation with members of senior management.
Will
the members of the Board of Directors receive any future employment from Google
as a result of the transaction?
No. To
the contrary, all On2 directors will enter into letters of resignation at the
effective time of the merger. No On2 director (including On2’s Chairman) will
serve as a director, officer or employee of Google in connection with, or
following, the merger. For more information as to the interests of
On2’s directors in the merger, please see the sections entitled “On2 Executive
Officers and Directors Have Financial Interests in the Merger” beginning on page
76 and “Board of Directors and Management of Google Following Completion of the
Merger” beginning on page 83 of the proxy statement/prospectus.
Will
the members of the Board of Directors receive any future remuneration or
benefits from Google as a result of the transaction?
No. No
On2 director (including On2’s Chairman) will receive any cash, Google Restricted
Stock Units, other Google equity grants or other remuneration from Google in
connection with, or following, the merger. For more information as to
the interests of On2’s directors in the merger, please see the sections entitled
“On2 Executive Officers and Directors Have Financial Interests in the Merger”
beginning on page 76 and “Board of Directors and Management of Google Following
Completion of the Merger” beginning on page 83 of the proxy
statement/prospectus.
Are
there any undisclosed agreements between Google and On2’s Board of Directors or
officers?
No. On2
is required to disclose all of the interests that its directors and officers
have in the merger, and there are no undisclosed arrangements between Google and
any member of On2’s Board of Directors or its officers. For more
information as to the interests of On2’s directors and officers in the merger,
please see the sections entitled “On2 Executive Officers and Directors Have
Financial Interests in the Merger” beginning on page 76 and “Board of Directors
and Management of Google Following Completion of the Merger” beginning on page
83 of the proxy statement/prospectus.
Do
any directors own options with an exercise price above the $0.60 merger
consideration and, if so, what will happen to those options?
Yes. As
of October 20, 2009, directors held options to acquire an aggregate of 885,000
shares of On2 Common Stock that had an exercise price above $0.60 per
share. Those options will be cancelled and forfeited as a result of
the merger without any payment to the directors holding such
options. For more information as to the stock and option holdings of
the directors and their interests in the merger, see the sections entitled “On2
Executive Officers and Directors Have Financial Interests in the Merger
–Acceleration of Vesting of Equity Compensation” beginning on page 78 and
“Security Ownership of Principal Stockholders of On2” beginning on page 114 of
the proxy statement/prospectus.
If
all of the directors are losing their positions with On2 and are forfeiting
significant amounts of stock options in the merger, why did they approve this
transaction, as opposed to holding out for a different offer or opting to remain
independent?
The Board
of Directors approved the transaction because it believes that the proposed
merger with Google is fair to and in the best interests of On2
stockholders. Among the various factors that the Board of Directors
considered, it believed, and continues to believe, that the merger provides a
significant opportunity for On2 stockholders to receive greater value now for
their shares than any uncertain long-term value that might be realized were On2
to remain independent.
Since
On2’s expenses and debts appear to be close to or in excess of its available
cash on hand, would On2 consider filing for bankruptcy protection in the event
that the transaction with Google is not consummated, thereby wiping
out all stockholder value?
Not
necessarily. If the proposed merger is not consummated, On2 may be
required to secure additional financing to operate its business and to execute
its business plan. However, the availability of any such financing is
uncertain, and failure to secure it could further materially impair On2’s
liquidity and financial condition as well as the value of a stockholder’s
investment.
On2
has previously stated that it is a challenge to retain highly skilled
employees. In addition to the potential liquidity problems that On2
may face in the event that the transaction with Google is not consummated, and
which therefore could present additional challenges to On2’s ability to attract
and retain employees, does the fact that some of these employees have received
interest from a company such as Google further create retention challenges
?
As
previously disclosed, On2 has experienced, and expects to continue to
experience, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. The fact that On2’s key employees have
been given the prospect of being able to work at a company such as Google, and
on terms that a company such as Google is able to offer, will only increase the
challenges faced by On2 in retaining such key employees if the merger is not
consummated. If On2 does not succeed in attracting qualified new
personnel or retaining and motivating its current personnel, On2’s operating
results and revenues could be adversely affected.
Can
I change my vote?
YES. If
you are a holder of record, you may revoke any proxy at any time before it is
voted by signing and returning a proxy card with a later date, changing your
vote by telephone or the internet, delivering a written revocation letter to the
On2 Corporate Secretary, or by attending the special meeting in person,
notifying the On2 Corporate Secretary and voting by ballot at the special
meeting. The On2 Corporate Secretary’s mailing address is 3 Corporate Drive,
Suite 100, Clifton Park, NY 12065.
PROTECT YOUR INVESTMENT
—
VOTE
FOR
TODAY
We
believe this transaction is critical to you as a stockholder and to your
company. The Board of Directors believes the merger is in the
best interests of On2 stockholders and strongly recommends that On2 stockholders
vote FOR the proposed merger
. If you have any
questions, or need assistance in voting your shares, please call our proxy
solicitor, INNISFREE M&A INCORPORATED, TOLL-FREE at (877)
456-3488. (International holders may call +1 (412) 232
3565)
Thank you
for your attention to this matter.
Very
truly yours,
The Board
of Directors
Additional
Information and Where to Find It
Google
has filed a Registration Statement with the SEC in connection with the proposed
merger, which includes a Proxy Statement of On2 and also constitutes a
Prospectus of Google. The definitive proxy statement/prospectus has been mailed
to holders of On2 Common Stock identified as of October 20, 2009, which is the
notice record date for the special meeting. The Registration Statement and the
proxy statement/prospectus contain important information about Google, On2, the
proposed merger and related matters. Investors and security holders are urged to
read the Registration Statement and the proxy statement/prospectus (including
all amendments and supplements to it) carefully. Investors and security holders
may also obtain free copies of the Registration Statement and the proxy
statement/prospectus and other documents filed with the SEC by Google and On2
through the web site maintained by the SEC at www.sec.gov and by contacting
Google Investor Relations at +1-650-253-7663 or On2 Investor Relations at
+1-518-881-4299. In addition, investors and security holders can obtain free
copies of the documents filed with the SEC on Google’s website at
investor.google.com and on On2’s website at www.on2.com.
This
Presentation Does Not Contain All of the Information in the Proxy
Statement/Prospectus
Some of
the matters included in this communication are summaries of material information
set forth in the proxy statement/prospectus that has been mailed to shareholders
as described above. This communication may not contain all of the
information that is important to you. We urge you to read carefully
the entire proxy statement / prospectus and the other documents to which we
refer you therein in order to fully understand the merger and the related
transactions.
Forward-Looking
Statement
Information
set forth in this communication contains forward-looking statements, which
involve a number of risks and uncertainties. All statements included in this
communication, other than statements of historical fact, that address
activities, events or developments that On2 expects, believes or anticipates
will or may occur in the future are forward-looking statements. These statements
represent On2’s reasonable judgment on the future based on various factors and
using numerous assumptions and are subject to known and unknown risks,
uncertainties and other factors that could cause actual outcomes and/or On2’s
financial position to differ materially from those contemplated by the
statements. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. They use words such as
“believe,” “expect,” “will,” “anticipate,” “should,” “plans” and other words of
similar meaning. On2 cautions readers that any forward-looking information is
not a guarantee of future performance and that actual results could differ
materially from those contained in the forward-looking information. Investors
should not rely on forward-looking statements because they are subject to a
variety of risks and uncertainties and other factors that could cause actual
results to differ materially from On2’s expectation. Risks and uncertainties
include, among others: the extent to which On2 will continue to incur operating
losses in the future; the risk that the conditions to merger set forth in the
agreement and plan of merger will not be satisfied and the transaction will not
be consummated; uncertainties as to the timing of the merger; uncertainties as
to whether holders of On2 Common Stock will approve the merger proposal at the
On2 special meeting; changes in On2’s business during the period between now and
the effective time of the merger that could cause a condition to closing not to
be satisfied; as well as other factors detailed in On2’s and Google’s filings
with the SEC, including the definitive proxy statement/prospectus, and
subsequent SEC filings.
Additional
information concerning risk factors is contained from time to time in On2’s SEC
filings. On2 expressly disclaims any obligation to update the information
contained in this communication. The foregoing risks and uncertainties included
herein are not exhaustive.