EXECUTION COPY

                           INVESTOR'S RIGHTS AGREEMENT


This Investor's  Rights  Agreement (this  "AGREEMENT") is made as of January 29,
2001, by and among On2.com Inc. (the  "COMPANY"),  a Delaware  corporation,  and
Abanat Limited, a British Virgin Islands corporation.  Certain capitalized terms
used in this Agreement without  definition shall have the meanings given them in
Section 14 hereof.



                                    PREAMBLE

         The Holder may acquire an  aggregate of up to 200 Units  consisting  of
$2.0 million  principal amount of Series A Convertible  Debentures due 2005 (the
"DEBENTURES")  that are convertible  into shares of the Company's  Common Stock,
$0.01 par value per share (the "COMMON STOCK"), and warrants (the "WARRANTS") to
purchase  1,333,400  shares of the Company's  Common Stock, and may exchange its
existing  116,400  warrants for new warrants  (the "NEW  WARRANTS")  to purchase
116,400 shares of the Company's Common Stock,  pursuant to the Unit Subscription
Agreement (the "SUBSCRIPTION  AGREEMENT"),  dated as of the date hereof, between
the Company and the Holder.

         Pursuant to the Subscription Agreement, the Company and the Holder have
agreed to enter into this Agreement.

         NOW, THEREFORE,  in consideration of the premises and mutual agreements
set forth herein, the Company and the Holder hereby agree as follows:

         1. RESTRICTIONS ON TRANSFERABILITY.  None of the Restricted  Securities
may be sold, assigned, transferred, pledged or otherwise disposed of, whether or
not for  value,  except in  compliance  with the terms  and  conditions  of this
Agreement.  At such time as the  Restricted  Securities  cease to be  Restricted
Securities  under the terms of this Agreement,  the provisions of this Agreement
shall no  longer  apply  to the  securities  that  theretofore  were  Restricted
Securities.

         2. RESTRICTIVE LEGEND.

         2.1 Each certificate representing the Debentures, the Common Stock into
which such  Debentures are  convertible,  the Warrants,  the New Warrants or the
Common  Stock issued upon  exercise of the  Warrants  and New Warrants  shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required under  applicable  state  securities laws or
otherwise):

                  THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE  BEEN
                  ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES ACT OF 1933 (THE  "SECURITIES  ACT"), NOR UNDER ANY
                  STATE  SECURITIES LAW AND SUCH  SECURITIES MAY NOT BE PLEDGED,
                  SOLD, ASSIGNED,  HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
                  AS PERMITTED BY THE  PROVISIONS  OF REGULATION S UNDER THE ACT
                  OR  PURSUANT  TO  REGISTRATION  UNDER THE ACT OR AN  AVAILABLE
                  EXEMPTION FROM REGISTRATION.  HEDGING  TRANSACTIONS  INVOLVING
                  THESE  SECURITIES  MAY NOT BE CONDUCTED  UNLESS IN  COMPLIANCE
                  WITH THE ACT.


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                  THE SALE, ASSIGNMENT,  TRANSFER,  PLEDGE AND OTHER DISPOSITION
                  OF  THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  ARE
                  RESTRICTED BY THE INVESTOR'S RIGHTS AGREEMENT (THE "INVESTOR'S
                  RIGHTS  AGREEMENT"),  DATED  JANUARY 29,  2001.  A COPY OF THE
                  INVESTOR'S  RIGHTS  AGREEMENT  IS ON FILE  WITH THE  CORPORATE
                  SECRETARY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. A
                  COPY THEREOF MAY BE OBTAINED AT NO COST UPON  WRITTEN  REQUEST
                  THEREFOR MADE BY THE HOLDER OF RECORD OF THIS  CERTIFICATE  TO
                  THE  CORPORATE  SECRETARY  AT  THE  PRINCIPAL  OFFICES  OF THE
                  COMPANY.

Upon  request of a holder of such a  certificate,  the Company  shall remove the
foregoing  legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend,  if, with such request,  the Company shall
have  received  either (i) a written  opinion of legal counsel to the Holder who
shall be reasonably  satisfactory  to the Company,  addressed to the Company and
reasonably  satisfactory in form and substance to the Company's counsel,  to the
effect that the proposed  transfer of the Restricted  Securities may be effected
without  registration under the Securities Act or (ii) a "no-action" letter from
the Commission to the effect that the  distribution of such  securities  without
registration  will not result in a recommendation by the staff of the Commission
that action be taken with  respect  thereto;  PROVIDED,  that no such opinion of
counsel shall be required for a transfer by a Holder of Restricted Securities to
an  Affiliate  if the  transferee  agrees in  writing to be subject to the terms
hereof  to the same  extent as if such  transferee  were an  original  Holder of
Restricted Securities hereunder.

         2.2 STOP TRANSFER  INSTRUCTIONS.  The Holder  consents to the Company's
making a notation on its records and giving  instructions  to any transfer agent
of the Restricted  Securities in order to implement the restrictions on transfer
established  in this  Agreement.  The  Company  agrees to, upon the request of a
Holder and as expeditiously as possible, make a notation on its records and give
instructions  to any transfer  agent of the  Restricted  Securities  to cease to
implement the restrictions on transfer established in this Agreement,  when such
restrictions  cease in accordance with the terms of this Agreement or applicable
securities law.

         3.  NOTICE AND OTHER  REQUIREMENTS  OF  TRANSFER.  The  Holder  will be
permitted  to  sell,  assign,  transfer,  pledge  or  otherwise  dispose  of any
Restricted Securities if and only if:

                  a. the intended sale,  assignment,  transfer,  pledge or other
                  disposition  is  permitted  by the  other  provisions  of this
                  Agreement; or


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                  b.  there is in  effect a  registration  statement  under  the
                  Securities  Act covering  such proposed  disposition  and such
                  disposition  is  made in  accordance  with  such  registration
                  statement; or

                  c. (i) the  proposed  sale,  assignment,  transfer,  pledge or
                  other  disposition is to an Affiliate,  and (ii) the Affiliate
                  transferee,  as a condition to the effectiveness of such sale,
                  assignment,   transfer,  pledge  or  other  disposition,   has
                  executed a counterpart  of this Agreement  expressly  assuming
                  the obligations of a Holder under this Agreement; or

                  d. (i) the Holder has  notified  the  Company of the  proposed
                  disposition  and has furnished the Company with a statement of
                  the  circumstances  surrounding  the proposed sale,  pledge or
                  other disposition for value, including the name and address of
                  the intended  transferee,  the residence of the transferee,  a
                  brief  description  of  the  business  of the  transferee  and
                  identifying  the Restricted  Securities  with respect to which
                  such  rights  are  being  assigned,   and  (ii)  the  intended
                  transferee,  as a  condition  to  the  effectiveness  of  such
                  disposition,  has  executed a  counterpart  of this  Agreement
                  expressly  assuming the  obligations  of the Holder under this
                  Agreement;  and, if the Company  requests within five Business
                  Days of receipt of the notice  provided  for in (i) the Holder
                  shall also  furnish  the  Company  with an opinion of counsel,
                  reasonably  satisfactory  to the Company,  that such  intended
                  disposition does not require registration of such shares under
                  the Securities Act.

         4. PIGGYBACK REGISTRATION.

         4.1 NOTICE TO HOLDERS REQUIRED. If at any time or from time to time the
Company  shall  determine  to  register  any shares of Common  Stock for its own
account or the account of any person who holds  securities  of the Company  that
are  "restricted  securities"  under Rule 144, other than (a) a registration  on
Form S-4 or S-8 or another form not  generally  available  for  registering  the
Restricted  Securities for sale to the public or (b) any registration  comprised
in whole or in substantial part of shares underlying stock options or restricted
shares issued under an incentive  compensation plan that has been adopted by the
Company or its predecessor,  the Company will give to each Holder notice as soon
as practicable  prior to filing the  registration  statement and include in such
registration  all  Registrable  Securities  specified  in  one or  more  written
requests  which have been made  within 15  Business  Days after  receipt of such
written  notice from the Company by each Holder,  except as set forth in Section
4.2

         4.2  REGISTERED  PUBLIC  OFFERING  INVOLVING  AN  UNDERWRITING.  If the
registration  of shares  of Common  Stock is for a  registered  public  offering
involving an underwritten offering, the Company shall so advise each Holder as a
part of the written  notice given  pursuant to Section  4.1. In such event,  the
right  of each  Holder  to  registration  pursuant  to  this  Section  shall  be
conditioned  upon  such  Holder's  participation  in such  underwriting  and the
inclusion of each Holder's  Registrable  Securities in the  underwriting  to the
extent  provided  herein.  If any Holder  proposes to distribute  his securities
through such  underwriting,  the Holder shall (together with the Company and the
other  holders  of Common  Stock  distributing  their  securities  through  such
underwriting)  enter into an  underwriting  agreement in customary form with the
underwriter or underwriters  selected for such underwriting by the Company.  The

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Company will use its reasonable best efforts to include the Holder's Registrable
Securities,  pro  rata  with  all  other  securities  of  holders  of  piggyback
registration  rights, in any such  underwritten  offering.  Notwithstanding  any
provision of Section 4.1, if the managing underwriter  determines that marketing
factors  require a limitation  of the number of shares to be  underwritten,  the
managing  underwriter  may limit  the  number of  Registrable  Securities  to be
included in the  underwriting or may limit the number of Registrable  Securities
to be included in such  registration.  The Company  shall so advise the Holders,
and the number of shares of Registrable Securities and other securities that may
be included in the registration  and underwriting  shall be allocated among each
Holder and all other  holders of Common  Stock that hold  rights  granted by the
Company  to cause  shares of Common  Stock held by them to be  included  in such
registration or underwriting,  in proportion,  as nearly as practicable,  to the
respective  amounts of Registrable  Securities held by the Holder and each other
such  holder  that  are  requested  to  be  included  in  the   registration  or
underwriting.  To facilitate  the  allocation  of shares in accordance  with the
above provisions,  the Company or the underwriter may round the number of shares
allocated  to each  Holder to the  nearest  one  hundred  shares.  If any Holder
disapproves  of the terms of any such  underwriting,  it may  elect to  withdraw
therefrom by written notice to the Company. In the event of any such withdrawal,
the Company will include in any such registration in lieu thereof, on a pro rata
basis, any additional  shares of Registrable  Securities which were requested to
be included  by a Holder and any other  shares  requested  to be included by any
other   piggyback   right   holders,   which  were  excluded   pursuant  to  the
above-described   underwriter  limitation,   up  to  the  maximum  set  by  such
underwriter.

         4.3 The Company's  obligation to file a  registration  statement  under
Section 4, or to cause a registration  statement to become and remain  effective
under such  Section,  shall be suspended for a period not to exceed 90 days (and
for periods not exceeding, in the aggregate, 120 days in any 12-month period) if
there exists at the time material non-public information relating to the Company
which,  in the  reasonable  opinion of the Board of  Directors  of the  Company,
should not be disclosed.

         5. DEMAND REGISTRATION

         5.1 NOTICE OF  REGISTRATION.  At any time  after  April 29,  2001,  the
Holder may  thereafter  demand that a  registration  statement be filed with the
Commission  within 30 days after the date on which the Company has received such
request,  subject to the  provisions of this Section 5. Subject to the terms and
conditions  set forth below in this Section 5.1 and Sections 5.2 through 5.3 and
Section 7, upon the  Company's  receipt from a Holder of a written  request that
the Company effect a  registration  under the Securities Act with respect to its
Registrable Securities,  the Company will, as expeditiously as possible,  notify
the Holders in writing of such  request  and use its  diligent  best  efforts to
effect all such registrations (including,  without limitation,  the execution of
an undertaking to file post-effective amendments and appropriate  qualifications
and approvals  under the laws and  regulations  applicable to the Company of any
applicable governmental agencies and authorities,  including applicable blue sky
or other state  securities  laws) as may be so requested  and as would permit or
facilitate the sale and  distribution  of all or such portion of the Registrable
Securities as are specified in such request,  PROVIDED, that (a) the Holders may
not make  their  request  within  90 days  following  the  effectiveness  of any
registered  public  offering of Common  Stock,  unless  prohibited by applicable
securities  laws;  (b) before  filing  any such  registration  statement  or any

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amendments or supplements  thereto,  the Company will (i) furnish to the Holders
of Registrable  Securities which are to be included in such registration  copies
of all such documents  proposed to be filed,  which documents will be subject to
the  review of the  Holders  and their  counsel,  and (ii) give the  Holders  of
Registrable  Securities to be included in such registration  statement and their
representatives  the  opportunity to conduct a reasonable  investigation  of the
records and business of the Company and to participate in the preparation of any
such registration  statement or any amendments or supplements  thereto;  (c) the
Company  shall not be obligated  to take any action to effect such  registration
pursuant  to  this   Section  5.1  after  the  Company  has  effected  one  such
registration  pursuant  to  this  Section  5.1 at  the  request  of the  Holder;
PROVIDED,  that such  registration has been declared or ordered effective by the
Commission and, if the method of  distribution  is a registered  public offering
involving an underwritten  offering,  all such shares  registered  thereby shall
have been sold  pursuant  thereto;  and (d) the Company shall not be required to
file any registration  statement under this Section 5.1 unless the holders of at
least 33% of the  issued  and  outstanding  Registrable  Securities  (taken as a
whole)  shall have  demanded  in writing  that the Company  file a  registration
statement  under this Section 5.1.  With respect to any  registration  requested
pursuant to this Section 5.1, the Company may include in such  registration  any
other shares of Common Stock,  subject to the  restrictions set forth in Section
5.3, as to which it is obligated to include such shares  pursuant to  agreements
requiring such registration.

         5.2 REGISTRATION STATEMENT.  Subject to Section 5.1 above and the other
terms and  conditions  contained  herein,  the Company shall file a registration
statement  covering the Registrable  Securities so requested to be registered as
soon as practical,  but in any event within 30 days after receipt of the request
of the Holders;  PROVIDED,  that if the Company  shall  furnish to the Holders a
certificate  signed by the  President  of the Company  stating  that in the good
faith  judgment  and upon the consent of a majority of the Board of Directors it
would  require the  disclosure  of  material  non-public  information  about the
Company, the disclosure of which could be seriously  detrimental to the business
or financial  condition of the Company or to negotiations in which it is engaged
for such registration statement to be filed at the date filing would be required
under  Section  5.1 and it is  therefore  desirable  to defer the filing of such
registration  statement,  in which case the  Company  shall  have an  additional
period  of not  more  than 60  days  within  which  to  file  such  registration
statement.

         5.3  REGISTERED  PUBLIC  OFFERING  INVOLVING  AN  UNDERWRITING.  If the
Holders intend to distribute the Registrable Securities covered by their request
under Section 5.1 by means of an underwriting,  they shall so advise the Company
as a part of their  request  made  pursuant to Section  5.1. In such event,  the
Holders shall negotiate in good faith with a nationally  recognized  underwriter
or  underwriters  selected  by the Holders and  reasonably  satisfactory  to the
Company with regard to the  underwriting  of such  requested  registration.  The
right of the  Holders to  registration  pursuant  to this  Section  5.3 shall be
conditioned upon participation by all Holders in such underwriting to the extent
provided  herein.  The Company  shall  (together  with all Holders  proposing to
distribute  their   securities   through  such   underwriting)   enter  into  an
underwriting  agreement in customary form with the  underwriter or  underwriters
selected  pursuant to this Section 5.3.  Notwithstanding  any other provision of
this Section 5.3, if the underwriter determines that marketing factors require a
limitation  on the  number of shares to be  underwritten,  the  underwriter  may
(subject  to the  allocation  priority  set forth  below)  limit  the  number of

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Registrable Securities to be included in the registration and underwriting.  The
Company shall so advise all holders of securities requesting  registration,  and
the number of shares of  securities  that are  entitled  to be  included  in the
registration  and  underwriting  shall be allocated in the  following  priority:
first, among all Holders, and any reduction among such Holders shall be pro rata
among all such  persons and,  for  purposes of making any such  reduction,  each
Holder  which  is  a  partnership,   together  with  the  affiliates,  partners,
employees,  retired partners and retired  employees of such Holder,  the estates
and family members of any such partners, employees, retired partners and retired
employees  and of their  spouses,  and any trusts for the  benefit of any of the
foregoing  persons  shall be  deemed to be a single  "person,"  and any pro rata
reduction with respect to such "person" shall be based upon the aggregate number
of Registrable Securities owned by all entities and individuals included as such
"person",  as defined in this sentence (and the aggregate number so allocated to
such "person" shall be allocated among the entities and individuals  included in
such  "person"  in such  manner as such Holder may  reasonably  determine);  and
second, to the Company,  and third,  among all other stockholders in proportion,
as nearly as practicable, to the respective amounts of securities which they had
requested  to be  included  in  such  registration  at the  time of  filing  the
Registration  Statement.  To facilitate  the  allocation of shares in accordance
with the above  provisions,  the  underwriter  may  round  the  number of shares
allocated  to the Holders to the nearest  one hundred  shares.  If any Holder of
Registrable  Securities  disapproves  of the terms of the  underwriting,  it may
elect to withdraw  therefrom by written notice to the Company,  the  underwriter
and the other  Holders.  In the event of any such  withdrawal,  the Company will
include  in any such  registration  in lieu  thereof  any  additional  shares of
Registrable Securities which were requested to be included by a Holder and which
were excluded pursuant to the above-described  underwriter  limitation up to the
maximum set by such underwriter.

         6.  EXPENSES  OF  REGISTRATION.  The Company  will bear all  reasonable
expenses  incurred in connection  with  registrations  pursuant to Section 4 and
Section  5,  including   without   limitation  all   registration,   filing  and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and  independent  accounts  for the Company and  expenses of any special
audits of the Company's financial  statements  incidental to or required by such
registration,  fees of the National  Association  of Securities  Dealers,  Inc.,
transfer taxes,  fees of transfer  agents and registrars'  fees, but the Company
will not pay  underwriters'  fees,  discounts  or  commissions  relating  to the
Registrable  Securities or any fees or expenses  legal counsel for any or all of
the Holders.

         7. REGISTRATION PROCEDURES.  If and whenever the Company is required by
the  provisions  of  Sections  4 or 5 to use its  best  efforts  to  effect  the
registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:

                  (a) furnish to a single  representative  of the  Holders,  who
shall  initially be Abanat Limited or such other person or entity as the Company
is   instructed  in  writing  (the   "Representative")   and  to  each  managing
underwriter,  if any, a reasonable  time in advance of their filing with the SEC
any registration statement,  amendment or supplement thereto, and any prospectus
used in connection therewith,  and the Representative shall have the opportunity
to object to any information  pertaining to it and its plan of distribution that
is  contained  therein  and the  Company  will make the  corrections  reasonably
required by such Representative with respect to such information prior to filing
any such registration  statement or any amendment or supplement thereto,  and if

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requested  in writing by the  Representative,  and furnish a copy of any and all
transmittal  letters  or  other   correspondence  with  the  SEC  or  any  other
governmental  agency or self-regulatory  body or other body having  jurisdiction
(including  any  domestic  or  foreign  securities  exchange)  relating  to such
offering;

                  (b)  prepare  and file with the SEC a  registration  statement
(which, in the case of a requested  registration pursuant to Section 5, shall be
on a registration statement form which is sufficient to permit the sale or other
disposition  of any or all  shares of Common  Stock to be  included  therein  in
accordance with the intended method of sale or other distribution  stated by the
initiating Holders,  including a "shelf"  registration  statement under Rule 415
under the  Securities  Act or any  successor  provision)  with  respect  to such
securities  and use its best  efforts to cause such  registration  statement  to
become  effective as soon as practicable and to remain  effective for the period
of the distribution contemplated thereby (determined as hereinafter provided);

                  (c) furnish to each seller and to each underwriter such number
of copies of the registration statements,  each amendment and supplement thereto
(and, if requested in writing,  all exhibits thereto and documents  incorporated
by reference  therein)  and the  prospectus  included  therein  (including  each
preliminary prospectus and prospectus) and any other prospectus filed under Rule
424 promulgated under the Securities Act relating to the Registrable  Securities
and such other  documents  as such  persons  reasonably  may request in order to
facilitate the public sale or other  disposition of the  Registrable  Securities
covered by such registration statement;

                  (d) after the filing of the registration statement, on the day
of receipt of knowledge thereof notify each seller of Registrable Securities and
each managing underwriter, if any, of any stop order issued or, to the knowledge
of the  Company,  threatened  to be  issued  by the SEC and  promptly  take  all
reasonably  necessary  actions  to  prevent  the entry of such stop  order or to
remove it if entered;

                  (e) use its  commercially  reasonable best efforts to register
or qualify the Registrable  Securities  covered by such  registration  statement
under  the  securities  or  "blue  sky"  laws of any  state  as the  sellers  of
Registrable Securities,  or, in the case of an underwritten public offering, the
managing  underwriter   reasonably  shall  request,  and  use  its  commercially
reason-able  best efforts to obtain all appropriate  registrations,  permits and
consents  required  in  connection  therewith,  and to keep such  registrations,
qualifications,  permits and consents in effect for so long as such registration
statement remains in effect and to take any other action which may be reasonably
necessary  to enable the seller of  Registrable  Securities  to  consummate  the
disposition in such jurisdictions of such securities;  provided,  however,  that
the Company  shall not for any such purpose be required to qualify  generally to
transact business as a foreign  corporation in any jurisdiction  where it is not
so  qualified  or  to  consent  to  general  service  of  process  in  any  such
jurisdiction;

                  (f) use its  commercially  reasonable best efforts to list the
Registrable   Securities  covered  by  such  registration   statement  with  any
securities exchange on which the Common Stock of the Company is then listed;


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                  (g)  furnish,  in a timely  fashion,  unlegended  certificates
representing  ownership  of  the  Registrable  Securities  being  sold  in  such
denominations as shall be requested by the seller or the lead underwriter;

                  (h) on the day of receipt of  knowledge  thereof  inform  each
seller and the managing underwriter or underwriters,  if any, (1) of the date on
which a registration statement or any post-effective  amendment thereto has been
filed and when the same has become effective and, if applicable,  of the date of
filing a Rule 430A  prospectus,  or (2) of the  receipt  by the  Company  of any
notification  with  respect  to  the  suspension  of  the  qualification  of any
Registrable Securities for sale under the applicable securities or blue sky laws
of any  jurisdiction  and as soon as  practicable  after  receipt  of  knowledge
thereof inform each seller and the managing underwriters, if any, of any written
comments  from the SEC with respect to any filing  referred to in clause (1) and
of  any  request  by  the  SEC,  any  securities  exchange,  government  agency,
self-regulatory  body or other body having  jurisdiction for any amendment of or
supplement to any registration statement or preliminary prospectus or prospectus
included therein or any offering  memorandum or other offering document relating
to such offering.

                  (i) on the day of  receipt  of  knowledge  thereof  notify the
Representative  and each underwriter under such registration  statement,  at any
time when a  prospectus  relating  thereto is required by law to be delivered in
connection with sales by an underwriter or dealer, of the occurrence of an event
requiring the  preparation  of a supplement  or amendment to such  prospectus so
that, as thereafter  delivered to the purchasers of such Registrable  Securities
such prospectus will not contain an untrue  statement of a material fact or omit
to state any material  fact  required to be stated  therein or necessary to make
the statements  therein, in the light of the circumstances under which they were
made,  not  misleading,  and as promptly as  practicable  make available to each
seller  and to  each  managing  underwriter,  if any,  any  such  supplement  or
amendment;  in the event the Company  shall give such notice,  the Company shall
extend the period during which such  registration  statement shall be maintained
effective  as provided  in Section  7(b) hereof by the number of days during the
period from and including the date of the giving of such notice to the date when
the Company shall make  available to such sellers such  supplemented  or amended
prospectus;

                   (j) upon written  request,  make  available for inspection by
each seller of Registrable  Securities,  any  underwriter  participating  in any
distribution  pursuant  to  such  registration  statement,   and  any  attorney,
accountant or other agent retained by such seller or underwriter,  financial and
other records,  pertinent corporate documents and properties of the Company, and
cause the Company's  officers,  directors  and  employees to supply  information
reason-ably requested by such seller, underwriter, attorney, accountant or agent
in connection with such registration statement;

                  (k) enter into customary agreements (including an underwriting
agreement  in  customary  form) and take such other  actions  as are  reasonably
required  in order  to  expedite  or  facilitate  the  sale of such  securities,
including  having  one of its  senior  executives  appear  at no more  than  two
"roadshow" meetings to be held in New York City;


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                  (l)  provide  a  transfer  agent  and  registrar,  and a CUSIP
number, for all Registrable  Securities  covered by such registration  statement
not later than the effective date of such registration statement; and

                  (m)  provide  signed  counterparts,  addressed  to  each  such
Holder,  of an opinion of the Company's  counsel and a "cold comfort"  letter of
the  Company's  independent  certified  public  accountants  with respect to the
matters  customarily  covered in such  documents  delivered to  underwriters  in
underwritten public offerings.

                  In connection with each registration hereunder, the sellers of
Registrable  Securities will furnish to the Company in writing such  information
with respect to themselves and the proposed  distribution  by them as reasonably
shall be necessary  in order to assure  compliance  with federal and  applicable
state securities laws.

                  In connection with each registration pursuant to Sections 4 or
5 covering an underwritten  public offering,  the Company and each Holder agrees
to enter into a written agreement with the managing  underwriter selected in the
manner  herein  provided  in such form and  containing  such  provisions  as are
customary  in the  securities  business  for such an  arrangement  between  such
underwriter and companies of the Company's size and investment stature.

                  For   purposes  of  Section   7(b)   hereof,   the  period  of
distribution of Registrable Securities in a firm commitment  underwritten public
offering  shall  be  deemed  to  extend  until  the  earlier  of the sale of all
Registrable Securities covered thereby or twelve months after the effective date
thereof,  and the period of distribution of Registrable  Securities in any other
registration  shall be  deemed to extend  until the  earlier  of the sale of all
Registrable  Securities- covered thereby or nine months after the effective date
thereof.

         8. INDEMNIFICATION.

         8.1 INDEMNITY BY THE COMPANY.  If the Company registers any Registrable
Securities  held by the Holder under the Securities Act pursuant to Section 4 or
Section 5, the Company will  indemnify  and hold  harmless the Holder,  and each
other person, if any, who controls the Holder, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act,  against any losses,  claims,  damages or liabilities,  joint or
several,  to which the Holder,  the  underwriter,  if any,  or such  controlling
persons may become  subject under the  Securities  Act or otherwise,  insofar as
such losses,  claims,  damages or  liabilities  (or actions in respect  thereof)
arise out of or are based upon any untrue  statement or alleged untrue statement
of any material fact contained in any  registration  statement  under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof,  or arise out of or are based upon the omission or alleged  omission to
state therein a material fact required to be stated therein or necessary to make
the statements  therein not  misleading,  or any violation by the Company of any
rule or regulation  promulgated under the Securities Act or any state securities
law applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration,  and will reimburse the Holder

                                       9
<PAGE>

and the underwriter, their respective officers, directors and partners, and each
person controlling the Holder and the underwriter,  for any reasonable legal and
any other  expenses  incurred in  connection  with  investigating,  defending or
settling any such claim,  loss, damage,  liability or action,  provided that the
Company  will not be liable in any such case to the extent  that any such claim,
loss,  damage or liability  arises out of or is based on any untrue statement or
omission  based  upon  written  information  furnished  to  the  Company  by  an
instrument duly executed by the Holder or the underwriter  specifically  for use
therein.

         8.2  INDEMNITY  BY  THE  HOLDER.   Each  Holder  will,  if  Registrable
Securities  held by or issuable to the Holder are included in the  securities as
to which such  registration is being  effected,  indemnify and hold harmless the
Company,  each  of its  directors,  each  officer  who  signs  the  registration
statement, each underwriter, if any, of the Company's securities covered by such
a  registration  statement,  each  person  who  controls  the  Company  and each
underwriter  within the  meaning of the  Securities  Act,  against  all  claims,
losses,  expenses,  damages  and  liabilities  (or  actions in respect  thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a  material  fact  contained  in any such  registration  statement,  prospectus,
offering  circular  or other  document  made in  writing by the  Holder,  or any
omission (or alleged  omission) by the Holder to state  therein a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading, and will reimburse the Company, such directors,  officers, partners,
persons or underwriters for any reasonable legal or any other expenses  incurred
by them in connection with investigating,  defending or settling any such claim,
loss,  damage,  liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement,  prospectus,  offering
circular or other  document  in reliance  upon and in  conformity  with  written
information  furnished  to the  Company by an  instrument  duly  executed by the
Holder specifically for use therein;  PROVIDED,  that the total amount for which
the Holder, its officers, directors and partners, and any person controlling the
Holder, shall be liable under this Section 8.2 shall not in any event exceed the
proceeds (net of underwriting  discounts and commissions) received by the Holder
from the sale of Registrable Securities sold by the Holder in such registration.

         8.3  NOTICE  BY  THE   INDEMNIFIED   PARTY.   Each  party  entitled  to
indemnification under this Section 8 (the "INDEMNIFIED PARTY") shall give notice
to the party  required to provide  indemnification  (the  "INDEMNIFYING  PARTY")
promptly after such  Indemnified  Party has actual knowledge of any claims as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation  resulting  therefrom,  provided
that counsel for the  Indemnifying  Party, who shall conduct the defense of such
claim or litigation,  shall be approved by the Indemnified Party (whose approval
shall not be unreasonably  withheld),  and the Indemnified Party may participate
in such defense at such party's  expense,  and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
actual detriment to the Indemnifying Party. Each Indemnified Party shall furnish

                                       10
<PAGE>

such  information  regarding  itself or the claim in question as an Indemnifying
Party may reasonably  request and as shall be reasonably  required in connection
with defense of such claim and litigation  resulting  therefrom.  An Indemnified
Party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the  Indemnifying  Party, if  representation  of such  Indemnified
Party by the counsel retained by the  Indemnifying  Party would be inappropriate
due to actual or potential  differing  interests  between such Indemnified Party
and any other party  represented  by such counsel in such  proceeding,  provided
that in no event  shall the  Indemnifying  Party be required to pay the fees and
expenses of more than one such separate counsel for all Indemnified  Parties. No
Indemnifying  Party,  in the  defense  of any such claim or  litigation,  shall,
except  with the  consent  of each  Indemnified  Party,  consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such  Indemnified  Party
of a release from all liability in respect of such claim or litigation.

         8.4 CONTRIBUTION.  If the indemnification  provided for in this Section
is held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability,  claim, damage or expense referred to
therein,  then the Indemnifying  Party, in lieu of indemnifying such Indemnified
Party  thereunder,  shall  contribute  to the  amount  paid or  payable  by such
Indemnified Party as a result of such loss, liability,  claim, damage or expense
in such  proportion  as is  appropriate  to reflect  the  relative  fault of the
Indemnifying  Party on the one hand and of the  Indemnified  Party on the  other
hand in connection with the statements or omissions which resulted in such loss,
liability,  claim,  damage or  expense as well as any other  relevant  equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be  determined  by  reference  to, among other  things,  whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information  supplied by the  Indemnifying  Party or by
the Indemnified  Party and the parties'  relative intent,  knowledge,  access to
information  and  opportunity  to correct or prevent such statement or omission.
Notwithstanding the foregoing,  the amount that the Holder shall be obligated to
contribute  pursuant to this  Section 8.4 shall be limited to an amount equal to
the proceeds to the Holder of the  Registrable  Securities  sold pursuant to the
registration  statement which gives rise to such obligation to contribute  (less
the aggregate amount of any damages which the Holder has otherwise been required
to pay in  respect  of such  loss,  claim,  damage,  liability  or action or any
substantially similar loss, claim, damage,  liability or action arising from the
sale of such Registrable Securities).

         8.5  SURVIVAL  OF  INDEMNITY.   The  indemnification  and  contribution
provided by this Section  shall be a  continuing  right to  indemnification  and
shall survive the registration and sale of any securities by any person entitled
to indemnification under this Agreement.

         9. LOCKUP AGREEMENT.  In consideration for the Company's performance of
its obligations  under this  Agreement,  the Holder will, in connection with any
registration of any Registrable  Securities in an underwritten  offering, at the
request of the Company or the underwriters managing any underwritten offering of
the Company's securities, agree not to sell, make any short sale of, loan, grant
any  option  for  the  purchase  of,  or  otherwise  dispose  of any  Restricted
Securities  (other than those  included in the  registration)  without the prior
written  consent of the  Company or such  underwriters,  as the case may be, for
such  period of time (not to exceed  90 days)  from the  effective  date of such
registration  as the  Company  and  the  underwriters  may  specify,  so long as
similarly  situated  stockholders  of the  Company  are  bound  by a  comparable
obligation.

         10. BOARD OF DIRECTORS. For as long as the Holders beneficially own (as
determined in accordance with Section 13(d) of the Exchange Act) at least 10% of
the outstanding Common Stock of the Company, at the Holders request, the Company
shall use its best  efforts to cause and  maintain  the election to the Board of

                                       11
<PAGE>

Directors  of one  designee  of the  Holders  of a majority  of the  Registrable
Securities;  provided, however, that such designee must be approved by the Board
of Directors,  which approval shall not be  unreasonably  withheld.  The Company
shall  promptly  reimburse  such  director for any  expenses  incurred by him in
connection  with his activities as a director of the Company in accordance  with
Company policies. The Company shall indemnify such director against liability to
the fullest extent permitted by applicable law.

         11. HOLDERS' COOPERATION.

         11.1 INFORMATION  REGARDING HOLDERS. Each Holder shall promptly furnish
to the  Company  such  information  regarding  the Holder  and the  distribution
proposed  by the Holder as the  Company  may  request in writing and as shall be
required in connection with any registration referred to herein.

         11.2  OBLIGATIONS  OF THE HOLDERS.  The Holders will not (until further
notice by the  Company)  effect sales  thereof (or deliver a  prospectus  to any
purchaser)  after receipt of  telegraphic  or written notice from the Company to
suspend  sales to  permit  the  Company  to  correct  or  update a  registration
statement or  prospectus.  At the end of the period  during which the Company is
obligated to keep any registration  statement filed under Section 4 or Section 5
current  and  effective  as  required  by  applicable  law,  the  Holders  shall
discontinue sales of shares pursuant to such registration statement upon receipt
of notice from the Company of its  intention  to remove  from  registration  the
shares of Registrable  Securities  covered by such  registration  statement that
remain  unsold,  and the Holders  shall notify the Company of the number of such
shares  registered  that remain unsold  immediately  upon receipt of such notice
from the Company.

         12.  RULE  144.  With a view to making  available  to the  Holders  the
benefits of certain rules and regulations of the Commission which may permit the
sale of the  Restricted  Securities  to the  public  without  registration,  the
Company agrees to:

         (a)      make and keep public information available, as those terms are
                  understood and defined in Rule 144; and

         (b)      use its best efforts to file with the  Commission  in a timely
                  manner all reports and other documents required of the Company
                  under the Securities Act and the Exchange Act.

         13.   REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY.  The  Company
represents and warrants to the Holder as follows:

         13.1 The execution,  delivery and  performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate  any  provision  of law,  any  order of any  court or  other  agency  of
government,  the  Certificate of  Incorporation  or Bylaws of the Company or any
provision of any indenture,  agreement or other instrument to which it or any of
its  properties  or  assets is bound,  conflict  with,  result in a breach of or
constitute  (with due notice or lapse of time or both) a default  under any such
indenture, agreement or other instrument or result in the creation or imposition

                                       12
<PAGE>

of any lien,  charge or  encumbrance  of any nature  whatsoever  upon any of the
properties or assets of the Company.

         13.2 This Agreement has been duly executed and delivered by the Company
and  constitutes  the  legal,  valid  and  binding  obligation  of the  Company,
enforceable in accordance with its terms, subject to (i) applicable  bankruptcy,
insolvency, reorganization,  fraudulent conveyance and moratorium laws and other
laws of general application affecting enforcement of creditors' rights generally
and (ii) the availability of equitable  remedies as such remedies may be limited
by  equitable  principles  of  general  applicability   (regardless  of  whether
enforcement is sought in a proceeding in equity or at law).

         14. DEFINITIONS.  As used in this Agreement,  the following terms shall
have the following meanings:

                  a.  "AFFILIATE"  shall have the meaning given to it under Rule
                  405 of the Securities Act.

                  b. "BUSINESS DAY" means any day other than a Saturday,  Sunday
                  or a day on  which  commercial  banks  in New  York  City  are
                  required or authorized to close.

                  c.  "COMMISSION"  shall mean the U. S. Securities and Exchange
                  Commission,   or  any  other   federal   agency  at  the  time
                  administering the Securities Act.

                  d. "EXCHANGE  ACT" shall mean the  Securities  Exchange Act of
                  1934, as amended, or any similar United States statute and the
                  rules and regulations thereunder,  all as the same shall be in
                  effect at the time.

                  e.  "HOLDER" or  "HOLDERS"  shall mean Abanat  Limited and, if
                  applicable,  any other person who holds Restricted  Securities
                  and who has assumed the  obligations  of the Holder under this
                  Agreement pursuant to Section 3(d).

                  f. "REGISTER,"  "REGISTERED" and "REGISTRATION" shall refer to
                  a registration effected by preparing and filing a registration
                  statement  in  compliance  with the  Securities  Act,  and the
                  declaration   or  ordering  of  the   effectiveness   of  such
                  registration  statement,  and compliance with applicable state
                  securities  laws of such  states in which the Holder  notifies
                  the Company of its intention to offer Registrable Securities.

                  g.  "REGISTRABLE  SECURITIES"  shall mean any shares of Common
                  Stock  into  which  the  Debentures  are  convertible  or were
                  converted  and any shares of Common  Stock  issuable or issued
                  upon due exercise of the Warrants and New Warrants;  provided,
                  however, that Registrable  Securities shall only be treated as
                  Registrable  Securities  if and so long as, they have not been
                  (A) sold to or through a broker or dealer or  underwriter in a
                  public distribution or a public securities  transaction or (B)
                  sold  in  a  transaction  exempt  from  the  registration  and
                  prospectus delivery requirements of the Securities Act so that
                  all transfer restrictions and restrictive legends with respect
                  thereto are removed upon the consummation of such sale.


                                       13
<PAGE>

                  h.  "RESTRICTED  SECURITIES"  shall  mean the  Debenture,  any
                  shares  of  Common  Stock  into  which  the   Debentures   are
                  convertible,  the Warrants, the New Warrants and any shares of
                  Common  Stock  issuable  upon due exercise of the Warrants and
                  the New  Warrants,  in each case only to the  extent  the same
                  have  not  been  sold  to the  public.  As to  any  particular
                  Restricted  Securities,  such  securities  shall  cease  to be
                  Restricted  Securities when (i) a registration  statement with
                  respect  to the  sale of such  securities  shall  have  become
                  effective under the Securities Act and such  securities  shall
                  have been disposed of under such registration statement,  (ii)
                  such securities shall have become eligible for resale pursuant
                  to Rule  144(k)  and any  restrictive  legend on  certificates
                  representing  such securities  shall have been removed,  (iii)
                  such  securities  shall  have been  otherwise  transferred  or
                  disposed of, and (x) new certificates  therefore not bearing a
                  legend restricting  further transfer shall have been delivered
                  by the Company,  and (y) subsequent transfer or disposition of
                  them shall not require  their  registration  or  qualification
                  under  the  Securities  Act or any  similar  state law then in
                  force or  compliance  with Rule 144,  or (iv) such  securities
                  shall  have  ceased  to be  outstanding.  Notwithstanding  the
                  foregoing,  Restricted  Securities shall not include otherwise
                  Restricted Securities (i) sold by a person in a transaction in
                  which  his  rights  under  this  Agreement  are  not  properly
                  assigned; or (ii) (A) sold to or through a broker or dealer or
                  underwriter in a public  distribution  or a public  securities
                  transaction,  or (B)  sold in a  transaction  exempt  from the
                  registration  and  prospectus  delivery  requirements  of  the
                  Securities  Act under  Section  4(1)  thereof if all  transfer
                  restrictions, and restrictive legends with respect thereto, if
                  any, are removed upon the consummation of such sale.

                  i. "RULE 144" shall mean Rule 144 under the  Securities Act or
                  any  successor  or  similar  rule  as  may be  enacted  by the
                  Commission from time to time.

                  j.  "SECURITIES ACT" shall mean the Securities Act of 1933, as
                  amended,  or any similar  United States  statute and the rules
                  and regulations thereunder, all as the same shall be in effect
                  at the time.

         15. MISCELLANEOUS.

         15.1  AMENDMENTS.  This  Agreement  may be  amended  only by a  written
instrument executed by the Holders and the Company.

         15.2  COUNTERPARTS.  This  Agreement  may be  executed in any number of
counterparts, all of which shall constitute a single instrument.

         15.3   NOTICES.   Any  notice,   demand,   request,   waiver  or  other
communication  required or permitted to be given  hereunder  shall be in writing
and shall be deemed to be delivered  when  received by certified  mail,  postage
prepaid,  return  receipt  requested,  when  delivered by an expedited  delivery
service or when sent by  facsimile  or e-mail  after  confirmation.  All notices
shall be directed to the parties at the respective  addresses set forth below or
to such other  address  as either  party may,  from time to time,  designate  by
notice to the other party:


                                       14
<PAGE>

If to the Company:         145 Hudson Street
                           New York, New York 10013
                           Attn: CFO and General Counsel
                           Tel: (917) 237-0500
                           Fax: (917) 237-1544

With copies to:            McGuire Woods LLP
                           9 West 57th Street
                           Suite 1620
                           New York, New York 10019
                           Attn:  William Newman, Esq.
                           Tel:  (212) 548-2160
                           Fax:  (212) 548-2150

If to the Holder:          Abanat Limited

                           ------------------------
                           ------------------------
                           Attn:
                           Tel:
                           Fax:

With copies to:            White & Case LLP
                           1155 6th Avenue, 40th Floor
                           New York, NY  10036
                           Attn:  Kevin Keogh, Esq.
                           Tel:  (212) 819-8200
                           Fax:  (212) 354-8113

         15.4  ASSIGNABILITY.  This Agreement and all of the  provisions  hereof
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective  successors  and permitted  assigns.  Neither this  Agreement nor any
rights,  duties or obligations  hereunder  shall be assigned by any party hereto
without  the prior  written  consent of the other  parties  hereto,  except that
vested  rights to receive  payment or to initiate  legal  action with respect to
causes of action that have  accrued  hereunder  shall be  assignable  by devise,
descent or operation of law.

         15.5 SEVERABILITY.  If any provision of this Agreement shall be held to
be  illegal,   invalid  or   unenforceable,   such  illegality,   invalidity  or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal,  invalid or unenforceable  any other provision of this
Agreement,  and this  Agreement  shall be  carried  out as if any such  illegal,
invalid or unenforceable provision were not contained herein.

         15.6 GOVERNING LAW; VENUE.  (a) This Agreement shall be governed by and
construed  under the laws of the State of New York without  regard to principles
of conflict of law.  Each of the parties  hereby (i)  irrevocably  consents  and
agrees that any legal or  equitable  action or  proceeding  arising  under or in
connection  with this Agreement  shall be brought  exclusively in the Federal or
state courts sitting in New York, New York, and any court to which an appeal may

                                       15
<PAGE>

be taken in any such  litigation,  and (ii) by  execution  and  delivery of this
Agreement,  irrevocably submits to and accepts,  with respect to any such action
or proceeding, for itself and in respect of its properties and assets, generally
and  unconditionally,  the jurisdiction of the aforesaid courts, and irrevocably
waives any and all rights such party may now or hereafter have to object to such
jurisdiction.

                  (b) Each of the Company and the other  parties  hereto  waives
its right to a jury trial with respect to any action or claim arising out of any
dispute in connection with this agreement,  any rights or obligations  hereunder
or the performance of such rights and obligations.  Except as prohibited by law,
each of the Company and the other parties  hereto hereby waives any right it may
have to claim or recover in any litigation referred to in the preceding sentence
any special,  exemplary,  punitive or consequential damages or any damages other
than, or in addition to, actual  damages.  Each of the Company and other parties
hereto (x)  certifies  that no  representative,  agent or  attorney of any party
hereto has  represented,  expressly or otherwise,  that such party would not, in
the  event  of  litigation,  seek  to  enforce  the  foregoing  waivers  and (y)
acknowledges  that the  parties  hereto  have been  induced  to enter  into this
Agreement  by,  among other  things,  the waivers and  certifications  contained
herein.

                            [Signature Page Follows]


                                       16
<PAGE>





         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
date first written above.


                                  THE COMPANY:

                                  ON2.COM INC.


                                  By:
                                     ------------------------------------------

                                  Name:
                                  Title:


                                  THE HOLDER:

                                  ABANAT LIMITED

                                  By:
                                    -------------------------------------------

                                  Name:
                                  Title: