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Agreement on Media Streaming Technology - Microsoft Corp. and Progressive Networks Inc.

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AGREEMENT BETWEEN MICROSOFT AND PROGRESSIVE NETWORKS ON MEDIA STREAMING
TECHNOLOGY


This "Agreement" is entered into and effective as of June 17, 1997 (the
"Effective Date") by and between MICROSOFT CORPORATION, a Washington
corporation located at One Microsoft Way, Redmond, WA 98052 ("Microsoft") and
PROGRESSIVE NETWORKS, INC., a Washington corporation located at 1111 Third
Avenue, Suite 2900, Seattle, WA 98101 ("PN").

1.       DEFINITIONS

1.1      "Standard Code" means all of the PN and third party code (subject to
         Section 2.2) used in PN's current version 4.0 streaming audio and video
         client and server products, including, but not limited to, PN Internal
         Tools, tools currently provided to third parties at no charge by PN [*]
         and including bug-fixes developed by PN during the one year following
         delivery by PN, for all operating system platforms, including but not
         limited to all versions of Microsoft Windows, all versions of UNIX, the
         Macintosh operating system, and the WebTV operating system.  Standard
         Code shall not include code PN's "Splitter" products or its Player Plus
         software, nor shall it include future-developed technology for
         advertisement insertion, datatypes other than audio or video (which are
         not included in PN Clients or RA/RV Server), distributed networking
         (such as Splitter finding), tools which are value-add technology on top
         of base level encoders, billing and other value added technology
         (technology which is not required for Compatibility purposes).  It is
         expressly understood that base level encoding and compression
         technology is part of the Standard Code; further, thinning and
         bandwidth negotiation are part of the Standard Code to the extent such
         technologies are used in PN's current version 4.0 streaming audio and
         video client and server products.  Standard Code does not include added
         PN or third party hardware or software technology bundled with Standard
         Code as part of short term sales promotions.

1.2      "Internal Tools" means associated documentation, specifications, and
         tools developed by either party, necessary to build and create
         derivative works of the code.

1.3      "Software Development Kits" means code licensed by PN to third parties
          for purposes of development as part of or in conjunction with PN's
          streaming audio and video client and server products, and code
          licensed by Microsoft to third parties for purposes of development as
          part of or in conjunction with Microsoft's streaming audio and video
          client and server products.

1.4      "Term" means the three (3) year period commencing upon the Effective
         Date.

1.5      "Confidential Information" means: (i) any trade secrets relating to
         either party's product or service plans, designs, costs, prices and
         names, finances, marketing plans, business opportunities, personnel,
         research, development or know-how; and (ii) the specific terms and
         conditions of this Agreement.  "Confidential Information" shall not
         include information that: (i) is or becomes generally known or
         available, whether by publication, commercial use or otherwise,
         without restriction on disclosure and through no fault of the
         receiving party; (ii) is known and has been reduced to tangible form
         by the receiving party at the time of disclosure and is not subject to
         restriction; (iii) is independently developed or learned by the
         receiving party without reference to any Confidential Information of
         the disclosing party; and (iv) is lawfully obtained from a third party
         that has the right to make such disclosure.

1.6      "PN Clients" means PN's RealAudio and RealVideo standard player,
         versions 4.0.

1.7      "RA/RV Server" means PN's Easy Start RealAudio/RealVideo server
         software version 4.0, with 60 user stream capability.





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Portions of this agreement have been omitted pursuant to Rule 406 and filed
separately with the Commission.

[*] denotes confidential treatment requested
<PAGE>   2
1.9      "Compatible" means audio/video client or server streaming software
         which interoperates with the PN Clients or the RA/RV Server (including
         current versions of the PN Clients and the RA/RV Server as of the date
         of a subsequent delivery of Standard Code), respectively, or as the
         parties may otherwise mutually agree.  For purposes of this Agreement
         "interoperates" means the clients and servers of both parties will
         operate substantially as well with PN Clients and RA/RV Server
         (including current versions of the PN Clients and the RA/RV Server as
         of the date of a subsequent delivery of Standard Code) as with its own
         products.

2.       LICENSE GRANTS

2.1      Non-Exclusive License to Standard Code. PN hereby grants to Microsoft a
         non-exclusive, perpetual, [*], worldwide, fully paid-up right and
         license to: (i) use, copy, modify, translate and create derivative
         works of the source and binary versions of the Standard Code; (ii)
         reproduce, license, rent, lease, broadcast publicly display, transmit
         or otherwise distribute in any medium now known or hereafter devised
         (collectively, "Distribute") and have Distributed, to and by third
         parties, binary versions of the Standard Code [*], (iii) [*]
         sublicense, to and by third parties, the source versions of the
         Standard Code, provided that Microsoft will only [*], license and
         sublicense Standard Code source under conditions of confidentiality and
         the same degree of care that Microsoft applies to its Windows NT source
         code; and (iv) grant any and all of the rights set forth in this
         Section 2 in the Standard Code to third parties, [*].

         The foregoing license grants include a license under any current and
         future patents owned or licensable by PN to the extent necessary: (i)
         to exercise any license right granted herein; and (ii) to combine the
         Standard Code and/or derivative works thereof with any hardware and
         software.

2.2      Third Party Rights.

         (a)   PN. If PN does not have sufficient rights in third party code
               included in Standard Code to grant the rights set forth in
               Section 2.1, then PN shall so notify Microsoft. The license
               grants set forth in Section 2.1 shall be presumed to grant
               Microsoft all the rights which PN can grant, and [*] to enable
               the license grant set forth in Section 2.1 to Microsoft. PN's
               cumulative liability under this Section 2.2(a) shall be [*].

         (b)   Microsoft. If Microsoft does not have sufficient rights in third
               party code included in Microsoft Code (as defined below) to grant
               the rights set forth in Section 2.4, then Microsoft shall so
               notify PN. The license grants set forth in Sections 2.4(b) and
               (c) shall be presumed to grant PN all the rights which Microsoft
               can grant, and Microsoft shall, [*] to enable the license grant
               set forth in Sections 2.4(b) and (c) to PN. Microsoft's
               cumulative liability under this Section 2.2(b) shall be [*].

         (c)   Cooperation. The parties shall cooperate with respect to
               licensing and obtaining necessary rights to third party code.
               For Standard Code delivered in the initial delivery or any
               Microsoft Code to be delivered at the same time, within fifteen
               (15) days of the Effective Date each party will notify the other
               of any third party license issues. For subsequent deliveries of
               code under this Agreement, each party will, on or before such
               delivery, notify the other of any third party license issues.

2.3      Non-Exclusive License to PN Trademarks.  PN hereby grants to Microsoft
         a non-exclusive, perpetual, irrevocable, worldwide, fully paid- up
         right and license to use and sublicense the use of any "PN Marks" for
         identification of, or in conjunction with, or as part of Microsoft
         products which are








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<PAGE>   3

         Compatible.  For purposes of this Section 2.3, "PN Marks" means PN
         trademarks and related logos for "Real Audio" and "Real Video."  If
         Microsoft exercises its rights under Section 3.3, the PN Marks will
         also include those marks and associated logos which are used in
         connection with the applicable versions of the Compatible PN Clients
         and RA/RV Server.

         PN agrees that it will license use of the PN Marks to third parties
         only for use with products that are Compatible.  Microsoft may only
         sublicense the PN Marks for use in connection with third party
         products which are Compatible, and which comply with the PN quality
         control guidelines imposed on Microsoft under this Agreement.
         Microsoft will use good faith efforts to ensure that its sublicensees
         abide by PN's quality control guidelines, and will cooperate with PN
         to remedy any violation thereof by its sublicensees.

         Microsoft agrees that it will comply with PN's trademark usage
         guidelines regarding the style and design of the PN Marks, which PN
         will deliver to Microsoft within two (2) weeks of the Effective Date.
         Microsoft agrees to cooperate with PN in facilitating PN's reasonable
         monitoring and review of the nature and quality of products and
         services bearing the PN Marks, and to supply PN with specimens of
         Microsoft's use of the PN Marks upon reasonable request Microsoft
         understands and agrees that the use of any PN Mark in connection with
         this Agreement shall not create any right, title or interest in or to
         the use of the PN Marks and that all such use and goodwill associated
         with the PN Marks will inure to the benefit of PN.  [*]

2.4      License Back

         (a)   Scope and Frequency of Delivery. Pursuant to Section 2.4(b),
               Microsoft shall license back to PN (i) any and all modifications
               and derivative works of the Standard Code, and (ii) Microsoft
               software which is essentially of the same functionality as the
               Standard Code, and associated Microsoft Internal Tools, Software
               Development Kits and bug fixes (collectively "Microsoft Code").
               Delivery of Microsoft Code so licensed back to PN shall occur
               once on a date determined by PN [*] under Section 3.

         (b)   License Back - Source. Microsoft hereby grants to PN, for the
               License Back term, a non-exclusive, worldwide, fully paid-up
               right and license to: (i) copy, review and evaluate the source
               version of the Microsoft Code solely for purposes of building
               value-added products; (ii) use, copy, modify and create
               derivative works of the source versions of the Microsoft Code
               solely for purposes of correcting bugs or fixing errors in the
               Microsoft Code; and (iii) use, copy, modify and create derivative
               works of the source versions of the Microsoft Code solely for
               purposes of porting the Microsoft Code to non-Microsoft operating
               system platforms.

               "License Back Term" means, as applicable, (i) a period of [*]
               following initial delivery of the Standard Code by PN to
               Microsoft under Section 3.2, or (ii) a period of [*] following
               any subsequent delivery of Standard Code by PN to Microsoft under
               Section 3.3.

         (c)   License Back - Binary. Microsoft grants to PN a non-exclusive,
               worldwide, perpetual (provided PN continues to meet any royalty
               obligations) right and license to Distribute and have
               Distributed, to and by third parties, binary-only versions of the
               Microsoft Code delivered during the License Back Term and any
               derivative works of thereof created by PN under Section 2.4(b).

               Any Distribution to a third party of Microsoft Code in binary
               form is subject to a royalty as follows. If PN Distributes
               Microsoft Code for Microsoft operating system platforms, and if
               Microsoft Distributes the same or substantially similar software
               for no fee, or as a feature of the operating system for no
               additional cost, then during the same period for which Microsoft
               so Distributes for free, PN shall owe no royalty. If PN
               Distributes Microsoft Code for Microsoft operating system
               platforms, and if Microsoft distributes the same or substantially
               similar software for a fee or as a revenue product (including if
               it converts from a [*], provided such conversion shall not affect
               any existing agreements of PN) then PN shall pay for such
               Microsoft Code on terms and conditions no less favorable than
               those granted to any other resellers or licensees of the
               Microsoft Code. If PN Distributes Microsoft Code for
               non-Microsoft operating system platforms, then PN shall pay a
               royalty to Microsoft equal to [*] PN receives for such
               Distribution. Should PN wish to Distribute Microsoft Code for
               non-Microsoft operating system platforms, the parties will enter
               into an agreement outlining payment terms, including but not
               limited to provisions for payment, audit and the like.

         The foregoing license grants include a license under any current and
         future patents owned or licensable by Microsoft to the extent
         necessary: (i) to exercise any license right granted herein; and (ii)
         to combine the Microsoft Code and/or derivative works thereof with any
         hardware and software.




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2.5      Distribution of RA/RV Server.  Until Microsoft distributes a
         Compatible server product, Microsoft shall distribute the RA/RV Server
         [*] Microsoft's website shall provide cross-links to PN's website for
         additional information and support of the RA/RV Server. PN shall be
         solely responsible for RA/RV Server end user support and shall have
         the discretion to create appropriate support policies for end user
         support.

2.6      Distribution of PN Clients. [*] between the parties effective [*] is
         hereby [*] by this Section 2.6. For a period of [*] from the [*]
         Microsoft will include the PN Clients (including Promo Player Plus)
         with Microsoft Internet Explorer version 4.0 distributed on CD-ROM,
         through OEMs, via "On-Line Systems" (as defined [*]) and in the same
         manner, place or distribution mechanism as Microsoft distributes
         NetShow (or any other equivalent streaming media client) as part of a
         standard Microsoft product, except for any configurations of Internet
         Explorer version 4.0 designed for minimal download size which do not
         include NetShow (or any other equivalent streaming media client).
         Provided that the parties [*] and further provided that PN supports
         DirectShow and the mutually defined ASF file format (to the extent such
         formats have been determined) within [*] Microsoft will continue to
         include the PN Clients (and Promo Player Plus), as set forth in [*].
        
2.7      Support.  During the Term, each party shall use commercially practical
         efforts to:

         (a)     [*]

         (b)     Provide consistent points of contact at the program manager
                 and executive level; and

         (c)     Provide each other reasonable level of technical support.

         PN will receive such information at such quarterly meetings and to the
         same extent provided to Microsoft's own internal streaming media
         operations.





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<PAGE>   5
3.       LICENSE FEE; DELIVERY; CONSULTING

3.1      Initial Delivery.  On a date within thirty (30) days of signing this
         agreement, such date to be set by Microsoft at its sole discretion, PN
         shall make delivery to Microsoft of the Standard Code.  At that time,
         PN shall deliver to Microsoft PN's latest version of the Standard
         Code, including any and all works in progress whether or not such
         works have been released by PN.  PN shall also provide Microsoft with
         six (6) man-months of free consulting help by knowledgeable PN
         employee's to train Microsoft with respect to the Standard Code,
         including but not limited to how to build and create derivative works
         of the Standard Code.

3.2      License Fee.  In consideration for the rights and licenses granted
         under this Agreement, Microsoft shall pay PN the sum of thirty millon
         dollars ($30,000,000).  Of this amount, twenty million dollars
         ($20,000,000) shall be paid [*] and ten million dollars ($10,000,000)
         shall be paid within thirty (30) days of the earlier of (i) PN's
         completion of the associated six (6) man months of consulting services
         and (ii) six (6) months after the initial delivery of the Standard
         Code from PN.

3.3      Subsequent Deliveries. During the first and second years following
         initial delivery of the Standard Code, Microsoft shall have the option,
         at its sole discretion, of receiving further deliveries, [*]. If
         Microsoft takes the first optional delivery [*] following initial
         delivery of the Standard Code, it shall pay PN a flat fee of
         twenty-five million dollars ($25,000,000). If Microsoft takes the
         second optional delivery, it shall pay PN a further flat fee of
         thirty-five million dollars ($35,000,000). Within the time periods
         specified, Microsoft shall decide the dates for such deliveries at its
         sole discretion. If such deliveries are made, then the code delivered
         shall be considered Standard Code for purposes of this agreement and
         shall be subject to all the terms of this agreement. For amounts due
         under this Section 3.3 [*].

3.4      Bug Fixes.  PN shall deliver any bug fixes to the Standard Code on a
         quarterly basis in the twelve (12) months following the initial [*].

3.5      UNIX Port.  Regardless of whether Microsoft exercises its rights to
         subsequent deliveries of Standard Code, PN shall deliver to Microsoft
         any UNIX port of Microsoft Code which PN makes which PN does not
         distribute or ceases to distribute.  Such UNIX port shall be
         considered licensed royalty-free to Microsoft under the terms of
         Section 2.1.

4.       PATENT ISSUES

4.1      Patent Covenant.  PN covenants not to (a) sue or (b) bring, prosecute,
         assist or participate in any judicial, administrative or other
         proceedings of any kind against Microsoft or its licensees (including
         but not limited to OEMs and other distributors) for infringement of PN
         Patents which occurs during the Immunity Period on account of the
         manufacture, use, sale, importation, promotion or distribution of any
         Microsoft audio and video client and server streaming functionality
         included in any Microsoft products and technology (except Foundry
         products and technology), regardless of whether such products and
         technology is marketed under a Microsoft trademark regardless of
         whether such products include Standard Code.  "PN Patents" as used in
         this Section 4.1 means (i) any and all patents (other than design
         patents or the equivalent), or the inventions, ideas or applications
         thereof, worldwide, whether currently existing, or later developed,
         applied for, issued prior to the Term, or issuing during





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<PAGE>   6
         the Term, and under which patents (or the inventions, ideas or
         applications therefor) PN, or any of its Affiliates, now has or
         obtains during the Term, the ability or right to license or grant
         immunity from suit; and (ii) all extensions, divisionals,
         continuations, continuations-in-art, re-examinations and reissue
         patents of such patents, as well as patent applications thereof, to
         the extent rights attach to such applications.  The "Immunity Period"
         shall commence upon the first to issue and shall terminate upon the
         last to expire, of any of the PN Patents (in any jurisdiction).

         For purposes of this Section 4, "Foundry" means a product or
         technology manufactured, reproduced, sold, leased, licensed or
         otherwise transferred ("Transferred") by one party to this Agreement
         (the "Acting Party") to a third party, wherein the product or
         technology is (i) designed by or for a third Party without substantial
         input from the Acting Party and Transferred from the Acting Party to
         such third party or such third party's customers on an exclusive or
         substantially exclusive basis; or (ii) otherwise Transferred through
         or by the Acting Party for the purpose of circumventing any patent
         rights of the other Party to this Agreement.

4.2      Patent Covenant.  Microsoft covenants not to (a) sue or (b) bring,
         prosecute, assist or participate in any judicial administrative or
         other proceedings of any kind against PN or its licensees (including
         but not limited to OEMs and other distributors) for infringement of
         Microsoft Patents which occurs during the Immunity Period on account
         of the manufacture, use, sale, importation, promotion or distribution
         of any PN audio and video client and server streaming functionality
         included in any PN products and technology (except Foundry products
         and technology), regardless of whether such products and technology is
         marketed under a PN trademark regardless of whether such products
         include Microsoft Code.  "Microsoft Patents" as used in this Section
         4.2 means (i) any and all patents (other than design patents or the
         equivalent), or the inventions, ideas or applications thereof,
         worldwide, whether currently existing, or later developed, applied
         for, issued prior to the Term, or issuing during the Term and under
         which patents (or the inventions, ideas or applications therefor)
         Microsoft, or any of its Affiliates, now has or obtains during the
         Term, the ability or right to license or grant immunity from suit; and
         (ii) all extensions, divisionals, continuations, continuations-in-art
         re-examinations and reissue patents of such patents, as well as patent
         applications thereof, to the extent rights attach to such
         applications.  The "Immunity Period" shall commence upon the first to
         issue and shall terminate upon the last to expire, of any of the
         Microsoft Patents (in any jurisdiction).

4.3      Patent Protection. In addition to any indemnification obligation under
         Section 10, where a third party is infringing PN Patents related to
         audio and video client and server streaming technology, PN will, upon
         Microsoft's request, use its best efforts to abate or suppress such
         infringement, [*]. Any settlement [*] shall be in good faith for
         valuable consideration, and, in the case where Microsoft is sued by
         the third party for infringement of any third party patents related
         to audio or video client or server streaming technology, and Microsoft
         is financing a cause of action by PN against such third party as set
         forth below, such consideration shall be mutually agreed upon by PN
         and Microsoft. Should Microsoft request that PN initiate a patent
         infringement action against a third party, Microsoft shall finance
         such cause of action through a loan to PN under terms and conditions
         to be agreed by the parties. Any proceeds, damages collected or other
         remuneration as a result of such action shall be used first to pay
         off such loan. Unless the parties otherwise agree, if PN is unable
         under such cause of action to collect proceeds, damages or other
         remuneration sufficient to repay the loan, then the loan shall be
         forgiven to the extent PN cannot repay the difference from any proceeds
         collected.

4.4      Covenants Personal and Non-Assignable.  Each party agrees that the
         respective covenant granted to it in Section 4.1 or Section 4.2 is
         personal to it and may not be assigned, licensed or otherwise
         transferred by it in whole or in part, to any third party, whether
         under action of law or otherwise and including in connection with the
         insolvency or bankruptcy of such party.





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5.       MEDIA FILE FORMAT AGREEMENT

Microsoft and PN shall work in good faith and use best efforts to conclude,
within ten (10) business days, the agreement currently being negotiated to
align media file formats and client technology.


6.       SOURCE DISTRIBUTION

6.1      Distribution.  If, during the Term, PN licenses a third party all or a
         substantial portion of the Standard Code in source form, ("Event
         License"), then Microsoft shall be entitled to a refund of all license
         fees paid for delivery of Standard Code, including any fees paid for
         optional deliveries of Standard Code, as follows:

<TABLE>
<CAPTION>
                              Event License              Event License             Event License
License                  within  the first year     within the second year     within the third year
                               of the Term               of the Term                of the Term
                         ----------------------     ----------------------     ---------------------
<S>                      <C>                        <C>                        <C>
Amount of Refund of               100%                         [*]                      [*]
initial license fee                                                                       

Amount of refund of           Not applicable                   [*]                      [*]
license fee for first
optional delivery
(if any)                                                                                   

Amount of refund of           Not applicable             Not applicable                 [*]
license fee for second
optional delivery
(if any)
</TABLE>

6.2      Clarifications.

         (a) PN warrants and represents that, in the United States, it has no
             existing distribution agreements with [*], which agreements would
             not be an [*].

         (b) Notwithstanding anything to the contrary in Section 6.1, any
             distribution agreements entered into prior to the Effective Date
             shall not [*]. PN shall not renew such distribution agreements to
             the extent such renewal would be an [*] and where it can control
             or prevent such renewal.

         (c) Notwithstanding anything to the contrary in Section 6.1, the
             following shall not be considered [*]: (i) [*]; (ii) licenses for
             internal use of the Standard Code within a company or other
             organizations; (iii) licenses to bundle the Standard Code with
             substantial hardware value-adds; (iv) [*]; or (v) portions of the
             server Standard Code reasonably equivalent to those portions
             currently distributed as part of PN's Software Development Kits.

6.3      Termination of Event License.  PN may terminate any Event License
         promptly upon becoming aware of such Event License, and PN will not owe
         Microsoft any refund under this Section 6.

7.       INVESTMENT

7.1      Non-Voting Preferred Stock.  PN agrees to sell to Microsoft, and
         Microsoft agrees to purchase from PN, three million, three hundred
         thirty-eight thousand, three hundred seventy-four (3,338,374) shares
         of non-voting preferred stock of PN at a per share price of eight
         dollars and ninety-nine cents ($8.99).  These shares are convertible
         into voting or non-voting common stock (at Microsoft's option) of PN.





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         These preferred shares will have terms and rights and preferences
         comparable to existing preferred shares of PN.

7.2      Warrant.  Simultaneously with the purchase of the preferred shares set
         forth in Section 7.1, PN will grant to Microsoft a warrant to purchase
         three million, seven hundred nine thousand, three hundred and five
         (3,709,305) shares of non-voting preferred stock of PN, convertible
         into voting or non-voting common stock (at Microsoft's option) of PN.
         The purchase price of each share under the warrant shall equal
         thirteen dollars and forty-eight cents ($13.48), subject to standard
         adjustments for stock splits, stock dividends, reclassifications or
         reorganizations.  The warrant shall have a term of two and one-half
         (2.5) years.  In the event of an initial public offering ("IPO") of
         PN, the warrant shall either be exercised by Microsoft on or before
         the date of the IPO or shall expire.

7.3      Board of Directors.  So long as Microsoft holds no less than (i)
         3,338,374 shares of preferred stock (or common stock issued upon the
         conversion of the preferred shares), or (ii) five percent (5%) of the
         fully-diluted shares of PN, Microsoft shall have the right in its sole
         discretion to have either (a) a Microsoft representative appointed to
         the PN Board of Directors, or (b) a Microsoft representative appointed
         as an observer to the PN Board of Directors.  PN shall have the right
         to approve such board member or observer, provided such approval shall
         not be unreasonably withheld or delayed.

7.4      Approvals.  Microsoft acknowledges that (i) PN's obligations under
         this Section 7 are conditioned upon receiving certain shareholder
         approvals and (ii) the warrant in Section 7.2 and all shares to be
         purchased by Microsoft pursuant to this Section 7 will not have been
         registered under the Securities Act of 1933, as amended, and therefore
         may be issued and sold only upon Microsoft making such representations
         and warranties as are customary in connection with the purchase of
         restricted stock.  Microsoft agrees to make such customary
         representations and warranties.  PN will use its reasonable best
         efforts to obtain any necessary shareholder approvals identified by
         this Section 7.4.  In the event PN is unable to obtain such
         shareholder approval(s) by 5 p.m., June 23, 1997, PN shall propose to
         Microsoft alternative terms which do not require shareholder approval.
         If Microsoft does not agree to such alternative terms, this Agreement
         shall terminate.  If Microsoft does agree to such alternative terms,
         then notwithstanding such agreement by Microsoft and if PN convinces
         its shareholders within twenty-five (25) days to accept the original
         transaction, then the original terms shall apply.  Absent such
         shareholder approval of the original terms, the alternative terms
         proposed by PN and agreed to by Microsoft shall be the basis of the
         Agreement.  Upon such termination, then notwithstanding anything to
         the contrary herein (including but not limited to Section 11.5), this
         Agreement shall terminate as though the parties never executed the
         Agreement.

7.5      Definitive Agreements.  Each party will use all reasonable efforts to
         negotiate and close on any and all necessary agreements and approvals
         required to perfect the investment set forth in this Section 7 within
         thirty (30) days of the Effective Date.

7.6      Due Diligence.  Microsoft's obligation to purchase preferred shares of
         PN is subject to the satisfactory completion of due diligence by
         Microsoft.  PN will make available to Microsoft documents and
         information as reasonably requested, so that Microsoft can perform a
         full investigation of PN's business and legal conditions.  Microsoft
         will complete its due diligence within seven (7) days of notification
         by PN that PN has collected and made available to Microsoft all the
         due diligence materials requested by Microsoft.

7.7      Regulatory Approval.  The parties acknowledge that a material
         consideration of this Agreement is the ability to implement and
         conclude the Agreement expeditiously.  If, by 5 p.m., June 23, 1997,
         either party, in its sole discretion, determines that any required
         government or regulatory approvals (solely with respect to this
         Agreement and not in combination with any other proposed or actual
         transaction) could cause unacceptable delay in successfully
         implementing and concluding the Agreement expeditiously, either party
         may terminate this Agreement.  Upon such termination, then
         notwithstanding anything to the contrary herein (including but not
         limited to Section 11.5), this Agreement shall terminate as though the
         parties never executed the Agreement.





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8.       CONFIDENTIALITY; ANNOUNCEMENTS

8.1      Announcement.  The parties will announce their relationship under this
         Agreement within thirty (30) days of the Effective Date.  The precise
         timing and content of any announcement of this Agreement must be
         jointly agreed upon, but both parties will acknowledge the nature of
         Microsoft's distribution of PN's technology, the fact of Microsoft's
         investment in PN, and other matters of strategic importance agreed to
         by the parties.  [*]  Upon such termination, then notwithstanding
         anything to the contrary herein (including but not limited to Section
         11.5), this Agreement shall terminate as though the parties never
         executed the Agreement.

8.2      Restrictions on Use and Disclosure.  Each party shall protect the
         other's Confidential Information from unauthorized dissemination and
         use with the same degree of care that such party uses to protect its
         own like information.  Neither party will use the other's Confidential
         Information for purposes other than those necessary to directly
         further the purposes of this Agreement.  Each party will use its best
         efforts not to disclose to third parties the other's Confidential
         Information without the prior written consent (except with respect to
         source code as set forth in Section 2.1) of the other party.  Except
         as expressly provided in this Agreement, no ownership or license
         rights are granted in any Confidential Information.

9.       WARRANTIES



                                                                    Page 9 of 14

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<PAGE>   10
9.1      PN.  PN warrants and covenants that:

         (a)  Except as may be otherwise provided in Section 7 and Section
              2.2(a), it has the sufficient authority and all necessary rights
              to enter into and perform according to the terms of this
              Agreement;

         (b)  To the best of its knowledge, it has the full and exclusive right
              to grant Microsoft the licenses granted herein to use the Standard
              Code and PN trademarks; and

         (c)  Except as otherwise disclosed to Microsoft, it is not aware of any
              lawsuits or other causes of action alleging that the Standard Code
              infringes the intellectual property rights of any third party,
              including but not limited to patent, copyright, trade secret and
              trademark.

         The representations and covenants contained in this Section 9.1 are
         [*].

9.2      Microsoft. Microsoft warrants and covenants that:

         (a)  Except as otherwise provided in Section 2.2(b), it has the
              sufficient authority and all necessary rights to enter into this
              Agreement and perform according to the terms of this Agreement;

         (b)  To the best of its knowledge, it has the full and exclusive right
              to grant PN the licenses granted herein to use the Microsoft Code;
              and

         (c)  It is not aware of any lawsuits or other causes of action alleging
              that the Microsoft Code infringes the intellectual property rights
              of any third party, including but not limited to patent,
              copyright, trade secret and trademark.

         The representations and covenants contained in this Section 9.2 are [*]




                                                               Page 10 of 14

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<PAGE>   11

10.      INDEMNITY

10.1     By PN.

         (a)   PN shall, at its expense and Microsoft's request, defend any
               claim or action brought against Microsoft, and Microsoft's
               subsidiaries, affiliates, directors, officers, employees, agents
               and independent contractors, to the extent it is based upon a
               claim that [*], and PN will indemnify and hold Microsoft harmless
               [*]. Microsoft shall: (i) provide PN reasonably prompt notice in
               writing of any PN Claims; (ii) permit PN, through counsel
               mutually acceptable to Microsoft and PN, to answer and defend the
               PN Claims; and (iii) provide PN information, assistance and
               authority, at PN's expense, to help PN to defend such claim or
               action. PN will not be responsible for any settlement made by
               Microsoft without PN's written permission, which permission will
               not be unreasonably withheld.

         (b)   PN may upon written notice thereof to Microsoft undertake to
               conduct all proceedings or negotiations in connection with PN
               Claims, assume the defense thereof, and if it so undertakes, it
               shall also undertake all other required steps or proceedings to
               settle or defend the PN Claims, including the employment of
               counsel which shall be reasonably satisfactory to Microsoft, and
               payment of all expenses. Microsoft, at its own expense, shall
               have the right to employ separate counsel and participate in the
               defense of the PN Claims. PN shall reimburse Microsoft upon
               demand for any payments made or loss suffered by it at any time
               after the date hereof, based upon the judgment of any court of
               competent jurisdiction or pursuant to a bona fide compromise or
               settlement of claims, demands or actions, in respect to any
               damages to which the foregoing relates.

         (c)   PN may not settle any PN Claim on Microsoft's behalf without
               first obtaining Microsoft's written permission, which permission
               will not be unreasonably withheld or delayed. In the event
               Microsoft and PN agree to settle a claim or action, PN agrees not
               to publicize the settlement without first obtaining Microsoft's
               written permission, which permission will not be unreasonably
               withheld or delayed.

         (d)   PN shall have no liability under this Section 10.1 for any third
               party intellectual property infringement claim based upon the
               combination of the Standard Code with non-PN products, where such
               infringement would not have occurred but for such combination.

10.2     By Microsoft.

         (a)   Microsoft shall, at its expense and PN's request, defend any
               claim or action brought against PN, and PN's subsidiaries,
               affiliates, directors, officers, employees, agents and
               independent contractors, to the extent it is based upon a claim
               that [*], and Microsoft will indemnify and hold PN harmless from
               and against any costs, damages and fees reasonably incurred by
               PN, including but not limited to fees of attorneys and other
               professionals, that are attributable to such Microsoft Claims.
               PN shall: (i) provide Microsoft reasonably prompt notice in
               writing of any Microsoft Claims; (ii) permit Microsoft, through
               counsel mutually acceptable to PN and Microsoft, to answer and
               defend the Microsoft Claims; and (iii) provide Microsoft
               information, assistance and authority, at Microsoft's exercise,
               to help Microsoft to defend such claim or action. Microsoft will
               not be responsible for any settlement made by PN without
               Microsoft's written permission, which permission will not be
               unreasonably withheld.

         (b)   Microsoft may upon written notice thereof to PN undertake to
               conduct all proceedings or negotiations in connection with
               Microsoft Claims, assume the defense thereof, and if it so
               undertakes, it shall also undertake all other required steps or
               proceedings to settle or defend the Microsoft Claims, including
               the employment of counsel which shall be reasonably satisfactory
               to PN, and payment of all expenses. PN, at its own expense,
               shall have the right to employ separate counsel and participate
               in the defense of the Microsoft Claims. Microsoft shall reimburse
               PN upon demand for any payments made or loss suffered by it at
               any time after the date hereof, based upon the judgment of any
               court of competent jurisdiction or pursuant to a bona fide
               compromise or settlement of claims, demands or actions, in
               respect to any damages to which the foregoing relates.

         (c)   Microsoft may not settle any Microsoft Claim on PN's behalf
               without first obtaining PN's written permission, which
               permission will not be unreasonably withheld or delayed. In the
               event PN and Microsoft agree to settle a claim or action,
               Microsoft agrees not to publicize the settlement without first
               obtaining PN's written permission, which permission will not be
               unreasonably withheld or delayed.

         (d)   Microsoft shall have no liability under this Section 10.2 for
               any third party intellectual property infringement claim based
               upon the combination of the Microsoft Code with non-Microsoft
               products, where such infringement would not have occurred but
               for such combination.

11.      TERMINATION

11.1     Term.  Unless earlier terminated in accordance with Section 11.2, this
         Agreement shall commence upon the Effective Date and continue in full
         force and effect through the Term.

11.2     Termination By Either Party For Cause.  Either party may suspend
         performance and/or terminate this Agreement immediately upon written
         notice at any time if the other party is in material breach of Section
         8.2 and fails to cure that breach within five (5) days after written
         notice thereof.

11.3     Dispute Resolution.  If the a party is in material breach of any
         material warranty, term, condition or covenant of this Agreement other
         than those contained in Section 8.2, such party shall cure that breach
         within forty-five (45) after written notice thereof.  If a party
         contests or disputes that material breach has so occurred, the parties
         shall submit any dispute to structured negotiation as follows:

         (a)     Coverage.  Other than actual or imminent material breaches of
                 Section 8.2, any dispute between the parties with respect to
                 this Agreement shall be submitted for structured negotiation.
                 The commencement, and any resolution reached as a result, of
                 any dispute resolution under Section 11.3 shall be considered
                 Confidential Information and protected under Section 8.

         (b)     Structured Negotiation.  Either party may invoke this
                 procedure by giving written notice to the other party
                 designating a corporate officer with appropriate authority to
                 be its representative in negotiations relating to the dispute.
                 Upon receipt of such notice, the other party shall, within
                 five (5) business days, designate a corporate officer with
                 similar authority to be its





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                 representative.  The designated officers shall, following
                 whatever investigation each deems appropriate, but no event
                 later than twenty (20) business days after the original
                 notice, enter into discussions concerning the dispute.  If
                 within an additional twenty (20) business days of their
                 initial meeting, the representatives do not resolve the
                 dispute, either party may submit the matter to binding
                 arbitration under Section 11.3(c).

         (c)     Binding Arbitration.  Any dispute not settled by the parties
                 by structured negotiation (other than actions for injunctive
                 relief including specific performance) shall be submitted only
                 to binding arbitration.  The arbitration will be conducted in
                 accordance with the procedures in this document and the
                 Arbitration Rides for Commercial Arbitration Rules of the AAA
                 ("AAA Rules").  In the event of a conflict with such rules,
                 the provisions of this Agreement will control.

                 The arbitration shall take place in Seattle, Washington,
                 before a panel of three arbitrators appointed as follows:
                 each party shall select a single arbitrator, and the two (2)
                 selected arbitrators shall mutually agree upon a third.  The
                 arbitrators selected shall have knowledge and experience in
                 the computer software business.  The arbitrators shall rule on
                 the dispute by issuing a written opinion setting forth
                 findings of fact and the rationale for their decision within
                 thirty (30) days after the close of hearings.  The decision
                 rendered by the arbitrators shall be final and binding and may
                 be entered as a judgment in any court of competent
                 jurisdiction.  The arbitrator(s) shall control the scheduling
                 so as to process the matter expeditiously.  The times
                 specified in this section may be extended upon mutual
                 agreement of the parties by the arbitrators upon a showing of
                 good cause.

                 Any issue concerning the extent to which any dispute is
                 subject to arbitration, or concerning the applicability,
                 interpretation or enforceability of these procedures,
                 including any contention that all or part of these procedures
                 are invalid or unenforceable, shall be governed by the Federal
                 Arbitration Act and resolved by the arbitrators.  No potential
                 arbitrator may serve on the panel unless he or she has agreed
                 in writing to abide and be bound by these procedures.

                 All aspects of the arbitration shall be treated as
                 Confidential Information.

                 Unless provided otherwise in the Agreement, the arbitrators
                 may not award non-monetary or equitable relief of any sort.
                 They will have no power to award damages inconsistent with the
                 Agreement.  In no event, even if any other portion of these
                 provisions is held to be invalid or unenforceable, shall the
                 arbitrators have power to make an award or impose a remedy
                 that could not be made or imposed by a court deciding the
                 matter in the same jurisdiction.

                 The parties may submit written briefs.  Discovery shall be
                 controlled by the arbitrators and shall be permitted as
                 follows: each party may submit in writing to a party, and that
                 party shall so respond, to a maximum of any combination of
                 thirty-five (35) (none of which may have subparts) of
                 interrogatories, demands to produce documents, and requests
                 for admission.

                 Each party shall bear its own costs of the arbitration.  A
                 party seeking discovery shall reimburse the responding party
                 the costs of production of documents (to include search time
                 and reproduction costs).  The parties shall equally split the
                 fees of the arbitration and the arbitrators.

11.4     Effect of Termination.

         (a)     Neither party shall be liable to the other for damages of any
                 sort resulting solely from terminating this Agreement in
                 accordance with its terms.

         (b)     Any end user licenses already validly granted by PN as the
                 effective date of termination shall not be affected and shall
                 survive termination.





                                                                   Page 12 of 14
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11.5     Survival.  In the event of termination or expiration of this Agreement
         for any reason, Sections 2.1 (provided that Microsoft has paid the
         applicable license fees set forth in Section 3), 2.2, 2.4(c), 3.2 (to
         the extent fees are due and owing), 4, 8.2, 9, 10, 11, 12 and 13 shall
         survive termination.

12.  LIMITATION OF LIABILITIES

NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR SPECIAL DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.

13.      GENERAL

13.1     Notices.  All notices and requests in connection with this Agreement
         shall be deemed given as of the day they are received either by
         messenger, delivery service, or in the United States of America mails,
         postage prepaid, certified or registered, return receipt requested,
         and addressed as follows:

         To PN:                             To Microsoft:
        
         Progressive Networks, Inc.         Microsoft Corporation
         1111 Third Avenue, Suite 2900      One Microsoft Way
         Seattle, WA 98101                  Redmond, WA 98052-6399
         Attention: General Counsel         Attention:
        
         Phone: (206) 674-2213              Phone:  (425) 882-8080
        
         Fax: (206) 674-2695                Fax:  (425) 936-7329
        
                                            Copy to:
                                            Microsoft Corporation
                                            One Microsoft Way
                                            Redmond, WA 98052-6399
                                            Attention: Law & Corporate Affairs
        
                                            Fax: (206) 936-7409
        
         or to such other address as a party may designate pursuant to this
         notice provision.

13.2     Independent Contractors.  PN is an independent contractor for
         Microsoft and nothing in this Agreement shall be construed as creating
         an employer-employee relationship, a partnership, or a joint venture
         between the parties.

13.3     Taxes.  In the event taxes are required to be withheld on payments
         made under this Agreement by any U.S.  (state or federal) or foreign
         government, Microsoft may deduct such taxes from the amount owed PN
         and pay them to the appropriate taxing authority.  Microsoft shall in
         turn promptly secure and deliver to PN an official receipt for any
         taxes withheld.  Microsoft will use reasonable efforts to minimize
         such taxes to the extent permissible under applicable law.

13.4     Governing Law.  This Agreement shall be governed by the laws of the
         State of Washington as though entered into between Washington
         residents and to be performed entirely within the State of Washington,
         and PN consents to jurisdiction and venue in the state and federal
         courts sitting in the State of Washington.  In any action or suit to
         enforce any right or remedy under this Agreement or to interpret any
         provision of this Agreement, the prevailing party shall be entitled to
         recover its costs, including reasonable attorneys' fees.





                                                                   Page 13 of 14
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13.5     Assignment.  This Agreement shall be binding upon and inure to the
         benefit of each party's respective successors and lawful assigns;
         provided, however, that PN may not assign this Agreement, in whole or
         in part, without the prior written approval of Microsoft. For purposes
         of this Agreement, a merger, consolidation, or other corporate
         reorganization, or a transfer or sale of any or all of a party's stock,
         or of all or substantially all of its assets shall be deemed to be an
         assignment; provided, however, that an IPO of PN stock shall not be
         considered an assignment.

13.6     Construction.  If for any reason a court of competent jurisdiction
         finds any provision of this Agreement, or portion thereof, to be
         unenforceable, that provision of the Agreement will be enforced to the
         maximum extent permissible so as to effect the intent of the parties,
         and the remainder of this Agreement will continue in full force and
         effect.  Failure by either party to enforce any provision of this
         Agreement will not be deemed a waiver of future enforcement of that or
         any other provision.  This Agreement has been negotiated by the
         parties and their respective counsel and will be interpreted fairly in
         accordance with its terms and without any strict construction in favor
         of or against either party.

13.7     Entire Agreement.  This Agreement does not constitute an offer by
         Microsoft and it shall not be effective until signed by both parties.
         This Agreement constitutes the entire agreement between the parties
         with respect to the subject matter hereof and merges all prior and
         contemporaneous communications.  It shall not be modified except by a
         written agreement dated subsequent to the date of this Agreement and
         signed on behalf of PN and Microsoft by their respective duly
         authorized representatives.

IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.


--------------------------------------------------------------------------------
  MICROSOFT CORPORATION                            PROGRESSIVE NETWORKS
--------------------------------------------------------------------------------



  By:   [s] Paul Martiz                            By:   [s] Rob Glaser
--------------------------------------------------------------------------------


  Name (Print):  Paul Martiz                       Name (print):  Rob Glaser
--------------------------------------------------------------------------------

  Title:  Group VP, Applications & Platforms       Title:  CEO
--------------------------------------------------------------------------------


  Date:  6/17/97                                   Date:  6-17-97
--------------------------------------------------------------------------------





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