TRANSITION AGREEMENT

1.     Resignation .  As of the Effective Date, Principe resigns, and On2 accepts his resignation, from his employment with On2 and from all the offices, directorships and other positions that he holds with On2 and any of On2’s directly and indirectly owned subsidiaries, including without limitation his positions as Senior Vice President and Chief Financial Officer of On2 and member of the Board of Directors of On2 Finland.  After the Effective Date, Principe shall not be entitled to the receipt of any further payments or benefits from On2 other than those expressly provided for in this Agreement. The parties hereto agree that this Agreement constitutes written notice to On2 Finland of Principe’s resignation from the Board of Directors of On2 Finland.

2.     Consulting Engagement .   From the Effective Date through September 15, 2009 (the “Transition Period”), Principe shall serve in an independent contractor capacity as a consultant to On2.  Principe’s responsibilities during the Transition Period shall be to assist in effecting a smooth transition of On2’s chief financial officer responsibilities and to perform such other advisory duties as On2’s chief financial officer or chief executive officer shall reasonably assign to him, up to a maximum of twenty (20) hours per month.  During the Transition Period, Principe will not undertake any business activities as an advisor to On2 or otherwise on behalf of On2 without the prior approval of On2’s chief financial officer or chief executive officer.  Principe shall have no power or authority to act for or to take any action on behalf of On2 or to bind On2 to any obligation with any third party.

3.     Compensation During Transition Period .

(a)         Vacation Days; Expenses .

(i)          On the next regularly scheduled pay day after the Effective Date, On2 will pay Principe for any accrued but unused vacation days as of the Effective Date, in accordance with On2’s applicable policies and procedures.

(ii)         On2 shall reimburse Principe for appropriate and reasonable expenses incurred by Principe on or before the Effective Date, if any, in accordance with On2’s applicable policies and procedures.

(b)         Consulting Fees .  Provided that Principe (i) signs this Agreement and does not revoke his signature and (ii) complies with all of his obligations in this Agreement, then during the Transition Period, On2 shall pay Principe twelve equal consulting fee payments of Six Thousand Six Hundred and Forty-Nine Dollars and 94 cents ($6,649.94), each such payment to be issued on fifteenth and last day of each month during the Transition Period, with such amounts being payable even if Principe becomes employed during the Transition Period.

(c)         Stock Options and Restricted Stock Awards .  Notwithstanding the terms of the grants of any On2 stock options granted to Principe prior to the Effective Date, all of Principe’s On2 stock options that are vested as of the Effective Date shall remain exercisable through March 15, 2011.  The vesting schedules for any On2 restricted stock issued to Principe shall remain unchanged.

(d)         Benefits .  During the Transition Period and for three (3) months thereafter (the “Health Care Period”), Principe and the Principe family members currently covered under On2’s employee health care plan, shall continue to be eligible to participate in On2’s employee health care plan, as amended from time to time; provided, however that if during the Health Care Period, Principe accepts employment with an employer that offers health care benefits, Principe agrees to notify On2 of such employment and his On2 health care benefits shall terminate on the earlier of the date of his eligibility for health care benefits from his new employer or the last day of the Health Care Period.

4.     General Release of Claims . In consideration for the promises herein, Principe on behalf of himself and his heirs, executors, administrators and assigns, hereby irrevocably and unconditionally remises, releases and forever discharges On2 Technologies, Inc. (“ On2 ”) and its affiliates and subsidiaries, and all of their respective officers, directors, employees, agents and advisors (collectively, the “ Releasees ”), from any and all liabilities, actions, causes of action, contracts, agreements, promises, claims, debts and demands of any kind or nature whatsoever, in law or equity, whether known or unknown, which Principe has or ever has had against the Releasees, or any of them, including, but not limited to, claims arising out of or relating to Principe’s employment or the termination of Principe’s employment with On2 and any claims for compensation and benefits from On2.  Principe understands and agrees that this General Release of Claims is a complete bar to any claim, demand or action of any kind whatsoever which could be brought by Principe against the Releasees, including, without limitation, any claim under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Older Worker Benefits Protection Act, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor St