DEFERRED PRICING AGREEMENT



     This DEFERRED PRICING AGREEMENT, dated as of January 18, 2001, by and among

On2.com Inc., a Delaware corporation (the "Company"), and The Travelers

Indemnity Company, a Delaware corporation ("Travelers").



     WHEREAS, the parties hereto entered into a letter agreement, dated as of

June 6, 2000 (the "Letter Agreement"), that provided for Travelers to have price

and terms protection on its $10 million investment in Units (as defined in the

Letter Agreement) relative to any other series of investment in the Units; and



     WHEREAS, the parties entered into a Preferred Stock Unit Subscription

Agreement, dated as of June 6, 2000 (the "Subscription Agreement") and an

Investor's Rights Agreement, dated as of June 7, 2000 (the "Investors Rights

Agreement"); and



     WHEREAS, pursuant to the Subscription Agreement, Travelers invested $10.0

million in Units and received 1,644,304 shares of Series C Preferred Stock (the

"Travelers Preferred Stock"), warrants to purchase 205,538 shares of common

stock of the Company, par value $0.01 per share (the "Common Stock"), at an

exercise price of $8.69 per share and warrants to purchase 205,538 shares of

Common Stock at an exercise price of $10.86 per share (collectively, the

"Travelers Warrants"); and



     WHEREAS, on September 29, 2000, certain investors invested $2.45 million in

Units and received 924,527 shares of Series C-II Preferred Stock and warrants to

purchase 369,037 shares of Common Stock at an exercise price of $2.65 per share;

and



     WHEREAS, on December 8, 2000, certain investors invested $2.55 million in

Units and received 2,049,839 shares of Series C-III Preferred Stock and warrants

to purchase 635,450 shares of Common Stock at an exercise price of $1.14 per

share; and



     WHEREAS, the parties desire to terminate the Letter Agreement upon

execution of this Agreement.



     NOW, THEREFORE, in consideration of the mutual covenants and agreements set

forth herein, and intending to be legally bound thereby, the parties hereto

hereby agree as follows:



     1. PRICING ADJUSTMENT.



     (a) In full and complete satisfaction and discharge of the Company's

obligations to Travelers under the Letter Agreement, upon the earlier of (i) a

Change of Control (as defined below) or (ii) December 31, 2001, the Company

shall (A) cancel the Travelers Preferred Stock and in its place issue 1,849,057

shares of Series C-IV Preferred Stock, par value $0.01 per share (the "Series

C-IV Preferred Stock"), and 4,099,678 shares of Series C-V Preferred Stock, par

value $0.01 per share (the "Series V Preferred Stock, and, together with the

Series C-IV Preferred Stock, the "New Preferred Stock"), and (B) cancel the

Travelers Warrants and in their place issue 462,264 warrants with an exercise

price of $2.65 (the "C-IV Warrants") and 1,024,920 warrants with an exercise

price of $1.14 (the "C-V Warrants" and, together with the C-IV Warrants, the

"New Warrants").



     (b) In order to receive the New Preferred Stock and the New Warrants in

accordance with Section 1(a) hereof, Travelers must surrender the Travelers

Preferred Stock and the



<PAGE>



Travelers Warrants to the Company for cancellation at its office at 145 Hudson

Street, New York, New York 10013, or at such other place as is designated in

writing by the Company.



     (c) For purposes of this Agreement, a "Change of Control" shall mean the

first to occur of any of the following events: (i) any "person" or "group"

(within the meaning of Sections 13(d) and 14(d)(2) of the Securities Act of

1933, as amended) other than Travelers and its affiliates, the Company, any

trustee or other fiduciary holding Common Stock under an employee benefit plan

of the Company or a related company, or any corporation which is owned, directly

or indirectly, by the stockholders of the Company in substantially the same

proportions as their ownership of Common Stock, is or becomes the "beneficial

owner" (as defined in Rule 13d-3 under the Securities Act of 1933, as amended)

of more than fifty percent (50%) of the then outstanding voting stock of the

Company; (ii) during any period of two consecutive years, individuals who at the

beginning of such period constitute the Board of Directors of the Company (and

any new director whose election by the Board of Directors or whose nomination

for election by the Company's stockholders was approved by a vote of at least a

majority of the directors then still in office who either were directors at the

beginning of such period or whose election or nomination for election was

previously so approved) cease for any reason to constitute a majority thereof;

(iii) the merger or consolidation of the Company where the stockholders of the

Company would not, immediately after the merger or consolidation, own at least

fifty percent (50%) of the voting securities of the Company or such surviving

entity outstanding immediately after such merger or consolidation; (iv) the

stockholders of the Company approve a plan of complete liquidation of the

Company or an agreement for the sale or disposition by the Company of all or

substantially all of the Company's assets; (v) the Company files a petition

seeking protection from creditors under applicable bankruptcy laws, or an

involuntary petition is filed under such laws that names the Company as debtor

and has not been dismissed or stayed for a period of 30 days or more; or (vi)

the Company ceases to conduct any business operations.



     2. DESCRIPTION OF SECURITIES. The Series C-IV Preferred Stock and Series

C-V Preferred Stock shall have the respective rights, preferences and

limitations set forth in the respective Designations of Powers, Preferences and

Rights of Preferred Stock attached hereto as EXHIBIT A and incorporated herein

by reference. The forms of the C-IV Warrant and the C-V Warrant are attached

hereto as EXHIBIT B and incorporated herein by reference. The Company agrees

that any adjustment to the conversion price of the New Preferred Stock or to the

exercise price of the New Warrants that is required by the terms of such

securities will be given effect at the time of issuance even though the New

Preferred Stock or New Warrants, as the case may be, were not yet issued and

outstanding at the time of the event triggering such adjustment.



     3. BRING-DOWN OF REPRESENTATIONS AND WARRANTIES.



     (a) With respect to the New Preferred Stock and the New Warrants, Travelers

represents and warrants that the representations and warranties of Travelers

contained in Section 2 of the Subscription Agreement are, and shall be, true and

correct in all material respects on and as of the date hereof and the date (the

"Closing Date") that the New Preferred Stock and the New Warrants are issued to

Travelers, with the same effect as though such representations and warranties

had been made on and as of the date hereof and such Closing Date.



     (b) The Company represents and warrants that on each Closing Date, the New

Preferred Stock will be duly authorized, validly issued and outstanding, fully

paid and non-assessable, the New Warrants will be duly authorized, validly

issued and enforceable against the Company in accordance with their terms, and

that no



<PAGE>



authorizations, approvals or consents will be required for the issuance or

performance of the terms of the New Preferred Stock and the New Warrants by the

Company.



     4. TERMINATION OF LETTER AGREEMENT. The parties hereto acknowledge that the

Letter Agreement is hereby terminated and shall be of no further force or

effect.



     5. FURTHER ASSURANCES. Upon the terms and subject to the conditions

contained herein, the parties agree (i) to use all reasonable efforts to take,

or cause to be taken, all actions and to do, or cause to be done, all things

necessary, proper or advisable to consummate and make effective the transactions

contemplated by this Agreement; (ii) to execute any documents, instruments or

conveyances of any kind that may be reasonably necessary or advisable to carry

out any of the transactions contemplated hereunder; and (iii) to cooperate with

each other in connection with the foregoing.



     6. SUBSCRIPTION AGREEMENT AND INVESTOR'S RIGHTS AGREEMENT. Upon the

issuance thereof, the New Preferred Stock and the New Warrants will constitute

the Units, the Preferred Stock and the Warrants, as applicable, under the

Subscription Agreement and the Investor's Rights Agreement. Other than the

foregoing, all other provisions of the Subscription Agreement and the Investor's

Rights Agreement shall remain in full force and effect.



     7. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the

parties and supersedes all other agreements between the parties concerning the

Travelers Preferred Stock, the Travelers Warrant, the New Preferred and the New

Warrant.



     8. MODIFICATION. This Agreement may only be modified by a written document

signed by both parties.



     9. GOVERNING LAW AND VENUE. This Agreement will be governed by and

construed in accordance with the laws of the State of New York, without regard

to any conflict of law provision. Any legal actions with respect to any matters

arising under this Agreement shall be brought exclusively in a court of

competent jurisdiction in New York, New York.



     10. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to create

any right, claim or remedy in favor of any person or entity, other than the

parties hereto and their respective successors.



     11. COUNTERPARTS. This Agreement may be executed in any number of

counterparts, each of which shall be deemed and original, but all of which

together shall constitute one and the same instrument.





                            [Signature Page Follows]



<PAGE>





     IN WITNESS WHEREOF, the parties named below have caused this Agreement to

be duly executed and delivered as of the date first above written.





                                             ON2.COM INC.





                                             By:

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

                                             Name:

                                             Title:





                                             THE TRAVELERS INDEMNITY COMPANY





                                             By:

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

                                             Name:

                                             Title:







<PAGE>





                                    EXHIBIT A



                                   Exhibit A-1



                                  ON2.COM INC.



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



                                 DESIGNATION OF

                        POWERS, PREFERENCES AND RIGHTS OF

                          SERIES C-IV PREFERRED STOCK,

                            PAR VALUE $0.01 PER SHARE



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



               Pursuant to Section 151(g) of the Delaware General

                                 Corporation Law



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





IT IS HEREBY CERTIFIED that:



     1. The name of the company (hereinafter called the "COMPANY") is On2.com

Inc., a corporation organized and now existing under the Delaware General

Corporation Law.



     2. The Certificate of Incorporation of the Company (the "CERTIFICATE OF

INCORPORATION") authorizes the issuance of Twenty Million (20,000,000) shares of

preferred stock, par value $0.01 per share (the "PREFERRED STOCK"), and

expressly vests in the Board of Directors of the Company the authority to issue

any or all of said shares in one or more series by resolution or resolutions to

establish the designation and number and to fix the relative rights and

preferences of each series to be issued.



     3. The Board of Directors of the Company, pursuant to the authority

expressly vested in it as aforesaid, and pursuant to the provisions of Section

151(g) of the Delaware General Corporation Law, has adopted the resolution set

forth below to create a series issue of Preferred Stock. Pursuant to 151(g), the

approval of the Company's shareholders was not required.



     RESOLVED, THAT One Million Eight Hundred Forty-Nine Thousand Fifty-Seven

(1,849,057) shares of the Twenty Million (20,000,000) shares of Preferred Stock

of the Company which are authorized shares as of the date of this Certificate

shall hereby be designated Series C-IV Preferred Stock, par value $0.01 per

share, and shall possess the rights and preferences set forth below, which shall

constitute a new Section 7E to Article IV of the Certificate of Incorporation:



     "Section 7E. Series C-IV Preferred Stock.



<PAGE>



     1. DESIGNATION AND AMOUNT. One Million Eight Hundred Forty-Nine Thousand

Fifty-Seven (1,849,057) shares of the Twenty Million (20,000,000) authorized

shares of Preferred Stock of the Company are designated Series C-IV Preferred

Stock (the "SERIES C-IV PREFERRED STOCK"). The Series C-IV Preferred Stock shall

be issued or offered at a purchase price equal to $2.65 per share (the "SERIES

C-IV ORIGINAL ISSUE PRICE"). The holders of record of any series of the Series

C-IV Preferred Stock are sometimes referred to in this Section 7E as the "SERIES

C-IV HOLDERS." The holders of record of any shares of any series of the

Preferred Stock are referred to in this Section 7E as the "HOLDERS."



     2. RANK. The Series C-IV Preferred Stock shall rank on parity with the

Company's Series A Preferred Stock, the Company's Series B Preferred Stock and

any other subdivision of the Company's Series C Preferred Stock and shall

accordingly rank (i) junior to any other class or series of capital stock of the

Company hereafter created specifically ranking by its terms senior to the Series

A Preferred Stock, the Series B Preferred Stock, the Series C-IV Preferred Stock

or any other subdivision of the Series C Preferred Stock (the "SENIOR

SECURITIES"); (ii) prior to all of the Common Stock; (iii) prior to any class or

series of capital stock of the Company hereafter created not specifically

ranking by its terms senior to or on parity with any Series A Preferred Stock,

Series B Preferred Stock or Series C Preferred Stock of whatever subdivision

(collectively, with the Common Stock, the "JUNIOR SECURITIES"); and (iv) on

parity with any class or series of capital stock of the Company hereafter

created specifically ranking by its terms on parity with the Series A Preferred

Stock, the Series B Preferred Stock or any subdivision of the Series C Preferred

Stock (the "PARITY SECURITIES") in each case as to distribution of assets upon

any liquidation, dissolution or winding up of the Company, whether voluntary or

involuntary (all such distributions being referred to collectively as

"DISTRIBUTIONS").



     3. LIQUIDATION PREFERENCE.



     (a) In the event of any Distribution, the Series C-IV Holders shall be

entitled to receive, immediately after any distributions to the holders of the

Senior Securities required by the Company's Certificate of Incorporation, and

prior in preference to any distribution to the holders of the Junior Securities,

but in parity with any Distribution to the holders of the Series A Preferred

Stock (the "SERIES A HOLDERS"), the holders of the Series B Preferred Stock (the

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