EXHIBIT
      10.1


****




**On2
                Technologies, Inc.**
              21
                Corporate Drive Suite 103
              Clifton
                Park, NY 12065
              ***www.on2.com***





May
      5,
      2006





Tim
      Reusing


11
      Cragswood Road


New
      Paltz, NY 12561





Dear
      Tim:





This
      amendment and restatement (this “Agreement”) of that certain employment
      agreement (the "Original Agreement"), dated as of November 10, 2003,between
      you
      (the "Executive") and On2 Technologies, Inc. (the "Company"), a Delaware
      corporation, is effective as of February 28, 2006 (the “Effective Date”). This
      letter sets forth the terms of your employment as Executive Vice President,
      Corporate Development.





1.
      EMPLOYMENT; ACCEPTANCE OF EMPLOYMENT The Company hereby employs the Executive
      during the Term (as defined below) on a full-time basis to render exclusive
      services to the Company as Executive Vice President and General Counsel. The
      Executive hereby accepts this employment and will render his services as
      required by the Company conscientiously, loyally, competently and to the best
      of
      his talents and abilities throughout the Term in accordance with the direction
      and control of his designated supervisor.





2.
      TERM
      OF AGREEMENT. The initial term of this Agreement shall commence on the date
      hereof and terminate on December 31, 2006. This Agreement may be renewed by
      the
      Company upon 90 days' written notice to the Executive prior to the expiration
      of
      the initial term or any renewal term and acceptance of such offer of renewal
      by
      the Executive. The initial term, as extended by any renewal term, is referred
      to
      herein as the "Term".





3.
      EXECUTIVE'S DUTIES.





a.
      The
      Executive's duties will include developing relationships with current and
      prospective customers and assisting in the structuring, negotiation and closing
      of pending license and other transactions. The Executive will report directly
      to
      the Company’s CEO.





b.
      The
      Executive's services shall be rendered primarily at the Company's offices in
      New
      York, New York and at such other locations as the Company may from time to
      time
      reasonably request consistent with its business needs. Travel (and related
      expenses) to such other locations will be at the Company's expense.








4.
      EXCLUSIVITY, RESTRICTIVE AGREEMENTS.





a.
      During
      his employment, the Executive shall devote all of his business time, skill
      and
      energies exclusively to the business of the Company.





b.
      The
      Executive acknowledges that the nature of the services, position and expertise
      of the Executive are such that he is capable of competing with the Company
      and
      seriously damaging its business and its prospects to the detriment of its
      stockholders and employees. In consideration of the Company's performance of
      its
      obligations under this Agreement, during the Term and while under the employ
      of
      the Company the Executive shall not (i) directly or indirectly render any advice
      or services, whether or not for compensation, to, any Person (as defined below)
      engaged in any Competitive Business (as defined below); (ii) directly or
      indirectly engage in any Competitive Business; and (iii) directly or indirectly
      become interested, whether or not for compensation, in any Competitive Business
      as an individual, partner, shareholder, creditor, director, officer, principal,
      agent, employee, trustee, consultant, advisor or in any other relationship
      or
      capacity or, in the case of any such company whose securities are traded on
      a
      national securities exchange in the United States or otherwise or in the
      over-the-counter market, acquire, directly or indirectly, an interest in excess
      of one percent (1%) of the outstanding capital stock of such company. The
      Company's business is worldwide in scope; accordingly, the Executive agrees
      that
      this covenant not to compete shall not be subject to any geographical limit.





c.
      For
      purposes of this Section, any "Competitive Business" shall mean any business
      (including, for the avoidance of doubt, any division, unit, subsidiary or
      affiliate of any other business whether or not such other business is a
      Competitive Business unless the Executive can demonstrate upon the Company's
      request that his employment by, engagement in, or his interest in, such unit,
      division, subsidiary or affiliate does not and will not require him to provide
      services, information, advice or relevant knowledge, skill, know-how or contacts
      to the Competitive Business during the Restricted Period) which is principally
      engaged in the design or development of digital compression, decompression
      or
      playback technologies in the computing, telecommunications or entertainment
      industries.





d.
      For
      purposes of this Section, "Person" shall mean any corporation, partnership,
      trust, individual or any other entity.





e.
      For
      all purposes of this Section 4, "Restricted Period" shall be the 180 days
      immediately following termination of employment whether such termination is
      by
      resignation or termination by the Company with or without Cause (as defined
      below) or upon the expiration of the Term.





5.
      COMPENSATION.





a.
      During
      the Term the Executive shall receive base compensation at the rate of $192,500
      per year, payable monthly. Such base salary as may be increased from time to
      time and is hereinafter referred to as "Base Salary". The Executive is
      guaranteed (i) payment of his Base Salary, (ii) all benefits to which he is
      entitled pursuant to this Agreement, including, without limitation, those set
      forth in Section 6 hereof during the Term, and (iii) retention of his title
      and
      use of his office space, in each case regardless of whether Executive is
      terminated for Cause or not for Cause or resigns his position or is otherwise
      unable to perform his duties on account of his death or disability; provided,
      however, that Executive shall not be entitled to retain his title and use of
      his
      office space if he resigns his position. The foregoing sentence sets forth
      all
      of Executive’s rights to receive compensation upon his termination or departure
      from his employment, irrespective of anything set forth in this Agreement
      including, without limitation, in Sections 7 or 8 hereof. Upon the cessation
      of
      the Executive’s employment with the Company (regardless of whether such
      cessation is due to Executive’s resignation, termination for Cause, termination
      without Cause or due to Executive’s death or disability): (i) the Company shall
      have the obligations set forth in Section 8.a. iv. and Section 8.c., (ii) all
      of
      the Executive's stock options which would have vested and become exercisable
      had
      the Executive's employment continued to the later of (x) October 15, 2006 or
      (y)
      the date upon which Executive employment ceases, shall vest and become
      exercisable, and the Executive may exercise all stock options held by him which
      have thereby vested and become exercisable during the period ending on the
      last
      day on which the Executive may exercise such options under the terms of the
      applicable option plan or 90 days from the date Executive’s employment ceases,
      whichever is later.








b.
      The
      Company will reimburse the Executive for expenses related to its business
      actually incurred or paid by the Executive in the performance of his duties
      under this Agreement, including without limitation home cable modem and
      satellite modem bills and cell phone bills, upon presentation of accountings,
      expense statements, vouchers or such other supporting information as may be
      required by the Company's policies.





c.
      Executive will receive a percentage set forth on a schedule to be mutually
      agreed (the “Percentage”) of all monies actually received by the Company from or
      in connection with or arising out of any licenses, deals or transactions entered
      into with or through any of the entities set forth on a schedule to be mutually
      agreed to; provided, however, that such amount shall not in the case of any
      single entity exceed the amount set forth next to the entity’s name on such
      schedule, if any. The license, deal or transaction must be entered into or
      be
      effective prior to the end of the Term in order for it to be eligible for the
      Percentage fee. The Percentage fee shall be payable to Executive regardless
      of
      whether some or all eligible monies are received after the end of the Term
      or
      after the cessation of Executive’s employment with the Company; provided,
      however, that Executive’s right to receive the Percentage fee shall not extend
      to royalty fees, revenue shares, or other similar fees, to the extent such
      fees
      are received after the cessation of Executive’s employment with the
      Company.




6.
      EXECUTIVE BENEFITS.





a.
      During
      the Term, the Executive shall be entitled to participate in such group health,
      retirement, profit sharing, 401(k) and other benefits programs or plans,
      qualified or unqualified, including any future stock option, bonus or other
      incentive program, which are or become available to other senior executives
      of
      the Company, subject to the policies of the Company with respect to all of
      such
      programs or plans. Nothing in this clause 6a. shall be construed to create
      a
      contractual obligation to provide the Executive with any particular form or
      type
      of benefit or to limit the discretion of the Board of Directors or Compensation
      Committee or any other duly authorized or appointed plan administrator is
      permitted to exercise under any such benefit programs or plans.





b.
      During
      the Term the Executive shall be entitled to four weeks' paid vacation per year
      of employment to be scheduled on reasonable notice to the Company and to be
      taken, accrued and paid on the same basis as other employees of the Company.





7.
      TERMINATION OF EMPLOYMENT FOR CAUSE.





a.
      The
      Company may terminate employment of Executive for any of the following reasons,
      each of which is defined as "Cause:"





i.
      commission of a felony, any crime of moral turpitude or any act of fraud or
      dishonesty;





ii.
      repeated failure to satisfactorily perform material services required under
      this
      Agreement in accordance with the requests of the Board of Directors;





iii.
      willful misconduct or gross negligence in the performance of his duties;








iv.
      disregard or violation of the legal rights of any employees of the Company
      or of
      the Company's written policies regarding harassment or discrimination; or





v.
      a
      breach of any material provisions of this Agreement (including, but not limited
      to, any breach of Sections 3 or 9).





If
      the
      Company terminates the employment of the Executive for Cause, or if the
      Executive resigns during the Term, the Company's obligations under this
      Agreement to pay further compensation shall cease forthwith, except that the
      Company will pay the Executive, within 30 days from the date of termination
      of
      his employment, in full and complete satisfaction of all of the Company's
      obligations under this Agreement, (i) the Base Salary and, subject to submission
      of all required documentation, reimbursable expenses accrued (but unpaid) to
      the
      date of termination and (ii) any accrued but unused vacation days paid at the
      rate of the Executive's Base Salary and during the six months after such
      termination will further provide all benefits as would have been provided had
      employment continued including medical, disability and life insurance; PROVIDED,
      that in the case of the death of the Executive during such six-month period,
      medical insurance will be continued for the Executive's domestic partner and
      children for the duration of such period. Nothing contained in this Section
      7.a
      shall be construed to alter the Executive's right under any stock option plan
      pursuant to which options have been issued to Executive.





b.
      If the
      Executive dies during the Term, such death shall be deemed termination for
      Cause
      and the Company's obligation to Executive's estate shall be the same as those
      for termination for cause as defined in Section 7.a above.





c.
      If, as
      a result of the Executive's disability or incapacity during the Term due to
      physical illness or condition, or mental illness during his employment with
      the
      Company, the Executive is unable to perform his duties hereunder for a
      consecutive 6-calendar week period, or an aggregate period of 12 calendar weeks
      during any 12 months (or such longer period as may be required to comply with
      the Family Leave Act or other applicable law), the Company shall have the right,
      upon written notice to the Executive, to terminate the Executive's employment
      under this Agreement. Such a termination shall be deemed termination for Cause
      as defined in Section 7.a but shall in no case become effective until the date
      at which the Company's long-term disability plan pays benefits to him.





d.
      Any
      alleged breach of this Agreement by either party shall not be deemed a breach
      until such time as the breaching party shall have received written notice from
      the non-breaching party setting forth the alleged breach ("Alleged Breach
      Notice") and the breaching party shall not have cured (if curable) the breach
      set forth in the Alleged Breach Notice in the 15 days (10 days for defaults
      in
      payments) after receipt of such Alleged Breach Notice. If the breach set forth
      in the Alleged Breach Notice is not curable and has not resulted in a
      substantive and material adverse effect on the party sending the Alleged Breach
      Notice, the Company and the Executive shall, at the request of the other,
      attempt to meet and discuss such alleged breach before resorting to remedies
      or
      rights under this Agreement or otherwise. Notwithstanding the foregoing, this
      Section shall not apply to, and the Executive shall have no right to cure,
      a
      breach by him under clauses (i) and (iv) of the definition "Cause" contained
      in
      Section 7.a, above.





8.
      TERMINATION OTHER THAN FOR CAUSE.





a.
      If the
      Company terminates the Executive's employment without Cause, the Company's
      obligations under this Agreement shall be as follows:





i.
      The
      Company will continue to pay to the Executive, or in the case of death of the
      employee to his successors or legal representatives or to his estate, during
      the
      180 days immediately following such termination of employment, as the case
      may
      be (such period is hereinafter referred to as the "Severance Period"), his
      Base
      Salary on a monthly basis as would have been paid to the employee had his
      employment with the Company continued;








ii.
      The
      Company shall pay to the Executive his proportionate share of any bonus
      compensation to which he would have received had he continued to be employed
      until the end of the relevant bonus calculation period. Such bonus compensation
      shall be payable in a lump sum within 30 days of determination of Executive's
      bonus amount;





iii.
      The
      Company will continue to provide all benefits to the Executive during the
      Severance Period as would have been provided had employment continued, including
      medical, disability and life insurance. In the case of the death of the
      employee, medical insurance will be continued for Executive's domestic partner
      and children for the duration of the Severance Period; and





iv.
      The
      Company will reimburse the Executive for all reimbursable expenses accrued
      (but
      unpaid) to the date of termination or expiration of the Term, as the case may
      be; and within 10 business days after such termination, any accrued but unused
      vacation days paid at Executive's Base Salary.





b.
      If a
      termination without Cause takes effect prior to the expiration of the Term,
      all
      of the Executive's stock options which would have vested and become exercisable
      had the Executive's employment continued to the end of the Term in which such
      termination without Cause has occurred shall vest and become exercisable, and
      the Executive may exercise all options held by him which have thereby vested
      and
      become exercisable during the period ending on the last day on which the
      Executive may exercise such options under the terms of the applicable option
      plan or 90 days from the date of termination, whichever is later.





c.
      Notwithstanding Section 8(b), if the Company terminates the Executive's
      employment without Cause following a business combination (including sale of
      assets, merger, consolidation or other transaction that results in the
      stockholders of the Company receiving liquid consideration for a majority of
      the
      holdings in the Company accompanied by a change in actual control of the
      Company), all stock options theretofore granted to the Executive shall vest
      and
      become exercisable, and the Executive may thereafter exercise all options held
      by him during the period ending on the last day on which the Executive may
      exercise such options under the terms of the applicable option plan or 90 days
      from the date of termination, whichever is later.





9.
      NONDISCLOSURE.





a.
      Except
      as required in order to perform his obligations under this Agreement, the
      Executive shall not, without the express prior written consent of the Company,
      directly or indirectly, disclose or divulge to any other person or entity any
      of
      the Company's Confidential Information or Trade Secrets at any time (during
      or
      after the Executive's employment) during which such data or information
      continues to constitute Confidential Information or a Trade Secret. Except
      as
      required to be disclosed to his attorney, accountant or financial advisor,
      the
      Executive shall not disclose or divulge to any other person (particularly to
      any
      other employee) any terms of the Executive's compensation under this Agreement.
      Upon any termination or expiration of his employment, the Executive will
      promptly deliver to the Company all data, lists, information, memoranda,
      documents and all other property belonging to the Company or containing
      Confidential Information or Trade Secrets of the Company.





b.
      As
      used in this Agreement:








i.
      "Confidential Information" of the Company shall mean any valuable, competitively
      sensitive data and information related to the Company's business other than
      Trade Secrets that are not generally known by or readily available to the
      Company's competitors, including, among other things, that which relates to
      services performed by the Executive for the Company, or was created or obtained
      by the Executive while performing services for the Company or by virtue of
      the
      Executive's relationship with the Company; and





ii.
      "Trade Secrets" shall mean information or data of the Company, including but
      not
      limited to technical or non-technical data, compilations, programs, devices,
      methods, techniques, processes, financial data and financial plans, that: (a)
      derive economic value, actual or potential, from not being generally known
      to,
      and not being readily ascertainable by proper means by, other persons who can
      obtain economic value from their disclosure or use; and (b) are the subject
      of
      efforts that are reasonable under the circumstances to maintain their secrecy.
      To the extent that the foregoing definition is inconsistent with a definition
      of
      "trade secret" mandated under applicable law, the latter definition shall govern
      for purposes of interpreting the Executive's obligations under this Agreement.





iii.
      The
      obligations set forth in this Section shall not be applicable to any information
      which: (i) the Company has authorized the Executive in writing to publicly
      disclose, copy or use, but only to the extent of such authorization;


(ii)
      is
      generally known or becomes part of the public domain through no fault of the
      Executive; (iii) is disclosed to the Company by third parties without
      restrictions on disclosure; or (iv) is required to be disclosed in the context
      of any administrative or judicial proceedings; PROVIDED that, if the Executive
      is requested or becomes legally compelled to disclose any Confidential
      Information or Trade Secrets, the Executive will provide the Company with prompt
      written notice so that the Company may seek a protective order or other
      appropriate remedy and/or waive compliance with the provisions of this Section
      and the Executive will cooperate with the Company in any effort the Company
      undertakes to obtain a protective order or other remedy. If such a protective
      order or other remedy is not obtained or the Company waives compliance with
      this
      Section, the Executive will furnish only that portion of the Confidential
      Information and Trade Secrets that is legally required and will exercise all
      reasonable efforts to obtain reliable assurance that confidential treatment
      will
      be accorded the Confidential Information to be disclosed. The Company hereby
      agrees to indemnify and hold harmless Executive from all costs and expenses,
      including attorneys' fees, he incurs in carrying out his obligations under
      the
      proviso provisions of this subsection 9.b.iii and further agrees upon the
      written request of Executive to advance to Executive the anticipated cost of
      complying with his obligations under such proviso provisions.





10.
      REPRESENTATIONS AND WARRANTIES. The Executive hereby represents and warrants
      that (a) he has the right to enter into this Agreement with the Company and
      to
      grant the rights contained in this Agreement, and (b) the provisions of this
      Agreement do not violate any other contracts or agreements that the Executive
      has entered into with any other individual or entity.





11.
      SERVICES OF THE EXECUTIVE. In the course of his employment under this Agreement,
      the Executive will have access to Trade Secrets, the disclosure or unauthorized
      use of which, the Company seeks to protect and the Executive has agreed to
      protect. As a result of benefits accruing to the Executive from his access
      to
      such Trade Secrets, and of the improvement in his knowledge, and proficiency
      arising therefrom, the Executive acknowledges that (a) his services are and
      will
      remain special and extraordinary, and have and will have a peculiar value,
      the
      loss of which cannot be reasonably or adequately compensated in damages in
      any
      action at law; (b) he is willing to comply with the restrictions contained
      in
      Sections 4.b and 4.c; (c) the restrictions contained in those Sections will
      not
      impair his ability to earn a living in any businesses other than those
      businesses from which he is prohibited during the time of such restriction;
      and
      (d) a material breach of his obligations under Sections 4.b, 4.c or 10 will
      cause the Company irreparable injury and damage. It is, therefore, agreed that
      the Company, in addition to any other remedies, shall be entitled to injunctive
      and other equitable relief to enforce its rights under, and to prevent a breach
      of, Sections 4.b, 4.c and 9 of this Agreement by the Executive.








11A.
      REPRESENTATIONS. Executive represents that he has provided to date truthful
      and
      complete information to the Company’s outside attorneys, and, aside from those
      disclosures, knows of no other facts or circumstances arising out of his actions
      or omissions on which a claim or action could be asserted against the Company
      or
      its subsidiaries. Based upon the foregoing representation, the Company does
      hereby and forever release and discharge Executive, his heirs, assigns,
      representatives and successors 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 state or federal
      court or before any state or federal agency or other governmental entity, which
      the Company has or may have against Executive by reason of any and all acts,
      omissions, events or facts occurring or existing prior to the date hereof
      relating to or arising out of Executive’s employment, including, without
      limitation, all claims attributable to the employment of Executive, and all
      claims attributable to the termination of that employment, excepting only those
      obligations expressly recited to be performed hereunder; provided, that, the
      foregoing release shall not apply to claims which the Company has or may have
      against Executive by reason of any willful misconduct, criminal acts or acts
      of
      fraud of Executive involving the Company or its subsidiaries.





12.
      ASSIGNABILITY ETC. This Agreement shall be nondelegable and nonassignable by
      the
      Executive, and shall inure to the benefit of heir and assigns the Executive.
      This Agreement shall be binding upon and inure to the benefit of the Company
      and
      any entity succeeding to all or substantially all of the business assets of
      the
      Company by merger, consolidation, purchase of assets or otherwise.





13.
      NOTICES. Any notice pertaining to this Agreement shall be in writing and shall
      be served by delivering said notice (i) by hand, (ii) by overnight mail by
      a
      internationally recognized carrier, (iii) by sending it by certified mail,
      postage prepaid, return receipt requested, or (iv) by confirmed telefax, with
      notice confirmed, to the Executive at the address first stated above or his
      office at the Company, and to the Company at:





21
      Corporate Dr.


Ste.
      103


Clifton
      Park, NY 12065


Attn:
      CEO





The
      addresses for notice may be changed by notice given to the other party pursuant
      to this Section.





14.
      MISCELLANEOUS.





a.
      This
      Agreement shall be governed by and construed under the laws and decisions of
      the
      State of New York applicable without regard to the principles of conflicts
      of
      laws. The parties to this Agreement agree that the state or federal courts
      in
      the State of New York shall have personal jurisdiction over them with respect
      to, and shall be the exclusive forum for the resolution of, any matter or
      controversy arising from or with respect to this Agreement. Service of a summons
      and complaint concerning any such matter or controversy may, in addition to
      any
      other lawful means, be effected by sending a copy of such summons and complaint
      by certified mail to the party to be served as specified in Section 13 of this
      Agreement or at such other address as the party to be served shall have provided
      in writing to the other from time to time in accordance with Section 13.








b.
      To the
      extent permitted by law, the Executive and the Company irrevocably waive trial
      by jury and any objection which he or it may now or hereafter have to the venue
      of any suit, action or proceeding arising out of or relating to this Agreement
      brought in the City of New York, and to the extent permitted by law, the
      Executive and the Company hereby further irrevocably waive any claim that any
      such suit, action or proceeding brought in the City of New York has been brought
      in an inconvenient forum.





c.
      This
      Agreement contains the entire understanding of the parties to this Agreement
      with respect to the subject matter of this Agreement and supersedes all previous
      written and oral agreements between the parties with respect to the subject
      matter set forth in this Agreement.





d.
      This
      Agreement may not be modified or amended except by a writing signed by the
      parties to this Agreement.





e.
      Any
      provision of this Agreement that is deemed invalid, illegal or unenforceable
      in
      any jurisdiction shall, as to that jurisdiction and subject to this Section,
      be
      ineffective to the extent of such invalidity, illegality or unenforceability,
      without affecting in any way the remaining provisions of this Agreement in
      such
      jurisdiction or rendering that or any other provision of this Agreement invalid,
      illegal or unenforceable in any other jurisdiction. If the covenant should
      be
      deemed invalid, illegal or unenforceable because its scope is considered
      excessive, such covenant shall be modified so that the scope of the covenant
      is
      reduced only to the minimum extent necessary to render the modified covenant
      valid, legal and enforceable.





f.
      The
      following provisions of this Agreement shall survive in accordance with their
      terms, the expiration or termination of this Agreement for any reason: Sections
      4, 7, 8, 9, 10, 11 and 14.





g.
      A
      waiver by either party of any Section, term or condition of this Agreement
      in
      any instance shall not be deemed or construed to be a waiver of such Section,
      term or condition for the future or of any subsequent breach thereof, and any
      such waiver must be in writing, signed by the party to be charged. All rights
      and remedies contained in this Agreement are cumulative, and none of them shall
      be construed so as to limit any other right or remedy of either party.





h.
      This
      Agreement may be executed in counterparts, all of which shall constitute one
      and
      the same agreement.





i.
      The
      headings and titles to the Sections of this Agreement are inserted for
      convenience only and shall not be deemed a part of or affect the construction
      or
      interpretation of any provisions of this Agreement.





j.
      All
      references to Sections shall be to sections and schedules of this Agreement.





k.
      All
      references using male pronouns shall be deemed to include female pronouns.





l.
      This
      Agreement maybe signed in multiple counterparts, each of which shall be deemed
      an original. Any executed counterpart returned by facsimile shall be deemed
      an
      original executed counterpart.








If
      the
      foregoing accurately reflects the Executive's understanding, please countersign
      and return one counterpart of this Agreement to the Company.





Sincerely
      yours,





ON2
      TECHNOLOGIES, INC.





By: /s/
      Jim
      Meyer


Name:
      James Meyer


Title:
      Interim CEO








/s/
      Tim
      Reusing


Tim
      Reusing