Exhibit
10.1

     

    


     

    TRANSITION
AGREEMENT

     

    


    This
Transition Agreement (the “Agreement”) is made
and entered into this 16th day of January, 2008 (the “Effective Date”)
between On2 Technologies, Inc., a Delaware corporation and its wholly-owned
Finnish subsidiary On2 Technologies Finland Oy (collectively “On2”) and Eero
Kaikkonen (hereinafter “Kaikkonen”).

     

    WHEREAS,
Kaikkonen and On2 Technologies Finland Oy (formerly Hantro Products Oy and
hereinafter “On2 Finland”) are parties to an employment agreement dated October
31, 2007 (the “Employment
Agreement”); and

     

    WHEREAS,
in accordance with the Employment Agreement, Kaikkonen has served as the
President and Chief Executive Officer of On2 Finland and the Chief Marketing
Officer of On2; and

     

    WHEREAS,
Kaikkonen and On2 have agreed that Kaikkonen will resign as an employee and
officer of On2 and On2 Finland, and will serve as a consulting independent
contractor for On2  until January 15, 2010, 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, Kaikkonen and On2
hereby agree as follows:

     

    1.  Resignation.  Effective
as of January 16, 2009 (the “Termination Date”),
Kaikkonen resigns, and On2 accepts his resignation, from his employment with On2
and from all the offices 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 Finland and Chief
Marketing Officer of On2.  After the Termination Date, Kaikkonen 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, except for those provisions of the Employment Agreement that survive
the termination of Kaikkonen’s employment with On2, the Employment Agreement is
terminated as of the Termination Date.

     

    2.  Consulting
Engagement.   From the Termination Date through January
15, 2010 (the “Transition Period”), Kaikkonen shall serve in an independent
contractor capacity as a consultant to On2’s chief executive
officer.  Kaikkonen’s responsibilities during the Transition Period
shall be to provide marketing and strategic planning advice to On2’s chief
executive officer and to perform such other advisory duties as the chief
executive officer shall reasonably assign to him, up to a maximum of forty (40)
hours per month.  During the Transition Period, Kaikkonen 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.  Kaikkonen 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. 

     

    
      
         

      

      
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    3.  Compensation Payments During
the Transition Period.

     

    (a)  Vacation Days;
Expenses.

     

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

     

    (ii)  On2
shall reimburse Kaikkonen for appropriate and reasonable expenses incurred by
Kaikkonen on or before the Termination Date, if any, in accordance with On2’s
applicable policies and procedures.  During the Transition Period, On2
shall reimburse Kaikkonen for reasonable and necessary expenses, including On2
approved travel expenses, subject to compliance with On2’s travel and other
expense policies.

     

    (iii)   On2
shall reimburse Kaikkonen for (A) the reasonable costs of transporting his
personal belongings (except for his automobile) from New York to Finland, up to
a maximum of $9,500 and (B) the rent through January 2009 for Kaikkonen’s
Saratoga Springs apartment.

     

    (b)  Consulting
Fees.  Provided that Kaikkonen (i) signs this Agreement and
(ii) complies with all of his obligations in this Agreement, then following the
Termination Date and continuing for the Transition Period, On2 shall pay
Kaikkonen a Five Thousand Euro (EUR 5,000) monthly (“Consulting Fees”) for his
consulting services (with such amount to be prorated for the partial months of
January 2009 and January 2010).  The Consulting Fees shall be in lieu
of any severance or other post termination compensation that Kaikkonen might
have been entitled to under the Employment Agreement or otherwise.

     

    (c)  Stock
Options.  The three (3) month period during which Kaikkonen may
exercise vested On2 stock options pursuant to his On2 stock options agreements
dated November 8, 2007 and September 25, 2008 shall commence as of the
Termination Date.

     

    4.  Proprietary Information;
Confidentiality.  The restrictions and obligations set forth in
Exhibit A hereto are hereby incorporated herein and made a part of this
Agreement.   In addition, Kaikkonen will remain subject to On2’s
blackout restrictions until the opening of the next trading window and, if
Kaikkonen is in possession of material nonpublic information on or after the
opening of the next trading window, after such opening for as long as such
information remains material and nonpublic.

     

    5.  General Release of
Claims.   Kaikkonen (for Kaikkonen and Kaikkonen’s agents,
heirs, successors, assigns, executors and/or administrators) does hereby and
forever release and discharge On2 Technologies, Inc.,  On2
Technologies Finland Oy and their past and present parent, subsidiaries,
affiliates, predecessors or other related entities, and their respective
employees, agents and affiliates, as well as the successors, shareholders,
partners, members, officers, directors, heirs, predecessors, assigns, agents,
employees, attorneys and representatives of each of them, past or present
(Collectively “Released Parties”) , from any and all causes of action, actions,
judgments, liens, debts, contracts, indebtedness, damages, losses, claims,
liabilities, rights, interests and demands of whatsoever kind or character,
known or unknown, suspected to exist or not suspected to exist, anticipated or
not anticipated, whether or not heretofore brought before any court of competent
jurisdiction or before any government agency or other governmental entity, which
Kaikkonen has or may have against any Released Party by reason of any and all
acts, omissions, events or facts occurring or existing prior to the date hereof,
including, without limitation, all claims attributable to the employment of
Kaikkonen, all claims attributable to the termination of that employment, and
all claims arising under contract, tort, common law, or any federal, state or
other governmental statute, regulation or ordinance or common
law.  This release includes, but is not limited to, all claims of
discrimination in employment under Finnish law.  

     

    
      
         

      

      
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    6.  No Other
Consideration. Kaikkonen 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. Kaikkonen 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. Kaikkonen 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 Kaikkonen for reasonable expenses, if any, that he may incur
while complying with this obligation.

     

    8.  Successors and
Assigns.  This Agreement shall inure to the benefit of and
shall be binding upon (i) 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 (ii) Kaikkonen and Kaikkonen’s executors, administrators,
heirs and legal representatives.  Kaikkonen may not sell or otherwise
assign his rights, obligations or benefits under this Agreement, and any attempt
to do so shall be void.

     

    9.  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
Kaikkonen (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 Kaikkonen, 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.

     

    
      
         

      

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

     

    11.  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.

     

    12.  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.

     

    13.  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.

     

    14.  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.

     

    15.  Choice of Law and Forum
Selection. This Agreement shall be governed by and construed in
accordance with the laws of New York without regard to conflict of law
principles.  Any dispute, controversy or claim arising out of or
relating to this Agreement or a breach, termination or invalidity hereof shall,
if it cannot be settled amicably between the parties, be finally settled by
arbitration conducted in accordance with the arbitration rules of
JAMS.  The arbitration shall be conducted in New York, New York before
one arbitrator and New York law shall apply.  Notwithstanding the
foregoing, neither party shall be precluded from seeking equitable relief in a
court of competent jurisdiction.

     

    
      
         

      

      
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    16.  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 Agreement.  Signature by facsimile shall be deemed to be
an original signature.

     

    17.   Acknowledgements.  Kaikkonen
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.  Kaikkonen 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.

     

    


     

    


     

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

     

    
      
        
          
            
              
                
                  
                    	 
      	 
      	 
      
	
                            ON2
      TECHNOLOGIES, INC.

                          
	 
      	 
      
	
                            By:

                          	 
      	
                            
                              /s/
      Matt Frost

                            

                          
	
                            Name:

                          	 
      	
                            Matt
      Frost

                          
	
                            Title:

                          	 
      	
                            CEO

                          
	
                            Date:

                          	 
      	
                            January
      20, 2009

                          
	 
      
	 
	
                            ON2
      FINLAND TECHNOLOGIES OY

                             

                            By:        /s/ Matt
      Frost

                            Name:   Matt
      Frost

                            Title:     Chairman

                            Date:     January
      20, 2009

                          
	 
	 
	
                            EERO
      KAIKKONEN

                          
	 
      
	
                            
                              /s/  Eero
      Kaikkonen

                            

                          
	
                            Date:  January
      19,
2009

                          


                  

                

              

            

          

        

      

    

     

    


    
      
         

      

      
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    Exhibit
A

     

    NON-COMPETITION/CONFIDENTIALITY

    AGREEMENT

     

    SECTION 1. Definitions.  Capitalized
terms used herein will have the meanings set forth below or, if not defined
below, in the Agreement:

     

    1.1.           “Affiliate” of any
particular Person means any other Person controlling, controlled by or under
common control with such particular Person, where “control” means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person whether through the ownership of voting securities, by
contract or otherwise, and where “Person” means any individual, corporation,
company, partnership (limited or general), limited liability company, joint
venture, association, trust, organization or governmental
authority.

     

    1.2.           “Board” means the
Board of Directors of On2 Finland.

     

    1.3.           “Competing Business”
means any business activity in the same line of business with On2 Finland and
competing directly with the business of On2 Finland.

     

    1.4.           
“Intellectual
Property” means all inventions referred to in the Finnish Act on Rights
to Inventions in Employment (Laki oikeudesta työntekijän tekemiin
keksintöihin, 656/1967).

     

    1.5.           
“Proprietary
Information” means confidential, proprietary, business and technical
information or trade secrets of On2 Finland or of any Affiliate of On2
Finland.  Such Proprietary Information shall include, but shall not be
limited to, the following items and information relating to the following
items:  (a) computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, all computer inputs and
outputs (regardless of the media on which stored or located), hardware and
software configurations, designs, architecture and interfaces, (b) business
research, studies, procedures and costs, (c) financial data,
(d) distribution methods, (e) marketing data, methods, plans and
efforts, (f) the identities of On2 Finland’s and its Affiliates’
relationship(s) with actual and prospective customers, contractors and
suppliers, (g) the terms of contracts and agreements with customers,
contractors and suppliers, (h) the needs and requirements of, and On2
Finland’s and Affiliates’ course of dealing with, actual or prospective
customers, contractors and suppliers, (i) personnel information, and
(j) customer and vendor credit information.  Failure by On2
Finland to mark any of the Proprietary Information as confidential or
proprietary shall not affect its status as Proprietary Information under the
terms of this Agreement.  Proprietary Information shall not include
information:  (i) that is in the public domain through no fault
of Kaikkonen; (ii) that is independently developed by Kaikkonen through
persons who have not had access to, or knowledge of, the information or data; or
(iii) which must be disclosed pursuant to a governmental or court order or
otherwise as required by law provided, however, that Kaikkonen shall give prior
written notice of such anticipated disclosure to On2 Finland and cooperate with
On2 Finland in seeking to obtain a protective order.

     

    
      
         

      

      
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    1.6.           “Restricted Period”
means the period beginning on the Effective Date and ending nine (9) months
thereafter.

     

    1.7.           “Restrictive
Covenants” means the provisions contained in Section 2.1 of
this Agreement.

     

    SECTION 2. Non-Compete;
Confidentiality; Non-Solicitation. In consideration for the
Consulting Fees, Kaikkonen agrees to be bound by the Restrictive Covenants set
forth in this Section 2.

     

    2.1.           Restrictive
Covenants.

     

    (a)           Non-Compete.  Kaikkonen
agrees that he will not during the Restricted Period, in the United States or
any other place where On2 Finland, or its Affiliates conduct business, either
directly or indirectly, do any of the following without the prior written
consent of the Board:

     

    (i)           engage
or participate in any Competing Business;

     

    (ii)           become
interested in (as owner, stockholder, lender, partner, co-venturer, director,
officer, employee, agent or consultant) any person, firm, corporation,
association or other entity engaged in any Competing
Business.  Notwithstanding the foregoing, Kaikkonen may hold up to
three (3) percent of the outstanding securities of any class of any
publicly-traded securities of any company (including any firm, corporation,
association or other entity engaged in any Competing Business);

     

    (iii)           solicit
or call on, either directly or indirectly, for purposes of selling services
competitive with services sold by On2 Finland or its Affiliates, any customer
with whom On2 Finland or its Affiliates shall have dealt or any prospective
customer that On2 Finland or its Affiliates shall have identified and solicited
at any time during the employment relationship between On2 Finland and Kaikkonen
or during the Transition Period;

     

    (iv)           influence
or attempt to influence any supplier, customer or potential customer of On2
Finland or its Affiliates to terminate or modify any written or oral agreement
or course of dealing with On2 Finland or its Affiliates; or

     

    (v)           influence
or attempt to influence any person to either (A) terminate or modify any
employment, consulting, agency, distributorship or other arrangement with On2
Finland or its Affiliates, or (B) employ or retain, or arrange to have any
other person or entity employ or retain, any person who has been employed or
retained by On2 Finland or its Affiliates as an employee, consultant, agent or
distributor of On2 Finland or its Affiliates.

     

    (b)           Confidentiality.  Kaikkonen
recognizes and acknowledges that the Proprietary Information is a valuable,
special and unique asset of the business of On2 Finland and its
Affiliates.  As a result, both during the Restrictive Period and
thereafter, Kaikkonen shall not, without the prior written consent of On2
Finland, for any reason, either directly or indirectly, divulge to any third
party or use for his own benefit, or for any purpose other than the exclusive
benefit of On2 Finland, any Proprietary Information revealed, obtained or
developed in the course of his employment by On2 Finland or in the course of
performing services for On2 Finland or its Affiliates during the Transition
Period; provided, that
nothing herein contained shall restrict Kaikkonen’s ability to make such
disclosures during the Restrictive Period as may be necessary or appropriate to
the effective and efficient discharge of his duties under the Agreement or as
such disclosures may be required by law.  If Kaikkonen or any of his
representatives become legally compelled to disclose any of the Proprietary
Information, Kaikkonen will provide On2 Finland with prompt written notice so
that On2 Finland may seek a protective order or other appropriate
remedy.

     

    
      
         

      

      
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    (c)           Property.

     

    (i)           All
right, title and interest in and to Proprietary Information shall be and remain
the sole and exclusive property of On2 Finland or its Affiliates, as
applicable.  During the Transition Period, Kaikkonen shall not remove
from On2 Finland’s offices or premises any documents, records, notebooks, files,
correspondence, reports, memoranda or similar materials of or containing
Proprietary Information, or other materials or property of any kind belonging to
On2 Finland or its Affiliates unless necessary or appropriate in accordance with
the duties and responsibilities required by or appropriate for his position and,
in the event that such materials or property are removed, all of the foregoing
shall be returned to their proper files or places of safekeeping as promptly as
possible after the removal shall serve its specific
purpose.  Kaikkonen shall not make, retain, remove and/or distribute
any copies of any of the foregoing for any reason whatsoever except as may be
necessary in the discharge of his assigned duties and shall not divulge to any
third person the nature of and/or contents of any of the foregoing or of any
other oral or written information to which he may have access or with which for
any reason he may become familiar, except as disclosure shall be necessary in
the performance of his duties; and upon the termination of his employment with
On2 Finland, he shall leave with or return to On2 Finland all originals and
copies of the foregoing then in his possession, whether prepared by Kaikkonen or
by others.

     

    (ii)           The
Finnish Act on Rights to Inventions in Employment is applicable to Kaikkonen’s
inventions.  In case the assignment or transfer of the Intellectual
Property rights needs to be done according to a procedure set out in the
relevant legislation, Kaikkonen agrees to make all the required notices and
co-operate with On2 Finland to ensure the transfer of the full ownership in such
Intellectual Property to On2 Finland.  On2 Finland will be entitled to
obtain and hold in its own name all copyrights, patents, trade secrets, and
trademarks with respect to such Intellectual Property.  Kaikkonen
further agrees to execute any and all documents and provide any further
cooperation or assistance reasonably required by On2 Finland to perfect,
maintain or otherwise protect its rights in the Intellectual
Property.

     

    2.2.           Rights and Remedies Upon
Breach.

     

    (a)           Specific
Enforcement.  Kaikkonen acknowledges that the Restrictive
Covenants are reasonable and necessary to protect the legitimate interests of
On2 Finland and its Affiliates.  Kaikkonen also acknowledges that any
breach by him, willfully or otherwise, of the Restrictive Covenants will cause
continuing and irreparable injury to On2 Finland or its Affiliates for which
monetary damages would not be an adequate remedy.

     

    
      
         

      

      
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    (b)           Accounting.  If
Kaikkonen willfully breaches any of the Restrictive Covenants, Kaikkonen agrees
to pay to On2 Finland by means of liquidated damages an amount corresponding to
his Consulting Fees for six (6) months.

     

    2.3.           Judicial
Modification.  If the competent court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or scope of such provision, such court shall have the power to modify
such provision and, in its modified form, such provision shall then be
enforceable.

     

    2.4.           Disclosure of Restrictive
Covenants.  Kaikkonen agrees to disclose the existence and
terms of the restrictive covenants set forth in this Section 2. to
any employer that Kaikkonen may work for during the Restricted
Period.

     

    


    
      
         

      

      
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