Document:

EXHIBIT NO. 4.3

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                     SERIES B COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                             ON2 TECHNOLOGIES, INC.

                  THIS SERIES B COMMON STOCK PURCHASE WARRANT (the "Warrant")
certifies that, for value received, _____________ (the "Holder"), is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on the five year
anniversary of the Initial Exercise Date (the "Termination Date") but not
thereafter, to subscribe for and purchase from ON2 Technologies, Inc., a
Delaware corporation (the "Company"), up to ______ shares (the "Warrant Shares")
of Common Stock, par value $0.01 per share, of the Company (the "Common Stock").
The purchase price of one share of Common Stock under this Warrant shall be
equal to the Exercise Price, as defined in Section 2(b).

         Section 1.   Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the "Purchase Agreement"), dated October __, 2004, among the
Company and the purchasers signatory thereto.

         Section 2.   Exercise.

                 a)  Exercise  of  Warrant.  Exercise  of  the  purchase  rights
         represented  by this  Warrant  may be made at any  time or  times on or
         after the Initial  Exercise Date and on or before the Termination  Date
         by  delivery to the Company of a duly  executed  facsimile  copy of the
         Notice of Exercise Form annexed  hereto (or such other office or agency
         of  the  Company  as it may  designate  by  notice  in  writing  to the
         registered  Holder at the address of such Holder appearing on the books
         of the Company);  provided,  however, within 5 Trading Days of the date

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         said Notice of Exercise is delivered  to the Company,  the Holder shall
         have surrendered this Warrant to the Company and the Company shall have
         received payment of the aggregate  Exercise Price of the shares thereby
         purchased by wire transfer or cashier's  check drawn on a United States
         bank.

                 b) Exercise Price. The exercise price of the Common Stock under
         this  Warrant  shall be $0.76,  subject to  adjustment  hereunder  (the
         "Exercise Price").

                 c)  Cashless  Exercise.  If at any time after one year from the
         date of issuance of this  Warrant  there is no  effective  Registration
         Statement  registering  the resale of the Warrant Shares by the Holder,
         then  this  Warrant  may also be  exercised  at such time by means of a
         "cashless  exercise" in which the Holder shall be entitled to receive a
         certificate  for the number of  Warrant  Shares  equal to the  quotient
         obtained by dividing [(A-B) (X)] by (A), where:

                 (A) = the VWAP  on the  Trading Day  immediately  preceding the
                       date of such election;

                 (B) = the Exercise Price of this Warrant, as adjusted; and

                 (X) = the  number of Warrant Shares  issuable upon  exercise of
                       this Warrant in accordance with the terms of this Warrant
                       by  means  of a   cash  exercise  rather than a  cashless
                       exercise.

                 d) Exercise Limitations.

                       i. Holder's  Restrictions.  The Holder shall not have the
                    right to exercise any portion of this  Warrant,  pursuant to
                    Section 2(c) or  otherwise,  to the extent that after giving
                    effect to such issuance after exercise, the Holder (together
                    with  the  Holder's   affiliates),   as  set  forth  on  the
                    applicable  Notice of Exercise,  would  beneficially  own in
                    excess of 4.99% of the number of shares of the Common  Stock
                    outstanding   immediately   after  giving   effect  to  such
                    issuance. For purposes of the foregoing sentence, the number
                    of shares of Common Stock  beneficially  owned by the Holder
                    and its  affiliates  shall  include  the number of shares of
                    Common  Stock  issuable  upon  exercise of this Warrant with
                    respect to which the determination of such sentence is being
                    made, but shall exclude the number of shares of Common Stock
                    which would be issuable upon (A) exercise of the  remaining,
                    nonexercised  portion of this Warrant  beneficially owned by
                    the  Holder or any of its  affiliates  and (B)  exercise  or
                    conversion of the unexercised or nonconverted portion of any
                    other   securities  of  the  Company   (including,   without
                    limitation,  any other Preferred Stock or Warrants)  subject
                    to a limitation on  conversion or exercise  analogous to the
                    limitation contained herein beneficially owned by the Holder
                    or  any of  its  affiliates.  Except  as  set  forth  in the
                    preceding  sentence,  for  purposes  of this  Section  2(d),
                    beneficial  ownership shall be calculated in accordance with
                    Section 13(d) of the Exchange Act, it being  acknowledged by
                    Holder that the Company is not  representing  to Holder that

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                    such  calculation is in compliance with Section 13(d) of the
                    Exchange  Act  and  Holder  is  solely  responsible  for any
                    schedules required to be filed in accordance  therewith.  To
                    the extent that the  limitation  contained  in this  Section
                    2(d) applies,  the  determination of whether this Warrant is
                    exercisable  (in relation to other  securities  owned by the
                    Holder)   and  of  which  a  portion  of  this   Warrant  is
                    exercisable  shall be in the sole discretion of such Holder,
                    and the  submission of a Notice of Exercise  shall be deemed
                    to be such Holder's determination of whether this Warrant is
                    exercisable (in relation to other  securities  owned by such
                    Holder) and of which portion of this Warrant is exercisable,
                    in  each  case   subject   to  such   aggregate   percentage
                    limitation,  and the  Company  shall have no  obligation  to
                    verify or confirm the  accuracy of such  determination.  For
                    purposes of this Section 2(d), in determining  the number of
                    outstanding  shares of Common Stock,  the Holder may rely on
                    the  number  of  outstanding   shares  of  Common  Stock  as
                    reflected  in (x) the  Company's  most recent Form 10-QSB or
                    Form  10-KSB,  as the case may be, (y) a more recent  public
                    announcement  by the Company or (z) any other  notice by the
                    Company or the  Company's  Transfer  Agent setting forth the
                    number  of  shares of  Common  Stock  outstanding.  Upon the
                    written or oral  request of the Holder,  the  Company  shall
                    within two Trading Days confirm orally and in writing to the
                    Holder   the   number  of  shares  of  Common   Stock   then
                    outstanding.  In any case, the number of outstanding  shares
                    of Common Stock shall be  determined  after giving effect to
                    the  conversion  or exercise of  securities  of the Company,
                    including  this  Warrant,  by the  Holder or its  affiliates
                    since the date as of which such number of outstanding shares
                    of Common Stock was reported. The provisions of this Section
                    2(d) may be waived by the Holder  upon,  at the  election of
                    the  Holder,  not less  than 61 days'  prior  notice  to the
                    Company,  and the  provisions  of this  Section  2(d)  shall
                    continue  to apply  until such 61st day (or such later date,
                    as  determined  by the Holder,  as may be  specified in such
                    notice of waiver).

                       ii. Trading Market  Restrictions.  If the Company has not
                    obtained   Shareholder   Approval  (as  defined   below)  if
                    required,  then the Company  may not issue upon  exercise of
                    this Warrant in the  aggregate,  in excess of 19.999% of the
                    number of shares of Common Stock  outstanding on the Trading
                    Day immediately  preceding the Closing Date, less any shares
                    of Common Stock issued upon  conversion  of or as payment of
                    dividends on the Preferred  Stock or upon prior  exercise of
                    this or any other  Warrant  issued  pursuant to the Purchase
                    Agreement (such number of shares,  the "Issuable  Maximum").
                    If on any attempted  exercise of this Warrant,  the issuance
                    of Warrant Shares would exceed the Issuable  Maximum and the
                    Company  shall  not  have  previously  obtained  the vote of
                    shareholders (the "Shareholder Approval"), if any, as may be
                    required  by the  applicable  rules and  regulations  of the
                    Trading  Market (or any  successor  entity)  to approve  the
                    issuance of shares of Common Stock in excess of the Issuable
                    Maximum pursuant to the terms hereof, then the Company shall
                    issue to the  Holder  requesting  a  Warrant  exercise  such

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                    number of Warrant Shares as may be issued below the Issuable
                    Maximum and,  with respect to the remainder of the aggregate
                    number  of  Warrant  Shares,   this  Warrant  shall  not  be
                    exercisable until and unless  Shareholder  Approval has been
                    obtained.

e)                         Mechanics of Exercise.

                       i. Authorization of Warrant Shares. The Company covenants
                    that  all  Warrant  Shares  which  may be  issued  upon  the
                    exercise of the purchase rights  represented by this Warrant
                    will,  upon exercise of the purchase  rights  represented by
                    this Warrant, be duly authorized, validly issued, fully paid
                    and nonassessable and free from all taxes, liens and charges
                    in respect of the issue thereof (other than taxes in respect
                    of  any  transfer  occurring   contemporaneously  with  such
                    issue).  The  Company  covenants  that during the period the
                    Warrant is outstanding,  it will reserve from its authorized
                    and unissued  Common Stock a sufficient  number of shares to
                    provide  for the  issuance  of the  Warrant  Shares upon the
                    exercise of any  purchase  rights  under this  Warrant.  The
                    Company further  covenants that its issuance of this Warrant
                    shall  constitute  full  authority  to its  officers who are
                    charged with the duty of  executing  stock  certificates  to
                    execute and issue the necessary certificates for the Warrant
                    Shares upon the exercise of the  purchase  rights under this
                    Warrant. The Company will take all such reasonable action as
                    may be necessary  to assure that such Warrant  Shares may be
                    issued  as  provided   herein   without   violation  of  any
                    applicable law or regulation,  or of any requirements of the
                    Trading Market upon which the Common Stock may be listed.

                       ii. Delivery of Certificates Upon Exercise.  Certificates
                    for shares  purchased  hereunder shall be transmitted by the
                    transfer agent of the Company to the Holder by crediting the
                    account of the  Holder's  prime  broker with the  Depository
                    Trust   Company   through  its  Deposit   Withdrawal   Agent
                    Commission  ("DWAC")  system if the Company is a participant
                    in such system,  and  otherwise by physical  delivery to the
                    address  specified  by the Holder in the Notice of  Exercise
                    within 3 Trading  Days from the  delivery  to the Company of
                    the Notice of Exercise  Form,  surrender of this Warrant and
                    payment of the aggregate  Exercise  Price as set forth above
                    ("Warrant  Share  Delivery  Date").  This  Warrant  shall be
                    deemed to have been exercised on the date the Exercise Price
                    is received by the  Company.  The  Warrant  Shares  shall be
                    deemed to have been  issued,  and Holder or any other person
                    so  designated  to be named  therein shall be deemed to have
                    become a holder of record of such  shares for all  purposes,
                    as of the date the Warrant has been exercised by delivery to
                    the Company of the Notice of Exercise Form and by payment to
                    the Company of the Exercise  Price and all taxes required to
                    be paid by the Holder, if any, pursuant to Section 2(e)(vii)
                    prior to the issuance of such shares, have been paid.

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                       iii.  Delivery of New  Warrants  Upon  Exercise.  If this
                    Warrant  shall  have been  exercised  in part,  the  Company
                    shall,  at  the  time  of  delivery  of the  certificate  or
                    certificates  representing Warrant Shares, deliver to Holder
                    a new  Warrant  evidencing  the rights of Holder to purchase
                    the  unpurchased  Warrant Shares called for by this Warrant,
                    which new Warrant  shall in all other  respects be identical
                    with this Warrant.

                       iv. Rescission  Rights. If the Company fails to cause its
                    transfer  agent to transmit to the Holder a  certificate  or
                    certificates  representing  the Warrant  Shares  pursuant to
                    this Section  2(e)(iv) by the Warrant Share  Delivery  Date,
                    then  the  Holder  will  have  the  right  to  rescind  such
                    exercise.

                       v.  Compensation  for Buy-In on Failure to Timely Deliver
                    Certificates Upon Exercise.  In addition to any other rights
                    available to the Holder,  if the Company  fails to cause its
                    transfer  agent to transmit to the Holder a  certificate  or
                    certificates  representing the Warrant Shares pursuant to an
                    exercise on or before the Warrant Share  Delivery  Date, and
                    if after such date the Holder is  required  by its broker to
                    purchase (in an open market transaction or otherwise) shares
                    of Common Stock to deliver in  satisfaction of a sale by the
                    Holder of the Warrant  Shares  which the Holder  anticipated
                    receiving upon such exercise (a "Buy-In"),  then the Company
                    shall (1) pay in cash to the  Holder the amount by which (x)
                    the  Holder's  total  purchase  price  (including  brokerage
                    commissions,  if any)  for the  shares  of  Common  Stock so
                    purchased exceeds (y) the amount obtained by multiplying (A)
                    the number of Warrant  Shares that the Company was  required
                    to deliver to the Holder in connection  with the exercise at
                    issue  times (B) the price at which  the sell  order  giving
                    rise to such purchase  obligation  was executed,  and (2) at
                    the option of the Holder,  either  reinstate  the portion of
                    the  Warrant  and  equivalent  number of Warrant  Shares for
                    which such exercise was not honored or deliver to the Holder
                    the  number of shares of Common  Stock  that would have been
                    issued had the Company timely complied with its exercise and
                    delivery obligations  hereunder.  For example, if the Holder
                    purchases  Common  Stock  having a total  purchase  price of
                    $11,000  to  cover a Buy-In  with  respect  to an  attempted
                    exercise of shares of Common  Stock with an  aggregate  sale
                    price giving rise to such  purchase  obligation  of $10,000,
                    under clause (1) of the immediately  preceding  sentence the
                    Company  shall be  required  to pay the Holder  $1,000.  The
                    Holder shall provide the Company  written notice  indicating
                    the amounts  payable to the Holder in respect of the Buy-In,
                    together with  applicable  confirmations  and other evidence
                    reasonably  requested by the Company.  Nothing  herein shall
                    limit  a  Holder's   right  to  pursue  any  other  remedies
                    available to it  hereunder,  at law or in equity  including,
                    without limitation,  a decree of specific performance and/or
                    injunctive  relief with respect to the Company's  failure to
                    timely deliver  certificates  representing  shares of Common
                    Stock upon  exercise of the Warrant as required  pursuant to
                    the terms hereof.

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                       vi. No Fractional  Shares or Scrip. No fractional  shares
                    or scrip representing fractional shares shall be issued upon
                    the exercise of this Warrant.  As to any fraction of a share
                    which  Holder would  otherwise be entitled to purchase  upon
                    such  exercise,  the Company shall pay a cash  adjustment in
                    respect of such final  fraction  in an amount  equal to such
                    fraction multiplied by the Exercise Price.

                       vii.   Charges,   Taxes   and   Expenses.   Issuance   of
                    certificates for Warrant Shares shall be made without charge
                    to the  Holder  for  any  issue  or  transfer  tax or  other
                    incidental  expense  in  respect  of the  issuance  of  such
                    certificate,  all of which taxes and expenses  shall be paid
                    by the Company, and such certificates shall be issued in the
                    name of the  Holder  or in  such  name  or  names  as may be
                    directed by the Holder; provided, however, that in the event
                    certificates  for Warrant  Shares are to be issued in a name
                    other  than  the  name  of the  Holder,  this  Warrant  when
                    surrendered   for  exercise  shall  be  accompanied  by  the
                    Assignment Form attached hereto duly executed by the Holder;
                    and the Company may  require,  as a condition  thereto,  the
                    payment of a sum sufficient to reimburse it for any transfer
                    tax incidental thereto.

                       viii.  Closing of Books.  The Company  will not close its
                    stockholder  books or records in any manner  which  prevents
                    the timely  exercise of this Warrant,  pursuant to the terms
                    hereof.

Section 3.   Certain Adjustments.

        a) Stock  Dividends and Splits.  If the Company,  at any time while this
Warrant  is  outstanding:  (A)  pays  a  stock  dividend  or  otherwise  make  a
distribution or  distributions on shares of its Common Stock or any other equity
or equity equivalent  securities  payable in shares of Common Stock (which,  for
avoidance  of doubt,  shall not include any shares of Common Stock issued by the
Company pursuant to this Warrant),  (B) subdivides  outstanding shares of Common
Stock into a larger number of shares, (C) combines  (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issues by  reclassification  of shares of the Common  Stock any shares of
capital  stock of the  Company,  then in each case the  Exercise  Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding  treasury shares, if any) outstanding  before such event
and of which the  denominator  shall be the  number  of  shares of Common  Stock
outstanding  after such event and the number of shares issuable upon exercise of
this Warrant shall be proportionately  adjusted. Any adjustment made pursuant to
this Section 3(a) shall become effective  immediately  after the record date for
the  determination  of  stockholders   entitled  to  receive  such  dividend  or
distribution and shall become effective  immediately after the effective date in
the case of a subdivision, combination or re-classification.

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        b)  Subsequent  Equity Sales. If the Company or any Subsidiary  thereof,
as applicable, at any time while this Warrant is outstanding, shall offer, sell,
grant any option to  purchase  or offer,  sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale, grant
or any option to purchase or other disposition) any Common Stock or Common Stock
Equivalents  entitling  any  Person to  acquire  shares of Common  Stock,  at an
effective  price per share less than the then Exercise  Price (such lower price,
the "Base Share Price" and such issuances collectively,  a "Dilutive Issuance"),
as  adjusted  hereunder  (if the  holder of the  Common  Stock or  Common  Stock
Equivalents so issued shall at any time,  whether by operation of purchase price
adjustments, reset provisions,  floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued in
connection with such issuance,  be entitled to receive shares of Common Stock at
an  effective  price  per  share  which is less than the  Exercise  Price,  such
issuance  shall be deemed to have  occurred for less than the  Exercise  Price),
then, the Exercise Price shall be reduced by multiplying the Exercise Price by a
fraction,  the numerator of which is the number of shares of Common Stock issued
and outstanding  immediately  prior to the Dilutive  Issuance plus the number of
shares of Common Stock which the offering price for such Dilutive Issuance would
purchase at the then Exercise  Price,  and the denominator of which shall be the
sum of the number of shares of Common Stock issued and  outstanding  immediately
prior to the  Dilutive  Issuance  plus the  number of shares of Common  Stock so
issued or issuable  in  connection  with the  Dilutive  Issuance,  the number of
Warrant  Shares  issuable  hereunder  shall be increased such that the aggregate
Exercise Price payable hereunder,  after taking into account the decrease in the
Exercise  Price,  shall be equal to the aggregate  Exercise  Price prior to such
adjustment.  Such adjustments shall be made whenever such Common Stock or Common
Stock Equivalents are issued. The Company shall notify the Holder in writing, no
later than the Trading Day  following the issuance of any Common Stock or Common
Stock  Equivalents  subject to this section,  indicating  therein the applicable
issuance price, or of applicable reset price,  exchange price,  conversion price
and other  pricing  terms (such  notice the  "Dilutive  Issuance  Notice").  For
purposes  of  clarification,  whether  or not the  Company  provides  a Dilutive
Issuance  Notice  pursuant to this  Section  3(b),  upon the  occurrence  of any
Dilutive  Issuance,  after  the date of such  Dilutive  Issuance  the  Holder is
entitled to receive a number of Warrant  Shares  based upon the Base Share Price
regardless  of whether the Holder  accurately  refers to the Base Share Price in
the Notice of Exercise.

        c)  Pro Rata  Distributions.  If the  Company,  at any time prior to the
Termination  Date,  shall  distribute to all holders of Common Stock (and not to
Holders of the Warrants)  evidences of its  indebtedness  or assets or rights or
warrants to subscribe  for or purchase any security  other than the Common Stock
(which  shall be subject to Section  3(b)),  then in each such case the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect  immediately
prior to the record date fixed for  determination  of  stockholders  entitled to
receive such  distribution by a fraction of which the  denominator  shall be the
VWAP  determined  as of the  record  date  mentioned  above,  and of  which  the
numerator  shall be such VWAP on such  record  date less the then per share fair
market  value at such  record  date of the portion of such assets or evidence of
indebtedness so distributed  applicable to one  outstanding  share of the Common
Stock as determined by the Board of Directors in good faith.  In either case the
adjustments  shall be  described  in a statement  provided to the Holders of the
portion of assets or evidences of indebtedness

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so distributed or such  subscription  rights applicable to one share  of  Common
Stock.  Such adjustment  shall be made whenever any  such  distribution is  made
and shall become effective immediately after the record date mentioned above.

        d)  Calculations. All calculations under this Section 3 shall be made to
the  nearest  cent or the  nearest  1/100th of a share,  as the case may be. The
number of  shares  of Common  Stock  outstanding  at any  given  time  shall not
includes  shares  of Common  Stock  owned or held by or for the  account  of the
Company,  and the  description  of any such  shares  of  Common  Stock  shall be
considered on issue or sale of Common Stock. For purposes of this Section 3, the
number of shares of Common  Stock  deemed to be issued and  outstanding  as of a
given date shall be the sum of the number of shares of Common  Stock  (excluding
treasury shares, if any) issued and outstanding.

        e)  Notice to Holders.

                 i. Adjustment to Exercise Price. Whenever the Exercise Price is
            adjusted pursuant to this Section 3, the Company shall promptly mail
            to each Holder a notice  setting forth the Exercise Price after such
            adjustment  and  setting  forth  a  brief  statement  of  the  facts
            requiring  such  adjustment.  If the Company  issues a variable rate
            security, despite the prohibition thereon in the Purchase Agreement,
            the Company  shall be deemed to have issued  Common  Stock or Common
            Stock  Equivalents  at the lowest  possible  conversion  or exercise
            price at which such  securities may be converted or exercised in the
            case of a Variable  Rate  Transaction  (as  defined in the  Purchase
            Agreement),  or the lowest possible  adjustment price in the case of
            an MFN Transaction (as defined in the Purchase Agreement.

                 ii.  Notice to Allow  Exercise  by Holder.  If (A) the  Company
            shall declare a dividend (or any other  distribution)  on the Common
            Stock;  (B) the Company  shall declare a special  nonrecurring  cash
            dividend on or a  redemption  of the Common  Stock;  (C) the Company
            shall  authorize  the  granting to all  holders of the Common  Stock
            rights or  warrants  to  subscribe  for or  purchase  any  shares of
            capital stock of any class or of any rights; (D) the approval of any
            stockholders of the Company shall be required in connection with any
            reclassification of the Common Stock, any consolidation or merger to
            which  the  Company  is a  party,  any  sale or  transfer  of all or
            substantially  all of the assets of the Company,  of any  compulsory
            share  exchange  whereby the Common  Stock is  converted  into other
            securities,  cash or property;  (E) the Company shall  authorize the
            voluntary or involuntary  dissolution,  liquidation or winding up of
            the affairs of the Company;  then,  in each case,  the Company shall
            cause to be mailed to the Holder at its last  addresses  as it shall
            appear  upon  the  Warrant  Register  of the  Company,  at  least 20
            calendar  days  prior to the  applicable  record or  effective  date
            hereinafter  specified,  a  notice  stating  (x) the date on which a
            record is to be taken for the purpose of such

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            dividend,  distribution, redemption, rights  or  warrants, or  if  a
            record is not to be taken,  the date as of which the  holders of the
            Common   Stock  of  record  to  be   entitled   to  such   dividend,
            distributions,  redemption,  rights or warrants are to be determined
            or (y)  the  date on  which  such  reclassification,  consolidation,
            merger,  sale,  transfer  or share  exchange  is  expected to become
            effective  or close,  and the date as of which it is  expected  that
            holders of the Common  Stock of record shall be entitled to exchange
            their  shares  of the  Common  Stock for  securities,  cash or other
            property  deliverable  upon  such  reclassification,  consolidation,
            merger, sale, transfer or share exchange; provided, that the failure
            to mail such notice or any defect therein or in -------- the mailing
            thereof  shall not  affect  the  validity  of the  corporate  action
            required to be specified  in such notice.  The Holder is entitled to
            exercise this Warrant  during the 20-day period  commencing the date
            of such notice to the effective  date of the event  triggering  such
            notice.

                 f) Fundamental Transaction.  If, at any time while this Warrant
            is outstanding,  (A) the Company effects any merger or consolidation
            of the Company with or into another Person,  (B) the Company effects
            any  sale  of all or  substantially  all of its  assets  in one or a
            series of related  transactions,  (C) any tender  offer or  exchange
            offer  (whether  by the  Company  or another  Person)  is  completed
            pursuant to which holders of Common Stock are permitted to tender or
            exchange their shares for other securities, cash or property, or (D)
            the Company effects any  reclassification of the Common Stock or any
            compulsory  share  exchange  pursuant  to which the Common  Stock is
            effectively  converted into or exchanged for other securities,  cash
            or property (in any such case, a "Fundamental  Transaction"),  then,
            upon any  subsequent  conversion of this  Warrant,  the Holder shall
            have the right to receive,  for each  Warrant  Share that would have
            been   issuable   upon  such   exercise   absent  such   Fundamental
            Transaction,  at the option of the Holder, (a) upon exercise of this
            Warrant,  the number of shares of Common  Stock of the  successor or
            acquiring  corporation  or of the  Company,  if it is the  surviving
            corporation,  and Alternate  Consideration  receivable  upon or as a
            result   of   such   reorganization,    reclassification,    merger,
            consolidation  or disposition of assets by a Holder of the number of
            shares  of  Common  Stock  for which  this  Warrant  is  exercisable
            immediately  prior to such  event or (b) cash  equal to the value of
            this Warrant as  determined  in  accordance  with the  Black-Scholes
            option pricing formula (the "Alternate Consideration"). For purposes
            of any such exercise,  the determination of the Exercise Price shall
            be appropriately  adjusted to apply to such Alternate  Consideration
            based on the amount of Alternate  Consideration  issuable in respect
            of one share of Common Stock in such  Fundamental  Transaction,  and
            the Company shall  apportion the Exercise  Price among the Alternate
            Consideration in a reasonable  manner  reflecting the relative value
            of any  different  components  of the  Alternate  Consideration.  If
            holders of Common  Stock are given any choice as to the  securities,
            cash or property to be received in a Fundamental  Transaction,  then
            the  Holder  shall be  given  the same  choice  as to the  Alternate
            Consideration   it  receives  upon  any  exercise  of  this  Warrant
            following such Fundamental  Transaction.  To the extent necessary to
            effectuate the foregoing provisions, any successor to the Company or
            surviving entity in such Fundamental  Transaction shall issue to the
            Holder a new warrant  consistent  with the foregoing  provisions and
            evidencing the Holder's right to

                                       9
<PAGE>

         exercise such warrant into Alternate  Consideration.  The terms of  any
         agreement  pursuant  to  which  a  Fundamental Transaction  is effected
         shall include terms requiring any such successor or surviving entity to
         comply with the provisions of this paragraph (f) and insuring that this
         Warrant (or any such replacement  security) will be similarly  adjusted
         upon any subsequent transaction analogous to a Fundamental Transaction.

                 g)  Exempt   Issuance.   Notwithstanding   the  foregoing,   no
         adjustments, Alternate Consideration nor notices shall be made, paid or
         issued under this Section 3 in respect of an Exempt Issuance.

                 h) Voluntary Adjustment By Company. The Company may at any time
         during the term of this Warrant reduce the then current  Exercise Price
         to any  amount  and for any period of time  deemed  appropriate  by the
         Board of Directors of the Company.

         Section 4.        Transfer of Warrant.

                 a)  Transferability.  Subject to compliance with any applicable
         securities  laws and the conditions set forth in Sections 5(a) and 4(d)
         hereof and to the provisions of Section 4.1 of the Purchase  Agreement,
         this Warrant and all rights hereunder are transferable,  in whole or in
         part,  upon  surrender of this Warrant at the  principal  office of the
         Company,   together   with  a  written   assignment   of  this  Warrant
         substantially  in the form attached  hereto duly executed by the Holder
         or its agent or attorney and funds sufficient to pay any transfer taxes
         payable upon the making of such  transfer.  Upon such surrender and, if
         required,  such  payment,  the Company  shall execute and deliver a new
         Warrant or Warrants in the name of the assignee or assignees and in the
         denomination   or   denominations   specified  in  such  instrument  of
         assignment,  and shall issue to the  assignor a new Warrant  evidencing
         the portion of this  Warrant not so assigned,  and this  Warrant  shall
         promptly  be  cancelled.  A  Warrant,  if  properly  assigned,  may  be
         exercised  by a new holder for the purchase of Warrant  Shares  without
         having a new Warrant issued.

                 b) New  Warrants.  This Warrant may be divided or combined with
         other Warrants upon presentation  hereof at the aforesaid office of the
         Company,  together  with a  written  notice  specifying  the  names and
         denominations  in which new  Warrants  are to be issued,  signed by the
         Holder or its agent or  attorney.  Subject to  compliance  with Section
         4(a),  as to any  transfer  which may be involved  in such  division or
         combination,  the  Company  shall  execute and deliver a new Warrant or
         Warrants  in  exchange  for the  Warrant or  Warrants  to be divided or
         combined in accordance with such notice.

                 c) Warrant  Register.  The Company shall register this Warrant,
         upon  records to be  maintained  by the Company for that  purpose  (the
         "Warrant Register"),  in the name of the record Holder hereof from time
         to time. The Company may deem and treat the  registered  Holder of this
         Warrant as the  absolute  owner  hereof for the purpose of any exercise
         hereof or any  distribution to the Holder,  and for all other purposes,
         absent actual notice to the contrary.

                                       10
<PAGE>

                 d) Transfer  Restrictions.  If, at the time of the surrender of
         this  Warrant in  connection  with any  transfer of this  Warrant,  the
         transfer  of  this  Warrant  shall  not be  registered  pursuant  to an
         effective  registration  statement  under the  Securities Act and under
         applicable  state securities or blue sky laws, the Company may require,
         as a  condition  of  allowing  such  transfer  (i) that the  Holder  or
         transferee of this Warrant,  as the case may be, furnish to the Company
         a written opinion of counsel (which opinion shall be in form, substance
         and scope customary for opinions of counsel in comparable transactions)
         to the effect that such transfer may be made without registration under
         the Securities Act and under  applicable  state  securities or blue sky
         laws,  (ii) that the holder or  transferee  execute  and deliver to the
         Company an investment  letter in form and  substance  acceptable to the
         Company and (iii) that the  transferee be an  "accredited  investor" as
         defined  in  Rule  501(a)(1),   (a)(2),   (a)(3),   (a)(7),  or  (a)(8)
         promulgated under the Securities Act or a qualified institutional buyer
         as defined in Rule 144A(a) under the Securities Act.

         Section 5.        Miscellaneous.

                 a) Title to Warrant.  Prior to the Termination Date and subject
         to compliance with applicable laws and Section 4 of this Warrant,  this
         Warrant and all rights hereunder are transferable, in whole or in part,
         at the  office or agency of the  Company  by the Holder in person or by
         duly authorized attorney,  upon surrender of this Warrant together with
         the Assignment  Form annexed hereto properly  endorsed.  The transferee
         shall  sign an  investment  letter  in form  and  substance  reasonably
         satisfactory to the Company.

                 b) No Rights as Shareholder  Until Exercise.  This Warrant does
         not  entitle  the  Holder to any  voting  rights  or other  rights as a
         shareholder  of the  Company  prior to the  exercise  hereof.  Upon the
         surrender  of this  Warrant and the payment of the  aggregate  Exercise
         Price  (or by means of a  cashless  exercise),  the  Warrant  Shares so
         purchased  shall be and be deemed  to be  issued to such  Holder as the
         record owner of such shares as of the close of business on the later of
         the date of such surrender or payment.

                 c) Loss,  Theft,  Destruction  or  Mutilation  of Warrant.  The
         Company  covenants  that  upon  receipt  by  the  Company  of  evidence
         reasonably  satisfactory  to it of  the  loss,  theft,  destruction  or
         mutilation  of this  Warrant or any stock  certificate  relating to the
         Warrant Shares, and in case of loss, theft or destruction, of indemnity
         or security  reasonably  satisfactory to it (which,  in the case of the
         Warrant, shall not include the posting of any bond), and upon surrender
         and  cancellation of such Warrant or stock  certificate,  if mutilated,
         the Company will make and deliver a new Warrant or stock certificate of
         like tenor and dated as of such  cancellation,  in lieu of such Warrant
         or stock certificate.

                 d) Saturdays,  Sundays, Holidays, etc. If the last or appointed
         day for  the  taking  of any  action  or the  expiration  of any  right
         required  or  granted  herein  shall be a  Saturday,  Sunday or a legal
         holiday,  then such action may be taken or such right may be  exercised
         on the next succeeding day not a Saturday, Sunday or legal holiday.

                                       11
<PAGE>

                 e) Authorized Shares.

                 The  Company  covenants  that  during the period the Warrant is
         outstanding,  it will reserve from its authorized  and unissued  Common
         Stock a sufficient  number of shares to provide for the issuance of the
         Warrant  Shares upon the  exercise of any  purchase  rights  under this
         Warrant.  The  Company  further  covenants  that its  issuance  of this
         Warrant shall constitute full authority to its officers who are charged
         with the duty of executing stock  certificates to execute and issue the
         necessary  certificates for the Warrant Shares upon the exercise of the
         purchase  rights  under this  Warrant.  The Company  will take all such
         reasonable  action  as may be  necessary  to assure  that such  Warrant
         Shares  may be issued  as  provided  herein  without  violation  of any
         applicable law or  regulation,  or of any  requirements  of the Trading
         Market upon which the Common Stock may be listed.

                 Except  and to the  extent  as waived  or  consented  to by the
         Holder,  the  Company  shall  not by  any  action,  including,  without
         limitation,  amending its certificate of  incorporation  or through any
         reorganization, transfer of assets, consolidation, merger, dissolution,
         issue or sale of securities  or any other  voluntary  action,  avoid or
         seek to avoid the observance or performance of any of the terms of this
         Warrant, but will at all times in good faith assist in the carrying out
         of all such  terms  and in the  taking  of all such  actions  as may be
         necessary or  appropriate  to protect the rights of Holder as set forth
         in this Warrant against impairment.  Without limiting the generality of
         the  foregoing,  the Company will (a) not increase the par value of any
         Warrant  Shares above the amount  payable  therefor  upon such exercise
         immediately  prior to such  increase  in par  value,  (b) take all such
         action as may be necessary or appropriate in order that the Company may
         validly and legally issue fully paid and  nonassessable  Warrant Shares
         upon the exercise of this Warrant, and (c) use commercially  reasonable
         efforts to obtain all such authorizations,  exemptions or consents from
         any  public  regulatory  body  having  jurisdiction  thereof  as may be
         necessary to enable the Company to perform its  obligations  under this
         Warrant.

                 Before taking any action which would result in an adjustment in
         the number of Warrant  Shares for which this Warrant is  exercisable or
         in the Exercise Price, the Company shall obtain all such authorizations
         or exemptions  thereof,  or consents thereto,  as may be necessary from
         any public regulatory body or bodies having jurisdiction thereof.

                 f)  Jurisdiction.  All questions  concerning the  construction,
         validity,  enforcement  and  interpretation  of this  Warrant  shall be
         determined in accordance with the provisions of the Purchase Agreement.

                 g)  Restrictions.  The  Holder  acknowledges  that the  Warrant
         Shares  acquired upon the exercise of this Warrant,  if not registered,
         will  have  restrictions  upon  resale  imposed  by state  and  federal
         securities laws.

                                       12
<PAGE>

                 h) Nonwaiver and Expenses. No course of dealing or any delay or
         failure to exercise  any right  hereunder  on the part of Holder  shall
         operate  as a waiver  of such  right or  otherwise  prejudice  Holder's
         rights,  powers or remedies,  notwithstanding  the fact that all rights
         hereunder  terminate on the Termination  Date. If the Company willfully
         and knowingly fails to comply with any provision of this Warrant, which
         results in any material damages to the Holder, the Company shall pay to
         Holder  such  amounts  as shall be  sufficient  to cover  any costs and
         expenses  including,  but not limited to,  reasonable  attorneys' fees,
         including  those  of  appellate  proceedings,  incurred  by  Holder  in
         collecting  any amounts due pursuant  hereto or in otherwise  enforcing
         any of its rights, powers or remedies hereunder.

                 i) Notices.  Any notice,  request or other document required or
         permitted to be given or  delivered to the Holder by the Company  shall
         be delivered in accordance  with the notice  provisions of the Purchase
         Agreement.

                 j) Limitation of Liability. No provision hereof, in the absence
         of any  affirmative  action by  Holder  to  exercise  this  Warrant  or
         purchase  Warrant  Shares,  and no enumeration  herein of the rights or
         privileges  of Holder,  shall give rise to any  liability of Holder for
         the  purchase  price of any  Common  Stock or as a  stockholder  of the
         Company,  whether  such  liability  is  asserted  by the  Company or by
         creditors of the Company.

                 k) Remedies.  Holder, in addition to being entitled to exercise
         all rights  granted by law,  including  recovery  of  damages,  will be
         entitled to specific  performance of its rights under this Warrant. The
         Company agrees that monetary damages would not be adequate compensation
         for any loss incurred by reason of a breach by it of the  provisions of
         this  Warrant and hereby  agrees to waive the defense in any action for
         specific performance that a remedy at law would be adequate.

                 l) Successors  and Assigns.  Subject to  applicable  securities
         laws,  this  Warrant and the rights and  obligations  evidenced  hereby
         shall inure to the benefit of and be binding upon the successors of the
         Company  and the  successors  and  permitted  assigns  of  Holder.  The
         provisions  of this  Warrant are  intended to be for the benefit of all
         Holders from time to time of this Warrant and shall be  enforceable  by
         any such Holder or holder of Warrant Shares.

                 m)  Amendment.  This  Warrant may be modified or amended or the
         provisions  hereof  waived with the written  consent of the Company and
         the Holder.

                 n)  Severability.  Wherever  possible,  each  provision of this
         Warrant  shall be  interpreted  in such manner as to be  effective  and
         valid under  applicable law, but if any provision of this Warrant shall
         be prohibited by or invalid under  applicable law, such provision shall
         be ineffective to the extent of such prohibition or invalidity, without
         invalidating   the  remainder  of  such  provisions  or  the  remaining
         provisions of this Warrant.

                 o)  Headings.  The  headings  used in this  Warrant are for the
         convenience of reference only and shall not, for any purpose, be deemed
         a part of this Warrant.

                              ********************
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  October __, 2004

                                   ON2 TECHNOLOGIES, INC.

                                   By:__________________________________________
                                      Name:
                                      Title:

<PAGE>

                               NOTICE OF EXERCISE

To:      ON2 Technologies, Inc.

         (1) The undersigned  hereby elects to purchase  ________ Warrant Shares
of the Company  pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders  herewith payment of the exercise price in full,  together
with all applicable transfer taxes, if any.

         (2) Payment shall take the form of (check applicable box):

                  [ ] in lawful money of the United States; or

                  [ ] the cancellation of such number of Warrant Shares
                      as is necessary, in accordance with the formula set
                      forth in subsection 2(c), to exercise this Warrant
                      with respect to the maximum number of Warrant Shares
                      purchasable pursuant to the cashless exercise
                      procedure set forth in subsection 2(c).

         (3) Please  issue  a  certificate  or  certificates  representing  said
Warrant  Shares  in the  name of the  undersigned  or in such  other  name as is
specified below:

                  ----------------------------------------

The Warrant Shares shall be delivered to the following:

                  ----------------------------------------

                  ----------------------------------------

                  ----------------------------------------

         (4) Accredited Investor. The undersigned is an "accredited investor" as
defined  in  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended.

                              [SIGNATURE OF HOLDER]

Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

         FOR VALUE  RECEIVED,  the  foregoing  Warrant and all rights  evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

                                                 Dated:  ______________, _______

                           Holder's Signature:     _____________________________

                           Holder's Address:       _____________________________

                                                   _____________________________

Signature Guaranteed:  ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.EXHIBIT NO. 10.1

                          REGISTRATION RIGHTS AGREEMENT

         This Registration  Rights  Agreement  (this "Agreement")  is  made  and
entered into as of  October ___, 2004 among  ON2 Technologies, Inc.,  a Delaware
corporation (the  "Company"),  and the  purchasers  signatory hereto (each  such
purchaser is a  "Purchaser"  and  all  such  purchasers are,  collectively,  the
"Purchasers").

               This  Agreement is  made  pursuant to  the  Securities   Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").

               The Company and the Purchasers hereby agree as follows:

        1. Definitions

               Capitalized terms used and not otherwise  defined herein that are
defined in the Purchase Agreement  shall  have the meanings  given such terms in
the Purchase Agreement.  As used in  this Agreement, the  following  terms shall
have the following meanings:

                  "Advice" shall have the meaning set forth in Section 6(d).

                  "Effectiveness  Date"  means,  with  respect  to  the  initial
         Registration  Statement  required  to be  filed  hereunder,  the  120th
         calendar  day  following  the date  hereof  and,  with  respect  to any
         additional  Registration  Statements which may be required  pursuant to
         Section  3(c),  the120th  calendar day  following the date on which the
         Company  first  knows,  or  reasonably  should  have  known,  that such
         additional  Registration  Statement  is required  hereunder;  provided,
         however,  in the event the Company is notified by the  Commission  that
         one of the above Registration  Statements will not be reviewed or is no
         longer subject to further review and comments,  the Effectiveness  Date
         as to such  Registration  Statement  shall  be the  fifth  Trading  Day
         following  the date on which the  Company is so  notified  if such date
         precedes the dates required above.

                  "Effectiveness  Period"  shall have the  meaning  set forth in
         Section 2(a).

                  "Event" shall have the meaning set forth in Section 2(b).

                  "Event Date" shall have the meaning set forth in Section 2(b).

                  "Filing Date" means, with respect to the initial  Registration
         Statement required hereunder,  the 30th calendar day following the date
         hereof and,  with  respect to any  additional  Registration  Statements
         which may be required  pursuant to Section 3(c), the 15th day following
         the date on which the Company first knows,  or  reasonably  should have
         known  that  such   additional   Registration   Statement  is  required
         hereunder.
<PAGE>

                  "Holder" or "Holders" means the holder or holders, as the case
         may be, from time to time of Registrable Securities.

                  "Indemnified  Party"  shall  have  the  meaning  set  forth in
         Section 5(c) hereof.

                  "Indemnifying  Party"  shall  have the  meaning  set  forth in
         Section 5(c) hereof.

                  "Losses" shall have the meaning set forth in Section 5(a).

                  "Proceeding" means an action,  claim,  suit,  investigation or
         proceeding (including,  without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "Prospectus"  means the prospectus  included in a Registration
         Statement  (including,  without limitation,  a prospectus that includes
         any information  previously  omitted from a prospectus filed as part of
         an  effective   registration  statement  in  reliance  upon  Rule  430A
         promulgated  under the Securities  Act), as amended or  supplemented by
         any prospectus supplement, with respect to the terms of the offering of
         any portion of the  Registrable  Securities  covered by a  Registration
         Statement,  and all other amendments and supplements to the Prospectus,
         including post-effective  amendments,  and all material incorporated by
         reference or deemed to be incorporated by reference in such Prospectus.

                  "Registrable  Securities"  means,  as of the date in question,
         (i) all of the shares of Common Stock issuable upon  conversion in full
         of the shares of Preferred Stock, (ii) all shares issuable as dividends
         on the  Preferred  Stock  assuming  all  dividend  payments are made in
         shares of Common Stock and the  Preferred  Stock is held for at least 3
         years, (iii) all Warrant Shares, (iv) any securities issued or issuable
         upon any stock split,  dividend or other distribution  recapitalization
         or similar event with respect to the  foregoing and (v) any  additional
         shares  issuable  in  connection  with  any  anti-dilution   provisions
         associated with the Preferred Stock and Warrants.

                  "Registration  Statement"  means the  registration  statements
         required  to  be  filed  hereunder  and  any  additional   registration
         statements  contemplated by Section 3(c),  including (in each case) the
         Prospectus,  amendments and supplements to such registration  statement
         or  Prospectus,  including  pre-  and  post-effective  amendments,  all
         exhibits thereto, and all material  incorporated by reference or deemed
         to be incorporated by reference in such registration statement.

                  "Rule  415"  means  Rule  415  promulgated  by the  Commission
         pursuant to the  Securities  Act, as such Rule may be amended from time
         to time,  or any similar rule or  regulation  hereafter  adopted by the
         Commission  having  substantially  the same  purpose and effect as such
         Rule.

                  "Rule  424"  means  Rule  424  promulgated  by the  Commission
         pursuant to the  Securities  Act, as such Rule may be amended from time
         to time,  or any similar rule or  regulation  hereafter  adopted by the
         Commission  having  substantially  the same  purpose and effect as such
         Rule.

                                       2
<PAGE>

         2. Shelf Registration

         (a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of 130%
of the Registrable  Securities on such Filing Date for an offering to be made on
a continuous basis pursuant to Rule 415. The Registration  Statement shall be on
Form S-3 (except if the Company is not then  eligible to register for resale the
Registrable  Securities on Form S-3, in which case such registration shall be on
another  appropriate  form in accordance  herewith)  and shall  contain  (unless
otherwise  directed by the  Holders)  substantially  the "Plan of  Distribution"
attached hereto as Annex A. Subject to the terms of this Agreement,  the Company
shall use its best  efforts to cause the  Registration  Statement to be declared
effective  under the  Securities  Act as promptly  as possible  after the filing
thereof, but in any event prior to the applicable  Effectiveness Date, and shall
use its best efforts to keep such Registration  Statement continuously effective
under the  Securities  Act  until all  Registrable  Securities  covered  by such
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) as determined by the counsel to the Company  pursuant to
a written  opinion  letter  to such  effect,  addressed  and  acceptable  to the
Company's transfer agent and the affected Holders (the "Effectiveness  Period").
The  Company  shall  immediately   notify  the  Holders  via  facsimile  of  the
effectiveness  of the  Registration  Statement  on the same day that the Company
receives  notification of the effectiveness  from the Commission.  Failure to so
notify the Holder within 1 Trading Day of such  notification  shall be deemed an
Event under Section 2(b).

         (b) If: (i) a  Registration  Statement  is not filed on or prior to its
Filing Date or (ii) the Company fails to file with the  Commission a request for
acceleration in accordance  with Rule 461 promulgated  under the Securities Act,
within five Trading Days of the date that the Company is notified  (orally or in
writing,  whichever is earlier) by the Commission that a Registration  Statement
will not be "reviewed," or not subject to further review,  or (iii) prior to its
Effectiveness  Date,  the Company  fails to file a  pre-effective  amendment and
otherwise  respond in writing to comments  made by the  Commission in respect of
such  Registration  Statement  within 10  calendar  days  after the  receipt  of
comments by or notice from the  Commission  that such  amendment  is required in
order  for a  Registration  Statement  to  be  declared  effective,  or  (iv)  a
Registration  Statement  filed or required to be filed hereunder is not declared
effective  by the  Commission  by its  Effectiveness  Date,  or  (v)  after  the
Effectiveness  Date, a  Registration  Statement  ceases for any reason to remain
continuously effective as to all Registrable Securities for which it is required
to be  effective,  or the Holders are not  permitted  to utilize the  Prospectus
therein to resell such Registrable  Securities for 10 consecutive  calendar days
but no more than an  aggregate of 15 calendar  days during any  12-month  period
(which need not be  consecutive  Trading Days) (any such failure or breach being
referred  to as an "Event",  and for  purposes of clause (i) or (iv) the date on
which such Event  occurs,  or for purposes of clause (ii) the date on which such
five  Trading Day period is  exceeded,  or for purposes of clause (iii) the date
which such 10 calendar day period is exceeded, or for purposes of clause (v) the
date on which such 10 or 15 calendar  day  period,  as  applicable,  is exceeded
being  referred to as "Event  Date"),  then in addition to any other  rights the
Holders may have hereunder or under applicable law, on each such Event Date, the
Company  shall  pay to each  Holder an amount  in cash,  as  partial  liquidated
damages and not as a penalty, equal to 2.0% of the aggregate purchase price paid
by such Holder pursuant to the Purchase Agreement for any Registrable Securities
then held by such Holder,  and, on each monthly  anniversary  of each such Event
Date (if the applicable  Event shall not have been cured by such date) until the
applicable  Event is cured,  the  Company  shall pay to each Holder an amount in
cash, as partial liquidated  damages and not as a penalty,  equal to 1.0% of the
aggregate  purchase price paid by such Holder pursuant to the Purchase Agreement

                                       3
<PAGE>

for any Registrable Securities then held by such Holder. If the Company fails to
pay any partial liquidated damages pursuant to this Section in full within seven
days after the date payable,  the Company will pay interest thereon at a rate of
18% per annum (or such lesser  maximum  amount that is  permitted  to be paid by
applicable  law) to the  Holder,  accruing  daily  from  the date  such  partial
liquidated  damages are due until such amounts,  plus all such interest thereon,
are paid in full. The partial  liquidated  damages  pursuant to the terms hereof
shall  apply on a daily  pro-rata  basis for any portion of a month prior to the
cure of an Event.

         3. Registration Procedures

         In connection with the Company's  registration  obligations  hereunder,
the Company shall:

         (a) Not  less  than  five  Trading  Days  prior to the  filing  of each
Registration  Statement or any related Prospectus or any amendment or supplement
thereto  (including  any  document  that would be  incorporated  or deemed to be
incorporated  therein by  reference),  the  Company  shall,  (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other
than those  incorporated  or deemed to be  incorporated  by  reference)  will be
subject  to the  review  of such  Holders,  and  (ii)  cause  its  officers  and
directors,  counsel and independent  certified public  accountants to respond to
such inquiries as shall be necessary,  in the  reasonable  opinion of respective
counsel  to  conduct  a  reasonable  investigation  within  the  meaning  of the
Securities  Act. The Company  shall not file the  Registration  Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable  Securities shall reasonably object in good faith,
provided  that,  the Company is notified of such  objection  in writing no later
than 5 Trading  Days after the  Holders  have been so  furnished  copies of such
documents.   Each   Holder   agrees  to  furnish  to  the  Company  a  completed
Questionnaire  in the form  attached  to this  Agreement  as Annex B (a "Selling
Holder  Questionnaire")  not less than two Trading Days prior to the Filing Date
or by the end of the fourth  Trading Day following the date on which such Holder
receives draft materials in accordance with this Section.

         (b) (i) Prepare and file with the Commission such amendments, including
post-effective  amendments,  to a Registration Statement and the Prospectus used
in  connection  therewith as may be necessary to keep a  Registration  Statement
continuously  effective  as to the  applicable  Registrable  Securities  for the
Effectiveness  Period and prepare and file with the Commission  such  additional
Registration Statements in order to register for resale under the Securities Act
all of the  Registrable  Securities;  (ii) cause the  related  Prospectus  to be
amended or supplemented by any required  Prospectus  supplement  (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424;  (iii) respond as promptly as  reasonably  possible to any comments
received from the  Commission  with respect to a  Registration  Statement or any
amendment  thereto and as promptly as  reasonably  possible  provide the Holders
true and  complete  copies  of all  correspondence  from  and to the  Commission

                                       4
<PAGE>

relating to a Registration  Statement;  and (iv) comply in all material respects
with the  provisions of the  Securities Act and the Exchange Act with respect to
the  disposition  of  all  Registrable  Securities  covered  by  a  Registration
Statement  during the applicable  period in accordance  (subject to the terms of
this Agreement) with the intended  methods of disposition by the Holders thereof
set forth in such Registration  Statement as so amended or in such Prospectus as
so supplemented.

         (c) If during  the  Effectiveness  Period,  the  number of  Registrable
Securities  at any time exceeds 85% of the number of shares of Common Stock then
registered in a Registration  Statement,  then the Company shall file as soon as
reasonably  practicable but in any case prior to the applicable  Filing Date, an
additional Registration Statement covering the resale by the Holders of not less
than 130% of the number of such Registrable Securities.

         (d) Notify the  Holders of  Registrable  Securities  to be sold  (which
notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an
instruction  to suspend the use of the  Prospectus  until the requisite  changes
have been made) as promptly as reasonably  possible  (and, in the case of (i)(A)
below,  not less than five Trading Days prior to such filing) and (if  requested
by any such Person) confirm such notice in writing no later than one Trading Day
following  the day (i)(A) when a  Prospectus  or any  Prospectus  supplement  or
post-effective  amendment to a  Registration  Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration  Statement and whenever the Commission  comments in writing on
such Registration  Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders);  and (C) with
respect to a Registration  Statement or any post-effective  amendment,  when the
same has become  effective;  (ii) of any request by the  Commission or any other
Federal or state  governmental  authority  for  amendments or  supplements  to a
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission or any other federal or state governmental  authority
of any stop order  suspending  the  effectiveness  of a  Registration  Statement
covering  any or all of the  Registrable  Securities  or the  initiation  of any
Proceedings  for  that  purpose;  (iv)  of the  receipt  by the  Company  of any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction,  or the  initiation  or  threatening  of any  Proceeding  for such
purpose;  (v) of the  occurrence  of any event or passage of time that makes the
financial  statements  included  in  a  Registration  Statement  ineligible  for
inclusion  therein  or  any  statement  made  in  a  Registration  Statement  or
Prospectus or any document  incorporated or deemed to be incorporated therein by
reference  untrue in any material  respect or that  requires any  revisions to a
Registration Statement,  Prospectus or other documents so that, in the case of a
Registration  Statement  or the  Prospectus,  as the  case  may be,  it will not
contain any 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 light of the  circumstances  under which they were made, not misleading;  and
(vi) the  occurrence  or existence  of any pending  corporate  development  with
respect to the Company that the Company  believes  may be material and that,  in
the  determination  of the  Company,  makes it not in the best  interest  of the
Company  to  allow  continued  availability  of the  Registration  Statement  or
Prospectus;  provided  that  any  and  all  of  such  information  shall  remain
confidential  to each Holder until such  information  otherwise  becomes public,
unless  disclosure  by  a  Holder  is  required  by  law;   provided,   further,
notwithstanding  each Holder's agreement to keep such information  confidential,

                                       5
<PAGE>

the Holders  make no  acknowledgement  that any such  information  is  material,
non-public information.

         (e) Use its best  efforts  to avoid the  issuance  of,  or, if  issued,
obtain  the  withdrawal  of (i) any  order  suspending  the  effectiveness  of a
Registration  Statement,  or  (ii)  any  suspension  of  the  qualification  (or
exemption from  qualification) of any of the Registrable  Securities for sale in
any jurisdiction, at the earliest practicable moment.

         (f) Furnish to each Holder, without charge, at least one conformed copy
of each  such  Registration  Statement  and each  amendment  thereto,  including
financial statements and schedules,  all documents  incorporated or deemed to be
incorporated  therein by reference to the extent  requested by such Person,  and
all exhibits to the extent requested by such Person  (including those previously
furnished  or  incorporated  by  reference)  promptly  after the  filing of such
documents with the Commission.

         (g) Promptly deliver to each Holder,  without charge, as many copies of
the Prospectus or  Prospectuses  (including  each form of  prospectus)  and each
amendment  or  supplement  thereto as such  Persons  may  reasonably  request in
connection with resales by the Holder of Registrable Securities.  Subject to the
terms  of  this  Agreement,  the  Company  hereby  consents  to the  use of such
Prospectus  and each  amendment  or  supplement  thereto by each of the  selling
Holders in connection with the offering and sale of the  Registrable  Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving on any notice pursuant to Section 3(d).

         (h) Prior to any resale of Registrable  Securities by a Holder, use its
commercially  reasonable  efforts to register or qualify or  cooperate  with the
selling  Holders  in  connection  with the  registration  or  qualification  (or
exemption from the Registration or qualification) of such Registrable Securities
for the  resale  by the  Holder  under the  securities  or Blue Sky laws of such
jurisdictions  within the United  States as any Holder  reasonably  requests  in
writing,  to keep each  registration or qualification  (or exemption  therefrom)
effective  during the  Effectiveness  Period and to do any and all other acts or
things reasonably  necessary to enable the disposition in such  jurisdictions of
the Registrable  Securities  covered by each Registration  Statement;  provided,
that the Company  shall not be required to qualify  generally  to do business in
any jurisdiction  where it is not then so qualified,  subject the Company to any
material tax in any such jurisdiction  where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

         (i)  If  requested  by the  Holders,  cooperate  with  the  Holders  to
facilitate  the timely  preparation  and delivery of  certificates  representing
Registrable   Securities  to  be  delivered  to  a  transferee   pursuant  to  a
Registration  Statement,  which  certificates  shall  be  free,  to  the  extent
permitted by the Purchase Agreement,  of all restrictive  legends, and to enable
such Registrable  Securities to be in such  denominations and registered in such
names as any such Holders may request.

         (j) Upon the occurrence of any event contemplated by this Section 3, as
promptly as reasonably possible under the circumstances  taking into account the
Company's good faith  assessment of any adverse  consequences to the Company and
its stockholders of the premature disclosure of such event, prepare a supplement

                                       6
<PAGE>

or amendment,  including a post-effective amendment, to a Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that,  as  thereafter  delivered,  neither  a  Registration  Statement  nor such
Prospectus will contain an untrue  statement of a material fact or omit to state
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.  If the Company  notifies the Holders in accordance with clauses
(ii)  through  (v) of Section  3(d) above to suspend  the use of any  Prospectus
until the requisite  changes to such Prospectus have been made, then the Holders
shall suspend use of such  Prospectus.  The Company will use its best efforts to
ensure  that  the  use of  the  Prospectus  may be  resumed  as  promptly  as is
practicable.  The Company  shall be  entitled  to exercise  its right under this
Section  3(j) to  suspend  the  availability  of a  Registration  Statement  and
Prospectus,  subject to the payment of partial  liquidated  damages  pursuant to
Section 2(b),  for a period not to exceed 60 days (which need not be consecutive
days) in any 12 month period.

         (k) Comply with all applicable rules and regulations of the Commission.

         (l) The  Company  may  require  each  selling  Holder to furnish to the
Company a  certified  statement  as to the  number  of  shares  of Common  Stock
beneficially owned by such Holder and, if required by the Commission, the person
thereof  that has voting and  dispositive  control  over the Shares.  During any
periods  that the  Company  is unable  to meet its  obligations  hereunder  with
respect to the  registration  of the Registrable  Securities  solely because any
Holder  fails to furnish  such  information  within  three  Trading  Days of the
Company's  request,  any liquidated damages that are accruing at such time as to
such Holder only shall be tolled and any Event that may  otherwise  occur solely
because of such delay  shall be  suspended  as to such Holder  only,  until such
information is delivered to the Company.

         4.  Registration  Expenses.  All  fees  and  expenses  incident  to the
performance  of or compliance  with this Agreement by the Company shall be borne
by the Company  whether or not any  Registrable  Securities are sold pursuant to
the Registration  Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including,  without  limitation,  fees and expenses (A) with respect to filings
required  to be made with the Trading  Market on which the Common  Stock is then
listed for trading,  and (B) in compliance with applicable  state  securities or
Blue Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue  Sky  qualifications  or  exemptions  of  the  Registrable  Securities  and
determination  of the eligibility of the  Registrable  Securities for investment
under the laws of such jurisdictions as requested by the Holders), (ii) printing
expenses (including,  without limitation,  expenses of printing certificates for
Registrable   Securities  and  of  printing  prospectuses  if  the  printing  of
prospectuses  is  reasonably  requested  by the  holders  of a  majority  of the
Registrable Securities included in a Registration  Statement),  (iii) messenger,
telephone and delivery expenses,  (iv) fees and disbursements of counsel for the
Company, (v) Securities Act liability insurance,  if the Company so desires such
insurance,  and (vi) fees and  expenses  of all other  Persons  retained  by the
Company in connection with the consummation of the transactions  contemplated by
this  Agreement.  In addition,  the Company shall be responsible  for all of its
internal   expenses   incurred  in  connection  with  the  consummation  of  the
transactions contemplated by this Agreement (including,  without limitation, all

                                       7
<PAGE>

salaries  and  expenses  of its  officers  and  employees  performing  legal  or
accounting  duties),  the expense of any annual  audit and the fees and expenses
incurred in  connection  with the listing of the  Registrable  Securities on any
securities  exchange  as  required  hereunder.  In no event shall the Company be
responsible  for any  broker or  similar  commissions  or,  except to the extent
provided for in the Transaction Documents,  any legal fees or other costs of the
Holders.

         5. Indemnification

         (a) Indemnification by the Company. The Company shall,  notwithstanding
any termination of this Agreement,  indemnify and hold harmless each Holder, the
officers,  directors,  agents,  brokers  (including  brokers  who offer and sell
Registrable  Securities  as  principal as a result of a pledge or any failure to
perform under a margin call of Common Stock),  investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the  Securities  Act or Section  20 of the  Exchange  Act) and the
officers,  directors,  agents and employees of each such controlling  Person, to
the fullest  extent  permitted by  applicable  law, from and against any and all
losses,  claims,  damages,  liabilities,  costs (including,  without limitation,
reasonable attorneys' fees) and expenses (collectively,  "Losses"), as incurred,
arising  out of or  relating  to any untrue or  alleged  untrue  statement  of a
material fact contained in a Registration Statement,  any Prospectus or any form
of prospectus or in any  amendment or supplement  thereto or in any  preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein  (in the case of any  Prospectus  or form of  prospectus  or
supplement  thereto,  in light of the circumstances  under which they were made)
not  misleading,  except to the extent,  but only to the  extent,  that (i) such
untrue statements or omissions are based solely upon information  regarding such
Holder  furnished  in writing to the  Company by such Holder  expressly  for use
therein,  or to the extent that such information  relates to such Holder or such
Holder's  proposed  method of  distribution  of  Registrable  Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in a
Registration  Statement,  such  Prospectus  or such form of Prospectus or in any
amendment  or  supplement  thereto  (it being  understood  that the  Holder  has
approved  Annex A hereto for this  purpose) or (ii) in the case of an occurrence
of an event of the type  specified  in  Section  3(d)(ii)-(vi),  the use by such
Holder of an outdated or  defective  Prospectus  after the Company has  notified
such Holder in writing that the Prospectus is outdated or defective and prior to
the  receipt by such  Holder of the Advice  contemplated  in Section  6(d).  The
Company  shall  notify  the  Holders  promptly  of the  institution,  threat  or
assertion of any Proceeding  arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

         (b)  Indemnification by Holders.  Each Holder shall,  severally and not
jointly,  indemnify  and hold  harmless the Company,  its  directors,  officers,
agents and employees,  each Person who controls the Company  (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors,  officers,  agents or employees of such controlling  Persons,  to the
fullest  extent  permitted by applicable  law,  from and against all Losses,  as
incurred,  to the extent  arising out of or based solely upon: (x) such Holder's
failure to comply with the prospectus  delivery  requirements  of the Securities
Act or (y) any untrue or alleged  untrue  statement of a material fact contained
in any Registration Statement, any Prospectus,  or any form of prospectus, or in

                                       8
<PAGE>

any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or  relating  to any  omission  or alleged  omission  of a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading (i) to the extent, but only to the extent, that such untrue statement
or omission is  contained  in any  information  so  furnished in writing by such
Holder to the Company specifically for inclusion in such Registration  Statement
or such  Prospectus  or (ii) to the extent  that (1) such untrue  statements  or
omissions are based solely upon  information  regarding such Holder furnished in
writing to the  Company by such  Holder  expressly  for use  therein,  or to the
extent that such  information  relates to such Holder or such Holder's  proposed
method of distribution of Registrable  Securities and was reviewed and expressly
approved  in  writing  by such  Holder  expressly  for  use in the  Registration
Statement (it being  understood  that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement  thereto or (2) in the case of an  occurrence of an event of the type
specified  in Section  3(d)(ii)-(vi),  the use by such  Holder of an outdated or
defective  Prospectus after the Company has notified such Holder in writing that
the  Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice  contemplated  in Section 6(d). In no event shall the liability of
any selling Holder  hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

         (c) Conduct of Indemnification  Proceedings. If any Proceeding shall be
brought or asserted  against  any Person  entitled to  indemnity  hereunder  (an
"Indemnified  Party"),  such Indemnified  Party shall promptly notify the Person
from whom  indemnity is sought (the  "Indemnifying  Party") in writing,  and the
Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel  reasonably  satisfactory to the Indemnified Party and
the  payment  of all fees and  expenses  incurred  in  connection  with  defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve  the  Indemnifying  Party of its  obligations  or  liabilities
pursuant  to this  Agreement,  except  (and only) to the extent that it shall be
finally determined by a court of competent  jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have prejudiced
the Indemnifying Party.

         An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof,  but the fees and
expenses of such counsel  shall be at the expense of such  Indemnified  Party or
Parties  unless:  (1) the  Indemnifying  Party has agreed in writing to pay such
fees and  expenses;  (2) the  Indemnifying  Party shall have failed  promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably
satisfactory to such Indemnified Party in any such Proceeding;  or (3) the named
parties to any such Proceeding  (including any impleaded  parties)  include both
such Indemnified  Party and the Indemnifying  Party, and such Indemnified  Party
shall reasonably believe that a material conflict of interest is likely to exist
if  the  same  counsel  were  to  represent  such  Indemnified   Party  and  the
Indemnifying  Party (in which  case,  if such  Indemnified  Party  notifies  the
Indemnifying  Party in writing that it elects to employ separate  counsel at the
expense of the Indemnifying  Party,  the  Indemnifying  Party shall not have the
right to assume the defense  thereof and the reasonable fees and expenses of one
separate  counsel  shall  be at the  expense  of the  Indemnifying  Party).  The
Indemnifying Party shall not be liable for any settlement of any such Proceeding

                                       9
<PAGE>

effected  without its written  consent,  which consent shall not be unreasonably
withheld.  No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any  Indemnified  Party is a party,  unless  such  settlement  includes an
unconditional  release of such  Indemnified  Party from all  liability on claims
that are the subject matter of such Proceeding.

         Subject  to the  terms  of this  Agreement,  all  reasonable  fees  and
expenses of the Indemnified Party (including reasonable fees and expenses to the
extent  incurred in connection  with  investigating  or preparing to defend such
Proceeding in a manner not inconsistent  with this Section) shall be paid to the
Indemnified  Party,  as  incurred,  within ten  Trading  Days of written  notice
thereof to the Indemnifying  Party;  provided,  that the Indemnified Party shall
promptly  reimburse  the  Indemnifying  Party for that  portion of such fees and
expenses  applicable  to such  actions for which such  Indemnified  Party is not
entitled to indemnification hereunder, determined based upon the relative faults
of the parties.

         (d) Contribution.  If a claim for indemnification under Section 5(a) or
5(b) is  unavailable  to an  Indemnified  Party (by  reason of public  policy or
otherwise),   then  each  Indemnifying  Party,  in  lieu  of  indemnifying  such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party  as a  result  of  such  Losses,  in  such  proportion  as is
appropriate  to  reflect  the  relative  fault  of the  Indemnifying  Party  and
Indemnified  Party in connection with the actions,  statements or omissions that
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such  Indemnifying  Party and  Indemnified  Party shall be
determined by reference to, among other things,  whether any action in question,
including any untrue or alleged untrue  statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information  supplied by, such Indemnifying  Party or Indemnified Party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such  action,  statement  or  omission.  The amount  paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the  limitations set forth in this  Agreement,  any reasonable  attorneys' or
other reasonable fees or expenses  incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the  indemnification  provided for in this Section was  available to
such party in accordance with its terms.

         The parties  hereto  agree that it would not be just and  equitable  if
contribution  pursuant  to  this  Section  5(d)  were  determined  by  pro  rata
allocation or by any other method of allocation  that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds  actually  received  by such  Holder  from the sale of the  Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has  otherwise  been  required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.

         The indemnity and contribution agreements contained in this Section are
in  addition  to any  liability  that the  Indemnifying  Parties may have to the
Indemnified Parties.

                                       10
<PAGE>

         6. Miscellaneous

         (a)  Remedies.  In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific  performance of its rights under this  Agreement.  The Company and each
Holder agree that monetary damages would not provide  adequate  compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement  and  hereby  further  agrees  that,  in the event of any  action  for
specific  performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

         (b) No Piggyback on Registrations. Except as set forth on Schedule 6(b)
attached hereto, neither the Company nor any of its security holders (other than
the Holders in such  capacity  pursuant  hereto) may include  securities  of the
Company in the Registration Statement other than the Registrable Securities. The
Company  shall  not file any other  registration  statements  until the  initial
Registration   Statement   required  hereunder  is  declared  effective  by  the
Commission,  provided that this Section 6(b) shall not prohibit the Company from
filing amendments to registration statements already filed.

         (c)  Compliance.  Each Holder  covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it  in  connection  with  sales  of  Registrable   Securities  pursuant  to  the
Registration Statement.

         (d) Discontinued Disposition.  Each Holder agrees by its acquisition of
such  Registrable  Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind  described in Section 3(d),  such Holder
will forthwith  discontinue  disposition of such Registrable  Securities under a
Registration  Statement  until  such  Holder's  receipt  of  the  copies  of the
supplemented  Prospectus and/or amended Registration  Statement,  or until it is
advised in writing (the  "Advice") by the Company that the use of the applicable
Prospectus  may be resumed,  and, in either  case,  has  received  copies of any
additional  or  supplemental  filings  that are  incorporated  or  deemed  to be
incorporated  by reference in such  Prospectus or  Registration  Statement.  The
Company will use its best efforts to ensure that the use of the  Prospectus  may
be resumed as promptly as it  practicable.  The Company agrees and  acknowledges
that any  periods  during  which  the  Holder is  required  to  discontinue  the
disposition  of the  Registrable  Securities  hereunder  shall be subject to the
provisions of Section 2(b).

         (e) Piggy-Back  Registrations.  If at any time during the Effectiveness
Period  there is not an  effective  Registration  Statement  covering all of the
Registrable  Securities and the Company shall determine to prepare and file with
the  Commission  a  registration  statement  relating to an offering for its own
account or the account of others under the  Securities  Act of any of its equity
securities,  other than on Form S-4 or Form S-8 (each as  promulgated  under the
Securities Act) or their then  equivalents  relating to equity  securities to be
issued solely in connection  with any  acquisition  of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit  plans,  then the Company shall send to each Holder a written  notice of
such  determination  and, if within  fifteen days after the date of such notice,
any such Holder shall so request in writing,  the Company  shall include in such

                                       11
<PAGE>

registration  statement  all or any  part of such  Registrable  Securities  such
holder  requests to be  registered;  provided,  that,  the Company  shall not be
required to register any  Registrable  Securities  pursuant to this Section 6(e)
that are  eligible  for resale  pursuant  to Rule 144(k)  promulgated  under the
Securities  Act  or  that  are  the  subject  of a then  effective  Registration
Statement.

         (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence,  may not be amended,  modified or supplemented,
and waivers or  consents to  departures  from the  provisions  hereof may not be
given,  unless the same shall be in writing  and signed by the  Company and each
Holder  of the then  outstanding  Registrable  Securities.  Notwithstanding  the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates  exclusively to the rights of Holders and that does not
directly  or  indirectly  affect  the  rights of other  Holders  may be given by
Holders of all of the  Registrable  Securities  to which such  waiver or consent
relates;  provided,  however,  that the  provisions  of this sentence may not be
amended,  modified,  or supplemented except in accordance with the provisions of
the immediately preceding sentence.

         (g) Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided  hereunder  shall be delivered as set forth
in the Purchase Agreement.

         (h) Successors and Assigns.  This Agreement  shall inure to the benefit
of and be  binding  upon the  successors  and  permitted  assigns of each of the
parties  and shall  inure to the  benefit of each  Holder.  The  Company may not
assign its rights or obligations  hereunder without the prior written consent of
all of the Holders of the then-outstanding  Registrable Securities.  Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

         (i) No  Inconsistent  Agreements.  Neither  the  Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its  subsidiaries,  on or  after  the  date of this  Agreement,  enter  into any
agreement  with  respect  to its  securities,  that  would  have the  effect  of
impairing  the rights  granted to the  Holders in this  Agreement  or  otherwise
conflicts  with the  provisions  hereof.  Except as set forth on Schedule  6(i),
neither the Company nor any of its subsidiaries has previously  entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.

         (j) Execution and  Counterparts.  This Agreement may be executed in any
number of counterparts,  each of which when so executed shall be deemed to be an
original  and, all of which taken  together  shall  constitute  one and the same
Agreement.   In  the  event  that  any   signature  is  delivered  by  facsimile
transmission,  such  signature  shall create a valid  binding  obligation of the
party  executing  (or on whose behalf such  signature is executed) the same with
the same  force and  effect as if such  facsimile  signature  were the  original
thereof.

         (k) Governing Law. All questions concerning the construction, validity,
enforcement  and  interpretation  of this Agreement shall be determined with the
provisions of the Purchase Agreement.

                                       12
<PAGE>

         (l) Cumulative  Remedies.  The remedies  provided herein are cumulative
and not exclusive of any remedies provided by law.

         (m) Severability.  If any term,  provision,  covenant or restriction of
this  Agreement  is held by a court of  competent  jurisdiction  to be  invalid,
illegal,  void  or  unenforceable,  the  remainder  of  the  terms,  provisions,
covenants  and  restrictions  set forth  herein  shall  remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto  shall use their  commercially  reasonable  efforts to find and employ an
alternative  means to achieve the same or substantially  the same result as that
contemplated  by such term,  provision,  covenant or  restriction.  It is hereby
stipulated  and declared to be the intention of the parties that they would have
executed the remaining terms,  provisions,  covenants and  restrictions  without
including any of such that may be hereafter declared invalid,  illegal,  void or
unenforceable.

         (n) Headings.  The headings in this  Agreement are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

         (o)  Independent  Nature  of  Holders'   Obligations  and  Rights.  The
obligations  of each  Holder  hereunder  are  several  and not  joint  with  the
obligations of any other Holder hereunder, and no Holder shall be responsible in
any way for the  performance of the  obligations of any other Holder  hereunder.
Nothing contained herein or in any other agreement or document  delivered at any
closing, and no action taken by any Holder pursuant hereto or thereto,  shall be
deemed to  constitute  the Holders as a  partnership,  an  association,  a joint
venture or any other kind of entity,  or create a  presumption  that the Holders
are in any way  acting  in  concert  with  respect  to such  obligations  or the
transactions  contemplated by this  Agreement.  Each Holder shall be entitled to
protect and enforce its rights,  including without limitation the rights arising
out of this Agreement,  and it shall not be necessary for any other Holder to be
joined as an additional party in any proceeding for such purpose.

                              ********************

                                       13
<PAGE>

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

                                   ON2 TECHNOLOGIES, INC.

                                   By:/s/ Douglas A. McIntyre
                                      ------------------------------------------
                                      Name:
                                      Title:

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]
<PAGE>

                     [PURCHASER'S SIGNATURE PAGE TO ONT RRA]

Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________

                           [SIGNATURE PAGES CONTINUE]

                                       15
<PAGE>

                                     ANNEX A

                              Plan of Distribution

         Each Selling  Stockholder  (the "Selling  Stockholders")  of the common
stock ("Common Stock") of ON2  Technologies,  Inc., a Delaware  corporation (the
"Company") and any of their pledgees,  assignees and successors-in-interest may,
from  time to time,  sell  any or all of their  shares  of  Common  Stock on the
Trading Market or any other stock exchange,  market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated  prices.  A  Selling  Stockholder  may  use  any  one or  more of the
following methods when selling shares:

         o  ordinary  brokerage  transactions  and  transactions  in  which  the
            broker-dealer solicits purchasers;

         o block  trades in which the  broker-dealer  will  attempt  to sell the
           shares as agent  but  may  position and resell a portion of the block
           as principal to facilitate the transaction;

         o  purchases  by  a  broker-dealer  as  principal  and  resale  by  the
            broker-dealer for its account;

         o an  exchange  distribution  in  accordance  with  the  rules  of  the
           applicable exchange;

         o privately negotiated transactions;

         o settlement  of  short  sales  entered  into  after  the date of this
           prospectus;

         o broker-dealers  may agree  with the  Selling  Stockholders  to sell a
           specified number of such shares at a stipulated price per share;

         o a combination of any such methods of sale;

         o through  the  writing  or  settlement  of  options  or other  hedging
           transactions, whether through an options exchange or otherwise; or

         o any other method permitted pursuant to applicable law.

         The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.

         Broker-dealers  engaged by the  Selling  Stockholders  may  arrange for
other  brokers-dealers  to  participate  in sales.  Broker-dealers  may  receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares,  from the purchaser) in amounts to be
negotiated.  Each  Selling  Stockholder  does not expect these  commissions  and
discounts  relating  to its sales of shares to exceed what is  customary  in the
types of transactions involved.

                                       16
<PAGE>

         In connection  with the sale of our common stock or interests  therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions,  which may in turn engage in short sales of the
common stock in the course of hedging the  positions  they  assume.  The Selling
Stockholders  may also sell shares of our common  stock short and deliver  these
securities  to close out their  short  positions,  or loan or pledge  the common
stock to  broker-dealers  that in turn may sell these  securities.  The  Selling
Stockholders   may  also  enter   into   option  or  other   transactions   with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus (as supplemented or amended to reflect such transaction).

         The  Selling  Stockholders  and any  broker-dealers  or agents that are
involved  in selling  the shares may be deemed to be  "underwriters"  within the
meaning of the Securities Act in connection with such sales. In such event,  any
commissions  received  by such  broker-dealers  or agents  and any profit on the
resale  of the  shares  purchased  by  them  may be  deemed  to be  underwriting
commissions or discounts under the Securities Act. Each Selling  Stockholder has
informed  the  Company  that it does not have any  agreement  or  understanding,
directly or indirectly, with any person to distribute the Common Stock.

         The Company is required to pay certain  fees and  expenses  incurred by
the Company incident to the  registration of the shares.  The Company has agreed
to indemnify the Selling  Stockholders against certain losses,  claims,  damages
and liabilities, including liabilities under the Securities Act.

         Because Selling Stockholders may be deemed to be "underwriters"  within
the  meaning of the  Securities  Act,  they will be  subject  to the  prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this  prospectus  which  qualify  for sale  pursuant  to Rule 144  under  the
Securities  Act may be sold under Rule 144  rather  than under this  prospectus.
Each  Selling  Stockholder  has advised us that they have not  entered  into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in  connection  with the proposed sale of the resale shares by the
Selling Stockholders.

         We agreed to keep this  prospectus  effective  until the earlier of (i)
the date on which the shares may be resold by the Selling  Stockholders  without
registration  and  without  regard to any volume  limitations  by reason of Rule
144(e) under the  Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold  pursuant to the  prospectus  or Rule 144 under the
Securities  Act or any other rule of similar  effect.  The resale shares will be
sold only through  registered or licensed  brokers or dealers if required  under
applicable  state securities  laws. In addition,  in certain states,  the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable  state or an exemption  from the  registration  or  qualification
requirement is available and is complied with.

         Under  applicable  rules and  regulations  under the Exchange  Act, any
person engaged in the  distribution of the resale shares may not  simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of the distribution. In addition,
the  Selling  Stockholders  will be  subject  to  applicable  provisions  of the
Exchange Act and the rules and regulations  thereunder,  including Regulation M,
which may limit the timing of purchases  and sales of shares of our common stock
by the Selling  Stockholders  or any other  person.  We will make copies of this
prospectus  available to the Selling  Stockholders and have informed them of the
need to deliver a copy of this  prospectus to each  purchaser at or prior to the
time of the sale.

                                       17
<PAGE>

                                                                         Annex B

                             ON2 Technologies, Inc.

                 Selling Securityholder Notice and Questionnaire

         The undersigned  beneficial  owner of common stock, par value $0.01 per
share (the "Common Stock"),  of ON2 Technologies,  Inc., a Delaware  corporation
(the "Company"), (the "Registrable Securities") understands that the Company has
filed or  intends  to file with the  Securities  and  Exchange  Commission  (the
"Commission")   a  registration   statement  on  Form  S-3  (the   "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities  Act"), of the Registrable  Securities,  in
accordance  with the terms of the  Registration  Rights  Agreement,  dated as of
October ___, 2004 (the "Registration  Rights Agreement"),  among the Company and
the Purchasers  named therein.  A copy of the  Registration  Rights Agreement is
available  from the Company  upon  request at the address set forth  below.  All
capitalized  terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

         Certain  legal  consequences  arise  from  being  named  as  a  selling
securityholder  in  the  Registration  Statement  and  the  related  prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel  regarding the consequences of being
named  or not  being  named  as a  selling  securityholder  in the  Registration
Statement and the related prospectus.

                                     NOTICE

         The  undersigned  beneficial  owner (the "Selling  Securityholder")  of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise  specified under such Item 3)
in the Registration Statement.

                                       19
<PAGE>

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

                                  QUESTIONNAIRE

1.       Name.

         (a)      Full Legal Name of Selling Securityholder

                  --------------------------------------------------------------

         (b)      Full Legal Name of Registered Holder (if not the same as (a)
                  above) through which Registrable Securities Listed in Item 3
                  below are held:

                  --------------------------------------------------------------

         (c)      Full Legal Name of Natural Control Person (which means a
                  natural person who directly you indirectly alone or with
                  others has power to vote or dispose of the securities covered
                  by the questionnaire):

                  --------------------------------------------------------------

2.  Address for Notices to Selling Securityholder:

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Telephone:
          ----------------------------------------------------------------------
Fax:
    ----------------------------------------------------------------------------
Contact Person:
               -----------------------------------------------------------------

3.  Beneficial Ownership of Registrable Securities:

         (a) Type and Number of Registrable Securities beneficially owned:

             -------------------------------------------------------------------

             -------------------------------------------------------------------

             -------------------------------------------------------------------

                                       20
<PAGE>

4.  Broker-Dealer Status:

         (a) Are you a broker-dealer?

                                            Yes / /     No / /

         Note: If yes, the  Commission's  staff has indicated that you should be
               identified as an underwriter in the Registration Statement.

         (b) Are you an affiliate of a broker-dealer?

                                            Yes / /     No / /

         (c)      If you are an affiliate of a broker-dealer, do you certify
                  that you bought the Registrable Securities in the ordinary
                  course of business, and at the time of the purchase of the
                  Registrable Securities to be resold, you had no agreements or
                  understandings, directly or indirectly, with any person to
                  distribute the Registrable Securities?

                                            Yes / /     No / /

         Note: If no, the  Commission's  staff has indicated  that you should be
               identified as an underwriter in the Registration Statement.

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.

         Except as set forth below in this Item 5, the undersigned is not the
         beneficial or registered owner of any securities of the Company other
         than the Registrable Securities listed above in Item 3.

         (a) Type and Amount of Other Securities beneficially owned by the
             Selling Securityholder:

             -------------------------------------------------------------------

             -------------------------------------------------------------------

                                       21
<PAGE>

6.  Relationships with the Company:

         Except as set  forth  below,  neither  the  undersigned  nor any of its
affiliates,  officers,  directors or principal  equity holders  (owners of 5% of
more of the equity  securities  of the  undersigned)  has held any  position  or
office or has had any  other  material  relationship  with the  Company  (or its
predecessors or affiliates) during the past three years.

         State any exceptions here:

         -----------------------------------------------------------------------

         -----------------------------------------------------------------------

         The   undersigned   agrees  to  promptly  notify  the  Company  of  any
inaccuracies  or  changes  in the  information  provided  herein  that may occur
subsequent  to the date  hereof  at any time  while the  Registration  Statement
remains effective.

         By signing  below,  the  undersigned  consents to the disclosure of the
information  contained  herein  in its  answers  to  Items 1  through  6 and the
inclusion of such  information  in the  Registration  Statement  and the related
prospectus.  The undersigned  understands  that such  information will be relied
upon by the Company in  connection  with the  preparation  or  amendment  of the
Registration Statement and the related prospectus.

         IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and  Questionnaire  to be executed and delivered either in person or
by its duly authorized agent.

Dated:                         Beneficial Owner:
       -------------------                      --------------------------------

                               By:
                                  ----------------------------------------------
                                  Name:
                                  Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

                                       22

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