Exhibit
      10.1

     

    TRANSITION
      AGREEMENT 

    


    This
      Transition Agreement (the “Agreement”)
      is
      made and entered into this 10th day of June, 2008 (the “Effective
      Date”)
      between On2 Technologies, Inc., a Delaware corporation (“On2”),
      and
      Balraj Joll (hereinafter “Joll”).

     

    WHEREAS,
      Joll and On2 are parties to an employment agreement, dated May 1, 2006 (the
      “Employment
      Agreement”);
      and


     

    WHEREAS,
      in accordance with the Employment Agreement, Joll has served as the President
      and Chief Executive Officer of On2, as a member of the Board of Directors of
      On2
      (the “Board”)
      and as
      Chief Executive Officer of The Duck Corporation, a wholly owned subsidiary
      of
      On2; and 

     

    WHEREAS,
      Joll and On2 have agreed that Joll will resign as an officer of On2 and as
      a
      member of the Board, and as an officer and member of the boards of directors
      of
      all directly and indirectly owned subsidiaries of On2, and will continue his
      employment relationship with On2 in an advisory capacity until September 30,
      2008, all under the terms and conditions of this Agreement.

     

    NOW,
      THEREFORE, AND IN CONSIDERATION
      of the
      mutual promises of the parties to this Agreement, the receipt and sufficiency
      of
      which are hereby acknowledged, Joll and On2 hereby agree as
      follows:

     

    1.  Resignation.
      Effective as of the date of this Agreement (the “Effective
      Date”),
      Joll
      resigns, and On2 accepts his resignation, from his employment with On2 and
      from
      all the offices, directorships and other positions that he holds with On2 and
      any of On2’s directly and indirectly owned subsidiaries, including without
      limitation his positions as President and Chief Executive Officer of On2 and
      as
      a member of the Board. After the Effective Date, Joll shall not be entitled
      to
      the receipt of any further payments or benefits from On2 other than those
      expressly provided for in this Agreement. The parties hereto agree that this
      Agreement constitutes written notice to On2 of Joll’s resignation from the Board
      pursuant to Article III, Section 10 of On2’s bylaws, and that, except
      for those provisions of the Employment Agreement that survive the termination
      of
      Joll’s employment with On2, the Employment Agreement is terminated as of the
      Effective Date. 

     

    2.  Continued
      Employment; Duties.
      Joll’s
      employment with On2 shall end on September 30, 2008 (the “Termination Date”).
      From the Effective Date through September 30, 2008 (the “Transition Period”),
      Joll shall serve as an advisor to On2’s chief executive officer. Joll’s
      responsibilities shall be to transition to On2 personnel all existing customer
      account relationships and all business development relationships and to perform
      such other advisory duties as On2’s chief executive officer shall reasonably
      assign to him. During the Transition Period, Joll will not undertake any
      business activities as an advisor to On2 or otherwise on behalf of On2 without
      the prior approval of On2’s chief executive officer. Joll shall have no power or
      authority to act for or to take any action on behalf of On2 or to bind On2
      to
      any obligation with any third party. During the Transition Period, On2 will
      continue to pay Joll his Base Salary at the rate provided in Section 5(a) of
      the
      Employment Agreement on each regularly scheduled pay day, and Joll shall
      continue to be eligible to participate in all retirement, savings, welfare,
      and
      other benefit plans and arrangements offered by On2 (excluding any incentive
      compensation program) under the terms of such benefit plans and
      arrangements. 

     

    3.  Payments
      at the End of the Transition Period.

     

    (a)  Vacation
      Days; Expenses.

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    .On2
      shall
      reimburse Joll for appropriate and reasonable expenses incurred by Joll on
      or
      before the Termination Date, if any, in accordance with On2’s applicable
      policies and procedures.

     

    (b)  Severance.
      Provided that Joll (i) signs this Agreement and does not revoke his signature
      and (ii) complies with all of his obligations in this Agreement, then following
      the Termination Date, On2 shall pay Joll the Base Salary and Bonus (as each
      is
      defined in the Employment Agreement) that Joll would have received, and Joll
      shall be entitled to receive those employee benefits (excluding any incentive
      compensation program) that he would have been entitled to receive, if On2 had
      terminated his employment pursuant to Section 8(d) of the Employment Agreement
      on the Termination Date; provided,
      that
      (i)
      Joll’s
      Base Salary for the one-year period commencing on October 1, 2008 will be paid
      in accordance with On2’s standard payroll practices through February 28, 2009
      and the balance for the one-year period will be paid after February 28, 2009
      but
      before March 15, 2009; and (ii)
      Joll’s
      duty to mitigate his right to such payment shall remain in effect as provided
      in
      Section 8(d) of the Employment Agreement through March 15, 2009. It is the
      parties’ intention that no payment or entitlement pursuant to this Agreement
      will give rise to any adverse tax consequences to any person pursuant to
Section
      409A of the Internal Revenue Code (the “Code”), and this Agreement shall be
      interpreted, applied and, to the minimum extent necessary, amended to achieve
      that intention. Any reimbursements due to Joll under any provision of this
      Agreement shall be paid not later than March 15 of the year following the year
      in which the expense is paid. In the case of any payment on termination (other
      than in compliance with the requirements of Treas. Reg. § 1.409A-1(b)(9)(iii) or
      (v) or of any successor thereto or any other provision that exempts a payment
      from Section 409A of the Code; and except as provided in Section 3(b) above)
      while Joll is a specified employee within the meaning of Section 409A of the
      Code, in no event will such payment be made earlier than six (6) months after
      the date his employment terminates. In the event that, due to Section 409A
      of
      the Code, Joll does not receive one or more cash payments that would otherwise
      be due during such six (6) month period, all such delayed payments will be
      made
      on the first day after the six (6) month anniversary of his employment
      termination, and thereafter any remaining payments shall be made in accordance
      with the previously agreed-upon schedule. Any
      reference in this Agreement to Section 409A of the Code shall also include
      any
      proposed, temporary or final regulations, or any other guidance, promulgated
      with respect to such Section by the U.S. Department of the Treasury or the
      Internal Revenue Service. 

     

    (c)  Stock
      Options and Restricted Stock Awards.
      All of
      Joll’s stock options that are vested as of the Effective Date shall remain
      exercisable through September 30, 2010 . If not fully exercised by that date,
      at
      Joll’s request, On2 will in good faith consider a request for further extension
      of the exercisability of Joll’s vested options and may grant or deny any such
      request at its discretion in light of the facts and circumstances prevailing
      at
      the time. Notwithstanding the terms of the grant of 107,629 restricted shares
      under On2’s 2005 Incentive Compensation Plan on November 13, 2007, those
      restricted shares will vest with Joll on September 30, 2008. 

     

    (d)  Computer.
      At the
      Termination Date, Joll will be entitled to retain his laptop computer after
      providing it to On2 so that On2 can delete from the memories of the computer
      information that On2 deems confidential or proprietary to it. 

     

    4.  Continuing
      Effect of Restrictions.
      Joll
      acknowledges that (a) Section 10 of the Employment Agreement shall survive
      and remain in full force and effect in accordance with its terms and limits
      his
      ability to disclose or divulge certain information to the extent set forth
      therein; and (b) his obligations under Section 11 of the Employment Agreement
      survive and extend through September 30, 2009. In addition, Joll will remain
      subject to On2’s blackout restrictions during the Transition Period and, if Joll
      is in possession of material nonpublic information on the Termination Date,
      after the Termination Date for as long as such information remains material
      and
      nonpublic. If, at any time after the Effective Date, Joll receives a subpoena
      or
      other legal process that requires disclosure of confidential information
      relating to his employment with On2, Joll will notify On2 of such request within
      3 business days after his receipt thereof. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5.  General
      Release of Claims.
      In
      consideration for the promises herein, Joll on behalf of himself and his heirs,
      executors, administrators and assigns,
      hereby
      irrevocably and unconditionally
      remises, releases and forever discharges On2 Technologies, Inc. (“On2”)
      and
      its affiliates and subsidiaries, and all of their respective officers,
      directors, employees, agents and advisors (collectively, the “Releasees”),
      from
      any and all liabilities, actions, causes of action, contracts, agreements,
      promises, claims, debts and demands of any kind or nature whatsoever, in law
      or
      equity, whether known or unknown, which Joll has or ever has had against the
      Releasees, or any of them,
      including, but not limited to, claims arising
      out of or relating to Joll’s employment or the termination of Joll’s employment
      with On2 and any claims for compensation and benefits
      from On2. Joll understands and agrees that this General Release
      of Claims is a complete bar to any claim, demand or action of any
      kind
      whatsoever which could be brought by Joll against the Releasees,
      including, without limitation, any claim under Title VII of the
      Civil
      Rights Act of 1964, the Age Discrimination in Employment Act, the Older Worker
      Benefits Protection Act, the Americans With Disabilities Act, the Family and
      Medical Leave Act, the Fair Labor Standards Act, the New York Human Rights
      Law,
      the New York City Human Rights Law and any and all other federal, state or
      local
      statutes or common laws.
      This
      General Release of Claims shall not apply to (a)
      any
      claim which may arise
      after
      the date of the execution of this General Release of Claims; (b) and claim
      that
      may not be waived by law, and (c) any claim by Joll to enforce this Agreement.
      To
      the
      extent permitted by law, Joll further agrees that he will not
      file any
      charge, claim or action for or on account of anything covered by this General
      Release of Claims. Joll agrees that he will not seek or accept any compensation
      from any action brought against any of the Releasees on his behalf or on behalf
      of any class of which he is a member.

     

    Joll
      further agrees that, on the Termination Date, he will execute a second General
      Release of Claims in the form attached hereto as Exhibit
      A,
      covering any and all claims that may have arisen from the date Joll signs this
      Agreement through the Termination Date. If Joll breaches this commitment, then
      On2 shall be released from any further obligation to perform hereunder
      (including any obligation to make any further payments to or for the benefit
      of
      Joll pursuant to Section 3). 

     

    6.  No
      Other Consideration.
      Joll
      affirms that the terms stated herein are the only consideration for signing
      this
      Agreement and that no other representations, promises, or agreements of any
      kind
      have been made by any person or entity to cause him to sign this Agreement.
      Joll
      has accepted the terms of this Agreement because he believes them to be fair
      and
      reasonable and for no other reason. 

     

    7.  Cooperation
      in Legal Proceedings; Continuing Obligation to Indemnify.
      Joll
      agrees to reasonably cooperate with On2 and its directly and indirectly owned
      subsidiaries in connection with litigation and other legal and regulatory
      proceedings, investigations and inquiries that relate to his services or relate
      to his areas of responsibility during his employment. On2 shall reimburse Joll
      for reasonable expenses, if any, that he may incur while complying with this
      obligation. Nothing in this Agreement shall terminate or otherwise affect On2’s
      obligation to indemnify Joll in accordance with the terms and conditions of
      its
      bylaws with respect to his service as an officer and director prior to the
      Effective Date and with respect to his service as an employee during the
      Transition Period. 

     

    8.  No
      Admission.
      It is
      understood and agreed by the parties hereto that neither the fact nor any term
      of this Agreement constitutes, or shall be construed to constitute, an admission
      of liability or wrongdoing on the part of On2 or Joll. It is understood and
      agreed by the parties that this Agreement is intended solely as an offer of
      compromise. 

     

    9.  Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and shall be binding upon (a) On2,
      its
      successors and assigns, and any company with which On2 may merge or consolidate
      or to which On2 may sell all or substantially all its assets, and (b) Joll
      and
      Joll’s executors, administrators, heirs and legal representatives. Joll may not
      sell or otherwise assign his rights, obligations or benefits under this
      Agreement, and any attempt to do so shall be void. 

     

    10.  Remedies.
      The
      parties hereto each acknowledge and agree that their respective rights under
      this Agreement are of a specialized and unique character, that a monetary remedy
      for a breach of the agreements set forth in this Agreement will be inadequate
      and impracticable and that immediate and irreparable damage will result to
      On2
      or Joll (the "Aggrieved Party") if the other (the "Aggrieving Party") fails
      to
      or refuses to perform its obligations under this Agreement. Notwithstanding
      any
      election by any person to claim damages from On2 or Joll, as the case may be,
      as
      a result of any such failure or refusal, the Aggrieved Party may, in addition
      to
      any other remedies and damages available, seek temporary and permanent
      injunctive relief (without the posting of a bond or other security) in a court
      of competent jurisdiction to restrain any such failure or refusal and the
      Aggrieving Party, on its own behalf and, in the case of On2, on behalf of its
      affiliates, waives any defense that the Aggrieved Party has an adequate remedy
      at law. The Aggrieving Party agrees that, in addition to all other remedies
      available at law or in equity, the Aggrieved Party shall be entitled to such
      injunctive relief, including temporary restraining orders, preliminary
      injunctions and permanent injunctions as a court of competent jurisdiction
      shall
      determine.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    11.  Withholding.
      All
      payments to be made to Joll under this Agreement, or otherwise by On2 shall
      be
      subject to withholding to satisfy required withholding taxes and other required
      deductions. 

     

    12.  Modification.
      This
      Agreement may not be released, discharged, abandoned, supplemented, changed,
      or
      modified in any manner, orally or otherwise, except by an instrument in writing
      signed and duly executed by each of the parties hereto. 

     

    13.  Entire
      Agreement.
      This
      Agreement contains and constitutes the entire understanding and agreement
      between the parties on its subject matter, and, except as otherwise provided
      herein, it supersedes all previous negotiations, agreements, commitments, and
      writings in connection herewith. If a conflict or inconsistency is found between
      the terms of this Agreement and any other agreement, the terms of this Agreement
      shall control. 

     

    14.  Waiver.
      The
      failure of either party to insist upon strict compliance with any term,
      covenant, or condition of this Agreement shall not be deemed to be a waiver
      by
      that party of such term, covenant, or condition, nor shall any waiver or
      relinquishment of any right or power under this Agreement at any time or times
      be deemed a waiver or relinquishment of such right or power at any other time
      or
      times.

     

    15.  Severability.
      The
      parties expressly agree that the character, duration and geographical scope
      of
      the provisions set forth in this Agreement are reasonable in light of the
      circumstances as they exist on the date hereof. If a court of competent
      jurisdiction determines that the character, duration or geographical scope
      of
      the provisions of this Agreement are unreasonable, then it is the intention
      and
      the agreement of the parties hereto that the provisions hereof shall be
      construed by the court in such a manner as to impose only those restrictions
      on
      each party's respective conduct that are reasonable in light of the
      circumstances and as are necessary to assure to each party the benefits of
      this
      Agreement. If, in any judicial proceeding, a court shall refuse to enforce
      all
      of the separate covenants deemed included herein because taken together they
      are
      more extensive than necessary to assure to each party hereto the intended
      benefits of this Agreement, it is expressly understood and agreed by the parties
      hereto that the provisions hereof that, if eliminated, would permit the
      remaining separate provisions to be enforced in such proceeding, shall be deemed
      eliminated, for the purposes of such proceeding, from this Agreement.


     

    16.  Choice
      of Law and Forum Selection.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without regard to conflict of law principles. Joll agrees
      and
      submits to the exclusive jurisdiction of any state or federal court in the
      State
      of New York where there is proper venue in any action or proceeding arising
      out
      of or relating to this Agreement or the transactions contemplated herein, and
      agrees that all claims in respect of any such action or proceeding may be heard
      or determined in such court.

     

    17.  Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed to be an original, but all of which together will constitute one and
      the
      same instrument, and shall become effective when one or more counterparts have
      been executed by each of the parties and delivered to the other party. This
      Agreement may be executed by facsimile signature, and a facsimile signature
      shall constitute an original for all purposes.  

     

    18.  Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed duly given (a) on the date of delivery if delivered personally, or if
      by
      facsimile, upon written confirmation of receipt by facsimile or otherwise,
      (b)
      on the first business day following the date of dispatch if delivered by a
      recognized next-day courier service or (c) on the earlier of confirmed receipt
      or the fifth business day following the date of mailing if delivered by
      registered or certified mail, return receipt requested, postage prepaid. All
      notices hereunder shall be delivered to the addresses set forth below, or
      pursuant to such other instructions as may be designated in writing by the
      party
      to receive such notice: 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (a)
      if
      toOn2:

     

    On2
      Technologies, Inc. 

    21
      Corporate Drive, Suite 103 

    Clifton
      Park, NY 12065 

    Attention:
      Chief
      Executive Officer 

     

    (b)
      if to
      Joll:

     

    Mr.
      Balraj Joll 

    21
      Tall
      Pines Lane 

    Bedford
      Corner, NY 10549 

     

    19.  Acknowledgements.
      Joll
      hereby acknowledges that he has carefully read and fully understands the
      provisions of this Agreement, including the General Release of Claims and that
      he has had the opportunity to consult with counsel. Joll further acknowledges
      that he is signing this Agreement voluntarily and without coercion because
      he
      believes it is fair and reasonable and for no other reason. 

     

    20.  Right
      to Consult with Counsel; Time for Signing; Revocation.
      Joll
      has the right to and should consult with an attorney prior to signing this
      Agreement. Joll acknowledges that he has received this Agreement on June 10,
      2008 and that he shall have twenty-one (21) days from his receipt of this
      Agreement (until 5:00
      p.m.
      EST on July 1, 2008) to
      decide
      whether to sign it. Joll will have seven (7) days after signing this Agreement
      to revoke his signature. If Joll intends to revoke his signature, he must do
      so
      in writing addressed and delivered to William A. Newman, Esq., Sullivan &
Worcester LLP, 1290 Avenue of the Americas, New York, NY 10104,
      prior
      to
      the end of the 7-day revocation period. This Agreement shall not become
      effective, and neither On2 nor Joll shall have any rights or obligations
      hereunder, until the expiration of the 7-day revocation period.

     

    [agreement
      continues on the next page] 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


     

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
      first set forth above.

     

     

    
      	 	 	 
	
              ON2
                TECHNOLOGIES, INC.

            
	 	 
	 	 
	
              By:

            	
               

            	
               

            
	
              Name:

            	
               

            	
              J.
                Allen Kosowsky

            
	
              Title:

            	
               

            	
              Chairman
                of the Board

               

            
	 
	 
	 
	
              BALRAJ
                JOLL