<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ____14a-11(c) or ____14a-12
GEOWORKS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
GEOWORKS CORPORATION
960 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 15, 1998
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Geoworks Corporation, a Delaware Corporation (the "Company"), will
be held on Tuesday, September 15, 1998 at 11:00 a.m. local time at the Company's
principal executive offices, located at 960 Atlantic Avenue, Alameda,
California, for the following purposes:
1. To elect directors to serve until the next Annual Meeting of
Stockholders and until their successors are elected.
2. To consider and vote upon a proposal to amend the Company's 1994 Stock
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 785,000 shares from 2,900,000 shares to 3,685,000
shares.
3. To ratify the appointment of Ernst & Young L.L.P. as independent
auditors of the Company for the fiscal year ended March 31, 1999.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on July 21, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However to ensure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if such
stockholder has returned a proxy.
BY ORDER OF THE BOARD OF DIRECTORS
DAVID A. THATCHER
President and Chief Executive Officer
Alameda, California
August 3, 1998
<PAGE> 3
GEOWORKS CORPORATION
960 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Geoworks Corporation, a Delaware corporation ("Geoworks" or the "Company"), for
use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Tuesday, September 15, 1998 at 11:00 a.m., local time, or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the
Company's principal executive offices, located at 960 Atlantic Avenue, Alameda,
California 94501. The telephone number at that location is (510) 814-1660. Only
holders of record of the Company's Common Stock at the close of business on July
21, 1998 (the "Record Date") will be entitled to vote at the Annual Meeting. At
the close of business on July 21, 1998, the Company had 16,013,447 shares of
Common Stock outstanding and entitled to vote. A majority of the shares
outstanding on the Record Date will constitute a quorum for the transaction of
business. All proxies will be voted in accordance with the instructions
contained therein and, if no choice is specified, the proxies will be voted in
favor of the proposals set forth in the accompanying Notice of Annual Meeting of
Stockholders and this Proxy Statement.
These proxy solicitation materials and the Company's Annual Report to
Stockholders for the year ended March 31, 1998, including financial statements,
were first mailed on or about August 3, 1998 to all stockholders entitled to
vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to the Annual Meeting or at the Annual Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked (i) by a writing
delivered to the Company (Attention: Teresa M. Gutierrez, Assistant Secretary)
stating that the proxy is revoked, (ii) by a subsequent proxy that is signed by
the person who signed the earlier proxy and is presented at the Annual Meeting
or (iii) by attendance at the Annual Meeting and voting in person. Please note,
however, that if a stockholder's shares are held of record by a broker, bank or
other nominee and that stockholder wishes to vote at the Annual Meeting, the
stockholder must bring to the Annual Meeting a letter from the broker, bank or
other nominee confirming that stockholder's beneficial ownership of the shares.
VOTING RIGHTS
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the above Record Date. Shares of Common Stock may not be voted
cumulatively.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors. Proposal Nos. 2 and 3 each
require for approval the affirmative vote of the majority of shares of Common
Stock present in person or represented by proxy at the Annual Meeting entitled
to vote. All votes will be tabulated by the Inspector of Election appointed for
the Annual Meeting who will tabulate affirmative and negative votes, abstentions
and broker non-votes. Abstentions will be counted towards a quorum and have the
same effect as negative votes with regard to the proposal. Broker non-votes will
also be counted towards a quorum but will not be counted for any purpose in
determining whether the proposal has been approved.
<PAGE> 4
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting the enclosed proxies. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Solicitation of proxies by mail
may be supplemented by telephone, telegram, facsimile, electronic means or
personal solicitation by directors, officers or regular employees of the
Company. No additional compensation will be paid to such persons for such
activities. In addition, the Company has hired and will pay the fees of a proxy
solicitor estimated to be approximately $6,000.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting must be received by
the Company no later than April 5, 1999 in order that they could be included in
the proxy statement and form of proxy relating to that meeting. Stockholders
wishing to bring a proposal before the 1999 Annual Meeting (but not include it
in the Company's proxy material) must provide written notice of such proposal by
July 17, 1999.
PROPOSAL 1 -- ELECTION OF DIRECTORS
DIRECTORS/NOMINEES
The Company's Bylaws currently provide for a board of five (5) directors.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the five (5) nominees named below, all of whom are currently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any substitute nominee who shall be designated by the current
Board of Directors to fill the vacancy. It is not expected that any nominee
listed below will be unable or will decline to serve as a director. The term of
office of each person elected as a director will continue until the next Annual
Meeting or until his successor has been elected and qualified.
The names of the nominees, and certain information about them are set forth
below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Bernard A. Bianchino(1)... 49 Chief Business Development Officer of Sprint 1998
Spectrum L.P.
Brian P. Dougherty(2)..... 41 Chairman and Chief Technology Officer of Wink 1998
Communications, Inc.
Gordon E. Mayer........... 40 Chairman of the Board of the Company 1993
Eric E. Schmidt(1)(2)..... 43 Chairman and Chief Executive Officer of Novell, Inc. 1993
David A. Thatcher......... 43 Chief Executive Officer, President and Chief 1998
Financial Officer of the Company
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
There are no family relationships between any directors or executive
officers of the Company.
MR. BIANCHINO joined the Company's Board of Directors in July 1998. Since
September 1995, Mr. Bianchino has been Chief Business Development Officer of
Sprint Spectrum L.P., a wireless PCS company. Prior to that, he was Executive
Vice President, General Counsel and Internal Affairs, of Qwest Corporation from
August 1994 to September 1995. Prior to that, he was Vice President,
Law -- General Business for Sprint Corporation and U.S. Sprint from December
1986 to August 1994. Mr. Bianchino holds a B.A. degree in American citizenship
and a J.D. degree from Washburn University.
MR. DOUGHERTY founded Geoworks in 1983 and served as Chairman of the Board
of the Company from its inception to May 1997. Mr. Dougherty also served as
Chief Executive Officer of the Company from its
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inception to March 1994. Mr. Dougherty served as a member of the Board of
Directors from the Company's inception through May 1997. Mr. Dougherty re-joined
the Company's Board of Directors again in July 1998. Mr. Dougherty is currently
the Chairman of the Board of Wink Communications, Inc., a provider of
interactive television software, which he founded in October 1994. Mr. Dougherty
has also held the position of Chief Technology Officer at Wink since January
1997 and was Wink's Chief Executive Officer from October 1994 to January 1997.
Mr. Dougherty is also the Chairman of the Board of Global PC, a new developer of
a low cost PC platform, which he co-founded in February 1998. Mr. Dougherty has
also served as a director of NeoMagic, a semiconductor company, since December
1996. Mr. Dougherty holds a B.S. in electrical engineering from the University
of California at Berkeley.
MR. MAYER became Chairman of the Board of Directors of the Company in May
1997. Mr. Mayer served as President from July 1993 to January 1998, and as Chief
Executive Officer from March 1994 to June 1998. Prior to joining Geoworks, he
was an "Entrepreneur in Residence" with Merrill, Pickard, Anderson & Eyre, a
venture capital and investment management firm that manages private investment
funds. From July 1991 to June 1992, Mr. Mayer was President and Chief Executive
Officer of InfoChip, Inc., a developer of data compression hardware and
software. From February 1988 to July 1991, he was Vice President, Sales and
Marketing for Proxim, Inc., a supplier of OEM wireless data communications
products. Mr. Mayer attended Purdue University, where he earned a B.S. and M.S.
in electrical engineering.
DR. SCHMIDT joined the Company's Board of Directors in January 1993. Since
March 1997, he has been the Chairman and Chief Executive Officer of Novell, Inc.
Prior to that, he was the Chief Technology Officer of Sun Microsystems, Inc.,
where he had been employed since 1983. Dr. Schmidt holds a B.S. in electrical
engineering from Princeton University and a Ph.D. in electrical engineering from
the University of California at Berkeley. He is also a director of Siebel
Systems, Inc.
MR. THATCHER joined the Company in March 1997 as Vice President,
Administration and Chief Financial Officer. He became President in January 1998
and Chief Executive Officer in June 1998. Prior to joining the Company, Mr.
Thatcher was Chief Financial Officer and Vice President of Finance and
Operations with Diba, Inc. from May 1996 to January 1997, Chief Financial
Officer and Vice President of Finance and Operations with the McKinley Group
from December 1995 to May 1996, and Chief Financial Officer and Vice President
of Finance and Administration at Peregrine Systems, Inc. from March 1993 to
December 1995. Mr. Thatcher holds a B.S. degree in Accounting from San Diego
State University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four (4) meetings
during the fiscal year ended March 31, 1998. No director attended fewer than 75%
of the meetings of the Board of Directors and its committees upon which such
director served, except for Clive Smith who resigned from the Board of Directors
effective March 31, 1998. The Board of Directors has an Audit Committee, a
Compensation Committee and a Stock Administration Committee. The Board of
Directors has no nominating committee or any committee performing similar
functions.
During fiscal 1998, the Audit Committee of the Board of Directors consisted
of (i) former directors Dunlevie and Paajanen for the period of April 1, 1997
through October 7, 1997, (ii) Mr. Dunlevie from October 8, 1997 through October
15, 1997 and (iii) Mr. Dunlevie and former director Soini from October 16, 1997
through March 31, 1998. The Audit Committee held four (4) meetings during fiscal
1998. Currently, the Audit Committee consists of directors Bianchino and
Schmidt. The Audit Committee recommends engagement of the Company's independent
auditors, and is primarily responsible for approving the services performed by
the Company's independent auditors and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting controls.
During fiscal 1998, the Compensation Committee of the Board of Directors
consisted of Mr. Dunlevie and Dr. Schmidt for the period of April 1, 1997
through February 2, 1998 and Dr. Schmidt from February 3, 1998 through March 31,
1998. The Compensation Committee held five (5) meetings during fiscal 1998.
Currently the Compensation Committee consists of directors Dougherty and
Schmidt. The Compensation Committee reviews and approves the Company's executive
compensation policy, including the salaries and
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bonuses of the Company's executive officers, and co-administers the Company's
incentive stock plans together with the Stock Administration Committee.
During fiscal 1998, The Stock Administration Committee consisted of Messrs.
Dunlevie and Mayer for the period of April 1, 1997 through February 2, 1998 and
Mr. Mayer from February 3, 1998 through March 31, 1998 and currently consists of
Messrs. Mayer and Thatcher. The Stock Administration Committee administers stock
grants for non-executive employees and consultants.
DIRECTOR COMPENSATION
The Company does not compensate its directors for services as such, except
pursuant to the discretionary grant provisions of its 1994 Stock Plan. During
fiscal 1998, pursuant to such provisions, Mr. Dunlevie, a former director, was
granted an option to purchase 5,000 shares on August 27, 1997, which was
subsequently cancelled upon his resignation from the Board of Directors in
February 1998; Mr. Schmidt was granted an option to purchase 5,000 shares on
August 27, 1997; and Mr. Soini, a former director, was granted an option to
purchase 10,000 shares on October 16, 1997, which was subsequently cancelled
upon his resignation from the Board of Directors in May 1998.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE
NOMINEES SET FORTH HEREIN.
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO INCREASE THE NUMBER OF
SHARES RESERVED FOR ISSUANCE UNDER THE 1994 STOCK PLAN
The 1994 Stock Plan (the "Option Plan") was adopted by the Board of
Directors and approved by the stockholders in 1994. The Option Plan was amended
by the Board of Directors in 1995, to allow for the granting of
performance-based stock and cash awards. Such amendment was approved by the
stockholders in 1995. The Option Plan was amended by the Board of Directors in
June 1996 to increase the number of shares reserved for issuance under the
Option Plan from 1,500,000 to 2,150,000. The stockholders approved this increase
in August 1996. In addition, the Option Plan was amended in May 1997 to increase
the number of shares reserved for issuance under the Option Plan from 2,150,000
to 2,900,000. The stockholders approved this increase in August 1997.
Stock options and stock grants play a key role in the Company's ability to
recruit, reward and retain employees, consultants and directors. Technology
companies have historically used stock options and stock grants as an important
part of recruitment and retention packages. The Company competes directly with
these technology companies for experienced personnel and must be able to offer
comparable packages to attract the caliber of individuals that the Company
believes is necessary to remain competitive.
PROPOSED AMENDMENT TO THE OPTION PLAN
The Company is seeking stockholder approval for an amendment to the Option
Plan to increase the number of shares of Common Stock reserved thereunder. Under
the proposed amendment, the shares reserved for issuance under the Option Plan
will be increased from 2,900,000 shares to 3,685,000 shares (an increase of
785,000 shares) or 4.9% of the Company's total shares outstanding as of July 21,
1998. The Board approved the proposed amendment in April 1998, to be effective
upon stockholder approval.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE
AMENDMENT TO THE OPTION PLAN.
The essential provisions of the Option Plan are set forth below:
GENERAL
The Option Plan provides for the grant of options and performance-based
stock and cash awards (collectively "Awards") to employees, consultants and
outside directors of the Company.
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Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-statutory stock options. See "Tax Information"
below for information concerning the tax treatment of both incentive stock
options and non-statutory stock options.
PURPOSE
The purpose of the Option Plan is to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to employees, consultants and outside directors of the Company and to
promote the success of the Company's business.
ADMINISTRATION
The Option Plan is administered by the Company's Compensation Committee of
the Board.
The interpretation and construction of any provision of the Option Plan by
the Board or the Compensation Committee is final and conclusive. Members of the
Board and the Compensation Committee receive no separate compensation for their
services in connection with the administration of the Option Plan.
ELIGIBILITY
The Option Plan provides that Awards may be granted to employees (including
officers), consultants and outside directors of the Company and its designated
subsidiaries. The Compensation Committee of the Board selects the optionees and
determines the number of shares to be subject to each option. Directors may
receive discretionary grants under the Option Plan. In addition, the
Compensation Committee may grant cash or stock bonus awards ("Performance
Awards") either alone, in addition to, or in tandem with other awards granted
outside the Option Plan or pursuant to the Option Plan. As of July 21, 1998
there were approximately 140 employees eligible to participate in the Option
Plan, 2,541,021 shares were subject to outstanding options and 152,536 shares
were available for future grant under the Option Plan. Over the term of the
Option Plan, the following Named Executive Officers (defined below) have been
granted options to purchase Common Stock as follows: Gordon E. Mayer, 159,500
shares; David E.J. Crisp, 50,000 shares; David A. Thatcher, 220,000 shares;
Leland J. Llevano, 175,000 shares; Jordan J. Breslow, 142,000 and Donald L.
Reeves, III, 151,000 shares. In addition, as of July 21, 1998, all current
executive officers as a group, all current directors who are not executive
officers and all employees who are not executive officers have been granted
options to purchase 1,077,500 shares, 9,375 shares and 2,992,322 shares,
respectively. Options for 1,331,733 shares previously granted have been canceled
and returned to the option pool and options granted for 206,443 shares have been
exercised through July 21, 1998. Currently, there are consultants participating
in the Option Plan.
TERMS OF OPTIONS
The terms of options granted under the Option Plan are to be determined by
the Board or its committee but are not to exceed ten years from the date of
grant. Each option is evidenced by a stock option agreement between the Company
and the optionee to whom such option is granted, and is generally subject to the
following additional terms and conditions:
(a) Exercise of the Option. The Option Plan provides the Compensation
Committee with the discretion to determine when options granted thereunder
become exercisable, subject to certain limitations on the exercisability of
options granted to directors. An option is exercised by giving written
notice of exercise to the Company, specifying the number of full shares of
Common Stock to be purchased, and tendering payment of the purchase price
to the Company. Payment for shares issued upon exercise of an option may
consist of cash, check, promissory note, other shares of Common Stock or
such other consideration as determined by the Compensation Committee.
(b) Exercise Price. The exercise price of options granted under the
Option Plan is determined by the Board of Directors, and may in no event be
less than the fair market value of the Common Stock on the date the option
is granted. However, the exercise price of a stock option granted to a
person who, at
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the time of grant, owns stock representing 10% of the voting power of all
classes of stock of the Company or any subsidiary, may not be less than
110% of fair market value on the date of grant. The Compensation Committee
determines such fair market value based upon the closing sales price (or
the closing bid if no sales are reported) of the Common Stock in the Nasdaq
National Market on the date prior to the date on which the option is
granted.
(c) Termination of Employment or Services. The Option Plan provides
that if the optionee's employment by the Company or service as an outside
director or consultant is terminated for any reason other than death or
disability, the option generally may be exercised no more than 90 days
after such termination, but only to the extent the option was exercisable
on the date of termination.
(d) Death. If an optionee should die while employed by the Company,
or while serving as an outside director or consultant of the Company,
options may be exercised at any time within 12 months after the date of
death (but in no event later than the option's expiration date) to the
extent that the options would have been exercisable at the date of death.
(e) Disability. If an optionee is unable to continue his or her
employment or service as a director or consultant as a result of his or her
total and permanent disability, options may be exercised at any time within
six months (or such other period of time not exceeding 12 months as is
determined by the Compensation Committee and specified in the option
agreement) after the date of termination, but only to the extent the option
was exercisable on the date of such termination.
(f) Termination of Options. Incentive stock options and non-statutory
stock options granted under the Option Plan expire 10 years from the date
of grant, unless otherwise provided in the option agreement. However,
incentive stock options and non-statutory stock options granted to an
optionee who, at the time of the grant of such option, owned more than 10%
of the total combined voting power of all classes of stock of the Company
or a parent or subsidiary corporation may not have a term of more than five
years. No option may be exercised by any person after such expiration.
(g) Nontransferability of Options. An option is nontransferable by
the optionee, other than by will or the laws of descent and distribution,
and is exercisable during his or her lifetime only by the optionee, or in
the event of death, by a person who acquires the right to exercise the
option by bequest or inheritance or by reason of the death of the optionee.
(h) Acceleration of Options. In the event of a merger or
consolidation in which the Company is not the surviving entity, the Board
is obligated either to accomplish an assumption or substitution of options
or to give notice of the acceleration of the optionee's right to exercise
his or her outstanding options in full at any time within 15 days of such
notice.
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Option Plan as
may be determined by the Compensation Committee.
PERFORMANCE-BASED COMPENSATION LIMITATION
No employee shall be granted, in any fiscal year, options to purchase more
than 250,000 shares. The foregoing limitation, which shall be adjusted
proportionately in connection with any change in the Company's capitalization
(such as a stock split), is intended to satisfy the requirements applicable to
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code. In the event that the Compensation
Committee determines that such limitations are not required to qualify options
as performance-based compensation, the Compensation Committee may modify or
eliminate such limitations.
TERMS OF PERFORMANCE AWARDS
The terms of Performance Awards granted under the Option Plan are to be
determined by the Board or the Compensation Committee. Performance Awards shall
not require payment by the recipient of any consideration. The Board or the
Compensation Committee shall determine the performance and/or employ-
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ment factors to be used in the determination of the amount of Performance Awards
and the extent to which such Performance Awards have been earned.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization, such as a
stock split or stock dividend, which results in an exchange of Common Stock for
a greater or lesser number of shares, appropriate adjustment shall be made in
the option price and in the number of shares subject to the option.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may amend the Option Plan at any time or may
terminate it without approval of the stockholders. However, no such action by
the Board of Directors or stockholders may alter or impair any option previously
granted under the Option Plan without the consent of the optionee. In any event,
the Option Plan will terminate in 2004.
The Option Plan provides that stockholder approval of any amendment to the
Option Plan will be required only to the extent necessary to comply with then
current provisions of Rule 16b-3 under the Securities Exchange Act of 1934 or
Section 422 of the Code (or any other applicable law or regulation).
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND
PARTICIPANTS UNDER THE EQUITY INCENTIVE PLAN. THE FEDERAL TAX LAWS MAY CHANGE
AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL
DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND
IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE PLAN.
Incentive Stock Options. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the Participant is subject to
the alternative minimum tax ("AMT")). If the Participant holds the stock
acquired upon exercise of an ISO (the "ISO Shares") for more than one year after
the date the option was exercised and for more than two years after the date the
option was granted, the Participant generally will realize capital gain or loss
(rather than ordinary income or loss) upon disposition of the ISO Shares. This
gain or loss will be equal to the difference between the amount realized upon
such disposition and the amount paid for the ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period described above (a "disqualifying disposition"), the
gain realized upon such disposition, up to the difference between the fair
market value of the ISO Shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, will be
treated as ordinary income. Any additional gain will be long-term, mid-term, or
short-term capital gain, depending upon the amount of time the ISO Shares were
held by the Participant.
Alternative Minimum Tax. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an adjustment
to income for purposes of the AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of an individual taxpayer's alternative minimum
taxable income (28% in the case of alternative minimum taxable income in excess
of $175,000). Alternative minimum taxable income is determined by adjusting
regular taxable income for certain items, increasing that income by certain tax
preference items (including the difference between the fair market value of the
ISO Shares on the date of exercise and the exercise price) and reducing this
amount by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise of
the ISO, there is no AMT adjustment with respect to those ISO Shares. Also, upon
a sale of ISO Shares that is not a disqualifying
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disposition, alternative minimum taxable income is reduced in the year of sale
by the excess of the fair market value of the ISO Shares at exercise over the
amount paid for the ISO Shares.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time a NQSO is granted. However, upon exercise of a NQSO the
Participant will include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount will be treated as
ordinary income by the Participant and may be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
salary). Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock bonus
awards will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the Participant to defer tax. At the time that tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.
Maximum Tax Rates. The maximum rate applicable to ordinary income is 39.6%.
Long term capital gain on stock held for more than eighteen months will be taxed
at a maximum rate of 20%. Mid-term capital gain on stock held for eighteen
months or less, but more than one year, will be taxed at a maximum rate of 28%.
Capital gains will continue to be offset by capital losses and up to $3,000 of
capital losses may be offset annually against ordinary income.
Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of a NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income and the Company properly reports the
income received by the Participant in connection with the award. The Company
will be entitled to a deduction in connection with the disposition of ISO Shares
only to the extent that the Participant recognizes ordinary income on a
disqualifying disposition of the ISO Shares and the Company properly reports the
income received by the Participant in connection with the award.
ERISA
The Equity Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1994 STOCK PLAN(1)
-------------------------------
NAME AND POSITIONS DOLLAR VALUE NUMBER OF SHARES
------------------ ------------ ----------------
<S> <C> <C>
Gordon E. Mayer............................................. $ -- --
David A. Thatcher........................................... -- --
Leland J. Llevano........................................... -- --
Jordan J. Breslow........................................... -- --
Donald L. Reeves, III....................................... -- --
David E.J. Crisp............................................ -- --
All current executive officers as a group (6 persons)....... -- --
All current directors who are not executive officers as a
group (3 persons)......................................... -- --
All employees, including all current officers who are not
executive officers, as a group............................ -- --
</TABLE>
- ---------------
(1) The amounts of future option grants under the 1994 Stock Plan to (i) the
Named Executive Officers; (ii) all current executive officers as a group
(iii) all current directors who are not executive officers as a group; and
(iv) all employees, including all officers who are not executive officers,
as a group are not determinable because, under the terms of the Option Plan,
such grants are made in the discretion of the Compensation Committee or its
designees. Future option exercise prices under the Plan are not determinable
because they are based upon the fair market value of the Company's Common
Stock on the date immediately prior to the date of grant.
8
<PAGE> 11
PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young L.L.P., independent
auditors, to audit the financial statements of the Company for the year ending
March 31, 1999, and recommends that the stockholders vote for ratification of
such appointment. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection. Ernst & Young L.L.P. has
audited the Company's financial statements since the six month period ended
March 31, 1990. Representatives of Ernst & Young L.L.P. are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they so desire. The representatives also are expected to be available to
respond to appropriate questions from stockholders.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG L.L.P. AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 1999.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of July 21,
1998 by (a) each beneficial owner of more than 5% of the Company's Common Stock,
(b) the Named Executive Officers (as defined below), (c) each director/ nominee
of the Company, and (d) all directors and executive officers of the Company as a
group. Except as otherwise indicated, each person has sole voting and investment
power with respect to all shares shown as beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENTAGE BENEFICIALLY OWNED
---------------- ------------------------- -----------------------------
<S> <C> <C>
Travelers Group Inc.(1)....................... 4,122,625 25.7%
Nokia Mobile Phones Ltd.(2)................... 1,000,000 6.2
Putnam Investments Inc.(3).................... 989,075 6.2
Gordon E. Mayer(4)............................ 146,500 *
David E.J. Crisp(5)........................... 96,813 *
Leland J. Llevano(6).......................... 91,356 *
Jordan J. Breslow(7).......................... 76,584 *
David A. Thatcher(8).......................... 55,417 *
Donald L. Reeves, III(9)...................... 49,700 *
Brian P. Dougherty (10)....................... 20,000 *
Eric E. Schmidt (11).......................... 17,750 *
Bernard A. Bianchino.......................... 1,000 *
All directors and executive officers as a
group (11 persons)(12)...................... 565,834 3.4
</TABLE>
- ---------------
* Less than one percent of the outstanding shares of Common Stock.
(1) Based on the Schedule 13G/A filed by Travelers Group Inc. ("Travelers")
dated April 9, 1998, on behalf of itself, Mutual Management Corp., Smith
Barney Inc. and Salomon Smith Barney Holdings Inc. The address of Travelers
is 388 Greenwich Street, Legal Dept. 20th Floor, New York, New York 10013.
(2) Based on the Schedule 13D filed by Nokia Mobile Phones Ltd. ("Nokia") dated
February 17, 1995. The address of Nokia is P.O. Box 68, Kanslerinkatu 14,
4th Floor, Fin-33721, Tampere, Finland.
(3) Based on Amendment Number 1 to Schedule 13G filed by Putnam Investment Inc.
on behalf of itself, Marsh & McLennan Companies, Inc., Putnam Investment
Management, Inc. and The Putnam Advisory Company, Inc. The address of
Putnam Investment Inc. is One P.O. Box Square, Boston, Massachusetts 02109.
(4) Represents 74,500 shares issuable pursuant to options exercisable within 60
days of July 21, 1998, 24,000 shares held by Mayer Family Partners LP,
12,500 shares held by the Mayer Family Revocable Trust dated October 5,
1995, 25,000 shares held by Custom Technology Growth Fund LLC and 5,000
shares held in trust for each of Mr. Mayer's two daughters.
(5) Includes 45,833 shares issuable pursuant to options exercisable within 60
days of July 21, 1998.
(6) Includes 71,250 shares issuable pursuant to options exercisable within 60
days of July 21, 1998.
(7) Includes 75,931 shares issuable pursuant to options exercisable within 60
days of July 21, 1998.
(8) Includes 55,417 shares issuable pursuant to options exercisable within 60
days of July 21, 1998.
(9) Includes 48,771 shares issuable pursuant to options exercisable within 60
days of July 21, 1998.
(10) Includes 20,000 shares held by Brian P. Dougherty and Anna M. Lijphart as
trustees under the 1995 Dougherty Charitable Remainder Unitrust.
(11) Includes 4,375 shares issuable pursuant to options exercisable within 60
days of July 21, 1998.
(12) Includes 18,796 shares held by an executive officer who does not appear in
the table and 388,995 shares issuable pursuant to options exercisable
within 60 days of July 21, 1998.
9
<PAGE> 12
EXECUTIVE COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities, for the last three fiscal years ended
March 31, 1998, by (i) the Company's Chief Executive Officer, (ii) the four
other most highly compensated executive officers who were serving as executive
officers at the end of fiscal 1998 and (iii) one additional individual who was
an executive officer for a portion of fiscal 1998 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gordon E. Mayer......................... 1998 $220,000 $26,394 -- 17,500
Chairman of the Board 1997 220,000 33,000 -- 130,000
and former Chief Executive Officer 1996 200,275 35,000 -- --
David E.J. Crisp(2)..................... 1998 165,666 21,655 -- 50,000
Former Vice President, Marketing and
Business Development 1997 11,333 -- -- 50,000
David A. Thatcher(3).................... 1998 152,500 23,187 -- 120,000
Chief Executive Officer, President and
Chief Financial Officer 1997 3,231 -- -- 100,000
Leland J. Llevano....................... 1998 120,000 40,618 $40,540(4) 10,000
Vice President, 1997 120,000 75,659 -- 40,000
Strategic Partnerships 1996 129,501 5,000 -- 50,000
Jordan J. Breslow....................... 1998 140,000 13,437 -- 10,000
Vice President, General Counsel 1997 140,000 26,250 -- 52,000
1996 130,275 16,500 -- 50,000
Donald L. Reeves, III................... 1998 125,625 16,951 -- 49,000(5)
Vice President, Engineering 1997 105,000 8,200 -- 4,000
1996 84,141 500 -- 25,000
</TABLE>
- ---------------
(1) Includes cash profit sharing, cash bonuses and commissions earned for the
fiscal year, whether accrued or paid.
(2) Mr. Crisp was the Vice President, Marketing and Business Development of the
Company until March 16, 1998. Pursuant to an agreement, dated March 16,
1998, between the Company and Mr. Crisp, the Company is compensating Mr.
Crisp for the period between March 16, 1998 and November 16, 1998 at a rate
of $15,000 per month (an aggregate of $120,000). Mr. Crisp remains an
employee of the Company.
(3) Mr. Thatcher joined the Company late in March 1997, and accordingly,
compensation information for fiscal 1997 reflects less than one month of
service. In January 1998, Mr. Thatcher became President of the Company and
in June 1998 he became Chief Executive Officer of the Company.
(4) Represents commission earned in 1998.
(5) Includes an option for 4,000 shares granted in fiscal 1997 that was
subsequently repriced in fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during the fiscal year
ended March 31, 1998. In accordance with the rules of the Securities and
Exchange Commission, also shown below is the potential realizable value over the
term of the options (the period from the grant date to the expiration date)
based on assumed rates of stock appreciation of 5% and 10%, compounded annually.
These amounts are based on certain assumed rates of appreciation and do
10
<PAGE> 13
not represent the Company's estimate of future stock price. Actual gains, if
any, on stock option exercises will be dependent on the future performance of
the Common Stock.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------- ANNUAL RATE OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME GRANTED(1) IN FISCAL 1998 SHARE DATE 5% 10%
---- ---------- -------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gordon E. Mayer....... 17,500 1.0% $8.47 08/19/07 $ 93,205 $ 236,199
David E.J. Crisp...... 50,000 2.8 6.22 07/16/07 195,549 495,558
David A. Thatcher..... 20,000 1.3 8.47 08/19/07 106,520 269,942
100,000 5.7 5.81 02/03/08 365,545 926,363
Leland J. Llevano..... 10,000 0.5 8.47 08/19/07 53,260 134,971
Jordan J. Breslow..... 10,000 0.6 8.47 08/19/07 53,260 134,971
Donald L. Reeves,
III................. 4,000 0.2 6.53 06/03/07 16,430 41,637
45,000 2.6 16.63 09/23/07 470,492 1,192,319
</TABLE>
- ---------------
(1) All options except those granted to Messrs. Llevano and Breslow on August
19, 1997 have a ten-year term and vest over four years, ratably at 1/48 per
month. Options granted to Messrs. Llevano and Breslow on August 19, 1997
have a ten-year term and vest 100% on August 19, 1998.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to option exercises
in fiscal 1998 by the Named Executive Officers and the value of such officers'
unexercised options at March 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gordon E. Mayer............. -- -- 41,958 117,542 $ 8,695 $ 2,585
David A. Thatcher........... -- -- 30,000 190,000 20,640 211,110
Leland J. Llevano........... -- -- 66,334 56,666 7,442 1,958
Jordan J. Breslow........... 3,000 $19,000 58,639 61,458 54,843 --
Donald L. Reeves, III....... -- -- 43,884 52,166 130,137 3,599
David E.J. Crisp............ -- -- 45,833 -- 40,706 --
</TABLE>
- ---------------
(1) Market value of underlying securities on the exercise date, minus the
exercise price.
(2) Value is based on the last reported sale of the Company's Common Stock on
the Nasdaq National Market of $7.44 per share on March 31, 1998 (the last
trading day for fiscal 1998), minus the exercise price of in-the-money
options.
CERTAIN TRANSACTIONS
In February 1995, the Company sold 1,000,000 unregistered shares of its
Common Stock to Nokia Mobile Phones Ltd. ("Nokia"), greater than 5% stockholder
of the Company at an aggregate purchase price of $7,500,000. The Company agreed
to nominate a Nokia representative as one of management's nominees for the
Company's Board of Directors, and to use its best efforts to cause his election,
for so long as Nokia holds at least five percent of the combined voting power of
all outstanding voting stock and desires to hold such seat on the Board of
Directors. The Company also granted Nokia registration rights with respect to
the shares purchased. Such rights are shared by certain other stockholders of
the Company.
11
<PAGE> 14
In December 1994, the Company and Nokia entered into an Agreement for the
Terms and Conditions Regarding Software Development and Licensing. Under this
agreement, the Company has licensed certain software technology to Nokia for
incorporation by Nokia into various of its hardware products. In exchange, Nokia
is required to pay certain engineering fees and royalties to the Company. In
fiscal 1998, the Company recognized royalty revenue of $1,088,000 (including a
$500,000 buy-down in the royalty payment schedule) and $650,000 of license
revenue from Nokia and received non-recurring engineering fees of $1,960,000
from Nokia.
During fiscal 1994, the Company agreed to lend $220,000 to Gordon E. Mayer,
the Chairman of the Board of Directors of the Company, for the purchase of
330,000 shares of the Company's Common Stock under a promissory note bearing
interest at 5% per annum, compounded semiannually. The loan was secured by a
pledge of Mr. Mayer's shares of the Company's Common Stock and his principal
residence. The note matures in October 1998. As of March 31, 1998, approximately
$67,000 of principal and approximately $4,700 of accrued interest were
outstanding under the note.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consisted of directors Soini and
Schmidt as of March 31, 1998. Mr. Soini resigned from the Board on May 29, 1998.
Currently, the Compensation Committee consists of directors Bianchino and
Schmidt. None of such directors has ever been an officer of the Company. No
executive officer of the Company served on the compensation committee of another
entity or on any other committee of the board of directors of another entity
performing similar functions during the last fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership on Form 3 and changes in
ownership on Forms 4 or 5 with the Securities and Exchange Commission (the
"SEC") within specified time periods. Executive officers, directors and 10%
stockholders are also required by the SEC rules to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon its review of
copies of such forms received by it, or written representations from such
persons that no filings were required for them, the Company believes that during
the year ended March 31, 1998, all Section 16(a) filing requirements applicable
to its executive officers and directors were complied except that: David E.J.
Crisp, a former executive officer of the Company, filed a Form 4 late with
respect to six (6) sales transactions.
12
<PAGE> 15
PERFORMANCE GRAPH
The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent
the Company specifically incorporates this information by referencing and shall
not otherwise be deemed soliciting material or filed under such Acts.
The following graph shows a comparison of cumulative total stockholder
return, calculated on a dividend reinvested basis, for Geoworks, the Nasdaq
Composite Stock Market Index (US) and the Hambrecht & Quist Software Sector
Index. The graph assumes that $100 was invested in the Company's Common Stock,
the Nasdaq Composite Stock Market Index (US) and the Hambrecht & Quist Software
Sector Index from the date of the Company's initial public offering on June 23,
1994 through March 31, 1998. Note that historic stock price performance is not
necessarily indicative of future stock price performance.
GEOWORKS
H&Q COMPUTER SOFTWARE INDEX
NASDAQ STOCK MARKET -- U.S. INDEX
PERFORMANCE GRAPH
13
<PAGE> 16
<TABLE>
<CAPTION>
H&Q SOFTWARE NASDAQ STOCK MARKET
MEASUREMENT PERIOD (FISCAL YEAR COVERED) GEOWORKS SECTOR INDEX -- U.S. INDEX
---------------------------------------- -------- ------------ -------------------
<S> <C> <C> <C>
June 23, 1994.................................... $100.00 $100.00 $100.00
September 30, 1994............................... 129.17 113.69 110.96
December 31, 1995................................ 112.50 123.09 109.70
March 31, 1995................................... 135.42 140.73 119.59
June 30, 1995.................................... 208.33 162.75 136.79
September 30, 1995............................... 320.83 176.94 153.27
December 31, 1995................................ 316.67 176.43 155.14
March 31, 1996................................... 500.00 192.55 162.37
June 30, 1996.................................... 591.67 209.95 175.63
September 30, 1996............................... 433.33 215.94 181.88
December 31, 1996................................ 408.33 214.47 190.81
March 31, 1997................................... 110.42 195.72 180.47
June 30, 1997.................................... 96.87 232.45 213.55
September 30, 1997............................... 272.92 278.73 249.68
December 31, 1997................................ 160.42 259.32 234.20
March 31, 1998................................... 123.95 336.62 273.92
</TABLE>
COMPENSATION COMMITTEE REPORT
INTRODUCTION
The Compensation Committee Report below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent
the Company specifically incorporates this information by reference and shall
not otherwise be deemed soliciting material or filed under such Acts.
The Compensation Committee of the Board of Directors (the "Committee") is
composed only of nonemployee directors. It is responsible for reviewing and
recommending for approval by the Board of Directors (with assistance from the
Stock Administration Committee of the Board established pursuant to the 1994
Stock Plan) the Company's compensation practices, executive salary levels and
compensation programs, both cash-based and equity-based. The Committee generally
determines the base salary levels and performance-based incentive compensation
levels for executives at the end of each fiscal year, and reviews both those
levels and the executives' performance against those levels on a quarterly
basis.
COMPENSATION PHILOSOPHY
The Committee has adopted an executive pay-for-performance philosophy
covering all officers, including the Chief Executive Officer. This philosophy
emphasizes variable compensation in order to align executive compensation with
the Company's business objectives and performance. Further, the overall
compensation philosophy is to attract, retain and reward executives who
contribute both to the short-term and long-term success of the Company, and to
motivate them through incentive compensation tied to performance objectives. The
Committee believes that the interests of its executives are best aligned with
those of the Company and its stockholders when the executives' overall
compensation depends upon the Company's performance, and when the executives are
themselves owners of stock in the Company. The Company encourages broad-based
employee ownership of its stock through stock option and stock purchase programs
in which, as a general rule, all regular employees with three (3) months of
service, whose customary employment is at least twenty (20) hours per week and
more than five (5) months per year are eligible to participate. Pay is
sufficiently variable that above-average performance results in above-average
total compensation, and below-average performance for the Company or the
individual results in below-average total compensation. At the highest level,
the focus is on corporate performance against objectives and
14
<PAGE> 17
individual contributions toward that performance. Secondarily, the focus is on
strategic departmental objectives in support of the corporate mission, and
individual contribution toward and satisfaction of those objectives.
COMPENSATION PROGRAM
The Company has a comprehensive compensation program which consists of cash
compensation, both fixed and variable, and equity-based compensation. The
program has the following principal components:
Cash-Based Compensation
Base Salary: Base salary is predicated on industry and peer group
comparisons and on performance judgments as to the past and expected future
contribution by the individual executive officer, including, where appropriate,
adjustment for any promotion or substantial increase in responsibilities. Market
information and salary surveys are used as a frame of reference for annual
salary adjustments and starting salaries. Executive officers of the Company are
paid salaries in line with their responsibilities. These salaries are structured
to be within the median range of salaries paid by competitors in the computer
industry. In general, salary increases are made based on median increases in
salaries for similar executives of similar sized companies in the high
technology industry. The Committee's approach to base compensation is to offer
competitive salaries in comparison with market practices. However, commencing
with fiscal 1996, base salary has become a relatively smaller element in the
total executive officer compensation package, as the Company has introduced
greater pay-for-performance programs.
Bonuses: The Company has an incentive program pursuant to which executive
officers and a limited number of key employees may receive periodic cash bonuses
beyond their base salary. The Committee has established for each executive
officer, including the Chief Executive Officer, a set of performance objectives
for the fiscal year primarily tied to the Company's financial performance, along
with a target bonus tied to those objectives. The objectives, and the
performance of each executive officer against his or her objectives, are
reviewed quarterly, with input from the Chief Executive Officer. These financial
objectives are generally based on the achievement of sales, revenue, net income
or gross margin goals. Generally, executive officers may be eligible to receive
a bonus of approximately twenty percent of their base salary if the objectives
are fully met to the satisfaction of the Committee. The Committee also has the
discretion to reduce the bonus to zero percent in the case of performance below
expectations, or, conversely, to increase the bonus in recognition of exemplary
contribution to the successful performance by the Company of its short- and
long-term objectives.
Equity-Based Compensation
Stock Options: Consistent with prevailing compensation practices in high
technology companies, stock options are a key component of each employee's total
compensation package. The Company's practice is to grant stock options to all
fulltime, regular employees. Options are generally granted upon commencement of
employment, and vest over four years to encourage the option holders to continue
in the employ of the Company. Subsequent stock options are granted periodically
to provide additional incentive and in the case of a promotion or substantial
increase in responsibilities, and occasionally to reward exemplary performance.
The Company takes into account the compensation practices of the companies
referenced above in its salary surveys as well as the past and expected
performance in determining the size of grants made to executive officers.
15
<PAGE> 18
The following table sets forth certain information concerning the repricing
of stock options held by executive officers of the Company through March 31,
1998.
<TABLE>
<CAPTION>
PER SHARE PER LENGTH OF
NUMBER OF MARKET SHARE ORIGINAL
SECURITIES PRICE OF EXERCISE PER SHARE OPTION
UNDERLYING STOCK AT PRICE AT NEW TERM
OPTIONS TIME OF TIME OF EXERCISE REMAINING
DATE OF REPRICED REPRICING REPRICING PRICE AT DATE OF
NAME AND POSITION REPRICING (#) ($/SH) ($/SH) ($/SH) REPRICING
----------------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald L. Reeves III................. 6/3/97 4,000 $6.53 $17.75 $6.53 9 years,
Vice President, Engineering 9 months
</TABLE>
Fiscal 1998 Option Repricing Program. In June 1997, the Company repriced
options with an exercise price above the fair market value on June 3, 1997 which
had been granted to non-executive employees under the Company's 1994 Stock Plan,
Supplemental Stock Option Plan and 1997 Supplemental Stock Plan (the "Plans")
during the period January 1, 1996 through June 3, 1997. New options that
replaced existing options which were not scheduled to begin vesting until one
year after the date of grant and had not begun vesting on or before June 3, 1997
(the "Cliff-Vesting Options"), vest at a rate of twenty-five percent (25%) of
the option shares on June 3, 1998 and 1/48th per month thereafter. New options
that replaced existing non-Cliff Vesting Options, vest at a rate of 1/48th per
month beginning July 3, 1998. In September 1997, one of those employees who
participated in this repricing became an executive officer of the Company. In
May 1998, the Company elected to reprice stock options with an exercise price
above the fair market value on May 5, 1998 which were granted to executive
officers under the Company's 1994 Stock Plan or Supplemental Stock Option Plan
during the period January 1, 1997 through April 23, 1998 (the "Repricing
Period") which had not been previously repriced in order to respond to the
substantial increase in competitive attempts to retain executive officers, who
are essential to the Company's success. Repriced options granted during the
Repricing Period vest at a rate of 1/48th per month beginning June 5, 1998.
Competition for key employees in the software industry is intense and the use of
significant stock options for retention and motivation of such personnel is
pervasive in the high technology industries. The Company believes that stock
options are a critical component of the compensation offered by the Company to
promote long-term retention of key employees, motivate high levels of
performance and recognize employee contributions to the success of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee uses the factors and criteria described above for
compensation decisions regarding the Chief Executive Officer. During fiscal year
1998, Mr. Mayer's compensation was largely based upon the Company's attainment
of strategic objectives.
The Committee recognized significant achievements by the Company under the
leadership of Mr. Mayer during the fiscal year. These achievements include
continued enhancement of the Company's potential as a market leader in the smart
phone market through establishment of additional OEM and cellular operator
relationships, including, for example, concluding an OEM agreement with
Mitsubishi Electric Company for the licensing of the Company's operating system
for a smart phone in Japan; the release within the United States of Nokia Mobile
Phones Ltd.'s 9000i Communicator product, a smart phone incorporating the
Company's operating system; the release in Japan of Toshiba Corporation's Genio
smart phone, another smart phone incorporating the Company's operating system;
and managing the growth of the Company within the operational guidelines as
established by the Board of Directors. As a result of these achievements, the
Board of Directors granted Mr. Mayer a bonus of $26,394.43, issued in two
installments, $11,891.12 on July 15, 1997 and $14,503.31 on October 15, 1997.
However, because the Company did not realize a significant amount of revenue
from such relationships within the past fiscal year, the Board of Directors
granted Mr. Mayer only 17,500 stock options on August 19, 1997. The stock
options were granted with forty-eight (48) month vesting periods and with an
exercise price of $8.4688, representing the fair market value of the Company's
stock on the grant date. On June 1, 1998, David A. Thatcher became Chief
Executive Officer of the Company. His salary and bonus for the past fiscal year
are reflected in the Executive Compensation table set forth in this Proxy. Mr.
Thatcher is scheduled to receive a bonus in July 1998 in accordance with the
financial objectives relating to Bonuses set forth above in this Compensation
Committee Report.
16
<PAGE> 19
The Committee believes that both Mr. Mayer's and Mr. Thatcher's
compensation are modest relative to that of other chief executive officers of
publicly-held technology companies, but are appropriate in light of the
Company's continued investment in an emerging market.
COMPENSATION LIMITATIONS FOR TAX PURPOSES
The Committee has considered the potential impact of Section 162(m) (the
"Section") of the Code adopted under the federal Revenue Reconciliation Act of
1993. The Section disallows any tax deduction for a publicly-held corporation
for individual compensation exceeding $1 million in any taxable year for any
Named Executive Officer, unless compensation is performance-based. Since the
targeted cash compensation of each of the Named Executive Officers is below the
$1 million threshold and the Committee believes that any options granted under
the Option Plan will meet the requirement of being performance-based under the
transition provisions provided in the regulations under the Section, the
Committee believes that the Section will not reduce any tax deduction available
to the Company.
SUMMARY
The Committee believes that a fair and motivating compensation program has
played a critical role in the Company's ability to attract and retain highly
qualified executive officers
Respectfully submitted by:
The Compensation Committee
ERIC E. SCHMIDT
BRUCE DUNLEVIE
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting or any
adjournment or postponement thereof, it is the intention of the persons named in
the enclosed form of Proxy to vote the shares they represent as the Board of
Directors may recommend.
BOARD OF DIRECTORS
Dated: August 3, 1998
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<PAGE> 20
GEOWORKS
1994 STOCK PLAN
(As amended and restated April 23, 1998)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility to provide additional incentive to Employees, Consultants and
Outside Directors of the Company and its Subsidiaries and to promote the success
of the Company's business by granting Options and Performance Awards. Options
granted under the Plan may be incentive stock options (as defined under Section
422 of the Code) or non-statutory stock options, as determined by the
Administrator at the time of grant of an option and subject to the applicable
provisions of Section 422 of the Code, as amended, and the regulations
promulgated thereunder. The Plan also provides for automatic grants of
Nonstatutory Stock Options to Outside Directors. Performance Awards granted
under the Plan may be cash or stock bonus awards granted either alone, in
addition to or in tandem with other awards granted under the Plan and/or awards
made outside the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 or Section 15 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Geoworks, a California corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and who is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee, Consultant or Outside
Director" means the absence of any interruption or termination of service as an
Employee, Consultant or Outside Director. Continuous Status as an Employee,
Consultant or Outside Director shall not be considered interrupted in the case
of: (i) sick leave; (ii) military leave; (iii) any other leave of absence
approved by the Company, provided that such leave is for a period of not more
than
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<PAGE> 21
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (iv) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or its
successor.
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market system of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported, as quoted
on such system or exchange), for the last market trading day prior to the time
of determination as reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market system thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
(p) "Optioned Stock" means the Common Stock subject to an Option.
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<PAGE> 22
(q) "Optionee" means an Employee, Consultant or Outside Director
who receives an Option.
(r) "Outside Director" shall mean a member of the Board who is not
an Employee or a Consultant.
(s) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Performance Award" means a performance award granted pursuant
to Section 14 of the Plan.
(u) "Plan" means this 1994 Stock Plan.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(w) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 3,685,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers.
With respect to grants of Options or Performance Awards to Employees who are
officers or directors of the Company and Outside Directors, the Plan shall be
administered by (A) the Board if the Board may administer the Plan in compliance
with Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") with respect to a plan intended to qualify thereunder as a
discretionary plan, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted in such a manner as to permit the
Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members
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<PAGE> 23
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options or Performance Awards to Employees
or Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to
whom Options or Performance Awards may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options or
Performance Awards are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder ;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
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<PAGE> 24
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options and Performance Awards may be granted
to Employees, Consultants and Outside Directors. Incentive Stock Options may be
granted only to Employees. An Employee, Consultant or Outside Director who has
been granted an Option or Performance Award may, if he is otherwise eligible, be
granted additional Options and Performance Awards.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as
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<PAGE> 25
described in Section 19 of the Plan. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be determined by the Board, but shall be
subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the
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<PAGE> 26
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (5) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (6) by
delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement, (7)
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; (8) any combination of the
foregoing methods of payment, (9) or such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept, the
Board shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company (Section 315(b) of the California corporation
law).
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's Continuous Status as an Employee, Consultant or Outside Director,
such Optionee may, but only within thirty (30) days, or within such other period
of time as is determined by the Board, with
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<PAGE> 27
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option and such time period not exceeding ninety (90) days)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his Option to the extent that Optionee was entitled to exercise it at the date
of such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of such termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee, Consultant or Outside Director as a result of his
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
while Optionee is an Employee, Consultant or Outside Director, the Option may be
exercised at any time within twelve (12) months following the date of death (but
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise the Option at the date of
death. To the extent that Optionee was not entitled to exercise the Option at
the date of death, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Performance Awards. Options and
Performance Awards may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
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11. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option or Performance Award, and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the Option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Optionee to
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. If the Board
makes an Option fully exercisable in lieu of assumption or substitution in the
event of a merger, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option will terminate upon the expiration of such period.
12. Limitation on Number of Option Shares. The following limitations
shall apply to grants of options to Employees hereunder:
(a) No Employee shall be granted, in any fiscal year of the Company,
options to purchase more than 250,000 shares of Common Stock.
(b) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 11 hereof.
(c) If an option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 11), the canceled option will be counted against the limit set forth
in Section 12 (a) above. For this purpose, if the
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<PAGE> 29
exercise price of an option is reduced, the transaction will be treated as a
cancellation of the option and the grant of a new option.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
14. Performance Awards.
(a) Performance Awards are cash or stock bonus awards that may be
granted either alone, in addition to or in tandem with other awards granted
under the Plan and/or awards made outside of the Plan. Performance Awards shall
not require payment by the recipient of any consideration for the Performance
Award or for the shares of Common Stock covered by such award. The Board or a
committee created by the Board for the purpose of administering Performance
Awards (the "Performance Award Committee") in accordance with Section 4 shall
determine the performance and/or employment factors to be used in the
determination of the amount of Performance Awards and the extent to which such
Performance Awards have been earned. Shares issued pursuant to a Performance
Award may be made subject to various conditions, including vesting or forfeiture
provisions. Performance Awards may vary from participant to participant and
between groups of participants and shall be based upon the achievement of
Company and/or individual performance factors or upon such other criteria as the
Performance Award Committee may deem appropriate.
(b) Adjustment of Awards. The Performance Award Committee may, after
the grant of Performance Awards, adjust the performance factors applicable to
such Performance Awards to take into account changes in the law or in accounting
or tax rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the inclusion or exclusion of the impact of extraordinary
or unusual items, events or circumstances in order to avoid windfalls or
hardships.
The foregoing amendment shall become effective as of September 1,
1995, subject to shareholder approval at the Company's August 29, 1995 annual
meeting of shareholders.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
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<PAGE> 30
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options and Performance Awards shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
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<PAGE> 31
GEOWORKS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoints Gordon E. Mayer and Teresa M.
Gutierrez, or either of them, each with power of substitution, to
represent the undersigned at the Annual Meeting of Stockholders
of Geoworks Corporation (the "Company") to be held at 960
Atlantic Avenue, Alameda, California 94501 on September 15, 1998,
at 11:00 a.m., local time, and any adjournment or postponement
thereof, and to vote the number of shares the undersigned would
be entitled to vote if personally present at the meeting on the
following matters:
----------------
SEE REVERSE
SIDE
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<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C>
[X] PLEASE MARK YOU CHOICE LIKE THIS
ACCOUNT NUMBER COMMON
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WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS
Nominees: Bernard A. Bianchino [ ] [ ]
Brian P. Dougherty
Gordon E. Mayer
Eric E. Schmidt
David A. Thatcher
Instruction: To withhold authority
to vote for any individual nominee,
write that nominee's name on the
space provided below:
-------------------------
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FOR AGAINST ABSTAIN
The Board of Directors recommends a vote FOR all
[ ] [ ] [ ] nominees for election and FOR Proposals 2 and 3.
2. AMENDMENT OF 1994
STOCK PLAN TO
INCREASE THE NUMBER
OF SHARES OF COMMON THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE
STOCK RESERVED FOR OF DIRECTION, THIS PROXY WILL BE VOTED FOR THE
ISSUANCE THEREUNDER COMPANY'S NOMINEES FOR ELECTION AND FOR PROPOSALS
BY 785,000 SHARES. 2 AND 3.
In their discretion, the proxies are authorized to
FOR AGAINST ABSTAIN vote upon such other business as may properly come
3. RATIFICATION OF before the meeting or any adjournment or
SELECTION OF ERNST & [ ] [ ] [ ] postponement thereof to the extent authorized by
YOUNG LLP AS THE Rule 14a-4(c) promulgated by the Securities and
COMPANY'S Exchange Commission.
INDEPENDENT AUDITORS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY.
- --------------------------------------------------------------------------------
Dated: ______________________ , 1998
_____________________________________
_____________________________________
Signature(s)
Please sign exactly as your name(s) appear(s) on
your stock certificate. If shares are held of record
in the names of two or more persons or in the name
of husband and wife, whether as joint tenants or
otherwise, both or all of such persons should sign
the proxy. If shares of stock are held of record by
a corporation, the proxy may be executed by an
officer, agent or proxyholder as the bylaws of the
corporation may prescribe, or in the absence of that
determination, by the Chairman, president or any
vice president. Executors, administrators or other
fiduciaries who execute the above proxy for a
deceased stockholder should give their full title.
Please date the proxy. WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THIS PROXY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES MAY BE
REPRESENTED AT THE MEETING.
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