On2 Technologies 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.

As a result of the On2 acquisition, the combined company will have a comprehensive portfolio of highly optimized VP6 and VP7 codecs and standards- based video compression technologies. The combined company will continue to support Hantro's customers with Hantro's market leading multi-format hardware video IP products offering the widest range of options for semiconductor companies developing multimedia chipsets. The combined company will offer a full range of products and capabilities for video applications ranging from very low data rates to high-definition video across web, embedded devices, consumer devices and mobile/Wi-fi applications.

The acquisition by share exchange is expected to close before mid-August 2007 and is subject to approval by On2's stockholders and subject to On2 raising $20,000,000 through sales of On2's equity securities prior to the closing of the acquisition of Hantro, as well as to customary closing conditions. The purpose of the equity offering is to generate working capital for the combined companies.