Document:

Unassociated Document

    Berkshire
      Capital Securities
      LLC

    535
      Madison
      Avenue ●
      19th
      Floor ● New York, New York 10022

    Tel:
      (212) 207-1000 Fax:
      (212)
      207-1019

    www.berkcap.com

    

    February
      2, 2007

     

    PERSONAL
      AND CONFIDENTIAL

     

    Highbury
      Financial Inc.

    999
      Eighteenth Street, Suite 3000

    Denver,
      CO 80202

    

      
        	
                Attention:

              	
                Mr.
                  Richard S. Foote

              
	 	
                President
                  and Chief Executive Officer

              

      

    

     

    Ladies
      and Gentlemen:

     

    Berkshire
      Capital Securities LLC (“Berkshire Capital”) is pleased to have been retained by
      Highbury Financial Inc. (the “Company”) to act as a non-exclusive financial
      advisor in connection with a proposed acquisition transaction or series of
      acquisition transactions by the Company. This letter agreement confirms our
      understanding of the terms of our engagement.

     

    Our
      task
      will be to work closely with designated Company personnel on opportunities
      identified by the Company in structuring, negotiating and assisting in the
      completion of a proposed acquisition transaction or series of acquisition
      transactions of companies (including divisions, subsidiaries and other business
      units of companies) that the Company may acquire. Any such company, division,
      subsidiary or other business unit designated by both the Company and Berkshire
      Capital in writing from time to time as subject to this letter agreement is
      a
“Target.” We will assist the Company in analyzing appropriate values that may be
      paid in an acquisition transaction with selected Targets and analyze with the
      Company various forms an acquisition transaction may take. We then will advise
      the Company as to strategies for negotiating with prospective Targets and will
      work with the Company in approaching and initiating discussions with prospective
      Targets and participating in negotiations. If an agreement in principle is
      reached with a prospective Target, we will assist the Company in negotiating
      a
      definitive purchase agreement and closing the transaction.

     

    For
      purposes of this letter agreement, the term “acquisition transaction” means
      (1) any merger, consolidation, reorganization, joint venture or other
      transaction resulting in all or a portion of the business of a Target being
      combined with that of the Company or any entity controlled by or under common
      control with the Company (an “Affiliate”), or (2) the acquisition, directly
      or indirectly, of a greater than 25% equity interest in the Target, or of all
      or
      a portion of the assets of the Target, by the Company or an Affiliate, whether
      any such acquisition transaction is achieved in one or a series of
      transactions.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Highbury
      Financial Inc.

    February
      2, 2007

    Page
      2

     

    This
      engagement letter may be terminated by the Company or Berkshire Capital at
      any
      time upon six months’ written notice.

     

    If
      a
      definitive agreement with respect to an acquisition transaction is executed
      with
      a Target during the term of this engagement letter or within a two-year period
      following the termination of this engagement letter, which acquisition
      transaction is subsequently consummated, the Company agrees to pay Berkshire
      Capital a success fee at closing equal to the greater of (a) the sum of 3.0%
      of
      the first $15 million of the aggregate consideration in such acquisition
      transaction and 1.0% of the aggregate consideration in such acquisition
      transaction in excess of $15 million; or (b) $600,000, payable upon the closing
      of the acquisition transaction. As used in this letter agreement, the term
      “consideration” means an amount equal to the sum of all consideration paid and
      payable in connection with the acquisition transaction, including, without
      limitation and without duplication, (i) all cash; (ii) the amount of all debt,
      guaranty obligations, capital lease obligations, unfunded pension obligations
      or
      other off balance sheet obligations assumed, whether contractually, by operation
      of law or otherwise; (iii) the face amount of any promissory notes or other
      debt
      instruments issued to the seller; (iv) the fair market value, as determined
      by
      Berkshire Capital and the Company, of any securities issued or other property
      conveyed by the Company or an Affiliate of the Company; (v) the value of any
      above-market employment, noncompetition, nonsolicitation or consulting
      agreements entered into in connection with the acquisition transaction; (vi)
      the
      value of any above-market retention bonus pool established by the Company for
      the benefit of the employees of the Target or any of its affiliates; and (vii)
      in the case of any contingent payment arrangement, the net present value of
      the
      likely amount payable, as determined by Berkshire Capital and the Company.
      If an
      acquisition transaction provides for the transfer of all or a portion of the
      assets of the Target or any of its affiliates, but the retention of other assets
      of the transferor, including, but not limited to cash, cash equivalents,
      investments or receivables, such retained assets shall nevertheless be deemed
      to
      be part of the consideration paid by the Company in connection with such
      acquisition transaction if such retained assets have been utilized in the
      operation of the business of the Target or any of its affiliates and the Company
      or an Affiliate of the Company replaces such retained assets at or immediately
      following the closing of such acquisition transaction.

     

    If
      the
      Company enters into a definitive agreement relating to an acquisition
      transaction, the Company agrees to pay Berkshire Capital an interim fee of
      $200,000, to be credited against the success fee. In addition, the Company
      agrees to reimburse Berkshire Capital, upon request made from time to time,
      for
      its reasonable out-of-pocket expenses (including reasonable counsel fees and
      disbursements) incurred in connection with this assignment.

     

    The
      Company will provide Berkshire Capital (and will request each prospective Target
      to provide Berkshire Capital) with all information and materials that Berkshire
      Capital may reasonably request in order to perform its duties as financial
      advisor. The Company understands and acknowledges that Berkshire Capital will
      rely primarily on the information provided by the Company and any such
      prospective Target, and on information available from public sources, in
      performing its duties under this letter agreement, and that Berkshire Capital
      shall be entitled to rely on the accuracy and completeness of such information
      without independent investigation. Berkshire Capital will not disclose or use
      any such Confidential Information in whole or in part, in any manner, for any
      purpose other than in connection with the performance of its duties as financial
      advisor under this letter agreement, except (a) as may be required by law,
      regulation, judicial or administrative process, (b) to the extent such
      information shall have otherwise become publicly available other than as the
      result of a disclosure by Berkshire Capital in breach of the restrictions set
      forth in this sentence, (c) to the extent such information is already
      rightfully known by Berkshire Capital, (d) to the extent such information
      is independently developed by Berkshire Capital without use of, or reference
      to,
      such information or (e) to the extent such information is provided by a
      third party not known to be bound by an obligation of confidentiality to the
      Company. “Confidential Information” means (i) all information provided by
      or on behalf of the Company or its Affiliates, or the agents or other
      representatives of any of them, to Berkshire Capital relating to this
      engagement, which ought reasonably under the circumstances be treated as
      confidential, and (ii) the evaluations, compilations, notes, studies or
      other documents prepared by Berkshire Capital in furtherance of performing
      its
      duties as financial adviser under this letter agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Highbury
      Financial Inc.

    February
      2, 2007

    Page
      3

     

    The
      Company agrees to indemnify Berkshire Capital and its directors, officers,
      members, employees and agents and each of their respective affiliates (Berkshire
      Capital and each such person referred to herein as an “indemnified party”) from
      and against any and all losses, claims, damages and liabilities, joint or
      several, to which any indemnified party may become subject under any applicable
      federal or state law or otherwise, related to or arising out of any acquisition
      transaction or the performance by Berkshire Capital of services under this
      letter agreement, and will reimburse such indemnified party for all expenses
      (including reasonable counsel fees and expenses) incurred in connection with
      the
      defense of any pending or threatened claim, action or proceeding, and in
      pursuing any claim for indemnification or reimbursement under this letter
      agreement. If for any reason the foregoing indemnification is unavailable to
      Berkshire Capital or insufficient to hold it harmless, then the Company shall
      contribute to the amount paid or payable by Berkshire Capital as a result of
      such loss, claim, damage or liability in such proportion as is appropriate
      to
      reflect the relative economic interests of the Company and its Affiliates on
      the
      one hand and Berkshire Capital on the other hand in the matters contemplated
      by
      this letter as well as the relative fault of the Company and Berkshire Capital
      with respect to such loss, claim, damage or liability and any other relevant
      equitable considerations. The Company will not be liable under this paragraph
      to
      the extent that any loss, claim, damage or liability is found in a final
      judgment by a court of competent jurisdiction to have resulted from Berkshire
      Capital’s willful misconduct or gross negligence. The Company agrees that no
      indemnified party shall have any liability (whether direct or indirect, in
      contract, tort or otherwise) to the Company related to or arising out of any
      acquisition transaction or the performance by Berkshire Capital of services
      under this letter agreement, except to the extent any losses, claims, damages
      or
      liabilities are found in a final judgment by a court of competent jurisdiction
      to have resulted from Berkshire Capital’s willful misconduct or gross
      negligence.

     

    The
      Company agrees that Berkshire Capital has been retained to act as the Company’s
      financial advisor and in such capacity shall act as an independent
      contractor.

     

    Except
      as
      required by applicable law, any advice provided by Berkshire Capital under
      this
      Agreement shall not be disclosed publicly or made available to third parties
      without the prior written approval of Berkshire Capital, and, accordingly,
      such
      advice shall not be relied upon by any person or entity other than the Company;
      provided, however, that such advice, and the relationship between the Company
      and Berkshire Capital, may be disclosed in registration statements, reports,
      proxy statements and other filings made by the Company with the Securities
      and
      Exchange Commission, or in any such document, or similar disclosure document,
      disseminated to the stockholders of the Company in accordance with applicable
      securities laws, including, without limitation, the rules of the Securities
      and
      Exchange Commission.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Highbury
      Financial Inc.

    February
      2, 2007

    Page
      4

     

    The
      provisions relating to the payment of fees and expenses and indemnification,
      reimbursement and contribution shall survive termination of Berkshire Capital’s
      engagement.

     

    This
      letter agreement contains our entire agreement with respect to the performance
      by Berkshire Capital of services for the Company and supersedes any prior
      understandings and agreements. It is understood that Berkshire Capital’s
      responsibility to the Company is solely contractual in nature and that Berkshire
      Capital does not owe the Company, or any other party, any non-contractual duty
      as a result of this engagement. No waiver, amendment or other modification
      of
      this letter agreement shall be effective unless in writing and signed by each
      party. This letter agreement shall be governed by and construed in accordance
      with the laws of the State of New York.

     

    If
      the
      above correctly sets forth our agreement and meets with your approval, please
      confirm by signing and returning the enclosed copy of this letter at your
      earliest convenience.

     

    We
      look
      forward to working with you on this project. If you should have any questions,
      please do not hesitate to get in touch with me.

    
      	 	 	 
	 	
              Very truly yours,

               

            
	 	BERKSHIRE
              CAPITAL
              SECURITIES LLC
	 
 	 
 	 
 
	 	By:  	/s/ Mitchell
              S. Spector
	 	Mitchell S. Spector
	 	Managing
              Director 

    

     

    Confirmed
      and accepted as of

    the
      date
      first written above:

     

    HIGHBURY
      FINANCIAL INC.

     

    
      	 	 	 	 	 
	By:	/s/ Richard
              S. Foote	 	 	 
	 	Richard S. Foote	 	 	
            
	 	President
              and
              Chief Executive OfficerOn2
                  Technologies, Inc.

                21
                  Corporate Drive, Suite 103

                Clifton
                  Park, NY 12065

                www.on2.com

              

      

       

      As
        of
        February 28, 2006 

      

      Matt
        Frost

      

      Dear
        Matt: 

      

      The
        following constitutes the employment agreement (the "Agreement") between
        you
        (the "Executive") and On2 Technologies, Inc. (the "Company"), a Delaware
        corporation. This letter sets forth the terms of your employment as Senior
        Vice
        President and General Counsel. 

      

      1.    EMPLOYMENT;
        ACCEPTANCE OF EMPLOYMENT; FUTURE ADVANCEMENT 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 Senior 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. Upon the earlier of the departure
        of
        any current Executive Vice President from the Company or six (6) months from
        the
        date hereof, the Company shall appoint Executive to the position of Executive
        Vice President and General Counsel.

      

      2.    TERM
        OF
        AGREEMENT. The initial term of this Agreement shall commence on the date
        hereof
        and terminate on February 28, 2008. 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 include those services customarily rendered by a general
        counsel of a publicly traded company of the size of the Company in the Company's
        industry, with such other duties and services as may reasonably be assigned
        to
        him from time to time in the conduct of the business of the Company.

      

      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. Executive
        shall continue to be permitted to work from his residence 1 day per week
        and
        otherwise as reasonably possible (e.g., upon the absence from the New York
        office of other principal executives), it being understood that occasionally
        such a schedule may not be possible depending on his workload.

      

      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.

      
        
          
            
            

          

          
            -1-

            
              

            

          

          
            
            

          

        

      

       

      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 thereafter during the
        Restricted Period (as defined below) the Executive shall not (i) directly
        or
        indirectly enter into the employ of, or 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 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 365 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 $182,500
        per
        year, payable semi-monthly, and pro-rated from your start date as General
        Counsel of February 28, 2006. Such base salary as may be increased from time
        to
        time and is hereinafter referred to as "Base Salary". 

      

      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.    The
        Company
        shall include Executive in any incentive compensation or other bonus plan
        available to the most senior members of the Company’s management.

      

      d.    Executive
        will receive a stock option grant in our non-qualified plan of`75,000 shares
        to
        be granted under the Company’s 2005 Incentive Compensation Plan. This grant will
        vest in two equal installments; one-half (1/2) on date of grant; and one-half
        (1/2) on February 28, 2007.

       

      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

      
        
          
            
            

          

          
            -2-

            
              

            

          

          
            
            

          

        

      

       

      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 material 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 10). 

      

      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 spouse 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.

        
          
            
            

          

          
            -3-

            
              

            

          

          
            
            

          

        

      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 or expiration of the
        Term,
        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 spouse 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.    EXECUTIVE’S
        TERMINATION FOR GOOD REASON. 

      

      a.    If
        the
        Executive terminates his employment for Good Reason, the Company's obligations
        to pay further compensation under Section 5 shall cease forthwith, except
        that
        the Company shall pay the Executive: 

      

      b.    all
        Base
        Salary for the period of the Term that remains; 

      

      c.    any
        amount of any bonus that has become payable with respect to a completed Calendar
        Year but has not been paid to the Executive; 

      

      d.    the
        Board's good faith estimate of the amount of a bonus, if any, that would
        become
        payable for the Calendar Year in which such termination occurs, based upon
        the
        goals agreed to by the Company and the Executive or established by the
        Compensation Committee for such Calendar Year: and

      
        
          
            
            

          

          
            -4-

            
              

            

          

          
            
            

          

        

      

       

      e.    an
        amount
        equal to all reasonably-documented reimbursable expenses accrued (but unpaid)
        to
        the date of termination.

      

      f.    "Good
        Reason" means the occurrence of any of the following: 

      

      (i)    the
        Executive
        is demoted or removed from, or does not continue to hold, the positions or
        offices described in Section 1(a) hereto; or 

      

      (ii)    the
        assignment to the Executive without his consent of any duties inconsistent
        in
        any material respect with his position or with his authority, duties or
        responsibilities as chief executive officer, or any other action by the Company
        which results in a diminution in position, authority, duties or responsibilities
        from the position, authority, duties or responsibilities of a general counsel
        of
        a company similar in size, capital structure and business to the Company,
        excluding for this purpose an isolated, insubstantial and inadvertent action
        not
        taken in bad faith; 

      

      (iii)    the
        Company
        fails to pay or provide when due (or reduces) the Base Salary or benefits
        to
        which the Executive is entitled hereunder, which failure is not cured (or
        which
        reduction is not corrected) within 15 days after the receipt by the Company
        from
        the Executive of his written notice referring to this provision and describing
        such failure (or reduction).

      

      g.    "Calendar
        Year" means the twelve months ending December 31 in which any part of the
        Term
        falls.

      

      10.    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

        
          
            
            

          

          
            -5-

            
              

            

          

          
            
            

          

        

      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 10.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. 

      

      11.    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. 

      

      12.    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 11 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 10 of this Agreement by the Executive. 

      

      13.    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. 

      

      14.    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. 

      

      15.    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

        
          
            
            

          

          
            -6-

            
              

            

          

          
            
            

          

        

      specified
        in Section 14 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 14. 

      

      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,
        10, 11, 12 and 15. 

      

      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. 

        
          
            
            

          

          
            -7-

            
              

            

          

          
            
            

          

        

      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: 
        CEO

      

       

      /s/
        Matt
        Frost 
        
          

        

      

      Matthew
        C. Frost

      
        
          
          

        

        -8-

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