<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 24, 1997
GEOWORKS
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(Exact name of registrant as specified in its charter)
California 0-23926 94-2920371
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
960 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94043
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 814-1660
N/A
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(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 24, 1997 (the "Initial Closing Date"), pursuant to a
Recommended Offer (the "Offer"), Geoworks acquired over 90% of the issued
Ordinary Share capital of Eden Group Limited ("Eden"), a private limited company
registered under the laws of England and Wales. As of March 6, 1997, Geoworks
had received acceptances of the Offer with respect to approximately 99.5% of the
issued Ordinary Share capital of Eden. Geoworks intends to acquire the remaining
Ordinary Shares of Eden either through further acceptances of the Offer or
compulsorily under English law. As a result of the acquisition, Eden became a
subsidiary of Geoworks. Geoworks develops and markets operating system and
applications software for the emerging market of mobile communications devices,
electronic organizers, and smart phones. Eden develops and licenses software for
the compact consumer electronics and communications products market.
Pursuant to the Offer, Geoworks agreed to issue 1,304,250 shares of its
Common Stock (the "Consideration Shares") in exchange for all of the issued and
outstanding Ordinary Share capital of Eden. Based upon the capitalization of
Eden as of the Initial Closing Date, each outstanding Ordinary Share of Eden
exchanged in the Offer was converted into the right to receive approximately
0.8673 shares of Geoworks Common Stock (the "Exchange Ratio"). Immediately prior
to the Initial Closing Date, all outstanding options to purchase Ordinary Shares
of Eden were exercised in full, and the Ordinary Shares of Eden issued upon the
exercise of such options were exchanged for Geoworks Common Stock pursuant to
the Offer. In addition, certain loans of Eden were converted into Ordinary
Shares of Eden immediately prior to the Initial Closing Date, and such Ordinary
Shares were exchanged for Geoworks Common Stock pursuant to the Offer.
Separately from the Offer, but as a condition to completion of the Offer,
Geoworks acquired all of the issued Preference Shares in the capital of Eden for
(pound)100.00 cash.
In connection with the acquisition of Eden, Geoworks also entered into
a Warranty and Covenant Agreement (the "Warranty Agreement") with certain former
shareholders of Eden. Pursuant to the Warranty Agreement, three former
shareholders of Eden (the "Warrantors") made certain representations, warranties
and covenants with respect to Eden's business, operations and condition. In
order to compensate Geoworks for a breach of any of the representations,
warranties or covenants contained in the Warranty Agreement, the Warrantors
agreed to deposit into escrow, out of the Consideration Shares otherwise
issuable to them pursuant to the Offer, an amount of shares equal to five
percent (5%) of the total Consideration Shares issued pursuant to the Offer.
Also in connection with the acquisition, Geoworks agreed to grant the
former shareholders of Eden certain rights to have the Consideration Shares
registered with the Securities and Exchange Commission for subsequent resale.
Pursuant to a Declaration of Registration Rights, Geoworks has agreed to file a
Registration Statement on Form S-3 promptly following the completion of the
Offer and to keep such Registration Statement effective for the shorter of two
years or the minimum holding period under Rule 144(d), subject to certain
conditions.
The consideration paid by Geoworks for the Consideration Shares was
determined pursuant to arms' length negotiations and took into account various
factors concerning the valuation of the business of Eden, including public
market valuations of comparable companies, discounted cash flows for Eden, and
multiples paid in recent acquisitions of comparable companies.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Eden Group Limited
Because the impact of the acquired business does not meet the minimum
materiality threshold of Rule 3-05(b)(2)(i) of Regulation S-X (17 C.F.R. ss.
210.3-05(b)(2)(i)), financial information of the acquired business is not
required to be filed pursuant to Item 7(a) of this Form 8-K.
(b) Pro Forma Financial Information.
Pro forma financial information is not required to be filed pursuant to
Item 7(b) of this Form 8-K because: (i) separate financial statements of the
acquired business are not included in this filing, see 17 C.F.R. ss.
210.11-01(c); and (ii) the acquired business does not qualify as a "significant
subsidiary" under 17 C.F.R. ss. 210.11-01(b)(1).
(c) Exhibits
2.1 Recommended Offer to Purchase the Entire Issued Share Capital of
Eden Group Limited
2.2 Warranty and Covenant Agreement in relation to Eden Group
Limited
2.3 Escrow Agreement
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<PAGE> 4
SIGNATURES
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 hereunto duly authorized.
Dated: March 10, 1997 GEOWORKS
/s/ Daniel L. Sicotte
Daniel L. Sicotte
Controller (Principal Financial and
Accounting Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
2.1 -- Recommended Offer to Purchase the Entire Issued Share
Capital of Eden Group Limited
2.2 -- Warranty and Covenant Agreement in relation to Eden Group
Limited
2.3 -- Escrow Agreement
<PAGE> 1
Exhibit 2.1
Document No ..............................................................
Name of Recipient .......................................................
RECOMMENDED OFFER TO PURCHASE
THE ENTIRE ISSUED SHARE CAPITAL OF
EDEN GROUP LIMITED
<PAGE> 2
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF
YOU ARE IN ANY DOUBT ABOUT THIS OFFER OR WHAT ACTION TO TAKE YOU
SHOULD CONSULT A PERSON AUTHORISED UNDER THE UNITED KINGDOM FINANCIAL
SERVICES ACT 1986, WHO SPECIALISES IN ADVISING ON THE SALE OF SHARES
SUCH AS A FINANCIAL ADVISER, SOLICITOR, ACCOUNTANT, STOCKBROKER OR
BANK MANAGER.
IF YOU HAVE DISPOSED OF ANY OF YOUR ORDINARY SHARES IN
EDEN GROUP LIMITED, PLEASE IMMEDIATELY NOTIFY S J BERWIN & CO, THE
SOLICITORS TO GEOWORKS, BY TELEPHONE (0171 533 2222 REF: 11/383) OF
THE NAME AND ADDRESS OF THE PERSON TO WHOM YOU EFFECTED THE DISPOSAL.
RECOMMENDED OFFER
by
GEOWORKS
of 1,304,250 shares of Common Stock of no par value
in the capital of Geoworks
in consideration for the sale to Geoworks of the
entire issued and to be issued ordinary share capital of
EDEN GROUP LIMITED
The terms of the offer contained in this document are recommended by
all the directors of Eden Group Limited.
The issue of this document has been approved by Geoworks and by the
directors of Eden. Geoworks and the directors of Eden have taken all
reasonable care to ensure that the facts stated and opinions
expressed herein regarding Geoworks and Eden respectively are fair
and accurate and that no material facts concerning Geoworks and Eden
respectively have been omitted.
This document has been approved for the purposes of section 57 of the
United Kingdom Financial Services Act 1986 by Robson Rhodes,
chartered accountants, who are authorised by the Institute of
Chartered Accountants in England and Wales to carry on investment
business.
ACCEPTANCES OF THE OFFER SHOULD BE RETURNED AS SOON AS POSSIBLE. IT
IS GEOWORKS' INTENTION TO DECLARE THE OFFER UNCONDITIONAL WHEN
ACCEPTANCES HAVE BEEN RECEIVED FROM THE HOLDERS OF NOT LESS THAN 90
PER CENT. OF THE EDEN ORDINARY SHARES. THEREAFTER, THE OFFER WILL
REMAIN OPEN FOR ACCEPTANCE UNTIL THE CLOSE OF BUSINESS ON 14 MARCH
1997. THE PROCEDURE FOR ACCEPTANCE IS SET OUT ON PAGE 33. FORM(S)
OF ACCEPTANCE ACCOMPANY THIS DOCUMENT.
<PAGE> 3
CONTENTS
<TABLE>
<CAPTION>
DOCUMENT PAGE
<S> <C> <C>
1 Summary of Offer and Offer Timetable 6
2 Letter from Dennis Taylor, Chairman of Eden Group Limited 9
3 The Offer from Geoworks 14
4 Appendix I - Rights attaching to the Consideration Shares 34
in Geoworks
5 Appendix II - Further information relating to Geoworks and Eden 37
6 Appendix III - List of Eden optionholders 41
7 Appendix IV - Summary of changes to the rights of Eden
shareholders following Completion of the Offer 42
8 Appendix V - Notice, proxy form and instructions for the 48
extraordinary general meeting of Eden
9 Appendix VI - Form of Acceptance and Authority 53
10 Appendix VII - Declaration of Registration Rights 59
</TABLE>
2
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DEFINITIONS
(1) In this document the following expressions have the meanings set out
below:
<TABLE>
<S> <C>
3i 3i Group plc and 3i plc, as the context requires
Acer A.I.I. Holding Corporation
Affiliate Agreement(s) agreements among Geoworks, Eden and certain directors, officers and significant
shareholders of Eden (each "Affiliates") restricting the transfer of shares of Geoworks
Common Stock following the Closing to ensure treatment of the business combination
following Closing as a pooling of interests for accounting and financial reporting
purposes
Closing or Completion the Offer becoming unconditional in all respects, or being declared unconditional by
Geoworks
Common Stock fully paid shares of common stock of no par value in the capital of Geoworks
Consideration Shares 1,304,250 shares of Common Stock having the rights described in Appendix I
Declaration of Registration Rights the Declaration of Registration Rights given by Geoworks for the benefit of all Eden
shareholders accepting the Offer, a copy of which appears as Appendix VII
Eden Eden Group Limited, a private limited company registered in England and Wales under the
Companies Act 1985 with no 2357515
Eden Employee Options the options granted by Eden pursuant to Eden's Executive Directors Share Option Scheme,
the Non-executive Directors Share Option Schemes and Key Employees Share Option Scheme,
which give optionholders the right to subscribe for 151,650 ordinary shares in Eden in
aggregate
Eden Options options to subscribe for Ordinary Shares subsisting at the date of this document
Enlarged Group Geoworks and Eden
Escrow Agent the escrow agent to be appointed pursuant to the Escrow Agreement
Escrow Agreement the agreement between the Escrow Agent, Geoworks and David E J Crisp as agent of the
Warrantors
</TABLE>
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<TABLE>
<S> <C>
Escrow Amount 65,213 of the Consideration Shares issued by Geoworks to the Warrantors, to be held by
the Escrow Agent under the Escrow Agreement
Exchange Ratio 0.8673, representing the number of Consideration Shares to be issued for each Ordinary
Share
the Executives David E J Crisp, Alistair Jenkins, David L Stevens and Dennis P Taylor
Final Closing Date 14 March 1997, the last date for acceptances of the Offer unless extended prior to that
date in accordance with the terms of the Offer
Geoworks Geoworks, a California corporation, whose principal office is at 960 Atlantic Avenue,
Alameda, California 94501, United States of America
Initial Closing Date the date on which the Offer becomes unconditional, or Geoworks declares the Offer
unconditional, having received acceptances from the holders of not less than 90 per
cent. of the Ordinary Shares, in accordance with the terms of the Offer
the Offer the offer being made by Geoworks for the entire issued Ordinary Share capital of Eden,
the terms of which are set out in this document
the Ordinary Shares 1,503,877 ordinary shares of L.0.10 each in the capital of Eden, comprising the entire
issued ordinary share capital of Eden on the date hereof and including all Ordinary
Shares which will be issued upon exercise of all outstanding options to subscribe for
Eden Ordinary Shares and upon capitalisation of the Shareholder Loans described in
paragraph 2.8
Preference Shares 977,342 redeemable cumulative preference shares of L.1 each in the capital of Eden
Preference Share Agreement the agreement dated 12 February 1997 between Geoworks and each of 3i plc and 3i Group
plc for the sale of all the issued Preference Shares for an aggregate of L.100 (being
the fair value for such shares in the opinion of Geoworks) in cash
Shareholder Loans the loans which will be due and payable on Completion by Eden to 3i Group plc and Acer,
totalling L.1,072,770 principal and L.171,459 interest, in aggregate, as at 24 February
1997
the Warrantors David EJ Crisp, David L Stevens and Alistair Jenkins
Warranty and Covenant Agreement the Warranty and Covenant agreement dated 12 February 1997 and made between Geoworks,
the Warrantors and others, referred to on page 9, a copy of
</TABLE>
4
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which is available for inspection in accordance with paragraph 18
(2) References to "paragraph" are to the paragraphs of the Offer set out
in the letter from Geoworks beginning on page 14 of this document.
(3) In this document a currency exchange rate of L.1.00:US$1.6230, being
the rate current at the close of business on 7 February 1997, has
been assumed for all purposes.
5
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SUMMARY OF THE OFFER
1 This document relates to a conditional offer by Geoworks to acquire
all the issued and to be issued Ordinary Shares in the capital of
Eden in return for the issue to each holder of Ordinary Shares of
approximately 0.8673 shares of Common Stock in the capital of
Geoworks ("the Consideration Shares") for each Ordinary Share held,
representing approximately US$31,041,897, based on the average
closing price quoted on Nasdaq of Geoworks Common Stock, for the
period of 30 trading days ended on 7 February 1997.
2 The Exchange Ratio is based upon the entire issued Ordinary Share
capital of Eden as at 12 February 1997 comprising 1,228,005 Ordinary
Shares, plus the aggregate number of Ordinary Shares that will be
issued upon exercise of Eden Options, comprising 178,040 Ordinary
Shares and the 97,832 Ordinary Shares which will be issued upon the
capitalisation of the Shareholder Loans described in paragraph 2.8.
3 65,213 of the Consideration Shares to be issued to the Warrantors
will be deposited with the Escrow Agent to be held as the Escrow
Amount which shall be available to compensate Geoworks in connection
with breaches of the representations, warranties, covenants,
undertakings and indemnities set out in the Warranty and Covenant
Agreement. The obligations of the Warrantors for losses suffered by
Geoworks for such breaches shall be limited to each Warrantor's
proportionate share of the Escrow Amount.
4 Separately from the Offer (and conditionally upon Closing), Geoworks
has agreed to acquire the entire issued preference share capital of
Eden, comprising 977,342 Preference Shares, pursuant to the
Preference Share Agreement, in consideration for the payment by
Geoworks to the holders of the Preference Shares of L.100 (fair
value) in cash in aggregate.
5 Geoworks has agreed with each holder of Eden Employee Options that,
conditionally upon the making of the Offer by Geoworks, such
optionholders may exercise their options in full pursuant to the
applicable Eden Employee Option scheme and sell the resulting
Ordinary Shares to Geoworks on the terms of the Offer. In the
absence of such exercise pursuant to the applicable Eden Employee
Option scheme, Geoworks has agreed to provide a loan at the time of
closing of the Offer to each such holder of the exercise price
payable to Eden on exercise of such options, and Geoworks will be
authorised to repay immediately such loans by set off against the
Consideration Shares that would otherwise have been issued to such
holders such number of shares as is equal in value to the amount
required to repay the loan from Geoworks to such holder. The Offer
is also made to other holders of Eden Options, comprising 3i Group
plc (2,000 shares) and Henry Cooke Lumsden (London) Limited (24,390
shares), in respect of the shares arising upon exercise of such
options.
6 Geoworks proposes to acquire the entire Ordinary Share capital of
Eden in exchange for the issue of shares of Common Stock in the
capital of Geoworks to Eden shareholders. Assuming the completion of
the proposed transaction, Eden will become a subsidiary of Geoworks,
and the current shareholders and optionholders of Eden will become
shareholders of Geoworks. Thereafter, the shareholders and
optionholders of Eden will no longer have any equity interest in, or
rights with regard to, Eden, its operations or its assets, except
through their ownership of Geoworks Common Stock, such rights being
assigned to Geoworks by acceptance of the Offer.
7 THE CONSIDERATION SHARES ARE BEING ISSUED IN RELIANCE ON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF UNITED STATES FEDERAL
SECURITIES LAWS FOR ISSUANCES TO NON-U.S. PERSONS IN A TRANSACTION
OUTSIDE THE UNITED STATES. THE CONSIDERATION SHARES MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A
U.S. PERSON IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM. THIS RESTRICTION WOULD ALSO BAR SALES ON THE NASDAQ
NATIONAL MARKET. HOWEVER, GEOWORKS HAS AGREED TO FILE A REGISTRATION
STATEMENT COVERING THE RESALE OF THE CONSIDERATION SHARES TO U.S.
PERSONS PROMPTLY FOLLOWING THE CLOSING DATE. UPON
6
<PAGE> 8
EFFECTIVENESS OF SUCH REGISTRATION STATEMENT, AND FOR SO LONG AS IT
REMAINS EFFECTIVE, THE CONSIDERATION SHARES MAY BE RESOLD IN THE
UNITED STATES, SUBJECT TO CERTAIN RIGHTS OF GEOWORKS TO SUSPEND SALES
UNDER THE REGISTRATION STATEMENT AT CERTAIN TIMES.
8 The acquisition of the Ordinary Shares is conditional upon, among
other things, the acceptance of the Offer by shareholders of Eden
holding at least 90 per cent. of the Ordinary Shares, or such lesser
proportion as Geoworks may accept. As at the date hereof, directors
and other shareholders of Eden holding in the aggregate approximately
86.5 per cent. of the Ordinary Shares have irrevocably agreed to
accept the Offer and to vote in favour of the Special Resolution to
enable the Offer to be accepted in accordance with its terms and
conditions. Common Stock of Geoworks will be issued to accepting
Eden shareholders as soon as reasonably practicable thereafter in
accordance with the terms of acceptance set out in the Offer.
9 The Offer does not constitute an offer of securities to any person
other than the recipient whose name appears on the cover of this
document. No person, other than such recipient, receiving a copy of
this document may treat the same as constituting an offer to
purchase. No form of acceptance or purchase agreement will be
accepted other than from such recipient. It is the responsibility of
any person wishing to accept the Offer to satisfy himself as to full
observance of the laws of any relevant territory in connection with
any such purchase, including obtaining any required governmental or
other consents or observing any other applicable formalities.
THE ATTENTION OF OFFEREES IS DRAWN IN PARTICULAR TO THE RISK FACTORS
SET OUT ON PAGES 27 TO 32.
7
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OFFER TIMETABLE
<TABLE>
<CAPTION>
EVENT DATE
<S> <C> <C>
1 Offer document issued 12 February 1997
2 Latest proxy return date for extraordinary general 3.00 pm, 12 March 1997
meeting
3 Closing date the Initial Closing Date for the Offer, being
such date as Geoworks may determine and
announce for the initial closing of the Offer
4 Extraordinary general meeting 3.00 pm on 14 March 1997, or 3.00 pm on 24
February 1997 (or such other date as may be
determined) upon and subject to the appropriate
number of Eden shareholders giving consent in
writing to holding the meeting at short notice
5 Final Closing Date the close of business on 14 March 1997, or such
later date and time as Geoworks may announce
6 Date upon which it is expected Consideration Shares See paragraph 3 of Appendix I on page 35
may first be traded
</TABLE>
GEOWORKS INTENDS TO DECLARE THE OFFER UNCONDITIONAL AS SOON AS
PRACTICABLE FOLLOWING THE RECEIPT OF ACCEPTANCES FROM THE HOLDERS OF
NOT LESS THAN 90 PER CENT. OF THE EDEN ORDINARY SHARES AND THE
PASSING OF THE RESOLUTION AT THE EXTRAORDINARY GENERAL MEETING.
THE OFFER WILL REMAIN OPEN FOR ACCEPTANCE BY ALL SHAREHOLDERS OF EDEN
UNTIL THE CLOSE OF BUSINESS ON 14 MARCH 1997, OR SUCH LATER DATE AS
GEOWORKS MAY DETERMINE AND ANNOUNCE.
YOUR ATTENTION IS DRAWN TO THE TEXT OF THIS DOCUMENT FROM WHICH THE
ABOVE INFORMATION IS DERIVED AND SHAREHOLDERS ARE STRONGLY
RECOMMENDED TO READ THIS SUMMARY TOGETHER WITH THE FULL TEXT OF THIS
DOCUMENT AS A WHOLE, AND PARTICULARLY THE DISCUSSION OF RISK FACTORS
ON PAGES 27 TO 32.
8
<PAGE> 10
EDEN GROUP LIMITED
(Registered in England No 2357515)
<TABLE>
<S> <C>
Directors: Registered Office:
D E J Crisp Beechfield House
E Cheng Lyme Green Business Park
A Jenkins Macclesfield
D L Stevens Cheshire
D P Taylor SK11 0JP
N J Teasdale
</TABLE>
12 February 1997
To all the shareholders of Eden Group Limited, including those who
will be issued with shares on capitalisation of loans, and to the
holders of options to subscribe for Eden Ordinary Shares.
Dear Shareholder
It was announced on 12 February 1997 that Geoworks proposed to make
an offer for the entire issued share capital of Eden. This letter
sets out the background to the Offer and explains why your board,
which has been so advised by Henry Cooke Corporate Finance Ltd,
considers the terms of the Offer to be fair and reasonable and is
unanimously recommending acceptance of the Offer.
THE OFFER
The offer by Geoworks, which is subject to the conditions and further
terms set out in this document, is made on the following basis:
0.8673 SHARES OF COMMON STOCK OF NO PAR VALUE IN THE
CAPITAL OF GEOWORKS FOR EACH ORDINARY SHARE IN EDEN
and so in proportion for any other number of Ordinary Shares in Eden
held.
On the basis set out in paragraph 9.1 on page 20, the Offer values
each Ordinary Share in Eden at approximately L.12.72. There has been
no market in the Ordinary Shares in Eden. The last issue of Ordinary
Shares by Eden, other than in respect of the exercise of options, was
at L.4.10 per Ordinary Share in May 1996. The Offer values the
entire issued Ordinary Share capital, as enlarged by the proposed
exercise of all share options to subscribe for Ordinary Shares in
Eden and by the proposed capitalisation of shareholder loans, at
approximately L.19.1 million.
Of the Consideration Shares issued by Geoworks 65,213 of those to
which the Warrantors are entitled will be held in an escrow account
against any claim by Geoworks for breaches under the Warranty and
Covenant Agreement. Such shares will be provided from the
Consideration Shares allocated to the Warrantors only. The escrow
arrangement terminates on 31 December 1997, when the remaining shares
of Common Stock (if any) will be distributed to the Warrantors.
The rights of shareholders in Geoworks will be governed by the
Geoworks Articles of Incorporation and Bylaws, the Declaration of
Registration Rights, the laws of the State of California and Federal
securities laws.
9
<PAGE> 11
Further details of the Offer are given in a letter from Geoworks as
set out on pages 14 to 33 of this document. The letter explains the
procedure for acceptance and gives background information on both
Geoworks and Eden.
BACKGROUND
Eden has developed a real-time operating system, referred to as Eden
OS. Eden OS version 1.0 was completed in late 1995. It is a
powerful, modular operating system, capable of being used in a wide
variety of computing and communications products. Funds raised in
the private placing in May 1996 have been used to further develop
Eden OS and in the commercialisation of this technology. As set out
in the directors' report and accounts for the year ended 30 June
1996, significant progress has been made in progressing these
objectives. In particular, Eden OS version 2.0 was launched in
September 1996. Progress has been made in advancing negotiations
with several significant potential customers.
Geoworks has developed a similar technology, producing operating
systems for consumer computing devices. In particular, Geoworks has
licensed its technology to Nokia for use in the Nokia 9000 smart
digital mobile telephone. Geoworks has also licensed its technology
to several other very significant corporations. Geoworks is
incorporated in the State of California in the United States, and its
Common Stock is quoted on the Nasdaq National Market.
The directors of Eden believe that the Offer, made to conclude a
merger between Geoworks and Eden, will afford the best opportunity
for Eden's technology to be successfully commercialised, taking into
account the prospects for Eden as an independent company. Eden OS
has significant technical strengths and Eden has important
relationships with customers and potential customers, and physical
presence in key geographical markets. Geoworks has greater financial
and operational resources, and greater representation in the smart
digital mobile telephone market.
The directors of Eden believe that the Offer will be beneficial to
both parties and has a strong rationale based on the compatibility of
the two businesses. In particular, the combination will bring
together complementary technologies and will support a broader
product range licensed to a larger customer base. The directors of
Eden believe that the combination will be facilitated by Geoworks'
similar corporate culture and vision and that the strength of the
Enlarged Group will enable it to compete more effectively in a
rapidly changing market.
The directors of Eden further believe that the Offer is an
opportunity for the shareholders of Eden to gain liquidity by
obtaining stock traded on a major stock exchange.
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RISK FACTORS
In common with an investment in the shares of any high technology
company, including Eden, an investment in the Common Stock of
Geoworks being offered to Eden shareholders involves a high degree of
risk and your attention is drawn to the risk factors set out on pages
27 to 32. The market price of the Common Stock of Geoworks has
experienced significant volatility and may continue to experience
volatility in the future. As more fully set forth in the section on
risk factors variations in actual or anticipated quarterly operating
results, changes in earnings estimates by analysts, market conditions
and the industry, announcements by competitors, regulatory actions
and general economic conditions may each have a significant effect on
the market price of the Common Stock of Geoworks. In addition,
shareholders in Eden should have regard to the market valuation of
the Common Stock of Geoworks relative to its historical revenues,
operating results and net assets. The Eden directors believe that
the market valuation reflects, among other things, investors'
assumptions as to future growth in Geoworks' revenues and
profitability that may or may not be achievable. The Common Stock,
while traded on the Nasdaq National Market in the United States, is
not listed on the London Stock Exchange or any other stock exchange.
The Common Stock is traded in United States dollars and investors
domiciled in other jurisdictions may be exposed to currency
translation risks.
MANAGEMENT AND EMPLOYEES
Once the Offer becomes, or is declared, unconditional in all
respects, Geoworks will acquire all of the issued share capital of
Eden. The Geoworks board has confirmed that the existing employment
rights, including pension rights, of the management and employees of
Eden will be fully safeguarded and has confirmed that it is the
intention of Geoworks to develop the Eden business as an important
part of the Enlarged Group. It is intended that Eden will continue
to operate from its existing premises in Cheshire, England and will
become the European product development and sales support centre for
the Enlarged Group.
It is intended, upon the Offer becoming, or being declared,
unconditional in all respects, that David Crisp, Managing Director of
Eden, will become European General Manager of Geoworks and a member
of the Geoworks executive staff. Following completion of this
transaction, the non-executive directors of Eden, including myself,
will resign; the executive directors of Eden, other than David Crisp,
will resign as directors whilst continuing to perform similar roles
as employees. It is presently proposed that Messrs Crisp, Jenkins
and Stevens should be offered revised terms of employment, including
increases in remuneration and notice periods, commensurate with
increased responsibilities following the Offer becoming
unconditional. Precise terms have not yet been agreed.
Shares of Common Stock of Geoworks to be issued to Affiliates will be
subject to certain sale restrictions as set out in paragraph 3 of the
letter from Geoworks.
EDEN OPTIONS
It has been agreed that all Eden Employee Options to subscribe for
Ordinary Shares of Eden will be exercised, and the resulting shares
are subject to the Offer. In the absence of such exercise pursuant
to the applicable Eden Employee Option scheme, Geoworks has agreed to
fund by way of loan at the time of closing of the Offer the exercise
price payable by optionholders who are employees of Eden and this
loan will be repaid immediately on completion of the Offer, by
reducing the Consideration Shares otherwise due to such option
holders.
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PREFERENCE SHARES
Geoworks has agreed, conditionally upon Completion of the Offer, to
acquire all of the issued Preference Shares in the capital of Eden
for an aggregate price of L.100 (fair value) payable in cash on
completion of the Offer.
REDEMPTION OF LOANS
On completion of the Offer, the Shareholder Loans to Eden from 3i
Group plc and Acer will be capitalised as 97,832 Ordinary Shares in
the capital of Eden which will also be the subject of the Offer and
sold to Geoworks at the Exchange Ratio. Upon capitalisation of the
Shareholder Loans, the options granted to 3i and Acer, which vest in
the event of default by Eden in the repayment of these loans, will
lapse, and the security granted by Eden in respect of the Shareholder
Loans will be released.
EXTRAORDINARY GENERAL MEETING
Attached to this document is a notice of an Extraordinary General
Meeting of Eden at which a special resolution will be proposed to
increase the share capital of Eden and authorise the issue of the
Ordinary Shares required to be issued by way of capitalisation of the
Shareholder Loans, and to amend the Articles of Association of Eden,
inter alia, to enable the Offer to be accepted in accordance with its
terms, by varying the pre-emption provisions applicable to the
transfer of Ordinary Shares. This Extraordinary General Meeting has
been convened to be held at 3.00pm on 14 March 1997. If holders of
over 95 per cent of the Ordinary Shares of Eden, who represent a
majority in number of shareholders entitled to vote at the meeting,
give their consent to this meeting being held on short notice, the
meeting will be held at 3.00pm on Monday, 24 February 1997 (or such
other date as may be determined). At the date of this document the
requisite authority for short notice for this Extraordinary General
Meeting has been given by the holders of 85.6 per cent of the
Ordinary Shares of Eden.
IRREVOCABLE UNDERTAKINGS
All the directors of Eden, including myself, who beneficially hold a
total of 163,645 Ordinary Shares in the capital of Eden (representing
approximately 10.9 per cent. of the issued, and to be issued,
Ordinary Share capital of Eden) have irrevocably undertaken to accept
the Offer and to vote in favour of the resolution to be proposed at
the Extraordinary General Meeting. In addition, certain other
holders of the Ordinary Shares in Eden together holding 1,137,936
Ordinary Shares being approximately 75.6 per cent. of the issued, and
to be issued, Ordinary Share capital of Eden) have irrevocably
undertaken to accept the Offer and to vote in favour of the
resolution to be proposed at the Extraordinary General Meeting.
ADDITIONAL INFORMATION
Your attention is drawn to the contents of the remainder of this
document. In particular, shareholders in Eden should note paragraph
10 of the letter from Geoworks headed "Taxation" and paragraph 3 of
Appendix I of this document headed "Restrictions on Transfer of
Consideration Shares".
12
<PAGE> 14
ACTION TO BE TAKEN
Your attention is drawn to paragraph 19 of the Offer and the
accompanying Form of Acceptance which sets out the procedure for
accepting the Offer. To accept the Offer, you should complete and
return the Form of Acceptance in accordance with the instructions
printed thereon so as to be received as soon as possible. Subject to
all the conditions to the Offer being satisfied and consent being
obtained to the Extraordinary General Meeting being held at short
notice, GEOWORKS INTENDS TO DECLARE THE OFFER UNCONDITIONAL AS SOON
AS PRACTICABLE AFTER THE CONCLUSION OF THE EGM. ACCORDINGLY THE
EARLIEST CLOSING DATE OF THE OFFER IS 24 FEBRUARY 1997. THE LAST
CLOSING DATE IS 14 MARCH 1997 UNLESS EXTENDED BY GEOWORKS PRIOR TO
THAT DATE.
Forms of Proxy are enclosed for use by shareholders in connection
with the Extraordinary General Meeting and should be completed,
signed and returned to the registered office of Eden TO ARRIVE AS
SOON AS POSSIBLE, AND IN ANY EVENT, NOT LATER THAN 3.00PM ON 12 MARCH
1997. The completion and return of the Form of Proxy will not
preclude you from attending and voting at the meeting in person
should you so wish.
RECOMMENDATION
THE DIRECTORS OF EDEN, WHO HAVE BEEN SO ADVISED BY HENRY COOKE
CORPORATE FINANCE LTD, CONSIDER THE TERMS OF THE OFFER TO BE FAIR AND
REASONABLE AND, ACCORDINGLY, THE DIRECTORS UNANIMOUSLY RECOMMEND ALL
ORDINARY SHAREHOLDERS IN EDEN TO ACCEPT THE OFFER AND TO VOTE IN
FAVOUR OF THE RESOLUTION TO BE PROPOSED AT THE EXTRAORDINARY GENERAL
MEETING OF EDEN CONVENED BY THE NOTICE SET OUT IN APPENDIX V TO THIS
DOCUMENT, AS THEY HAVE IRREVOCABLY UNDERTAKEN TO DO IN RESPECT OF
THEIR OWN ORDINARY SHARES, AMOUNTING IN AGGREGATE TO 163,645 ORDINARY
SHARES (REPRESENTING APPROXIMATELY 10.9 PER CENT OF THE ISSUED AND TO
BE ISSUED ORDINARY SHARE CAPITAL OF EDEN).
In common with an investment in shares of any high technology
company, including Eden, an investment in the Common Stock of
Geoworks involves a high degree of risk. Shareholders in Eden should
have regard to the factors referred to under "Risk Factors" above and
on pages 27 to 32 when making decisions with respect to the Common
Stock of Geoworks.
In providing advice to the directors of Eden, Henry Cooke Corporate
Finance Ltd has taken into account the Eden directors' commercial
assessments.
Yours sincerely
Dennis Taylor
Chairman
13
<PAGE> 15
GEOWORKS
(a corporation established under the
California Corporations Code)
<TABLE>
<S> <C>
Directors: Principal Office:
Brian P. Dougherty, Chairman of the Board 960 Atlantic Avenue
Gordon E. Mayer Alameda,
Clive G. Smith California 94501
Bruce W. Dunlevie USA
Reijo Paajanen
Eric E. Schmidt
R. Duff Thompson
</TABLE>
12 February 1997
To all the shareholders of Eden Group Limited, including those who
will be issued with shares on capitalisation of loans, and to the
holders of options to subscribe for Eden Ordinary Shares.
Dear Sir or Madam
RECOMMENDED OFFER BY GEOWORKS
1 INTRODUCTION
1.1 As stated in your Chairman's letter of today's date, agreement has
been reached between your directors and Geoworks for Geoworks to make
an offer to acquire the whole of the issued Ordinary Share capital of
Eden in consideration of the issue of a total of 1,304,250 shares of
Common Stock of no par value in Geoworks (for details of which see
Appendix I).
1.2 This document, which is issued to all the shareholders of Eden
registered on the register of members as at 12 February 1997, and to
optionholders, and to those to whom Eden shares will be issued on
capitalisation of loans, sets out the terms of the Offer.
1.3 Your attention is drawn to the notice of an Extraordinary General
Meeting of Eden, set out in Appendix V to this document, which has
been called for 14 March 1997 or earlier if the necessary consents
are obtained - see paragraph 8.1 - for the purpose of passing a
special resolution to adopt new articles of association of Eden and
deal with other matters so as to enable the sale of shares pursuant
to the Offer to be completed.
1.4 You will see from the letter from Dennis P Taylor, Chairman of Eden
which appears on pages 9 to 13 and forms part of this document, that
the directors of Eden consider the terms of the Offer to be fair and
reasonable and that the Directors, who have been so advised by Henry
Cooke Corporate Finance Ltd, unanimously recommend you to accept the
Offer and, to vote in favour of the special resolution set out in the
notice of Extraordinary General Meeting.
1.5 All the directors of Eden, who beneficially hold a total of 163,645
Ordinary Shares in the capital of Eden (representing approximately
10.9 per cent of the issued and to be issued Ordinary Share capital
of Eden) have irrevocably undertaken to accept the Offer and to vote
in favour of the special resolution to be proposed at the
Extraordinary General Meeting. In addition, certain other holders of
Ordinary Shares in Eden together holding 1,137,936 Ordinary Shares
(representing approximately 75.6 per cent of the issued and to be
issued Ordinary Share capital of Eden) have irrevocably undertaken to
accept the Offer and to vote in favour of the special resolution to
be proposed at the Extraordinary General Meeting.
14
<PAGE> 16
2 TERMS OF THE OFFER
2.1 Geoworks as principal hereby offers to acquire the entire issued
Ordinary Share capital of Eden upon the following principal terms and
the other terms and conditions set out in the Offer and the form of
acceptance enclosed in Appendix VI:
FOR EACH ORDINARY SHARE, 0.8673 SHARES OF
COMMON STOCK OF NO PAR VALUE IN THE CAPITAL OF GEOWORKS
2.2 The Ordinary Shares are to be acquired free from all claims, liens,
charges and encumbrances and together with all rights now or
hereafter attaching thereto, including the right to receive all
dividends and other distributions (if any) declared, made or paid
after the Closing date and signature of the enclosed form of
acceptance will constitute warranties by the accepting shareholder to
that effect in respect of the Ordinary Shares for which the Offer is
accepted.
2.3 Where holders of Ordinary Shares in Eden would become entitled to a
fraction of a share of Common Stock in Geoworks, such fractions will
be rounded down to the nearest whole number.
2.4 Upon acceptance of the Offer each holder of Ordinary Shares will be
issued approximately 0.8673 shares of Common Stock each in the share
capital of Geoworks in return for each Ordinary Share held. The
Exchange Ratio is based upon the entire issued Ordinary Share capital
of Eden comprising 1,228,005 issued Ordinary Shares as at 12 February
1997 and the aggregate number of Ordinary Shares to be subscribed
upon exercise of Eden Options and capitalisation of Shareholder
Loans, comprising a further 275,872 Ordinary Shares. If between such
date and Closing, the number of Ordinary Shares in issue or subject
to option otherwise changes, the Exchange Ratio shall be adjusted
accordingly, save that the aggregate number of Consideration Shares
to be issued to shareholders and optionholders of Eden shall not
exceed 1,304,250.
PLEASE NOTE THAT THE OFFER IS FOR ALL YOUR ORDINARY SHARES AND CANNOT
BE ACCEPTED FOR ONLY SOME OF YOUR ORDINARY SHARES.
2.5 The Escrow Amount will be deposited with the Escrow Agent to be held
as an escrow fund which shall be available to compensate Geoworks in
connection with breaches of any of the representations, warranties,
covenants, undertakings and indemnities set out in the Warranty and
Covenant Agreement. The obligations of the Warrantors for losses
suffered by Geoworks for such breaches shall be limited to each
Warrantor's pro rata share of the Escrow Amount and further
limitations set out in the Warranty and Covenant Agreement, including
the following:
(a) claims may only be brought once the aggregate value of
claims has exceeded L.150,000 whereupon the whole of the
claims and not just the excess may be recovered;
(b) the time limit for all claims other than those relating to
intellectual property is the date of publication by
Geoworks of its accounts for the period ending 31 March
1997; and
(c) the time limit for claims relating to intellectual
property is 31 December 1997.
Copies of the Warranty and Covenant Agreement and Escrow Agreement
are available for inspection, as indicated in paragraph 18 below.
2.6 As a condition to the Offer, Geoworks, acting as principal, has
agreed to acquire all the Preference Shares, conditionally upon
completion of the Offer, in consideration of the payment by Geoworks
to the holders of the Preference Shares of L.100 (fair value) in
aggregate in cash. The terms of the Preference Share Agreement
provide that the sale of the Preference Shares will become
unconditional and be completed upon Closing.
15
<PAGE> 17
2.7 Geoworks has agreed with each holder of Eden Employee Options that,
conditionally upon the making of the Offer by Geoworks, such
optionholders may exercise their options in full pursuant to the
relevant Eden Employee Option scheme and sell the resulting Ordinary
Shares to Geoworks on the terms of the Offer. In the absence of such
exercise pursuant to the applicable Eden Employee Option scheme,
Geoworks has agreed to provide a loan at the time of closing of the
Offer to each such holder of the exercise price payable to Eden on
exercise of such options, and Geoworks will be authorised to repay
immediately such loans by set off against the Consideration Shares
that would otherwise have been issued to such holders of such number
of Consideration Shares as is equal in value to the amount required
to repay the loan from Geoworks to such holder.
2.8 It has been agreed with 3i Group plc and Acer that upon Completion of
the Offer the Shareholder Loans and accrued unpaid interest thereon
due to 3i Group plc and Acer from Eden will be capitalised in full
by the issue of 97,832 new Ordinary Shares in the capital of Eden
which will also be the subject of the Offer at the Offer price, and
that the security granted by Eden and its subsidiaries in respect of
such Shareholder Loans will be released on Completion.
2.9 Each Eden shareholder who accepts the Offer will also be required,
unless Geoworks expressly agrees otherwise in writing, pursuant to
the Acceptance Form, inter alia:
(a) to confirm that at and immediately after Completion nothing
is owing nor are there any outstanding claims between each
of Eden and its group companies on the one hand and each
accepting shareholder on the other hand, and to the extent
that there are possible claims, then such claims are
waived;
(b) to appoint any executive officer of Geoworks as the
attorney of each accepting shareholder authorised to
execute various documents in connection with the transfer
of such shareholder's Ordinary Shares pursuant to the
Offer;
(c) to authorise such attorney to complete various
documentation including a form of proxy and consent to
short notice in connection with the Extraordinary General
Meeting of Eden; and
(d) to give certain covenants necessary to ensure compliance
with U.S. securities laws.
In addition, the Eden shareholders, who constitute "Affiliates" of
Eden, are required to make certain covenants in Affiliates Agreements
necessary to ensure that Geoworks will be able to account for the
business combination effected by the purchase of Eden Ordinary Shares
as a pooling of interests.
3 SUMMARY OF THE RIGHTS ATTACHING TO THE CONSIDERATION SHARES
3.1 The Consideration Shares to be issued under the Offer will be
credited as fully paid and will rank pari passu with all other shares
of Common Stock in the capital of Geoworks.
16
<PAGE> 18
3.2 The Consideration Shares are being issued in reliance on an exemption
from the registration requirements of United States federal
securities laws for issuances to non-U.S. persons in a transaction
outside the United States. The Consideration Shares may not be
resold, pledged or otherwise transferred in the United States or to a
U.S. person in the absence of such registration or an exemption
therefrom. This restriction would also bar sales on the Nasdaq
National Market. However, Geoworks has agreed to file a registration
statement covering the resale of the Consideration Shares to U.S.
persons promptly following the Closing Date. Upon effectiveness of
such registration statement, and for so long as it remains effective,
the Consideration Shares may be resold in the United States, subject
to certain rights of Geoworks to suspend sales under the registration
statement at certain times.
3.3 For more detailed information on the Consideration Shares and
Geoworks' obligations to register the resale of such shares, please
refer to Appendix I and the charter documents set out therein,
Appendix IV showing changes in the rights of Eden shareholders and
the Declaration of Registration Rights.
3.4 As at the Closing Date, the Articles of Incorporation and Bylaws of
Geoworks will be substantially in the form set out in Appendix I, and
will also be available for inspection, as contemplated by paragraph
18 below. Geoworks undertakes not to alter, amend, delete,
substitute or add to its Articles of Incorporation and Bylaws until
the earlier of (a) the Offer becoming, or being declared,
unconditional in all respects and the Consideration Shares being
issued or (b) the Offer lapsing.
4 CONDITIONS OF THE OFFER
4.1 The Offer is subject to the following conditions:
(a) valid acceptances being received by not later than the
close of business on 14 March 1997, or such other date(s)
as Geoworks may determine, (as described in this document
Geoworks intends to declare the Offer unconditional as soon
as practicable) in respect of not less than 1,353,490
Ordinary Shares representing 90% in nominal value of the
Ordinary Shares, or such lesser percentage or amount as
Geoworks may determine;
(b) the holders of the Preference Shares having agreed,
conditionally upon Closing and otherwise upon terms
satisfactory to Geoworks, to sell the Preference Shares to
Geoworks for an aggregate consideration of L.100.00;
(c) the passing at an Extraordinary General Meeting of Eden of
the special resolution set out in the notice of
Extraordinary General Meeting contained in Appendix V, to
adopt new articles of association of Eden to enable the
acquisition of the Shares of Geoworks to be completed
pursuant to the Offer;
(d) performance of all the obligations set out in clauses 3 and
4 of the Warranty and Covenant Agreement on the part of the
Eden shareholders who are party to that agreement, and
there having been no material breach of any of the
representations, warranties, covenants or undertakings
under that agreement;
(e) each of the holders of options to subscribe for Eden
Ordinary Shares having agreed pursuant to an option
exercise agreement on terms satisfactory to Geoworks to
exercise their options conditionally upon completion of the
Offer and upon such exercise becoming unconditional to sell
the resulting Ordinary Shares to Geoworks on the terms of
the Offer in return for the issue, by Geoworks of
Consideration Shares;
(f) no law, order or injunction restraining Geoworks
acquisition or ownership of the Ordinary Shares and the
Preference Shares;
17
<PAGE> 19
(g) there being no material adverse change to the business or
prospects of Eden prior to Closing;
(h) the receipt by Geoworks of a letter from Ernst & Young LLP
regarding such firm's concurrence with Geoworks
management's conclusions as to the appropriateness of
pooling of interest accounting for the business combination
effected by Geoworks' acquisition of Eden shares under
United States' Accounting Principles Board Opinion No. 16;
(i) each Affiliate of Eden having delivered to Geoworks an
executed Affiliate Agreement satisfactory to Geoworks which
shall be in full force and effect; and
(j) all applicable consents, permissions, approvals or similar
authorities from any person required to enable the Offer to
proceed in the manner contemplated by this document and the
Warranty and Covenant Agreement having been received or
obtained to Geoworks' satisfaction.
4.2 Further detailed terms and conditions of the Offer are contained in
paragraph 14 of this letter.
5 WAIVER OF TERMS AND CONDITIONS
At the discretion of Geoworks any of the terms and conditions set out
in paragraphs (a) to (j) of paragraph 4.1 of this Offer may be waived
by Geoworks in whole or in part.
6 CIRCUMSTANCES IN WHICH THE OFFER WILL LAPSE
The Offer will be open for acceptance by every Eden shareholder until
14 March 1997. If the conditions set out in this Offer have not been
fulfilled or waived by Geoworks on or before the close of business on
14 March 1997 the Offer will lapse unless extended by Geoworks before
then.
7 PROVISIONS AFFECTING PARTICULAR SHAREHOLDERS
Management and employees
7.1 The aggregate number of Ordinary Shares in Eden which are under
option in favour of management and employees is 151,650. Each of the
employees of Eden holding Eden Employee Options has executed an
option exercise agreement, as referred to in paragraph 4.1(e) above.
A list of all the optionholders and their respective options appears
as Appendix III.
7.2 The Warrantors (together holding 8.4% of the Ordinary Shares) and
Geoworks have executed the Warranty and Covenant Agreement, which is
available for inspection in accordance with paragraph 18 of this
document; and the principal terms of which include provisions:
(a) for Geoworks to make the Offer;
(b) for the Warrantors and certain other Eden shareholders to
irrevocably accept the Offer unless it lapses;
(c) for Geoworks to have the right to consent to certain
actions by Eden during the period from the date of the
Offer to Completion or any earlier termination of the
agreement;
(d) for representations, warranties, undertakings, covenants
and indemnities being given by the Warrantors in favour of
Geoworks concerning, inter alia, the accounts, financial
condition, material agreements, and intellectual property
of Eden and the absence of litigation, breach of which may
give Geoworks rights to claim the Escrow Amount held
18
<PAGE> 20
under the Escrow Agreement with the effect that the
Warrantors' Escrow Amount will be the subject of any claims
thereunder; and
(e) for the board of directors of Eden after Completion to
comprise Gordon Mayer, Jordan Breslow and David Crisp.
7.3 Geoworks has adopted a supplemental stock option plan for the benefit
of Eden employees after Completion enabling the grant of options to
purchase up to 500,000 shares of Geoworks common stock. Geoworks
currently expects to issue, subject to the approval of its Board of
Directors, options to purchase an aggregate of approximately 351,000
shares of its Common Stock to individuals who continue as employees
following the Final Closing Date. Of such options, Geoworks
currently expects to issue to Messrs Crisp, Jenkins and Stevens
options to purchase 50,000, 40,000 and 20,000 shares of Common Stock,
respectively. The remainder are reserved for stock options to be
issued to existing and new United Kingdom employees, in the
discretion of the Geoworks Board.
3i Group plc and Acer
7.4 3i Group plc and Acer have agreed with Eden and Geoworks that the
Shareholder Loans will upon Completion be capitalised and the new
Ordinary Shares arising will be the subject of the Offer, as
summarised in paragraph 2.8 above.
7.5 As described in paragraph 2.6 above, Geoworks has agreed to acquire
the Preference Shares held by 3i upon Completion.
8 EXTRAORDINARY GENERAL MEETING
8.1 The directors of Eden have convened an Extraordinary General Meeting
to take place on 14 March 1997 at 3.00pm (or earlier if the required
consents to short notice are obtained) to, inter alia, adopt new
articles of association of Eden to enable the acquisition of the
Ordinary Shares to be completed pursuant to the Offer and to increase
the authorised share capital of Eden and authorise the issue of
97,832 Ordinary Shares to 3i Group plc and Acer by way of
capitalisation of their Shareholder Loans, referred to in paragraph
2.8 above.
8.2 Subject to obtaining consents (contained in the Acceptance Form) from
shareholders being a majority in number and holding at least 95 per
cent. in nominal amount of Eden's Ordinary Share capital, such
meeting will be held at 3.00pm on 24 February 1997.
8.3 Notice of the meeting is set out in Appendix V to this document.
9 FINANCIAL EFFECTS OF ACCEPTANCE
9.1 By way of example, a holder (other than the Warrantors) of 1,000
Ordinary Shares in Eden who accepts the Offer will receive, if the
Offer becomes unconditional, 867 shares of Geoworks Common Stock.
The table below shows, for illustrative purposes only, the effect
upon capital value of the Offer for a holder of 1,000 Ordinary Shares
who accepts the Offer, if the Offer becomes or is declared
unconditional in all respects, on the basis and assumptions set out
below:
<TABLE>
NOTES
<S> <C> <C>
Value of 1,000 Eden Ordinary Shares at valuation at latest (i) L.4,100.00
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C>
issue (other than in respect of the exercise of options)
Market value of 867 shares of Common Stock in Geoworks (ii) L.12,713.86
Increase in capital value L.8,613.86
This represents a percentage increase of 210.09%
</TABLE>
Notes:
(i) Valuation of L.4.10 per share in private placing of May
1996. There has been no market in the Eden Ordinary Shares.
(ii) Based upon US$23.80 being the average middle market closing
price of Geoworks shares of Common Stock on the Nasdaq
National Market for the 30 trading days ended on 7 February
1997, and at closing sterling - US dollar exchange rate on
Friday 7 February 1997. For information, the actual middle
market closing price on 7 February 1997 was US$22.75.
9.2 By way of example, an employee of Eden holding Eden Employee Options
over 1,000 Ordinary Shares who accepts the loan from Geoworks would,
upon the set off of Consideration Shares to be made by Geoworks in
satisfaction of such loan, receive 745 shares of Geoworks Common
Stock. See paragraph 2.7 for further details of such loan and the
set off.
9.3 The effects of acceptance as shown above do not take account of the
incidence of taxation, and your attention is drawn in particular to
paragraph 10.
Income
9.4 It is not currently proposed that any dividends will be declared in
respect of shares of Geoworks Common Stock in the foreseeable future.
No dividends have ever been declared or paid on Eden Ordinary Shares.
Liquidity
9.5 The Consideration Shares being issued to Eden shareholders will not
be registered in reliance on an exemption from the registration
requirements of the United States federal securities laws provided by
Regulation S of the Securities Act for issuances to non-U.S. persons
in transactions outside the United States. Geoworks reliance on this
exemption is based in part upon the representations being made by
Eden shareholders in the Acceptance Form. Securities issued pursuant
to an exemption from the registration requirements may not be resold
in the United States or to a U.S. Person unless the resale is
subsequently registered or another exemption is available. This
restriction would also bar sales on the Nasdaq National Market.
While it is widely believed that shares issued under Regulation S may
be resold in the United States or to a U.S. person if held for a
period of at least 40 days, Geoworks understands that the United
States Securities and Exchange Commission (the "Commission") is
currently reviewing Regulation S and there is considerable
possibility that the Commission will conclude that shares issued
pursuant to Regulation S should be subject to the restrictions on
resale imposed by Rule 144 of the Securities Act. Such an
interpretation by the Commission would, in effect, lengthen the
holding period for Eden shareholders receiving Geoworks Common Stock
from 40 days to two years and impose additional restrictions on
resale relating to volume, manner of sale, notice and the
availability of current public information.
9.6 In the light of the foregoing uncertainty, Geoworks has agreed,
subject to certain conditions, to use its best efforts promptly upon
consummation of the Offer to file a registration statement on Form
S-3 covering the resale of the Consideration Shares. Upon
effectiveness of such registration statement, and for so long as it
remains effective, the Consideration Shares may be resold in the
United States regardless of any Commission action regarding
Regulation S. Geoworks has agreed
20
<PAGE> 22
to keep the registration statement effective for up to two years
after Completion (or such shorter time as the Commission may permit
resale of restricted securities under Rule 144).
9.7 All sales by Eden shareholders of Consideration Shares in the United
States pursuant to the registration statement must be accompanied by
delivery of a current prospectus meeting the requirements of the
United States securities laws. Geoworks will provide each Eden
shareholder with such a prospectus. Geoworks may be required to
update the prospectus periodically to reflect changed information
concerning Geoworks. In such case Geoworks will provide each Eden
shareholder with an updated prospectus.
9.8 Notwithstanding the foregoing Geoworks may suspend the ability of
Eden shareholders to sell Consideration Shares in the United States
or to U.S. persons under the registration statement if the Geoworks
Board of Directors determines in good faith that it would be
significantly disadvantageous to Geoworks and its shareholders for
Geoworks to update the prospectus because Geoworks would be required
to disclose material non-public information that it would not
otherwise be obligated to disclose at such time which disclosure
would have a material adverse effect on the business or prospects of
Geoworks. In such event, Geoworks will furnish to the Eden
shareholders a certificate to such effect and the Eden shareholders
will be required to suspend any disposition of Consideration Shares
pursuant to the registration statement. Geoworks may exercise this
right:
(a) no more than twice during any twelve-month period for a
period of up to sixty (60) days each; and
(b) no more than four times during any twelve-month period for
a period of up to twenty (20) days each if updating the
prospectus would require Geoworks to report financial
results less favourable than the consensus estimates of the
major financial analysts following Geoworks' stock prior to
the time Geoworks would normally report such results.
9.9 In addition, Geoworks reserves the right to withdraw the registration
statement at such time as Geoworks determines that dispositions of
Consideration Shares may be made by Eden shareholders in the United
States without the need of the registration statement. In such case,
Geoworks will instruct its transfer agent that such dispositions are
permitted without restriction.
9.10 For more detailed information of Geoworks' obligations to register
the resale of the Consideration Shares and the conditions of the Eden
shareholders ability to effect such sales, please refer to the
Declaration of Registration Rights attached as Appendix VII.
9.11 The foregoing does not deal with the ability of Eden shareholders to
dispose of Consideration Shares to non-U.S. persons in transactions
occurring outside the United States. Such transactions are generally
outside of the ambit of United States securities laws, but may be
subject to securities laws of other jurisdictions. Eden shareholders
are urged to consult their own legal advisors regarding requirements
of or limitations on any such transactions.
9.12 In addition to the restrictions on transferability imposed by United
States' securities laws, Affiliates of Geoworks and Eden will be
required to enter into agreements restricting sales, dispositions or
other transactions reducing their risk of investment in respect of
the shares of Geoworks Common Stock held by them to help ensure that
the business combination effected by the Offer will be treated as a
pooling of interests for accounting and financial reporting purposes.
Under such Affiliate Agreements, shares of Geoworks Common Stock
currently held by affiliates of Geoworks or issued to affiliates of
Eden in connection with the Offer may not be transferred until after
the second day after the day that Geoworks publicly announces
financial results covering at least 30 days of combined operations of
Geoworks and Eden.
10 TAXATION
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<PAGE> 23
Set forth below is a general discussion of the principal tax
considerations applicable to the holders of Ordinary Shares under the
tax laws of the United Kingdom and the United States. This document
does not deal with all of the tax consequences of the exchange of
Ordinary Shares for shares of Common Stock ("the Exchange") that may
be relevant to particular Eden shareholders in the light of their
personal circumstances, such as persons who are neither resident nor
ordinarily resident in the United Kingdom or the United States or
shareholders who acquired their Ordinary Shares in a compensatory
transaction or in their capacity as directors or employees of Eden.
ALL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE
SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM OF THE EXCHANGE,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS AND REGULATORY AND EXCHANGE CONTROLS OR ANY EQUIVALENT LOCAL
LAWS.
UK Taxation Considerations
Taxation of capital gains
The directors of Geoworks have been advised that, for holders of
Ordinary Shares in Eden holding 5 per cent. or less of the issued
ordinary share capital of Eden, the exchange of their existing shares
in Eden for new shares of Common Stock of Geoworks will not give rise
to a United Kingdom capital gains tax liability, but instead the new
shares in Geoworks will be treated as the same asset as the
shareholder's existing holding of Ordinary Shares and as if they were
acquired at the same time and for the same cost as the existing
holding was acquired.
For holders of Ordinary Shares in Eden owning more than 5 per cent.
of the issued ordinary share capital of Eden, a United Kingdom
capital gains tax liability may arise (depending on the shareholder's
individual circumstances) unless it can be shown that the share
exchange has been carried out for bona fide commercial reasons and
does not form part of any scheme or arrangements of which the main
purpose, or one of the main purposes, is avoidance of liability to
capital gains tax or corporation tax.
Clearance has been obtained from the Inland Revenue that they accept
that the share exchange will be carried out for bona fide commercial
reasons and not as part of a tax-avoidance scheme or arrangement.
A subsequent disposal of shares of Common Stock in Geoworks,
depending on individual circumstances, may give rise to a liability
to United Kingdom capital gains tax.
US Federal Income Tax Considerations
WITHHOLDING TAX
Generally, dividends, if any, paid to a non-U.S. holder of Common
Stock will be subject to United States federal withholding tax at a
30% rate or such lower rate as may be specified by an applicable
income tax treaty. Under the Income Tax Treaty currently in effect
between the United States and the United Kingdom the rate of
withholding on dividends paid by the Company is reduced to 15%.
Under current U.S. Treasury regulations, dividends paid to an address
outside the United States in a foreign country are presumed to be
paid to a resident of such country for purposes of the withholding
tax. Under current interpretation of U.S. Treasury regulations, the
same presumption applies to determine the applicability of a reduced
rate of withholding under a tax treaty. Under U.S. Treasury
regulations that are proposed to be effective for distributions after
1997 (the "Proposed Regulations"), to claim the benefits of a tax
treaty a non-U.S. holder of Common Stock would be required to satisfy
applicable certification requirements. In addition, under the
Proposed Regulations, in the case of Common Stock held by a foreign
partnership, (x) the certification requirement would generally be
applied to the partners of the partnership and (y) the partnership
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would be required to provide certain information. The Proposed
Regulations also provide look-through rules for tiered partnerships.
It is not certain whether, or in what form, the Proposed Regulations
will be adopted as final regulations.
If there is excess withholding on a person eligible for a treaty
benefit, the person can file for a refund with the United States
Internal Revenue Service.
Geoworks does not currently intend to pay dividends on its Common
Stock.
GAIN ON DISPOSAL OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States
federal income tax in respect of gain recognised on a disposal of
Common Stock unless (i) the gain is effectively connected with a
trade or business of the non-U.S. holder in the United States, (ii)
in the case of a non-U.S. holder who is an individual and holds the
Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the disposal and
certain other conditions are met, or (iii) the non-U.S. holder is
subject to tax pursuant to the provisions of United States tax law
applicable to certain United States expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Generally, the Company must report to the U.S. Internal Revenue
Service the amount of dividends paid, the name and address of the
recipient and the amount, if any, of tax withheld. Dividends not
subject to withholding tax may be subject to backup withholding if
the non-U.S. holder is not an "exempt recipient" and fails to provide
a tax identification number and other information to the Company.
Under the Proposed Regulations, dividend payments generally will be
subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. If the proceeds
of a disposal of Common Stock are paid over by or through a United
States office of a broker, the payment is subject to information
reporting and possible backup withholding at a 31% rate unless the
disposing holder certifies under penalties of perjury as to his name,
address, and non-U.S. holder status or otherwise establishes an
exemption. Generally, United States information reporting and backup
withholding requirement will not apply to a payment of disposal
proceeds if the payment is made outside the United States through a
non-United States office of a broker.
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
FEDERAL ESTATE TAXES
Common Stock held by a non-U.S. holder at the time of death will be
included in such holder's gross estate for United States federal
estate tax purposes unless an applicable estate tax treaty provides
otherwise.
THE ABOVE PROVIDES ONLY A BRIEF AND GENERALISED SUMMARY OF THE TAX
POSITION RELATING TO AN EXCHANGE OF EXISTING SHARES IN EDEN FOR NEW
SHARES IN GEOWORKS, FOR WHICH NEITHER GEOWORKS NOR EDEN ACCEPT ANY
LIABILITY. IF YOU ARE IN ANY DOUBT ABOUT YOUR TAXATION POSITION OR
THE TAX IMPLICATIONS OF THE OFFER YOU SHOULD CONSULT YOUR OWN TAX
ADVISER IMMEDIATELY.
11 INFORMATION REGARDING GEOWORKS AND EDEN
11.1 Geoworks develops and markets operating system and application
software for the emerging market of mobile communications devices and
electronic organisers, focusing principally on smart phones. Smart
phones are next-generation, digital-cellular telephones that
integrate voice and data
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transmission capabilities - including voice mail, e-mail, facsimile
and Internet access to content and services - within one handheld
device. Available within Europe since August 1996, smart phones are
targeted for broad availability within Asia and the US in 1997.
Geoworks' objective is to establish its GEOS system software as a
leading operating system for this market in the near term, and to
leverage this position by developing and marketing an array of
products and services to the installed base of GEOS-based devices.
In particular, through its Wireless Content and Services division,
Geoworks is working with content providers, hardware vendors, and
integrated service vendors to create a complete, end-to-end smart
phone solution, delivering content and services to users of GEOS-
based smart phones.
To achieve these objectives, Geoworks has established OEM licensing
relationships with a number of leading manufacturers, including
Nokia, Ericsson Mobile Communications AB ("Ericsson"), NEC, Toshiba
Corporation ("Toshiba"), Hewlett-Packard Company ("Hewlett- Packard")
and Brother International Corporation ("Brother").
Geoworks has also in the past developed products for America Online
Incorporated ("America Online"), Casio Computer Company Limited
("Casio"), International Business Machines Corporation ("IBM"),
Motorola Inc's EMBARC subsidiary ("Motorola") Canon Business Machines
Inc. ("Canon") and Sharp Electronics Corporation ("Sharp"). In
addition, Hewlett-Packard, Nokia, Novell, Inc. ("Novell") and Toshiba
have made significant equity investments in Geoworks.
Geoworks was incorporated under the laws of the State of California
on September 27, 1983. Geoworks' principal offices are located at
960 Atlantic Avenue, Alameda, California 94501 USA.
See Section 16 (Risk Factors) and Further Information relating to
Geoworks in Appendix II.
11.2 Eden was founded by David Crisp in 1989. The management team
consists of commercially and technically experienced staff from
electronics and computer backgrounds. Eden's principal shareholders
include 3i, Acer, and a number of private and institutional investors
who financed the company in a private placing in May 1996.
Eden is developing and is licensing powerful underlying software for
the new, rapidly growing markets for compact consumer electronics and
communications products. Eden has developed relationships with
several manufacturers of consumer electronics and communications
products. The company has already licensed its software to a number
of such manufacturers, including Hitachi, which has launched a
communicator product into the market. Other licensees are developing
products and paying initial fees to Eden for the use of its software.
Eden's software has a number of technical strengths - in particular;
it has been developed for RISC processors, which are likely to be the
preferred choice of hardware manufacturers in Eden's target markets;
it is processor independent and can be made to run on different
processors produced by different manufacturers; and EDEN OS has been
developed as a set of independent modules, which allows software
applications to be developed more easily whilst keeping hardware
costs low and allowing flexibility for the manufacturers. Eden has,
where appropriate, taken patents upon its intellectual property.
12 STATUS OF EDEN
Upon Completion, Eden will be at least a 90 per cent. owned
subsidiary of Geoworks and will continue business as such. Geoworks
intends to proceed, as permitted under English company law,
compulsorily to acquire any remaining shares of Eden not acquired by
Geoworks pursuant to the Offer. Regardless of such proceedings,
however, Geoworks will operate Eden as a controlled subsidiary from
Completion.
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13 ISSUE OF CONSIDERATION SHARES
13.1 No acknowledgement of receipt of documents will be issued but in the
event of the Offer becoming, or being declared, unconditional in all
respects and provided the form of acceptance and your share
certificates and other documents of title (if any) are in order, a
certificate in respect of the Consideration Shares will be posted or
delivered in accordance with the authority contained in the
Acceptance Form as soon as reasonably practicable after the Offer
becomes or is declared unconditional in all respects or within five
business days after the receipt of a valid acceptance (including all
necessary documents of title or satisfactory indemnities for them),
whichever is the later.
13.2 If the Offer lapses or does not become unconditional in all respects
the completed acceptance form and share certificates and other
documents of title (if any) will be returned to accepting
shareholders by first class post or airmail (as appropriate) as soon
as reasonably practicable after the lapse date.
13.3 ALL DOCUMENTS AND CERTIFICATES SENT BY OR TO SHAREHOLDERS OR THEIR
AGENTS ARE SENT AT SHAREHOLDERS' OWN RISK.
14 FURTHER TERMS AND CONDITIONS
14.1 If the Offer becomes, or is declared, unconditional in all respects,
it will remain open until further notice and Geoworks will give not
less than 14 days' notice in writing to shareholders of it being
closed.
14.2 The Offer will not be revised or increased.
14.3 The Offer will not be capable of becoming unconditional after the
close of business on 14 March 1997 (or such later time and date as
Geoworks may determine).
14.4 On, or as soon as is reasonably practicable after, the Business Day
next following the day on which the Offer is due to expire, or as
soon as reasonably practicable after the day on which the Offer
becomes unconditional as to acceptances, Geoworks will notify
shareholders by letter of the total number of shares (as nearly as
practicable) for which acceptances of the Offer have been received.
In computing the number of shares represented by acceptances there
may be included for the above purposes acceptances not in all
respects in order or which remain subject to verification. In any
announcement of an extension of the Offer the next closing date for
the Offer will be stated.
14.5 An acceptance of the Offer shall be irrevocable, so that once a
shareholder has delivered a form of acceptance and authority in
accordance with the provisions of this document, he or she will not
be able to withdraw or alter it in any respect without the written
consent of Geoworks (unless the Offer lapses).
14.6 If circumstances arise in which Geoworks is able compulsorily to
acquire shares of any dissenting minority under Part XIIIA of the
Companies Act 1985, Geoworks intends so to acquire those shares.
14.7 The form of acceptance (which includes an investment representation
statement) and authority (including the instructions and notes
thereon) shall be deemed to be an integral part of this document.
15 GOVERNING LAW
The Offer and its acceptance (other than the investment
representation statements made in paragraphs 11,12 and 14 of the Form
of Acceptance) is governed by the laws of England and you, Eden and
Geoworks agree to submit to the non-exclusive jurisdiction of the
English Courts.
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However, the terms and rights of the Consideration Shares, the
Registration Rights Declaration and the Escrow Agreement are governed
by the laws of the State of California, United States.
16 RISK FACTORS
EDEN SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS IN DECIDING WHETHER TO ACCEPT THE OFFER
16.1 Effect of Wholesale Prices on Royalties
Royalties from the licensing of Geoworks' operating system to
hardware manufacturers represent a significant component of Geoworks'
current revenues, and are expected to represent an increasing portion
of Geoworks' revenues in future fiscal periods. The royalties
Geoworks receives from these licences are usually correlated to the
wholesale or comparable transfer price of the devices in which
Geoworks' software is incorporated. The price of such devices is
expected to decline over time as a result of competitive pressures
and consumer demands and due to the efforts of Geoworks' OEM
customers to achieve increased sales volume through price reductions.
To the extent that Geoworks' royalty is determined as a percentage of
said price, or to the extent that Geoworks responds to market
pressures by reducing the amount of fixed-dollar royalties, any such
reduction in the wholesale or comparable transfer price will have a
material adverse effect on the royalty per unit Geoworks receives.
There can be no assurance that an increase in sales volume will
result from a decline in the wholesale or comparable price and
thereby compensate for any decline in royalties per unit which
Geoworks receives from its OEM licensees.
16.2 Acceptance of Geoworks Technology Geoworks' success in establishing
the GEOS system software as a leading operating system in the mobile
communicating device market is critically dependent on Geoworks'
ability to establish and sustain business relationships with key
market participants. The Company has already established
relationships with several key hardware manufacturers, independent
software developers and other companies which Geoworks believes will
be significant participants in the market. Despite the importance of
these relationships, Geoworks must secure additional strategic design
wins with its existing partners and other device manufacturers in
order to establish the GEOS system software as an accepted operating
system. Accordingly, there can be no assurance that Geoworks'
existing relationships will result in sustained partnership,
successful products or substantial revenues for Geoworks.
Furthermore, even if Geoworks is able to establish and sustain
relationships with particular participants in the communicating
mobile device market, Geoworks' success depends upon both the
adoption of Geoworks' GEOS system software as an accepted operating
system by hardware manufacturers and the development by Geoworks and
others of aftermarket application products and services for such
products. There can be no assurance that Geoworks will be able to
establish any such relationships, that the GEOS system software will
be accepted as an operating system or that successful aftermarket
products and services will develop for mobile communicating devices.
Geoworks' application strategy initially includes developing
relationships with a limited number of independent software
developers to create, produce and market GEOS-based applications and
services. There can be no assurance that a limited number of
independent software developer relationships will be sufficient for
Geoworks to compete effectively in the mobile communicating device
market that Geoworks or independent software developers will be able
to develop GEOS-based applications and services in a timely manner
or, if developed, that such applications and services will achieve
market acceptance.
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16.3 Dependence on New Market
Geoworks' efforts are currently concentrated on developing and
marketing operating system software for use in mobile communicating
devices. Geoworks' success depends upon both the development of a
new market for these products and upon the adoption of Geoworks' GEOS
system software as an accepted operating system standard for such
devices. Although the market for cellular telephones is well-
established and is currently growing at an appreciable rate, the
smart phone market is in the early stages of development, and, to
date, no smart phone device has achieved broad market acceptance. In
August 1996, Nokia released a smart phone in selected geographic
markets which incorporates the Company's GEOS software. Although the
device has been well received, the market acceptance of these
products has not yet been fully established. More generally, the
failure of these or any other early, highly publicised products or
the discontinuance of any such products by their manufacturers could
significantly affect the marketability of other similar or related
products and components and the development of the market. The
Company has no control over the pricing of GEOS- based devices and,
therefore, cannot guarantee that any devices will reach the desired
price points to achieve mass market acceptance. In addition, the
development of the smart phone market, like that of other computer
and consumer electronics markets is dependent upon the simultaneous
development of a substantial infrastructure of related and supporting
products and services, including hardware and software products,
distribution channels and services, communications services and
support and repair services. The Company has only limited influence
over and, therefore, is substantially dependent upon, the activities
of third parties for the development of this infrastructure. The
success of smart phones also depends on a number of other general
market factors outside Geoworks' control, including consumer
acceptance of particular smart phone concepts. In addition,
Geoworks' long- term results will depend upon its success in
developing and marketing aftermarket wireless content products and
services that operate on GEOS-based smart phones. There can be no
assurance, however, that the wireless content and services market
will develop as anticipated or that Geoworks will be able to execute
its business plan successfully.
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16.4 Limited success of previous-generation, Non-Communicating Devices
Prior to the emergence of the smart phone market, the Company
licensed its GEOS operating system software to manufacturers of non-
communicating mobile devices, such as personal digital assistants and
handheld electronic organisers. These non-communicating devices -
including the Hewlett-Packard OmniGo and the Casio Z-7000, as well as
those introduced by competitors, such as the Apple Newton, Sony
MagicLink and Motorola Envoy - have achieved only modest unit sales
to date, and the Casio Z-700. a first-generation personal digital
assistant based upon the Company's GEOS system software has been
discontinued. Sharp and Toshiba have each developed a
non-communicating GEOS-based device and subsequently elected to
cancel introduction of such devices into the market. Other market
participants have announced restructurings of their efforts relating
to such devices. In addition, sales of low-cost, GEOS-based
educational computer systems fell short of the Company's
expectations. In particular, these third-party product
discontinuances and disappointments resulted in the Company
recognising lower then expected recurring license revenues during the
fiscal year ended 31 March 1996. More recently, Hewlett-Packard
announced and shipped its OmniGo 100, a second-generation electronic
organiser based on the Company's GEOS system software.
16.5 Dependence on Limited Number of Manufacturers
Geoworks' business is critically dependent upon the timely
introduction and successful marketing and sale of GEOS-based smart
phones by a limited number of consumer product companies. Geoworks,
however, has no direct control over any particular smart phone's
hardware design, product functionality, perceived product speed,
pricing strategy, release dates, market positioning, product
promotion or distribution, all of which affect the product's success
and therefore Geoworks' business results. In addition, foreign
currency fluctuations may limit the ability of foreign consumer
product companies to achieve production costs low enough to meet the
pricing requirements of the smart phone market or otherwise affect
the pricing of their products in foreign markets to the extent that
pricing is denominated in U.S. dollars. If a particular GEOS-based
smart phone does not achieve broad market acceptance and generate
anticipated sales volume, Geoworks' operating system royalties from
such product and Geoworks' opportunity for aftermarket sales of
products and services to users of such product will be materially
adversely affected. Furthermore, under the terms of Geoworks'
agreements with hardware manufacturers, the manufacturer is generally
permitted to add product enhancements or new products to the
agreement. In such event, Geoworks may be obligated to apply
unmortised advance payments under the agreement against licence
revenue to be earned by Geoworks on per unit sales of such additional
products. Geoworks may incur additional research and development
expenses to provide software for such products. Any such activities
are generally subject to reaching agreement on specifications,
delivery, pricing and additional payments.
16.6 Development of Wireless Content and Services
Even if the general smart phone market develops as anticipated by
Geoworks and the GEOS system software becomes a leading platform for
hardware and software products, Geoworks' long-term financial success
is dependent on its ability to derive revenue from the delivery of
wireless content and services for GEOS-based smart phones. Geoworks'
plan for generating such revenue includes: sales by Geoworks of
internally developed client and server software and services for, as
well as upgrades to and associated products for, the GEOS based smart
phones; recurring license revenue from communication services
providers; and electronic and traditional distribution by Geoworks of
its own and third-party applications and services. There can be no
assurance, however, that Geoworks will be able to derive significant
revenue from any of these sources. The Company currently offers only
a very limited number of aftermarket applications in selected smart
phones market segments. The Company's wireless server and client
development resources, experience and
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market presence are more limited than that of many other developers.
There can be no assurance that Geoworks will be able to successfully
develop additional aftermarket products or services or obtain
distribution rights to third-party products or content, or that any
such products or content will achieve acceptance in the market.
Further, Geoworks has historically marketed an integrated package of
operating system and applications, and has only limited experience
marketing server and client applications to communication server
providers. There can be no assurance that Geoworks will be able to
offer sufficiently attractive additional functionality in GEOS system
software and associated products to generate significant revenue.
Moreover, Geoworks may be required to respond to competitive products
and to customer demands by including features of its aftermarket
products or services in updated versions of Geoworks' operating
system software. To the extent that Geoworks is required to so
include such products and services, Geoworks may be unable to derive
the level of revenue from such products and services that Geoworks
would derive if such products or services were sold separately.
While, in the past, Geoworks has been able to obtain recurring
license revenue from certain communication services providers, there
can be no assurance that Geoworks will be able to obtain similar
arrangements with other providers. Finally, practicable and
effective cellular distribution of content and services is an
unproved concept which depends on many factors for success, including
the size of the data and applications to be distributed and the
presence of an appropriate infrastructure. Accordingly, there can be
no assurance that cellular distribution will prove to be feasible.
Regardless of the success of the GEOS system software, if Geoworks is
unable to derive significant revenue from one or more of the
foregoing aftermarket sources, Geoworks' long term business, results
of operations and financial condition will be materially adversely
affected.
16.7 Risk of Software Product Development
Geoworks' future success will depend on its ability to develop and
release on a timely basis, new operating system and application
software products and upgrades. Because of the short product life
cycles and intense competition expected in the smart phone market in
which Geoworks participates, the timeliness of new product
introductions and shipments can be critical to whether a particular
product will ever achieve market acceptance. There can be no
assurance that Geoworks will be able to develop, introduce and ship
new products or upgrades on a timely basis. Furthermore, from time
to time, Geoworks and others may announce new products, features or
technologies that have the potential to replace or shorten the life
cycle of Geoworks' existing product offerings. There can be no
assurance that announcements by Geoworks or competitors will not
cause customers to defer purchasing existing products of Geoworks or
its hardware partners, or cause distributors and dealers to return
products. Delays or difficulties associated with developing or
introducing new products could have a material adverse effect on
Geoworks' business and results of operations.
The Company has historically engaged in significant customisation of
its GEOS system software for each hardware partner. The software
development and customisation process is inherently unpredictable.
Development time and the achievability of design objectives may not
be determinable until very late in the development process. Problems
and delays in product development or customisation may result in the
delay or cancellation of planned product or service offerings by
Geoworks and its strategic partners, and consequently could have an
adverse effect on Company's operating results. In the past, Geoworks
has experienced significant delays in the completion of development
and customisation projects and the release of new products to
hardware partners. Consequently, the receipt of development fees and
licence revenue from these partners has at times also been delayed.
Such delays have resulted from a number of factors, including changes
in specifications initiated by Geoworks' hardware partners. The
extent of these delays has varied depending upon the size and scope
of the project and the nature of the problems encountered. There can
be no assurance that Geoworks will not experience similar problems
and delays in the future, resulting in material adverse effects on
Geoworks' operating results. Furthermore, no complex software
product is totally free of errors and significant errors may go
undetected for some time. Discovery of significant errors may delay
or cancel product releases and, if not discovered until
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after product release, may necessitate recall of products by Geoworks
and its strategic partners and expose Geoworks to substantial expense
and claims for reimbursement. As is common in the industry, Geoworks
has experienced product development delays. In particular, Geoworks
experienced two significant delays relating to OEM projects in 1993,
the more significant of which resulted in the OEM delaying payment of
US$2.5 million owed to Geoworks for a period of approximately 12
months and forced Geoworks to cover its capital needs through
short-term borrowings and extended payment terms with certain key
vendors. There can be no assurance Geoworks will not experience
other product development delays in the future with similar or other
consequences.
16.8 Dependence on Complementary Technologies
In certain markets, widespread adoption and use of smart phones may
depend on the commercial availability of other technologies and
business relationships. For example, widespread use of cellular
telephones for data transfer in the United States or other regions
may depend upon the development and rollout of a cellular network
infrastructure capable of digital transmission. Other markets may
depend upon the development of reliable, affordable and convenient
wireless transmission of data. For smart phones and other
communicating devices to achieve consumer level pricing, technologies
which reduce the cost of manufacturing and the cost of goods may need
to be developed and implemented. These cost reductions will also
require Geoworks' OEM licensees to achieve economies of scale in
manufacturing. There can be no assurance that such complementary
technologies will develop, or that such cost and price reductions
will be achieved.
16.9 Exchange rates
The Common Stock of Geoworks is designated in US dollars. In the
event that the Eden shareholders become able in the future to realise
their investment in Geoworks Common Stock, or receive dividends,
changes in the rates of exchange between the US dollar and pounds
sterling, or any other currency into which such shareholders may wish
to exchange such proceeds, may cause the value of their investment to
diminish or to increase.
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16.10 Acquisitions; Integration of Operations
Geoworks and Eden are pursuing the Offer with the expectation that
the business combination of Geoworks and Eden will result in long-
term strategic benefits. These anticipated benefits will depend in
part on whether the companies' operations can be integrated in an
efficient and effective manner. There can be no assurance that this
will occur. The combination of the companies will require, among
other things, the integration of the companies' respective product
offerings and the coordination of the companies' sales, marketing and
research and development efforts. There can be no assurance that the
combined company will be able to take full advantage of these
combined efforts. The success of this process will be significantly
influenced by the ability of the combined company to attract and
retain key management, sales, marketing and research and development
personnel and to integrate personnel with disparate business
backgrounds working in different corporate cultures. Integrating the
two companies will require the dedication of management resources,
which may distract attention from the day-to-day operations of the
combined company. In addition, Geoworks expects to incur significant
additional operating costs in connection with the integration of the
two companies. The inability of management to successfully integrate
the operations of the companies in an efficient and cost-effective
manner, the loss of customers or key personnel or the disruption of
operations as a result of such integration, could have a material
adverse effect upon the business, operating results or financial
condition of the combined company.
17 ADDITIONAL INFORMATION
The Appendices to this letter contain:
I Rights attaching to the Consideration Shares
II Further information relating to Geoworks and Eden
III List of Eden Optionholders and their Options
IV Summary of changes in the rights of Eden shareholders
following Completion of the Offer
V Notice, proxy form and instructions for the Extraordinary
General Meeting of Eden
VI Form of Acceptance and Authority
VII Declaration of Registration Rights
18 DOCUMENTS AVAILABLE FOR INSPECTION
The following documents are available for inspection free of charge
at any time between the hours of 9.30 am and 5.30 pm on business days
at the offices of:
(1) S J Berwin & Co at 222 Grays Inn Road, London WC1X 8HB, England;
(2) Dibb Lupton Alsop at Windsor House, Temple Row, Birmingham B2 5LF;
and
(3) Henry Cooke Corporate Finance Ltd at 1 King Street, Manchester M2
6AW:
(a) the Warranty and Covenant Agreement and the related
disclosure letter;
(b) the Escrow Agreement;
(c) the option agreements referred to in paragraph 2.7 above;
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(d) the agreements relating to the Shareholder Loans referred
to in paragraph 2.8 above;
(e) the Preference Share Agreement;
(f) a copy of the Articles of Incorporation and Bylaws of
Geoworks;
(g) the irrevocable undertakings received by Geoworks to
accept the Offer; and
(h) a copy of this document and its appendices.
19 PROCEDURE FOR ACCEPTANCE
19.1 To accept the Offer you should complete and sign the enclosed
Acceptance Form in accordance with the instructions contained in it.
19.2 You should return the completed Acceptance Form together with your
share certificates and any other documents of title in the enclosed
pre-paid, pre-addressed envelope to S J Berwin & Co, (reference
11/383), 222 Grays Inn Road, London WC1X 8HB so as to arrive as soon
as possible. In any event, forms should arrive not later than the
close of business on 14 March 1997 (or such later date as may be
notified to you in writing by Geoworks).
19.3 Even if any share certificate or document of title is not readily
available, the Acceptance Form should nevertheless be completed and
returned, so as to arrive by the time and date stated, and the share
certificate or document of title forwarded as soon as possible
thereafter, in each case to the address specified above and in the
specified form. Geoworks reserves the right to treat as valid any
acceptance which is not entirely in order or not accompanied by the
relevant certificates or documents of title, but in any such case the
Consideration Shares will not be issued until the acceptance is
completely in order and the remaining documents or satisfactory
indemnities have been received.
19.4 Please ensure that you comply with the instructions relating to the
Extraordinary General Meeting of Eden as specified in Appendix V.
Yours faithfully
Gordon E Mayer
President
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APPENDIX I
RIGHTS ATTACHING TO THE CONSIDERATION SHARES AND
THE PREFERRED STOCK OF GEOWORKS
1 COMMON STOCK
Geoworks' Articles of Incorporation authorise the issuance of up to
20,000,000 shares of Common Stock of no par value. The holders of
Geoworks Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders except that, upon giving
notice as required by law, shareholders may cumulate their votes in
the election of directors. Subject to preferences that may be
applicable to any outstanding Geoworks Preferred Stock, the holders
of Geoworks Common Stock are entitled to receive rateably such
dividends, if any, as may be declared from time to time by the
Geoworks Board of Directors out of funds legally available therefor.
Geoworks has never declared or paid any cash dividends on its capital
stock, and currently has no intention of doing so. In the event of
the liquidation, dissolution or winding up of Geoworks, the holders
of Geoworks Common Stock are entitled to share rateably in all assets
remaining after payment of liabilities, subject to any prior
liquidation rights of the Geoworks Preferred Stock, if any, then
outstanding. The Geoworks Common Stock has no pre-emptive or
conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Geoworks
Common Stock. All outstanding shares of Geoworks Common Stock are
fully paid and non-assessable, and the Consideration Shares will be
fully paid and non-assessable when issued. The rights preferences
and privileges of the holders of Geoworks Common Stock are subject
to, and may be adversely affected by, the rights of the holders of
any series of Preferred Stock which Geoworks may designate and issue
in the future.
It is Geoworks' strategy to achieve critical mass in the smart phone
market through acquisitions, strategic alliances and other
transactions which may involve the issuance of equity securities.
Geoworks engages in discussions concerning such issuances as a
regular course of its business. Without limiting the foregoing,
however, Geoworks has no current commitments to issue any equity
securities as of the date of this Offer, other than pursuant to
employee equity plans.
2 PREFERRED STOCK
Geoworks' Articles of Incorporation authorise the issuance of up to
2,000,000 shares of undesignated Preferred Stock. The Geoworks Board
of Directors has the authority to issue the undesignated Preferred
Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock, as well as to fix
the number of shares constituting any series and the designations of
such series, without any further vote or action by the shareholders.
The Geoworks Board of Directors, without shareholder approval, can
issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Geoworks Common
Stock. The issuance of Geoworks Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders
of Geoworks Common Stock. In addition, the issue of Geoworks
Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of Geoworks. The Geoworks Board of
Directors has no current intention to issue any Geoworks Preferred
Stock.
3 RESTRICTIONS ON TRANSFER OF CONSIDERATION SHARES
Securities Laws
The Consideration Shares being issued to Eden shareholders will not
be registered in reliance on an exemption from the registration
requirements of the United States federal securities laws provided by
Regulation S of the Securities Act for issuances to non-U.S. persons
in transactions outside the
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United States. Geoworks' reliance on this exemption is based in part
upon the representations being made by Eden shareholders in the
Acceptance Form. Securities issued pursuant to an exemption from the
registration requirements of the Securities Act may not be resold in
the United States or to a U.S. Person unless the resale in
subsequently registered or another exemption is available. This
restriction would also bar sales on the Nasdaq National Market.
While it is widely believed that shares issued under Regulation S may
be resold in the United States or to a U.S. person if held for a
period of at least 40 days, Geoworks understands that the United
States Securities and Exchange Commission (the "Commission") is
currently reviewing Regulation S and there is considerable
possibility that the Commission will conclude that shares issued
pursuant to Regulation S should be subject to the restrictions on
resale imposed by Rule 144 of the Securities Act. Such an
interpretation by the Commission would, in effect, lengthen the
holding period for Eden shareholders receiving Geoworks Common Stock
from 40 days to two years and impose additional restrictions on
resale relating to volume, manner of sale, notice and the
availability of current public information.
In light of the foregoing uncertainty, Geoworks has agreed subject to
certain conditions to use its best efforts promptly upon consummation
of the Offer to file a registration statement on Form S-3 covering
the resale of the Consideration Shares in the United States or to
U.S. persons. Upon effectiveness of such registration statement, and
for so long as it remains effective, the Consideration Shares may be
resold in the United States regardless of any Commission action
regarding Regulation S. Geoworks has agreed to keep the registration
statement effective for up to two years after Completion (or such
shorter time as the Commission may permit relate of restricted
securities under Rule 144).
All sales by Eden shareholders of Consideration Shares in the United
States pursuant to the registration statement must be accompanied by
delivery of a current prospectus meeting the requirements of the
United States securities laws. Geoworks will provide each Eden
shareholder with such a prospectus. Geoworks may be required to
update the prospectus periodically to reflect changed information
concerning Geoworks. In such case, Geoworks will provide each Eden
shareholder with an updated prospectus.
Notwithstanding the foregoing Geoworks may suspend the ability of
Eden shareholders to sell Consideration Shares in the United States
or to U.S. persons under the registration statement if the Geoworks
Board of Directors determines in good faith that it would be
significantly disadvantageous to Geoworks and its shareholders for
Geoworks to update the prospectus because Geoworks would be required
to disclose material non-public information that it would not
otherwise be obliged to disclose at such time which disclosure would
have a material adverse effect on the business or prospects of
Geoworks. In such event Geoworks will furnish to the Eden
shareholders a certificate to such effect and the Eden shareholders
will be required to suspend any disposal of Consideration Shares
pursuant to the registration statement. Geoworks may exercise this
right:
(a) no more than twice during any twelve-month period for a
period of up to sixty (60) days each; and
(b) no more than four times during any twelve-month period for
a period of up to twenty (20) days each if updating the
prospectus would require Geoworks to report financial
results less favourable than the consensus estimates of the
major financial analysts following Geoworks' stock prior to
the time Geoworks would normally report such results.
In addition Geoworks reserves the right to withdraw the registration
statement at such time as Geoworks determines that disposals of
Consideration Shares may be made by Eden shareholders in the United
States without the need of the registration statement. In such case,
Geoworks will instruct its transfer agent that such disposals are
permitted without restriction.
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For more detailed information of Geoworks' obligations to register
the resale of the Consideration Shares and the conditions of the Eden
shareholders ability to effect such sales, please refer to the
Declaration of Registration Rights attached as Appendix VII.
The foregoing does not deal with the ability of Eden shareholders to
dispose of Consideration Shares to non-U.S. persons in transactions
occurring outside of the United States. Such transactions are
generally outside of the ambit of United States securities laws, but
may be subject to securities laws of other jurisdictions. Eden
shareholders are urged to consult their own legal advisors regarding
requirements of or limitations on any such transactions.
Restrictions Required under Pooling of Interest Rules
In addition to the restrictions on transferability imposed by United
States' securities laws, Affiliates of Geoworks and Eden will be
required to enter into agreements restricting sales, disposal or
other transactions reducing their risk of investment in respect of
the shares of Geoworks Common Stock held by them to help ensure that
the business combination effected by the Offer will be treated as a
pooling of interests for accounting and financial reporting purposes.
Under such Affiliate Agreements, shares of Geoworks Common Stock
currently held by Affiliates of Geoworks or issued to Affiliates of
Eden in connection with the Offer may not be transferred until after
the second day after the day that Geoworks publicly announces
financial results covering at least 30 days of combined operations of
Geoworks and Eden.
4 GEOWORKS CHARTER DOCUMENTS
The rights of the holders of the various classes and series of Common
and Preferred Stock of Geoworks are set out in the following attached
charter documents of Geoworks:
(a) Amended and Restated Articles of Incorporation filed on
October 20, 1994 with the Secretary of State of
California; and
(b) Bylaws adopted by the Board of Directors of Geoworks, as
amended to date.
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APPENDIX II
FURTHER INFORMATION RELATING TO GEOWORKS
1 RESPONSIBILITY OF GEOWORKS
Geoworks accepts responsibility for the information contained in this
document relating to Geoworks and its directors. To the best of the
knowledge and belief of Geoworks, which has taken all reasonable care
to ensure that such is the case, such information is in accordance
with the facts and does not omit anything likely to affect the import
of such information.
2 DATE AND PLACE OF INCORPORATION
Geoworks was incorporated on 27 September 1983 under the laws of the
State of California, United States of America.
3 SECRETARY, PRINCIPAL OFFICE AND REGISTERED AGENT
Secretary: Jordan Breslow, Esq
Principal Office: 960 Atlantic Avenue, Alameda,
California 94501, USA
Registered Agent: Jordan Breslow Esq,
960 Atlantic Avenue, Alameda, California 94501, USA
4 GEOWORKS CAPITAL STRUCTURE
The authorised capital stock of Geoworks consists of 20,000,000
shares of Common Stock, no par value, and 2,000,000 shares of
undesignated Preferred Stock, no par value. As of December 31, 1996,
there were 14,094,972 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
See Appendix I for a description of the rights attaching to shares in
the capital of Geoworks, which description is qualified in its
entirety by reference to the attached charter documents of Geoworks.
5 PRO FORMA CAPITAL STRUCTURE OF GEOWORKS
5.1 Upon completion of the acquisition of Eden, the capital structure of
Geoworks will be as set forth below (based on the shares of Geoworks
Common Stock outstanding as at 31 December 1996):
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<PAGE> 38
PRO FORMA CAPITAL STRUCTURE
<TABLE>
<CAPTION>
IDENTITY TYPE OF STOCK SHARES OF COMMON APPROX.
STOCK PERCENTAGE OWNERSHIP
<S> <C> <C> <C>
Current Geoworks Shareholders Common 14,094,972 91.5%
Current Eden Shareholders Common 1,304,250 8.5%
</TABLE>
6 NATURE AND PARTICULARS OF BUSINESS; FINANCIAL INFORMATION
Geoworks develops and markets operating system and application
software for the emerging market for mobile communications devices
and electronic organisers focusing primarily on smart phones. For a
more detailed description of the nature of Geoworks' business, please
refer to the copies of the following documents attached hereto:
o Annual Report to Geoworks Stockholders for the fiscal year 1996
o Geoworks Proxy Statement dated July 10, 1996
o Geoworks' Annual Report on Form 10-K for the fiscal year ended
March 31, 1996, as filed with the US Securities Exchange Commission
o Geoworks' Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30, 1996, September 30, 1996 and December 31,
1996, as filed with the US Securities Exchange Commission
7 RESULTS
Please refer to the documents listed above for full information.
Summary audited financial information for Geoworks for the last three
completed financial years and unaudited financial information for the
nine months ended 31 December 1996 is set out below:
<TABLE>
<CAPTION>
Nine months
ended 31
Years ended 31 March December
1994 1995 1996 1996
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Total net revenues 4,449 3,949 4,999 7,664
======= ======= ====== ======
Loss before income taxes (8,581) (10,018) (8,693) (6,869)
======= ======= ======= ======
Provision for income taxes 234 175 - 55
======= ======= ======= ======
Net loss (8,815) (10,193) (8,693) (6,924)
======= ======= ======== ======
Net loss per share (US$) (1.59) (1.11) (0.70) (0.49)
======= ======= ======= ======
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Working capital (deficiency) (2,774) 6,856 43,130 35,968
========= ======= ====== ======
Shareholders equity (deficit) (12,454) 7,652 44,457 38,525
======== ======= ====== ======
</TABLE>
The directors of Geoworks have adopted a policy of accounting for
advanced license fees received as a deferred liability, and
recognising them as license revenue when OEM hardware products which
incorporate the licensed software are sold, or upon a project being
cancelled, if applicable.
8 GEOWORKS CLOSING PRICES
The following table shows the closing prices for Geoworks shares of
Common Stock for the last trading day of each month from 31 August
1996 to 31 January 1997 inclusive:
<TABLE>
<CAPTION>
DATE GEOWORKS COMMON STOCK (US$)
<S> <C>
31 August 1996 22.125
30 September 1996 26.000
31 October 1996 20.375
30 November 1996 22.000
31 December 1996 24.500
31 January 1997 25.000
</TABLE>
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FURTHER INFORMATION RELATING TO EDEN
1 RESPONSIBILITY OF EDEN
The directors of Eden, whose names are set out on page 9 of this
document, accept responsibility for the information contained in this
document other than that relating to Geoworks and its directors. To
the best of the knowledge and belief of the directors of Eden (who
have taken all reasonable care to ensure that such is the case), such
information is in accordance with the facts and does not omit
anything likely to affect the import of such information.
2 FINANCIAL INFORMATION ON EDEN
Summary audited financial information for Eden for the last three
completed financial years is set out below:
<TABLE>
<CAPTION>
YEARS ENDED 30 JUNE
1994 1995 1996
L.'000 L.'000 L.'000
<S> <C> <C> <C>
Turnover 915 856 800
===== ===== =====
Loss on ordinary activities before
and after taxation (332) (223) (636)
====== ====== ======
Net current assets 135 475 1,837
===== ===== =====
Net (liabilities)/assets (526) (498) 768
====== ====== =====
</TABLE>
Turnover consisted principally of advance royalties from product
development until 1995. Subsequently, the company has also generated
engineering fees by porting EDEN OS to various RISC processors and
from advanced licensing fees from hardware manufacturers. The
company has also incurred considerable expenditures in developing and
commercialising EDEN OS during the period under review, which has
been expensed as incurred.
The accounting policy adopted by the directors of Eden in respect of
advanced royalties and advanced license fees is to recognise these as
income as they become payable.
Shareholders in Eden have all previously received a copy of the
report and accounts for the year ended 30 June 1996. Further copies
can be obtained from the company secretary of Eden at the company's
registered office.
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APPENDIX III
LIST OF EDEN OPTIONHOLDERS AND THEIR OPTIONS
<TABLE>
<CAPTION>
NAME NO OF ORDINARY SHARES UNDER
OPTION
<S> <C>
D E J Crisp 52,355
A Jenkins 26,147
D L Stevens 15,324
D P Taylor 45,324
J Axtell 1,000
M Baxter 1,000
B Bennett 300
G Brookman 300
H Clark 2,000
J Doggett 300
A G Ford 4,000
J S Hargreaves 300
A Law 2,000
I Standish 1,000
J Tune 300
3i Group plc 2,000
Henry Cooke Lumsden (London) 24,390
Limited
</TABLE>
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APPENDIX IV
SUMMARY OF CHANGES IN THE RIGHTS OF EDEN SHAREHOLDERS FOLLOWING
COMPLETION OF THE OFFER
Those Eden shareholders who exchange their Ordinary Shares for Common
Stock will, upon the exchange of Ordinary Shares, become stockholders
of Geoworks and their rights as stockholders will be governed by the
laws of the United States and the State of California, including the
California Corporations Code (the "CCC"), by Geoworks' articles of
incorporation (the "Geoworks Articles") and Geoworks' bylaws (the
"Geoworks Bylaws") and by the rules and regulations of Nasdaq. The
following discussion is a comparison of certain rights of Eden
shareholders and stockholders of Geoworks. Such comparison does not
purport to be a complete description of the differences between the
statutory and other rights of Eden shareholders and stockholders of
Geoworks. Such differences can be determined in full by reference to
the laws and applicable regulatory requirements of England and the
United States, the CCC and the common law thereunder, the regulations
of Nasdaq, Eden's memorandum and articles of association (the "Eden
Articles"), the Geoworks Articles and the Geoworks Bylaws.
VOTING RIGHTS AND QUORUM REQUIREMENTS
Eden
Under English law, the voting rights of shareholders are regulated by
a company's articles of association. The Eden Articles specify that
three Eden shareholders (regardless of the number of shares held by
them) present in person or by proxy and entitled to vote upon the
business to be transacted at a meeting of shareholders shall be a
quorum, provided that a representative of each of 3i and Acer be
present. Any Eden shareholder on the register may vote in person or,
assuming the proxy is received by Eden at least 48 hours prior to the
time set for the meeting, by proxy. There is no record date for
meetings under English law.
Each registered Eden shareholder present in person (or, if a
corporation, present by a duly authorised representative or proxy) is
entitled to one vote at any Eden meeting for each resolution
(ordinary or special) considered on a show of hands. Voting occurs
by show of hands unless a poll is demanded. If a poll is taken,
every Eden shareholder, or his proxy, is entitled to cast one vote
for each Ordinary Share held. At shareholder meetings a poll may be
demanded by any shareholder present in person or by proxy, or by the
Chairman.
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Geoworks
Under Geoworks' Bylaws, the presence, either in person or by proxy,
of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. If a quorum is
present, the affirmative vote of a majority of the shares
represented, in person or by proxy, and voting shall constitute an
act of the shareholders.
Each shareholder voting for the election of directors may cumulate
such shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the
number of shares held by such shareholder, or may distribute such
shareholder's votes on the same principle among as many candidates as
the shareholder may select, provided that votes cannot be cast for
more than the number of directors to be elected. However, no
shareholder will be entitled to cumulate votes unless the candidate's
name has been placed in nomination prior to the voting, and the
shareholder, or any other shareholder, has given notice at the
meeting prior to the voting of the intention to cumulate votes. If
any shareholder gives such notice, all shareholders may cumulate
their votes for the candidates in nomination. On all other matters,
each share has one vote.
MEETINGS OF SHAREHOLDERS
Eden
Under English law, an annual general meeting (an "AGM") of a private
company must be held each year and at least once every fifteen
months, unless each shareholder consents to dispense with the AGM for
a particular year. An extraordinary general meeting (an "EGM") of a
company may be convened by the board of directors or, notwithstanding
any provision to the contrary in a company's articles of association,
by a request from shareholders holding not less than one-tenth of the
paid-up capital of the company carrying voting rights at general
meetings. An EGM at which an ordinary resolution is proposed
requires 14 days' notice (other than an ordinary resolution to remove
a director which requires 28 days' notice). Such ordinary resolution
requires a majority vote of those present (in person or by proxy) and
voting. An EGM at which a special resolution is proposed requires 21
days' notice and such resolution requires a three-quarters majority
vote of those present (in person or by proxy) and voting. An AGM
requires 21 days' notice regardless of the types of resolution to be
proposed. Such notice periods exclude the day when the notice is
given or deemed to be given and the day for which it is given.
Geoworks
Under the CCC and the rules applicable to Nasdaq listed companies,
Geoworks is required to hold an annual meeting of stockholders. The
Geoworks Bylaws provide that the annual meeting shall be held on such
date and at such time as the directors shall designate. Absent such
designation, the annual meeting of the shareholders is to be held on
January 15th of each year. In recent years the meeting has been held
in August. The Geoworks Bylaws provide that a special meeting may be
called by the board of directors, the chairman of the board, the
president or the holders of shares entitled to cast not less than ten
percent of the votes at the meeting. Under the CCC, Geoworks must
give notice to stockholders of any annual or special meeting not less
than ten nor more than 60 days prior to such meeting. The record
date for the meetings of the stockholders shall not be less than ten
days nor more than 60 days before the date of such meetings.
As a public company, Geoworks is required to send to each of its
shareholders a proxy statement relating to its annual meeting of
shareholders. The proxy statement will describe in detail the
matters that shareholders will be entitled to vote upon at the
meeting. While any shareholder may attend the meeting and vote in
person, it is more customary to vote by submitting a written proxy,
which will be provided by Geoworks along with the proxy statement.
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BOARD OF DIRECTORS
Eden
The Eden Articles provide that unless otherwise approved by ordinary
resolution of shareholders, there shall be not less than two nor more
than eight directors. At present each of AII and 3i have the right
to appoint a director. The quorum for any meeting of the directors
is three, provided that two are the 3i and Acer directors.
Geoworks
The Geoworks Bylaws provide that the number of directors shall not be
less than five nor more than nine, and currently set the number of
directors at seven. Subject to certain restrictions the Geoworks
Bylaws provide that the directors may increase or decrease the number
of directors within this stated range and fill any vacancy on the
Geoworks Board, including vacancies resulting from an increase in the
number of directors.
AUTHORISED BUT UNISSUED SHARE CAPITAL
Eden
The unissued share capital of Eden is at the disposal of the
directors to allot to such persons as they see fit subject to any
contrary direction given by resolution of the Company.
Geoworks
The authorised capital stock of Geoworks is 20,000,000 shares of
Common Stock, no par value, and 2,000,000 shares of Preferred Stock,
no par value (the "Preferred Stock"). After Completion,
approximately 4,600,778 shares of Common Stock (based on the shares
of Geoworks Common Stock outstanding as at 31 December 1996) and all
2,000,000 shares of Preferred Stock will be authorised but unissued.
Under the CCC, these shares will be available for future issuance by
Geoworks upon approval by Geoworks' Board of Directors but without
the need to obtain the approval of Geoworks' stockholders. The
issuance of additional shares of Common Stock (which will be
identical to the shares being issued to the Eden shareholders in
exchange for Ordinary Shares) will dilute the percentage ownership of
the Eden shareholders in Geoworks. Moreover, Geoworks may issue such
shares in transactions where the price per share is less than that
effectively paid by the Eden shareholders for the Common Stock.
In addition, the Geoworks Board of Directors is authorised without
the need for further action by the stockholders to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix
the designations, powers, preferences, rights, qualifications,
limitations or restrictions of any such series, including, without
limitation, the rate and nature of dividends, the price and terms and
conditions on which shares may be redeemed, the amount payable in the
event of voluntary or involuntary liquidation, the terms and
conditions for conversion or exchange into any other class or series
of stock, voting rights, pre-emptive rights and other terms, any or
all of which may be greater than the rights of the Common Stock. The
purpose of authorising the Geoworks Board of Directors to determine
such rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The effect of issuing, or of
threatening to issue, the Preferred Stock may be to delay or prevent
a change in control of Geoworks. This could have a negative effect
on the value of the Common Stock.
Notwithstanding the CCC, Nasdaq requires shareholder approval when
shares of common stock or securities convertible into or exercisable
for common stock are to be issued in any transaction or series of
related transactions, other than a public offering for cash, (i) if
the common stock to be
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<PAGE> 45
issued will have voting power equal to or greater than 20 percent or
more of the voting power outstanding before such issuance, or (ii)
the number of shares of common stock to be issued will be in excess
of 20 percent of the number of shares of common stock outstanding
before the issuance of the stock.
PREEMPTIVE RIGHTS
Eden
Under English law and under Eden's articles, when Eden issues equity
shares (or grants certain other rights to acquire equity shares)
("equity securities") in consideration for payment of cash, then
unless certain provisions of the Companies Act are disapplied by a
special resolution of shareholders, existing shareholders are
entitled to participate in the offer for such equity securities pro
rata to their existing shareholdings.
Geoworks
Under the CCC, stockholders do not have preemptive rights unless a
corporation affirmatively elects preemptive rights in its articles of
incorporation. The Geoworks Articles do not provide holders of
shares of the Common Stock with pre-emptive rights. Consequently, if
Geoworks makes a private or public offering of its securities, it is
not obliged to offer a portion of such shares to existing
shareholders, which will have the effect of diluting the ownership
interests of the existing shareholders of Geoworks.
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DISCLOSURE OF INTERESTS
Eden
Under the Companies Act, a person who acquires an interest in a
private company is not subject to any disclosure requirement.
However, the Company is required to file an annual return which lists
the current shareholders of the Company.
Geoworks
Geoworks is subject to the United States Securities Exchange Act of
1934 (the "Exchange Act"), which requires any person who acquires
directly or indirectly the beneficial ownership of five percent of
more of a public company's outstanding equity security to file with
the United States Securities and Exchange Commission (the "SEC"),
within ten days, disclosing such interest, and to update such
information periodically. Officers, directors and 10 per cent.
stockholders, are subject to additional, ongoing reporting
requirements.
TRANSFER OF SHARES
Eden
Under the Eden Articles, Eden shareholders who wish to transfer
Ordinary Shares must, subject to the provisions detailed below, serve
a transfer notice on the Company setting out the number and class of
shares to be sold. The Company shall then offer such shares to the
remaining shareholders pro rata according to their existing
shareholdings at a price to be determined by the Company's auditors.
If the remaining shareholders do not wish to purchase all such shares
and the Company does not purchase them itself then the selling
shareholder may transfer to a third party provided he does not sell
them for less than the price determined by the auditors.
However, shareholders may transfer shares to certain specified
persons, being trusts, other shareholders, subsidiaries (if a
corporate shareholder) and certain others provided that where
necessary the transferee enters into a deed agreeing to adhere to the
terms of the subscription agreement dated 27 June 1995.
Geoworks
Because Geoworks is a public company, the Geoworks Articles contain
no restrictions on the transfer of the Common Stock. Under current
U.S. securities laws, Eden shareholders (provided they are not U.S.
persons and will not be "affiliates" of Geoworks following
Completion) who exchange Ordinary Shares for Common Stock will be
required under U.S. securities laws to hold the Common Stock for 40
days following Completion before selling the Common Stock through a
transaction effected on Nasdaq or otherwise to any U.S. person or for
the account or benefit of a U.S. person. Sales prior to the
expiration of the 40-day period may be made to non- U.S. persons.
Any Eden shareholder who exchanges Ordinary Shares for Common Stock
and who is either a U.S. person or an affiliate of Geoworks following
the Completion must comply with certain transfer restrictions imposed
upon them by U.S. securities laws.
The SEC is in the process of reviewing the legislation which
currently permits Eden shareholders (who are not affiliates of
Geoworks or U.S. persons) to resell the Common Stock acquired in the
Offer on the Nasdaq market or otherwise to a U.S. person 40 days
after the date of Completion. There is a considerable likelihood
that the holding period for the Consideration Shares could be
increased from 40 days to one or two years. Although it is
impossible to predict when this change in legislation will occur, if
the SEC were to increase the holding period prior to the one or two
year anniversary of the date of Completion, Eden shareholders holding
Consideration Shares would still
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be able to sell the Consideration Shares on the Nasdaq market, or
otherwise to a U.S. person, upon registration of the Consideration
Shares in the United States. Each Eden shareholder who exchanges
their Ordinary Shares for Common Stock will be granted certain rights
to register their shares pursuant to a Declaration of Registration
Rights pursuant to which Geoworks will undertake, subject to certain
conditions, to register the Consideration Shares in the United States
promptly following Completion, and maintain the applicable
registration statement effective, subject to certain limitations, for
a period not to exceed two years. Once registered, the Consideration
Shares may be resold on the Nasdaq market without restriction by
persons who are not affiliates of Geoworks.
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APPENDIX V
DOCUMENTATION FOR THE EXTRAORDINARY GENERAL MEETING
This Appendix contains the following documents:
FORM A
Notice of the Eden Extraordinary General Meeting stating when and
where it will be held and the wording of the special resolution that
will be proposed.
FORM B
Proxy. This form, if completed by you, will allow another person to
vote at the meeting on your behalf. If you sign and return the form
but do not insert the name of the Proxy the Chairman of the meeting
will vote on your behalf in accordance with your wishes stated on the
form.
Note
Proxy forms, duly completed and accompanied by any documents required
(as explained in note 5 on the proxy form) must be returned with the
Form of Acceptance (in the case of offerees wishing to accept the
Offer) to SJ Berwin & Co, 222 Grays Inn Road, London WC1X 8HB
(reference: 11/383) in the envelope supplied by no later than 3.00pm
on 12 March 1997. Forms returned later and/or without being properly
completed will not be admitted for voting at the extraordinary
general meeting.
47
<PAGE> 49
EDEN GROUP LIMITED
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE is hereby given that an Extraordinary General Meeting of Eden
Group Limited will be held at 222 Grays Inn Road, London WC1X 8HB on
14 March 1997 at 3.00pm, or 24 February 1997 at 3.00pm (or such other
date as may be agreed) in the event that the holders, being a
majority in number of shareholders, of not less than 95 per cent. of
the issued Ordinary Shares in the capital of Eden agree, for the
purpose of considering and, if thought fit, passing the following
resolution which will be proposed as a Special Resolution.
SPECIAL RESOLUTION
THAT, conditionally upon the recommended offer for the entire issued,
and to be issued, ordinary share capital of Eden on the terms
described in the recommended offer document dated 12 February 1997
becoming, or being declared, unconditional in all respects:
(a) the authorised share capital of the Company be increased
from L.1,138,500 to L.1,153,500 by the creation of 150,000
additional ordinary shares of L.0.10 each;
(b) in substitution for any existing authority under that
section (save to the extent relied upon prior to the
passing of this Resolution), the Directors of the Company
be hereby generally and unconditionally authorised pursuant
to Section 80 of the Companies Act 1985 to allot relevant
securities up to an aggregate nominal amount of L.53,357.50
during the period expiring on the fifth anniversary of the
passing of this Resolution, (provided that the Company may
before such expiry make an offer or agreement which would
or might require such shares to be allotted after such
expiry and the Directors may allot relevant securities
pursuant to such an offer or agreement as if the authority
conferred hereby had not expired);
(c) the Directors be hereby empowered, during the period
expiring on the earlier of 24 February 1998 and the date of
the Company's Annual General Meeting to be held in 1998, to
allot or make offers or agreements to allot equity
securities pursuant to the authority granted by paragraph
(b) of this Resolution as if Section 89(1) of the Companies
Act 1985 did not apply to any such allotment; and
(d) the draft new Articles of Association of the Company, in
the form produced to the meeting and signed by the Chairman
for the purposes of identification,
48
<PAGE> 50
be hereby adopted as the Articles of Association of the
Company in substitution for and to the exclusion of the
existing Articles of Association.
Dated 12 February 1997
BY ORDER OF THE BOARD
David Stevens
Secretary
Registered Office:
Beechfield House
Lyme Green Business Park
Macclesfield
Cheshire
SK11 0JP
NOTE:
A member entitled to attend and vote at the above-mentioned meeting
may appoint a proxy to attend and (on a poll) vote instead of him. A
proxy need not also be a member of the Company.
49
<PAGE> 51
EDEN GROUP LIMITED
PROXY FORM
for the Extraordinary General Meeting convened for 14 March 1997, or
24 February 1997 (or such other date as may be agreed) in accordance
with the notice of the Extraordinary General Meeting, in the event
that the holders, being a majority in number of shareholders, of not
less than 95 per cent. of the issued Ordinary Shares in the capital
of Eden agree
I/We ...............................................................
(block capitals please)
of ..................................................................
being a member/members of the Company hereby appoint (see Note 1)
......................................................................
whom failing the Chairman of the Meeting to be my/our proxy and to
attend and vote for me/us on my/our behalf at the Extraordinary
General Meeting of the Company to be held on 14 March 1997 (or an
earlier date determined in accordance with the notice) and at any
adjournment thereof. My/our proxy is to vote as indicated below in
respect of the Resolution set out in the Notice of Meeting (see Note
2):
SPECIAL RESOLUTION
To:
(a) increase the authorised share capital of the Company;
(b) give the Directors the power to allot securities up to an
aggregate nominal amount of L.53,357.50;
(c) allow the Directors to disapply the statutory
pre-emption rights when allotting relevant securities; and
d) adopt new Articles of Association.
FOR/AGAINST
Dated ............................................1997
Signed or sealed (see Note 3 .....................................
NOTES
1 If a member wishes to appoint as a proxy a person other
than the Chairman of the meeting, the name and address of
the other person should be inserted in block capitals in
the space provided. A proxy need not be a member of the
Company but must attend the meeting in person. Any
alteration or deletion must be signed or initialled.
2 A member should indicate by deleting either FOR or AGAINST
how he wishes his votes to be cast in respect of the
Resolution set out in the Notice of Meeting. Unless so
instructed, the proxy will vote or abstain as he thinks
fit. The proxy will act at his discretion in relation to
any other business arising at the meeting (including any
resolution to amend a resolution or to adjourn the
meeting).
50
<PAGE> 52
3 In the case of a corporation this proxy form should be
given under its seal or signed on its behalf by an attorney
or duly authorised officer. In the case of joint holders
the signature of any one of them will suffice, but the
names of all joint holders should be shown.
4 Use of this proxy form does not preclude a member from
attending the meeting and voting in person.
5 To be valid, this proxy form must be lodged together with
the power of attorney or other authority (if any) under
which it is signed, or a notarially certified copy of such
power or authority, at SJ Berwin & Co, 222 Grays Inn Road,
London WC1X 8HB (reference 11/383), not less than 48 hours
before the meeting or any adjournment thereof or, in the
case of a poll, not less than 48 hours before the time
appointed for taking the poll.
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<PAGE> 53
APPENDIX VI
FORM OF ACCEPTANCE AND AUTHORITY
These forms are for completion if you wish to accept the Offer.
Please read the following notes for guidance carefully before
completing them.
The Acceptance Form incorporates certain covenants necessary to
ensure compliance with U.S. securities laws.
52
<PAGE> 54
FORM OF ACCEPTANCE
NOTES FOR GUIDANCE
This form is for completion if you wish to accept the Offer. Please
read the following notes for guidance prior to completing the
Acceptance Form.
1 These notes relate to the Acceptance Form.
2 All shareholders must sign in person (except as mentioned in Note 5
below). A corporation must affix its seal or an authorised
representative must sign. All signatures must be made in the
presence of a witness who must also sign, where indicated, adding his
or her full name, address and occupation in block capitals, where
indicated.
3 If you wish to accept the Offer, this form, duly completed and
signed, must be forwarded together with the share certificate(s) or
other document(s) of title for all your shares in Eden to Geoworks'
Solicitors, S J Berwin & Co, at the address on the enclosed addressed
envelope so as to arrive as soon as possible and in any event not
later than the close of business on 14 March 1997. An acceptance
once lodged cannot be withdrawn or altered except with the written
consent of Geoworks or in the circumstances envisaged by the Offer.
4 If prior to accepting the Offer you have sold or otherwise disposed
of some of your Ordinary Shares, please complete this form in respect
of the shares retained by you and immediately notify Geoworks'
solicitors, S J Berwin & Co (by telephone between 10.00am and 5.00pm
Monday to Friday on 0171 533 2222 and speak to Mr Martin Bowen or Mr
Mark Sanders) of the name and address of the person who now has them.
5 IF A SHAREHOLDER IS AWAY FROM HOME (INCLUDING ON HOLIDAY), send this
Form by the quickest means (such as airmail) to the shareholder for
signature or, if he or she has left a power of attorney, have this
Form signed by the attorney (in which case the power of attorney
should be lodged with this Form). No other signatures will be
accepted.
6 IF YOU CANNOT FIND THE CERTIFICATE FOR ANY OF YOUR EDEN SHARES,
complete and return this Form and await further instructions; an
indemnity may be required.
7 IF A SHAREHOLDER HAS DIED, TELEPHONE THE NUMBER GIVEN BELOW FOR
GUIDANCE.
8 If you have any other queries on how to complete the enclosed forms,
TELEPHONE S J BERWIN & CO ON 0171 533 2222 BETWEEN 10.00AM AND 5.00PM
MONDAY TO FRIDAY AND SPEAK TO MR MARTIN BOWEN OR MR MARK SANDERS WHO
WILL BE ABLE TO ASSIST YOU.
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<PAGE> 55
FORM OF ACCEPTANCE
TO BE RETURNED TO S J BERWIN & CO (REF. 11/383) OF 222 GRAY'S INN
ROAD, LONDON WC1X 8HB AS SOON AS POSSIBLE AND IN ANY EVENT BY THE
CLOSE OF BUSINESS ON 14 MARCH 1997 (UNLESS GEOWORKS NOTIFIES YOU OF
AN EXTENSION)
For use by shareholders of EDEN GROUP LIMITED ("Eden") who wish to
accept the Offer made by Geoworks to purchase their Ordinary Shares
("the Offer").
Name: Number of Ordinary
Shares held
To: Geoworks
960 Atlantic Avenue
Alameda
California 94501
USA
ACCEPTANCE OF THE OFFER
1 I/We, being (or being entitled to be entered as) the registered
holder(s) of the number of Ordinary Shares in the capital of Eden
("the Shares") specified in the box above, hereby irrevocably accept
the Offer in respect of my/our entire holding of Shares subject to
the terms and conditions set out in the Offer document dated 12
February 1997 issued by Geoworks and sent to me/us with this form
("the Offer Document").
2 I/We hereby warrant to Geoworks that if the Offer becomes or is
declared unconditional in all respects the Shares will be transferred
by me/us in accordance with paragraph 4 below fully paid and free
from all claims, liens, charges, equities and other encumbrances.
3 I/We hereby confirm that I/we have no interest in any asset, property
or shares in the capital of Eden other than the Shares.
4 With effect from the date of this Form:
4.1 I/We hereby irrevocably appoint any executive officer of Geoworks as
my/our attorney to execute any instrument of transfer in respect of
the Shares:
(a) provided always such transfer or further document is not
executed or such other act or thing done before the Offer
is declared unconditional in all respects and the expiry of
two working days from the date the Consideration Shares due
to me/us are dispatched; and
54
<PAGE> 56
(b) to execute any further document and do any other act or
thing (including voting at any general meeting of Eden,
executing a form of proxy in respect of the Shares and
signing any consent to short notice) which may be expedient
for the purpose of completing the Offer or transferring the
Shares;
4.2 I/We hereby irrevocably undertake that I/we will execute any further
documents or assurances that may be necessary in connection with such
transfer; and
4.3 I/We hereby authorise and request Geoworks to send by air courier
certificates for the Consideration Shares due to me/us to Dibb Lupton
Alsop. I/We further authorise Dibb Lupton Alsop to send such
certificate(s) to me/us at our risk to my/our address set out in this
Form.
5 I/we hereby agree to terminate in all respects all subsisting
shareholder's agreements relating to the Company to which I/we are a
party (including, without limitation, those dated 20 June 1989, 27
June 1995, 14 May 1996 and 12 November 1996), with effect from the
Offer becoming, or being declared, unconditional in all respects, and
waive all claims and rights of any nature arising therefrom.
6 I/We enclose all share certificate(s) and/or duly completed forms of
indemnity relating to the Shares and I/we acknowledge that these
documents are sent to you at my/our risk and that no receipt will be
given.
7 If I/we execute this form under a power of attorney, I/we enclose the
original of such power of attorney on the understanding that it will
be returned to me/us in due course.
8 I/We hereby agree to notify you of any claim (contingent or
otherwise) I/we have against Eden and confirm that there are no such
claims at the date hereof (save as mentioned in paragraph 3 above).
I/we confirm that as at and immediately after Completion of the Offer
nothing is owed nor are there any outstanding claims between each of
Eden and each of its group companies on the one hand and me/us on the
other and to the extent that such claims may exist, they are waived.
9 If the Offer does not become unconditional I/we authorise the return
of my/our said certificate(s) or other document(s) of title and this
form by first class post or airmail (as appropriate) at my/our risk
to me/us to the first address given above within seven days after the
lapsing of the Offer.
10 Without limitation to the powers conferred upon Geoworks pursuant to
paragraph 4.1, I/we hereby being a member of Eden, and having the
right to attend and vote at the meeting convened by the notice of
Extraordinary General Meeting set out on page 49 and 50 of this
document, agree to the holding of the meeting at 3.00pm on 24
February 1997 (or such other time and date as Geoworks may determine)
and to the passing at the meeting as a Special Resolution of the
Resolution set out in the notice notwithstanding that less than the
statutory notice of the meeting shall have been given.
11 I/we have full legal right, power and authority to enter into and
perform this Acceptance and sell my/our ordinary shares of Eden. If
I/we are acting as a fiduciary, officer, partner, or agent, I/we
enclose with the Acceptance certified copies of the appropriate
instruments pursuant to which I/we are authorised to act hereunder.
12 I/we will have good and marketable title to the shares to be sold by
me/us pursuant to the Offer, free and clear of any and all liens,
encumbrances, equities, securities interests, and claims whatsoever,
with full right and authority to deliver the same under the Offer,
and upon delivery of such Shares and payment of the purchase price
therefor as contemplated in the Offer, will convey to Geoworks good
and marketable title to the shares purchased by it free and clear of
all liens, claims, encumbrances, equities, security interests,
preemptive rights, rights of first refusal, and any other claim of
any third party.
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<PAGE> 57
13 The Offer and this Form of Acceptance (save as indicated in paragraph
15 of the Offer) are governed by the laws of England and I/we agree
to submit to the jurisdiction of the English Courts.
14 In addition to the representations, covenants and agreements set
forth above, each shareholder of Eden represents and warrants to
Geoworks as follows, with the understanding that Geoworks may rely
upon such representations in order to comply with United States
securities laws:
(a) I/we have received, and have had an opportunity to review,
the Offer document and its exhibits, containing the terms
and conditions of the Offer, information about Geoworks'
business and capital structure and certain risk factors
involved in an investment in Geoworks;
(b) Neither I/we nor any person for the account of whom I/we
are acting, is a citizen or resident of the United States
of America, including the estate of any such person, a
trust of which any such person is a beneficiary, or a
corporation, partnership, trust or other entity organised
or operating under the laws of the United States of
America, its territories and possessions and all areas
under the jurisdiction of the United States of America (in
each case, a "U.S. Person");
(c) I/we acknowledge that the Consideration Shares have not
been registered under the Securities Act in reliance upon a
specific exemption therefrom for issuances to non-U.S.
Persons. Accordingly, I/we agree that I/we will not: (1)
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly,
any shares of the Consideration Shares, to a U.S. Person,
or (2) enter into any swap or similar agreement that
transfers, in whole or in part, to a U.S. Person the
economic consequences of ownership of the Consideration
Shares, whether or not any such transaction described in
clause (1) or (2) above is to be settled by delivery of
such Consideration Shares, in cash or otherwise, for such
period of time as may be now or hereinafter be required by
the United States Securities and Exchange Commission to
comply with the exemption from registration upon which
Geoworks has relied in issuing the Consideration Shares, or
until the registration statement filed by Geoworks pursuant
to the Declaration of Registration Rights covering the
resale of such shares (the "Registration Statement") has
been declared effective;
(d) II/we understand that Geoworks will not allow any transfer
or other disposition of the Consideration Shares into the
United States or to a U.S. Person unless (i)(a) the
Registration Statement is effective and the prospectus is
current and (b) I/we have complied with requirements of the
Declaration of Registration rights, (ii) Geoworks shall
have received an opinion of counsel satisfactory to
Geoworks to the effect that such proposed transfer would
not be in violation of the Securities Act or any applicable
state securities law, or (iii) the holding period
(currently 40 days) applicable to the specific exemption
from the United States federal securities laws registration
requirements for issuances to non-U.S. Persons in offshore
transactions has expired; provided however, that for sales
to Non-U.S. Persons effected prior to the expiration period
noted in subparagraph (iii) above, transferee provides
Geoworks with a representation statement consisting of
paragraphs (a), (b), (c) and (d) of this Section 14;
(e) I/we understand that the share certificate(s) of all
shareholders receiving Consideration Shares shall bear the
following legend in addition to any other legend require
under this Agreement:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED ("ACT"), OR THE SECURITIES LAWS OF ANY STATE OF
THE
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<PAGE> 58
UNITED STATES ("STATE ACT") AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF FOR A PERIOD OF FORTY (40) DAYS AFTER
THE DATE ON THE FACE HEREOF TO A CITIZEN OR RESIDENT OF THE
UNITED STATES OF AMERICA, INCLUDING THE ESTATE OF ANY SUCH
PERSON, A TRUST OF WHICH ANY SUCH PERSON IS A BENEFICIARY,
OR A CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY
ORGANISED UNDER THE LAWS OF THE UNITED STATES OF AMERICA,
ITS TERRITORIES AND POSSESSIONS AND ALL AREAS UNDER THE
JURISDICTION OF THE UNITED STATES OF AMERICA, UNLESS THE
ISSUER HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO
THE ISSUER, THAT SUCH TRANSFER WILL NOT BE IN VIOLATION OF
THE ACT OR ANY APPLICABLE STATE ACT, OR A REGISTRATION
STATEMENT COVERING SUCH SHARES SHALL HAVE BEEN DECLARED
EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION.
Dated this day of 1997
Signed and delivered as a deed by
...................................................................
Signature of accepting shareholder
Witnessed by
...................................................................
Signature of witness
......................................................................
Name
......................................................................
Address
......................................................................
......................................................................
Occupation
57
<PAGE> 59
APPENDIX VII
GEOWORKS
DECLARATION OF REGISTRATION RIGHTS
This Declaration of Registration Rights ("Declaration") is made as of
February 24, 1997 by Geoworks, a California corporation ("Geoworks" or the
"Company"), for the benefit of shareholders of Eden Group Limited, a company
incorporated under the laws of England and Wales ("Eden Group"), acquiring
shares of Common Stock of Geoworks ("Company Common Stock") pursuant to that
certain Offer document distributed to all shareholders and optionees of Eden
Group (the "Offer Document") concerning the acquisition of all outstanding
Ordinary and Preference Shares of Eden Group by the Company (the
"Acquisition").
1. Definitions. As used in this Declaration:
a. "Exchange Act" means the United States Securities
Exchange Act of 1934, as amended.
b. "Securities Act" means the United States Securities
Act of 1933, as amended.
c. "Form S-3" means such form under the Securities Act
as is in effect on the date hereof or any registration form under the
Securities Act subsequently adopted by the SEC which similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC (as defined below).
d. "Holder" means: (i) a shareholder of Eden Group to
whom shares of Registrable Securities are issued pursuant to the Offer Document
for so long as such holder continues to hold the registration rights contained
herein or (ii) a transferee of Registrable Securities by a Holder to whom
registration rights under this Declaration are assigned pursuant to Section 9
of this Declaration.
e. "Registrable Securities" means for each Holder the
shares of Company Common Stock issued to such Holder pursuant to the Offer
Document, together with all other shares of Company Common Stock issued in
respect thereof (by way of stock split, dividend or otherwise), and for all
Holders the aggregate of all Registrable Securities held by all such Holders.
Registrable Securities shall not include any shares of Company Common Stock
transferred by a Holder for which registration rights are not also assigned
pursuant to Section 9 hereof.
f. "SEC" means the United States Securities and Exchange
Commission.
g. "Warranty Agreement" means that certain Warranty and
Covenant Agreement dated as of February 12, 1997 between Geoworks and the
persons listed in Part 1 of Schedule 1 to the Warranty Agreement (the
"Warrantors") and the persons listed in Part 2 of Schedule 1 to the Warranty
Agreement (the "Principal Sellers").
<PAGE> 60
Capitalized terms not otherwise defined herein have the meanings given
to them in the Warranty and Covenant Agreement.
2. Registration. Geoworks shall use all best efforts to cause
(i) all Registrable Securities held by each Holder following the Completion of
the Offer to be registered under the Securities Act, and (ii) such Registration
Statement to be declared effective by the SEC not later than 30 days after
public release of Geoworks' financial statements for the period ended March 31,
1997, so as to permit the resale thereof on a continuous basis, subject to
Section 3 hereof, and in connection therewith shall use all reasonable efforts
to prepare and file with the SEC promptly following the Completion (as defined
in the Warranty Agreement), and shall use all best efforts to cause to become
effective as soon as practicable thereafter, a registration statement on Form
S-3; provided, however, that each Holder shall provide all such information to
Geoworks concerning the Holder (limited to the Holder's name and address and
information relating to the beneficial ownership by such Holder of Company
Common Stock) and take all such action as may be required (if any) in order to
permit Geoworks to comply with all applicable requirements of the SEC and to
obtain any desired acceleration of the effective date of such registration
statement. Such provision of information is a condition precedent to the
obligations of Geoworks pursuant to this Declaration. Geoworks shall not be
required to effect more than one (1) registration under this Declaration.
3. Obligations of Geoworks. Subject to the limitations of
Sections 4 and 11, Geoworks shall (i) keep the registration statement filed in
accordance with Section 2 hereof continuously effective until the earlier of
(a) two (2) years (or such lesser time as the SEC may permit resales of
"Restricted Securities" pursuant to amendments to Rule 144(d) under the
Securities Act) after the Completion or (b) such time as all Registrable
Securities have been disposed of either hereunder or otherwise; (ii) prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities proposed to be registered in such
registration statement; (iii) furnish to each Holder such number of copies of
any prospectus (including any preliminary prospectus and any amended or
supplemented prospectus) in conformity with the requirements of the Securities
Act, and such other documents, as each Holder may reasonably request in order
to effect the offering and sale of the Registrable Securities to be offered and
sold, but only while Geoworks shall be required under the provisions hereof to
cause the registration statement to remain current.
4. Selling Procedures.
(i) Notwithstanding the provisions of Section 3, if
Geoworks shall furnish to the Holders a certificate signed by the chief
executive officer or chief financial officer of Geoworks stating that in the
good faith judgment of the Board of Directors of Geoworks it would be
significantly disadvantageous to Geoworks and its shareholders for any such
registration statement to be amended or supplemented because Geoworks would be
required to disclose in such registration statement, either directly or through
incorporation by reference, material non-public information that it would not
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<PAGE> 61
otherwise be obligated to disclose at such time, the disclosure of which at
such time would have a material adverse effect on the business or prospects of
Geoworks. Geoworks may (A) no more than twice during any twelve-month period,
defer such amending or supplementing of such registration statement for not
more than sixty (60) days, and in such event the Holders shall be required to
discontinue disposition of any Registrable Securities covered by such
registration statement during such period, and (B) no more than four times
during any twelve-month period, defer such amending or supplementing of such
registration statement for not more than twenty (20) days, if such amendment or
supplement is required to reflect the reporting of financial results less
favorable than the consensus estimates of the Company's major analysts.
(ii) Notwithstanding the foregoing, Geoworks shall notify
each Holder or a representative designated by such Holder (A) of any request by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the registration statement for amendments or supplements to
the registration statement or related prospectus or for additional information
relating to the registration statement, (B) of the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose, (C) of the receipt by Geoworks of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, or (D) of the happening of any event which makes any statement made in
the registration statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or which requires the making of any changes in the registration
statement or prospectus so that, in the case of the registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
In such event, Geoworks may suspend use of the prospectus on written notice to
each Holder, in which case each Holder shall not dispose of Registrable
Securities covered by the registration statement or prospectus until copies of
a supplemented or amended prospectus are distributed to the Holders or until
the Holders are advised in writing by the Company that the use of the
applicable prospectus may be resumed. Geoworks shall use its reasonable
efforts to ensure that the use of the prospectus may be resumed as soon as
practicable. Geoworks shall use its reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the securities for sale in any jurisdiction, at
the earliest practicable moment. Geoworks shall, upon the occurrence of any
event contemplated by clause (D), prepare a supplement or post-effective
amendment to the registration statement or a supplement to the related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
-3-
<PAGE> 62
5. Availability of Form S-3. Geoworks represents that it is
currently eligible to utilize Form S-3.
6. Expenses. Geoworks shall pay all of the out-of-pocket
expenses incurred, other than underwriting or selling discounts and
commissions, in connection with the registration of Registrable Securities
pursuant to this Declaration, including, without limitation, all SEC and NASD
registration and filing fees, printing expenses, transfer agent's and
registrar's fees, and the reasonable fees and disbursements of Geoworks'
outside counsel and independent accountants.
7. Indemnification. In the event of any offering registered
pursuant to this Declaration:
a. Geoworks will indemnify each Holder and each person
controlling a Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, final prospectus, or any amendment or
supplement thereto, incident to any offering registered pursuant to this
Declaration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading,
or any violation by Geoworks of any rule or regulation promulgated under the
Securities Act or state securities laws applicable to Geoworks in connection
with any such registration, and subject to Section 7(c), will reimburse each
such Holder, and each person controlling such Holder, for any legal and any
other out-of-pocket expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, provided that Geoworks will not be liable in any such case to the
extent that any such claim, loss, damage, or liability arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished to
Geoworks by such Holder or controlling person.
b. Each Holder will indemnify Geoworks, each of its
directors and officers and its legal counsel and independent accountants, each
underwriter, if any, of Geoworks' securities covered by such a registration
statement, each person who controls Geoworks or such underwriter within the
meaning of Section 15 of the Securities Act, and each other Holder and each
person controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) or a material fact contained in
any such registration statement, final prospectus, or any amendment or
supplement thereto, incident to any offering registered pursuant to this
Declaration or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse Geoworks, such other Holders, such
directors, officers, legal counsel, independent accountants, underwriters or
control persons for any legal or any other expenses out-of-pocket reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement, final
prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with
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<PAGE> 63
information furnished to Geoworks by such Holder in writing for such purpose;
provided, however, that the obligations of each Holder hereunder shall be
several and not joint and shall be limited to an amount equal to the respective
gross proceeds (before expenses and commissions) from the sale of Registrable
Securities by such Holder as contemplated herein.
c. Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party receives written notice of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to
give notice. Notwithstanding the foregoing sentence, the Indemnified Party may
retain its own counsel to conduct the defense of any such claim or litigation,
and shall be entitled to be reimbursed by the Indemnifying Party for expenses
incurred by the Indemnified Party in defense of such claim or litigation, in
the event that the Indemnifying Party does not assume the defense of such claim
or litigation within sixty days after the Indemnifying Party receives notice
thereof from the Indemnified Party. Further, an Indemnifying Party shall be
liable for amounts paid in settlement of any such claim or litigation only if
the Indemnifying Party consents in writing to such settlement (which consent
shall not be unreasonably withheld). No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party a release from all liability
with respect to such claim or litigation.
d. If the indemnification provided for in this Section 7
from the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any claim, loss, damage or liability referred to herein, then the
Indemnifying Party, to the extent such indemnification is unavailable, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, losses, damages
or liabilities in such proportion as is appropriate to reflect the relative
benefit to or fault of the Indemnifying Party and indemnified parties in
connection with the actions that resulted in such claims, losses, damages and
liabilities. The relative benefit of such Indemnifying Party and indemnified
parties shall be determined by reference to, among other things, in the case of
Geoworks, the value of the entire issued ordinary share capital of Eden Group
Limited received by Geoworks, and, in the case of each Holder, the gross
proceeds received by each such Holder from the sale of Registrable Securities
in the manner contemplated hereby. The relative fault of such Indemnifying
Party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
Indemnifying Party or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party
-5-
<PAGE> 64
as a result of the claims, losses, damages or liabilities referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this paragraph were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to above in this paragraph. No party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any party.
e. The obligations of Geoworks and each Holder under
this Section 7 shall survive the completion of any offering of stock in a
registration statement under this Declaration.
8. Reports Under Securities Exchange Act of 1934. Geoworks
agrees to:
a. use all reasonable efforts to file with the SEC in a
timely manner all reports and other documents required of Geoworks under the
Securities Act and the Exchange Act; and
b. furnish to each Holder forthwith upon request (i) a
written statement by Geoworks that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, or that it qualifies
as a registrant whose securities may be resold pursuant to Form S-3 (at any
time that it so qualifies), (ii) a copy of the most recent annual or quarterly
report of Geoworks and (iii) such other information as may be reasonably
requested in availing each Holder of any rule or regulation of the SEC which
permits the selling of any such securities pursuant to Form S-3.
9. Assignment of Registration Rights. The rights of a Holder
pursuant to this Declaration may be assigned by such Holder to a transferee of
Registrable Securities only if: (a) Geoworks is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee and a copy of a duly executed written instrument in form reasonably
satisfactory to Geoworks pursuant to which such transferee agrees to be bound
hereby and provides the Company with such reasonable information as the Company
may request to permit the transferee to sell such Registrable Securities
pursuant to the registration statement filed in accordance with Section 2
hereof, and (b) immediately following such transfer, the disposition of such
Registrable Securities by the transferee is restricted under the Securities
Act.
10. Amendment of Registration Rights. The Holders of a majority
of the Registrable Securities then outstanding may, with the consent of
Geoworks, amend the registration rights granted hereunder.
11. Termination. The registration rights set forth in this
Declaration shall terminate with respect to a Holder (and the shares held by
such Holder shall cease to constitute Registrable Securities) upon the earlier
of (i) such time as all of the Registrable Securities then held by such Holder
can be sold by such Holder in a three-month period in accordance with Rule 144
under the Securities Act, (ii) two years (or such lesser time as the SEC may
permit resales of "restricted securities" pursuant to amendments to Rule 144
under the Securities Act) following Completion; or (iii) such time as the
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<PAGE> 65
Company receives a legal opinion reasonably satisfactory to it, stating that
the Registrable Securities may be transferred without registration under the
Securities Act and that any legends appearing on the certificates representing
such Registrable Securities may be removed, in which case either such legends
shall be removed or Geoworks shall have offered to remove them.
12. Obligations of Holders. By exercising any rights hereunder,
each Holder shall be deemed to assume all obligations of a Holder hereunder as
though such Holder were a signatory hereto. Geoworks may require Holders to
execute an instrument whereby such Holders expressly assume all obligations of
Holders hereunder as a condition precedent to any obligations of Geoworks
hereunder.
GEOWORKS
By: /s/ GORDON E. MEYER
------------------------------------
Name: Gordon E. Meyer
Title: CEO
-7-
<PAGE> 1
DATED February 12, 1997
WARRANTY AND COVENANT AGREEMENT
in relation to
EDEN GROUP LIMITED
THE WARRANTORS (1)
THE PRINCIPAL SELLERS (2)
GEOWORKS (3)
<PAGE> 2
<TABLE>
<S> <C>
INDEX
PARTIES 1
INTRODUCTION 1
INTERPRETATION 1
OPERATIVE PROVISIONS 8
1 Conditions Precedent 8
2 The Offer and Termination of this Agreement 8
3 Operation of the Business Prior to Completion 9
4 Completion 12
5 Warranties, covenants, representations and undertakings 14
6 Confidentiality 17
7 Restrictions 17
8 Restrictive Trade Practices Act 18
9 Use of the Company's names 19
10 Access and Review 19
11 General Provisions 19
SCHEDULE 1 22
Part 1 22
The Warrantors 22
Part 2 23
Principal Sellers 23
Part 3 24
Other Shareholders 24
Part 4 31
Optionholders 31
SCHEDULE 2 33
Part 1 33
Particulars of the Company 33
Part 2 35
Particulars of the Subsidiaries 35
Part 3 37
Particulars of the Buyer 37
SCHEDULE 3 38
Warranties by the Warrantors 38
1 Information 38
2 Capital, distribution, contracts and liabilities 39
3 The Shares and the Company 40
4 Accounts 40
5 Business and Trading 41
6 Stocks, assets and insurance 42
7 Sale of the Shares 43
8 Taxation 44
9 Employees, agents and pensions 46
10 Pensions 47
11 Litigation 47
12 Capital commitments, unusual contracts, guarantees etc. 48
13 Borrowings and lendings 48
14 Continuation of facilities 49
15 The Properties 49
16 Environmental 52
17 Insolvency 52
18 Intellectual Property 53
19 Competition 55
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
20 Financial Services 55
21 Non Trading Companies 56
SCHEDULE 4 57
The Properties 57
SCHEDULE 5 58
Intellectual Property 58
Part 1 - Outward Licenses 58
Part 2 - Inward Licenses 58
Part 3 - Intellectual Property Registrations and Applications 59
Unregistered Intellectual Property 60
SCHEDULE 6 61
The Software 61
SCHEDULE 7 62
The Tax Covenants 62
1 Introduction 62
2 Covenant to pay 63
3 Exclusions 64
4 General 64
ATTESTATIONS 65
AGREED FORM DOCUMENTS REFERRED TO IN THIS AGREEMENT
1 The Disclosure Letter
2 Escrow Agreement
3 Irrevocable Undertakings
4 The Management Accounts
5 The Offer
6 Options Agreement
7 Termination Agreement
8 Resignations of Directors
9 Acknowledgements and waivers from each of the Sellers and the Company
10 Resignation of the Auditors
11 Waivers and consents by all members of Company to enable Buyer to be registered as the holder of the shares
12 Certified copies of Resolutions
13 Properties title deeds
14 Preference share sale letter agreement
15 3i/Acer releases and re-assignments
16 Ernst & Young Opinion Letter
17 Declaration of Registration Rights
18 Affiliates' Agreement
</TABLE>
<PAGE> 4
WARRANTY AND COVENANT AGREEMENT
DATE
February 12, 1997
PARTIES
(1) THE PERSONS whose names and addresses are set out in Part 1 of
Schedule 1 (collectively "the Warrantors" and individually a
"Warrantor");
(2) THE PERSONS whose names and addresses are set out in Part 2 of
Schedule 1 (collectively "the Principal Sellers" and individually a
"Principal Seller"); and
(3) GEOWORKS, a California corporation whose principal office is at 960
Atlantic Avenue, Alameda, California, CA 94501, United States of
America ("the Buyer").
INTRODUCTION
(A) The Company was incorporated in England and Wales on 9 March 1989
under the Companies Act 1985 and is registered under number 2357515
as a private company limited by shares. It has at the date of this
Agreement an authorised share capital of L.1,138,500 divided into
1,611,580 ordinary shares of L.0.10 each and 977,342 redeemable
cumulative preference shares, of which only the Shares have been
issued and are fully paid or credited as fully paid. Each of the
Sellers is the legal and beneficial owner of the Shares shown against
his name in column (3) of Schedule 1 and as such has the right, power
and authority to sell and transfer those Shares free from all and any
claims, charges, liens, encumbrances and equities.
(B) The business of the Company is the development, marketing and
licensing of computer software for mobile communications devices,
companion software for use on personal computers and the provision to
customers of related services.
(C) The Buyer was incorporated in California on September 27, 1983 under
the California Corporations Code. The capital structure of the Buyer
at the date of this Agreement consists of 20,000,000 shares of common
stock, no par value (the "Common Stock"), and 2,000,000 shares of
undesignated preferred stock, no par value (the "Preferred Stock"),
of which there have been issued and are fully paid the shares set out
in Part 3 of Schedule 2.
(D) The Buyer wishes to make an offer to buy all the Shares on the terms
and subject to the conditions of the Offer and each of the Sellers is
willing to sell his Shares by accepting the Offer and on the terms
and subject to the conditions of this Agreement.
INTERPRETATION
(1) In this Agreement (including the Introduction and Schedules), the
following expressions shall have the meanings set out below:
the Accounts the balance sheet of the Company and the
consolidated audited balance sheets of
the Company as at the Accounts Date and
the profit and loss account of the
Company and the consolidated audited
profit and loss accounts of the Company
for the year ended on the Accounts Date
together with the directors' reports and
other documents required by law to be
annexed thereto
<PAGE> 5
the Accounts Date 30 June 1996
Affiliates Agreement an agreement in the agreed form to
be delivered by the shareholders or
optionholders in the Company identified
as Affiliates in Schedule 1
Board(s) the board of directors for the time
being of the Buyer and the Company as
specifically referred to
the Business the activities of the Company
described in paragraph (B) of the
Introduction
Business Day any day (not being a Saturday
or a Sunday) on which the Stock Exchange
and banks in San Francisco are open for
business
the Buyer's Solicitors S J Berwin & Co of 222 Grays
Inn Road, London WC1X 8HB
CAA the Capital Allowances Act 1990
the Companies the Company and the Subsidiaries and
each of them
Commercial Know-how all information, other than Computer
Know-how, relating to the Business and
the Company's prospects, markets,
pricing, customers, suppliers,
employees, consultants and such policies
as it has
the Company Eden Group Limited, brief details of
which are set out in Part 1 of
Schedule 2
the Company's Auditors Ernst & Young of Commercial Union House,
Albert Square, Manchester M2 6LP
Completion completion of this Agreement in
accordance with the terms of clause 4,
which will take place simultaneously
with the completion of the Offer upon
satisfaction of the Offer Conditions
Computer Know-how all information not at present in the
public domain (including information
contained in or arising from research,
designs, flow charts, expressions,
methodology, logic flows,
specifications, drawings, manuals lists
and instructions in whatever form held)
relating to computer hardware and
software including:
(a) systems integration, integrated and
other circuits and digitiser technology;
(b) memory organisation, object
representation and display management;
(c) porting, interfaces and signal
processing;
<PAGE> 6
(d) operating and applications software,
including graphics, windows and
hypermedia;
(e) menu structures, macro facilities,
programming languages and tools,
software interfaces, and source code;
(f) the design, selection, procurement,
construction, installation use, repair,
service or maintenance of any software;
(g) the Company's current or future
range of software;
(h) the supply, storage computer
software or components therefor; and
(i) quality control, testing or
certification
the Conditions the conditions to this Agreement set
out in clause 1
the Consideration
Shares the 1,304,250 shares of Common Stock
of the Buyer, having the rights and
being subject to the restrictions set
out in the Articles of Incorporation of
the Buyer, to be issued to the Sellers
upon Completion in accordance with and
subject to the provisions of clause 4
the Declaration of
Registration Rights the declaration of registration rights
in the agreed form, proposed to be
entered into by the Buyer for the
benefit of all the Sellers and other
shareholders of the Company selling
pursuant to the Offer
the Directors the persons specified as directors of
the Company in Part 1 of Schedule 2, the
expression "Director" meaning any of
them
the Disclosure Letter a letter dated the same date as this
Agreement from the Warrantors to the
Buyer in the agreed form disclosing
certain facts in connection with the
Warranties
Disposal includes any disposal of any legal or
beneficial interest whatever including,
without limitation, any sale or transfer
of or grant of any option or Encumbrance
in the property in question and
"Dispose" shall be construed accordingly
the Employees those persons (including directors)
whose names appear in the list attached
to the Disclosure letter
Encumbrance any security interest of any nature
whatever including, without limitation,
any mortgage, charge, pledge, lien,
assignment by way of security
Environment air, water, land, buildings, flora,
fauna and humans
<PAGE> 7
Environmental Consents any permit, licence, authorisation,
approval or consent required under or
agreement made pursuant to any
Environmental Law
Environmental Law all laws which are in force or enacted
at the date of this Agreement (including
common laws, statutes and subordinate
legislation), regulations, codes of
practice or guidance notes concerning
the Environment or health and safety
Escrow Agreement the agreement in the agreed form
governing the establishment of an escrow
fund of some of the Consideration Shares
Escrow Amount 65,213 of the Consideration Shares to be
issued to the Warrantors
the Existing Options the options granted to directors,
employees and others in the terms of the
schemes and agreements set out in or
annexed to the Disclosure Letter, brief
details of which appear in Part 4 of
Schedule 1
the Freehold Property the Chapel, Rainow, Cheshire SK10 5XF
FSA Financial Services Act 1986
ICTA the Income and Corporation Taxes Act
1988
Incidental Amount the amount of a Material of
Environmental Concern present in the
Environment which is insufficient to
cause harm or have a deleterious effect
on the Environment
Intellectual Property copyrights, trade and service marks,
trade names, rights in logos and get-up,
inventions, confidential information,
trade secrets and know-how including
Commercial Know-how and Computer
Know-how, registered designs, design
rights, patents, utility models,
semi-conductor topographies, all rights
of whatsoever nature in computer
software and data, all moral rights,
including rights of paternity and
integrity, all rights of privacy and all
intangible rights and privileges of a
nature similar or allied to any of the
foregoing, in every case in any part of
the world and whether or not registered;
and including all granted registrations
and all applications for registration in
respect of any of the same
the Investor Loan
Agreements the agreements in the agreed form
between the Company and each of 3i Group
plc and AII Holding Corporation dated 27
June 1995
Investor Loans the long term loans advanced to the
Company by 3i Group plc and AII Holding
Corporation pursuant
<PAGE> 8
to the Investor Loan Agreements and all
amounts due and payable thereunder
Irrevocable Undertakings irrevocable undertakings to accept the
Offer, in the agreed form
the Management Accounts the management accounts of the Company
for the period of seven months from the
Accounts Date in the agreed form
Materials of
Environmental Concern any substance which may cause harm to or
have a deleterious effect on the
Environment
the Properties the Freehold Property and leasehold
properties short particulars of which
appear in Parts 1 and 2 of Schedule 4
and references to "the Properties" shall
extend to any part or parts thereof
the Offer the offer proposed to be made in the
agreed form by the Buyer to all the
holders of the Shares
the Offer Conditions the conditions precedent to the Offer,
as set out therein
the Options Agreement an agreement in the agreed form pursuant
to which all the holders of Existing
Options will agree to exercise their
Existing Options and accept the Offer on
the terms set out therein
the Parties the parties to this Agreement, the
expression "Party" meaning any of them
the Patents the patents and applications for
patents, brief particulars of which are
set out in Schedule 5
Relief any relief, allowance, deduction or
credit in respect of Taxation
Restricted Activities the businesses carried on by the Company
as at today's date as described in
paragraph (B) of the Introduction
the Sellers collectively, the Warrantors and the
Principal Sellers, each of the foregoing
being individually a "Seller"
the Shares all the issued ordinary shares in the
capital of the Company on the date of
Completion, as set out in column (3) of
Parts 1, 2 and 3 of Schedule 1 and the
ordinary shares arising upon exercise of
the options listed in Part 4 of Schedule
1 and upon capitalisation of the
Investor Loans, shown in column (4) of
Part 2 of Schedule 1
the Software all computer software developed or
written or being developed or written by
or on behalf of the
<PAGE> 9
Company, or acquired or licensed to the
Company, including that listed or
referred to in Schedule 6
SSAP a statement of Standard Accounting
Practice published by the former
Accounting Standards Committee or the
present Accounting Standards Boards, as
the same have effect on the date of this
Agreement
Subsidiaries those companies short particulars of
which appear in Part 2 of Schedule 2,
being all the subsidiaries of the
Company, and the expressions
"Subsidiary" shall mean any of the
Subsidiares
the Stock Exchange London Stock Exchange Limited
the Tax Covenants the covenants relating to Taxation, set
out in Schedule 7
Taxation, Taxing Authority
Transaction the same respective meanings as in the
Tax and Covenants
TCGA the Taxation of Chargeable Gains Act
1992
VAT Value Added Tax
VATA the Value Added Tax Act 1994
Trade Marks all trade marks or names owned and/or
used by or on behalf of the Company,
including the registrations and the
applications listed in Part 3 of
Schedule 5 and the unregistered trade
marks or names set out in Part 4 of
Schedule 5
the Warranties the representations, warranties and
undertakings pursuant to clause 5 and
set out in Schedule 3 and including,
where the context permits, any
individual paragraph or statement in
Schedule 3
the Warrantors the persons listed in Column (1) of Part
1 of Schedule 1
the Warrantors' Solicitors Dibb Lupton Alsop of Windsor House,
Temple Row, Birmingham, B2 5LF
(2) All references to statutory provisions or enactments shall include
references to any amendment, modification or re-enactment of any such
provision or enactment coming into force prior to the date hereof and
to any regulation or order made under such provision or enactment
which is currently in force.
(3) The words "subsidiary" and "holding company" have the meanings given
in sections 736 and 736A of the Companies Act 1985 and the expression
"subsidiary undertakings" shall have the meaning given in section 258
of the Companies Act 1985.
(4) References to documents "in the agreed form" are to documents in
terms agreed on or before the date hereof between the Parties and
signed (for the purpose of identification only) by the
<PAGE> 10
Warrantors' Solicitors and the Buyer's Solicitors and on behalf of 3i
Group plc and AII Holding Corporation where either is a party to such
document.
(5) References to those of the Parties who are individuals include
references to their respective legal personal representative(s).
(6) References to the clauses, Parties, Introduction, and Schedules are
references respectively to the clauses of and the Parties,
Introduction, and Schedules to this Agreement.
(7) Section 839 of ICTA (connected persons) is to apply to determine
whether a person is connected with another for the purposes of this
Agreement.
(8) References in clause 3 or in Schedule 3 to an "agreement" or a
"contract" include any written or oral promise, undertaking or
arrangement which is capable of being treated as a legally
enforceable agreement.
(9) Save where the context specifically requires otherwise, words
importing one gender shall be treated as importing any gender, words
importing the singular shall be treated as importing the plural and
vice versa, wording importing individuals shall be treated as
importing corporations and vice versa, and words importing the whole
shall be treated as including a reference to any part thereof. The
obligations of the Parties are, save where specifically provided,
several and not joint or joint and several.
(10) The captions, clause and paragraphs headings of this Agreement are
included for ease of reference only and shall not affect
construction.
OPERATIVE PROVISIONS
1 CONDITIONS PRECEDENT
1.1 This Agreement is conditional upon the conditions in paragraphs (a)
to (d) below of this clause 1.1 being fulfilled to the satisfaction
of the Buyer or being waived in writing in whole or in part by the
Buyer:
(a) each of the holders of Existing Options and the Buyer
executing and unconditionally exchanging the Options
Agreement;
(b) each of 3i Group plc and AII Holding Corporation agreeing
in terms satisfactory to the Buyer to capitalise the
Investor Loans as new ordinary shares of L.0.10 each in the
Company and to release of the related security for the
Investor Loans;
(c) each of the persons listed in Schedule 1 marked with the
suffix "I.U." having delivered to the Buyer duly executed
Irrevocable Undertakings;
(d) the execution and delivery by 3i Group plc and 3i plc of a
letter agreement in the agreed form selling all its
Preference Shares in the Company to the Buyer in return for
the aggregate sum of L.100 in cash to be paid at
Completion.
1.2 In the event that any of the Conditions are not or have not been
satisfied or waived in writing by the Buyer upon the date of this
Agreement immediately following its signature by all the Parties, or
by such later date as may be agreed by the Warrantors' Solicitors and
the Buyer's Solicitors and 3i Group plc and AII Holding Corporation,
this Agreement shall lapse and be null and void and no Party shall
have or make any claim against any other Party in respect of this
Agreement.
1.3 Upon the Conditions being satisfied or waived pursuant to clause 1.2
the Warrantors shall deliver the Disclosure Letter to the Buyer.
<PAGE> 11
2 THE OFFER AND TERMINATION OF THIS AGREEMENT
2.1 Subject to the terms and subject to the conditions of this Agreement:
(a) the Buyer undertakes:
(i) to make the Offer within 24 hours after the
Conditions have all been satisfied or waived
pursuant to clause 1.2;
(ii) not to withdraw the Offer prior to 14 March 1997; and
(iii) to declare the Offer unconditional as to acceptances
if holders of shares holding at least 90% in nominal
amount of the ordinary shares accept the Offer;
(b) each of the Sellers agrees irrevocably to accept the Offer
in accordance with the Irrevocable Undertakings within
three Business Days of the making of the Offer;
(c) each of the Sellers agrees to use reasonable endeavours to,
procure (insofar as he is able using all voting powers at
his disposal) that the Board of the Company unanimously
recommend in accordance with the form of Chairman's letter
set out in the Offer the acceptance of the Offer by the
holders of the Shares; and
(d) none of the Sellers shall effect or agree to effect any
Disposal of any of the Shares held or beneficially owned by
him or it other than pursuant to an acceptance of the Offer
and none of the Sellers shall give a transfer notice under
Article 13 of the Company's articles of association until
Completion or the termination or lapse of this Agreement,
whichever is the earliest to occur.
2.2 Each of the Sellers (other than 3i Group plc) shall use all
reasonable endeavours to ensure that the Offer shall be accepted and
become unconditional in accordance with its terms and shall (without
limiting the foregoing general obligation) keep the Buyer informed of
all relevant matters in connection with the acceptance of the Offer
and fulfilment of the Offer Conditions.
2.3 This Agreement shall terminate forthwith and none of the Parties
shall, other than for any breach of clauses 2.1 or 2.2, be under any
further obligation to any other Party if the Offer lapses, is
withdrawn or is declared incapable of becoming unconditional.
3 OPERATION OF THE BUSINESS PRIOR TO COMPLETION
3.1 Each of the Warrantors hereby covenants with and undertakes to the
Buyer that neither he nor the Company nor either of the Subsidiaries
shall at any time prior to Completion without the prior written
consent of the Buyer do, knowingly allow or procure any act or
omission which would (or would be likely to) cause, constitute or
result in a breach of the Warranties if the same were to be expressly
repeated at Completion or which they are aware would make any of
Warranties untrue, incorrect, inaccurate or misleading if they were
expressly repeated at Completion.
3.2 The Warrantors shall, and each of the other Sellers agrees to use
reasonable endeavours to, procure (insofar as he is able using all
voting and contractual powers at his disposal) that between the date
of this Agreement and the earliest to occur of Completion or the date
of termination or lapse hereof (both dates inclusive):
(a) the Company shall advise the Buyer on operational
developments which they consider to be material and the
general status of its operations; and
(b) the Company shall not without the Buyer's prior written
consent:
<PAGE> 12
(i) save as provided in the Offer permit or cause to
be proposed any alteration to its share capital
(including any increase thereof) or the rights
attaching to its shares;
(ii) save as provided in the Offer create, allot,
issue, redeem, consolidate, convert or
sub-divide any share or loan capital or grant or
agree to grant any options for the issue of any
share or loan capital;
(iii) subscribe or otherwise acquire, or dispose of
any shares in the capital of any company;
(iv) acquire or dispose of the whole or part of the
undertaking of it or of any other person, firm
or company;
(v) send any notice to its shareholders or pass any
shareholder resolution save as required by law
or relating to the matters dealt with by this
Agreement or the Offer;
(vi) cease or propose to cease to carry on its
business or be wound up or enter into
receivership, administrative receivership or any
form of management or administration of its
assets, save as required by law;
(vii) permit or suffer any of its insurances to lapse
or knowingly do anything which would make any
policy of insurance of it null or voidable;
(viii) apply or permit its directors to apply to
petition to the Court for an administration
order or similar order to be made in respect of
it, save as required by law;
(ix) make any change to its auditors, its bankers or
the terms of the mandate given to such bankers
in relation to its account(s), or its accounting
reference date;
(x) enter into or vary any transaction or
arrangement with, or for the benefit of any of
its directors or shareholders or any other
person who is connected with any of its
directors or shareholders;
(xi) borrow monies (other than by way of its agreed
overdraft facility) or accept credit (other than
normal trade credit) or make payments out of or
drawings on its bank accounts other than in the
ordinary course of business prior to the date of
this Agreement;
(xii) make any payment otherwise than on an arm's
length basis;
(xiii) enter into or give or permit or (save in respect
of the charges referred to in Schedule 2) suffer
to subsist any guarantee of or indemnity or
contract of suretyship for or otherwise commit
itself in respect of the due payment of money or
the performance of any contract, engagement or
obligation of any other person or body;
(xiv) grant any lease or third party right in respect
of any of or any part of any of the Properties
or assign or dispose or deal with any of the
Properties or any part of any of them or acquire
any right, title or interest in any other
property;
(xv) propose or pay any dividend or propose or make
any other distribution;
(xvi) enter into any partnership or joint venture;
<PAGE> 13
(xvii) incur any capital expenditure (including
obligations under hire purchase and leasing
arrangements) exceeding in aggregate L.100,000
or as regards any single item L.25,000;
(xviii) dispose of any asset of a capital nature with a
book or market value in excess of L.50,000 with
the exception of the Freehold Property;
(xviv) engage any employee on terms that either his
contract cannot be terminated by three months'
notice or less or his emoluments and/or
commissions or bonuses are or are likely to be
at the rate of L.50,000 per annum or more or
increase the emoluments and/or commissions or
bonuses or any employee to more than L.50,000
per annum or vary the terms of employment of any
employee earning (or so that after such
variation he will, or is likely to earn) more
than L.50,000 per annum;
(xx) vary or make any binding decisions on the terms
of employment and service of any officer or any
of the Employees, increase or vary the salary or
other benefits of any such officer or employee,
or appoint or dismiss any officer or such
employee;
(xxi) mortgage or charge or permit the creation of or
(save in respect of the charges referred to in
Schedule 2) suffer to subsist any mortgage or
charge over the whole or any part of its assets
or (save as described in the Offer) redeem any
of the foregoing;
(xxii) make any loan or give any credit (other than
normal trade credit or to employees in the
normal course) or acquire any loan capital of
any corporate body (wherever incorporated);
(xxiii) effect or agree to any Disposal or licence of
any of its Intellectual Property including the
Software
(xxiv) surrender or agree to any material change in or
waive or compromise any rights under the terms
of any supply, distribution, licensing or other
commercial agreement to which it is from time to
time a party;
(xxv) enter into any leasing, hire, hire purchase or
other agreement for payment on deferred terms,
any contract not in the ordinary course of
business or any unusual or onerous contract or
any other material or major or long term
contract;
(xxvi) make any change in its business or do any act or
thing outside the ordinary course of the
business carried on by it;
(xxvii) conduct any litigation (save for the collection
of debts arising in the ordinary course of
business) or settle or compromise any claim or
dispute; or
(xxviii) enter into any contract or commitment to do any
of the acts or matters referred to in this
clause 3.2.
3.3 Each of the Sellers hereby covenants with and undertakes to the Buyer
that such Seller shall not at any time prior to the earliest to occur
of Completion or the date of termination or lapse of this Agreement:
(a) effect or attempt to Dispose of any of his Shares;
<PAGE> 14
(b) enter into discussions with any persons as regards the
Disposal of any of his Shares or a material part of the
assets or business of the Company or the Subsidiaries; or
(c) vote in favour of any resolution in general or class
meeting, except in accordance with the Offer Conditions.
3.4 The Warrantors insofar as they are respectively able using the voting
rights at their disposal hereby covenant with and undertake to the
Buyer to procure that between the date of this Agreement and
Completion or, if earlier, the date of termination or lapse:
(a) the Company will continue to pay its creditors in the
ordinary course of business or on its usual basis;
(b) the Company will keep the Properties in no worse condition
than as at the date of this Agreement;
(c) the Company shall continue to operate in the ordinary
course of business and will not knowingly take or permit
any action, omission, neglect or default which would damage
the Business; or
(d) the Company will maintain the insurances as have been
maintained prior to the date of this Agreement, as set out
in the Disclosure Letter.
3.5 Each Warrantor shall give notice to the Buyer promptly upon the
Warrantor becoming aware of any breach of clause 3.1 and/or any event
or matter having or which may have a material adverse effect on the
Company or its business operations or prospects.
3.6 Upon any breach of any of the provisions of clauses 3.1 to 3.4
(inclusive) the Buyer shall be entitled at any time prior to
Completion (without liability and without prejudice to its other
rights in respect of such breach) to terminate this Agreement by
notice in writing to the Warrantors' Solicitors and to 3i Group plc
and AII Holding Corporation.
4 COMPLETION
4.1 Subject to the other terms and conditions of this Agreement,
Completion shall take place as soon as reasonably practicable and not
later than two Business Days after satisfaction of the Offer
Conditions. Completion shall take place at the offices of the
Buyer's Solicitors or any other time and location agreed by the
Warrantors' Solicitors and the Buyer's Solicitors and 3i Group plc
and AII Holding Corporation.
4.2 At Completion the Sellers shall (in so far as they are respectively
able using board and shareholder voting powers at their disposal)
deliver or procure delivery of the following (where appropriate as
agent for the Company or the Subsidiaries) to the Buyer:
(a) transfers in respect of the Shares held by or for each of
the Sellers, duly executed by the registered holders
thereof in favour of the Buyer or as it may direct;
(b) certificates for the Shares held by the each of the Sellers
and any other documents which may be required to give good
title to the Shares and to enable the Buyer to procure
registration of the same in its name or as it may direct;
(c) the Escrow Agreement duly executed by the Warrantors;
(d) the resignations under seal of each of the Directors (other
than David Crisp) of each of the Companies in the agreed
form;
<PAGE> 15
(e) acknowledgements and waivers in the agreed form from each
of the Sellers and the Companies confirming that at and
immediately after Completion nothing is owing nor is there
any outstanding claims between any of the Companies on the
one hand and any of the Sellers on the other and, to the
extent that there are possible claims by the Sellers, that
these are waived;
(f) statements drawn up to the preceding day relating to the
Company's bank accounts;
(g) in relation to each of the Companies, certificates of
incorporation, certificates of incorporation on change of
name (if applicable), common seals, statutory registers,
minute books, share certificate books, books of account and
all other books (all duly written up to date);
(h) all title deeds and documents in the agreed form relating
to the Properties;
(i) certificates for all shares in the Subsidiaries and duly
executed transfers in favour of the Company or as the Buyer
shall direct (to be delivered in the same manner as the
Shares) of all such shares not registered in the Company's
name;
(j) all waivers and consents in the agreed form signed by all
members of the Companies to enable the Buyer (or its
nominee) to be registered as the holder of the Shares (each
of the Sellers hereby irrevocably waiving all and any
rights of pre-emption to which it may be entitled under any
articles of association, agreement, law or otherwise in
respect of the transfer of the Shares);
(k) a release, discharge and reassignment in the agreed form of
all and any fixed or floating charges and other securities
over the Properties or any other assets of each of the
Companies;
(l) any power of attorney under which any document required to
be delivered under this clause 4.2 has been executed;
(m) certified copies of resolutions of the Company in the
agreed form, passed pursuant to the Offer Conditions and
(n) Affiliates Agreements duly executed by parties thereto.
4.3 At Completion the Buyer shall deliver to the Warrantors for the
benefit of all the Sellers and other shareholders of the Company
accepting the Offer the duly executed Declaration of Registration
Rights
4.4 The Warrantors shall arrange for meetings of the board of Directors
and members of the Company to be duly convened and held immediately
prior to or at Completion at which resolutions in the agreed form
shall be passed appointing Gordon Mayer and Jordan Breslow as
directors and approving and authorising the registration of the
transfers of the Ordinary Shares in respect of which the Offer has
been accepted and the Preference Shares either pursuant to this
Agreement or pursuant to the terms of the Offer (subject only to the
forms being duly stamped) and the other matters referred to in clause
4.2.
4.5 Upon the Sellers and the Buyer having complied with their respective
obligations under the terms of clauses 4.2, 4.3 and 4.4 the Buyer
shall, in accordance with and subject to the terms and conditions of
the Offer, on Completion issue the Consideration Shares to the
Sellers and the shareholders who shall have assented their Shares to
the Offer less the Escrow Amount, which shall be delivered to the
Escrow Agent pursuant to the Escrow Agreement and shall deliver to
the
<PAGE> 16
Warrantors' Solicitors or, if the Sellers so request, post in
accordance with the Offer duly executed stock certificates in respect
of the Consideration Shares, less the Escrow Amount.
4.6 If for any reason the provisions of clause 4.2 are not fully complied
with, the Buyer shall be entitled (in addition and without prejudice
to any other right or remedy available to it) to elect:
(a) to rescind this Agreement in which case the Buyer shall not
be obliged to purchase any of the Shares or pay any of the
Consideration; or
(b) to complete the purchase of the Shares or some of the
Shares (at the Buyer's option) in which case the Sellers
shall be bound to complete the sale of all or part of the
Shares accordingly and the Buyer shall be entitled to pay
only the amount of the Consideration due for the Shares it
is acquiring; or
(c) to fix a new date for Completion: or
(d) to proceed to Completion so far as practicable, each of the
Sellers then being obliged to use all reasonable endeavours
to perform or procure the performance of any of the
outstanding provisions of clause 4.2 which have not been
performed by him or it.
5 WARRANTIES, COVENANTS, REPRESENTATIONS AND UNDERTAKINGS
5.1 The Warrantors hereby:
(a) acknowledge that the Buyer enters into this Agreement and
will offer to purchase the Shares on the basis (inter alia)
of the Warranties; and
(b) jointly and severally warrant, represent and undertake to
the Buyer that each and every Warranty is true, correct and
not misleading at the date of this Agreement and undertakes
to the Buyer that each and every Warranty will continue to
be true and correct and not misleading throughout the
period from the date of this Agreement up to and including
Completion, subject only to:
(i) the matters stated in the Disclosure Letter,
provided that such matters will be treated as
qualifying or limiting the application of any
Warranty Statement only to the extent that such
disclosure is fair, accurate in all material
respects, and relates specifically to the
subject matter thereof and does not omit any
fact which may render the same untrue,
inaccurate or misleading in any material
respect; and
(ii) any matter arising in the ordinary and proper
course of its business and in its best interests
after the date of this Agreement and prior to
Completion, but without prejudice to the rights
of the Buyer pursuant to clause 3;
(iii) any exceptions for which express provision is
made pursuant to this Agreement; and
(c) covenant to the Buyer in the terms of the Tax Covenants.
5.2 Each Warranty is a separate and independent warranty, representation
and undertaking in relation to each of the Warranty Statements and no
Warranty shall be limited by reference to any other Warranty.
5.3 The Buyer shall not be entitled to make any claim for breach of the
Warranties or under the Tax Covenants, unless:
<PAGE> 17
(a) notice giving reasonable details of the claim:
(i) shall, in the case of any claim under the Tax
Covenants or relating to any Warranty Statement
other than Warranty Statements 18.1 to 18.20
(inclusive), have been delivered to the
Warrantors by the Buyer not later than the date
of publication of audited financial statements
for the period ending 31 March 1997; and
(ii) insofar as such breach relates to Warranty
Statements 18.1 - 18.20 (inclusive) or, shall
have been delivered to the Warrantors by the
Buyer on or before 31 December 1997; and
(b) the amount of the claim when aggregated with all other
claims exceeds L.150,000 in which event the whole of such
claims (and not merely the excess) may be claimed under
legal proceedings.
(c) if the claim is due to any change after Completion in the
accounting principles, bases, policies and methods adopted
by the Companies from those used in the preparation of the
Accounts or any provision or reserve in the Accounts or the
Management Accounts is insufficient by reason only of any
increase in rates of Taxation or change in the law after
the date hereof having a retrospective effect;
(d) if the breach arises as a result of the passing or
amendment of any legislation (including any subsidiary
legislation) after Completion with retrospective effect;
(e) if the breach would not have arisen but for a voluntary act
or transaction, which could reasonably have been avoided,
which was carried out by the Buyer after Completion other
than in the ordinary course of business and not as a
consequence of anything done or omitted to be done before
Completion, and which the Buyer was aware would cause the
breach;
(f) if the claim would not have arisen but for a claim,
election, surrender or disclaimer made, or notice or
consent given, after Completion, under or in connection
with, a provision of an enactment or regulation relating to
Taxation save where the same should have been made before
Completion but was not or where it has been assumed the
same will be made in preparing the Accounts or any tax
computations for the Company for any period ended on or
before Completion.
5.4 The Warrantors shall not be liable to make any payment in respect of
any claim under the Warranties based upon a contingent liability of
the Company, without prejudice to the Buyer's right to establish the
Warrantors' liability in respect of that claim and save to the extent
an amount in respect of the contingent liability is properly provided
for in the accounts of the Company.
5.5 If the Company or the Buyer is or becomes entitled to be indemnified
by or to recover from any other person (including any Taxation
Authority or other authority) in respect of a matter which would
(apart from this paragraph) give rise to a claim under the
Warranties, the Buyer shall procure that:
(a) the Warrantors are notified as soon as practicable after
the Company or the Buyer becomes aware of the possible
entitlement;
(b) before enforcing that claim against the Warrantors, take
all steps as the Warrantors reasonably request to enforce
the indemnity or right of recovery.
<PAGE> 18
5.6 The Buyer is not entitled to recover more than once in respect of any
one matter giving rise to a claim under the Warranties but this shall
not prejudice the Buyer's right to claim under more than one
Warranty.
5.7 Nothing in this clause 5 restricts or limits the Buyer's general
obligation at law to mitigate any loss or damage which it may incur
in consequence of a matter giving rise to a claim under the
Warranties.
5.8 The total amount of the liability of the Warrantors for damages for
breach of the Warranties or under the Tax Covenants shall be limited
to the portion of the Escrow Amount held by the Escrow Agent for the
relevant Warrantor and shall be governed by the Escrow Agreement.
5.9 The rights and remedies of the Buyer in respect of any breach of the
Warranties shall not be affected by Completion, by any investigation
made by or on behalf of the Buyer into the affairs of the Companies.
5.10 If prior to the Completion any of the Warranties is found to be
untrue, incorrect, inaccurate or misleading in a material respect the
Buyer shall be entitled either to complete and claim damages or
rescind this Agreement by notice to the Warrantors' Solicitors save
that the Buyer's rights pursuant to clause 3 shall survive any such
rescission.
5.11 The Warrantors shall promptly give written notice to the Buyer of the
occurrence of any event which results or may result in any of the
Warranties being untrue, incorrect, inaccurate or misleading giving
sufficient details of the event.
5.12 Any information supplied by any of the Companies or any of their
respective officers or employees to the Warrantors, their agents,
representatives or advisers in connection with, or to form the basis
of, the Warranties or any matter covered in the Disclosure Letter, or
for any other reason, shall be deemed not to include or have included
a representation, warranty or guarantee of its accuracy to the
Warrantors and shall not constitute a defence to the Warrantors to
any claim made by the Buyer. The Warrantors waive any and all claims
against the Companies, their officers or employees in respect of any
information so supplied.
5.13 References to the awareness or knowledge of the Warrantors in a
Warranty Statement in Schedule 3 shall only limit that Warranty by
the Warrantors' awareness or knowledge if each of the Warrantors has
made all due and careful enquiries to ascertain if the relevant
information in all material respects is true, correct and not
misleading unless otherwise stated in the Warranty Statement.
5.14 Any amount paid or satisfied by the Warrantors pursuant to the Escrow
Agreement in respect of any claim under the Warranties or Tax
Covenants shall be treated as a reduction of the consideration paid
for their Shares.
6 CONFIDENTIALITY
Each of the Sellers hereby agrees (save as necessary to its
professional advisers in connection with this Agreement) to keep
secret and confidential and not to use, disclose or divulge to any
third party or enable or cause any person to become aware of any
confidential information relating to any of the Companies or the
Buyer including but not limited to Intellectual Property (whether
owned or licensed by any of the Companies), lists of customers and
customer contract information, reports, product data and information
concerning the supply and pricing of products or services, notes,
marketing and sales research memoranda and all other documentary
records pertaining to the Companies or the Buyer or their respective
business affairs, finances, suppliers, customers or contractual or
other arrangements ("Confidential Information") provided always that
the restrictions contained in this clause 6 shall not apply to any
Confidential Information which:
<PAGE> 19
(a) is required to be disclosed by an order of a court or
tribunal of competent jurisdiction or the Stock Exchange or
any other regulatory authority to which the Seller is
subject (provided that the Buyer is given prior written
notice of such intended disclosure);
(b) comes into the public domain otherwise than as a result of
its wrongful disclosure by such Seller; or
(c) any Seller is an employee of the Company is required to
disclose in order to perform his duties to the Company;
provided that nothing in clause 6 above shall prevent the use by 3i
Group plc of confidential information concerning the Company solely
within the group of companies of which 3i Group plc forms part, for
investment appraisal and training purposes only.
7 RESTRICTIONS
7.1 To ensure that the Buyer receives the full benefit of the goodwill of
the business of each of the Companies, each of the Warrantors hereby
represents and undertakes that he will not for a period commencing on
the date of this Agreement and ending two years after Completion or,
if later, the date which is three months after the date of
termination for any reason of such Warrantor's employment by the
Company either alone or for, together with or as agent, officer or
employee of any other person, firm or company or through the medium
of any company directly or indirectly:
(a) solicit, interfere with or attempt to entice away from any
of the Companies any person who is at the date hereof or
was within the previous 12 months an employee or agent of
any of the Companies, or who is reasonably considered by
any of the Companies to be or have been a regular client or
customer of or supplier to the Companies on the date of
this Agreement or during the 12 months immediately
preceding the date of this Agreement; or
(b) interfere or attempt to interfere with the supply or
continued supply of goods or services to or by the
Companies; or
(c) carry on or be engaged, concerned, interested or hold
shares or other securities in any company or businesses
which competes with the Restricted Activities at the date
of this Agreement, save pursuant to a holding of up to 3%
of the issued shares in a company whose shares are listed
on The Stock Exchange.
7.2 Each of the restrictions contained in each paragraph of clause 7.1 is
a separate and distinct restriction and is to be construed separately
from the other restrictions. Each of the Warrantors acknowledges
that the restrictions are reasonable when taken together as well as
individually, that the duration, extent and application of each
restriction are no greater than is necessary for the protection of
the goodwill of the businesses of the Companies and that the
consideration to be paid by the Buyer to the Warrantors for their
Shares takes into account and provides adequate compensation for the
restraints and restrictions imposed. Should any restriction be found
to be void or unenforceable without the deletion of some part of it
or the reduction in area or duration specified, that restriction
shall apply with such modification as may be necessary to make it
valid.
7.3 The parties agree that the benefit of the covenants and undertakings
given in clauses 7.1 and 7.2 shall be assignable in whole or in part
by the Buyer to, and become enforceable by, any of the Companies and
any subsidiary or holding company of any of the Companies or the
Buyer, which from time to time is the holder of the Shares or of any
shares of the Subsidiaries or to which any part of the business(es)
of the Company and/or the Subsidiaries shall have been transferred.
<PAGE> 20
7.4 After Completion, none of the Sellers shall without the Buyer's
express agreement hold itself out as being interested in or in any
way connected (other than as a matter of current or historic fact
including, where relevant, as employees of the Company) with the
Companies or any of them.
8 RESTRICTIVE TRADE PRACTICES ACT
No provision of this Agreement or of any agreement or arrangement of
which it forms part (or any modification, amendment or variation to
any of the same) by virtue of which this Agreement or the relevant
agreement or arrangement of which it forms part is subject to
registration under the Restrictive Trade Practices Act 1976 shall
take effect until the day after the day on which particulars of this
Agreement or such agreement or arrangement are furnished to the
Director General of Fair Trading for registration under the said Act
and a copy of the Office of Fair Trading's acknowledgement of receipt
of such particulars shall be conclusive evidence that such
particulars shall have been received by the Director General of Fair
Trading on the day indicated by such acknowledgement.
9 USE OF THE COMPANY'S NAMES
The Warrantors shall not object to the Buyer after Completion using
the Trade Marks or any variation thereof as part of the Companies
and the Buyer's names and in the Companies and the Buyer's business
dealings and each of the Warrantors hereby confirms that he shall do
everything reasonably within his power to assist the Buyer in using
the Trade Marks if it wishes and none of the Warrantors shall use any
of the Trade Marks or any variations thereof in any dealings, except
in accordance with the proper performance of their duties for the
Companies or as otherwise expressly authorised by the Buyer.
10 ACCESS AND REVIEW
10.1 With effect from the date of this Agreement the Buyer shall be
permitted to continue its due diligence in regard to the Company's
business affairs without limiting any of the Buyer's rights under
this Agreement or at law. The Sellers (to the extent they are
respectively able using board and shareholder voting powers at their
disposal) shall procure that the Company shall afford and, with
respect to paragraph (b) of this clause 10 below, shall cause the
Company's Auditors to afford:
(a) to the officers, agent's and other authorised
representatives of the Buyer reasonable access to the
documents, Properties, records and personnel of the
Company; and
(b) to the internal and independent accountants of the Buyer
reasonable access to the audit work papers and other
records of the Company's Auditors and the Company.
10.2 The rights of the Buyer pursuant to clause 10.1 shall be exercised in
consultation with the Warrantors.
11 GENERAL PROVISIONS
11.1 The Buyer may at its absolute discretion in whole or in part release,
compound or compromise, or grant time or indulgence to the Sellers
for any liability under this Agreement without affecting its rights
against any Seller under the same or any other liability.
11.2 The express or implied waiver by any Party of any of its rights under
this Agreement shall constitute neither a continuing waiver of the
right waived nor a waiver of any other right under this Agreement.
11.3 This Agreement, together with any document expressly referred to in
any of its terms, contains the entire agreement between the Parties
relating to its subject-matter. No oral explanation or oral
<PAGE> 21
information given by any Party shall alter the interpretation of this
Agreement. There are no other agreements between any of the Parties
other than this Agreement or the agreements referred to herein.
11.4 This Agreement is personal to the Parties and shall not be capable of
assignment save that the Buyer may assign the whole or part of any of
its rights in this Agreement to any wholly-owned subsidiary of the
Buyer.
11.5 No amendment, change or addition to this Agreement shall be binding
on any Party unless it is in writing and has been signed by all the
Parties or their authorised representatives.
11.6 Any notices:
(a) must be in writing and may be given:
(i) to any company which is a Party at its
registered office or, in the case of the Buyer,
its principal office;
(ii) to any individual who is a Party at the address
of that individual given in Schedule 1 or as
shown above together with a copy of the
Warrantors' Solicitors;
or in any case to such other address as may have been
notified in accordance with this Agreement to the other
Parties;
(b) will be effectively served:
(i) on the day of receipt where any hand-delivered
letter, any fax message is received on a
Business Day before or during normal working
hours; or
(ii) on the following Business Day, where any
hand-delivered letter, any fax message is
received either on a Business Day after normal
working hours or on any day which is not a
Business Day;
provided that in the case of faxed copies a complete and legible copy
shall have been received by the recipient.
11.7 This Agreement may be executed in any number of counterparts, each of
which taken together shall be deemed to constitute one and the same
agreement and each of which individually shall be deemed to be an
original, whether being the original signed copy or a faxed copy of
the original, with the same effect as if the signature on each
counterpart were on the same original.
11.8 Each of the Sellers hereby undertakes with the Buyer at the request
of the Buyer and at the expense of such Seller to do or procure to be
done all such further acts and things and execute or procure to be
executed all such further deeds and documents as may be necessary or
desirable fully and effectively to vest in the Buyer the legal and
beneficial ownership of the Shares owned by such Seller and the
benefits of this Agreement and the agreements entered into in the
agreed form to which such Seller is a party and, pending such
vesting, each of the Sellers shall hold such Shares in trust for the
Buyer and shall receive all monies in connection therewith as trustee
of the Buyer and shall account to the Buyer forthwith on receipt.
11.9 No party shall divulge to any third party (other than their
respective professional advisers or insurers) the fact that this
Agreement or any of the documents in the agreed form has been entered
into or any information regarding its terms or any matters
contemplated by this transaction or make any announcement relating to
it without the prior agreement (not to be unreasonably withheld or
delayed) of the other parties unless such announcement or information
is required by
<PAGE> 22
the Inland Revenue and/or a court of competent jurisdiction, by the
Securities Exchange Commission, National Association of Securities
Dealers or by The Stock Exchange, or by any other regulatory
authority the rules of which such Party is subject, in which event
the other parties shall be given prior written notice of such
intended announcement. Any announcement as to the entering into this
Agreement shall in any event be made or issued only in a form
approved by the Buyer and with the consent of the Sellers (not to be
unreasonably withheld or delayed).
11.10 This Agreement is governed by and is to be construed in accordance
with English law and save as otherwise provided under the Escrow
Agreement and in regard to matters relating to the Consideration
Shares and the Declaration of Registration Rights (which shall be
governed by the laws of the State of California and the California
courts) the Parties hereby submit to the jurisdiction of the English
courts.
11.11 The Buyer irrevocably agrees that any service document may be
sufficiently and effectively served on in connection with proceedings
in England and Wales by service on its agent S J Berwin & Co
(reference 11/G10687.1) of 222 Grays Inn Road, London WC1X 8HB or on
a replacement agent if one has been appointed and notified to the
other Parties.
11.12 The Sellers (other than 3i Group plc) irrevocably agree that any
service document may be sufficiently and effectively served on in
connection with proceedings in England and Wales by service on its
agent Dibb Lupton Alsop of Windsor House, Temple Row, Birmingham, B2
5LL (for the attention of John Jackson) or on a replacement agent if
one has been appointed and notified to the other Parties. Each of 3i
Group plc and 3i plc may be served at its registered office for the
time being.
<PAGE> 23
SCHEDULE 1
PART 1
THE WARRANTORS
<TABLE>
<CAPTION>
(1) (2) (3)
NAME ADDRESS NO OF ORDINARY
SHARES OF 10P
EACH OWNED
<S> <C> <C> <C> <C>
David Edward John Crisp The Woodlands 495 I.U.
Moss Lane
(Affiliate) Bollington
Cheshire
SK10 5HS
David Lee Stevens 5 Stockdale Farm 12,000 I.U.
Moor Lane
(Affiliate) Flookburgh
Grange Over Sands
Cumbria LA11 7LR
Alistair Jenkins 127 High Street 12,000 I.U.
Yatton
(Affiliate) Avon
BS19 4DH
-------
Total Part 1 24,495
=======
</TABLE>
<PAGE> 24
PART 2
PRINCIPAL SELLERS
<TABLE>
<CAPTION>
(1) (2) (3) (4)
NAME ADDRESS NO OF ORDINARY NO OF ORDINARY SHARES OF 10P
SHARES OF 10P ARISING ON CAPITALISATION OF
EACH OWNED INVESTOR LOANS
<S> <C> <C> <C>
Dennis Philip Taylor Hawthorn House - -
Thurning
(Affiliate) Dereham
Norfolk
NR20 5QS
Skanco Trustees Limited Derby House 102,005 I.U. -
as trusteeof The 2nd Floor
D Crisp Settlement Athol Street
Douglas
Isle of Man
IM1 1JD
Skanco Trustees Limited Derby House 18,000 I.U. -
as trustee of The 2nd Floor
D L Stevens Settlement Athol Street
Douglas
Isle of Man IM1 1JD
Skanco Trustees Limited Derby House 18,000 I.U. -
as trustee of The 2nd Floor
A Jenkins Settlement Athol Street
Douglas
Isle of Man IM1 1JD
3i Group plc* 91 Waterloo Road 330,000 I.U. 75,033
London
(Affiliate) SE1 8XP
A.I.I Holding Corporation Craigmuir Chambers 140,200 I.U. 22,799
(Affiliate) PO Box 71
Road Town
Tortola
British Virgin Islands
--------------------------------------------------
total Part 2 608,205 97,832 730,532 c/f
==================================================
3i 977,342 Redeemable Preference Shares of L.1 each to be sold for L.100 in aggregate (325,782 legally and
beneficially owned by 3i Group plc and 651,560 legally and beneficially owned by 3i plc)
</TABLE>
__________________________________
* 185,033 legally and beneficially owned by 3i Group plc
220,000 legally owned by 3i plc but beneficially owned by 3i Group plc
<PAGE> 25
SCHEDULE 3
WARRANTIES BY THE WARRANTORS
1 INFORMATION
1.1 The information contained or referred to in the Introduction relating
to the Company and Schedules 1, 2, 4, 5 and 6 is true and accurate
and not misleading, the Subsidiaries are the only subsidiaries of the
Company and in the seven years prior to Completion and at Completion
the Company has not had a subsidiary or an associated company other
than the Subsidiaries.
1.2 All information contained or referred to in the Disclosure Letter is
true, complete and accurate in all material respects.
1.3 So far as the Warrantors are aware, (without having made any specific
enquiry) all statutory, municipal, governmental, court and other
requirements applicable to the formation, continuance in existence,
creation and issue of securities, management, property or operations
of the Company, and all licences and consents (including planning
consents) involved or that should be involved in the carrying on of
the business of the Company, have been obtained and complied with and
there is no contemplated revocation of any such licence or consent.
1.4 The records, statutory books and books of account of the Company are
duly entered up and maintained in accordance with all statutory
requirements applicable thereto and contain true and accurate records
of all matters required to be dealt with therein and all such books
and all records and documents (including, without limitation, all
documents of title, accounts, books, ledgers and contracts to which
it is a party) which are its property are in its possession or under
its control and all accounts, documents, returns and forms required
to be delivered or made to the Registrar of Companies have been duly
and correctly delivered or made.
1.5 The Company has not committed and is not liable for any criminal,
illegal, unlawful, ultra vires or unauthorised act or breach of
covenant, contract or statutory duty and there is no violation of, or
default with respect to, any statute, regulation, order, decree or
judgment of any court or central or local government agency of the
United Kingdom or any foreign country which has or could have a
material adverse effect upon the assets, business or profitability of
the Company and so far as each of the Warrantors is aware no director
or engineer of the Company has been convicted of any crime (other
than minor traffic offences).
1.6 All registers required to be kept by the Company under the provisions
of the Companies Acts are true and accurate and the copy of the
Memorandum and Articles of Association of the Company annexed to the
Disclosure Letter (including resolutions passed by the Company in
general meeting to which Section 380 of the Companies Act 1985
applies whether or not the same have yet been filed with the
Registrar of Companies) are true and accurate.
1.7 No resolution has been passed by the Company or any class of its
members since incorporation other than resolutions relating to
business at Annual General Meetings which was not special business.
1.8 In the last three years the Company has not done any act or thing or
engaged in any activity or incurred any debts and liabilities
otherwise than in the ordinary course of the business carried on by
it at the date of this Agreement.
1.9 Since changing its name to that shown in Schedule 1, the Company has
not traded under any other name and no action has been taken against
the Company under Section 28 of the Companies Acts.
2 CAPITAL, DISTRIBUTION, CONTRACTS AND LIABILITIES
<PAGE> 26
2.1 The Company has no loan capital outstanding and since the Accounts
Date no loan or share capital of the Company has been put under
option or agreed to be allotted or issued or to be put under option
and no person has the right (whether exercisable now or in the future
and whether contingent or not) to call for the issue of any share or
loan capital of the Company.
2.2 The Company has not at any time:
(a) repaid, redeemed or purchased or agreed to repay, redeem or
purchase any shares of any class of its share capital or
otherwise reduced or agreed to reduce its issued share
capital or any class thereof; or
(b) directly or indirectly provided any financial assistance
(as defined in section 151, Companies Act 1985) for the
purpose of the acquisition of shares of the Company or for
the purpose of reducing or discharging any liability
incurred in any such acquisition; or
(c) capitalised or agreed to capitalise in the form of shares,
debentures or any other securities or in paying up any
amounts unpaid on any shares, debentures or other
securities any profits or reserves of any class or
description or passed or agreed to pass any resolutions to
do so.
2.3 The Company has not received a distribution from any company in
contravention of section 263 Companies Act 1985.
2.4 There is not outstanding any indebtedness or other liability (of
whatsoever nature, whether present or future, actual or contingent)
owing:
(a) by the Company to any Sellers or to any director or former
director of the Company or to any independent contractor
through which the services of any such persons are or were
provided or to any person connected with the Company or
with any Seller or with any such director, former director
or contractor; or
(b) to the Company by any Seller or by any such director,
former director or contractor or by any person connected
with the Company or with any Seller or with any such
director, former director or contractor.
2.5 There are no existing contracts to which the Company is a party and
in which any of the Sellers or any director of the Company or any
person connected with any of them is interested (and for the purposes
of this paragraph a person shall be deemed to be interested in a
contract in accordance with the provisions of Section 317 of the
Companies Act 1985).
2.6 The Company does not have one customer that is responsible for in
excess of 10% of the Company's trade, turnover or profitability in
the current financial year or one supplier that supplies in the
current financial year in excess of 10% of the Company's supplies (as
quantified by payments to all suppliers in that year).
3 THE SHARES AND THE COMPANY
3.1 The Shares constitute the whole of the issued and allotted share
capital of the Company and are fully paid or credited as fully paid
and, other than the Existing Options, there are no options over any
shares or options to subscribe shares in the Company.
3.2 The Sellers are the legal and beneficial owners of the number of
Shares set opposite their respective names in column (3) of Schedule
1 and sell the Shares with full title guarantee.
3.3 There is no pledge, lien, option, warrant, charge or encumbrance on,
over or affecting any of the Shares or the shares in the
Subsidiaries, no agreement to create such pledge, lien, option,
warrant,
<PAGE> 27
charge or encumbrance has been made and no claim has been received
that is outstanding that any person is entitled to any such pledge,
lien, charge or encumbrance.
4 ACCOUNTS
4.1 The Accounts have been prepared in accordance with the applicable
requirements of the Companies Acts and in accordance with accounting
principles, standards and practices which are generally accepted in
the United Kingdom, are accurate in all material respects and give a
true and fair view of the state of affairs of the Company at the
Accounts Date and of the profits and losses for the period concerned.
4.2 The Accounts make proper provision for or, in the case of actual
liabilities, disclose or take into account as at the Accounts Date:
(a) all assets;
(b) all liabilities whether actual contingent or disputed;
(c) all capital commitments whether actual or contingent; and
(d) all bad and doubtful debts.
4.3 The combined profits of the Companies for the three consecutive
periods ending on the Accounts Date as shown by the Accounts and by
the audited accounts of the Companies covering the two previous
financial periods which have been delivered to the Buyer has not
(except as disclosed in such accounts) resulted from inconsistencies
in accounting practices or the inclusion of exceptional or
extraordinary items of income or expenditure.
4.4 So far as the Warrantors are aware, no debt owing to any of the
Companies is subject to any set-off or counter-claim.
4.5 The profits (or losses) shown in the Accounts have not to a material
extent been affected (except as disclosed therein) by any
extraordinary or exceptional event or circumstance or by any other
factor rendering such profits unusually high or low.
4.6 None of the current book debts included in the Accounts and the
Management Accounts or which have subsequently arisen have been
outstanding for more than two months from their due dates for payment
and all such debts (other than those shown in the Management
Accounts as bad or doubtful) have realised or so far as the
Warrantors are aware will realise in the normal course of collection
their full value as included in the Accounts, the Management Accounts
or in the books of the Company.
4.7 The Management Accounts have been prepared on a basis consistent with
the Accounts and fairly reflect the financial position of the Company
for the periods to which they relate.
5 BUSINESS AND TRADING
5.1 Since the Accounts Date:
(a) no members' resolution of the Company of any kind has been
passed other than resolutions relating to business at
annual general meetings which was not special business;
(b) no share, loan capital or (otherwise than in the ordinary
course of business) loan has been issued or allotted or
repaid, or agreed to be issued or allotted or repaid by the
Company;
<PAGE> 28
(c) the Company has not carried on its business otherwise than
in the ordinary course as regards the nature of the same
and so far as possible to maintain it as a going concern;
(d) the Company has not acquired or disposed of or agreed to
acquire or dispose of any business or any asset other than
in the ordinary course of business or assumed or acquired
any material liability (including any contingent liability)
except on terms determined on an arm's length basis;
(e) the Company has paid its creditors in accordance with its
normal practice;
(f) the Company's business and turnover (excluding seasonal
variations) have not deteriorated or been adversely
affected to a material extent by any act or omission of the
Company or by the loss of any important employee, customer
or supplier or by any abnormal factor and none of the
Warrantors is aware of any facts likely to give rise to any
such loss;
(g) no dividend or other distribution has been declared, made
or paid to the members of the Company except as provided
for in the Accounts and all dividends or distributions
declared, made or paid by the Company have been made, paid
or declared in accordance with its Articles of Association
and the provisions of any applicable legislation;
(h) no change has been made in the emoluments or other terms of
employment of any of the Company's employees who are in
receipt of remuneration in excess of L.20,000 per annum or
of any of the Directors and the Company has not paid any
bonus or special remuneration to any such employee or any
Director;
(i) no liability or contingent liability for Taxation has
arisen otherwise than as a result of trading activities in
the ordinary course of business;
(j) all amounts received by the Company have been paid into the
relevant bank account and appear in the appropriate books
of account;
(k) the Company has not repaid or become liable to repay any
loan, loan capital or other debenture by reason of its
default (and no notification has been received since the
Accounts Date that any such liability has arisen for any
other reason) or (except in the ordinary course of business
or for payments in reduction of bank overdrafts) borrowed
any money;
(l) no debtor has been released by the Company for less than
the book value of any debt and no debt owing to the Company
has been deferred, subordinated or written off or has
proved to be irrecoverable to any material extent; and
(m) no material commission has been paid and no material
discount has been allowed by the Company at a rate or
otherwise on terms different from those upon which
commissions and discounts were paid or allowed for in the
accounting period ended on the Accounts Date.
5.2 All the Company's assets and all debts due to it which are included
in the Accounts or have otherwise been represented as being at the
Accounts Date its property or due to it or used or held for the
purposes of its business were at the Accounts Date its absolute
property and (save for those subsequently disposed of or realised in
the ordinary course of the business) all such assets and debts and
all assets and debts which have subsequently been acquired or arisen
are now its absolute property and none is the subject of any
encumbrance (excepting only liens arising in the normal course of
trading) or the subject of any factoring arrangement, hire- purchase,
retention of title, conditional sale or credit sale agreement.
<PAGE> 29
6 STOCKS, ASSETS AND INSURANCE
6.1 The Company owns or has on lease or hire purchase (as referred to)
the motor vehicles the make, model, registration number and driver of
which are set out opposite its name in the schedule annexed to the
Disclosure Letter.
6.2 All equipment owned or used by the Company are in good repair,
condition and working order and have been properly maintained as and
when necessary and none is in need of renewal or replacement during
the current financial year, save as provided for in the Management
Accounts.
6.3 Maintenance contracts are in full force and effect in respect of all
assets which the Company is obliged to maintain or repair under any
leasing or similar agreement and in respect of any assets which it is
necessary to have maintained by outside or specialist contractors.
6.4 The Company does not maintain an asset register.
6.5 All equipment used by the Company is the absolute property of the
Company and is not subject to any leasing, hire or hire purchase
agreement or agreement for payment on deferred terms or any similar
agreement or arrangement nor are they loaned or otherwise unavailable
to the Company.
6.6 Without being capable of remedy by the Company without undue
expenditure or effort within a 30 day period, the Company has not
sold or distributed any products which were, are or will become
defective or which do not comply in any respect with and express or
implied warranties or representations made by any person or with all
applicable regulations, standards and requirements and the Company
does not give and has not given express warranties, guarantees or
indemnities as to the fitness for purpose, quality or otherwise of
any of its products.
6.7 There has been no exercise or purported exercise of, or any claim
for, any charge, lien, encumbrance or equity over any of the fixed
assets of the Companies which is still outstanding.
6.8 All the assets of the Company which are of an insurable nature have
been at all material times and are at the date of this Agreement
insured to their replacement value against fire and other risks as
shown in the relevant annexure to the Disclosure Letter and the
Company has at all times been and is adequately covered against
accident, employer's liability, third party (including products
liability), loss of profits for the full replacement value of such
assets as shown in the relevant annexure to the Disclosure Letter;
and in respect of all such insurances:
(a) all premiums have been duly paid to date;
(b) all the policies are in full force and effect and so far as
the Warrantors are aware are not voidable on account of any
act, omission or non-disclosure on the part of the insured
party;
(c) particulars are contained in the Disclosure Letter;
(d) so far as the Warrantors are aware there are no
circumstances which would or might give rise to any claim
and no insurance claim is outstanding; and
(e) all policies are held in the name of the Company.
7 SALE OF THE SHARES
7.1 So far as each of the Warrantors is aware (without having made any
specific enquiry of its customers or suppliers), as a result of the
acquisition of the Shares by the Buyer:
<PAGE> 30
(a) no material supplier of the Company will cease or reduce or
be entitled to cease or reduce its supplies to the Company;
(b) no material customer of the Company will, or will be
entitled to, cease dealing with or reduce the level of
business done with the Company; and
(c) no director or engineer of the Company will leave (other
than as may be provided for in this Agreement).
7.2 No consent, approval, authorisation or order of any court or
government or local agency or body or any other policy which is
required by any of the Sellers or the Company for the execution or
implementation of this Agreement and the agreements in the agreed
form and compliance with the terms of this Agreement is outstanding
and each of the agreements in the agreed form does not and will not:
(a) conflict with, result in the breach of or constitute a
default under any obligation by which the Company may be
bound or any provision of the Memorandum or Articles of
Association of the Company;
(b) relieve any person from any material obligation to the
Company;
(c) result in the creation, imposition, crystallisation or
enforcement of any encumbrance on any of the assets of the
Company; or
(d) result in any present or future indebtedness of the Company
becoming due, or capable of being declared due, and payable
prior to its stated maturity.
7.3 No person is entitled to receive from any of the Companies any
finder's fee, brokerage or other commission in connection with the
sale and purchase of the Shares.
8 TAXATION
8.1 Proper provision or reserve has been made in the Accounts for all
Taxation liable to be assessed on the Company or for which it is, or
for which the Warrantors believe it may become, accountable in
respect of the period ended on the Accounts Date.
8.2 The Company has duly and within the relevant time limits made all
returns and given or delivered all notices and accounts which ought
to have been made, given or delivered and information which it was
requested to give, to any Taxing Authority and such returns, notices,
accounts and information are up-to-date, complete and accurate and
have been made or provided on a proper and consistent basis.
8.3 The Company is not involved in any dispute with any Taxing Authority
concerning any liability (whether accrued, contingent or future) of
it to Taxation and the Company is not aware of any matter which may
lead to such dispute not having made inquiry of any Taxing Authority.
8.4 The Disclosure Letter contains sufficient details of all matters
relating to Taxation in respect of which the Company (either alone or
jointly with any other person) has, or at Completion will have, an
entitlement to make any appeal against an assessment to or
determination affecting Taxation, or to make any application for the
postponement of Taxation.
8.5 No Relief has been claimed by and/or given to the Company, or taken
into account in determining the provision for Taxation in the
Accounts, which could be withdrawn, postponed or restricted.
<PAGE> 31
8.6 All clearances and consents obtained from any Taxing Authority by the
Company in the last six years have been disclosed to the Buyer in the
Disclosure Letter and were based on full and accurate disclosure of
all material facts and circumstances.
8.7 The Company has duly and within the relevant time limits paid all
Taxation for which it is liable.
8.8 No liability of the Company to Taxation has arisen or will arise up
to Completion save for tax payable in respect of the Company's normal
trading or income tax deductible under PAYE regulations or national
insurance contributions or VAT for which it is accountable to any
Taxing Authority.
8.9 The Company is not, nor was at any time during the six years ended on
the Accounts Date, a close company.
8.10 The Company is resident in the United Kingdom for Taxation purposes
and will be so resident at Completion and is not and never has been
resident for any purpose in any other country and does not have and
has never had any permanent establishment, Taxation liability or
taxable presence in any other country.
8.11 No amount of an income nature in excess of L.25,000 per annum which
has been paid or is payable by the Company or which it is under an
obligation entered into before Completion to pay is wholly or partly
disallowable as a deduction, charge on income or otherwise in
computing its liability to Taxation.
8.12 There are set out in the Disclosure Letter full details of all
Reliefs available for carry forward for Taxation purposes by the
Company and the Sellers are not aware of any reason why such Reliefs
might cease to be available or might become restricted (including by
virtue of the application of Section 245, 768 or 768A ICTA).
8.13 All capital expenditure incurred or to be incurred by the Company
prior to Completion has qualified and continues to qualify for
capital allowances and full disclosure in the Disclosure Letter of
all allowances made to the Company has been made to the Buyer and the
book value of the assets of the Company in or adopted for the
purposes of the Accounts does not exceed the written down value of
such asset for the purposes of CAA or where the assets form a pool
for purposes of the CAA does not exceed the pool of qualifying
expenditure.
8.14 The expenditure allowable as a deduction for the purposes of the
computation of any chargeable gain or allowable loss attributable to
any asset of the Company for the purposes of corporation tax on
chargeable gains is not less than the value of that asset as shown in
the Accounts.
8.15 There are set out in the Disclosure Letter full details of any held
over gains within Section 154 TCGA.
8.16 The Company has not made any election or claim or given any consents
under or entered into any agreements or arrangements relating to
Section 240, 247 or 402 ICTA or Section 102 of the Finance Act 1989
respectively nor is it liable to make or repay any payment in
relation to any such relief.
8.17 The Company has not acquired an asset which could be deemed to be
disposed of if Section 179 TCGA were to apply and the entry into this
Agreement and/or Completion will not give rise to any deemed disposal
under Section 179 TCGA.
8.18 There is no liability to Taxation for which the Company is liable to
be assessed or to account where such Taxation is primarily chargeable
against some other person.
<PAGE> 32
8.19 All documents in the possession of the Company or the production of
which would be needed to prove its title to any of its assets and
which attract stamp or transfer duty in the United Kingdom or
elsewhere have been properly stamped.
8.20 The Company has not entered into or been a party to any schemes or
arrangements designed wholly or partly for the purpose of it or any
other person avoiding Taxation.
8.21 The Company:
(a) has not agreed any special method of attributing,
accounting or otherwise in relation to VAT with HM
Customs & Excise;
(b) does not own any capital items which are subject to Part XV
of the Value Added Tax Regulations 1995;
(c) does not own any land or buildings (including any interest
in or right over any land or buildings) which is the
subject of any lease or licence granted to any other party;
and
(d) is not and never has been a member of a group of companies
for VAT purposes.
9 EMPLOYEES, AGENTS AND PENSIONS
9.1 The Employees are all the employees of any of the Companies as at
Completion and the names, current weekly wage and other emoluments,
date of birth, the date of commencement of the respective periods
deemed to be their period of continuous employment with the Companies
and job descriptions of the Employees are as set out in the schedule
annexed to the Disclosure Letter.
9.2 The Disclosure Letter also includes full details of all employee
share schemes, employee share option schemes, profit related pay
schemes or other employee benefit schemes of any kind of the
Companies now in force and there are no other such schemes planned.
9.3 There is no liability to make any payment to or for the benefit of
any of the Employees or the wife or widow or any other relative of
any of the Employees in respect of past service or the termination of
the employment of that or any other person by way of pension
contribution, pension retirement benefit or otherwise and the Company
has no superannuation fund, retirement benefit or other pension
schemes or arrangements to provide benefits to past or present
employees or directors (or their dependants) by reason of retirement,
death, disability or sickness or otherwise.
9.4 No assurances or undertakings (whether legally binding or not) have
been given to any of the Employees as to the continuance or
introduction or increase or improvement of any retirement, death,
sickness or disability scheme.
9.5 There is no outstanding commitment (whether legally binding or not)
to increase the remuneration of any Employee.
9.6 All contracts of service or consultancy or for services with
directors or employees or consultants or independent contractors
providing the services of individual personnel of the Company can be
terminated by three months' notice or less without giving rise to any
claim for damages or compensation (other than a statutory redundancy
payment or statutory compensation for unfair dismissal, if
applicable).
9.7 Except where any provision or allowance is made in the Accounts:
(a) no liability has been incurred in the 12 months prior to
Completion by the Company for breach of any contract of
service or consultancy, for redundancy payments (including
<PAGE> 33
protective awards), for compensation for wrongful dismissal
or unfair dismissal or loss of office or for failure to
comply with any order for the reinstatement or
re-engagement of any officer or employee; and
(b) no payment has been made or promised by the Company in
connection with the termination, suspension or variation of
any contract of service or consultancy or for services of
any present or former officer or employee.
9.8 So far as the Warrantors are aware, the Company has in relation to
each of the Employees and its former employees complied in all
material respects with all material obligations imposed on it by all
contracts, statutes, orders, regulations, collective agreements,
awards and codes of conduct and practice relevant to conditions of
service and to the relations between it and the Employees and former
employees and has in all material respects maintained adequate and
suitable records regarding the service of the Employees and former
employees.
9.9 The Company has not entered into any recognition agreement with any
trades union nor has it done any act which could be construed as an
act of recognition and the Company is not involved in and there are
no present circumstances which are likely to give rise to any
industrial or trade dispute or any dispute or negotiation regarding a
claim of material importance with any trade union or association of
trade unions or organisation or body of employees.
9.10 In the 12 months prior to Completion, the Company has not given
notice of any redundancies to the Secretary of State for Employment
or started consultations with any trade union or unions under the
provisions of Part IV of the Employment Protection Act 1975 and the
Company has not failed to comply with any such obligations under Part
IV.
10 PENSIONS
The Company has no agreement, arrangement or understanding (whether
contractual, under trust or otherwise) which exists for the provision
of relevant benefits (as defined in Section 612 ICTA) for any past or
present officer or employee of the Company (or a predecessor in
business of the Company) or for any relative or dependant of such a
person in connection with which the Company is or may become legally
or morally liable to make any payment.
11 LITIGATION
11.1 The Company is not and so far as the Warrantors are aware no person
for whose acts and defaults it may be vicariously liable is at
present engaged whether as plaintiff, defendant or otherwise in any
legal action, proceeding or arbitration which is either in progress,
or is threatened or is pending (other than as plaintiff in the
collection of debts arising in the ordinary course of the business
carried on by it none of which exceeds L.1,000 and which do not
exceed L.5,000 in aggregate) or is being prosecuted for any criminal
offence and no written notice of any claim in damages or for an
injunction has been received by the Company and the Warrantors are
not aware of any governmental or official investigation or inquiry
concerning the Company which is in progress or pending.
11.2 The Warrantors are not aware of any circumstances likely to lead to
any such claim or legal action, proceeding or arbitration,
prosecution, investigation or enquiry.
11.3 No distress, execution or other process has been levied in respect of
the Company during the last six years nor is there any judgment or
court order outstanding against the Company.
11.4 No act, transaction or omission has occurred as a result of which the
Companies are or may be held liable to refund in whole or in part any
investment grant (or other grant or loan received from any
governmental department or agency or any local or other authority by
virtue of any statute) or
<PAGE> 34
any such grant or loan for which application has been made by them
will or may not be paid or will or may be reduced.
12 CAPITAL COMMITMENTS, UNUSUAL CONTRACTS, GUARANTEES ETC.
The Company:
(a) has no capital commitments which individually exceed
L.25,000 or in aggregate exceed L.100,000;
(b) is not a party to any contract, arrangement or commitment
(whether in respect of capital expenditure or otherwise)
which is of a long term or an unusual or abnormal nature or
outside the ordinary course of business;
(c) has not delegated any powers under a power of attorney
(other than as an incidental part of a larger transaction)
which remains in effect or has appointed any agent under an
authority which has not been revoked and other than any
ostensible or implied authorities to directors or employees
and consultants to enter into routine contracts in the
normal course of their duties;
(d) by reason of its default has not become bound, and no
person has become entitled (or with the giving of notice
and/or the issue of a certificate will become entitled) to
require it, to repay prior to its stipulated due date any
loan capital or other debenture, redeemable preference
share capital or borrowed money and no notice has been
received since the Accounts Date of such liability having
arisen for any other reason;
(e) is not a party to any agreement which is or may become
terminable as a result of the entry into or Completion
under this Agreement;
(f) has not entered into or is bound by any guarantee or
indemnity under which any liability or contingent liability
is outstanding;
(g) is not or was not the original lessee or surety of a lessee
of any leasehold property other than the leasehold
Properties or has at any time acquired, assigned or
otherwise disposed of any other leasehold property in such
a way that it retains any residual liability;
(h) has not entered into any agreement which is outstanding and
which requires or confers any right to require the sale
(whether for cash or otherwise) or transfer by them of any
material asset;
(i) is not party to any joint venture, consortium, partnership
or profit sharing arrangement or agreement;
(j) is not aware of any default under any written agreement or
covenant to which it is a party; or
(k) has not, nor has agreed to, charge any of its assets or
shares.
13 BORROWINGS AND LENDINGS
13.1 Full details of all limits on the Company's bank facilities are
accurately set out in the Disclosure Letter and the total amount
borrowed by the Company from its bankers does not exceed its
overdraft facilities (if any).
<PAGE> 35
13.2 The total amount borrowed by the Company does not exceed any
limitation on its borrowing powers contained in its Articles of
Association, or in any debenture or other deed or document binding on
it.
13.3 The Company does not have outstanding, nor has agreed to create or
issue, any loan capital, nor has it factored any of its debts, or
engaged in financing of a type which would not require to be shown or
reflected in the Accounts, or borrowed any money which it has not
repaid, except for borrowings not exceeding the amounts shown in the
Accounts.
13.4 Other than in the ordinary course of business, the Company has not
lent any money which has not been repaid, or owns the benefit of any
debt (whether or not due for payment), other than debts which have
arisen in the ordinary course of business and the Company has not
made any loan or quasi-loan contrary to any legislation.
14 CONTINUATION OF FACILITIES
In relation to all debentures, acceptance credits, overdrafts, loans
or other financial facilities outstanding as at the date hereof or
available to the Companies or any of them (referred to in this
Warranty as "Facilities"):
(a) there are attached to the Disclosure Letter full and
complete copies of all documents relating to the Facilities;
(b) so far as each of the Warrantors is aware there has been no
material contravention of, or material non-compliance with,
any provision of any document relating to any of the
Facilities;
(c) no steps for the early repayment of any indebtedness have
been taken of which they are not having made enquiry or
threatened in writing;
(d) so far as each of the Warrantors is aware not having made
enquiry there have not been, nor are there, any
circumstances as a result of which the continuation of any
of the Facilities might cease or be prejudiced, or which
may give rise to any alteration in the terms and conditions
of any of the Facilities;
(e) none of the Facilities is dependent on the guarantee or
indemnity of, or any security provided by, any party other
than any of the Companies;
(f) none of the Facilities may according to its terms be
terminated or mature prior to their stated maturity as a
result of the making of the Offer or the acquisition of the
Shares (or any of the Shares) by the Buyer; and
(g) the Facilities are adequate to allow the Companies to
continue trading after Completion on the same basis as
prior to Completion.
15 THE PROPERTIES
15.1 The Company is the sole legal and beneficial owner of each of the
Properties, shown against its name in Schedule 4.
15.2 The particulars of the Properties specified in Schedule 4 are true,
complete and accurate in all respects.
15.3 Save as specified in Schedule 4 the Company exclusively occupies the
whole of each of the Properties shown against its name in Schedule 4
and the Properties are free from all leases,
<PAGE> 36
licences, service occupancies, tenancies, options, rights of
pre-emption, mortgages, charges, rent charges, liens or rights of
occupation or any agreement to create any of the same.
15.4 The Company does not own or have any interest in any land or building
other than the Properties, and the Company has not entered into any
legally binding agreement for the purchase of any such interest.
15.5 The Company occupies and uses the Properties for the purpose of
conducting the Business only and occupies or uses no other properties
for such purpose.
15.6 So far as the Warrantors are aware, all covenants, obligations,
restrictions and conditions affecting the Property have been observed
and performed and all outgoings have been duly paid and all consents
(where necessary) obtained and complied with and no notice of any
alleged breach of such covenants, obligations, restrictions and
conditions has been received and so far as the Warrantors are aware,
there are no circumstances now existing which would entitle the
landlord of any leasehold Property to exercise any power of entry
upon or take possession of any Property or to draw upon any rental
deposit or other security available to it.
15.7 No notice, action or proceedings affecting any of the Properties has
been served (so far as the Warrantors are aware) and there are no
disputes concerning any of the Properties with any person and (so far
as the Warrantors are aware) there are no circumstances now existing
which are likely to result in any such notice, action or proceedings
being served or commenced or any such dispute arising.
15.8 So far as the Warrantors are aware, there has been no notice or
complaint that any of the Properties does not comply (as to buildings
and use) with the lease (if any) under which any leasehold Property
is held, the applicable provisions of the Town and Country Planning
Acts, and with all associated statutory and bye-law requirements and
all necessary consents relating to any such requirements are subject
only to conditions which have been satisfied and the Company is not
aware of any intended or contemplated refusal or revocation of any
such licence consent or requirements.
15.9 None of the Properties or the Company as owner or lessee of any of
the Properties:
(a) is, so far as the Warrantors are aware, subject to any
rights, reservations, covenants, obligations, restrictions,
conditions or overriding interests (as defined by Section
70 of the Land Registration Act 1925) which are of an
unusual or onerous nature or which would affect the use or
continued use of any of the Properties for the purposes of
the business carried on at that Property by the Company or
the value of that Property;
(b) is affected by any of the following matters:
(i) any closing order, demolition order or clearance
order;
(ii) any planning application which has not yet been
determined;
(iii) any enforcement or stop notice;
(iv) any compensation received upon a refusal of any
planning consent or the imposition of
restrictions on or the modification or
withdrawal of any such consent;
(v) any order or proposal or private Act for the
compulsory acquisition or requisition of the
whole or any part thereof or the modification of
any planning permission or the discontinuance of
any use or the removal of any building;
<PAGE> 37
(vi) any agreement with any planning authority,
statutory undertaker or other public body or
authority regulating the use or development
thereof;
(vii) any rights of common; or
(viii) any other notice compliance with which would
involve expenditure;
and, so far as the Warrantors are aware there are no circumstances
which may result in any of the matters referred to in this paragraph
(b) arising.
15.10 Where the title to any of the Properties is, or is required to be,
registered at H M Land Registry it is so registered with Title
Absolute.
15.11 In so far as the Warrantors are aware (but without having carried out
any survey) no deleterious materials not approved by the relevant
Codes of Practice (including without limitation High Alumina cement)
have been used in the construction of any of the Properties or any
alterations thereto or are now present in any of the Properties and
no subsidence flooding or other defect of any kind has affected the
Properties.
15.12 The Company is entitled to rights of way and rights for the supply of
services and all other rights and easements sufficient for the
present use of the Properties or for the use for which they were
valued in the preparation of the Accounts and all such rights are
perpetual and unconditional.
15.13 The Company is not under any immediate or prospective liability
certain or contingent as a result of notices under sections 25 or 26
of the Landlord and Tenant Act 1954 in respect of any of the
Properties or as a result of improvements made to any of the
Properties by any tenant or undertenant thereof to pay any
compensation under section 1 of the Landlord and Tenant Act 1927 and
the Company has not received any notice under section 3(d) of that
Act.
15.14 No lease under which the Company holds any of the leasehold
Properties:
(a) was granted pursuant to an order excluding the operation of
any part of the Landlord and Tenant Act 1954 from the
tenancy created by that lease;
(b) contains any provision enabling the landlord to terminate
the lease prior to the term determination date other than
by reason of the tenant's default.
15.15 The Company is not engaged in any negotiation for review of the rent
payable under any lease under which it holds any of the leasehold
Properties, no such negotiations have been concluded changing the
rent from that specified in Schedule 4 and there are no rent reviews
capable of being implemented by the landlord in respect of the period
prior to completion.
15.16 In so far as the Warrantors are aware, the replies given to enquiries
raised by the Buyer's Solicitors in respect of the Properties are
true and accurate in all material respects.
15.17 The Warrantors are not aware of any alteration refurbishment or
renewal of the whole or any part of any of the Properties or the
building or estate of which any Property forms part which may be
incurred by or charged in whole or part to the Company.
15.18 The Company is entitled to transitional relief in accordance with
Schedule 7A to the Local Government Finance Act l988 for non-
domestic rates in respect of each of the Properties and has not done
anything which would or might cause (it) (them) to lose such relief
nor made any proposal for alteration of the April l990 rating list in
respect of any of the Properties.
<PAGE> 38
15.19 There is no actual or contingent liability on the part of the Company
arising directly or indirectly out of any lease, agreement for lease,
conveyance or licence or other deed including any actual or
contingent liability arising directly or indirectly out of:
(a) any estate or interest previously held by the Company as an
original lessee or underlessee; or
(b) any covenant made by the Company in favour of any lessor or
any guarantee given by the Company in relation to a lease
or underlease.
16 ENVIRONMENTAL
16.1 The Company has received written no indication and is not otherwise
aware that it has or may have failed to obtain or is or may be in
material breach of the terms and conditions of all Environmental
Consents required in respect of the Company's activities.
16.2 The Company has received no written indication that and is not
otherwise aware that it is or may be responsible for all or any part
of costs or expenses imposed as a result of Environmental Law.
16.3 The Company has received no written indication and is not otherwise
aware of any actual or threatened actions by regulatory authorities
or third parties in respect of any alleged non-compliance with or
liability arising under Environmental Law.
17 INSOLVENCY
17.1 No administrator, administrative receiver, receiver, manager of
assets, liquidator or any other similar officer has ever been
appointed in respect of the whole or any part of the assets or
undertaking of the Company and no order has been made, petition
presented or resolution passed for the purpose of the making of any
order in relation to administration, administrative receivership,
receivership, liquidation, management of assets or any other similar
situation of the Company.
17.2 The Company is not insolvent nor unable to pay its debts as they fall
due (as such expression is defined in either sub-section (1)(a) to
(d) (inclusive) or sub-section (2) of Section 123 of the Insolvency
Act 1986).
17.3 No voluntary arrangement (as referred to in the Insolvency Act 1986)
or scheme of arrangement as regards its creditors has been proposed
by the Directors or is in operation in relation to the Company.
17.4 The Company has not entered into any transaction nor been given a
preference to which sections 238, 239 or 423 of the Insolvency Act
1986 apply or which may otherwise be liable to be set aside or
avoided for any reason.
18 INTELLECTUAL PROPERTY
18.1 So far as the Warrantors are aware, the businesses of the Company and
the processes, data, material and software employed by it and the
goods, services and software including the Software supplied by it in
the United Kingdom or elsewhere in the world do not infringe, use,
involve the misappropriation of, or embody the subject matter of, or
(except as set out in Part 2 of Schedule 5) require a licence which
has not been granted on terms disclosed to the Buyer under any
Intellectual Property in which any other person has rights of any
nature; and no claims have been made by any person which, if pursued,
might be in breach of or be otherwise material to any of the
warranties in this or any other part of this paragraph 18.
<PAGE> 39
18.2 Where Software is owned by the Company, it has sole possession of the
source code and has not granted any rights whatsoever in or over the
source code to any person or entity, subject to the terms of the
licence agreements set out in Part 1 of Schedule 5.
18.3 In the case of any Software licensed to the Company, the Company has
full rights of access to and use of the source code to the Software
in the event of any insolvency, administrative receivership,
receivership, administration or bankruptcy (or equivalent event in
any relevant jurisdiction).
18.4 Short particulars of all licences entered into by the Company in
relation to Intellectual Property, and in respect of which any of the
Company is a licensor, are set out in Part 1 of Schedule 5; and in
respect of which the Company is a licensee or otherwise a party, are
set out in Part 2 of Schedule 5 and the entitlement of the Company to
use the software concerned is subject to the terms thereof.
18.5 No goods, services, documentation, software, data or other items used
by the Company in the course of its business has or have been
supplied under:
(a) any agreement or arrangement which precludes its or their
sale, transfer, assignment, disposal or use by any other
person; or
(b) any licence or permission that may cease on any change in
the control of any of the Companies or any transfer of the
legal or beneficial interest in any shares in any of the
Companies.
18.6 No Intellectual Property in which the Company has any interest and
which is, or is likely to be, material to the Business of the Company
is:
(a) so far as the Warrantors are aware (without having made
specific enquiry of the customers of the Company), being
infringed, misappropriated or used without permission by
any other person; or
(b) subject to any licence, estoppel or authority or similar
right in favour of any other person, except as set out in
the agreements listed in Part 1 & 2 of Schedule 5.
18.7 Details of all Intellectual Property which is owned or used by any of
the Companies, or in respect of which any of the Companies has made
application for registration is:
(a) listed and briefly described in Part 3 of Schedule 5;
(b) legally and beneficially vested in or validly granted to
the Company, are not restricted in any way and all renewal
fees and steps required for their maintenance and
protection have been paid and taken; and
(c) so far as each of the Warrantors is aware, valid and
enforceable.
18.8 Such copyright as the Company has in its products and all
unregistered trade marks owned or used by the Companies are:
(a) listed and briefly described in Part 4 of Schedule 5;
(b) legally and beneficially vested or validly granted to the
Companies and are not restricted in any way; and
(c) so far as each of the Warrantors is aware, valid and
enforceable.
<PAGE> 40
18.9 The Company has not received any notice that any other person has
registered or applied to register in any country any Intellectual
Property made, or claimed to be owned, by the Companies.
18.10 The licences, agreements and arrangements listed in Parts 1 and 2 of
Schedule 5 (true, current and complete copies of each of which have
been supplied to the Buyer) have been entered into in the ordinary
course of business, are in full force and effect and no notice has
been given on either side to terminate any of them and no amendment
has been made or accepted to their terms since they were first
entered into; and the obligations of all parties under each of the
same have been fully complied with and no disputes exist or are
anticipated in respect of any of them.
18.11 Other than to the Buyer and to agents, employees, shareholders or
professional advisers of the Buyer under the provisions of the Non-
Disclosure Agreement dated 31 October 1996, none of the Companies has
not knowingly disclosed, or knowingly or recklessly permitted to be
disclosed, or undertaken or arranged to disclose, to any person any
of its Confidential Information.
18.12 No claim has been made, and none of the Warrantors is aware of any
facts or circumstances which may result in any claim, for
compensation by an employee of any of the Companies carrying on trade
in the UK under Section 40 of the Patents Act 1977 or under any
comparable legislation in any part of the world or under any award
scheme.
18.13 The Software and all earlier versions of and predecessors to the
Software were developed and all the Computer Know-how was conceived
by, employees of the Company in their capacities as such and without
any reliance on any trade secret or proprietary information belonging
to any other person and constitute original works of authorship of
such persons.
18.14 The Company does not operate as a computer bureau, as that term is
defined in the Data Protection Act 1984, in the United Kingdom or
elsewhere in the world; and no notice of any kind has been served on
the Company under any provision under any part of that Act or any
analogous legislation in any part of the world. Insofar as the
Company is a "Data User" under the Act or in an equivalent position
under any analogous legislation in any other country:
(a) all necessary applications for registration have been duly
made; and
(b) the details supplied to the Registrar, or other official
concerned, in relation to each application are accurate and
complete.
18.15 The Company owns or has valid and enforceable licences in respect of
all Intellectual Property necessary to operate its business.
18.16 Neither of the Subsidiaries owns or has any legal or equitable right,
title or interest in, over or in respect of any of the Software or
Computer Know-how.
18.17 The Company has taken all steps necessary and desirable for the
protection of all Intellectual Property where the same is registrable
in the markets in which it operates. In addition, the appropriate
copyright notices have been placed on all copies of the Software
which have been distributed to the public. The appropriate
restricted rights legend required under the Federal Acquisition
Regulation to reserve the Company's full ownership rights has been
placed on all copies of the Software which have been distributed to
agencies or instrumentalities of the United States government.
18.18 The Company is not aware that the Software fails to conform and
perform in any of its material functions to the specifications set
out in the user manuals and other documentation written for and/or
supplied with the Software and any defects, bugs or faults other than
those of a minor or cosmetic nature in any code for the Software and
which are not more extensive or damaging to the performance or
functioning of the Software than can reasonably be expected given the
nature of computer software; none of the Warrantors is aware of any
defect other than those of a minor or
<PAGE> 41
cosmetic nature in any code for the Software that has an adverse
effect on the performance, functionality of the Software or future
developments and enhancements of the Software.
18.19 The Company does not require any intellectual or industrial property
rights other than the Intellectual Property identified in Schedules 5
for the operation of any part of the Business as presently carried
on.
18.20 Brief details of all the Software are set out in Schedule 6 and a
disk containing the Software has been delivered to the Buyer.
19 COMPETITION
So far as the Warrantors are aware, the Company has not done anything
which, and is not a member or party to any agreement or arrangement
which, contravenes or requires registration or notification under any
of the provisions of the Fair Trading Act 1973, the Restrictive Trade
Practices Acts, the Resale Prices Act 1976, the Treaty of Rome; or
the Competition Act 1980 or any other anti- trust, anti-monopoly or
anti-cartel legislation or regulation in any country of the world in
which or with which it does business.
20 FINANCIAL SERVICES
None of the Companies carries on or has carried on at any time any
investment business in the United Kingdom within the meaning of the
FSA nor has any of the Companies contravened, or received notice from
the Securities and Investments Board or the Department of Trade and
Industry or any other regulator that it may have contravened any
provision of the FSA or any rules or regulations made thereunder
(whether relating to cold calling, investment advertisements or
otherwise).
21 NON TRADING COMPANIES
As regards each of the Subsidiaries:
(a) it has not at any time been the holding company of any
company or a member of or the beneficial owner of shares in
any company;
(b) there are no agreements or arrangements (whether legally
enforceable or not) for the payment of any pensions,
allowances, lump sums or other like benefits on retirement
or on death or during periods of sickness or disablement
for the benefit of any director or former director or
employee or former employee of it or for the benefit of the
dependants of any such person;
(c) it has not traded or undertaken any activities of any sort
and (save as contemplated by this Agreement and other
agreements specifically referred to herein) has no
liabilities or obligations actual or contingent (save in
relation to incorporation and setting up costs and
expenses) nor is it involved in any litigation nor has been
threatened with any proceedings of any kind; and
(d) Save as expressly anticipated by this Agreement, it has not
charged any of its assets or granted any option or issued
any warrant or other right to subscribe any shares or
debentures or agreed conditionally or unconditionally to
grant any such option or issue any such warrant or other
right and has not (save as aforesaid) entered into any
agreement which requires or may require or confers any
right to require the issue by it of any shares or
debentures or options or warrants or other rights to
subscribe shares or debentures.
<PAGE> 42
SCHEDULE 7
THE TAX COVENANTS
1 INTRODUCTION
1.1 In this Schedule, unless the context otherwise requires, words and
expressions not expressly defined in paragraph 1.2 below shall have
the respective meanings given to them in the Interpretation Section
of this Agreement.
1.2 The following expressions shall have the following meanings:
Claim any notice, demand, assessment, letter or other
document issued, or action taken, by or on behalf
of any Taxing Authority (including the imposition
of any withholding) from which it appears that a
Taxation Liability is or may be imposed which may
give rise to a claim under clause 5.1 of this
Agreement and this Schedule;
Relief any loss, relief, allowance, exemption, set off,
deduction or credit in computing or against
income, profits, gains or Taxation and any right
to a repayment of Taxation;
Taxation all forms of taxation, duties, rates, levies,
contributions, withholdings, deductions, charges
and imposts imposed or arising in the United
Kingdom , including but not limited to:
(a) income tax to which the Pay as You Earn
system applies, advance corporation tax,
any liability arising under Sections 419
or 601 ICTA, national insurance
contributions, value added tax and input
tax within the meaning of Section 24 VATA;
(b) all penalties, charges, costs and interest
levied by or awarded to a Taxing Authority
or arising under any Taxation legislation
in respect of any of the above;
Taxing Authority the Inland Revenue, H M Customs & Excise and any
other governmental, local governmental or
municipal authority, body or official of the
United Kingdom;
Transaction any transaction, act, omission, arrangement or
event whatsoever (including, but not limited to,
entering into this Agreement, Completion, any
change in the residence of any person or the
death, winding up or insolvency of any person).
1.3 In this Schedule, references to a "Taxation Liability" mean not only
a liability to make any payment (or increased payment) of or in
respect of Taxation (whether or not such payment is primarily payable
by the Buyer or the Company and whether or not the Buyer or the
Company has or may have any right of reimbursement from any other
person) but also include:
<PAGE> 43
(a) the loss or set off of any Relief arising in respect of any
Transaction occurring on or before Completion;
(b) the use or set off of any Relief which arises after
Completion where the use or set off of that Relief has the
effect of reducing or eliminating any liability to Taxation
which would otherwise have arisen and have constituted a
Taxation Liability for the purposes of this Schedule;
PROVIDED THAT:
(i) in any case falling within paragraph (a) or (b)
above, where the Relief lost or set off would
have operated as a deduction from gross income,
profits or gains, the Taxation Liability shall
be treated as being equal to the amount of the
Relief multiplied by the rate of corporation tax
in force at the date when it is lost, or set
off;
(ii) in any other case falling within paragraph (a)
or (b) above, the Taxation Liability shall be
treated as being equal to the amount of the
Relief lost used or set off.
1.4 In this Schedule:
(a) any reference to a Transaction occurring on or before
Completion shall include the combined effects of two or
more Transactions provided that the first or some of which
shall have occurred on or before Completion;
(b) any reference to the occurrence of a Transaction on or
before a particular date shall include a Transaction which
is deemed for Taxation purposes to have, or is regarded for
Taxation purposes as having occurred or existed on or
before that date; and
(c) any reference to income, profits or gains arising, earned,
accrued, received or payable on or before a particular date
shall include income, profits or gains which are deemed for
Taxation purposes to have arisen or are deemed for Taxation
purposes to have been earned, accrued, received or payable
on or before that date.
2 COVENANT TO PAY
Subject as provided in this Schedule and in clauses 5.3, 5.4, 5.5 and
5.8 of this Agreement the Warrantors shall be liable to the Buyer in
an amount equal to:
(a) any Taxation Liability of the Company arising in respect of
or by reference to or in consequence of any of the
following:
(i) any Transaction occurring on or before
Completion; or
(ii) any income, profits or gains arising, earned,
accrued, received or payable on or before
Completion;
(b) any Taxation Liability which is also a Taxation Liability
of another person and which is payable by the Company by
virtue of:
(i) the other person failing to discharge such
Taxation Liability; and
(ii) the Company having been at any time prior to
Completion a member of the same group as such
other person or otherwise connected with or
related to such other person for any Taxation
purpose;
<PAGE> 44
(c) any liability of the Company to make a payment by way of
reimbursement, recharge, indemnity or damages in respect of
or arising from any Transaction occurring on or before
Completion or any income, profits or gains arising, earned,
accrued, received or payable on or before Completion; and
(d)] all third party costs and expenses properly and reasonably
incurred and payable by the Buyer or the Company in
connection with or in consequence of a Taxation Liability
which is imposed and for which the Buyer has a claim under
this Schedule.
3 EXCLUSIONS
3.1 The Warrantors shall not be liable under this Schedule in respect of
any Taxation Liability:
(a) to the extent that specific provision or reserve (not
including any provision for deferred Taxation) has been
made for such liability in the Accounts; or
(b) to the extent that it arises out of a Transaction
undertaken after the Accounts Date but before Completion by
the Company in the ordinary course of its day to day
trading operations.
3.2 The Buyer shall not be entitled to make a claim under this Schedule
if and to the extent that the same subject matter has given rise to a
claim for breach of the Warranties and that claim has been satisfied
in full.
4 GENERAL
4.1 The liability of the Warrantors under this Schedule and the Escrow
Agreement shall be joint and several but shall only be recoverable by
the Buyer in accordance with clause 5.8 of this Agreement and the
maximum of their combined liability shall be in accordance with
clause 5.8 of this Agreement.
4.2 Any liability to the Buyer under this Schedule may be released,
compounded or compromised in whole or in part and time or indulgence
may be given by the Buyer in its absolute discretion as regards a
Warrantor under such liability without in any way prejudicing or
affecting its rights against such Warrantor in respect of any other
liability under this Schedule or against any other Warrantor under
the same or a like liability.
<PAGE> 45
ATTESTATIONS
SIGNED by ) /s/ D. P. Taylor
DENNIS PHILIP TAYLOR )
in the presence of: Neil Fletcher ) /s/ Neil Fletcher
SIGNED by ) /s/ David Edward John Crisp
DAVID EDWARD JOHN CRISP )
in the presence of: Charles Cook ) /s/ Charles Cook
SIGNED by ) /s/ David Lee Stevens
DAVID LEE STEVENS )
in the presence of: Neil Fletcher ) /s/ Neil Fletcher
SIGNED by ) /s/ Alistair Jenkins
ALISTAIR JENKINS )
in the presence of: Charles Cook ) /s/ Charles Cook
SIGNED by )
duly authorised for and on behalf of )
SKANCO TRUSTEES LIMITED ) /s/ Skanco Trustees Limited
as duly authorised trustee of the )
D Crisp Settlement )
SIGNED by )
duly authorised for and on behalf of )
SKANCO TRUSTEES LIMITED ) /s/ Skanco Trustees Limited
as duly authorised trustee of the )
D L Stevens Settlement )
SIGNED by )
duly authorised for and on behalf of )
SKANCO TRUSTEES LIMITED ) /s/ Skanco Trustees Limited
as duly authorised trustee of the )
A Jenkins Settlement )
SIGNED by )
duly authorised for and on behalf of ) /s/ Peter Charles Cox
3i GROUP plc ) /s/ Neil Fletcher
in the presence of: Neil Fletcher )
<PAGE> 46
SIGNED by )
duly authorised for and on behalf of ) /s/ Peter Charles Cox
3i plc ) /s/ Neil Fletcher
in the presence of: Neil Fletcher )
SIGNED by )
duly authorised for and on behalf of ) /s/ A.I.I. Holding Corporation
A.I.I. HOLDING CORPORATION ) /s/ Joe Coppins
in the presence of: Joe Coppins )
SIGNED by )
duly authorised for and on behalf of ) /s/ Jordan Breslow
GEOWORKS ) /s/ Martin Bowen
in the presence of: Martin Bowen )
<PAGE> 1
EXHIBIT 2.3
ESCROW AGREEMENT
This Escrow Agreement is made as of this 24th day of February, 1997
(the "Agreement"), by and among State Street Bank and Trust Company, a
Massachusetts trust company ("Escrow Agent"), Geoworks, a California
corporation ("Parent") and David Edward John Crisp, as agent of certain of the
Company's shareholders ("Securityholders' Agent"). Terms not otherwise defined
herein shall have the meaning set forth in the Offer or the Warranty (each as
defined below), copies of which are attached hereto.
WITNESSETH
Parent desires to acquire all of the outstanding Ordinary and
Preference Shares of Eden Group Limited, a corporation organized under the laws
of England and Wales (the "Company"), pursuant to that certain Offer document
distributed to all shareholders and optionees of the Company (the "Offer"), and
pursuant to that certain Warranty and Covenant Agreement dated as of February
12, 1997 (the "Warranty Agreement") among Geoworks and certain shareholders and
officers of the Company set forth in schedules thereto, including the persons
listed in Annex A hereof (the persons listed in Annex A hereof referred to
collectively as, the "Indemnifying Shareholders"); and
WHEREAS, pursuant to Article 4.5 of the Warranty ("Article 4.5"), an
escrow fund (the "Escrow Fund") will be established to compensate Parent for
certain Losses it may incur by reason of any inaccuracy or breach of the
warranties contained in Schedule 3 of the Warranty Agreement or any failure by
the Company, the Warrantors or the Principal Sellers (as each such term is
defined in the Warranty Agreement) to perform or comply with any covenants
contained in the Warranty Agreement; and
WHEREAS, the Securityholders' Agent has been constituted as agent for
and on behalf of the Indemnifying Shareholders to undertake certain obligations
specified in this Agreement; and
WHEREAS, Article 4.5 provides for the establishment of an Escrow Fund
of 65,212 shares of the Parent Common Stock upon the Acquisition otherwise
payable to the Indemnifying Shareholders, such Escrow Fund to be held by the
Escrow Agent; and
WHEREAS, the parties hereto desire to set forth further terms and
conditions in addition to those set forth in the Offer relating to the
operation of the Escrow Fund.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow and Escrow Shares. Pursuant to the Offer, Parent shall
deposit in escrow with the Escrow Agent, as escrow agent, a stock certificate
or certificates representing 65,212 shares of Parent Common Stock (the "Escrow
Shares"), which shall be registered in the name of the Escrow Agent as nominee
for the beneficial owners of such shares. The Escrow Shares shall be held and
distributed by the Escrow Agent in accordance with the terms and conditions of
this Agreement. The number of Escrow Shares held on behalf of each
Indemnifying Shareholder is set forth in Annex A attached hereto. The
<PAGE> 2
Escrow Fund shall be available to compensate Parent and its affiliates for any
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (hereinafter individually a "Loss" and collectively
"Losses") incurred by Parent, its officers, directors, or affiliates directly
or indirectly as a result of any inaccuracy or breach of a warranty of the
Company, the Warrantors or the Principal Sellers made in the Warranty Agreement
(as modified by the Company Schedules), or any failure by the Company, the
Warrantors or the Principal Sellers to perform or comply with any covenant
contained therein. Parent and the Company each acknowledge that such Losses,
if any, would relate to unresolved contingencies existing at the Completion,
which if resolved at the Completion (as defined in the Offer) would have led to
a reduction in the Consideration Shares (as defined in the Offer).
2. Rights and Obligations of the Parties. The Escrow Agent shall
be entitled to such rights and shall perform such duties of the Escrow Agent as
set forth herein (collectively, the "Duties") in accordance with the terms and
conditions of this Agreement. Parent, Company and the Securityholders' Agent
shall be entitled to their respective rights and shall perform their respective
duties and obligations as set forth herein, in accordance with the terms
hereof. The duties and obligations of the Escrow Agent shall be determined
solely with reference to this Agreement. In the case of the other parties to
this Agreement, however, in the event that the terms of this Agreement conflict
in any way with the provisions of Article 4.5, Article 4.5 shall control.
3. Escrow Period; Escrow Fund.
a. The period of time during which the Escrow Fund shall
be in existence (the "Escrow Period") shall commence immediately following the
Completion, which shall be set forth in a certificate of Parent delivered to
the Escrow Agent, and shall terminate at 5:00 p.m., California time, on
December 31, 1997 (the "Release Date"); provided, however, that a portion of
the Escrow Shares and other assets held in the Escrow Fund, which is necessary
to satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period shall remain in the Escrow Fund until such claims have been
resolved. As soon as practicable after all such claims have been finally
resolved, the Escrow Agent shall requisition from the transfer agent, if
necessary, and deliver to such Indemnifying Shareholders, at their addresses
set forth in a certificate of the Securityholders' Agent, all of the Escrow
Shares and other property remaining in the Escrow Fund and not required to
satisfy such claims and expenses. Each Indemnifying Shareholder shall receive
that number of Escrow Shares (and cash in lieu payments when appropriate), and
a portion of any other assets held in the Escrow Fund, which bears the same
relationship to the total number of Escrow Shares and other assets in the
Escrow Fund and available for distribution as the number of Escrow Shares set
forth opposite the name of each such Indemnifying Shareholder on Annex A hereto
bears to 65,212, as calculated by the Securityholders' Agent.
b. Upon receipt of written notice from the
Securityholders' Agent to the Escrow Agent (a) directing the Escrow Agent to
sell a number of shares of the Escrow Shares set forth in such notice, (b)
specifying how the proceeds of such sales are to be allocated for tax-reporting
purposes, setting forth, as appropriate, the names, addresses and social
security or tax identification numbers of
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<PAGE> 3
each person to whom a sale is to be attributed, (c) certifying that the
restrictions on the transferability of such shares applicable to affiliates of
Subsidiary pursuant to pooling of interest rules, as set forth in the Affiliate
Agreement among such affiliates, Parent and Subsidiary have expired, (d)
further certifying that such sale may be effected pursuant to the terms of the
Declaration of Registration Rights made by Parent for the benefit of Company
shareholders, (e) identifying the name, address and telephone number of a
broker through whom such sale should be made, (f) setting forth such broker's
good faith estimate of the commissions and expenses that will be incurred to
make such sale and (g) accompanied by a check in the amount of 100% of the
amount of such estimated commissions and expenses, which such amount shall be
paid or forwarded to such broker by the Escrow Agent (a "Sales Notice"), the
Escrow Agent shall sell that number of Escrow Shares as is indicated in and in
accordance with the Sales Notice. Any such sales effectuated at the request of
the Indemnifying Shareholders shall be made on a pro rata basis for all
Indemnifying Shareholders from among the Escrow Shares then held in Escrow.
The Securityholders' Agent and the Indemnifying Shareholders agree that any
such sales shall be made in a single transaction or group of transactions
effected over not more than a three (3) day period, the aggregate gross sales
proceeds of which are expected as of the date of receipt by the Escrow Agent of
the Sales Notice to be not less than $250,000. The Escrow Agent may rely on
the Sales Notice without inquiry and shall have no liability to the
Securityholders' Agent, the Indemnifying Shareholders or any other party for
relying on the Sales Notice or effectuating a sale or sales of Escrow Shares in
accordance with the Sales Notice. The Securityholders' Agent and the
Indemnifying Shareholders, jointly and severally, agree to indemnify and hold
harmless the Escrow Agent from and against all liability and costs, other than
(a) the commissions and expenses of the broker set forth in the Sales Notice
and (b) any liabilities and costs caused by the gross negligence or willful
misconduct of the Escrow Agent, incurred in connection with making any sale of
Escrow Shares in accordance with a Sales Notice. To secure such indemnity
obligation, the Escrow Agent shall have a first lien on any Escrow Shares or
other property otherwise distributable to the Indemnifying Shareholders (but
not on any Escrow Shares or any other property distributable to Parent). If
the actual commissions and expenses of effecting a sale directed in a Sales
Notice are less than the amount of funds advanced by the Securityholders' Agent
with such Sales Notice, the Escrow Agent may keep the excess as a fee for
effecting the sale.
c. All proceeds from the sale of Escrow Shares shall be
held in escrow as part of the Escrow Fund on the same basis as Escrow Shares
are held.
4. Duties of Escrow Agent. The Duties of the Escrow Agent shall
include the following:
a. The Escrow Agent shall hold and safeguard the Escrow
Shares and any other assets in the Escrow Fund during the Escrow Period, shall
treat such Escrow Fund in accordance with the terms of this Agreement and not
as the property of Parent or the Indemnifying Shareholders, and shall hold and
dispose of the Escrow Shares and any other assets in the Escrow Fund only in
accordance with the terms hereof.
b. Each Indemnifying Shareholder shall have voting
rights with respect to such Shareholder's proportionate interest in the shares
of Parent Common Stock remaining in the Escrow Fund (and on any voting
securities added to the Escrow Fund in respect of such shares of Parent Common
Stock). The Escrow Shares shall be voted by the Escrow Agent on behalf of the
Indemnifying
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<PAGE> 4
Shareholders in accordance with the written instruction received by the Escrow
Agent from the Securityholders' Agent. The Securityholders' Agent agrees with
the Indemnifying Shareholders (but the Escrow Agent need not verify) that such
instructions shall be in conformance with the written instructions received by
the Securityholders' Agent from each Indemnifying Shareholder. In the absence
of such written instructions, received by the Escrow agent at least five
business days prior to the date on which such shares must be voted, the Escrow
Agent need not vote such shares. The Escrow Agent shall forward all proxy
information and other reports it receives with respect to Escrow Shares to the
Securityholders' Agent.
c. In making any distribution of Escrow Shares pursuant
to the terms of this Agreement, the Escrow Agent shall round down (if
necessary) to a whole number of shares and pay to each Indemnifying
Shareholder, as appropriate, from funds provided by Parent, cash in lieu of the
fractional interests not distributed. Any shares for which Parent has provided
cash in lieu payments shall be distributed to Parent, which shall be deemed to
have purchased them.
5. Claims Upon Escrow Fund.
a. Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by the
President, any Vice President or General Counsel of Parent (an "Officer's
Certificate") (A) stating that Parent has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue Losses (expressed in
U.S. Dollars at a conversion rate of 1.6113 U.S. Dollars to a British Pound
(the "Conversion Rate")), and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to
which such item is related, the Escrow Agent shall, subject to the provisions
of Section 6 hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, Escrow Shares (or a combination of Escrow Shares and cash
determined in accordance with Section 4(c) hereof) having a value (determined
pursuant to Section 5(b)) equal to such Losses.
b. For the purposes of determining the number of Escrow
Shares to be delivered to Parent pursuant to Section 5(a) hereof, the shares of
Parent Common Stock shall be valued at the average of the closing prices of
Parent's Common Stock on the principal securities exchange on which Parent's
Common Stock is then traded, or if not so traded, the National Market System of
the National Association of Securities Dealers Automated Quotation system, in
either case as reported in The Wall Street Journal, for the thirty (30)
consecutive trading days ending on the date that is one (1) trading day prior
to the Completion. Parent and the Securityholders' Agent shall certify such
fair market value in a certificate signed by both Parent and the
Securityholders' Agent, and shall deliver such certificate to the Escrow Agent.
c. Parent may not receive any shares from the Escrow
Fund unless and until Officer's Certificates (as defined in Section 5(a) above)
identifying Losses, the aggregate amount of which exceed $241,695, which
Parent, the Securityholders' Agent and the Indemnifying Shareholders agree is
the equivalent of L.150,000, converted to U.S. Dollars at the Conversion Rate,
have been delivered to the
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<PAGE> 5
Escrow Agent as provided in Section 6. In such case, Parent may recover from
the Escrow Fund the total of its Losses, including the first $241,695.
d. To the extent that the aggregate amount of Losses for
which Parent is entitled to receive indemnification exceeds the value of Escrow
Shares then held in the Escrow Fund, Parent shall be entitled to receive, in
addition to all Escrow Shares then held in the Escrow Fund, other assets held
in the Escrow Fund equal to the lesser of (i) all other assets held in the
Escrow Fund or (ii) the amount by which the Losses for which the Parent is
entitled to indemnification exceeds the value of the Escrow Shares then held in
the Escrow Fund.
6. Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Securityholders' Agent, and for a period of thirty
(30) days after receipt by the Escrow Agent of an Officer's Certificate, the
Escrow Agent shall make no delivery to Parent of any Escrow Amounts pursuant to
Section 5 hereof unless the Escrow Agent shall have received written
authorization from the Securityholders' Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make delivery
of shares of Parent Common Stock (and, if applicable under Section 4(c) or
Section 5(d), other assets in the Escrow Fund) from the Escrow Fund in
accordance with Section 5 hereof, provided that no such payment or delivery may
be made if the Securityholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
7. Resolution of Conflicts; Arbitration.
a. In case the Securityholders' Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholders' Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholders' Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock (and, if
applicable, other assets) from the Escrow Fund in accordance with the terms
thereof.
b. If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholders' Agent may demand arbitration
of the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. Parent and the Securityholders'
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The arbitrators shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrators shall rule
upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the same extent as a
court of competent law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
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<PAGE> 6
refused or objected to without substantial justification. The decision of a
majority of the three arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 6 hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith. Such
decision, which shall be furnished to the Escrow Agent, shall be written and
shall be supported by written findings of fact and conclusions which shall set
forth the award, judgment, decree or order awarded by the arbitrators.
c. Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Alameda County, California under the rules then in effect of the
American Arbitration Association. For purposes of this Section 7, in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Parent shall be deemed to be the
Non-Prevailing Party in the event that the arbitrators award Parent one-half
(1/2) or less of the disputed amount; otherwise, the shareholders of the
Company as represented by the Securityholders' Agent shall be deemed to be the
Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative costs of the
arbitration and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
8. Securityholders' Agent; Power of Attorney.
a. In the event that the Offer is accepted, effective
upon Completion (as set forth in a certificate delivered to the Escrow Agent
pursuant to Section 3(a)), and without further act of any Indemnifying
Shareholder, David Edward John Crisp shall be appointed Securityholders' Agent,
as agent and attorney-in-fact for each Indemnifying Shareholder, for and on
behalf of Indemnifying Shareholders, to give and receive notices and
communications, to authorize delivery to Parent of shares of Parent Common
Stock from the Escrow Fund in satisfaction of claims by Parent, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, to authorize the sale of Escrow Shares
from the Escrow Fund, and to take all actions necessary or appropriate in the
judgment of Securityholders' Agent for the accomplishment of the foregoing.
Such agency may be changed by the Indemnifying Shareholders from time to time
upon not less than thirty (30) days' prior written notice to Parent and the
Escrow Agent; provided that the Securityholders' Agent may not be removed
unless holders of a two-thirds interest of the Escrow Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Securityholders' Agent may be filled by approval of the holders of
a majority in interest of the Escrow Fund. No bond shall be required of the
Securityholders' Agent, and the Securityholders' Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Securityholders' Agent shall constitute notice to or from each of the
Indemnifying Shareholders. Unless and until the Escrow Agent has notice of a
new Securityholders' Agent, it may assume that any such notice constitutes
valid notice under this provision.
b. The Securityholders' Agent shall not be liable for
any act done or omitted hereunder as Securityholders' Agent while acting in
good faith and in the exercise of reasonable judgment. The Indemnifying
Shareholders on whose behalf the Escrow Amount was contributed to the Escrow
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<PAGE> 7
Fund shall severally indemnify the Securityholders' Agent and hold the
Securityholders' Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Securityholders' Agent and
arising out of or in connection with the acceptance or administration of the
Securityholders' Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholders' Agent.
c. A decision, act, consent or instruction of the
Securityholders' Agent, in each case in a writing signed by the
Securityholders' Agent, shall constitute a decision of all the Indemnifying
Shareholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such Indemnifying Shareholders, and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the
Securityholders' Agent as being the decision, act, consent or instruction of
each every such Indemnifying Shareholder. The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the
Securityholders' Agent.
d. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholders' Agent of such claim, and the
Securityholders' Agent, as representative for the Indemnifying Shareholders,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholders'
Agent, no settlement of any such claim with third-party claimants shall alone
be determinative of the amount of any claim against the Escrow Fund. In the
event that the Securityholders' Agent has consented in writing to any such
settlement, the Securityholders' Agent shall have no power or authority to
object under any provision of this Agreement to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement.
9. Stock Splits, Investments and Tax Allocations.
a. Any cash dividends, dividends payable in securities
or other distributions of any kind, including any shares of Parent capital
stock received upon a stock split, shall be retained in the Escrow Fund and
become a part thereof. Any provision hereof or of Article 4.5 shall be adjusted
to appropriately reflect any stock split or reverse stock split.
b. Upon receipt by the Escrow Agent of specific written
investment instructions from the Securityholders' Agent, available uninvested
cash in the Escrow Fund shall be invested (and reinvested, as the case may be)
from time to time by the Escrow Agent in any of the following investments, as
specified in such instruction:
(i) obligations issued or guaranteed by The United
States of America or any agency or instrumentality thereof;
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<PAGE> 8
(ii) certificates of deposit of or interest
bearing accounts with national banks or corporations endowed with trust powers,
including the Escrow Agent, having capital and surplus in excess of
$100,000,000;
(iii) commercial paper that at the time of
investment is rated A-1 by Standard & Poors Corporation or Prime-1 by Moody's
Investors Service, Inc.;
(iv) repurchase agreements with any bank or
corporation described in clause (ii) fully secured by obligations described in
clause (i);
(v) State Street Bank Insured Money Market
Deposit Account ("IMMA").
Investments pursuant to such investment instructions described above
shall in all instances be subject to availability (including any time-of-day
requirements). In no instance shall the Escrow Agent have any obligation to
provide investment advice of any kind. In the absence of such written
investment instructions, Parent, the Securityholders' Agent and the
Indemnifying Shareholders agree that any available, uninvested cash in the
Escrow Fund at the end of a business day shall be invested by the Escrow Agent
overnight in IMMA.
c. The Escrow Agent shall be authorized at all times and
from time to time to liquidate any investment of cash in the Escrow Fund as may
be necessary to provide available cash to make any release, disbursement or
payment called for under the terms of this Agreement. The Escrow Agent shall
have no responsibility or liability for any losses resulting from liquidation
of any investment (such as liquidation prior to maturity).
d. Investment earnings and other income from investment
of cash in the Escrow Fund (net of transaction costs) shall be deposited in the
Escrow Fund and shall become part of the Escrow Fund (and may be reinvested
pursuant to the terms of Section 9(b) above), and all losses incurred on any
investment shall be debited to the Escrow Fund. In no event shall the Escrow
Agent have any liability under this Agreement for investment losses incurred on
any investment or reinvestment.
e. The parties hereto agree that, for tax reporting
purposes, all dividends on Parent Capital Stock or on Parent capital stock
received upon a stock split, and all interest or other income earned from the
investment of any monies in the Escrow Fund shall be allocable to the
Indemnifying Shareholders in accordance with their percentage interests in the
Escrow Fund as set forth in Annex A hereof.
f. Each of Parent and the Shareholders' Agent agrees, on
or before April 1, 1997, to execute and deliver to the Escrow Agent a Form W-9
(or Form W-8, in the case of non-U.S. persons) which certifies such person's
social security or taxpayer identification number. The parties hereto
understand that, in the event their social security or tax identification
numbers are not so certified to the Escrow Agent, the Internal Revenue Code of
1986, as it may be amended from time to time, may require withholding of a
portion of any interest or other income earned on the investments of monies in
the Escrow Fund.
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<PAGE> 9
10. Exculpatory Provisions; Indemnification.
a. The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein and as set
forth in any additional written escrow instructions (which instructions shall
not expose Escrow Agent to any liability additional to that assumed by Escrow
Agent hereunder) which the Escrow Agent may receive after the date of this
Agreement which are signed by an officer of Parent and the Securityholders'
Agent, and may rely and shall be protected in relying or refraining from acting
on any instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties.
b. The Escrow Agent is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warnings or other communications from any party or
any other person to the contrary. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall
not be liable to any of the parties hereto or to any other person by reason of
such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
c. In performing any duties under or in connection with
this Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any instrument, including any written
statement or affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine, nor will the Escrow Agent be liable
or responsible for forgeries, fraud, impersonations, or determining the scope
of any representative authority. In addition, the Escrow Agent may consult
with the legal counsel in connection with Escrow Agent's duties under or in
connection with this Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with the advice
of counsel. The Escrow Agent is not responsible for determining and verifying
the authority of any person acting or purporting to act on behalf of any party
to this Agreement.
d. If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold the Escrow Shares and all documents relating thereto and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means. In such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, and at the expense of the
Escrow Fund, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and Escrow
Shares, except all cost, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action (and which the
parties jointly and severally agree to pay). Upon initiating such action, the
Escrow Agent shall be fully released and discharged of and from all obligations
and liability imposed by the terms of this Agreement.
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<PAGE> 10
e. Parent and the Securityholders' Agent and their
respective successors and assigns agree jointly and severally to indemnify and
hold Escrow Agent harmless against any and all losses, claims, damages,
liabilities, and expenses, including reasonable costs of investigation, counsel
fees, and disbursements that may be imposed on Escrow Agent or incurred by
Escrow Agent in connection with the performance of his/her duties under or in
connection with this Agreement, including but not limited to any litigation
arising from or in connection with this Agreement or involving its subject
matter.
f. Parent and the Securityholders' Agent undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Parent and the
Securityholders' Agent, jointly and severally, agree to indemnify and hold the
Escrow Agent harmless from any liability on account of taxes, assessments or
other governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct same, and any liability for
failure to obtain proper certifications or to properly report to governmental
authorities, to which the Escrow Agent may be or become subject in connection
with or which arises out of this Agreement, including costs and expenses
(including reasonable legal fees), interest and penalties. Notwithstanding the
foregoing, no distributions will be made unless the Escrow Agent is supplied
with an original, signed W-8 form, W-9 form or their equivalent prior to
distribution.
11. Alteration of Duties. The provisions of this Agreement, and
the duties arising hereunder may only be altered, amended, modified or revoked
by a writing signed by all of the parties hereto. The Securityholders' Agent
may sign such a writing only if Indemnifying Shareholders representing at least
two-thirds interest of the Escrow Fund agree to such alteration, amendment,
modification or revocation.
12. Resignation and Removal of the Escrow Agent. The Escrow Agent
may resign at any time upon giving at least thirty (30) days' written notice to
the parties; provided, however, that no such resignation shall become effective
until the appointment of a successor escrow agent which shall be accomplished
as follows: the parties shall use their best efforts to mutually agree on a
successor escrow agent within thirty (30) days after receiving such notice. If
the parties fail to agree upon a successor escrow agent within such time, the
Escrow Agent shall have the right to appoint a successor escrow agent
authorized to do business in the States of California or Massachusetts. The
successor escrow agent shall execute and deliver an instrument accepting such
appointment and it shall, without further acts, be vested with all the estates,
properties, rights, powers, and duties of the predecessor escrow agent as if
originally named as escrow agent. The Escrow Agent shall be discharged from
any further duties and liability under this Agreement.
13. Further Instruments. If the Escrow Agent reasonably requires
other or further instruments in connection with performance of the Duties, the
necessary parties hereto shall join in furnishing such instruments.
14. Disputes. It is understood and agreed that should any dispute
arise with respect to the delivery, ownership, right of possession, and/or
disposition of the Escrow Shares, or should any claim be made upon such shares
by a third party, the Escrow Agent upon receipt of written notice of such
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<PAGE> 11
dispute or claim by the parties hereto or by a third party, is authorized and
directed to retain in its possession without liability to anyone, all or any of
said shares until such dispute shall have been settled in accordance with the
procedures set forth in this Agreement. The Escrow Agent may, but shall be
under no duty whatsoever to, institute or defend any legal proceedings which
relate to the Escrow Shares.
15. Escrow Fees and Expenses.
a. All reasonable fees of the Escrow Agent for
performance of its duties hereunder shall be paid by Parent. It is understood
that the fees and usual charges agreed upon for services of the Escrow Agent
shall be considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not promptly
fulfilled, or if the Escrow Agent renders any service not provided for in this
Agreement, or if the parties request a substantial modification of its terms,
or if any controversy arises, or if the Escrow Agent is made a party to, or
intervenes in, any litigation pertaining to this escrow or its subject matter,
the Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all costs, attorney's fees, and expenses occasioned
by such default, delay, controversy or litigation. Parent agrees to pay any
such reasonable sums promptly upon demand.
b. Any out-of-pocket fees and expenses described in a
certificate of the Securityholders' Agent delivered to the Escrow Agent as
having been incurred by the Securityholders' Agent shall be paid by the Escrow
Agent out of the proceeds of sales of Escrow Shares otherwise distributable to
the Indemnifying Shareholders, but shall not reduce any payment or distribution
to Parent. Accordingly, the Escrow Agent need not make any distribution to the
Securityholders' Agent until (i) it has first set aside or paid any amounts set
forth in an Officer's Certificate of Parent delivered to the Escrow Agent
pursuant to Section 5 of the this Agreement and (ii) it would otherwise make a
distribution to the Indemnifying Shareholders.
16. General.
a. Any notice permitted or required hereunder shall be
in writing and shall be deemed to have been given if delivered personally or
if mail certified or registered mail, postage prepaid, to the parties at their
address set forth below or to such other address as they may hereafter
designate:
To Parent:
Geoworks
960 Atlantic Avenue
Alameda, California 94501
Attention: Jordan J. Breslow, Esq.
Telephone No.: (510) 814-5753
Facsimile No.: (510) 814-4251
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<PAGE> 12
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Herbert P. Fockler, Esq.
Telephone No.: 415/493-9300
Facsimile No.: 415/496-4006
To Securityholders' Agent:
David Edward John Crisp
The Woodlands
Moss Lane
Bollington
Cheshire SK10 5HS
With a copy to:
Dibb Lupton Alsop
Windsor House
Temple House
Birmingham B2 SLF
United Kingdom
Attention: John Jackson, Esq.
Telephone No.: 011-44-121-200-5085
Facsimile No.: 11-44-121-212-2730
To the Escrow Agent:
(i) if by Courier, to:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Department (1997 Geoworks Escrow)
Telephone No.: 617/664-5669
Facsimile No.: 617/664-5371
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<PAGE> 13
(ii) or if by mail, to:
State Street Bank and Trust Company
P. O. Box 778
Boston, MA 02102
Attention: Corporate Trust Department (1997 Geoworks Escrow)
or to such other address as any party may have furnished in writing to the
other parties in the manner provided above.
b. Neither Parent nor the Securityholders' Agent nor the
Escrow Agent shall be responsible for delays or failures in performance
resulting from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
c. The captions in this Escrow Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Escrow Agreement.
d. This Escrow Agreement may be executed in any number
of counterparts, each of which when so executed shall constitute an original
copy hereof, but all of which together shall constitute one agreement.
e. No party may, without the prior express written
consent of each other party, assign this Escrow Agreement in whole or in part.
This Escrow Agreement shall be binding upon the respective parties hereto and
their heirs, executors, successors and assigns.
f. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied to
contracts made and to be performed entirely within the State of California;
provided, however, that issues arising out of, or relating to, the warranties
and indemnities set forth in the Warranty Agreement shall be construed under
the laws of the United Kingdom, as indicated in the Warranty Agreement. The
parties to this Escrow Agreement hereby agree to submit to personal
jurisdiction in the State of California.
g. This Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers and modifications which
may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
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<PAGE> 14
h. This Agreement may not be altered or modified except
in writing, nor shall the conduct of the parties constitute a waiver of any of
the terms and conditions of this Escrow Agreement, unless such waiver is
specified in writing, and then only to the extent so specified. A waiver of
any of the terms and conditions of this Escrow Agreement on one occasion shall
not constitute a waiver of the other terms of this Escrow Agreement, or of such
terms and conditions on any other occasion.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 15
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
STATE STREET BANK AND TRUST COMPANY
By /s/ DONALD E. SMITH
----------------------------------
Name: Donald E. Smith
Title: Vice President
GEOWORKS
By /s/ JORDAN BRESLOW
---------------------------------
Name: Jordan Breslow
Title: Secretary
SECURITYHOLDERS' AGENT
On his own behalf and on behalf of all
Indemnifying Shareholders
/s/ DAVID E. J. CRISP
------------------------------------
Name: David E. J. Crisp
* * * ESCROW AGREEMENT * * *
<PAGE> 16
ANNEX A
<TABLE>
<CAPTION>
Indemnifying Shareholder's Name and Address Number of Shares in Escrow
<S> <C>
David Edward John Crisp 28,222
The Woodlands
Moss Lane
Bollington
Cheshire SK10 5HS
Alistair Jenkins 21,380
127 High Street
Yatton
Avon BS19 4DH
David Lee Stevens 15,610
5 Stockdale Farm
Moor Lane
Flookburgh
Cumbria LA11 7LR
</TABLE>
-1-
