Video software maker On2 Technologies Inc said on Monday it settled legal challenges by shareholders who had sought to block its $106.5 million acquisition by Google Inc.

On2 shareholders, unhappy with the price and terms of the acquisition, filed a lawsuit in Delaware Chancery Court in August seeking class-action status, as well as a permanent injunction blocking the deal.

In an announcement on Monday, On2 said it entered into a memorandum of understanding with the plaintiffs in five related lawsuits on Friday that settles all litigation and releases the various defendants from claims related to the merger.

Under the terms of the settlement, still subject to court approval, On2 agreed to provide additional supplemental disclosures that will be reflected in the proxy statement/prospectus for the deal.

No financial terms were cited in the announcement.

In an e-mailed statement, an On2 representative said there were no financial terms disclosed in the proposed settlement.

Google spokesman Andrew Pederson said Google is not participating in the settlement and plaintiffs are dismissing Google from the action.

Google announced its deal to acquire On2, a New York company that makes video compression software, in August for 60 cents a share -- a 57 percent premium from the closing price of On2's stock on the last trading day before the announcement.

The deal would give Google valuable technology as it seeks to reduce the cost of operating its YouTube video site and to foster the spread of video on the Internet.

According to the Delaware Chancery Court suit, the 60 cents-a-share price that Google offered for On2 was well below the level where On2 stock traded in the few months prior to the proposed transaction.

The suit also alleged, among other things, that the defendants rushed to announce the deal ahead of On2's quarterly earnings results the next day, when the company announced its best financial results in six quarters.

On2's shares rose a penny to 59 cents in midday trading. Google's shares were up 59 cents at $554.28.

(Reporting by Alexei Oreskovic; editing by Andre Grenon)