<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ON2.COM INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
3) Filing Party:
----------------------------------------------------------
4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
ON2.COM INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2000
------------------------
As a stockholder of ON2.COM INC., a Colorado corporation (the "Company"),
you are cordially invited to be present, either in person or by proxy, at the
Annual Meeting of Stockholders of the Company to be held at The Tribecca Film
Center, 375 Greenwich Street, New York, NY 10013, at 10:00 a.m., local time, on
May 17, 2000, for the following purposes:
1. To elect a Board of six (6) directors of the Company to serve until the
next annual meeting or until their successors are duly elected and
qualified;
2. To approve the 1999 Amended and Restated Incentive and Nonqualified
Stock Option Plan applicable to key employees, directors and other
providers of goods and services;
3. To approve an Agreement and Plan of Merger dated as of April 1, 2000
pursuant to which the Company's state of incorporation would change from
Colorado to Delaware, by means of the Company's merging with and into a
new Delaware corporation, also to be named On2.com Inc., so that the
stockholders of the Company would become shareholders of On2.com Inc., a
Delaware corporation;
4. To ratify the selection of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending December 31, 2000;
and
5. To transact such other business as may properly come before the meeting
or any continuation or adjournment thereof.
Only stockholders of record at the close of business on April 13, 2000 will
be entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. The transfer books will not be closed. Although not
entitled to vote on the Agreement and Plan of Merger, holders of the Company's
Preferred Stock are or may be entitled to assert dissenters' rights under
Colorado Business Corporation Act Article 113.
We hope you can attend the annual meeting in person. Even if you plan to
attend, however, we ask that you MARK, SIGN, DATE and RETURN the enclosed proxy
promptly in the enclosed self-addressed envelope, so that we may be assured of a
quorum to transact business. If you receive more than one proxy because you own
shares registered in different names or addresses, each proxy should be
completed and returned. Your proxy is revocable and will not affect your right
to vote in person in the event you are able to attend the meeting.
Your attention is directed to the attached Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS,
David S. Silver
SECRETARY
New York, New York
April 21, 2000
<PAGE>
ON2.COM INC.
375 GREENWICH STREET
NEW YORK, NEW YORK 10013
212/941-2400
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2000
------------------------
The Annual Meeting of Stockholders (the "Annual Meeting") of On2.com Inc., a
Colorado corporation (the "Company"), will be held on May 17, 2000, at the time
and place and for the purposes set forth in the Notice of Annual Meeting of
Stockholders accompanying this Proxy Statement. This Proxy Statement is
furnished in connection with the solicitation of proxies by the Board of
Directors on behalf of the Company in connection with such meeting and any
continuation or adjournment thereof.
The costs of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, certain directors, officers and employees of the Company
may solicit proxies in person or by telephone at no additional compensation. The
Company will also request record holders of Common Stock who are brokerage
firms, custodians and fiduciaries to forward proxy material to the beneficial
owners of such shares and upon request will reimburse such record holders for
the costs of forwarding the material in accordance with customary charges.
Any proxy given pursuant to this solicitation may be revoked by the filing
with and receipt by the Secretary of the Company of a written revocation or duly
executed proxy bearing a later date and does not preclude the stockholder from
voting in person at the Annual Meeting, if he or she so desires. The persons
named in the form of proxy solicited by the Board of Directors will vote all
proxies which have been properly executed. If a stockholder specifies on such
proxy a choice with respect to the proposal to be acted upon, the proxy will be
voted in accordance with such specification. IF NO DIRECTIONS TO THE CONTRARY
ARE INDICATED, THE PERSONS NAMED IN THE PROXY WILL VOTE THE SHARES REPRESENTED
THEREBY FOR THE ELECTION OF EACH OF THE NAMED NOMINEES FOR DIRECTOR AND FOR EACH
OF THE OTHER PROPOSALS LISTED ON THE PROXY CARD. If necessary, and unless the
shares represented by the proxy are voted against the proposals herein, the
persons named in the proxy also may vote in favor of a proposal to recess the
Annual Meeting and to reconvene it on a subsequent date or dates without further
notice, in order to solicit and obtain sufficient votes to approve the matters
being considered at the Annual Meeting.
This Proxy Statement and the enclosed form of proxy are first being sent to
the stockholders on or about April 21, 2000.
<PAGE>
VOTING SECURITIES
Only holders of record of the Company's Common Stock, no par value per share
("Common Stock"), at the close of business on April 13, 2000 (the "Record Date")
have the right to receive notice of and to vote at the Annual Meeting. As of the
Record Date, 24,780,162 shares of Common Stock were issued and outstanding. Each
holder of record of Common Stock is entitled to one vote for each share held
with respect to all matters to be voted upon at the Annual Meeting. Voting
rights of the Common Stock are noncumulative, so that holders of a majority of
the outstanding shares represented at the Annual Meeting can elect all of the
directors.
Presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting will
constitute a quorum. With respect to the election of directors, the six
(6) nominees receiving the greatest number of votes cast for the election of
directors will be elected. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock will be required to act on Proposals 2
and 3. Action on all other matters to come before the meeting, including
Proposal 5, shall be approved if the votes cast favoring the action exceed the
votes cast opposing the action, unless a greater number of affirmative votes is
required under Colorado law or the Company's Articles of Incorporation. Shares
for which the holder has elected to abstain or has withheld authority to vote
(including broker non-votes) on a matter will count toward a quorum but will
have different effects on the outcome of the vote on such matter. In the case of
Proposals 2 and 3, an abstention from voting on a matter has the same legal
effect as a vote against the matter, even though the stockholder may interpret
such action differently. A "broker non-vote" is a vote withheld by a broker on a
particular matter in accordance with stock exchange regulations because the
broker has not received instructions from the customer for whose account the
shares are held. Under applicable Colorado law, broker non-votes on a matter
will have no effect on the outcome of the vote, except in the case of Proposals
2 and 3.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The only persons known by the Company to beneficially own more than five
percent of the Company's Common Stock as of April 13, 2000, are as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP (NUMBER OF SHARES)(1)
-------------------------------------
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS TOTAL OF CLASS
- ------------------------------------ -------------- --------- --------
<S> <C> <C> <C>
Daniel B. Miller............................................ Common 1,708,856 6.90%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
Stanley Marder(2)........................................... Common 2,587,963 10.44%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
Travelers Insurance(3)...................................... Common 7,827,321 28.05%
399 Park Avenue
New York, NY 10022
Edelson Technology Partners III, L.P.(4).................... Common 3,033,049 11.91%
300 Tice Boulevard
Woodcliff Lake, NJ 07675
</TABLE>
- --------------------------
(1) Pursuant to current regulations of the Securities and Exchange Commission,
securities must be listed as "beneficially owned" by a person who directly
or indirectly has or shares the power to vote or to direct the voting of
("voting power") or the power to dispose or to direct the disposition of
("dispositive power") the
2
<PAGE>
securities, whether or not the person has any economic interest in the
securities. In addition, a person is deemed a beneficial owner if he has the
right to acquire beneficial ownership within 60 days, whether upon the
exercise of a stock option or warrant, conversion of a convertible security
or otherwise.
(2) Of such shares, 862,654 shares are owned of record by Goldman Sachs
International ("GSI"). The Company is relying on certain representations by
Mr. Marder that he retains beneficial ownership of such shares despite the
transfer to GSI. Mr. Marder served as chairman and a director of The Duck
Corporation until June 9, 1999.
(3) Includes 1,600,000 common shares, 400,000 shares of preferred stock
convertible into common shares and currently exercisable warrants to
purchase 445,762 common shares, owned by The Travelers Insurance Company,
and 3,104,717 common shares and currently exercisable warrants to purchase
2,276,842 common shares, owned by The Travelers Indemnity Company.
(4) Includes currently exercisable warrants to purchase 683,051 common shares.
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
The following information with respect to beneficial ownership, as of
February 29, 2000, of shares of Common Stock is furnished with respect to
(i) each director and nominee for director of the Company, (ii) each executive
officer named in the Summary Compensation Table appearing on page 8 of this
Proxy Statement, and (iii) all current directors and executive officers as a
group, together with their respective percentages:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP (NUMBER OF SHARES)(1)
---------------------------------
NAME AND ADDRESS TITLE OF PERCENT
OF BENEFICIAL OWNER CLASS TOTAL OF CLASS
- ------------------- ---------- --------- --------
<S> <C> <C> <C>
Daniel B. Miller ........................................... Common 1,708,856 7.04%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
David S. Silver ............................................ Common 793,405 3.27%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
Jack Rivkin(2) ............................................. -- -- --
Citigroup Investments Inc.
399 Park Avenue
New York, NY 10022
Ajmal Khan(3) .............................................. Common 262,500 1.08%
375 Greenwich Street
New York, NY 10013
Stephen Klein .............................................. -- -- --
c/o iBalls
487 Greenwich Street--5th Fl.
New York, NY 10013
Strauss Zelnick(4) ......................................... Common 9,582 0.04%
BMG Entertainment, Inc.
1540 Broadway--39th Fl.
New York, NY 10036
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP (NUMBER OF SHARES)(1)
---------------------------------
NAME AND ADDRESS TITLE OF PERCENT
OF BENEFICIAL OWNER CLASS TOTAL OF CLASS
- ------------------- ---------- --------- --------
<S> <C> <C> <C>
Barry Shereck(4) ........................................... Common 96,342 0.40%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
Alan Rojer(4) .............................................. Common 118,577 0.49%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
Timothy Murphy(5) .......................................... Common 231,235 0.94%
On2.com Inc.
375 Greenwich Street
New York, NY 10013
All current directors and executive officers as a group (9 Common 3,220,497 13.02%
persons)..................................................
</TABLE>
- ------------------------
(1) Pursuant to current regulations of the Securities and Exchange Commission,
securities must be listed as "beneficially owned" by a person who directly
or indirectly has or shares voting power or dispositive power with respect
to the securities, whether or not the person has any economic interest in
the securities. In addition, a person is deemed a beneficial owner if he has
the right to acquire beneficial ownership within 60 days, whether upon the
exercise of a stock option or warrant, conversion of a convertible security
or otherwise.
(2) Mr. Rivkin is a Director of On2.com Inc. and Executive Vice President of
Citigroup Investments, Inc. an affiliate of Travelers Insurance Company.
(3) Includes the right to purchase 200,000 shares of the Company's Common Stock
from Verus Investments Holdings, Inc.
(4) Represents shares that may be purchased within 60 days of February 29, 2000,
pursuant to outstanding vested stock options.
(5) Represents 2,668 common shares owned and shares that may be purchased within
60 days of February 29, 2000, pursuant to outstanding vested stock options.
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below have been nominated by the Board of Directors for
election to the Board of Directors at the Annual Meeting. All of the nominees
are currently directors and were elected at the last Annual Meeting of
Stockholders. The persons elected will hold office as directors of the Company
until the next Annual Meeting of Stockholders and until their successors are
elected and qualified. It is expected that each of the nominees will be able to
serve, but in the event that any such nominee is unable to serve for any reason,
the shares represented by properly executed proxies may be voted at the
discretion of the persons named therein for a substitute nominee or nominees.
The following table sets forth the names, ages, offices and business
experience, of the nominees and other information with respect to them:
NAME--AGE--OFFICE--BUSINESS EXPERIENCE--OTHER INFORMATION
Daniel B. Miller (40)
Co-founded The Duck Corporation in 1992 and has served as a
director since that time. He has served as President since 1994.
He was appointed CEO in June of 1999. He has an extensive
background beginning with practical applications of computer
technology that led to his entrepreneurial activities. As a
recording engineer, he designed computer-controlled musical
equipment. He co-founded Computer Crossware Labs, which developed
language products for the Atari ST and Amiga computers, and
developed hardware and software for use in computer music
production. As an independent software consultant, Mr. Miller
worked on various audio, video, and multimedia projects. In 1991
he commenced work on video compression algorithms. Mr. Miller is
the primary architect of the Company's video compression
technology. As President and CEO, he is responsible for corporate
policy, strategy, general management and organization and as Chief
Technical Officer, he oversees ongoing research and development of
video compression technology.
David S. Silver (38)
Serves as Chief Operating officer and director. Mr. Silver has
served as a director of the Company since June of 1999. When he
joined the company in 1993, Mr. Silver had a varied background in
software development and media production. As an independent
developer, he produced MIDI music software applications published
by Dr. T's Music Software, Opcode Systems and Aesthetic
Engineering. Earlier in his career, he was a Research Associate at
the Columbia University Biology Department Computer Graphics
facility, and as a consultant to AT&T he was involved in the early
development of interactive laserdisc projects. Mr. Silver holds a
Bachelor of Fine Arts degree in Film and Television from the Tisch
School of the Arts at New York University, and a Master of Science
degree in Computer Science from the Courant Institute of
Mathematical Sciences, also at NYU.
Jack L. Rivkin (59)
Has served as a director since May of 1997. Mr. Rivkin is
Executive Vice President of Citigroup Investments, Inc., a
subsidiary of Citigroup. He was Vice Chairman and Director of
Global Research at Smith Barney from March 1993 to October 1995.
From 1987 to 1992, Mr. Rivkin was Director of the Equities
Division and Director of Research of Lehman Brothers. From 1984 to
1987, Mr. Rivkin was President of Paine Webber Capital, Inc., the
merchant banking arm of Paine Webber Group, and Chairman of
Mitchell Hutchins Asset Management. He has held various senior
management positions in the securities and investment management
industries since 1973. He is a
5
<PAGE>
director of a number of private venture companies in which
affiliates of Citigroup Investments, Inc. have an investment.
Mr. Rivkin graduated with distinction from the Harvard University
Graduate School of Business Administration in 1968 with an MBA and
the Colorado School of Mines in 1962 with a degree in
Metallurgical Engineering. He is an adjunct professor at the
Columbia University Graduate School of Business. Mr. Rivkin also
is a director of Celltech Group PLC and of PRT Group Inc.
Ajmal Khan (38)
Has served as a director since June of 1999. Mr. Khan is President
and CEO of Verus International Group Ltd. and founded Verus
Capital Corporation, a diversified investment group in 1989 and
has served as its President and Chief Executive Officer since its
inception. Mr. Khan serves on the board of directors of private
and publicly quoted companies including eMagine Corporation,
Wattage Monitor Inc., PredictIt Inc. and iParty Corp.
Stephen D. Klein (40)
Has served as director since December of 1999. From 1997 to the
present, Mr. Klein has been Chairman of iBalls (now a Division of
Avenue A), an Internet Media data marketing company he founded.
From 1991 to 1999 Mr. Klein held various positions in the
advertising industry; at Grey Advertising, New York; at Scali
McCabe Sloves (which is now mergerd into an agency called Lowe &
Partners); and as Managing Partner/ Director of Media and
Interactive Services at Kirshenbaum, Bond & Partners, founding the
agency's media department as well as its interactive services.
Mr. Klein is a founding partner and serves as a Managing Director
of Dawntreader LP, a venture capital fund dedicated to early-stage
Internet companies. As a member of Dawntreader and as an angel
investor and company incubator, Mr. Klein has venture investments
in more than twenty-five Internet businesses. Mr. Klein serves as
chairman of the board of Wattage Monitor (WMON), and sits on the
board of Flashbase Inc.
Strauss Zelnick (42)
Has served as director since January of 2000. From 1994 to
present, Mr. Zelnick has been an executive with BMG. In July 1998
he was appointed President and Chief Executive Officer of BMG
Entertainment. From December 1994 to July 1998 Mr. Zelnick was
President and Chief Executive Officer of BMG's North American
business unit. From 1993 to 1994 he was President and Chief
Executive Officer of Crystal Dynamics, a producer and distributor
of interactive entertainment software. From 1989 to 1993
Mr. Zelnick was President and Chief Operating Officer of 20th
Century Fox. From 1986 to 1989 he served in senior executive roles
at Vestron Inc. becoming President and Chief Operating Officer in
1988. From 1983 to 1986 Mr. Zelnick served as Vice President,
International Television for Columbia Pictures. Mr. Zelnick is an
associate member of the National Academy of Recording Arts and
Sciences and serves on the Board of Directors of the Recording
Industry Association of America. He holds an MBA and a JD from
Harvard University and a BA from Wesleyan University. Mr. Zelnick
also serves as a director of Insignia Financial Group, Inc.
No family relationship exists between any of the nominees for election as
directors of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who own more than 10% of any class of the Company's capital stock to
file with the Securities and Exchange Commission initial reports of ownership
6
<PAGE>
and reports of changes in ownership and to provide copies of such reports to the
Company. Based solely on a review of the copies of such reports furnished to the
Company and written representations that no other reports were required to be
filed during the fiscal year ended December 31, 1999, the Company believes that
all filing requirements applicable to its officers, directors and beneficial
owners of greater than 10% of its Common Stock have been complied with during
the most recent fiscal year, with the exceptions that Messrs. Khan, Klein and
Rivkin filed Form 5's, within 45 days following the end of the Company's fiscal
year, in the place of Form 3's, with regard to their ownership as of the dates
on which they became directors of the Company, and that Mr. Marder filed a
Form 3 more than 10 days following the date that he became the beneficial owner
of greater than 10% of the Company's Common Stock.
BOARD OF DIRECTORS AND COMMITTEES
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during fiscal 1999. All directors
attended 75% or more of the meetings, including regularly scheduled and special
meetings and the meetings of all committees of the Board of Directors on which
they served, that were held in fiscal 1999 during the periods in which they were
directors or served on such committees.
COMMITTES OF THE BOARD OF DIRECTORS
The Company has a standing audit committee and a standing compensation
committee. The Company does not have a standing nominating committee.
AUDIT COMMITTEE. The Board of Directors has established an audit committee
consisting of Jack Rivkin and Ajmal Khan. The audit committee makes
recommendations to the Board of Directors concerning the engagement of
independent public accountants and the scope and results of the audit
engagement, approves professional services provided by the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls. The audit committee met
once during 1999.
COMPENSATION COMMITTEE. The Board of Directors has established a
compensation committee consisting of Jack Rivkin and Ajmal Khan. The
compensation committee determines and establishes compensation levels on an
annual basis for the Company's executive officers and administers the Company's
Stock Option Plan. The compensation committee met four times in 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 9, 1999, the Company entered into a Separation and Release
Agreement with Mr. Stanley Marder, a shareholder and former chairman and
director of the Duck Corporation. In connection with the agreement, among other
things, the Company repurchased 302,374 shares of the Company's Common Stock
from Mr. Marder at a price of $1.12 per share through the issuance of a note
payable to Mr. Marder.
At December 31, 1999, the Company had a note receivable from Mr. Marder of
$294,624. Under the terms of the Separation and Release Agreement, on
January 15, 2000 the Company offset the remaining balance of the note payable to
Mr. Marder against the notes and advances receivable from him.
Additionally, the Company agreed to pay Mr. Marder $10,000 per month for a
period of eight months for consulting services related to marketing and business
development. During fiscal 1999 the Company paid Mr. Marder $66,667 for
consulting services.
Ajmal Khan, one of the Company's directors, owns all of the securities of
Verus Capital Corporation ("Verus"), a diversified investment group. On
June 15, 1999, the Company entered into a two-year consulting contract with
Verus whereby the Company pays to Verus $12,500 per month in exchange for
7
<PAGE>
management and consulting services. During fiscal 1999, the Company paid Verus
$75,000 in consulting fees and reimbursed Verus $8,864 for expenses incurred on
behalf of the Company.
Pursuant to the acquisition of the assets of MetaVisual, the Company issued
to the selling shareholders of MetaVisual, who became shareholders of the
Company, notes payable in the amount of $350,000 due September 27, 2000 and
bearing interest at a rate of 8% per annum.
The Company has committed to purchase certain Internet advertising services
from February 2000 through May 2000 from iBalls LLC ("iBalls"), an interactive
media buying and marketing services company of which Stephen Klein, a director,
is chairman. During this period, the Company expects to purchase approximately
$400,000 in advertising space on third-party Internet publishers through iballs,
utilizing iBalls to execute, track and optimize these advertising purchases.
Management believes that the costs incurred for the advertising and for iBall's
services are at fair market value for such services.
EXECUTIVE COMPENSATION
The table below sets forth, for the fiscal year ended December 31, 1999, the
three-month transition period ended December 31, 1998, and the fiscal year ended
September 30, 1998, the annual and long-term compensation for services in all
capacities to the Company and its subsidiaries of those persons who, at
December 31, 1999, were the Company's Chief Executive Officer and the next four
highest compensated executive officers (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
------------------------------ ------------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS($) OPTIONS/SARS(#)(2) ($)(3)
- --------------------------- -------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Daniel Miller.......................... 1999 $150,000 $75,000 -- $1,125
President, CEO and Director 1998-T 41,296 -- -- 310
1998 221,478 -- -- 1,661
David Silver........................... 1999 $127,500 $15,000 -- $1,275
Chief Operating Officer and Director 1998-T 32,571 -- -- 330
1998 167,855 -- -- 1,679
Barry Shereck(4)....................... 1999 $175,547 $15,000 66,700 $ 439
Chief Financial Officer 1998-T 43,887 -- -- 110
1998 160,645 -- 111,167 365
Alan Rojer(5).......................... 1999 $175,851 -- 88,933 $1,000
Director of Research and Development 1998-T 43,963 -- -- --
1998 175,355 -- 133,400 1,315
Timothy Murphy......................... 1999 $125,000 -- -- $1,250
Director of Research 1998-T 32,464 -- -- 325
1998 127,452 -- -- $1,275
</TABLE>
- ------------------------
1) After the recent merger with The Duck Corporation ("Duck") on June 15, 1999,
the historical records of Duck became the historical records of the Company.
The fiscal year end of Duck was September 30. The Company's fiscal year end
remained December 31. Under SEC reporting rules, this constitutes a change
in fiscal year as of the merger date and results in the requirement for a
"transition report" for the historical three-month period ended
December 31, 1998 to reconcile Duck's historical financial results to the
Company's December 31 year end. The results reported in the "Summary
Compensation Table" for the period designated "1998-T" are for the three
months transition period ended December 31, 1998.
8
<PAGE>
2) Options to acquire shares of common stock. The Company does not have any
outstanding stock appreciation rights.
3) Represents Company matching contributions under defined contribution plan.
4) Mr. Shereck was employed by The Duck Corporation effective November 1, 1997.
5) Mr. Rojer was employed by The Duck Corporation effective July 1, 1997.
The Company did not pay to its Chief Executive Officer or any named
executive officer any compensation intended to serve as incentive for
performance to occur over a period longer than one year pursuant to a long-term
incentive plan in the fiscal years ended September 30, 1998, December 31, 1999
or the three month transition period ended December 31, 1998. The Company does
not have any defined benefit or actuarial plan with respect to its Chief
Executive Officer or any named executive officer under which benefits are
determined primarily by final compensation and years of service.
The following table sets forth additional information concerning individual
grants of stock options and/or stock appreciation rights during the last
completed fiscal year to any of the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR 10-YEAR
INDIVIDUAL GRANTS OPTION TERM(1)(2)(3)(4)
- --------------------------------------------------------------------------------------- -------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE
NAME GRANTED (#)(1) 1999 ($/SH) EXPIRATION DATE 5%($) 10%($)
- ---- --------------- ------------ ----------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Marder......... -- -- -- -- -- --
Daniel Miller.......... -- -- -- -- -- --
David Silver........... -- -- -- -- -- --
Barry Shereck.......... 66,700 3.6% 1.12 3/1/2009 46,981 119,059
Alan Rojer............. 88,933 4.8% 1.12 3/1/2009 62,641 158,745
Timothy Murphy......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The estimated fair market value of the common stock on March 1, 1999 (grant
date) was $1.12, as determined by the Board of Directors.
(2) The potential realizable value is calculated assuming the exercise price on
the date of grant appreciates at the indicated rate for the entire term of
the option and that the option is exercised at the exercise price and sold
on the last day of its term at the appreciated price. All options listed
have a term of 10 years. Stock price appreciation of 5% and 10% is assumed
pursuant to the rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price will appreciate over the 10-year
option term at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the common stock appreciates over the option
term, no value will be realized from the option grants made to the Named
Executive Officers.
(3) Based on the market value of the Company's common stock at December 31, 1999
of $29.00, the potential realizable value for Mr. Shereck would be
$2,942,804 and $4,567,616 assuming 5% and 10% appreciation, respectively,
over the remaining term of the options. The potential realizable value for
Mr. Rojer would be $3,923,724 and $6,090,132 assuming 5% and 10%
appreciation, respectively, over the remaining term of the options. Actual
gains, if any, on stock option exercises and common stock
9
<PAGE>
holdings are dependent on the future performance of the common stock and
overall market conditions. There can be no assurance that the amounts
reflected in this table will be achieved.
(4) These values do not take into account amounts required to be paid as income
taxes under the Internal Revenue Code of 1986 and any applicable state laws
or option provisions providing for termination of an option following
termination of employment, non-transferability or vesting.
The table below sets forth information with respect to option exercises
during fiscal 1999 and the number and value of options held at December 31, 1999
by each of the Named Executive Officers.
AGGREGATED EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END UNEXERCISED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 12/31/99 IN-THE-MONEY
# OF SHARES OPTIONS AT 12/31/99(1)$
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Marder........... -- -- -- -- -- --
Daniel Miller............ -- -- -- -- -- --
David Silver............. -- -- -- -- -- --
Barry Shereck............ -- -- 74,109 103,758 2,149,161 3,008,982
Alan Rojer............... -- -- 88,933 133,400 2,579,057 3,868,600
Timothy Murphy........... -- -- 228,567 35,565 6,628,443 1,031,385
</TABLE>
- ------------------------
(1) Based on a value of $29 per share, the closing price of the Company's common
shares on the American Stock Exchange on December 31, 1999, minus the share
exercise price, multiplied by the number of shares issued upon exercise of
the options.
10
<PAGE>
PROPOSAL 2
APPROVAL OF 1999 AMENDED AND RESTATED
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
INTRODUCTION
On February 1, 2000, the Board of Directors, by unanimous consent in lieu of
a meeting, approved the 1999 Amended and Restated Incentive and Non-Qualified
Stock Option Plan (the "Stock Option Plan"). The purpose of the Stock Option
Plan is to encourage and enable key employees (which term includes officers) and
directors of, as well as consultants, advisors and other persons providing goods
or services to, the Company or or any current or future parent or subsidiary of
the Company to acquire a proprietary interest in the Company, and to provide
members of the Company's executive management team and Board of Directors with
an additional incentive to promote the success of the Company. The Stock Option
Plan became effective on June 15, 1999, upon the adoption by the Board of
Directors subject to approval by the affirmative vote of the holders of a
majority of the outstanding shares of the Company.
DESCRIPTION OF THE PLAN
Under the Stock Option Plan, the persons identified in the preceding
paragraph are eligible to receive (a) Common Stock of the Company that is
subject to such restrictions upon the sale, assignment, transfer, pledge,
hypothecation or other encumbrance or disposal thereof as may be established by
the Board of Directors ("Restricted Stock") and/or (b) options to acquire Common
Stock of the Company. In each case, the award of options or Restricted Stock,
and all terms thereof, shall be determined by the Board of Directors. Subject to
adjustment upon changes in the capitalization of the Company, the aggregate
number of shares to be delivered under the Stock Option Plan may not exceed
5,500,000 shares. If an option expires or terminates for any reason during the
term of the Stock Option Plan prior to the exercise thereof in full, the shares
subject to but not delivered under such option shall be available for options or
awards thereafter granted. Options granted under the Stock Option Plan may not
be transferred, except (i) with the prior written consent of the Company,
(ii) by will or the laws of descent and distribution, (iii) pursuant to a
domestic relations order, as defined in the Internal Revenue Code, or
(iv) pursuant to Title I of the Employee Retirement Income Securities Act or the
Rules thereunder. Special provisions may apply to options granted to residents
of California.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan will be administered by the Board of Directors. Under
the Stock Option Plan, the Board of Directors may delegate any or all of its
functions to a committee of the Board of Directors consisting of at least two
members.
INCENTIVE STOCK OPTIONS
An option designated by the Board of Directors as an "incentive stock
option" is intended to qualify as an "incentive stock option" within the meaning
of Section 422 of the Internal Revenue Code. An incentive stock option may be
granted only to an employee of the Company or of any present or future parent
(if any) or subsidiary of the Company. The value of incentive stock options that
may be awarded to any individual is limited under the Stock Option Plan, and
optionees are not permitted to dispose of shares acquired pursuant to the
exercise of an incentive stock option without prior notice to the Board of
Directors until after the later of (i) the second anniversary of the date on
which the incentive stock option was granted or (ii) the first anniversary of
the date on which the shares were acquired; provided, however, that a transfer
to a trustee, receiver or other fiduciary in any insolvency proceeding is not
deemed to be such a disposition.
11
<PAGE>
RESTRICTED STOCK AWARDS
Under the Stock Option Plan, the Board of Directors also may make grants of
Restricted Stock to eligible employees. The Board of Directors shall establish
as to each award of Restricted Stock the terms and conditions upon which the
restrictions on disposition shall lapse, and the Board of Directors may, at any
time, in its sole discretion, accelerate the time at which any or all
restrictions will lapse or remove any and all restrictions. Restricted Stock may
be awarded by the Board of Directors, in its discretion, with or without cash
consideration.
TERM OF OPTION PERIOD
The term during which options or Restricted Stock awards may be granted
under the Stock Option Plan expires on June 14, 2009, and, except as otherwise
determined by the Board of Directors, the option period during which each option
may be exercised shall be ten years from the date of grant.
OPTION PRICE
The price at which shares may be purchased upon exercise of a particular
option will be as fixed by the Board of Directors, but in no event will that
price be less than the minimum required in order to comply with any applicable
law, rule or regulation, nor, in the case of incentive stock options, less than
one-hundred percent (or, in the case of incentive stock options granted to an
optionee who owns more than ten percent of the total combined voting power of
all classes of stock of the Company at the time such option is granted, less
than one-hundred and ten percent) of the fair market value (as defined in the
Stock Option Agreement) of such shares on the date such option is granted. As
used in the Stock Option Agreement, the term "fair market value" is defined by
reference to the closing price of the Common Stock on the relevant day, if the
Common Stock is then traded on a national securities exchange, or the closing
bid price of the Common Stock on such day, if the stock is traded on the NASDAQ
National Market System or Small-Cap Market System or, if not so traded, the
average of the closing bid and asked prices on such day.
CASHLESS EXERCISE
Under the terms of the Stock Option Plan, (i) an optionee who owns shares of
Company Common Stock may elect to use such shares, with the value thereof to be
determined as the "fair market value" of such shares on the day prior to the
date of exercise of the option, to pay all or part of the option price required
under the Stock Option Plan, and (ii) alternatively, an optionee may exercise a
vested option, in whole or in part, in a cashless exercise, by surrendering, in
addition to the options representing the shares being purchased, unexercised
options with a net "fair market value" equal to the price of the shares being
purchased.
ACCELERATION OF VESTING
An option granted under the Stock Option Plan shall automatically be vested
and immediately exercisable in full, and any restrictions on Restricted Stock
awards shall terminate, upon the occurrence of any of the following events:
(i) any person, within the meaning of Sections 13(d) and 14(d) of the Exchange
Act, other than the Company, becoming the beneficial owner, within the meaning
of Rule 13d-3 under the Exchange Act, of 30% or more of the combined voting
power of the Company's then outstanding voting securities, unless such ownership
has been approved by the Board of Directors immediately prior to such
acquisition, (ii) the purchase of Company Common Stock pursuant to a tender
offer or exchange offer, unless such offer is made by the Company or approved or
not opposed by the Board of Directors, (iii) approval by the stockholders of
(A) an agreement to merge or consolidate with or into another corporation in a
transaction in which the Company is not the survivor or (B) an agreement to sell
or otherwise dispose of all or substantially all of the Company's assets, unless
the option is to be (X) assumed
12
<PAGE>
by the successor corporation or parent thereof or replaced with a comparable
option for the purchase of shares of the capital stock of the successor
corporation or (Y) replaced with a cash incentive program of the successor
corporation that preserves the value of the option and provides for subsequent
payout in accordance with the vesting schedule applicable to the option, or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for any reason
to constitute at least a majority thereof (unless the election or the nomination
of each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of the
period). Any options assumed or replaced in accordance with the foregoing are
subject to acceleration in the event that the holder's employment or services
are terminated within two years following the event triggering such assumption
or replacement, unless such employment or services are terminated by the
successor corporation for cause (as defined in the Stock Option Agreement) or by
the holder voluntarily without good reason (as defined in the Stock Option
Agreement). In addition to acceleration of vesting and termination of
restrictions upon the occurrence of these events, the Board of Directors may at
any time or from time to time cause the acceleration of the vesting of any
individual option or permit any stock option not theretofore exercisable to
become immediately exercisable.
AMENDMENT OF THE STOCK OPTION PLAN BY THE BOARD OF DIRECTORS
The Board of Directors at any time may terminate the Stock Option Plan or
make such modifications or amendments of the Stock Option Plan as it deems
advisable without a vote of security holders, with the exceptions that the Board
of Directors may not (i) modify or amend the Stock Option Plan in a way that
would disqualify any incentive stock option issued pursuant to the Stock Option
Plan under Section 422 of the Code or (ii) increase the maximum number of shares
as to which options may be granted under the Stock Option Plan.
REGISTRATION OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS
On March 2, 2000, the Company filed a registration statement on Form S-8
that registers the shares of Common Stock that may be issued from time to time
as Restricted Stock or upon the exercise of options issued pursuant to the Stock
Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
In general, an employee, director or consultant who receives shares of
Restricted Stock will include in gross income as compensation income an amount
equal to the fair market value of the shares of Restricted Stock at the time the
restrictions lapse or are removed. This amount will be included in income in the
tax year in which the restrictions lapse, unless a timely election under
Section 83(b) of the Code is made to have the fair market value of the
Restricted Stock included in income at the time of the grant of the Restricted
Stock. The compensation income recognized by an employee is subject to income
tax withholding by the Company which the employee may pay in cash, by delivery
of shares or by having the Company retain shares equal to the withholding taxes.
Generally, an employee, director or consultant will not incur federal income
tax when granted a nonqualified stock option. Upon exercise of a nonqualified
stock option, an optionee generally will recognize compensation income equal to
the difference between the fair market value of the Common Stock on the date of
the exercise and the option price. Generally, such amounts will be included in
the optionee's gross income in the taxable year in which exercise occurs. The
compensation income recognized by an employee is subject to income tax
withholding by the Company.
Generally, an employee will not incur federal income tax when granted an
incentive stock option. Upon exercise of an incentive stock option, an optionee
generally will not recognize income subject to tax, unless the optionee is
subject to the alternative minimum tax. If the optioneet holds the Common Stock
acquired upon the exercise of an incentive stock option until the later of two
years after the option was
13
<PAGE>
awarded to the optionee or one year after the Common Stock was issued to the
optionee, then any profit or loss realized on the later sale or exchange of the
Common Stock will be capital gain or loss in an amount equal to the difference
between the option price and the amount received in the sale or exchange.
If the Stock Option Agreement so provides, an optionee may pay the purchase
price on the exercise of a nonqualified stock option or an incentive stock
option by delivery of cash or shares of Common Stock. Usually when an optionee
delivers shares of Common Stock in satisfaction of the purchase price, no
taxable gain is recognized on any appreciation in the value of the previously
held Common Stock.
Assuming that an employee's compensation is otherwise reasonable and that
the statutory limitations on compensation deductions by publicly-held companies
imposed under Section 162(m) of the Code do not apply, the Company usually will
be entitled to a business expense deduction at the time and in the amount that
the recipient of Restricted Stock or a nonqualified stock option recognizes
ordinary compensation income in connection therewith, as described above. No
deduction generally is allowed to the Company in connection with the exercise of
an incentive stock option, unless the employee disposes of the Common Stock
received upon exercise of such option in violation of the holding period
requirements.
This summary of Federal income tax consequences of Restricted Stock,
nonqualified stock options and incentive stock options does not purport to be
complete. There may also be state and local income taxes applicable to these
transactions.
GRANTS UNDER 1997 AND 1998 PLANS OF THE DUCK CORPORATION
Options granted under the Duck Corporation 1997 Amended and Restated Stock
Option Plan or the Duck Corporation 1998 Stock Option Plan will continue to be
governed by the terms of those plans, unless the grantees agree in writing that
their grants will be governed by the terms of the Stock Option Plan.
RECOMMENDATION
The Board of Directors recommends a vote FOR the proposed Stock Option Plan.
14
<PAGE>
PROPOSAL 3
APPROVAL OF REINCORPORATION PROPOSAL, INCLUDING
AGREEMENT AND PLAN OF MERGER
DESCRIPTION OF THE PROPOSAL AND THE AGREEMENT
The Board of Directors believes that the best interests of the Company and
its Stockholders will be served by changing the Company's state of incorporation
from Colorado to Delaware. As discussed below, the principal reasons for
reincorporation are the greater flexibility of Delaware corporate law, the
substantial body of case law interpreting the Delaware General Corporation Law
(the "DGCL"), and the increased ability of the Company to attract and retain
qualified directors. The Company believes that its stockholders will benefit
from the well-established principles of corporate governance that Delaware law
affords. Although Delaware law provides the opportunity for the Board of
Directors to adopt various mechanisms which may enhance the Board's ability to
negotiate favorable terms for the stockholders in the event of an unsolicited
takeover attempt, the proposed Certificate of Incorporation (the "Delaware
Certificate of Incorporation") and Bylaws for On2.com Delaware Inc. are
substantially similar to the Company's current Articles of Incorporation and
Bylaws. The Reincorporation Proposal is not being proposed in order to prevent
an unsolicited takeover attempt, nor is it in response to any present attempt
known to the Board of Directors to acquire control of the Company, obtain
representation on the Board of Directors or take significant action that affects
the Company.
The reincorporation will be effected by merging the Company with and into
On2.com Delaware Inc. On2.com Delaware Inc., a Delaware corporation, has
recently been organized at the direction of the Company to facilitate the
reincorporation. Upon completion of the reincorporation, the Company will cease
to exist in accordance with the Colorado Business Corporation Act (the "CBCA")
and On2.com Delaware Inc. will operate the business of the Company under the
existing Company name, On2.com Inc. Pursuant to the Agreement and Plan of Merger
between the Company and On2.com Delaware Inc. (the "Merger Agreement"), each
outstanding share of Common Stock, each outstanding share of Series A Preferred
Stock and each outstanding share of Series B Preferred Stock will be converted
automatically into one share of On2.com Delaware Inc. Common Stock, par value
$0.01 per share, one share of On2.com Delaware Inc. Series A Preferred Stock,
par value $0.01 per share, and one share of On2.com Delaware Inc. Series B
Preferred Stock, par value $0.01 per share, respectively.
On2.com Delaware Inc. will assume and continue the outstanding stock options
and all other employee benefit plans of the Company. Each outstanding and
unexercised option or other right to purchase shares of Common Stock will become
an option or right to purchase the same number of shares of On2.com
Delaware Inc. Common Stock on the same terms and conditions and at the same
exercise price applicable to any such option or stock purchase right as of the
Effective Date.
The discussion set forth below is qualified in its entirety by reference to
the Merger Agreement, the Delaware Certificate of Incorporation and the Bylaws
of On2.com Delaware Inc., copies which are attached hereto as Annexes A, B, and
C, respectively.
PRINCIPAL REASONS FOR THE REINCORPORATION
As the Company plans for the future, the Board of Directors and management
believe that it is essential to be able to draw upon well-established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based and the Board of Directors
believes that Stockholders will benefit from the responsiveness of the DGCL.
For many years Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has been a leader in adopting,
construing and implementing comprehensive, flexible corporate laws responsive to
the legal and business needs of corporations organized under its laws.
15
<PAGE>
Many corporations have chosen Delaware initially as a state of incorporation or
have subsequently changed corporate domicile to Delaware in a manner similar to
that proposed by the Company. Because of Delaware's prominence as the state of
incorporation for many major corporations, both the legislature and courts in
Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to corporate legal affairs.
Both the CBCA and the DGCL permit a corporation to include a provision in
its articles of incorporation or certificate of incorporation, as the case may
be, which reduces or limits the monetary liability of directors for breaches of
fiduciary duty in certain circumstances. The increasing frequency of claims and
litigation directed against directors and officers has greatly expanded the
risks facing directors and officers of corporations in exercising their
respective duties. The amount of time and money required to respond to such
claims and to defend such litigation can be substantial. It is the Company's
desire to reduce these risks to its directors and officers and to limit
situations in which monetary damages can be recovered against directors so that
the Company will continue to attract and retain qualified directors who
otherwise might be unwilling to serve because of the risks involved. The Company
believes that, in general, the DGCL provides greater protection to directors
than the CBCA and that Delaware case law regarding a corporation's ability to
limit director liability is more developed and provides more guidance than
Colorado case law.
There is substantial judicial precedent in the Delaware courts as to the
legal principles applicable to measures that a corporation may take and as to
the conduct of the Board of Directors under the business judgment rule. The
Company believes that the stockholders will benefit from the well-established
principles of corporate governance that the DGCL affords.
NO CHANGE IN THE NAME, BOARD MEMBERS, BUSINESS, MANAGEMENT, EMPLOYEE BENEFIT
PLANS OR LOCATION OF PRINCIPAL FACILITIES OF THE COMPANY
The Reincorporation Proposal will effect a change in the legal domicile of
the Company, but not its physical location. The reincorporation will not result
in any change in the name, business, management, fiscal year, assets or
liabilities (except to the extent of legal and other costs of effecting the
reincorporation) or location of the principal facilities of the Company. The
Directors of the Company will become the Directors of On2.com Delaware Inc.
On2.com Delaware Inc. will assume all of the Company's employee benefit plans.
All stock options, warrants or other rights to acquire Common Stock will
automatically be converted into an option or right to purchase the same number
of shares of On2.com Delaware Inc. common stock at the same price per share,
upon the same terms, and subject to the same conditions. The Company's other
employee benefit arrangements will also be continued by On2.com Delaware Inc.
upon the terms and subject to the conditions currently in effect.
NO SURRENDER OF STOCK CERTIFICATES
After the effective date of the reincorporation, certificates that represent
shares of Company Common Stock will automatically represent the same number of
shares of On2.com Delaware Inc. Common Stock, certificates that represent shares
of Company Series A Preferred Stock will automatically represent the same number
of shares of On2.com Delaware Inc. Series A Preferred Stock, and certificates
that represent shares of Company Series B Preferred Stock will automatically
represent the same number of shares of On2.com Delaware Series B Preferred
Stock.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
All On2.com Delaware Inc. Common Stock and all On2.com Delaware Inc.
Preferred Stock issued as a result of the reincorporation will be deemed issued
as of the Effective Date. After the Effective Date, stockholders of the Company
will be entitled to vote the number of shares of On2.com Delaware Inc.
16
<PAGE>
Common Stock and On2.com Delaware Inc. Preferred Stock, respectively, into which
their shares of Company Common Stock and Company Preferred Stock have been
converted.
MARKET FOR COMMON STOCK
The Company Common Stock is traded on the American Stock Exchange under the
symbol "ONT." As of April 10, 2000, there were 152 record holders of Company
Common Stock. Because On2.com Delaware Inc. is a newly formed corporation and
there is currently no established trading market for its securities, no
information can be provided as to historical market prices for On2.com
Delaware Inc. Common Stock. It is intended that, upon the Effective Time, such
shares would, like Company Common Stock, be traded on the American Stock
Exchange under the symbol "ONT".
The following table sets forth, for the fiscal periods indicated, the
highest and lowest sales prices of the Company Common Stock on The American
Stock Exchange.
<TABLE>
<CAPTION>
RANGE OF
SALES
PRICES
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal year ended December 31, 1999
Second quarter............................................ 13.125 7.516
Third quarter............................................. 21.250 7.063
Fourth quarter............................................ 40.750 10.313
</TABLE>
On March 16, 2000, the high reported sale price of the Company Common Stock
on the American Stock Exchange was $18.625 and the low reported sale price of
the Company Common Stock on the American Stock Exchange was $17.6875.
ANTICIPATED DIVIDEND POLICY
The reincorporation is not expected to affect dividend policy. The Company
has never paid a cash dividend on its Common Stock and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. The payment
of cash dividends, if any, will be made only from assets legally available for
that purpose, and will depend on the Company's financial condition, results of
operations, current and anticipated capital requirements, restrictions under
then existing debt instruments and other factors deemed relevant by the Board of
Directors. Holders of On2.com Delaware Inc. Common Stock will be entitled to
receive dividends when, as and if declared by the Board of Directors of On2.com
Delaware Inc. out of funds legally available therefor.
RESALES OF ON2.COM DELAWARE INC. STOCK
On2.com Delaware Common Stock to be issued to stockholders of the Company in
connection with the reincorporation will be freely transferable by those
stockholders not deemed to be "affiliates" of On2.com Delaware Inc. or the
Company. Affiliates are generally defined as persons who control, are controlled
by, or are under common control with On2.com Delaware Inc. or the Company.
As is currently the case with respect to the Company and Company Common
Stock, shares of On2.com Delaware Inc. Common Stock acquired by a person who is
an affiliate of On2.com Delaware Inc. will be subject to the resale restrictions
of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
Under Rule 144, each affiliate of On2.com Delaware Inc. who complies with the
conditions of Rule 144 (including those that require the affiliate's sales to be
aggregated with those of certain other persons) would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (i) 1% of the outstanding shares of On2.com
Delaware Inc. Common Stock or (ii) the average weekly trading volume in such
shares during the
17
<PAGE>
preceding four calendar weeks. The ability of affiliates to resell shares of
On2.com Delaware Inc. Common Stock received in the reincorporation under
Rule 144 will be subject to On2.com Delaware Inc. having satisfied its Exchange
Act reporting requirements for specified periods prior to the time of sale.
Affiliates would be permitted to resell On2.com Delaware Inc. Common Stock
received in the reincorporation pursuant to an effective registration statement
under the Securities Act or an available exemption from the Securities Act
registration requirements.
ANTICIPATED EFFECTIVE DATE
If the holders of a majority of the outstanding shares of the Company
approve the Merger Agreement, it will become effective upon satisfaction of
certain conditions. When the Secretary of State of Colorado and the Secretary of
State of Delaware each has issued a Certificate of Merger, the reincorporation
will become effective (the "Effective Date"). Subject to receipt of any
requisite administrative approvals and the satisfaction of all other conditions
of the reincorporation, the parties believe the reincorporation will be
effective on or before May 26, 2000.
ABANDONMENT OR AMENDMENT OF THE MERGER AGREEMENT
Consummation of the reincorporation is subject to certain conditions as
specified in the Merger Agreement, including obtaining the required approval of
stockholders. The Merger Agreement may be abandoned by the affirmative vote of a
majority of the Board of Directors of either the Company or On2.com
Delaware Inc., whether or not the stockholders of the Company or On2.com
Delaware Inc. have cast their votes with regard thereto. The Merger Agreement
may be amended by the mutual consent of the parties with the authorization or
approval of the respective Boards of Directors of the Company and On2.com
Delaware Inc.; however, the consideration to be received by holders of Company
Common Stock cannot be changed after such stockholders have approved the Merger
Agreement without further stockholder approval.
ACCOUNTING FOR THE TRANSACTION
Upon consummation of the reincorporation, the historical financial
statements of the Company will become the historical financial statements of
On2.com Delaware Inc. Total stockholders' equity will be unchanged as a result
of the reincorporation.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax considerations
that may be relevant to holders of Company Common Stock who receive On2.com
Delaware Inc. Common Stock in exchange for their Company Common Stock and/or
On2.com Delaware Inc. Preferred Stock in exchange for their Company Preferred
Stock as a result of the proposed reincorporation. No state, local, or foreign
tax consequences are addressed herein.
This discussion does not address the federal income tax consequences of the
reincorporation that may be relevant to particular Company stockholders, such as
dealers in securities, or those Company stockholders who exercise dissenters'
rights or who acquire their shares upon the exercise of stock options. In view
of the varying nature of such tax considerations, each stockholder is urged to
consult his or her own tax advisor as to the specific tax consequences of the
proposed reincorporation, including the applicability of federal, state, local,
or foreign tax laws. Subject to the limitations, qualifications and exceptions
described herein, and assuming the reincorporation qualifies as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), the following federal income tax consequences generally
should result:
(a) No gain or loss should be recognized by the stockholders of the Company
upon conversion of their Company Common Stock into On2.com Delaware Inc. Common
Stock, or upon conversion of their
18
<PAGE>
Company Preferred Stock into On2.com Delaware Inc. Preferred Stock, in each case
pursuant to the reincorporation;
(b) The aggregate tax basis of On2.com Delaware Inc. Common Stock and
On2.com Delaware Inc. Preferred Stock received by each stockholder of the
Company in the reincorporation should be equal to the aggregate tax basis of
Company Common Stock and Company Preferred Stock, respectively, converted in
exchange therefor;
(c) The holding period of On2.com Delaware Inc. Common Stock and On2.com
Delaware Inc. Preferred Stock received by each stockholder of the Company in the
reincorporation should include the period during which the stockholder held his
Company Common Stock and Company Preferred Stock, as applicable, converted
therefor, provided such Company Common Stock or Company Preferred Stock, as
applicable, is held by the stockholder as a capital asset on the date of
reincorporation; and
(d) The Company should not recognize gain or loss for federal income tax
purposes as a result of the reincorporation.
The Company has not requested a ruling from the Internal Revenue Service
(the "IRS") with respect to the federal income tax consequences of the
reincorporation under the Code. The Company expects to receive an opinion from
its legal counsel, McGuire, Woods, Battle & Boothe LLP, substantially to the
effect that the reincorporation should qualify as a reorganization within the
meaning of Section 368(a) of the Code (the "Tax Opinion"). The Tax Opinion will
neither bind the IRS nor preclude it from asserting a contrary position, and
will be subject to certain assumptions and qualifications, including
representations made by the Company and On2.com Delaware Inc. The Company
believes the reincorporation will constitute a tax-free reorganization under
Section 368(a) of the Code.
DISSENTERS' RIGHTS
Although not entitled to vote on the Reincorporation Proposal, any holder of
shares of the Company's Series A Preferred Stock and any holder of shares of the
Company's Series B Preferred Stock is entitled to dissent with respect to the
Reincorporation Proposal and obtain payment of the fair value of such shares, in
accordance with the provisions of Article 113 of the Colorado Business
Corporation Act. A copy of Article 113 is attached hereto as ANNEX D, and the
following discussion is qualified in its entirety by reference to ANNEX D. Under
applicable Colorado law, a shareholder who has been given notice of dissenters'
rights and who wishes to assert dissenters' rights must cause the Company to
receive, before the vote on the Reincorporation Proposal is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated.
If the Reincorporation Proposal is approved, the Company will be required to
give written notice to all shareholders who are entitled to demand payment for
their shares under Article 113. Any shareholder who is given such notice and who
wishes to assert dissenters' rights must, in accordance with the terms of the
dissenters' notice (which terms shall include the date by which the Company must
receive a payment demand and certificates for certificated shares, which date
shall not be less than thirty days after the date the notice is given),
(a) cause the Company to receive a payment demand and (b) deposit the
shareholders' certificates for certificated shares.
Pursuant to applicable Colorado law, a record shareholder may assert
dissenters' rights on behalf of a beneficial owner of shares owned by such
record shareholder if the record shareholder dissents with respect to all shares
beneficially owned by such beneficial shareholder and causes the Company to
receive written notice which states such dissent and the name, address and
federal taxpayer identification number, if any, of such beneficial shareholder.
When a record shareholder dissents with respect to the shares held by any one or
more beneficial shareholders, each such beneficial shareholder must certify to
the Company that the beneficial shareholder and the record shareholder or record
shareholders of all shares owned beneficially by the beneficial shareholder have
asserted, or will timely assert, dissenters' rights as to all such
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shares as to which there is no limitation on the ability to exercise dissenters'
rights. In addition, a beneficial shareholder may assert dissenters' rights as
to shares held on the beneficial shareholders' behalf only if (a) the beneficial
shareholder causes the Company to receive the record shareholders' written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights and (b) the beneficial shareholder dissents with
respect to all shares beneficially owned by the beneficial shareholder.
Pursuant to applicable Colorado law, the proposed reincorporation does not
give rise to any appraisal or similar rights of dissenters with respect to
shares of the Company's Common Stock.
ANTI-TAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number of
measures through amendment of its certificate of incorporation or bylaws or
otherwise, which measures are designed to reduce the corporation's vulnerability
to unsolicited takeover attempts. The Reincorporation Proposal is not being
proposed in order to prevent an unsolicited takeover attempt, nor is it in
response to any present attempt known to the Board of Directors to acquire
control of the Company, obtain representation on the Board of Directors or take
significant action that affects the Company.
Nevertheless, certain effects of the Reincorporation Proposal may be
considered to have anti-takeover implications. Section 203 of the DGCL, from
which On2.com Delaware Inc. will not opt out, restricts certain "business
combinations" with "interested stockholders" for three years following the date
that a person or entity becomes an interested stockholder, unless the Board of
Directors approves the business combination and/or other requirements are met.
See "Significant Differences Between the Corporation Laws of Colorado and
Delaware--Shareholder Approval of Certain Business Combinations." Certain
measures permitted under the DGCL, which On2.com Delaware Inc. does not
presently intend to implement, include the use of cumulative voting,
establishing a staggered board of directors and delineating in the certificate
of incorporation or bylaws when shareholders may call a special meeting. The
CBCA provides for cumulative voting unless the company states in its articles of
incorporation that it will opt out of using cumulative voting. The Company has
chosen not to permit cumulative voting. The CBCA also permits the establishment
of a staggered board of directors, but the Company has not done so and neither
has On2.com Delaware Inc. The CBCA allows for a special meeting of shareholders
to be called when authorized under the bylaws or when called by resolution of
the board of directors. For a detailed discussion of certain of the changes that
will be implemented as part of the Reincorporation Proposal, see "Significant
Differences Between the Articles of Incorporation and the Delaware Certificate
of Incorporation." For a more complete discussion of differences between the
corporate laws of Colorado and Delaware, see "Significant Differences Between
the CBCA and the DGCL."
In addition, while both the CBCA and the DGCL permit a corporation to adopt
such measures as stockholder rights plans, designed to reduce a corporation's
vulnerability to unsolicited takeover attempts, there is substantial judicial
precedent in the Delaware courts as to the legal principles applicable to such
defensive measures and as to the conduct of a Board of Directors under the
business judgment rule with respect to unsolicited takeover attempts. The Board
of Directors has no current intention following the reincorporation to amend the
Delaware Certificate of Incorporation or Bylaws to include provisions which
might deter an unsolicited takeover attempt; however, in the discharge of its
fiduciary obligations to the Stockholders, the Board of Directors will continue
to evaluate the Company's vulnerability to potential unsolicited bids to acquire
the Company on unfavorable terms and to consider strategies to enhance the Board
of Directors' ability to negotiate with an unsolicited bidder.
SIGNIFICANT DIFFERENCES BETWEEN THE ARTICLES OF INCORPORATION AND THE DELAWARE
CERTIFICATE OF INCORPORATION
The Board of Directors believes that the following summary of the
significant differences between the Company's Articles of Incorporation and the
Delaware Certificate of Incorporation is a fair one, but it
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should be understood that it is merely a summary, does not purport to be
complete and is qualified in its entirety by reference to the Company's Articles
of Incorporation and the Delaware Certificate of Incorporation:
CHANGE IN PAR VALUE. The Articles of Incorporation currently authorize the
Company to issue up to 50,000,000 shares of Common Stock, no par value per
share, and 20,000,000 shares of Preferred Stock, no par value per share. The
Delaware Certificate of Incorporation provides that On2.com Delaware Inc. will
have 50,000,000 authorized shares of common stock, par value $0.01 per share,
and 20,000,000 shares of preferred stock, par value $0.01 per share.
PREFERRED STOCK. Like the Articles of Incorporation, the Delaware
Certificate of Incorporation provides that the Board of Directors is entitled to
determine the powers, preferences and rights, and the qualifications,
limitations or restrictions, of the authorized and unissued preferred stock.
Thus, although it has no current intention of doing so, the Board of Directors,
without shareholder approval, could authorize the issuance of preferred stock
upon terms which could have the effect of delaying or preventing a change in
control of the Company or modifying the rights of holders of the Common Stock
under either Colorado or Delaware law. The Board of Directors could also utilize
such shares for further financing, possible acquisitions and other uses. The
powers, preferences, rights, qualifications, limitations and restrictions of the
Series A Preferred Stock and the Series B Preferred Stock, respectively, are
identical under the Articles of Incorporation and the Delaware Certificate of
Incorporation.
QUORUM. The Bylaws provide that a majority of the shares entitled to vote
at any meeting shall constitute a quorum. The Bylaws of On2.com Delaware Inc.
provide that a majority of the shares entitled to vote will constitute a quorum.
SIZE OF THE BOARD OF DIRECTORS. The Bylaws provide for a Board of Directors
consisting of at least three but not more than seven directors as set by the
initial Board of Directors. The Delaware Certificate of Incorporation provides
that the initial Board of Directors will establish the number of directors,
which Board is named in the Certificate of Incorporation. The Bylaws of On2.com
Delaware Inc. also provide for a Board of Directors consisting of at least three
but not more than seven directors as set by the initial Board of Directors.
Under the CBCA, although changes in the number of directors, in general, must be
approved by a majority of the outstanding shares, the Board of Directors may fix
the exact number of directors within a stated range set forth in the articles of
incorporation or bylaws, if the stated ranges have been approved by the
shareholders. Delaware law permits the Board of Directors, acting alone, to
change the authorized number of directors by amendment to the bylaws, unless the
directors are not authorized to amend the bylaws or the number of directors is
fixed in the certificate of incorporation (in which case a change in the number
of directors may be made only by amendment to the certificate of incorporation
following approval of such change by the stockholders). The Delaware Certificate
of Incorporation provides that the number of directors will be as specified in
the Bylaws and authorizes the Board of Directors to adopt, alter or repeal the
Bylaws. Following the reincorporation, the Board of Directors could amend the
Bylaws to change the size of the Board of Directors without further stockholder
approval.
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS. Under the CBCA, a special
meeting of stockholders may be called by the Board Of Directors, the holders of
shares entitled to cast not less than 10% of the votes at such meeting and such
additional persons as are authorized by the Bylaws of the Company, or by
resolution. Under the DGCL, a special meeting of stockholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Bylaws of On2.com Delaware Inc.
authorize the President, the Board of Directors or the stockholders (by written
request of the holders of not less than 10% of the shares entitled to vote) to
call a special meeting of stockholders. Therefore, no substantive change is
contemplated in this provision, although the Board of Directors could in the
future amend the Bylaws of On2.com Delaware Inc. without stockholder approval.
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FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under the CBCA, any vacancy on
the Board of Directors other than one created by removal of a director elected
by a voting group of stockholders may be filled by the Board of Directors or the
stockholders. If the number of directors remaining is less than a quorum, a
vacancy may be filled by the affirmative vote of a majority of the directors at
a meeting held pursuant to notice or waivers of notice. A vacancy created by
removal of a director elected by a voting group of stockholders may be filled by
the Board of Directors or by the affirmative vote of a majority of the remaining
directors elected by such voting group of stockholders, unless the articles of
incorporation provide otherwise. Subject to any contrary provision in the
articles of incorporation, such vacancy may also be filled by the affirmative
vote of stockholders belonging to such voting group. Under the Bylaws of the
Company, any vacancy that shall occur on the Board of Directors may be filled by
a vote of a majority of the remaining directors of the Company even though such
remaining directors represent less than a quorum. Under the DGCL, vacancies and
newly created directorships may be filled by a majority of the directors then in
office (even though less than a quorum) or by a sole remaining director, unless
otherwise provided in the certificate of incorporation or bylaws (or unless the
certificate of incorporation directs that a particular class of stock is to
elect such director(s), in which case a majority of the directors elected by
such class, or a sole remaining director so elected, shall fill such vacancy or
newly created directorship). The bylaws of On2.com Delaware Inc. provide that
any vacancy may be filled by a majority of the directors then in office, though
less than a quorum.
LOANS TO DIRECTORS, OFFICERS AND EMPLOYEES. Under the CBCA, any loan or
guaranty to or for the benefit of a director of the corporation as a
"conflicting interest transaction" requires either: (i) approval of the majority
of disinterested directors after disclosure of material facts, (ii) approval of
the shareholders after disclosure of material facts, or (iii) that it be fair as
to the corporation. Pursuant to the Bylaws of On2.com Delaware Inc. and in
accordance with the DGCL, On2.com Delaware Inc. may make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
such action, in the judgment of the directors, may reasonably be expected to
benefit the corporation.
VOTING BY BALLOT. The Bylaws of the Company provide that the election of
directors at a stockholders' meeting may be, but is not limited to, vote by
hand, voice or ballot. The Delaware Certificate of Incorporation and the Bylaws
of On2.com Delaware Inc. provide for the same right to vote by these methods.
LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS. The Delaware Certificate of
Incorporation eliminates the liability of directors to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permissible under the DGCL, as such law exists currently or
as it may be amended in the future. The limitations imposed on such a provision
under the DGCL are substantially similar to the limitations imposed by the CBCA.
COMPROMISE OR ARRANGEMENT. The Delaware Certificate of Incorporation
includes provision for compromise or arrangement between the corporation and its
creditors and/or shareholders, subject to the requisite vote and sanctioning by
a court of equitable jurisdiction within the State of Delaware, upon application
under Section 291 of Title 8 of the Delaware Code.
COMPLIANCE WITH THE DGCL AND THE CBCA
Following the Annual Meeting, if the stockholders approve the
Reincorporation Proposal, the Company will submit the Articles of Merger to the
office of the Secretary of State of the State of Colorado and the Certificate of
Merger to the office of the Secretary of State of the State of Delaware for
filing. No federal or state regulatory requirements must be complied with, nor
approvals obtained, in connection with this transaction.
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SIGNIFICANT DIFFERENCES BETWEEN THE CBCA AND DGCL
The CBCA and the DGCL differ in many respects. Although this Proxy Statement
does not set forth all of the differences, certain differences, which may
materially affect the rights of the stockholders, are as follows:
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS. In recent years, a
number of states have adopted special laws designed to make certain kinds of
"unfriendly" corporate takeovers, or other transactions involving a corporation
and one or more of its significant stockholders, more difficult. Under
Section 203 of the DGCL certain "business combinations" with "interested
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met. Section 203 prohibits a Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for three years following the date that such person or entity
becomes an interested stockholder. With certain exceptions, an interested
stockholder is a person or entity who or which owns, individually or with or
through certain other persons or entities, 15% or more of the corporation's
outstanding voting stock (including any rights to acquire stock pursuant to an
option, warrant, agreement, arrangement or understanding, or upon the exercise
of conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and was
the owner, individually or with or through certain other persons or entities, of
15% or more of such voting stock at any time within the previous three years, or
is an affiliate or associate of any of the foregoing. For purposes of
Section 203, the term "business combination" is defined broadly to include
mergers with or caused by the interested stockholder, or any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (except
proportionately with the corporation's other stockholders) of assets of the
corporation or a direct or indirect majority-owned subsidiary equal in aggregate
market value to 10% or more of the aggregate market value of either the
corporation's consolidated assets or all of its outstanding stock; the issuance
or transfer by the corporation or a direct or indirect majority-owned subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transactions including transfers in a conversion or exchange
or a pro rata distribution or certain other transactions, none of which increase
the interested stockholder's proportionate ownership of any class or series of
the corporation's or such subsidiary's stock or of the corporation's voting
stock); or receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if (i) prior to the date on which such stockholder becomes an
interested stockholder, the Board of Directors approves either the business
combination or the transaction that resulted in the person or entity becoming an
interested stockholder, (ii) upon consummation of the transaction that made him
or her an interested stockholder, the interested stockholder owns at least 85%
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding from the 85% calculation shares owned by directors who are
also officers of the target corporation and shares held by employee stock plans
that do not give employee participants the right to decide confidentially
whether to accept a tender or exchange offer), or (iii) on or after the date
such person or entity becomes an interested stockholder the board approves the
business combination and it is also approved at a stockholder meeting by 66 2/3%
of the outstanding voting stock not owned by the interested stockholder.
Section 203 only applies to corporations that have a class of voting stock
that is (i) listed on a national securities exchange, (ii) authorized for
quotation on NASDAQ or (iii) held of record by more than 2,000 stockholders.
Although a Delaware corporation to which Section 203 applies may elect not to be
governed by Section 203, On2.com Delaware Inc. will not so elect. Section 203
will encourage any potential acquirer to negotiate with the Board of Directors.
Section 203 also might have the effect of limiting the ability of a potential
acquirer to make a two-tiered bid for On2.com Delaware Inc. in which all
stockholders would not be treated equally. Shareholders should note, however,
that the application of Section 203 to On2.com
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Delaware Inc. will confer upon the Board of Directors the power to reject a
proposed business combination in certain circumstances, even though a potential
acquirer may be offering a substantial premium for On2.com Delaware Inc.'s
securities over the then-current market price. Section 203 would also discourage
certain potential acquirers unwilling to comply with its provisions. See
"Stockholder Voting" below.
REMOVAL OF DIRECTORS. Under the CBCA, unless the articles of incorporation
of a corporation provide otherwise, any director or the entire Board of
Directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, if cumulative voting is in
effect, no individual director may be removed if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting, and any director elected by a voting group can only be removed by that
voting group. Under the DGCL, a director of a corporation that does not have a
classified Board of Directors or cumulative voting may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote at an election of directors. In the case of a Delaware corporation
having cumulative voting, if less than the entire board is to be removed, a
director may not be removed without cause if the number of shares voted against
such removal would be sufficient to elect the director under cumulative voting.
A director of a corporation with a classified Board of Directors may be removed
only for cause, unless the corporation's certificate of incorporation otherwise
provides. The Delaware Certificate of Incorporation and Bylaws of On2.com
Delaware Inc. do not provide for a classified Board of Directors or for
cumulative voting.
STAGGERED BOARD OF DIRECTORS. A staggered or classified board is one on
which a certain number, but not all, of the directors are elected on a rotating
basis each year. This method of electing directors makes changes in the
composition of the Board of Directors more difficult, and thus a potential
change in control of a corporation a lengthier and more difficult process. The
CBCA permits a corporation to provide for a staggered Board of Directors by
allowing for either all, or one-half or one-third of the board to be elected
annually. Although the Company qualifies to adopt a classified Board of
Directors, the Board of Directors has no current intention of doing so. The DGCL
permits, but does not require, a classified Board of Directors, pursuant to
which the directors can be divided into as many as three classes with staggered
terms of office, with only one class of directors standing for election each
year. The Bylaws of On2.com Delaware Inc. allow for a classified Board of
Directors by a shareholder amendment to the Bylaws, but On2.com Delaware Inc.
does not intend to propose establishment of a classified Board of Directors. The
establishment of a classified Board of Directors following the Reincorporation
would require the approval of the stockholders of On2.com Delaware Inc.
INDEMNIFICATION AND LIMITATION OF LIABILITY. Both the CBCA and the DGCL
have similar provisions respecting indemnification by a corporation of its
officers, directors, employees and other agents. The laws of both states also
permit, with certain exceptions, a corporation to adopt a provision in its
articles of incorporation or certificate of incorporation, as the case may be,
eliminating the liability of a director to the corporation or its stockholders
for monetary damages for breach of the director's fiduciary duty. There are,
nonetheless, certain differences between the laws of the two states respecting
indemnification and limitation of liability.
The Delaware Certificate of Incorporation eliminates the liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director to the fullest extent permissible under the
DGCL, as such law exists currently or as it may be amended in the future. The
limitations imposed on such a provision under the DGCL are substantially similar
to the limitations imposed by the CBCA.
The CBCA permits indemnification of a person made party to a proceeding
because the person is or was a director against liability incurred in the
proceeding if (i) the person conducted himself or herself in good faith and
(ii) the person reasonably believed, in the case of conduct in an official
capacity with the corporation, that his or her conduct was in the corporation's
best interests, and in all other cases, that his or her conduct was at least not
opposed to the corporation's best interests. Additionally, in the case of any
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criminal proceeding, the person must have had no reasonable cause to believe his
or her conduct was unlawful. Notwithstanding the foregoing, under the CBCA, a
corporation may not indemnify a director in connection with a derivative action
in which the director was adjudged liable to the corporation, or in connection
with any other proceeding charging that the director derived an improper
personal benefit, and in which proceeding the director was adjudged liable on
the basis that he or she in fact derived such improper personal benefit. Also,
in a derivative action, indemnification is expressly limited to the reasonable
expenses incurred in connection with the proceeding.
Under the DGCL, a corporation may indemnify a director against all liability
(including expenses) in an action other than a derivative action if the person
conducted himself or herself in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interest of the corporation
(without a distinction made, as in the CBCA, for actions taken in "official
capacity"), and with respect to criminal actions, he or she had no reasonable
cause to believe that his or her conduct was unlawful. In derivative actions, as
under the CBCA, indemnification is limited to reasonable expenses incurred (and
is subject to the same standard of conduct for non-derivative actions), with the
additional restriction that if the director is adjudged liable to the
corporation, the court deciding the proceeding must make the special
determination that the director is entitled to indemnification of expenses
notwithstanding such adverse adjudication because such person is fairly and
reasonably so entitled in view of all the circumstances. By comparison, under
the CBCA, if a corporation elects not to indemnify a director against expenses
incurred in connection with a derivative action because the director was found
not to have acted within the requisite standard of conduct, a court may
nevertheless award expenses if the court determines the director is fairly and
reasonably entitled to indemnification in light of all of the circumstances.
Under both the CBCA and the DGCL, officers, employees and agents (as well as
fiduciaries, under the CBCA) may be indemnified to the same extent as directors.
Under both the CBCA and the DGCL, a corporation must indemnify the person
made party to a proceeding because such person was a director against expenses
(including attorney's fees) where such person is successful on the merits or
otherwise in defense of such proceeding. Under the CBCA, though, this mandatory
indemnification may be limited by the articles of incorporation. The Articles of
Incorporation contain no such limitation. Also, under the DGCL, this mandatory
indemnification is extended to persons made party to a proceeding because such
person was an officer, employee or agent of the corporation. Under the CBCA, the
mandatory indemnification of expenses, as may be further limited by the articles
of incorporation, is only extended to officers of the corporation.
Under the DGCL, the corporation may advance the expenses incurred by a
director in connection with proceedings prior to a final adjudication if the
director executes an undertaking to repay such amounts if it is ultimately
determined that the director is not entitled to indemnification. The Board of
Directors may set other terms and conditions for the advance of expenses on
behalf of employees and agents. On2.com Delaware Inc. has no present intention
to limit such advances. Under the CBCA, in addition to the undertaking referred
to above (which must be an unlimited general obligation of the director, but
need not be secured), the director must furnish a written affirmation of the
director's good faith belief that he or she has met the requisite standard of
conduct heretofore described.
Under both the DGCL and the CBCA, a "determination" must be made, based on
the facts then known to those making the determination, that indemnification
would not be precluded under applicable law. The "determination" is made by the
affirmative vote of a majority of directors not party to the subject proceeding,
by independent legal counsel, or by the shareholders. The CBCA allows for a
determination by a committee where no quorum of non-party directors can be
reached; the DGCL does not require a quorum of non-party directors. Under the
CBCA, the determination is made by stockholders only if the board directs, or
cannot approve because of a lack of non-party directors. There is no such
limitation on stockholder approval under the DGCL. The "determination" must be
made in advance of indemnification
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and advancement of expenses under the CBCA; however, no prior determination is
required for the advancement of expenses under the DGCL.
The DGCL and CBCA each authorize a corporation's purchase of insurance on
behalf of directors, officers, employees and agents, regardless of the
corporation's statutory authority to indemnify such person directly. The CBCA
specifically allows such insurance to be purchased from a company in which the
corporation has equity or other interests.
Under the CBCA, a corporation can indemnify officers, employees, fi
duciaries and agents (but not directors) to a greater extent than provided in
the CBCA, subject to public policy concerns, if such rights are set forth in the
articles of incorporation, bylaws, Board of Directors or stockholder
resolutions, or by contract, though the Company does not provide for such
greater indemnification. The CBCA does not provide for extended indemnification
of directors. By contrast, under the DGCL, a director's rights to
indemnification are not limited to those set forth in the DGCL, and may be
expanded under the bylaws, by agreement, by common law, or otherwise, though
limitations could be imposed by a court on grounds of public policy.
REDUCTION OF CAPITAL. The DGCL provides that a corporation may reduce its
capital in a variety of specified methods including: by reducing or eliminating
the capital represented by shares of capital stock which had been retired; by
applying to an otherwise authorized purchase or redemption of outstanding shares
of its capital stock some or all of the capital represented by the shares being
purchased or redeemed, or any capital that has not been allocated to any
particular class of its capital stock; by applying to an otherwise authorized
conversion or exchange of outstanding shares of its capital stock some or all of
the capital represented by the shares being converted or exchanged, or some or
all of any capital that has not been allocated to any particular class of its
capital stock, or both, to the extent that such capital in the aggregate exceeds
the total aggregate par value or the stated capital of any previously unissued
shares issuable upon such conversion or exchange; or by transferring to surplus
(i) some or all of the capital not represented by any particular class of its
capital stock, (ii) some or all of the capital represented by issued shares of
its par value capital stock, which capital is in excess of the aggregate par
value of such shares, or (iii) some of the capital represented by the issued
shares of its capital stock without par value.
The foregoing may be conducted without the approval of the corporation's
stockholders, provided that the assets remaining after the reduction are
sufficient to pay any debts not otherwise provided for. The CBCA contains no
directly corresponding provision. The statutory scheme for capitalization of
Colorado corporations differs from the DGCL statute in that concepts such as
"capital" and "surplus" are not addressed under the CBCA. The effect of this
difference is not material to the rights of the stockholders.
DIVIDENDS AND REPURCHASES OF SHARES. The CBCA dispenses with the concepts
of par value of shares as well as statutory definitions of capital, surplus and
the like. The concepts of par value, capital and surplus are retained under the
DGCL.
Under the CBCA, a corporation may not make any distribution (including
dividends, or repurchases and redemptions of shares) if, after giving effect to
the distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business, or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential liquidation rights of stockholders not receiving the
distribution.
The DGCL permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the DGCL generally provides that
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a corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
STOCKHOLDER VOTING. Under the DGCL and pursuant to the Articles of
Incorporation, as permitted by the CBCA, a majority of the stockholders of both
acquiring and target corporations must approve any statutory merger, except in
certain circumstances substantially similar under both the CBCA and the DGCL.
Also, under the DGCL and pursuant to the Articles of Incorporation, as
permitted by the CBCA, a sale of all or substantially all of the assets of a
corporation must be approved by a majority of the outstanding voting shares of
the corporation transferring such assets. With certain exceptions, the CBCA also
requires that mergers, share exchanges, certain sales of assets and similar
transactions be approved by a majority vote of each voting group of shares
outstanding. In contrast, the DGCL generally does not require class voting,
except in certain transactions involving an amendment to a corporation's
certificate of incorporation that adversely affects a specific class of shares.
As a result, stockholder approval of such transactions may be easier to obtain
under the DGCL for companies which have more than one class of share
outstanding.
INTERESTED DIRECTOR TRANSACTIONS. Under both the CBCA and DGCL, certain
contracts or transactions in which one or more of a corporation's directors has
an interest are not void or voidable because of such interest provided that
certain conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under the CBCA and the DGCL. The most
significant difference between the DGCL and the CBCA is that under the CBCA, a
corporation cannot rely on ratification or authorization of a disinterested
Board of Directors regarding a loan or guaranty benefiting a director unless
stockholders have been given at least ten days written notice. The Company is
not aware of any plans of the Board of Directors to propose, authorize, or
ratify any such transaction for which notice would be required under the CBCA,
but not under the DGCL.
STOCKHOLDER DERIVATIVE SUITS. The CBCA provides that the corporation or the
defendant in a derivative suit may require the plaintiff shareholder to furnish
a security bond if the shareholder holds less than 5% of the outstanding shares
of any class and such shares have a market value of less than $25,000. The DGCL
does not have a similar bonding requirement.
APPRAISAL RIGHTS. Under both the CBCA and the DGCL, a stockholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Appraisal rights are available in response to similar transactions
under both the CBCA and the DGCL, except that under the CBCA, appraisal rights
are also available to a shareholder in the event of (i) a share exchange to
which the corporation is a party as the corporation whose shares will be
acquired (a transaction not specifically authorized by the DGCL), (ii) a sale,
lease, exchange or other disposition of all or substantially all of the assets
of a corporation or an entity which the corporation controls if a vote of the
shareholders is otherwise required, and (iii) a reverse stock split if the split
reduces the number of shares owned by the shareholder to a fraction of a share
or to scrip and such fraction or scrip is to be acquired for cash or voided
pursuant to the statutory procedure available under the CBCA.
In addition, there are differences in the timing of payments made to
dissenting shareholders, the ability of a court to award attorneys' fees, and
the manner of determining "fair value" which may make the CBCA more favorable
from a shareholder's point of view.
Under both the DGCL and the CBCA, stockholders (i) receive prior notice of
their rights to dissent, (ii) must deliver their notice of dissent prior to the
corporate action giving rise to dissenter's rights, and (iii) will receive
notice from the corporation of the effectiveness of the corporate action within
ten days.
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<PAGE>
Other procedural differences between the CBCA and the DGCL may be viewed as more
favorable to a dissenting stockholder.
Under the DGCL, a dissenting stockholder has 120 days to obtain from the
corporation a settlement of the fair value of his or her shares. If no
settlement is reached at that time, the stockholder may petition the Delaware
Court of Chancery to determine the fair value of the shares, after which the
corporation will be instructed to pay to the dissenting stockholder the fair
value, as determined. The court costs will be allocated among the corporation
and dissenting stockholders, as equitable, and the legal fees for dissenting
stockholders who prosecute their claims may be spread among the dissenting
stockholders as a group. Finally, in determining "fair value" the Delaware Court
of Chancery is required to consider all relevant factors, and to include
interest, but is statutorily prohibited from including "any element of value
arising from the accomplishment or expectation" of the transaction giving rise
to appraisal rights.
In contrast, under the CBCA, a dissenting shareholder may make a demand no
later than 30 days following the notice from the corporation of the maturity of
his or her appraisal rights. Upon receipt of such demand (or the effective date
of the transaction, whichever is later), the corporation must pay each dissenter
who has properly followed the procedure set forth in the CBCA an amount which
the corporation estimates to be the fair value of the estimate of fair value,
and an explanation of how interest was calculated. If the dissenting shareholder
is dissatisfied with this offer, such dissenting shareholder may then, within
30 days, keep the payment, but reject the corporation's calculation of fair
value and present a counter-offer. If the corporation does not agree with the
dissenting shareholder's counter-offer, the corporation is forced to commence an
appraisal proceeding. A court will then determine the fair value of the
dissenter's shares, taking into consideration all relevant factors. The court
can also assess legal fees not only among the class of dissenters as under the
DGCL law, but against the corporation if it is determined that it is equitable
to do so and that the corporation did not substantially comply with the
procedures set forth in the CBCA. Legal fees and expenses may also be awarded to
any party if the opposing party is found to have acted arbitrarily, vexatiously
or not in good faith. Unlike the DGCL, the CBCA does not specifically prohibit
the court from taking into effect any appreciation in the fair value of the
shares attributable to the "accomplishment or expectation" of the transaction
giving rise to dissenter's rights. In addition, the CBCA is not well developed
in the context of valuing dissenter's shares. Thus, the fair value of
dissenter's shares assigned by a court interpreting the CBCA could differ
significantly (and could be significantly lower) from the value assigned by a
Delaware court. The procedure under the CBCA will likely ensure that dissenters
receive at least some value from the corporation for their shares at an earlier
date.
The Company believes that transactions in which the Company most likely
would be involved would involve other public companies, in which case
dissenter's rights would not be applicable under either the CBCA or the DGCL,
except as discussed above under "Dissenters' Rights" with regard to shares not
listed on a nationally recognized exchange or otherwise widely held. The Company
does not presently intend to take any other action which would give rise to
dissenter's rights. However, should such a transaction occur, the provisions
under the CBCA may be viewed as more favorable to a shareholder than the
provisions under the DGCL.
DISSOLUTION. Under the CBCA, dissolution may be authorized by the adoption
of a plan of dissolution by the Board of Directors, followed by the
recommendation of the proposal to the shareholders (unless because of a conflict
of interest or other circumstances the board determines it cannot make any
recommendation), then followed by the approval of shareholders entitled to vote
thereon. The CBCA provides for the approval by a majority of each voting group
entitled to vote thereon. The CBCA also provides for judicial dissolution of a
corporation in an action by a shareholder upon a showing that (i) the directors
are deadlocked in management, the shareholders are unable to break the deadlock,
and irreparable injury to the corporation is threatened or being suffered, or
the business and affairs of the corporation can no longer be conducted to the
advantage of the stockholders generally, because of the deadlock, (ii) the
directors or those in control of the corporation are acting or will act in a
manner which is
28
<PAGE>
illegal, oppressive, or fraudulent, (iii) the shareholders have been deadlocked
over two annual meetings in the election of directors, or (iv) the corporate
assets are being misapplied or wasted. A Colorado corporation can also be
dissolved judicially upon other grounds in a proceeding by the attorney general,
or in a proceeding by creditors, as well as by the secretary of state. Under the
DGCL, unless the Board of Directors approves the proposal to dissolve, the
dissolution must be approved by all the stockholders entitled to vote thereon.
Only if the dissolution is initially approved by the Board of Directors may it
be approved by a simple majority of the outstanding shares of the corporation's
stock entitled to vote. In the event of such a board-initiated dissolution, the
DGCL allows a Delaware corporation to include in its certificate of
incorporation a supermajority (greater than a simple majority) voting
requirement in connection with dissolutions. The Delaware Certificate of
Incorporation contains no such supermajority voting requirement, however, and a
majority of the outstanding shares entitled to vote, voting at a meeting at
which a quorum is present, would be sufficient to approve a dissolution of
On2.com Inc. that had previously been approved by its Board of Directors. The
DGCL provides for dissolution by operation of law for abuse, misuse or nonuse of
its corporate powers, privileges or franchises.
ACTION BY CONSENT. Under the CBCA, unless the articles of incorporation
require that a particular action is taken at a meeting of shareholders, any
action to be taken by shareholders may be taken instead by the unanimous written
consent of all shareholders entitled to vote thereon. Under the DGCL, action in
lieu of a meeting is also allowed. Under the DGCL, however, the action may be
taken by the written consent of only those stockholders required to vote in
favor of the action. Those stockholders not executing written consents (and who
would otherwise be entitled to notice of a meeting at which such action would
have otherwise taken place) must receive prompt written notice of the action
taken.
SPECIAL MEETING. The CBCA provides that a special meeting of the
stockholders may be called by the holders of shares entitled to cast not less
than 10% of the votes to be cast at the meeting. Stockholders, under the DGCL,
do not have a right to call a special meeting unless it is conferred in the
corporation's certificate of incorporation or bylaws. The Bylaws of On2.com
Delaware Inc. allow special meetings to be called by the holders of shares
entitled to cast not less than 10% of the votes to be cast at the meeting.
OTHER. The foregoing is an attempt to summarize the more important
differences in the corporation laws of the two states and does not purport to be
a complete listing of differences in the rights and remedies of holders of
shares of a Colorado, as opposed to a Delaware, corporation. Such differences
can be determined in full by reference to the CBCA and the DGCL. In addition,
both the CBCA and the DGCL provide that some of the statutory provisions as they
affect various rights of holders of shares may be modified by provisions in the
articles of incorporation or bylaws of a corporation. The Articles of
Incorporation and Bylaws of the Company and the Delaware Certificate of
Incorporation and Bylaws of On2.com Delaware Inc. materially modify the rights
of stockholders which are generally provided under the CBCA and the DGCL in the
areas of cumulative voting and preemptive rights of stockholders, required
stockholder vote on certain matters and indemnification obligations of a
corporation to its directors, officers and agents, and the material differences
in that regard between them have been described above. See "Significant
Differences Between the Articles of Incorporation and the Delaware Certificate
of Incorporation."
RECOMMENDATION
Management and the Board of Directors of the Company believe the
Reincorporation Proposal, including the Agreement, is in the best interests of
the Company's stockholders and recommend a vote FOR the Reincorporation
Proposal, including the Merger Agreement.
29
<PAGE>
PROPOSAL 4
RATIFICATION OF
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Arthur Andersen LLP as independent public accountants to examine and
report upon the financial statements of the Company and its consolidated
subsidiaries for the year ending December 31, 2000, and is submitting this
matter to the stockholders for their ratification. Arthur Andersen LLP has
served as the Company's independent public accountants since July 27, 1999. One
or more representatives of Arthur Andersen LLP will be present at the Annual
Meeting of Stockholders to make a statement if they desire to do so and to be
available to respond to appropriate questions that may be asked by stockholders.
On July 27, 1999, the Company dismissed Nelson, Mayoka & Co., its former
certifying accountants. Nelson, Mayoka & Co. has not reported on the Company's
financial statements. The decision to change accountants was recommended and
approved by the Company's Board of Directors. There were no disagreements
between the Company and Nelson, Mayoka & Co. Also on July 27, 1999, the Company
dismissed Ernst & Young LLP, the former certifying accountants of the Company's
subsidiary, The Duck Corporation. Ernst & Young LLP had not issued an adverse
opinion or a disclaimer of opinion, and its opinion has not been qualified or
modified as to uncertainty, audit scope or accounting principles. There have
been no disagreements between the Company and Ernst & Young LLP.
In the event the proposal to ratify the selection of Arthur Anderson LLP is
defeated, the adverse vote will be considered as a direction to the Board of
Directors to select other independent auditors for the next year. However,
because of the expense and difficulty in changing independent auditors after the
beginning of a year, the Board of Directors intends to allow the appointment for
fiscal 2000 to stand unless the Board of Directors finds other reasons for
making a change.
The Board of Directors of the Company recommends that you vote FOR the
ratification of the selection of Arthur Andersen LLP as independent public
accountants to examine and report upon the financial statements of the Company
and its consolidated subsidiaries for the year ending December 31, 2000.
OTHER MATTERS
The Board of Directors does not know of any matter to be brought before the
Meeting, other than the matters described in the Notice of Meeting. If any
matters not set forth in the Notice of Meeting accompanying this proxy statement
are properly brought before the Meeting, the persons named in the enclosed proxy
will vote thereon in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 2001
Annual Meeting of Stockholders must be received by the Secretary of the Company
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting by December 22, 2000. Any such proposal must meet the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, INCLUDING ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS, AND
THE FINANCIAL STATEMENTS INCLUDED THEREIN, IS INCORPORATED BY REFERENCE INTO
THIS PROXY STATEMENT. THE ANNUAL REPORT ACCOMPANYING THE PROXY STATEMENT IS THE
SAME AS THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
30
<PAGE>
(WITH THE EXCEPTION THAT CERTAIN EXHIBITS TO THE COMPANY'S 10-KSB, AS FILED,
HAVE BEEN DESCRIBED IN THE ANNUAL REPORT IN LIEU OF ATTACHMENT).
BY ORDER OF THE BOARD OF DIRECTORS,
DAVID S. SILVER
SECRETARY
April 21, 2000
31
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
ON2.COM INC.
(A COLORADO CORPORATION)
AND
ON2.COM DELAWARE INC.
(A DELAWARE CORPORATION)
This Agreement and Plan of Merger ("Agreement") is made and entered into as
of April 1, 2000 by and between On2.com Inc., a Colorado corporation ("On2.com
Colorado"), and On2.com Delaware Inc., a Delaware corporation ("On2.com
Delaware").
RECITALS
1. The Board of Directors of On2.com Colorado has determined that it is in
the best interests of On2.com Colorado and its stockholders for On2.com Colorado
to change its state of incorporation;
2. On2.com Colorado has caused On2.com Delaware to be organized under
Delaware law to facilitate the reincorporation of On2.com Colorado in Delaware;
and
3. The reincorporation will be effected by a merger under Colorado and
Delaware law of On2.com Colorado with and into On2.com Delaware in which each
share of common stock of On2.com Colorado is converted into one share of common
stock of On2.com Delaware, each share of Series A Preferred Stock of On2.com
Colorado is converted into one share of Series A Preferred Stock of On2.com
Delaware and each share of Series B Preferred Stock of On2.com Colorado is
converted into one share of Series B Preferred Stock of On2.com Delaware.
4. The respective Boards of Directors of On2.com Colorado and On2.com
Delaware have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
NOW, THEREFORE, On2.com Colorado and On2.com Delaware do hereby agree as
follows:
1. THE MERGER. Subject to the terms and conditions hereof, On2.com Colorado
shall be merged with and into On2.com Delaware (the "Merger") in accordance with
the Colorado Business Corporation Act and the Delaware General Corporation Law.
On2.com Delaware shall be the surviving corporation. On2.com Delaware shall
succeed to and acquire all of the assets and assume all of the liabilities
(each, without limitation or modification, whatsoever) of On2.com Colorado. The
Merger shall become effective when certificates of merger issued by the
Secretary of the State of Colorado and by the Secretary of the State of Delaware
shall have become effective (the "Effective Time"). At the Effective Time the
separate corporate existence of On2.com Colorado shall cease, and the Merger
shall have the effects stated in Section 259 of the Delaware General Corporation
Law. At the Effective Time or as soon thereafter as possible, On2.com Delaware's
corporate name shall become On2.com Inc.
2. ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation and Bylaws of On2.com Delaware in effect immediately
prior to the consummation of the Merger shall be the Articles of Incorporation
and Bylaws of the surviving corporation and shall remain in effect following the
Effective Time until amended or repealed. The directors and officers of On2.com
Colorado immediately prior to the Effective Time shall be the directors and
officers of the surviving corporation until their successors shall have been
duly elected and qualified or as otherwise provided by law, or by the articles
of incorporation or bylaws of the surviving corporation.
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<PAGE>
3. CONVERSION OF SHARES; CANCELLATION OF CERTAIN RIGHTS AND SHARES. At the
Effective Time, each share of common stock, no par value per share, of On2.com
Colorado ("On2.com Colorado Common Stock") issued and outstanding immediately
prior to the Effective Time, by operation of law, shall be automatically
converted into one share of common stock, $.01 par value per share, of On2.com
Delaware ("On2.com Delaware Common Stock"), each share of Series A Preferred
Stock, no par value per share, of On2.com Colorado ("On2.com Colorado Series A
Preferred Stock") issued and outstanding immediately prior to the Effective
Time, by operation of law, shall be automatically converted into one share of
Series A Preferred Stock, $.01 par value per share, of On2.com Delaware
("On2.com Delaware Series A Preferred Stock") and each share of Series B
Preferred Stock, no par value per share, of On2.com Colorado ("On2.com Colorado
Series B Preferred Stock") issued and outstanding immediately prior to the
Effective Time, by operation of law, shall be automatically converted into one
share of Series B Preferred Stock, $.01 par value per share, of On2.com Delaware
("On2.com Delaware Series B Preferred Stock"). No other property, shares, other
securities or considerations of any type will be distributed or issued in
connection with or as a result of the Merger. At the Effective Time, each share
of On2.com Delaware Common Stock outstanding immediately prior to the Effective
Time, and any outstanding shares of On2.com Delaware Preferred Stock, shall be
cancelled, without payment of any consideration therefor. Each stock certificate
that represents shares of On2.com Colorado Common Stock, after the Effective
Time, shall represent the same number of shares of On2.com Delaware Common
Stock, each stock certificate that represents shares of On2.com Colorado
Series A Preferred Stock, after the Effective Time, shall represent the same
number of shares of On2.com Delaware Series A Preferred Stock and each stock
certificate that represents shares of On2.com Colorado Series B Preferred Stock,
after the Effective Time, shall represent the same number of shares of On2.com
Delaware Series B Preferred Stock. Stockholders will not be required to
surrender stock certificates.
4. EMPLOYEE AND DIRECTOR STOCK PLANS. At the Effective Time, all stock
option and stock-based compensation plans of On2.com Colorado (the "On2.com
Colorado Plans") shall automatically be continued as and become plans of On2.com
Delaware ("On2.com Delaware Plans"). At the Effective Time, new options ("New
Options") under On2.com Delaware Plans shall be substituted for the options
granted under On2.com Colorado Plans ("Old Options"), without any action on the
part of optionees, and each New Option shall be for the same number of shares of
On2.com Delaware Common Stock, exercisable at the same price and subject to the
same terms and conditions as each Old Option was with respect to On2.com
Colorado Common Stock. The substitution of New Options for Old Options shall be
done in accordance with the provisions of Section 424(a) of the Internal Revenue
Code of 1986. Under the On2.com Delaware Plans, On2.com Delaware shall assume
all of the rights and obligations of On2.com Colorado under the On2.com Colorado
Plans.
At the Effective Time, On2.com Delaware shall be deemed to have reserved and
authorized the issuance of the number of shares of On2.com Delaware Common Stock
under On2.com Delaware Plans that is equal to the number of shares of On2.com
Colorado Common Stock approved for issuance under On2.com Colorado Plans that
On2.com Colorado has not issued under On2.com Colorado Plans prior to the
Effective Time.
At the Effective Time, all rights to purchase, sell or receive On2.com
Colorado Common Stock and all rights to elect to make payment in On2.com
Colorado Common Stock under any agreement between On2.com Colorado and any
director, officer or employee thereof or under any plan or program of On2.com
Colorado shall automatically, by operation of law, be converted into and shall
become an identical right to purchase, sell or receive On2.com Delaware Common
Stock and an identical right to make payment in On2.com Delaware Common Stock
under any such agreement between On2.com Colorado and any director, officer or
employee thereof or under such plan or program of On2.com Colorado.
A-2
<PAGE>
5. CONDITIONS TO THE MERGER. The Merger shall not be consummated unless the
following conditions have been satisfied:
(a) Holders of the issued and outstanding shares of On2.com Colorado
Common Stock shall have approved this Agreement in accordance with Colorado
law and the Articles of Incorporation of On2.com Colorado, and the sole
shareholder of On2.com Delaware shall have approved this Agreement, in
accordance with Delaware law. Neither of such approvals shall have been
revoked at or prior to the Effective Time.
(b) If, in the opinion of counsel to On2.com Delaware, such registration
is required, On2.com Delaware Common Stock to be issued to the holders of
On2.com Colorado Common Stock pursuant to the Merger shall have been duly
registered pursuant to Section 5 of the Securities Act of 1933 and such
registration shall not be suspended at the Effective Time. Further, to the
extent required in the opinion of legal counsel for On2.com Delaware,
On2.com Delaware shall have complied with all applicable securities law of
states and other jurisdictions relating to such issuance of On2.com Delaware
Common Stock.
(c) Any and all approvals or consents shall have been obtained from any
governmental agency having jurisdiction, and from other third parties that
are, in the opinion of legal counsel for On2.com Colorado or On2.com
Delaware, required for the lawful consummation of the Merger and the
issuance and delivery of On2.com Delaware Common Stock and On2.com Delaware
Preferred Stock as contemplated by this Agreement, and such approvals or
consents shall not have been revoked.
(d) On2.com Colorado and On2.com Delaware shall have received, with
respect to federal income taxes, either (i) a ruling from the Internal
Revenue Service, or (ii) an opinion from McGuire, Woods, Battle & Boothe
LLP, in either case acceptable in form, qualification and substance to
On2.com Colorado and On2.com Delaware and their legal counsel, to the effect
that:
(1) The Merger should qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended;
(2) No gain or loss should be recognized by the stockholders of
On2.com Colorado upon the conversion of their On2.com Colorado Common
Stock solely into On2.com Delaware Common Stock pursuant to the Merger,
or upon the conversion of their On2.com Colorado Preferred Stock solely
into On2.com Delaware Preferred Stock pursuant to the Merger;
(3) No gain or loss should be recognized for federal income tax
purposes by On2.com Colorado as a result of the Merger;
(4) The aggregate tax basis of On2.com Delaware Common Stock and
On2.com Delaware Preferred Stock received by each stockholder of On2.com
Colorado in the Merger should be equal to the aggregate tax basis of
On2.com Colorado Common Stock and On2.com Colorado Preferred Stock,
respectively, converted in exchange therefor; and
(5) The holding period of On2.com Delaware Common Stock and On2.com
Delaware Preferred Stock received by each stockholder of On2.com Colorado
in the Merger should include the period during which the stockholder held
his On2.com Colorado Common Stock or On2.com Colorado Preferred Stock, as
applicable, converted therefor, provided that such On2.com Colorado
Common Stock or On2.com Colorado Preferred Stock, as applicable, is held
by the stockholder as a capital asset on the date of the Merger.
6. ABANDONMENT OF AGREEMENT. This agreement may be abandoned unilaterally
by On2.com Colorado or by On2.com Delaware at any time before the Effective Time
if (a) any action, suit, proceeding or claim has been instituted, made or
threatened relating to the Agreement which shall make consummation of the
transactions contemplated hereby inadvisable in the opinion of On2.com Colorado
or On2.com Delaware, respectively, or (b) for any other reason consummation of
the transactions
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<PAGE>
contemplated hereby is inadvisable in the opinion of On2.com Colorado or On2.com
Delaware, in its respective sole judgment. Such abandonment shall be effected by
written notice by On2.com Colorado or On2.com Delaware to the other party
hereto, authorized or approved by the Board of Directors of the party giving
such notice. Upon the giving of such notice, this Agreement shall be terminated
and there shall be no liability hereunder or on account of such termination on
the part of On2.com Colorado or On2.com Delaware or the directors, officers,
employees, agents or stockholders of any of them. If this Agreement is so
abandoned, On2.com Colorado shall pay the fees and expenses incurred by itself
and On2.com Delaware in connection with this Agreement and the Merger.
7. AMENDMENTS. To the extent permitted by law, this Agreement may be
amended by a subsequent writing signed by the parties hereto with the
authorization or approval of the Board of Directors of each of the parties
hereto; provided, that after the stockholders of On2.com Colorado have
considered and approved this Agreement, the provisions of Section 3 hereof
relating to the consideration to be exchanged for shares of On2.com Colorado
Common Stock shall not be amended so as to decrease the amount or change the
form of such consideration without the further approval of On2.com Colorado
stockholders.
8. FURTHER ASSURANCES. From time to time, as and when required by On2.com
Delaware or by its successors or assigns, and to the extent permitted by law,
there shall be executed and delivered on behalf of On2.com Colorado such deeds
and other instruments, and there shall be taken or caused to be taken by it such
further and other actions as shall be appropriate or necessary in order to vest
or perfect in or conform of record or otherwise by On2.com Delaware the title to
and possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of On2.com Colorado and otherwise
carry out the purposes of this Agreement, and each of the directors and officers
of On2.com Delaware is fully authorized in the name and on behalf of On2.com
Colorado or otherwise to take any and all such action and to execute and deliver
any and all such deeds and other instruments.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Delaware, without regard to the conflicts of law
principles thereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
<TABLE>
<S> <C> <C>
ON2.COM INC.
(a Colorado corporation)
By:
-----------------------------------------
Name: Daniel B. Miller
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
<TABLE>
<S> <C> <C>
Attest: --------------------------------------
Name: David S. Silver
Title: SECRETARY AND CHIEF OPERATING
OFFICER
</TABLE>
<TABLE>
<S> <C> <C>
ON2.COM DELAWARE INC.
(a Delaware corporation)
By:
-----------------------------------------
Name: Daniel B. Miller
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
<TABLE>
<S> <C> <C>
Attest: --------------------------------------
Name: David S. Silver
Title: SECRETARY AND CHIEF OPERATING
OFFICER
</TABLE>
A-5
<PAGE>
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
ON2.COM DELAWARE INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned Incorporator being a
natural person of the age of eighteen years or older and desiring to form a body
corporate under the laws of the State of Delaware does hereby sign, verify and
deliver in duplicate to the Secretary of State of the State of Delaware this
Certificate of Incorporation:
ARTICLE I
NAME; REGISTERED AND PRINCIPAL OFFICE; REGISTERED AGENT
The name of the Corporation is On2.com Delaware Inc. (the "Corporation").
The registered and principal office of the Corporation in the State of
Delaware is located at 1013 Center Road, Wilmington, County of New Castle,
Delaware 19805-1297, and the name of the registered agent of the Corporation at
such address is Corporation Service Company.
ARTICLE II
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE III
POWERS OF THE CORPORATION
The powers of the Corporation shall be those powers granted by Chapter 1 of
the Delaware General Corporation Law under which this Corporation is formed. In
addition, the Corporation shall have the following specific powers:
Section 1 OFFICERS. The Corporation shall have the power to elect or
appoint officers and agents of the Corporation and to fix their compensation.
Section 2 CAPACITY. The Corporation shall have the power to act as an
agent for any individual, association, partnership, corporation or other legal
entity, and to act as general partner for any limited partnership.
Section 3 ACQUISITIONS. The Corporation shall have the power to receive,
acquire, hold, exercise rights arising out of the ownership or possession
thereof, sell or otherwise dispose of shares or other interests in, or
obligations of, individuals, associations, partnerships, corporations, or
governments.
Section 4 EARNED SURPLUS. The Corporation shall have the power to receive,
acquire, hold, pledge, transfer, or otherwise dispose of shares of the
Corporation, but such shares may only be purchased, directly or indirectly, out
of earned surplus.
Section 5 GIFTS. The Corporation shall have the power to make gifts or
contributions for the public welfare or for charitable, scientific or
educational purposes.
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ARTICLE IV
CAPITAL STRUCTURE
Section 1 AUTHORIZED CAPITAL. The aggregate number of shares and the
amount of the total authorized capital of said Corporation shall consist of
50,000,000 shares of common stock, par value $0.01 per share ("Common Stock"),
and 20,000,000 shares of non-voting preferred stock, par value $0.01 per share
("Preferred Stock").
Section 2 SHARE STATUS. All Common Stock will be equal to each other, and
when issued, shall be fully paid and nonassessable, and the private property of
stockholders shall not be liable for corporate debts. Preferred Stock shall have
such preferences as the Directors may assign to them prior to issuance. Each
holder of Common Stock of record shall have one vote for each share of stock
outstanding in his name on the books of the Corporation and shall be entitled to
vote said stock.
Section 3 CONSIDERATION FOR SHARES. The Common Stock of the Corporation
shall be issued for such consideration as shall be fixed from time to time by
the Board of Directors. In the absence of fraud, the judgment of the Directors
as to the value of any property or services received in full or partial payment
for shares shall be conclusive. When shares are issued upon payment of the
consideration fixed by the Board of Directors, such shares shall be taken to be
fully paid stock and shall be nonassessable.
Section 4 PRE-EMPTIVE RIGHTS. Except as may otherwise be provided by the
Board of Directors, holders of shares of stock of the Corporation shall have no
pre-emptive right to purchase, subscribe for or otherwise acquire shares of
stock of the Corporation, rights, warrants or options to purchase stock or
securities of any kind convertible into stock of the Corporation.
Section 5 DIVIDENDS. Dividends in cash, property or shares of the
Corporation may be paid, as and when declared by the Board of Directors, out of
funds of the Corporation to the extent and in the manner permitted by law.
Section 6 DISTRIBUTION IN LIQUIDATION. Upon any liquidation, dissolution
or winding up of the Corporation, and after paying or adequately providing for
the payment of all its obligations, the remainder of the assets of the
Corporation shall be distributed, either in cash or in kind, pro rata to the
holders of the Common Stock, subject to preferences, if any, granted to holders
of the Preferred Stock. The Board of Directors may, from time to time,
distribute to the shareholders in partial liquidation from stated capital of the
Corporation, in cash or property, without the vote of the shareholders, in the
manner permitted and upon compliance with limitations imposed by law.
Section 7 SERIES A PREFERRED STOCK.
(i) DESIGNATION AND AMOUNT. Two Million (2,000,000) shares of Twenty
Million (20,000,000) authorized shares of Preferred Stock of the Company are
designated Series A Preferred Stock (the "Series A Preferred Stock).
(ii) RANK. The Series A Preferred Stock shall rank: (i) junior to any
other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock
(the "Senior Securities"); (ii) prior to all of the Common Stock;
(iii) prior to any class or series of capital stock of the Company hereafter
created not specifically ranking by its terms senior to or on parity with
any Series A Preferred Stock of whatever subdivision (collectively, with the
Common Stock, the "Junior Securities"); and (iv) on parity with any class or
series of capital stock of the Company hereafter created specifically
ranking by its terms on parity with the Series A Preferred Stock ("Parity
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary
(all such distributions being referred to collectively as "Distributions").
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(iii) LIQUIDATION PREFERENCE.
(A) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the Holders of shares of
Series A Preferred Stock shall be entitled to receive, immediately after
any distributions to Senior Securities required by the Company's
Certificate of Incorporation, and prior in preference to any distribution
to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to seven dollars and fifty cents
($7.50) ("Original Issue Price"). If upon the occurrence of such event,
and after payment in full of the preferential amounts with respect to the
Senior Securities, the assets and funds available to be distributed among
the Holders of the Series A Preferred Stock and Parity Securities shall
be insufficient to permit the payment to such Holders of the full
preferential amounts due to the Holders of the Series A Preferred Stock
and the Parity Securities, respectively, then the entire assets and funds
of the Company legally available for distribution shall be distributed
among the holders of the Series A Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to
which each such series of stock is entitled by the Company's Certificate
of Incorporation and any certificate(s) of designation relating thereto.
(B) Upon the completion of the distribution required by
Section (iii)(A), if assets remain in the Company, they shall be
distributed to holders of Junior Securities in accordance with the
Company's Certificate of Incorporation, including any duly adopted
certificate(s) of designation.
(C) At each Holder's option, a sale, conveyance or disposition of all
or substantially all the assets of the Company to a private entity, the
common stock of which is not publicly traded, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this
Section 7(iii); PROVIDED, however, that an event described in the prior
clause that the Holder does not elect to treat as a liquidation and
consolidation, merger, acquisition, or other business combination of the
Company with or into any company or companies shall not be treated as a
liquidation, dissolution or winding up within the meaning of this
Subsection C but instead shall be treated pursuant to Subsection
(iv)(C)(2) of this Section 7 hereof (a Holder who elects to have the
transaction treated as a liquidation is herein referred to as a
"Liquidating Holder").
(D) Prior to the closing of a transaction described in
Section 7(iii)(C) which would constitute a liquidation event, the Company
shall either (i) make all cash contributions it is required to make to
the Liquidating Holders pursuant to the first sentence of Subsection
7(iii)(A), (ii) set aside sufficient funds from which the cash
distributions required to be made to the Liquidating Holders can be made;
or (iii) establish an escrow or other similar arrangement with a third
party pursuant to which the proceeds payable to the Company from a sale
of all or substantially all the assets of the Company will be used to
make the liquidating payments to the Liquidating Holders immediately
after the consummation of such sale. In the event that the Company has
not fully complied with any of the foregoing alternatives, the Company
shall either: (x) cause such closing to be postponed until such cash
distributions have been made, or (y) cancel such transaction, in which
event the rights of the Holders or other arrangements shall be the same
as existing immediately prior to such proposed transaction.
(iv) CONVERSION OF SERIES A PREFERRED STOCK. The record Holders of the
Series A Preferred Stock shall have conversion rights as follows:
(A) RIGHT TO CONVERT. Each record Holder of Series A Preferred
Stock shall be entitled at any time to convert whole shares of Series A
Preferred Stock for the Common Stock issuable upon conversion of the
Series A Preferred Stock, as follows: each outstanding share of Series A
Preferred Stock is convertible into one fully-paid and non-assessable
share of Common Stock, subject to adjustment as provided in
Section 7(iv) hereof. The number of shares of Common Stock issuable upon
conversion of one (1) share of Series A Preferred Stock is hereinafter
referred to as the "Conversion Rate."
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(B) MECHANICS OF CONVERSION. In order to convert Series A Preferred
Stock into full shares of Common Stock, the Holder shall (i) fax a copy
of a fully executed notice of conversion ("Notice of Conversion") to the
Company at the office of the Company or to the Company's designated
transfer agent (the "Transfer Agent") for the Series A Preferred Stock,
stating that the Holder elects to convert, which notice shall specify the
date of conversion, the number of shares of Series A Preferred Stock to
be converted, the Conversion Rate and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a
copy of the front page of each certificate to be converted) and
(ii) surrender to a common courier for either overnight or two (2) day
delivery to the office of the Company or the Transfer Agent, the original
certificates representing the Series A Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for transfer;
provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered
to the Company or the Transfer Agent, as provided above, or the Holder
notifies the Company or its Transfer Agent that such certificates have
been lost, stolen or destroyed (subject to the requirements of Subsection
(iv)(B)(1) below).
(1) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A
Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and
upon surrender and cancellation of the Preferred Stock Certificates,
if mutilated, the Company shall execute and deliver new Preferred
Stock Certificates of like tenor and date. However, the Company shall
not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if the Holder contemporaneously requests the Company to
convert such Series A Preferred Stock into Common Stock.
(2) DELIVERY OF COMMON STOCK UPON CONVERSION. The Company, no
later than 6:00 p.m. (New York City time) on the third (3rd) business
day after receipt by the Company or its Transfer Agent of all
necessary documentation duly executed and in proper form required for
conversion, including the original Preferred Stock Certificates to be
converted (or after provision for security or indemnification in the
case of lost, stolen or destroyed certificates, if required), shall
issue and surrender to a common courier for either overnight or (if
delivery is outside the United States) two (2) day delivery to the
Holder as shown on the stock records of the Company a certificate for
the number of shares of Common Stock to which the Holder shall be
entitled as aforesaid.
(3) DATE OF CONVERSION. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date such Notice
of Conversion is faxed to the Company or the Transfer Agent, as the
case may be, provided that the advance copy of the Notice of
Conversion is faxed to the Company on or prior to 6:00 p.m., New York
City time, on the Date of Conversion. The original Preferred Stock
Certificates representing the shares of Series A Preferred Stock to
be converted shall be surrendered by depositing such certificates
with a common courier for either overnight or two (2) day delivery,
as soon as practicable following the Date of Conversion. The person
or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record
Holder or Holders of such shares of Common Stock on the Date of
Conversion.
(C) ADJUSTMENT TO CONVERSION RATE.
(1) ADJUSTMENT TO THE CONVERSION RATE DUE TO STOCK SPLIT, STOCK
DIVIDEND, OR OTHER SIMILAR EVENT. If, prior to the conversion of all
the Series A Preferred Stock, the number of outstanding shares of
Common Stock is increased by a stock split, stock dividend or other
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similar event, the Conversion Rate shall be proportionately reduced,
or if the number of outstanding shares of Common Stock is decreased
by a combination or reclassification of shares, or other similar
event, the Conversion Rate shall be proportionately increased.
(2) ADJUSTMENT DUE TO CONSOLIDATION, MERGER, EXCHANGE OF SHARES,
RECAPITALIZATION, REORGANIZATION OR OTHER SIMILAR EVENT. If, prior
to the conversion of all the Series A Preferred Stock, there shall be
any merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event, as a result of which shares of
Common Stock of the Company shall be changed into the same or
different number of shares of the same or another class or classes of
stock or securities of the Company or another entity or there is a
sale of all or substantially all of the Company's assets that is not
deemed to be a liquidation pursuant to Section 7(iii)(C), then the
Holders of Series A Preferred Stock thereafter shall have the right
to receive, upon conversion of Series A Preferred Stock and upon the
basis and upon the terms and conditions specified herein and in lieu
of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities and/or other assets which the
Holder would have been entitled to receive in such transaction had
the Series A Preferred Stock been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be
made with respect to the rights and interests of the Holders of the
Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the
Conversion Rate and of the number of shares issuable upon conversion
of the Series A Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Company shall not effect
any transaction described in this Subsection (iv)(C)(2) unless
(a) it first gives thirty (30) calendar days prior notice of such
merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event (during which time the Holder
shall be entitled to convert its shares of Series A Preferred Stock
into Common Stock to the extent permitted hereby) and (b) the
resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligation of the Company under this
Certificate of Incorporation, including the obligation of this
Subsection (iv)(C)(2).
(3) NO FRACTIONAL SHARES. If any adjustment under this
Section 7(iv)(C) would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of shares of
Common Stock.
(v) VOTING RIGHTS. The Holders of the Series A Preferred Stock shall
have no voting power whatsoever except to the extent otherwise expressly
provided by the Delaware General Corporation Law, and no holder of Series A
Preferred Stock shall vote or otherwise participate in any proceeding in
which actions shall be taken by the Company or the stockholders thereof or
be entitled to a notification as to any meeting of the stockholders.
(vi) PROTECTIVE PROVISION. So long as shares of Series A Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by the Delaware General
Corporation Law) of the Holders of at least a majority of the
then-outstanding shares of Series A Preferred Stock:
(A) alter or change the rights, preferences or privileges of the
Series A Preferred Stock so as to affect adversely the Series A Preferred
Stock, including, but not limited to the creation or authorization of any
Senior Securities.
(B) increase the size of the authorized number of Series A Preferred
Stock; or
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(C) do any act or thing not authorized or contemplated by this
Certificate of Incorporation which would result in taxation of the
Holders of shares of the Series A Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time
amended).
In the event Holders of a majority of then-outstanding shares of
Series A Preferred Stock agree to allow the Company to alter or change the
rights, preferences, or privileges of the shares of Series A Preferred
Stock, pursuant to Subsection (a) above, so as to affect adversely the
Series A Preferred Stock, then the Company will deliver notice of such
approved alteration or change to the Holders of the Series A Preferred Stock
that did not agree to such alternation or change (the "Dissenting Holders")
and the Dissenting Holders shall have the right for a period of thirty
(30) days to convert pursuant to the terms of this Certificate of
Incorporation as they exist prior to such alteration or change or continue
to hold their shares of Series A Preferred Stock subject to the approved
alteration or change of the rights, preferences or privileges of the
Series A Preferred Stock.
(vii) STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 7(iv) hereof, the
shares so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall
not be issuable by the Company as Series A Preferred Stock.
(viii) PREFERENCE RIGHTS. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company form issuing one (1) or
more series of preferred stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of Series A Preferred
Stock.
ARTICLE V
VOTING BY SHAREHOLDERS
Section 1 VOTING RIGHTS; CUMULATIVE VOTING. Each outstanding share of
Common Stock is entitled to one vote and each fractional share of Common Stock
is entitled to a corresponding fractional vote on each matter submitted to a
vote of shareholders. Cumulative voting shall not be allowed in the election of
Directors of the Corporation and every shareholder entitled to vote at such
election shall have the right to vote the number of shares owned by him for as
many persons as there are Directors to be elected, and for whose election he had
a right to vote. Preferred Stock have no voting rights unless granted by
amendment to this Certificate of Incorporation.
Section 2 MAJORITY VOTE. When, with respect to any action to be taken by
the Shareholders of the Corporation, the Delaware General Corporation Law
requires the vote or concurrence of the holders of two-thirds of the outstanding
shares entitled to vote thereon, or of any class or series, any and every such
action shall be taken, notwithstanding such requirements of the Delaware General
Corporation Law, by the vote or concurrence of the holders of a majority of the
outstanding shares entitled to vote thereon, or of any class or series.
ARTICLE VI
INCORPORATOR
The name and mailing address of the Incorporator is Joel L. Laser, McGuire,
Woods, Battle & Boothe LLP, 9 West 57th Street, Suite 1620, New York, NY
10019-2602.
ARTICLE VII
BOARD OF DIRECTORS
Section 1 The Corporate powers shall be exercised by a majority of the
Board of Directors. The number of individuals to serve on the Board of Directors
shall be set forth in the Bylaws of the Corporation; provided, however, that the
initial Board of Directors shall consist of the persons below-
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named to manage the affairs of the Corporation in each case until such time as
any such person resigns or his successor is elected by a majority vote of the
Shareholders:
<TABLE>
<CAPTION>
NAME OF DIRECTOR ADDRESS
- ---------------- -------------------------
<S> <C>
Daniel B. Miller..................................... 375 Greenwich Street
New York, NY 10013
David S. Silver...................................... 375 Greenwich Street
New York, NY 10013
Ajmal Khan........................................... 375 Greenwich Street
New York, NY 10013
Jack L. Rivkin....................................... 375 Greenwich Street
New York, NY 10013
Stephen D. Klein..................................... 375 Greenwich Street
New York, NY 10013
Strauss Zelnick...................................... 375 Greenwich Street
New York, NY 10013
</TABLE>
Section 2 If, in the interval between the annual meetings of shareholders
of the Corporation, the Board of Directors of the Corporation deems it desirable
that the number of Directors be increased, additional Directors may be elected
by a unanimous vote of the Board of Directors of the Corporation then in office,
or as otherwise set forth in the Bylaws of the Corporation.
Section 3 The number of Directors comprising the whole Board of Directors
may be increased or decreased from time to time within such foregoing limit as
set forth in the Bylaws of the Corporation.
ARTICLE VIII
POWERS OF THE BOARD OF DIRECTORS
In furtherance, and not in limitation, of the powers conferred by the State
of Delaware, the Board of Directors is expressly authorized and empowered:
Section 1 BYLAWS. To make, alter, amend and repeal the Bylaws, subject to
the power of the shareholders to alter or repeal the Bylaws made by the Board of
Directors.
Section 2 BOOKS AND RECORDS. Subject to the applicable provisions of the
Bylaws then in effect, to determine, from time to time, whether and to what
extent, and at what times and places, and under what conditions and regulations,
the accounts and books of the Corporation or any of the Directors shall be open
to shareholder inspection. No shareholder shall have any right to inspect any of
the accounts, books, or documents of the Corporation, except as permitted by
law, unless and until authorized to do so by resolution of the Board of
Directors or of the shareholders of the Corporation.
Section 3 POWER TO BORROW. To authorize and issue, without shareholder
consent, obligations of the Corporation, secured and unsecured, under such terms
and conditions as the Board, in its sole discretion, may determine, and to
pledge, or mortgage, as security therefor, any real or personal property of the
Corporation, including after-acquired property.
Section 4 DIVIDENDS. To determine whether any and, if so, what part, of
the earned surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and disposition of any such
earned surplus.
Section 5 PROFITS. To fix, from time to time, the amount of the profits of
the Corporation to be reserved as working capital or for any other lawful
purpose.
Section 6 EMPLOYEE'S PLANS. From time to time to provide and carry out and
to recall, abolish, revise, amend, alter, or change a plan or plans for the
participation by all or any of the employees,
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including Directors and officers of this Corporation or of any corporation in
which or in the welfare of which the Corporation has any interest, and those
actively engaged in the conduct of this Corporation's business, in the profits
of this Corporation or of any branch or division thereof, as part of this
Corporation's legitimate expenses, and for the furnishing to such employees and
persons, or any of them, at this Corporation's expense, of medical services,
insurance against accident, sickness, or death, pensions during old age,
disability, or unemployment, education, housing, social services, recreation, or
other similar aids for their relief or general welfare, in such manner and upon
such terms and conditions as may be determined by the Board of Directors.
Section 7 WARRANTS AND OPTIONS. The Corporation, by resolution or
resolutions of its Board of Directors, shall have power to create and issue,
whether or not in connection with the issue and sale of any shares of any other
securities of the Corporation, warrants, rights, or options entitling the
holders thereof to purchase from the Corporation any shares of any class or
classes of any other securities of the Corporation, such warrants, rights or
options to be evidenced by or in such instrument or instruments as shall be
approved by the Board of Directors. The terms upon which, the time or times
(which may be limited or unlimited in duration), and the price or prices (not
less than the minimum amount prescribed by law, if any) at which any such
warrants, rights, or options may be issued and any such shares or other
securities may be purchased from the Corporation upon the exercise of such
warrant, right, or option shall be such as shall be fixed and stated in the
resolution or resolutions of the Board of Directors providing for the creation
and issue of such warrants, rights or options. The Board of Directors is hereby
authorized to create and issue any such warrants, rights, or options from time
to time for such consideration, and to such persons, firms, or corporations, as
the Board of Directors may determine.
Section 8 COMPENSATION. To provide for the reasonable compensation of its
own members, and to fix the terms and conditions upon which such compensation
will be paid.
Section 9 NOT IN LIMITATION. In addition to the powers and authority
hereinabove, or by statute expressly conferred upon it, the Board of Directors
may exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Delaware, of this Certificate of Incorporation and of the Bylaws
of the Corporation.
ARTICLE IX
RIGHT OF DIRECTORS TO CONTRACT WITH CORPORATION
No contract or other transaction between this Corporation and one or more of
its Directors or any other corporation, firm, association, or entity in which
one or more of its Directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves or ratifies
such contract or transaction or solely because their votes are counted for such
purpose if:
(A) The fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes of consents of such interested Directors; or
(B) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve, or ratify
such contract or transaction by vote or written consent; or
(C) The contract or transaction is fair and reasonable to the
Corporation.
ARTICLE X
CORPORATE OPPORTUNITY
The officers, Directors, and other members of management of this Corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this Corporation has expressed an
interest as determined from time to time by this Corporation's Board of
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Directors as evidenced by resolutions appearing in the Corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of the officers,
Directors, and other members of management of this Corporation shall be
disclosed promptly to this Corporation and made available to it. The Board of
Directors may reject any business opportunity presented to it and thereafter any
officer, Director or other member of management may avail himself of such
opportunity. Until such time as this Corporation, through its Board of
Directors, has designated an area of interest, the officers, Directors and other
members of management of this Corporation shall be free to engage in other areas
of interest on their own and this doctrine shall not limit the right of any
officer, Director or other member of management of this Corporation to continue
a business existing prior to the time that such area of interest is designated
by the Corporation. This provision shall not be construed to release any
employee of this Corporation (other than an officer, Director or member of
management) from any duties which the person may have to this Corporation.
ARTICLE XI
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
The Board of Directors of the Corporation shall have the power to:
(A) Indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation), by reason of the fact
that the person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorney's fees) judgments, fines, and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction or
upon a plea of nolo contendere or its equivalent shall not of itself create
a presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that the person's conduct was unlawful.
(B) Indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of
the fact that the person is or was a director, officer, employee or agent of
another corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of the Corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the Corporation; except no indemnification
shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability, but in view of all circumstances of the case,
such person is fairly and reasonably entitled to indemnification for such
expenses which the Court of Chancery or such court shall deem proper.
(C) Indemnify a present or former Director or officer of the Corporation
to the extent that such person has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
Subparagraphs A or B of this Article or in defense of any claim, issue, or
matter therein,
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against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
(D) Authorize indemnification under Subparagraphs A or B of this Article
(unless ordered by a Court) in the specific case upon a determination that
indemnification of the present or former Director, officer, employee or
agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in said Subparagraph A or B. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum; or (ii) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum; or (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion; or (iv) by the
stockholders, if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or by the shareholders.
(E) Authorize payment of expenses (including attorneys' fees) incurred
by an officer or director in defending a civil, criminal, administrative or
investigative action, suit or proceeding in advance of the final disposition
of such action, suit or proceeding as authorized in Subparagraph D of this
Article upon receipt of an undertaking by or on behalf of such Director,
officer, employee or agent to repay such amount if it is ultimately
determined that the person is not entitled to be indemnified by the
Corporation as authorized in this Article.
(F) Purchase and maintain insurance on behalf of any person who is or
was a Director, officer, employee or agent of the Corporation or who is or
was serving at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity or arising out of such person's
status as such, whether or not the Corporation would have the power to
indemnify such persons against such liability under the provisions of this
Article.
(G) For purposes of this Article XI, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had
continued.
The indemnification and advancement of expenses provided by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under this
Certificate of Incorporation, the Bylaws, or any agreement, vote of stockholders
or disinterested directors or otherwise, or any procedure provided for by any of
the foregoing, both as to action in such person's official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a Director, officer, employee or agent and shall
inure to the benefit of heirs, executors, and administrators of such a person.
ARTICLE XII
RIGHT TO AMEND
The right is expressly reserved to amend, alter, change, or repeal any
provision or provisions contained in this Certificate of Incorporation, or any
Article herein, by a majority vote of the members of the Board of Directors and
a majority vote of the stockholders of the Corporation.
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<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ON2.COM DELAWARE INC.
Pursuant to Section 241 of the Delaware General
Corporation Law
------------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the "Company") is On2.com
Delaware Inc., a corporation organized and now existing under the Delaware
General Corporation Law.
2. The Certificate of Incorporation of the Company (the "Certificate of
Incorporation") authorizes the issuance of Twenty Million (20,000,000) shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), and
expressly vests in the Board of Directors of the Company the authority to issue
any or all of said shares in one (1) or more series by resolution or resolutions
to establish the designation and number and to fix the relative rights and
preferences of each series to be issued.
3. The Board of Directors considers it to be in the best interest of the
Company to amend the Certificate of Incorporation as set forth in the
resolutions below.
4. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, and pursuant to the provisions of
Section 241 of the Delaware General Corporation Law, prior to receiving any
payment for any of its stock, has duly adopted the resolutions set forth below
to create a Series B issue of Preferred Stock and to otherwise amend the
Certificate of Incorporation.
RESOLVED, that ARTICLE II of the Certificate of Incorporation is amended to
read in its entirety as follows: "ARTICLE II PURPOSE AND DURATION. The purpose
of the Company is to engage in any lawful act or activity for which corporations
may be organized under the Delaware General Corporation Law. The Company is to
have perpetual existence."
FURTHER RESOLVED, that Thirty Four Thousand One Hundred (34,100) shares of
the Twenty Million (20,000,000) authorized shares of Preferred Stock of the
Company are hereby designated Series B Preferred Stock, par value $0.01 per
share, and shall possess the rights and preferences set forth below, which shall
constitute a new Section 7A to ARTICLE IV of the Certificate of Incorporation:
Section 7A SERIES B PREFERRED STOCK.
(i) DESIGNATION AND AMOUNT. Thirty Four Thousand One Hundred
(34,100) shares of the Twenty Million (20,000,000) authorized shares of
Preferred Stock of the Company are designated Series B Preferred Stock
(the "Series B Preferred Stock"). The Series B Preferred Stock shall be
issued or offered at a purchase price of Twenty-three and 46875/100000
Dollars ($23.46875) per share (the "Original Issue Price"). The holders
of record of the Series B Preferred Stock are sometimes referred to in
this Section 7A as the "Holders."
(ii) RANK. The Series B Preferred Stock shall rank on parity with
the Company's Series A Preferred Stock and shall accordingly rank
(i) junior to any other class or series of capital stock of the Company
hereafter created specifically ranking by its terms senior to the
Series A Preferred Stock or the Series B Preferred Stock (the "Senior
Securities"); (ii) prior to all of the Common Stock; (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any
Series A Preferred Stock or Series B Preferred Stock of whatever
subdivision (collectively, with the Common Stock, the
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<PAGE>
"Junior Securities"); and (iv) on parity with any class or series of
capital stock of the Company hereafter created specifically ranking by
its terms on parity with the Series A Preferred Stock or the Series B
Preferred Stock ("Parity Securities") in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
(iii) LIQUIDATION PREFERENCE.
(A) In the event of any liquidation, dissolution or winding up of
the Company, either voluntary or involuntary, the Holders of shares
of Series B Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the
Company's Certificate of Incorporation, and prior in preference to
any distribution to Junior Securities but in parity with any
distribution to the Series A Preferred Stock or the other Parity
Securities, an amount per share equal to the Original Issue Price. If
upon the occurrence of such event, and after payment in full of the
preferential amounts with respect to the Senior Securities, the
assets and funds available to be distributed among the Holders of the
Series B Preferred Stock, the Series A Preferred Stock and the Parity
Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the
Series B Preferred Stock and the Parity Securities, respectively,
then the entire assets and funds of the Company legally available for
distribution shall be distributed among the Holders of the Series B
Preferred Stock, the Series A Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to
which each such series of stock is entitled by the Company's
Certificate of Incorporation and any certificate(s) of designation
relating thereto.
(B) Upon the completion of the distribution required by
Section 7A(iii)(A), if assets remain in the Company, they shall be
distributed to holders of Junior Securities in accordance with the
Company's Certificate of Incorporation, including any duly adopted
certificate(s) of designation.
(C) At each Holder's option, a sale, conveyance or disposition of
all or substantially all the assets of the Company to a private
entity, the common stock of which is not publicly traded, shall be
deemed to be a liquidation, dissolution or winding up within the
meaning of this Section 7A(iii); PROVIDED, that an event described in
the prior clause that the Holder does not elect to treat as a
liquidation and a consolidation, merger, acquisition, or other
business combination of the Company with or into any other company or
companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Subsection C, but instead shall
be treated pursuant to Subsection (iv)(D)(2) of this Section 7A (a
Holder who elects to have the transaction treated as a liquidation is
herein referred to as a "Series B Liquidating Holder").
(D) Prior to the closing of a transaction described in
Section 7A(iii)(C) which would constitute a liquidation event, the
Company shall either (i) make all cash distributions it is required
to make to the Liquidating Holders pursuant to the first sentence of
Section 7A(iii)(A), (ii) set aside sufficient funds from which the
cash distributions required to be made to the Series B Liquidating
Holders can be made, or (iii) establish an escrow or other similar
arrangement with a third party pursuant to which the proceeds payable
to the Company from a sale of all or substantially all the assets of
the Company will be used to make the liquidating payments to the
Series B Liquidating Holders immediately after the consummation of
such sale. In the event that the Company has not fully complied with
any of the foregoing alternatives, the Company shall either:
(x) cause such closing to be postponed until such cash distributions
have been made, or (y) cancel such transaction, in which event
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the rights of the Holders or other arrangements shall be the same as
existing immediately prior to such proposed transaction.
(iv) CONVERSION OF SERIES B PREFERRED STOCK. The record Holders of
the Series B Preferred Stock shall have conversion rights as follows:
(A) RIGHT TO CONVERT. At any time after the second anniversary
of the date on which the shares of Series B Preferred Stock have been
issued to a Holder of Series B Preferred Stock, each such Holder of
Series B Preferred Stock shall be entitled to convert whole shares of
Series B Preferred Stock held of record by such Holder for the Common
Stock issuable upon conversion of the Series B Preferred Stock as
follows: each outstanding share of Series B Preferred Stock is
convertible into one fully-paid and non-assessable share of Common
Stock, subject to adjustment as provided in Section 7A(iv). The
number of shares of Common Stock issuable upon conversion of one
share of Series B Preferred Stock is hereafter referred to as the
"Series B Conversion Rate."
(B) MECHANICS OF CONVERSION. In order to convert Series B
Preferred Stock into full shares of Common Stock, a Holder shall
(i) execute and send to the Company at its principal office a notice
in letter form (a "Notice of Conversion"), which notice shall specify
the date of conversion, the number of shares of Series B Preferred
Stock to be converted, the Series B Conversion Rate and a calculation
of the number of shares of Common Stock issuable upon such conversion
(together with a copy of the front page of each certificate to be
converted) and (ii) surrender to a common courier for either
overnight or two-day delivery to the principal office of the Company
the original certificates evidencing the shares of Common Stock
issuable upon such conversion, unless either the Series B Preferred
Stock certificates are delivered to the Company as provided above, or
the Holder notifies the Company that such certificates have been
lost, stolen or destroyed (subject to the requirements of Subsection
(iv)(B)(1) below).
(1) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation
of any Preferred Stock Certificates representing shares of
Series B Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to
the Company, and upon surrender and cancellation of the Series B
Preferred Stock Certificates, if mutilated, the Company shall
execute and deliver new Series B Preferred Stock Certificates of
like tenor and date. However, the Company shall not be obligated
to re-issue such lost or stolen Series B Preferred Stock
Certificates if Holder contemporaneously requests the Company to
convert such Series B Preferred Stock into Common Stock.
(2) DELIVERY OF COMMON STOCK UPON CONVERSION. The Company,
no later than 6:00 p.m. (New York City time) on the fifth
business day after receipt by the Company of all necessary
documentation duly executed and in proper form required for
conversion, including the original Series B Preferred Stock
Certificates to be converted (or after provision for security or
indemnification in the case of lost, stolen or destroyed
certificates, if required), shall issue and surrender to a common
courier for either overnight or (if delivery is outside the
United States) two-day delivery to the Holder as shown on the
stock records of the Company a certificate for the number of
shares of Common Stock to which the Holder shall be entitled as
aforesaid.
(3) DATE OF CONVERSION. The date on which conversion occurs
(the "Series B Date of Conversion") shall be deemed to be the
date such Notice of Conversion is faxed to the Company; PROVIDED,
that the advance copy of the Notice of Conversion is faxed to the
Company on or prior to 6:00 p.m., New York City time, on the Date
of Conversion. The original Preferred Stock Certificates
representing the shares of Series B Preferred
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<PAGE>
Stock to be converted shall be surrendered by depositing such
certificates with a common courier for either overnight or
two-day delivery, as soon as practicable following the Series B
Date of Conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record Holder or Holders of such
shares of Common Stock on the Series B Date of Conversion.
(C) AUTOMATIC CONVERSION. Notwithstanding any other provision
of this Certificate to the contrary, all shares of Series B Preferred
Stock which are outstanding and issued at the time shall be
automatically converted, without any further action on the part of
the Holder thereof, into shares of Common Stock at the Series B
Conversion Rate then in effect whenever the Company delivers to the
holders of any of its securities a notice stating that it has
determined to register any shares of its Common Stock for its own
account, or for the account of any of its shareholders (other than
(i) a registration relating solely to the sale of convertible debt
instruments; (ii) a registration on Form S-4 or S-8 or another form
not available for registering resales of shares of Common Stock for
sale to the public; or (iii) any registration comprised in whole or
in substantial part of shares underlying stock options granted by the
Company or its predecessor), or becomes obligated to deliver such a
notice pursuant to the terms of any written agreement to which the
Company is a party.
(D) ADJUSTMENT TO SERIES B CONVERSION RATE.
(1) ADJUSTMENT TO THE SERIES B CONVERSION RATE DUE TO STOCK
SPLIT, STOCK DIVIDEND OR OTHER SIMILAR EVENT. If, prior to the
conversion of all the Series B Preferred Stock, the number of
outstanding shares of Common Stock is increased by a stock split,
stock dividend or other similar event, the Series B Conversion
Rate shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination
or reclassification of shares, or other similar event, the
Series B Conversion Rate shall be proportionately increased.
(2) ADJUSTMENT DUE TO CONSOLIDATION, MERGER, EXCHANGE OF
SHARES, RECAPITALIZATION, REORGANIZATION OR OTHER SIMILAR
EVENT. If, prior to the conversion of all the Series B Preferred
Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization or other similar event,
as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the
same or another class or classes of stock or securities of the
Company or another entity or there is a sale of all or
substantially all of the Company's assets that is not deemed to
be a liquidation pursuant to Section 7A(iii)(C), then the Holders
of Series B Preferred Stock thereafter shall have the right to
receive, upon conversion of Series B Preferred Stock and upon the
basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities and/or other
assets which the Holder would have been entitled to receive in
such transaction had the Series B Preferred Stock been converted
immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights
and interests of the Holders of the Series B Preferred Stock to
the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Series B
Conversion Rate and of the number of shares issuable upon
conversion of the Series B Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The
Company shall not effect any transaction described in this
Subsection (iv)(D)(2) unless (a) it first gives 30 days prior
notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event (during
which time the Holder shall be entitled to convert its shares of
Series B Preferred Stock into
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<PAGE>
Common Stock to the extent permitted hereby) and (b) the
resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation of the Company under
this Certificate of Incorporation, including the obligation of
this Subsection (iv)(D)(2).
(3) NO FRACTIONAL SHARES. If any adjustment under this
Section 7A(iv)(D) would create a fractional share of Common Stock
or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion shall be the next higher
number of shares of Common Stock.
(v) VOTING RIGHTS. The Holders of the Series B Preferred Stock
shall have no voting power whatsoever except to the extent otherwise
expressly provided by the Delaware General Corporation Law, and no Holder
of Series B Preferred stock shall vote or otherwise participate in any
proceeding in which actions shall be taken by the Company or the
stockholders thereof or be entitled to notification as to any meeting of
the stockholders.
(vi) PROTECTIVE PROVISION. So long as shares of Series B Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by the Delaware General
Corporation Law) of the Holders of at least a majority of the then
outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock, including, but not limited to, the creation
or authorization of any Senior Securities.
(b) increase the size of the authorized number of Series B
Preferred Stock; or
(c) do any act or thing not authorized or contemplated by this
Certificate of Incorporation which would result in taxation of the
Holders of the shares of the Series B Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from
time to time amended).
If the Holders of a majority of the then outstanding shares of Series B
Preferred Stock agree to allow the Company to alter or change the rights,
preferences or privileges of the shares of Series B Preferred Stock, pursuant to
Subsection (a) above, so as to affect adversely the Series B Preferred Stock,
then the Company will deliver notice of such approved alteration or change to
the Holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Series B Dissenting Holders") and the Series B
Dissenting Holders shall have the right for a period of 30 days to convert
pursuant to the terms of this Certificate of Incorporation as they exist prior
to such alteration or change or continue to hold their shares of Series B
Preferred Stock subject to the approved alteration or change of the rights,
preferences or privileges of the Series B Preferred Stock.
(vii) STATE OF CONVERTED STOCK. In the event any shares of
Series B Preferred Stock shall be converted pursuant to Section 7A(iv),
the shares so converted shall be canceled, shall return to the status of
authorized but unissued preferred stock of no designated series, and
shall not be issuable by the Company as Series B Preferred Stock.
(viii) PREFERENCE RIGHTS. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing
one or more series of preferred stock with dividend and/or liquidation
preferences on parity with or junior to the dividend and liquidation
preferences of the Series B Preferred Stock.
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<PAGE>
FURTHER RESOLVED, that ARTICLE V of the Certificate of Incorporation is
amended as follows:
Section 2 of Article V of the Certificate of Incorporation is amended to
read in its entirety as follows: "Section 2 ELECTION OF DIRECTORS. Elections of
directors need not be by written ballot unless the Bylaws of the Company so
provide."
FURTHER RESOLVED, that ARTICLE VIII of the Certificate of Incorporation is
amended as follows:
(a) Section 2 is amended to add the following sentence at the end
thereof: "The books of the Company may be kept (subject to any
provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the
Company."
(b) Section 9 is renumbered as Section 13.
(c) The following sections are added in appropriate numerical order:
Section 9 RESERVES. To set apart out of any of the funds of the
Company available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it was
created.
Section 10 COMMITTEES. By a majority of the whole board, to
designate one or more committees, each committee to consist of one or
more of the directors of the Company. The board may designate one or
more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.
The Bylaws may provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors, or in the
Bylaws of the Company, shall have and may exercise all the powers and
authority of the board of directors in the management of the business
and affairs of the Company, and may authorize the seal of the
Company, if any, to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation of adopting an agreement
of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Company's
property and assets, recommending to the stockholders a dissolution
of the Company or a revocation of a dissolution, or amending the
Bylaws of the Company; and, unless the resolution or Bylaws expressly
so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 11 DISPOSITION OF CORPORATE PROPERTY. When and as
authorized by the stockholders in accordance with law, to sell, lease
or exchange all or substantially all of the property and assets of
the Company, including its good will and its corporate franchises,
upon such terms and conditions and for such consideration, which may
consist in whole or in part of money or property including shares of
stock in, and/or other securities of, any other company or companies
as its board of directors shall deem expedient and for the best
interests of the Company.
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<PAGE>
FURTHER RESOLVED, that ARTICLE XII of the Certificate of Incorporation is
deleted therefrom and that the following articles are substituted in lieu
thereof:
ARTICLE XII
LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS
A director of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit.
ARTICLE XIII
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this Company
and its creditors or any class of them and/or between this Company and its
stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of
this Company or of any creditor or stockholder thereof or on the application
of any receiver or receivers appointed for this Company under the provisions
of Section 291 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Company, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
ninety percent (90%) in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Company, as the case
may be, agree to any compromise or arrangement and to any reorganization of
this Company as a consequence of such compromise or arrangement, the said
compromise or arrangement and said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all of
the creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of this Company, as the case may be, and also on this
Company.
ARTICLE XIV
RIGHT TO AMEND
The Company reserves the right to amend, alter, change or repeal any
provision contained in the Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are subject to this reservation.
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<PAGE>
EXHIBIT C
BYLAWS
OF
ON2.COM DELAWARE INC.
ARTICLE I
OFFICES
The registered and principal office of On2.com Delaware Inc. (the
"Corporation") required by the Delaware General Corporation Law to be maintained
in the State of Delaware shall be designated from time to time by the Board of
Directors.
The Corporation may have such other offices, either within or outside the
State of Delaware, as the Board of Directors may designate, or as the business
of the Corporation may require from time to time.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held pursuant to notice
given by the Board of Directors for the purpose of electing directors and for
the transaction of such other business as may come before the meeting.
Section 2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose, unless otherwise
prescribed by statute, may be called by the President or by the Board of
Directors, and shall be called by the President at the request of the holders of
not less than ten (10%) percent of all the outstanding shares of the corporation
entitled to vote at the meeting. Such request shall state the purposes of the
proposed meeting.
Section 3. ADJOURNMENT.
a. When the annual meeting is convened, or when any special meeting is
convened, the presiding officer may adjourn it for such period of time as may be
reasonably necessary to reconvene the meeting at another place and another time.
b. The presiding officer shall have the power to adjourn any meeting of the
stockholders for any proper purpose, including, but not limited to, lack of a
quorum, to secure a more adequate meeting place, to elect officials to count and
tabulate votes, to review any stockholder proposals or to pass upon any
challenge which may properly come before the meeting.
c. When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If,
however, the adjournment is for more than 30 days, or if after the adjournment
the Board fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given in compliance with Subsection (4)(a) of this
Article II to each stockholder of record on the new record date entitled to vote
at such meeting.
Section 4. NOTICE OF MEETING; PURPOSE OF MEETING; WAIVER.
a. Each stockholder of record entitled to vote at any meeting shall be
given in person, or by first class mail, postage prepaid, written notice of such
meeting which shall set forth the place, date and hour of
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the meeting and, in the case of a special meeting, purpose(s) for which the
meeting is called, not less than ten (10) or more than sixty (60) days before
the date of such meeting. If mailed, such notice is to be sent to the
stockholder's address as it appears on the stock transfer books of the
Corporation unless the stockholder shall have requested of the Secretary in
writing at least fifteen (15) days prior to the distribution of any required
notice that any notice intended for him to be sent to some other address, in
which case the notice may be sent to the address so designated. Notwithstanding
any such request by a stockholder, notice sent to a stockholder's address as it
appears on the stock transfer books of this Corporation as of the record date
shall be deemed properly given. Any notice of a meeting sent by the United
States mail shall be deemed delivered when deposited with proper postage thereon
with the United States Postal Service or in any mail receptacle under its
control.
b. A stockholder waives notice of any meeting by attendance, either in
person or by proxy, at such meeting or by waiving notice in writing either
before, during or after such meeting. Attendance at a meeting for the express
purpose of objecting that the meeting was not lawfully called or convened,
however, will not constitute a waiver of notice by a stockholder stating at the
beginning of the meeting, his objection that the meeting is not lawfully called
or convened.
c. Whenever the holders of at least eighty (80%) percent of the capital
stock of the Corporation having the right to vote shall be present at any annual
or special meeting of stockholders, however called or notified, and shall sign a
written consent thereto on the minutes of such meeting, the meeting shall be
valid for all purposes.
d. A Waiver of Notice signed by all stockholders entitled to vote at a
meeting of stockholders may also be used for any other proper purpose including,
but not limited to, designating any place within or without the State of
Delaware as the place for holding such a meeting.
e. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of stockholders need be specified in any written
Waiver of Notice.
Section 5. CLOSING OF TRANSFER BOOKS; RECORD DATE; STOCKHOLDERS' LIST.
a. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or of any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting. If no record
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; providing, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
b. In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
this Section 5, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by
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certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by this Section 5, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
c. In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
d. The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
e. Upon the willful neglect or refusal of the Board of Directors to produce
such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting.
f. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote in person or by proxy at any
meeting of stockholders.
Section 6. QUORUM.
a. At any meeting of the stockholders of the Corporation, the presence, in
person or by proxy, of stockholders owning a majority of the issued and
outstanding shares of the capital stock of the Corporation entitled to vote
thereat shall be necessary to constitute a quorum for the transaction of such
business. If a quorum is present the affirmative vote of a majority of the
shares represented at such meeting and entitled to vote on the subject matter
shall be the act of the stockholders. If there shall not be a quorum at any
meeting of the stockholders of the Corporation, then the holders of a majority
of the shares of the capital stock of the Corporation who shall be present at
such meeting, in person or by proxy, may adjourn such meeting from time to time
until holders of a majority of the shares of the capital stock shall attend. At
any such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
scheduled.
b. The stockholders at a duly organized meeting having a quorum may
continue to transact business until adjournment notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 7. PRESIDING OFFICER; ORDER OF BUSINESS.
a. Meetings of the stockholders shall be presided over by the Chairman of
the Board, or, if he is not present, by the President or, if he is not present,
by a Vice President or, if none of the Chairman of the Board, the President, or
a Vice President is present, the meeting shall be presided over by a Chairman to
be chosen by a plurality of the stockholders entitled to vote at the meeting who
are present, in person or by
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proxy. The presiding officer of any meeting of the stockholders may delegate the
duties and obligations of the presiding officer of the meeting as such person
sees fit.
b. The Secretary of the Corporation, or, in his absence, an Assistant
Secretary, shall act as Secretary of every meeting of stockholders, but if
neither the Secretary nor an Assistant Secretary is present, the presiding
officer of the meeting shall choose any person present to act as Secretary of
the meeting.
c. The order of business shall be as follows:
1. Call of meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous stockholders meeting or a Waiver
thereof.
4. Reports of officers.
5. Reports of committees.
6. Election of directors.
7. Regular and miscellaneous business.
8. Special matters.
9. Adjournment.
d. Notwithstanding the provisions of Article II, Section 7, Subsection c,
the order and topics of business to be transacted at any meeting shall be
determined by the presiding officer of the meeting in his sole discretion. In no
event shall any variation in the order of business or additions and deletions
from the order of business as specified in Article II, Section 7, Subsection c,
invalidate any actions properly taken at any meeting.
Section 8. VOTING.
a. Unless otherwise provided for in the Certificate of Incorporation, each
stockholder shall be entitled, at each meeting and upon each proposal to be
voted upon, to one vote for each share of voting stock recorded in his name on
the books of the Corporation on the record date fixed as provided for in
Article II, Section 5.
b. The presiding officer at any meeting of the stockholders shall have the
power to determine the method and means of voting when any matter is to be voted
upon. The method and means of voting may include, but shall not be limited to,
vote by ballot, vote by hand or vote by voice. However, no method of voting may
be adopted which fails to take account of any stockholder's right to vote by
proxy as provided for in Section 10 of this Article II. In no event may any
method of voting be adopted which would prejudice the outcome of the vote.
Section 9. ACTION WITHOUT MEETING.
a. Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail
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return receipt requested. If any class of shares is entitled to vote thereon as
a class, such written consent shall be required of the holders of a majority of
the shares of each class of shares entitled to vote thereon.
b. Within ten (10) days after obtaining such authorization by written
consent, notice must be given to those stockholders who have not consented in
writing. The notice shall fairly summarize the material features of the
authorized action and, if the action be a merger, consolidation or sale or
exchange of assets for which dissenters' rights are provided under the Delaware
General Corporation Law, the notice shall contain a clear statement of the right
of the stockholders dissenting therefrom to be paid the fair value of their
shares upon compliance with further provisions of the Delaware General
Corporation Law regarding the rights of dissenting stockholders.
c. In the event that the action to which the stockholders' consent is such
as would have required the filing of a certificate under the Delaware General
Corporation Law if such action had been voted on by stockholders at a meeting
thereof, the certificate filed under such other section shall state that written
consent has been given in accordance with the provisions of this Article II,
Section 9.
Section 10. PROXIES.
a. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action without a meeting, or his duly
authorized attorney-in-fact, may authorize another person or persons to act for
such stockholder by proxy.
b. Every proxy must be signed by the stockholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except as otherwise provided in
this Article II, Section 10.
c. The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the stockholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of stockholders.
d. Except when other provisions shall have been made by written agreement
between the parties, the record holder of shares held as pledges or otherwise as
security or which belong to another, shall issue to the pledgor or to such owner
of such shares, upon demand therefor and payment of necessary expenses thereof,
a proxy to vote or take other action thereon.
e. A proxy which states that it is irrevocable is irrevocable when it is
held by any of the following or a nominee of any of the following: (i) a
pledgee; (ii) a person who has purchased or agreed to purchase the shares;
(iii) a creditor or creditors of the Corporation who extend or continue to
extend credit to the Corporation in consideration of the proxy, if the proxy
states that it was given in consideration of such extension or continuation of
credit, the amount thereof, and the name of the person extending or continuing
credit; (iv) a person who has contracted to perform services as an officer of
the Corporation, if a proxy is required by the contract of employment, if the
proxy states that it was given in consideration of such contract of employment
and states the name of the employee and the period of employment contracted for;
and (v) a person designated by or under an agreement as provided in Article XI
hereof.
f. Notwithstanding a provision in a proxy stating that it is irrevocable,
the proxy becomes revocable after the pledge is redeemed, or the debt of the
Corporation is paid, or the period of employment provided for in the contract of
employment has terminated, or the agreement under Article XII hereof has
terminated and, in a case provided for in Subsection 10(e)(iii) or Subsection
10(e)(iv) of this Article II, becomes revocable three years after the date of
the proxy or at the end of the period, if any, specified therein, whichever
period is less, unless the period of irrevocability is renewed from time to time
by the execution of a new irrevocable proxy as provided in this Article II,
Section 10. This subsection 10(f) does not affect the duration of a proxy under
Subsection 10(b) of this Article II.
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g. A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability is noted
conspicuously on the face or back of the certificate representing such shares.
h. If a proxy for the same shares confers authority upon two (2) or more
persons and does not otherwise provide a majority of such persons present at the
meeting, or if only one is present, then that one may exercise all the powers
conferred by the proxy. If the proxy holders present at the meeting are equally
divided as to the right and manner of voting in any particular case, the voting
of such shares shall be prorated.
i. If a proxy expressly so provides, any proxy holder may appoint in
writing a substitute to act in his place.
Section 11. VOTING OF SHARES BY STOCKHOLDERS.
a. Shares standing in the name of another corporation, domestic or foreign,
may be voted by the officer, agent, or proxy designated in the Bylaws of the
corporate stockholder; or, in the absence of any applicable Bylaw, by such
person as the Board of Directors of the corporate stockholder may designate.
Proof of such designation may be made by presentation of a certified copy of the
Bylaws or other instrument of the corporate stockholder. In the absence of any
such designation, or in case of a conflicting designation by the corporate
stockholder, the Chairman of the Board, President, any vice president, secretary
and treasurer of the corporate stockholder, in that order, shall be presumed to
possess authority to vote such shares.
b. Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
c. Shares standing in the name of a receiver may be voted by such receiver.
Shares held by or under the control of a receiver but not standing in the name
of such receiver may be voted by such receiver without the transfer thereof into
his name if authority to do so is contained in an appropriate order of the court
by which such receiver was appointed.
d. A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledge.
e. Shares of the capital stock of the Corporation belonging to the
Corporation or held by it in any fiduciary capacity shall not be voted, directly
or indirectly, at any meeting, and shall not be counted in determining the total
number of outstanding shares.
ARTICLE III
DIRECTORS
Section 1. BOARD OF DIRECTORS; EXERCISE OF CORPORATE POWERS.
a. All corporate powers shall be exercised by or under the authority of,
and the business affairs of the Corporation shall be managed under, the
direction of the Board of Directors except as may be otherwise provided in the
Articles of Incorporation. If any such provision is made in the Articles of
Incorporation, the powers and duties conferred or imposed upon the Board of
Directors shall be exercised or performed to such extent and by such person or
persons as shall be provided in the Articles of Incorporation.
b. Directors need not be residents of the state of incorporation unless the
Articles of Incorporation so require.
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c. The Board of Directors shall have authority to fix the compensation of
Directors unless otherwise provided in the Articles of Incorporation.
d. A Director shall perform his duties as a Director, including his duties
as a member of any committee of the Board upon which he may serve, in good
faith, in a manner he reasonably believes to be in the best interests of the
Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
e. In performing his duties, a Director shall be entitled to rely in good
faith on records of the Corporation, information, opinions, reports or
statements, including financial data, in each case prepared or presented by:
(i) one or more officers or employees of the Corporation whom the Director
reasonably believes to be reliable and competent in the matters presented;
(ii) counsel, public accountants or other persons as to matters which the
Director reasonably believes to be within such persons' professional or expert
competence; or (iii) a committee of the Board upon which he does not serve, duly
designated in accordance with a provision of the Articles of Incorporation or
the Bylaws, as to matters within its designated authority, which committee the
Director reasonably believes to merit confidence.
f. A Director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described in Subsection 1(e) of this Article III to be unwarranted.
g. A person who performs his duties in compliance with this Article III,
Section 1 shall have no liability by reason of being or having been a Director
of the Corporation.
h. A Director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken consents thereto
unless he votes against such action or abstains from voting in respect thereto
because of an asserted conflict of interest.
Section 2. NUMBER; ELECTION; CLASSIFICATION OF DIRECTORS; VACANCIES.
a. The Board of Directors of this Corporation shall consist of not less
than three (3) nor more than seven (7) members, unless the number of
stockholders is less than three, in which case the Corporation shall have as
many directors as there are stockholders. The number of directors shall be fixed
by the initial Board of Directors. The number of directors constituting the
initial Board of Directors shall be fixed by the Articles of Incorporation. The
number of directors may be increased from time to time by the Board of
Directors, but no decrease shall have the effect of shortening the term of any
incumbent director.
b. Each person named in the Articles of Incorporation as a member of the
initial Board of Directors, shall hold office until the first annual meeting of
stockholders, and until his successor shall have been elected and qualified or
until his earlier resignation, removal from office or death.
c. At the first annual meeting of stockholders and at each annual meeting
thereafter the stockholders shall elect directors to hold office until the next
succeeding annual meeting, except in case of the classification of directors as
permitted by the Delaware General Corporation Law. Each director shall hold
office for the term for which he is elected and until his successor shall have
been elected and qualified or until his earlier resignation, removal from office
or death.
d. The stockholders, by amendment to these Bylaws, may provide that the
directors be divided into not more than three classes, as nearly equal in number
as possible, whose terms of office shall respectively expire at different times,
but no such term shall continue longer than four (4) years, and at least
one-fifth ( 1/5) in number of the directors shall be elected annually.
e. If directors are classified and the number of directors is thereafter
changed, any increase or decrease in directorships shall be so apportioned among
the classes as to make all classes as nearly equal in number as possible.
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f. In the event that a vacancy shall occur on the Board of Directors of the
Corporation whether because of death, resignation, removal, an increase in the
number of directors or any other reason, such vacancy may be filled by the vote
of a majority of the remaining directors of the Corporation even though such
remaining directors represent less than a quorum. An increase in the number of
directors shall create vacancies for the purpose of this section. A director of
the Corporation elected to fill a vacancy shall hold office for the unexpired
term of his predecessor, or in the case of an increase in the number of
directors, until the election and qualification of directors at the next annual
meeting of the stockholders.
Section 3. REMOVAL OF DIRECTORS.
a. At a meeting of stockholders called expressly for that purpose,
directors may be removed in the manner provided in this Article III, Section 3.
Any director or the entire Board of Directors may be removed, with or without
cause, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors.
b. If the Corporation has cumulative voting, if less than the entire Board
is to be removed, no director may be removed without cause if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which he is a member.
Section 4. DIRECTOR QUORUM AND VOTING.
a. A majority of the number of directors fixed in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business unless a
greater number is required elsewhere in these Bylaws.
b. A majority of the members of an Executive Committee or other committee
shall constitute a quorum for the transaction of business at any meeting of such
Executive Committee or other committee.
c. The act of the majority of the directors present at a Board meeting at
which a quorum is present shall be the act of the Board of Directors.
d. The act of a majority of the members of an Executive Committee present
at an Executive Committee meeting at which a quorum is present shall be the act
of the Executive Committee.
e. The act of a majority of the members of any other committee present at a
committee meeting at which a quorum is present shall be the act of the
committee.
Section 5. DIRECTOR CONFLICTS OF INTEREST.
a. No contract or other transaction between this Corporation and one or
more of its directors or officers, or between a this Corporation and any other
corporation, partnership, association or other entity in which one or more of
its directors or officers are directors or have a financial interest, shall be
void or voidable solely because of the relationship or interest or solely
because such director or directors are present at the meeting of the Board of
Directors or a committee thereof which authorizes, approves or ratifies such
contract or transaction or solely because his or their votes are counted for
such purpose; if:
(i) The material facts as to such relationship or interest and as to the
contract or transaction are disclosed or known to the Board of Directors or
committee which authorizes, approves or ratifies the contract or transaction
in good faith by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors, even though the
disinterested directors be less than a quorum; or
(ii) The material facts as to such relationship or interest and as to
the contract or transaction are disclosed or known to the stockholders
entitled to vote and they authorize, approve or ratify such contract or
transaction in good faith by vote or written consent; or
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(iii) The contract or transaction is fair as to the Corporation at the
time authorized, approved or ratified by the Board, a committee, or the
stockholders.
b. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
Section 6. EXECUTIVE AND OTHER COMMITTEES; DESIGNATION; AUTHORITY.
a. The Board of Directors, by resolution adopted by a majority of the full
Board of Directors, may designate from among its members an Executive Committee
and one or more other committees each of which, to the extent provided in such
resolution or in the Articles of Incorporation or these Bylaws, shall have and
may exercise all the authority of the Board of Directors, except that no such
committee shall have the authority to: (i) approve or recommend to stockholders
actions or proposals required by the Delaware General Corporation Law to be
approved by stockholders; (ii) designate candidates for the office of director
for purposes of proxy solicitation or otherwise; (iii) fill vacancies on the
Board of Directors or any committee thereof; (iv) amend the Bylaws; or
(v) authorize or approve the issuance or sale of, or any contract to issue or
sell, shares or designate the terms of a series of class of shares, unless the
Board of Directors, having acted regarding general authorization for the
issuance or sale of shares, or any contract therefor, and, in the case of a
series, the designation thereof, has specified a general formula or method by
resolution or by adoption of a stock option or other plan, authorized a
committee to fix the terms upon which such shares may be issued or sold,
including, without limitation, the price, the rate or manner of payment of
dividends, provisions for redemption, sinking fund, conversion, and voting
preferential rights, and provisions for other features of a class of shares, or
a series of class of shares, with full power in such committee to adopt any
final resolution setting forth all the terms thereof and to authorize the
statement of the terms of a series for filing with the Secretary of State under
the Delaware Business Corporation Act.
b. The Board, by resolution adopted in accordance with Article III,
Subsection 6(a) may designate one or more directors as alternate members of any
such committee, who may act in the place and stead of any absent member or
members at any meeting of such committee.
c. Neither the designation of any such committee, the delegation thereto of
authority, nor action by such committee pursuant to such authority shall alone
constitute compliance by any member of the Board of Directors, not a member of
the committee in question, with his responsibility to act in good faith, in a
manner he reasonably believes to be in the best interests of the Corporation,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances.
Section 7. PLACE, TIME, NOTICE, AND CALL OF DIRECTORS' MEETINGS.
a. Meetings of the Board of Directors, regular or special, may be held
either within or without this state.
b. A regular meeting of the Board of Directors of the Corporation shall be
held for the election of officers of the Corporation and for the transaction of
such other business as may come before such meeting as promptly as practicable
after the annual meeting of the stockholders of this Corporation without the
necessity of other notice than this Bylaw. Other regular meetings of the Board
of Directors of the Corporation may be held at such times and at such places as
the Board of Directors of the Corporation may from time to time resolve without
other notice than such resolution. Special meetings of the Board of Directors
may be held at any time upon call of the Chairman of the Board or the President
or a majority of the Directors of the Corporation, at such time and at such
place as shall be specified in the call thereof. Notice of any special meeting
of the Board of Directors must be given at least two (2) days prior thereto, if
by written notice delivered personally; or at least five (5) days prior thereto,
if mailed; or at least two (2) days prior thereto, if by telegram; or at least
two (2) days prior thereto, if by telephone. If such notice is given by mail,
such notice shall be deemed to have been delivered when deposited with the
United States Postal Service addressed to the business address of such director
with postage thereon prepaid. If notice be
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given by telegram, such notice shall be deemed delivered when the telegram is
delivered to the telegraph company. If notice is given by telephone, such notice
shall be deemed delivered when the call is completed.
c. Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened.
d. Neither the business to be transacted, nor the purpose of any regular or
special meeting of the Board of Directors, need be specified in the notice or
waiver of notice of such meeting.
e. A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place. Notice
of any such adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless the time and the place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
f. Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
Section 8. ACTION BY DIRECTORS WITHOUT A MEETING.
Any action required by the Delaware General Corporation Law to be taken at a
meeting of the directors of the Corporation, or a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so to
be taken, signed by all of the directors, or all of the members of the
committee, as the case may be, is filed in the minutes of the proceedings of the
Board or of the committee. Such consent shall have the same effect as a
unanimous vote.
Section 9. COMPENSATION.
The directors and members of the Executive and any other committee of the
Board of Directors shall be entitled to such reasonable compensation for their
services and on such basis as shall be fixed from time to time by resolution of
the Board of Directors. The Board of Directors and members of any committee of
the Board of Directors shall be entitled to reimbursement for any reasonable
expenses incurred in attending any Board or committee meeting. Any director
receiving compensation under this section shall not be prevented from serving
the Corporation in any other capacity and shall not be prohibited from receiving
reasonable compensation for such other services.
Section 10. RESIGNATION.
Any Director of the Corporation may resign at any time without acceptance by
the Corporation. Such resignation shall be in writing and may provide that such
resignation shall take effect immediately or on any future date stated in such
notice.
ARTICLE IV
OFFICERS
Section 1. ELECTION; NUMBER; TERMS OF OFFICE.
a. The officers of the Corporation shall consist of a Chairman of the
Board, a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors at such time and in such manner as may be prescribed
by these Bylaws. Such other officers and assistant officers and agents as may be
deemed necessary may be elected or appointed by the Board of Directors.
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b. All officers and agents, as between themselves and the Corporation,
shall have such authority and perform such duties in the management of the
Corporation as are provided in these Bylaws, or as may be determined by
resolution of the Board of Directors not inconsistent with these Bylaws.
c. Any two (2) or more offices may be held by the same person except the
offices of the President and Secretary.
d. A failure to elect a Chairman of the Board, President, a Secretary and a
Treasurer shall not affect the existence of the Corporation.
Section 2. REMOVAL.
An officer of the Corporation shall hold office until the election and
qualification of his successor; however, any officer of the Corporation may be
removed from office by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of any officer shall not of itself create any contract
right to employment or compensation.
Section 3. VACANCIES.
Any vacancy in any office from any cause may be filled for the unexpired
portion of the term of such office by the Board of Directors.
Section 4. POWERS AND DUTIES.
a. The Chairman of the Board shall be the Chief Executive Officer of the
Corporation. The Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature of
the President is required or unless the Board of Directors shall rule otherwise,
the Chairman of the Board shall possess the same power as the President to sign
all certificates, contracts and other instruments of the Corporation which may
be authorized by the Board of Directors. Unless a Chairman of the Board is
specifically elected, the President shall be deemed to be the Chairman of the
Board.
b. The President shall be the Chief Operating Officer of the Corporation.
He shall be responsible for the general day-to-day supervision of the business
and affairs of the Corporation. He shall sign or countersign all certificates,
contracts or other instruments of the Corporation as authorized by the Board of
Directors. He may, but need not, be a member of the Board of Directors. In the
office of the Chairman of the Board, the President shall be the Chief Executive
Officer of the Corporation and shall preside at all meetings of the stockholders
and the Board of Directors. He shall make reports to the Board of Directors and
stockholders. He shall perform such other duties as are incident to his office
or are properly required of him by the Board of Directors. The Board of
Directors will at all times retain the power to expressly delegate the duties of
the President to any other officer of the Corporation.
c. The Vice-President(s), if any, in the order designated by the Board of
Directors, shall exercise the functions of the President during the absence,
disability, death, or refusal to act of the President. During the time that any
Vice-President is properly exercising the functions of the President, such
Vice-President shall have all the powers of and be subject to all the
restrictions upon the President. Each Vice-President shall have such other
duties as are assigned to him from time to time by the Board of Directors or by
the President of the Corporation.
d. The Secretary of the Corporation shall keep the minutes of the meetings
of the stockholders of the Corporation and the minutes of the meetings of the
Board of Directors of the Corporation. The Secretary shall be the custodian of
the minute books of the Corporation and such other books and records of the
Corporation as the Board of Directors of the Corporation may direct. The
Secretary shall make or cause to be made all proper entries in all corporate
books that the Board of Directors of the Corporation may direct. The Secretary
shall have the general responsibility for maintaining the stock transfer books
of
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the Corporation, or of supervising the maintenance of the stock transfer books
of the Corporation by the transfer agent, if any, of the Corporation. The
Secretary shall be the custodian of the corporate seal of the Corporation and
shall affix the corporate seal of the Corporation on contracts and other
instruments as the Board of Directors of the Corporation may direct. The
Secretary shall perform such other duties as are assigned to him from time to
time by the Board of Directors or the President of the Corporation.
e. The Treasurer of the Corporation shall have custody of all funds and
securities owned by the Corporation. The Treasurer shall cause to be entered
regularly in the proper books of account of the Corporation full and accurate
accounts of the receipts and disbursements of the Corporation. The Treasurer of
the Corporation shall render a statement of cash, financial and other accounts
of the Corporation whenever he is directed to render such a statement by the
Board of Directors or by the President of the Corporation. The Treasurer shall
at all reasonable times make available the Corporation's books and financial
accounts to any Director of the Corporation during normal business hours. The
Treasure shall perform all other acts incident to the office of the Treasurer of
the Corporation, and he shall have such other duties as are assigned to him from
time to time by the Board of Directors or the President of the Corporation.
f. Other subordinate or assistant officers appointed by the Board of
Directors or by the President, if such authority is delegated to him by the
Board of Directors, shall exercise such powers to perform such duties as may be
delegated to them by the Board of Directors or by the President, as the case may
be.
g. In case of the absence or disability of any officer of the Corporation
and of any person authorized to act in his place during such period of absence
or disability, the Board of Directors may, from time to time, delegate the
powers and duties of such officer to any other officer or any director or other
person whom it may select.
Section 5. SALARIES.
The salaries of all Officers of the Corporation shall be fixed by the Board
of Directors. No Officer shall be ineligible to receive such salary by reason of
the fact that he is also a Director of the Corporation and receiving
compensation therefor.
ARTICLE V
LOANS TO EMPLOYEES AND OFFICERS;
GUARANTY OF OBLIGATIONS OF EMPLOYEES AND OFFICERS
This Corporation may lend money to, guarantee any obligation of, or
otherwise assist any Officer or other employee of the Corporation or of a
subsidiary, including any officer or employee who is a Director of the
Corporation or of a subsidiary, whenever, in the judgement of the Directors,
such a loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors shall approve including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Article shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of this Corporation at common law
or under any statute.
ARTICLE VI
STOCK CERTIFICATES; VOTING TRUSTS; TRANSFERS
Section 1. CERTIFICATES REPRESENTING SHARES.
a. Every holder of shares in this Corporation shall be entitled to one or
more certificates, representing all shares to which he is entitled and such
certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the Corporation and may be sealed with
the seal of the Corporation or a facsimile thereof. The signatures of the
President or Vice President or the Secretary or Assistant Secretary may be
facsimiles if the certificate is manually signed on behalf of the
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transfer agent or a registrar, other than the Corporation itself or an employee
of the Corporation. In case any officer who signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such officer
before such certificate is issued, it may be used by the Corporation with the
same effect as if he were such officer at the date of its issuance.
b. Each certificate representing shares shall state upon the face thereof:
(i) the name of the Corporation; (ii) that the Corporation is organized under
the laws of this state; (iii) the name of the person or persons to whom issued;
(iv) the number and class of shares, and the designation of the series, if any,
which such certificate represents; and (v) the par value of each share
represented by such certificate, or a statement that the shares are without par
value.
c. No certificate shall be issued for any shares until such shares are
fully paid.
Section 2. TRANSFER BOOK.
The Corporation shall keep at its registered office or principal place of
business or in the office of its transfer agent or registrar, a book (or books
where more than one kind, class, or series of stock is outstanding) to be known
as the Stock Book, containing the names, alphabetically arranged, addresses and
Social Security numbers of every stockholder, and the number of shares of each
kind, class or series of stock held of record. Where the Stock Book is kept in
the office of the transfer agent, the Corporation shall keep at its office in
the State of Delaware copies of the stock lists prepared from said Stock Book
and sent to it from time to time by said transfer agent. The Stock Book or stock
lists shall show the current status of the ownership of shares of the
Corporation; PROVIDED, if the transfer agent of the Corporation be located
elsewhere, a reasonable time shall be allowed for transit or mail.
Section 3. TRANSFER OF SHARES.
a. The names and address(es) of the person(s) to whom shares of stock of
this Corporation are issued, shall be entered on the Stock Books of the
Corporation, with the number of shares and date of issuance.
b. Transfer of shares of the Corporation shall be made on the Stock
Transfer Books of the Corporation by the Secretary or the transfer agent only
when the holder of record thereof, or the legal representative of such holder of
record, or the attorney-in-fact of such holder of record, authorized by power of
attorney duly executed and filed with the Secretary or transfer agent of the
Corporation, shall surrender the Certificate representing such shares for
cancellation. Lost, destroyed or stolen Stock Certificates shall be replaced
pursuant to Section 5 of this Article VI.
c. The person or persons in whose names shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner of such shares
for all purposes, except as otherwise provided pursuant to Sections 10 and 11 of
Article II, or Section 4 of this Article VI.
Section 4. VOTING TRUSTS.
a. Any number of stockholders of the Corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent their shares, for a period not to exceed ten (10) years, by:
(i) entering into a written voting trust; (ii) depositing a counterpart of the
agreement with the Corporation at its registered office; and (iii) transferring
their shares to such trustee or trustees for the purposes of this Agreement.
Prior to the recording of the Agreement, the stockholder concerned shall tender
the stock certificate(s) described therein to the corporate secretary who shall
note on each certificate:
"This Certificate is subject to the provisions of a voting trust
agreement dated , recorded in Minute Book , of
the Corporation.
____________________________________
Secretary"
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b. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the stockholders who transfer their shares
in trust. Such trustee or trustees shall keep a record of the holders of the
voting trust certificates evidencing a beneficial interest in the voting trust,
giving the names and addresses of all such holders and the number and class of
the shares in respect of which the voting trust certificates held by each are
issued, and shall deposit a copy of such record with the Corporation at its
registered office.
c. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the stockholders who transfer their share
in trust. Such trustee or trustees shall keep a record of the holders of the
voting trust certificates evidencing a beneficial interest in the voting trust,
giving the names and addresses of all such holders and the number and class of
the shares in respect of which the voting trust certificates held by each are
issued, and shall deposit a copy of such record with the Corporation at its
registered office.
d. The counterpart of the voting trust agreement and the copy of such
record so deposited with the Corporation shall be subject to the same right of
examination by a stockholder of the Corporation, in person or by agent or
attorney, as are the books and records of the Corporation, and such counterpart
and such copy of such record shall be subject to examination by any holder of
record of voting trust certificates either in person or by agent or attorney, at
any reasonable time for any proper purpose.
e. At any time before the expiration of a voting trust agreement as
originally fixed or as extended one or more times under this Article VI,
Subsection 4(d), one or more holders of the voting trust certificates may, by
agreement in writing, extend the duration of such voting trust agreement,
nominating the same or substitute trustee or trustees, for an additional period
not exceeding ten (10) years. Such extension agreement shall not affect the
rights or obligations of persons not parties to the agreement, and such persons
shall be entitled to remove their shares from the trust and promptly to have
their stock certificates reissued upon the expiration date of the original term
of the voting trust agreement. The extension agreement shall in every respect
comply with and be subject to all the provisions of this Article VI, Section 4
applicable to the original voting trust agreement except that the ten (10) year
maximum period of duration shall commence on the date of adoption of the
extension agreement.
f. The trustees under the terms of the agreements entered into under the
provisions of this Article VI, Section 4 shall not acquire the legal title to
the shares but shall be vested only with the legal right and title to the voting
power which is incident to the ownership of the shares.
Section 5. LOST, DESTROYED, OR STOLEN CERTIFICATES.
No certificate representing shares of the stock in the Corporation shall be
issued in place of any certificate alleged to have been lost, destroyed, or
stolen except on production of evidence, satisfactory to the Board of Directors,
of such loss, destruction or theft, and, if the Board of Directors so requires,
upon the furnishing of an indemnity bond in such amount (but not to exceed twice
the fair market value of the shares represented by the Certificate) and with
such terms and with such surety as the Board of Directors may, in its
discretion, require.
ARTICLE VII
BOOKS AND RECORDS
a. The Corporation shall keep correct and complete books and records of
accounts and shall keep minutes of the proceedings of its stockholders, Board of
Directors and committees of directors.
b. Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
c. Any person who shall, prior to his demand, have been a holder of record
of outstanding shares of any class or series of the Corporation, shall have the
right to examine, upon written demand stating the
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purpose thereof, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose, upon its relevant books and records of account,
minutes and record of stockholders and to make extracts therefrom.
d. No stockholder who has sold or offered for sale within the past two
(2) years any list of stockholders or of holders of voting trust certificates
for shares of this Corporation or any other Corporation; has aided or abetted
any person in procuring any list of stockholders or of holders of voting trust
certificates for any such purpose; or has improperly used any information
secured through any prior examination of the books and records of account,
minutes, or record of stockholders or of holders voting trust certificates for
shares of the Corporation or any other Corporation; shall be entitled to examine
the documents and records of the Corporation as provided in Subsection (c) of
this Article VII. No stockholder who does not act in good faith or for a proper
purpose in making his demand shall not be entitled to examine the documents and
records of the Corporation as provided in Section (c) of this Article VII.
e. Unless modified by resolution of the stockholders, this Corporation
shall prepare not later than four (4) months after the close of each fiscal
year:
(i) A balance sheet showing in reasonable detail the financial
conditions of the Corporation as of the date of its fiscal year.
(ii) A profit and loss statement showing the results of its operation
during its fiscal year.
f. Upon the written request of any stockholder or holder of voting trust
certificates for shares of the Corporation, the Corporation shall mail to such
stockholder or holder of voting trust certificates a copy of its most recent
balance sheet and profit and loss statement.
g. Such balance sheets and profit and loss statements shall be filed and
kept for at least five (5) years in the registered office of the Corporation in
this state and shall be subject to inspection during business hours by any
stockholder or holder of voting trust certificates.
ARTICLE VIII
DIVIDENDS
The Board of Directors of the Corporation may, from time to time, declare
and the Corporation may pay dividends on its shares in cash, property or its own
shares, except when the Corporation is insolvent or when the payment thereof
would render the Corporation insolvent subject to the following provisions:
a. Dividends in cash or property may be declared and paid, except as
otherwise provided in Article VIII, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of the capital
surplus, however arising, but each dividend paid out of capital surplus
shall be identified as a distribution of capital surplus, and the amount per
share paid for such capital surplus shall be disclosed to the stockholders
receiving the same concurrently with the distribution.
b. Dividends may be declared and paid in the Corporation's treasury
shares.
c. Dividends may be declared and paid in the Corporation's authorized
but unissued shares out of any unreserved and unrestricted surplus of the
Corporation upon the following conditions:
(i) If a dividend is payable in the Corporation's own shares having a
par value, such shares shall be issued at not less than the par value
thereof and there shall be transferred to stated capital at the time such
dividend is paid an amount of surplus equal to the aggregate par value of
the shares to be issued as a dividend.
(ii) If a dividend is payable in the Corporation's own shares without
par value, such shares shall be issued at such stated value as shall be
fixed by the Board of Directors by resolution adopted at the time such
dividend is declared, and there shall be transferred to stated capital at
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the time such dividend is paid an amount of surplus equal to the
aggregate stated value so fixed in respect of such shares; and the amount
per share so transferred to stated capital shall be disclosed to the
stockholders receiving such dividend concurrently with the payment
thereof.
d. No dividend payable in shares of any class shall be paid to the
holders of shares of any other class unless the Articles of Incorporation so
provide or such payment is authorized by the affirmative vote or written
consent of the holders of at least a majority of the outstanding shares of
the class in which the payment is to be made.
e. A split up or division of the issued shares of any class into a
greater number of shares of the same class without increasing the stated
capital of the Corporation shall not be construed to be a stock dividend
within the meaning of this Article VIII.
ARTICLE IX
INDEMNIFICATION
Section 1. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, investigative or administrative
(other than an action or suit brought by or in the right of the Corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise (all such persons being referred to
hereafter as an "Agent"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding, if such person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such conduct
was unlawful. The termination of any action, suit or proceeding--whether by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent--shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
Section 2. ACTION, ETC. BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor,
by reason of the fact that the person is or was an Agent (as defined above),
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. DETERMINATION OF RIGHT OF INDEMNIFICATION.
Any indemnification under Section 1 or 2 (unless ordered by a court) shall
be made by the Corporation unless a determination is reasonably and promptly
made (i) by the Board by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of disinterested directors
so directs, by
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independent legal counsel in a written opinion, or (iii) by the stockholders,
that such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal proceeding, that such person believed or had
reasonable cause to believe that his conduct was unlawful.
Section 4. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that a
present or former director or officer of the Corporation has been successful, on
the merits or otherwise, in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses actually and reasonably incurred by such person in connection
therewith.
Section 5. ADVANCES OF EXPENSES.
Except as limited by Section 6 of this Article, costs, charges and expenses
(including attorneys' fees) incurred in any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding, if the
Agent shall undertake to repay such amount in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification. Notwithstanding the foregoing, no advance shall be made by the
Corporation if a determination is reasonably and promptly made by the Board of
Directors or if a majority vote of a quorum of disinterested directors cannot be
obtained, then by independent legal counsel in a written opinion, that, based
upon the facts known to the Board or counsel at the time such determination is
made, such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interest of the Corporation, or,
with respect to any criminal proceeding, that such person believed or had
reasonable cause to believe such person's conduct was unlawful. In no event
shall any advance be made in instances where the Board or independent legal
counsel reasonably determines that such person deliberately breached their duty
to the Corporation or its stockholders.
Section 6. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION.
Any indemnification under Sections 1, 2 and 4 or advance under Section 5 of
this Article shall be made promptly, and in any event within ninety (90) days,
upon the written request of the Agent unless, with respect to applications under
Sections 1, 2 or 5, a determination is made that indemnification of the Agent is
proper in circumstances because the person has met the applicable standard of
conduct set forth in sections 1, 2, 4 and 5 of this section. Such determination
shall be made (a) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (b) by a
committee of such directors designated by majority vote of such directors, even
though less than quorum, or (c) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or
(d) by the shareholders. The right to indemnification or advances as granted by
this Article shall be enforceable by the Agent in any court of competent
jurisdiction, if the Board or independent counsel denies the claim in whole or
in part, or if no disposition of such claim is made within ninety (90) days. The
Agent's costs and expenses incurred in connection with successfully establishing
his right to indemnification, in whole or in part, in any such proceeding shall
also be indemnified by the Corporation.
Section 7. CONTRIBUTION.
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Article is held by a court of
competent jurisdiction to be unavailable to an indemnitee in whole or part, the
Corporation shall, in such an event, after taking into account, among other
things, contributions by other directors and officers of the Corporation
pursuant to indemnification agreements or otherwise, and, in the absence of
personal enrichment, acts of intentional fraud or dishonesty or criminal conduct
on the part of the Agent, contribute to the payment of Agent's losses to the
extent that, after other contributions are taken into account, such losses
exceed: (i) in the case of a director of the Corporation or any of its
subsidiaries who is not an officer of the Corporation or any of such
subsidiaries, the amount of fees paid to him for serving as a director during
the 12 months preceding the commencement of the suit,
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proceeding or investigation; or (ii) in the case of a director of the
Corporation or any of its subsidiaries who is also an officer of the Corporation
or any of such subsidiaries, the amount set forth in clause (i) plus 5% of the
aggregate cash compensation paid to said director for service in such office(s)
during the 12 months preceding the commencement of the suit, proceeding or
investigation; or (iii) in the case of an officer of the Corporation of any of
its subsidiaries, 5% of the aggregate cash compensation paid to such officer of
service in such office(s) during the 12 months preceding the commencement of
such suit, proceeding or investigation.
Section 8. OTHER RIGHTS AND REMEDIES.
The indemnification provided by this Article shall not be deemed exclusive
of, and shall not affect, any other rights to which an Agent seeking
indemnification may be entitled under any law, Bylaw, or charter provision,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be an
Agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. All rights to indemnification under this Article shall be
deemed to be provided by a contract between the Corporation and the Agent who
serves in such capacity at any time while these Bylaws and other relevant
provisions of the general corporation law and other applicable law, if any are
in effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
Section 9. INSURANCE.
Upon resolution passed by the Board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was an Agent against any
liability asserted against such person and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of this Article. The Corporation may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
Section 10. CONSTITUENT CORPORATION.
For the purposes of this Article, references to the "Corporation" include
any constituent corporation absorbed in a consolidation or merger, as well as
any constituent of a constituent or the resulting or surviving corporation, if
its separate existence had continued, would have had power and authority to
indemnify its Agent, so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or who was serving at the
request of such constituent corporation as a director, officer, employee, agent
or trustee of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
with respect to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence had
continued.
Section 11. OTHER ENTERPRISES, FINES AND SERVING AT CORPORATION'S REQUEST.
For purposes of this Article, references to "other enterprise" in Sections 1
and 10 shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include any
service by Agent as director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
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Section 12. SAVINGS CLAUSE.
If this Article or any portion thereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each Agent as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit, appeal,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the Corporation, to the full extent permitted
by any applicable portion of this Article that shall not have been invalidated,
or by any other applicable law.
ARTICLE X
AMENDMENT OF BYLAWS
a. The Board of Directors shall have the power to amend, alter, or repeal
these Bylaws, and to adopt new Bylaws, from time to time.
b. The stockholders of the Corporation may, at any annual meeting of the
stockholders of the Corporation or at any special meeting of the stockholders of
the Corporation called for the purpose of amending these Bylaws, amend, alter,
or repeal these Bylaws, and adopt new Bylaws, from time to time.
c. The Board of Directors shall not have the authority to adopt or amend
any Bylaw if such new Bylaw of such amendment would be inconsistent with any
Bylaw previously adopted by the stockholders of the Corporation. The
stockholders may prescribe in any Bylaw made by them that such Bylaw shall not
be altered, amended or repealed by the Board of Directors.
ARTICLE XI
STOCKHOLDER AGREEMENTS
Unless the shares of this Corporation are listed on a national securities
exchange or are regularly quoted by licensed securities dealers and brokers, all
the stockholders of this Corporation may enter into agreements relating to any
phase of business and affairs of the Corporation and which may provide for,
among other things, the election of directors of the Corporation in a manner
determined without reference to the number of shares of capital stock of the
Corporation owned by his stockholders, the determination of management policy,
and division of profits. Such agreement may restrict the discretion of the Board
of Directors and its management of the business of the Corporation or may treat
the Corporation as if it were a partnership or may arrange the relationships of
the stockholders in a manner that would be appropriate only among partners. In
the event such agreement shall be inconsistent in whole or in part with the
Articles of Incorporation and/or Bylaws of the Corporation, the terms of such
agreement shall govern. Such agreement shall be binding upon any transferee of
shares of this corporation provided such transferee has actual notice thereof or
a legend referring to such agreement is noted on the face or back of the
certificate or certificates representing the shares transferred to such
transferee.
ARTICLE XII
FISCAL YEAR
The fiscal year of this Corporation shall be determined by the Board of
Directors.
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EXHIBIT D
ARTICLE 113 OF THE COLARADO BUSINESS CORPORATION LAW
PART 1
DISSENTERS' RIGHTS
RIGHT OF DISSENT--PAYMENT FOR SHARES
7-113-101 DEFINITIONS.--For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or
foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effective date of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action except to the extent that exclusion
would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in
section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 RIGHT TO DISSENT.--(1) A shareholder, whether or not entitled to
vote, is entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
if:
(I) Approval by the shareholders of that corporation is required for
the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were
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entitled to vote upon the consent of the corporation to the disposition
pursuant to section 7-112-102 (2).
(1.3)A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the National Association of Securities Dealers
Automated Quotation System, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at
which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to (the corporate action;
or
(c) The effective date of tire corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8)The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant to
the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either with be listed on a national
securities exchange registered under the federal "Securities Exchange Act of
1934", as amended, or on the national market system of the National
Association of Securities Dealers Automated Quotation System, or will be
held of record by more than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2)
(2.5)A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
a reverse split that reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created is
to be acquired for cash or the scrip is to be voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
causes the corporation to receive written notice which states such dissent and
the name, address, and federal taxpayer identification number, if any, of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a record shareholder under this subsection (1) are determined as if
the shares as to which the record shareholder dissents and the other shares of
the record shareholder were registered in the names of different shareholders.
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(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201 NOTICE OP DISSENTERS' RIGHTS.--(1) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
shareholders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting. Failure to
give notice as provided by this subsection (1) shall not affect any action taken
at the shareholders' meeting for which the notice was to have been given, but
any shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection
(2) shall not affect any action taken pursuant to section 7-107-104 for which
the notice was to have been given, but any shareholder who was entitled to
dissent but who was not given such notice shall not be precluded from demanding
payment for the shareholder's shares under this article by reason of the
shareholder's failure to comply with the provisions of section 7-113-202(2).
7-113-202 NOTICE OF INTENT TO DEMAND PAYMENT.--(1) If a proposed corporate
action creating dissenters' rights under section 7-113-102 is submitted to a
vote at a shareholders' meeting and if notice of dissenters' rights has been
given to such shareholder in connection with the action pursuant to
section 7-113-201(1), a shareholder who wishes to assert dissenters' rights
shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
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(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2) a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection
(1) or (2) of this section is not entitled to demand payment for the
shareholder's shares under this article.
7-113-203 DISSENTERS' NOTICE.--(1) If a proposed corporate action creating
dissenters' rights under section 7-113-102 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection
(1) of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204 PROCEDURE TO DEMAND PAYMENT.--(1) A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203 (2) (d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
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7-113-205 UNCERTIFICATED SHARES.--(1) Upon receipt of a demand for payment
under section 7-113-204 from a shareholder holding uncertificated shares, and in
lieu of the deposit of certificates representing the shares, the corporation may
restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206 PAYMENT.--(1) Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under
section 7-113-102 or upon receipt of a payment demand pursuant to
section 7-113-204, whichever is later, the corporation shall pay each dissenter
who complied with section 7-113-204, at the address stated in the payment
demand, or if no such address is stated in the payment demand, at the address
shown on the corporation's current record of shareholders for the record
shareholder holding the dissenter's shares, the amount the corporation estimates
to be the fair value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet as
of the end of a fiscal year ending not more than sixteen months before the
date of payment, an income statement for that year, and, if the corporation
customarily provides such statements to shareholders, a statement of changes
in shareholders' equity for that year and a statement of cash flow for that
year, which balance sheet and statements shall have been audited if the
corporation customarily provides audited financial statements to
shareholders, as well as the latest available financial statements, if any,
for the interim or full-year period, which financial statements need not be
audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207 FAILURE TO TAKE ACTION.--(1) If the effective date of the
corporate action creating dissenters' rights under section 7-113-102 does not
occur within sixty days after the date set by the corporation by which the
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) 1f the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
7-113-208 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION.--(1) The corporation may, in or with the
dissenters' notice given pursuant to section 7-113-203, state the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under section 7-113-102 and state
that the dissenter shall certify in writing, in or with the dissenter's payment
demand under section 7-113-204, whether or not the dissenter (or the person on
whose behalf dissenters' rights are asserted) acquired beneficial ownership of
the shares before that date. With respect to any dissenter who does not so
certify in writing, in or with the payment demand, that the dissenter or the
person on whose behalf the dissenter asserts dissenters' rights acquired
beneficial ownership of the shares
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before such date, the corporation may, in lieu of making the payment provided in
section 7-113-206, offer to make such payment if the dissenter agrees to accept
it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209 PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER.--(1)
A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under
section 7-113-208 and demand payment of the fair value of the shares and
interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-206
or offered under section 7-113-208 is less than the fair value of the shares
or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation
must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section unless
the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301 COURT ACTION.--(1) If a demand for payment under
section 7-113-209 remains unresolved, the corporation may, within sixty days
after receiving the payment demand, commence a proceeding and petition the court
to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay to each dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to such order. The parties to the
proceeding are entitled to the same discovery rights as parties in other civil
proceedings.
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(5) Each dissenter made a party to the proceeding commenced under subsection
(2) of this section is entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, exceeds the
amount paid by the corporation, or for the fair value, plus interest, of the
dissenter's shares for which the corporation elected to withhold payment under
section 7-113-208.
7-113-302 COURT COSTS AND COUNSEL FEES.--(1) The court in an appraisal
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the requirements of
part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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ON2.COM INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel B. Miller and Barry M. Shereck, and
each of them, proxies with full power of substitution, to vote the shares of
Common Stock in On2.com Inc. which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company to be
held on May 17, 2000 or any adjournments thereof.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed (except as indicated to the
contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
</TABLE>
Daniel B. Miller David S. Silver Jack L. Rivkin Ajmal Khan Stephen A.
Klein Strauss Zelnick
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
- --------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE 1999 AMENDED AND RESTATED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN applicable to key employees, directors and other providers of
goods and services:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE THE REINCORPORATION PROPOSAL, INCLUDING THE AGREEMENT
AND PLAN OF MERGER:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP as the Company's
independent public accountants for the fiscal year ending December 31, 2000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED IN PROPOSAL 1 AND "FOR"
PROPOSALS 2, 3 AND 4.
The undersigned acknowledges receipt of the Notice of said Annual Meeting and of
the Proxy Statement attached thereto.
Dated __________________________, 2000
--------------------------------------
PLEASE SIGN EXACTLY AS NAME APPEARS AT
LEFT. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN, ETC., GIVE FULL TITLE AS
SUCH.
Please mark, sign, date and return the
proxy card using the enclosed
envelope.
