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August 4, 2009

Google to acquire video compression technology provider On2

Expects to bring down licensing costs to shrink internet videos

By CBR Staff Writer

Google and On2 Technologies have entered into an agreement under which Google will acquire On2, a developer of video compression technology.

The internet search major is reportedly planning to use On2’s video technologies to reduce its cost of internet video production and distribution. By owning the video compression technology, the company expects to bring down licensing costs to shrink internet videos.

Google has acquired YouTube, an online video sharing site, in 2006 for around $1.65 billion.

Sundar Pichai, vice president of product management at Google, said: “Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform. We are committed to innovation in video quality on the web, and we believe that On2’s team and technology will help us further that goal.”

Under the terms of the agreement, each outstanding share of On2 common stock will be converted into $0.60 worth of Google class A common stock in a stock-for-stock transaction. The transaction is valued at around $106.5m.

Reportedly, $0.60 per share represents a premium of around 57% over the closing price of On2’s common stock on the last trading day prior to the announcement of the transaction, and a premium of around 62% over the average closing price of On2’s common stock for the six month period prior to the announcement of the transaction.

The transaction is subject to On2 stockholder approval, regulatory clearances and other closing conditions and is expected to close in the fourth quarter of 2009.

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Matt Frost, interim CEO of On2, said: “After intensive review of On2 products, Google confirmed our long-held beliefs as to the quality of our video technologies. On2 will continue to improve, support and sell our products throughout the transition.

We believe that Google shares our ambitions and know that our products and expertise, combined with Google’s globally recognized brand, ingenuity and resources, will create an incredible team.”

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