ITEM 1.01. Entry into a Material Definitive Agreement.
Merger Agreement
On July 27, 2022, RealNetworks, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Greater Heights LLC, a Washington limited liability company (“Parent”), Greater Heights Acquisition LLC, a Washington limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), and exclusively for purposes of Section 8.15 thereof, Robert Glaser, providing for, amongst other things, the merger of the Company with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of Parent. Parent is an entity wholly owned and controlled by Robert Glaser, the Company’s Founder, Chairman and Chief Executive Officer.
The Merger Agreement and the Merger were approved by all members of the Company’s Board of Directors (other than Mr. Glaser who recused himself from the meeting called to discuss and approve the Merger Agreement and the Merger), upon the recommendation of a special committee consisting solely of independent, outside directors (the “Special Committee”). The Special Committee unanimously determined that the Merger Agreement and the Merger were fair to and in the best interests of the Company and its shareholders (other than Mr. Glaser and his affiliates (“the Founder Shareholders”)), based in part on a fairness opinion issued to it by its financial advisor, Houlihan Lokey Capital, Inc., and recommended that the Company’s Board of Directors approve the Merger Agreement and the Merger and resolve to recommend that the Company’s shareholders vote for the adoption of the Merger Agreement and approval of the Merger.
At the effective time of the Merger, (i) each share of the Company’s Common Stock issued and outstanding as of immediately prior to such effective time, other than shares held by the Founder Shareholders and any dissenting shares of the Company’s Common Stock, will be cancelled and retired and converted into the right to receive cash in an amount equal to $0.73, without interest and subject to any applicable withholding taxes (the “Merger Consideration”), (ii) each share of the Company’s Common Stock and the Company’s Preferred Stock owned by the Founder Shareholders will be cancelled and retired and no consideration will be delivered in exchange therefor, (iii) each issued, outstanding and vested Company Stock Option will be cancelled and converted into the right to receive the Merger Consideration (less the aggregate exercise price for such Company Stock Options and applicable taxes), (iv) each vested Company RSU will be cancelled and converted into the right to receive the Merger Consideration less any applicable taxes, and (v) all unvested Company equity awards under any Company Stock Plan will be treated in accordance with the terms of the applicable Company Stock Plan and form of award issued thereunder.
Shareholders of the Company will be asked to vote on the adoption of the Merger Agreement and approval of the Merger at a special shareholders’ meeting called for such purpose that will be held on a date to be announced. The closing of the Merger is subject to, among other conditions (i) adoption of the Merger Agreement and approval of the Merger by (A) holders of a majority of the issued and outstanding shares of Company Common Stock and Company Preferred Stock, each voting as a separate class, and (B) holders of a majority of the issued and outstanding shares of Company Common Stock held by shareholders other than the Founder Shareholders, (ii) the Company delivering evidence that the Amended and Restated Shareholder Rights Plan of RealNetworks, Inc., dated as of November 30, 2018 (the “Rights Agreement”), by and between the Company and Computershare Inc. be inapplicable to the Merger and other transactions contemplated by the Merger Agreement, and (iii) not more than 15% of the Company Common Stock outstanding as of immediately prior to the effective time of the Merger being dissenting shares. Consummation of the Merger is also subject to certain other closing conditions, including the accuracy of each party’s representation and warranties (subject to certain qualifiers, as applicable) and each party’s compliance with its covenants and agreements contained in the Merger Agreement in all material respects and that since the date of the Merger Agreement there shall not have occurred a Company Material Adverse Effect (as defined in the Merger Agreement) that is continuing. The Merger Agreement does not include a financing condition.
The Merger Agreement provides that the Company may not solicit takeover proposals provided that the Company, subject to compliance with certain requirements set forth in the Merger Agreement, may provide information to, and may engage or participate in discussions or negotiations, with respect to an unsolicited takeover proposal that the Company’s Board of Directors has determined, in good faith and after consultation with its financial advisors and
outside legal counsel, individually or in the aggregate with any other unsolicited takeover proposals, constitutes or could reasonably be expected to result in a Superior Proposal (as defined in the Merger Agreement).
The Company and Parent may mutually agree to terminate the Merger Agreement. Additionally, the Merger Agreement contains other termination rights exercisable by the Company and Parent. If the Merger Agreement is terminated under certain circumstances as provided in the Merger Agreement, the Company could be required to pay Parent a termination fee equal to one of (i) $1,043,971, (ii) $521,985.50, or (iii) the lesser of (A) Parent’s fees and expenses incurred in connection with the Merger Agreement and the Merger and (B) $500,000.
In connection with the execution and delivery of the Merger Agreement, the Founder Shareholders and Company directors who were not members of the Special Committee entered into a Voting and Support Agreement, dated as of July 27, 2022 (the “Voting Agreement”), with the Company and Parent, pursuant to which, amongst other things, the Founder Shareholders and such directors agreed (i) to vote all shares of the Company’s capital stock owned by them in favor of the adoption of the Merger Agreement and the approval of the Merger and against any takeover proposal, acquisition agreement (other than the Merger Agreement) or any proposal, transaction, agreement or action in competition with or inconsistent with the Merger Agreement or the Merger, (ii) not to transfer their shares of Company Common Stock prior to the expiration of the Voting Agreement, (iii) not to take any actions that would in any way restrict, limit or interfere with the performance of such shareholder’s obligations under the Voting Agreement, make any representation or warranty of such shareholder in the Voting Agreement untrue or incorrect or otherwise restrict, limit, interfere, prevent or disable such shareholder from performing its obligations under the Voting Agreement and the Merger Agreement and (iv) to waive, and not to assert, any rights of appraisal or rights to dissent in connection with the Merger Agreement and the Merger.
The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company. In particular, the representations and warranties contained in the Merger Agreement were made only for the purposes of the Merger Agreement as of the specific dates therein, and were solely for the benefit of the parties to the Merger Agreement. The representations and warranties contained in the Merger Agreement may be subject to limitations agreed upon by the parties to the Merger Agreement and are qualified by information in a confidential disclosure letter provided in connection with the signing of the Merger Agreement. This confidential disclosure letter contains information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement may be subject to a standard of materiality provided for in the Merger Agreement and have been used for the purpose of allocating risk among the parties, rather than establishing matters of fact. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
The foregoing description of the Merger Agreement and the Voting Agreement, and the transactions contemplated thereby, does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement and the Voting Agreement, copies of which are attached as Exhibit 2.1 and Exhibit 99.1, respectively, and are incorporated herein by reference.
Amendment to Second Amended and Restated Shareholder Rights Plan
On July 27, 2022, the Company’s Board of Directors approved an Amendment and Supplement (the “Amendment”) to the Rights Agreement. The Amendment prevents the approval, execution, delivery or performance of the Merger Agreement, or the consummation of the Merger, from, among other things (i) resulting in Parent being an Acquiring Person (as defined in the Rights Agreement) or (ii) resulting in the occurrence of a Distribution Date (as defined in the Rights Agreement), a Shares Acquisition Date (as defined in the Rights Agreement) or a Triggering Event (as defined in the Rights Agreement). The Amendment further provides that the Rights (as defined in the Rights Agreement) will expire in their entirety immediately prior to the effective time of the Merger without any payment being made in respect thereof.
The foregoing description of the Amendment is only a summary, does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement and the Amendment, copies of which are attached as Exhibit 4.1 and Exhibit 4.2, respectively, and are incorporated herein by reference.