<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
REALNETWORKS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5)Total fee paid:
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
1
<PAGE> 2
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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2
<PAGE> 3
[REALNETWORKS LOGO]
REALNETWORKS RealNetworks, Inc. 2601 Elliott Avenue, Suite 1000, Seattle, WA
98121
May , 2000
Dear Shareholder:
On behalf of RealNetworks, Inc., I cordially invite you to attend the 2000
Annual Meeting of Shareholders (the "Annual Meeting") to be held at 2:00 p.m. on
Friday, June 2, 2000 at the Bell Harbor International Conference Center, 2211
Alaskan Way, Seattle, Washington.
At the Annual Meeting, the shareholders will be asked to (i) elect one
director to the Company's Board of Directors, (ii) vote on a proposal to amend
the Company's Restated Articles of Incorporation, as amended, to increase the
number of authorized shares of common stock from 300,000,000 shares to
1,000,000,000 shares, to delete provisions that are not applicable to a public
company and to delete the designation of special non-voting stock that is no
longer outstanding, (iii) vote on a proposal to approve the Company's Amended
and Restated 1996 Stock Option Plan which increases the number of shares of
Common Stock that may be issued thereunder from 45,200,000 shares to 60,200,000
shares, and (iv) ratify the appointment of KPMG LLP as the Company's independent
auditors for fiscal year 2000. The accompanying Notice of Annual Meeting and
Proxy Statement describe the matters to be presented at the Annual Meeting.
The Board of Directors unanimously recommends that shareholders vote "FOR"
these four proposals.
Whether or not you plan to attend the Annual Meeting, we hope that you will
have your shares represented by marking, signing, dating and returning your
proxy card in the enclosed envelope as soon as possible. Your shares will be
voted in accordance with the instructions you have given in your proxy card. You
may, of course, attend the Annual Meeting and vote in person even if you have
previously returned your proxy card.
On behalf of the Board of Directors, I would like to express our
appreciation for your support of the Company. We look forward to seeing you at
the meeting.
Sincerely,
/s/ ROBERT GLASER
Robert Glaser
Chief Executive Officer and
Chairman of the Board
<PAGE> 4
REALNETWORKS, INC.
2601 ELLIOTT AVENUE, SUITE 1000
SEATTLE, WASHINGTON 98121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 2, 2000
To The Shareholders of RealNetworks, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
RealNetworks, Inc., a Washington corporation (the "Company"), will be held on
Friday, June 2, 2000, at 2:00 p.m., local time, at the Bell Harbor International
Conference Center, 2211 Alaskan Way, Seattle, Washington, for the following
purposes as more fully described in the accompanying Proxy Statement:
1. To elect one director to serve until the 2003 Annual Meeting of
Shareholders or until his earlier retirement, resignation or removal, or
the election of his successor;
2. To approve amendments to the Company's Restated Articles of
Incorporation, as amended, to increase the number of authorized shares
of common stock from 300,000,000 to 1,000,000,000 shares, to delete
provisions that are not applicable to a public company and to delete a
designation of non-voting stock that is no longer outstanding;
3. To approve the Company's Amended and Restated 1996 Stock Option Plan,
which increases the number of shares of common stock that may be issued
thereunder from 45,200,000 shares to 60,200,000 shares;
4. To ratify the appointment of KPMG LLP as independent auditors for the
Company's fiscal year ending December 31, 2000; and
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only holders of record of the Company's Common Stock at the close of
business on April 3, 2000 are entitled to notice of, and to vote at, this
meeting or any adjournment or postponement thereof. A list of shareholders as of
that date will be available at the meeting and for ten days prior to the meeting
at the Company's principal executive offices located at 2601 Elliott Avenue,
Suite 1000, Seattle, Washington 98121.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ KELLY JO MACARTHUR
KELLY JO MACARTHUR
Senior Vice President, General Counsel
and Secretary
Seattle, Washington
May , 2000
YOUR VOTE IS IMPORTANT!
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, WE URGE YOU TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE TO
ENSURE YOUR REPRESENTATION AT THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ALSO
ENCLOSED FOR THAT PURPOSE. SENDING IN YOUR PROXY WILL NOT PREVENT YOU FROM
VOTING YOUR SHARES AT THE MEETING IF YOU DESIRE TO DO SO, AS YOUR PROXY IS
REVOCABLE AT YOUR OPTION.
<PAGE> 5
REALNETWORKS, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 2000
ANNUAL MEETING AND PROXY SOLICITATION INFORMATION
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of RealNetworks, Inc., a Washington
corporation (the "Company"), for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held at 2:00 p.m. on Friday, June 2, 2000 at the Bell
Harbor International Conference Center, 2211 Alaskan Way, Seattle, Washington,
and at any adjournment or postponement thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Shareholders. This
Proxy Statement, a proxy card and the Annual Report of the Company, which
includes financial statements for its fiscal year ended December 31, 1999, are
being sent to all shareholders of record as of the close of business on April 3,
1999, and are being mailed to the Company's shareholders on or about May ,
2000. Although the Annual Report and this Proxy Statement are being mailed
together, the Annual Report is not part of this Proxy Statement.
QUORUM AND VOTING RIGHTS
At the close of business on April 3, 2000, there were 154,433,190 shares of
common stock, par value $.001 per share (the "Common Stock"), of the Company
outstanding. Only holders of record of the shares of Common Stock outstanding at
such time will be entitled to notice of and to vote at the meeting. The presence
at the meeting of at least a majority of such shares, either in person or by
proxy, shall constitute a quorum for the transaction of business. Broker
non-votes and shares held by persons abstaining will be counted in determining
whether a quorum is present. Proxies are solicited to give all shareholders who
are entitled to vote on the matters that come before the meeting the opportunity
to do so, whether or not they choose to attend the meeting in person.
If you are a common shareholder of record, you may vote by using the proxy
card enclosed with this Proxy Statement. When your proxy card is returned
properly signed, the shares represented will be voted according to your
directions. You can specify how you want your shares voted on each proposal by
marking the appropriate boxes on the proxy card. The proposals are identified by
number and a general description on the proxy card. Please review the voting
instructions on the proxy card and read the text of the proposals and the
position of the Board of Directors in the Proxy Statement prior to marking your
vote. If your proxy card is signed and returned without specifying a vote or an
abstention on any proposal, it will be voted according to the recommendations of
the Board of Directors on that proposal. The recommendation of the Board of
Directors for each proposal is shown on the proxy card. For the reasons stated
in more detail later in the Proxy Statement, the Board of Directors recommends a
vote FOR the individual nominated to serve as Class 3 director; FOR the
amendment of the Company's Restated Articles of Incorporation, as amended, FOR
the amendment of the Company's Amended and Restated 1996 Stock Option Plan and
FOR the ratification of the appointment of KPMG LLP as independent public
auditors for the Company's fiscal year ending December 31, 2000.
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Annual Meeting. However, if any other
matters are properly presented for action, the proxies named on the proxy card
will be authorized by your proxy to vote on those other matters in their
discretion.
On each matter properly brought before the meeting, shareholders will be
entitled to one vote for each share of Common Stock held. Shareholders do not
have the right to cumulate their votes in the election of directors. Under
Washington law and the Company's Restated Articles of Incorporation and Bylaws,
if a quorum exists at the meeting: (a) the one nominee for director who receives
the greatest number of votes cast in the election of directors will be elected;
(b) the proposals to (i) approve the Company's Amended and
<PAGE> 6
Restated 1996 Stock Option Plan, with an amendment to increase the number of
shares issuable thereunder, and (ii) ratify the appointment of independent
auditors will each be approved if the number of votes cast in favor exceeds the
number of votes cast against them; and (c) the proposal to approve the
amendments to the Company's Restated Articles of Incorporation will be approved
if the number of votes cast in favor is a majority of the number of votes
entitled to be cast on the proposal.
Shareholders may abstain from voting for the nominee for director and may
abstain from voting on the proposals to (a) approve and amend the Company's
Amended and Restated 1996 Stock Option Plan and (b) ratify the appointment of
independent auditors. Abstention from voting on any or all of these three
matters will have no effect, since approval of each matter is based solely on
the number of votes actually cast. Abstentions from voting on the proposal to
amend the Company's Restated Articles of Incorporation will have the same effect
as a vote against that proposal, since approval of that proposal is based on the
number of votes entitled to be cast.
Brokerage firms and other intermediaries holding shares of Common Stock in
street name for customers are generally required to vote such shares in the
manner directed by their customers. In the absence of timely directions,
brokerage firms and other intermediaries will generally have discretion to vote
their customers' shares in the election of directors and on the proposal to
ratify the appointment of independent auditors. The failure of a brokerage firm
or other intermediary to vote its customers' shares on the proposal for the
election of directors or on the proposal to ratify the appointment of auditors
will have no effect on any proposal since approval of each proposal is based
solely on the number of votes actually cast. Brokerage firms and other
intermediaries do not have discretion to vote their customers' shares on the
proposals to amend the Company's Restated Articles of Incorporation, as amended,
or the Company's Amended and Restated 1996 Stock Option Plan. Such "broker
non-votes" will have the same effect as votes against the proposal to amend the
Company's Restated Articles of Incorporation since approval of that proposal is
based on the number of votes entitled to be cast. Such "broker non-votes" will
not be counted as votes cast against the proposal to amend the Company's Amended
and Restated 1996 Stock Option Plan, however, and will have no effect on the
proposal since approval is based solely on the number of votes actually cast.
REVOCABILITY OF PROXIES
If you execute a proxy, you may revoke it by taking one of the following
three actions: (a) by giving written notice of the revocation to the Secretary
of the Company at its principal executive offices prior to the commencement of
shareholder voting at the Annual Meeting on June 2, 2000; (b) by executing a
proxy with a later date and delivering it to the Secretary of the Company at its
principal executive offices prior to the commencement of shareholder voting at
the Annual Meeting on June 2, 2000; or (c) by personally attending and voting at
the meeting.
SOLICITATION OF PROXIES
The Company will bear the expense of preparing, printing and distributing
proxy materials to its shareholders. In addition to solicitations by mail, a
number of regular employees of the Company may solicit proxies on behalf of the
Board of Directors in person or by telephone. The Company will reimburse
brokerage firms and other intermediaries for their expenses in forwarding proxy
materials to beneficial owners of the Common Stock.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
An eligible shareholder who desires to have a qualified proposal considered
for inclusion in the proxy statement and form of proxy prepared in connection
with the Company's 2001 Annual Meeting of Shareholders must deliver a copy of
the proposal to the Secretary of the Company, at the Company's principal
executive offices, no later than February 2, 2001. In order to be eligible to
submit a proposal, a shareholder must have continually been a record or
beneficial owner of shares of Common Stock having a market value of at least
$2,000, for a period of at least one year prior to submitting the proposal, and
the shareholder must continue to hold the shares through the date on which the
meeting is held.
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<PAGE> 7
A shareholder of record who intends to submit a proposal at the 2001 Annual
Meeting that is not eligible for inclusion in the Company's Proxy Statement must
provide written notice to the Company, addressed to the Secretary of the Company
(or to the Nominating Committee of the Board of Directors, Attn: Mr. Glaser,
Chairman, if the proposal relates to the nomination of one or more directors) at
the Company's principal executive offices, not later than February 2, 2001. The
notice must satisfy certain requirements specified in the Company's Bylaws. A
copy of the Bylaws will be sent to any shareholder upon written request to the
Company's Secretary.
PROPOSAL 1 -- ELECTION OF DIRECTOR
The Class 3 director is to be elected at the Annual Meeting, to serve until
the 2003 Annual Meeting of Shareholders or until his earlier retirement,
resignation or removal. Robert Glaser, who currently is the sole Class 3
director of the Company, has been nominated by the Board of Directors for
re-election at the Annual Meeting. The accompanying proxy will be voted for this
nominee, except where you indicate otherwise or authority to so vote is
withheld. Should Mr. Glaser be unable to serve, the proxy will be voted for such
person as is designated by the Board of Directors.
NOMINEE FOR DIRECTOR
ROBERT GLASER has served as Chairman of the Board and Chief Executive
Officer of the Company since its inception in February 1994. Mr. Glaser served
as Secretary of the Company from March 1995 to April 1998 and as Treasurer of
the Company from February 1994 to April 2000. Mr. Glaser also serves as the
Company's Policy Ombudsman, with the exclusive authority to adopt or change the
editorial policies of the Company as reflected on the Company's Web sites or
other communications or media in which the Company has a significant editorial
or media voice. From 1983 to 1993, Mr. Glaser was employed at Microsoft
Corporation, most recently as Vice President of multimedia and consumer systems,
where he focused on the development of new businesses related to the convergence
of the computer, consumer electronics and media industries. Mr. Glaser holds a
B.A. and an M.A. in Economics and a B.S. in Computer Science from Yale
University. Age 38.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEE
NAMED IN PROPOSAL 1.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of a Board of
Directors, which is divided into three classes, each class as nearly equal in
number of directors as possible. The Board of Directors has determined that the
Board of Directors shall be composed of seven directors. Five directors
currently serve on the Board, with two vacancies currently existing. The Company
intends to appoint individuals to fill the vacancies after the Company
identifies suitable candidates. Edward Bleier and Mitchell Kapor are Class 1
directors, whose terms expire at the annual shareholders meeting in 2001, Bruce
Jacobsen and James Breyer are Class 2 directors, whose terms expire at the
annual shareholders meeting in 2002, and Robert Glaser is a Class 3 director,
whose term expires at the Annual Meeting. Commencing with the Annual Meeting,
each newly elected director shall serve for a term ending at the third annual
shareholders meeting following election of such director. Proxies may not be
voted for a greater number of persons than the number of nominees named. The
Board of Directors has responsibility for establishing broad corporate policies
and for the overall performance of the Company. It is not, however, involved in
operating details on a day-to-day basis.
In order for a shareholder to nominate one or more candidates for election
as directors at an annual meeting of shareholders, the shareholder must give
timely notice of the proposal to nominate such candidate(s) in writing to the
Secretary of the Company not less than 120 days prior to the first anniversary
of the date that the Company's proxy statement was released to shareholders in
connection with the previous year's annual meeting, or, if the date of the
annual meeting at which the shareholder proposes to make such nomination is more
than 30 days from the date of the previous year's annual meeting, then the
shareholder
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<PAGE> 8
must give notice with a reasonable time before the Company begins to print and
mail its proxy materials. The notice must satisfy certain requirements specified
in the Company's Bylaws, a copy of which will be sent to any shareholder upon
written request to the Company's Secretary.
CONTINUING DIRECTORS -- NOT STANDING FOR ELECTION THIS YEAR
The following individuals are Class 1 directors:
EDWARD BLEIER has been a director of the Company since April 1999. Since
1987, Mr. Bleier has been President of Domestic Pay-TV, Cable & Network Features
for Warner Bros., a leading producer/distributor of movies, TV programming and
animation. Mr. Bleier has held a variety of positions since joining Warner Bros.
in 1969, including Executive Vice President of Warner Bros. Television. Mr.
Bleier is the Chairman of the Steering Committee of the bi-annual Aspen
Communications Institute conferences for the leaders of the television, film and
cable industries, past President of the International Radio & Television Society
and a member of the Council on Foreign Relations. Mr. Bleier holds a Bachelor of
Sciences Degree from Syracuse University and served in the U.S. Army,
specializing in psychological warfare and public information. Age 70.
MITCHELL KAPOR has been a director of the Company since October 1995. Mr.
Kapor has served as a partner of Accel Partners L.P. since January 1999. From
1990 to 1993, Mr. Kapor was President, from 1993 to 1995 he was Chairman and
from 1995 to 1996 he was a director, of the Electronic Frontier Foundation, a
nonprofit public Internet organization that he co-founded in 1990. Mr. Kapor
designed Lotus 1-2-3, and founded Lotus Development Corporation in 1982 and
served as its President and Chief Executive Officer from April 1982 to July
1986. Mr. Kapor holds a B.A. in Cybernetics from Yale University and an M.A. in
Psychology from Beacon College. Age 49.
The following individuals are Class 2 directors:
JAMES BREYER has been a Director of the Company since October 1995. Mr.
Breyer has served as a Managing Partner of Accel Partners L.P. in Palo Alto/San
Francisco since November 1995 and as a general partner from 1990 to 1995. At
Accel Partners L.P., Mr. Breyer has sponsored investments in over a dozen
companies that have completed public offerings or successful mergers.
Previously, Mr. Breyer was a management consultant at McKinsey & Company, Inc.
and worked in product management and marketing at Apple Computer, Inc. and
Hewlett-Packard Corporation. Mr. Breyer holds a B.S. from Stanford University
and an M.B.A. from Harvard University, where he was named a Baker Scholar. Age
38.
BRUCE JACOBSEN has served as a Director of the Company since August 1997,
and served as President and Chief Operating Officer from February 1996 to
November 1998. From April 1995 to February 1996, Mr. Jacobsen was Chief
Operating Officer of Dreamworks Interactive, a joint venture between Microsoft
and Dreamworks SKG, a partnership among Steven Spielberg, Jeffery Katzenberg and
David Geffen. From August 1986 to April 1995, Mr. Jacobsen was employed at
Microsoft in a number of capacities, including General Manager of the Kids/Games
business unit. Mr. Jacobsen graduated summa cum laude with Honors from Yale
University and holds an M.B.A. from Stanford University. Age 40.
MEETINGS OF THE BOARD
The Board meets on a regularly scheduled basis during the year to review
significant developments affecting the Company and to act on matters requiring
Board approval. It also holds special meetings when an important matter requires
Board action between regularly scheduled meetings. The Board of Directors met 13
times during the Company's fiscal year ended December 31, 1999, including action
taken by unanimous written consent on two occasions. No incumbent member
attended fewer than 75% of the total number of meetings (including consents) of
the Board of Directors and of any Board committees of which he was a member
during that fiscal year.
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<PAGE> 9
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash compensation for their
services as directors or members of committees of the Board of Directors, but
are reimbursed for their reasonable expenses incurred in attending Board of
Directors or Committee meetings.
The Company's 1996 Stock Option Plan (the "1996 Plan") permits the grant of
options for the purchase of shares of Common Stock to directors of the Company.
On April 28, 1999, Mr. Bleier was granted an option under the 1996 Plan to
purchase 120,000 shares of Common Stock at an exercise price of $46.00 per
share. The option has a maximum term of 20 years and is fully exercisable for
all the option shares as of the date of grant. On September 14, 1999, each of
Messrs. Breyer, Jacobsen and Kapor received an option grant under the 1996 Plan
to purchase 60,000 shares of Common Stock at an exercise price of $45.719 per
share. The options have a maximum term of 20 years and are exercisable in three
equal increments of 20,000 shares on each of September 14, 1999, May 1, 2000 and
May 1, 2001.
COMMITTEES OF THE BOARD
Committees of the Board consist of an Audit Committee, a Compensation
Committee, a Strategy Committee, a Strategic Transactions Committee and a
Nominating Committee. The Audit Committee, currently composed of Messrs. Breyer,
Jacobsen and Kapor, reviews the Company's internal accounting procedures and
consults with and reviews the services provided by the Company's independent
auditors. The Audit Committee met six times during the fiscal year ended
December 31, 1999. The Compensation Committee, currently composed of Messrs.
Breyer, Glaser and Kapor, reviews and recommends to the Board the compensation
and benefits to be provided to the Company's officers and reviews general policy
matters relating to employee compensation and benefits. The Compensation
Committee met nine times during the fiscal year ended December 31, 1999. The
Strategy Committee, currently composed of Messrs. Breyer, Glaser, Jacobsen and
Kapor, makes recommendations to the Board of Directors regarding the overall
strategic goals of the Company and reviews significant business transactions
that affect the future strategic direction of the Company. The Strategy
Committee did not meet during the fiscal year ended December 31, 1999. The
approval of the Strategic Transactions Committee, which is currently composed of
Messrs. Glaser, Breyer and Kapor, is required before the Board of Directors may
(i) adopt a plan of merger, (ii) authorize the sale, lease, exchange or mortgage
of (A) assets representing more than 50% of the book value of the Company's
assets prior to the transaction or (B) any other asset or assets on which the
long-term business strategy of the Company is substantially dependent, (iii)
authorize the Company's voluntary dissolution or (iv) take any action that has
the effect of clauses (i) through (iii). The Strategic Transactions Committee
met four times during the fiscal year ended December 31, 1999. The Nominating
Committee, currently composed of Messrs. Glaser, Jacobsen and Breyer, searches
for and recommends to the Board potential nominees for Board positions and makes
recommendations to the Board regarding size and composition of the Board. The
Nominating Committee will consider shareholder recommendations for nominees to
fill Board positions if such recommendations are received, in writing, by the
Chairman of the Nominating Committee no later than 120 days prior to the first
anniversary of the date that the Company's proxy statement was released to
shareholders in connection with the previous year's annual meeting. Any such
recommendation must satisfy certain requirements with respect to notices
specified in the Company's Bylaws, a copy of which will be sent to any
shareholder upon written request to the Company's Secretary. The Nominating
Committee met three times during the fiscal year ended December 31, 1999.
CONTRACTUAL ARRANGEMENTS
Under a voting agreement (the "Voting Agreement") entered into in September
1997 among the Company, Accel IV, L.P. ("Accel IV") and Messrs. Jacobsen, Kapor
and Glaser, each of Accel IV and Messrs. Jacobsen and Kapor have agreed to vote
all shares of stock of the Company owned by them to elect Mr. Glaser to the
Board of Directors of the Company in each election in which he is a nominee. The
obligations under the Voting Agreement terminate with respect to shares
transferred by the parties thereto. The Voting Agreement terminates on the death
of Mr. Glaser.
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<PAGE> 10
Pursuant to the terms of an agreement entered into in September 1997 among
the Company and Mr. Glaser, the Company has agreed to use its best efforts to
nominate, elect and not remove Mr. Glaser from the Board of Directors so long as
Mr. Glaser owns a specified number of shares.
VOTING SECURITIES AND PRINCIPAL HOLDERS
OWNERSHIP INFORMATION
The following table sets forth, as of April 18, 2000, certain information
regarding beneficial ownership of the Common Stock (a) by each person known to
the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (b) by each director, (c) by the Chief Executive
Officer and the Company's four most highly compensated executive officers other
than the Chief Executive Officer for the fiscal year ended December 31, 1999
(the "Named Executive Officers") and (d) by all of the Company's executive
officers and directors as a group. Unless otherwise noted, the named beneficial
owner has sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON PERCENTAGE OF
STOCK BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
------------------------------------ ------------------ -------------
<S> <C> <C>
Robert Glaser(2)..................................... 53,612,849 34.7
c/o RealNetworks, Inc.
2601 Elliott Avenue
Suite 1000
Seattle, WA 98121
Mitchell Kapor(3).................................... 6,630,140 4.3
James W. Breyer(4)................................... 4,945,936 3.2
Phillip Barrett(5)................................... 4,156,536 2.7
Bruce Jacobsen(6).................................... 2,074,924 1.3
Edward Bleier(7)..................................... 128,000 *
Thomas Frank(8)...................................... 90,000 *
Maria Cantwell(9).................................... 752,400 *
Paul Bialek(10)...................................... 140,936 *
All directors and executive officers as a group (14
persons)(11)....................................... 72,937,813 45.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "SEC") and includes shares over
which the beneficial owner exercises voting or investment power. Shares of
Common Stock subject to options currently exercisable or exercisable within
60 days of April 18, 2000 are deemed outstanding for the purpose of
computing the percentage ownership of the person holding the options, but
are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated, and subject to
community property laws where applicable, the Company believes, based on
information provided by such persons, that the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes 2,203,005 shares of Common Stock owned by the Glaser Family
Foundation. Mr. Glaser disclaims beneficial ownership of these shares.
(3) Includes 40,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000. Also includes 6,028 shares
owned by Kubera L.L.C., a limited liability company of which Mr. Kapor is
the sole member.
(4) Includes 40,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000. Also includes 1,032 shares of
Common Stock owned by Accel Partners & Co., Inc., a
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<PAGE> 11
corporation of which Mr. Breyer is an officer, 4,321,916 shares owned by
Accel IV L.P., 89,716 shares owned by Accel Keiretsu L.P., 171,476 shares
owned by Accel Investors '95 L.P., 62,008 shares owned by Accel Japan L.P.
and 28,680 shares owned by Accel Investors '93 L.P. Mr. Breyer is a general
partner of Accel Partners L.P., which is the general partner of Accel IV
L.P. Mr. Breyer disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest therein.
(5) Includes 1,344,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000. Also includes 20,000 shares
of Common Stock owned by the Barrett Family Foundation. Mr. Barrett
disclaims beneficial ownership of these shares.
(6) Includes 1,881,824 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000.
(7) Includes 120,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000.
(8) Includes 90,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000.
(9) Includes 472,400 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000.
(10) Includes 90,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of April 18, 2000.
(11) Includes an aggregate of 4,443,056 shares of Common Stock issuable upon
exercise of options that are exercisable within 60 days of April 18, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, file reports of ownership and changes of ownership with the SEC.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all such reports they file.
Based solely on its review of the copies of such reports received by the
Company, and on written representations by the Company's officers and directors
regarding their compliance with the applicable reporting requirements under
Section 16(a) of the Exchange Act, the Company believes that, with respect to
its fiscal year ended December 31, 1999, all of the Company's officers and
directors, and all of the persons known to the Company to own more than ten
percent of the Common Stock, complied with all such reporting requirements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is currently composed of Messrs.
Glaser, Breyer and Kapor. Mr. Glaser is the Chairman of the Board, Chief
Executive Officer and Treasurer of the Company. During the fiscal year 1999, Mr.
Glaser participated in deliberations of the Board of Directors concerning
executive officer compensation, excluding those concerning the compensation of
the Chief Executive Officer. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. In addition, no interlocking relationship
exists between any member of the Company's Compensation Committee and any member
of the compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
CHANGE-IN-CONTROL ARRANGEMENTS
Under the Company's 1995 Stock Option Plan and its 1996 Stock Option Plan,
as amended and restated (the "Plans"), each option that is at the time
outstanding under the Plans will become exercisable in full in respect of the
aggregate number of shares covered thereby, notwithstanding any contrary vesting
schedule in
7
<PAGE> 12
the Option Agreement evidencing the option (except to the extent the Option
Agreement expressly provides otherwise), in the event of (a) any merger,
consolidation or binding share exchange pursuant to which shares of Common Stock
are changed or converted into or exchanged for cash, securities or other
property, other than any such transaction in which the persons who hold Common
Stock immediately prior to the transaction have immediately following the
transaction the same proportionate ownership of the common stock of, and the
same voting power with respect to, the surviving corporation; (b) any merger,
consolidation or binding share exchange in which the persons who hold Common
Stock immediately prior to the transaction have immediately following the
transaction less than a majority of the combined voting power of the outstanding
capital stock of the Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors;
(c) any liquidation or dissolution of the Company; (d) any sale, lease, exchange
or other transfer not in the ordinary course of business (in one transaction or
a series of related transactions) of all, or substantially all, of the assets of
the Company; or (e) any transaction (or series of related transactions),
consummated without the approval or recommendation of the Board, in which (i)
any person, corporation or other entity (excluding the Company and any employee
benefit plan sponsored by the Company) purchases any Common Stock (or securities
convertible into Common Stock) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer, or (ii) any person, corporation or
other entity (excluding the Company and any employee benefit plan sponsored by
the Company) becomes the direct or indirect beneficial owner of securities of
the Company representing fifty percent (50%) or more of the combined voting
power of the then outstanding securities of the Company ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors.
In addition, if, within a 12 month period following a Change of Control (as
defined below), the employment of Mr. Bialek is (a) terminated by the Company or
its successor in interest other than for Cause (as defined below), or (b)
terminated by Mr. Bialek for Good Reason (as defined below), then 50% of the
options for the purchase of 600,000 shares of the Company's Common Stock granted
to Mr. Bialek on June 15, 1998 that were unvested as of the date employment
terminates shall become immediately vested and exercisable by Mr. Bialek.
For purposes of the arrangements involving Mr. Bialek, "Cause" means the
termination of employment due to fraud, misappropriation or embezzlement that
results in material loss, damage or injury to the Company or its successor in
interest, or the conviction of a felony involving moral turpitude. "Good Reason"
means a reduction in compensation, a relocation of Mr. Bialek's principal work
site to a location more than 30 miles from his pre-Change of Control work site,
or a material reduction in responsibilities or authority as in effect before the
Change of Control. "Change in Control" of the Company means (a) any
consolidation, merger or recapitalization, the effect of which is a material
change to the Company's capital structure, other than such a transaction in
which the holders of the outstanding shares of the Company's voting common stock
immediately before the transaction continue to hold a majority in interest of
the voting stock of the surviving corporation immediately after that
transaction, (b) any sale or other transfer of substantially all of the
Company's assets or voting stock, (c) the adoption of any plan or proposal for
liquidation or dissolution of the Company or (d) the consummation of any other
transaction, the effect of which is to cause any person not with power to direct
or cause direction of the management or policies of the Company prior thereto to
gain such power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1999, the Company made a two-year loan in the aggregate amount of
$100,000 to Thomas and Patricia Frank in connection with their relocation to,
and purchase of a primary residence in, Seattle, Washington. Interest on the
outstanding principal balance of the loan accrues at the rate of 6% per annum
from the date of the note until the note is paid in full.
8
<PAGE> 13
COMPENSATION AND BENEFITS
EXECUTIVE OFFICER COMPENSATION
COMPENSATION SUMMARY. The following table sets forth information regarding
compensation earned during the Company's fiscal year ended December 31, 1999,
and during the preceding two fiscal years, by the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
FISCAL --------------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) OPTIONS(#) COMPENSATION($)(3)
--------------------------- ------ ------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Robert Glaser...................... 1999 $183,333 $ 0 0 $ 96
Chairman of the Board, 1998 100,000 0 0 96
Chief Executive Officer 1997 100,000 0 0 80
and Treasurer
Thomas Frank....................... 1999 250,006 175,000 500,000 144
Chief Operating Officer 1998 4,808 80,000 300,000 10,865
1997 0 0 0 0
Paul Bialek........................ 1999 170,833 75,000 200,000 144
Senior Vice President, Finance 1998 81,827 0 600,000 72
Operations and Chief 1997 0 0 0 0
Financial Officer
Phillip Barrett.................... 1999 146,667 25,000 160,000 125
Senior Vice President, Media 1998 125,000 0 160,000 120
Technologies 1997 100,000 0 0 80
Maria Cantwell..................... 1999 147,500 65,000 400,000 129
Senior Vice President, 1998 132,500 0 0 123
Consumer and E-Commerce 1997 105,479 0 200,000 76
</TABLE>
- ---------------
(1) Amounts shown for 1998 for Messrs. Bialek and Frank represent base salaries
paid after they commenced employment with the Company on June 15, 1998 and
December 16, 1998, respectively. Messrs. Glaser and Barrett and Ms. Cantwell
commenced employment with the Company on February 1, 1994, November 28, 1994
and April 17, 1995, respectively. Ms. Cantwell commenced a temporary leave
of absence with the Company on April 1, 2000.
(2) Amount shown for 1998 represents a signing bonus paid to Mr. Frank.
(3) Amounts shown for 1999 represent life insurance premiums paid by the Company
for the benefit of Messrs. Glaser, Frank, Bialek and Barrett and Ms.
Cantwell in the amount of $96, $144, $144, $125 and $129, respectively.
Amounts shown for 1998 represent reimbursed relocation expenses for Mr.
Frank in the amount of $10,865, and life insurance premiums paid by the
Company for the benefit of Messrs. Glaser, Bialek and Barrett and Ms.
Cantwell in the amount of $96, $72, $120 and $123, respectively. Amounts
shown for 1997 represent life insurance premiums paid by the Company for the
benefit of Messrs. Glaser and Barrett and Ms. Cantwell in the amount of $80,
$80 and $76, respectively.
9
<PAGE> 14
OPTION GRANTS. The following table shows information concerning stock
options granted to the Named Executive Officers during the Company's fiscal year
ended December 31, 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION --------------------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR ($ PER SHARE)(2) DATE 0% 5% 10%
---- ------------- -------------- ---------------- ---------- ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Glaser........ 0 -- -- -- $ -- $ -- $ --
Thomas Frank......... 500,000 3.0 $37.625 8/13/2019 -- 31,102,663 107,748,593
Paul Bialek.......... 200,000 1.2 46.00 4/28/2019 -- 15,210,339 52,693,000
Phillip Barrett...... 160,000 1.0 46.00 4/28/2019 -- 12,168,271 42,154,400
Maria Cantwell....... 400,000 2.4 46.00 4/28/2019 -- 30,420,678 105,385,999
</TABLE>
- ---------------
(1) Options have a maximum term of 20 years measured from the date of grant,
subject to earlier termination in the event of the optionee's cessation of
service with the Company. Each option will become exercisable for 30% of the
option shares upon the completion of 18 months of service measured from the
optionee's date of hire, promotion or performance evaluation, as applicable.
The remaining option shares vest at the rate of 10% at the end of each
six-month period thereafter until fully vested.
(2) All options were granted at fair market value on the date of grant, based on
the closing price for the Common Stock as reported on the Nasdaq National
Market on the date of grant.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission and are based on the
assumption that the exercise price was the fair market value of the shares
on the date of grant. There is no assurance provided to any executive
officer or any other holder of the Company's securities that the actual
stock price appreciation over the term of the option will be at the assumed
5% and 10% annual rates of compounded stock price appreciation or at any
other defined level.
OPTION EXERCISES. The following table shows information concerning stock
options exercised by the Named Executive Officers during the Company's fiscal
year ended December 31, 1999, including the aggregate value of any gains
realized on such exercise. The table also shows information regarding the number
and value of unexercised in-the-money options held by the Named Executive
Officers at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE FISCAL YEAR END(#) AT FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Glaser.......... 0 $ -- -- -- $ -- $ --
Thomas Frank........... 0 -- -- 800,000 -- 26,705,900
Paul Bialek............ 0 -- 180,000 620,000 9,722,700 25,517,500
Phillip Barrett........ 150,000 6,884,875 1,298,000 352,000 77,648,196 12,852,624
Maria Cantwell......... 46,000 1,464,383 455,600 600,000 27,255,273 17,474,600
</TABLE>
- ---------------
(1) Represents the aggregate fair market value on the respective dates of
exercise of the shares of Common Stock received on exercise of the options,
less the aggregate exercise price of the options.
(2) These values represent the number of shares subject to in-the-money options
multiplied by the difference between the closing price of the Company's
Common Stock on December 31, 1999 ($60.156 per share) and the exercise price
of the options.
10
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Compensation Philosophy
The Compensation Committee of the Board of Directors (the "Committee")
consists of two non-employee directors and the Company's Chief Executive Officer
and Chairman of the Board. The Committee works with management to establish the
general compensation policies and programs for the Company's executive officers,
including the determination of salaries, the establishment of bonus programs and
the granting of stock options. In establishing executive compensation, the
Committee is guided by the following principles: (i) the total compensation for
executive officers should be sufficiently competitive with the compensation paid
by other high-growth companies in the software industry for officers in
comparable positions so that the Company can attract and retain qualified
executives; (ii) individual compensation should include components that reflect
the financial performance of the Company and the performance of the individual;
(iii) each executive officer will have clear goals and accountability with
regard to corporate performance; and (iv) pay incentives should be aligned with
the long-term interests of the Company's shareholders.
The Company's executive compensation program is designed to align executive
compensation with the Company's business objectives and the executive's
individual performance, and to enable the Company to attract, retain and reward
executive officers who contribute, and are expected to continue to contribute,
to the Company's long-term success. The Compensation Committee believes that
executive compensation should be designed to motivate executives to increase
shareholder value, and further believes that executive officers can best
increase shareholder value by conceiving, developing and positioning the best
products in the Company's chosen markets.
Each executive officer's performance for the past fiscal year and
objectives for the current year are reviewed, together with the executive
officer's responsibility level and the Company's fiscal performance versus
objectives and potential performance targets for the current year. When
salaries, bonuses and stock option awards are established for executive
officers, the following criteria are considered: (i) the individual's
performance during the past year and recent quarters relative to budgeted
targets; (ii) with respect to executive officers whose primary responsibilities
are in the area of sales, the Company's financial performance during the past
year and recent quarters; and (iii) the salaries of executive officers in
similar positions of companies of comparable size in the same geographic region
and other companies within the computer software industry. With respect to
executive officers other than the Chief Executive Officer, the recommendations
of the Chief Executive Officer are taken into consideration when executive
compensation is determined. The method for determining compensation varies from
case to case based on a discretionary and subjective determination of what is
appropriate at the time.
In the fiscal year ended December 31, 1999, the relationship between the
Company's financial performance and executive compensation was primarily through
long-term incentives consisting of stock options and short-term incentives
consisting of bonuses. In addition, executives whose primary responsibilities
are in the area of sales had a component of their cash compensation tied to the
Company's revenues.
The Company's Human Resources department obtains executive compensation
data from salary surveys that reflect a peer group of other high technology
companies, including high technology companies of similar sizes that are located
in the same geographic region, and considers this data in establishing
employment offers to and compensation increases for executive officers.
Components of Compensation
The key elements of the Company's executive compensation program are base
salary, short-term (annual) incentive compensation and long-term incentive
compensation in the form of stock option awards. These elements are addressed
separately.
Quantitative methods or mathematical formulas are not used exclusively in
setting any element of compensation. In determining each component of
compensation, all elements of an executive officer's total compensation package
are considered, including insurance and other benefits.
11
<PAGE> 16
Base Salaries. Base salaries are determined for executive officers by
reviewing the salaries for comparable positions in high-growth companies in the
Company's industry and geographic region, the historical compensation levels of
the Company's executives and the executive's individual performance in the
preceding year. Base salaries are adjusted from time to time to recognize
various levels of responsibility, individual performance and internal equity
issues. Each executive officer's base salary is reviewed annually. The Company's
Human Resources Department obtains executive salary data by utilizing the
services of a consulting firm, which in turn utilizes various national and
regional executive compensation surveys for evaluation.
In addition, executive officers whose primary responsibilities are in the
area of sales are entitled to receive commissions based primarily on the
Company's revenues or a specific portion of revenues and performance-based
management business incentives.
Overall, executive salaries were increased in fiscal year 1999 at rates
comparable to the increases provided in other high-growth companies in the
software industry for executives in comparable positions.
Short-Term Incentives. In 1999, the Company began providing executive
officers with direct financial incentives in the form of annual cash bonuses to
achieve corporate and individual performance goals.
The Committee will establish annually the specific corporate and individual
performance goals relating to each executive's bonus opportunity. For fiscal
year 1999, performance was based on a variety of factors including operating
performance relative to budgeted targets within the Company's approved operating
plan and the Chief Executive Officer's evaluation of individual performance.
Above average performance from each of the Company's executive officers was
required to establish the eligibility of such executives for bonus awards in
fiscal year 1999. The bonuses paid to the Company's executive officers in fiscal
year 1999 ranged from 17% to 70% of the base salaries for the eligible executive
officers.
Long-Term Incentives. In keeping with the Company's philosophy of providing
a total compensation package that includes at-risk components of pay, long-term
incentives consisting of stock option grants comprise a component of an
executive's total compensation package. These incentives are designed to
motivate and reward executives for maximizing shareholder value and encourage
the long-term employment of key employees.
When stock options are granted to executive officers, the executives'
levels of responsibility, prior experience, individual performance criteria,
previous stock option grants and compensation practices at similar companies in
the Company's industry are considered in evaluating total compensation. The size
of stock option grants is generally intended to reflect an executive's position
with the Company and his or her contributions to the Company, and as a result,
the number of shares underlying stock option awards varies. Options generally
have a five-year vesting period to encourage key employees to continue in the
Company's employ. In 1999, options to purchase a total of 300,000 shares were
granted to new executive officers and options to purchase a total of 1,420,000
shares were granted to existing executive officers as a group.
Because all of the above grants were made at option prices equal to the
fair market value of the Common Stock on the dates of grant, the stock options
have value only if the stock price appreciates from the value on the date the
options were granted. The use of stock options is intended to focus executives
on the enhancement of shareholder value over the long-term and to encourage
equity ownership in the Company.
Other Executive Compensation
Subject to certain restrictions, the Company provides programs to executive
officers that are also available to other Company employees, including a 401(k)
plan, an employee stock purchase plan permitting employees to purchase Company
stock at a discount, a transportation subsidy, medical and dental benefits, and
a Section 125 plan.
12
<PAGE> 17
Compensation of the Chief Executive Officer
The Company's Chief Executive Officer, Mr. Glaser, does not participate in
Committee discussions concerning, nor does he act as a Committee member with
respect to, matters related to the compensation of the Chief Executive Officer.
The compensation for the Company's Chief Executive Officer is determined on the
same policies and criteria as the compensation for the other executive officers.
The Committee recognizes that Mr. Glaser is the Company's founder and is also
one of its largest shareholders. Because of his large share ownership, to date
Mr. Glaser has not received any stock option grants.
In fiscal year 1999 and consistent with the general procedures described
above, Mr. Glaser's annualized base salary was increased to $200,000 to reflect
the Company's outstanding performance, resulting in a base pay closer to the
median base salary earnings for chief executive officers of other high-growth
companies in the software industry.
Policy With Respect to the $1 Million Deduction Limit
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the federal corporate income tax deduction for
compensation paid to executive officers named in the summary compensation table
in the proxy statement of a public company to $1 million, unless the
compensation is "performance-based compensation" or qualifies under certain
other exceptions. The Committee intends to qualify executive compensation for
deductibility under Section 162(m) to the extent consistent with the best
interests of the Company. Since corporate objectives may not always be
consistent with the requirements for full deductibility, it is conceivable that
the Company may enter into compensation arrangements in the future under which
payments are not deductible under Section 162(m); deductibility will not be the
sole factor used by the Committee in ascertaining appropriate levels or modes of
compensation.
Conclusion
The Committee believes these executive compensation policies and programs
serve the interests of shareholders and the Company effectively. The various pay
vehicles offered are appropriately balanced to provide increased motivation for
executives to contribute to the Company's overall future success, thereby
enhancing the value of the Company for the shareholders' benefit.
The Compensation Committee
of the Board of Directors
James W. Breyer
Robert Glaser
Mitchell Kapor
13
<PAGE> 18
COMPARATIVE PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total return to
shareholders on the Company's Common Stock with the cumulative total return of
the Nasdaq Composite Index and the Chase H&Q Technology Index for the period
beginning on November 21, 1997 (the date of the Company's initial public
offering), and ended on December 31, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG REALNETWORKS, INC. COMMON STOCK,
NASDAQ COMPOSITE INDEX AND THE CHASE H&Q TECHNOLOGY INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NOVEMBER 21, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RealNetworks, Inc.............. $100 $111 $287 $1,925
Nasdaq Composite Index......... 100 97 135 251
Chase H&Q Technology Index..... 100 93 145 325
</TABLE>
The total return on the Common Stock and each index assumes the value of
each investment was $100 on November 21, 1997, and that all dividends were
reinvested, although dividends have not been declared on the Common Stock.
Return information is historical and not necessarily indicative of future
performance.
PROPOSAL 2 -- AMENDMENT OF THE COMPANY'S RESTATED ARTICLES
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK TO REMOVE PROVISIONS THAT ARE NO LONGER
APPLICABLE AND TO DELETE A DESIGNATION OF NON-VOTING STOCK
WHICH IS NO LONGER OUTSTANDING
On April 14, 2000, the Board of Directors of the Company adopted
resolutions, subject to shareholder approval, proposing several amendments to
the Company's Amended and Restated Articles of Incorporation, as amended. These
amendments would increase the number of authorized shares of Common Stock,
delete certain provisions not applicable to public companies and delete the
designation of special non-voting common stock which is no longer outstanding.
The Company's Restated Articles of Incorporation, as amended (the "Articles
of Incorporation"), currently authorize the issuance of 300,000,000 shares of
Common Stock and 60,000,000 shares of Preferred
14
<PAGE> 19
Stock. On April 14, 2000, the Board of Directors adopted resolutions, subject to
shareholder approval, proposing that the Articles of Incorporation be amended to
increase the authorized number of shares of Common Stock to 1,000,000,000
shares. As of April 3,, 2000, the Company had approximately 154,433,190 shares
of Common Stock outstanding, approximately 5,100 shares of Common Stock reserved
for future issuance upon the exercise of outstanding warrants, and approximately
46,242,580 shares of Common Stock reserved for future issuance under the
Company's stock benefit plans. Based on the foregoing, as of April 3, 2000, the
Company had approximately 99,319,130 shares of Common Stock authorized under the
Articles of Incorporation remaining available for other purposes.
The Board of Directors has adopted resolutions setting forth the proposed
amendment to Article 4.1 of the Articles of Incorporation to increase the number
of authorized shares of Common Stock from 300,000,000 to 1,000,000,000 shares
(the "Amendment"), declaring the advisability of the Amendment, and calling for
the submission of the Amendment for approval by the Company's shareholders at
the Annual Meeting. The text of Article 4.1, as it is proposed to be amended, is
as follows:
The aggregate number of shares of capital stock which this
Corporation is authorized to issue shall be 1,060,000,000, divided
into two classes as follows: One Billion (1,000,000,000) shares of
common stock, $.001 par value per share (the "Common Stock"), and
Sixty Million (60,000,000) shares of preferred stock, $.001 par value
per share (the "Preferred Stock").
The Board of Directors believes that it is in the Company's best interest
to increase the number of authorized shares of Common Stock in order to give the
Company additional flexibility to maintain a reasonable stock price with future
stock splits and stock dividends. Since the Company's initial public offering in
1997, the Company has completed two separate 2-for-1 splits of the Common Stock.
The current number of authorized shares of Common Stock that are not outstanding
or reserved for issuance is not sufficient to enable the Company to implement
stock splits in the future. In addition, the Company has acquired a number of
companies as part of implementing its business strategy, and it intends to
continue to acquire additional companies. The Company has typically used shares
of Common Stock as the primary means of paying for acquisitions, and expects to
continue to do so in the future. The Board believes that the proposed increase
in the number of authorized shares of Common Stock is desirable to maintain the
Company's flexibility in choosing how to pay for acquisitions. The Board of
Directors believes that it is in the best interests of the Company to have
additional shares of Common Stock authorized at this time to alleviate the
expense and delay of holding a special meeting of shareholders to authorize
additional shares of Common Stock when the need arises.
The Board of Directors also believes that the availability of additional
shares of Common Stock will provide the Company with the flexibility to issue
shares for a variety of other purposes that the Board may deem advisable without
further shareholder approval unless required by applicable law or regulation.
These purposes could include, among other things, the sale of stock to obtain
additional capital, the purchase of property, the use of additional shares for
various equity compensation and other employee benefit plans, and other bona
fide corporate purposes. The Company could also use the additional shares of
Common Stock to oppose a hostile takeover attempt or delay or prevent changes of
control (whether by merger, tender officer, proxy contest or assumption of
control by a holder of a large block of the Company's securities) or changes in
or removal of management of the Company. For example, the issuance of shares of
Common Stock in a public or private sale or similar transaction would increase
the number of the Company's outstanding shares, thereby diluting the interest of
a party seeking to take over the Company.
The Board of Directors is not proposing the Amendment in response to any
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer or solicitation in opposition to management. In
addition, the Amendment is not part of any plan by management to recommend a
series of similar amendments to the Board of Directors and shareholders.
Finally, the Board does not currently contemplate recommending the adoption of
any other amendments to the Articles of Incorporation which could be construed
to affect the ability of third parties to take over or change control of the
Company.
15
<PAGE> 20
If the Amendment is approved, the Board of Directors would have the ability
to cause the issuance of the additional authorized shares without further vote
of the shareholders of the Company, except as may be required by regulatory
bodies or The Nasdaq Stock Market.
The additional Common Stock to be authorized by adoption of the Amendment
would have rights identical to the currently outstanding Common Stock of the
Company, and the adoption of the proposed amendment and issuance of additional
shares of Common Stock would not affect the rights of the holders of currently
outstanding Common Stock, except for effects incidental to increasing the number
of shares of Common Stock outstanding, such as dilution of the earnings per
share and voting rights of current holders of Common Stock. The holders of
Common Stock do not presently have preemptive rights to subscribe for the
additional shares of Common Stock proposed to be authorized. This means that
current shareholders do not have a prior right to purchase any new issue of
Common Stock of the Company in order to maintain their proportionate ownership
interest. The Amendment would not change the par value of the Common Stock. If
the Amendment is adopted, it will become effective upon the filing of Articles
of Amendment to the Articles of Incorporation with the Secretary of State of
Washington.
The resolutions adopted by the Board of Directors of the Company, subject
to shareholder approval, proposing that the Articles of Incorporation be amended
to increase the authorized Common Stock, also include proposed amendments to
delete provisions that are not applicable to public companies and to delete the
designation of special non-voting common stock, none of which shares of special
common stock remain outstanding.
Section 4.10 of the Articles of Incorporation as currently in effect
enables the shareholders of the Company to take action by written consent of
less than all of the shareholders. However, the Washington Business Corporation
Act provides that shareholders of a public company may act by written consent
only if such written consent is unanimous. As a result, Section 4.10 of the
Articles of Incorporation has no effect under Washington law. The resolutions
adopted by the Board of Directors propose to amend the Company's Articles of
Incorporation by deleting Section 4.10.
Two provisions of the Articles of Incorporation require that, subsequent to
the date of the Company's initial public offering, special meetings of
shareholders of the Company may be called only by certain parties and that a
majority shareholder vote is required to approve certain extraordinary
transactions. The resolutions adopted by the Board of Directors propose to amend
the Articles of Incorporation by deleting the references to these provisions
becoming effective only upon the Company's initial public offering because the
Company has already completed its initial public offering. After the amendment,
the Articles of Incorporation would simply state that the provisions are
effective. Since the provisions became effective upon the Company's initial
public offering in November 1997, this change would not change the operative
effect of the provisions.
Section 4.2 of the Articles of Incorporation provide for the designation of
a special series of non-voting "Special Common Stock." The Special Common Stock
was created for Microsoft in connection with a strategic investment by Microsoft
in the Company in 1997, to limit Microsoft's voting power. The designation of
Special Common Stock also provided that upon transfer of the Special Common
Stock by Microsoft, the Special Common Stock would become ordinary Common Stock.
All of the shares of Special Common Stock have been transferred and converted
into ordinary Common Stock, and no shares of Special Common Stock remain
outstanding. The resolutions adopted by the Board of Directors propose to amend
the Company's Articles of Incorporation by deleting Section 4.2.
The Articles of Amendment that will effect the amendments to the Articles
of Incorporation are attached on Appendix B to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, TO DELETE PROVISIONS NOT
APPLICABLE TO A PUBLIC COMPANY AND TO DELETE A DESIGNATION OF A SERIES OF STOCK
THAT IS NO LONGER OUTSTANDING.
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PROPOSAL 3 -- APPROVAL OF THE AMENDED AND RESTATED
1996 STOCK OPTION PLAN
Shareholders are being asked to approve the amended and restated 1996 Stock
Option Plan (the "1996 Plan") so that the Company can continue to use the 1996
Plan to achieve its purposes and so that the Company can continue to receive a
federal income tax deduction for compensation paid under the 1996 Plan. The 1996
Plan was originally adopted by the Board of Directors in February 1996, and was
approved by the Company's shareholders in September 1997. The only significant
change made by the amended and restated 1996 Plan is to make an additional
15,000,000 shares of Common Stock available for issuance under the 1996 Plan.
The 1996 Plan has not been changed in any other significant way. If shareholders
approve the amended and restated 1996 Plan, it will replace the prior version of
the 1996 Plan.
The 1996 Plan provides for the grant of incentive and nonqualified options
to purchase up to an aggregate of 45,200,000 shares of Common Stock to
employees, officers, directors, consultants and independent contractors of the
Company or any of its affiliates (the "Initial Option Amount"). The Initial
Option Amount can be increased to up to 48,384,748 shares after taking into
account 3,184,748 shares of Common Stock subject to options outstanding under
the 1995 Plan on April 3, 2000, to the extent that such options terminate
without having been exercised in full. The purpose of the 1996 Plan is to
promote the Company's success by aligning employee financial interests with
long-term shareholder value. The Board believes that the number of shares
remaining available for issuance will be insufficient to achieve the purpose of
the 1996 Plan over the term of such plan unless the additional shares are
authorized. A copy of the proposed 1996 Plan, as amended, may be obtained upon
written request to the Company's Investor Relations Department at the address
listed on the Notice of Annual Meeting of Shareholders. A copy of the 1996 Plan
(without the proposed amendment) is attached as Appendix A to this Proxy
Statement.
DESCRIPTION OF THE 1996 PLAN
The following is a summary of the principal provisions of the 1996 Plan,
and is subject to and qualified by reference to the 1996 Plan.
Purpose. The purpose of the 1996 Plan is to enhance the long-term
profitability and shareholder value of the Company by offering an opportunity to
invest in the capital stock of the Company to those employees, officers,
consultants and agents of the Company and its subsidiaries who are key to the
growth and success of the Company, to encourage them to continue to provide
services to the Company and its subsidiaries and to encourage them to acquire
and maintain stock ownership in the Company.
Administration. The 1996 Plan is administered by a committee or committees
of the Board of Directors (the "Administrative Committee"). All members of the
Administrative Committee serve at the discretion of the Board of Directors. The
Administrative Committee is authorized to administer and interpret the 1996
Plan, subject to its express provisions, and to make all determinations
necessary or advisable for the administration of the 1996 Plan.
The 1996 Plan provides that the Board of Directors may delegate to an
Executive Officer (as defined in the 1996 Plan) the authority to determine from
time to time the eligible participants to whom Options are to be granted, the
number of shares of Common Stock for which Options are exercisable and the
purchase price of such shares, and all other terms and conditions of the
Options; provided, however, that (i) the authority delegated to such Executive
Officer shall not exceed that of the Administrative Committee with respect to
the 1996 Plan, (ii) the Executive Officer may not be delegated authority to
grant Options to executive officers or directors of the Company, (iii) the
purchase price of each share of Common Stock under an Option may not be less
than the fair market value of such share on the date of grant of the Option, and
(iv) the Executive Officer shall promptly provide a report to the Administrative
Committee of each person to whom an Option has been granted and the material
terms and conditions of the Option.
Shares Subject to the 1996 Plan. The number of shares of Common Stock
subject to the 1996 Plan as of April 3, 2000 (assuming the increase of
15,000,000 shares and including the number of shares that become available for
issuance under the Company's 1995 Stock Option Plan (the "1995 Plan")) was
63,384,748,
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<PAGE> 22
except that any shares of Common Stock that, subsequent to April 3, 2000, become
available for issuance under the 1995 Plan in accordance with its terms as in
effect on such date and that are not issued under the 1995 Plan shall be added
to the aggregate number of shares available for issuance under the 1996 Plan.
Any unpurchased shares of Common Stock subject to stock options ("Options")
granted under the 1996 Plan that expire or terminate without shares of Common
Stock having been issued in connection therewith may be used for subsequent
grants under the 1996 Plan. As of April 3, 2000, 36,451,850 shares of Common
Stock were issuable pursuant to stock options outstanding under the 1996 Plan
and 3,184,748 shares of Common Stock were available for grant.
Limitations. Subject to adjustment from time to time, not more than One
Million (1,000,000) shares of Common Stock may be made subject to Options in any
one fiscal year under the 1996 Plan to any individual participant in the
aggregate of the Company, such limitation to be applied in a manner consistent
with the requirements of, and only to the extent required for compliance with,
the exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
Persons Who May Participate. Options may be granted under the 1996 Plan to
those officers, directors, employees and consultants of the Company and its
subsidiaries as the Administrative Committee from time to time selects;
provided, however, that incentive stock options may only be granted to
employees.
Types of Options. Options granted under the 1996 Plan may be incentive
stock options ("ISOs") that are intended to meet all of the requirements of an
"Incentive Stock Option" as defined in Section 422 of the Code or nonqualified
stock options ("NSOs"). Each Option granted under the 1996 Plan must be
evidenced by an agreement (an "Agreement") duly executed on behalf of the
Company. Each Agreement will comply with and be subject to the terms and
conditions of the 1996 Plan. Any Agreement may contain such other terms,
provisions and conditions not inconsistent with the 1996 Plan as may be
determined by the Administrative Committee.
Terms and Conditions of Options. The price at which shares may be purchased
upon exercise of an Option shall be fixed by the Administrative Committee and
may be more than, less than or equal to the Fair Market Value of the Common
Stock as of the date the Option is granted; provided, however, that the purchase
price of an ISO shall be (a) at least 110% of the Fair Market Value as of the
date of the grant of the Common Stock subject thereto, if the ISO is being
granted to a shareholder who owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of capital stock of the
Company, and (b) at least 100% of the Fair Market Value as of the date of grant
of the Common Stock subject thereto, if the ISO is being granted to any other
person. For purposes of the 1996 Plan, "Fair Market Value" means the last sale
price of the Common Stock as reported by the Nasdaq National Market for a single
trading day. As of April 3, 2000, the closing market price for the Company's
Common Stock as reported by the Nasdaq National Market was $51.438 per share.
The method or methods of payment of the purchase price for the shares to be
purchased upon exercise of an Option shall be determined by the Administrative
Committee and may consist of (i) cash, (ii) check, (iii) promissory note, (iv)
whole shares of Common Stock already owned by the Option holder, (v) the
withholding of shares of Common Stock issuable upon exercise of the Option, (vi)
the delivery, together with a properly executed exercise notice, of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the purchase price, (vii) any combination of
the foregoing methods of payment, or (viii) such other consideration and method
of payment as may be permitted for the issuance of shares under applicable
securities and other laws. The permitted methods of payment of the amounts
payable upon exercise of an Option, if other than in cash, shall be set forth in
the Option Agreement evidencing the Option and may be subject to such conditions
as the Administrative Committee deems appropriate. The optionee must pay to the
Company applicable withholding taxes upon exercise of the Option as a condition
to receiving the stock certificates. The Option term and vesting schedule, if
any, will be fixed by the Administrative Committee. Options generally will be
exercisable for one year after termination of services as a result of disability
or death and for three months after all other terminations. An Option will not
be exercisable if the optionee's services are terminated for "cause", as defined
in the 1996 Plan.
Amendment. Prior to February 16, 2006, the Administrative Committee may
from time to time suspend or discontinue the 1996 Plan, or modify or amend the
1996 Plan in such respects as it shall deem advisable;
18
<PAGE> 23
provided, however, that any such modification or amendment shall comply with all
applicable laws and stock exchange listing requirements, and when required by
law, any such modification or amendment shall be subject to approval by the
Company's shareholders. No termination, modification or amendment of the 1996
Plan may adversely affect the rights of the holder of an outstanding Option in
any material way unless the holder of the Option consents thereto. With the
consent of the holder of an Option, and subject to the terms and conditions of
the 1996 Plan, the Administrative Committee may amend outstanding Option
Agreements with any Option holder, including, without limitation, any amendment
that would (i) accelerate the time or times at which the Option may be
exercised, and/or (ii) extend the scheduled expiration date of the Option.
Adjustments. If the Company subdivides its outstanding shares of Common
Stock into a greater number of shares of Common Stock (by stock dividend, stock
split, reclassification or otherwise) or combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock (by reverse stock
split, reclassification or otherwise), or if the Administrative Committee
determines that any stock dividend, extraordinary cash dividend,
reclassification, recapitalization, reorganization, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
the 1996 Plan, the Administrative Committee shall, in its sole discretion and in
such manner as it may deem equitable and appropriate, make adjustments to any or
all of (a) the number and kind of shares with respect to which Options may
thereafter be granted under the 1996 Plan; (b) the number and kind of shares
subject to outstanding Options; and (c) the purchase price under outstanding
Options.
Nontransferability. Unless the Administrative Committee determines
otherwise at the time an Option is granted, an Option shall not be transferable
other than by will or the laws of descent and distribution. Options may be
exercised during the lifetime of the Option holder only by such Option holder
(or his or her court appointed legal representative). After an Option is
granted, the Administrative Committee may release in whole or in part these
restrictions on transferability at any time by giving written notice to the
Option holder.
Acceleration. Each outstanding Option under the 1996 Plan shall become
exercisable in full in respect of the aggregate number of shares covered
thereby, notwithstanding any contrary vesting schedule in the Option Agreement
evidencing the Option (except to the extent the Option Agreement expressly
provides otherwise), in the event of (a) any merger, consolidation or binding
share exchange pursuant to which shares of Common Stock are changed or converted
into or exchanged for cash, securities or other property, other than any such
transaction in which the persons who hold Common Stock immediately prior to the
transaction have immediately following the transaction the same proportionate
ownership of the common stock of, and the same voting power with respect to, the
surviving corporation; (b) any merger, consolidation or binding share exchange
in which the persons who hold Common Stock immediately prior to the transaction
have immediately following the transaction less than a majority of the combined
voting power of the outstanding capital stock of the Company ordinarily (and
apart from rights accruing under special circumstances) having the right to vote
in the election of directors; (c) any liquidation or dissolution of the Company;
(d) any sale, lease, exchange or other transfer not in the ordinary course of
business (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; or (e) any transaction (or
series of related transactions), consummated without the approval or
recommendation of the Board, in which (i) any person, corporation or other
entity (excluding the Company and any employee benefit plan sponsored by the
Company) purchases any Common Stock (or securities convertible into Common
Stock) for cash, securities or any other consideration pursuant to a tender
offer or exchange offer, or (ii) any person, corporation or other entity
(excluding the Company and any employee benefit plan sponsored by the Company)
becomes the direct or indirect beneficial owner of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
then outstanding securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors.
Federal Tax Consequences. The following is a summary of the general federal
income tax consequences to U.S. taxpayers and the Company of Options granted
under the 1996 Plan. Tax consequences for any particular individual may be
different.
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<PAGE> 24
NSOs. No income will be recognized by an Option recipient upon the grant of
an NSO. On the exercise of an NSO, the optionee will generally have ordinary
income in an amount equal to the excess of the fair market value of the shares
acquired over the exercise price. The income recognized by an optionee who is
also an employee of the Company will be subject to tax withholding. Upon a later
sale of such shares, the optionee will have short-term or long-term capital gain
or loss, as the case may be, in an amount equal to the difference between the
amount realized on such sale and the tax basis of the shares sold.
ISOs. No income will be recognized by an Option recipient upon the grant of
an ISO. Also, the optionee will recognize no income at the time of exercise
(although the optionee will have income for alternative minimum income tax
purposes at that time as if the option were an NSO). If the acquired shares are
sold or exchanged after the later of (a) one year from the date of exercise of
the options and (b) two years from the date of grant of the option, the
difference between the amount realized by the optionee on that sale or exchange
and the option price will be taxed to the optionee as a long-term capital gain
or loss. If the shares are disposed of before such holding period requirements
are satisfied, then the optionee will have ordinary income in the year of
disposition equal to the difference between the exercise price and the lower of
the fair market value of the stock at the date of the Option exercise or the
sale of the stock and the optionee will have capital gain or loss, long-term or
short-term, as the case may be, in an amount equal to the difference between (i)
the amount realized by the optionee upon that disposition of the shares and (ii)
the option price paid by the optionee increased by the amount of ordinary
income, if any, so recognized by the optionee.
The Company generally will receive a tax deduction for any ordinary income
recognized by a holder of an Option (for example, the exercise of an NSO).
Special rules limit the deductibility of compensation paid to the Named
Executive Officers. Under section 162(m) of the Internal Revenue Code, the
annual compensation paid to each of these executives may not be deductible to
the extent that it exceeds $1 million. However, the Company is able to preserve
the deductibility of compensation over $1 million if the conditions of section
162(m) are met. These conditions include shareholder approval of the 1996 Plan
and setting limits on the number of Options that any individual may receive. The
1996 Plan has been designed to permit the Administrative Committee to grant
Options that qualify as performance-based for purposes of satisfying the
conditions of section 162(m), assuming that shareholders approve the 1996 Plan
at the Annual Meeting.
As of the date of this proxy statement, there has been no determination by
the Administrative Committee with respect to future awards under the 1996 Plan.
Accordingly, future awards are not determinable. The table of "Option Grants in
1999" under "Compensation and Benefits -- Option Grants" provides information
with respect to the grant of options to the Named Executive Officers during
fiscal 1999. Information regarding options granted to non-employee Directors
during fiscal 1999 is set forth under the heading "Board of
Directors -- Compensation of Directors." During fiscal 1999, all current
executive officers as a group and all other employees as a group were granted
options to purchase 1,720,000 shares and 15,037,478 shares, respectively,
pursuant to the 1996 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO
THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN.
PROPOSAL 4 -- APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, acting upon the recommendation of the Audit
Committee of the Board, has appointed the firm of KPMG LLP as independent
auditors for the Company's fiscal year ending December 31, 2000. This firm has
audited the accounts of the Company since 1994. The firm performed audit
services in connection with the examination of the consolidated financial
statements of the Company for its fiscal year ended December 31, 1999. In
addition, the firm has rendered other services, including the review of
financial statements and related information in various registration statements
and filings with the SEC.
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<PAGE> 25
If this proposal does not receive the affirmative approval of a majority of
the votes cast on the proposal, the Board of Directors will reconsider the
appointment. Representatives of KPMG LLP are expected to be present at the
annual meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions from
shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF KPMG LLP.
OTHER BUSINESS
The Board of Directors does not intend to bring any other business before
the meeting, and, so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the Notice of Annual Meeting of
Shareholders. However, as to any other business which may properly come before
the meeting, it is intended that proxies, in the form enclosed, will be voted in
respect thereof in accordance with the judgment of the persons voting such
proxies.
IT IS IMPORTANT THAT PROXIES ARE RETURNED PROMPTLY AND THAT YOUR SHARES ARE
REPRESENTED. SHAREHOLDERS ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ KELLY JO MACARTHUR
Kelly Jo MacArthur
Senior Vice President, General Counsel
and Secretary
May , 2000
Seattle, Washington
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE 1999 FISCAL YEAR, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS AVAILABLE WITHOUT CHARGE
TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO:
INVESTOR RELATIONS DEPARTMENT
REALNETWORKS, INC.
2601 ELLIOTT AVENUE, SUITE 1000
SEATTLE, WASHINGTON 98121
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<PAGE> 26
APPENDIX A
REALNETWORKS, INC. 1996 STOCK OPTION PLAN,
AS AMENDED AND RESTATED
1
PURPOSE AND EFFECTIVENESS
1.1 Purpose. The purpose of the 1996 Stock Option Plan (the "Plan") is to
provide a method by which selected individuals rendering services to
RealNetworks, Inc., a Washington corporation (the "Company"), may be offered an
opportunity to invest in capital stock of the Company, thereby increasing their
personal interest in the growth and success of the Company. The Plan is also
intended to aid in attracting persons of exceptional ability to become officers
and employees of the Company.
1.2 Effective Date; Shareholder Approval. The Plan shall be effective at
the time specified in the resolutions of the Board adopting the Plan (the
"Effective Date"). The Plan shall be subject to the requirement of RCW
21.20.310(10) that the Administrator of Securities of the Department of
Financial Institutions of the State of Washington be provided with notification
of the adoption of the Plan. No Option shall be granted hereunder until this
notification requirement has been satisfied. The issuance of Incentive Stock
Options shall be subject to approval of the Plan by holders of shares of Common
Stock constituting at least a majority of the shares of Common Stock represented
in person or by proxy at the meeting at which the approval is sought. If this
shareholder approval requirement is not satisfied within twelve (12) months
after the Effective Date, all Incentive Stock Options issued under the Plan
shall automatically become Nonqualified Stock Options.
1.3 Acquired Company Awards. Notwithstanding anything in the Plan to the
contrary, the Administrative Committee may grant Options under the Plan in
substitution for options issued under other plans, or assume under the Plan
options issued under other plans, if the other plans are or were plans of other
acquired entities ("Acquired Entities") (or the parent of the Acquired Entity)
and the new Option is substituted, or the old option is assumed, by reason of a
merger, consolidation, acquisition of property or of stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is approved
by the Board and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding options of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Administrative
Committee without any further action by the Administrative Committee, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such awards shall be deemed to be Holders.
2
DEFINITIONS
2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the
Plan shall have the following meanings (whether used in the singular or plural):
"Administrative Committee" is defined in Section 3.1.
"Affiliate" of the Company means any corporation, partnership, or other
business association that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
Company.
"Approved Transaction" means (a) any merger, consolidation or binding share
exchange pursuant to which shares of Common Stock are changed or converted into
or exchanged for cash, securities or other property, other than any such
transaction in which the persons who hold Common Stock immediately prior to the
transaction have immediately following the transaction the same proportionate
ownership of the common stock of, and the same voting power with respect to, the
surviving corporation; (b) any merger, consolidation or binding share exchange
in which the persons who hold Common Stock immediately prior to the transaction
have immediately following the transaction less than a majority of the combined
voting power of the
<PAGE> 27
outstanding capital stock of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors; (c) any liquidation or dissolution of the Company; and (d) any
sale, lease, exchange or other transfer not in the ordinary course of business
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Code shall include any successor section.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Company.
"Company" means RealNetworks, Inc., a Washington corporation.
"Control Purchase" means any transaction (or series of related
transactions), consummated without the approval or recommendation of the Board,
in which (a) any person, corporation or other entity (including any "person" as
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the
Company and any employee benefit plan sponsored by the Company) purchases any
Common Stock (or securities convertible into Common Stock) for cash, securities
or any other consideration pursuant to a tender offer or exchange offer; or (b)
any person, corporation or other entity (including any "person" as defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company
and any employee benefit plan sponsored by the Company) becomes the "beneficial
owner" (as that term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the then outstanding securities of the
Company ordinarily (and apart from rights accruing under special circumstances)
having the right to vote in the election of directors (calculated as provided in
Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the
Company's securities).
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12) months.
"Disinterested Person" is defined in Section 3.2(b).
"Effective Date" is defined in Section 1.2.
"Eligible Person" is defined in Section 5.
"Equity Securities" has the meaning given that term in Rule 3a11-1
promulgated under the Exchange Act, as amended from time to time, or any
successor rule thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific section of the Exchange Act shall include any successor section.
"Executive Officer" means any employee of the company who is an "officer"
within the meaning of Rule 16a-1(f) of the Exchange Act, as amended from time to
time, or any successor rule thereto.
"Fair Market Value" on any day means, if the Common Stock is publicly
traded, the last sales price (or, if no last sales price is reported, the
average of the high bid and low asked prices) for a share of Common Stock on
that day (or, if that day is not a trading day, on the next preceding trading
day), as reported by the principal exchange on which the Common Stock is listed,
or, if the Common Stock is publicly traded but not listed on an exchange, as
reported by The Nasdaq Stock Market, or, if such prices or quotations are not
reported by The Nasdaq Stock Market, as reported by any other available source
of prices or quotations selected by the Administrative Committee. If the Common
Stock is not publicly traded, or if the Fair Market Value is not determinable by
any of the foregoing means, the Fair Market Value on any day shall be determined
in good faith by the Administrative Committee on the basis of such
considerations as the Administrative Committee deems appropriate.
A-2
<PAGE> 28
"Holder" means an Eligible Person who has received an Option under this
Plan or, if rights continue under the Option following the death of the Eligible
Person, the person who succeeds to those rights by will or by the laws of
descent and distribution.
"Incentive Stock Option" means an Option that is an incentive stock option
within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" means an Option that is designated as a
nonqualified stock option.
"Option" means an option with respect to shares of Common Stock awarded
pursuant to Article 6.
"Option Agreement" is defined in Section 6.5.
"Plan" is defined in Section 1.1.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Securities Act shall include any successor section.
"10% Shareholder" means a person who owns (or is considered as owning
within the meaning of Section 424 of the Code) stock possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company.
3
ADMINISTRATION
3.1 Administrative Committee. The Plan shall be administered by the Board
unless the Board, either voluntarily or as required by Section 3.2 below,
appoints a separate committee of the Board to administer the Plan (the Board, or
such committee, if it is administering the Plan, will be referred to in the Plan
as the "Administrative Committee"). The Administrative Committee shall select
one of its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute a
quorum and all determinations shall be made by a majority of that quorum. Any
determination reduced to writing and signed by all of the members of the
Administrative Committee shall be fully as effective as if it had been made by a
majority vote at a meeting duly called and held.
3.2 Appointment of Administrative Committee. The Board may appoint a
committee consisting of two or more of its members to administer the Plan. Once
appointed, the committee shall continue to serve until otherwise directed by the
Board. From time to time the Board may increase the size of the committee and
appoint additional members, remove members (with or without cause) and appoint
new members in their place, fill vacancies however caused, and/or remove all
members of the committee and thereafter directly administer the Plan.
3.3 Powers; Regulations. The Administrative Committee shall have full
power and authority, subject only to the express provisions of the Plan (a) to
designate the Eligible Persons to whom Options are to be granted under the Plan;
(b) to determine the number of shares subject to, and all of the other terms and
conditions (which need not be identical) of, all Options so granted; (c) to
interpret the provisions of the Plan and the Option Agreements evidencing the
Options so granted; (d) to correct any defect, supply any information and
reconcile any inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan; (e) to supervise
the administration of the Plan; and (f) to take such other actions in connection
with or in relation to the Plan as it deems necessary or advisable. The
Administrative Committee is authorized to establish, amend and rescind such
rules and regulations not inconsistent with the terms and conditions of the Plan
as it deems necessary or advisable for the proper administration of the Plan. In
making determinations hereunder, the Administrative Committee may give such
consideration to the recommendations of management of the Company as the
Administrative Committee deems desirable.
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3.4 Limits on Authority. Exercise by the Administrative Committee of its
authority under the Plan shall be consistent (a) with the intent that all
Incentive Stock Options issued under the Plan be qualified under the terms of
Section 422 of the Code (including any amendments thereto and any similar
successor provision), and (b) if the Company registers any class of Equity
Security pursuant to Section 12 of the Exchange Act, with the intent that the
Plan be administered in a manner so that, to the extent possible, the grant of
Options and all other transactions with respect to the Plan, to Options and to
any Common Stock acquired upon exercise of Options, shall be exempt from the
operation of Section 16(b) of the Exchange Act.
3.5 Exercise of Authority. Each action and determination made or taken
pursuant to the Plan by the Administrative Committee, including but not limited
to any interpretation or construction of the Plan and the Option Agreements,
shall be final and conclusive for all purposes and upon all persons. No member
of the Administrative Committee shall be liable for any action or determination
made or taken by the member or the Administrative Committee in good faith with
respect to the Plan.
4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to the provisions of this Article 4, the
maximum number of shares of Common Stock with respect to which Options may be
granted during the term of the Plan shall be the sum of (a) 11,300,000, plus (b)
an additional 1,045,436 shares of Common Stock previously reserved for issuance
pursuant to Section 4.1 of the Company's 1995 Stock Option Plan (the "1995
Plan"), plus (c) any of the 1,269,123 shares of Common Stock subject to options
currently outstanding under the 1995 Plan to the extent the options terminate
without having been exercised in full. Shares of Common Stock will be made
available from the authorized but unissued shares of the Company or from shares
reacquired by the Company. If any Option terminates for any reason without
having been exercised in full, the shares of Common Stock subject to the Option
for which it has not been exercised shall again be available for purposes of the
Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock dividend,
stock split, reclassification or otherwise) or combines its outstanding shares
of Common Stock into a smaller number of shares of Common Stock (by reverse
stock split, reclassification or otherwise), or if the Administrative Committee
determines, in its sole discretion, that any stock dividend, extraordinary cash
dividend, reclassification, recapitalization, reorganization, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock, or other similar corporate event (including a merger or
consolidation other than one that constitutes an Approved Transaction) affects
the Common Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under this Plan,
then the Administrative Committee shall, in its sole discretion and in such
manner as the Administrative Committee may deem equitable and appropriate, make
adjustments to any or all of (a) the number and kind of shares with respect to
which Options may thereafter be granted under this Plan; (b) the number and kind
of shares subject to outstanding Options, and (c) the purchase price under
outstanding Options; provided, however, that the number of shares subject to an
Option shall always be a whole number. The Administrative Committee may, if
deemed appropriate, provide for a cash payment to any Holder of an Option in
connection with any adjustment made pursuant to this Section 4.2.
5
ELIGIBILITY
The persons eligible to participate in the Plan and to receive Options
under the Plan ("Eligible Persons") shall be (a) employees (including officers
and directors who are also employees) of the Company or any of its Affiliates,
and (b) consultants (and directors who are not employees) rendering services to
the Company or any of its Affiliates in the capacity of independent contractors.
Options may be granted to Eligible Persons even if they hold or have held
Options under this Plan or options or similar awards under any other plan of the
Company or any of its Affiliates.
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6
STOCK OPTIONS
6.1 Grant of Options. Subject to the limitations of the Plan, the
Administrative Committee shall designate from time to time each Eligible Person
who is to be granted an Option, the time when the Option shall be granted, the
number of shares subject to the Option, whether the Option is to be an Incentive
Stock Option or a Nonqualified Stock Option and, subject to Section 6.2, the
purchase price of the shares of Common Stock subject to the Option; provided,
however, that Incentive Stock Options may only be granted to Eligible Persons
who are employees of the Company or an Affiliate that constitutes a "parent
corporation" or a "subsidiary corporation" within the meaning of Section 424 of
the Code. Each Option granted under this Plan shall also be subject to such
other terms and conditions not inconsistent with this Plan as the Administrative
Committee, in its sole discretion, determines. Subject to the limitations of the
Plan, the same Eligible Person may receive Incentive Stock Options and
Nonqualified Stock Options at the same time and pursuant to the same Option
Agreement, provided that Incentive Stock Options and Nonqualified Stock Options
are clearly designated as such.
6.2 Purchase Price. The price at which shares may be purchased upon
exercise of an Option shall be fixed by the Administrative Committee and may be
more than, less than or equal to the Fair Market Value of the Common Stock as of
the date the Option is granted; provided, however, that the purchase price of an
Incentive Stock Option shall be (a) at least 110% of the Fair Market Value as of
the date of grant of the Common Stock subject thereto, if the Incentive Stock
Option is being granted to a 10% Shareholder, and (b) at least 100% of the Fair
Market Value as of the date of grant of the Common Stock subject thereto, if the
Incentive Stock Option is being granted to any other Eligible Person.
6.3 Limitations on Grants.
(a) Annual Limitation on Grants of Incentive Stock Options. The aggregate
Fair Market Value of the shares of Common Stock with respect to which, during
any calendar year, one or more Incentive Stock Options under this Plan (and/or
one or more options under any other plan maintained by the Company or any of its
Affiliates for the granting of options intended to qualify under Section 422 of
the Code) become exercisable for the first time by a Holder shall not exceed
$100,000 (said value to be determined as of the respective dates on which the
options are granted to the Holder). If (i) a Holder holds one or more Incentive
Stock Options under this Plan (and/or one or more options under any other plan
maintained by the Company or any of its Affiliates for the granting of options
intended to qualify under Section 422 of the Code), and (ii) the aggregate Fair
Market Value of the shares of Common Stock with respect to which, during any
calendar year, such options become exercisable for the first time exceeds
$100,000 (said value to be determined as provided above), then such option or
options are intended to qualify under Section 422 of the Code with respect to
the maximum number of such shares as can, in light of the foregoing limitation,
be so qualified, with the shares so qualified to be the shares subject to the
option or options earliest granted to the Holder. If an Option that would
otherwise qualify as an Incentive Stock Option becomes exercisable for the first
time in any calendar year for shares of Common Stock that would cause such
aggregate Fair Market Value to exceed $100,000, then the portion of the Option
in respect of such shares shall be deemed to be a Nonqualified Stock Option.
(b) Annual Limitation on Grants Following Exchange Act Registration. If the
Company registers any class of any Equity Security pursuant to Section 12 of the
Exchange Act, then, from the effective date of the registration until six (6)
months after the termination of the registration, the number of shares subject
to one or more Options granted during any calendar year to an Eligible Person
shall not exceed one million (1,000,000).
6.4 Term of Options. Subject to the provisions of the Plan with respect to
termination of Options upon death, Disability or termination of services, the
term of each Option shall be for such period as the Administrative Committee
shall determine, but not more than (a) five (5) years from the date of grant in
the case of Incentive Stock Options held by 10% Shareholders; (b) ten (10) years
from the date of grant in the case of Incentive Stock Options held by persons
other than 10% Shareholders; and (c) twenty (20) years from
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the date of grant in the case of all other Options, provided, however, that the
term for a Nonqualified Stock Option granted more than one (1) year following
the Effective Date shall be ten (10) years unless otherwise determined by the
Administrative Committee.
6.5 Option Agreement. Each Option granted under the Plan shall be
evidenced by an agreement (the "Option Agreement") which shall designate the
Option as an Incentive Stock Option or a Nonqualified Stock Option and contain
such terms and provisions not inconsistent with the provisions of the Plan as
the Administrative Committee from time to time approves. Each grantee of an
Option shall be notified promptly of the grant, an Option Agreement shall be
executed and delivered by the Company to the grantee within sixty (60) days
after the date the Administrative Committee approves the grant, and, in the
discretion of the Administrative Committee, the grant shall terminate if the
Option Agreement is not signed by the grantee (or his or her attorney) and
delivered to the Company within sixty (60) days after it is delivered to the
grantee. An Option Agreement may contain (but shall not be required to contain)
such provisions as the Administrative Committee deems appropriate to insure that
the penalty provisions of Section 4999 of the Code will not apply to any stock
received by the Holder from the Company. An Option Agreement may be modified
from time to time pursuant to Section 7.6(b).
6.6 Exercise of Options. An Option granted under the Plan shall become and
remain exercisable during the term of the Option to the extent provided in the
Option Agreement evidencing the Option and in this Plan and, unless the Option
Agreement otherwise provides, may be exercised to the extent exercisable, in
whole or in part, at any time and from time to time during such term; provided,
however, that subsequent to the grant of an Option, the Administrative
Committee, at any time before complete termination of the Option, may accelerate
the time or times at which the Option may be exercised in whole or in part
(without reducing the term of the Option). If an Option is scheduled to become
exercisable on one or more dates specified in its Option Agreement, and its
Holder has a leave of absence without pay, such date or dates shall be postponed
for a period equal to the duration of the leave unless the Administrative
Committee determines otherwise.
6.7 Manner of Exercise.
(a) Form of Payment. An Option shall be exercised by written notice to the
Company upon such terms and conditions as the Option Agreement evidencing the
Option may provide and in accordance with such other procedures for the exercise
of Options as the Administrative Committee may establish from time to time. The
method or methods of payment of the purchase price for the shares to be
purchased upon exercise of an Option and of any amounts required by Section 7.8
shall be determined by the Administrative Committee and may consist of (i) cash,
(ii) check, (iii) promissory note, (iv) whole shares of Common Stock already
owned by the Holder, (v) the withholding of shares of Common Stock issuable upon
exercise of the Option, (vi) the delivery, together with a properly executed
exercise notice, of irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the purchase
price, (vii) any combination of the foregoing methods of payment, or (viii) such
other consideration and method of payment as may be permitted for the issuance
of shares under applicable securities and other laws. The permitted methods or
methods of payment of the amounts payable upon exercise of an Option, if other
than in cash, shall be set forth in the Option Agreement evidencing the Option
and may be subject to such conditions as the Administrative Committee deems
appropriate. Without limiting the generality of the foregoing, if a Holder is
permitted to elect to have shares of Common Stock issuable upon exercise of an
Option withheld to pay all or any part of the amounts payable in connection with
the exercise, then the Administrative Committee shall have the sole discretion
to approve or disapprove the election, which approval or disapproval shall be
given after the election is made.
(b) Value of Shares. Shares of Common Stock delivered in payment of all or
any part of the amounts payable in connection with the exercise of an Option,
and shares of Common Stock withheld for the payment, shall be valued for such
purpose at their Fair Market Value as of the exercise date.
(c) Issuance of Shares. The Company shall effect the issuance of the shares
of Common Stock purchased under the Option as soon as practicable after the
exercise thereof and payment in full of the purchase price therefor and of any
amounts required by Section 7.8, and within a reasonable time thereafter the
issuance shall be evidenced on the books of the Company. Following the exercise
of an Incentive Stock
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Option, the Administrative Committee shall cause the information statement
required by Section 6039 of the Code to be furnished to the Holder within the
time and in the manner prescribed by law.
6.8 Legends. Each certificate representing shares of Common Stock issued
under the Plan upon exercise of an Option shall, unless the Administrative
Committee otherwise determines, contain on its face the notice "SEE TRANSFER
RESTRICTIONS ON REVERSE" and on its reverse a legend in form substantially as
follows, together with any other legends that are required by the terms and
conditions of the Plan or that the Administrative Committee in its discretion
deems necessary or appropriate:
NOTICE: TRANSFER AND OTHER RESTRICTIONS
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED, OR OTHERWISE
DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN CONDITIONS. INFORMATION
CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM THE CORPORATION. ANY
OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT SATISFACTION OF SAID
CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE THE TRANSFEREE TO REGISTER
OWNERSHIP OF THE SECURITIES WITH THE CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
RESTRICTIONS ON TRANSFER, AND MAY BE SUBJECT TO REPURCHASE BY THE
CORPORATION OR ONE OR MORE OF ITS SHAREHOLDERS PURSUANT TO THE PROVISIONS
OF THE CORPORATION'S 1996 STOCK OPTION PLAN AND/OR AN AGREEMENT BETWEEN THE
HOLDER AND THE CORPORATION AND/OR AN AGREEMENT AMONG THE CORPORATION AND
ITS SHAREHOLDERS. INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED
FROM THE CORPORATION.
The Company may cause the transfer agent for the Common Stock to place a
stop transfer order with respect to such shares.
6.9 Nontransferability. Unless the Administrative Committee determines
otherwise at the time an Option is granted (or at any later time when the
Administrative Committee, by written notice to the Holder, releases in whole or
in part the restrictions under this Section 6.9), an Option shall not be
transferable other than by will or the laws of descent and distribution, and may
be exercised during the lifetime of the Holder thereof only by the Holder (or
his or her court appointed legal representative). Options shall not be
transferable other than by will or the laws of descent and distribution, and
Options may be exercised during the lifetime of the Holder thereof only by the
Holder (or his or her court appointed legal representative).
6.10 Repurchase of Shares.
(a) Right of Repurchase. If so specified by the Administrative Committee at
the time an Option is granted to a Holder who is an employee of the Company or
any of its Affiliates or a party to a consulting arrangement with the Company or
any of its Affiliates, the Company shall have the right, but shall not be
required, to repurchase from the Holder all or part of (i) the shares of Common
Stock that the Holder acquires upon the exercise of the Option, and (ii) any
other shares of Common Stock or other securities issued or acquired with respect
to the shares specified in the preceding clause (i) or this clause (ii) in
connection with any stock dividend, stock split, reclassification,
recapitalization, reorganization, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock, or other similar
corporate event. Such right shall be exercisable at any time and from time to
time during the period of ninety (90) days commencing on the date of termination
of the Holder's employment or consulting agreement with the Company or any of
its Affiliates for "cause," as defined in Section 7.2(b).
(b) Exercise of Repurchase Right. The Company's right of repurchase under
this Section 6.10 shall be exercised by delivery written notice to the Holder
specifying the number of shares or other securities to be repurchased and the
effective date of the repurchase, which date shall not be earlier than the date
of the notice
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nor later than the date of termination of the Company's right of repurchase. If
a Holder transfers shares or other securities that are subject to the Company's
right of repurchase, the shares or other securities shall remain subject to the
Company's right of repurchase during the period specified in the last sentence
of Section 6.10(a) (exercise of the right of repurchase in such even shall be
effected by notice to the person or entity holding the shares or other
securities at the time of exercise).
(c) Repurchase Price. With respect to each share or other security to be
repurchased by the Company upon its exercise of its right of repurchase under
this Section 6.10, the repurchase price shall be the Fair Market Value of the
share or security as of the effective date of the repurchase. The Company may
elect to pay the amount owed to the Holder (or to the person or entity holding
the share or other security to be repurchased) either (i) in cash, in which case
the amount shall be paid, without interest, within thirty (30) days following
the effective date of the repurchase, or (ii) in three equal installments, with
the first installment payable on the first anniversary of the effective date of
the repurchase, and the remaining installments payable on the corresponding date
in each of the next two years, with each installment to include interest on the
unpaid principal computed at the prime rate published in the Wall Street Journal
for the first business day of the month in which the effective date of the
repurchase occurs, for the period from the effective date of the repurchase or
the date of the most recent installment, as the case may be, to the due date of
the installment being paid.
(d) Termination of Right of Repurchase. Any right of repurchase of the
Company under this Section 6.10 shall terminate upon the occurrence of a Control
Purchase or an Approved Transaction (other than an Approved Transaction in
connection with which the Administrative Committee determines, in accordance
with the last sentence of Section 7.1, that Options otherwise subject to such
right of repurchase will not vest or become exercisable on an accelerated basis
and/or will not terminate if not exercised prior to consummation of the Approved
Transaction). Any right of repurchase of the Company under this Section 6.10
shall also terminate upon the effective date of the registration by the Company
of any class of any Equity Security pursuant to Section 12 of the Exchange Act.
6.11 Class of Common Stock. The class of shares subject to each Option and
the class of shares to be received upon exercise of each Option shall depend
upon the employment status of the Eligible Person at the date the Option is
granted and at the date the Option is exercised. If the Eligible Person is an
employee (including officers and directors who are also employees) of the
Company or one of its Affiliates as of the date the Option is granted, the
shares subject to the Option shall be shares of Series B Common Stock, which are
automatically convertible into the shares of Series C Common Stock upon the
occurrence of certain events (a "Conversion Event") as described in the
Company's Articles of Incorporation, as amended from time to time (the
"Articles"), provided, that if a Conversion Event occurs prior to the exercise
of an Option, the shares subject to the Option shall be shares of Series C
Common Stock, with the rights defined in the Articles. If the Eligible Person is
a consultant (other than a director) rendering services to the Company or any of
its Affiliates in the capacity of an independent contractor as of the date the
Option is granted, the shares subject to the Option shall be shares of Series C
Common Stock, with the rights defined in the Articles, regardless of the
Eligible Person's employment status with the Company at the date the Option is
exercised.
6.12 Delegation to Executive Officer of Authority to Grant Options. The
Board may delegate to an Executive Officer the authority to determine from time
to time (a) the Eligible Persons to whom Options are to be granted; (b) the
number of shares of Common Stock for which the Options are exercisable and the
purchase price of such shares; (c) whether the Options are Incentive Stock
Options or Nonqualified Stock Options; and (d) all of the other terms and
conditions (which need not be identical) of the Options; provided, however, that
(i) the authority delegated to the Executive Officer under this Section 6.12
shall not exceed that of the Administrative Committee under the foregoing
provisions of this Article 6 and shall be subject to such limitations, in
addition to those specified in this Section 6.12, as may be specified by the
Board at the time of delegation; (ii) the Executive Officer may not be delegated
authority under this Section 6.12 to grant any Option to any person who is an
Executive Officer or a director of the Company at the time of the grant; (iii)
the purchase price of each share of Common Stock under an Option granted under
this Section 6.12 shall not be less than the Fair Market Value of such share on
the date of grant of the Option; and (iv) the
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Executive Officer shall promptly provide a report to the Administrative
Committee of each person to whom an Option has been granted under this Section
6.12 and the material terms and conditions of the Option.
7
GENERAL PROVISIONS
7.1 Acceleration of Options -- Approved Transactions; Control Purchase. In
the event of any Approved Transaction or Control Purchase, each outstanding
Option under the Plan shall become exercisable in full in respect of the
aggregate number of shares covered thereby, notwithstanding any contrary vesting
schedule in the Option Agreement evidencing the Option (except to the extent the
Option Agreement expressly provides otherwise), effective upon the Control
Purchase or immediately prior to consummation of the Approved Transaction. In
the case of an Approved Transaction, the Company shall provide notice of the
pendency of the Approved Transaction, at least fifteen (15) days prior to the
expected date of consummation thereof, to each Holder of an outstanding Option.
Each Holder shall thereupon be entitled to exercise the Option at any time prior
to consummation of the Approved Transaction. Any such exercise as to any portion
of the Option that will only become vested immediately prior to the consummation
of the Approved Transaction in accordance with the foregoing acceleration
provision shall be contingent on such consummation. Any such exercise as to any
other portion of the Option will not be contingent on such consummation unless
so elected by the Holder in a notice delivered to the Company simultaneously
with the exercise. Upon consummation of the Approved Transaction, all Options
shall expire to the extent such exercise has not occurred. Notwithstanding the
foregoing, except to the extent otherwise provided in one or more Option
Agreements evidencing Options, the Administrative Committee may, in its
discretion, determine that any or all outstanding Options will not vest or
become exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to consummation of
the Approved Transaction, if the Board or the surviving or acquiring
corporation, as the case may be, shall take, or made effective provision for the
taking of, such action as in the opinion of the Administrative Committee is
equitable and appropriate in order to substitute new Options for such Options,
or to assume such Options (which assumption may be effected by any means
determined by the Administrative Committee, in its discretion, including, but
not limited to, by a cash payment to each Holder, in cancellation of the Options
held by him or her, of such amount as the Administrative Committee determines,
in its sole discretion, represents the then value of the Options) and in order
to make such new or assumed Options, as nearly as practicable, equivalent to the
old Options (before giving effect to any acceleration of the vesting or
exercisability thereof), taking into account, to the extent applicable, the kind
and amount of securities, cash or other assets into or for which the Common
Stock may be changed, converted or exchanged in connection with the Approved
Transaction.
7.2 Termination of Services. The provisions of this Section 7.2 shall
apply to any Holder who is an employee of the Company or any of its Affiliates
or a party to a written consulting agreement with the Company or any of its
Affiliates.
(a) General. If such a Holder's employment or consulting agreement
terminates prior to the complete exercise of an Option, then the Option shall,
except to the extent the Option Agreement evidencing the Option expressly
provides otherwise, thereafter be exercisable, to the extent that the Holder was
entitled to exercise the Option on the date of such termination, for a period of
three (3) months following such termination (but not later than the scheduled
expiration date of the Option); provided, however, that (i) if the Holder's
employment or consulting agreement terminates by reason of death or Disability,
then, except to the extent the Option Agreement evidencing the Option expressly
provides otherwise, the Option shall be exercisable, to the extent that the
Holder was entitled to exercise the Option on the date of such termination, for
a period of one (1) year following such termination (but not later than the
scheduled expiration of the Option), and (ii) any termination by the Company or
any of its Affiliates for cause will be treated in accordance with the
provisions of Section 7.2(b) (except to the extent the Option Agreement
expressly provides otherwise).
(b) Termination by Company for Cause. If a Holder's employment or
consulting agreement with the Company or any of its Affiliates is terminated for
cause, then all Options held by the Holder shall immediately terminate and,
accordingly, may not be exercised, except to the extent one or more of the
Option Agreements
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evidencing the Options expressly provides otherwise. For purposes of this Plan,
"cause" shall have the meaning given that term in any employment agreement or
consulting agreement to which the Holder is a party or, in the absence thereof,
the conduct that shall constitute "cause" for purposes of this Plan shall be
insubordination, a knowing violation of a state or federal law involving the
commission of a crime against the Company or any of its Affiliates or a felony,
any misrepresentation, deception, fraud or dishonesty that is materially
injurious to the Company or any of its Affiliates, incompetence, moral
turpitude, the refusal to perform the Holder's duties and responsibilities for
any reason other than illness or incapacity, and any other misconduct of any
kind that the Administrative Committee determines constitutes "cause" for
purposes of this Plan; provided, however, that if a termination occurs within
twelve (12) months after an Approved Transaction or Control Purchase,
termination for cause shall mean only a felony conviction for fraud,
misappropriation or embezzlement. Following termination of a Holder's employment
or consulting agreement, if the Holder engages in any act that would have
constituted cause if the Holder had remained employed by or in a consulting
relationship with the Company or any of its Affiliates, then the Administrative
Committee shall be entitled to terminate any Options held by the Holder.
(c) Miscellaneous. The Administrative Committee may determine whether any
given leave of absence of a Holder constitutes a termination of the Holder's
employment or consulting agreement; provided, however, that for purposes of the
Plan --
(i) a leave of absence, duly authorized in writing by the Company or
any of its Affiliates for military service or sickness, or for any other
purpose approved by the Company or any of its Affiliates, if the period of
the leave does not exceed ninety (90) days, and
(ii) a leave of absence in excess of ninety (90) days, duly authorized
in writing by the Company or any of its Affiliates, provided the Holder's
right to return to service with the Company or the Affiliate is guaranteed
either by statute or by contract --
shall not be deemed a termination of the Holder's employment or consulting
agreement. Options granted under the Plan shall not be affected by any change of
a Holder's employment or consulting agreement so long as the Holder continues to
be an employee of or consultant to the Company or any of its Affiliates. Except
to the extent an Option Agreement evidencing an Option expressly provides
otherwise, if a Holder has an employment or consulting agreement with an
Affiliate of the Company that ceases to be an Affiliate, such event shall be
deemed to constitute a termination of the Holder's employment or consulting
agreement for a reason other than death or Disability.
7.3 Right to Terminate Services. Nothing contained in the Plan or in any
Option Agreement, and no action of the Company or the Administrative Committee
with respect thereto, shall confer or be construed to confer on any Holder any
right to continue in the service of the Company or any of its Affiliates or
interfere in any way with the right of the Company or any of its Affiliates,
subject to the provisions of any agreement between the Holder and the Company or
any of its Affiliates, to terminate at any time, with or without cause, the
employment or consulting agreement with the Holder.
7.4 Nonalienation of Benefits. Except as provided in Section 6.9, no right
or benefit under the Plan shall be subject to anticipation, alienation, sale,
assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge,
and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void. No right or
benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to the right or benefit.
7.5 Shareholders Agreement. Unless the Option Agreement evidencing an
Option expressly provides otherwise, the Holder of the Option shall be required,
as a condition to the issuance of any shares of Common Stock that the Holder
acquires upon the exercise of the Option, to execute and deliver to the Company
a shareholders agreement in such form as may be in use by the Company at the
time of such exercise, or a counterpart thereof, together with, unless the
Holder is unmarried, a spousal consent in the form required thereby, unless the
Holder has previously executed and delivered such documents and they are in
effect at the time the shares are to be issued.
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7.6 Termination and Amendment.
(a) General. Unless the Plan shall previously have been terminated as
hereinafter provided, no Options may be granted under the Plan on or after the
tenth (10th) anniversary of the Effective Date. The Board or the Administrative
Committee may at any time prior to the tenth (10th) anniversary of the Effective
Date terminate the Plan, and may, from time to time, suspend or discontinue the
Plan or modify or amend the Plan in such respects as it shall deem advisable;
provided, however, that any such modification or amendment shall comply with all
applicable laws and stock exchange listing requirements and, with respect to
Incentive Stock Options granted or to be granted under the Plan, shall be
subject to any approval by shareholders of the Company required under the Code.
(b) Modification. No termination, modification or amendment of the Plan may
adversely affect the rights of the Holder of an outstanding Option in any
material way unless the Holder consents thereto. No modification, extension,
renewal or other change in any Option granted under the Plan shall be made after
the grant of the Option, unless the same is consistent with the provisions of
the Plan. With the consent of the Holder and subject to the terms and conditions
of the Plan (including Section 7.6(a)), the Administrative Committee may amend
outstanding Option Agreements with any Holder, including, without limitation,
any amendment that would (i) accelerate the time or times at which the Option
may be exercised, and/or (ii) extend the scheduled expiration date of the
Option. Without limiting the generality of the foregoing, the Administrative
Committee may, but solely with the Holder's consent unless otherwise provided in
the Option Agreement, agree to cancel any Option under the Plan and issue a new
Option in substitution therefor, provided that the Option so substituted shall
satisfy all of the requirements of the Plan as of the date the new Option is
granted. Nothing contained in the foregoing provisions of this Section 7.6(b)
shall be construed to prevent the Administrative Committee from providing in any
Option Agreement that the rights of the Holder with respect to the Option are
subject to such rules and regulations as the Administrative Committee may,
subject to the express provisions of the Plan, adopt from time to time, or
impair the enforceability of any such provision.
7.7 Government and Other Regulations. The obligation of the Company with
respect to Options shall be subject to all applicable laws, rules and
regulations and such approvals by any governmental agencies as may be required,
including, without limitation, the effectiveness of any registration statement
required under the Securities Act, and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted. As long as the Common Stock is not registered under the Exchange Act,
the Company intends that all offers and sales of Options and shares of Common
Stock issuable upon exercise of Options shall be exempt from registration under
the provisions of Section 5 of the Securities Act, and the Plan shall be
administered in a manner so as to preserve such exemption. The Company also
intends that the Plan shall constitute a written compensatory benefit plan,
within the meaning of Rule 701(b) promulgated under the Securities Act, and that
each Option granted under the Plan at a time when the Common Stock is not
registered under the Exchange Act shall, unless otherwise provided by the
Administrative Committee at the time the Option is granted, be granted in
reliance on the exemption from the registration requirements of Section 5 of the
Securities Act provided by Rule 701. As long as the Common Stock is registered
under the Exchange Act, the Company shall use its reasonable efforts to comply
with any legal requirements to file in a timely manner all reports required to
be filed by it under the Exchange Act.
7.8 Withholding. The Company's obligation to deliver shares of Common
Stock upon exercise of an Option shall be subject to applicable federal, state
and local tax withholding requirements. Federal, state and local withholding tax
due at the time an Option is exercised may, in the discretion of the
Administrative Committee, be paid in shares of Common Stock already owned by the
Holder or through the withholding of shares otherwise issuable to the Holder,
upon such terms and conditions as the Administrative Committee shall determine.
If the Holder shall fail to pay, or make arrangements satisfactory to the
Administrative Committee for the payment of, all such federal, state and local
taxes, then the Company or any of its Affiliates shall, to the extent not
prohibited by law, have the right to deduct from any payment of any kind
otherwise due to the Holder an amount equal to any federal, state or local taxes
of any kind required to be withheld by the Company or any of its Affiliates with
respect to the Option.
A-11
<PAGE> 37
7.9 Separability. With respect to Incentive Stock Options, if this Plan
does not contain any provision required to be included herein under Section 422
of the Code, such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set out at length herein;
provided, however, that to the extent any Option that is intended to qualify as
an Incentive Stock Option cannot so qualify, the Option, to that extent, shall
be deemed to be a Nonqualified Stock Option for all purposes of the Plan.
7.10 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding of
stock and cash otherwise than under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
7.11 Exclusion from Pension and Profit-Sharing Computation. By acceptance
of an Option, unless otherwise provided in the Option Agreement evidencing the
Option, the Holder shall be deemed to have agreed that the Option is special
incentive compensation that will not be taken into account, in any manner, as
salary, compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan, program or policy of the
Company or any of its Affiliates.
7.12 No Shareholder Rights. No Holder or other person shall have any
voting or other shareholder rights with respect to shares of Common Stock
subject to an Option until the Option has been duly exercised, full payment of
the purchase price has been made, all conditions under the Option and this Plan
to issuance of the shares have been satisfied, and a certificate for the shares
has been issued. No adjustment shall be made for cash or other dividends or
distributions to shareholders for which the record date is prior to the date of
such issuance.
7.13 Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Washington.
7.14 Company's Rights. The grant of Options pursuant to the Plan shall not
affect in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
A-12
<PAGE> 38
APPENDIX B
ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
OF REALNETWORKS, INC.
Pursuant to RCW 23B.10.060 of the Washington Business Corporation Act, the
undersigned corporation hereby submits the following amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is RealNetworks, Inc.
2. (a) The text of the amendment to Article 4.1 as adopted is as follows:
The aggregate number of shares of capital stock which this Corporation is
authorized to issue shall be 1,060,000,000, divided into two classes as
follows: One Billion (1,000,000,000) shares of common stock, $.001 par value
per share (the "Common Stock"), and Sixty Million (60,000,000) shares of
preferred stock, $.001 par value per share (the "Preferred Stock").
(b) Article 4.2, "Special Common Stock," is hereby deleted in its entirety.
(c) Article 4.10, "Execution of Consent of Shareholders by Less Than
Unanimous Consent", is hereby deleted in its entirety.
(d) The text of the amendment to Article 4.11 as adopted is as follows:
4.11 Special Meetings of Shareholders. Special meetings of the
shareholders for any purpose or purposes may be called at any time only by a
majority of the Board of Directors or the Chairman of the Board of Directors
(if one be appointed) or the President or one or more shareholders holding
not less than twenty-five percent (25%) of all the shares entitled to be cast
on any issue proposed to be considered at that meeting.
(e) The text of the amendment to Article 4.12 as adopted is as follows:
4.12 Majority Vote Required. Unless otherwise provided in these Articles
of Incorporation, pursuant to authority granted under Sections 23B.10.030,
23B.11.030, 23B.12.020, and 23B.14.020 of the Act, the vote of shareholders
of the Corporation required in order to approve amendments to the Articles of
Incorporation, a plan of merger or share exchange, the sale, lease, exchange,
or other disposition of all or substantially all of the property of the
Corporation not in the usual and regular course of business, or dissolution
of the Corporation shall be a majority of all of the votes entitled to be
cast by each voting group entitled to vote thereon, regardless of whether or
not the Corporation is a "public company," as that term is defined in Section
23B.01.400 of the Act.
3. The date of adoption of such amendments was June 2, 2000.
4. The amendments were duly approved by the shareholders in accordance with the
provisions of RCW 23B.10.030 and 23B.10.040.
5. These Articles of Amendment will be effective upon filing with the Secretary
of State of the State of Washington.
DATED: , 2000.
REALNETWORKS, INC.
By
------------------------------------
Robert Glaser, Chief Executive
Officer
<PAGE> 39
PROXY
RealNetworks, Inc.
2601 Elliott Avenue, Suite 1000, Seattle, Washington 98121
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert Glaser and Kelly Jo MacArthur as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
common stock of RealNetworks, Inc. held of record by the undersigned at the
close of business on April 3, 2000 at the Annual Meeting of Shareholders to be
held on June 2, 2000, or any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
<PAGE> 40
Please mark
your votes [X]
as indicated
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
1. ELECTION OF CLASS 3 DIRECTOR:
FOR Robert Glaser [ ]
WITHHOLD AUTHORITY to vote for Robert Glaser [ ]
FOR the nominee listed below [ ]
------------------------
2. PROPOSAL TO APPROVE THE AMENDMENT OF THE COMPANY'S RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY TO
1,000,000,000 SHARES FROM 300,000,000 SHARES, TO DELETE PROVISIONS NOT
APPLICABLE TO A PUBLIC COMPANY AND TO DELETE A DESIGNATION OF A SERIES
OF STOCK THAT IS NO LONGER OUTSTANDING.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO APPROVE THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN,
WHICH INCREASES THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE ISSUED
THEREUNDER FROM 45,200,000 SHARES TO 60,200,000 SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion the Proxies are authorized to vote upon such other
business as may property come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: _________________, 2000
- ----------------------------
Signature
<PAGE> 41
- ----------------------------
Signature if held jointly
