exv10w3






Exhibit 10.3




February 24, 2010




Michael Lunsford

c/o RealNetworks, Inc.

2601 Elliott Avenue, Suite 1000

Seattle, WA 98121



Dear Mike:




     As you are aware, RealNetworks is going through a transition period. Your
continued dedication and commitment to RealNetworks will be instrumental in
successfully navigating this transition period.



     We understand that a change of this nature can create uncertainty. Thus, we
want to express our gratitude for your past service and our commitment to you as a
continuing member of RealNetworks by providing you with (1) additional
compensation, as detailed below; (2) the payment of a cash retention bonus (the
“Retention Payment”), as detailed below; and (3) certain severance benefits as
more fully detailed in the Change in Control Severance Agreement (the “CIC
Agreement”) if the Company terminates your employment without “Cause” or you
resign for “Good Reason” (for all purposes in this letter, as such terms are
defined in your CIC Agreement) during the period commencing three (3) months prior
to, and ending twenty-four (24) months following, a “Change in Control” (for all
purposes in this letter, as defined in the CIC Agreement) of RealNetworks (the
“CIC Period”).



     Effective February 1, 2010, your annual base salary will be four hundred
thousand dollars ($400,000) and your target bonus will be seventy-five percent
(75%) of your annual base salary. Additionally, RealNetworks granted you an
option to purchase four hundred thousand (400,000) shares of RealNetworks common
stock on February 1, 2010 (the “Option”), which will be scheduled to vest as to
twelve and one-half percent (12.5%) of the shares subject to the Option after each
successive six-month period following the vesting commencement date, subject to
your continued employment through each vesting date. The specific terms of your
Option will be set forth in the standard form of award agreement entered into
between you and RealNetworks.



     Subject to your continued full-time employment through each scheduled payment
date, you are eligible to receive a Retention Payment of up to a maximum of eight
hundred thousand dollars ($800,000), of which fifty percent (50%) is guaranteed
and fifty percent (50%) is discretionary. The exact amount of the discretionary
portion of our Retention Payment will be determined at the time of payment by the
Compensation Committee of the Board of Directors of
RealNetworks (the “Compensation Committee”) in its sole discretion, subject
to applicable tax withholdings, payable as follows:



 









 






	 	•	 	On February 1, 2011, you will receive a Retention Payment of up to a maximum of
$533,333.34, of which fifty percent (50%) is a fixed amount and fifty percent (50%)
is a discretionary amount determined by the Compensation Committee.
	 
	 	•	 	On August 1, 2011, you will receive a Retention Payment of up to a maximum of
$266,666.66, of which fifty percent (50%) is a fixed amount and fifty percent (50%)
is a discretionary amount determined by the Compensation Committee.





     If RealNetworks terminates your employment without Cause or you resign for Good Reason at any
time, you will receive the remaining unpaid amount of the maximum amount of your future Retention
Payments, if any, within thirty (30) days of your termination of employment, less applicable tax
withholding.



     In the event of your death or permanent disability, you or your heirs will be entitled to
receive a prorated Retention Payment within thirty (30) days of your death or permanent disability.
The maximum amount of such prorated Retention Payment will be based on the number of days between
February 1, 2010, and the date of your death or permanent disability relative to five hundred and
forty-seven (547) days, less any amount already paid to you, payment of fifty percent (50%) of
which remains subject to the discretion of the Compensation Committee. In the event of any
mutually agreed (1) change in your employment status to part-time for a continuous period lasting
greater than three (3) months; or (2) your leave of absence for a continuous period lasting greater
than three (3) months, the amount of the Retention Payment may be adjusted, in the Compensation
Committee’s sole discretion, to reflect appropriately the change in status (for example, by
altering the payment schedule, prorating the payments, tolling the payment schedule or such other
method determined by the Company).



     Under your CIC Agreement, if the Company terminates your employment without Cause or you
resign for Good Reason during the CIC Period, you generally will be entitled to the following
enhanced severance benefits: (1) a lump sum payment equal to one hundred and twenty-five percent
(125%) of your (a) annual base salary and (b) target bonus opportunity, in each case as in effect
at termination of employment or, if greater, immediately prior to the Change in Control; (2) a lump
sum payment equal to the prorated bonus amount, if any, for any partially completed bonus period,
to the extent not already paid; (3) accelerated vesting as to one hundred percent (100%) of your
unvested equity awards granted on or after February 1, 2010; (4) extension of the post-termination
exercise period on all of your vested equity awards to twelve (12) months following the date of
your termination of employment (except with respect to your incentive stock options), but in no
event beyond the original term of the award; and (5) company-paid COBRA for up to
eighteen (18) months following your termination of employment. The foregoing is only a summary of
the benefits under your CIC Agreement. Your right to the above severance benefits is subject to
your execution of a release of claims in favor of the Company and your compliance with the
restrictive covenants in your CIC Agreement. You should review your CIC Agreement for the specific
details, a copy of which is attached hereto as Attachment A. If there is a conflict
between this letter and the CIC Agreement, the terms of the CIC Agreement will control.



     The Company intends that the Retention Payments comply with, or be exempt from, the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations and other guidance thereunder and any state law of similar effect (collectively
“Section 409A”) so that none of the payments or benefits will be subject to the additional tax
imposed under Section 409A, and any ambiguities herein will be interpreted to so comply or be
exempt. Specifically, the Retention Payment will be exempt from the requirements of Section 409A
because all such payments will be made within the applicable short-term deferral
period, in accordance with the requirements of Section 1.409A-1(b)(4) of the Treasury
Regulations. Each Retention Payment is intended to constitute a separate payment for purposes of
Section 1.409A-2(b)(2) of the Treasury



 









 




Regulations. In no event will the Company reimburse you for any taxes that may be imposed on you
as a result of Section 409A.




     Although we intend the Retention Payment and the other benefits described in this letter as an
incentive for your continued employment with RealNetworks, your employment remains at-will.
RealNetworks or you may terminate your employment at any time, with or without cause, for any
reason or no reason, except as may be restricted by law or contract.



     We are excited that we are able to provide you with the benefits described in this letter. We
appreciate your dedication and your past efforts and we look forward to your ongoing contributions
to the future success of RealNetworks.


Sincerely,




	 	 	 	 
	 	 
	By:  	/s/ Robert Kimball
 	 
	 	Robert Kimball 	 
	 	President and Acting Chief Executive Officer 	 
	 



ACCEPTED and AGREED:




	 	 	 
	/s/ Michael Lunsford

	 	Date: February 24, 2010
	 	 	 
	Michael Lunsford