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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ________ to ________ .
Commission file number 0-23926
GEOWORKS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2920371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
960 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
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(Address of principal executive offices) (Zip code)
510-814-1660
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(Registrant's telephone number, including area code)
GEOWORKS / 960 ATLANTIC AVENUE, ALAMEDA, CA 94501 / FYE MARCH 31
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
COMMON STOCK, .01 PAR VALUE PER SHARE: 15,699,593 SHARES AS OF SEPTEMBER 30,
1997
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GEOWORKS
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets: September 30, 1997 and
March 31, 1997 2
Condensed consolidated statements of operations: Three and six
months ended September 30, 1997 and September 30, 1996 3
Condensed consolidated statements of cash flows: Six months ended
September 30, 1997 and September 30, 1996 4
Notes to condensed consolidated financial statements 5
Item 2. Management's discussion and analysis of financial condition
and results of operations 6-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security Holders 15-16
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
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PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
GEOWORKS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Sept. 30, March 31,
1997 1997
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,839 $ 6,319
Marketable securities 21,702 30,501
Accounts receivable 2,368 475
Prepaid expenses and other current
assets 829 907
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Total current assets 29,738 38,202
Furniture and equipment, net 3,507 3,546
Other assets 114 120
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$33,359 $41,868
======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 1,635 $ 1,628
Deferred revenue 1,351 1,919
Other current liabilities 1,167 1,029
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Total current liabilities 4,153 4,576
Other liabilities 376 739
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Total liabilities 4,529 5,315
Shareholders' equity 28,830 36,553
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$33,359 $41,868
======= =======
</TABLE>
See accompanying notes
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GEOWORKS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues:
License revenue $ 755 $ 1,186 $ 1,605 $ 3,427
Research and development fees 2,533 1,474 3,357 1,966
Service revenue 76 100 301 100
-------- -------- -------- --------
Total net revenues 3,364 2,760 5,263 5,493
Operating expenses:
Cost of license revenue 39 27 86 420
Sales and marketing 1,533 1,787 3,781 3,246
Research and development 3,913 3,236 8,812 6,300
General and administrative 904 1,107 1,798 1,948
-------- -------- -------- --------
Total operating expenses 6,389 6,157 14,477 11,914
-------- -------- -------- --------
Operating loss (3,025) (3,397) (9,214) (6,421)
Other income (expense):
Interest income 360 766 835 1,349
Interest expense (44) (84) (76) (175)
-------- -------- -------- --------
Loss before income taxes (2,709) (2,715) (8,455) (5,247)
Provision for income taxes 7 -- 44 --
-------- -------- -------- --------
Net loss $ (2,716) $ (2,715) $ (8,499) $ (5,247)
======== ======== ======== ========
Net loss per share $ (0.17) $ (0.18) $ (0.55) $ (0.35)
======== ======== ======== ========
Shares used in per share
computation 15,640 15,237 15,576 15,128
======== ======== ======== ========
</TABLE>
See accompanying notes
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GEOWORKS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
Sept. 30, Sept. 30,
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net loss $ (8,499) $ (5,247)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 736 663
Changes in operating assets and liabilities (2,389) (2,190)
-------- --------
Net cash used in operating activities (10,152) (6,774)
-------- --------
Investing activities:
Purchases of furniture and equipment (net of retirements) (708) (1,583)
Sales of marketable securities (net of purchases) 8,799 1,689
Other (24) (88)
-------- --------
Net cash provided by investing activities 8,067 18
-------- --------
Financing activities:
Proceeds from notes payable to shareholders -- 95
Payments of obligations under capital leases (167) (135)
Net proceeds from issuance of common stock 772 3,711
-------- --------
Net cash provided by financing activities 605 3,671
-------- --------
Net decrease in cash and cash equivalents (1,480) (3,085)
Cash and cash equivalents at beginning of period 6,319 11,052
======== ========
Cash and cash equivalents at end of period $ 4,839 $ 7,967
======== ========
</TABLE>
See accompanying notes
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GEOWORKS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements for the three months and six
months ended September 30, 1997 and 1996 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the consolidated
financial position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
The results of operations for the three months and six months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options are not
included in the computation as they are antidilutive. In February 1997, the
Financial Accounting Standards Board issued Statement No. 128, Earnings Per
Share, which is required to be adopted on December 31, 1997. The adoption of
this statement is not expected to have a significant effect on the historical
loss per share of the Company.
3. In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," ("SFAS 130") and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). The Company is required to adopt these Statements in fiscal year 1999.
SFAS 130 establishes new standards for reporting and displaying comprehensive
income (loss) and its components. SFAS 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation and major customers. Adoption of these Statements is expected
to have no impact on the Company's consolidated financial position, results of
operations or cash flows.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Safe Harbor Statement. Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements include those referring to the
Company's future plans, capital needs and operating results, the acceptance of
the activities and products of the Company and its partners in the market, the
extent of the Company's investment in research and development in future
periods, and the extent to which royalty revenues increase as a percentage of
total revenues in future periods. Actual results may vary significantly due to
various risks and uncertainties, including the "Factors Affecting Future
Operating Results" set forth below, as well as the following: key markets may
not emerge to the degree or in the timing anticipated; new technologies are
inherently subject to development, timing, and consumer acceptance risks; the
Company has a history of operating losses and anticipated future losses; and
future results depend upon the establishment of licensing relationships with
leading market participants, introduction of successful products and services,
and achievement and maintenance of a competitive advantage.
Results of Operations
Acquisition of Eden Group, Ltd.
In February 1997, the Company acquired all the outstanding stock of Eden
Group Ltd. ("Eden"), a UK software publisher. The acquisition has been accounted
for as a pooling-of-interests, and the historical consolidated financial
statements of the Company for all periods prior to the acquisition have been
restated to include the financial position, results of operations, and cash
flows of Eden.
Net Revenues
Net revenues decreased $230,000, or 4%, during the six months ended
September 30, 1997 in comparison with the corresponding period of the previous
fiscal year. The decrease is attributable primarily to the restructuring of two
OEM license agreements during the six months ended September 30, 1996. At the
time these two agreements were restructured, there was a non-refundable prepaid
royalty balance related to each agreement which had been recorded as deferred
revenue but not yet fully amortized. Revenue recognized upon the restructuring
of these license agreements was included in license revenue during the six
months ended September 30, 1996, and accounted for $2,234,000, or 41%, of the
Company's total net revenues for that period. By contrast, revenue related to
the restructuring of license agreements or to the termination of products by OEM
licensees accounted for only $638,000, or 12% of total net revenues, during the
six months ended September 30, 1997.
License revenues decreased $1,822,000, or 53%, in the six months ended
September 30, 1997 in comparison with the corresponding period of the previous
fiscal year, primarily as a result of revenues associated with the
aforementioned license agreement restructurings during the six months ended
September 30, 1996. During the six months ended September 30, 1997, license
revenue consisted principally of royalties on units sold by OEM licensees,
source code license fees, and amounts recognized upon the termination of
products by OEM licensees. Revenues associated with source code license fees and
product terminations are non-recurring. Accordingly, revenues
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for all periods presented are not indicative of revenues to be recognized in
future periods. The Company believes that royalties from OEM and other licensees
will represent an increasing portion of the Company's revenues in future
periods.
Revenue related to research and development fees increased $1,391,000,
or 71%, during the six months ended September 30, 1997, in comparison with the
corresponding period of the previous fiscal year. Research and development fees
represent amounts received pursuant to contracts with OEM licensees under which
the Company is reimbursed for a portion of its development costs related to
specific products up to the amounts specified in the contracts. The Company is
typically paid by the OEM licensee as certain project milestones are achieved.
Revenue under these research and development arrangements is recognized under
the percentage-of-completion method. The extent to which such revenue is
reported can vary considerably among periods, depending upon the specific terms
of the Company's contracts with OEM licensees and the relative level of
development effort devoted towards projects on which research and development
fees are charged. The substantial increase in research and development fees
during the six months ended September 30, 1997 over the corresponding period in
the previous fiscal year resulted from higher reimbursement levels specified in
the Company's contracts with OEM licensees, and from the fact that there was a
greater number of projects in process for which such fees are charged. As of
September 30, 1997, the Company had approximately $2,500,000 of potential
additional revenue to earn in research and development fees under the terms of
current contracts with OEM licensees.
Service revenue of $301,000 for the six months ended September 30, 1997
represents amounts earned for the support and maintenance of software licensed
by OEM customers, and fees earned in connection with software workshops
sponsored by the Company for the benefit of current and prospective OEM
licensees. The increase of $201,000 in service revenue over the corresponding
period of the previous fiscal year related to fees earned in connection with
software workshops sponsored by the Company, as such workshops were offered for
the first time by the Company in the current fiscal year.
For the quarter ended September 30, 1997, total net revenues increased
$604,000, or 22%, over the corresponding quarter of the previous fiscal year.
This outcome resulted as increases in revenue from research and development fees
more than offset reductions in license revenue and in service revenue for the
respective quarters.
Operating Expenses
Cost of License Revenue. The Company's gross margin percentage on
license revenue was 95% for the six months ended September 30, 1997 and 88% in
the corresponding period of the previous fiscal year. Cost of license revenue
during the current fiscal year consisted of license payments to third parties
for software that is incorporated into the Company's software. Cost of revenue
for the six months ended September 30, 1996, in addition to third party software
licenses, included a one-time charge of $320,000 to terminate a technology
contract which had been entered into during a prior fiscal year. Without this
one-time charge, the Company's gross margin percentage on license revenue would
have been 97% for the six months ended September 30, 1996. Gross margin
percentage on license revenue was 95% for the quarter ended September 30, 1997
and 98% for the corresponding quarter of the previous fiscal year.
Sales and Marketing. Sales and marketing expense increased $535,000, or
16%, during the six months ended September 30, 1997 in comparison with the
corresponding period of the previous fiscal year. This increase resulted
principally from the Company's expanded emphasis on
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international sales activities, and from certain non-recurring charges of
approximately $300,000 resulting from a staff reorganization. As the market for
smart phones and related wireless products and services has begun to emerge, the
Company has focused increasingly on opportunities in Europe and in Asia. To
support this geographical focus, the Company has increased its sales activities
in these overseas locations, and as a result incurred higher staffing and travel
costs.
Sales and marketing expense decreased $254,000, or 14%, during the
quarter ended September 30, 1997 in comparison with the corresponding quarter of
the previous fiscal year. This decrease resulted primarily from reductions in
staffing and related overhead costs for product marketing and developer outreach
activities.
Research and Development. Research and development expense increased
$2,512,000, or 40%, during the six months ended September 30, 1997 in comparison
with the corresponding period of the previous fiscal year. This increase was due
primarily to the continuing expansion of the Company's engineering staff, which
resulted in higher compensation costs and related increases in costs for
employee benefits, travel, and facilities. Additionally, the Company made
payments of $480,000 during the current fiscal year to outside developers for
the license of software to be incorporated into future products. As the
technological feasibility of the future products has yet to be established,
these payments have been charged to research and development expense.
Research and development expense increased $677,000, or 21%, during the
quarter ended September 30, 1997 in comparison with the corresponding quarter of
the previous fiscal year, as a result of the staffing increases explained above.
The Company expects that research and development expense will continue to
increase in future periods as the Company expands its efforts to develop
products and services for the emerging market for smart phones and other mobile
communicating devices.
General and Administrative. General and administrative expense decreased
$150,000, or 8%, during the six months ended September 30, 1997 in comparison
with the corresponding period of the previous fiscal year. This decrease was
attributable primarily to a reduction in staffing costs, as certain duplicate
functions were eliminated following the business combination of Geoworks and
Eden in February 1997.
General and administrative expense decreased $203,000, or 18%, during
the quarter ended September 30, 1997 in comparison with the corresponding
quarter of the previous fiscal year. This decrease occurred principally as a
result of a reduction in staffing costs between the two periods.
Other Income (Expense)
Interest income declined $514,000, or 38%, during the six months ended
September 30, 1997 in comparison with the corresponding period of the previous
fiscal year. The decrease was attributable to lower balances available to the
Company for short-term investment in the current period as a direct result of
the Company's operating deficits over the preceding 12 months. Interest expense
decreased $99,000, or 57%, during the six months ended September 30, 1997 in
comparison with the corresponding period of the previous fiscal year. This
decrease resulted from the repayment in the fourth quarter of fiscal year 1997
of notes payable to shareholders which had been outstanding throughout the six
months ended September 30, 1996.
For the reasons noted above, the Company experienced decreases in
interest income and interest expense during the quarter ended September 30, 1997
in comparison with the corresponding quarter of the previous fiscal year.
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Provision for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Income
tax expense consists of foreign income tax withholding on foreign source
royalties paid to the Company. The Company has a July 31 year end for income tax
purposes. As of March 31, 1997, the Company had net operating loss carryforwards
for U.S. income tax purposes of approximately $55,370,000, for U.K. income tax
purposes of approximately $4,073,000, and for state income tax purposes of
approximately $18,090,000. The Company also had research and development credit
carryforwards for federal income tax purposes of approximately $1,718,000 and
for state income tax purposes of approximately $708,000. Utilization of the
Company's U.S. net operating loss and research credit carryforwards will be
subject to an annual limitation due to the "change of ownership" provisions of
the Tax Reform Act of 1986. The annual limitation may result in the expiration
of net operating loss and research credit carryforwards before utilization.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and marketable securities declined
to $26.5 million at September 30, 1997 from $36.8 million at March 31, 1997.
This decrease of $11.3 million resulted principally from the use of cash during
the period of $10.2 million for operating activities and $700,000 for the
purchase of furniture and equipment (net of retirements). The Company expects to
incur additional substantial operating losses at least through its fiscal year
ending March 31, 1998, but anticipates that its existing capital resources will
be adequate to satisfy its operating and capital requirements throughout the
current fiscal year.
At September 30, 1997, the Company had a balance in accounts receivable
of $2,368,000, an increase of $1,893,000 from the corresponding balance at March
31, 1997. The balance consisted of amounts due to the Company from OEM licensees
for research and development fees and for royalties on reported unit sales. The
increase in accounts receivable at September 30, 1997 resulted primarily from
research and development fees accrued under the percentage-of-completion method.
As revenue from research and development fees has increased significantly during
the current fiscal year, the balance in accounts receivable for accrued research
and development fees has increased as well. At September 30, 1997, the balance
in accounts receivable consisted of $1,340,000 in billed charges and $1,028,000
in accrued but unbilled charges. Prepaid expenses and other current assets
decreased $78,000 from March 31, 1997 to September 30, 1997 due primarily to a
reduction in the amounts recoverable by the Company for prepaid taxes and
various cost reimbursements from outside third parties. Furniture and equipment,
net of depreciation, decreased $39,000 from March 31, 1997 to September 30,
1997, as depreciation of furniture and equipment on hand exceeded purchases of
new furniture and equipment during the six months ended September 30, 1997.
Accounts payable and accrued liabilities increased $7,000 at September
30, 1997 as compared to March 31, 1997, due principally to higher balances in
the current fiscal year for short-term equipment lease obligations and accrued
office rents. Deferred revenue decreased $568,000 from March 31, 1997 to
September 30, 1997, as the Company recognized as revenue certain advance royalty
payments collected in previous periods under contracts with OEM customers. The
amount of such advance royalty payments recognized as revenue during the six
months ended September 30, 1997 exceeded the amount of any payments collected
during the period, causing the balance in deferred revenue to decline. Other
current liabilities increased $138,000 from March 31, 1997 to September 30, 1997
primarily as a result of higher accrual
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balances for certain incentive compensation and employee benefit programs. Other
liabilities decreased $363,000 from March 31, 1997 to September 30, 1997, as
monthly payments reduced outstanding principal balances on capital lease
obligations, and certain balloon payments due at the conclusion of the equipment
leases became payable within 12 months and therefore were classified as current
liabilities.
Factors Affecting Future Operating Results
History Of Operating Losses; Anticipated Future Losses. Since its inception
in 1983, the Company has realized limited revenues, incurred significant losses,
and experienced substantial negative operating cash flow. As of September 30,
1997, the Company had an accumulated deficit of $66.9 million, and had incurred
operating losses of approximately $8.5 million, $15.5 million, $10.7 million,
and $10.5 million in the six months ended September 30, 1997, and the fiscal
years ended March 31, 1997, 1996 and 1995, respectively. The Company expects to
continue to incur substantial annual operating losses at least through its
fiscal year ending March 31, 1998, and it is unclear how soon thereafter, if
ever, the Company will operate profitably. The Company's strategic plan to
achieve profitability includes focusing in the near term on the smart phone
segment of the market for mobile communicating devices. The Company's objective
is to establish its operating system software as a leading operating system for
this market in the near term, and to leverage this position by developing and
marketing products and services to the installed base of smart phone devices.
The duration and outcome of any of these efforts is uncertain, and the Company's
future operating results will depend upon the growth rate of the smart phone
market segment, the Company's ability to establish licensing relationships with
leading smart phone hardware manufacturers, the introduction by those
manufacturers of successful smart phone products, the emergence of wireless
content and services for smart phones to spur demand and generate additional
revenues, and the Company's ability to achieve and maintain a competitive
advantage should such market develop.
Dependence On Emergence Of Smart Phone Market. The Company's efforts are
currently concentrated on developing and marketing operating system software and
applications for use in smart phones and other mobile communicating devices. The
Company's success depends upon the development of a new market for these
products. 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 or been shipped in volume in the United States. In August
1996, Nokia released a smart phone in selected geographic markets which
incorporates the Company's GEOS(R) software. Although the device has received
positive reviews and several awards, the market acceptance of these products has
not yet been fully established. More generally, the failure of these or any
other early, highly publicized products, or the discontinuation 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 devices incorporating the
Company's operating system and, therefore, cannot guarantee that any devices
will reach the desired price points to achieve mass market acceptance.
In addition, the Company's long-term results will depend upon its
success in developing and marketing aftermarket wireless content products and
services that operate on smart phones. There can be no assurance, however, that
the wireless content and services market will develop as anticipated or that the
Company will be able to execute its business plan successfully.
Risks of Software Product Development, Including Risk of Developing Next
Generation Operating System. The Company's future success will depend upon its
ability to develop and
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release, on a timely basis, new operating system and application software
products and upgrades and new aftermarket products and services. In particular,
Geoworks intends to introduce a next generation of its operating system software
that, unlike its current GEOS technology, will be processor-independent, i.e.,
not limited to processors based upon the Intel x86 architecture. Broad
acceptance of Geoworks' existing and yet to be released products in new markets,
including markets that may be characterized by greater usage of non-Intel
microprocessors, is critical to Geoworks' future success. Although Geoworks has
made significant progress toward this development goal, adaptation and/or
development of core technology for a different microprocessor architecture can
be technically difficult, time consuming and subject to delays. There can be no
assurance that Geoworks will be successful in this development effort. Further,
there can be no assurance that Geoworks will be successful in marketing and
selling products developed for non-Intel microprocessors.
Disappointing Revenue from Past Products. Prior to its concentration on
software for the emerging smart phone market, the Company licensed its operating
system software to manufacturers of non-communicating mobile devices, such as
personal digital assistants and handheld electronic organizers. These
non-communicating devices -- in particular the Hewlett-Packard OmniGo and 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. As a result of the slow adoption rates of its products in these
device categories, the Company has failed to generate significant royalty
revenues in connection with its licensing efforts to date, and its operating
results have been affected adversely. The Casio Z-7000, a first-generation
personal digital assistant based upon the Company's system software, was
discontinued. Sharp and Toshiba each developed a non-communicating device based
on the Company's system software and subsequently elected to cancel introduction
of such devices into the market. Other market participants have announced
restructurings of their efforts relating to similar products. Sales of low-cost,
GEOS-based educational computer systems fell short of the Company's
expectations, causing the Company to discontinue its development efforts in this
segment and restructure its licensing agreement with IBM/Eduquest. During
calendar year 1995, Brother released the Ensemble, a personal desktop publishing
system, and Hewlett-Packard announced and shipped its OmniGo 100, a second
generation electronic organizer. Both of these products were based on the
Company's operating system software. Royalty revenues earned on reported unit
shipments of these products were modest, however, and both companies
subsequently discontinued the product lines. Collectively, these third-party
product cancellations, terminations and disappointments have resulted in the
Company recognizing lower-than-expected recurring license revenues in the
current fiscal quarter and previous fiscal years.
Dependence On Limited Number Of Manufacturers, Particularly Nokia. The
Company's business is critically dependent upon the timely introduction and
successful marketing and sale by a limited number of consumer product companies
of smart phones based upon the Company's operating system software. Through the
first six months of fiscal year 1998, three licensees of the Company's software
had accounted collectively for greater than half of the Company's total net
revenues. During this same period, four licensees had each accounted
individually for more than 10% of the Company's total net revenues. In August
1996, Nokia released in selected geographic markets a smart phone which
incorporates the Company's GEOS software. This product has yet to generate
significant royalty revenue or make a material, favorable contribution to the
Company's operating results. It is unclear what effect in the long term this new
product will have on the Company's reported royalties or the adoption rate of
smart phones. The Company has no direct control over any particular smart
phone's hardware design, product functionality, pricing strategy, release dates,
market positioning, product promotion or distribution, all of which affect the
product's success and, therefore, the Company's business results. In addition,
foreign currency fluctuations may limit the ability of foreign consumer product
companies to achieve production
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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 smart phone does
not achieve broad market acceptance and generate anticipated sales volume, the
Company's operating system royalties from such product and the Company's
opportunity for aftermarket sales of products and services to users of such
product will be materially adversely affected. Furthermore, under the terms of
the Company's agreements with hardware manufacturers, the manufacturer is
generally permitted to add product enhancements or new products to the
agreement. In such event, the Company may be obligated to apply unamortized
advance payments under the agreement against license revenue to be earned by the
Company on per unit sales of such additional products. The Company 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.
Dependence On Development Of Wireless Content And Services. Even if the
general smart phone market develops as anticipated by the Company and the
Company's operating system software becomes a leading platform for hardware
devices, the Company's long-term financial success is also dependent on its
ability to derive revenue from the delivery of wireless content and services for
mobile communicating devices. The Company's plan for generating such revenue
includes: sales by the Company of internally developed client and server
software and services for, as well as upgrades to and associated products for,
smart phones based upon the Company's operating system; recurring license
revenue from communication services providers; and distribution by the Company
of its own and third-party content, applications and services. There can be no
assurance, however, that the Company 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 phone market segments. The
Company's wireless server and client development resources, experience and
market presence are more limited than those of many other developers. There can
be no assurance that the Company 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, the Company has historically marketed an
integrated package of operating system and applications, and has only limited
experience marketing server and client applications to communication service
providers. There can be no assurance that the Company will be able to offer
sufficiently attractive products to generate significant revenue. Moreover, the
Company 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 the Company's operating system software. To the extent that the
Company is required to so include such products and services, the Company may be
unable to derive the level of revenue from such products and services that the
Company would derive if such products or services were sold separately. While
the Company has been able to obtain recurring license revenue in the past from
certain communication services providers, there can be no assurance that the
Company will be able to obtain similar arrangements with other providers.
Finally, practicable and effective cellular distribution of content and services
is an unproven concept which depends upon 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
Company's operating system software, if the Company is unable to derive
significant revenue from one or more of the foregoing aftermarket sources, the
Company's long-term business, results of operations and financial condition will
be materially adversely affected.
Fluctuations in Operating Results. The Company's operating results have in
the past been, and are expected in the future to be, subject to significant
fluctuations on both a quarterly and annual basis. Specifically, the Company
expects that its operating results will fluctuate as a result of the timing and
success of the Company's efforts to establish and maintain relationships with
12
<PAGE> 14
significant smart phone market participants; the introduction by these
participants and market acceptance of new smart phones based upon the Company's
operating system software; the introduction and distribution of new system and
application software by the Company; actions by competitors of the Company; and
actions by its partners. License revenue related to OEM customer products which
contain the Company's software is contingent upon those OEM customers' success
in meeting anticipated shipment dates, obtaining market acceptance for their
products, and realizing significant sales volume of those products. Revenue from
research and development fees can vary considerably among periods, depending
upon the specific terms of the Company's contracts with OEM licensees and the
relative level of development effort devoted toward projects on which research
and development fees are charged. While revenue from research and development
fees has been rising during the current fiscal year, there is no assurance that
this pattern will continue in future fiscal periods. The Company's results are
also affected by the timing and extent of product development, engineering, and
sales and marketing expenses. The Company presently intends to devote
substantial resources toward product development, which may affect its
investment and performance in other activities and in turn affect reported
operating results in future periods. In addition, the Company's results may be
affected by seasonal and other fluctuations in demand for smart phones and for
related software products and services, as well as by the general state of the
domestic and global economies. The Company expects the market for smart phones
and other mobile communicating devices could ultimately reflect significant
seasonal swings in demand similar to those in the consumer electronics market,
in which demand typically peaks in the fourth calendar quarter of each year.
Non-Recurring Revenues. The Company's operating results may also vary as a
result of the receipt of one-time technology license or engineering fees, and
the recognition as revenue of paid but unamortized advance royalties under OEM
agreements (currently recorded as deferred revenue) upon the restructuring or
termination of such agreements or upon product discontinuation. Amounts
recognized upon such restructurings or terminations have accounted in the past,
and could account in the future, for a material portion of the Company's
revenue, with no corresponding cash flow benefit in the period in which the
revenue is recognized.
Effect Of Wholesale Prices On Royalties. Royalties from the license of the
Company's operating system to mobile communicating device hardware manufacturers
are expected to represent a significant component of the Company's future
revenues. The royalties the Company receives from these licenses are usually
correlated to the wholesale or comparable transfer price of the mobile
communicating devices in which the Company's software is incorporated. The price
of mobile communicating devices is expected to decline over time as a result of
competitive pressures and consumer demands, and due to the efforts of the
Company's OEM customers to achieve increased sales volume through price
reductions. To the extent that the Company's royalty is determined as a
percentage of said price, or to the extent that the Company 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 the Company 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 the Company receives from its OEM licensees.
Volatility Of Stock Price. Shortfalls in the Company's revenues or results of
operations in comparison with levels expected by securities analysts could have
an immediate and significant adverse effect on the trading price of the
Company's common stock. Moreover, the Company's stock price is subject to the
volatility generally associated with technology stocks and may also be affected
by broader market trends unrelated to the Company's specific performance.
13
<PAGE> 15
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
14
<PAGE> 16
PART 2 -- OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 17, 1997, the Secretary of State of the State of California
approved an Agreement of Merger dated October 7, 1997 between the Registrant and
Geoworks, a California corporation, which was the Registrant's predecessor
corporation ("Geoworks California"), pursuant to which the state of
incorporation of the Registrant was changed from California to Delaware,
effective retroactively to October 8, 1997. Such change in the Registrant's
state of incorporation (the "Reincorporation") was effected through the merger
of Geoworks California with and into the Registrant, which, prior to such
merger, was a wholly-owned subsidiary of Geoworks California. The Registrant was
the surviving corporation of this merger and, upon its effectiveness, succeeded
to and came to possess all the assets, properties, rights, privileges, powers,
franchises, immunities and purposes, and became subject to all the debts,
liabilities, obligations, restrictions and duties of Geoworks California. The
Reincorporation was approved by the Registrant's Board of Directors on May 27,
1997 and by the holders of a majority of the Registrant's outstanding shares of
Common Stock at the Registrant's Annual Meeting of Shareholders held on August
19, 1997.
The Reincorporation caused the Registrant's corporate name to be changed
from "Geoworks" to "Geoworks Corporation." It did not, and will not in the
future, result in (i) any change in the Registrant's business, assets, or
liabilities; (ii) the moving of the Registrant's principal executive offices; or
(iii) any relocation of the Registrant's management or other employees. Upon the
effectiveness of the Reincorporation, each share of Geoworks California Common
Stock which was outstanding immediately prior thereto was automatically changed
and converted into one share of the Registrant's Common Stock. Any certificate
representing shares of Geoworks California Common Stock so converted will be
deemed to represent an equivalent number of shares of the Registrant's Common
Stock from and after the effective date of the Reincorporation without need for
further action on the part of the holder thereof.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on August 19, 1997.
(b) The Company's Board of Directors is elected at each Annual Meeting of
Shareholders. The Directors elected at the meeting were: Bruce W. Dunlevie,
Gordon E. Mayer, Reijo Paajanen, Eric E. Schmidt, and Clive G. Smith.
(c) The matters described below were voted on at the Annual Meeting of
Shareholders, and the votes cast with respect to each matter and with respect to
the election of directors for each nominee were as indicated.
1. To elect directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected.
15
<PAGE> 17
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD ABSTAIN
- ------- --- -------- -------
<S> <C> <C> <C>
Bruce W. Dunlevie 13,542,575 424,340 1,558,568
Gordon E. Mayer 13,540,480 426,435 1,558,568
Reijo Paajanen 13,542,175 424,740 1,558,568
Eric E. Schmidt 13,544,601 422,314 1,558,568
Clive G. Smith 13,464,317 502,598 1,558,568
</TABLE>
2. To change the state of incorporation of the Company from California
to Delaware, to enable the Company to attract and retain highly
qualified officers and directors, and to take advantage of the
flexibility afforded by Delaware law to adopt measures designed to
protect shareholders in the face of hostile takeover attempts.
<TABLE>
<CAPTION>
FOR OPPOSED NOT VOTED ABSTAIN
--- ------- --------- -------
<S> <C> <C> <C> <C>
Common Stock 7,891,774 2,564,402 3,461,310 49,429
</TABLE>
3. To approve an increase in the number of authorized shares of Common
Stock issuable by the Company from 20,000,000 to 40,000,000.
<TABLE>
<CAPTION>
FOR OPPOSED NOT VOTED ABSTAIN
--- ------- --------- -------
<S> <C> <C> <C> <C>
Common Stock 12,991,200 431,496 0 544,219
</TABLE>
4. To approve an amendment to the Company's 1994 Stock Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by
750,000 shares.
<TABLE>
<CAPTION>
FOR OPPOSED NOT VOTED ABSTAIN
--- ------- --------- -------
<S> <C> <C> <C> <C>
Common Stock 10,520,906 2,772,984 124,350 548,675
</TABLE>
5. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending March 31, 1998.
<TABLE>
<CAPTION>
FOR OPPOSED NOT VOTED ABSTAIN
--- ------- --------- -------
<S> <C> <C> <C> <C>
Common Stock 13,910,909 20,259 0 35,747
</TABLE>
16
<PAGE> 18
PART 2 -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 Form of Indemnification Agreement
27.1 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed in this quarter.
17
<PAGE> 19
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, thereunto duly authorized.
Date: November 13, 1997
GEOWORKS
by: /s/ DAVID A. THATCHER
--------------------------------
David A. Thatcher
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
18
<PAGE> 20
GEOWORKS
EXHIBITS
TABLE OF CONTENTS
Exhibit No. Description
- ----------- -----------
10.1 Form of Indemnification Agreement
27.1 Financial Data Schedule
19
<PAGE> 1
Exhibit 10.1
EXHIBIT D
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into this day of August, 1997 (the
"Agreement") by and between Geoworks Corporation, a Delaware corporation (the
"Company"), and (the "Indemnitee"):
RECITALS
WHEREAS, highly competent persons have become more reluctant to serve
privately- and publicly-held corporations as directors or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;
WHEREAS, directors, officers, and other persons in service to corporations
or business enterprises are being increasingly subjected to expensive and
time-consuming litigation relating to, among other things, matters that
traditionally would have been brought only against the Company or business
enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that the increased difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will service or continue to serve the
Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the
Certificate of Incorporation and the Bylaws of the Company and any resolutions
adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to
diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, the Certificate of Incorporation, the Bylaws and the Delaware
director indemnification statute each is nonexclusive, and therefore each
contemplates that contracts may be entered into with respect to indemnification
of directors, officers and employees;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on behalf
of, such persons to the fullest extent permitted by applicable law so that they
will serve or continue to serve the Company free from undue concern that they
will not be so indemnified;
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
AGREEMENT
1. Services by Indemnitee. Indemnitee agrees to serve and/or continue to
serve as a director, officer, employee and/or agent of the Company and, at the
request of the Company, as a director, officer, employee, agent and/or fiduciary
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in such position. This
Agreement shall not be
D-1
<PAGE> 2
deemed an employment contract between the Company (or any of its subsidiaries)
and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's
employment with the Company (or any of its subsidiaries), if any, is at will,
and that Indemnitee may be discharged at any time for any reason, with or
without cause, except as may be otherwise provided in any written employment
contract between Indemnitee and the Company (or any of its subsidiaries), other
applicable formal severance policies duly adopted by the Board, or, with respect
to service as a director of the Company, by the Company's Certificate of
Incorporation, Bylaws, and the General Corporation Law of the State of Delaware.
The foregoing notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as an officer, director, employee and/or agent of
the Company or as a director, officer, employee, agent and/or fiduciary of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise pursuant to Section 12.
2. Indemnification -- General. The Company shall indemnify, and advance
Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the date hereof and as amended
from time to time. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or a participant in any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against all Expenses, judgments, penalties,
fines and amounts paid in settlement (including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses,
judgments, penalties, fines and amounts paid in settlement) actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
4. Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4 if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
or a participant in any threatened, pending or completed Proceeding brought by
or in the right of the Company to procure a judgment in its favor. Pursuant to
this Section 4, Indemnitee shall be indemnified against all Expenses (including
all interest, assessments and other charges paid or payable in connection with
or in respect of such Expenses) actually and reasonably incurred by him or on
his behalf in connection with such Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, shall determine that such indemnification may
be made.
5. Partial Indemnification. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a party to, or a participant in, and is successful, on the merits or otherwise,
in defense of any Proceeding, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in defense of such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section 5 and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter. If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses, judgments,
penalties, fines and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses, judgments, penalties, fines and amounts paid in settlement)
D-2
<PAGE> 3
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, but not, however, for the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion to which Indemnitee is entitled.
6. Indemnification for Additional Expenses.
(a) The Company shall indemnify Indemnitee against any and all Expenses
and, if requested by Indemnitee, shall (within twenty (20) business days of such
request) advance such Expenses to Indemnitee, which are incurred by Indemnitee
in connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or bylaw of the Company now or hereafter in effect; or (ii) recovery
under any directors' and officers' liability insurance policies maintained by
the Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
(b) Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding to which Indemnitee is not a party, he shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
7. Advancement of Expenses. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty (20) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred or
to be incurred by Indemnitee and shall include or be preceded or accompanied by
an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if
it shall ultimately be determined that Indemnitee is not entitled to be
indemnified against such Expenses. Notwithstanding the foregoing, the obligation
of the Company to advance Expenses pursuant to this Section 7 shall be subject
to the condition that, if, when and to the extent that the Company determines
that Indemnitee would not be permitted to be indemnified under applicable law,
the Company shall be entitled to be reimbursed, within thirty (30) days of such
determination, by Indemnitee (who hereby agrees to reimburse the Company) for
all such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Company that Indemnitee
would not be permitted to be indemnified under applicable law shall not be
binding and Indemnitee shall not be required to reimburse the Company for any
advance of Expenses until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed).
8. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit
to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the
first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), even
though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) if so directed by the Board, by the stockholders
of the Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within seven (7) business
D-3
<PAGE> 4
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including reasonable attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within ten (10) days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as
the case may be, a written objection to such selection; provided, however, that
such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If, within twenty (20) days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 8(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section
10(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of Indemnitee
to the settlement of any Proceeding which the Company has undertaken to defend
if the Company assumes full and sole responsibility for such settlement and such
settlement grants Indemnitee a complete and unqualified release in respect of
the potential liability. The Company shall not be liable for any amount paid by
Indemnitee in settlement of any Proceeding that is not defended by the Company,
unless the Company has consented in writing to such settlement, which consent
shall not be unreasonably withheld.
(e) In the event the Company shall be obligated to advance the Expenses for
any Proceeding against Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of such
notice and the retention of such counsel by the Company, the Company will not be
liable to Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same Proceeding, provided that (a)
Indemnitee shall have the right to employ his own counsel in any such Proceeding
at Indemnitee's expense; (b) Indemnitee shall have the right to employ his own
counsel in connection with any such Proceeding, at the expense of the Company,
if such counsel serves in a review, observer, advice and counseling
D-4
<PAGE> 5
capacity and does not otherwise materially control or participate in the defense
of such Proceeding; and (c) if (i) the employment of counsel by Indemnitee has
been previously authorized by the Company, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (iii) the Company shall not, in
fact, have employed counsel to assume the defense of such Proceeding, then the
reasonable fees and expenses of Indemnitee's counsel shall be at the expense of
the Company.
9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification or the advancement of Expenses hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification or advancement of Expenses under this Agreement if Indemnitee
has submitted a request for indemnification or the advancement of Expenses in
accordance with Section 8(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
Neither the failure of the Company (including the Board or independent legal
counsel) to have made a determination prior to the commencement of any action
pursuant to this Agreement that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including the Board or Independent Counsel) that
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that Indemnitee has not met the applicable
standard of conduct.
(b) If the person, persons or entity empowered or selected under Section 8
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within sixty (60) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 60-day period may be extended for a reasonable
time, not to exceed an additional thirty (30) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such determination
to the stockholders for their consideration at an annual meeting thereof to be
held within seventy-five (75) days after such receipt and such determination is
made thereat, or (B) a special meeting of stockholders is called within fifteen
(15) days after such receipt for the purpose of making such determination, such
meeting is held for such purpose within sixty (60) days after having been so
called and such determination is made thereat, or (C) a written consent of
stockholders is solicited within fifteen (15) days after such receipt for the
purpose of making such determination, and such consent is obtained within sixty
(60) days after such solicitation, or (ii) if the determination of entitlement
to indemnification is to be made by Independent Counsel pursuant to Section 8(b)
of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of "good faith," Indemnitee shall be
deemed to have acted in "good faith" if Indemnitee's action is based on the
records or books of account of the Company or relevant enterprise, including
financial statements, or on information supplied to Indemnitee by the officers
of the Company or relevant enterprise in the course of their duties, or on the
advice of legal counsel for the Company
D-5
<PAGE> 6
or relevant enterprise or on information or records given or reports made to the
Company or relevant enterprise by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company or
relevant enterprise. The provisions of this Section 9(d) shall not be deemed to
be exclusive or to limit in any way the other circumstances in which Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
(e) The knowledge and/or actions, or failure to act, of any other director,
officer, agent or employee of the Company or relevant enterprise shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement.
10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8 of
this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) no determination of entitlement to indemnification
shall have been made pursuant to Section 8(b) of this Agreement within ninety
(90) days after receipt by the Company of the request for indemnification, (iv)
payment of indemnification is not made pursuant to Section 5 or 6 of this
Agreement within twenty (20) days after receipt by the Company of a written
request therefor, or (v) payment of indemnification is not made within seven (7)
business days after a determination has been made that Indemnitee is entitled to
indemnification, Indemnitee shall be entitled to an adjudication by the Court of
Chancery of the State of Delaware of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5 of this Agreement.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b) of
this Agreement that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the Expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated. The Company shall indemnify Indemnitee against any and all Expenses
and, if requested by Indemnitee, shall (within twenty (20) days after receipt by
the Company of a written request therefor) advance such Expenses to Indemnitee,
which are incurred by Indemnitee in connection with any action brought by
Indemnitee for indemnification or advance of Expenses from the Company under
this Agreement or under any directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee ultimately
D-6
<PAGE> 7
is determined to be entitled to such indemnification, advancement of Expenses or
insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the
Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment, alteration or repeal
of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. To the extent that a change in the General Corporation Law of the State
of Delaware, whether by statute or judicial decision, permits greater
indemnification or advancement of Expenses than would be afforded currently
under the Company's Bylaws and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change. No right or remedy herein conferred is intended to be
exclusive of any other right or remedy, and every other right and remedy shall
be cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder to
Indemnitee who is or was serving at the request of the Company as a director,
officer, employee, agent and/or fiduciary of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
12. Duration of Agreement. This Agreement shall continue until and
terminate upon the later of: (a) ten (10) years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee and/or agent of the
Company or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which Indemnitee served at the request of the
Company; or (b) the final termination of any Proceeding then pending in respect
of which Indemnitee is granted rights of indemnification or advancement of
expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 10 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs, executors and administrators.
D-7
<PAGE> 8
13. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; (b) such provision or provisions
shall be deemed reformed to the extent necessary to conform to applicable law
and to give the maximum effect to the intent of the parties hereto; and (c) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
14. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section 6(a) of this Agreement, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee (other than a
proceeding by Indemnitee to enforce his rights under this Agreement), or any
claim therein prior to a Change in Control, unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
15. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement.
16. Headings. The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
17. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company occurring
after the Effective Date of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; and provided, further, that a Change
in Control shall not be deemed to occur as a result of a transfer of Company
securities from a stockholder to any direct or indirect affiliate or general or
limited partner of such stockholder; or (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the
members of the Board then in office, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, fiduciary or agent of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not and
was not a party to the Proceeding in respect of which indemnification is sought
by Indemnitee.
(d) "Effective Date" means August , 1997.
(e) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection
D-8
<PAGE> 9
with prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, or otherwise participating in, a
Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
inquiry, administrative hearing or any other actual, threatened or completed
proceeding, whether brought by or in the right of the Company or otherwise and
whether civil, criminal, administrative or investigative, in which Indemnitee
was, is, may be or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director, officer, employee and/or agent of the
Company, by reason of any action taken by him or of any inaction on his part
while acting as director, officer, employee and/or agent of the Company, or by
reason of the fact that he is or was serving at the request of the Company as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise; in each case whether or
not he is acting or serving in any such capacity at the time any liability or
expense is incurred for which indemnification or advancement of expenses can be
provided under this Agreement; except one (i) initiated by an Indemnitee
pursuant to Section 10 of this Agreement to enforce his rights under this
Agreement or (ii) pending on or before the Effective Date.
18. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereby in order to induce
Indemnitee to serve as a director, officer, employee and/or agent of the
Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a director, officer, employee and/or agent of the
Company.
(b) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral, written and implied, between the parties
hereto with respect to the subject matter hereof.
19. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter
which may be subject to indemnification or advancement of Expenses covered
hereunder. The failure of Indemnitee to so notify the Company shall not relieve
the Company of any obligation which it may have to Indemnitee under this
Agreement or otherwise.
D-9
<PAGE> 10
21. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, (ii) mailed by certified or registered
mail, return receipt requested, with postage prepaid, on the third business day
after the date on which it is so mailed, (iii) dispatched by recognized
overnight courier with fees prepaid, on the first business day after dispatch or
(iv) transmitted by facsimile (confirmed by first class mail), on the date of
transmission:
(a) If to Indemnitee, to the address and facsimile number listed on
the signature page hereto.
(b) If to the Company to:
Geoworks Corporation
960 Atlantic Avenue
Alameda, CA 94501
Facsimile: (510) 814-4250
Attention: Jordan J. Breslow, Esq.
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 494-1417
Attention: David W. Healy, Esq.
or to such other address or facsimile number as may have been furnished to
Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
22. Contribution. To the fullest extent permissible under applicable law,
if the indemnification provided for in this Agreement is unavailable to
Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (i) the relative benefits received by the Company and Indemnitee as a
result of the event(s) and/or transaction(s) giving cause to such Proceeding;
and/or (ii) the relative fault of the Company (and its directors, officers,
employees and agents) and Indemnitee in connection with such event(s) and/or
transaction(s).
23. Governing Law; Submission to Jurisdiction; Appointment of Agent for
Service of Process. This Agreement and the legal relations among the parties
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware, without regard to its conflict of laws rules. Except with
respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of
this Agreement, the Company and Indemnitee hereby irrevocably and
unconditionally (i) agree that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in the Chancery Court of
the State of Delaware (the "Delaware Court"), and not in any other state or
federal court in the United States of America or any court in any other country,
(ii) consent to submit to the exclusive jurisdiction of the Delaware Court for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (iii) appoint, to the extent such party is not a resident of the
State of Delaware, irrevocably Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware, 19805 as its agent in the State of Delaware as such
party's agent for acceptance of legal process in connection with any such action
or proceeding against such party with the same legal force and validity as if
served upon such party personally within the State of Delaware, (iv) waive any
objection to the laying of venue of any such action or proceeding in the
Delaware Court, and (v) waive, and agree not to plead or to make, any claim that
any such action or proceeding brought in the Delaware Court has been brought in
an improper or otherwise inconvenient forum.
D-10
<PAGE> 11
24. Miscellaneous. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
D-11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
<TABLE>
<S> <C>
ATTEST GEOWORKS CORPORATION
By: By:
Name: Name:
Title: Title:
INDEMNITEE
---------------------------------------------
Signature
---------------------------------------------
Print Name
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Facsimile: ( )
</TABLE>
D-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM (A) THE CONSOLIDATED
BALANCE SHEET OF GEOWORKS AS OF SEPTEMBER 30, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 4,839,000
<SECURITIES> 21,702,000
<RECEIVABLES> 2,368,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,738,000
<PP&E> 6,790,000
<DEPRECIATION> (3,283,000)
<TOTAL-ASSETS> 33,359,000
<CURRENT-LIABILITIES> 4,153,000
<BONDS> 0
0
0
<COMMON> 95,554,000
<OTHER-SE> (66,724,000)
<TOTAL-LIABILITY-AND-EQUITY> 33,359,000
<SALES> 0
<TOTAL-REVENUES> 5,263,000
<CGS> 0
<TOTAL-COSTS> 86,000
<OTHER-EXPENSES> 14,391,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,000
<INCOME-PRETAX> (8,455,000)
<INCOME-TAX> 44,000
<INCOME-CONTINUING> (8,499,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,499,000)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
