Microsoft Letter of 5/21/2002

Attention:          RealNames Corporation c/o Terri Holbrooke
RealNames Corporation Board of Directors

You have requested comment on the portions of RealNames' dissolution plan provided to Microsoft on May 8, 2002, and implemented on May 10, 2002.  In response, we urge the Board to give immediate and serious reconsideration to reducing the cost of liquidation and increasing the payment to customer creditors (i.e., Keyword resellers and customers).  Microsoft volunteers to waive its right, as a substantial creditor, to participate in its share of any pro rata distribution available as a result of dollars saved through reducing transition expenses so that the distribution to other creditors, primarily resellers and customers, can be increased.

RealNames currently plans to use $1,193,998 to continue operations through the transition period.  We propose that the Board reduce these transition expenses, particularly funds intended for executive bonuses, which are excessive so that much of this money can be distributed to non-Microsoft creditors, primarily resellers and customers.

Decisions about liquidation are the responsibility of RealNames' corporate officers and its Board of Directors who owe fiduciary duties to various constituents; this fiduciary duty extends to all of RealNames' creditors, which include its customers and resellers as well as Microsoft.  Based on the information provided by RealNames on May 8 and a telephone discussion with Terri Holbrooke on May 9, Microsoft concludes that some of these wind-down expenditures are excessive.  Microsoft is concerned, in particular, that the executive bonuses and transition expenses that RealNames proposes to pay do not satisfy the fiduciary duties owed to all creditors.

Microsoft notes that at least one Board member benefits from the generous severance and transition package and, as such, appears to have a conflict of interest.  RealNames' dissolution plan shows Board President and CEO, Keith Teare, receiving severance of $80,769, vacation pay of $21,350 and, on a going forward basis, compensation at double his $300,000 annual salary.  Such compensation arrangements are excessive in light of RealNames' conclusion that it will have insufficient funds to pay its creditors.  We trust the Board deliberations and decisions on the severance and transition plans were properly protected from the influence of conflicts of interest. 

Furthermore, events have occurred since May 10 that merit comment.

In addition to its obligations under the Non-Disclosure Agreement, RealNames has duties under the License and Marketing Agreement relating to public announcements and press releases which, if honored, would promote fair and balanced communications to the public.  However, RealNames and members of its transition team (primarily through Keith Teare) have elected to repudiate these obligations, to disclose confidential information, to unilaterally issue misleading press releases and to communicate misleading information to RealNames' customers and resellers.  Such divulging of confidential information and the patently misleading innuendo of the communications may also constitute a breach of the BoardŐs fiduciary duty to creditors; that is its resellers, customers, lenders and vendors.  In response to this misinformation, customers and resellers are contacting Microsoft, complaining about non-renewal of the License and Marketing Agreement. 

The actual facts are undisputed.  Amendment No. 2 to the License and Marketing Agreement signed by RealNames on October 3, 2001, specifically states:

RN acknowledges the possibility that this Agreement will not be renewed by Microsoft, and agrees that it has not and will not expressly represent anything to the contrary to the press or to third parties, including to other business vendors, associates or partners. (¶7.C.)

Amendment No. 3 to the License and Marketing Agreement signed by RealNames on March 3, 2002, states:

RN acknowledges the likelihood that the Agreement will not be renewed by Microsoft beyond June 28, 2002, and RN agrees that it has not and will not expressly represent anything to the contrary to the press or to third parties, including to other business vendors, customers, investors, creditors, associates, or partners.  (¶3.)

Despite RealNamesŐ acknowledgement and commitment to Microsoft, communications received by Microsoft from RealNamesŐ customers and resellers suggests that RealNames previously misled its customers and resellers, as it continues to do in recent statements to the press as well to its customers and resellers.

Microsoft has no direct relationship with RealNames' customers and resellers relating to Internet Keywords.  Microsoft was not involved in negotiations between RealNames and its customers and resellers.  Moreover, Microsoft is not a party to any agreement between RealNames and its channel partners.  However, since May 10, Microsoft has received numerous communications from these persons, who are reacting to RealNamesŐ dissemination of false and disparaging statements.

Accordingly, Microsoft requests that RealNames immediately take remedial steps to provide fair and accurate information to its customers and resellers.  Specifically, we invite your attention to the web site at weblog.teare.com.

Please be advised that in light of RealNames actions, Microsoft may elect to disclose to affected parties, particularly RealNamesŐ resellers and customers, the actual facts such as the terms of the Agreements as referenced above.

If RealNames or anyone provided with the contents of this communication elects to post, summarize, or otherwise make public comment on any portion of this e-mail through use of a website or other medium, Microsoft will make the entire contents of this communication public to prevent the perpetuation of misleading and incomplete disclosures. 

Microsoft requests a response by close of business Wednesday, May 22, to this request for corrective action and communication by RealNames with its customers and resellers. 

Sincerely,

 

John Krass

MSN Search

Microsoft Corporation

 

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