SC TO-C

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): July 8, 2009

RealNetworks, Inc.

(Exact name of registrant as specified in its charter)

WASHINGTON	0-23137	91-1628146
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

2601 Elliott Avenue, Suite 1000
Seattle, Washington 98121
(Address of principal executive offices) (Zip code)

(206) 674-2700
Registrant’s telephone number, including area code

Not Applicable
(Former name or former address if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

þ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

þ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-99.1

Item 8.01. Other Events.

Update on Proposed Employee Stock Option Exchange Program

On July 8, 2009, Robert Glaser, Chairman and Chief Executive Officer of RealNetworks, Inc. (the “Company”), announced to the Company’s employees through a video recording additional details relating to a proposed option exchange program for certain stock options held by Company employees. A transcript of Mr. Glaser’s comments relating to the proposed option exchange program made in the video recording is attached to this report as Exhibit 99.1.

2009 Annual Shareholders Meeting

     On July 1, 2009, the Board of Directors of the Company established September 21, 2009 as the date for the Company’s 2009 annual shareholders meeting. Proposals of shareholders that are intended to be presented at the 2009 annual meeting must be received by the Company a reasonable time before it begins to print and mail proxy materials, which the Company expects will occur in late July 2009, in order to be included in the proxy statement and form of proxy relating to the annual meeting. If the Company does not receive notice of a shareholder proposal a reasonable time before mailing the proxy materials, the persons named as proxies in the proxy statement for the 2009 annual meeting will have discretionary authority to vote on any other business as may properly come before the meeting. Shareholders are advised to review the Company’s bylaws for additional requirements with respect to advance notice of shareholder proposals and director nominations. These advance notice provisions apply regardless of whether a shareholder seeks to include such proposals in the proxy statement relating to the 2009 annual meeting of shareholders.

Arbitration Proceeding with VeriSign, Inc.

     As the Company reported in its quarterly report on Form 10-Q for the quarter ended March 31, 2009, the Company has been engaged in an arbitration action in Seattle, Washington against VeriSign, Inc., to seek resolution of disputes regarding the proper interpretation of an Alliance Agreement entered into between the parties dating back to 2001, including VeriSign’s claims that the Company breached the Alliance Agreement and tortiously interfered with VeriSign’s proposed sale of certain business units. On May 7, 2009, the Arbitrator issued a ruling denying the Company’s claims for relief and granting VeriSign’s claims, including VeriSign’s claim that the Company tortiously interfered with VeriSign’s proposed sale of certain business units. Subsequent to that ruling, the Arbitrator has further ruled that the limitation of liability clause contained in the Alliance Agreement does not apply to the potential damages VeriSign incurred. In response, VeriSign has filed an amended statement of damages seeking a material amount in damages. A hearing to address VeriSign’s claimed damages is currently scheduled to begin July 13, 2009. The Company continues to believe that the limitation of liability clause in the Alliance Agreement should apply to limit the amount of VeriSign’s claimed monetary damages and that the arbitrator does not have jurisdiction over tort claims that are not subject to the limitation of liability. No assurance can be made as to the final outcome of the disputes until all rulings are final and all avenues of review have been exhausted, but the Company could ultimately be required to pay damages to VeriSign in an amount that may be material to its financial condition and results of operations. The Company intends to continue to defend itself vigorously with respect to this matter.

     This report contains forward-looking statements that involve risks and uncertainties, including statements relating to the terms of the proposed option exchange program (including whether or not the Company will consummate the exchange program); the proposed dates for our annual meeting and mailing of the proxy statement and form of proxy related thereto; and the potential outcomes and effects of the arbitration proceeding with VeriSign, Inc. on our business, prospects, financial condition or results of operations. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such

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forward-looking statements. Factors that could cause actual results to differ from the results predicted include, but are not limited to, the following: the Company’s determination to change the terms of, or abandon, the proposed option exchange; the Company’s determination to change the dates for its annual meeting and mailing of the proxy statement and form of proxy related thereto; and the risk that the Company could ultimately be required to pay damages to VeriSign in an amount that may be material to our business, prospects, financial condition or results of operations. More information about potential risk factors that could affect the Company’s business and financial results is included in the Company’s annual report on Form 10-K for the most recent year ended December 31, and its quarterly reports on Form 10-Q and from time to time in other reports filed by the Company with the Securities and Exchange Commission. Actual results may differ materially from estimates under different assumptions or conditions. The Company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

ADDITIONAL INFORMATION AND WHERE TO FIND IT.

RealNetworks has not commenced the option exchange program referred to in this communication and will not do so unless it receives the requisite shareholder approval at its 2009 annual meeting of shareholders. Prior to implementing the option exchange program, RealNetworks could decide to change the terms of the program or may decide not to implement the program. In connection with seeking shareholder approval, RealNetworks will file a proxy statement with details regarding the proposed option exchange program. If the option exchange program is approved and RealNetworks determines to implement the program, it will file a Tender Offer Statement on Schedule TO with the Securities and Exchange Commission (the “SEC”). Security holders are urged to read the proxy statement and the Tender Offer Statement on Schedule TO, including the offer to exchange and other related materials, when those materials become available because they will contain important information about the option exchange program. These documents, including the proxy statement, the Tender Offer Statement and the Schedule TO, will be available free of charge from the SEC’s website at www.sec.gov and from RealNetworks upon written request to: Investor Relations Department, RealNetworks, Inc., P.O. Box 91123, Seattle, Washington 98111-9223. Additionally, RealNetworks and its directors and executive officers may be considered participants in the solicitation of proxies in connection with the proposed option exchange program. Information about the directors and executive officers of RealNetworks and their respective interests (as applicable) in the proposed option exchange program will be set forth in the proxy statement relating to RealNetworks’ 2009 annual meeting.

Item 9.01. Financial Statements and Exhibits.

     (d) Exhibits.

Exhibit No.	Description
99.1	Transcript of Proposed Option Exchange Program Comments

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

REALNETWORKS, INC.
By:	/s/ Robert Kimball
	Robert Kimball
	Executive VP, Corporate Development and Law, General Counsel and Corporate Secretary

Dated: July 8, 2009

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EXHIBIT INDEX

Exhibit Number	Description
99.1	Transcript of Proposed Option Exchange Program Comments

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EX-99.1

Exhibit 99.1

Transcript of Proposed Option Exchange Program Comments

     The next topic I’d like to update you on relates to the proposed option exchange program that was mentioned at our company meeting earlier this year. In order to make sure that my comments precisely comply with securities law regulations, I will be reading my remarks related to the proposed exchange program from a script, just like I do for our regular quarterly earnings calls.

     As you are aware, the recent global economic downturn has had a negative impact on the price of many stocks, including ours. As a result, many of our employees hold “underwater” stock options — meaning the exercise price for their options is higher than the current trading price of our stock.

     After an exhaustive review of the situation and the available alternatives, we have decided to pursue an option exchange program. In such a program, employees are offered an opportunity to turn in their underwater options for a smaller number of new options with lower exercise prices that are equal to the trading price of our common stock on the day of the exchange. We believe that an option exchange program will be an effective way to achieve four objectives: strengthening incentives for employees, improving employee retention, reducing potential dilution to our shareholders, and replenishing our option pool.

     To be clear, participation in the option exchange program is entirely voluntary. We hope that most eligible employees will find the program to be worthwhile, but it’s entirely up to each of you to decide whether you participate, and you won’t have to make that decision until the program is finalized this fall.

     While an option exchange program sounds easy enough, implementing one is fairly complex — both in terms of establishing the number of new options employees will receive in exchange for their underwater options and in implementing and communicating a complex program to employees.

     The process is complicated because an option exchange program requires approval from our Board and shareholders. The exchange is also subject to strict SEC regulations that govern the process — as well as the communications and other disclosures the Company makes about the exchange program.

     I am happy to report that our Board has just approved the key terms of an option exchange program which I am about to describe. Our next step is to seek shareholder approval at our upcoming annual shareholders meeting in September.

     To get shareholder approval, we will be seeking the support from our largest outside shareholders, which are primarily financial institutions. These institutions, prior to voting their shares, typically follow the recommendations of an advisory organization

called RiskMetrics Group. RiskMetrics is commonly know by its prior name ISS, so I will call it ISS.

     ISS policy establishes several key requirements for option exchange programs that we intend to follow. The four key ones are:

     1. Under ISS policy, the exchange of options must be on a value-for-value basis. This means that the value of new options granted in the exchange program must not be greater than the value of options that are underwater — yes, believe it or not, underwater options actually have value under pricing models used to analyze stock options for accounting and other purposes — such as exchange programs.

     Because of this requirement, employees will not receive one new option for each eligible underwater option they hold, but instead will receive a lesser number of new options in accordance with an exchange ratio that will ultimately be set shortly prior to the start of the exchange program. The number of new options each employee may receive for his/her eligible underwater options generally depends on the fair value of the employee’s underwater options, which takes into account things like the exercise price and remaining life of the option and the volatility of the trading price of our stock. When the exchange program begins, you will receive specific information on how many new options you may receive in the exchange for your eligible underwater options — on a grant-by-grant basis.

     2. A second key requirement is that eligible options must have exercise prices that are above the 52-week high of our trading price. Accordingly, in order to maximize the number of eligible options and the number of employees who can participate in the program, we plan to begin the program in mid-November when the 52-week high trading price for our stock is $4.16. This means that as things currently stand, options with an exercise price above $4.16 would be eligible for exchange. However, if the trading price of our stock goes above $4.16 between now and then, we would have to re-set the minimum exercise price for eligible options accordingly.

     3. ISS also requires that new options granted in the exchange be subject to minimum additional vesting requirements. Accordingly, for vesting purposes we plan to follow two simple rules for new options granted in the exchange:

• Vested eligible options will be exchanged for new options which will vest 50% at six months and the remainder at one year;

• Unvested eligible options will be exchanged for new options that vest on the later of six months following the exchange or their original vesting date.

     4. ISS stipulates that non-employee Directors and our most senior executives cannot participate in the program. Accordingly, members of Real’s Board of Directors and the Company’s Section 16 officers will not be eligible to turn in their options in the proposed program.

     This is a general overview of some of the key features of the exchange program that we currently plan to recommend to our shareholders. Please be aware that these terms could change. Moreover, we may not ultimately implement an exchange program, say, for example, if our shareholders do not approve our option exchange proposal.

     Let me outline the next steps: We intend to include the option exchange proposal in our proxy statement for our 2009 annual shareholders meeting. We currently expect to file the proxy statement in late July, so that is the next time we plan to communicate with you on this topic. Then, assuming our shareholders approve the proposal in September, we expect to launch the program in mid-November. That is when you should expect to receive detailed information on the option exchange program and how it applies to you individually. Only then would you have to decide whether you want to participate in the program.

     I hope that this additional information about our proposed option exchange program has been helpful, and I look forward to keeping you up to date as the situation continues to develop.

ADDITIONAL INFORMATION AND WHERE TO FIND IT.

RealNetworks has not commenced the option exchange program referred to in this communication and will not do so unless it receives the requisite shareholder approval at its 2009 annual meeting of shareholders. Prior to implementing the option exchange program, RealNetworks could decide to change the terms of the program or may decide not to implement the program. In connection with seeking shareholder approval, RealNetworks will file a proxy statement with details regarding the proposed option exchange program. If the option exchange program is approved and RealNetworks determines to implement the program, it will file a Tender Offer Statement on Schedule TO with the Securities and Exchange Commission (the “SEC”). You are urged to read each of the proxy statement and the Tender Offer Statement on Schedule TO, including the offer to exchange and other related materials, when those materials become available because they will contain important information about the option exchange program. These documents, including the proxy statement, the Tender Offer Statement and the Schedule TO, will be available free of charge from the SEC’s website at www.sec.gov and from RealNetworks upon written request to Investor Relations Department, RealNetworks, Inc., P.O. Box 91123, Seattle, Washington 98111-9223. Additionally, RealNetworks and its directors and executive officers may be considered participants in the solicitation of proxies in connection with the proposed option exchange program. Information about the directors and executive officers of RealNetworks and their respective interests (as applicable) in the proposed option exchange program will be set forth in the proxy statement relating to RealNetworks’ 2009 annual meeting.