Stock Purchase Warrant [Series E Preferred] - Progressive Networks Inc. and Microsoft Corp.
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES ACT (COLLECTIVELY, THE
"SECURITIES LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES (I) ARE
REGISTERED UNDER THE SECURITIES LAWS OR (II) ARE EXEMPT FROM REGISTRATION UNDER
THE SECURITIES LAWS AND THE COMPANY IS PROVIDED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 35 WARRANT TO PURCHASE 3,709,305
ISSUED: JULY 21, 1997 SHARES OF SERIES E PREFERRED STOCK
HOLDER: MICROSOFT CORPORATION
PROGRESSIVE NETWORKS, INC.
SERIES E PREFERRED STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms
and conditions of this Warrant, the person whose name appears as holder above,
or such other person to whom this Warrant may be transferred pursuant to Section
6 of this Warrant (the "Holder"), is entitled, at any time before the
termination of this Warrant as provided in Section 5 (the "Exercise Period"), to
subscribe for and purchase upon exercise of this Warrant Three Million Seven
Hundred Nine Thousand Three Hundred Five (3,709,305) fully paid and
nonassessable shares of Series E Preferred Stock (the "Warrant Stock") of
Progressive Networks, Inc., a Washington corporation (the "Company"), at a price
per share of $13.48 (the "Unit Price"). In the event, however, that pursuant to
the Company's Articles of Incorporation, as amended, an event causing conversion
of the Company's Series E Preferred Stock shall have occurred prior to the
exercise of this Warrant, in whole or in part, then this Warrant shall be
exercisable for the number of shares of Common Stock of the Company into which
the Series E Preferred Stock not purchased upon any prior exercise of the
Warrant would have been so converted (and, where the context requires, reference
to "Warrant Stock" shall be deemed to include such Common Stock).
This Warrant is subject to the following additional terms and
conditions:
1. Issuance of Warrant. This Warrant is issued in connection with
Holder's acquisition of shares of Series E Preferred Stock pursuant to the terms
of the Series E Preferred Stock Purchase Agreement dated July 21, 1997 (the
"Stock Purchase Agreement").
2. Method of Exercise.
(a) This Warrant may be exercised in whole at any time or from
time to time in part, but not as to a fractional share of Warrant Stock, by
delivering to the Company during
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the Exercise Period (i) the attached form of "Election to Purchase," duly
completed and executed by the Holder, (ii) this Warrant, and (iii) payment of
the Unit Price for each share of Warrant Stock for which the Warrant is
exercised in cash or by certified or official bank check payable to the order of
the Company or by wire transfer of immediately available funds to the account of
the Company. At the option of the Holder, in case of an exercise of this Warrant
other than in connection with an initial public offering, in lieu of paying the
Unit Price, the Holder may deliver this Warrant to the Company for cancellation
and receive shares of Warrant Stock in accordance with the following formula: in
exchange for each share of Warrant Stock issuable on exercise of the Warrant the
Holder delivers for cancellation, such Holder shall receive a fractional share
of Warrant Stock, such fraction to have a numerator equal to the Fair Market
Value per share of Warrant Stock at such time minus the Unit Price per share of
Warrant Stock at such time, and a denominator equal to the Fair Market Value per
share of Warrant Stock at such time. If the Holder receives notice of a proposed
initial public offering of the Company or an event described in Section 8(c)(i)
through (v) below, the Holder may make exercise of this Warrant contingent upon
consummation of such transaction (and, if such transaction is an initial public
offering, upon inclusion of the Warrant Stock as selling shareholder shares in
the offering) by so electing in writing in the Election to Purchase delivered to
the Company under this Section 2.
(b) For purposes of clause (a) of this Section 2, the "Fair
Market Value" per share of the Warrant Stock means: (i) the average of the
closing prices of the Company's Common Stock as quoted by NASDAQ or listed on
any exchange, whichever is applicable, as published in the Western Edition of
the Wall Street Journal for the five (5) trading days prior to the date of the
Holder's election hereunder or (ii) if applicable at the time of or in
connection with the exercise under clause (a) of this Section 2, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets. If
the Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
"Fair Market Value" of the Warrant Stock shall be the price at which a willing
buyer would buy and a willing seller would sell the Warrant Stock on the date of
exercise of the warrant as agreed to by the Holder and the Company. If the
Holder and the Company cannot agree on Fair Market Value within ten (10)
business days of the Company's receipt of the Holder's Election to Purchase, the
Fair Market Value shall be determined by an independent appraiser selected by
the Company and reasonably acceptable to the Holder. The cost of the appraisal
shall be divided equally between the Company and the Holder.
3. Delivery of Stock Certificates. Within three (3) days after the
exercise of this Warrant (in full or in part), the Company at its expense
(except for the payment of any applicable issue taxes) shall issue in the name
of and deliver to the Holder (a) a certificate or certificates for the number of
fully paid and nonassessable shares of Warrant Stock to which the Holder shall
be entitled upon such exercise (in such denominations of Warrant Stock as may be
requested by the Holder hereof and registered in the name of such Holder or such
other name(s) as shall be designated by such Holder, subject to the limitations
contained in Section 6), and (b) unless this Warrant has expired, a new Warrant
representing the number of shares of Warrant Stock, if any, with respect to
which this Warrant shall not have been exercised. The Holder
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shall for all purposes be deemed to have become the holder of record of such
shares of Warrant Stock on the date on which this Warrant is surrendered and
payment of the Warrant Price is made (or immediately upon consummation of a
Reorganization, in the case of an exercise that is contingent upon such an
event), irrespective of the date of delivery of the certificate or certificates
representing the Warrant Stock; provided, that if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of record of such shares of
Warrant Stock at the close of business on the next succeeding date on which the
stock transfer books are open.
4. Covenants as to Warrant Stock. The Company covenants and agrees that
all shares of Warrant Stock issued pursuant to the terms of this Warrant as well
as all shares of Common Stock issuable upon conversion of the Warrant Stock
(collectively, the "Reserved Shares") will, upon their issuance, be validly
issued and outstanding, fully paid and nonassessable. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved a sufficient number of the Reserved Shares to provide for the exercise
of the rights represented by this Warrant.
5. Vesting and Termination.
(a) This Warrant is exercisable from the date of issuance
until the Termination Date (as defined in this Section 5).
(b) If Microsoft Corporation, or any of its successors or
assigns ("Microsoft"), materially breaches any material warranty, term,
condition, or covenant of that certain Agreement between Microsoft and
Progressive Networks on Media Steaming Technology dated June 17, 1997, as
thereafter amended (the "Microsoft Agreement"), and such breach, other than of
the provisions of Section 8.2 of that Agreement, which the parties have agreed
cannot be cured, is not cured within forty-five (45) days after written notice
is given to Microsoft by the Company (the "Cure Period"), during which Cure
Period, or such shorter period ending on the date of cure if the breach is cured
prior to the end of such Cure Period, this Warrant shall not be exercisable,
this Warrant shall, immediately and automatically upon the breach (unless such
breach is cured during the Cure Period), be canceled and all rights granted
hereunder shall terminate, and, if applicable, any and all shares of Warrant
Stock or Common Stock issued as a result of any exercise of the rights
represented by this Warrant on or after the date of the breach, notwithstanding
that the date of discovery of such breach may be after such issuance or
issuances, shall be canceled, at the option of the Company, provided, however,
that in the event of such cancellation, the Company shall deliver written notice
of such cancellation to, and shall refund the Unit Price paid by, Microsoft with
respect to such shares and such cancellation shall be effective upon delivery to
Microsoft of the written notice and the Unit Price paid. If Microsoft disputes
that a material breach has occurred, whether a material breach has been cured,
or whether a material breach has been cured within the Cure Period, and the
parties submit such dispute to structured negotiation or binding arbitration as
provided in Section 11.3 of the Microsoft Agreement (the "Dispute Resolution
Period"), the parties agree that this Warrant shall not be exercisable during
the Dispute Resolution Period and thereafter unless and until the arbiter of the
dispute determines that Microsoft Corporation, or any of its successors or
assigns, has not breached the Microsoft Agreement or has cured the breach within
the Cure
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Period. The parties agree that this Section 5(b) shall survive any assignment of
this Warrant by Microsoft.
(c) Upon a merger or consolidation in which the Company is not
the survivor, an acquisition of all or substantially all of the assets of the
Company, a reorganization of the Company or a liquidation of the Company
(collectively, a "Reorganization"), in connection with which the holders of the
Company's capital stock will not receive stock or any other securities of any
other entity, this Warrant shall be canceled and all rights granted hereunder
shall terminate; provided, however, that the Company shall have delivered to the
Holder notice of the Reorganization no less than twenty (20) business days
before the date scheduled for the Reorganization.
(d) Upon closing of an underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering the offer and sale of Common Stock for
the account of the Company to the public (an "IPO"), this Warrant shall be
canceled and all rights granted hereunder shall terminate; provided, however,
that the Company shall deliver to the holder notice of the IPO no less than
fifteen (15) business days before the date scheduled for the closing of the IPO.
(e) If not sooner canceled pursuant to the provisions of
Sections 5(b), 5(c) or 5(d), this Warrant shall be canceled and the rights
granted hereunder shall terminate on January 21, 2000, provided, that if such
date occurs during the period (a "Lockup Period") described in Section 1.6 of
the Investors' Rights Agreement (as defined in the Stock Purchase Agreement) or
during the Dispute Resolution Period (as defined above), such date shall be
postponed until the fifteenth (15th) business day following the Lockup Period or
the Dispute Resolution Period, as applicable, provided that, in the event of the
latter, the arbiter of the dispute determines that Microsoft Corporation, or any
of its successors or assigns, has not breached the Microsoft Agreement or has
cured the breach within the Cure Period.
(f) The date of termination of this Warrant as provided in
this Section 5 shall be referred to herein as the "Termination Date."
6. Restrictions on Transfer. Neither this Warrant nor any securities
purchased upon exercise of this Warrant may be transferred unless (a) such
transfer is registered under the Securities Act and any applicable state
securities or blue sky laws, (b) the Company has received a legal opinion from
counsel and in form reasonably satisfactory to the Company to the effect that
the transfer is exempt from the prospectus delivery and registration
requirements of the Securities Act and any applicable state securities and blue
sky laws, or (c) the Company otherwise satisfies itself that such transfer is
exempt from registration.
7. Legend. A legend setting forth or referring to the above
restrictions, including those contained in Section 5(b) above, shall be placed
on this Warrant, any replacement hereof, and any certificate representing a
security issued pursuant to the exercise of this Warrant and a stop transfer
restriction or order may be placed on the books of the Company and with any
transfer agent until such securities may be legally sold or otherwise
transferred.
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8. Adjustment of Unit Price and Number of Shares.
(a) In case the Company shall at any time subdivide its
outstanding shares of Series E Preferred Stock into a greater number of shares,
the Unit Price in effect immediately prior to such subdivision shall be
proportionately reduced (and the number of shares of Warrant Stock for which
this Warrant shall be exercisable shall be increased in inverse proportion to
such reduction), and conversely, in case the outstanding shares of Series E
Preferred Stock of the Company shall be combined into a smaller number of
shares, the Unit Price in effect immediately prior to such combination shall be
proportionately increased (and the number of shares of Warrant Stock for which
this Warrant shall be exercisable shall be decreased in inverse proportion to
such increase).
(b) Upon any adjustment of the Unit Price and number of shares
purchasable upon the exercise of this Warrant, the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as shown on the
books of the Company. The notice shall be signed by the Company's chief
financial officer and shall state the Unit Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
(c) If at any time or from time to time the holders of Series
E Preferred Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,
(x) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time
directly or indirectly convertible into or exchangeable for
Preferred Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution (other than by conversion under
section 5.4 of the Company's Amended and Restated Articles of
Incorporation), or
(y) any cash paid or payable otherwise than as a cash
dividend, or
(z) Preferred Stock or other or additional stock or
other securities or property (including cash) by way of
spinoff, split-up, reclassification, combination of shares or
similar corporate rearrangement (other than shares of
Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of clause (a)
above), or
if at any time:
(i) the Company shall declare any cash dividend upon
its Series E Preferred Stock;
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(ii) the Company shall declare any dividend upon its
Series E Preferred Stock payable in stock or make any special
dividend or other distribution to the holders of its Series E
Preferred Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of its Series E Preferred Stock any
additional shares of stock of any class or other rights;
(iv) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation;
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(vi) the Company shall take or propose to take any
other action, notice of which is actually provided to holders
of the Series E Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (A) at least twenty (20) days
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such events listed in this Section 8(c) above or
for determining rights to vote (if applicable) in respect of any such events
listed above in this Section 8(c), and (B) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action, at least twenty (20) days written
notice of the date when the same shall take place. Any notice given in
accordance with the foregoing clause (A) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Series E Preferred Stock shall be entitled thereto. Any notice given
in accordance with the foregoing clause (B) shall also specify the date on which
the holders of Series E Preferred Stock shall be entitled to exchange their
Series E Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be.
(d) If the change in the outstanding Series E Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 8 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Unit Price and/or the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Unit
Price the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
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9. Consolidation or Merger of the Company. If the Company is a party to
(a) any consolidation or merger with another corporation in which the Company is
not the survivor, (b) any consolidation or merger of another entity into the
Company in which the Company is the survivor but, in connection therewith, the
Company's equity securities are changed into or exchanged for stock or other
securities of any other entity, or (c) any capital reorganization or
reclassification of its Series E Preferred Stock, pursuant to any of which
transactions the holders of the Company's capital stock are entitled to receive
with respect to or in exchange for such capital stock, stock or other
securities, whether alone or together with any other consideration (all such
consideration being the "Allowed Consideration"), then, as a condition of such
transaction, lawful and adequate provisions shall be made whereby the Holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Warrant Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such Allowed
Consideration as may be issued or payable with respect to or in exchange for the
number of shares of such Warrant Stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
appropriate provisions shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Unit Price and the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be reasonably practicable (as
determined in the good faith of the Company), in relation to the Allowed
Consideration thereafter deliverable upon the exercise hereof. The Company will
not effect any such consolidation or merger unless, prior to the consummation
thereof, the successor corporation resulting from such consolidation or merger
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such Allowed
Consideration as, in accordance with the foregoing provisions, such Holder may
be entitled to purchase.
10. Issue Tax. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the Warrant being exercised.
11. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Series E Preferred
Stock issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
12. Holder as Owner. The Company may deem and treat the holder of
record of this Warrant as the absolute owner hereof for all purposes regardless
of any notice to the contrary.
13. No Rights as Shareholder. This Warrant shall not entitle the Holder
to any voting rights or to any other rights as a shareholder of the Company or
to any other rights whatsoever except the rights stated herein; and no cash
dividend or interest shall be payable or shall accrue in respect of this Warrant
or the Warrant Stock purchasable hereunder unless, until and to the
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extent that this Warrant shall be exercised. No provisions hereof, in the
absence of affirmative action by the Holder to purchase shares of Preferred
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Unit Price or as
a shareholder of the Company, whether such liability is asserted by the Company
or by its creditors.
14. Construction. The validity and interpretation of the terms and
provisions of this Warrant shall be governed by the laws of the State of
Washington. The descriptive headings of the several sections of this Warrant are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions thereof.
15. Expiration. This Warrant shall be void and all rights represented
hereby shall cease unless exercised on or before the Termination Date. All
restrictions set forth herein on the shares of capital stock issued upon
exercise of any rights hereunder shall survive such exercise and expiration of
the rights granted hereunder.
16. Exchange of Warrant. This Warrant is exchangeable upon the
surrender hereof by the Holder at the office of the Company for new Warrants of
like tenor but of different denominations representing in the aggregate the
rights to subscribe for and purchase the number of shares that may be subscribed
for and purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of shares as shall be designated by the
Holder at the time of such surrender.
17. Lost Warrant Certificate. If this Warrant is lost, stolen,
mutilated or destroyed, the Company shall issue a new Warrant of like
denomination, tenor and date as this Warrant, subject to the Company's right to
require the Holder to give the Company a bond or other satisfactory security
sufficient to indemnify the Company against any claim that may be made against
it (including any expense or liability) on account of the alleged loss, theft,
mutilation or destruction of this Warrant or the issuance of such new Warrant.
18. Waivers and Amendments. This Warrant or any provision hereof may be
changed, waived, discharged or terminated only by a statement in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought.
19. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be mailed by United States mail
first-class postage prepaid, or by registered or certified mail with return
receipt requested, addressed as follows:
If to the Holder:
To the address last furnished in writing to the
Company by the Holder.
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If to the Company:
Progressive Networks, Inc.
1111 Third Avenue, Suite 500
Seattle, Washington 98101
Attention: President
With a copy to:
Progressive Networks, Inc.
1111 Third Avenue, Suite 500
Seattle, Washington 98101
Attention: General Counsel
Each of the foregoing parties shall be entitled to specify a different
address by giving five (5) days' advance written notice as aforesaid to the
other party.
20. Registration Rights. The Holder shall be entitled to registration
rights with respect to the shares of Common Stock issuable upon conversion of
the Warrant Stock to the extent provided in, and subject to the terms and
conditions of, the Investors' Rights Agreement.
21. Investment Intent. By accepting this Warrant, the Holder represents
that it is acquiring this Warrant for investment and not with a view to, or for
sale in connection with, any distribution thereof.
IN WITNESS WHEREOF, the Company has executed this certificate as of the
date first written above.
Progressive Networks, Inc.
By /s/ Mark Klebanoff
------------------
Its CFO
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ELECTION TO PURCHASE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant (the "Owner")
irrevocably exercises this Warrant for __________ shares of Series E Preferred
Stock of Progressive Networks, Inc. (the "Exercise Shares"), on the terms and
conditions specified in this Warrant, and requests that a certificate for the
Exercise Shares hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to _________________
______________________________________________________________ whose address is
_____________________________________________________________, and, if such
shares shall not include all of the shares for which this Warrant is
exercisable, that a new Warrant of like tenor and date for the balance of the
shares issuable hereunder (properly reduced to reflect cashless exercise, if
applicable) be delivered to the undersigned.
Dated: ____________________
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Signature of Registered Owner
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Title:
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(Street Address)
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(City) (State) (Zip Code)
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