Series C Preferred Stock Purchase Warrant - Encoding.com Inc. and Dominion Capital Management LLC
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
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Warrant No. WC-1 Number of Shares: Up to 41,053
Date of Issuance: June 22, 1999 (subject to adjustment)
ENCODING.COM, INC.
Series C Preferred Stock Purchase Warrant
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Encoding.com, Inc. (the "Company"), for value received, hereby certifies
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that Dominion Capital Management, L.L.C., or its registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
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purchase from the Company, at any time after the date hereof and on or before
the Expiration Date (as defined in Section 5 below), up to 41,053 shares of
Series C Preferred Stock of the Company (the "Preferred Stock"), at a per share
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purchase price of $1.90. The shares purchasable upon exercise of this Warrant
and the purchase price per share, as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Stock"
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and the "Purchase Price," respectively.
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1. Exercise.
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(a) Manner of Exercise. This Warrant may be exercised by the
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Registered Holder, in whole or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit A duly executed by such Registered
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Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full of the Purchase Price payable in
respect of the number of shares of Warrant Stock purchased upon such exercise.
The Purchase Price may be paid by cash, check, wire transfer or by the surrender
of promissory notes or other instruments representing indebtedness of the
Company to the Registered Holder.
(b) Effective Time of Exercise. Each exercise of this Warrant shall
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be deemed to have been effected immediately prior to the close of business on
the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall be issuable upon such
exercise as provided in Section 1(d) below shall be deemed to have become the
holder or holders of record of the Warrant Stock represented by such
certificates.
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(c) Net Issue Exercise.
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(i) In lieu of exercising this Warrant in the manner provided
above in Section 1(a), the Registered Holder may elect to receive shares equal
to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to such Holder a
number of shares of Warrant Stock computed using the following formula:
X = Y (A - B)
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A
Where X = The number of shares of Warrant Stock to be issued to the
Registered Holder.
Y = The number of shares of Warrant Stock purchasable under this
Warrant (at the date of such calculation).
A = The fair market value of one share of Warrant Stock (at the date
of such calculation).
B = The Purchase Price (as adjusted to the date of such calculation).
(ii) For purposes of this Section 1(c), the fair market value of
Warrant Stock on the date of calculation shall mean with respect to each share
of Warrant Stock:
(A) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by the
Securities and Exchange Commission, then the fair market value per share shall
be the product of (x) the initial "Price to Public" specified in the final
prospectus with respect to the offering and (y) the number of shares of Common
Stock into which each share of Warrant Stock is convertible at the date of
calculation;
(B) if this Warrant is exercised after, and not in
connection with, the Company's initial public offering, and if the Company's
Common Stock is traded on a securities exchange or The Nasdaq Stock Market or
actively traded over-the-counter:
(1) if the Company's Common Stock is traded on a
securities exchange or The Nasdaq Stock Market, the fair market value shall be
deemed to be the product of (x) the average of the closing prices over a thirty
(30) day period ending three days before date of calculation and (y) the number
of shares of Common Stock into which each share of Warrant Stock is convertible
on such date; or
(2) if the Company's Common Stock is actively traded
over-the-counter, the fair market value shall be deemed to be the product of (x)
the average of the closing bid or sales price (whichever is applicable) over the
thirty (30) day period ending three days before the date of calculation and (y)
the number of shares of Common Stock into which each share of Warrant Stock is
convertible on such date; or
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(C) if neither (A) nor (B) is applicable, the fair market
value of Warrant Stock shall be at the highest price per share which the Company
could obtain on the date of calculation from a willing buyer (not a current
employee or director) for shares of Warrant Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by the Board of
Directors, unless the Company is at such time subject to an acquisition as
described in Section 5(b) below, in which case the fair market value of Warrant
Stock shall be deemed to be the value received by the holders of such stock
pursuant to such acquisition.
(d) Delivery to Holder. As soon as practicable after the exercise of
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this Warrant in whole or in part, and in any event within ten (10) days
thereafter, the Company at its expense will cause to be issued in the name of,
and delivered to, the Registered Holder, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(b) or 1(d) above.
2. Adjustments.
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(a) Redemption or Conversion of Preferred Stock. If all of the
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Preferred Stock is redeemed or converted into shares of Common Stock, then this
Warrant shall automatically become exercisable for that number of shares of
Common Stock equal to the number of shares of Common Stock that would have been
received if this Warrant had been exercised in full and the shares of Preferred
Stock received thereupon had been simultaneously converted into shares of Common
Stock immediately prior to such event, and the Exercise Price shall be
automatically adjusted to equal the amount obtained by dividing (i) the
aggregate Purchase Price of the shares of Preferred Stock for which this Warrant
was exercisable immediately prior to such redemption or conversion, by (ii) the
number of shares of Common Stock for which this Warrant is exercisable
immediately after such redemption or conversion.
(b) Stock Splits and Dividends. If outstanding shares of the
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Company's Preferred Stock shall be subdivided into a greater number of shares or
a dividend in Preferred Stock shall be paid in respect of Preferred Stock, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Preferred Stock shall be
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of shares of
Warrant Stock purchasable upon the exercise of this Warrant shall be changed to
the number
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determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(c) Reclassification, Etc. In case there occurs any reclassification,
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merger or change of the outstanding securities of the Company or of any
reorganization of the Company (or any other corporation the stock or securities
of which are at the time receivable upon the exercise of this Warrant) or any
similar corporate reorganization on or after the date hereof, then and in each
such case the Registered Holder, upon the exercise hereof at any time after the
consummation of such reclassification, change, or reorganization shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which such Holder would have been entitled upon
such consummation if such Holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment pursuant to the provisions of this
Section 2.
(d) Adjustment Certificate. When any adjustment is required to be
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made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the
Company shall promptly mail to the Registered Holder a certificate setting forth
(i) a brief statement of the facts requiring such adjustment, (ii) the Purchase
Price after such adjustment and (iii) kind and amount of stock or other
securities or property into which this Warrant shall be exercisable after such
adjustment.
(e) Acknowledgement. In order to avoid doubt, it is acknowledged that
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the holder of this Warrant shall be entitled to the benefit of all adjustments
in the number of shares of Common Stock of the Company issuable upon conversion
of the Preferred Stock of the Company which occur prior to the exercise of this
Warrant, including without limitation, any increase in the number of shares of
Common Stock issuable upon conversion as a result of a dilutive issuance of
capital stock.
3. Transfers.
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(a) Unregistered Security. Each holder of this Warrant acknowledges
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that this Warrant, the Warrant Stock and the Common Stock of the Company have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and agrees not to sell, pledge, distribute, offer for sale,
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transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its
exercise or any Common Stock issued upon conversion of the Warrant Stock in the
absence of (i) an effective registration statement under the Act as to this
Warrant, such Warrant Stock or such Common Stock and registration or
qualification of this Warrant, such Warrant Stock or such Common Stock under any
applicable U.S. federal or state securities law then in effect, or (ii) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect.
(b) Transferability. Subject to the provisions of Section 3(a)
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hereof, this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of the
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<PAGE>
Warrant with a properly executed assignment (in the form of Exhibit B hereto) at
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the principal office of the Company provided, however, that this Warrant may not
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be transferred in part unless the transferee acquires the right to purchase at
least 50,000 shares (as adjusted pursuant to Section 2) of Warrant Stock
hereunder.
(c) Warrant Register. The Company will maintain a register containing
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the names and addresses of the Registered Holders of this Warrant. Until any
transfer of this Warrant is made in the warrant register, the Company may treat
the Registered Holder of this Warrant as the absolute owner hereof for all
purposes; provided, however, that if this Warrant is properly assigned in blank,
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the Company may (but shall not be required to) treat the bearer hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary. Any Registered Holder may change such Registered Holder's address as
shown on the warrant register by written notice to the Company requesting such
change.
4. No Impairment. The Company will not, by amendment of its charter or
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through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will (subject to Section 13 below) at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
5. Termination. This Warrant (and the right to purchase securities upon
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exercise hereof) shall terminate upon the earliest to occur of the following
(the "Expiration Date"): (a) June 22, 2008 or (b) the fourth anniversary of the
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closing of the Company's initial public offering of Common Stock.
6. Notices of Certain Transactions. In case:
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(a) the Company shall take a record of the holders of its Preferred
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company,
any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
entity), or any transfer of all or substantially all of the assets of the
Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) of any redemption of the Preferred Stock or mandatory conversion
of the Preferred Stock into Common Stock of the Company,
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then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Preferred Stock (or such other
stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion) are to be determined. Such notice shall
be mailed at least ten (10) days prior to the record date or effective date for
the event specified in such notice.
7. Reservation of Stock. The Company will at all times reserve and keep
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available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
8. Exchange of Warrants. Upon the surrender by the Registered Holder of
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any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Preferred Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrants. Upon receipt of evidence reasonably
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satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Mailing of Notices. Any notice required or permitted pursuant to this
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Warrant shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or sent by courier, overnight delivery service or confirmed
facsimile, or forty-eight (48) hours after being deposited in the regular mail,
as certified or registered mail (airmail if sent internationally), with postage
prepaid, addressed (a) if to the Registered Holder, to the address of the
Registered Holder most recently furnished in writing to the Company and (b) if
to the Company, to the address set forth below or subsequently modified by
written notice to the Registered Holder.
11. No Rights as Stockholder. Until the exercise of this Warrant, the
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Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
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12. No Fractional Shares. No fractional shares of Preferred Stock will be
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issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Preferred Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
13. Amendment or Waiver. Any term of this Warrant may be amended or waived
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only by an instrument in writing signed by the party against which enforcement
of the amendment or waiver is sought.
14. Market Stand-Off Agreement.
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(a) Registered Holder hereby agrees that, during the period of duration
(up to, but not exceeding, 180 days) specified by the Company and an underwriter
of Common Stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Securities Act, it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration.
(b) In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the securities of Registered Holder
until the end of such period, and Registered Holder agrees that, if so
requested, Registered Holder will execute an agreement in the form provided by
the underwriter containing terms which are essentially consistent with the
provisions of this Section 14.
15. Headings. The headings in this Warrant are for purposes of reference
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only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. Registration Rights. The Company will include the Warrant Shares as
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Registrable Securities for purposes of registration rights and right of first
offer of the Company's Amended and Restated Investors Rights Agreement dated as
of April 30, 1999, by amending such agreement, provided that such amendment is
subject to shareholder approval.
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17. Governing Law. This Warrant shall be governed, construed and
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interpreted in accordance with the laws of the State of Washington, without
giving effect to principles of conflicts of law.
ENCODING.COM, INC.
/s/ Martin Tobias
By:________________________________________
CEO
Its:_______________________________________
Address: 3406 E. Union St.
Seattle, WA 98122
Fax Number: (425) 702-5970
Agreed and Accepted:
/s/ Emily Welther, Dominion Capital Management
By:________________________________________________
VP Finance
Its:_______________________________________________
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EXHIBIT A
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PURCHASE FORM
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To: Encoding.com, Inc. Dated: _________
The undersigned, pursuant to the provisions set forth in the attached
Warrant No. WC-1, hereby irrevocably elects to purchase _______ shares of the
Preferred Stock covered by such Warrant and herewith makes payment of
$_________, representing the full purchase price for such shares at the price
per share provided for in such Warrant.
Signature:________________________
Address:__________________________
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EXHIBIT B
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ASSIGNMENT FORM
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FOR VALUE RECEIVED, _________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant with respect to the number of shares of Series C Preferred Stock covered
thereby set forth below, unto:
Name of Assignee Address/Fax Number No. of Shares
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Dated:_________________ Signature:____________________________
____________________________
Witness: ____________________________
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