TARRYTOWN, N.Y. -- On2 Technologies, Inc. (AMEX:ONT), a leader in video compression software and solutions, announced today that it has entered into a definitive agreement to acquire Finland-based Hantro Products Oy, a market-leading provider of video technology for mobile devices. The acquisition is intended to accelerate the deployment of On2’s technology on semiconductor chipsets that power mobile and embedded devices and to further On2’s strategy for establishing a leadership position in the distribution and consumption of video on all three major device platforms used by consumers: PCs, mobile/portable devices and television.

Hantro provides optimized video compression implementations for mobile, digital consumer-electronics and IPTV devices. The company’s customers include Nokia, Freescale, LSI, Vimicro, Sanyo and over 20 other leading global device and semiconductor manufacturers. Hantro’s technology has been implemented on more than 200 million devices to date and in mobile phones produced by 5 of the top 6 handset manufacturers. Hantro is recognized as the market leader in wireless video intellectual property as measured in revenue, number of shipped devices, and number of customers.

Under the terms of the agreement, On2 will acquire Hantro in a share exchange directly with the holders of all of Hantro’s equity securities for a combination of cash and shares of On2’s common stock, par value $.01 per share. Immediately after the closing, the Hantro stockholders would own approximately 12% of the combined company on a pro forma basis, based on On2’s closing share price of $3.38 on May 18, 2007, and Hantro would become a wholly-owned subsidiary of On2.

The cash component of the acquisition price is approximately $6,800,000. If the volume-weighted average price for shares of On2 for the 10 trading days prior to closing is between $1.50 and $2.50 per share, the total value of the shares to be issued at the closing will equal $45,000,000 less the cash component. If the 10-day volume-weighted average share price prior to closing is $1.50 or less, the Company will pay the cash component and issue approximately 25,440,000 shares. If the 10-day volume-weighted average share price prior to closing is $2.50 per share or more, the Company will pay the cash component and issue approximately 15,300,000 shares. The number of On2 shares to be issued at closing is subject to adjustment, based on Hantro’s stockholders’ equity as of the date of the closing. Based on On2’s closing share price of $3.38 on May 18, 2007, the total value of the acquisition at closing, before any adjustments, would be approximately $58,400,000. After giving effect to contingent consideration of up to an additional 12.5 million On2 shares based on the level of 2007 revenues from Hantro’s business lines, ownership of the combined company by Hantro’s shareholders could be a maximum of approximately 19% on a pro forma basis. Hantro’s balance sheet as of March 31, 2007 includes approximately $4,900,000 of debt owed to Finnish financial institutions and governmental agencies. Hantro expects to generate revenues of between €6,000,000 and €9,000,000 (approximately $8,100,000 and $12,200,000) on an annualized basis for 2007, determined according to U.S. generally accepted accounting principles. On2 is currently unable to provide GAAP estimates on future earnings. On2 nevertheless anticipates that the transaction will produce break-even to slightly accretive results in 2008 on a non-GAAP basis.

“We have long set the standard for excellence in video with our codec technology. By gaining access to Hantro’s technology and expertise in chip implementation, we expect to be able to extend our reach on devices,” said Bill Joll, president and CEO of On2. “This acquisition should speed the deployment of VP6™ and VP7™ by industry-leading embedded platform suppliers. For device manufacturers, this should mean that On2’s video technology can be easily implemented on devices with low silicon costs, lower power demands and increased performance. Users of mobile and other embedded devices should soon benefit from On2’s unsurpassed video quality on all their video screens. Finally, consumer electronic equipment suppliers should soon be able to deliver devices that can play longer high quality videos at a significantly lower cost.”

On2 Technologies

Hantro Products Oy