REALNETWORKS INC (Form: 10-Q, Received: 08/08/2013 09:57:45)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



	FORM 10-Q

(Mark One)



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

For the Quarterly Period Ended June 30, 2013



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

For the transition period from to

Commission file number 0-23137



	RealNetworks, Inc.
	(Exact name of registrant as specified in its charter)
Washington		91-1628146
(State of incorporation)		(I.R.S. Employer Identification Number)

2601 Elliott Avenue, Suite 1000 Seattle, Washington		98121
(Address of principal executive offices)		(Zip Code)
	(206) 674-2700
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	¨	Accelerated filer	ý

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares of the registrant’s Common Stock outstanding as of July 31, 2013 was 35,666,571 .

TABLE OF CONTENTS



	Page

Part I. Financial Information	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	31
Part II. Other Information	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Default Upon Senior Securities	41
Item 4. Mine Safety Disclosures	41
Item 5. Other Information	41
Item 6. Exhibits	41
Signature	42
Index to Exhibits	43

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



	June 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	129,210		$	163,198
Short-term investments	107,536			108,216
Trade accounts receivable, net of allowances	25,700			30,754
Deferred costs, current portion	485			825
Deferred tax assets, current	3,845			2,869
Prepaid expenses and other current assets	9,452			17,002
Total current assets	276,228			322,864
Equipment, software, and leasehold improvements, at cost:
Equipment and software	94,231			98,041
Leasehold improvements	22,740			22,767
Total equipment, software, and leasehold improvements, at cost	116,971			120,808
Less accumulated depreciation and amortization	92,342			91,492
Net equipment, software, and leasehold improvements	24,629			29,316
Restricted cash equivalents and investments	10,000			10,000
Equity method investment	15,344			19,204
Available for sale securities	36,156			34,334
Other assets	3,262			3,153
Deferred costs, non-current portion	1,300			531
Deferred tax assets, net, non-current portion	1,534			4,911
Other intangible assets, net	9,783			3,275
Goodwill	15,984			6,309
Total assets	$	394,220		$	433,897
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,600		$	19,013
Accrued and other current liabilities	47,972			57,530
Deferred revenue, current portion	7,987			8,675
Total current liabilities	74,559			85,218
Deferred revenue, non-current portion	191			169
Deferred rent	441			2,250
Deferred tax liabilities, net, non-current portion	3,194			432
Other long-term liabilities	492			3,100
Total liabilities	78,877			91,169
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.001 par value, no shares issued and outstanding:
Series A: authorized 200 shares	—			—
Undesignated series: authorized 59,800 shares	—			—
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 35,658 shares in 2013 and 35,324 shares in 2012	36			35
Additional paid-in capital	607,140			603,770
Accumulated other comprehensive loss	(27,151		)	(26,540		)
Retained deficit	(264,682		)	(234,537		)
Total shareholders’ equity	315,343			342,728
Total liabilities and shareholders’ equity	$	394,220		$	433,897

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)



	Quarters Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net revenue (A)	$	49,850		$	65,526		$	106,643		$	132,490
Cost of revenue (B)	19,519			25,962			40,025			53,389
Gross profit	30,331			39,564			66,618			79,101
Sale of patents and other technology assets, net of costs (See Note 1)	—			117,933			—			116,353
Operating expenses:
Research and development	14,993			16,028			30,244			33,846
Sales and marketing	19,269			22,694			40,403			46,490
General and administrative	8,691			13,068			18,637			26,344
Restructuring and other charges	816			1,539			2,198			3,148
Lease exit and related charges	3,066			—			3,066			—
Total operating expenses	46,835			53,329			94,548			109,828
Operating income (loss)	(16,504		)	104,168			(27,930		)	85,626
Other income (expenses):
Interest income, net	179			225			826			869
Gain (loss) on sale of equity and other investments, net	—			3,078			—			3,078
Equity in net loss of Rhapsody investment	(1,347		)	(2,114		)	(3,580		)	(2,482		)
Other income (expense), net	(137		)	(49		)	(28		)	1,426
Total other income (expenses), net	(1,305		)	1,140			(2,782		)	2,891
Income (loss) before income taxes	(17,809		)	105,308			(30,712		)	88,517
Income tax expense (benefit)	662			24,311			(567		)	24,535
Net income (loss)	$	(18,471	)	$	80,997		$	(30,145	)	$	63,982
Basic net income (loss) per share	$	(0.52	)	$	2.33		$	(0.85	)	$	1.85
Diluted net income (loss) per share	$	(0.52	)	$	2.32		$	(0.85	)	$	1.83
Shares used to compute basic net income (loss) per share	35,455			34,752			35,399			34,620
Shares used to compute diluted net income (loss) per share	35,455			34,900			35,399			34,914
Comprehensive income (loss):
Unrealized investment holding gains (losses)	$	(1,622	)	$	(12,061	)	$	1,015		$	(3,567	)
Foreign currency translation adjustments, net of reclassification adjustments	(388		)	(1,852		)	(1,626		)	(2,236		)
Total other comprehensive income (loss)	(2,010		)	(13,913		)	(611		)	(5,803		)
Net income (loss)	(18,471		)	80,997			(30,145		)	63,982
Comprehensive income (loss)	$	(20,481	)	$	67,084		$	(30,756	)	$	58,179
(A) Components of net revenue:
License fees	$	10,162		$	14,224		$	22,991		$	29,180
Service revenue	39,688			51,302			83,652			103,310
	$	49,850		$	65,526		$	106,643		$	132,490
(B) Components of cost of revenue:
License fees	$	2,161		$	2,645		$	4,315		$	5,917
Service revenue	17,358			23,317			35,710			47,472
	$	19,519		$	25,962		$	40,025		$	53,389

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	(30,145	)	$	63,982
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	9,874			8,162
Stock-based compensation	4,058			4,065
Equity in net loss of Rhapsody	3,580			2,482
Deferred income taxes, net	(1,668		)	22,496
Gain on sale of patent and other technology assets, net of costs	—			(116,353		)
Gain on sale of equity and other investments, net	—			(3,078		)
Realized translation gain	(35		)	(1,611		)
Other	51			(79		)
Net change in certain operating assets and liabilities:
Trade accounts receivable	5,355			2,691
Prepaid expenses and other assets	6,749			(1,144		)
Accounts payable	(92		)	4,013
Accrued and other liabilities	(10,612		)	(3,067		)
Net cash provided by (used in) operating activities	(12,885		)	(17,441		)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(3,181		)	(4,989		)
Proceeds from sale of patents and other technology assets, net of costs	—			116,353
Proceeds from sale of equity and other investments	—			4,165
Purchases of short-term investments	(70,647		)	(18,637		)
Proceeds from sales and maturities of short-term investments	71,327			13,970
Decrease (increase) in restricted cash equivalents and investments, net	—			(5		)
Acquisitions of businesses, net of cash acquired	(16,107		)	—
Net cash provided by (used in) investing activities	(18,608		)	110,857
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)	392			1,221
Tax payments from shares withheld upon vesting of restricted stock	(800		)	(884		)
Payment of contingent consideration	(828		)	—
Net cash provided by (used in) financing activities	(1,236		)	337
Effect of exchange rate changes on cash and cash equivalents	(1,259		)	(546		)
Net increase (decrease) in cash and cash equivalents	(33,988		)	93,207
Cash and cash equivalents, beginning of period	163,198			106,333
Cash and cash equivalents, end of period	$	129,210		$	199,540
Supplemental disclosure of cash flow information:
Cash received from income tax refunds	$	8,100		$	149
Cash paid for income taxes	$	2,147		$	1,575
Non-cash investing activities:
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements	$	483		$	1,189

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Quarters and Six Months Ended June 30, 2013 and 2012

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business. RealNetworks, Inc. and subsidiaries is a leading global provider of network-delivered digital media applications and services that make it easy to manage, play and share digital media. The Company also develops and markets software products and services that enable the creation, distribution and consumption of digital media, including audio and video.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue.

In this Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (10-Q or Report), RealNetworks, Inc. and Subsidiaries is referred to as “RealNetworks”, the “Company”, “we”, “us”, or “our”.

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of RealNetworks and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of the Company’s management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2013 . Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the 10-K).

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition, current economic conditions may require the use of additional estimates, and certain estimates we make are subject to a greater degree of uncertainty as a result of the current economic conditions.

Reportable Segments. In the first quarter of 2013 we reorganized the management of our businesses and as a result, we changed our reportable segments. See Note 17, Segment Information, for details.

Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive income (loss), net of any applicable tax, were as follows (in thousands):



	June 30, 2013			December 31, 2012
Unrealized gains on investments, net of tax effects of $(129) and $(846) at June 30, 2013 and December 31, 2012, respectively	$	27,700		$	26,685
Foreign currency translation adjustments	(54,851		)	(53,225		)
Accumulated other comprehensive income (loss)	$	(27,151	)	$	(26,540	)

In the three months ended March 31, 2012 we liquidated the investment in certain of our foreign entities and recorded a net pre-tax gain of $1.6 million in Other income (expense), net, in the consolidated statement of operations upon the reclassification of the same amount of cumulative foreign exchange translation adjustment from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustment had no related income tax expense or benefit. There were no reclassification adjustments or related tax effects related to foreign exchange translation amounts in the three months ended June 30, 2012.

There were no material reclassification adjustments or related tax effects related to foreign exchange translation amounts in the six months ended June 30, 2013.

In the three months ended June 30, 2012 we realized a pre-tax gain of $2.1 million in the consolidated statement of operations, within Gain (loss) on sale of equity and other investments, net, related to the sale of a portion of the equity shares we hold in LoEn Entertainment, Inc., with the same amounts reclassified from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustment had no related income tax expense or benefit. There were no reclassification adjustments or related tax effects related to unrealized gains on investments in the three months ended March 31, 2012, or in the six months ended June 30, 2013.

For the three months ended June 30, 2013 we recorded income tax expense of $0.9 million and for the six months ended June 30, 2013 we recorded an income tax benefit of $0.7 million related to unrealized gains (losses) on investment securities, and recognized the corresponding amount as an increase or decrease to accumulated other comprehensive income.

2012 Sale of Patents and Other Technology Assets to Intel Corporation. In the second quarter of 2012, we completed the sale of certain patents, patent applications and related rights held by us, and certain of our assets relating to our next generation video codec technologies to Intel Corporation (Intel). The entire $120.0 million of cash proceeds we received, net of certain direct costs incurred, was recorded as a gain on our statement of operations in the quarter ending June 30, 2012, since the patent assets and other technology had a net book value of zero . The gain recognized of $116.4 million in the six months ended June 30, 2012 was net of related direct costs for the sale transaction totaling $3.6 million incurred in the first and second quarters of 2012.

Note 2. Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2013 to be implemented that are of significance or potential significance to RealNetworks.

Note 3. Stock-Based Compensation

Total stock-based compensation expense recognized in our consolidated statements of operations includes amounts related to stock options, restricted stock units, and employee stock purchase plans and was as follows (in thousands):



	Quarters Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Total stock-based compensation expense	$	2,020	$	1,722	$	4,058	$	4,065

The fair value of options granted determined using the Black-Scholes model used the following weighted-average assumptions:



	Quarters Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Expected dividend yield	0	%	0	%	0	%	0	%
Risk-free interest rate	0.52	%	0.55	%	0.55	%	0.65	%
Expected life (years)	5.4		3.8		4.3		3.8
Volatility	48	%	58	%	48	%	58	%

The total stock-based compensation amounts for 2013 and 2012 disclosed above are recorded in their respective line items within operating expenses in the consolidated statement of operations. No stock-based compensation was capitalized as part of the cost of an asset as of June 30, 2013 or December 31, 2012 . As of June 30, 2013 , we had $7.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 3 years.

Note 4. Rhapsody Joint Venture

RealNetworks initially formed in 2007 a joint venture with MTV Networks, a division of Viacom International Inc. (MTVN), to own and operate a business-to-consumer digital audio music service known as Rhapsody. Prior to March 31, 2010, we held a 51% interest in Rhapsody and MTVN owned the remaining 49% . On March 31, 2010, restructuring transactions involving Rhapsody were completed, and as a result, effective March 31, 2010 RealNetworks owned approximately 47% of Rhapsody. Subsequent to the restructuring transaction, we account for our investment in Rhapsody using the equity method of accounting for investments.

As of June 30, 2013 we owned approximately 45% of the issued and outstanding stock of Rhapsody.

RealNetworks continues to provide certain operational transition services to Rhapsody. These transition services are expected to be completed in 2013, and are discussed further in Footnote 18, Related Party Transactions.

We recorded our share of losses of Rhapsody of $1.3 million and $3.6 million for the quarter and six months ended June 30, 2013 , respectively. Our share of losses of Rhapsody for the quarter and six months ended June 30, 2012 were $2.1 million and $2.5 million , respectively.

The carrying value of our Rhapsody investment was $15.3 million as of June 30, 2013 .

Summarized financial information for Rhapsody, which represents 100% of their financial information (in thousands):



	Quarters Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net revenue	$	34,679		$	37,809		$	68,641		$	72,979
Gross profit	8,767			9,879			16,612			19,491
Net loss	(4,375		)	(4,537		)	(9,191		)	(5,607		)

Note 5. Fair Value Measurements

We measure certain financial assets at fair value on a recurring basis, including cash equivalents, short-term investments, and equity investments of publicly traded companies. The fair value of these financial assets was determined based on three levels of inputs:


•	Level 1: Quoted prices in active markets for identical assets or liabilities


•	Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active


•	Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use

Items Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets that have been measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 , and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands).



	Fair Value Measurements as of
	June 30, 2013
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	12,788	$	2	$	12,786	$	—
Corporate notes and bonds	63,490		—		63,490		—
Short-term investments:
Corporate notes and bonds	73,135		—		73,135		—
U.S. government agency securities	34,401		34,276		125		—
Restricted cash equivalents and investments	10,000		—		10,000		—
Equity investments in publicly traded securities	36,156		36,156		—		—
Total	$	229,970	$	70,434	$	159,536	$	—



	Fair Value Measurements as of
	December 31, 2012
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	10,680	$	—	$	10,680	$	—
Corporate notes and bonds	81,235		—		81,235		—
Short-term investments:
Corporate notes and bonds	65,502		—		65,502		—
U.S. government agency securities	42,714		42,113		601		—
Restricted cash equivalents and investments	10,000		—		10,000		—
Equity investments in publicly traded securities	34,334		34,334		—		—
Total	$	244,465	$	76,447	$	168,018	$	—

Our equity investments in publicly traded companies consist of J-Stream Inc., a Japanese media services company, and LoEn Entertainment, Inc., a Korean digital music distribution company. These equity investments are accounted for as available for sale. The aggregate cost basis of these securities totaled $8.6 million as of June 30, 2013 and $8.6 million at December 31, 2012 .

Items Measured at Fair Value on a Non-recurring Basis

Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). During the six months ended June 30, 2013 and 2012 , we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

Note 6. Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of June 30, 2013 , consisted of the following (in thousands):



	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	52,932	$	52,932
Money market mutual funds	12,788		12,788
Corporate notes and bonds	63,490		63,490
Total cash and cash equivalents	129,210		129,210
Short-term investments:
Corporate notes and bonds	73,143		73,135
U.S. government agency securities	34,390		34,401
Total short-term investments	107,533		107,536
Total cash, cash equivalents and short-term investments	$	236,743	$	236,746
Restricted cash equivalents and investments	$	10,000	$	10,000

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of December 31, 2012 consisted of the following (in thousands):



	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	71,283	$	71,283
Money market mutual funds	10,680		10,680
Corporate notes and bonds	81,237		81,235
Total cash and cash equivalents	163,200		163,198



Short-term investments:
Corporate notes and bonds	65,426		65,502
U.S. Government agency securities	42,693		42,714
Total short-term investments	108,119		108,216
Total cash, cash equivalents, and short-term investments	$	271,319	$	271,414
Restricted cash equivalents and investments	$	10,000	$	10,000

Restricted cash equivalents and investments amounts as of June 30, 2013 , and December 31, 2012 relate to cash and investments pledged as collateral against letters of credit in connection with lease agreements.

Realized gains or losses on sales of short-term investment securities for the quarters and six months ended June 30, 2013 and 2012 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of June 30, 2013 and December 31, 2012 were not significant.

Investments with remaining contractual maturities of five years or less are classified as short-term because the investments are marketable and highly liquid and we have the ability to utilize them for current operations. Contractual maturities of short-term investments as of June 30, 2013 (in thousands):



	Estimated Fair Value
Within one year	$	82,261
Between one year and five years	25,275
Total short-term investments	$	107,536

Note 7. Allowance for Doubtful Accounts Receivable and Sales Returns

Activity in the allowance for doubtful accounts receivable and sales returns (in thousands):



	Allowance For
	Doubtful Accounts Receivable			Sales Returns
Balances, December 31, 2012	$	1,010		$	653
Addition (reduction) to allowance	42			(10		)
Amounts written off	(48		)	(16		)
Foreign currency translation	(17		)	—
Balances, June 30, 2013	$	987		$	627

One customer accounted for 12% of trade accounts receivable and one other customer accounted for 11% of trade accounts receivable, as of June 30, 2013 . No one customer accounted for more than 10% of trade accounts receivable as of December 31, 2012 .

One customer accounted for approximately 13% , or $6.5 million , and 14% or $15.1 million , of consolidated revenue during the quarter and six months ended June 30, 2013 , respectively. The revenue from this customer is reflected in our RealPlayer Group and Games segments. One customer accounted for approximately 11% , or $5.6 million , of consolidated revenue during the quarter ended June 30, 2013 , in our Mobile Entertainment segment. No one customer accounted for more than 10% of consolidated revenue during the quarter and six months ended June 30, 2012 .

Note 8. Other Intangible Assets

Other intangible assets (in thousands):



	Gross Amount		Accumulated Amortization		Net
Customer relationships	$	30,441	$	27,775	$	2,666
Developed technology	25,876		23,439		2,437
Patents, trademarks and tradenames	7,869		3,369		4,500
Service contracts and other	5,500		5,320		180
Total other intangible assets, June 30, 2013	$	69,686	$	59,903	$	9,783

In the quarter ended June 30, 2013, we acquired 100% of the voting interests in Slingo, Inc., a social casino games company based in the U.S., for total cash consideration of $15.6 million . The tangible and intangible assets and liabilities recognized are reported within the Games segment. The identifiable intangible assets associated with the acquisition totaled $8.0 million . Of this total, $4.5 million is related to tradenames and trademarks determined to have indefinite useful lives and will be evaluated annually in our fourth quarter for impairment, or more frequently, if circumstances indicate an impairment may exist. The remaining $3.5 million includes developed game technology and existing customer relationships with finite lives, and will be amortized over their useful lives. We recorded a net deferred tax liability of $2.7 million related to the intangible assets acquired. Goodwill totaling $9.8 million was recorded, representing the intangible assets that do not qualify for separate recognition for accounting purposes, primarily related to the assembled workforce and expected synergies in the rapidly growing social casino games market. The goodwill is not deductible for income tax purposes. For the six months ended June 30, 2013, the amount of revenue and income (loss) before income taxes from this acquired business was not significant.

Note 9. Goodwill

Changes in goodwill (in thousands):



Balance, December 31, 2012	$	6,309
Increases due to current year acquisitions	10,026
Effects of foreign currency translation	(351		)
Balance, June 30, 2013	$	15,984

Goodwill by segment (in thousands):



	June 30, 2013
RealPlayer Group	$	580
Mobile Entertainment	688
Games	14,716
Total goodwill	$	15,984

See Note 8, Other Intangible Assets for details on our acquisition of Slingo, a social casino games business, in the quarter ended June 30, 2013.

Note 10. Accrued and Other Current Liabilities

Accrued and other current liabilities (in thousands):



	June 30, 2013		December 31, 2012
Royalties and other fulfillment costs	$	17,697	$	19,435
Employee compensation, commissions and benefits	10,379		13,368
Sales, VAT and other taxes payable	8,353		10,959
Deferred tax liabilities—current	432		3,894
Accrued lease exit and related charges	4,209		2,463
Other	6,902		7,411
Total accrued and other current liabilities	$	47,972	$	57,530

Note 11. Restructuring Charges

Restructuring and other charges in 2013 and 2012 consist of costs associated with the ongoing reorganization of our business operations and focus on aligning our operating expenses with our revenue profile. The expense amounts in both years relate primarily to severance costs due to workforce reductions.

In the third quarter of 2012 we announced we would be eliminating approximately 160 positions worldwide. This action has been concluded as of the end of the second quarter of 2013. For the quarter and six months ended June 30, 2013 we recorded $0.8 million and $2.2 million , respectively, of restructuring charges for employee separation costs related to this action and for other actions taken in 2013.

Details of restructuring charges for the six months ended June 30, 2013 and 2012 are in the table below. The amount accrued at June 30, 2013 for employee separation includes costs for those employees who were separated in the quarter ended June 30, 2013 and are expected to be paid out in the quarter ended September 30, 2013. The amount accrued for contract assignment is expected to be paid out by the end of 2013.

For details on costs associated with the termination of our Seattle headquarters lease see Note 12, Lease exit and related charges.

Restructuring charges by type of cost (in thousands):




	Employee Separation Costs		Asset Disposal Expense and Other	Total
Costs incurred and charged to expense for the six months ended June 30, 2013	$	1,818	380	$	2,198
Costs incurred and charged to expense for the six months ended June 30, 2012	$	3,148	—	$	3,148

Changes to the accrued restructuring cost liability (in thousands):



	By Type of Cost
	Employee Separation Costs			Contract Assignment Costs		Total
Accrued liability as of December 31, 2012	$	731		$	1,700	$	2,431
Costs incurred and charged to expense for the six months ended June 30, 2013	1,818			—		1,818
Cash payments	(2,348		)	—		(2,348		)
Accrued liability as of June 30, 2013	$	201		$	1,700	$	1,901

Note 12. Lease Exit and Related Charges

As a result of the reduction in use of RealNetworks' office space, primarily in our corporate headquarters in Seattle, Washington, and certain other locations, losses have been recognized representing rent and contractual operating expenses over the remaining life of the leases, and related write-downs of leasehold improvements to their estimated fair value.

In the second quarter of 2013, we entered into a new lease in a new location for our Seattle headquarters and concurrently entered into an amendment to our current headquarters office lease that provides for an early termination of such lease.

The new Seattle building lease is for an initial term of 11 years and is estimated to commence on August 15, 2013. We have the option to extend the lease for two additional five -year terms, with certain increases in base rent.

The amendment to our current headquarters office lease provides for an early termination of such lease effective in three stages, with the termination of a majority of the premises taking place on August 31, 2013, and the final stage being complete by December 31, 2013. Prior to the execution of the amendment, the lease had been scheduled to expire in September 2014. In

connection with the early termination of the lease, we will pay the landlord termination fees totaling approximately $6.6 million in 2013. In the second quarter of 2013, we paid the landlord $3.2 million in termination fees.

Changes to accrued lease exit and related charges (in thousands):



Accrued loss December 31, 2012	$	4,213
Additions and adjustments to the lease exit charges accrual, including sublease income estimate revision	1,275
Less amounts paid, net of sublease amounts	(1,279		)
Accrued loss June 30, 2013 (included in Accrued and other current liabilities)	$	4,209

Note 13. Income Taxes

As of June 30, 2013 , there have been no material changes to RealNetworks’ uncertain tax positions disclosures as provided in Note 14 of the 10-K. We do not anticipate that our total unrecognized tax benefits will significantly change within the next twelve months.

We file numerous consolidated and separate income tax returns in the U.S including federal, state and local, as well as foreign jurisdictions. With few exceptions, we are no longer subject to U.S federal income tax examinations for tax years before 2008 or state, local, or foreign income tax examinations for years before 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

Note 14. Earnings (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):



	Quarters Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Net income (loss) available to common shareholders	$	(18,471	)	$	80,997	$	(30,145	)	$	63,982
Weighted average common shares outstanding used to compute basic EPS	35,455			34,752		35,399			34,620
Dilutive effect of stock based awards	—			148		—			294
Weighted average common shares outstanding used to compute diluted EPS	35,455			34,900		35,399			34,914
Basic EPS	$	(0.52	)	$	2.33	$	(0.85	)	$	1.85
Diluted EPS	$	(0.52	)	$	2.32	$	(0.85	)	$	1.83

During the quarter and six months ended June 30, 2013 , respectively, 4.3 million and 4.3 million of potentially issuable shares from stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

During the quarter and six months ended June 30, 2012 , respectively, 5.7 million and 5.8 million of potentially issuable shares from stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

Note 15. Commitments and Contingencies

Commitments . See Note 12, Lease exit and related charges, for details on office lease commitments.

Litigation . On July 3, 2012, a lawsuit was filed against us by VoiceAge Corporation in the Supreme Court of the State of New York. VoiceAge asserts that we have breached our payment obligations under the terms of a patent license agreement between us and VoiceAge in respect of distribution of specified codec technology and is seeking a material amount of damages. We have removed the proceedings to New York federal court. Discovery commenced on January 4, 2013 and closed on May 15, 2013. In June 2013, VoiceAge submitted a motion for summary judgment; the Supreme Court of the State of New York denied the motion for summary judgment on August 5, 2013. We dispute VoiceAge's allegations and the magnitude of the claimed damages, and, because we are in the early stages of this litigation and due to the uncertainties inherent in this matter, we are unable to estimate the range of possible loss that could result from this litigation.

On October 28, 2011 and November 1, 2011, respectively, two lawsuits were filed by Callertone Innovations, LLC in the U.S. District Court for the District of Delaware. The first lawsuit was against T-Mobile USA, Inc. and the second lawsuit was against MetroPCS Wireless, Inc. and MetroPCS Communications, Inc., which we collectively refer to as MetroPCS. The lawsuits allege that T-Mobile and MetroPCS, respectively, infringe Callertone's patents by providing ringback tone services. We agreed to indemnify each of T-Mobile and MetroPCS against the claims based on an indemnity that is claimed to be owed by us. The respective complaint was served on T-Mobile on January 16, 2012 and on MetroPCS on January 14, 2012. We filed our answers to each complaint on April 9, 2012. In each matter, we dispute the plaintiff's allegations regarding both the validity of its patents and its claims of infringement against T-Mobile and MetroPCS, respectively. A claims construction hearing is scheduled for September 6, 2013. Because we are in the early stages of this litigation and due to the uncertainties inherent in these matters, we are unable to estimate the range of possible loss that could result from this litigation.

On April 25, 2007, a lawsuit was filed by Greenville Communications, LLC in Greenville, Mississippi against a number of cell phone carriers, including our partners T-Mobile USA, Inc. and Alltel Corporation, alleging that they infringe its patents by providing ringback tone services. We agreed to indemnify T-Mobile and Alltel against the claims based on an indemnity that is claimed to be owed by us. On August 27, 2007, our motion to transfer this matter to the U.S. District Court for the District of New Jersey was granted. The parties briefed claims construction, but the case was subsequently stayed pending reexamination of the patents at issue. On December 10, 2009, the U.S. Patent and Trademark Office issued notice of its intent to issue reexamination certificates for the patents in suit. The District Court lifted the stay on the litigation on January 29, 2010 and discovery resumed. On September 28, 2011, the District Court held a claims construction hearing, and on May 10, 2012, the District Court issued a non-infringement judgment that was favorable to us and the other defendants. On December 4, 2012, Greenville appealed the claims construction order and the judgment, and the defendants filed a reply brief on January 28, 2013. On May 17, 2013, the U.S. Court of Appeals for the Federal Circuit affirmed the judgment of non-infringement of the District Court. Greenville has filed a petition for re-hearing with the U.S. Court of Appeals. Due to the uncertainties inherent in this matter, we are unable to estimate the range of possible loss that could result from this litigation.

From time to time we are, and expect to continue to be, subject to legal proceedings, governmental investigations and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks and other intellectual property rights. These claims, including those described above, even if not meritorious, could force us to spend significant financial and managerial resources. We are not aware of any other legal proceedings or claims that we believe will have, individually or taken together, a material adverse effect on our business, prospects, financial condition or results of operations. However, we may incur substantial expenses in defending against third-party claims. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we may incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.

Note 16. Guarantees

In the ordinary course of business, RealNetworks is subject to potential obligations for standard indemnification and warranty provisions that are contained within many of our customer license and service agreements, as described below.

Warranty provisions contained within our customer license and service agreements are generally consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery of our products. Nearly all of our carrier contracts obligate us to indemnify our carrier customer for certain liabilities that may be incurred by them.

We do not maintain accruals for warranty-related obligations as we do not have a history of incurring such losses. We have, however, received claims for indemnification from certain of our carrier customers. See Note 15, Commitments and Contingencies, for a discussion of these indemnification claims.

As discussed in Note 1, Description of Business and Summary of Significant Accounting Policies, we sold certain patents and other technology assets to Intel in the second quarter of 2012. We have specific obligations to indemnify Intel for breaches of the representations and warranties that we made and covenants that we agreed to in the asset purchase agreement executed in connection with the transaction, and for certain potential future intellectual property infringement claims brought by third parties against Intel. The amount of any potential liabilities related to our indemnification obligations will not be determined until a claim has been made, but we are obligated to indemnify Intel up to the amount of the gross purchase price that we received in the sale.

Note 17. Segment Information

In the first quarter of 2013 we reorganized the management of our businesses and as a result, we now report the following three segments: (1) RealPlayer Group, which includes sales of our RealPlayer media player software and related products, such

as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass; (2) Mobile Entertainment, which includes our SaaS services, systems integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix; and (3) Games, which includes all our games-related businesses, including sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.

In addition, we now also allocate certain corporate expenses which are directly attributable to supporting the business to our reportable segments, rather than retaining those expenses in our corporate segment. These corporate expenses include but are not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting the business, are retained in aggregate in our corporate segment. All restructuring and lease exit and related charges are included in the corporate segment. In 2012, the sale of patent and other technology assets, net of costs, was included in the corporate segment. The historical financial information presented has been recast to reflect the new segments and the new corporate expense presentation.

RealNetworks reports three reportable segments based on factors such as how we manage our operations and how our Chief Operating Decision Maker reviews results. Our Chief Operating Decision Maker is considered to be the CEO Staff (CEOS), which includes the interim Chief Executive Officer, Chief Financial Officer, President, Executive Vice President, General Counsel and certain Senior Vice Presidents. The CEOS reviews financial information presented on both a consolidated basis and on a business segment basis, accompanied by certain disaggregated information about products and services, geographical regions and corporate expenses for purposes of making decisions and assessing financial performance. The accounting policies used to derive segment results are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies, in the 10-K.

Segment results for the quarters and six months ended June 30, 2013 and 2012 (in thousands):

RealPlayer Group



	Quarters Ended June 30,					Six Months Ended June 30,
	2013			2012		2013		2012
Revenue	$	18,383		$	22,158	$	40,766	$	44,239
Cost of revenue	4,409			4,727		9,720		9,291
Gross profit	13,974			17,431		31,046		34,948
Operating expenses	14,001			12,792		30,207		28,767
Operating income (loss)	$	(27	)	$	4,639	$	839	$	6,181

Mobile Entertainment



	Quarters Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenue	$	18,592		$	26,005		$	39,087		$	51,780
Cost of revenue	11,170			14,875			22,002			30,353
Gross profit	7,422			11,130			17,085			21,427
Operating expenses	8,412			13,851			17,523			28,655
Operating income (loss)	$	(990	)	$	(2,721	)	$	(438	)	$	(7,228	)

Games



	Quarters Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenue	$	12,875		$	17,363		$	26,790		$	36,471
Cost of revenue	3,381			5,630			7,181			12,343
Gross profit	9,494			11,733			19,609			24,128
Operating expenses	11,755			13,801			23,607			27,939
Operating income (loss)	$	(2,261	)	$	(2,068	)	$	(3,998	)	$	(3,811	)

Corporate



	Quarters Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Cost of revenue	$	559		$	730	$	1,122		$	1,402
Sale of patents and other technology assets, net of costs	—			117,933		—			116,353
Operating expenses	12,667			12,885		23,211			24,467
Operating income (loss)	$	(13,226	)	$	104,318	$	(24,333	)	$	90,484

Our customers consist primarily of consumers and corporations located in the U.S., Europe and various foreign countries. Revenue by geographic region (in thousands):



	Quarters Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
United States	$	21,463	$	28,614	$	49,486	$	60,428
Europe	9,272		14,339		20,528		30,551
Rest of the world	19,115		22,573		36,629		41,511
Total net revenue	$	49,850	$	65,526	$	106,643	$	132,490

Long-lived assets, consisting of equipment, software, leasehold improvements, other intangible assets, and goodwill by geographic region (in thousands):



	June 30, 2013		December 31, 2012
United States	$	42,264	$	27,915
Europe	1,921		2,350
Rest of the world	6,211		8,635
Total long-lived assets	$	50,396	$	38,900

Note 18. Related Party Transactions

Transactions with Rhapsody . See Note 4, Rhapsody Joint Venture, for details on the 2010 restructuring transaction involving Rhapsody. Subsequent to the restructuring transaction, we are obligated to provide Rhapsody with certain support services. These support services are expected to be completed in 2013 . The support services include information technology and limited operational support provided directly to Rhapsody. The amount of these and other support service costs were based on various measures depending on the service provided, including vendor fees, an allocation of fixed costs and time employees spend on providing services to Rhapsody. RealNetworks allocates the cost of providing these support services and records such allocation as a reduction to the related expense in the period for which it was incurred. During the quarter and six months ended June 30, 2013 , we charged Rhapsody $0.3 million and $0.4 million , respectively, for the support services. During the quarter and six months ended June 30, 2012 , we charged Rhapsody $0.2 million and $0.5 million , respectively, for the support services.

Transactions with LoEn Entertainment, Inc. In 2008 RealNetworks acquired at market prices common shares of LoEn Entertainment, Inc., whose shares are traded on the Korean Securities Dealers Automated Quotations. We currently own

approximately 9% of the outstanding shares of LoEn. Our investment in LoEn is treated as an equity investment of a public company and is marked-to-market each period with resulting unrealized gains or losses recognized in accumulated other comprehensive income/loss. During the quarter and six months ended June 30, 2013 , we recorded revenue from LoEn of $5.6 million and $10.5 million , respectively. During the quarter and six months ended June 30, 2012 , we recorded revenue from LoEn of $4.1 million and $8.0 million , respectively. Revenue consisted primarily of sales of application service provider services, which include sales of ringback tones, music on demand, video on demand, and inter carrier messaging services. Associated with these transactions, we also recorded accounts receivable of $2.2 million as of June 30, 2013 . Accounts payable and cost of revenue associated with LoEn as of and for the periods ended June 30, 2013 and 2012 were nominal.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about RealNetworks’ industry, products, management’s beliefs, and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. All statements contained in this report that do not relate to matters of historical fact should be considered forward-looking statements. Forward-looking statements include statements with respect to:


•	future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;


•	the effects of our past acquisitions and expectations for future acquisitions and divestitures;


•	plans, strategies and expected opportunities for future growth, increased profitability and innovation;


•	the prospects for creation and growth of strategic partnerships and the resulting financial benefits from such partnerships;


•	the expected financial position, performance, growth and profitability of, and investment in, our businesses and the availability of resources;


•	our involvement in potential claims, legal proceedings and government investigations, the expected course and costs of existing claims, legal proceedings and government investigations, and the potential outcomes and effects of both existing and potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;


•	the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;


•	our expected introduction of new and enhanced products, services and technologies across our businesses;


•	the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;


•	the continuation and expected nature of certain customer relationships;


•	impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;


•	the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and


•	the effect of economic and market conditions on our business, prospects, financial condition or results of operations.

These statements are not guarantees of future performance and actual actions or results may differ materially. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those noted in the documents incorporated herein by reference. Particular attention should also be paid to the cautionary language in Item 1A of Part II entitled “Risk Factors.” RealNetworks undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise, unless required by law. Readers should, however, carefully review the risk factors included in other reports or documents filed by RealNetworks from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Overview

In the first quarter of 2013 we reorganized the management of our businesses and as a result, we now report the following three segments: (1) RealPlayer Group, (2) Mobile Entertainment and (3) Games. Within our RealPlayer Group, revenue is derived from the sale of our RealPlayer media player software and related products, such as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass. The Mobile Entertainment business primarily includes revenue from SaaS services, systems integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix. The Games business primarily includes revenue from sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.

In addition, we now also allocate certain corporate expenses which are directly attributable to supporting the business, including but not limited to a portion of finance, legal, human resources and headquarters facilities, to our reportable segments rather than retaining those expenses in our corporate segment. The allocation of these costs to the business units will increase accountability for financial and operational performance within each of our reportable segments. RealNetworks' most significant expenses relate to cost of revenue, compensating employees, and selling and marketing our products and services. The historical financial information presented has been recast to reflect the new segments and the new corporate expense presentation.

In the quarter and six months ended June 30, 2013 , our consolidated revenue declined by $15.7 million and $25.8 million , respectively, compared to the same periods in 2012 . The decline for the quarter was due to a decline of $7.4 million in Mobile Entertainment revenue, a decline of $4.5 million in Games revenue, and a $3.8 million decline in RealPlayer Group revenue. For the year to date period the decline was primarily due to a decline of $12.7 million in Mobile Entertainment revenue and a decline of $9.7 million in Games revenue.

Our SaaS business within Mobile Entertainment continues to be impacted by the proliferation of smartphone applications and services, some of which do not depend on our carrier customers for distribution to consumers. In addition, we are still experiencing pricing pressure from carriers for our intercarrier messaging services. In our Games segment and in the general games market, consumer game play continues to shift from downloadable PC games to social networks and mobile devices. Since 2011, we have been focusing on developing social and mobile games and monetizing those game play experiences. However, the revenue we currently generate from social games is not a significant portion of our Games revenue.

We are continuing to invest in each of our businesses. For example, in the quarter ended June 30, 2013, we acquired Slingo, a social casino games company based in the U.S., for total cash consideration of $15.6 million. This acquisition is intended to enhance our footprint in the social casino games arena. Associated with this will be incremental costs for investment in new products over the next year, which will directly impact our operating income (loss) before taxes.

We continue to focus on aligning our operating expenses with our revenue profile. The actions we initiated in the third quarter of 2012 to eliminate approximately 160 positions worldwide contributed significantly to the $6.5 million and $15.3 million decline in our total operating expenses for the quarter and six months ended June 30, 2013 , respectively, compared to the same periods in 2012 . In addition, on May 2, 2013, we entered into a new lease in a new location for our Seattle headquarters and concurrently negotiated an early termination to our current headquarters office lease. This action will meaningfully reduce our future annual facilities cost.

Condensed consolidated results of operations were as follows (dollars in thousands):



	Quarters Ended June 30,											Six months ended June 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Total revenue	$	49,850		$	65,526		$	(15,676	)	(24	)%	$	106,643		$	132,490		$	(25,847	)	(20	)%
Cost of revenue	19,519			25,962			(6,443		)	(25	)%	40,025			53,389			(13,364		)	(25	)%
Gross profit	30,331			39,564			(9,233		)	(23	)%	66,618			79,101			(12,483		)	(16	)%
Gross margin	61		%	60		%						62		%	60		%
Sale of patent assets and other technology assets, net of costs	—			117,933			(117,933		)	(100	)%	—			116,353			(116,353		)	(100	)%
Operating expenses	46,835			53,329			(6,494		)	(12	)%	94,548			109,828			(15,280		)	(14	)%
Operating income (loss)	$	(16,504	)	$	104,168		$	(120,672	)	(116	)%	$	(27,930	)	$	85,626		$	(113,556	)	(133	)%

In the second quarter of 2013 , our total consolidated revenue declined by $15.7 million , compared with the year-earlier period. The reduction in revenue resulted from a decline of $7.4 million in our Mobile Entertainment segment, a decline of $4.5 million in our Games segment, and a $3.8 million decline in RealPlayer Group revenue, due to the factors described above. Gross margin increased to 61% from 60% for the year earlier quarter as a result of a higher proportion of lower margin revenue in the prior year, in addition to lower personnel and related costs in the second quarter of 2013 that resulted from our ongoing expense alignment efforts. Operating expenses decreased by $6.5 million in the quarter ended June 30, 2013 , compared with the prior year primarily due to reductions in personnel and related costs that resulted from our ongoing expense alignment efforts. Excluding restructuring and lease exit and related charges, operating expenses decreased by $8.8 million in the quarter ended June 30, 2013 , compared to the same period of the prior year.

For the six months ended June 30, 2013 , our total consolidated revenue declined by $25.8 million , compared with the year-earlier period. The reduction in revenue primarily resulted from a decline of $12.7 million in our Mobile Entertainment segment and a decline of $9.7 million in our Games segment, due to the factors described above. Gross margin increased to 62% from 60% for the year earlier quarter as a result of a higher proportion of lower margin revenue in the prior year, in addition to lower personnel and related costs in the first half of 2013 that resulted from our ongoing expense alignment efforts. Operating expenses decreased by $15.3 million in the six months ended June 30, 2013 , compared with the prior year primarily due to reductions in personnel and related costs that resulted from our ongoing expense alignment efforts. Excluding

restructuring and lease exit and related charges, operating expenses decreased by $17.4 million in the six months ended June 30, 2013 , compared to the same period of the prior year.

The 2012 gain from the sale of patents and other technology assets to Intel is net of certain direct expenses incurred for the sale transaction.

See “Segment Operating Results” below for more information and discussion regarding changes in the operating results for each of our reporting segments.

Segment Operating Results

RealPlayer Group

The RealPlayer Group segment primarily generates revenue and incurs costs from sales of RealPlayer and its related products, such as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass.

RealPlayer Group segment results of operations were as follows (dollars in thousands):



	Quarters Ended June 30,											Six months ended June 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Revenue	$	18,383		$	22,158		$	(3,775	)	(17	)%	$	40,766		$	44,239		$	(3,473	)	(8	)%
Cost of revenue	4,409			4,727			(318		)	(7	)%	9,720			9,291			429			5	%
Gross profit	13,974			17,431			(3,457		)	(20	)%	31,046			34,948			(3,902		)	(11	)%
Gross margin	76		%	79		%						76		%	79		%
Operating expenses	14,001			12,792			1,209			9	%	30,207			28,767			1,440			5	%
Operating income (loss)	$	(27	)	$	4,639		$	(4,666	)	(101	)%	$	839		$	6,181		$	(5,342	)	(86	)%

Total RealPlayer Group revenue decreased by $3.8 million in the quarter ended June 30, 2013 , compared with the year-earlier period. This decrease was primarily a result of lower subscriptions revenue of $2.6 million due to fewer subscribers, primarily attributable to our SuperPass product. Further contributing to the decrease was lower revenues of $1.3 million in sales of intellectual property licenses.

Total RealPlayer Group revenue decreased by $3.5 million for the six months ended June 30, 2013 , compared with the year-earlier period. This decrease was primarily a result of lower subscriptions revenue of $5.3 million due to subscriber attrition, primarily attributable to our SuperPass product. Partially offsetting this decrease was an increase in revenue of $3.1 million from distribution of third party software.

Gross margin during the quarter and six months ended June 30, 2013 declined by 3%, due primarily to a change in our estimates of accrued royalties, which resulted in an increase in partner royalties expense as a percentage of revenue during the quarter and six months ended June 30, 2013 .

Operating expenses increased by $1.2 million and $1.4 million for the quarter and six months ended June 30, 2013 , respectively, compared with the year-earlier periods. Personnel and related costs increased $1.8 million and $2.8 million during the quarter and six months ended June 30, 2013 , respectively, due to investment in new product development. Further contributing to the increase during the six months ended was an increase in marketing spend of $0.8 million. Partially offsetting the increases for the six months ended June 30, 2013 was a decrease of $2.4 million, resulting from estimated amounts recorded during the quarter ended March 31, 2012 associated with the then-pending investigation by the Washington State Attorney General's office. As disclosed in the 2012 10-K, this matter was resolved in the third quarter of 2012 in an amount totaling $1.3 million.

Mobile Entertainment

The Mobile Entertainment segment primarily generates revenue and incurs costs from the sales of SaaS services, such as ringback tones, intercarrier messages, music on demand and video on demand; professional services and systems integration services to mobile carriers and mobile handset companies; and Helix software.

Mobile Entertainment segment results of operations were as follows (dollars in thousands):



	Quarters Ended June 30,											Six months ended June 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Revenue	$	18,592		$	26,005		$	(7,413	)	(29	)%	$	39,087		$	51,780		$	(12,693	)	(25	)%
Cost of revenue	11,170			14,875			(3,705		)	(25	)%	22,002			30,353			(8,351		)	(28	)%
Gross profit	7,422			11,130			(3,708		)	(33	)%	17,085			21,427			(4,342		)	(20	)%
Gross margin	40		%	43		%						44		%	41		%
Operating expenses	8,412			13,851			(5,439		)	(39	)%	17,523			28,655			(11,132		)	(39	)%
Operating income (loss)	$	(990	)	$	(2,721	)	$	1,731		64	%	$	(438	)	$	(7,228	)	$	6,790		94	%

Total Mobile Entertainment revenue decreased by $7.4 million and $12.7 million in the quarter and six months ended June 30, 2013 , respectively, compared with the year-earlier periods. The declines during the quarter and six months ended June 30, 2013 were primarily due to reduced revenue from our SaaS offerings of $6.3 million and $11.1 million, respectively. The decline in SaaS revenue was due to $4.5 million and $6.4 million of lost revenue upon the termination of certain SaaS contracts over the last four quarters, and to $2.7 million and $6.1 million lower revenue due to fewer subscribers on existing contracts, and pricing pressures from carriers across our tones business, intercarrier messaging, and other carrier services, during the quarter and six months ended June 30, 2013 , respectively.

Cost of revenue decreased by $3.7 million and $8.4 million during the quarter and six months ended June 30, 2013 , respectively, compared with the year-earlier periods. Costs related to our SaaS offerings decreased by $3.5 million and $8.0 million during the quarter and six months ended, respectively, due to the lower revenues and to lower personnel and related costs that resulted from our ongoing expense alignment efforts.

Operating expenses declined by $5.4 million and $11.1 million for the quarter and six months ended June 30, 2013 , compared with the year-earlier periods, primarily due to reductions in personnel and related costs of $4.9 million and $9.9 million during the quarter and six months ended, respectively, that resulted from our ongoing expense alignment efforts.

Games

The Games segment primarily generates revenue and incurs costs from the creation, distribution and sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, and microtransactions from online and social games, and sales of mobile games.

Games segment results of operations were as follows (dollars in thousands):



	Quarters Ended June 30,											Six months ended June 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Revenue	$	12,875		$	17,363		$	(4,488	)	(26	)%	$	26,790		$	36,471		$	(9,681	)	(27	)%
Cost of revenue	3,381			5,630			(2,249		)	(40	)%	7,181			12,343			(5,162		)	(42	)%
Gross profit	9,494			11,733			(2,239		)	(19	)%	19,609			24,128			(4,519		)	(19	)%
Gross margin	74		%	68		%						73		%	66		%
Operating expenses	11,755			13,801			(2,046		)	(15	)%	23,607			27,939			(4,332		)	(16	)%
Operating income (loss)	$	(2,261	)	$	(2,068	)	$	(193	)	(9	)%	$	(3,998	)	$	(3,811	)	$	(187	)	(5	)%

Total Games revenue decreased by $4.5 million in the quarter ended June 30, 2013 , compared with the year-earlier period. Lower revenue from license sales, our subscription products, and advertising contributed $2.2 million, $1.6 million, and $1.2 million respectively, to the decline during the period. Slightly offsetting these decreases was an increase of $0.6 million in games revenue as a result of the acquisition of Slingo, a social casino games company, during the quarter.

Total Games revenue decreased by $9.7 million during the six months ended June 30, 2013 , compared with the year-earlier period. Lower revenue from license sales, subscription products, and advertising contributed $4.5 million, $3.4 million, and $1.7 million, respectively, to the decline during the period. Slightly offsetting these decreases was an increase of $0.6 million in games revenue as a result of the acquisition of Slingo during the quarter.

Cost of revenue decreased by $2.2 million and $5.2 million during the quarter and six months ended June 30, 2013 , respectively, compared with the year-earlier periods. The decreases were due to the decrease in partner royalties expense, which has a direct correlation with the decrease in Games revenue. Gross margins increased during the quarter and six months ended

June 30, 2013 due to lower margin projects that occurred in the year-earlier period, in addition to intangible assets that were fully amortized in 2012, resulting in lower expense in 2013.

Operating expenses declined by $2.0 million and $4.3 million during the quarter and six months ended June 30, 2013 , respectively, compared with the year-earlier period. During the quarter-ended June 30, 2013 , the decrease was mainly due to reductions in marketing expense of $0.9 million, in addition to reductions in personnel and related costs of $1.1 million, resulting from our ongoing expense alignment efforts. Partially offsetting these declines was an increase in total operating expense of $0.8 million as a result of the acquisition of Slingo during the quarter. During the six months ended June 30, 2013 , the decrease was primarily due to reductions in personnel and related costs of $2.8 million, and reductions in marketing expense of $1.9 million. Partially offsetting these declines was an increase in total operating expense of $0.8 million as a result of the acquisition of Slingo during the quarter.

In the quarter ended June 30, 2013, we acquired Slingo, a social casino games company based in the U.S., for total cash consideration of $15.6 million. This acquisition is intended to enhance our footprint in the social casino games arena. Associated with this will be incremental costs for investment in new products over the next year, which will directly impact our operating income (loss) before taxes.

Corporate

We allocate certain corporate expenses which are directly attributable to supporting the business to our reportable segments, rather than retaining those expenses in our corporate segment. These allocated corporate expenses include but are not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting the business, are retained in aggregate in our corporate segment. All restructuring and lease exit and related charges are included in the corporate segment.

Corporate segment results of operations were as follows (dollars in thousands):



	Quarters Ended June 30,										Six months ended June 30,
	2013			2012		$ Change			% Change		2013			2012		$ Change			% Change
Cost of revenue	$	559		$	730	$	(171	)	(23	)%	$	1,122		$	1,402	$	(280	)	(20	)%
Sale of patent and other technology assets, net of costs	—			117,933		(117,933		)	(100	)%	—			116,353		(116,353		)	(100	)%
Operating expenses	12,667			12,885		(218		)	(2	)%	23,211			24,467		(1,256		)	(5	)%
Operating income (loss)	$	(13,226	)	$	104,318	$	(117,544	)	(113	)%	$	(24,333	)	$	90,484	$	(114,817	)	(127	)%

The 2012 gain from the sale of patents and other technology assets to Intel Corporation of $117.9 million reflects the cash proceeds of $120.0 million less $2.1 million of direct transaction expenses incurred in the second quarter. We incurred $1.6 million of direct transaction expenses in the first quarter of 2012, resulting in a gain of $116.4 million for the six months ended June 30, 2012.

Operating expenses declined by $0.2 million and $1.3 million during the quarter and six months ended June 30, 2013 , respectively, compared with the year-earlier periods. The decreases during the quarter and six months ended were primarily due to reductions in personnel and related costs of $2.9 million and $3.5 million, respectively, resulting from our ongoing expense alignment efforts, in addition to reduced restructuring charges of $0.7 million and $0.9 million, respectively, primarily related to severance. Partially offsetting these decreases were net lease exit and related charges of $3.1 million in the second quarter of 2013 due to termination fees on our current headquarters office lease. See further discussion on this in Note 12, Lease Exit and Related Charges.

Consolidated Operating Expenses

Our operating expenses consist primarily of salaries and related personnel costs including stock based compensation, consulting fees associated with product development, sales commissions, amortization of certain intangible assets capitalized in our acquisitions, professional service fees, advertising costs, and restructuring charges. Operating expenses were as follows (dollars in thousands):



	Quarters Ended June 30,									Six months ended June 30,
	2013		2012		$ Change			% Change		2013		2012		$ Change			% Change
Research and development	$	14,993	$	16,028	$	(1,035	)	(6	)%	$	30,244	$	33,846	$	(3,602	)	(11	)%
Sales and marketing	19,269		22,694		(3,425		)	(15	)%	40,403		46,490		(6,087		)	(13	)%
General and administrative	8,691		13,068		(4,377		)	(33	)%	18,637		26,344		(7,707		)	(29	)%
Restructuring and other charges	816		1,539		(723		)	(47	)%	2,198		3,148		(950		)	(30	)%
Lease exit and related charges	3,066		—		3,066			100	%	3,066		—		3,066			100	%
Total consolidated operating expenses	$	46,835	$	53,329	$	(6,494	)	(12	)%	$	94,548	$	109,828	$	(15,280	)	(14	)%

Research and development expenses decreased by $1.0 million in the quarter ended June 30, 2013 , compared with the year-earlier period. The decline was primarily due to a decrease in personnel and related costs of $0.9 million resulting from our ongoing expense alignment efforts.

Research and development expenses decreased by $3.6 million in the six months ended June 30, 2013 , compared with the year-earlier period. The decline was primarily due to a decrease in personnel and related costs of $3.8 million resulting from our ongoing expense alignment efforts.

Sales and marketing expenses decreased by $3.4 million in the quarter ended June 30, 2013 , compared with the year-earlier period. The decline was primarily due to a decrease in personnel and related costs of $2.1 million resulting from our ongoing expense alignment efforts, and to lower marketing expense of $1.6 million.

Sales and marketing expenses decreased by $6.1 million in the six months ended June 30, 2013 , compared with the year-earlier period. The decline was primarily due to a decrease in personnel and related costs of $4.9 million resulting from our ongoing expense alignment efforts.

General and administrative expenses decreased by $4.4 million in the quarter ended June 30, 2013 , compared with the year-earlier period. The decrease was primarily due to a decrease in personnel and related costs of $3.2 million.

General and administrative expenses decreased by $7.7 million in the six months ended June 30, 2013 , compared with the year-earlier period. Contributing to the decrease for the quarter was a decrease in personnel and related costs of $4.3 million. The decrease was also due in part to the first quarter of 2012 expense accrual of $2.4 million for estimated amounts associated with the then-pending investigation by the Washington State Attorney General's office. As disclosed in the 2012 10-K, this matter was resolved in the third quarter of 2012 at an amount totaling $1.3 million.

Restructuring and other charges and Lease exit and related charges consist of costs associated with the ongoing reorganization of our business operations and our ongoing expense alignment efforts. The restructuring expense amounts in both years primarily relate to severance costs due to workforce reductions. Lease exit and related charges include a lease exit charge of $3.2 million in the second quarter of 2013 due to termination fees on our current headquarters office lease. For additional details on these charges see Note 11, Restructuring Charges and Note 12, Lease Exit and Related Charges.

Other Income (Expenses)

Other income (expenses), net was as follows (dollars in thousands):



	Quarters Ended June 30,											Six months ended June 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Interest income, net	$	179		$	225		$	(46	)	(20	)%	$	826		$	869		$	(43	)	(5	)%
Gain (loss) on sale of equity investments, net	—			3,078			(3,078		)	(100	)%	—			3,078			(3,078		)	(100	)%
Equity in net loss of Rhapsody	(1,347		)	(2,114		)	767			36	%	(3,580		)	(2,482		)	(1,098		)	(44	)%
Other income (expense), net	(137		)	(49		)	(88		)	(180	)%	(28		)	1,426			(1,454		)	(102	)%
Total other income (expense), net	$	(1,305	)	$	1,140		$	(2,445	)	(214	)%	$	(2,782	)	$	2,891		$	(5,673	)	(196	)%

The decrease in Other income (expense), net, of $2.4 million for the quarter ended June 30, 2013 was primarily due to the gain on sale of certain equity and other investments of $3.1 million in the prior year.

The decrease in Other income (expense), net, of $5.7 million for the six months ended June 30, 2013 was primarily due to the gain on sale of certain equity and other investments of $3.1 million in the prior year and to a non-cash gain in the first quarter of 2012, due to the release of a $1.6 million cumulative foreign exchange translation gain from accumulated other comprehensive loss on the balance sheet related to the liquidation of an investment in our of our foreign entities.

We account for our investment in Rhapsody under the equity method of accounting for investments. The net carrying value of our investment in Rhapsody is not necessarily indicative of the underlying fair value of our investment.

Income Taxes

During the quarters ended June 30, 2013 and 2012, we recognized income tax expense of $0.7 million and $24.3 million, respectively, related to U.S. and foreign income taxes. During the six months ended June 30, 2013 and 2012, we recognized an income tax benefit of $0.6 million and income tax expense of $24.5 million, respectively, related to U.S. and foreign income taxes. The decrease in income tax expense and the change in income tax expense as a percentage of pre-tax loss during the quarter and six months ended June 30, 2013 , was largely the result of the gain on sale of patents and other assets to Intel Corporation recognized in the quarter ending June 30, 2012 and changes in our jurisdictional income mix.

As of June 30, 2013 , there have been no material changes to RealNetworks’ uncertain tax positions as provided in Note 14 of the 10-K. We do not anticipate that our total unrecognized tax benefits will significantly change within the next twelve months.

The majority of our tax expense is recognized due to income in our foreign jurisdictions as we have not benefitted from the losses in the U.S in the second quarter of 2013.We generate income in a number of foreign jurisdictions, some of which have higher tax rates and some of which have lower tax rates relative to the U.S. federal statutory rate. Our tax expense could fluctuate significantly on a quarterly basis to the extent income is lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates. For the quarter ended June 30, 2013 , decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the U.S. federal statutory rate was offset by increases in tax expense from income generated in foreign jurisdictions having comparable, or higher tax rates in comparison to the U.S. federal statutory rate. As such, the effect of differences in foreign tax rates on the Company's tax expense for the second quarter of 2013 was minimal.

As of June 30, 2013 , we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If these amounts were distributed to the U.S. in the future, in the form of dividends or otherwise, we could be subject to additional U.S. income taxes. It is not practicable to determine the U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, other tax attributes, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be distributed, an additional provision for U.S. income and foreign withholding taxes, net of foreign tax credits, may be necessary.

We file numerous consolidated and separate income tax returns in the U.S., including federal, state and local returns, as well as in foreign jurisdictions. With few exceptions, we are no longer subject to United States federal income tax examinations for tax years prior to 2008 or state, local or foreign income tax examinations for years prior to 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

Geographic Revenue

Revenue by geographic region was as follows (dollars in thousands):



	Quarters Ended June 30,									Six months ended June 30,
	2013		2012		$ Change			% Change		2013		2012		$ Change			% Change
United States	$	21,463	$	28,614	$	(7,151	)	(25	)%	$	49,486	$	60,428	$	(10,942	)	(18	)%
Europe	9,272		14,339		(5,067		)	(35	)%	20,528		30,551		(10,023		)	(33	)%
Rest of world	19,115		22,573		(3,458		)	(15	)%	36,629		41,511		(4,882		)	(12	)%
Total net revenue	$	49,850	$	65,526	$	(15,676	)	(24	)%	$	106,643	$	132,490	$	(25,847	)	(20	)%

Revenue in the United States declined by $7.2 million in the quarter ended June 30, 2013 , compared with the year-earlier period. The decline was due primarily to reductions in revenue generated from our SaaS offerings of $3.9 million, lower sales of subscriptions products of $2.3 million, and lower sales of intellectual property licenses of $0.8 million.

Revenue in the United States declined by $10.9 million in the six months ended June 30, 2013 , compared with the year-earlier period. The decline was due primarily to reductions in revenue generated from our SaaS offerings of $6.9 million, in addition to lower sales of subscriptions products of $4.9 million.

Revenue in Europe declined by $5.1 million in the quarter ended June 30, 2013 , compared with the year-earlier period. The decrease was primarily due to lower revenue from our Games business of $2.5 million, lower music on demand revenue of $1.3 million due to terminated contracts, and lower revenue from our RealPlayer Group of $1.2 million.

Revenue in Europe declined by $10.0 million in the six months ended June 30, 2013 , compared with the year-earlier period. The decrease was primarily due to lower revenue from our Games business of $4.9 million and lower revenue from our RealPlayer Group of $3.1 million.

Revenue in the rest of world decreased by $3.5 million in the quarter ended June 30, 2013 , compared with the year-earlier period. The decrease was primarily due to lower revenue from our SaaS services of $1.2 million, and lower revenue from our RealPlayer Group of $0.9 million.

Revenue in the rest of world decreased by $4.9 million in the six months ended June 30, 2013 , compared with the year-earlier period. The decrease was primarily due to lower revenue from our SaaS services of $2.3 million, lower subscriptions revenue from our RealPlayer Group of $1.1 million, and lower revenue from our Games business of $1.0 million.

New Accounting Pronouncements

Liquidity and Capital Resources

The following summarizes working capital, cash, cash equivalents, short-term investments, and restricted cash (in thousands):



	June 30, 2013		December 31, 2012
Working capital	$	201,669	$	237,646
Cash, cash equivalents, and short-term investments	236,746		271,414
Restricted cash equivalents and investments	10,000		10,000

The following summarizes cash flow activity (in thousands):



	Six Months Ended June 30,
	2013			2012
Cash provided by (used in) operating activities	$	(12,885	)	$	(17,441	)
Cash provided by (used in) investing activities	(18,608		)	110,857
Cash provided by (used in) financing activities	(1,236		)	337

Cash used in operating activities consisted of net income (loss) adjusted for certain non-cash items including depreciation, amortization, stock-based compensation, deferred income taxes, the gain on sale of certain patents and other technology assets to Intel Corporation, and the effect of changes in certain operating assets and liabilities.

The lower amount of cash used in operating activities for the six months ended June 30, 2013 , compared to the same period in 2012, was primarily due to our ongoing expense alignment efforts.

For the six months ended June 30, 2013 , cash used by investing activities of $18.6 million was primarily due to amounts paid for business acquisitions, net of cash acquired, totaling $16.1 million , in addition to purchases of equipment, software and leasehold improvements of $3.2 million .

For the six months ended June 30, 2012 , cash provided by investing activities of $110.9 million was due to the net cash proceeds of $116.4 million received from the sale of certain patents and other technology assets to Intel Corporation, and cash proceeds of $4.2 million related to the sale of certain equity and other investments, offset in part by purchases of equipment, software and leasehold improvements totaling $5.0 million, and purchases, net of sales and maturities, of short-term investments of $4.7 million.

Financing activities for the six months ended June 30, 2013 used cash totaling $1.2 million primarily from the payment of the principal amount of contingent consideration of $0.8 million related to an earlier period business acquisition.

Financing activities for the six months ended June 30, 2012 provided cash from the proceeds from the exercise of employee stock options and proceeds from sales of common stock under the employee stock purchase plan, offset partially by tax payments from shares withheld upon the vesting of employee restricted stock.

Except for certain expenditures related to our new leased Seattle headquarters building, we currently have no planned significant capital expenditures for the remainder of 2013 other than those in the ordinary course of business. Details of the new lease are provided below.

In the future, we may seek to raise additional funds through public or private equity financing, or through other sources such as credit facilities. The sale of additional equity securities could result in dilution to our shareholders. In addition, in the future, we may enter into cash or stock acquisition transactions or other strategic transactions that could reduce cash available to fund our operations or result in dilution to shareholders.

Our principal future cash commitments include office leases. We believe that our current cash, cash equivalents, and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

O n May 2, 2013, we entered into a new lease in a new location for our Seattle headquarters and concurrently entered into an amendment to our current headquarters office lease that provides for the early termination of such lease.

The new Seattle building lease is for an initial term of 11 years and is expected to commence on August 15, 2013. We will pay approximately $3.5 million in annual rent, which includes our pro rata share of certain property operating expenses. We have the option to extend the lease for two additional five-year terms, with certain increases in base rent. The amendment to our current headquarters office lease provides for an early termination of such lease effective in three stages, with the termination of a majority of the premises taking place on August 31, 2013. In connection with the early termination of the lease, we will pay the landlord termination payments totaling approximately $6.6 million in 2013, of which $3.2 million was paid during the quarter ended June 30, 2013. Prior to the execution of the amendment, the lease had been scheduled to expire in September 2014.

As a result of our entry into the new lease and the termination of our old lease, we expect to save approximately $7 million in annual facilities costs.

In our 10-K we disclosed that we had future contractual obligations, nearly all of which related to office leases, that totaled $26.3 million at December 31, 2012. As a result of the leasing transactions described above we estimate that our future contractual obligations now total approximately $56 million.

The declaration and payment of any future dividends, as well as the amount thereof, are subject to the discretion of our board of directors and will depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by our board of directors. Accordingly, there can be no assurance that we will declare and pay any dividends in the future.

Our cash equivalents and short-term investments consist of investment grade securities, as specified in our investment policy guidelines. The policy limits the amount of credit exposure to any one non-U.S. Government or non-U.S. Agency issue or issuer to a maximum of 5% of the total portfolio. These securities are subject to interest rate risk and will decrease in value if interest rates increase. Because we have historically had the ability to hold our fixed income investments until maturity, we do not expect our operating results or cash flows to be significantly affected by a sudden change in market interest rates in our securities portfolio.

We conduct our operations primarily in five functional currencies: the U.S. dollar, the Korean won, the Japanese yen, the British pound and the euro. We currently do not hedge the majority of our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations. We invoice our international customers primarily in U.S. dollars, except for certain countries where we invoice our customers primarily in the respective foreign currencies. We are exposed to foreign exchange

rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. Our exposure to foreign exchange rate fluctuations also arises from intercompany payables and receivables to and from our foreign subsidiaries.

As of June 30, 2013 , approximately $42.3 million of the $236.7 million of cash, cash equivalents, and short-term investments was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. Additionally, the Company currently has significant net operating losses and other tax attributes that could be used to offset most potential U.S. income tax that could result if these amounts were distributed to the U.S. We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We do not expect restrictions or potential taxes on repatriation of amounts held outside of the U.S to have a material effect on our overall liquidity, financial condition or results of operations.

As of June 30, 2013 , we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If these amounts were distributed to the U.S. in the future, in the form of dividends or otherwise, we could be subject to additional U.S. income taxes. It is not practicable to determine the U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, other tax attributes, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be repatriated, an additional provision for U.S. income and foreign withholding taxes, net of foreign tax credits, may be necessary.

Off-Balance Sheet Arrangements

We have operating lease obligations for office facility leases with future cash commitments that are not required to be recorded on our consolidated balance sheet. Accordingly, these operating lease obligations constitute off-balance sheet arrangements. In addition, since we do not maintain accruals associated with certain guarantees, as discussed in Note 16, Guarantees, those guarantee obligations also constitute off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Our critical accounting policies and estimates are as follows:


•	Revenue recognition;


•	Estimating music publishing rights and music royalty accruals;


•	Estimating recoverability of deferred costs;


•	Estimating allowances for doubtful accounts and sales returns;


•	Estimating lease exit and related charges;


•	Valuation of equity method investments;


•	Valuation of long-lived assets;


•	Valuation of goodwill;


•	Stock-based compensation; and


•	Accounting for income taxes.

Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Physical products are considered delivered to the customer once they have been shipped and title and risk of loss have been transferred. For online sales, the products or services are considered delivered at the time the product or services are made available, digitally, to the end user.

We recognize revenue on a gross or net basis. In most arrangements, we contract directly with end user customers, and are the primary obligor. In such arrangements, we recognize revenue on a gross basis. In some cases, we utilize third-party distributors who are the primary obligor to sell products or services directly to end user customers. In such instances, we recognize revenue on a net basis.

In our direct to consumer business segments, we derive revenue through (1) subscriptions of SuperPass within our RealPlayer Group segment and subscriptions sold by our Games segment, (2) sales of content downloads, software and licenses offered by our RealPlayer Group, Mobile Entertainment, and Games segments and (3) the sale of advertising and the distribution of third-party products on our websites and in our games.

Consumer subscription products are paid in advance, typically for monthly, quarterly or annual duration. Subscription revenue is recognized ratably over the related subscription time period. Revenue from sales of content downloads, software and

licenses is recognized at the time the product is made available, digitally, to the end user. Revenue generated from advertising on our websites and from advertising and the distribution of third-party products included in our products is recognized as revenue at the time of delivery.

We also generate revenue through business-to-business channels by providing services within our Mobile Entertainment segment enabling mobile carriers to deliver audio and video content to their customers and by selling software licenses and products and related support and other services. Revenue generated from services provided to mobile carriers that enable the delivery of audio and video content to their customers is recognized as the services are provided. Setup fees to build these services are recognized ratably upon launch of the service over the remaining expected term of the service.

Non-software revenue arrangements containing multiple elements are divided into separate units of accounting, after being evaluated for specific criteria. If the criteria for separation are met, revenue is allocated to the individual units using the relative price method. If the criteria are not met, the elements are treated as one unit of accounting and revenue recognition is delayed until all elements have been delivered. In the case of revenue arrangements containing software, elements are divided into separate units of accounting only when vendor-specific objective evidence has been established. In cases where vendor-specific objective evidence has not been established, undelivered elements are combined into one unit of accounting and are not recognized in revenue until all elements have been delivered.

Estimating Music Publishing Rights and Music Royalty Accruals. We must make estimates of amounts owed related to our music publishing rights and music royalties for our domestic and international music services primarily incurred by Rhapsody which was separated from our operating results beginning April 1, 2010. Unsettled obligations incurred prior to April 1, 2010 remain our liability. Material differences may impact the amount and timing of our expense for any period if management made different judgments or utilized different estimates. Under copyright law, we may be required to pay licensing fees for digital sound recordings and compositions we deliver. Copyright law generally does not specify the rate and terms of the licenses, which are determined by voluntary negotiations among the parties or, for certain compulsory licenses where voluntary negotiations are unsuccessful, by arbitration. There are certain geographies and agencies for which we have not yet completed negotiations with regard to the royalty rate to be applied to the current or historic sales of our digital music offerings. Our estimates are based on contracted or statutory rates, when established, or management’s best estimates based on facts and circumstances regarding the specific music services and agreements in similar geographies or with similar agencies. While we base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, actual results may differ materially from these estimates under different assumptions or conditions.

Estimating Recoverability of Deferred Costs. We defer costs on projects for service revenue and system sales. Deferred costs consist primarily of direct and incremental costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties. We recognize such costs as a component of cost of revenue, the timing of which is dependent upon the revenue recognition policy by contract. For revenue recognized under the completed contract method, costs are deferred until the products are delivered, or upon completion of services or, where applicable, customer acceptance. For revenue recognized under the percentage of completion method, costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation. For revenue recognized ratably over the term of the contract, costs are recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each balance sheet date, we review deferred costs to ensure they are ultimately recoverable. Any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.

Assessing the recoverability of deferred project costs is based on significant assumptions and estimates, including future revenue and cost of sales. Significant or sustained decreases in revenue or increases in cost of sales in future periods could result in additional impairments of deferred project costs. We cannot accurately predict the amount and timing of such impairments. Should the value of deferred project costs become impaired, we would record the appropriate charge, which could have a material adverse effect on our financial condition or results of operations.

Estimating Allowances for Doubtful Accounts and Sales Returns. We make estimates of the uncollectible portion of our accounts receivable. We specifically analyze the age of accounts receivable and historical bad debts, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Similarly, we make estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends, and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns allowance. Significant judgments and estimates are made and used in connection with establishing allowances for doubtful accounts and sales returns in any accounting period. Material differences may result in the amount and timing of our revenue and bad debt expense for any period if we were to make different judgments or utilize different estimates or actual future experience was different from the judgments and estimates.

Lease exit and related charges. Included in Lease exit and related charges are estimates we make in determining the appropriate amount of accrued loss on excess office facilities. If actual results differ from our estimates, this expense could be significantly different from that recorded, which could have a material impact on our operating results.

Valuation of Equity Method Investments. We use the equity method of accounting for investments in circumstances where we have the ability to exert significant influence, but not control, over an investee or joint venture. We initially record our investment based on a fair value analysis of the investment. Prior to 2010, most of our equity method investments were purchased with cash which was determined to be fair value. For the investment in Rhapsody as of March 31, 2010, we used multiple valuation models that were based on assumptions of future results, including operating and cash flow projections, to calculate the fair value since we contributed both cash and non-cash items in exchange for our interest. These models were based upon estimates and assumptions relating to future revenue, cash flows, operating expenses, costs of capital and capital purchases. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital.

We evaluate impairment of an investment valued under the equity method only if events and circumstances warrant. An impairment charge would be recorded whenever a decline in value of an equity investment below its carrying amount is determined to be other than temporary. In determining if a decline is other than temporary, we consider factors such as the length of time and extent to which the fair value of the investment has been less than the carrying amount of the investee or joint venture, the near-term and longer-term operating and financial prospects of the investee or joint venture and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery.

Valuation of Long-Lived Assets. Long-lived assets consist primarily of property, plant and equipment, as well as amortizable intangible assets acquired in business combinations. Long-lived assets are amortized on a straight line basis over their estimated useful lives. We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows the assets are expected to generate. If long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair market value. The impairment analysis of long-lived assets is based upon estimates and assumptions relating to our future revenue, cash flows, operating expenses, costs of capital and capital purchases. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of our long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital. Significant or sustained declines in future revenue or cash flows, or adverse changes in our business climate, among other factors, and their resulting impact on the estimates and assumptions relating to the value of our long-lived assets could result in the need to perform an impairment analysis in future interim periods which could result in a significant impairment. While we believe our estimates and assumptions are reasonable, due to their complexity and subjectivity, these estimates and assumptions could vary from period to period.

Valuation of Goodwill. We test goodwill for impairment on an annual basis, in our fourth quarter, or more frequently if circumstances indicate reporting unit carrying values may exceed their fair values. Circumstances that may indicate a reporting unit's carrying value exceeds its fair value include, but are not limited to: poor economic performance relative to historical or projected future operating results; significant negative industry, economic or company specific trends; changes in the manner of our use of the assets or the plans for our business; and loss of key personnel. Due to the ongoing difficult economic environment and the decline in revenues in our businesses, we continue to monitor whether there could be potential impairment of goodwill.

When evaluating goodwill for impairment, based upon our annual test or due to changes in circumstances described above, we first perform a qualitative assessment to determine if the fair value of a reporting unit is more likely than not less than the reporting unit's carrying amount including goodwill. If this assessment indicates it is more likely than not, we then compare the carrying value of the reporting unit to the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds the estimated fair value, we then calculate the implied estimated fair value of goodwill for the reporting unit and compare it to the carrying amount of goodwill for the reporting unit. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to implied estimated value.

Significant judgments and estimates are required in determining the reporting units and assessing the fair value of the reporting units. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital.

Stock-Based Compensation. Stock-based compensation cost is measured at the grant date based on the award’s fair value and is recognized as expense over the requisite service period, which is the vesting period. We use the Black-Scholes option-pricing model or other appropriate valuation models to determine the fair value of stock-based option awards. The fair value of restricted stock awards is based on the closing market price of our common stock on the award date. For performance-based stock awards, expense is recognized when it is probable the performance goal will be achieved. The valuation models require various highly judgmental assumptions including volatility in our common stock price and expected option life. If any of the assumptions used in the valuation models change significantly, stock-based compensation expense may differ materially in the future from the amounts recorded in our consolidated statement of operations. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Accounting for Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities and operating loss and tax credit carryforwards are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss and tax credit carryforwards are expected to be recovered or settled. We must make assumptions, judgments and estimates to determine the current provision for income taxes, deferred tax assets and liabilities and any valuation allowance to be recorded against deferred tax assets. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

Each reporting period we must periodically assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not more likely than not, a valuation allowance must be established. The establishment of a valuation allowance and changes to such an allowance result in either increases to income tax expense or reduction of income tax benefit in the statement of operations and comprehensive incom e. Fac tors we consider in making such an assessment include, but are not limited to, past performance and our expectation of future taxable income, macroeconomic conditions and issues facing our industry, existing contracts, our ability to project future results and any appreciation of our investments and other assets.

As of June 30, 2013 , $42.3 million of the $236.7 million of cash, cash equivalents, and short-term investments was held by our foreign subsidiaries.

As of June 30, 2013 , we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If these amounts were distributed to the U.S., in the form of dividends or otherwise, we could be subject to additional U.S. income taxes. It is not practicable to determine the U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, other tax attributes, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be repatriated, an additional provision for U.S. income and foreign withholding taxes, net of foreign tax credits, may be necessary.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk involves forward-looking statements. All statements that do not relate to matters of historical fact should be considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements.

Interest Rate Risk. Our exposure to interest rate risk from changes in market interest rates relates primarily to our short-term investment portfolio. Our short-term investments consist of investment grade debt securities as specified in our investment policy. Investments in both fixed and floating rate instruments carry a degree of interest rate risk. The fair value of fixed rate securities may be adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Additionally, a declining rate environment creates reinvestment risk because as securities mature the proceeds are reinvested at a lower rate, generating less interest income. See Note 6, Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments for additional information. Due in part to these factors, our future interest income may be adversely impacted due to changes in interest rates. In addition, we may incur losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. Because we have historically had the ability to hold our short-term investments until maturity, we would not expect our operating results

or cash flows to be significantly impacted by a sudden change in market interest rates. There have been no material changes in our investment methodology regarding our cash equivalents and short-term investments during the quarter ended June 30, 2013 . Based on our cash, cash equivalents, short-term investments, and restricted cash equivalents as of June 30, 2013 , a hypothetical 10% increase/decrease in interest rates would not increase/decrease our annual interest income or cash flows by more than a nominal amount.

Investment Risk. As of June 30, 2013 , we had investments in voting capital stock of both publicly traded and privately held technology companies for business and strategic purposes. See Note 1, Description of Business and Summary of Significant Accounting Policies - Valuation of Equity Method Investments, and Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates ( Valuation of equity method investments ) in our 10-K for details on our accounting treatment for these investments, including the analysis of other-than-temporary impairments.

Foreign Currency Risk. We conduct business internationally in several currencies and thus are exposed to adverse movements in foreign currency exchange rates.

Our exposure to foreign exchange rate fluctuations arise in part from: (1) translation of the financial results of foreign subsidiaries into U.S. dollars in consolidation; (2) the remeasurement of non-functional currency assets, liabilities and intercompany balances into U.S. dollars for financial reporting purposes; and (3) non-U.S. dollar denominated sales to foreign customers. We manage a portion of these risks through the use of financial derivatives, but fluctuations could impact our results of operations and financial position.

Generally, our practice is to manage foreign currency risk for the majority of material short-term intercompany balances through the use of foreign currency forward contracts. These contracts require us to exchange currencies at rates agreed upon at the contract’s inception. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the short-term intercompany balances, these financial instruments help alleviate the risk that might otherwise result from certain changes in currency exchange rates. We do not designate our foreign exchange forward contracts related to short-term intercompany accounts as hedges and, accordingly, we adjust these instruments to fair value through results of operations. However, we may periodically hedge a portion of our foreign exchange exposures associated with material firmly committed transactions, long-term investments, highly predictable anticipated exposures and net investments in foreign subsidiaries. Some of our unhedged exposures are recorded in our statement of operations on a mark-to-market basis each quarter, so to the extent we continue to experience adverse economic conditions, we may record losses related to such unhedged exposures in future periods that may have a material adverse effect on our financial condition and results of operations.

Our foreign currency risk management program reduces, but does not entirely eliminate, the impact of currency exchange rate movements.

We have cash balances denominated in foreign currencies which are subject to foreign currency fluctuation risk. The majority of our foreign currency denominated cash is held in Korean won and euros. A hypothetical 10% increase or decrease in the Korean won and euro relative to the U.S. dollar as of June 30, 2013 would not result in more than a nominal amount of unrealized gain or loss.


Item 4.	Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013 . The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2013 , our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the second quarter of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

See Note 15, Commitments and Contingencies, to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for information regarding legal proceedings.


Item 1A.	Risk Factors

You should carefully consider the risks described below together with all of the other information included in this Form 10-Q. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results, and the trading price of our common stock, could be materially harmed.

Our business and financial results will be materially adversely impacted if we are unable to successfully implement our growth plan, strategic initiatives and restructuring efforts.

Within the past year, we have developed a growth plan that involves the launch of at least one major new product in each of our three business units. In tandem with our growth plan, we have embarked upon strategic initiatives intended to simplify and accelerate our operations and restructuring efforts intended to streamline costs and bring more focus to our businesses. The simultaneous execution of all of these measures is ambitious and we have not attempted to pursue this level of transition in our history. We can provide no assurance that we will be successful in implementing our growth plan, strategic initiatives and restructuring efforts, and our failure to do so would have a material adverse impact on our business and financial results.

We need to successfully introduce new products and services to sustain and grow our businesses.

In order to sustain our current business and to implement our growth plan, we must successfully introduce new products and services. The process of developing new, and enhancing existing, products and services is complex, costly and uncertain, and is subject to a number of risks. Providing products and services that are attractive and useful to subscribers and consumers is in part subject to unpredictable and volatile factors beyond our control, including end-user preferences and competing products and services. Any failure by us to timely respond to or accurately anticipate consumers’ changing needs, emerging technological trends or important changes in the market or competition for products and services we plan to introduce could significantly harm our current market share or result in the loss of market opportunities. In addition, we must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether the products and services that we are developing will meet the needs of a large enough group of consumers, which may result in no return or a loss on our investments.

Our products and services have historically been provided through desktop computers and feature phones, but the number of people who access similar products and services through smartphones and tablets has increased dramatically in the past few years. There are many challenges involved in developing and marketing products and services for users of smartphones and tablets. There is no guarantee that we will be able to create and effectively monetize popular and successful products for smartphones and tablets.

In addition, our consumer-based products and services have historically been distributed through desktop operating platforms. As new operating systems are introduced or updated for these platforms, such as the introduction in 2012 of Windows 8, we could face difficulties reaching our traditional customer base and other unknown distribution challenges. If we are unable to successfully develop and introduce new products and services, or have difficulty transitioning product and version releases that can easily be distributed through these new or updated operating systems and devices, then our business could be significantly harmed.

Furthermore, new products and services may be subject to legal challenge. Responding to these potential claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to stop distributing or selling, or to redesign our products or services, or to pay damages, any of which could materially harm our operating results.

Our restructuring efforts may not yield the anticipated benefits to our shareholders.

During 2012, we took steps to restructure and simplify our business and operations. In September 2012, we announced plans to divisionalize our business, which we implemented during the first quarter of 2013, and to significantly reduce operating expenses, in part through a reduction in our workforce t hat was concluded as of the end of the second quarter of 2013. There can be no assurance that our efforts will be successful. Our business and operations may be harmed to the extent there is customer or employee uncertainty surrounding the future direction of our product and service offerings and strategy for our businesses. Our restructuring activities have included implementing cost-cutting initiatives, which may not lead to future profitability and which could materially impact our ability to compete in future periods. If we are unable to effectively re-align the cost structure of our businesses or streamline and simplify our operations, our stock price may be adversely affected, and we and our shareholders will not realize the anticipated financial, operational and other benefits from such initiatives.

The mobile entertainment market is highly competitive and evolving rapidly.

The market for mobile entertainment services, including our ring back tones, music on demand and video on demand solutions, is highly competitive and evolving rapidly, particularly with the growth in the use of smartphones. Increased use of smartphones has resulted in a proliferation of applications and services that compete with our SaaS services and, in many cases, are not dependent upon our carrier customers to make them available to subscribers. To maintain or enhance our competitive position, we need to develop new SaaS services that enable our carrier customers to compete with the broad range of applications and other services available in the market. We face competition, and may face future competition, from major media companies, Internet portal companies, content aggregators, wireless software providers and other pure-play wireless entertainment publishers, some of which have greater financial resources than we do. Furthermore, while most of our carrier customers do not offer internally developed services that compete with ours, if our carrier customers begin developing these services internally, we could be forced to lower our prices or increase the amount of service we provide in order to maintain our business with those carrier customers. Increased competition has in the past resulted in pricing pressure, forcing us to lower the selling price of our services. If we are unable to develop or provide services that compete effectively in the mobile entertainment market, our operating results and financial condition may be materially harmed.

Our non-SaaS businesses also face substantial competitive challenges that may prevent us from being successful in those businesses, and may negatively impact future growth in those businesses.

Many of our current and potential competitors in our businesses have longer operating histories, greater name recognition, more employees and significantly greater resources than we do. To effectively compete in the markets for our products and services, we may experience the following consequences, any of which would adversely affect our operating results and the trading price of our stock:


•	reduced prices or margins,


•	loss of current and potential customers, or partners and potential partners who provide content we distribute to our customers,


•	changes to our products, services, technologies, licenses or business practices or strategies,


•	lengthened sales cycles,


•	industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services,


•	pressure to prematurely release products or product enhancements, or


•	degradation in our stature or reputation in the market.

Our SuperPass subscription service faces competition from a broad variety of entertainment sources, including traditional media outlets and emerging Internet media sources. We expect this competition to continue to be intense as the market and business models for Internet video content mature and more competitors enter these new markets. Competing services may be able to obtain better or more favorable access to compelling video content than us, may develop better offerings than us and may be able to leverage other assets or technologies to promote or distribute their offerings successfully. Our RealPlayer software services compete with alternative streaming media playback technologies and audio and video formats including Microsoft Windows Media Player and Adobe Flash and their related file formats, each of which has obtained very broad market penetration. In addition, our overall ability to sell subscription services depends in part on the use of our formats on the Internet, and declines in the use of our formats have negatively affected, and are expected to continue to negatively affect, our subscription revenue and increase costs of obtaining new subscribers. If we are unable to compete successfully, including through the introduction of compelling new products and services, our SuperPass and RealPlayer businesses could continue to decline.

The branded services in our Games business compete with other online aggregators and distributors of online, downloadable and social casual PC games. Some of these competitors have high volume distribution channels and greater financial resources than we do. Our Games business also competes with many other smaller companies that may be able to adjust to market conditions, including responding effectively to the growing popularity of casual games on social networks,

faster than us. We also face significant price competition in the casual games market, and some of our competitors may be able to lower prices more aggressively than us. We expect competition to continue to intensify in this market from these and other competitors. We cannot provide assurance that we will be able to achieve growth in our revenue, particularly as we continue to invest in social and mobile games as the market for these games continues to rapidly evolve. Our games development studios compete primarily with other developers of online, downloadable, mobile and social casual PC games and must continue to develop popular and high-quality game titles. Our Games business must also continue to execute on opportunities to expand the play of our games on a variety of non-PC platforms, including social networks, in order to maintain our competitive position and to grow the business.

Contracts with our carrier customers subject us to significant risks that could negatively impact our revenue or otherwise harm our operating results.

We derive a material portion of our revenue from the SaaS offerings we provide to carriers. Many of our SaaS contracts with carriers provide for revenue sharing arrangements, but we have little control over the pricing decisions of our carrier customers. Furthermore, most of these contracts do not provide for guaranteed minimum payments or usage levels. Because most of our carrier customer contracts are nonexclusive, it is possible that our mobile carrier customers could purchase similar services from third parties and cease to use our services in the future. As a result, our revenue derived under these agreements could be substantially reduced depending on the pricing and usage decisions of our carrier customers. In addition, some of our SaaS contracts require us to incur significant set-up costs prior to the launch of services with a carrier customer. For example, in the fourth quarter of 2011, we reduced our forecast for profitability associated with certain carrier customer contracts for which the total costs exceeded the total revenue we expect to recognize from these contracts, and as a result, we recorded impairment of deferred costs totaling $20.0 million. There can be no assurance that we will not record additional impairments or other charges in future periods related to our carrier customer contracts, which would negatively impact our results of operations.

In addition, none of our SaaS contracts with carriers obligates our carrier customers to market or distribute any of our SaaS offerings. Despite the lack of marketing commitments, revenue related to our SaaS offerings is, to a large extent, dependent upon the marketing and promotion activities of our carrier customers. In addition, many of our carrier contracts are short term and allow for early termination by the carrier with or without cause. These contracts are therefore subject to renegotiation of pricing or other key terms that could be adverse to our interests and leave us vulnerable to non-renewal by the carriers. The loss of carrier customers, a reduction in marketing or promotion of our SaaS offerings, or the termination, non-renewal or renegotiation of contract terms that are less favorable to us would likely result in the loss of future revenues from our SaaS offerings.

Finally, nearly all of our carrier contracts obligate us to indemnify the carrier customer for certain liabilities and losses incurred by them, including liabilities resulting from third party claims for damages that arise out of the use of our technology. These indemnification terms provide us with certain procedural safeguards, including the right to control the defense of the indemnified party. Pursuant to these indemnifications obligations, we have agreed to control the defense on behalf of three of our carrier customers related to pending patent infringement proceedings, and we are vigorously defending them. These pending proceedings or future claims against which we may be obligated to defend our carrier customers could result in payments that could materially harm our business or our consolidated financial statements.

A majority of the revenue that we generate in our Mobile Entertainment business segment is dependent upon our relationship with a few customers, and any deterioration of these relationships could materially harm our business.

We generate a significant portion of our revenue from sales of our mobile entertainment services to a few of our mobile carrier customers, including SK Telecom, a leading wireless carrier in South Korea. In the near term, we expect that we will continue to generate a significant portion of our total revenue from these customers. If these customers fail to market or distribute our services or terminate their business contracts with us, or if our relationships with these customers deteriorate in any significant way, we may be unable to replace the affected business arrangements with acceptable alternatives. Our relationship with SK Telecom may also be affected by the general state of the economy of South Korea. Failure to maintain our relationships with these customers could have a material negative impact on our revenue and operating results.

We may not be successful in maintaining and growing our distribution of digital media products.

Maintaining and growing the distribution of digital media products through our websites and our other distribution channels is important to our future prospects, including future growth through the introduction of new products and services distributed through these channels. We cannot predict whether consumers will continue to download and use our digital media products consistent with past usage, which may reduce our ability to generate revenue from those products as well as result in lower than expected adoption of newly introduced products and services. Our inability to maintain continued high volume

distribution of our digital media products could also hold back the growth and development of related revenue streams from these market segments, including the distribution of third-party products and sales of our subscription services, and therefore could harm our business and our prospects. Our revenue from the distribution of third-party products will also be negatively impacted if those products are not widely downloaded by consumers, including due to the relative market saturation of such products. In addition, our revenue from the distribution of third party products is currently significantly dependent on a single customer contract. If that contract is not renewed or is terminated and cannot be replaced by another similar customer contract, our financial results would be harmed.

Our operating results are difficult to predict and may fluctuate, which may contribute to volatility in our stock price.

The trading price for our common stock has been volatile, ranging from $6.80 to $8.78 per share during the 52-week period ended June 30, 2013 . As a result of the rapidly changing markets in which we compete, our operating results may fluctuate from period-to-period, which may continue to contribute to the volatility of our stock price. In past periods, our operating results have been affected by personnel reductions and related restructuring charges, lease exit and related charges, and impairment charges for certain of our equity investments, goodwill and other long-lived assets. Our operating results may be adversely affected by similar or other charges or events in future periods, including, but not limited to:


•	impairments of long-lived assets,


•	integrating and operating newly acquired businesses and assets, and


•	the general difficulty in forecasting our operating results and metrics, which could result in actual results that differ significantly from expected results.

Certain of our product and service investment decisions (for example, research and development and sales and marketing efforts) are based on predictions regarding business and the markets in which we compete. Fluctuations in our operating results, particularly when experienced beyond what we expected, could cause the trading price of our stock to continue to fluctuate.

Continued loss of revenue from some of our subscription services may harm our operating results.

Our operating results have been and could continue to be adversely impacted by the loss of subscription revenue. Subscribers may cancel their subscriptions to our services for many reasons, including a perception that they do not use the services sufficiently or that the service does not provide enough value, a lack of attractive or exclusive content generally or as compared with competitive service offerings, or because customer service issues are not satisfactorily resolved. Revenue from our SuperPass subscription service has declined in recent periods due in part to our focus on other products and services we offer, and we expect this trend to continue. For the subscription services we offer, we must continue to obtain compelling digital media content for our video and games services in order to maintain and increase usage and overall customer satisfaction for these products. Our operating results may be negatively impacted if we cannot obtain content for our subscription services on commercially reasonable terms.

Government regulation of the Internet is evolving, and unfavorable developments could have an adverse affect on our operating results.

We are subject to regulations and laws specific to the marketing, sale and delivery of goods and services over the Internet. These laws and regulations, which continue to evolve, cover taxation, user privacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer protections, digital games distribution, broadband Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply or will be enforced with respect to the products and services we sell through the Internet. Moreover, as Internet commerce continues to evolve, increasing regulation and/or enforcement efforts by federal, state and foreign agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations or the imposition of other legal requirements that adversely affect our ability to market, sell, and deliver our products and services could decrease our ability to offer or customer demand for our service offerings, resulting in lower revenue. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also require us to change our business practices, raise compliance costs or other costs of doing business and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and our operating results.

As a consumer-facing business, we receive complaints from our customers regarding our consumer marketing efforts and our customer service practices. Some of these customers may also complain to government agencies, and from time to time, those agencies have made inquiries to us about these practices. In addition, we may receive complaints or inquiries directly from governmental agencies that have not been prompted by consumers. On May 24, 2012, we resolved an investigation and complaint filed against us by the Washington State Office of the Attorney General, or Washington AG, relating to our consumer marketing practices through the entry of a consent decree filed in King County, Washington Superior Court. For details on this

action and the related costs we incurred in 2012, see Note 16, Commitments and Contingencies, in our 10-K. While we have resolved this matter, we cannot provide assurances that the Washington AG or other governmental agencies will not bring future claims regarding our marketing, or consumer services or other practices.

Uncertainty and adverse conditions in the economy could have a material adverse impact on our business, financial condition and results of operations.

The ongoing weakness in the national and global economy has resulted in declines in overall consumer and corporate spending, declines in consumer and corporate access to credit, fluctuations in foreign exchange rates, declines in the value of assets and increased liquidity risks, all of which could materially impact our business, financial condition and results of operations. We provide digital entertainment services to consumers directly and indirectly through our carrier customers. Consumers may consider the purchase of our products and services to be a discretionary expenditure. As a result, consumers considering whether to purchase our products or services may be influenced by macroeconomic factors that affect consumer spending such as unemployment, conditions in the residential real estate and mortgage markets and access to credit when making a determination whether to commence, continue, or stop subscribing to or otherwise purchasing our products and services. In addition, businesses may reduce their advertising spending during adverse macroeconomic conditions, which would negatively impact the revenue we generate through sales of advertising on our websites and other properties. We have recorded material asset impairment charges in recent years due in part to weakness in the global economy, and if the ongoing significant weakness and uncertainty in the global economy continues, we may need to record additional impairments to our assets in future periods. If any of these risks are realized, we may experience a material adverse impact on our financial condition and results of operations.

Rhapsody could continue to recognize losses, which would negatively impact our results of operations and financial condition.

On March 31, 2010, we completed the restructuring of our digital audio music service joint venture, Rhapsody America LLC. As a result of the restructuring, we no longer have operational control over Rhapsody and Rhapsody’s operating performance is no longer consolidated with our consolidated financial statements. Rhapsody has generated accounting losses since its inception and we have recognized losses on our investment in Rhapsody since the restructuring. If Rhapsody continues to incur losses, or if it otherwise experiences a significant decline in its business, we may incur further losses on our investment, which could have an adverse effect on our financial condition and results of operations.

Given the current proportion of the outstanding equity of Rhapsody that we hold, we need to receive Rhapsody’s unaudited quarterly financial statements and related information in order to timely prepare our quarterly consolidated financial statements and also to report certain of Rhapsody’s financial results, as may be required, in our quarterly reports on Form 10-Q. In addition, we may be required to include Rhapsody’s annual audited financial statements in our annual report on Form 10-K in future periods. As we no longer exert operational control over Rhapsody, we cannot guarantee that Rhapsody will deliver its financial statements and related information to us in a timely manner, or at all, or that the unaudited financial statement information provided by Rhapsody will not contain inaccuracies that are material to our reported results. Any failure to timely obtain Rhapsody’s quarterly financial statements or to include its audited financial statements in our future annual reports on Form 10-K, if required, could cause our reports to be filed in an untimely manner, which would preclude us from utilizing certain registration statements and could negatively impact our stock price.

The loss of key personnel, or difficulty recruiting and retaining them, could significantly harm our business or jeopardize our ability to meet our growth objectives.

Our success depends substantially on the contributions and abilities of certain key executives and employees. We have experienced a significant amount of executive-level turnover in the past several years, which has had and could continue to have a negative impact on our ability to retain key employees. In July 2012, Rob Glaser, our founder, Chairman and initial chief executive officer, was appointed as interim chief executive officer, having stepped down as chief executive officer in 2010. A search committee has been formed in connection with the chief executive officer position. We cannot provide assurance that we will effectively manage this or any other executive-level transition, which may impact our ability to retain our remaining key executives and employees and which could harm our business and operations to the extent there is customer or employee uncertainty arising from such transitions.

Our success is also substantially dependent upon our ability to identify, attract and retain highly skilled management, technical and sales personnel. Qualified individuals are in high demand and competition for such qualified personnel in our industry, particularly engineering talent, is intense, and we may incur significant costs to attract or retain them. Our ability to attract and retain personnel may also be made more difficult by the uncertainty created by our recent executive-level turnover and by our restructuring efforts, which involved a reduction in our workforce. There can be no assurance that we will be able to attract and retain the key personnel necessary to sustain our business or support future growth.

Acquisitions and divestitures involve costs and risks that could harm our business and impair our ability to realize potential benefits from these transactions.

As part of our business strategy, we have acquired and sold technologies and businesses in the past and expect that we will continue to do so in the future. The failure to adequately manage transaction costs and address the financial, legal and operational risks raised by acquisitions and divestitures of technology and businesses could harm our business and prevent us from realizing the benefits of these transactions. In addition, we may identify and acquire target companies, but those companies may not be complementary to our current operations and may not leverage our existing infrastructure or operational experience, which may increase the risks associated with completing acquisitions.

Transaction-related costs and financial risks related to completed and potential future purchase or sale transactions may harm our financial position, reported operating results, or stock price. Previous acquisitions have resulted in significant expenses, including amortization of purchased technology, amortization of acquired identifiable intangible assets and the incurrence of charges for the impairment of goodwill and other intangible assets, which are reflected in our operating expenses. New acquisitions and any potential additional future impairment of the value of purchased assets, including goodwill, could have a significant negative impact on our future operating results.

Purchase and sale transactions also involve operational risks that could harm our existing operations or prevent realization of anticipated benefits from a transaction. These operational risks include:


•	difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;


•	retaining key management or employees of the acquired company;


•	entrance into unfamiliar markets, industry segments, or types of businesses;


•	operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;


•	diversion of management time and other resources from existing operations;


•	impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business; and


•	assumption of known and unknown liabilities of the acquired company, including intellectual property claims.

We may be unable to adequately protect our proprietary rights or leverage our technology assets, and may face risks associated with third-party claims relating to intellectual property rights associated with our products and services.

Our ability to compete across our businesses partly depends on the superiority, uniqueness and value of our technology, including both internally developed technology and technology licensed from third parties. To protect our proprietary rights, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. Our efforts to protect our intellectual property rights may not assure our ownership rights in our intellectual property, protect or enhance the competitive position of our products and services or effectively prevent misappropriation of our technology. We also routinely receive challenges to our trademarks and other proprietary intellectual property that we are using in our business activities in China. Disputes regarding the validity and scope of patents or the ownership of technologies and rights associated with streaming media, digital distribution, and online businesses are common and likely to arise in the future. While we sold to Intel Corporation in 2012 most of our patents, including patents that covered streaming media, we agreed to indemnify Intel for certain third-party infringement claims against these patents up to the purchase price we received in the sale. We may also be forced to litigate to enforce or defend our patents and other intellectual property rights or to determine the validity and scope of other parties’ proprietary rights, enter into royalty or licensing agreements on unfavorable terms or redesign our product features and services. Any such dispute would likely be costly and distract our management, and the outcome of any such dispute could fail to improve our business prospects or otherwise harm our business.

From time to time we receive claims and inquiries from third parties alleging that our technology may infringe the third parties’ proprietary rights, especially patents. Third parties have also asserted and most likely will continue to assert claims against us alleging contract breaches, infringement of copyrights, trademark rights, trade secret rights or other proprietary rights, or alleging unfair competition or violations of privacy rights. These claims, even if not meritorious, could force us to spend significant financial and managerial resources. Given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. On July 3, 2012, VoiceAge Corporation brought a lawsuit against us alleging breach of our obligation to pay them licensing fees under our patent license agreement with VoiceAge and seeking a material amount in damages. While we are vigorously defending ourselves against these claims, the outcome of this lawsuit remains uncertain and could ultimately result in significant legal expenses, monetary damages, penalties or injunctive relief against us that could have a material adverse impact on our future consolidated financial statements. We are also investigating or litigating other pending claims, some of which are described in Note 15, Commitments

and Contingencies, in this 10-Q. In the event of a determination adverse to us, we may incur substantial monetary liability and/or be required to change our business practices. In addition, in 2012 we sold substantially all of our patent assets to Intel. We believe that our patent portfolio may have in the past discouraged third parties from bringing infringement or other claims against us relating to the use of our technologies in our business. Accordingly, we cannot predict whether the sale of these patent assets to Intel will result in additional infringement or other claims against us from third parties.

Our business and operating results will suffer if our systems or networks fail, become unavailable, unsecured or perform poorly so that current or potential users do not have adequate access to our products, services and websites.

Our ability to provide our products and services to our customers and operate our business depends on the continued operation and security of our information systems and networks. A significant or repeated reduction in the performance, reliability, security or availability of our information systems and network infrastructure could harm our ability to conduct our business, and harm our reputation and ability to attract and retain users, customers, advertisers and content providers. We have on occasion experienced system errors and failures that caused interruption in availability of products or content or an increase in response time. Problems with our systems and networks could result from our failure to adequately maintain and enhance these systems and networks, natural disasters and similar events, power failures, HVAC failures, intentional actions to disrupt our systems and networks and many other causes. The vulnerability of a large portion of our computer and communications infrastructure is enhanced because much of it is located at two leased facilities in Seattle, Washington, an area that is at heightened risk of earthquake, flood, and volcanic events. Many of our services do not currently have fully redundant systems or a formal disaster recovery plan, and we may not have adequate business interruption insurance to compensate us for losses that may occur from a system outage.

The growth of our business is dependent in part on successfully managing our international operations.

Our international operations involve risks inherent in doing business globally, including difficulties in managing operations due to distance, language, and cultural differences, local economic conditions, different or conflicting laws and regulations, taxes, and exchange rate fluctuations. The functional currency of our foreign subsidiaries is the local currency of the country in which each subsidiary operates. We translate our subsidiaries’ revenues into U.S. dollars in our financial statements, and continued volatility in foreign exchange rates, particularly if the U.S. dollar strengthens against the euro or the Korean won, may result in lower reported revenue or net assets in future periods. Our foreign currency exchange risk management program reduces, but does not eliminate, the impact of currency exchange rate movements. If we do not effectively manage any of the risks inherent in running our international businesses, our operating results and financial condition could be harmed.

We may be subject to market risk and legal liability in connection with our data collection and data security capabilities.

Many of our products are interactive Internet applications that by their very nature require communication between a client and server to operate. For example, to provide better consumer experiences and to operate effectively, our products send information, including personally identifiable information, to our servers. In addition, we sell many of our products and services through online sales transactions directly with consumers, through which we collect and store credit card information. In connection with our direct sales to consumers, we may be the victim of fraudulent transactions, including credit card fraud, which presents a risk to our revenue and potentially disrupts service to our consumers. While we take measures to protect our consumer data, we have experienced unauthorized access to our consumer data in the past, and it is possible that our security controls over consumer data may not prevent future improper access or disclosure of credit card information or personally identifiable information. We have an extensive privacy policy concerning the collection, use and disclosure of user data involved in interactions between our client and server products. A security breach that leads to disclosure of consumer account information (including personally identifiable information) or any failure by us to comply with our posted privacy policy or existing or new legislation regarding privacy issues could harm our reputation, impact the market for our products and services, subject us to litigation, and require us to expend significant resources to mitigate the breach of security, comply with breach notification laws or address related matters. In addition, we will also need to maintain compliance with the Payment Card Industry, or PCI, compliance standard for data security, which we recently achieved, in connection with our use of credit card services for payment. If we fail to maintain the PCI compliance standards we may be subject to substantial monetary penalties and we could lose the ability to accept credit card payments for transactions with our customers. Any of these consequences could materially harm our business or our consolidated financial statements.

Changes in regulations applicable to the Internet and e-commerce that increase the taxes on the services we provide could materially harm our business and operating results.

As Internet commerce continues to evolve, increasing taxation by state, local or foreign tax authorities becomes more likely. For example, taxation of electronically delivered products and services or other charges imposed by government agencies may also be imposed. We believe we collect transactional taxes and are compliant and current in all jurisdictions

where we believe we have a collection obligation for transaction taxes. Any regulation imposing greater taxes or other fees for products and services could result in a decline in the sale of products and services and the viability of those products and services, harming our business and operating results. A successful assertion by one or more states or foreign tax authorities that we should collect and remit sales or other taxes on the sale of our products or services could result in substantial liability for past sales.

In those countries where we have taxable presence, we collect value added tax, or VAT, on sales of “electronically supplied services” provided to European Union residents. The collection and remittance of VAT subjects us to additional currency fluctuation risks.

We may be subject to additional income tax assessments.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, income taxes payable, and net deferred tax assets. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the U.S. or foreign jurisdictions which could have a material adverse effect on our financial condition and results of operations.

Our Chairman of the Board and interim Chief Executive Officer beneficially owns approximately 37% of our stock, which gives him significant control over certain major decisions on which our shareholders may vote or may discourage an acquisition of us.

Robert Glaser, our Chairman of the Board and interim Chief Executive Officer, beneficially owns approximately 37% of our common stock. As a result, Mr. Glaser and his affiliates will have significant influence to:


•	elect or defeat the election of our directors;


•	amend or prevent amendment of our articles of incorporation or bylaws;


•	effect or prevent a merger, sale of assets or other corporate transaction; and


•	control the outcome of any other matter submitted to the shareholders for vote.

The stock ownership of Mr. Glaser and his affiliates may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of RealNetworks, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.

Provisions of our charter documents, shareholder rights plan, and Washington law could discourage our acquisition by a third party.

Our articles of incorporation provide for a strategic transactions committee of the board of directors. Without the prior approval of this committee, and subject to certain limited exceptions, the board of directors does not have the authority to:


•	adopt a plan of merger;


•	authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;


•	authorize our voluntary dissolution; or


•	take any action that has the effect of any of the above.

Mr. Glaser has special rights under our articles of incorporation to appoint or remove members of the strategic transactions committee at his discretion that could make it more difficult for RealNetworks to be sold or to complete another change of control transaction without Mr. Glaser’s consent. RealNetworks has also entered into an agreement providing Mr. Glaser with certain contractual rights relating to the enforcement of our charter documents and Mr. Glaser’s roles and authority within RealNetworks. These rights and his role as Chairman of the Board of Directors, together with Mr. Glaser’s significant beneficial ownership, create unique potential for concentrated influence of Mr. Glaser over potentially material transactions involving RealNetworks and decisions regarding the future strategy and leadership of RealNetworks.

We have adopted a shareholder rights plan, which was amended and restated in December 2008, which provides that shares of our common stock have associated preferred stock purchase rights. The exercise of these rights would make the acquisition of RealNetworks by a third party more expensive to that party and has the effect of discouraging third parties from acquiring RealNetworks without the approval of our board of directors, which has the power to redeem these rights and prevent their exercise.

Washington law imposes restrictions on some transactions between a corporation and certain significant shareholders. The foregoing provisions of our charter documents, shareholder rights plan, our agreement with Mr. Glaser, and Washington law, as well as our charter provisions that provide for a classified board of directors and the availability of “blank check” preferred stock, could have the effect of making it more difficult or more expensive for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions may therefore have the effect of limiting the price that investors might be willing to pay in the future for our common stock.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable


Item 3.	Default Upon Senior Securities

None


Item 4.	Mine Safety Disclosures

Not applicable


Item 5.	Other Information

None


Item 6.	Exhibits

See Index to Exhibits below.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 8, 2013 .



	REALNETWORKS, INC.

	By:		/s/ Tim M. Wan
			Tim M. Wan
	Title:		Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

INDEX TO EXHIBITS



Exhibit Number	Description

10.1	Amendment dated May 2, 2013, to Lease originally dated January 21, 1998, between SRI-WR Elliott Avenue LLC, as landlord, and RealNetworks, Inc., as tenant

10.2	Office Building Lease dated May 2, 2013 between 1501 First Avenue South Limited Partnership, as landlord, and RealNetworks, Inc., as tenant

10.3*	Promotion Letter dated August 24, 2012 between RealNetworks, Inc. and Michael Parham

31.1	Certification of Robert Glaser, Chairman and interim Chief Executive Officer of RealNetworks, Inc., Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Robert Glaser, Chairman and interim Chief Executive Officer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**	XBRL Instance Document

101.SCH**	XBRL Taxonomy Extension Schema Document

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document

101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document

* Executive compensation plan or agreement

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

Exhibit 10.1

AMENDMENT TO LEASE

(Early Termination of Lease)

THIS AMENDMENT TO LEASE (“Amendment”) is executed as of the 2nd day of May, 2013, between SRI-WR ELLIOTT AVENUE LLC, a Delaware limited liability company (“Landlord”), and REALNETWORKS, INC., a Washington corporation (“Tenant”).

RECITALS

A. Landlord (as successor-in-interest to 2601 Elliott LLC, a Washington limited liability company) and Tenant are parties to that certain Lease dated as of January 21, 1998, as amended by that certain (i) First Lease Amendment dated November 13, 1998, (ii) Lease Amendment dated July 18, 2000, (iii) Lease Amendment dated September 14, 2000, (iv) Lease Amendment dated April 12, 2001, (v) Lease Amendment dated September 23, 2004, (vi) Lease Amendment dated October 5, 2004, (vii) Lease Amendment dated May 2, 2005, (viii) Lease Amendment dated February 15, 2006, (ix) Lease Amendment dated May 25, 2006, and (x) Settlement, Release and Indemnification Agreement dated October 20, 2004 (as amended, the “Lease”), pursuant to which Tenant leases from Landlord certain premises (the “Premises”) in the building located at 2601 Elliot Avenue, Seattle, Washington (the “Building”). All capitalized terms used in this Amendment, but not defined herein, shall have the meanings ascribed to them in the Lease.

B. The Premises include the space on the ground floor of the Building shown outlined on Exhibit A attached hereto (the “Ground Floor Premises”), and the space on the third (3rd) and fourth (4th) floors of the Building shown outlined on Exhibit A attached hereto (the “Staging Premises”, except that the Staging Premises does not include the “Lab Room” or the “Turner Premises”, each on the fourth (4th) floor of the Building and shown outlined on Exhibit A attached hereto). The remainder of the Premises (i.e., all of the Premises other than the Ground Floor Premises, the Staging Premises, the Lab Room and the Turner Premises) is referred to herein as the “Majority Premises”. Each of the Ground Floor Premises, the Staging Premises, the Lab Room, the Turner Premises, and the Majority Premises is referred to herein as a “Premises Increment”.

C. The Lease is currently scheduled to expire on September 30, 2014 (the “Expiration Date”).

D. Landlord and Tenant desire to amend the Lease to terminate the Lease early in accordance with the terms set forth below.

NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:

1. Termination of Lease . As to each Premises Increment, the Lease shall terminate as of 12:00 midnight on the respective Termination Date (as defined in Paragraph 2 below) applicable thereto, and all rights, liabilities and duties of the parties under the Lease and with respect to each Premises Increment shall terminate effective as of the respective Termination Date applicable thereto as if it were the Expiration Date; provided , however , that:

(a) Tenant’s obligation to comply with all covenants and agreements under the Lease with respect to each Premises Increment shall continue through and including the respective Surrender Date (as defined in Paragraph 2 below) applicable thereto;

(b) Nothing contained herein is intended to release Tenant or Landlord from any of their respective obligations accruing under the Lease with respect to any Premises Increment prior to the Surrender Date applicable thereto, and without limitation of the foregoing, each party’s indemnification obligations contained in the Lease with respect to each Premises Increment shall survive the termination of the Lease as respects such Premises Increment with respect to all claims, liabilities, damages, costs and expenses, including attorneys’ fees, arising from or connected with circumstances, actions or omissions that occurred prior to the Surrender Date applicable thereto;

(c) Tenant shall vacate and surrender each Premises Increment to Landlord vacant and free and clear of any subtenants or other occupants except as provided in Paragraph 6 below, and in the condition required by the Lease upon the expiration thereof, on or before the Termination Date applicable thereto, and without limitation, Tenant shall remove from each Premises Increment all of Tenant’s furniture, fixtures, equipment and other personal property; provided , however , that, notwithstanding anything to the contrary contained herein or in the Lease, (I) Tenant shall have no obligation to remove any alterations, additions, improvements or cabling from any Premises Increment; (II) Tenant shall have no obligation to remove from the Staging Premises any furniture,

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fixtures, equipment or other personal property which it conveys to Zulily, Inc. (“Zulily”) (the successor tenant of the Staging Premises or a portion thereof) and which Zulily agrees in writing may remain in the Staging Premises following the Termination Date applicable thereto; (III) Tenant shall have no obligation to remove from the Subleased Premises (as defined in Paragraph 6 below) any furniture, fixtures, equipment or other personal property of the respective Subtenant (as defined in Paragraph 6 below) thereof, (IV) Tenant shall have no obligation or right to remove its generator or other rooftop equipment (including satellite dishes) from the Building, and all of Tenant’s right, title and interest in and to the same, as identified on Schedule 1 attached hereto, is hereby transferred by Tenant to Landlord effective as of the Termination Date applicable to the Majority Premises, without any representation or warranty other than that Tenant is the lawful owner of the same with good and marketable title thereto, subject to no lien or encumbrance thereon in favor of any party; provided, however, that Tenant shall have the right to remove one (1) of its satellite dishes of its choice from the roof of the Building prior to the Termination Date applicable to the Majority Premises; (V) except as described in Clauses (I) through (IV) above, Tenant, at Tenant’s sole cost and expense, shall perform such work (if any, the “Repair Work”) as shall be required to surrender the Premises in the condition required under the Lease, including the Repair Work required to put all HVAC, electrical, plumbing, fire and life safety and other equipment located in or exclusively serving each Premises Increment in good condition and repair as of the Termination Date applicable thereto; provided, however, that Landlord and Tenant may agree in writing after the date hereof that all or any portion of the Repair Work shall be performed by Landlord following the applicable Termination Date at Tenant’s sole cost and expense. Promptly following the date of this Amendment, Landlord and Tenant shall audit or otherwise review the condition of the Premises and all said systems, including review of Tenant’s service records with respect to said systems, and cooperate with each other so as to agree upon the scope of the Repair Work and the cost thereof, and whether and when Tenant or Landlord shall perform the same (but in either case the Repair Work shall be performed at Tenant’s sole cost and expense); provided, however, that Landlord and Tenant agree that since the Surrender Date of the Staging Premises is the date of this Amendment, the Repair Work to the Staging Premises, once determined by the parties, will be performed by Landlord at Tenant’s sole cost and expense after the date hereof. All reimbursements of Repair Work costs by Tenant to Landlord under this Paragraph 1(c) and 2 below shall be made within thirty (30) days after Landlord’s written demand accompanied by supporting documents; and

(d) notwithstanding the termination of the Lease with respect to the Staging Premises, the Lab Room and the Turner Premises on the Termination Date applicable thereto as set forth in Paragraph 2 below, Tenant’s obligation to pay basic monthly rent, Operating Costs and Real Property Taxes with respect to the Staging Premises, the Lab Room and the Turner Premises shall continue until the Surrender Date applicable to the Majority Premises (or such later date as shall be the Surrender Date for such respective Premises Increment, subject to Paragraphs 4(c) and 4(d) below), and notwithstanding the Termination Date applicable to the Ground Floor Premises as set forth in Paragraph 2 below, Tenant’s obligation to pay basic monthly rent, Operating Costs and Real Property Taxes applicable to the Ground Floor Premises shall terminate effective as of the Surrender Date applicable to the Majority Premises.

2. Termination Date; Surrender Date . The “Termination Date” and “Surrender Date” with respect to the Staging Premises shall be the date of this Amendment, and Landlord hereby acknowledges and agrees that Tenant has delivered possession of the Staging Premises to Landlord on the date of this Amendment; provided , however , that the parties acknowledge that the Repair Work with respect to the Staging Premises has not yet been determined or performed, and that Tenant’s obligation to pay Landlord for the Repair Work with respect to the Staging Premises shall survive the Surrender Date with respect thereto as set forth in Paragraph 1(c) above. The “Termination Date” with respect to the Turner Premises shall be the date that is sixty (60) days after the date of this Amendment. The “Termination Date” with respect to the Lab Room and the Majority Premises shall be August 31, 2013. The “Termination Date” with respect to the Ground Floor Premises shall be the date designated by Tenant by at least thirty (30) days’ prior written notice to Landlord, except the “Termination Date” with respect to the Ground Floor Premises shall not be earlier than August 31, 2013 or later than December 31, 2013. If Tenant shall fail to designate the Termination Date with respect to the Ground Floor Premises by November 30, 2013, the Termination Date with respect to the Ground Floor Premises shall be deemed to be December 31, 2013. The “Surrender Date” with respect to the Turner Premises, the Lab Room, the Majority Premises and the Ground Floor Premises shall be the date that is the later of the respective Termination Date applicable thereto or the date on which Tenant surrenders such Premises Increment to Landlord in the condition required by this Amendment.

3. Termination Payments . In partial consideration of Landlord’s agreement to terminate the Lease early in accordance with this Amendment, Tenant shall pay Landlord a termination payment in the amount of Three Hundred Forty-Three Thousand Nine Hundred Ninety-Five Dollars ($343,995.00) on or before December 31, 2013 (the “Additional Lost Rent Payment”). In further consideration of Landlord’s agreement

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to terminate the Lease early in accordance with this Amendment, Tenant shall also pay Landlord a termination payment in the amount of Four Million Six Hundred Eighty-Five Thousand Five Hundred Thirty-Six and 42/100 Dollars ($4,685,536.42) (the “Termination Payment”). A portion of the Termination Payment equal to Two Million Three Hundred Fifty Thousand Dollars ($2,350,000.00) (the “Initial Termination Payment Installment”) shall be delivered by Tenant to Landlord together with execution and delivery of this Amendment by the parties hereto, and the balance of the Termination Payment (the “Remaining Termination Payment Installment”) shall be delivered by Tenant to Landlord not later than August 31, 2013.

4. Remedies . If Tenant fails to deliver possession of any Premises Increment to Landlord in the condition required hereby on or before the Termination Date applicable thereto, such failure shall constitute a breach by Tenant of its obligations under this Amendment (as to which no notice or cure period shall be applicable), and Landlord may exercise one or more of the following remedies, which, subject to Tenant’s obligation to perform and pay for the Repair Work as set forth in Paragraphs 1 and 2 above, and subject further to Tenants continuing rent obligation under Paragraph 1(d) above for the Lab Room and Turner Premises, and subject further to the attorneys’ fees provisions of the Lease as referenced in Paragraph 10 below, shall be the exclusive remedies available to Landlord as a result of such failure:

(a) sue Tenant for specific performance of the terms of this Amendment; and/or

(b) initiate an unlawful detainer action against Tenant to obtain possession of such Premises Increment; and/or

(c) collect from Tenant an amount equal to $11,061.84 for each day after the Termination Date for the Majority Premises through and including the date that Tenant delivers possession of the Majority Premises to Landlord in the condition required hereby, as fixed, agreed and liquidated damages for any basic rent and additional rent payable under the Lease during such period and damages incurred by Landlord as a result of such late delivery of possession of the Majority Premises; provided , however , that the foregoing shall not diminish Tenant’s obligation to perform and pay for the Repair Work as set forth in Paragraphs 1 and 2 above; and/or

(d) collect from Tenant an amount equal to $4,901.66 for each day after the Termination Date for the Ground Floor Premises through and including the date that Tenant delivers possession of the Ground Floor Premises to Landlord in the condition required hereby, as fixed, agreed and liquidated damages for any basic rent and additional rent payable under the Lease during such period and damages incurred by Landlord as a result of such late delivery of possession of the Ground Floor Premises; provided , however , that the foregoing shall not diminish Tenant’s obligation to perform and pay for the Repair Work as set forth in Paragraphs 1 and 2 above.

5. Escrowed Deposit . Landlord and Tenant acknowledge that the Escrowed Deposit contemplated by Section 7 of the Lease and Section 5 of the First Lease Amendment dated November 13, 1998 is currently in the amount of Ten Million Dollars ($10,000,000.00) and held by U.S. Bank National Association (the “Bank”). Together with the parties execution and delivery of this Amendment, Tenant’s delivery of possession of the Staging Premises to Landlord, and Tenant’s payment to Landlord of the Initial Termination Payment Installment, Landlord and Tenant shall jointly authorize the Bank to release to Tenant a portion of the Escrowed Deposit in the amount of Three Million Dollars ($3,000,000.00). Provided that Tenant has timely paid to Landlord the Initial Termination Payment Installment, the Remaining Termination Payment Installment, and timely surrendered the Turner Premises, the Lab Room, and the Majority Premises in the condition required under Paragraph 1(c) of this Amendment, on the Surrender Date of the Turner Premises, the Lab Room, and the Majority Premises Landlord and Tenant shall jointly authorize the Bank to release to Tenant a portion of the Escrowed Deposit in the amount of Five Million Dollars ($5,000,000.00), which will result in the remaining balance of the Escrowed Deposit being Two Million Dollars ($2,000,000.00). Provided that Tenant has timely paid Landlord the entire Termination Payment and Additional Lost Rent Payment, and timely surrendered all of the Premises in the condition required under Paragraph 1(c) of this Amendment, on the Surrender Date of the Ground Floor Premises Landlord and Tenant shall jointly authorize the Bank to release the remaining Escrowed Deposit to Tenant. Landlord’s authorization to the Bank for releases of the Escrowed Deposit pursuant to the foregoing shall be on such form as the Bank shall reasonably require. Upon release of any portion of the Escrowed Deposit to Tenant as provided above, Landlord unconditionally releases any and all claim or right to such portion of the Escrowed Deposit that is so released to Tenant.

6. Subleases . Tenant represents and warrants to Landlord that the only subleases or other occupancy agreements with respect to the Premises or any portion thereof that have been entered into or permitted by Tenant or any subtenant of Tenant or any other party claiming an interest in the Premises by, through or under Tenant’s interest in the Premises, are set forth on Schedule 2 attached hereto (the “Subleases”), with the subtenants thereunder (the “Subtenants”), the portion of the Premises covered thereby, the expiration

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dates applicable thereto, and the security deposits made by the Subtenants and the current balances thereof as described on said Schedule 2 . Promptly following the execution and delivery of this Amendment, Tenant shall use commercially reasonable efforts in cooperating with Landlord to cause the AdReady Sublease to be amended to reduce the subleased premises thereunder as shown on Exhibit B attached hereto, effective no later than June 1, 2013; provided that Tenant shall not have any obligation to incur any liability in connection with such amendment. Promptly following the execution and delivery of this Amendment, Tenant shall use commercially reasonable efforts in cooperating with Landlord to cause the Turner Sublease to be amended to relocate the subleased premises thereunder as shown on Exhibit C attached hereto, effective no later than June 30, 2013; provided that Tenant shall not have any obligation to incur any liability in connection with such amendment. Notwithstanding the termination of the Lease as set forth in this Amendment, Landlord and Tenant acknowledge and agree that after the date the Lease is terminated as respects the corresponding portion of the Premises (the “Attornment Date”), Tenant shall deliver to Landlord the full amount of all security deposits made by the Subtenants under the Subleases, and thereupon each Sublease shall each remain in effect for the balance of its respective term as a direct lease between Landlord and the subtenant thereunder, and Landlord shall not terminate any Sublease prior to its scheduled expiration date except pursuant to an express termination right granted under the applicable Sublease. Each party shall cooperate as reasonably requested by the other to implement the foregoing, including sending appropriate notices to the Subtenants. Tenant represents and warrants to Landlord that (i) the Subleases are in full force and effect, (ii) the Subleases have not been amended or otherwise modified except as set forth on said Schedule 2 , and will not be further amended or modified after the date hereof except as set forth above in this Paragraph 6, (iii) neither Tenant nor, to the best of Tenant’s knowledge any subtenant, is in default thereunder, (iv) no event has occurred that with notice, passage of time, or both, would constitute a default by either Tenant or, to the best of Tenant’s knowledge any subtenant, under any of the Subleases, and (v) the security deposits made under each Sublease and the current balances thereof held by Landlord are in the amounts set forth on said Schedule 2 . Tenant shall give Landlord prompt written notice if any representation or warranty made by it under this Paragraph 6 shall not remain accurate as of any date following the date of this Amendment. Promptly after the parties execution and delivery of this Amendment, Tenant shall obtain and deliver to Landlord an estoppel certificate from each Subtenant certifying that the matters set forth in clauses (i) through (v) above are true and correct, failing which Landlord shall have no obligation to accept the applicable Sublease as a direct lease and may terminate the same, without any liability of Landlord to Tenant or the respective Subtenant by reason thereof. Tenant shall indemnify, defend and hold Landlord harmless from and against all claims, demands, liabilities, losses, damages, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, to the extent caused by (i) any breach of Tenant’s representations and warranties under this Paragraph 6, or (ii) any failure of Tenant to perform its obligations under any Sublease arising prior to the Attornment Date applicable thereto. Landlord shall indemnify, defend and hold Tenant harmless from and against all claims, demands, liabilities, losses, damages, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, to the extent caused by any failure of Landlord to perform its obligations under any Sublease from and after the Attornment Date or Landlord’s termination of any Sublease other than as permitted pursuant above pursuant to this Paragraph 6. The rents under the Subleases shall be pro-rated between Landlord and Tenant as of the Attornment Date on a calendar month basis based on the actual number of days in the subject month.

7. Real Estate Brokers . Each party represents and warrants to the other party that it has negotiated this Amendment with Jones Lang LaSalle (“Landlord’s Broker”), representing Landlord, and Kidder Mathews (“Tenant’s Broker”), representing Tenant, and that such party has not authorized or employed, or acted by implication to authorize or employ, any other real estate broker or salesman to act for it in connection with this Amendment. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims by Tenant’s Broker and any other real estate broker or salesman that Tenant has authorized or employed, or acted by implication to authorize or employ, to act for Tenant in connection with this Amendment, for a commission, finder’s fee or other compensation as a result of Tenant’s entering into this Amendment. Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims by Landlord’s Broker and any other real estate broker or salesman that Landlord has authorized or employed, or acted by implication to authorize or employ, to act for Landlord in connection with this Amendment, for a commission, finder’s fee or other compensation as a result of Landlord’s entering into this Amendment

8. Authority; Survival . Tenant and each person executing this Amendment on behalf of Tenant hereby covenants and warrants that (a) Tenant is duly incorporated and validly existing under the laws of its state of incorporation, (b) Tenant has and is duly qualified to do business in the state in which the Building is located, (c) Tenant has full corporate power and authority to enter into this Amendment and to perform all of Tenant’s obligations under the Lease, as amended by this Amendment, and (d) each person (and all of the persons if more than one signs) signing this Amendment on behalf of Tenant is duly and validly authorized to do so. Landlord and each person executing this Amendment on behalf of Landlord hereby covenants and warrants that (a) Landlord is duly formed and validly existing under the laws of its state of formation, (b) Landlord has and is duly qualified to do business in the state in which the Building is located, to the extent such qualification is required pursuant to applicable law, (c) Landlord has full limited liability company

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power and authority to enter into this Amendment and to perform all of Landlord’s obligations under the Lease, as amended by this Amendment, and (d) each person (and all of the persons if more than one signs) signing this Amendment on behalf of Landlord is duly and validly authorized to do so. The representations, warranties and indemnities set forth in this Amendment shall survive the termination of the Lease.

9. No Offer . Submission of this instrument for examination and signature by Tenant does not constitute an offer to amend the Lease, or a reservation of or option to amend the Lease, and is not effective as a lease amendment or otherwise until execution and delivery by both Landlord and Tenant.

10. Lease in Full Force and Effect . Except as provided above, the Lease is unmodified hereby and remains in full force and effect. Without limitation of the foregoing, the provisions of Section 30(l) of the Lease (captioned “Attorneys’ Fees”) shall apply to any action or proceeding brought by either party against the other arising out of this Amendment, and nothing contained in this Amendment, including in Paragraph 4 above, shall prejudice either party’s right to recover thereunder from the other party hereto.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written.



LANDLORD:	TENANT:
SRI-WR ELLIOTT AVENUE LLC, a Delaware limited liability company	REALNETWORKS, INC., a Washington corporation
By: /s/ Walter E. Ingram Name: Walter E. Ingram Title: Executive Vice President & CFO	By: /s/ Rob Glaser Name: Rob Glaser Title: Interim CEO By: /s/ Tim Wan Name: Tim Wan Title: CFO

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LANDLORD ACKNOWLEDGMENT

LIMITED LIABILITY COMPANY

STATE OF WASHINTON    )
    )    ss.
COUNTY OF KING    )

On this the 2nd day of May, 2013, before me a Notary Public duly authorized in and for the said County in the State aforesaid to take acknowledgments personally appeared Walter Ingram known to me to be EVP & CFO of SRI-WR ELLIOTT AVENUE LLC,, one of the parties described in the foregoing instrument, and acknowledged that as such Officer, being authorized so to do, (s)he executed the foregoing instrument on behalf of said limited liability company as a free and voluntary act, and as the free and voluntary act of said limited liability company, for the uses and purposes therein set forth.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public

/s/ Amanda Smith

Printed Name

Amanda Smith

Residing at: Seattle

My Commission Expires: February 17, 2014

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TENANT ACKNOWLEDGMENT

CORPORATION

STATE OF WASHINGTON____________)

COUNTY OF KING__________________) ss:

On this the 2nd day of May, 2013, before me a Notary Public duly authorized in and for the said County in the State aforesaid to take acknowledgments personally appeared Tim Wan known to me to be CFO of RealNetworks, Inc., one of the parties described in the foregoing instrument, and acknowledged that as such officer, being authorized so to do, (s)he executed the foregoing instrument on behalf of said corporation as a free and voluntary act, and as the free and voluntary act of said corporation, for the uses and purposes therein set forth.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public

/s/ Lucca V. Merlino

Printed Name

Lucca V. Merlino

Residing at: Maple Valley, WA

My Commission Expires: 10/09/16

STATE OF WASHINGTON____________)

COUNTY OF KING__________________) ss:

On this the 2nd day of May, 2013, before me a Notary Public duly authorized in and for the said County in the State aforesaid to take acknowledgments personally appeared Rob Glaser known to me to be Interim CEO of RealNetworks, Inc., one of the parties described in the foregoing instrument, and acknowledged that as such officer, being authorized so to do, (s)he executed the foregoing instrument on behalf of said corporation as a free and voluntary act, and as the free and voluntary act of said corporation, for the uses and purposes therein set forth.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public

/s/ Lucca V. Merlino

Printed Name

Lucca V. Merlino

Residing at: Maple Valley, WA

My Commission Expires: 10/09/16

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EXHIBIT A

OUTLINE OF EACH PREMISES INCREMENT

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EXHIBIT B

OUTLINE OF ADREADY SUBLEASE AMENDED PREMISES

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EXHIBIT C

OUTLINE OF TURNER SUBLEASE SUBSTITUTE PREMISES

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SCHEDULE 1

IDENTIFICATION OF GENERATOR AND ROOFTOP EQUIPMENT

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SCHEDULE 2

SUBLEASES

Sublease dated 6/29/11 between Tenant and Hearst Seattle Media, LLC covering 10,000 square feet on the third floor of the Building through 9/30/14 (the “Hearst Sublease”). The security deposit made by the subtenant is $10,380.91, and the balance thereof held by Tenant is $10,380.91.

Sublease dated 11/21/11 between Tenant and AdReady, Inc. covering 11,354 square feet on the fourth floor of the Building through 9/30/14 (the “AdReady Sublease”). The security deposit made by the subtenant is $18,686.79, and the balance thereof held by Tenant is $18,686.79.

Sublease dated 4/7/11 between Tenant and Turner Construction Company covering 3,500 square feet on the fourth floor of the Building through 9/30/13 (the “Turner Sublease”). The security deposit made by the subtenant is $4,666.66, and the balance thereof held by Tenant is $4,666.66.

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Exhibit 10.2

OFFICE BUILDING LEASE

1501 FIRST AVENUE SOUTH LIMITED PARTNERSHIP/REALNETWORKS, INC.

TABLE OF CONTENTS


1.	LEASE OF PREMISES....................................................................................1


2.	DEFINITIONS..................................................................................................1


3.	EXHIBITS AND ADDENDUMS.....................................................................3


4.	DELIVERY OF POSSESSION.........................................................................4


5.	RENT.................................................................................................................5


6.	INTEREST AND LATE CHARGES................................................................9


7.	LETTER OF CREDIT.....................................................................................10


8.	TENANT’S USE OF THE PREMISES..........................................................10


9.	SERVICES AND UTILITIES.........................................................................11


10.	CONDITION OF THE PREMISES................................................................12


11.	CONSTRUCTION, REPAIRS AND MAINTENANCE................................13


12.	ALTERATIONS AND ADDITIONS..............................................................14


13.	TENANT IMPROVEMENTS; TENANT’S PROPERTY..............................15


14.	RULES AND REGULATIONS......................................................................15


15.	CERTAIN RIGHTS RESERVED BY LANDLORD......................................16


16.	ASSIGNMENT AND SUBLETTING............................................................16


17.	HOLDING OVER...........................................................................................18


18.	SURRENDER OF PREMISES.......................................................................18


19.	DESTRUCTION OR DAMAGE....................................................................19


20.	EMINENT DOMAIN......................................................................................19


21.	INDEMNIFICATION......................................................................................20


22.	INSURANCE..................................................................................................21


23.	WAIVER OF SUBROGATION......................................................................23


24.	SUBORDINATION AND ATTORNMENT....................................................23


25.	TENANT ESTOPPEL CERTIFICATES.........................................................23


26.	TRANSFER OF LANDLORD’S INTEREST................................................24


27.	DEFAULT........................................................................................................24


28.	BROKERAGE FEES......................................................................................27


29.	NOTICES........................................................................................................27


30.	GOVERNMENT ENERGY OR UTILITY CONTROLS...............................27


31.	QUIET ENJOYMENT.....................................................................................27


32.	OBSERVANCE OF LAW................................................................................28


33.	FORCE MAJEURE.........................................................................................28


34.	CURING TENANT’S DEFAULTS.................................................................28


35.	SIGNAGE........................................................................................................29


36.	HAZARDOUS WASTE..................................................................................29


37.	EMPLOYER INFORMATION FORM -- IMMIGRANT INVESTOR PROGRAM.....................................................................................................31


38.	OPTION TO TERMINATE.............................................................................31


39.	OPTION TO RENEW.....................................................................................31


40.	EXCLUSIVE OPTION TO LEASE ENTIRE THIRD FLOOR.....................32


41.	RIGHT OF FIRST REFUSAL FOR THIRD FLOOR....................................33


42.	PARKING AND KING STREET SHUTTLE.................................................34


43.	MISCELLANEOUS........................................................................................34

OFFICE BUILDING LEASE

This Office Building Lease by and between 1501 First Avenue South Limited Partnership, a Washington limited partnership (“Landlord”) and Realnetworks, Inc., a Washington corporation (“Tenant”) is dated this 29th day of April, 2013 (the “Effective Date”).

1. LEASE OF PREMISES

In consideration of the Rent, and the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises which is located on a portion of the real property legally described on Exhibit A attached hereto and incorporated herein (the “Property”). The Premises are located within the Building and is part of the Project. Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees to use the Common Areas. Pursuant to a separate agreement between Tenant and Landlord’s affiliate, Tenant and its employees shall have the right to use certain exercise facilities within the building located at 1531 Utah Street, Seattle, Washington (the “Exercise Facilities”) so long as this Lease is in effect.

2. DEFINITIONS

As used in this Lease, the following terms shall have the following meanings:

2.1 Base Rent: See Section 2.8

2.2 Brokers: The Landlord is represented by CBRE, Inc. and the Tenant is represented Kidder Mathews.

2.3 Building : The improvements on the Property known as Phase I (defined in Section 2.11) with a street address of 1501 First Avenue, Seattle, Washington.

2.4 Commencement Date : Three (3) days after Landlord notifies Tenant of the Substantial Completion (as defined in Exhibit E hereof) of the Landlord Improvements, which Landlord and Tenant estimate will occur ninety (90) days following the execution of this Lease and Architect’s delivery of the Final Plans (as such terms are defined in Exhibit E attached hereto and incorporated herein), the end of which period is estimated to be August 15, 2013 (the “Estimated Commencement Date”). Landlord and Tenant shall confirm the actual date for the Estimated Commencement Date in writing upon Architect’s delivery of the Final Plans.

2.5 Common Areas: The plaza, Building lobby, common corridors and hallways, restrooms, parking areas, stairways, elevators, showers and locker areas, and other areas of the Project that are generally available for use by other tenants or the general public (the “Common Areas”). For the avoidance of doubt, the Common Areas shall not include the Exercise Facilities or any portion of the common area of the building located at 1531 Utah Street, Seattle, Washington. Landlord shall have the right to regulate or restrict the use of the Common Areas.

2.6 Expiration Date : Eleven years after the Commencement Date, estimated to be August 14, 2024.

2.7 Landlord’s Mailing Address:

1501 First Avenue South Limited Partnership

270 South Hanford Street, Suite 100

Seattle, Washington 98134

Attention: Don Ayres

Tenant’s Mailing Address:

Prior to the Commencement Date:

Realnetworks, Inc.

2601 Elliott Avenue

Seattle, WA 98121

Attention: David Stout and Michael Parham

After the Commencement Date:

Realnetworks, Inc.

1501 First Avenue, Suite 600

Attention: General Counsel

2.8 Installments of Base Rent: The monthly base rent rate shall be as follows (“Base Rent”):



MONTHLY BASE RENT SCHEDULE
Period after the Commencement Date	$ Rate/RSF/year	Base Rent per month
Months 1 – 4	$0	$0.00
Months 5 –12	$26.00	$185,631.33
Months 13 – 24	$27.00	$192,771.00
Months 25 – 36	$28.00	$199,910.67
Month 37	$0	$0.00
Months 38 – 48	$29.00	$207,050.33
Months 49 – 51	$0	$0.00
Months 52 – 60	$30.00	$214,190.00
Months 61 – 63	$0	$0.00
Months 64 – 72	$31.00	$221,329.67
Months 73	$0	$0.00
Months 74 – 84	$32.00	$228,469.33
Month 85	$0	$0.00
Months 86 – 96	$33.00	$235,609.00
Month 97	$0	$0.00
Months 98 – 108	$34.00	$242,748.67
Month 109	$0	$0.00
Months 110 – 120	$35.00	$249,888.33
Month 121	$0	$0.00
Months 122 – 132	$36.00	$257,028.00

The Base Rent is due the first day of each calendar month during the Term. Provided, however, Tenant shall pay Landlord the fifth month’s Base Rent when Tenant executes the Lease.

2.9 Parking and Shuttle Service: See Article 42.

2.10 Premises: That portion of the Building consisting of 85,676 Rentable Square Feet as shown on Exhibit B (the “Premises”), located on floors four, five and six of the Building, and, upon execution of this Lease to be commonly known as “Suite 600.” For the three month period following Substantial Completion, Tenant shall have the right to review and comment on Landlord’s measurement of the Premises and, in the event of a good faith dispute regarding the Rentable Square Feet for the Premises, Landlord and Tenant agree to meet in good faith to resolve such issue. The entire Building consists of 157,816 Rentable Square Feet. Tenant’s pro rata share (“Tenant’s Pro Rata Share”) shall be a percentage, the numerator of which is the total Rentable Square Feet for the Premises and the denominator of which is the total Rentable Square Feet in the Project, subject to adjustment as set forth in Section 15.2.

2.11 Project: The project is a phased retail and office complex comprised of the Building, a common area plaza and parking (“Phase I”), along with a second office building currently under construction (“Phase II”). The term “Project” refers to Phase I until Landlord elects, as provided in Section 15.2, to include Phase II. Thereafter, the term “Project” shall refer to Phase I and Phase II.

2.12 Rentable Square Feet: The term “Rentable Square Feet” means and shall be calculated in accordance with BOMA 1996 standards (ANSI Z65.1-1996) and accompanying guidelines.

2.13 Letter of Credit: See Article VII.

2.14 State: The State of Washington.

2.15 Tenant’s Use Clause: See Article 8.

2.16 Term: The period commencing on the Commencement Date and expiring at midnight on the Expiration Date.

3. EXHIBITS AND ADDENDUMS

The exhibits and addenda listed below are incorporated by reference in this Lease.

3.1 Exhibit A Legal Description of the Property

3.2 Exhibit B Floor Plan showing the Premises

3.2.1 Exhibit B-1 Work Letter describing Landlord Improvements

3.3 Exhibit C Letter of Credit

3.3 Exhibit D Rules and Regulations

3.4 Exhibit E Landlord Improvements

3.5 Exhibit F Employer Affidavit

3.6 Exhibit G Janitorial Service

3.7 Exhibit H Exterior Signage

4. DELIVERY OF POSSESSION

4.1 Tenant shall be entitled to enter the Premises at any time after the Effective Date (the “Early Delivery Date”) for supervision and coordination of the construction of the Landlord Improvements, planning, measurement, construction of improvements, cabling, and installation of furniture, fixtures, inventory and equipment (“Tenant’s Early Occupancy”); provided that Tenant does not thereby unreasonably interfere with the completion of Landlord’s construction of the Landlord Improvements as a result of such occupancy. All provisions of this Lease shall be applicable during Tenant’s Early Occupancy except for Tenant’s maintenance obligation, the payment of Base Rent, payment for utilities, and the payment of Additional Rent for Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses.

4.2 Landlord shall deliver the Premises to Tenant on a “turn-key” basis condition and Landlord shall complete the construction and installation of certain improvements to the Premises (collectively the “Landlord Improvements”) in accordance with the Schematic Drawings and Specification Letter provided by SkB Architects, dated April 10, 2013 and attached hereto as Exhibit B (the “Work Letter”), and depicted on Exhibit B-1 (the “Floor Plan”). The aforesaid turn-key condition shall include but not be limited to the following: all partitioning, air conditioned, ceiling in place where indicated, lighting in place, sink and counters in place, all doors and jambs, all locks and hardware, all electrical wiring and outlets, all phone outlets, plumbing, structural work, painting/wall covering, flooring and carpet where shown.

4.3 The Estimated Commencement Date set forth in Section 2.4 of this Lease represents an estimate of the actual Commencement Date. The Commencement Date shall be the date that is three (3) days after Landlord delivers written notice to Tenant of the Substantial Completion (defined in Exhibit E ) of the Landlord Improvements. If the Commencement Date is later than the Estimated Commencement Date specified in Section 2.4 above, this Lease shall not be void or voidable but Tenant shall receive a credit for Base Rent as set forth in Section 4.4 below. Landlord and Tenant shall confirm the Commencement Date in writing after the actual Commencement Date has been established. Upon mutual execution of this Lease, Landlord shall commence construction of the Landlord Improvements and exercise commercially reasonable efforts to diligently prosecute the same to completion.

4.4 If the Commencement Date has not occurred by the Estimated Commencement Date for any reason other than Tenant Delays or Changes (each as defined in Exhibit E ) or a Force Majeure Delay (defined below), then Tenant shall be entitled to two (2) days of free Base Rent for every one (1) day after the Estimated Commencement Date until the Commencement Date has occurred, which free Base Rent shall be applied against the most immediate calendar months of the Term for which Base Rent is actually payable (i.e. months that do not have $0.00 Base Rent). For purposes of this Lease, the term "Force Majeure Delays" means any actual delay in the completion of construction of the Landlord Improvements to the extent resulting from any of the following (i) any act of God, fire or other casualty, or (ii) the failure of a governmental entity to issue any applicable permit or approval for the construction of the Landlord Improvements on or before June 1, 2013, provided Landlord submits application for such permits and approvals on or before May 15, 2013 and uses commercially reasonable efforts to timely obtain such permits and approvals.

4.5 Landlord will make a good faith effort to complete that portion of the Landlord Improvements known as the MDF and IDF spaces not less than three (3) weeks prior to the Estimated Commencement Date for the purpose of equipment installations by Tenant. Upon completion, the MDF and IDF spaces shall be fully enclosed, lockable, dust free and include all finishes, permanent power, lighting, and provided temporary or permanent cooling.

5. RENT

5.1 Definition and Payment of Rent. Tenant shall pay Landlord without notice the Base Rent, Tenant’s Pro Rata Share of Additional Rent, and any other amounts due under this Lease (collectively, the “Rent”) from and after the Commencement Date, without deduction or offset in lawful money of the United States of America in advance on or before the first day of each month (or at other dates specified in this Lease) during the Term at Landlord’s Notice Address set forth Section 2.7, or to such other party or at such other place as Landlord may hereafter from time to time designate in writing. Rent for any partial month at the beginning or end of the Term shall be prorated.

5.2 Additional Rent.

(a) Real Property Taxes . Tenant shall pay Landlord, as Additional Rent in the manner described below, an amount equal to Tenant’s Pro Rata Share of Real Property Taxes payable by Landlord for the Project in any full or partial calendar year. “Real Property Taxes” shall mean real and personal property taxes, assessments, including omit tax, and other governmental impositions and charges of every kind and nature, now or hereafter imposed, including surcharges with respect thereto and interest thereon, if Landlord, at its sole option, elects to amortize assessments over a period exceeding one year, which may during the Term of this Lease be levied, assessed, imposed, or otherwise become due and payable with respect to the Project, including the tenant improvements, and all improvements, fixtures, and equipment within the Project, the use, occupancy or possession thereof; any taxes levied or assessed upon or measured by the Premises or the Project, or any amounts received by Landlord in connection therewith or hereunder, but not including any federal or state net income, estate, or inheritance tax imposed upon the Landlord, all determined with respect to the period for which such taxes are (or would have been if timely levied) due and payable; and any taxes levied or assessed in lieu of, or as a substitute for, the foregoing in whole or part.

(b) Operating Expenses . Tenant shall pay Landlord as Additional Rent in the manner described below an amount equal to Tenant’s Pro Rata Share of the Project’s Operating Expenses payable by Landlord in any full or partial calendar year. “Operating Expenses” shall mean all expenses paid or incurred by Landlord for maintaining, operating and repairing the Project and the personal property used in conjunction therewith, including, without limitation, the costs of utility and other services not paid separately by Tenant or any other tenant of the Project, services of independent contractors, compensation, including employment taxes and fringe benefits, of all persons who perform duties exclusively in connection with the operation, maintenance and repair of the Project, its equipment and the Property upon which it is situated, insurance premiums, licenses, permits and inspection fees, commercially reasonable management fees not to exceed five percent (5%) of aggregate base rent payable by tenants within the Project, commercially reasonable legal and accounting expenses (excluding any such expenses incurred solely in connection with the occupancy of the Project by another tenant), amortization of capital improvements that Landlord reasonably anticipates will improve the operating efficiency of the Project, but the amortized

expense shall not exceed reasonably expected savings in operating costs resulting from such capital improvements, and any other expense or charge, which in accordance with generally accepted accounting and management practices would be considered an expense of maintaining, operating or repairing the Project, but excluding (i) costs of any special services rendered to individual tenants, including Tenant, for which a special charge is made, and (ii) the amortization of any capital improvements except as specifically provided above. For the avoidance of doubt, Operating Costs shall not include the costs or expenses related to the repair or restoration of the Premises, Building or Project as a result of a Casualty. To the extent services are provided to retail tenants of the Project that are not provided to office tenants of the Project or at service levels greater than similar services are provided to office tenants (i.e. trash removal), costs and expenses for such services, or the excess of such costs and services, shall be excluded from Operating Costs. Landlord acknowledges and agrees that the Project’s Operating Costs shall be limited to Operating Costs of the Building until such time that a certificate of occupancy has been issued for Phase II and not less than thirty percent (30%) of the Rentable Square Feet of office space within Phase II has been leased and occupied by tenant of Phase II.

(c) Common Area Maintenance Expenses . Tenant shall pay Landlord as Additional Rent in the manner described below an amount equal to Tenant’s Pro Rata Share of the Common Area Maintenance Expenses for the Project incurred or payable by Landlord for the Project in any partial or full calendar year. The terms “Common Area Maintenance Expenses” shall mean all expenses paid or incurred by Landlord for maintaining, operating and repairing the Common Areas, including, without limitation, the plaza, streets, parking areas, landscaping, including costs of obtaining services and products for maintaining, operating and repairing such Project common areas and the personal property used in conjunction therewith, services of independent contractors compensation, including employment taxes and fringe benefits, of all persons who perform duties exclusively in connection with the maintenance of Common Areas, seasonal decorations, activities and events. Landlord acknowledges that Tenant’s acceptance of the Lease is based on the condition and location of the Common Areas of the Project and Premises as of the Commencement Date herein. Landlord shall, at all times act in good faith and with due diligence to minimize interruption, reduction or discontinuation as to not unreasonably interfere with the ordinary conduct of Tenant’s business operations in the Premises. Landlord shall provide Tenant not less than 48 hours prior written notice specifying any alterations to be made and approximate time of completion. For the avoidance of doubt, Common Area Maintenance Expenses shall not include the costs or expenses related to the repair or restoration of the Common Areas as a result of a Casualty. Landlord acknowledges and agrees that the Project’s Common Area Maintenance Expenses shall be limited to Common Area Maintenance Expenses of the Building until such time that a certificate of occupancy has been issued for Phase II and not less than thirty percent (30%) of the Rentable Square Feet of office space within Phase II has been leased and occupied by tenant of Phase II.

(d) Manner of Payment . Tenant’s Pro Rata Share of Real Property Taxes, Operating Expenses, and Common Area Maintenance Expenses, sometimes collectively referred to herein as “Additional Rent”:

(1) Landlord may reasonably estimate in advance the amounts Tenant shall owe for Additional Rent for any full or partial calendar year of the Term. Tenant shall pay such estimated amounts of Additional Rent, on a monthly basis, on or before the first day of each such calendar month. Such estimate may be reasonably adjusted from time to time by Landlord.

Landlord estimates the Additional Rent for calendar year 2013 is approximately $8.52 per Rentable Square Foot of the Premises.

(2) Within ninety (90) days after the end of each calendar year, Landlord shall provide a statement (the “Statement”) to Tenant showing: (a) the amount of actual Additional Rent for such calendar year, with a listing of amounts for major categories of Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses, (b) any amount paid by Tenant toward such Additional Rent during such calendar year on an estimated basis and (c) a revised estimate of Tenant’s obligations for Additional Rent for the current calendar year.

(3) If the Statement shows that Tenant’s estimated payments were less than Tenant’s actual obligations for Additional Rent for such year, Tenant shall pay the difference. If the Statement shows an increase in Tenant’s estimated payments for the current calendar year, Tenant shall pay the difference between the new and former estimates, for the period from January 1 of the current calendar year through the month in which the Statement is sent. Tenant shall make such payments within thirty (30) days after Landlord sends the Statement.

(4) If the Statement shows that Tenant’s estimated payments exceeded Tenant’s actual obligations for Additional Rent, Tenant shall receive a credit for the difference against payments of Rent next due. If the Term shall have expired and no further Rent shall be due, Tenant shall receive a refund of such difference, within thirty (30) days after Landlord sends the Statement.

(5) So long as Tenant’s obligations hereunder are not materially adversely affected thereby, Landlord reserves the right to reasonably change, from time to time, the manner or timing of the foregoing payments. In lieu of providing one (1) Statement covering Real Property Taxes, Operating Expenses, and Common Area Maintenance Expenses, Landlord may provide separate statements, at the same or different times so long as all statements are delivered within ninety (90) days after the end of the subject calendar year. No delay by Landlord in providing the Statement, or separate statements, shall be deemed a default by Landlord or a waiver of Landlord’s right to require payment of Tenant’s obligations for actual or estimated Real Property Taxes, Operating Expenses, or Common Area Maintenance Expenses.

(e) Proration . If the Term commences other than on January 1, or ends other than on December 31, Tenant’s obligations to pay estimated and actual amounts towards Additional Rent for such first or final calendar year shall be prorated to reflect the portion of such years included in the Term. Such proration shall be made by multiplying the total estimated or actual, as the case may be, Additional Rent, for such calendar years by a fraction, the numerator of which shall be the number of days of the Term during such calendar year, and the denominator of which shall be 365. Other amounts payable or to be expended pursuant to this Lease on an annual or quarterly basis shall be similarly prorated.

(f) Landlord’s Records . The determination of Additional Rent shall be made by Landlord subject to Tenant’s rights hereunder to review and audit the same. Landlord or its agents shall keep records in reasonable detail showing all expenditures made or items enumerated above, which records shall be available for inspection by Tenant at Landlord’s offices in Seattle, Washington.

(g) Right to Review Books and Records .

(1) So long as Tenant is not then in default under this Lease, Tenant shall have the right (no more frequently than once per calendar year) to review Landlord's books and records pertaining to Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses for the preceding calendar year by giving Landlord written notice (an "Audit Notice") not more than six (6) months after receiving the Statement, and conducting such review not more than ninety (90) days after delivering the Audit Notice to Landlord (the "Audit Period"). As part of its right to review and audit Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses, Tenant shall have the right to review the measurement of Rentable Square Feet of the Project if there has been any increase or reduction of the aggregate Rentable Square Feet of the Project during the subject calendar year. If in Tenant's good faith opinion such review discloses an error in Landlord's books and records with regard to the matters included in Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses, or Landlord's calculation of Tenant's Pro Rata Share of Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses, Tenant may cause an audit of Landlord's books and records to be conducted by a third party accountant designated by Tenant and reasonably acceptable to Landlord, who does not represent and is not employed by either Landlord or Tenant on any other matters, is not a tenant of the Building, and is not conducting such audit on behalf of Tenant on a contingent fee basis.

(2) If an audit discloses errors or discrepancies in the amount of the Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses charged to Tenant by Landlord, Tenant shall provide Landlord with a written report specifying with reasonable detail the alleged errors and discrepancies. Upon the completion of any audit of Landlord's books and records pursuant to this Section, Tenant will provide (or cause its auditor to provide) Landlord with a true and correct copy of the audit report and all supporting information used by the auditor in compiling its report. If any such audit discloses Tenant overpaid its Pro Rata Share of Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses for the subject year, the amount of the overpayment shall be credited against the Base Rent and Additional Rent next coming due under this Lease, or if the results of the audit are not disclosed until the Lease Term has expired, Landlord shall pay Tenant the amount of the overpayment within thirty (30) days after the results of the audit have been disclosed to both parties. If any such audit discloses Tenant underpaid its Pro Rata Share of Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses during the subject year, Tenant shall pay Landlord the amount of the underpayment within thirty (30) days after the results of the audit have been disclosed to both parties. Tenant shall pay all costs and expenses of the audit; however, if the audit shows Landlord overstated any of the Operating Expenses, Common Area Maintenance and Property Taxes for the subject Year by more than three percent (3%), Landlord shall reimburse Tenant for the actual costs and expenses of the audit incurred by Tenant. The results of the audit and any information obtained by Tenant from the audit or Tenant's review of Landlord's books and records shall be kept confidential and shall not be disclosed to any person or entity (including without limitation any other tenant of the Building), unless Tenant is required by law or court order to disclose such information. Landlord, at its option, may require that Tenant's auditor execute a reasonable confidentiality agreement incorporating the terms and conditions of this Section.

(3) Any review or audit of Landlord's books and records pertaining to Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses shall occur at the office of Landlord's property manager in the Seattle, Washington area, and shall occur during the normal business hours of Landlord's property manager, unless otherwise agreed in writing by Landlord. Landlord shall make Landlord's books and records pertaining to Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses readily available for such

examination. A failure by Tenant to (i) timely provide the Audit Notice to Landlord, or (ii) cause the review or audit of Landlord's books and records for a calendar year to be conducted prior to the expiration of the applicable Audit Period shall be deemed a waiver of Tenant's right to contest Real Property Taxes, Operating Expenses and Common Area Maintenance Expenses for that calendar year and Tenant shall have no further right to review or audit Landlord's books and records with respect to such calendar year.

6. INTEREST AND LATE CHARGES

If Tenant fails to pay when due Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it is due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of such installment; provided, however, the late charge for the first late payment of Rent shall be equal to five percent (5%) of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant’s default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease.

7. LETTER OF CREDIT

Upon execution of the Lease, Tenant will provide Landlord with a sight draft irrevocable letter of credit issued by a bank acceptable to Landlord in its sole discretion, in the amount of Three Million Dollars ($3,000,000) in the form attached hereto and incorporated herein as Exhibit C as security for the full and faithful performance of Tenant’s obligations under this Lease (the “LC”). Landlord acknowledges and agrees that Bank of America N.A. is an acceptable issuer of the LC and the form of LC attached hereto as Exhibit C is acceptable to Landlord. So long as Tenant is not then in default under the Lease as of the subject anniversary of the Commencement Date, commencing as of the second anniversary of the Commencement Date, the amount of the LC shall be reduced by $300,000 as of each anniversary of the Commencement Date, provided, the amount of the LC shall not be less than One Million Two Hundred Thousand Dollars ($1,200,000). The LC shall be (i) unconditional and irrevocable, (ii) permit partial draws by Landlord at any time upon notice by Landlord that Tenant is in default under this Lease beyond the applicable cure period, and (iii) have a term of one (1) year with automatic annual renewals throughout the Lease Term. If Tenant defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of Rent, the repair of damage to the Premises caused by Tenant and/or cleaning the Premises upon termination of this Lease, and the such default has not been cured within any applicable cure period, Landlord may draw on the LC for the payment of any Rent or any other sum due and payable to Landlord under the Lease as a result of such default. Upon any draw upon the LC by Landlord, Tenant shall, upon demand by Landlord, restore the LC to its amount prior to such draw. If Tenant shall fails to restore the LC as aforesaid following a draw, or fails to replace the LC with an approved LC not less than thirty (30) days prior to the expiration date of the subject LC, then Landlord shall have the right to draw against the full amount of the LC and thereafter hold the same as security for Tenant’s obligations under this Lease for the entire Lease Term. Landlord

shall return the LC to Tenant or the remaining proceeds of the LC, on or before the date that is ten (10) business days after the expiration of this Lease or any earlier termination of this Lease and no uncured default of Tenant’s obligations hereunder are outstanding at such time.

8. TENANT’S USE OF THE PREMISES

8.1 Permitted Use. Tenant shall use the Premises solely for general office use and any other use consistent with software development, audio and video production, and media distribution.

8.2 Tenant shall not use or occupy the Premises in violation of law or the certificate of occupancy issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or of occupancy; provided, however, Landlord represents and warrants to Tenant that the Permitted Uses is permitted by applicable law as of the Effective Date without the requirement of any special use permit, variance or similar governmental approval. Tenant, at Tenant’s own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant’s use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be a conclusive determination of that fact as between Landlord and Tenant. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or Property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the Insurance Services Office or any other organization performing a similar function; provided, however the foregoing shall not apply to the extent Tenant’s use of the Premises is consistent with the Permitted Use. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant’s failure to comply with the provisions of this Article; provided, however the foregoing shall not apply to the extent Tenant’s use of the Premises is consistent with the Permitted Use. Tenant shall not do or permit anything to be done in or about the Premises or the Project which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Project. Tenant shall not commit or suffer to be committed any waste in or upon the Premises or the Project.

9. SERVICES AND UTILITIES

9.1 Landlord agrees to furnish to the Premises during generally recognized business days from 7:00 a.m. to 6:00 p.m. Monday through Friday, excluding legal holidays, and from 7:00 a.m. to 12:00 p.m. on Saturday, and during hours determined by Landlord in its sole discretion, and subject to the Rules and Regulations of the Building or Project, electricity for desk top office equipment, personal computers, office copying equipment, and heating, ventilation and air conditioning (“HVAC”) as required in Landlord’s judgment for the comfortable use and occupancy of the Premises. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant of not less than forty-eight (48) hours in advance of the requested usage. Tenant shall pay Landlord’s charges (current charge $50 per hour per floor) therefore on demand. Tenant shall have access to the Building twenty-four (24) hours a day three

hundred and sixty-five (365) days a year during the Term via secured key cards. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss of or injury to property or business, however occurring, through or in connection with or incidental to failure to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, operation and maintenance thereof shall be paid by Tenant to Landlord upon demand by Landlord. Notwithstanding the foregoing, Tenant shall have the right to enter into separate contracts for the maintenance and repair of supplemental HVAC equipment and systems that service the MDF and IDF spaces with the Landlord’s then current HVAC maintenance company, which as of the Effective Date, is MacDonald Miller. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water in excess of that usually furnished or supplied for the use of premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which consent shall be in Landlord’s sole discretion. Landlord will install an electrical current submeter in the Premises to measure the amount of electric current consumed by Tenant. The cost of any such electrical meter maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such actual electric current consumed as shown by said submeters, at the rates charged for such services by the local public utility.

9.2 Landlord shall furnish elevator service, lighting replacement for Building standard lights, restroom supplies, window washing, security and janitor services in a manner that such services are customarily furnished to comparable office buildings in the area. The janitorial services to be provided by Landlord are further described in Exhibit G attached hereto and incorporated herein by reference.

10. CONDITION OF THE PREMISES

Tenant shall accept the Premises in its then “AS IS” condition on the Commencement Date, provided that Landlord, at its sole expense, shall cause the Premises, including without limitation all Building systems and equipment (including but not limited to electrical, mechanical, fire protection, heating, air conditioning, ventilation, water, sewer, lights and light ballasts) and elevators servicing the Premises and the Building to be in good order and good operating condition, in compliance with all applicable Legal Requirements (including, without limitation, the Americans with Disabilities Act), and completion of all Landlord Improvements, including any punchlist or corrective work following Substantial Completion. No promise of Landlord to alter, remodel, repair or improve the Premises, the Building or the Project and no representation implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including, without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or its Broker, other than as may be contained herein (including any exhibits, schedules or addenda to this Lease) or in a separate writing signed by Landlord. Notwithstanding any conflicting provision of this Lease,

Landlord represents and warrants to Tenant that as of the Commencement Date (a) the Common Areas will comply with the Americans with Disabilities Act and any similar local laws throughout the Term, and (b) the Permitted Use is allowed under all land use, zoning or similar laws and governmental regulations without any special use permit, variance or similar governmental approval.

11. CONSTRUCTION, REPAIRS AND MAINTENANCE

11.1 Landlord’s Obligations.

(a) Landlord shall maintain in good order, condition, and repair all components of the Building and all other portions of the Project except for portions of the Premises that are the responsibility of Tenant pursuant to this Lease.

(b) Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant’s obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord’s making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant’s lease or required by law to make in or to any portion of the Project, Building or the Premises.

11.2 Tenant’s Obligations.

(a) Tenant at Tenant’s sole expense shall, except for services furnished by Landlord pursuant to Article 9 hereof, maintain the interior spaces of the Premises in good order, condition and repair, including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes and fixtures, electrical wiring, switches and fixtures, and special items and equipment installed by or at the expense of Tenant to the extent the same are located within the interior of the Premises.

(b) Tenant shall be responsible for all repairs to the Premises, Building and Project and the facilities and systems thereof that are damaged as a result of (ii) the installation, removal, use or operation of Tenant’s Property (as defined in Article 13) in the Premises, (ii) the moving of Tenant’s Property into or out of the Building, or (iii) the negligence or willful misconduct of Tenant, its agents, contractors or employees.

(c) If Tenant fails to maintain the Premises in good order, conditions and repair as required herein, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant fails to commence such work within five (5) business day after receipt of written notice from Landlord and diligently prosecute such work to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the prime commercial rate then being charged by Bank of America plus 2 percent (2%) per annum, from the date of such work, but not to exceed the maximum rate then allowed by law.

(d) Tenant shall do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to Tenant’s maintenance obligations as set forth herein.

(e) Waiver by Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord’s expense.

(f) Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord’s structural engineer. The cost of any such determination made by Landlord’s structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which causes noise or vibration to such a degree as to be objectionable to Landlord or other tenants of the Building.

(g) Tenant shall use reasonable efforts to notify Landlord of any damage to or defective condition in any part or appurtenance of the Building’s mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises that is known to Tenant.

(h) Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for reasonable wear and tear, and for alterations and improvements Landlord has required that Tenant remove pursuant to Section 12 and Section 18.1. Any damage to the Premises, including any structural damage, resulting from Tenant’s use or from the removal of Tenant’s fixtures, furnishings and equipment shall be repaired by Tenant at Tenant’s expense.

12. ALTERATIONS AND ADDITIONS

12.1 Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord’s consent will not be unreasonably withheld. Landlord’s consent may be conditioned on Tenant’s removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. Notwithstanding the foregoing, Landlord consent shall not be required in connection with any cosmetic, non-structural additions and alterations to the Premises (collectively " Cosmetic Alterations ") that do not affect (i) the exterior appearance of the Premises or Building, or (ii) the Building's electrical, ventilation, plumbing, elevator, mechanical, air conditioning or other systems; provided that Tenant gives Landlord not less than five (5) business days prior notice of such Cosmetic Alterations; provided further that no notice to Landlord shall be required for the hanging of art or other typical office decorations, the posting of required workplace notices, and the installation of whiteboards. Tenant shall otherwise comply with all other terms of this Section 12 in connection with the making of such Cosmetic Alterations. All work with respect to any addition, alteration or improvement shall: (i) be done in a good and workmanlike manner, (ii) be diligently prosecuted to completion, and (iii) be timely paid in accordance with applicable contracts.

12.2 Tenant shall pay the costs of any work done on the Premises pursuant to Section 12.1 and shall keep the Premises, Building and Project free and clear of liens of any kind. Tenant shall indemnify, defend against and keep Landlord free and harmless from all liability, loss, damage, costs, attorneys’ fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant.

12.3 Tenant shall keep Tenant’s leasehold interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before

that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord’s interest in the Premises, Building or the Project, and Landlord shall have the right to enter the Premises and post such notices at any reasonable time.

12.4 Unless their removal is required by Landlord as provided in Section 12, all additions, alterations and improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenant shall have the right to remove and retain any equipment, machinery and trade fixtures subject to Tenant’s repair of any damage to the Premises caused by such removal.

13. TENANT’S PROPERTY AND SPACE PLANNING ALLOWANCE

13.1 All movable partitions, business and trade fixtures, machinery and equipment, office equipment, communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Premises (collectively “Tenant’s Property) shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal.

13.2 Tenant shall comply with all applicable laws and regulations with respect to all computer, communications and data cables and similar installations ("Cables") installed by Tenant within the Premises or anywhere in the Building outside the Premises. At least thirty (30) days prior to the expiration or sooner termination of this Lease, Landlord may elect by written notice to tenant to either (i) retain any or all of the Cables, or (ii) require Tenant, at Tenant's sole cost and expense, to remove any or all of the Cables and restore the Premises or the Building, as the case may be, to their condition existing prior to the installation of the Cables. Landlord acknowledges and agrees that Tenant shall have until the date that is ten (10) business days after the termination or expiration of this Lease in which to remove such Cables and restore the Premises or the Building as aforesaid.

13.3 In connection with the Landlord Improvements, Landlord will provide Tenant with a space planning allowance in an amount up to $0.15 per Rentable Square Foot of the Premises, which allowance shall be disbursed to Tenant (or directly to the third-party provider) within five (5) business days after Landlord’s receipt of reasonable documentation evidencing Tenant’s costs for space planning within the Premises.

14. RULES AND REGULATIONS

Tenant, including, without limitation, its officers, partners, members, agents, employees and independent contractors, shall comply with the rules and regulations attached hereto as Exhibit D and incorporated herein and with such reasonable modifications thereof and additions thereto as Landlord may from time to time make. Landlord shall use commercially reasonable efforts to enforce such rules and regulations but shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project. In the event of any conflict between this Lease and such rules and regulations, the provisions of this Lease shall control.

15. CERTAIN RIGHTS RESERVED BY LANDLORD

15.1 Landlord reserves the following rights, exercisable without liability to Tenant for (1) causing an actual or constructive eviction from the Premises, or (2) disturbing Tenant’s use or possession of the Premises:

(a) To name the Building and Project and to change the name or street address of the Building or Project;

(b) To install and maintain all signs on the exterior and interior of the Building and Project;

(c) To have pass keys to the Premises and all doors within the Premises, excluding Tenant’s vaults and safes, provided, however, Landlord shall be responsible for, and reimburse, indemnify and hold Tenant harmless from, any damages or liabilities incurred by Tenant as a result of entry into the Premises by Landlord, its agents, employees or contractors in connection with the use of such pass keys;

(d) At any time during the Term, and on reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six months of the Term, to show the Premises to prospective tenants thereof; and

(e) To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord’s interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in any emergency) to minimize interference with Tenant’s business in the Premises in the course of any such entry.

15.2 The Landlord reserves the right in its sole and absolute discretion to include Phase II in the Project after Phase II is completed, which will result in changes to the Common Areas and Tenant’s Pro Rata Share with respect to the Project.

16. ASSIGNMENT AND SUBLETTING

16.1 No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Article 16.

16.2 Tenant shall not, without the prior written consent of Landlord, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void.

16.3 If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business

background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall have the option, exercisable by notice given to Tenant within twenty (20) days after Tenant’s notice is given, to terminate the lease with respect to the portion of Premises that are proposed to be assigned or sublet. If Landlord does not exercise such option, Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions:

(a) Landlord shall have the right to approve such proposed assignee or subtenant, which approval shall not be unreasonably withheld, conditioned or delayed;

(b) The assignment or sublease shall be on the same material terms set forth in the notice given to Landlord, which terms shall include all of Tenant’s costs associated with such assignment or sublease described in Section 16.3(e) below;

(c) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord;

(d) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained; and

(e) Seventy-five percent (75%) of any sums or other economic consideration received by Tenant as a result of such assignment or subletting, however denominated under the assignment or sublease, which exceed, in the aggregate, (i) the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) any real estate brokerage commissions or fees, attorney’s fees payable in connection with such assignment or subletting, plus (iii) the costs of any improvements made to the Premises in connection with such assignment or subletting, plus (iv) the cost or expense of any other concessions made by Tenant in connection with such assignment or subletting, which shall be paid to Landlord as additional rent under this Lease within ten (10) business days after receipt by Tenant, without affecting or reducing any other obligations of Tenant under this Lease.

16.4 Notwithstanding the provisions of paragraphs 16.3(a) and 16.3(b) above, Tenant shall have the right to assign this Lease or sublet the Premises or any portion thereof, without Landlord’s consent and without application of any recapture or termination option to Landlord, to any business entity which controls, is controlled by or is under common control with Tenant, or to any business entity resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant’s business as a going concern, provided that (i) the assignee or sublessee assumes, in full, the obligations of Tenant under this Lease, (ii) Tenant remains fully liable under this Lease, and (ii) the use of the Premises under Article 8 remains unchanged. Notwithstanding anything to the contrary in this Section 16, Landlord’s consent shall not be required in connection with the transfer of any stock of Tenant so long as the stock of Tenant is listed for trading on the American Stock Exchange or the New York Stock Exchange or authorized for quotation on the NASDAQ National Market or other nationally recognized stock exchange and the provisions of Sections 16.2 and 16.3 above shall not apply to such transfers of Tenant’s stock.

16.5 No subletting or assignment shall release Tenant of Tenant’s obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder except as may be expressly provided in any writing signed by Landlord. The acceptance of Rent by Landlord from any other person shall not be deemed to be a

waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease.

16.6 If Tenant assigns the Lease or sublets the Premises or requests the consent of Landlord to any assignment or subletting, Tenant shall, upon demand, reimburse Landlord for any attorneys’ fees reasonably incurred by Landlord in connection with such request.

17. HOLDING OVER

If after expiration of the Term, Tenant remains in possession of the Premises, Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to Term and Base Rent), but the installments of monthly Base Rent payable by Tenant during such holdover shall be equal to one hundred fifty percent (150%) of the installments of monthly Base Rent payable by Tenant at the expiration of the Term. Such Base Rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, it shall give the other party not less than thirty (30) days advance written notice of the date of termination.

18. SURRENDER OF PREMISES

18.1 Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by fire or other casualty and (iii) loss by condemnation. Tenant shall, on Landlord’s request, remove Tenant’s Property on or before the Expiration Date and promptly repair all damage to the Project, Building or Premises caused by such removal. Tenant shall also remove those portions of the Landlord Improvements it agreed to remove prior to approval of the Final Plans.

18.2 If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant’s Property left on the Premises shall be deemed to be abandoned, and at Landlord’s option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant’s Property, the cost of removal, including repairing any damage to the Premises or Building caused by such removal shall be paid by Tenant. On the Expiration Date, Tenant shall surrender all keys to the Premises.

19. DESTRUCTION OR DAMAGE

19.1 If all or any portion of the Premises becomes untenantable by fire or other casualty to the Premises or the Building (collectively a “ Casualty ”), Landlord, with reasonable promptness, shall cause a general contractor selected by Landlord to provide Landlord and Tenant with a written estimate of the amount of time required using standard working methods to substantially complete the repair and restoration of the Premises and any Common Areas necessary to provide access to the Premises (“ Completion Estimate ”). Landlord shall deliver the Completion Estimate to Tenant within forty five (45) days after the subject Casualty. If the Completion Estimate indicates that the Premises or any Common Areas necessary to provide access to the Premises cannot be made

tenantable within 270 days after the date of the Completion Estimate, then either party shall have the right to terminate this Lease upon written notice to the other within 30 days after receipt of the Completion Estimate. In addition, Landlord, by notice to Tenant within 90 days after the date of the Casualty, shall have the right to terminate this Lease if: (1) the Premises have been materially damaged and there is less than 2 years of the Term remaining on the date of the Casualty; (2) any mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (3) a material uninsured loss to the Building or Premises occurs.

19.2 If this Lease is not terminated, Landlord shall use commercially reasonable efforts to promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, restore the Premises and Common Areas. Such restoration shall be to substantially the same condition that existed prior to the Casualty, except for modifications required by law or any other modifications to the Common Areas deemed desirable by Landlord that do not materially affect the use of the Premises. Tenant shall have the right to apply any proceeds payable to Tenant under Tenant’s Insurance in Tenant’s sole discretion. In no event shall Landlord be required to spend more for the restoration than the proceeds received by Landlord, whether insurance proceeds or proceeds from Tenant. Landlord shall not be liable for any inconvenience to Tenant, or injury to Tenant’s business resulting in any way from the Casualty or the repair thereof. From the date of the subject Casualty until the date the Project and Premises are restored as required herein, the Rent shall abate for the portion of the Premises that is untenantable, as may be reasonably determined by Tenant.

20. EMINENT DOMAIN

20.1 If the whole of the Project is lawfully taken by condemnation or in any other manner for any public or quasi-public purpose, this Lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the Project, Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (i) Tenant shall have the right to terminate this Lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken or the remaining area of the Premises is not practical for Tenant to continue operation of its business, as may be reasonably determined by Tenant, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days after the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the thirtieth (30th) day after either such notice. The Rent shall be prorated to the date of termination. If this Lease continues in force upon such partial taking, the Base Rent and Tenant’s Pro Rata Share of Additional Rent shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project.

20.2 In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord’s award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant’s personal property.

20.3 In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as practicable to its condition prior to the condemnation or taking, but only to the extent of building standard finishes.

Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Tenant Improvements and Tenant’s Property.

21. INDEMNIFICATION

21.1 Tenant shall indemnify and hold Landlord harmless against and from liability and claims of any kind for loss or damage to property of Tenant or any other person, or for any injury to or death of any person, to the extent arising out of: (1) Tenant’s use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done in, on or about the Premises; (2) any breach or default by Tenant of any of Tenant’s obligations under this Lease; (3) the use of the Common Areas, and other facilities that are in the Project by the Tenant’s agents, employees, independent contractors and invitees, (4) the use of the shower and locker room in the Building and/or the use of the Exercise Facilities by the Tenant’s employees, or (5) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitees or independent contractors. Tenant shall at Tenant’s expense, and by counsel reasonably satisfactory to Landlord, defend Landlord in any action or proceeding arising from any such claim and shall indemnify Landlord against all costs, attorneys’ fees, expert witness fees and any other expenses incurred in such action or proceeding. Notwithstanding any conflicting provision of this Lease, Tenant shall not have any obligation to indemnify Landlord pursuant to the foregoing provisions of this Section 21.1 or any other provision of this Lease to the extent such liability, damage, loss, claim, cost or expense arises from the negligence or otherwise tortious act or omission of Landlord, its employees, agents, invitees or contractors.

21.2 Landlord shall indemnify and hold Tenant harmless against and from liability and claims of any kind for loss or damage to property of Landlord or any other person, or for any injury to or death of any person, to the extent arising out of: (1) access, use or occupancy of the Premises by anyone other than Tenant, Tenant’s invitees, employees, independent contractors or agents; (2) any breach or default by Landlord of any of Landlord’s obligations under this Lease; (3) the use of the Common Areas, and other facilities that are in the Project by anyone other than Tenant, Tenant’s invitees, employees, independent contractors or agents; or (4) any negligent or otherwise tortious act or omission of Landlord, its agents, employees or independent contractors. Landlord shall at Landlord’s expense, and by counsel reasonably satisfactory to Tenant, defend Tenant in any action or proceeding arising from any such claim and shall indemnify Tenant against all costs, attorneys’ fees, expert witness fees and any other expenses incurred in such action or proceeding. Notwithstanding any conflicting provision of this Lease, Landlord shall not have any obligation to indemnify Tenant pursuant to the foregoing provisions of this Section 21.2 or any other provision of this Lease to the extent such liability, damage, loss, claim, cost or expense arises from the negligence or otherwise tortious act or omission of Tenant, its employees, invitees, agents, or contractors.

21.3 When the claim is caused by the joint negligence or willful misconduct of Tenant and Landlord or Tenant and a third party unrelated to Tenant (except Tenant’s agents, officers, employees, independent contractors or invitees), Tenant’s duty to indemnify and defend shall be proportionate to Tenant’s allocable share of joint negligence or willful misconduct. When the claim is caused by the joint negligence or willful misconduct of Tenant and Landlord or Landlord and a third party unrelated to Landlord (except Landlord’s agents, officers, employees, independent contractors or invitees), Landlord’s duty to indemnify and defend shall be proportionate to Landlord’s allocable share of joint negligence or willful misconduct.

21.4 In the absence of comparative or concurrent negligence on the part of the party claiming indemnity under this Section 21 or its employees, independent contractors, agents, independent contractors, or invitees, the foregoing indemnity shall also include reasonable costs, expenses and attorney’s fees incurred in successfully establishing the right to indemnity. The indemnifying party shall have the right to assume the defense of any claim subject to this indemnity with counsel reasonably satisfactory to the indemnified party. The indemnified party agrees to cooperate fully with the indemnifying party and its counsel in any matter where the indemnifying party elects to defend, provided the indemnifying party shall promptly reimburse the indemnified party for reasonable costs and expenses incurred in connection with its duty to cooperate.

21.5 The duties and obligations of the Tenant and Landlord to defend and indemnify the other pursuant to this Section 21 shall survive termination or expiration of this Lease.

22. INSURANCE

22.1 Commencing as of the Early Delivery Date and continuing until the expiration of the Term or earlier termination of this Lease, Tenant shall procure, pay for and maintain in effect:

(a) Property Insurance covering (i) any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Article 12 hereof, and (ii) trade fixtures, merchandise and other personal property from time to time in, on or about the Premises, providing protection against any peril included within the classification “Special Form Coverage” including, but not limited to, insurance against sprinkler damage, vandalism and malicious mischief. Tenant is responsible for the repair or replacement of any of its property referenced herein and therefore shall look to the proceeds of such insurance for the repair or replacement of the property so insured.

(b) Workers’ Compensation insurance as required by law, and

(c) Commercial General Liability insurance with respect to the construction of Article 12 improvements on the Premises, the use, operation or condition of the Premises and the operation of Tenant in, on or about the Premises, providing bodily injury and broad form property damage coverage for not less than Three Million Dollars ($3,000.000.00) combined single limit for bodily injury, death and property damage liability. Such insurance shall be issued by responsible insurance companies reasonably acceptable to Landlord and Landlord’s lender and qualified to do business in the State of Washington, and shall name Landlord, and at Landlord’s request any mortgagee of Landlord, as an additional insured, as their respective interests may appear, and shall contain (i) a cross-liability endorsement, (ii) a provisions that such policy and the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, officers, employees or invitees, which arises or might arise by reason of any payment under such policy.

22.2 A certificate of insurance evidencing the existence and amount of the commercial general liability insurance policy required under Section 22.1 above shall be delivered to Landlord before the Early Delivery Date, and thereafter upon renewal, or within thirty (30) days after any demand by Landlord therefore. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord’s mortgagee and Tenant as required by this Lease. Tenant shall provide Landlord notice as soon as practicable after Tenant becomes aware of any

cancellation or material alteration in coverage with respect to the insurance required under Section 22.1 above.

22.3 Commencing on the Early Delivery Date and continuing until the expiration of the Term or earlier termination of this Lease, Landlord shall procure, pay for and maintain in effect:

(a) Workers’ Compensation insurance as required by law, and

(b) Commercial General Liability insurance with respect to the common areas and facilities of the building, providing bodily injury and broad from property damage coverage for not less than Three Million Dollars ($3,000.000.00) combined single limit for bodily injury, death and property damage liability. Such liability insurance shall be the primary policy as to the common areas and facilities of the Building, and shall be issued by responsible insurance companies reasonably acceptable to Tenant and qualified to do business in the State of Washington, and shall contain (i) a cross-liability endorsement, (ii) a provisions that such policy and the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by Tenant and that any coverage carried by Tenant shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Tenant, its agents, officers, employees or invitees, which arises or might arise by reason of any payment under such policy.

22.4 A certificate of insurance evidencing the existence and amount of the commercial general liability insurance policy required under Section 22.3 above shall be delivered to Tenant before the date Tenant is first given the right of possession of the Premises, and thereafter upon renewal, or within thirty (30) days after any demand by Tenant. Landlord shall provide Tenant notice as soon as practicable after Landlord becomes aware of any cancellation or material alteration in coverage with respect to the insurance required under Section 22.3 above.

23. THIS SECTION INTENTIONALLY OMITTED

24. SUBORDINATION AND ATTORNMENT

24.1 Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, as a condition to signing and delivering any subordination agreement, Tenant shall have the right to obtain from any lender or lessor of Landlord requesting such subordination, an agreement in writing and form reasonably acceptable to Tenant providing that, as long as Tenant is not in default under this Lease, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest. Promptly after the execution of this Lease, Landlord shall deliver to Tenant nondisturbance agreements in form reasonably acceptable to Tenant from the holders of all mortgages, deeds of trust or ground leases against any portion of the Project, if any.

24.2 In the event of any foreclosure sale, transfer or deed in lieu of foreclosure under any mortgage or deed of trust encumbering the Premises, or any part thereof, or in the event of a termination of a ground lease, if any, Tenant shall, if so requested, attorn to the purchaser, grantee or

ground lessor (collectively, “ Successor ”) and recognize such Successor as the Landlord under this Lease; provided, however, that Tenant’s obligation to so attorn to any Successor is expressly conditioned upon Tenant’s prior receipt from such Successor of a nondisturbance agreement whereby the Successor agrees that so long as Tenant pays the rent due and performs all other obligations under this Lease, Tenant’s occupancy of the Premises shall not be disturbed.

25. TENANT ESTOPPEL CERTIFICATES

Within fifteen (15) days after written request from Landlord, Tenant shall execute and deliver to Landlord or Landlord’s designee, a written statement certifying (a) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (b) the amount of Base Rent and the date to which Rent has been paid in advance; (c) the amount of any security deposited with Landlord; and (d) that Landlord is not in default hereunder, or if Landlord is claimed to be in default, stating the nature of any claimed default. Any such statement may be relied upon by a purchaser, assignee or lender. Tenant’s failure to execute and deliver such statement within the time required shall at Landlord’s election be a default under this Lease and shall also be conclusive upon Tenant that: (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) there are not incurred defaults in Landlord’s performance and that Tenant has no right of offset, counter-claim or deduction against Rent; and (3) not more than one month’s Rent has been paid in advance.

26. TRANSFER OF LANDLORD’S INTEREST

In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sale or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord’s successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto.

27. DEFAULT

27.1 Tenant’s Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant:

(a) If Tenant abandons or vacates the Premises for thirty (30) consecutive days or longer and fails to pay Rent; or

(b) If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for ten (10) days after Landlord delivers written demand to Tenant for such unpaid amounts; or

(c) If Tenant fails to perform any covenant, condition or agreement of Tenant contained in this Lease within thirty (30) days after receipt of written notice from Landlord specifying such default, or if such default cannot reasonably be cured within thirty (30) days, if Tenant fails to commence to cure and diligently pursue such cure within that thirty (30) day period; or

(d) If a writ of attachment or execution is levied on this Lease or any of Tenant’s Property that would have a material adverse effect on Tenant’s ability to perform its obligations hereunder; or

(e) If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; or

(f) If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed within forty-five (45) days thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; or

(g) If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant’s Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant’s Property.

27.2 Remedies.

(a) In the event of Tenant’s default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord’s option, without further notice or demand of any kind to do the following:

(1) Terminate this Lease and Tenant’s right to possession of the Premises and re-enter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or

(2) Continue this Lease in effect, re-enter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or

(3) Re-enter the Premises under the provisions of subparagraph 27.2(a)(2), and thereafter elect to terminate this Lease and Tenant’s right to possession of the Premises.

(b) If Landlord re-enters the Premises under the provisions of subparagraphs 27.2(a)(2) or 27.2(a)(3) above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord’s election to terminate this Lease. In the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant’s Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth, to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by

Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting.

(c) Should Landlord elect to terminate this Lease under the provisions of subparagraph 27.2(a)(1)or 27.2(a)(3) above, Landlord may recover as damages from Tenant the following:

(1) Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus

(2) Rent Prior to Award. The worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(3) Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus

(4) Proximately Caused Damages. Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any costs or expenses (including attorneys’ fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant’s default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker’s commissions.

(d) “The worth at the time of the award” as used in subparagraphs 27.2(c)(1) through 27.2(c)(3) above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. “The worth at the time of the award” as used in subparagraph 3 above, is to be computed by discounting the amount at the rate of ten percent (10%) per annum.

(e) The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord’s knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver.

27.3 Landlord’s Default. If Landlord fails to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default cannot reasonably be cured within thirty (30) days, if Landlord fails to commence to cure and diligently pursue such cure within that thirty (30) day period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord’s breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord’s right, title and interest in the Premises, Building or Project, and

no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to timely cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord’s expense. Except in the event of a material breach of Landlord’s obligations under this Lease, Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease.

28. BROKERAGE FEES

Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except Chris Moe & Stu Ford of Kidder Mathews. Tenant shall indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys’ fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. The Landlord shall pay all leasing commissions due to Kidder Mathews and CBRE, Inc. as a result of this Lease.

29. NOTICES

All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mail, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord’s Mailing Address and to the Project manager, and (b) if to Tenant, to Tenant’s Mailing Address; provided however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices.

30. GOVERNMENT ENERGY OR UTILITY CONTROLS

In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance.

31. QUIET ENJOYMENT

Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate.

32. OBSERVANCE OF LAW

32.1 Tenants shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules,

regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant’s improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant.

32.2 Tenant covenants and agrees, at its sole cost and expense, to comply with all present and future laws, orders, and regulations of all state, federal, municipal, and local governments, departments, commissions, and boards regarding the collection, sorting, separation, and recycling of waste products, garbage, refuse, and trash. Tenant shall sort and separate such waste products, garbage, refuse, and trash into such categories as provided by law. Each separately sorted category of waste products, garbage, refuse, and trash shall be placed in separate receptacles reasonably approved by Landlord. Such separate receptacles may, at Landlord’s option, be removed from the demised Premises in accordance with a collection schedule prescribed by law.

32.3 Tenant shall pay all costs, expenses, fines, penalties, or damages that may be imposed on Landlord or Tenant by reason of Tenant’s failure to comply with the provisions of applicable laws, orders, and regulations of all state, federal, municipal, and local governments with respect to recycling of waste products.

33. FORCE MAJEURE

Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefore, acts of God, governmental restrictions or regulations or controls, judicial order, enemy or hostile government actions, civil commotion, fire or other casualty or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse or delay Tenant’s obligation to pay Rent or other charges under this Lease. The provisions of this Section 33 shall not apply to any delays in the delivery of possession of the Premises to Tenant or any delay in the Commencement Date.

34. CURING TENANT’S DEFAULTS

If Tenant defaults in the performance of any of its obligations under this Lease and fails to cure the same within any applicable cure period, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay Landlord all reasonable costs of such performance promptly upon receipt of a bill therefore.

35. SIGNAGE

Landlord shall provide Building standard elevator lobby signage at Landlord’s sole cost. Tenant may install two (2) exterior or façade signs (the “Signs”) at Tenant’s sole expense. The design and location of the Signs are subject to Landlord’s prior approval, which shall not be unreasonably withheld provided the Signs are consistent with Exhibit H attached hereto and incorporated herein. One Sign may be located on the north façade in between the fifth and sixth floors of the Building, and the other Sign may be located on the east façade in between the second

and third floors of the Building, or such other locations mutually agreed upon by Landlord and Tenant. The Signs must be in compliance with all applicable laws, covenants, codes and restrictions. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal or advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of Landlord. Landlord shall have the right to remove any signs or other matter, installed without Landlord’s permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within ten (10) days of written demand by Landlord. Landlord hereby reserves the exclusive right to use for any purpose whatsoever the roof and exterior of the walls of the Premises or the Building, except Landlord shall permit Tenant to install and operate three (3) satellite dishes each with a maximum size of three (3) meters in diameter on the roof of the Building in a location to be mutually agreed upon by Landlord and Tenant (the “Satellite Dishes”). Landlord reserves the right to temporarily remove Tenant’s sign during any period when Landlord repairs, restores, constructs or renovates the Premises, Building or Project. Landlord shall have the right to prohibit any advertising by Tenant that, in Landlord’s reasonable opinion, tends to impair the reputation of the Building as a Class A mixed use building. Upon the expiration or sooner termination of this Lease, Tenant at Landlord’s request shall remove the Satellite Dishes, all signs, advertising matters or decorations at its sole cost and expense and repair any resulting damage to the Building or Premises. Landlord agrees that so long as Tenant is not in default under its obligations hereunder, which default has not been cured as of the date of the signage of any other tenant of the Building is affixed, erected or inscribed on the Building, and is leasing fifty percent (50%) or more of the Rentable Square Feet of the Building, Landlord will not allow any other tenant in the Building to affix, erect or inscribe any sign that is of equal or greater size than the largest sign Tenant has on the Building.

36. HAZARDOUS WASTE

36.1 Tenant shall not transport, use, store, maintain, generate, manufacture, handle, dispose, release, or discharge any “Hazardous Material” (as defined below) upon or about the Property, or permit Tenant’s employees, agents, independent contractors and other occupants of the Premises to engage in such activities upon or about the Property except in compliance with applicable law. However, the foregoing provisions shall not prohibit the transportation to and from, and use, storage, maintenance and handling within, the Premises of substances customarily used in offices (or such other business or activity expressly permitted to be undertaken in the Premises: (a) such substances shall be used and maintained only in such quantities as are reasonably necessary for such permitted use of the Premises, in accordance with applicable law, (b) such substances shall not be disposed of, released or discharged on the Property except in compliance with all applicable laws, (c) if any applicable law requires that any such substances be disposed of separately from ordinary trash, Tenant shall make arrangements at Tenant’s expense for such disposal, and (d) any remaining such substances shall be removed from the Property upon expiration or earlier termination of this Lease to the extent required by applicable law. Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property, (ii) any demand or claims made or threatened by any party against Tenant or the Premises relating to any loss or injury resulting from the release of any Hazardous Material, (iii) any release, discharge or disposal or transportation of any Hazardous Material on or from the Premises in violation of applicable law, and (iv) any matters where Tenant is required by law to give a notice to any governmental or regulatory authority respecting any Hazardous Material on the Premises. Landlord shall have the right (but not the obligation) to join

and participate as a party in legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety law. At such times as Landlord may reasonably request, Tenant shall provide Landlord with a written list identifying any Hazardous Material then used, stored, or maintained upon the Premises, the use and approximate quantity of each such material, a copy of any material safety data sheet (“MSDS”) issued by the manufacturer therefore, written information concerning the removal, transportation and disposal of the same, and such other information as Landlord may reasonably require or as may be required by law. The term “Hazardous Material” for purposed hereof shall mean any chemical, substance, material or waste or component thereof as defined by any federal, state or local governing body having jurisdiction over the Property, or which would trigger any employee or community “right-to-know” requirements adopted by any such body, or for which any such body has adopted any requirements for the preparation or distribution of an MSDS.

36.2 If any Hazardous Material is released, discharged or disposed of by Tenant or any other occupant of the Premises, or their employees, agents or independent contractors, on or about the Property in violation of applicable law, Tenant shall immediately, properly and in compliance with applicable laws clean up and remove the Hazardous Material from the Property and any other affected property and clean or replace any affected personal property (whether or not owned by Landlord), at Tenant’s expense. Such clean up and removal work shall be subject to Landlord’s prior written approval (except in emergencies), and shall include, without limitation, any testing, investigation, and the preparation and implementation of any remedial action plan required by any governmental body having jurisdiction or reasonably required by Landlord. If Tenant shall fail to comply with the provisions of this Article within five (5) days after written notice by Landlord, or such shorter time as may be required by law or in order to minimize any hazard to Persons or property, Landlord may (but shall not be obligated to) arrange for such compliance directly or as Tenant’s agent through contractors or other parties selected by Landlord, at Tenant’s expense (without limiting Landlord’s other remedies under this Lease or applicable law). If any Hazardous Material is released, discharged or disposed of on or about the Property and such release, discharge or disposal is not caused by Tenant or other occupant of the Premises, or their employees, agents or independent contractors, such release, discharge or disposal shall be deemed casualty damage under Article 19 to the extent that the Premises or common areas serving the Premises are affected thereby; in such case, Landlord and Tenant shall have the obligations and rights respecting such casualty damage provided under Article 19.

37. EMPLOYER INFORMATION FORM -- IMMIGRANT INVESTOR PROGRAM.

Tenant understands construction of the Building was funded through investments made by “Alien Entrepreneurs” pursuant to 8 C.F.R. § 204.6. This is a federal program that brings capital into employment generating enterprises by encouraging immigrant investment in certain “Regional Centers” or “Enterprise Zones.” A condition of the program is to substantiate new employment created directly or indirectly from the Alien Entrepreneurs’ investment. New employment refers to newly created jobs as opposed to jobs transferred from a different location. Periodically, U.S. Citizenship and Immigration Services will request proof of new employment creation. Tenant hereby agrees to cooperate with Landlord to substantiate its employment creation, in particular upon five days written notice, to provide State of Washington Labor and Industries reports, Social Security payment records, Federal Unemployment Tax returns, payroll ledgers or similar official documentation substantiating Tenant’s employee count, and execution of an Affidavit in the form attached hereto as Exhibit F . Tenant does not make any representation or warranty that any

employment will be generated as a result of Tenant entering into this Lease and disclaims any such representation or warranty expressed or implied in this Lease.

38. OPTION TO TERMINATE.

Tenant shall have the option to terminate the Lease effective as of the last day of the eighty-fourth (84th) calendar month of the Lease Term, provided that (a) Tenant delivers written notice of such termination no sooner than the first day of the sixty-sixth calendar (66th) month of the Lease Term and no later than the last day of the seventy-second (72nd) calendar month of the Lease Term, (b) reimburses Landlord an amount equal to 4/11 ^th of the sum of the Construction Costs (as defined in Exhibit E), and the leasing commission paid to the brokers pursuant to Section 28 above, and (c) paying Landlord a termination fee equal to the Base Rent payable under this Lease for months 86 through 89 of the Term. For purposes of illustration, the lease commission payable pursuant to Section 28 above is estimated to be $1,349,365 and the Construction Costs is estimated to be approximately $6,597,052. Assuming the foregoing and Tenant elects to terminate this Lease in year seven, Tenant has not exercised any option to expand the Premises, the amounts payable to Landlord in connection with the termination of the Lease pursuant to this Section 38 shall be (x) 4/11 ^th of the sum of the Construction Costs and the lease commission, and (y) a lease termination fee of $942,436.00, which is equal to the Base Rent payable for months 86 through 89.

39. OPTION TO RENEW.

39.1 Provided Tenant is not in default under this Lease as of the date of exercise, Tenant shall have the right to extend this Lease for Two (2) Five (5) year extension terms (the “Option Term(s)”) on the same terms and conditions set forth herein except that the Base Rent for the first year of the Option Term shall be equal to One Hundred Percent (100%) of the Fair Market Value (defined below). Base Rent shall subsequently increase by Three Percent (3%) on the beginning on the first day of the second, third, fourth and fifth year of the Option Terms. In order to exercise it extension of the Lease, Tenant must deliver written notice of such extension to Landlord not less than Three Hundred and Sixty Five (365) days prior to the expiration date of the Term then in effect (“Notice to Exercise Option”).

39.2 “Fair Market Value” means the prevailing market rate for comparable Class A office space in the SoDo, International District, South Seattle CBD, and Pioneer Square markets, taking into account the size of the space and the length of the term of the Lease with respect to such space, free rent, tenant improvement allowances, broker commissions and any other landlord concessions to tenants.

39.3 Determination of Fair Market Value.

(a) Landlord shall notify Tenant of its determination of the Fair Market Value within ten (10) business days of receipt of Tenant’s Notice to Exercise Option. If Tenant disagrees with Landlord’s determination of the Fair Market Value, Landlord and Tenant shall confer for a period of thirty (30) days in an attempt to agree on the Fair Market Value.

(b) In the event Landlord and Tenant fail to reach an agreement on the Fair Market Value within such thirty (30) day period, then the Fair Market Value of Base Rent for the Option Term(s) shall be determined as follows:

(1) Within five (5) days after the expiration of the thirty (30) day period described above, Landlord and Tenant shall mutually agree upon an MAI appraiser with at least ten (10) years experience in the market in which the Premises is located. If the parties are unable to agree upon the appraiser, the appraiser shall be appointed by the American Arbitration Association’s offices located in Seattle, Washington.

(2) Within twenty (20) days after selection of the appraiser, each party shall submit its final proposed Fair Market Value to the appraiser. Within thirty (30) days after its appointment, the appraiser shall determine which of the proposals submitted by the parties shall be the Fair Market Value, and that choice by the arbitrator shall be binding upon Landlord and Tenant.

(3) If the Fair Market Value has not been determined on or before the commencement of the Option Term, Tenant shall pay Monthly Base Rent at the rate Tenant is paying for the Premises based on the prior month, and Tenant and Landlord shall make any necessary adjusting payments when the Fair Market Value is determined. The parties shall share the cost of the appraiser equally.

40. RIGHT TO LEASE THIRD FLOOR

For the first nine (9) months of the Term, Landlord shall not lease any portion of the third floor of the Building (the “Expansion Space”) to any party other than Tenant. Tenant shall have the right to lease all (and only all) of the third floor of the Building (the “Expansion Space”) during the first five (5) years of the Term (the “Option Period”) not leased by a tenant and subject to the rights of any tenants of the Expansion Space. Tenant may exercise its right to lease the Expansion Space by delivering written notice to Landlord at any time during the Option Period (“Expansion Notice”). If Tenant delivers the Expansion Notice on or before the second anniversary of the Commencement Date, the material business terms for the Expansion Space shall be the same as set forth for the initial Premises (i.e. Base Rent, parking allocation, Additional Rent, tenant improvement allowance, free rent and broker commissions) and pro-rated as applicable for the remainder of the Term and the size of the Expansion Space. If the Expansion Notice is delivered after the second anniversary of the Commencement Date, the parties will negotiate the business terms for leasing of the Expansion Space. If the parties are not able to agree upon the business terms for leasing of the Expansion Space within thirty (30) days after Landlord’s receipt of the Expansion Notice, the business terms shall be determined in accordance with arbitration described in Section 39.3 above. The appraiser shall determine which of the proposals of the parties best reflects Fair Market Value for the Expansion Space. Within ten (10) days after the determination of the business terms for leasing of the Expansion Space, Landlord and Tenant shall execute an amendment to this Lease to include the Expansion Space. Tenant’s architect shall prepare any necessary construction documents. Provided Tenant provides Landlord with such approved construction documents within thirty (30) days following delivery of the Expansion Notice, and the scope of construction for such construction documents is the same or less than the scope for the Landlord Improvements for the Premises, then Landlord shall complete the improvements to the Expansion Space within ninety (90) days after receipt of such construction documents and the commencement date for the leasing of the Expansion Space shall be the date of substantial completion of such improvements. If Tenant fails to provide the construction documents within thirty (30) days following delivery of the Expansion Notice, then the commencement date for the leasing of the Expansion Space shall be one hundred twenty days (120) following delivery of the Expansion Notice. Tenant shall not be entitled to exercise its option if Tenant is in default under the Lease at the time Tenant delivers any Expansion Notice.

Following the ninth month of the Option Period, Landlord may lease any portion of the Expansion Space to a third party during the Option Period subject to Tenant’s rights in this Section 40 and its rights in Section 41.

41. RIGHT OF FIRST REFUSAL FOR THIRD FLOOR.

41.1 General Grant of Right of First Refusal. In addition to the expansion rights provided in Section 40 above, Tenant shall have a right of first refusal (“ROFR”) with respect to the Expansion Space during the first two (2) years of the Term (the “ROFR Period”). Provided, however, Tenant shall have no ROFR if Tenant is in default under the Lease, which default has not been cured, at the time Tenant delivers the Tenant Notice.

41.2 In the event Landlord receives a signed, bona fide offer from an unaffiliated third party to lease all or a portion of the Expansion Space during the ROFR Period, Landlord shall deliver written notice to Tenant describing the material business terms of such offer (“ROFR Notice”). If the ROFR Notice is for fifty percent (50%) or more of the area of the Expansion Space, Tenant, if it elects to exercise its ROFR, must lease the entire Expansion Space. If the ROFR Notice is for less than fifty percent (50%) of the of the area of the Expansion Space, Tenant, if it elects to exercise its ROFR, may lease the entire Expansion Space or the portion of the Expansion Space described in the ROFR Notice. Tenant shall have ten (10) business days after its receipt of the ROFR Notice in which to deliver to Landlord written notification of Tenant’s intent to exercise its ROFR (“Tenant’s Notice”). If Tenant timely delivers the Tenant Notice to Landlord, the material business terms for the Expansion Space shall be the same as set forth for the initial Premises (i.e. Base Rent, parking allocation, Additional Rent, tenant improvement allowance, free rent and broker commissions) and pro-rated as applicable for the remainder of the Term and the size of the Expansion Space to be leased. Tenant’s architect shall prepare any necessary construction documents. Provided Tenant provides Landlord with such approved construction documents within thirty (30) days following delivery of Tenant’s Notice, and the scope of construction for such construction documents is the same or less than the scope for the Landlord Improvements for the Premises, then Landlord shall complete the improvements to the Expansion Space within ninety (90) days after receipt of such construction documents and the commencement date for the leasing of the Expansion Space shall be the date of substantial completion of such improvements. If Tenant fails to provide the construction documents within thirty (30) days following delivery of the Tenant’s Notice, then the commencement date for the leasing of the Expansion Space shall be one hundred twenty days (120) following delivery of Tenant’s Notice. Tenant shall not be entitled to exercise its ROFR if Tenant is in default under the Lease at the time Tenant delivers its Tenant’s Notice. If Tenant does not exercise its ROFR, Landlord shall be free to lease the Expansion Space described in the ROFR to such third party.

42. PARKING AND KING STREET SHUTTLE. Tenant and/or its employees shall have the right, but not the obligation, to lease from Landlord up to 154 parking permits (the “Parking Permits”) in the parking garage of the Building. Tenant will have access to up to Fifty-one (51) Parking Permits 24 hours per day, 7 days a week (the “Seven Day Spaces”). Tenant will have access to One Hundred and Three (103) Parking Permits 24 hours per day, Monday through Friday (the “Five Day Spaces”). For the first year of the Lease Term, the monthly parking rate for the Seven Day Spaces and the Five Day Spaces shall be $155 and $150 (plus tax), respectively. Landlord shall charge its normal and customary monthly parking rates thereafter which shall not exceed the fair market rates charged by comparable properties in the area of Seattle commonly known as “SoDo,” the International District, Pioneer Square, and South Seattle CBD.” Landlord’s parking management

company shall invoice and collect rent from Tenant for the Parking Permits. Notwithstanding the foregoing, (i) Landlord may rent any vacant Five Day Space on an hourly basis for event parking for events at any of the nearby stadiums, and (ii) following the fifth month after the Commencement Date, Landlord may rent any Parking Permit not used by Tenant in the prior month. If Tenant does not use a Parking Permit, Tenant shall have the right to reacquire use of such Parking Permit as of the first day of the calendar month following the date that is ninety (90) days after Tenant’s delivery of written notice to Landlord requesting use of such Parking Permit.

In the event Tenant determines in good faith that its employees would use a shuttle service between the Premises and the King Street Station, Landlord shall provide such shuttle service Monday through Friday from 7:30 to 9:30 a.m. and from 3:30 to 6:30 p.m. with shuttles leaving the Building periodically on an as needed basis.

43. MISCELLANEOUS.

43.1 Accord and Satisfaction; Allocation of Payments. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the provision contained in the addendum shall control, unless otherwise provided in the addendum balance of the Rent or pursue any other remedy provided for in this Lease. In connection with the foregoing, Landlord shall have the absolute right in its sole discretion to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent.

43.2 Addenda. If any provision contained in an addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum.

43.3 Attorneys’ Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this Lease, the finally prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys’ fees, incurred on account of such action or proceeding.

43.4 Captions, Articles and Section Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Article and Section numbers refer to Articles and Sections in this Lease.

43.5 Changes Requested by Lender. Neither Landlord nor Tenant shall unreasonably withhold its consent to changes or amendments to this Lease requested by the lender on Landlord’s interest, so long as these changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights or materially increase any obligations of the party from whom consent to such charge or amendment is requested.

43.6 Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State of Washington

43.7 Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages

by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant’s only remedies therefore shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, etc.

43.8 Authority. If Tenant is an entity, each individual signing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the entity, and that this Lease is binding on Tenant in accordance with its terms. Tenant shall, at Landlord’s request, deliver a certified copy of a resolution of its managing member, managing partner or board of directors authorizing such execution.

43.9 Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease.

43.10 Execution of Lease; No Option. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or option for Tenant to lease, or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Execution of this Lease by Tenant and its return to Landlord shall not be binding on Landlord notwithstanding any time interval, until Landlord has in fact signed and delivered this Lease to Tenant.

43.11 Furnishing of Financial Statements; Tenant’s Representations. In order to induce Landlord to enter into this Lease Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord’s written request, with financial statements reflecting Tenant’s current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects.

43.12 Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease.

43.13 INTENTIONALLY OMITTED.

43.14 Prior Agreements; Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest.

43.15 Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a “short form” memorandum of this Lease for recording purposes.

43.16 Severability. A final determination by a court of competent jurisdiction that any provision of this Lease is invalid shall not affect the validity of any other provisions, and any provisions so determined to be invalid shall, to the extent possible, be construed to accomplish its intended effect.

43.17 Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives, and permitted successors and assigns of the parties.

43.18 Time of the Essence. Time is of the essence of this Lease.

43.19 Waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default.

[Signature page follows.]

The parties hereto have executed this Lease as of the dates first set forth above.




LANDLORD 1501 First Avenue South Limited Partnership, a Washington limited partnership By: American Life, Inc. Its: Managing General Partner By: /s/ Greg Steinhauer Greg Steinhauer, Chief Operating Officer	TENANT Realnetworks, Inc. a Washington corporation By: /s/ Rob Glaser Name: Rob Glaser Its:_________________________________ By: /s/ Tim Wan Name: Tim Wan Its:_________________________________

STATE OF WASHINGTON )

)ss

COUNTY OF KING )

On this 29th day of April, 2013, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Greg Steinhauer, to me known to be the Chief Operating Officer of American Life, Inc., which corporation is the Managing General Partner of 1501 First Avenue South Limited Partnership, the limited partnership that executed the foregoing instrument and acknowledged the said instrument to be the free and voluntary act of and deed of said limited partnership, for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute the said instrument.

In Witness Whereof I have hereunto set my hand and affixed my official seal the day and year first above written.

/s/ Jacqueline M. Deane

Notary Public residing at:

5426 142nd PL NE Marysville, WA 98271

Jacqueline M. Deane

Notary’s Name (typed or legibly printed)

My Commission Expires:

9/21/2014

ACKNOWLEDGMENT OF TENANT

STATE OF WASHINGTON )

)ss

COUNTY OF KING )

On this 2nd day of May, 2013, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Rob Glaser, to me known to be the CEO of Realnetworks, Inc., and personally appeared Tim Wan, to me known to be the CFO & Treasurer of the corporation that executed the foregoing instrument and acknowledged the said instrument to be the free and voluntary act of and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that he/she was authorized to execute the said instrument and that the seal affixed is the corporate seal of said corporation.

In Witness Whereof I have hereunto set my hand and affixed my official seal the day and year first above written.

/s/ Wendy P Maslowski

Notary Public residing at:

10833 Se 235th ST, Kent, WA 98031

Wendy P Maslowski

Notary’s Name (typed or legibly printed)

My Commission Expires:

04/09/2016

EXHIBIT A

LEGAL DESCRIPTION

LOTS 1 THROUGH 11, INCLUSIVE, BLOCK 333, SEATTLE TIDE LANDS, ACCORDING TO THE OFFICIAL MAPS ON FILE IN THE OFFICE OF THE COMMISSIONER OF PUBLIC LANDS IN OLYMPIA, WASHINGTON, IN KING COUNTY, WASHINGTON

EXCEPTING THEREFROM THAT PORTION CONVEYED TO THE STATE OF WASHINGTON, PURSUANT TO DEED RECORDED UNDER RECORDING NO. 20081016000081

EXHIBIT B

FLOOR PLAN OF PREMISES

See attached.

EXHIBIT B-1

WORK LETTER

Test Fit pricing notes

(1) Home Plate Center

(2) March 29, 2013 Edit April 10, 2013

Real Networks

Seattle, WA

Contents:

General Notes

Alternates

Pricing Specifications

02 0600 Demolition/Cleaning

06 1000 Rough Carpentry

06 2200 Millwork, Casework

08 2000 Doors & Frames

08 7100 Hardware

08 8000 Glass and Glazing

09 2100 Framing and GWB

09 5000 Ceilings

09 6000 Flooring

09 9000 Painting & Wall covering

11 0000 Equipment

10 0000 Miscellaneous Specialties

23 0000 Plumbing

23 0000 Mechanical (incl. Plumbing, and Fire Sprinkler Systems)

26 0000 Electrical (incl. Fire Alarm, Low Voltage)

26 5000 Lighting

Room Specific Notes

GENERAL NOTES:


1.	New construction will include walls, doors, flooring, casework, lighting, ceiling and other finishes as shown on the test fit plan options.


2.	Test fit notes apply to Test Fit drawings dated 4/9/2013


3.	No work at stairwells (except new card readers), elec. closet, or janitor’s closet.


4.	Intentionally deleted.


5.	Provide building standard window coverings and at all perimeter windows.


6.	Provide fire extinguishers, sprinklers (quick response heads) with audible alarms, ceiling mount smoke and heat detectors, ceiling mount strobes and edge lit LED exit signs per code.


7.	Provide access panels in GWB ceilings as necessary.


8.	Provide all listed appliances.


9.	Allow for backing in offices, conference rooms, and work rooms for tenant supplied items.


10.	Consultants are to be design-build, under GC control for Electrical, HVAC, Plumbing, Fire Alarm, and Fire Protection.


11.	Provide interconnecting stairs between floors 4 & 5 and 5 & 6 as noted in plans. Stairs to be pre-cast concrete tread/risers on steel structure with glass/steel railing system.


12.	New restrooms on the 5 ^th floor with 2 toilets and 2 lavatories each. Finishes and fixtures to match existing core restrooms. Costs to be covered by RealNetworks.


13.	New operable walls at one conference room each on floors 4 and 5 and one in the multi-purpose room on floor 4. Costs for the operable wall, structure, and GWB framing to be covered by RealNetworks.


14.	The fire rating at the opening for the stair will be handled by a draft curtain and additional sprinklers on all floors vs. fire rated walls and roll down fire shutters on the 4 ^th floor.


15.	A platform is required at the bottom of the stairs for ADA / code. An integrated bench is being added that will be covered by RealNetworks.


16.	A set of double doors has been added on the 6 ^th floor from the Board Room to the deck. We assume the building Architect will handle this addition. The costs for these new doors will be covered by RealNetworks.


17.	Glass doors and sidelites have been added at the reception area on floor 6. The costs for these doors will be covered by RealNetworks.

Pricing Specifications

02 0600 Demolition / Cleaning


1.	Include x-raying and core drilling where required at floor power locations.


2.	Cleaning: include general construction cleaning and final cleaning.

06 1000 Rough Carpentry


1.	Install backing in walls for casework, wall mounted equipment, handrails and ADA grab bars.


2.	Provide floor to ceiling fire treated plywood at walls at IDF Closets and at MDF Room.

06 2200 Millwork, Casework – Refer to Room Specific Notes and Plans for scope and locations


1.	All casework to be constructed to AWI Custom standards. Substrates to be 100% recycled and UF (urea formaldehyde) free (Skyblend or equal.)


2.	Cabinet pulls: Standard 4” pulls at Storage and Shipping & Receiving cabinets. Hafele Anodized Aluminum Extruded Handles 126.27.904 (or equivalent) elsewhere.


3.	All solid surface countertops to be p-lam but conference rooms, boardroom, coffee areas and main kitchen area on the 6 ^th floor will be CaesarStone or equal.


4.	Wall base at throughout at new construction to be 2.5”h rubber base. 2.5” h wood base (painted) at areas where noted.

08 2000 Doors & Frames


1.	All doors to be solid core, rift cut white oak, stained or other Real Network specification.


2.	Wood frames to be medium bronze anodized aluminum.


3.	Door types and locations:



Door Type:	Frame:	Hardware:	Locations:
Single hinged door 3’-0”w. x 8’-0” Solid Core	aluminum	Mortised lever w /Lockset, typ (surface mtd. pulls at closets)	Utility , Storage, MDF, IDF, Restroom, Security, File Rooms
Single hinged door w/ sidelite 3’-0”w. x 8’-0”; Solid core door ; full width, full height sidelite: 3/8”” tempered glass in frame; Butt joint glass at wide sidelites, 10% of glass to have 3M translucent film. See plan for sidelites.	aluminum	Mortised lever w/Lockset, typ. Locksets at Labs, Test Rooms and Offices	Multi-Purpose, Conference, Board, Focus, Phone, Office, Lab, and Test Rooms
Pair hinged door w/ sidelites - Frameless 3’-0”w. x 8’-0”; frameless tempered glass pivot doors with ½” tempered glass relites; Provide electric hardware or maglock, key card access. Motion sensor request to exit device and associate push button override.	Stainless steel, SS channel at sidelites	Pulls: 30” brushed stainless steel each side ( Rockwood or equal) Provide elec. Strike, key card access.	Elevator lobby to reception
Operable Garage Door 12’ wide aluminum interior commercial grade roll up door. Door to be insulated panels with glass panel inserts.	Aluminum and insulated glass panels		Café / Multi Purpose
Specialty Acoustical Door STC-50 minimum. Specialty acoustical sidelite.	Steel		Audio Production Suite

08 7100 Hardware


1.	All hardware to be ADA compliant, finish to match building standard.


2.	Provide wall / floor stops at all doors.


3.	Provide kick plates at storage, utility rooms, MDF room, IDF rooms and stair doors.


4.	Provide card readers at MDF room, IDF rooms, doors off reception lobby and Security Room. Provide card reader access in exit stairwells at each floor. Provide electrified hardware at card reader locations.

08 8000 Glass and Glazing

Glass at doors and relites: Refer to 08 2000 Doors & Frames

09 2100 Framing and GWB


1.	Partitions at private office locations and conference/boardroom locations have full cavity sound batt insulation (R-11, typ. / R-19 @ 6” stud walls or greater). Real will consider revising this requirement where appropriate.


2.	Provide 5/8” drywall (GWB) ceilings/soffits as described in section 09 5000 ceilings. Provide bracing to structure. Provide access panels as required.


3.	Provide 5/8” water resistant drywall at any “wet walls”.


4.	Drywall finish to be level 4 finish, typ.


5.	Wall Types: All walls to have acoustic sealant at floor and top tracks, typ. Stud size and spacing to be appropriate for wall heights. 25ga is fixed.


a.	Interior Partition (typ., U.O.N. – see below)


6.	2 ½” metal studs, 25 gauge, 24” on center, from slab to underside of suspended ceiling (or structure at open to structure areas). One layer 5/8” gypsum board on each side, taped and sanded smooth. Provide seismic bracing as required. Real will consider revising this requirement where appropriate.

Acoustical Partition: (typical Small Conference rooms, Focus and Phone Rooms, Offices, Mother’s room, Game room, standard testing rooms, labs) 3 5/8” metal studs, 25 gauge, 24” on center, from slab to 6” above grid one side, one side to structure or adjacent drywall ceiling. Two layer 5/8” gypsum board on one side, and one layer on the other, taped and sanded smooth. Provide seismic bracing as required. Provide acoustical insulation full height of partition. No back to back outlets.


B.	Full Height Acoustic Partition:(Conference rooms, Boardroom (except at double stud wall locations), Multi-Purpose Room (except at double stud wall locations), Café Kitchen (except at double stud wall locations), Mercury Lab, DVD Test Room, IT bench labs, GIO built labs, Security room, Private testing room, Copy / Coffee (when adjacent to offices, open offices, conference, focus, or phone rooms)

3-5/8” metal studs, 25 gauge, 24” on center, from slab to underside of structure above. Two layers 5/8” Type X gypsum board on each side, taped and sanded smooth., sealed at joints Provide acoustical insulation full height of partition. No back to back outlets.


C.	1-HR Fire Rated Partition: ( MDF, IDF Rooms)

3-5/8” metal studs, 25 gauge, 24” on center, from slab to underside of structure above. Two layer 5/8” Type X gypsum board on each side, taped and sanded smooth, sealed at joints. Provide acoustical insulation full height of partition.


D.	Specialty Acoustical Isolation Partition

Double stud wall similar to C at Audio Production Suite. There will be a floating concrete floor and isolated ceiling. (further detail to be provided by Tenant’s architect and mutually agreed upon). STC 55 minimum.

E: Double stud acoustical wall (Multi-Purpose Room and Café)

Double stud wall with 2 layers 5/8” GWB on each side. STC-55 minimum. The cost of these wall upgrades will be covered by RealNetworks.

09 5000 Ceilings


1.	Assume suspended grid and ACT at enclosed offices, storage and conference rooms, except as noted below. New suspended grid, with new ceiling tiles – Armstrong Ultima, 2x2 with tegular edge. 9/16” fineline ceiling grid. If building standard differs, provide building standard product for review and approval.


2.	At Open To Structure (OTS) areas, no paint is to be provided. Clean existing concrete.


3.	Ceiling type by Location:



Location	Ceiling type
Elevator Lobby	New GWB ceiling (200sf) and OTS
Reception	New GWB ceiling (300sf) and OTS

Open Office	Open to structure with 50% acoustical clouds
Offices	New suspended grid and ACT
Board Room	New GWB ceiling border with ACT cloud over conference room table
Conference Rooms / closed team / phone / focus	New suspended grid and ACT
Open team / multi-purpose rooms	Open to structure with 50% acoustical clouds. 6” axiom trim at edges.
Copy/Mail/Receiving	New suspended grid and ACT
Storage/Files / Utility rooms	New suspended grid and ACT
Café/Break area	Open to structure with 50% acoustical clouds
Testing rooms	New suspended grid and ACT
Server / IDF Room	OTS
Misc Labs	New suspended grid and ACT
IT bench labs / GIO built lab	New suspended grid and ACT
Game Room	Open to structure with 50% acoustical clouds
Mother’s room	New suspended grid and ACT
Security Room	New suspended grid and ACT

09 6000 Flooring


1.	Typical flooring to be carpet tile with attached cushion backing, U.O.N. Concrete at circulation, reception and cafe areas as noted.


2.	Wall base: Base to be 100% rubber 2.5” high straight base, Johnsonite or equal. Allow for six total base colors to match painted walls.


3.	Floor Transitions: Rubber. Float floor at carpet or resilient flooring for flush transitions.


4.	Flooring type by Location: (note: freight, mark-up & installation NOT included in allowances)



Location	Finish	Description:
Elevator lobby	Lightly polished and matte sealed concrete. Wood Base
Reception	Lightly polished and matte sealed concrete. Wood Base

Open Office / Open team	Carpet tile with attached cushion, rubber base at workstations. Concrete at main circulation.	Carpet: ($25/sy installed )
Offices	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )
Conf Rooms/ closed team /phone/focus	Carpet tile with attached cushion, rubber base	Carpet: ($30/sy installed )
Copy	Cork flooring, rubber base
Mail / Receiving, Storage, File Rooms	VCT Rubber base
Café/Kitchens/Break	Lightly polished and matte sealed concrete. Wood Base



Multi-purpose room	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )
Mother’s Room	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )
Testing room	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )
IDF Rooms (1) each floor	ESD tile floor, grounded
MDF Room	ESD tile floor, grounded	Install with conductive adhesive and copper grounding strips. Connect copper strips to building ground bar or structural steel
IT Bench lab / GIO Build Lab	ESD tile floor, grounded
Misc Labs	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )
Game Room	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )
Security Room	Carpet tile with attached cushion, rubber base	Carpet: ($25/sy installed )

09 9000 Painting & Wallcovering


1.	Paint to be latex, low to no-VOC. Allow for 6 colors - (2) basic light color, (3) accents and (1) dark accent.


2.	Paint finish: eggshell finish typical. (Primer with 2 coats of paint)


3.	Flat finish at ceiling.


4.	Refer to Room Specific Notes for additional information

10 0000 Miscellaneous Specialties


1.	Provide fire extinguishers and semi-recessed cabinets per code


2.	Provide Forgo cork bulletin boards with aluminum trim at Coffee/Copy and breakout rooms. Assume 3’ h. x 5’ wide for pricing


3.	Provide building standard perimeter window coverings


4.	Provide motorized roller shades at largest conference room


5.	Refer to Room Specific Notes for additional information

11 0000 Equipment


1.	All appliances to be GE Profile / Energy Star rated or equal in stainless steel finish.


2.	Refer to Room Specific Notes for additional information

23 0000 Plumbing


1.	Provide sinks in kitchen and coffee/copy and any powder rooms. All swivel faucets to be ADA compliant.


2.	Provide water and waste hook up at dishwashers


3.	Provide cold water line for refrigerators, coffee makers and ice makers.


4.	Provide filtered water at coffee / cafe.

23 0000 Mechanical (incl. Plumbing, and Fire Protection )


1.	To be Bidder Design


2.	Modify, extend, or reconfigure existing basic shell systems to accommodate layout. Systems to be designed to class A office standards at a minimum, U.O.N.


3.	Allow for each large / med conference room to be a separate and dedicated zone.


4.	Provide sound boots on return air grilles at conference rooms, and offices.


5.	Provide carbon filters on exhaust at kitchen / copy areas.


6.	Spiral ductwork at open to structure areas.


7.	Provide zone map.


8.	Separate zones:


a.	Zones per code


b.	Corner offices


c.	Open office areas 1000 SF


d.	Closed offices/rooms of similar use—no more than 4 combined


e.	Executive office


f.	Conference rooms


g.	No cross zoning between open and closed areas


h.	Kitchen/café/games/multi-purpose—separate zones as divided layout


i.	Interior / exterior zones


j.	Design to be sensitized to building solar exposures


k.	Each IDF dedicated 24/7 cooling for 3.5KW per rack with 3 racks per IDF. MDF dedicated 24/7 cooling 3.5KW per rack with 13 racks. Systems on specialty cooling loop system, not main building systems.


9.

26 0000 Electrical (incl. Fire Alarm, Low Voltage)


1.	To be Bidder Design. Maximum of 3 offices or workstations per circuit.


2.	Electrical connections between stations to be by furniture vendor. Whip to wall connection by GC.


3.	Modify, extend, or reconfigure existing basic shell systems to accommodate new lighting and wall layouts. Systems to be designed to class A office standards at a minimum, U.O.N.


4.	Refer to Room Specific Notes for additional information


5.	Provide 10% spare 120v panel and circuit breakers for future use.

CAT6 tel/data wiring test/terminated/certified, 7' x 19" racks and associated patch panels all terminated in MDF or IDF as per floor. 4 cables per "drop" location typical. 1 drop per office, 1 drop per work station, 1 drop at reception desk. Conference rooms to include 1 drop at flush floor monument and 2 drops on opposite walls. All other rooms (of various uses) to have 2 drops on opposite walls. All cabling to be completed by Tenant.

Audio/Visual-- all large conference rooms and Board room each require 10 foot recessed motorized screen with wall switch, 2 inch EMT conduit pathway at floor from center of table to above ceiling, quad receptacle at floor monument, duplex receptacle behind flat panel monitor (monitor by tenant), ceiling mounted projector mount (projector by tenant), duplex receptacle at ceiling, CAT6 cable from center of table to flat panel and to ceiling projector, HDMI cable from center of table to flat panel, VGA cable from center of table to flat panel. All cabling to be completed by Tenant.


8.	100 workstations will require 1 20 amp dedicated circuit each (tenant and landlord to value engineer if possible) and 4 CAT6 cable drops. Tenant will work to value engineer if feasible. All cabling to be completed by Tenant. Locations to be determined.


9.	26 5100 Lighting


1.	Allow for dimming at all fluorescent fixtures.


2.	Provide daylighting and occupancy sensor controls as required by Seattle Energy Code.


3.	Each type of fixture in a single room to have their own switch.


4.	Assume a minimum of .9w/sf



Space	Lighting type
Elevator Lobby	6” dia. LED downlights and directional accent lighting
Reception	6” dia. LED downlights and directional accent lighting behind reception desk and at seating area. Adjustable fluorescent LED accent lighting at artwork walls
Powder Room, Mother’s room	Fluorescent downlights
Open Office	Linear fluorescent pendant direct/ indirect
Offices	2x4 pendant fluorescent direct/ indirect
Sm conference / Focus/ Closed Team/ Phone	Fluorescent pendant with linear fluorescent wall washers at (1) wall
Conference Rooms – Med/Large / Multi-purpose	Linear fluorescent pendant direct / indirect with linear fluorescent wall washers at (1) wall
Open Team	Dimmable pendant direct / indirect, fluorescent downlights , Linear fluorescent wall washers at walls, one (1) accent pendant per team area
Board Room/Executive Office Area	Dimmable pendant direct / indirect, LED downlights at conference table and LED wall washers at perimeter
Copy/Main / Receiving / Storage / Files	2x4 pendant fluorescent direct/ indirect
Storage/Utility rooms	2x4 recessed direct/ indirect
Coffee Bar areas	Linear fluorescent under cabinets, recessed fluorescent down lights. Decorative pendant fixtures.
Café/Lunch area	Pendant fixtures general lighting; fluorescent downlights in GWB soffits; specialty pendants at bar seating; linear fluorescent under cabinet.
Testing Rooms	2x4 pendant fluorescent direct/ indirect. $150 each.
MDF / IDF	Strip Lighting.
IT Bench / GIO build labs	2x4 pendant fluorescent direct/ indirect
Misc labs	2x4 pendant fluorescent direct/ indirect
Game Room	Dimmable pendant direct / indirect, fluorescent downlights , Linear fluorescent wall washers at walls, one (1) accent pendant per team area
Security Room	2x4 recessed direct/ indirect, linear fluorescent under cabinet
Main Corridor	6” dia. Fluorescent LED downlights , Linear Wall Washers, Specialty pendants

Exclusions: (to be provided by Tenant as required)


1.	Furniture and workstations


2.	Plants and plant maintenance


3.	Office equipment (printers, copiers) and vending machines, coffee machines, etc.


4.	Interior way-finding and room signage (FOIC)


5.	Exterior Building signage


6.	Data & phone cabling, cameras & card readers.

44. ROOM SPECIFIC NOTES

No.: Description:


1	Reception: Provide minimum one (1) quadraplex, two (2) duplex and five (5) voice /data CAT6 cables; cabling by Tenant. Provide $15,000 allowance for custom reception desk. Allow for 64sf of plywood blocking in walls for support of signage / entry features. Signage by Tenant. Allow for wallcovering at one full wall.


2	Elevator Lobby:

Front Doors to be glass pivot doors as noted in section 08 2000. Back doors to be building standard with electric hardware and key card access. Provide allowance $2,000 for pendant fixtures. Provide allowance for 50 lin ft full height of vinyl wallcovering. Allowance for electrostatic repainting the elevator doors and frames.

Boardroom: Provide (2) core drills at table. Provide min of four (4) duplex and four(4) voice/data CAT6 cables on (2) walls; cabling by Tenant. Provide 4’ x 16’ backpainted glass whiteboard with pen tray and aluminum trim at one wall. Upgraded acoustical partitions. Provide motorized roller shades at exterior window. Provide 200sf of 1” acoustical fabric wrapped wall panels (allow $35/sy for fabric). P-lam front / solid surface top (4) bay trash/recycle casework with pull out drawer type of operation.

AV Requirements: Provide (1) double width AV credenza (p-lam front, solid surface top) with venting (vie 2 perforated louvers in the doors) and new pull out AV racks. Provide all pathways from credenza to table, projector and new cabling; cabling by Tenant. Provide and install (1) new 10’ motorized recessed projection screen and allow for (1) ceiling-mounted projector (projector furnished by tenant and installed by G.C.).

Bench : Provide 16lf built-in upholstered bench (seat and back) with wood veneer base along window wall of the Board Room. Assume $70/yd. fabric.


4	Focus / Phone rooms: Provide min two (2) duplex and one (1) voice /data on wall. Provide 4x8porcelain whiteboard with aluminum trim and pen tray. Provide acoustical wall panels, 50sf per room (assume $35/sy for fabric).

Small Conference Rooms: Provide min two (2) duplex and one (1) voice /data on wall. Provide (1) core drill at table with power / data and 1 ½” pathway to LCD screen location. Allow for three (2) duplex outlets and three (2) data/voice on walls. Allow for blocking in wall for tenant provided LCD screen and bracket. Provide 4’ x 12’ porcelain whiteboard with aluminum trim and pen tray. Provide acoustical wall panels, 75sf per room (assume $35/sy for fabric).


6	Conference Rooms (med/large): Provide (1) core drills at table with power / data (data by tenant) and 1 ½” pathway to LCD screen location. Allow for three (3) duplex outlets and three (3) data/voice on walls. Allow for blocking in wall for tenant provided LCD screen and

bracket. Provide 4’ x 16’ porcelain whiteboard with aluminum trim and pen tray. Provide acoustical wall panels, 120 SF per room (assume $35/sy for fabric).

Multi-purpose Room: Provide (4) core drills in room. Provide min of four (4) duplex and four(4) voice/data CAT6 drops on wall. Provide 4’ x 16’ backpainted glass whiteboard with pen tray and aluminum trim at one wall. Provide 200sf of 1” acoustical fabric wrapped wall panels (allow $35/sy for fabric). P-lam front / solid surface top (4) bay trash/recycle casework with pull out drawer type of operation. Provide (1) double width AV credenza (p-lam front, solid surface top). Provide all pathways from credenza to table, projector and new cabling; cabling by Tenant. Provide and install (1) new motorized recessed projection screen and allow for (1) ceiling-mounted projector (projector furnished by tenant and installed by G.C.).

Misc Labs/Testing Rooms: Provide (2) core drills in room for power/data/AV. Allow for six (6) quad outlets and (6) data/voice locations on walls (3 dedicated circuits). Allow for blocking in wall for tenant provided LCD screen and bracket. Provide 4’ x 10’ porcelain whiteboard with aluminum trim and pen tray. Provide window film at Private Testing Lab. Provide mini-blinds at interior relites at other labs.


9	IT Bench Lab / GIO Build Lab: Provide (2) core drills in room for power/data/AV. Allow for (6) quad outlets (dedicated circuits) and (6) data/voice locations on walls. Allow for blocking in wall for tenant provided LCD screen and bracket. Provide 4’ x 10’ porcelain whiteboard with aluminum trim and pen tray. Provide mini-blinds at interior relites.

Audio Production Suite: Provide (2) core drills in room for power/data/AV. Allow for (4) quad outlets (dedicated circuits) and (4) data/voice locations on walls. Allow for blocking in wall for tenant provided LCD screen and bracket. Allow for specialty acoustical wall and ceiling treatments ($35/sf) and an acoustical rating of NC-15 inside the room. Separate HVAC zone with acoustically appropriate air delivery and return design.

Coffee / Break: Plastic laminate closed base cabinet & closed upper cabinet with U/C lighting. Provide sink, trash and recycling drawers and, plumbing designed to facilitate attachment of coffee and hot water system. Solid surface countertop and tile backsplash. Provide water filter at sink. Allow for 50lf of full height vinyl wallcovering. Provide allowance for(6) pendant fixtures. Allow for (3) dedicated 20a duplex outlets, (1) GFI duplex outlet and (1) duplex outlet on a timer, (2) standard duplex outlets and two voice/data . Allow for blocking in wall for Tenant provided equipment. Provide one (1) new ADA sink/faucet and (2) waterlines with shut off valve at (2) refrigerators, (2) microwaves, and (1) dishwasher. Water line to filtered hot/cold water dispenser. Provide deck hung water heater with drip pan. Assume coffeemaker, water dispenser to be furnished by Tenant. Installation and connections by GC.


12	Copy: 10lf Plastic laminate closed base cabinet & closed upper cabinet with U/C lighting. Provide trash and recycling drawers. Allow for (2) dedicated 20a duplex outlets, four (4) standard quadraplex outlets and (6) voice data CAT6 drops; cabling by Tenant.


13	Mail/Receiving: 20lf Plastic laminate closed base cabinet & closed upper cabinet with U/C lighting. Allow for (2) dedicated 20a duplex outlets which will be shared w/ standard receptacles, (4) standard quadraplex outlets and six (6) voice data CAT6 drops.

Kitchen Area/ Café: Plastic laminate closed base cabinet & closed upper cabinet with U/C lighting. Solid surface countertop and tile backsplash and freestanding bar height island. Allow for 60lf of full height vinyl wallcovering. Provide (2) new ADA sinks with disposals, and four (4) waterlines with shut-off valves. (2) full size refrigerators, (4) microwaves, (1) icemaker and (2) ADA dishwashers. Provide pull out drawer trash and recycling base cabinets. Provide power/comm. for flat screen display by Tenant. Provide (10) dedicated 20a duplex outlets (equipment feeds will be dedicated, Tenant will value engineer if feasible), (2) GFI duplex outlets, (2) duplex outlets on timers, (6) standard duplex outlets and (4) voice/data CAT6 drops; cabling by Tenant. Allow for 32 sf of plywood wall blocking for Tenant provided equipment. Water line to filtered hot/cold water dispenser. Provide deck hung water heater with drip pan. Assume coffeemaker, water dispenser to be furnished by Tenant. Installation and connections by GC. Allow power for 4 vending machines and 2 cold cases.


15	Storage / file room: file storage, no casework. Provide min of two (2) duplex and one (1) voice/data CAT6 drop; cabling by Tenant.


16	Offices: Provide coat hook at door. One wall with accent paint. Provide 4 x 8 standard white board. Provide a min of (1) quad outlet and (1) duplex and (2) data/voice CAT6 drops; cabling by Tenant. Electric switchable privacy glass system at sidelite for one office (CEO).

IDF Room: Assume (1) per floor (except at floor with MDF) Allow for mechanical attachment of Tenant’s server racks. Assume (3) racks by tenant. Allow for one full wall FR plywood panel mounted to the wall for tenant’s phone system. Allow for 15 lf of suspended cable tray. Furnish and installed by contractor. Allow for (2) 6” PVC conduit sleeves for tenant’s low voltage cabling. Allow for (3) dedicated 20 amp duplex outlets, (3) 30 amp twist locks, and (3) voice/data CAT6 drops; cabling by Tenant. Allow for dedicated 24/7 cooling.

MDF Room: Assume (1) (location TBD) Allow for mechanical attachment of Tenant’s server racks. Assume (12) racks by tenant. Allow for two full walls FR plywood panels mounted to the wall for tenant’s phone system. Allow for 30 lf of suspended cable tray. Furnish and installed by contractor. Allow for (4) 6” PVC conduit sleeves for tenant’s low voltage cabling and two (2) floor core sleeves for connection to tenant IDF rooms. Allow for (12) 30 amp twist lock outlets, (4) dedicated 20 amp duplex outlets, (3) standard duplex outlets and two (2) voice/data CAT6 drops; cabling by Tenant. Allow for dedicated 24/7 cooling.

Open Office/ Workstations: By others. Power whips between furniture panels by furniture vendor. Provide power at wall (where one is adjacent to workstations panel) or flush floor poke-through, one location per 4 stations max. Poke-throughs to be designated to be as efficient as possible. A cubicle section of 8 will receive one poke-through w/ multiple circuits. Allow for (15) 4 x 8 standard whiteboards. Wall to whip connection by GC.


20	Powder Room : Match existing building restrooms.


21	Mother’s Room : Allow for three (3) duplex outlets and one (1) data/voice outlet. One lavatory and vanity. One under counter fridge.

Open Team : Provide plastic laminate bar height island (where shown on the plan), Allow for new 3’ x full height x ½” thick laminated tempered glass panels with white diffused laminate. Glass panels set in surface mounted floor and head aluminum channels. Plan on three (3) panels per teaming area. Allow for three (3) standard duplex outlets and two (2) voice /data. Allow for blocking in the wall for support of Tenant provided equipment. . Provide one (1) core drill per teaming area; use wall chase where practical to do so.


23	Game Room : Provide power/comm/AV/ data for owner provided screen and gaming console. Allow for four (2) data, three (3) duplex outlets. One wall to be painted with accent paint. Provide (1) core drill at table with power / data (data by tenant) and 1 ½” pathway to LCD screen location. Allow for blocking in wall for tenant provided LCD screen and bracket.


24	Security Room : Provide coat hook at door. Provide a min of four (4) dedicated duplex and four (4) data/voice.

End of Pricing Specifications

EXHIBIT C

LETTER OF CREDIT

See Attached

EXHIBIT D

RULES AND REGULATIONS

1. Landlord may from time to time adopt appropriate system(s) and procedures for the security and safety of the Building, any person occupying, using, or entering the Building, Project, or any equipment, finishing, or contents of the Building, and tenant will comply with Landlord’s reasonable requirements relative to such systems and procedures.

2. The plaza, sidewalks, halls, passages, exits, entrances, elevators, and stairways of the Building or Project will not be obstructed by any tenants or used by any of them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, elevators, and stairways are not for the general public, and Landlord will in all cases retain the right to control and prevent access to such halls, passages, exits, entrances, elevators, and stairways of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation, and interests of the Building and its tenants, provided that nothing contained in these rules and regulations will be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee, independent contractor or invitee of any tenant will go upon the roof of the Building except for the express purpose of repairing Tenant’s three (3) satellite dishes permitted on the roof of the Building. Except as expressly permitted in the Lease, no tenant will be permitted to place or install any object (including without limitation radio and television antennas, loudspeakers, sound amplifiers, microwave dishes, solar devices or similar devices) on the exterior of the Building or on the roof of the Building.

3. No sign, placard, picture, name, advertisement, or written notice visible from the exterior of tenant’s premises will be inscribed, painted, affixed, or otherwise displayed by tenant on any part of the Building or the Premises without the prior written consent of Landlord. Landlord will adopt and furnish to Tenant general guidelines relating to signs inside the Building on the office floors. Tenant agrees to conform to such guidelines. All approved signs or lettering on doors will be printed, painted, affixed, or inscribed at the expense of Tenant by a person approved by Landlord. Other than draperies expressly permitted by Landlord and Building standard mini-blinds, material visible from the outside the Building will not be permitted. In the event of the violation of this rule by tenant, Landlord may remove the violating items without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule.

4. No cooking will be done or permitted by any tenant on the premises, except in areas of the premises which are specially constructed for cooking and except that the use by the tenant of microwave ovens and Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot chocolate, and similar beverages will be permitted, provided that such use is in accordance with all applicable federal, state, and city laws, codes, ordinances, rules, and regulations.

5. No tenant will employ any person or persons other than the cleaning service of Landlord for the purpose of cleaning the premises, unless otherwise agreed to by Landlord in writing. Except with the written consent of Landlord, no person or persons other than those approved by Landlord will be permitted to enter the Building for the purpose of cleaning it. No tenant will cause any unnecessary labor by reason of such tenant’s carelessness or indifference in the preservation of good order and cleanliness. Should tenant’s actions result in any increased expense for any required cleaning, Landlord reserves the right to assess Tenant for such expenses.

6. The toilet rooms, toilets, urinals, wash bowls and other plumbing fixtures will not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other foreign substances will be thrown in such plumbing fixtures. All damages resulting from any misuse of the fixtures will be borne by Tenant who, or whose employees, independent contractors, agents, visitors, or licensees, caused the same.

7. No tenant will in any way deface any part of the premises or the Building of which they form a part. In those portions of the premises where carpet has been provided directly or indirectly by Landlord, Tenant will at its own expense install and maintain pads to protect the carpet under all furniture having caster other than carpet casters.

8. No tenant will alter, change, replace, or rekey any lock or install a new lock on any door of the Premises. Landlord, its agents, or employees will retain a pass (master) key to all door locks on the Premises. Any new door locks required by Tenant or any change in keying of existing locks will be installed or changed by Landlord following tenant’s written request to Landlord and will be at tenant’s expense. All new locks and rekeyed locks will remain operable by Landlord’s pass (master) key. Landlord will furnish each tenant, free of charge, with five (5) keys to each door lock on the premises and five (5) Building/access cards. Landlord will have the right to collect a reasonable charge for additional keys and cards requested by any tenant. Each tenant, upon termination of its tenancy, will deliver to Landlord all keys and access cards for the premises and Building that have been furnished to such tenant.

9. The elevator designated for freight by Landlord will be available for use by all tenants in the Building during the hours and pursuant to such procedures as Landlord may determine from time to time. The moving company must be a locally recognized professional mover whose primary business is the performing of relocation services, and must be bonded and fully insured. A certificate or other verification of such insurance must be received and approved by Landlord prior to the start of any moving operations. Insurance must be sufficient, in Landlord’s sole opinion, to cover all personal liability, theft or damage to the Project, including but not limited to floor coverings, doors, walls, elevators, stairs, foliage, and landscaping. Special care must be taken to prevent damage to foliage and landscaping during adverse weather. All moving operations will be conducted at such times and in such a manner as Landlord will direct, and all moving will take place during non-business hours unless Landlord agrees in writing otherwise. Tenant will be responsible for the provision of Building security during all moving operations, and will be liable for all losses and damages sustained by any party as a result of the failure to supply adequate security. Landlord will have the right to prescribe the weight, size, and position of all equipment, materials, furniture, or other property brought into the Building. Heavy objects will, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and all damage done to the Building by moving or maintaining such property will be repaired at the expense of tenant. Landlord reserves the right to inspect all such property to be brought into the Building and to exclude from the Building all such property which violates any of these rules and regulations or the lease of which these rules and regulations are a part. Supplies, goods, materials, packages, furniture, and all other items of every kind delivered to or taken from the premises will be delivered or removed through the entrance and route designated by Landlord, and Landlord will not be responsible for the loss or damage of any such property unless such loss or damage results from the negligence of Landlord, its agents, or employees.

10. No tenant will use or keep in the premises or the Building any kerosene, gasoline, or inflammable or combustible or explosive fluid or material or chemical substance other than limited quantities of such materials or substances reasonably necessary for the operation or maintenance of office equipment or limited quantities of cleaning fluids and solvents required in tenant’s normal operations in the premises. Without Landlord’s prior written approval, no tenant will use any method of heating or air conditioning other than that supplied by Landlord. No tenant will use or keep or permit to be used or kept any foul or noxious gas or substance in the premises.

11. Landlord will have the right, exercisable upon written notice and without liability to any tenant, to change the name and street address of the Building.

12. Landlord will have the right to prohibit any advertising by tenant mentioning the Building that, in Landlord’s reasonable opinion, tends to impair the reputation of the Building or its desirability as a Building for offices, and upon written notice from Landlord, tenant will refrain from or discontinue such advertising.

13. Tenant will not bring any animals (except Service Dogs) into the Building, and will not permit bicycles or other vehicles inside or on the sidewalks outside the Building except in areas designated from time to time by Landlord for such purposes.

14. All persons entering or leaving the Building between the hours of 6 p.m. and 7 a.m. Monday through Friday, and at all hours on Saturdays, Sundays, and holidays will comply with such off-hour regulations as Landlord may establish and modify from time to time. Landlord reserves the right to limit reasonably or restrict access to the Building during such time periods.

15. Each tenant will store all its trash and garbage within its premises. No material will be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal will be made only through entryways and elevators provided for such purposes and at such times as Landlord designates. Removal of any furniture or furnishings, large equipment, packing crates, packing materials, and boxes will be the responsibility of each tenant and such items may not be disposed of in the Building trash receptacles nor will they be removed by the Building’s janitorial service, except at Landlord’s sole option and at the tenant’s expense. No furniture, appliance, equipment, or flammable products of any type may be disposed of in the Building trash receptacles. See also Article 33 of the Lease for further requirements regarding disposal of trash and garbage.

16. Canvassing, peddling, soliciting, and distributing handbills or any other written materials in the Building is prohibited. Each tenant will cooperate to prevent the same.

17. The requirements of the tenants will be attended to only upon application by written, personal, or telephone notice at the office of the property manager of Landlord. Property manager may not do anything outside of their regular duties unless under special instructions from Landlord.

18. Landlord shall provide Building standard elevator lobby signage at its sole cost, however any exterior or façade signage will require approval from Landlord and will be installed at tenant’s sole expense and in compliance with all applicable laws, covenants, codes and restrictions.

19. Tenant will see that the doors of the Premises are closed and locked and that all water faucets, water apparatus, and utilities are shut off before Tenant or Tenant’s employees leave the

Premises, so as to prevent waste or damage, and for any default or carelessness. In this regard Tenant will pay for all repairs and compensate for all injuries sustained by other tenants or occupants of the Building or Landlord. On multiple-tenancy floors, all tenants will keep the doors to the Building corridors closed at all times except for ingress and egress.

20. Tenant will not conduct itself in any manner that is inconsistent with the character of the Building as a Class A quality Building or that will impair the comfort and convenience of the tenants in the Building.

21. Neither Landlord nor any operator of the parking areas within the Project, as the same are designated and modified by Landlord, in its sole discretion, from time to time (the “parking areas”) will be liable for loss of or damage to any vehicle or any contents of such vehicle or accessories to any such vehicle, or any property left in any of the parking areas, resulting from fire, theft, vandalism, accident, conduct of other users of the parking areas and other persons, or any other casualty or cause. Further, Tenant understands and agrees that: (a) Landlord will not be obligated to provide any traffic control, security protection or operator for the parking areas; (b) Tenant uses the parking areas at its own risk; and (c) Landlord will not be liable for personal injury or death, or theft, loss of, or damage to property. Tenant waives and releases Landlord from any and all liability arising out of the use of the parking areas by tenant, its employees, agents, invitees, and visitors, whether brought by any of such persons or any other person.

22. Tenant (including tenant’s employees, agents, invitees, and visitors) will use the parking spaces solely for the purpose of parking passenger cars, small vans, and small trucks and will comply in all respects with any rules and regulations that may be promulgated by Landlord from time to time with respect to the parking areas. The parking areas may be used by tenant, its agents, or employees, for occasional overnight parking of vehicles. Tenant will ensure that any vehicle parked in any of the parking spaces will be kept in proper repair and will not leak excessive amounts of oil or grease or any amount of gasoline. If any of the parking spaces are at any time used (a) for any purpose other than parking as provided above; (b) in any way or manner reasonably objectionable to Landlord; or (c) by tenant after default by tenant under the lease, Landlord, in addition to any other rights otherwise available to Landlord, may consider such default an event of default under the lease.

23. Tenant’s right to use the parking areas will be in common with other tenants of the Project and with other parties permitted by Landlord to use the parking areas. Landlord reserves the right to assign and reassign, from time to time, particular parking spaces for use by persons selected by Landlord, provided that tenant’s rights under the lease are preserved. Landlord will not be liable to Tenant for any unavailability of Tenant’s designated spaces, if any, nor will any unavailability entitle Tenant to any refund, deduction, or allowance. Tenant will not park in any space designated as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME PARKING (or similar designation).

24. If the parking areas are damaged or destroyed, or if the use of the parking areas is limited or prohibited by any governmental authority, or the use or operation of the parking areas is limited or prevented by strikes or other labor difficulties or other causes beyond Landlord’s control, Tenant’s inability to use the parking spaces will not subject Landlord or any operator of the parking areas to any liability to Tenant and will not relieve Tenant of any of its obligations under the lease and lease will remain in full force and effect.

25. Tenant has no right to assign or sublicense any of its rights in the parking spaces, except as part of a permitted assignment or sublease of the lease; however, Tenant may allocate the parking spaces among its employees or independent contractors.

26. No act or thing done or omitted to be done by Landlord or Landlord’s agent during the term of the lease in connection with the enforcement of these rules and regulations will constitute an eviction by Landlord of any tenant nor will it be deemed an acceptance of surrender of the premises by any tenant, and no agreement to accept such termination or surrender will be valid unless in a writing signed by Landlord. The delivery of keys to any employee or agent of Landlord will not operate as a termination of the lease or a surrender of the premises unless such delivery of keys is done in connection with a written instrument executed by Landlord approving the termination or surrender.

27. In these rules and regulations, tenant includes the employees, agents, invitees, and licensees of tenant and others permitted by Tenant to use or occupy the premises.

28. Landlord may waive any one or more of these rules and regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord will be construed as a waiver of such rules and regulations in favor of any other tenant or tenants, nor prevent Landlord from enforcing any such rules and regulations against any or all of the tenants of the Building after such waiver.

29. These rules and regulations are in addition to, and will not be construed to modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of the lease.

30. Tenant shall keep Landlord advised of the current telephone numbers of tenants’ employees who may be contacted in an emergency; i.e. fire, break-in, vandalism, etc.

31. Tenant will not smoke or permit its employee or invitees to smoke in the Project.

EXHIBIT E

LANDLORD IMPROVEMENTS

See attached

EXHIBIT F

EMPLOYER AFFIDAVIT

State of Washington

County of King

My full name is _______________________________. I am over the age of 18 and competent to declare the following:

I am the ________________ (officer title) of ___________________________________(company).

_____________________________________(company name) moved into the premises located at __________________________________ on _________ date and we occupy ______ square feet of space. Our principle business is ____________________________________________________.

As of ______________ date _____________________________ (company) employs ___ full time employees each of whom work 35 or more hours per week; ___ employees who specifically share ___ jobs; and part time employees who in the aggregate work ________ hours per week.

I understand that this information is provided to the Department of Homeland Security to support several permanent residence visa petitions and that the Department of Homeland Security will rely on this information in making its determination of eligibility.

I declare under penalty of perjury that the foregoing is true and correct.

Executed on ______________[date]

_____________________________ [signature]

EXHIBIT G

EXHIBIT H

EXTERIOR SIGNAGE

See attached

Exhibit 10.3

August 24, 2012

Michael Parham

1917 10th Ave. W.

Seattle, WA 98119

Dear Michael:

I am extremely pleased to offer you a promotion to the position of Senior Vice President & General Counsel . In this new role, you will continue to report directly to me. The effective date of this promotion will be the pay period beginning August 16, 2012 .

Your responsibilities will continue to be as directed by Real and myself. This position continues as a full-time, exempt, regular position. You will accrue vacation and sick leave at the same rate you did before. Your benefits will continue uninterrupted, unless you change your work hours from full-time to something less.

You will be paid a salary, which is equivalent on an annualized basis to $260,000.00 (subject to normal withholdings), payable semi-monthly in accordance with our normal payroll procedures.

You remain eligible to participate in Real's Executive Management Bonus Plan; however your new annual target shall be 45% of your new base salary or $117,000.00 for an annualized total compensation target of $377,000.00 . For the 2012 plan year, your eligibility in the Executive MBO Incentive Plan will be pro-rated based on full months' eligibility. Eligible employees promoted after the first of the month will not begin proration of the new bonus target until the first day of the next month.

For the 2012 plan year, your annual bonus will be prorated as follows:


•	For the period Jan 1- August 31 , your annual target for the 2012 plan year was 20% of your then current base salary, so 8/12 ^th of a full year's target is $29,533.00 .


•	For the period Sept 1- Dec 31 , your annual target for the 2012 plan year will be 45% of your new salary, so 4/12 ^th of a full year's target is $39,000.00 for a 2012 blended target of $68,533.00.

You will also earn equity in RealNetworks under the terms of RealNetworks 2005 Stock Incentive Plan. Subject to and effective upon the commencement of your promotion and the approval of the Compensation Committee of RealNetworks Board of Directors ("Compensation Committee"), you will receive a grant of stock options for the purchase of 70,000 shares of RealNetworks Common Stock, which will begin vesting on the first day of your new position, and

will be subject to all other provisions contained in the Plan. These stock options will fully vest after four years of continuous employment.

You will also receive a grant of 10,000 restricted stock units (RSUs), also subject to Compensation Committee approval, which will begin vesting on the first day of your new position, and will fully vest after four years of continuous employment. These RSUs will also be subject to all other provisions contained in the Plan. Both your stock options and your RSUs will be granted by the Compensation Committee of RealNetworks Board of Directors no later than ten business days after the effective date of your promotion (the "Grant Date"). The exercise price of the stock options granted to you shall be equal to the fair market value of RealNetworks Common Stock on the Grant Date. Fair market value shall equal the last sales price for shares of RealNetworks Common Stock on the Grant Date as reported by the NASDAQ National Market. Please be aware that unvested stock is forfeited upon termination of employment.

Additionally, you will also receive a Performance Restricted Share Unit (PRSU) target grant of 50,000 PRSUs , which if earned over the performance period ending December 31, 2013 will vest upon completion of the performance goal which will be evaluated in early first quarter 2014. This PRSU award is subject to your performance and continued employment through the vesting date and subject to applicable tax withholdings. The details of your PRSU grant will be provided within 45 days of your promotion start date under separate cover.

You will continue to be regarded as a key employee under certain federal regulations governing family and medical leave. This status will require that you work closely with us in planning should you develop a need for family or medical leave.

In the event that RealNetworks terminates your employment without "cause" (as defined in Exhibit A), and in consideration for your signing (and not revoking) a customary separation and release agreement to be provided by RealNetworks at the time of termination, RealNetworks will provide you with a lump sum payment equal to twelve (12) months of your then current base salary on the payment terms set forth in this letter.

In addition to the severance benefit offered above, in the event of a "Change in Control", the Company agrees to provide you certain benefits as set forth in its Change of Control and Severance Agreement to be effective as of your start date, which agreement will be provided under separate cover shortly.

Our employment relationship will be terminable at will, which means that either you or RealNetworks may terminate your employment at any time and for any reason or no reason, subject only to the provision above to make certain payments if RealNetworks terminates your employment for reasons other than cause.

REAL PROVIDES EQUAL OPPORTUNITY IN EMPLOYMENT AND WILL ADMINISTER ITS POLICIES WITH REGARD TO RECRUITMENT, TRAINING, PROMOTION, TRANSFER, DEMOTION, LAYOFF, TERMINATION, COMPENSATION AND BENEFITS WITHOUT REGARD TO RACE, RELIGION, COLOR, NATIONAL ORIGIN,

CITIZENSHIP, MARITAL STATUS, SEX, SEXUAL ORIENTATION, AGE, DISABILITY OR STATUS AS A DISABLED VETERAN OR VETERAN OF THE VIETNAM ERA OR ANY OTHER CHARACTERISTIC OR STATUS PROTECTED BY APPLICABLE LAW.

This letter and the newly executed Development, Confidentiality and Noncompetition Agreement attached herein, and the RealNetworks, Inc. 2005 Stock Incentive Plan, contain the entire agreement between you and Real relating to your new job. This letter may not be modified except in writing signed by both you and Real. Any disputes regarding this letter or your employment with Real shall be governed by and construed in accordance with the laws of the State of Washington. If any provision of this letter is deemed to be invalid or unenforceable, at Real's option, the remaining terms shall continue in full force and effect. You agree to keep the terms of this letter and your offer strictly confidential and not to disclose them to anyone other than your spouse or partner, tax advisors and attorneys, provided you first obtain their agreement to keep the terms confidential.

If you have questions about this letter, please let me know.

This offer reflects our appreciation for your past contributions and our commitment to your continued career growth and success at RealNetworks.

Sincerely

/s/ Rob Glaser

Rob Glaser

Interim Chief Executive Officer

RealNetworks, Inc.

I have read and agree to the terms my promotion contained in this letter and the attached Development, Confidentiality and Noncompetition Agreement, which represent a full, complete and fair statement of the promotion offer made to me by RealNetworks, Inc. on this date.

Michael Parham: /s/ Michael Parham Date: 08/24/12

Exhibit A

Definition of "Cause"

For purposes of this letter, "cause" will mean the occurrence of any of the following: 1) your conviction of, or plea of nolo contendere to, a felony involving moral turpitude (including under Federal securities laws), resulting in material harm to RealNetworks; (2) your substantial and continuing failure after written notice thereof to render services to RealNetworks in accordance with the terms or requirements of your employment for reasons other than illness or incapacity; (3) your willful misconduct, gross negligence, fraud, embezzlement, theft, misrepresentation or dishonesty involving RealNetworks or any of its subsidiaries, resulting in any case in material harm to RealNetworks; or (4) your violation of any confidentiality or non-competition agreements with RealNetworks or its subsidiaries, resulting in material harm to RealNetworks.

Release and Section 409A

The receipt of any severance benefits pursuant to this letter will be subject to your signing and not revoking a release of any and all claims, in a form prescribed by RealNetworks I (the " Release ") and provided that such Release becomes effective and irrevocable no later than sixty (60) days following the termination date (such deadline, the " Release Deadline "). If you do not execute the Release on or prior to the date set forth in the Release for you to consider it, you will forfeit any rights to severance benefits under this letter. No severance benefits will be paid or provided until the Release becomes effective and irrevocable. Upon the Release becoming effective, any payments delayed from the date you terminate employment through the effective date of the Release will be payable in a lump sum without interest on the first payroll date after the Release becomes effective and irrevocable.

It is the intent of this letter that all payment and benefits hereunder comply with or be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and any guidance promulgated thereunder and any applicable state law requirements (" Section 409A ") so that none of the payments and benefits to be provided under this letter will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. Each payment and benefit payable under this letter is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. You and RealNetworks agree to work together in good faith to consider amendments to this letter and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A. Notwithstanding anything to the contrary in this letter, no severance pay or benefits to be paid or provided to you, if any, pursuant to this letter that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Section 409A (together, " Deferred Compensation ") or otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be paid or otherwise provided until you have a "separation from service" within the meaning of Section 409A. However, unless a later date is required by the next sentence, any severance

payments or benefits under this letter that would be considered Deferred Compensation will be paid on, or, in the case of installments, will not commence until, the sixtieth (60 ^th ) day following your separation from service and any installment payments that would have been made to you during the sixty (60) day period immediately following your separation from service but for this sentence will be paid to you on the sixtieth (60 ^th ) day following your separation from service and the remaining payments shall be made as provided in this letter. Further, if at the time of your termination of employment, you are a "specified employee" within the meaning of Section 409A, payment of such Deferred Compensation will be delayed to the extent necessary to avoid the imposition of the additional tax imposed under Section 409A, which generally means that you will receive payment on the first payroll date that occurs on or after the date that is six (6) months and one (1) day following your termination of employment, or your death, if earlier.

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Glaser, certify that:


1.	I have reviewed this report on Form 10-Q of RealNetworks, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 8, 2013

/s/ Robert Glaser
Robert Glaser
Title:	Chairman and interim Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tim M. Wan, certify that:


1.	I have reviewed this report on Form 10-Q of RealNetworks, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 8, 2013

/s/ Tim M. Wan
Tim M. Wan
Title:	Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Robert Glaser, Chairman of the Board of Directors and interim Chief Executive Officer of RealNetworks, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RealNetworks, Inc. on Form 10-Q for the fiscal quarter ended June 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of RealNetworks, Inc.



Date:	August 8, 2013

By:	/s/ Robert Glaser
	Name:	Robert Glaser
	Title:	Chairman and interim Chief Executive Officer
		(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to RealNetworks, Inc. and will be retained by RealNetworks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RealNetworks, Inc. on Form 10-Q for the fiscal quarter ended June 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of RealNetworks, Inc.



Date:	August 8, 2013

By:	/s/ Tim M. Wan
	Name:	Tim M. Wan
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)