-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PUz2ETyMsGK2XdcfK5hwbI4OGV/ccSMuw9l4PiOoddDSRuEybg1ghc/+722oLGGi Xlmz0wYfiadO7Mqvo/zFcA== 0000891618-96-002684.txt : 19961115 0000891618-96-002684.hdr.sgml : 19961115 ACCESSION NUMBER: 0000891618-96-002684 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOWORKS /CA/ CENTRAL INDEX KEY: 0000922285 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942920371 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23926 FILM NUMBER: 96660421 BUSINESS ADDRESS: STREET 1: 960 ATLANTIC AVE CITY: ALAMEDIA STATE: CA ZIP: 94501 BUSINESS PHONE: 5108141660 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 1996 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________to __________. Commission file number 0-23926 GEOWORKS ------------------------------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 94-2920371 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 960 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) 510-814-1660 ---------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. [ ] Yes [ ] No Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date. COMMON STOCK, NO PAR VALUE: 14,049,617 SHARES AS OF SEPTEMBER 30, 1996 2 GEOWORKS INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets: September 30, 1996 and March 31, 1996 2 Condensed consolidated statements of operations: Three and six months ended September 30, 1996 and September 30, 1995 3 Condensed consolidated statements of cash flows: Six months ended September 30, 1996 and September 30, 1995 4 Notes to condensed consolidated financial statements 5 Item 2. Management's discussion and analysis of financial condition and results of operations 6-10 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 12 Signature 13
3 PART 1 FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS GEOWORKS CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
Sept. 30, March 31, 1996 1996 -------- -------- ASSETS Current assets Cash and cash equivalents $ 5,004 $10,765 Marketable securities 37,936 39,625 Prepaid expenses and other current assets 666 216 ------- ------- Total current assets 43,606 50,606 Furniture and equipment, net 3,117 2,132 Other assets 160 160 ------- ------- $46,883 $52,898 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 1,396 $ 1,240 Deferred revenue 3,411 5,529 Other current liabilities 899 707 ------- ------- Total current liabilities 5,706 7,476 Other liabilities 772 965 ------- ------- Total liabilities 6,478 8,441 Shareholders' equity 40,405 44,457 ------- ------- $46,883 $52,898 ======= =======
See accompanying notes 2 4 GEOWORKS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data)
Three Months Ended Six Months Ended ------------------------ ----------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1996 1995 1996 1995 ------- ------- ------- ------- Net revenues: License revenue and product sales $ 1,186 $ 875 $ 3,427 $ 1,160 Research and development fees 745 75 933 175 Service revenue 100 - 100 - ------- ------- ------- ------- Total net revenues 2,031 950 4,460 1,335 Operating expenses: Cost of license revenue and product sales 27 24 99 40 Sales and marketing 1,679 928 3,050 1,892 Research and development 2,883 1,917 5,632 3,719 General and administrative 958 560 1,656 1,078 ------- ------- ------- ------- Total operating expenses 5,547 3,429 10,437 6,729 ------- ------- ------- ------- Operating loss (3,516) (2,479) (5,977) (5,394) Other income (expense): Interest income 715 147 1,290 266 Interest expense (36) (39) (81) (83) ------- ------- ------- ------- Loss before income taxes (2,837) (2,371) (4,768) (5,211) Provision for income taxes - - - - ------- ------- ------- ------- Net loss $(2,837) $(2,371) $(4,768) $(5,211) ======= ======= ======= ======= Net loss per share $ (0.20) $ (0.21) $ (0.34) $ (0.46) ======= ======= ======= ======= Shares used in per share computation 14,039 11,401 14,004 11,352 ======= ======= ======= =======
See accompanying notes 3 5 GEOWORKS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Six Months Ended ------------------------- Sept. 30, Sept. 30, 1996 1995 -------- --------- Operating activities: Net loss $(4,768) $(5,211) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 634 533 Changes in operating assets and liabilities (2,280) (785) ------- ------- Net cash used in operating activities (6,414) (5,463) ------- ------- Investing activities: Purchases of furniture and equipment (1,531) (335) Sales of marketable securities 1,689 4,681 Other (41) 101 ------- ------- Net cash provided by investing activities 117 4,447 ------- ------- Financing activities: Proceeds from sale/leaseback of equipment - 206 Payments of obligations under capital leases (133) (101) Net proceeds from issuance of common stock 669 247 ------- ------- Net cash provided by financing activities 536 352 ------- ------- Net decrease in cash and cash equivalents (5,761) (664) Cash and cash equivalents at beginning of period 10,765 1,788 ------- ------- Cash and cash equivalents at end of period $ 5,004 $ 1,124 ======= =======
See accompanying notes 4 6 GEOWORKS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The condensed consolidated financial statements for the three months and six months ended September 30, 1996 and 1995 are unaudited but reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1996. The results of operations for the three months and six months ended September 30, 1996 are not necessarily indicative of the results to be expected for the entire fiscal year. 2. Net loss per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options are not included in the computation as they are antidilutive. 3. In October 1995, the Financial Accounting Standards Board issued Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 allows a company to adopt a new fair value-based method or continue to measure compensation cost for its stock-based compensation plans using the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25). The Company will continue to follow APB No. 25 but will be required to make pro forma disclosures of net income or loss and earnings per share as if the fair value-based method had been applied. 5 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Results of Operations Net Revenues Net revenues for the six months ended September 30, 1996 increased $3,125,000, or 234%, compared to the six months ended September 30, 1995. License revenue and product sales increased between the two periods by $2,267,000, or 195%, due primarily to the restructuring of two OEM license agreements in the current fiscal year for which there were non-refundable, prepaid royalty balances. The prepaid balances related to these agreements had been recorded as deferred revenue, and had not yet been fully amortized at the time the agreements were restructured. Revenue recognized upon the restructuring of these two agreements was included in license revenue and product sales, and accounted for $2,234,000, or 65%, of the Company's license revenue and product sales during the six months ended September 30, 1996. For the corresponding period of the previous fiscal year, revenue resulting from the restructuring of OEM license agreements amounted to $675,000. In addition to revenue recognized upon the restructuring of license agreements, license revenue and product sales for the six months ended September 30, 1996 included $743,000 of source code license fees paid by an OEM customer. Revenues associated with source code license fees and license agreement restructurings are non-recurring. As a result of these one-time events, revenues for the six months ended September 30, 1996 are not indicative of revenues to be recognized in future periods. The remainder of license revenue and product sales during the six months ended September 30, 1996 consisted of royalties on units sold by OEM licensees and royalties from software republishers. Revenue related to research and development fees for the six months ended September 30, 1996 increased $758,000, or 433%, compared to the corresponding period of the previous fiscal year. Research and development fees represent amounts received pursuant to contracts with OEM licensees under which the Company is reimbursed for a portion of its development costs related to specific products up to the amounts specified in the contracts. The Company is typically paid by the OEM licensee as certain project milestones are achieved. Revenue under these research and development arrangements is recognized under the percentage of completion method. The extent to which such revenue is reported can vary considerably among periods, depending upon the specific terms of the Company's contracts with OEM licensees and the relative level of development effort devoted towards projects on which research and development fees are charged. Service revenue increased $100,000 for the six months ended September 30, 1996 compared to the corresponding period of the previous fiscal year. Service revenue represents amounts earned for the support and maintenance of software pursuant to contracts with OEM licensees. For the three months ended September 30, 1996, net revenues increased $1,081,000, or 114%, compared to the corresponding period of the previous fiscal year. License revenue and product sales increased $311,000, or 36%, principally due to source code license fees received and recognized as revenue during the three months ended September 30, 1996. Research and development fees increased $670,000, or 893%, while service revenue increased by $100,000 in the three months ended September 30, 1996, compared to the corresponding period of the previous fiscal year. 6 8 Operating Expenses Cost of Revenues. The Company's gross margin percentage was 98% for the six months ended September 30, 1996 and 97% for the corresponding period of the previous fiscal year. Gross margin percentage was 99% for the quarter ended September 30, 1996, and 97% for the corresponding quarter of the previous fiscal year. Cost of revenues for all periods presented consisted of license payments to third parties for software that is incorporated into the Company's software. Sales and Marketing. Sales and marketing expense increased $1,158,000, or 61%, for the six month period ended September 30, 1996, and $751,000, or 81%, for the three month period ended September 30, 1996, in comparison with the corresponding periods of the previous fiscal year. These increases resulted from the Company's expanded efforts in pursuit of opportunities in the consumer computing device (CCD) market. As this market has evolved, the Company has dedicated additional resources towards content and services for wireless devices, and has also broadened its services to VARs and other outside developers of software for the CCD market. To support these activities, staffing and related costs for travel, benefits, and facilities increased in the three month and six month periods ended September 30, 1996, as compared to the corresponding periods of the previous fiscal year. Research and Development. Research and development expense increased $1,913,000, or 51%, for the six month period ended September 30, 1996, and $966,000, or 50%, for the three month period ended September 30, 1996, in comparison with the corresponding periods of the previous fiscal year. These increases were due primarily to the continuing expansion of the Company's engineering staff, which resulted in higher compensation costs and related increases in costs for employee benefits, travel, and facilities. The Company expects that research and development expense will continue to increase in future periods, as the Company expands its efforts to develop products for the emerging CCD market. General and Administrative. General and administrative expense increased $578,000, or 54%, for the six month period ended September 30, 1996, and $398,000, or 71%, for the three month period ended September 30, 1996, in comparison with the corresponding periods of the previous fiscal year. Higher costs for compensation and recruiting were primarily responsible for these increases. Other Income (Expense) Interest income rose $1,024,000, or 385%, for the six month period ended September 30, 1996, and $568,000, or 386%, for the three month period ended September 30, 1996, in comparison with the corresponding periods of the previous fiscal year. These increases were attributable to the significantly higher balances available to the Company for short-term investment as a direct result of the Company's secondary public offering of common stock and concurrent sale of common stock to a private investor in November 1995. These concurrent equity offerings raised over $40 million for the Company. 7 9 Provision for Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Income tax expense consists of foreign income tax withholding on foreign source royalties paid to the Company. The Company has a July 31 year end for income tax purposes. As of March 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $37,246,000 and for state income tax purposes of approximately $14,449,000. The Company also had research and development credit carryforwards for federal income tax purposes of approximately $1,255,000 and for state income tax purposes of approximately $561,000. Pursuant to the Tax Reform Act of 1986, annual utilization of the Company's net operating loss and tax credit carryforwards is partially limited. Liquidity and Capital Resources The Company's cash, cash equivalents, and marketable securities declined to $42.9 million at September 30, 1996 from $50.4 million at March 31, 1996. This decrease of $7.5 million resulted primarily from the use of cash during the period of $6.4 million for operating activities and $1.5 million for the purchase of furniture and equipment. The Company expects to incur additional substantial losses at least through its fiscal year ending March 31, 1997, but anticipates that its existing capital resources will be adequate to satisfy its operating and capital requirements throughout the fiscal year. Prepaid expenses and other current assets increased $450,000 from March 31, 1996 to September 30, 1996 due to increases in the balance of prepaid insurance premiums in connection with the Company's directors and officers liability insurance coverage. Furniture and equipment, net of depreciation, increased $985,000 from March 31, 1996 to September 30, 1996, due to furniture and equipment purchases for new employees, leasehold improvements related to office expansions, and ongoing enhancements to the Company's computer equipment used for research and development. Accounts payable and accrued liabilities increased $156,000 at September 30, 1996 as compared to March 31, 1996, principally because of higher accrual balances in the current fiscal year for marketing events and for expenses in connection with the Company's secondary offering common stock in November 1995. Deferred revenue at September 30, 1996 fell $2,118,000 from March 31, 1996, as the Company recognized as revenue certain advance royalty payments collected in previous periods under contracts with OEM customers. The amount of such advance royalty payments recognized as revenue during the six month period ended September 30, 1996 exceeded the amount of actual payments collected during the period, causing the balance in deferred revenue to decline. The significant decrease in the Company's deferred revenue balance during the period was attributable primarily to the recognition as revenue of $2,234,000 in connection with the restructuring of two OEM license agreements for which there had been non-refundable, prepaid royalty balances outstanding at the time of the restructuring. Other current liabilities increased $192,000 from March 31, 1996 to September 30, 1996 as a result of higher accrual balances for certain incentive compensation and employee benefit programs. Lease obligations decreased $193,000 from March 31, 1996 to September 30, 1996, as monthly lease payments amortized outstanding principal balances. Future Operating Results Since its inception in 1983, the Company has incurred significant losses, has had substantial negative cash flow, and has realized limited revenues. At September 30, 1996, the Company had an accumulated deficit of $46.4 million, and had incurred operating losses of approximately $9.9 million, $10.2 million, and $7.9 million in the fiscal years ended March 31, 8 10 1996, 1995 and 1994, respectively, and $4.8 million in the six month period ended September 30, 1996. The Company expects to continue to incur substantial annual operating losses at least through its fiscal year ending March 31, 1997, and it is unclear how soon thereafter, if ever, the Company will operate profitably. The Company's strategic plan to achieve profitability includes focusing on the mobile segment of the CCD market in the near term, establishing additional relationships with CCD manufacturers, continuing to enhance the Company's GEOS system software, and offering CCD aftermarket services and products. The duration and outcome of any of these efforts is uncertain, and the Company's future operating results will depend upon the emergence of the CCD market, the Company's ability to establish licensing relationships with leading CCD hardware manufacturers, the introduction by those manufacturers of successful CCDs, and the Company's ability to achieve and maintain a competitive advantage. Limited retail sales of first generation CCDs incorporating the Company's software have adversely affected, and will continue to adversely affect, the amount of license revenue realized by the Company. The limited sales to date indicate a slow adoption rate for the device category, which has had and will continue to have a material adverse effect on the Company's operating results. In particular, the Casio Z-7000, a first generation personal digital assistant which was based upon the Company's GEOS system software and introduced in 1994, achieved only modest unit sales. Sharp Electronics Corporation and Toshiba Corporation each developed a GEOS-based device, and subsequently elected to cancel introduction of such devices into the market. License revenue from the education CCD market fell short of Company expectations, causing the Company to discontinue its development efforts in this segment and restructure its licensing agreement with IBM/Eduquest. The Brother Ensemble, a personal desktop publishing system, and the Hewlett-Packard OmniGo 100, a second generation electronic organizer, both contain the Company's software and were both introduced during calendar year 1995. To date, however, royalties earned on reported unit shipments of these products have not made a significant favorable contribution to the Company's operating results. In August 1996, Nokia Mobile Phones released a digital cellular telephone ("smart phone") in selected geographic markets which incorporates the Company's software. It is unclear, however, what effect this new product will have on the Company's reported royalties or CCD adoption rates. Many factors relating to the market introduction and promotion of these and other CCDs are not within the control of the Company, and there can be no assurance as to the timing of release or success of any such products, the impact they may have on adoption rates within the CCD market, or the effect they may have on the Company's operating results. Because the Company has focused its development resources towards products in the mobile segment of the CCD market, its efforts to develop products for other CCD market segments have been deferred indefinitely. Ultimately, the Company expects that its long-term results will depend upon its success in developing and marketing aftermarket products and services that operate on GEOS-based CCDs. There can be no assurance that the CCD market will evolve as anticipated or that the Company will be able to develop and market aftermarket products and services successfully in order to execute its business plan. The Company's operating results have in the past been, and are expected in the future to be, subject to significant fluctuations on both a quarterly and annual basis. Specifically, the Company expects that its operating results will fluctuate as a result of the timing and success of the Company's efforts to establish and maintain relationships with significant CCD market participants; the introduction and market acceptance of new GEOS-based CCDs by these participants; the introduction and distribution of new system and application software by the Company; actions by competitors of the Company; and actions by its partners. License revenue related to OEM customer products which contain the Company's software is contingent upon those customers' success in meeting anticipated shipment dates, obtaining market acceptance for their products, and realizing significant sales volume of those products. The Company's results are also affected by the timing and extent of product development, engineering, and sales and marketing expenses. The Company presently intends to devote substantial resources towards product 9 11 development, which may affect its investment and performance in other activities and in turn affect reported operating results in future periods. In addition, the Company's results may be affected by seasonal and other fluctuations in demand for CCDs and for related software products and services, as well as by the general state of the domestic and global economies. The Company expects the CCD market to be characterized by significant seasonal swings in demand similar to those in the consumer electronics market, in which demand typically peaks in the fourth calendar quarter of each year. The Company's operating results may also vary as a result of the receipt of one-time technology license or engineering fees, and the recognition as revenue of paid but unamortized advance royalties under OEM agreements (currently recorded as deferred revenue) upon the restructuring or termination of such agreements or upon product discontinuation. Amounts recognized upon such restructurings or terminations have accounted in the past, and could account in the future, for a material portion of the Company's revenue, with no corresponding cash flow benefit in the period in which the revenue is recognized. Shortfalls in the Company's revenues or results of operations in comparison with levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock. Moreover, the Company' stock price is subject to the volatility generally associated with technology stocks and may also be affected by broader market trends unrelated to the Company's specific performance. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include those referring to the Company's future plans, capital needs and operating results, the acceptance of the activities and products of the Company and its partners in the CCD market, the extent of the Company's investment in research and development in future periods, and the development of the CCD market in general. Actual events and results could differ materially from those projected in the forward-looking statements as a result of a variety of factors, including those risk factors set forth in the preceding five paragraphs and elsewhere in this report, especially those regarding the Company's operating results and future activities and those regarding the CCD market itself. 10 12 PART 2 OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held its Annual Meeting of Shareholders on August 21, 1996. (b) The Company's Board of Directors is elected at each Annual Meeting of Shareholders. The Directors elected at the meeting were: Brian P. Dougherty, Bruce W. Dunlevie, Gordon E. Mayer, Harry W. McKinney, Reijo Paajanen, Eric E. Schmidt, Clive G. Smith, and R. Duff Thompson. (c) The matters described below were voted on at the Annual Meeting of Shareholders, and the votes cast with respect to each matter and with respect to the election of directors for each nominee were as indicated. 1. To elect directors to serve until the next Annual Meeting of Shareholders and until their successors are duly elected.
NOMINEE FOR WITHHELD NOT VOTED ------- --- ---------- --------- Brian P. Dougherty 12,036,111 22,770 1,944,277 Bruce W. Dunlevie 12,045,061 13,820 1,944,277 Gordon E. Mayer 12,045,611 13,270 1,944,277 Harry W. McKinney 12,045,111 13,770 1,944,277 Reijo Paajanen 12,045,411 13,470 1,944,277 Eric E. Schmidt 12,045,611 13,270 1,944,277 Clive G. Smith 12,017,472 41,409 1,944,277 R. Duff Thompson 12,041,985 16,896 1,944,277
2. To approve an amendment to the Company's 1994 Stock Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 650,000 shares.
FOR OPPOSED NOT VOTED --- ------- --------- Common Stock 10,018,592 1,860,597 2,123,969
3. To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending March 31, 1997.
FOR OPPOSED NOT VOTED --- ------- --------- Common Stock 12,046,784 6,621 1,949,753
11 13 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 10.03 1994 Stock Plan and Form of Stock Option Agreement 10.35 Supplemental Stock Option Plan * 10.36 Technology License Agreement between NEC Corporation and Geoworks, dated September 9, 1996 ** 10.37 Amendment Number One to Technology License Agreement between Sharp Corporation and Geoworks, dated September 13, 1996 27.1 Financial Data Schedule b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended September 30, 1996. * Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form S-8 (File No. 333-09569), effective August 5, 1996 ** Confidential treatment requested as to portions thereof 12 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 13 , 1996 GEOWORKS by: /s/ Daniel L. Sicotte -------------------------------- Daniel L. Sicotte Treasurer (Duly Authorized Officer and Principal Financial Officer) 13 15 GEOWORKS EXHIBITS TABLE OF CONTENTS
Exhibit No. Description - ----------- ----------- 10.03 1994 Stock Plan and Form of Stock Option Agreement 10.35 Supplemental Stock Option Plan * 10.36 Technology License Agreement between NEC Corporation and Geoworks, dated September 9, 1996 ** 10.37 Amendment Number One to Technology License Agreement between Sharp Corporation and Geoworks, dated September 13, 1996 27.1 Financial Data Schedule
* Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form S-8 (File No. 333-09569), effective August 5, 1996 ** Confidential treatment requested as to portions thereof 14 EX-10.03 2 1994 STOCK PLAN AND FORM OF STOCK OPTION AGREEMENT 1 EXHIBIT 10.03 GEOWORKS 1994 STOCK PLAN (As amended and restated August 15, 1996) 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 1 2 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. 2 3 (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 2,150,000 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 3 4 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); 4 5 (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 5 6 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 6 7 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 7 8 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. 8 9 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 9 10 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 10 11 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. 11 EX-10.36 3 TECHNOLOGY LICENSE AGREEMENT 1 EXHIBIT 10.36 CONFIDENTIAL TREATMENT REQUESTED ---------------------------- ### This portion has been omitted and filed separately pursuant to a request of confidential treatment. ---------------------------- GEOWORKS - NEC TECHNOLOGY LICENSE AGREEMENT This Agreement is effective as of April 26, 1996 (the "Effective Date"), by and between GEOWORKS, a California corporation ("GEOWORKS"), and NEC Corporation, a Japanese corporation ("NEC"). RECITALS A. NEC is a developer, manufacturer, and distributor of computer, communication and consumer electronics equipment. B. GEOWORKS is a developer, manufacturer, distributor, and publisher of computer software technologies. C. GEOWORKS and NEC desire that GEOWORKS grant to NEC the right to embed certain GEOWORKS technologies in a new portable computing and communication device to be developed by NEC, code-named #####. AGREEMENT 1. DEFINITIONS 1.1 "PARTY" and "PARTIES" refer to GEOWORKS and/or NEC. 1.2 "LICENSEE" means, collectively, (i) NEC and (ii) any corporation, company or other entity at least fifty percent (50%) of whose outstanding shares or securities or ownership interests (representing the right to vote for the election of directors or other managing authorities) are owned or controlled by NEC, but such corporation, company or other entity shall be deemed to be "Licensee" only so long as such ownership or control exists. 1.3 "LICENSED TECHNOLOGY" means the GEOS(R) operating system software and GEOS-based application software, described in Exhibit A, including but not limited to, the Licensed Technology modified to the Product Specification for the ##### Product . 1.4 "PRODUCT MATERIALS" means the documentation described in Exhibit A. 2 1.5 "TOOLS" means the software development tools described in Exhibit A. 1.6 "UPDATE" means a modification to the Licensed Technology which incorporates corrections of Errors and/or provides functional or performance improvements. Updates include any update, supplement, version up and upgrade of the Licensed Technology. 1.7 ##### 1.8 "GEOWORKS PROMOTIONAL MATERIALS" means the GEOWORKS promotional materials described in Section 8.6 (GEOWORKS Promotional Materials Packed with the Licensee Product). 1.9 "EMBEDDED LICENSED TECHNOLOGY" means the Licensed Technology, in Object Code form only, reproduced in solid state media (e.g., Read Only Memory (ROM), Programmable Read Only Memory (PROM) or Flash Memory) and physically integrated into the Product and distributed with the Product as a single physical and commercial unit. "Embedded Licensed Technology" may also include the Licensed Technology, in Object Code form only, reproduced on removable media (e.g., HDD units that fit in type III PCMCIA slots), provided that such media are sold with the Product as a single commercial unit and are never sold separately. 1.10 "ERROR" means (i) a failure of the Licensed Technology, as delivered to NEC by GEOWORKS, to operate in the Product in the manner described in the Product Specification, or (ii) any of the errors or problems described in Section 13.3 (Classification); ##### 1.11 "PRODUCT" or "Products" means any and all ##### devices capable of #####, including, but not limited to, the "##### Product" as defined in Exhibit B ("##### Product"). Product will include units bearing Licensee's label ("LICENSEE LABELED PRODUCTS") and units bearing the label of Licensee's Private Label customers ("PRIVATE LABELED PRODUCTS"). 1.12 "PRODUCT SPECIFICATION" means a description of the characteristics, functionality and the specification of the ##### Product ("##### PRODUCT SPECIFICATION"), and that of the Licensed Technology ("LICENSED TECHNOLOGY SPECIFICATION"), as set forth in Exhibit B. ##### 1.13 "PRODUCT SHIPMENT" means a shipment of a unit of Product embedding the Licensed Technology from a factory or warehouse of a Licensee which manufactured or have manufactured the Product to another party. ##### 1.14 "OBJECT CODE." The computer programming code for the Licensed Technology 2 3 in machine readable form. 1.15 "SOURCE CODE." The computer programming code for Licensed Technology in human readable form, including internal programmer documentation and commentary regarding the structure and operation of the code. 2. FORM OF AGREEMENT 2.1 EXHIBITS This Agreement has the following Exhibits which form an integral part hereof: Exhibit A Identification of the Licensed Technology. This Exhibit is a description of all Licensed Technology licensed to Licensee under this Agreement. Exhibit B The NEC ##### Project. This Exhibit includes a description of the ##### Product, the Product Specification, a timetable for development, and other terms. Exhibit C Addresses for Notices Exhibit D GEOWORKS Trademarks, Logos and Proprietary Markings Exhibit E Payments. This Exhibit specifies the royalties and NRE payable under this Agreement, and certain other financial terms. Exhibit F NEC End User License Agreement. This Exhibit states the minimum terms to be included in the End User License Agreement to be distributed with the Embedded Licensed Technology. 2.2 MODIFICATION AND INTERPRETATION OF EXHIBITS The Exhibits shall be kept up-to-date and modifications and additions thereto shall be executed as a result of agreed modifications and additions. All Exhibits shall be subject to the terms and conditions of this Agreement, unless otherwise provided in any such Exhibit. In the event of a conflict between the terms of a Exhibit and the terms of this Agreement, the terms of the Exhibit shall be given effect for the subject matter covered by that Exhibit. 2.3 ENTIRE AGREEMENT This Agreement and the Exhibits hereto state the entire agreement between the Parties and supersede all prior communications, written or oral, between the Parties. 2.4 SEVERABILITY 3 4 If any provision contained in this Agreement is determined to be invalid or unenforceable, in whole or in part, the remaining provisions and any partially enforceable provision will, nevertheless, be binding and enforceable, and the Parties agree to substitute for the invalid provision a valid provision which most closely approximates the intent and economic effect of the invalid provision. 2.5 WRITING. No amendment or modification of this Agreement may be made except by an instrument in writing signed by both Parties 3. GRANT OF LICENSES. Subject to all the terms and conditions herein, GEOWORKS hereby grants to Licensee the following: 3.1 OBJECT CODE DISTRIBUTION a worldwide, non-exclusive, non-transferable license, for the Term (Section 14.1) and subject to the terms of this Agreement, (i) to distribute the Embedded Licensed Technology in Object Code form only and (ii) to distribute the Licensed Technology in Object Code form (whether embedded or not) for use by end users who have previously purchased a royalty-bearing Product, for back up, warranty, maintenance, upgrade and version up purposes only. ##### 3.2 OBJECT CODE REPRODUCTION a worldwide, non-exclusive, non-transferable license, for the term of this Agreement, to make, and to have made by subcontractors in connection with their production for Licensee of the Product or Product components ##### exact copies of the Licensed Technology, in Object Code form only. 3.3 SOURCE CODE 3.3(a) a worldwide, non-exclusive, non-transferable license to copy and use the Source Code ##### 3.3(b) the license to exercise the rights set forth in subsections 3.1 (Object Code Distribution) and 3.2 (Object Code Reproduction) with respect to the Object Code versions of such modifications, #####. 3.4 TOOLS AND PRODUCT MATERIALS 4 5 a worldwide, non-exclusive, non-transferable, royalty-free internal license to use, copy and modify (including the right to extend such rights to Licensee's sub-contractors, subject to Section 15 hereof if applicable) the Tools and Product Materials identified in Exhibit A, for the purposes set forth in Section 3.3.; #####. 3.5 TRADEMARKS a worldwide, non-exclusive, non-transferable, royalty-free license, for the term of this Agreement, to use GEOWORKS' trademarks and logos identified in Exhibit D solely for the purpose of marketing and distributing the Licensed Technology. 3.6 NO IMPLIED LICENSES There are no implied licenses under this Agreement, and any rights not expressly granted to Licensee hereunder are reserved by GEOWORKS. Except as expressly provided above, Licensee may not authorize any other party to make copies of the Licensed Technology. Licensee agrees that it will not use, copy, distribute, modify or transfer the Licensed Technology except as expressly permitted in writing by GEOWORKS or otherwise in accordance with the terms of this Agreement. 4. PROPRIETARY RIGHTS 4.1 LICENSED TECHNOLOGY OWNERSHIP GEOWORKS warrants, and Licensee acknowledges and agrees, that GEOWORKS and GEOWORKS' licensers are and shall remain the owners of all intellectual property rights in and to the Licensed Technology. The terms "purchase", "sell," "sold" and "distributed," when used with respect to the Licensed Technology in this Agreement, refer only to the purchase, sale or distribution of a license to use the Licensed Technology. 4.2 LICENSEE MODIFICATIONS TO LICENSED TECHNOLOGY ##### 5. DELIVERY OF THE LICENSED TECHNOLOGY AND ACCEPTANCE 5.1 MARKETING REQUIREMENTS DOCUMENT NEC shall prepare and deliver to GEOWORKS a market requirements documents, ##### 5.2 SPECIFICATION The Product Specification, #####, shall be signed by both Parties and attached to Exhibit B of this Agreement. All modifications thereto shall be made by mutual agreement only and shall be confirmed in writing. 5.3 DEVELOPMENT GEOWORKS agrees to perform the software development services which are necessary 5 6 to cause the GEOWORKS Licensed Technology to conform to the Product Specification according to the schedule set forth in Exhibit B attached hereto. 5.4 TESTING BY GEOWORKS GEOWORKS Licensed Technology will be tested by GEOWORKS in accordance with the mutually agreeable test plan to be included with the Product Specification. GEOWORKS will provide NEC with the test results together with the deliverables. 5.5 DELIVERY ##### 5.6 TESTING BY NEC ##### 5.7 ACCEPTANCE The Licensed Technology will be deemed accepted ("Acceptance") on the earliest to occur of the following: ##### 6. #####, UPDATES AND ##### 6.1 ##### The Parties understand and agree that #####. GEOWORKS will, upon NEC's written request and mutual agreement of the Parties perform the modification work of the Licensed Technology in accordance with a product specification, a delivery schedule, acceptance criteria, non- recurring engineering ("NRE") payment terms, and other pertinent provisions, to be agreed upon by the Parties through mutual consultation in good faith. 6.2 UPDATES GEOWORKS shall provide NEC written reports of the latest information concerning Updates from time to time, and upon NEC's request, deliver the Updates to NEC #####. 6.3 ##### ##### 6.4 COMPENSATION ##### 6.5 SUPPORT OF UPDATED TECHNOLOGY ##### 6 7 6.6 ##### TOOLS AND PRODUCT MATERIALS ##### 7. PAYMENTS 7.1 ROYALTY PAYMENTS NEC agrees to pay to GEOWORKS royalty payments as set forth in Exhibit E. Such payments are due and payable within sixty (60) days after the close of the quarter in which Product Shipments occur. 7.2 NOT FOR RESALE UNITS NEC will not incur any royalty payments for "not for resale" units of Product which are provided free of charge to third party end users or to a distributor or dealer of the Licensee, or used by Licensee solely for (i) demonstration and/or sales promotion purposes, (ii) testing purpose, and/or (iii) warranty or other customer support of the Product; or for the Product units returned by a distributor or dealer; provided, however, that a royalty payment will become due if and when Licensee receives a payment or other compensation for the delivery of any such Product units or Licensee uses such Product units for internal purposes other than those set forth in this Section. 7.3 CONSIDERATION FOR SOFTWARE ADAPTATION In consideration for GEOWORKS' services in adapting its Licensed Technology to conform to the initial Product Specification, NEC shall pay to GEOWORKS the ##### expense set forth in Exhibit E. ##### If any change to the Product Specification requested by NEC causes an increase or decrease in the cost of development in the GEOWORKS, either Party may request the other Party to equitably adjust the NRE expenses, provided that no adjustment shall be made unless agreed in writing by the Parties on or before the date of written confirmation of the change of the Product Specifications by both Parties. 7.4 TRAVEL REIMBURSEMENT ##### 7.5 CURRENCY All payments under this Agreement are to be made in U.S. dollars._@Any royalties that accrued in any currency other than U.S. dollars shall be converted to U.S. dollars at TTS exchange rate quoted by an authorized foreign exchange bank located in Tokyo, Japan on the last business day of the calendar quarter during which such royalties accrued. 7.6 TAX, ETC. ##### 7.7 RECORDS 7 8 NEC shall maintain complete and correct records establishing the amount of royalties due hereunder at least for a period of ##### after the occurrence of each event. 7.8 REPORTS No later than sixty (60) days after the end of each quarter, NEC shall send to GEOWORKS a report stating the number of royalty-bearing units of Product Shipment during the quarter and amount of royalty due on each Product. No report shall be required if Licensee notify GEOWORKS that it discontinues the shipment of the Product and the amount of royalty due is zero. From time to time, GEOWORKS may request that Licensee provide such information as GEOWORKS may reasonably require in order to register and protect its trademarks and other intellectual property rights. #####. 7.9 AUDITS During the term of this Agreement and for ##### after the later of (i) expiration or any termination of this Agreement, or (ii) the date on which Licensee last ships units of any Product in accordance with Section 14.4 (Limited Rights After Termination), an independent third-party representative of GEOWORKS, reasonably acceptable to NEC, upon reasonable notice and during NEC's normal business hours, shall have the right to conduct an audit of the relevant portions of NEC's books of account to verify the accuracy of the royalty report of NEC. Prompt adjustment shall be made for any over or under payments revealed by such audit(s), #####. Such audit(s) may be conducted no more than once in any twelve-month period. #####. All information obtained by GEOWORKS' independent third-party representative during any such audit shall be treated as Confidential Information as defined in Section 15 (Nondisclosure and Restricted Use). The auditor shall report to GEOWORKS only the result of the audit and shall not disclose any Confidential Information of Licensee. 8. ADVERTISING, TRADEMARK USAGE/PROTECTION AND PUBLICITY 8.1 CO-PROMOTION OF GEOWORKS ##### 8.2 LICENSEE-LABELED PRODUCTS GEOWORKS' name, logo and proprietary notices, in the forms provided in Exhibit D, will appear prominently, in a style, size and location reasonably determined by Licensee, on or in connection with all Licensee-labeled Products, as follows: ##### 8.3 PRIVATE LABELED PRODUCTS ##### 8 9 8.4 ACKNOWLEDGMENT OF NEC ##### Such approval may be given by the officer identified in Exhibit C. NEC shall review all such requests made by GEOWORKS under this Subsection without undue delay. 8.5 PUBLIC RELATIONS PROGRAMS ##### 8.6 GEOWORKS PROMOTIONAL MATERIALS PACKED WITH THE LICENSEE-LABELED PRODUCT ##### 8.7 MARKETING PLANS ##### 9. CUSTOMER SUPPORT 9.1 FIRST LEVEL CUSTOMER SUPPORT Licensee shall provide and/or shall require its Private Label customers to provide customer support for end users who acquire Product units, in accordance with Licensee's commercially reasonable and customary customer support practices. In the event that Licensee's customers first call GEOWORKS directly for technical support, GEOWORKS may refer such customers to Licensee. ##### 9.2 SECOND LEVEL CUSTOMER SUPPORT In the event that trained Licensee technical personnel are unable to answer the end users' questions regarding the Licensed Technology after using reasonable efforts, such technical personnel may contact GEOWORKS at its customer support center with respect to such technical support questions. ##### 9.3 TESTING EQUIPMENT During the development process, Licensee shall deliver to GEOWORKS ##### of the ##### Product, together with such special equipment and supplies as GEOWORKS may reasonably require and be accepted by Licensee, for the exclusive use in testing the operation of the Licensed Technology in the ##### Products. Upon the first commercial shipment of each Product, Licensee will deliver ##### of the release version of the Product, including all packaging and documentation included in the Product. GEOWORKS shall have and retain use of such Product units to meet its second-level support and Error-correction obligations under this Agreement, and in order to protect its trademarks and copyrights. 9.4 ##### SALES ##### 9 10 10. MANUFACTURING RESPONSIBILITIES. Licensee will manufacture accurate copies of the Licensed Technology in the Product, at its expense and responsibility. Any Product bearing a GEOWORKS trademark shall be manufactured in accordance with Licensee's customary quality control standards. Unless GEOWORKS otherwise agrees in writing, all of the Licensed Technology computer programs (including data files) identified in Exhibit A under the heading "Minimum Configuration" shall be loaded in the Product so that the Product meets the minimum requirements of the GEOWORKS operating system platform. 11. GEOWORKS' INDEMNITIES 11.1 INDEMNITY GEOWORKS shall defend and hold harmless Licensee, its Private Label customers, and their distributors and customers against, and pay any resulting awards and settlements arising from, any claim, demand, suit or action to the extent it alleges that the Licensed Technology, Product Materials, Tools or GEOWORKS trademarks ("Licensed Items") as supplied by GEOWORKS infringes upon any patent or trademark or copyright or trade secret or other intellectual property right of any third party, provided that (1) NEC promptly informs GEOWORKS in writing of any such claim, demand, action or suit, (2) GEOWORKS is given control over the defense thereof and NEC cooperates in the defense, at GEOWORKS' expense, and (3) Licensee will not agree to the settlement of any such claim, demand, action or suit prior to a final judgment thereon without the prior written consent of GEOWORKS, which consent will not be unreasonably withheld. Licensee shall have the right to select its own counsel to participate in any such defense, at Licensee's expense. GEOWORKS' indemnity obligations do not apply to (1) modifications to the Licensed Technology specified by NEC, if the modification causes an infringement without regard to the manner in which the modification is implemented by GEOWORKS (and provided, however, that GEOWORKS' indemnity obligations shall apply to infringements caused by the manner in which GEOWORKS implements such a modification), (2) modifications made to the Licensed Technology not by or for GEOWORKS, (3) distribution of a superseded infringing version of the Licensed Technology by Licensee after release by GEOWORKS (and acceptance by NEC, which acceptance shall not be unreasonably withheld or delayed) of a non- infringing version by GEOWORKS in accordance with Section 11.2 hereof (GEOWORKS' Rights), and (4) any use or combination of the Licensed Technology with any technology, software or hardware not supplied by GEOWORKS, if such alleged infringement would be avoided by use of the Licensed Technology alone or with other technology, software or hardware. 11.2 GEOWORKS' RIGHTS If a claim, demand, suit or action alleging infringement is brought or GEOWORKS reasonably believes one may be brought, GEOWORKS shall be fully responsible and have the right at its entire expense to (1) modify the Licensed Technology to avoid the allegation of infringement, while at the same time maintaining compliance of the 10 11 Licensed Technology with the Product Specification, or (2) obtain for Licensee a license to continue to exercise the rights granted herein. 11.3 LIMITATIONS ##### 12. NEC'S INDEMNITIES 12.1 INDEMNITY. NEC shall defend and hold harmless GEOWORKS against, and pay any resulting awards and settlements arising from any claim, demand, suit or action to the extent it alleges that any Product embedding the Licensed Technology (excluding the Licensed Technology) infringes upon any patent or any trademark or copyright or trade secret or other intellectual property rights of any third party, provided that (1) GEOWORKS promptly informs NEC in writing of any such claim, demand, action or suit, (2) NEC is given control over the defense thereof and GEOWORKS cooperates in the defense at NEC's expense, and (3) GEOWORKS will not agree to the settlement of any such claim, demand, action or suit prior to a final judgment thereon without the written consent of NEC, which consent will not be unreasonably withheld. GEOWORKS shall have the right to select its own counsel to participate in any such defense at GEOWORKS' expense. NEC's indemnity obligations do not apply to (1) modifications made to the Product not by or for Licensee, and (2) any use or combination of the Product with any technology, software or hardware not supplied by Licensee, if such alleged infringement would be avoided by use of the Product alone or with other technology, software or hardware. 12.2 LIMITATIONS ##### 13. ERROR CORRECTION 13.1 TERM AND COST OF ERROR CORRECTION GEOWORKS shall provide Error correction, as set forth herein, at no charge for a period of ##### after Acceptance of the Licensed Technology. Thereafter during the term of this Agreement and ##### after the last delivery of any Update, upon the request of NEC, such Error correction will be provided in accordance with conditions to be agreed upon by the Parties. 13.2 REQUEST FOR CORRECTION ##### 13.3 CLASSIFICATION Errors shall be classified as ##### as follows: 11 12 ##### GEOWORKS will have primary responsibility to classify the Errors and will inform NEC of the result of it classification without delay, provided that if NEC has a different opinion both Parties will consult each other in good faith to determine the classification of the Errors. 13.4 TIMEFRAME GEOWORKS will respond to reports of suspected Errors as follows: ##### 13.5 DEFINITION OF ##### ERROR For purposes of this Section, an ##### Error is one specific Error #####. For this purpose, GEOWORKS may request that Licensee provide the information of its intended date of first commercial shipment, and Licensee agrees to respond to such requests with the information as is available without delay. 13.6 LIABILITY FOR COST OF CORRECTION GEOWORKS shall be responsible for all internal engineering expenses incurred by GEOWORKS in connection with its correction of any Error. Licensee shall be responsible for all costs and expenses associated with Licensee's refund, recall, or replacement of any unit of any Product affected by any Error. ##### 13.7 DISCLAIMER OF IMPLIED WARRANTIES EXCEPT AS SET FORTH IN THIS AGREEMENT, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL IMPLIED WARRANTIES WITH RESPECT TO THE LICENSED TECHNOLOGY, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXCLUDED. 14. TERM OF AGREEMENT AND TERMINATION 14.1 TERM Unless terminated earlier in accordance with this Agreement, this Agreement shall begin on the Effective Date and shall continue to be effective for seven (7) years from the Effective Date and shall thereafter automatically be extended for succeeding every three (3) year periods unless either party gives to the other a written notice of termination at least one (1) year prior to the expiration of the original or extended term of this Agreement. 14.2 TERMINATION FOR BREACH Each Party shall have the right to terminate this Agreement upon thirty (30) days prior 12 13 written notice if the other Party is in breach of any material term of this Agreement and the breaching Party fails to remedy such breach within the thirty-day notice period. 14.3 BANKRUPTCY Each Party shall have the right to terminate this Agreement immediately upon written notice in the event that the other Party becomes insolvent, files for any form of bankruptcy, makes any assignment for the benefit of creditors, or ceases to conduct business (other than in connection with an assignment permitted under Section 18.1 (Assignment)). Each Party acknowledges that if it is a debtor-in- possession, or if a trustee in bankruptcy in a case under the United States Bankruptcy Code rejects this Agreement or any agreement supplementary hereto, the other Party may elect to retain its rights under this Agreement and/or any supplementary agreement as provided in Section 365(n) of the United States Bankruptcy Code. Upon written request of the other Party to the bankrupt Party or the Bankruptcy Trustee, the bankrupt Party or such Bankruptcy Trustee shall not interfere with the rights of the other Party as provided in this Agreement and any supplementary agreement. 14.4 LIMITED RIGHTS AFTER TERMINATION Upon any termination this Agreement due to the material breach by Licensee, all rights granted hereunder, including without limitation the licenses granted under Section 3 (GRANT OF LICENSES), shall terminate, as follows: 14.4(a) INVENTORY: When this Agreement is terminated, Licensee may continue to distribute its on-hand inventory of Product units embedding the Licensed Technology in accordance with the terms and conditions of this Agreement for a period of ##### following such termination. 14.4(b) USE AND PRODUCTION: Licensee will immediately cease all modification, copying, embedding and production of any additional copies of the Licensed Technology and any additional units of the Product as of the termination date and will cause any third parties who obtained from it the right to manufacture copies of the Licensed Technology or units of Product to do likewise. 14.4(c) CUSTOMERS' RIGHTS: Any termination or expiration shall not affect any end user's rights to use Product units and shall further not affect the right of any non-affiliated third party who purchased units of Product from NEC to sell such units to its customers. 14.4(d) RETURN OF MATERIALS: Within ##### of such termination or expiration (or immediately upon termination in the case of a termination for breach by Licensee), Licensee shall return all copies of the Licensed Technology then in its possession, including without limitation master diskettes and tapes, and user manuals. #####. Each Party shall destroy or return to the other all Confidential Information provided by the other Party, except that each Party may retain one 13 14 copy for archival purposes only, as a record of the confidential disclosures made to it under this Agreement. Within ##### of such termination or expiration, each Party shall confirm in writing to the other Party that all of the foregoing has been completed. 14.5 PAYMENT Within ##### of such termination or expiration NEC shall pay to GEOWORKS any and all sums due under this Agreement. 15. NONDISCLOSURE AND RESTRICTED USE 15.1 CONFIDENTIAL INFORMATION In the course of performing this Agreement, each Party (the "Disclosing Party") may disclose to the other Party ("the Receiving Party") trade secrets and confidential and proprietary information of the Disclosing Party, (i) disclosed in written or other tangible form and clearly marked with a legend identifying it as confidential or, (ii) disclosed in verbal or visual communications with the identification of confidential at the time of such disclosure and within ##### after such verbal or visual disclosure is provided in written or other tangible form to the Receiving Party marked with such legend ("Confidential Information"). #####. Both Parties agree that all Confidential Information of the other Party shall be held in strict confidence, will not be disseminated or disclosed to any third party and will not be used by the Receiving Party for any purpose other than performing its rights under this Agreement without the express written consent of the Disclosing Party for ##### from the date of disclosure, #####. Both Parties agree to use at least the degree of diligence to protect the other Party's Confidential Information as a reasonably prudent technology company would normally use to protect any of its own trade secrets and other confidential information. #####. The provisions of this Section shall not apply to any information or materials: (i) which are in the public domain at the time of disclosure to the Receiving Party or which thereafter enter the public domain through no action or inaction by the Receiving Party or its employees; or (ii) which were in the possession of, or known by, the Receiving Party prior to its receipt from the Disclosing Party; or (iii) which are rightfully disclosed to the Receiving Party by another party without restriction; or (iv) which have been independently developed by the Receiving Party, provided that the persons developing the same have not had access to the Confidential Information furnished to the Receiving Party by the Disclosing Party hereunder; or 14 15 (v) which are required to be disclosed pursuant to law, provided, however, that a minimum of ##### written notice shall be provided by the Party intending to disclose in order to permit the other Party to take such action as it deems appropriate to prevent or limit such disclosure. 15.2 RESTRICTED USE Without prejudice to the generality of the foregoing, each Party agrees not to use any of the Confidential Information or Licensed Technology of the other Party for any use or purposes except those expressly specified herein. 16. LIMITATION OF LIABILITY REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE, NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE TO THE OTHER PARTY FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR THE LOSS OF ANTICIPATED PROFITS ARISING FROM ANY PERFORMANCE OR BREACH OF THIS AGREEMENT BY SUCH PARTY EVEN IF NOTICE IS GIVEN OF THE POSSIBILITY OF SUCH DAMAGES. 17. SOURCE CODE ESCROW 17.1 APPOINTMENT Upon NEC's written request, the Parties will appoint a mutually agreeable escrow agent, and will execute an Escrow Agreement acceptable to both Parties and to the escrow agent. 17.2 DEPOSIT If the Escrow Agreement is established, then, within thirty (30) days after Acceptance, and thereafter upon NEC's Acceptance of any Update, GEOWORKS will deliver to the escrow agent the most current copy of those portions of the Source Code of the Licensed Technology that have not already been made available to NEC under this Agreement, in a form which can be used by a technically competent computer programmer to edit, debug, modify and compile the programs. If third party hardware and/or software is needed to so edit, debug, modify or compile the programs, an identification of such hardware and/or software shall also be deposited. 17.3 RELEASE FROM ESCROW The escrow agent will deliver the deposit to NEC upon: (a) the bankruptcy, liquidation or other permanent cessation of business by GEOWORKS (except in connection with an assignment permitted under Section 18.1 (Assignment)); (b) a finding of a court or arbitrator that GEOWORKS failed to cure a material breach of its obligations to correct Errors under Section 13 (Error Correction) within thirty (30) days after written notice of such breach from NEC, and a finding that delivery of the source code to NEC is thereby made necessary; or (c) other instructions signed by both parties. 15 16 17.4 COST The expenses to be paid to the escrow agent shall be borne and paid by #####. 17.5 CONDITIONAL LICENSE UPON RELEASE OF SOURCE CODE FROM ESCROW Upon release of the Source Code to NEC hereunder, Licensee shall have a nonexclusive, worldwide, perpetual license to use and modify the Source Code in order to correct Errors. Licensee shall treat the source code as confidential, and shall protect the Source Code from disclosure in the same manner and with the same level of care with which Licensee protects the Source Code to Licensee's proprietary products from disclosure. 18. GENERAL 18.1 ASSIGNMENT This Agreement may not be assigned in whole or in part by either Party without the prior written consent of the other Party; provided, however, that a successor in interest by merger, by operation of law, assignment or purchase of the entire business of either Party, shall acquire all interest and all obligations of such Party hereunder, without the necessity of obtaining prior written consent. Any prohibited assignment shall be null and void. The terms and conditions of this Agreement shall be binding upon and enforceable by the successor and permanent assigns of either Party. 18.2 GOVERNING LAW; ARBITRATION This Agreement will be governed and interpreted in accordance with the laws of the State of California, U.S.A., except for that body of law pertaining to conflicts of law, but excluding the Convention on Contracts for the International Sale of Goods. All disputes arising in connection with this Agreement shall, unless amicably settled by the parties, be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) arbitrators appointed in accordance with the Rules. The place of arbitration shall be, unless otherwise agreed between the parties, the country and the city in which the respondent has its principal place of business. Judgment upon the award rendered may be entered in any Court having jurisdiction or application may be made to such Court for a judicial acceptance of the award and an order of enforcement, as the case may be. All the arbitrators shall be conversant in the English language, and all proceedings shall be conducted and all documentary evidence shall be presented in English. Notwithstanding the foregoing, either party may request injunctions, seizure orders, writs of attachment, and other extraordinary remedies from any court having jurisdiction in the case of an actual or threatened infringement of such party's patents, copyrights, trademarks, trade secrets or other intellectual property rights by the other party. The filing of a proceeding for such extraordinary remedies shall not constitute a waiver by the filing party of the right to compel arbitration of all demands for other remedies. 16 17 18.3 CHOICE OF LANGUAGE The original of this Agreement has been written in English and English is the governing language of this Agreement. 18.4 INDEPENDENT CONTRACTORS Each Party will be deemed to have the status of an independent contractor towards the other Party, and nothing in this Agreement will be deemed to place the Parties in the relationship of employer-employee, principal-agent, partners or joint ventures. 18.5 ATTORNEYS' FEES ##### 18.6 WAIVER The failure of either Party to enforce any provision of this Agreement shall not be deemed a waiver of that or any other provision of this Agreement. 18.7 FORCE MAJEURE Neither Party will be deemed in default of this Agreement to the extent that performance of its obligations is delayed or prevented by reason of any act of God, fire, natural disaster, accident, act of government, or any other cause beyond the control of such Party ("Force Majeure"), provided that such Party gives the other Party written notice thereof promptly and uses its good faith efforts to cure the breach. In the event of such a Force Majeure, the time for performance or cure will be extended for a period equal to the duration of the Force Majeure but not in excess of six (6) months. 18.8 NOTICES Notices to either Party shall be in writing, in the English language, and shall be deemed delivered when served in person or two business days after being dispatched by an internationally recognized express courier service, and delivered to the addresses set forth in Exhibit C. A Party may change its address for purposes of receiving notices by giving notice of the change to the other Party. 18.9 SURVIVAL The rights and obligations under Sections 3 (GRANT OF LICENSES) (except in the case of termination by GEOWORKS due to material breach by NEC), 4 (PROPRIETARY RIGHTS), 7 (PAYMENTS), 9.1 (First Level Customer Support), 10 (MANUFACTURING RESPONSIBILITIES), 11 (GEOWORKS' INDEMNITIES), 12 (NEC'S INDEMNITIES), 13. (ERROR CORRECTION), 14.4 (Limited Rights After Termination), 15 (NONDISCLOSURE AND RESTRICTED USE), 16 (LIMITATION OF LIABILITY), and 18 (GENERAL) shall survive the expiration and any termination of this Agreement. 18.10 COMPLIANCE WITH LAWS 17 18 Both Parties agree to comply with all applicable laws and regulations in performing their duties hereunder. Both Parties understand that the Licensed Technology may be restricted by the governments of the United States and/or Japan from export to certain countries and each Party agrees that it will not distribute or reexport directly or indirectly, the Licensed Technology, or its direct product, in any way which will violate any of the export control laws or regulations of the United States or Japan, or to any prohibited country under such laws and regulations. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date. GEOWORKS NEC CORPORATION - ----------------------------------- ----------------------------------- Signature Signature Leland J. Llevano Takashi Hiyama - ----------------------------------- ----------------------------------- Print Name Print Name General Manager, Title Vice President Title Mobile Communications Division - ----------------------------------- ------------------------------- Date Sep 9, 1996 Date Sep 5, 1996 - ----------------------------------- -------------------------------- 18 19 EXHIBIT A IDENTIFICATION OF THE LICENSED TECHNOLOGY A. OPERATING SYSTEM ##### B. APPLICATIONS ##### ##### C. PRODUCT MATERIALS ##### D. TOOLS ##### ##### E. THIRD PARTY TECHNOLOGIES SUB-LICENSED TO NEC BY GEOWORKS ##### ##### F. MINIMUM CONFIGURATION The following is a preliminary identification of the GEOS files that must be present in a GEOS-based Product in order to meet the minimum configuration requirements of the platform: The following libraries must be present in any GEOS-based Product: ##### Currently each GEOS Product must also contain the following: ##### 19 20 EXHIBIT B THE NEC "#####" PROJECT 1. Product Definition ##### Product is a ##### and communication device initially designed for #####. 2. Product Specification 2-1 ##### Product Specification To be attached 2-2 Licensed Technology Specification To be attached 3. GEOWORKS' Testing Plan To be determined in Product Specification 4. NEC's Testing Plan To be determined in Product Specification 5. NEC's Coding Responsibilities ##### End User Documentation 6. Timetable ##### * The terms "Pre-Alpha," "Alpha," "Beta" and "Final" are to be defined by the Parties in the Product Specification. 7. NEC Proprietary Elements: a) Program Modules The following specific program modules, if developed by NEC, shall be NEC Proprietary Elements: ##### b) ##### Look and Feel and Specific UI Library ##### 20 21 c) GEOWORKS' Retained Rights GEOWORKS retains ownership of all intellectual property rights in ##### User Interface. Subject to item a) and b) above. GEOWORKS retains ownership of all intellectual property rights in ideas, methods, programming routines and subroutines, algorithms, screen handling techniques, I/O techniques and similar reusable elements, which are included in the ##### Specific UI Software Library furnished by GEOWORKS hereunder (the "Incorporated Procedures"). The licenses granted to NEC in Section 3 (GRANT OF LICENSES.) shall include a perpetual, world-wide, non-transferable license to include the ##### User Interface and the Incorporated Procedures in any Product. 21 22 EXHIBIT C ADDRESSES FOR NOTICES GEOWORKS' ADDRESS NEC'S ADDRESS 960 Atlantic Avenue ##### Alameda, CA 94501 U.S.A. GEOWORKS' TELEPHONE NUMBER NEC'S TELEPHONE NUMBER +1 510 814 1660 ##### GEOWORKS' FACSIMILE NUMBER NEC'S FACSIMILE NUMBER +1 510 814 4250 ##### GEOWORKS' NOTICE RECIPIENT NEC'S NOTICE RECIPIENT Leland J. Llevano ##### Vice President, Strategic Partnerships copy to Jordan J. Breslow GEOWORKS General Counsel GEOWORKS OFFICER FOR APPROVALS NEC OFFICER FOR APPROVALS Leland J. Llevano ##### Vice President, Strategic Partnerships 22 23 EXHIBIT D GEOWORKS TRADEMARKS, LOGOS AND PROPRIETARY MARKINGS [Not all marks are available in all countries] 1. Trademarks GEOWORKS(R) GEOS(R) ##### 2. Company Name GEOWORKS 3. Logos [LOGO] [LOGO] 4. Proprietary Markings [preliminary list] A. For Documentation GEOWORKS(R) application software and GEOS(R) operating system software copyright (C) 1990-1996 GEOWORKS. All rights reserved. United States Patent 5,327,529. ##### [Final list of trademark references to be determined when Product Specifications are complete] GEOWORKS(R), GEOS(R) the GEOS logo are Trademarks of GEOWORKS in the United States of America and other countries. ##### 23 24 All other brand and product names are trademarks or registered trademarks of their respective holders. ##### B. For Screen Display: [subject to technical feasibility given small screen size]: Copyright (C)1990-1996 GEOWORKS. United States Patent 5,327,529. 5. GEOWORKS encourages Licensee to incorporate the following copy right notice on Screen Display, provided that such incorporation shall be Licensee's discretion. [GEOWORKS to request appropriate modification of notice requirements from third parties, as necessary] ##### 24 25 EXHIBIT E NEC PAYMENTS 1. ROYALTIES: NEC will pay GEOWORKS a royalty for each Product Shipment, net of returns (excluding "Not For Resale Units" under Section 7.2). 1.1 Rate of Royalties The rate of royalty will be the following ##### of each Product, or following #####: ##### ##### ##### 1.2 Updates For purposes of this per-unit royalty provision, a Major Update is one which introduces significant new functionality. A Minor Update is one which incrementally improves the operating system, but does not add significant new functionality. ##### ##### Notwithstanding the provisions of item 1.1 above, the Parties agree that #####. 2. ##### 2.1 ##### NEC shall have the right to have an independent auditor from time to time audit GEOWORKS' compliance with this provision, and GEOWORKS shall grant such auditor confidential access to other license agreements and corresponding files. The auditor shall report to NEC only the compliance or non-compliance of GEOWORKS. #####. 2.2 If, within #####, any third party OEM customer of GEOWORKS commences commercial shipment in Japan of a ##### and is based upon the Licensed Technology or Minor Update (not including Major Update and not including #####), ##### 3. ##### If the total amount of per-unit royalties during the period from the ##### occurs does not equal #####, the balance will be paid by NEC within sixty (60) days after the end of such period. #####. 25 26 4. #####FEES NEC will pay to GEOWORKS a ##### fee ##### for GEOWORKS' development under this Agreement. Said fee shall be payable as follows: ##### 26 27 EXHIBIT F MINIMUM TERMS OF END USER LICENSE AGREEMENT 1. Statement of end user's acceptance of software license and of end user's right to return for refund if terms not acceptable 2. Copying and installation: a) For the software to be used on the Product, limited to one Product and one archive copy b) For the software to be used on the connected PCs, limited to two (2) PCs and one archive (if feasible) 3. Decompilation, reverse engineering prohibited 4. U.S. Government restricted rights notices to be included (in U.S. jurisdiction only) 5. Export law notices to be included 6. Warranty limited to replacing defective media. All other express and implied warranties are disclaimed 7. Licensee's (or Private Labeled customer's) standard Limitation of Liability 27 EX-10.37 4 AMENDMENT NO. 1 TO TECHNOLOGY LICENSE AGREEMENT 1 EXHIBIT 10.37 AMENDMENT NUMBER ONE TO TECHNOLOGY LICENSE AGREEMENT The Technology License Agreement (the "Agreement") effective as of October 21, 1993, by and between GEOWORKS, a California corporation ("GEOWORKS"), and the Information Systems Group of Sharp Corporation ("SHARP") is amended as follows: 1. SHARP and GEOWORKS agree that there will be no further distribution, reproduction or sublicensing by SHARP of the Embedded Licensed Technology under Section 2 (Grant of Licenses) of the Agreement, and no further manufacture or distribution of the Products, as defined in Sections 1.6 and 3 and Exhibit B. SHARP may continue to distribute any existing inventory of Products on hand as of the Effective Date of this Agreement, but shall not be required to account or pay GEOWORKS for such units. 2. SHARP shall have no further obligation to report shipments or royalties to GEOWORKS under the Agreement, including but not limited to Section 6.7, (Reports). 3. SHARP shall have no further obligation to pay to GEOWORKS any further engineering fees, advances against royalties, or actual royalties under the Agreement, including but not limited to sections 5.3 (Consideration for Software Adaptation), 6.1 (Royalty Payments) and 6.3 (Other Payments), and Exhibit F ("Sharp Minimum Commitment, Advanced Payment, Royalties and Best Efforts"). 4. All fees, royalties and advances paid to GEOWORKS under the Agreement shall be fully earned by GEOWORKS, and GEOWORKS shall have no obligation to refund to SHARP any portion of any fee paid to GEOWORKS under the Agreement. 5. SHARP shall have no further obligations under Sections 7 (Advertising, Trademark Usage/Protection and Publicity), 9.3 (Training) and 10 (Manufacturing Responsibilities) and Exhibit E (Geoworks Engineering Services for the Bullet Project). 6. GEOWORKS shall have no further obligations to SHARP under sections 5.1 (Delivery of the Software), 8 (Licensed Technology Enhancements), 9 (Customer Support), 13 (Error Correction) and Exhibit E (Geoworks Engineering Services for the Bullet Project). AMENDMENT ONE 1 7/2/96 2 7. The Effective Date of this Addendum is June 15, 1995 GEOWORKS By -------------------------------- Leland J. Llevano - ---------------------------------- Print Name Vice President - ---------------------------------- Title 26 Sept 1996 - ---------------------------------- Date SHARP By -------------------------------- Yasuo Sakata - ---------------------------------- Print Name General Manager Information Systems Product Development Laboratories - ----------------------------------- Title September 18, 1996 - ---------------------------------- Date AMENDMENT ONE 2 7/2/96 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF GEOWORKS AS OF SEPTEMBER 30, 1996, AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 5,004,000 37,936,000 0 0 0 43,606,000 5,429,000 (2,312,000) 46,883,000 5,706,000 0 0 0 86,952,000 (46,547,000) 46,883,000 0 4,460,000 0 99,000 10,338,000 0 81,000 (4,768,000) 0 (4,768,000) 0 0 0 (4,768,000) (.34) (.34)
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