Execution Copy

On2 Technologies, Inc.
 
13,000,000 Shares
 
Common Stock ($0.01 par value)
 
Underwriting Agreement
 
New York, New York
October 17, 2007
 
ThinkEquity Partners LLC
Merriman Curhan Ford & Co.
As Representatives of the several Underwriters
c/o ThinkEquity Partners LLC
600 Montgomery Street, 8th Floor
San Francisco, California 94111
 
Ladies and Gentlemen:
 
On2 Technologies, Inc., a corporation organized under the laws of the State of
Delaware (the “Company”), proposes to sell to the several underwriters named in
Schedule I hereto (the “Underwriters”), for whom you (the “Representatives”) are
acting as representatives, 13,000,000 shares of Common Stock, $0.01 par value
per share (“Common Stock”), of the Company (said shares to be issued and sold by
the Company being hereinafter called the “Firm Shares”). The Company also
proposes to grant to the Underwriters an option (the “Over-Allotment Option”) to
purchase up to 1,950,000 additional shares of Common Stock (as may be adjusted
to give effect to any stock split, reverse stock split or recapitalization
effected by the Company prior to the exercise of such option) to cover
over-allotments (the “Option Shares”; the Option Shares, together with the Firm
Shares, being hereinafter called the “Securities”) on the terms set forth in
Section 3. To the extent there are no additional Underwriters listed on Schedule
I other than you, the term Representatives as used herein shall mean you, as
Underwriters, and the terms Representatives and Underwriters shall mean either
the singular or plural as the context requires. The use of the neuter in this
Agreement shall include the feminine and masculine wherever appropriate. Certain
terms used herein are defined in Section 20 hereof.
 
1.    Representations and Warranties.
 
The Company represents, warrants and agrees as follows:
 
(a) The Company has prepared and filed with the Commission a registration
statement (file number 333-142336) on Form S-3, including a related base
prospectus, for registration under the Act of the offering and sale of the
Securities. Such Registration Statement, including any amendments thereto filed
prior to the Execution Time, has become effective. The Company may have filed
one or more amendments thereto, including a related preliminary prospectus, each
of which has previously been furnished to you. The Company will file with the
Commission a final prospectus in accordance with Rule 424(b). As filed, such
final prospectus shall conform in all material respects with the applicable
requirements of the Act and the rules thereunder, on the Effective Date and at
the Execution Time, and, except to the extent the Representatives shall agree in
writing to a modification, shall be in all material respects in the form
furnished to you prior to the Execution Time or, to the extent not completed at
the Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be included or
made therein.
 
 
 

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(b) On the Effective Date, the Registration Statement did, and when the
Prospectus is first filed in accordance with Rule 424(b) and on the Closing Date
(as defined herein) and on any date on which Option Shares are purchased, if
such date is not the Closing Date (a “settlement date”), the Prospectus (and any
supplements thereto) will, conform in all material respects with the applicable
requirements of the Act and the rules thereunder; on the Effective Date and at
the Execution Time, the Registration Statement did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
on the date of any filing pursuant to Rule 424(b) and on the Closing Date and
any settlement date, the Prospectus (together with any supplement thereto) will
not, include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the Prospectus (or
any supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto), it being understood and agreed that
the only such information furnished by any Underwriter consists of the
information described as such in Section 8(b) hereof.
 
(c) The Disclosure Package as of the Effective Date and at the Execution Time
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The preceding
sentence does not apply to statements in or omissions from the Disclosure
Package based upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by or on behalf of any Underwriter consists of the information described as such
in Section 8(b) hereof.
 
(d) (i) At the time of filing the Registration Statement and (ii) as of the
Execution Time (with such date being used as the determination date for purposes
of this clause (ii)), the Company was not and is not an Ineligible Issuer (as
defined in Rule 405), without taking account of any determination by the
Commission pursuant to Rule 405 that it is not necessary that the Company be
considered an Ineligible Issuer.
 
(e) Each Issuer Free Writing Prospectus, when considered together with the
Disclosure Package as of the Effective Date and at the Execution Time, did not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the price of the Securities and disclosures directly relating
thereto will be included on the cover page of the Prospectus. The foregoing
sentence does not apply to statements in or omissions from any Issuer Free
Writing Prospectus based upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information furnished by any Underwriter consists of the information described
as such in Section 8(b) hereof.
 
(f) Each of the Company and its Subsidiaries (as defined in Section 1(h)) has
been duly organized and is validly existing as a corporation or limited
liability company (as applicable) in good standing under the laws of the
jurisdiction in which it is chartered or organized with full corporate or
limited liability company (as applicable) power and authority to own or lease,
as the case may be, and to operate its properties and conduct its business as
described in the Disclosure Package and the Prospectus, and is duly qualified to
do business as a foreign corporation or limited liability company (as
applicable) and is in good standing under the laws of each jurisdiction which
requires such qualification, except where the failure to be so qualified or in
good standing could not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business (a “Material Adverse Effect”), except as set forth
in or contemplated in the Disclosure Package and the Prospectus (exclusive of
any supplement thereto).
 
 
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(g) All the outstanding shares of capital stock or other equity interests of
each Subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and, except as otherwise set forth in the
Disclosure Package and the Prospectus, all outstanding shares of capital stock
or other equity interests of the Subsidiaries of the Company are owned by the
Company either directly or through its wholly owned subsidiaries free and clear
of any security interests, claims, liens or encumbrances.
 
(h) The entities listed on Annex A attached hereto are the only subsidiaries of
the Company as defined by Rule 1-02 of Regulation S-X (the “Subsidiaries”).
 
(i) The Company’s authorized equity capitalization is as set forth in the
Disclosure Package and the Prospectus; the capital stock of the Company conforms
in all material respects to the description thereof contained in the Disclosure
Package and the Prospectus; the outstanding shares of Common Stock have been
duly and validly authorized and issued and are fully paid and nonassessable; the
Securities being issued and sold hereunder by the Company have been duly and
validly authorized, and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be fully paid and nonassessable;
subject to the matters disclosed in the Current Report on Form 8-K filed by the
Company with the Commission on October 10, 2007, the Securities shall, when
issued, be duly listed, and admitted and authorized for trading, subject to
official notice of issuance, on the American Stock Exchange; the certificates
for the Securities have been duly approved and adopted by the Company and are in
valid and sufficient form and comply with the requirements of the American Stock
Exchange; the holders of outstanding shares of capital stock of the Company are
not entitled to preemptive or other rights to subscribe for the Securities; and,
except as set forth in the Disclosure Package and the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to issue,
or rights to convert any obligations into or exchange any securities for, shares
of capital stock of or ownership interests in the Company are outstanding.
 
(j) There is no contract or other document that is required to be described in
the Prospectus or filed as an exhibit to the Registration Statement under the
Act or rules and regulations thereunder that has not been described in the
Prospectus or filed as an exhibit to the Registration Statement.
 
(k) This Agreement has been duly authorized, executed and delivered by the
Company.
 
(l) The Company is not and, after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the
Disclosure Package and the Prospectus, will not be an “investment company” as
defined in the Investment Company Act of 1940, as amended.
 
 
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(m) No consent, approval, authorization, filing with or order of any court or
Governmental Authority is required in connection with the transactions
contemplated herein, except for the registration of the Securities under the Act
and such consents, approvals, authorizations, registrations, or qualifications
as may be required under the Exchange Act, by the Financial Industry Regulatory
authority (“FINRA”), and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Securities
by the Underwriters in the manner contemplated herein and in the Disclosure
Package and the Prospectus.
 
(n) Neither the issue and sale of the Securities nor the consummation of any
other of the transactions herein contemplated nor the fulfillment of the terms
hereof will (i) conflict with or result in a violation of the charter or by-laws
of the Company or any of the Subsidiaries or (ii) conflict with, result in
material breach or violation of, or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to, (A) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject,
or (B) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, Governmental Authority,
arbitrator or other authority having jurisdiction over the Company or any of its
subsidiaries or any of its or their properties.
 
(o) No holders of securities of the Company have rights to the registration of
such securities under the Registration Statement except as set forth in the
Disclosure Package and Prospectus.
 
(p) The consolidated historical financial statements and schedules of the
Company and its consolidated Subsidiaries included in the Disclosure Package,
the Prospectus and the Registration Statement present fairly in all material
respects the consolidated financial condition, results of operations and cash
flows of the Company and its Subsidiaries as of the respective dates and for the
respective periods indicated and have been prepared in conformity with U.S.
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein). The
selected financial data set forth under the caption “Selected Consolidated
Financial Data” in the Disclosure Package, the Prospectus and the Registration
Statement present the information set forth therein on a basis consistent with
that of the audited financial statements contained in the Registration
Statement.
 
(q) Except as set forth in or contemplated in the Disclosure Package and the
Prospectus, there are no actions, suits or proceedings by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its Subsidiaries or its or their property pending or, to the Company’s
knowledge, threatened that (i) could reasonably be expected to have a material
adverse effect on the performance of this Agreement or the consummation of any
of the transactions contemplated hereby or (ii) could, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
 
(r) The Company and each of the Subsidiaries have good and marketable title in
fee simple to all real property and good and valid title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects, except such as are described in the most recent Prospectus or such
as do not materially adversely affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries; and all assets held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and the Subsidiaries.
 
 
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(s) Neither the Company nor any Subsidiary (i) is in violation or default of any
provision of its charter or bylaws, (ii) is in default in any material respect
of the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject,
or (iii) except as set forth in the Prospectus, is in violation in any material
respect of any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except with respect to (ii) and (iii) above,
for such violations or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect.
 
(t) Eisner LLP, who has certified certain financial statements of the Company
and its consolidated subsidiaries and delivered its report with respect to the
audited consolidated financial statements and schedules included in the
Disclosure Package and the Prospectus, is an independent registered public
accounting firm with respect to the Company within the meaning of the Act within
the meaning of Rule 3600T of the Public Company Accounting Oversight Board, and
there has not been any disagreement (within the meaning of National Policy
Statement No. 31) with the present or any former accountants of the Company.
 
(u) There are no transfer taxes or other similar fees or charges under U.S.
federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the
Securities.
 
(v) Each of the Company and the Subsidiaries has filed all Tax Returns that are
required to be filed or has requested extensions thereof (except in any case in
which the failure so to file would not have a Material Adverse Effect, except as
set forth in or contemplated in the Disclosure Package and the Prospectus
(exclusive of any supplement thereto)) and has paid all Taxes required to be
paid by it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith or
as would not have a Material Adverse Effect, except as set forth in or
contemplated in the Disclosure Package and the Prospectus (exclusive of any
supplement thereto).
 
(w) No labor problem or dispute with the employees of the Company or any of its
Subsidiaries exists or, to the knowledge of the Company, is threatened or
imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or the Subsidiaries’ principal
suppliers, contractors or customers, that could have a Material Adverse Effect,
except as set forth in or contemplated in the Disclosure Package and the
Prospectus (exclusive of any supplement thereto).
 
(x) The Company and each of the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; all policies of insurance and fidelity or surety bonds insuring the
Company or any of the Subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
the Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of the Subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause; neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage or obtain substantially equivalent insurance as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect, except as set forth in or contemplated in the
Disclosure Package and the Prospectus (exclusive of any supplement thereto).
 
 
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(y) No Subsidiary is currently prohibited, directly or indirectly, from paying
any dividends to the Company, from making any other distribution on such
Subsidiary’s capital stock, from repaying to the Company any loans or advances
to such Subsidiary from the Company or from transferring any of such
Subsidiary’s property or assets to the Company or any other Subsidiary of the
Company, except as described in or contemplated by the Disclosure Package and
the Prospectus (exclusive of any supplement thereto).
 
(z) The Company and the Subsidiaries possess all licenses, certificates, permits
and other authorizations issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
for any which the failure to possess could not reasonably be expected to have a
Material Adverse Effect, except as set forth in or contemplated in the
Disclosure Package and the Prospectus (exclusive of any supplement thereto); and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect,
except as set forth in or contemplated in the Disclosure Package and the
Prospectus (exclusive of any supplement thereto).
 
(aa) The Company and each of the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with U.S. generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization; and (iv) the reported accountability for assets is compared with
the existing assets at reasonable intervals.
 
(bb) The Company has not taken, directly or indirectly, any action designed to
or that would constitute or that might reasonably be expected to cause or result
in, under the Exchange Act or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities.
 
(cc) The Company and the Subsidiaries are (i) in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”) except
where such lack of compliance would not result in a Material Adverse Effect,
(ii) have received and are in compliance with all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses except where such lack of compliance would not result in a
Material Adverse Effect and (iii) have not received notice of any actual or
potential liability under any environmental law, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not, individually or in the
aggregate, have a Material Adverse Effect, except as set forth in or
contemplated in the Disclosure Package and the Prospectus (exclusive of any
supplement thereto). Except as set forth in the Disclosure Package and the
Prospectus, neither the Company nor any of the Subsidiaries has been named as a
“potentially responsible party” under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
 
(dd) The Company is in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
(“ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect
to any “pension plan” (as defined in ERISA) for which the Company would have any
liability; the Company has not incurred and could not reasonably be expected to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the “Code”); each “pension plan” for which the
Company would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification;
and neither the Company nor any of the Subsidiaries maintains or is required to
contribute to a “welfare plan” (as defined in Section 3(l) of ERISA) which
provides retiree or other post-employment welfare benefits or insurance coverage
(other than “continuation coverage” (as defined in Section 602 of ERISA).
 
 
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(ee) The Company is in compliance in all material respects with all presently
effective provisions of the Sarbanes Oxley Act of 2002 and the rules and
regulations promulgated in connection therewith (the “Sarbanes Oxley Act”),
including Section 402 related to loans.
 
(ff) Neither the Company nor any of the Subsidiaries nor, to the knowledge of
the Company, any director, officer, agent, employee or affiliate of the Company
or any of the Subsidiaries is aware of or has taken any action, directly or
indirectly, that would result in a violation by such persons of the FCPA,
including, without limitation, making use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of an offer,
payment, promise to pay or authorization of the payment of any money, or other
property, gift, promise to give, or authorization of the giving of anything of
value to any “foreign official” (as such term is defined in the FCPA) or any
non-U.S. political party or official thereof or any candidate for non-U.S.
political office, in contravention of the FCPA and the Company, the Subsidiaries
and, to the knowledge of the Company, its affiliates have conducted their
businesses in compliance with the FCPA and have instituted and maintain policies
and procedures designed to ensure, and which are reasonably expected to continue
to ensure, continued compliance therewith.
 
“FCPA” means Foreign Corrupt Practices Act of 1977, as amended, and the rules
and regulations thereunder.
 
(gg) The operations of the Company and the Subsidiaries are and have been
conducted at all times in compliance in all material respects with applicable
financial recordkeeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, the money laundering statutes of
all jurisdictions, the rules and regulations thereunder and any related or
similar rules, regulations or guidelines, issued, administered or enforced by
any Governmental Authority (collectively, the “Money Laundering Laws”) and no
action, suit or proceeding by or before any court or Governmental Authority or
any arbitrator involving the Company or any of the Subsidiaries with respect to
the Money Laundering Laws is pending or, to the best knowledge of the Company,
threatened in each case, as would not be reasonably expected to have a Material
Adverse Effect.
 
(hh) Neither the Company nor any of the Subsidiaries nor, to the knowledge of
the Company, any director, officer, agent, employee or affiliate of the Company
or any of the Subsidiaries is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”); and the Company will not directly or indirectly use the
proceeds of the offering, or lend, contribute or otherwise make available such
proceeds to any Subsidiary, joint venture partner or other person or entity, for
the purpose of financing the activities of any person who, to the Company’s
knowledge, is currently subject to any U.S. sanctions administered by OFAC.
 
 
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(ii) The Company and the Subsidiaries own, possess, license or have other rights
to use, on reasonable terms, all patents, patent applications, trade and service
marks, trade and service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual property
(collectively, the “Intellectual Property”) necessary for the conduct of the
Company’s business as now conducted as described in the Disclosure Package and
the Prospectus. Except as set forth in the Disclosure Package and the
Prospectus, (i) there is no material infringement by third parties of any such
Intellectual Property; (ii) there is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging the Company’s
rights in or to any such Intellectual Property; (iii) there is no pending or, to
the Company’s knowledge, threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property; and
(iv) there is no pending or, to the Company’s knowledge, threatened action,
suit, proceeding or claim by others that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others.
 
(jj) Neither the Company nor any of the Subsidiaries is a party to any contract,
agreement or understanding with any person that would give rise to a valid claim
against the Company or the Underwriters for a brokerage commission, finder’s fee
or like payment in connection with the offering and sale of the Securities other
than this Agreement.
 
Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Securities shall be deemed a representation and warranty by the Company,
as to matters covered thereby, to each Underwriter.
 
2.    Purchase and Sale.
 
(a) Subject to the terms and conditions and in reliance upon the representations
and warranties herein set forth, the Company agrees to sell to each Underwriter,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company, at a purchase price of $0.94 per share, the amount of the Firm Shares
set forth opposite such Underwriter’s name in Schedule I hereto.
 
(b) Subject to the terms and conditions and in reliance upon the representations
and warranties herein set forth, the Company hereby grants an option to the
several Underwriters to purchase, severally and not jointly, up to 1,950,000
Option Shares at the same purchase price per share as the Underwriters shall pay
for the Firm Shares. Said option may be exercised only to cover over-allotments
in the sale of the Firm Shares by the Underwriters. Said option may be exercised
in whole or in part at any time on or before the 30th day after the date of the
Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Shares as to which the
several Underwriters are exercising the option and the settlement date. The
number of Option Shares to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Shares to be purchased by
the several Underwriters as such Underwriter is purchasing of the Firm Shares,
subject to such adjustments as the Representatives in their absolute discretion
shall make to eliminate any fractional shares.
 
The Company shall not be obligated to deliver any of the Securities on the date
required for delivery under Section 3 except upon payment for all Securities to
be purchased on such delivery date as provided herein.
 
 
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3.    Delivery and Payment.
 
(a) Delivery of and payment for the Firm Shares and the Option Shares (if the
option provided for in Section 2(b) hereof shall have been exercised on or
before the fourth Business Day following the date of this Agreement) shall be
made at 10:00 a.m., New York City time, on October 23, 2007, or at such time on
such later date not more than four Business Days after the foregoing date as the
Representatives shall designate, which date and time may be postponed by
agreement between the Representatives and the Company or as provided in
Section 9 hereof (such date and time of delivery and payment for the Securities
being herein called the “Closing Date”). Delivery of the Securities shall be
made to the Representatives for the respective accounts of the several
Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified in
writing by the Company. Delivery of the Firm Shares and the Option Shares shall
be made through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
 
(b) If the option provided for in Section 2(b) hereof is exercised after the
fourth Business Day following the date of this Agreement, the Company will
deliver (at the expense of the Company) to the Representatives, at 600
Montgomery Street, 8th Floor, San Francisco, California 94111, on the date
specified by the Representatives (which shall be within three Business Days
after exercise of said option), certificates for the Option Shares in such names
and denominations as the Representatives shall have requested for the respective
accounts of the several Underwriters, against payment by the several
Underwriters through the Representatives of the purchase price thereof to or
upon the order of the Company. If settlement for the Option Shares occurs after
the Closing Date, the Company will deliver to the Representatives on the
settlement date for the Option Shares, and the obligation of the Underwriters to
purchase the Option Shares shall be conditioned upon receipt of, supplemental
opinions, certificates and letters confirming as of such date the opinions,
certificates and letters delivered on the Closing Date pursuant to Section 6
hereof.
 
4.    Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public upon the terms and
conditions as set forth in the Prospectus as soon after this Agreement has been
executed and as the Representatives, in their sole judgment, have determined is
advisable and practicable.
 
5.    Agreements.
 
(i)    The Company agrees with the several Underwriters that:
 
(a) Prior to the termination of the offering of the Securities, the Company will
not file any amendment of the Registration Statement or supplement to the
Prospectus or any Rule 462(b) Registration Statement unless the Company has
furnished you a copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object. The Company
will cause the Prospectus, properly completed, and any supplement thereto to be
filed in a form approved by the Representatives with the Commission pursuant to
the applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely filing.
The Company will promptly advise the Representatives (1) when the Prospectus,
and any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (2) when, prior to
termination of the offering of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (3) of any request by the
Commission or its staff for any amendment of the Registration Statement, or any
Rule 462(b) Registration Statement, or for any supplement to the Prospectus or
for any additional information, (4) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of any
notice objecting to its use or the institution or threatening of any proceeding
for that purpose and (5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of any
such stop order or the occurrence of any such suspension or objection and, upon
such issuance, occurrence or objection, to obtain as soon as possible the
withdrawal thereof of such stop order or relief from such occurrence or
objection, including, if necessary, by filing an amendment to the Registration
Statement or a new registration statement and using its best efforts to have
such amendment or new registration statement declared effective as soon as
practicable.
 
 
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(b) If, at any time, prior to the filing of the Prospectus pursuant to Rule
424(b), any event occurs as a result of which the Disclosure Package would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the circumstances
under which they were made at such time not misleading, the Company will:
(1) notify promptly the Representatives so that any use of the Disclosure
Package may cease until it is amended or supplemented; (2) amend or supplement
the Disclosure Package to correct such statement or omission; and (3) supply any
amendment or supplement to you in such quantities as you may reasonably request.
 
(c) If, at any time when a prospectus relating to the Securities is required to
be delivered under the Act (including in circumstances where such requirements
may be satisfied pursuant to Rule 172 of the Act), any event which becomes known
to the Company occurs as a result of which the Prospectus as then supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made at such time not misleading, or if it
shall be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company promptly
will (1) notify the Representatives of any such event, (2) prepare and file with
the Commission, subject to the second sentence of paragraph (i)(a) of this
Section 5, an amendment or supplement which will correct such statement or
omission or effect such compliance and (3) supply any supplemented Prospectus to
you in such quantities as you may reasonably request.
 
(d) As soon as practicable, the Company will make generally available to its
security holders and to the Representatives an earnings statement or statements
of the Company and its subsidiaries which will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act.
 
(e) The Company will furnish to the Representatives and counsel for the
Underwriters signed copies of the Registration Statement (including exhibits
thereto) and to each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act (including the circumstances
where such requirement may be satisfied pursuant to Rule 172), as many copies of
each Preliminary Prospectus, the Prospectus and each Issuer Free Writing
Prospectus and any supplement thereto as the Representatives may reasonably
request.
 
(f) The Company will arrange, if necessary, for the qualification of the
Securities for sale under the laws of such jurisdictions as the Representatives
may designate and will maintain such qualifications in effect so long as
required for the distribution of the Securities; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified, to subject itself to taxation in any foreign
jurisdiction or to take any action that would subject it to service of process
in suits, other than those arising out of the offering or sale of the
Securities, in any jurisdiction where it is not now so subject.
 
 
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(g) The Company will not, without the prior written consent of ThinkEquity
Partners LLC, offer, sell, contract to sell, pledge, or otherwise dispose of (or
enter into any transaction which is designed to, or might reasonably be expected
to, result in the disposition of (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Company or any
affiliate of the Company or any person in privity with the Company or any
affiliate of the Company), directly or indirectly, including the filing (or
participation in the filing) of a registration statement with the Commission
(other than a registration statement on Form S-8) in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Exchange Act, with respect to
any other shares of Common Stock or any securities convertible into, or
exercisable, or exchangeable for, shares of Common Stock, or publicly announce
an intention to effect any such transaction, for a period of 90 days after the
date of this Agreement; provided, however, that the Company may (i) issue and
sell Common Stock pursuant to any employee stock incentive plan, stock option
plan (and may issue options thereunder), stock ownership plan or dividend
reinvestment plan of the Company in effect at the Execution Time, (ii) Common
Stock issuable upon the conversion of securities or the exercise of warrants
outstanding at the Execution Time and (iii) Common Stock pursuant to the Share
Exchange Agreement, dated as of May 21, 2007, between the Company and Nexit
Ventures Oy, as the authorized representative of the holders of the outstanding
equity securities of Hantro Products Oy. If (1) during the last 17 days of the
90-day restricted period the Company issues an earnings release or material news
or a material event relating to the Company occurs or (2) prior to the
expiration of the 90-day restricted period the Company announces that it will
release earnings results during the 16-day period beginning on the last day of
the 90-day period, then the foregoing restrictions shall continue to apply until
the expiration of the 18-day period beginning on the issuance of the earnings
release or the occurrence of the material news or material event.
 
(h) The Company will comply with all applicable securities and other applicable
laws, rules and regulations, including, without limitation, the Sarbanes Oxley
Act, the Money Laundering Laws and the FCPA and use its best efforts to cause
the Company’s directors and officers, in their capacities as such, to comply
with such laws, rules and regulations, including, without limitation, the
provisions of the Sarbanes Oxley Act, the Money Laundering Laws and the FCPA.
 
(i) The Company will not take, directly or indirectly, any action designed to or
that would constitute or that might reasonably be expected to cause or result
in, under the Exchange Act or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities.
 
(j) The Company will not issue any press release or public announcement between
the date hereof and the Closing Date without first providing prior notice to the
Representatives.
 
(k) The Company agrees to pay the costs and expenses relating to the following
matters: (i) the preparation, printing or reproduction and filing with the
Commission of the Registration Statement (including financial statements and
exhibits thereto), each Preliminary Prospectus, the Prospectus and each Issuer
Free Writing Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, each Issuer
Free Writing Prospectus and all amendments or supplements to any of them, as
may, in each case, be reasonably requested for use in connection with the
offering and sale of the Securities; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Securities,
including any stamp or transfer taxes in connection with the original issuance
and sale of the Securities; (iv) the printing (or reproduction) and delivery of
this Agreement, any blue sky memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of the
Securities; (v) the registration of the Securities under the Exchange Act and
the listing of the Securities on the American Stock Exchange; (vi) any
registration or qualification of the Securities for offer and sale under the
securities or blue sky laws of the several states (including filing fees and the
reasonable fees and expenses of counsel for the Underwriters relating to such
registration and qualification); (vii) any filings required to be made with
FINRA (including filing fees and the reasonable fees and expenses of counsel for
the Underwriters relating to such filings); (viii) the costs and expenses of the
Company relating to investor presentations on any “road show” undertaken in
connection with the marketing of the offering of the securities, including,
without limitation, third party expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, lodging expenses of the officers of the Company and any such
consultants, and 50% of the cost of any aircraft chartered in connection with
the road show, but specifically excluding the lodging expenses of the
representatives of the Underwriters; (ix) the fees and expenses of the Company’s
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company; and (x) all other costs and expenses incident to the
performance by the Company of its obligations hereunder; provided that, except
as provided in this Section 5 and in Section 7, the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the securities which they may sell and the expenses of
advertising any offering of the securities made by the Underwriters.
 
 
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(l) The Company will use the net proceeds from the sale of the Securities in the
manner described in the Prospectus.
 
(m) The Company agrees that, unless it has obtained or will obtain the prior
written consent of the Representatives (such consent to not be unreasonably
withheld), and each Underwriter, severally and not jointly, agrees with the
Company that, unless it has obtained or will obtain, as the case may be, the
prior written consent of the Company (such consent to not be unreasonably
withheld), it has not made and will not make any offer relating to the
Securities that would constitute an Issuer Free Writing Prospectus or that would
otherwise constitute a Free Writing Prospectus required to be filed by the
Company or such Underwriter with the Commission or retained by the Company under
Rule 433; provided, that the prior written consent of the parties hereto shall
be deemed to have been given in respect of the Free Writing Prospectuses
identified in Schedule II hereto and any electronic road show. Any such Free
Writing Prospectus consented to by the Representatives or the Company is
hereinafter referred to as a “Permitted Free Writing Prospectus.” The Company
agrees that (x) it has treated and will treat, as the case may be, each
Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus and
(y) it has complied and will comply, as the case may be, with the requirements
of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus,
including in respect of timely filing with the Commission, legending and record
keeping.
 
(ii)    Each Underwriter severally agrees that such Underwriter shall not
include any “issuer information” (as defined in Rule 433) in any Free Writing
Prospectus used or referred to by such Underwriter without the prior written
consent of the Company (any such issuer information with respect to whose use
the Company has given its consent, “Permitted Issuer Information”); provided,
that (i) no such consent shall be required with respect to any such issuer
information contained in any document filed by the Company with the Commission
prior to the use of such Free Writing Prospectus and (ii) ”issuer information,”
as used in this Section 5(ii), shall not be deemed to include information
prepared by or on behalf of such Underwriter on the basis of or derived from
issuer information.
 
6.    Conditions to the Obligations of the Underwriters. The obligations of the
Underwriters to purchase the Firm Shares and the Option Shares, as the case may
be, shall be subject to the accuracy of the representations and warranties on
the part of the Company contained herein as of the Execution Time, the Closing
Date and any Subsequent Closing Date, to the accuracy of the statements of the
Company made in any certificates pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
 
 
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(a) Prior to the Closing Date and any Subsequent Closing Date, the Prospectus
and any supplement thereto have been filed in the manner and within the time
period required by Rule 424(b); and no stop order suspending the effectiveness
of the Registration Statement or any notice objecting to its use shall have been
issued and no proceedings for that purpose shall have been instituted or, to the
Company’s knowledge, threatened.
 
(b) On the Closing Date and any Subsequent Closing Date, McGuire Woods LLP,
counsel for the Company, shall have furnished to the Representatives their
opinion, dated the Closing Date and addressed to the Representatives and their
counsel, in the form set forth in Exhibit B.
 
(c) On the Closing Date and any Subsequent Closing Date, Levisohn Berger LLP,
intellectual property counsel for the Company, shall have furnished to the
Representatives its opinion, dated the Closing Date and addressed to the
Representatives and their counsel, in the form set forth in Exhibit C.
 
(d) The Representatives shall have received from Lowenstein Sandler PC, counsel
for the Underwriters, such opinion or opinions, dated the Closing Date and
addressed to the Representatives, with respect to the issuance and sale of the
Securities, the Registration Statement, the Disclosure Package, the Prospectus
(together with any supplement thereto), and other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
 
(e) On the Closing Date and any Subsequent Closing Date, the Company shall have
furnished to the Representatives certificates dated the Closing Date, signed by
appropriate officers of the Company, addressed to the Underwriters and their
counsel, with respect to the charter and by-laws of the Company, all resolutions
of the board of directors of the Company and other corporate action relating to
this Agreement and to the authorization, issue and sale of the Securities, the
incumbency and specimen signatures of signing officers and with respect to such
other matters as the Underwriters may reasonably request.
 
(f) On the Closing Date and any Subsequent Closing Date, the Company shall have
furnished to the Representatives a certificate of the Company, signed by the
principal executive officer and principal financial officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, the Disclosure
Package and any amendment or supplement thereto, as well as each electronic
roadshow used to offer the securities, and this Agreement and that:
 
(i) the representations and warranties of the Company in this Agreement are true
and correct on and as of the Closing Date with the same effect as if made on the
Closing Date and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to the
Closing Date;
 
(ii) no stop order suspending the effectiveness of the Registration Statement or
any notice objecting to is use has been issued and no proceedings for that
purpose have been instituted or, to the Company’s knowledge, threatened;
 
(iii) since the date of the most recent financial statements included in the
Prospectus (exclusive of any supplement thereto), there has been no material
adverse effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and their Subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Disclosure Package and the
Prospectus (exclusive of any supplement thereto); and
 
 
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(iv) such other matters as the Underwriters may reasonably request.
 
(g) At the Execution Time and on the Closing Date and any Subsequent Closing
Date, Eisner LLP shall have furnished to the Representatives letters, dated
respectively as of the Execution Time, the Closing Date or such Subsequent
Closing Date, in form and substance reasonably satisfactory to the
Representatives, a customary “comfort letter” with respect to the financial
statements and certain financial information of the Company and its subsidiaries
contained in the Registration Statement, the Statutory Prospectus and the
Prospectus and confirming that it is an independent registered public accounting
firm within the meaning of the Act and the applicable rules and regulations
adopted by the Commission.
 
(h) Subsequent to the Execution Time or, if earlier, the dates as of which
information is given in the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto), there shall
not have been (i) any loss or interference with the Company’s business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the most recent Prospectus or
(ii) any change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
stockholders’ equity or results of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause (i) or
(ii), is, in the judgment of the Representatives, so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities being delivered on such date of delivery on the terms
and in the manner contemplated in the Prospectus.
 
(i) The Securities shall have been listed for trading on the American Stock
Exchange and satisfactory evidence of such actions shall have been provided to
the Representatives.
 
(j) At or prior to the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibits A-1 or A-2 hereto
from each executive officer and director of the Company (other than Pekka
Salonoja) as of the Execution Time addressed to the Representatives.
 
(k) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request for the purposes of enabling them to pass
upon the issuance and sale of the Securities as contemplated in this Agreement,
or to evidence the accuracy of the Company’s representations and warranties or
the satisfaction of any of the agreements or conditions contained in this
Agreement.
 
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as provided in this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall not be
reasonably satisfactory in form and substance to the Representatives and counsel
for the Underwriters, this Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to, the Closing Date by the
Representatives, which cancellation shall be without liability on the part of
any party to any other party, except that Section 5(i)(k), Section 7, Section 8
and Section 11 shall at all times be effective and shall survive such
cancellation. Notice of such cancellation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
 
 
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The documents required to be delivered by this Section 6 shall be delivered at
the office of Lowenstein Sandler PC, counsel for the Underwriters, at 1251
Avenue of the Americas, New York, New York 10020, Attention: Michael D. Maline,
on the Closing Date or on such other date as shall be required or permitted by
the terms of the Agreement.
 
7.    Reimbursement of Underwriters’ Expenses. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 6 hereof is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through ThinkEquity Partners LLC on demand for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Securities. If this Agreement is terminated by reason of the
default of one or more of the Underwriters as set forth in Section 9 hereof, the
Company shall not be obligated to reimburse any defaulting Underwriter on
account of those expenses.
 
8.    Indemnification and Contribution.
 
(a) The Company agrees to indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person
who controls any Underwriter within the meaning of either the Act or the
Exchange Act from and against any and all losses, claims, damages or
liabilities, joint or several, or any action in respect thereof, to which they
or any of them may become subject under the Act, the Exchange Act or any other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus, the Prospectus or any Issuer Free Writing
Prospectus, or in any amendment thereof or supplement thereto, or in any
Permitted Issuer Information used or referred to in any Free Writing Prospectus
used or referred to by any Underwriter, or any “road show” (as defined in Rule
433) not constituting an Issuer Free Writing Prospectus (a “Non-Prospectus Road
Show”), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
 
(b) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity to each Underwriter, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof, to
which the Company or any such director, officer or controlling person may become
subject, under the Act, the Exchange Act or any other Federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities (or actions in respect thereof) arise out of or are based
upon, (i) any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the Securities
as originally filed or in any amendment thereof, or in any Preliminary
Prospectus, the Prospectus, any Issuer Free Writing Prospectus or in any
amendment thereof or supplement thereto or in any Permitted Issuer Information
or any Non-Prospectus Road Show, or (ii) the omission or alleged omission to
state therein, a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representatives
by or on behalf of that Underwriter specifically for inclusion therein, and
shall reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. This indemnity agreement will be in
addition to any liability which any Underwriter may otherwise have. The Company
acknowledges that the statements set forth in the fifth paragraph of the cover
page regarding delivery of the Securities and, under the heading “Underwriting,”
(i) the list of Underwriters and their respective participation in the sale of
the Securities, (ii) the sentences related to concessions and reallowances and
(iii) the paragraph related to stabilization, syndicate covering transactions
and penalty bids in any Preliminary Prospectus, the Prospectus and any Issuer
Free Writing Prospectus constitute the only information furnished in writing by
or on behalf of the several Underwriters for inclusion in any Preliminary
Prospectus, the Prospectus and any Issuer Free Writing Prospectus.
 
 
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(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under Section 8(a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in Section 8(a) or
(b) above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party’s choice at the indemnifying party’s expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party’s election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded, based on the advice of counsel, that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties (which such consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
 
 
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(d) In the event that the indemnity provided in Section 8(a) or (b) is
unavailable to or insufficient to hold harmless an indemnified party for any
reason, the Company and the Underwriters severally agree to contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively “Losses”) to which the Company and one or more of the Underwriters
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Underwriters on the
other from the offering of the Securities; provided, however, that in no case
shall any Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the Securities) be responsible for any
amount in excess of the underwriting discount or commission applicable to the
Securities purchased by such Underwriter hereunder. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, the Company
and the Underwriters severally shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, on the one hand, and of the Underwriters, on the other, in
connection with the statements or omissions which resulted in such Losses, as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
(before deducting expenses) received by it, and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
any untrue or any alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information provided by the
Company on the one hand or the Underwriters on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8(d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
Section 8(d).
 
9.    Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase, any of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
 
 
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10.    Termination. This Agreement shall be subject to termination by the
Representatives, by notice given to the Company prior to delivery of and payment
for the Securities, if at any time prior to such time (i) trading in the
Company’s Common Stock shall have been suspended by the Commission or the
American Stock Exchange, (ii) trading in securities generally on the American
Stock Exchange shall have been suspended or limited or minimum prices shall have
been established on such Exchange, (iii) a general banking moratorium shall have
been declared either by Federal or New York State authorities or (iv) there
shall have occurred any outbreak or escalation of international hostilities,
declaration by the United States of a national emergency or war, or other
calamity or crisis the effect of which on United States or international
financial markets is such as to make it, in the sole judgment of the
Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Preliminary Prospectus or the
Prospectus (exclusive of any supplement thereto). Any termination pursuant to
this Section 10(ii), (iii) or (iv) shall be without liability on the part of (i)
the Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters to the extent
required by Section 7, and (b) any Underwriter to the Company.
 
11.    Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of the officers,
directors, employees, agents or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 5(i)(k), 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
 
12.    Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Representatives, will be mailed, delivered
or telefaxed to the ThinkEquity Partners LLC General Counsel (fax no.:
(415) 772-9017) and confirmed to ThinkEquity Partners LLC, at 600 Montgomery
Street, 8th Floor, San Francisco, California 94111, Attention: General Counsel;
or, if sent to the Company, will be mailed, delivered or telefaxed to On2
Technologies, Inc., 580 White Plains Road, Tarrytown, NY 10591, Attention:
General Counsel (fax no.: (914) 468-0510).
 
13.    Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers,
directors, employees, agents and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
 
14.    Fiduciary Duty. The Company hereby acknowledges that (i) the Underwriters
have been retained solely as underwriters of the offering of the Securities and
not as advisors to, or agents of, the Company or any other person and (ii) its
engagement of the Underwriters in connection with the offering of the Securities
is as an independent contractor and not in any other capacity, including as a
fiduciary. Furthermore, each of the Company and the Underwriters agrees that it
is solely responsible for making its own independent judgments with respect to
the offering of the Securities. In addition, the Company agrees that it will not
claim that the Underwriters or any of them, owe a fiduciary or similar duty to
the Company in connection with the transactions contemplated by this
Underwriting Agreement or the process leading thereto.
 
 
18

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15.    Integration. This Agreement supersedes all prior agreements and
understandings (whether written or oral) between the Company and the
Underwriters, or any of them, with respect to the subject matter hereof.
 
16.    Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York.
 
17.    Submission to Jurisdiction. Except as set forth below, no claim arising
under or relating to this Agreement or the offering of the Securities may be
commenced, prosecuted or continued in any court other than the courts of the
State of New York located in the City and County of New York or in the United
States District Court for the Southern District of New York, which courts shall
have jurisdiction over the adjudication of such matters, and the Company and the
Underwriters hereby consent to the jurisdiction of such courts and personal
service with respect thereto. Each Underwriter and the Company (on its behalf
and, to the extent permitted by applicable law, on behalf of its stockholders
and affiliates), each waive all right to trial by jury in any action, proceeding
or counterclaim (whether based upon contract, tort or otherwise) in any way
arising out of or relating to this Agreement. Each Underwriter and the Company
agree that a final judgment in any such action, proceeding or counterclaim
brought in any such court shall be conclusive and binding upon such party and
may be enforced in any other courts to the jurisdiction of which such party is
or may be subject, by suit upon such judgment.
 
18.    Counterparts. This Agreement may be signed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
 
19.    Headings. The section headings used herein are for convenience only and
shall not affect the construction hereof.
 
20.    Definitions. The terms which follow, when used in this Agreement, shall
have the meanings indicated.
 
“Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
 
“Business Day” shall mean any day other than a Saturday, a Sunday or a legal
holiday or a day on which banking institutions or trust companies are authorized
or obligated by law to close in New York, New York.
 
“Commission” shall mean the Securities and Exchange Commission.
 
“Disclosure Package” shall mean (i) the Statutory Prospectus, (ii) each Issuer
Free Writing Prospectuses, if any, filed or used by the Company on or before the
Effective Date and identified in Schedule II hereto (other than a roadshow that
is an Issuer Free Writing Prospectus but is not required to be filed under
Rule 433, (iii) the information contained on Schedule III hereto, and (iv) any
other Free Writing Prospectus that the parties hereto shall hereafter expressly
agree in writing to treat as part of the Disclosure Package.
 
“Effective Date” shall mean each date and time that the Registration Statement,
any post-effective amendment or amendments thereto and any Rule 462(b)
Registration Statement became or become effective.
 
 
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“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
 
“Execution Time” shall mean the date and time that this Agreement is executed
and delivered by the parties hereto.
 
“Laws” means applicable securities laws and all other statutes, regulations,
statutory rules, orders, by-laws, codes, ordinances, decrees, the terms and
conditions of any grant of approval, permission, authority or license, or any
judgment, order, decision, ruling, award, policy or guideline, of any
Governmental Authority, and the term “applicable” with respect to such Laws and
in the context that refers to one or more persons, means that such Laws apply to
such person or persons or its or their business, undertaking, property or
securities and emanate from a Governmental Authority, having jurisdiction over
the person or persons or its or their business, undertaking, property or
securities.
 
“Free Writing Prospectus” shall mean a free writing prospectus, as defined in
Rule 405.
 
“Issuer Free Writing Prospectus” shall mean an issuer free writing prospectus,
as defined in Rule 433.
 
“Preliminary Prospectus” shall mean any preliminary prospectus referred to in
paragraph l(i)(a) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A Information.
 
“Prospectus” shall mean the prospectus relating to the Securities that is first
filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant
to Rule 424(b) is required, shall mean the form of final prospectus relating to
the Securities included in the Registration Statement at the Effective Date.
 
“Registration Statement” shall mean the registration statement referred to in
paragraph 1(a) above, including exhibits and financial statements and any
prospectus supplement relating to the Securities that is filed with the
Commission pursuant to Rule 424(b) and deemed part of such registration
statement pursuant to Rule 430B, as amended at the Effective Date and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration Statement,
as the case may be.
 
“Rule 158”, “Rule 163”, “Rule 164”, “Rule 172”, “Rule 405”, “Rule 415”, “Rule
424”, “Rule 430B”, “Rule 462” and “Rule 433” refer to such rules under the Act.
 
“Rule 430A Information” shall mean information with respect to the Securities
and the offering thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A.
 
“Rule 462(b) Registration Statement” shall mean a registration statement and any
amendments thereto filed pursuant to Rule 462(b) relating to the offering
covered by the registration statement referred to in paragraph 1(a) hereof.
 
“Statutory Prospectus” shall mean the preliminary prospectus relating to the
Securities that is included in the Registration Statement immediately prior to
the Execution Time, including any document that is incorporated by reference
therein.
 
 
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“Subsequent Closing Date” shall mean any settlement date at which the purchase
and sale of the Option Shares is to be settled pursuant to Section 3(b).
 
“Taxes” includes all forms of taxation (including, without limitation, any net
income or gains, minimum, gross income, gross receipts, sales, use, ad valorem,
value-added, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
custom, environmental or windfall tax or duty), together with interest,
penalties and additions imposed with respect to the foregoing, imposed by any
local, municipal, state, Federal or other government, governmental entity or
political subdivision, whether of the United States or other country or
political unit.
 
“Tax Return” means all returns, declarations, statements, reports, schedules,
forms and information returns, whether original or amended, relating to Taxes.
 
[Remainder of page intentionally left blank.]
 
 
 
 
 
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company, and the several Underwriters.
 

        Very truly yours,       ON2 TECHNOLOGIES, INC   
   
   
    By:   /s/ Bill Joll  

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Name: Bill Joll   Title: President and Chief Executive Officer

 
 
 

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The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
 
ThinkEquity Partners LLC
Merriman Curhan Ford & Co.
 
By:  ThinkEquity Partners LLC
 
By:  /s/ Jerome J. Joondeph

--------------------------------------------------------------------------------

Name: Jerome J. Joondeph
Title: Chief Financial Officer and General Counsel
 
For themselves and the other several Underwriters named in Schedule I to the
foregoing Agreement.
 
 
 

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SCHEDULE I
 
UNDERWRITERS

 
 
Underwriters
 
Number of
Firm Shares
to be Purchased
 
Number of 
Option Shares
to be Purchased
ThinkEquity Partners LLC
 
8,450,000
 
1,267,500
         
Merriman Curhan Ford & Co
 
4,550,000
 
682,500
         
TOTAL:
       

 
 
 

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SCHEDULE II
 
FREE WRITING PROSPECTUSES

None.
 
 
 

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SCHEDULE III
 
PRICING INFORMATION
 
Price Per Share:
$1.00
   
Offering Size:
13,000,000 shares, or 14,950,000 shares if the Underwriters exercise their
over-allotment option in full.
   
Closing Date:
October 23, 2007

 
 
 

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ANNEX A
 
SUBSIDIARIES

Name
Jurisdiction
   
The Duck Corporation
Delaware
   
MetaVisual Creations Limited
United Kingdom

 
 
 

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EXHIBIT A-1
 
LOCK-UP LETTER AGREEMENT
 
THINKEQUITY PARTNERS LLC
MERRIMAN CURHAN FORD & CO.
As Representatives of the several Underwriters
c/o ThinkEquity Partners LLC
600 Montgomery Street, 8th Floor
San Francisco, California 94111
 
Ladies and Gentlemen:
 
The undersigned understands that you and certain other firms (the
“Underwriters”) propose to enter into an Underwriting Agreement (the
“Underwriting Agreement”) providing for the purchase by the Underwriters of
shares (the “Shares”) of common stock, par value $0.01 per share (the “Common
Stock”), of On2 Technologies Inc, a Delaware corporation (the “Company”), and
that the Underwriters propose to reoffer the Shares to the public (the
“Offering”).
 
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of ThinkEquity
Partners LLC, on behalf of the Underwriters, the undersigned will not, directly
or indirectly, (1) offer for sale, sell, pledge, or otherwise dispose of (or
enter into any transaction or device that is designed to, or could be expected
to, result in the disposition by any person at any time in the future of) any
shares of Common Stock (including, without limitation, shares of Common Stock
that may be deemed to be beneficially owned by the undersigned in accordance
with the rules and regulations of the Securities and Exchange Commission and
shares of Common Stock that may be issued upon exercise of any option or
warrant) or securities convertible into or exchangeable for Common Stock (other
than the Shares in the Offering), or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of shares of Common Stock, whether
any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, for a period
of 90 days after the date of the final prospectus relating to the Offering (such
90-day period, the “Lock-Up Period”); provided, that the foregoing shall not
prohibit any sale made under contract, instruction or written plan for trading
securities that satisfies the requirements of Rule 10b5-1(c)(1)(B) under the
Securities Exchange Act of 1934, as amended. In addition, the undersigned agrees
that without the prior written consent of ThinkEquity Partners LLC, on behalf of
the Underwriters, it will not, during the Lock-Up Period, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
 
Notwithstanding the foregoing, if (1) during the last 17 days of the Lock-Up
Period, the Company issues an earnings release or material news or a material
event relating to the Company occurs or (2) prior to the expiration of the
Lock-Up Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Lock-Up Period, then
the restrictions imposed by this Lock-Up Letter Agreement shall continue to
apply until the expiration of the 18-day period beginning on the issuance of the
earnings release or the announcement of the material news or the occurrence of
the material event, unless ThinkEquity Partners LLC waives, in writing, such
extension. The undersigned hereby further agrees that, prior to engaging in any
transaction or taking any other action that is subject to the terms of this
Lock-Up Letter Agreement during the period from the date of this Lock-Up Letter
Agreement to and including the 34th day following the expiration of the Lock-Up
Period, it will give notice thereof to the Company and will not consummate such
transaction or take any such action unless it has received written confirmation
from the Company that the Lock-Up Period (as such may have been extended
pursuant to this paragraph) has expired.
 
 
 

--------------------------------------------------------------------------------

 
 
In furtherance of the foregoing, the Company and its transfer agent are hereby
authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this Lock-Up Letter Agreement. In addition,
the undersigned agrees that, without the prior written consent of ThinkEquity
Partners LLC, it will not, during the Lock-Up Period, make any demand for or
exercise any right with respect to the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
 
It is understood that, if the Company notifies the Underwriters that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, the undersigned will be released from
its obligations under this Lock-Up Letter Agreement.
 
The undersigned understands that the Company and the Underwriters will proceed
with the Offering in reliance on this Lock-Up Letter Agreement.
 
Whether or not the Offering actually occurs depends on a number of factors,
including market conditions. Any Offering will only be made pursuant to an
Underwriting Agreement, the terms of which are subject to negotiation between
the Company and the Underwriters.
 
[Signature page follows]
 
 
 

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The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this Lock-Up Letter Agreement and that, upon
request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned.
 

        Very truly yours,  
   
   
    By:      

--------------------------------------------------------------------------------

Name:   Title:

Dated: October ___, 2007
 
 
 

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EXHIBIT A-2
 
LOCK-UP LETTER AGREEMENT
([____________________])
([____________________])
([____________________])
 
THINKEQUITY PARTNERS LLC
MERRIMAN CURHAN FORD & CO.
As Representatives of the several Underwriters
c/o ThinkEquity Partners LLC
600 Montgomery Street, 8th Floor
San Francisco, California 94111
 
Ladies and Gentlemen:
 
The undersigned understands that you and certain other firms (the
“Underwriters”) propose to enter into an Underwriting Agreement (the
“Underwriting Agreement”) providing for the purchase by the Underwriters of
shares (the “Shares”) of common stock, par value $0.01 per share (the “Common
Stock”), of On2 Technologies Inc, a Delaware corporation (the “Company”), and
that the Underwriters propose to reoffer the Shares to the public (the
“Offering”).
 
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of ThinkEquity
Partners LLC, on behalf of the Underwriters, the undersigned will not, directly
or indirectly, (1) offer for sale, sell, pledge, or otherwise dispose of (or
enter into any transaction or device that is designed to, or could be expected
to, result in the disposition by any person at any time in the future of) any
shares of Common Stock (including, without limitation, shares of Common Stock
that may be deemed to be beneficially owned by the undersigned in accordance
with the rules and regulations of the Securities and Exchange Commission and
shares of Common Stock that may be issued upon exercise of any option or
warrant) or securities convertible into or exchangeable for Common Stock (other
than the Shares in the Offering), or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of shares of Common Stock, whether
any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, for a period
of 90 days after the date of the final prospectus relating to the Offering (such
90-day period, the “Lock-Up Period”); provided, that the foregoing shall not
prohibit (i) the sale of an aggregate of _____________ shares on or after the
later to occur of (A) November 15, 2007 and (B) the third business day after the
Company publicly announces its third quarter financial results and (ii) any sale
made under contract, instruction or written plan for trading securities that
satisfies the requirements of Rule 10b5-1(c)(1)(B) under the Securities Exchange
Act of 1934, as amended. In addition, the undersigned agrees that without the
prior written consent of ThinkEquity Partners LLC, on behalf of the
Underwriters, it will not, during the Lock-Up Period, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
 
Notwithstanding the foregoing, if (1) during the last 17 days of the Lock-Up
Period, the Company issues an earnings release or material news or a material
event relating to the Company occurs or (2) prior to the expiration of the
Lock-Up Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Lock-Up Period, then
the restrictions imposed by this Lock-Up Letter Agreement shall continue to
apply until the expiration of the 18-day period beginning on the issuance of the
earnings release or the announcement of the material news or the occurrence of
the material event, unless ThinkEquity Partners LLC waive, in writing, such
extension. The undersigned hereby further agrees that, prior to engaging in any
transaction or taking any other action that is subject to the terms of this
Lock-Up Letter Agreement during the period from the date of this Lock-Up Letter
Agreement to and including the 34th day following the expiration of the Lock-Up
Period, it will give notice thereof to the Company and will not consummate such
transaction or take any such action unless it has received written confirmation
from the Company that the Lock-Up Period (as such may have been extended
pursuant to this paragraph) has expired.
 
 
 

--------------------------------------------------------------------------------

 
 
In furtherance of the foregoing, the Company and its transfer agent are hereby
authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this Lock-Up Letter Agreement. In addition,
the undersigned agrees that, without the prior written consent of ThinkEquity
Partners LLC, it will not, during the Lock-Up Period, make any demand for or
exercise any right with respect to the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
 
It is understood that, if the Company notifies the Underwriters that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, the undersigned will be released from
its obligations under this Lock-Up Letter Agreement.
 
The undersigned understands that the Company and the Underwriters will proceed
with the Offering in reliance on this Lock-Up Letter Agreement.
 
Whether or not the Offering actually occurs depends on a number of factors,
including market conditions. Any Offering will only be made pursuant to an
Underwriting Agreement, the terms of which are subject to negotiation between
the Company and the Underwriters.
 
[Signature page follows]
 
 
 

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The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this Lock-Up Letter Agreement and that, upon
request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned.
 

        Very truly yours,  
   
   
    By:      

--------------------------------------------------------------------------------

Name:   Title:

Dated: October ___, 2007
 
 
 

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EXHIBIT B
 
COMPANY COUNSEL LEGAL OPINION
 
 
 

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EXHIBIT C
 
INTELLECTUAL PROPERTY COUNSEL LEGAL OPINION

(i)  As to the statements under the caption “Business- Intellectual Property”
and “Risk Factors- Much of our technology relies on owned or licensed
intellectual property, and if such rights are not protected from the use of
others, including potential competitors, our business prospects may be harmed,”
all contained in the Company’s Form 10-K, dated March 23, 2007, nothing has come
to the attention of such counsel which caused them to believe that the
above-mentioned sections of the Registration Statement and the Prospectus (and
any similar section or information contained in the General Disclosure Package)
and any amendment or supplement thereto made available and reviewed by such
counsel, at the time the Registration Statement became effective and at all
times subsequent thereto up to and on the Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
 
(ii) Except as set forth in the General Disclosure Package, such counsel knows
of no material action, suit, claim or proceeding relating to patents, patent
rights or licenses, trademarks or trademark rights, copyrights, collaborative
research, licenses or royalty arrangements or agreements or trade secrets,
know-how or proprietary techniques, including processes and substances, owned by
or affecting the business or operations of the Company which are pending or
threatened against the Company or any of its officers or directors.
 
(iii) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a schedule to
such opinion (the “Patents”) and each of the applications listed on a schedule
to such opinion (the “Applications”). To the knowledge of such counsel, except
as set forth in the General Disclosure Package, there are no claims of third
parties to any ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form in the
preparation or filing of the Applications on behalf of the Company. To the
knowledge of such counsel, the Applications are being pursued by the Company. To
the knowledge of such counsel, the Company owns as its sole property the Patents
and pending Applications.
 
(iv) The Company is listed in the records of the appropriate foreign offices as
the sole holder of record of the foreign patents listed on a schedule to such
opinion (the “Foreign Patents”) and each of the applications listed on a
schedule to such opinion (the “Foreign Applications”). Except as set forth in
the General Disclosure Package, such counsel knows of no claims of third parties
to any ownership interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of form in the
preparation or filing of the Foreign Applications on behalf of the Company. To
the knowledge of such counsel, the Foreign Applications are being pursued by the
Company. To the knowledge of such counsel, the Company owns as its sole property
the Foreign Patents and pending Foreign Applications.  
 
(v) Such counsel knows of no reason why the Patents or Foreign Patents are not
valid as issued. Such counsel has no knowledge of any reason why any patent to
be issued as a result of any Application or Foreign Application would not be
valid or would not afford the Company useful patent protection with respect
thereto.
 
 
 

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