On2 Will File For Arbitration Against Beijing E-world

On2 Technologies, Inc., said today that it will file multiple breach of contract claims to be arbitrated in the London Court of International Arbitration as is specified in the agreements between On2 Technologies, Inc. and Beijing E-world dated June 21, 2003.

The company stated that it is not canceling its arrangement with E-world but is claiming the entire amount of the minimums due to On2 under the contracts ($4,992,000) and the chip porting fees ($750,000). The company has satisfied all of its obligations under its agreements with E-world, having delivered to E-world the source code to its software in June 2003 and having spent thousands of dollars and hundreds of man-hours helping E-world develop its next-generation EVD products.

On2 said that in its filing with the London arbitrator it will claim that: 1) E-world has failed to pay the minimums due under its agreements with On2; 2) E-world failed to begin the integration (porting) of VP5 and VP6 to the chips for manufacturing within the seven-day period specified and has not used reasonable best efforts to complete this port; and 3) E-world has not exercised the authority it claims to have to set the EVD standard and has not met its contractual commitment to have On2's VP5 and VP6 codecs included as part of this standard by December 31, 2003.

On2 continues to believe that its proprietary, non-standards-based compression software is the best technology for use in EVD. The combination of the software's low complexity and high compression rates will allow E-world to use a low-cost chip in the EVD player and store a feature-length high definition movie on a single video disk. On2 will continue to work with E-world to complete the port and assist in launching the EVD product, which includes technology from other major Western technology companies such as Coding Technologies, Inc., which is providing the audio codec, and LSI Logic, which is providing the chips for the first-generation EVD players. On2 said that it had been assisting E-world in meeting and communicating with several chip designers and manufacturers over the last five months in both the US and Europe to undertake the designs of a chip that would meet E-world's specifications and cost goals. "There is no magic to developing this chip," said Eric Ameres, On2's CTO. "It is a matter of E-world committing the resources to finishing the work we have begun," he added.

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