Document:

Exhibit 4.1
    

    
      FIRST AMENDMENT TO CREDIT AGREEMENT
    

    
      THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”)
      is made and entered into as of March 18, 2009 by and among LUBY'S, INC.,
      a Delaware corporation (the “Company”); each of the Lenders
      which is or may from time to time become a party to the Credit Agreement
      (as defined below) (individually, a “Lender” and,
      collectively, the “Lenders”), and WELLS FARGO BANK,
      NATIONAL ASSOCIATION, acting as administrative agent for the Lenders (in
      such capacity, together with its successors in such capacity, the “Administrative
      Agent”).
    

    
      RECITALS
    

    
      A.        The Company, the Lenders and the Administrative Agent executed
      and delivered that certain Credit Agreement dated as of July 13,
      2007.  Said Credit Agreement, as amended, supplemented and restated, is
      herein called the “Credit Agreement”.  Any capitalized term
      used in this Amendment and not otherwise defined shall have the meaning
      ascribed to it in the Credit Agreement.
    

    
      B.        The Company, the Lenders and the Administrative Agent desire
      to amend the Credit Agreement in certain respects.
    

    
      NOW, THEREFORE, in consideration of the premises and the mutual
      agreements, representations and warranties herein set forth, and further
      good and valuable consideration, the receipt and sufficiency of which
      are hereby acknowledged, the Company, the Lenders and the Administrative
      Agent do hereby agree as follows:
    

    
      SECTION 1. Amendments to Credit Agreement.
    

    
      (a)      The definition of “Applicable
      Rate” set forth in Section 1.01 of the Credit Agreement
      is hereby amended to read in its entirety as follows:
    

    
      “Applicable Rate” means, for any day with respect to any
      ABR Loan or Eurodollar Loan or with respect to the commitment fees
      payable hereunder, as the case may be, the applicable rate per annum set
      forth below under the caption “ABR Spread”, “Eurodollar Spread” or
      “Commitment Fee Rate”, as the case may be, based upon the Total Leverage
      Ratio as of the most recent determination date:
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
    	
          Total

          
            Leverage Ratio
          

        	
          ABR Spread
        	
          Eurodollar Spread
        	
          Commitment Fee

          
            Rate
          

        
	
          
            Category 1:
          

          
            greater than 2.50
          

        	
          0.75
        	
          2.50
        	
          0.45
        
	
          
            Category 2:
          

          
            greater than 1.25
          

          
            but less than or
          

          
            equal to 2.50
          

        	
          0.50
        	
          2.25
        	
          0.40
        
	
          
            Category 3:
          

          
            greater than 0.50
          

          
            but less than or
          

          
            equal to 1.25
          

        	
          0.25
        	
          2.00
        	
          0.35
        
	
          
            Category 4: less
          

          
            than or equal to
          

          
            0.50
          

          
             
          

        	
          0.00
        	
          1.75
        	
          0.30
        

    

    
      For purposes of the foregoing, (i) the Total Leverage Ratio shall be
      determined as of the end of each fiscal quarter of the Borrower’s fiscal
      year based upon the Borrower’s consolidated financial statements
      delivered pursuant to Sections 5.01(a) or (b) and (ii)
      each change in the Applicable Rate resulting from a change in the Total
      Leverage Ratio shall be effective during the period commencing on and
      including the date of delivery to the Administrative Agent of such
      consolidated financial statements indicating such change and ending on
      the date immediately preceding the effective date of the next such
      change; but the Total Leverage Ratio shall be deemed to be in Category 1
      at the request of the Required Lenders if the Borrower fails to timely
      deliver the consolidated financial statements required to be delivered
      by it pursuant to Sections 5.01(a) or (b), during the
      period from the deadline for delivery thereof until such consolidated
      financial statements are received.
    

    
      (b)      The definition of “Commitment”
      set forth in Section 1.01 of the Credit Agreement is hereby
      amended to read in its entirety as follows:
    

    
      “Commitment” means, with respect to each Lender, the
      commitment, if any, of such Lender to make Loans and to acquire
      participations in Letters of Credit hereunder, expressed as an amount
      representing the maximum aggregate amount of such Lender’s Revolving
      Exposure hereunder, as such commitment may be (a) reduced or increased
      from time to time pursuant to Section 2.07 and (b) reduced or
      increased from time to time pursuant to assignments by or to such Lender
      pursuant to Section 9.04.  The amount of each Lender’s Commitment
      as of March 18, 2009 is set forth on Schedule 2.01.  The
      aggregate amount of the Lenders’ Commitments as of March 18, 2009 is
      $30,000,000.
    

    
      
        

        

      

      
        
          2
        

        
          

        

      

      
        

        

      

    

    
      (c)      The definition of “Interest
      Coverage Ratio” set forth in Section 1.01 of the Credit
      Agreement is hereby amended to read in its entirety as follows:
    

    
      “Interest Coverage Ratio” means, as of the last day of any
      fiscal quarter of the Borrower, the ratio of (a) EBITDA for the four
      fiscal quarters ending on such date to (b) the sum of (i) Interest
      Expense for such four fiscal quarter period plus (ii) Phantom
      Amortization for the applicable quarter, determined in each case on a
      consolidated basis for Borrower and its Subsidiaries.
    

    
      (d)      A new definition of “Maximum
      Capex Amount” is hereby added to Section 1.01 of the
      Credit Agreement, such new definition to read in its entirety as follows:
    

    
      “Maximum Capex Amount” means, for each fiscal year, the
      greater of (i) $20,000,000, or (ii) an amount equal to one hundred
      percent (100%) of the Borrower's EBITDA for the immediately preceding
      fiscal year; plus any unused availability for Capital
      Expenditures from the immediately preceding fiscal year (but not from
      any earlier year).
    

    
      (e)      The definition of "Permitted
      Investments" set forth in Section 1.01 of the Credit
      Agreement is hereby amended by (i) deleting clause (f) in its
      entirety and replacing it as set forth below, and (ii) by adding a new clause
      (g) as follows:
    

    
      (f)       the auction rate securities (debt instruments, tax-exempt,
      with a long-term maturity for which the interest rate is reset through a
      "dutch auction" process with interest on such instrument being paid at
      the end of each such auction period) set forth in Schedule 6.04;
      and  
    

    
      (g)       expenditures made in compliance with Section
      6.13 hereof.  
    

    
      (f)      A new definition of “Phantom
      Amortization” is hereby added to Section 1.01 of the
      Credit Agreement, such new definition to read in its entirety as follows:
    

    
      “Phantom Amortization” means, for any fiscal quarter, an
      amount equal to the outstanding principal balance of the Loans as of the
      close of business on the last day of such fiscal quarter divided by
      five (5).
    

    
      (g)      Section 2.11(a) of the
      Credit Agreement is hereby amended to read in its entirety as follows:
    

    
      (a)       The Loans comprising each ABR Borrowing shall bear interest at
      the lesser of (i) the greater of (x) three and one half percent (3-1/2%)
      or (y) the sum of the Alternate Base Rate plus the Applicable
      Rate or (ii) the Ceiling Rate.
    

    
      
        

        

      

      
        
          3
        

        
          

        

      

      
        

        

      

    

    
      (h)      Section 2.11(b) of the
      Credit Agreement is hereby amended to read in its entirety as follows:
    

    
      (b)       The Loans comprising each Eurodollar Borrowing shall bear
      interest at the lesser of (i) the greater of (x) three and one half
      percent (3-1/2%) or (y) the sum of the Adjusted LIBO Rate for the
      Interest Period in effect for such Borrowing plus the Applicable
      Rate or (ii) the Ceiling Rate.
    

    
      (i)      Section 5.12 of the Credit
      Agreement is hereby amended to read in its entirety as follows:
    

    
      SECTION 5.12  Financial Covenants.  The Borrower will
      have and maintain:
    

    
                (a)       Total
      Leverage Ratio – a Total Leverage Ratio of not greater than 2.75 to
      1.00 at all times.
    

    
                (b)       Interest
      Coverage Ratio – an Interest Coverage Ratio of not less than  2.00
      to 1.00 as of the end of each fiscal quarter.
    

    
      (j)      Section 6.13 of the Credit
      Agreement is hereby amended to read in its entirety as follows:
    

    
      SECTION 6.13  Capital Expenditures.  The Borrower will
      not, and will not permit any other Loan Party to, make a Capital
      Expenditure if, after giving effect to such Capital Expenditure, (x) any
      Event of Default is then existing or would arise as a result of the
      applicable Capital Expenditure or (y) such Capital Expenditure, when
      added with all other Capital Expenditures in such fiscal year, would
      exceed the applicable Maximum Capex Amount.  Acquisitions permitted
      under the terms and provisions of Section 6.14 hereof shall not
      be treated as Capital Expenditures for purposes of this Section.
    

    
      (k)      Schedule 2.01 of the
      Credit Agreement is hereby amended to be identical to Schedule 2.01
      attached hereto.
    

    
      (l)       A new Schedule 6.04 is
      hereby added to the Credit Agreement, such new Schedule to be identical
      to Schedule 6.04 attached hereto.
    

    
      (m)      Exhibit B of the Credit
      Agreement is hereby amended to be identical to Exhibit B attached
      hereto.
    

    
      SECTION 2. Amendment Fee. As a condition precedent to the
      effectiveness of this Amendment, the Borrower shall pay to each Lender
      an amendment fee in the amount of $7,500.
    

    
      SECTION 3. Ratification.  Except as expressly amended by this
      Amendment, the Credit Agreement and the other Loan Documents shall
      remain in full force and effect.  None of the rights, title and
      interests existing and to exist under the Credit Agreement are hereby
      released, diminished or impaired, and the Company hereby reaffirms all
      covenants, representations and warranties in the Credit Agreement.
    

    
      
        

        

      

      
        
          4
        

        
          

        

      

      
        

        

      

    

    
      SECTION 4. Expenses.  The Company shall pay to the Administrative
      Agent all reasonable fees and expenses of its legal counsel incurred in
      connection with the execution of this Amendment.
    

    
      SECTION 5. Certifications.  The Company hereby certifies that (a)
      no material adverse change in the assets, liabilities, financial
      condition, business or affairs of the Company has occurred and (b)
      subject to the waiver set forth herein, no Default or Event of Default
      has occurred and is continuing or will occur as a result of this
      Amendment.
    

    
      SECTION 6. Miscellaneous.  This Amendment (a) shall be binding
      upon and inure to the benefit of the Company, the Lenders and the
      Administrative Agent and their respective successors, assigns, receivers
      and trustees; (b) may be modified or amended only by a writing signed by
      the required parties; (c) shall be governed by and construed in
      accordance with the laws of the State of Texas and the United States of
      America; (d) may be executed in several counterparts by the parties
      hereto on separate counterparts, and each counterpart, when so executed
      and delivered, shall constitute an original agreement, and all such
      separate counterparts shall constitute but one and the same agreement
      and (e) together with the other Loan Documents, embodies the entire
      agreement and understanding between the parties with respect to the
      subject matter hereof and supersedes all prior agreements, consents and
      understandings relating to such subject matter.  The headings herein
      shall be accorded no significance in interpreting this Amendment.
    

    
      
        

        

      

      
        
          5
        

        
          

        

      

      
        

        

      

    

    
      NOTICE PURSUANT TO TEX. BUS. & COMM. CODE §26.02
    

    
      THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL OTHER
      LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES PRIOR HERETO OR
      SUBSTANTIALLY CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT
      WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
      CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
      AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS
      BETWEEN THE PARTIES.
    

    
      IN WITNESS WHEREOF, the Company, the Lenders and the Administrative
      Agent have caused this Amendment to be signed by their respective duly
      authorized officers, effective as of the date first above written.
    

    
    	
           
        	
          LUBY’S, INC.,
        
	

        	
          a Delaware corporation
        
	

        	

        	
           
        	

        
	

        	
          By:
        	
           
        	
          /s/Christopher J. Pappas
        
	

        	

        	

        	
          Christopher J. Pappas,
        
	

        	

        	

        	
          President and Chief Executive Officer
        

    

    

    

    

    

    

    

    
      [signature page to First Amendment to Credit Agreement]
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
                The undersigned Subsidiaries of the Borrower hereby join in
      this Amendment to evidence their consent to execution by Borrower of
      this Amendment, to confirm that each Loan Document now or previously
      executed by the undersigned applies and shall continue to apply to this
      Agreement, and to acknowledge that without such consent and
      confirmation, Lenders would not execute this Agreement.
    

    
    	
           
        	
          LUBY’S HOLDINGS, INC.,
        
	

        	
          a Delaware corporation,
        
	

        	
          LUBY’S LIMITED PARTNER, INC.,
        
	

        	
          a Delaware corporation,
        
	

        	
          LUBCO, INC.,
        
	

        	
          a Delaware corporation,
        
	

        	
          LUBY’S MANAGEMENT, INC.,
        
	

        	
          a Delaware corporation,
        
	

        	
          LUBY’S BEVCO, INC., and
        
	

        	
          a Texas corporation
        
	

        	

        	
           
        	

        
	

        	

        	

        	
           
        
	

        	
          By:
        	
           
        	
          /s/Christopher J. Pappas
        
	

        	

        	

        	
          Christopher J. Pappas,
        
	

        	

        	

        	
          President and Chief Executive Officer
        

    

    
    	
           
        	
          LUBY’S RESTAURANTS LIMITED
        
	

        	
          PARTNERSHIP, a Texas limited partnership
        
	

        	

        	
           
        	

        	
           
        	
           
        	

        
	

        	
          By:
        	

        	
          Luby’s Management, Inc.,
        
	

        	

        	

        	
          a Delaware corporation,
        
	

        	

        	

        	
          its general partner
        
	

        	

        	

        	

        	

        	

        	
           
        
	

        	

        	

        	

        	

        	

        	
           
        
	

        	
          
             
          

        	

        	
          
            By:
          

        	

        	
           
        	
          /s/Christopher J. Pappas
        
	

        	

        	

        	

        	

        	

        	
          Christopher J. Pappas,
        
	

        	

        	

        	

        	

        	

        	
          President and Chief Executive
        
	

        	

        	

        	

        	

        	

        	
          Officer
        

    

    

    

    

    

    

    

    

    

    

    

    
      [signature page to First Amendment to Credit Agreement]
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
    	
           
        	
          
            WELLS FARGO BANK, NATIONAL
          

          
            ASSOCIATION, individually and as
          

          
            Administrative Agent
          

        
	

        	

        	
           
        	

        
	

        	

        	

        	
           
        
	

        	
          By:
        	
           
        	
          /s/Ben R. McCaslin
        
	

        	
          Name:
        	
           
        	
          Ben R. McCaslin
        
	

        	
          Title:
        	
           
        	
          Vice President
        

    

    

    

    

    

    

    

    

    

    
      [signature page to First Amendment to Credit Agreement]
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
    	
           
        	
          AMEGY BANK, NATIONAL ASSOCIATION
        
	

        	

        	
           
        	

        
	

        	

        	

        	
           
        
	

        	
          By:
        	
           
        	
          /s/William B. Pyle
        
	

        	
          Name:
        	
           
        	
          William B. Pyle
        
	

        	
          Title:
        	
           
        	
          Senior Vice President
        

    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      SCHEDULE 2.01
    

    

    

    
    	

        	
          Revolving
        
	
          Lender
        	
          Commitments
        
	

        	
           
        
	
          Wells Fargo Bank, National Association
        	
          $15,000,000
        
	
          Amegy Bank, National Association
        	
          $15,000,000
        

    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    

    

    
      

    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      COMPLIANCE CERTIFICATE
    

    
      The undersigned hereby certifies that he or she is the
      __________________ of LUBY'S, INC., a Delaware corporation (the “Borrower”),
      and that as such he or she is authorized to execute this certificate on
      behalf of the Borrower pursuant to the Credit Agreement (the “Agreement”)
      dated as of July 13, 2007, by and among Borrower, WELLS FARGO BANK,
      NATIONAL ASSOCIATION, as Administrative Agent, and the lenders therein
      named; and that a review has been made under his or her supervision with
      a view to determining whether the Loan Parties have fulfilled all of
      their respective obligations under the Agreement, the Notes and the
      other Loan Documents; and further certifies, represents and warrants
      that to his or her knowledge (each capitalized term used herein having
      the same meaning given to it in the Agreement unless otherwise
      specified):
    

    
      (a)      The financial statements delivered to the Administrative Agent
      concurrently with this Compliance Certificate have been prepared in
      accordance with GAAP consistently followed throughout the period
      indicated and fairly present the financial condition and results of
      operations of the applicable Persons as at the end of, and for, the
      period indicated (subject, in the case of quarterly financial
      statements, to normal changes resulting from year-end adjustments and
      the absence of certain footnotes).
    

    
      (b)      As of the date hereof, [no Default or Event of Default] [a
      Default] has occurred and is continuing.  [If a Default has
      occurred, specify the details thereof and any action taken or proposed
      to be taken with respect thereto.]
    

    
      (c)      The compliance with the provisions of Sections
      5.12 and 6.13 as the effective date of the financial
      statements delivered to the Administrative Agent concurrently with this
      Compliance Certificate is as follows:
    

    
    	
           
        	
          (i)
        	
          
            Section 5.12(a) – Total Leverage Ratio
          

        
	

        	

        	

        	
           
        
	

        	

        	
          
            Actual
          

        	
          
            Required
          

        
	

        	

        	

        	
           
        
	

        	

        	
          _____ to 1.00
        	
          2.75 to 1.00
        
	

        	

        	

        	
           
        
	

        	

        	

        	
           
        
	

        	
          (ii)
        	
          
            Section 5.12(b) – Interest Coverage Ratio
          

        
	

        	

        	

        	
           
        
	

        	

        	
          
            Actual
          

        	
          
            Required
          

        
	

        	

        	

        	
           
        
	

        	

        	
          _____ to 1.00
        	
          2.00 to 1.00
        

    

    
      EXHIBIT B
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
    	
           
        	
          (iii)
        	
          
            Section 6.13 – Capital Expenditures
          

        
	

        	

        	

        	
           
        	

        
	

        	

        	
          
            Year to Date Actual
          

        	

        	
          
            Year to Date Permitted
          

        
	

        	

        	

        	

        	
           
        
	

        	

        	
          $_______________
        	

        	
          $_______________
        

    

    

    

    

    

    
      (d)        There has been no change in GAAP or in the application
      thereof since the Effective Date which would reasonably be expected to
      affect the calculation of the financial covenants set forth in the
      Agreement or, if any such change has occurred, the effects of such
      change on the financial statements of the respective Loan Parties are
      specified on an attachment hereto.
    

    
      (e)      Since the date of the Agreement, no event has occurred which
      would be reasonably likely to have a Material Adverse Effect.
    

    
      DATED as of _____________, 20___.
    

    
    	
           
        	
           
        
	
          [SIGNATURE OF AUTHORIZED OFFICER]
        	

        

    

    

    

    
      EXHIBIT B
    

    
      13ex10-1.htm

    
      

    

    Exhibit
10.1

     

     

    TRANSITION
AGREEMENT

    

    This
Transition Agreement (the “Agreement”) is made and entered into this 16th day of
March, 2009 (the “Effective Date”) between On2 Technologies, Inc., a Delaware
corporation (“On2”), and Anthony Principe (hereinafter “Principe”).

    

    WHEREAS,
Principe has served as the Senior Vice President and Chief
Financial  Officer of On2 and as a member of the Board of Directors of
On2 Technologies Finland Oy (the “On2 Finland”); and

     

    WHEREAS,
Principe and On2 have agreed that Principe will resign as an officer of On2 and
as a member of the Board of Directors of On2 Finland, and will serve as a
consulting independent contractor for On2 until September 15, 2009, 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, Principe and On2
hereby agree as follows:

    

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

     

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

     

    3.   Compensation During
Transition Period.

     

    (a)        
Vacation Days;
Expenses.

     

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

     

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

     

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

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    5.   No Other
Consideration. Principe 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. Principe has accepted the terms of this
Agreement because he believes them to be fair and reasonable and for no other
reason.

     

    6.   Cooperation in Legal
Proceedings. Principe 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 Principe 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 Principe in accordance with
the terms and conditions of its bylaws with respect to his service as an officer
prior to the Effective Date.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    7.   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 Principe.  It is
understood and agreed by the parties that this Agreement is intended solely as
an offer of compromise.

     

    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) Principe and Principe’s executors, administrators,
heirs and legal representatives.  Principe 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
Principe (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 Principe, 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.

     

    10.        
Withholding. All
payments to be made to Principe 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.  Notwithstanding the foregoing, the parties acknowledge
the continuing effectiveness, according to its terms, of the Employee NDA,
Non-competition, Non-disclosure, Proprietary Information and Patent and
Invention Assignment Agreement between Principe and On2 dated August 26,
2002.

     

    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.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    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 the State of New York without regard to conflict of
law principles.  Principe 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.

     

    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.  Principe
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.  Principe 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.

    

    18.        
Right to Consult with
Counsel; Time for Signing; Revocation.  Principe has the right
to and should consult with an attorney prior to signing this
Agreement.  Principe acknowledges that he has received this Agreement
on February 27, 2009 and that he shall have twenty-one (21) days from his
receipt of this Agreement (until 5:00 p.m. EST on March 20, 2009) to decide
whether to sign it.  Principe will have seven (7) days after signing
this Agreement to revoke his signature.  If Principe intends to revoke
his signature, he must do so in writing addressed and delivered to General
Counsel, On2 Technologies, Inc., 3 Corporate Drive, Suite 100, Clifton Park, New
York 12065, prior to the end of the 7-day revocation period.  This
Agreement shall not become effective, and neither On2 nor Principe shall have
any rights or obligations hereunder, until the expiration of the 7-day
revocation period.  Notwithstanding the foregoing, if Principe signs
this Agreement before March 20, 2009 and does not revoke his signature as
provided herein, the Agreement shall be effective as of the Effective
Date.

     

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

     

    
      	 ON2
      TECHNOLOGIES, INC.	 
      	
              ANTHONY
      PRINCIPE

            	 
	 	 
      	 
      	 
      	 
	By:	
              /s/ Matthew C. Frost

            	 
      	
              /s/ Anthony Principe

            	 
	Name:  Matthew
      C. Frost	 
      	
              Date:
      March 16, 2009

            	 
	Title:
      Interim CEO & COO	 
      	 
      	 
	Date:
      March 16, 2009	 
      	 
      	 

    

     

     

    4

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