-----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, D7/6vzizHu8vm9ih+fKVtIv/Y8OOdGoe3kcBpienK0yHfU1dmFDKKMvA0m4/Ezm1 Df1eIIDr5Kmt3DLkQsEGJQ== 0000891618-97-001082.txt : 19970311 0000891618-97-001082.hdr.sgml : 19970311 ACCESSION NUMBER: 0000891618-97-001082 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970224 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970310 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23926 FILM NUMBER: 97553890 BUSINESS ADDRESS: STREET 1: 960 ATLANTIC AVE CITY: ALAMEDIA STATE: CA ZIP: 94501 BUSINESS PHONE: 5108141660 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 24, 1997 GEOWORKS - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 0-23926 94-2920371 - -------------------------------------------------------------------------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification Number) incorporation) 960 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94043 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 814-1660 N/A - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On February 24, 1997 (the "Initial Closing Date"), pursuant to a Recommended Offer (the "Offer"), Geoworks acquired over 90% of the issued Ordinary Share capital of Eden Group Limited ("Eden"), a private limited company registered under the laws of England and Wales. As of March 6, 1997, Geoworks had received acceptances of the Offer with respect to approximately 99.5% of the issued Ordinary Share capital of Eden. Geoworks intends to acquire the remaining Ordinary Shares of Eden either through further acceptances of the Offer or compulsorily under English law. As a result of the acquisition, Eden became a subsidiary of Geoworks. Geoworks develops and markets operating system and applications software for the emerging market of mobile communications devices, electronic organizers, and smart phones. Eden develops and licenses software for the compact consumer electronics and communications products market. Pursuant to the Offer, Geoworks agreed to issue 1,304,250 shares of its Common Stock (the "Consideration Shares") in exchange for all of the issued and outstanding Ordinary Share capital of Eden. Based upon the capitalization of Eden as of the Initial Closing Date, each outstanding Ordinary Share of Eden exchanged in the Offer was converted into the right to receive approximately 0.8673 shares of Geoworks Common Stock (the "Exchange Ratio"). Immediately prior to the Initial Closing Date, all outstanding options to purchase Ordinary Shares of Eden were exercised in full, and the Ordinary Shares of Eden issued upon the exercise of such options were exchanged for Geoworks Common Stock pursuant to the Offer. In addition, certain loans of Eden were converted into Ordinary Shares of Eden immediately prior to the Initial Closing Date, and such Ordinary Shares were exchanged for Geoworks Common Stock pursuant to the Offer. Separately from the Offer, but as a condition to completion of the Offer, Geoworks acquired all of the issued Preference Shares in the capital of Eden for (pound)100.00 cash. In connection with the acquisition of Eden, Geoworks also entered into a Warranty and Covenant Agreement (the "Warranty Agreement") with certain former shareholders of Eden. Pursuant to the Warranty Agreement, three former shareholders of Eden (the "Warrantors") made certain representations, warranties and covenants with respect to Eden's business, operations and condition. In order to compensate Geoworks for a breach of any of the representations, warranties or covenants contained in the Warranty Agreement, the Warrantors agreed to deposit into escrow, out of the Consideration Shares otherwise issuable to them pursuant to the Offer, an amount of shares equal to five percent (5%) of the total Consideration Shares issued pursuant to the Offer. Also in connection with the acquisition, Geoworks agreed to grant the former shareholders of Eden certain rights to have the Consideration Shares registered with the Securities and Exchange Commission for subsequent resale. Pursuant to a Declaration of Registration Rights, Geoworks has agreed to file a Registration Statement on Form S-3 promptly following the completion of the Offer and to keep such Registration Statement effective for the shorter of two years or the minimum holding period under Rule 144(d), subject to certain conditions. The consideration paid by Geoworks for the Consideration Shares was determined pursuant to arms' length negotiations and took into account various factors concerning the valuation of the business of Eden, including public market valuations of comparable companies, discounted cash flows for Eden, and multiples paid in recent acquisitions of comparable companies. -2- 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Eden Group Limited Because the impact of the acquired business does not meet the minimum materiality threshold of Rule 3-05(b)(2)(i) of Regulation S-X (17 C.F.R. ss. 210.3-05(b)(2)(i)), financial information of the acquired business is not required to be filed pursuant to Item 7(a) of this Form 8-K. (b) Pro Forma Financial Information. Pro forma financial information is not required to be filed pursuant to Item 7(b) of this Form 8-K because: (i) separate financial statements of the acquired business are not included in this filing, see 17 C.F.R. ss. 210.11-01(c); and (ii) the acquired business does not qualify as a "significant subsidiary" under 17 C.F.R. ss. 210.11-01(b)(1). (c) Exhibits 2.1 Recommended Offer to Purchase the Entire Issued Share Capital of Eden Group Limited 2.2 Warranty and Covenant Agreement in relation to Eden Group Limited 2.3 Escrow Agreement -3- 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: March 10, 1997 GEOWORKS /s/ Daniel L. Sicotte Daniel L. Sicotte Controller (Principal Financial and Accounting Officer) -4- 5 INDEX TO EXHIBITS Exhibit Number Description of Document ------ ----------------------- 2.1 -- Recommended Offer to Purchase the Entire Issued Share Capital of Eden Group Limited 2.2 -- Warranty and Covenant Agreement in relation to Eden Group Limited 2.3 -- Escrow Agreement EX-2.1 2 RECOMMENDED OFFER TO PURCHASE ISSUED SHARE CAPITAL 1 Exhibit 2.1 Document No .............................................................. Name of Recipient ....................................................... RECOMMENDED OFFER TO PURCHASE THE ENTIRE ISSUED SHARE CAPITAL OF EDEN GROUP LIMITED 2 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT ABOUT THIS OFFER OR WHAT ACTION TO TAKE YOU SHOULD CONSULT A PERSON AUTHORISED UNDER THE UNITED KINGDOM FINANCIAL SERVICES ACT 1986, WHO SPECIALISES IN ADVISING ON THE SALE OF SHARES SUCH AS A FINANCIAL ADVISER, SOLICITOR, ACCOUNTANT, STOCKBROKER OR BANK MANAGER. IF YOU HAVE DISPOSED OF ANY OF YOUR ORDINARY SHARES IN EDEN GROUP LIMITED, PLEASE IMMEDIATELY NOTIFY S J BERWIN & CO, THE SOLICITORS TO GEOWORKS, BY TELEPHONE (0171 533 2222 REF: 11/383) OF THE NAME AND ADDRESS OF THE PERSON TO WHOM YOU EFFECTED THE DISPOSAL. RECOMMENDED OFFER by GEOWORKS of 1,304,250 shares of Common Stock of no par value in the capital of Geoworks in consideration for the sale to Geoworks of the entire issued and to be issued ordinary share capital of EDEN GROUP LIMITED The terms of the offer contained in this document are recommended by all the directors of Eden Group Limited. The issue of this document has been approved by Geoworks and by the directors of Eden. Geoworks and the directors of Eden have taken all reasonable care to ensure that the facts stated and opinions expressed herein regarding Geoworks and Eden respectively are fair and accurate and that no material facts concerning Geoworks and Eden respectively have been omitted. This document has been approved for the purposes of section 57 of the United Kingdom Financial Services Act 1986 by Robson Rhodes, chartered accountants, who are authorised by the Institute of Chartered Accountants in England and Wales to carry on investment business. ACCEPTANCES OF THE OFFER SHOULD BE RETURNED AS SOON AS POSSIBLE. IT IS GEOWORKS' INTENTION TO DECLARE THE OFFER UNCONDITIONAL WHEN ACCEPTANCES HAVE BEEN RECEIVED FROM THE HOLDERS OF NOT LESS THAN 90 PER CENT. OF THE EDEN ORDINARY SHARES. THEREAFTER, THE OFFER WILL REMAIN OPEN FOR ACCEPTANCE UNTIL THE CLOSE OF BUSINESS ON 14 MARCH 1997. THE PROCEDURE FOR ACCEPTANCE IS SET OUT ON PAGE 33. FORM(S) OF ACCEPTANCE ACCOMPANY THIS DOCUMENT. 3 CONTENTS
DOCUMENT PAGE 1 Summary of Offer and Offer Timetable 6 2 Letter from Dennis Taylor, Chairman of Eden Group Limited 9 3 The Offer from Geoworks 14 4 Appendix I - Rights attaching to the Consideration Shares 34 in Geoworks 5 Appendix II - Further information relating to Geoworks and Eden 37 6 Appendix III - List of Eden optionholders 41 7 Appendix IV - Summary of changes to the rights of Eden shareholders following Completion of the Offer 42 8 Appendix V - Notice, proxy form and instructions for the 48 extraordinary general meeting of Eden 9 Appendix VI - Form of Acceptance and Authority 53 10 Appendix VII - Declaration of Registration Rights 59
2 4 DEFINITIONS (1) In this document the following expressions have the meanings set out below: 3i 3i Group plc and 3i plc, as the context requires Acer A.I.I. Holding Corporation Affiliate Agreement(s) agreements among Geoworks, Eden and certain directors, officers and significant shareholders of Eden (each "Affiliates") restricting the transfer of shares of Geoworks Common Stock following the Closing to ensure treatment of the business combination following Closing as a pooling of interests for accounting and financial reporting purposes Closing or Completion the Offer becoming unconditional in all respects, or being declared unconditional by Geoworks Common Stock fully paid shares of common stock of no par value in the capital of Geoworks Consideration Shares 1,304,250 shares of Common Stock having the rights described in Appendix I Declaration of Registration Rights the Declaration of Registration Rights given by Geoworks for the benefit of all Eden shareholders accepting the Offer, a copy of which appears as Appendix VII Eden Eden Group Limited, a private limited company registered in England and Wales under the Companies Act 1985 with no 2357515 Eden Employee Options the options granted by Eden pursuant to Eden's Executive Directors Share Option Scheme, the Non-executive Directors Share Option Schemes and Key Employees Share Option Scheme, which give optionholders the right to subscribe for 151,650 ordinary shares in Eden in aggregate Eden Options options to subscribe for Ordinary Shares subsisting at the date of this document Enlarged Group Geoworks and Eden Escrow Agent the escrow agent to be appointed pursuant to the Escrow Agreement Escrow Agreement the agreement between the Escrow Agent, Geoworks and David E J Crisp as agent of the Warrantors
3 5 Escrow Amount 65,213 of the Consideration Shares issued by Geoworks to the Warrantors, to be held by the Escrow Agent under the Escrow Agreement Exchange Ratio 0.8673, representing the number of Consideration Shares to be issued for each Ordinary Share the Executives David E J Crisp, Alistair Jenkins, David L Stevens and Dennis P Taylor Final Closing Date 14 March 1997, the last date for acceptances of the Offer unless extended prior to that date in accordance with the terms of the Offer Geoworks Geoworks, a California corporation, whose principal office is at 960 Atlantic Avenue, Alameda, California 94501, United States of America Initial Closing Date the date on which the Offer becomes unconditional, or Geoworks declares the Offer unconditional, having received acceptances from the holders of not less than 90 per cent. of the Ordinary Shares, in accordance with the terms of the Offer the Offer the offer being made by Geoworks for the entire issued Ordinary Share capital of Eden, the terms of which are set out in this document the Ordinary Shares 1,503,877 ordinary shares of L.0.10 each in the capital of Eden, comprising the entire issued ordinary share capital of Eden on the date hereof and including all Ordinary Shares which will be issued upon exercise of all outstanding options to subscribe for Eden Ordinary Shares and upon capitalisation of the Shareholder Loans described in paragraph 2.8 Preference Shares 977,342 redeemable cumulative preference shares of L.1 each in the capital of Eden Preference Share Agreement the agreement dated 12 February 1997 between Geoworks and each of 3i plc and 3i Group plc for the sale of all the issued Preference Shares for an aggregate of L.100 (being the fair value for such shares in the opinion of Geoworks) in cash Shareholder Loans the loans which will be due and payable on Completion by Eden to 3i Group plc and Acer, totalling L.1,072,770 principal and L.171,459 interest, in aggregate, as at 24 February 1997 the Warrantors David EJ Crisp, David L Stevens and Alistair Jenkins Warranty and Covenant Agreement the Warranty and Covenant agreement dated 12 February 1997 and made between Geoworks, the Warrantors and others, referred to on page 9, a copy of
4 6 which is available for inspection in accordance with paragraph 18 (2) References to "paragraph" are to the paragraphs of the Offer set out in the letter from Geoworks beginning on page 14 of this document. (3) In this document a currency exchange rate of L.1.00:US$1.6230, being the rate current at the close of business on 7 February 1997, has been assumed for all purposes. 5 7 SUMMARY OF THE OFFER 1 This document relates to a conditional offer by Geoworks to acquire all the issued and to be issued Ordinary Shares in the capital of Eden in return for the issue to each holder of Ordinary Shares of approximately 0.8673 shares of Common Stock in the capital of Geoworks ("the Consideration Shares") for each Ordinary Share held, representing approximately US$31,041,897, based on the average closing price quoted on Nasdaq of Geoworks Common Stock, for the period of 30 trading days ended on 7 February 1997. 2 The Exchange Ratio is based upon the entire issued Ordinary Share capital of Eden as at 12 February 1997 comprising 1,228,005 Ordinary Shares, plus the aggregate number of Ordinary Shares that will be issued upon exercise of Eden Options, comprising 178,040 Ordinary Shares and the 97,832 Ordinary Shares which will be issued upon the capitalisation of the Shareholder Loans described in paragraph 2.8. 3 65,213 of the Consideration Shares to be issued to the Warrantors will be deposited with the Escrow Agent to be held as the Escrow Amount which shall be available to compensate Geoworks in connection with breaches of the representations, warranties, covenants, undertakings and indemnities set out in the Warranty and Covenant Agreement. The obligations of the Warrantors for losses suffered by Geoworks for such breaches shall be limited to each Warrantor's proportionate share of the Escrow Amount. 4 Separately from the Offer (and conditionally upon Closing), Geoworks has agreed to acquire the entire issued preference share capital of Eden, comprising 977,342 Preference Shares, pursuant to the Preference Share Agreement, in consideration for the payment by Geoworks to the holders of the Preference Shares of L.100 (fair value) in cash in aggregate. 5 Geoworks has agreed with each holder of Eden Employee Options that, conditionally upon the making of the Offer by Geoworks, such optionholders may exercise their options in full pursuant to the applicable Eden Employee Option scheme and sell the resulting Ordinary Shares to Geoworks on the terms of the Offer. In the absence of such exercise pursuant to the applicable Eden Employee Option scheme, Geoworks has agreed to provide a loan at the time of closing of the Offer to each such holder of the exercise price payable to Eden on exercise of such options, and Geoworks will be authorised to repay immediately such loans by set off against the Consideration Shares that would otherwise have been issued to such holders such number of shares as is equal in value to the amount required to repay the loan from Geoworks to such holder. The Offer is also made to other holders of Eden Options, comprising 3i Group plc (2,000 shares) and Henry Cooke Lumsden (London) Limited (24,390 shares), in respect of the shares arising upon exercise of such options. 6 Geoworks proposes to acquire the entire Ordinary Share capital of Eden in exchange for the issue of shares of Common Stock in the capital of Geoworks to Eden shareholders. Assuming the completion of the proposed transaction, Eden will become a subsidiary of Geoworks, and the current shareholders and optionholders of Eden will become shareholders of Geoworks. Thereafter, the shareholders and optionholders of Eden will no longer have any equity interest in, or rights with regard to, Eden, its operations or its assets, except through their ownership of Geoworks Common Stock, such rights being assigned to Geoworks by acceptance of the Offer. 7 THE CONSIDERATION SHARES ARE BEING ISSUED IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF UNITED STATES FEDERAL SECURITIES LAWS FOR ISSUANCES TO NON-U.S. PERSONS IN A TRANSACTION OUTSIDE THE UNITED STATES. THE CONSIDERATION SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. THIS RESTRICTION WOULD ALSO BAR SALES ON THE NASDAQ NATIONAL MARKET. HOWEVER, GEOWORKS HAS AGREED TO FILE A REGISTRATION STATEMENT COVERING THE RESALE OF THE CONSIDERATION SHARES TO U.S. PERSONS PROMPTLY FOLLOWING THE CLOSING DATE. UPON 6 8 EFFECTIVENESS OF SUCH REGISTRATION STATEMENT, AND FOR SO LONG AS IT REMAINS EFFECTIVE, THE CONSIDERATION SHARES MAY BE RESOLD IN THE UNITED STATES, SUBJECT TO CERTAIN RIGHTS OF GEOWORKS TO SUSPEND SALES UNDER THE REGISTRATION STATEMENT AT CERTAIN TIMES. 8 The acquisition of the Ordinary Shares is conditional upon, among other things, the acceptance of the Offer by shareholders of Eden holding at least 90 per cent. of the Ordinary Shares, or such lesser proportion as Geoworks may accept. As at the date hereof, directors and other shareholders of Eden holding in the aggregate approximately 86.5 per cent. of the Ordinary Shares have irrevocably agreed to accept the Offer and to vote in favour of the Special Resolution to enable the Offer to be accepted in accordance with its terms and conditions. Common Stock of Geoworks will be issued to accepting Eden shareholders as soon as reasonably practicable thereafter in accordance with the terms of acceptance set out in the Offer. 9 The Offer does not constitute an offer of securities to any person other than the recipient whose name appears on the cover of this document. No person, other than such recipient, receiving a copy of this document may treat the same as constituting an offer to purchase. No form of acceptance or purchase agreement will be accepted other than from such recipient. It is the responsibility of any person wishing to accept the Offer to satisfy himself as to full observance of the laws of any relevant territory in connection with any such purchase, including obtaining any required governmental or other consents or observing any other applicable formalities. THE ATTENTION OF OFFEREES IS DRAWN IN PARTICULAR TO THE RISK FACTORS SET OUT ON PAGES 27 TO 32. 7 9 OFFER TIMETABLE
EVENT DATE 1 Offer document issued 12 February 1997 2 Latest proxy return date for extraordinary general 3.00 pm, 12 March 1997 meeting 3 Closing date the Initial Closing Date for the Offer, being such date as Geoworks may determine and announce for the initial closing of the Offer 4 Extraordinary general meeting 3.00 pm on 14 March 1997, or 3.00 pm on 24 February 1997 (or such other date as may be determined) upon and subject to the appropriate number of Eden shareholders giving consent in writing to holding the meeting at short notice 5 Final Closing Date the close of business on 14 March 1997, or such later date and time as Geoworks may announce 6 Date upon which it is expected Consideration Shares See paragraph 3 of Appendix I on page 35 may first be traded
GEOWORKS INTENDS TO DECLARE THE OFFER UNCONDITIONAL AS SOON AS PRACTICABLE FOLLOWING THE RECEIPT OF ACCEPTANCES FROM THE HOLDERS OF NOT LESS THAN 90 PER CENT. OF THE EDEN ORDINARY SHARES AND THE PASSING OF THE RESOLUTION AT THE EXTRAORDINARY GENERAL MEETING. THE OFFER WILL REMAIN OPEN FOR ACCEPTANCE BY ALL SHAREHOLDERS OF EDEN UNTIL THE CLOSE OF BUSINESS ON 14 MARCH 1997, OR SUCH LATER DATE AS GEOWORKS MAY DETERMINE AND ANNOUNCE. YOUR ATTENTION IS DRAWN TO THE TEXT OF THIS DOCUMENT FROM WHICH THE ABOVE INFORMATION IS DERIVED AND SHAREHOLDERS ARE STRONGLY RECOMMENDED TO READ THIS SUMMARY TOGETHER WITH THE FULL TEXT OF THIS DOCUMENT AS A WHOLE, AND PARTICULARLY THE DISCUSSION OF RISK FACTORS ON PAGES 27 TO 32. 8 10 EDEN GROUP LIMITED (Registered in England No 2357515) Directors: Registered Office: D E J Crisp Beechfield House E Cheng Lyme Green Business Park A Jenkins Macclesfield D L Stevens Cheshire D P Taylor SK11 0JP N J Teasdale
12 February 1997 To all the shareholders of Eden Group Limited, including those who will be issued with shares on capitalisation of loans, and to the holders of options to subscribe for Eden Ordinary Shares. Dear Shareholder It was announced on 12 February 1997 that Geoworks proposed to make an offer for the entire issued share capital of Eden. This letter sets out the background to the Offer and explains why your board, which has been so advised by Henry Cooke Corporate Finance Ltd, considers the terms of the Offer to be fair and reasonable and is unanimously recommending acceptance of the Offer. THE OFFER The offer by Geoworks, which is subject to the conditions and further terms set out in this document, is made on the following basis: 0.8673 SHARES OF COMMON STOCK OF NO PAR VALUE IN THE CAPITAL OF GEOWORKS FOR EACH ORDINARY SHARE IN EDEN and so in proportion for any other number of Ordinary Shares in Eden held. On the basis set out in paragraph 9.1 on page 20, the Offer values each Ordinary Share in Eden at approximately L.12.72. There has been no market in the Ordinary Shares in Eden. The last issue of Ordinary Shares by Eden, other than in respect of the exercise of options, was at L.4.10 per Ordinary Share in May 1996. The Offer values the entire issued Ordinary Share capital, as enlarged by the proposed exercise of all share options to subscribe for Ordinary Shares in Eden and by the proposed capitalisation of shareholder loans, at approximately L.19.1 million. Of the Consideration Shares issued by Geoworks 65,213 of those to which the Warrantors are entitled will be held in an escrow account against any claim by Geoworks for breaches under the Warranty and Covenant Agreement. Such shares will be provided from the Consideration Shares allocated to the Warrantors only. The escrow arrangement terminates on 31 December 1997, when the remaining shares of Common Stock (if any) will be distributed to the Warrantors. The rights of shareholders in Geoworks will be governed by the Geoworks Articles of Incorporation and Bylaws, the Declaration of Registration Rights, the laws of the State of California and Federal securities laws. 9 11 Further details of the Offer are given in a letter from Geoworks as set out on pages 14 to 33 of this document. The letter explains the procedure for acceptance and gives background information on both Geoworks and Eden. BACKGROUND Eden has developed a real-time operating system, referred to as Eden OS. Eden OS version 1.0 was completed in late 1995. It is a powerful, modular operating system, capable of being used in a wide variety of computing and communications products. Funds raised in the private placing in May 1996 have been used to further develop Eden OS and in the commercialisation of this technology. As set out in the directors' report and accounts for the year ended 30 June 1996, significant progress has been made in progressing these objectives. In particular, Eden OS version 2.0 was launched in September 1996. Progress has been made in advancing negotiations with several significant potential customers. Geoworks has developed a similar technology, producing operating systems for consumer computing devices. In particular, Geoworks has licensed its technology to Nokia for use in the Nokia 9000 smart digital mobile telephone. Geoworks has also licensed its technology to several other very significant corporations. Geoworks is incorporated in the State of California in the United States, and its Common Stock is quoted on the Nasdaq National Market. The directors of Eden believe that the Offer, made to conclude a merger between Geoworks and Eden, will afford the best opportunity for Eden's technology to be successfully commercialised, taking into account the prospects for Eden as an independent company. Eden OS has significant technical strengths and Eden has important relationships with customers and potential customers, and physical presence in key geographical markets. Geoworks has greater financial and operational resources, and greater representation in the smart digital mobile telephone market. The directors of Eden believe that the Offer will be beneficial to both parties and has a strong rationale based on the compatibility of the two businesses. In particular, the combination will bring together complementary technologies and will support a broader product range licensed to a larger customer base. The directors of Eden believe that the combination will be facilitated by Geoworks' similar corporate culture and vision and that the strength of the Enlarged Group will enable it to compete more effectively in a rapidly changing market. The directors of Eden further believe that the Offer is an opportunity for the shareholders of Eden to gain liquidity by obtaining stock traded on a major stock exchange. 10 12 RISK FACTORS In common with an investment in the shares of any high technology company, including Eden, an investment in the Common Stock of Geoworks being offered to Eden shareholders involves a high degree of risk and your attention is drawn to the risk factors set out on pages 27 to 32. The market price of the Common Stock of Geoworks has experienced significant volatility and may continue to experience volatility in the future. As more fully set forth in the section on risk factors variations in actual or anticipated quarterly operating results, changes in earnings estimates by analysts, market conditions and the industry, announcements by competitors, regulatory actions and general economic conditions may each have a significant effect on the market price of the Common Stock of Geoworks. In addition, shareholders in Eden should have regard to the market valuation of the Common Stock of Geoworks relative to its historical revenues, operating results and net assets. The Eden directors believe that the market valuation reflects, among other things, investors' assumptions as to future growth in Geoworks' revenues and profitability that may or may not be achievable. The Common Stock, while traded on the Nasdaq National Market in the United States, is not listed on the London Stock Exchange or any other stock exchange. The Common Stock is traded in United States dollars and investors domiciled in other jurisdictions may be exposed to currency translation risks. MANAGEMENT AND EMPLOYEES Once the Offer becomes, or is declared, unconditional in all respects, Geoworks will acquire all of the issued share capital of Eden. The Geoworks board has confirmed that the existing employment rights, including pension rights, of the management and employees of Eden will be fully safeguarded and has confirmed that it is the intention of Geoworks to develop the Eden business as an important part of the Enlarged Group. It is intended that Eden will continue to operate from its existing premises in Cheshire, England and will become the European product development and sales support centre for the Enlarged Group. It is intended, upon the Offer becoming, or being declared, unconditional in all respects, that David Crisp, Managing Director of Eden, will become European General Manager of Geoworks and a member of the Geoworks executive staff. Following completion of this transaction, the non-executive directors of Eden, including myself, will resign; the executive directors of Eden, other than David Crisp, will resign as directors whilst continuing to perform similar roles as employees. It is presently proposed that Messrs Crisp, Jenkins and Stevens should be offered revised terms of employment, including increases in remuneration and notice periods, commensurate with increased responsibilities following the Offer becoming unconditional. Precise terms have not yet been agreed. Shares of Common Stock of Geoworks to be issued to Affiliates will be subject to certain sale restrictions as set out in paragraph 3 of the letter from Geoworks. EDEN OPTIONS It has been agreed that all Eden Employee Options to subscribe for Ordinary Shares of Eden will be exercised, and the resulting shares are subject to the Offer. In the absence of such exercise pursuant to the applicable Eden Employee Option scheme, Geoworks has agreed to fund by way of loan at the time of closing of the Offer the exercise price payable by optionholders who are employees of Eden and this loan will be repaid immediately on completion of the Offer, by reducing the Consideration Shares otherwise due to such option holders. 11 13 PREFERENCE SHARES Geoworks has agreed, conditionally upon Completion of the Offer, to acquire all of the issued Preference Shares in the capital of Eden for an aggregate price of L.100 (fair value) payable in cash on completion of the Offer. REDEMPTION OF LOANS On completion of the Offer, the Shareholder Loans to Eden from 3i Group plc and Acer will be capitalised as 97,832 Ordinary Shares in the capital of Eden which will also be the subject of the Offer and sold to Geoworks at the Exchange Ratio. Upon capitalisation of the Shareholder Loans, the options granted to 3i and Acer, which vest in the event of default by Eden in the repayment of these loans, will lapse, and the security granted by Eden in respect of the Shareholder Loans will be released. EXTRAORDINARY GENERAL MEETING Attached to this document is a notice of an Extraordinary General Meeting of Eden at which a special resolution will be proposed to increase the share capital of Eden and authorise the issue of the Ordinary Shares required to be issued by way of capitalisation of the Shareholder Loans, and to amend the Articles of Association of Eden, inter alia, to enable the Offer to be accepted in accordance with its terms, by varying the pre-emption provisions applicable to the transfer of Ordinary Shares. This Extraordinary General Meeting has been convened to be held at 3.00pm on 14 March 1997. If holders of over 95 per cent of the Ordinary Shares of Eden, who represent a majority in number of shareholders entitled to vote at the meeting, give their consent to this meeting being held on short notice, the meeting will be held at 3.00pm on Monday, 24 February 1997 (or such other date as may be determined). At the date of this document the requisite authority for short notice for this Extraordinary General Meeting has been given by the holders of 85.6 per cent of the Ordinary Shares of Eden. IRREVOCABLE UNDERTAKINGS All the directors of Eden, including myself, who beneficially hold a total of 163,645 Ordinary Shares in the capital of Eden (representing approximately 10.9 per cent. of the issued, and to be issued, Ordinary Share capital of Eden) have irrevocably undertaken to accept the Offer and to vote in favour of the resolution to be proposed at the Extraordinary General Meeting. In addition, certain other holders of the Ordinary Shares in Eden together holding 1,137,936 Ordinary Shares being approximately 75.6 per cent. of the issued, and to be issued, Ordinary Share capital of Eden) have irrevocably undertaken to accept the Offer and to vote in favour of the resolution to be proposed at the Extraordinary General Meeting. ADDITIONAL INFORMATION Your attention is drawn to the contents of the remainder of this document. In particular, shareholders in Eden should note paragraph 10 of the letter from Geoworks headed "Taxation" and paragraph 3 of Appendix I of this document headed "Restrictions on Transfer of Consideration Shares". 12 14 ACTION TO BE TAKEN Your attention is drawn to paragraph 19 of the Offer and the accompanying Form of Acceptance which sets out the procedure for accepting the Offer. To accept the Offer, you should complete and return the Form of Acceptance in accordance with the instructions printed thereon so as to be received as soon as possible. Subject to all the conditions to the Offer being satisfied and consent being obtained to the Extraordinary General Meeting being held at short notice, GEOWORKS INTENDS TO DECLARE THE OFFER UNCONDITIONAL AS SOON AS PRACTICABLE AFTER THE CONCLUSION OF THE EGM. ACCORDINGLY THE EARLIEST CLOSING DATE OF THE OFFER IS 24 FEBRUARY 1997. THE LAST CLOSING DATE IS 14 MARCH 1997 UNLESS EXTENDED BY GEOWORKS PRIOR TO THAT DATE. Forms of Proxy are enclosed for use by shareholders in connection with the Extraordinary General Meeting and should be completed, signed and returned to the registered office of Eden TO ARRIVE AS SOON AS POSSIBLE, AND IN ANY EVENT, NOT LATER THAN 3.00PM ON 12 MARCH 1997. The completion and return of the Form of Proxy will not preclude you from attending and voting at the meeting in person should you so wish. RECOMMENDATION THE DIRECTORS OF EDEN, WHO HAVE BEEN SO ADVISED BY HENRY COOKE CORPORATE FINANCE LTD, CONSIDER THE TERMS OF THE OFFER TO BE FAIR AND REASONABLE AND, ACCORDINGLY, THE DIRECTORS UNANIMOUSLY RECOMMEND ALL ORDINARY SHAREHOLDERS IN EDEN TO ACCEPT THE OFFER AND TO VOTE IN FAVOUR OF THE RESOLUTION TO BE PROPOSED AT THE EXTRAORDINARY GENERAL MEETING OF EDEN CONVENED BY THE NOTICE SET OUT IN APPENDIX V TO THIS DOCUMENT, AS THEY HAVE IRREVOCABLY UNDERTAKEN TO DO IN RESPECT OF THEIR OWN ORDINARY SHARES, AMOUNTING IN AGGREGATE TO 163,645 ORDINARY SHARES (REPRESENTING APPROXIMATELY 10.9 PER CENT OF THE ISSUED AND TO BE ISSUED ORDINARY SHARE CAPITAL OF EDEN). In common with an investment in shares of any high technology company, including Eden, an investment in the Common Stock of Geoworks involves a high degree of risk. Shareholders in Eden should have regard to the factors referred to under "Risk Factors" above and on pages 27 to 32 when making decisions with respect to the Common Stock of Geoworks. In providing advice to the directors of Eden, Henry Cooke Corporate Finance Ltd has taken into account the Eden directors' commercial assessments. Yours sincerely Dennis Taylor Chairman 13 15 GEOWORKS (a corporation established under the California Corporations Code) Directors: Principal Office: Brian P. Dougherty, Chairman of the Board 960 Atlantic Avenue Gordon E. Mayer Alameda, Clive G. Smith California 94501 Bruce W. Dunlevie USA Reijo Paajanen Eric E. Schmidt R. Duff Thompson
12 February 1997 To all the shareholders of Eden Group Limited, including those who will be issued with shares on capitalisation of loans, and to the holders of options to subscribe for Eden Ordinary Shares. Dear Sir or Madam RECOMMENDED OFFER BY GEOWORKS 1 INTRODUCTION 1.1 As stated in your Chairman's letter of today's date, agreement has been reached between your directors and Geoworks for Geoworks to make an offer to acquire the whole of the issued Ordinary Share capital of Eden in consideration of the issue of a total of 1,304,250 shares of Common Stock of no par value in Geoworks (for details of which see Appendix I). 1.2 This document, which is issued to all the shareholders of Eden registered on the register of members as at 12 February 1997, and to optionholders, and to those to whom Eden shares will be issued on capitalisation of loans, sets out the terms of the Offer. 1.3 Your attention is drawn to the notice of an Extraordinary General Meeting of Eden, set out in Appendix V to this document, which has been called for 14 March 1997 or earlier if the necessary consents are obtained - see paragraph 8.1 - for the purpose of passing a special resolution to adopt new articles of association of Eden and deal with other matters so as to enable the sale of shares pursuant to the Offer to be completed. 1.4 You will see from the letter from Dennis P Taylor, Chairman of Eden which appears on pages 9 to 13 and forms part of this document, that the directors of Eden consider the terms of the Offer to be fair and reasonable and that the Directors, who have been so advised by Henry Cooke Corporate Finance Ltd, unanimously recommend you to accept the Offer and, to vote in favour of the special resolution set out in the notice of Extraordinary General Meeting. 1.5 All the directors of Eden, who beneficially hold a total of 163,645 Ordinary Shares in the capital of Eden (representing approximately 10.9 per cent of the issued and to be issued Ordinary Share capital of Eden) have irrevocably undertaken to accept the Offer and to vote in favour of the special resolution to be proposed at the Extraordinary General Meeting. In addition, certain other holders of Ordinary Shares in Eden together holding 1,137,936 Ordinary Shares (representing approximately 75.6 per cent of the issued and to be issued Ordinary Share capital of Eden) have irrevocably undertaken to accept the Offer and to vote in favour of the special resolution to be proposed at the Extraordinary General Meeting. 14 16 2 TERMS OF THE OFFER 2.1 Geoworks as principal hereby offers to acquire the entire issued Ordinary Share capital of Eden upon the following principal terms and the other terms and conditions set out in the Offer and the form of acceptance enclosed in Appendix VI: FOR EACH ORDINARY SHARE, 0.8673 SHARES OF COMMON STOCK OF NO PAR VALUE IN THE CAPITAL OF GEOWORKS 2.2 The Ordinary Shares are to be acquired free from all claims, liens, charges and encumbrances and together with all rights now or hereafter attaching thereto, including the right to receive all dividends and other distributions (if any) declared, made or paid after the Closing date and signature of the enclosed form of acceptance will constitute warranties by the accepting shareholder to that effect in respect of the Ordinary Shares for which the Offer is accepted. 2.3 Where holders of Ordinary Shares in Eden would become entitled to a fraction of a share of Common Stock in Geoworks, such fractions will be rounded down to the nearest whole number. 2.4 Upon acceptance of the Offer each holder of Ordinary Shares will be issued approximately 0.8673 shares of Common Stock each in the share capital of Geoworks in return for each Ordinary Share held. The Exchange Ratio is based upon the entire issued Ordinary Share capital of Eden comprising 1,228,005 issued Ordinary Shares as at 12 February 1997 and the aggregate number of Ordinary Shares to be subscribed upon exercise of Eden Options and capitalisation of Shareholder Loans, comprising a further 275,872 Ordinary Shares. If between such date and Closing, the number of Ordinary Shares in issue or subject to option otherwise changes, the Exchange Ratio shall be adjusted accordingly, save that the aggregate number of Consideration Shares to be issued to shareholders and optionholders of Eden shall not exceed 1,304,250. PLEASE NOTE THAT THE OFFER IS FOR ALL YOUR ORDINARY SHARES AND CANNOT BE ACCEPTED FOR ONLY SOME OF YOUR ORDINARY SHARES. 2.5 The Escrow Amount will be deposited with the Escrow Agent to be held as an escrow fund which shall be available to compensate Geoworks in connection with breaches of any of the representations, warranties, covenants, undertakings and indemnities set out in the Warranty and Covenant Agreement. The obligations of the Warrantors for losses suffered by Geoworks for such breaches shall be limited to each Warrantor's pro rata share of the Escrow Amount and further limitations set out in the Warranty and Covenant Agreement, including the following: (a) claims may only be brought once the aggregate value of claims has exceeded L.150,000 whereupon the whole of the claims and not just the excess may be recovered; (b) the time limit for all claims other than those relating to intellectual property is the date of publication by Geoworks of its accounts for the period ending 31 March 1997; and (c) the time limit for claims relating to intellectual property is 31 December 1997. Copies of the Warranty and Covenant Agreement and Escrow Agreement are available for inspection, as indicated in paragraph 18 below. 2.6 As a condition to the Offer, Geoworks, acting as principal, has agreed to acquire all the Preference Shares, conditionally upon completion of the Offer, in consideration of the payment by Geoworks to the holders of the Preference Shares of L.100 (fair value) in aggregate in cash. The terms of the Preference Share Agreement provide that the sale of the Preference Shares will become unconditional and be completed upon Closing. 15 17 2.7 Geoworks has agreed with each holder of Eden Employee Options that, conditionally upon the making of the Offer by Geoworks, such optionholders may exercise their options in full pursuant to the relevant Eden Employee Option scheme and sell the resulting Ordinary Shares to Geoworks on the terms of the Offer. In the absence of such exercise pursuant to the applicable Eden Employee Option scheme, Geoworks has agreed to provide a loan at the time of closing of the Offer to each such holder of the exercise price payable to Eden on exercise of such options, and Geoworks will be authorised to repay immediately such loans by set off against the Consideration Shares that would otherwise have been issued to such holders of such number of Consideration Shares as is equal in value to the amount required to repay the loan from Geoworks to such holder. 2.8 It has been agreed with 3i Group plc and Acer that upon Completion of the Offer the Shareholder Loans and accrued unpaid interest thereon due to 3i Group plc and Acer from Eden will be capitalised in full by the issue of 97,832 new Ordinary Shares in the capital of Eden which will also be the subject of the Offer at the Offer price, and that the security granted by Eden and its subsidiaries in respect of such Shareholder Loans will be released on Completion. 2.9 Each Eden shareholder who accepts the Offer will also be required, unless Geoworks expressly agrees otherwise in writing, pursuant to the Acceptance Form, inter alia: (a) to confirm that at and immediately after Completion nothing is owing nor are there any outstanding claims between each of Eden and its group companies on the one hand and each accepting shareholder on the other hand, and to the extent that there are possible claims, then such claims are waived; (b) to appoint any executive officer of Geoworks as the attorney of each accepting shareholder authorised to execute various documents in connection with the transfer of such shareholder's Ordinary Shares pursuant to the Offer; (c) to authorise such attorney to complete various documentation including a form of proxy and consent to short notice in connection with the Extraordinary General Meeting of Eden; and (d) to give certain covenants necessary to ensure compliance with U.S. securities laws. In addition, the Eden shareholders, who constitute "Affiliates" of Eden, are required to make certain covenants in Affiliates Agreements necessary to ensure that Geoworks will be able to account for the business combination effected by the purchase of Eden Ordinary Shares as a pooling of interests. 3 SUMMARY OF THE RIGHTS ATTACHING TO THE CONSIDERATION SHARES 3.1 The Consideration Shares to be issued under the Offer will be credited as fully paid and will rank pari passu with all other shares of Common Stock in the capital of Geoworks. 16 18 3.2 The Consideration Shares are being issued in reliance on an exemption from the registration requirements of United States federal securities laws for issuances to non-U.S. persons in a transaction outside the United States. The Consideration Shares may not be resold, pledged or otherwise transferred in the United States or to a U.S. person in the absence of such registration or an exemption therefrom. This restriction would also bar sales on the Nasdaq National Market. However, Geoworks has agreed to file a registration statement covering the resale of the Consideration Shares to U.S. persons promptly following the Closing Date. Upon effectiveness of such registration statement, and for so long as it remains effective, the Consideration Shares may be resold in the United States, subject to certain rights of Geoworks to suspend sales under the registration statement at certain times. 3.3 For more detailed information on the Consideration Shares and Geoworks' obligations to register the resale of such shares, please refer to Appendix I and the charter documents set out therein, Appendix IV showing changes in the rights of Eden shareholders and the Declaration of Registration Rights. 3.4 As at the Closing Date, the Articles of Incorporation and Bylaws of Geoworks will be substantially in the form set out in Appendix I, and will also be available for inspection, as contemplated by paragraph 18 below. Geoworks undertakes not to alter, amend, delete, substitute or add to its Articles of Incorporation and Bylaws until the earlier of (a) the Offer becoming, or being declared, unconditional in all respects and the Consideration Shares being issued or (b) the Offer lapsing. 4 CONDITIONS OF THE OFFER 4.1 The Offer is subject to the following conditions: (a) valid acceptances being received by not later than the close of business on 14 March 1997, or such other date(s) as Geoworks may determine, (as described in this document Geoworks intends to declare the Offer unconditional as soon as practicable) in respect of not less than 1,353,490 Ordinary Shares representing 90% in nominal value of the Ordinary Shares, or such lesser percentage or amount as Geoworks may determine; (b) the holders of the Preference Shares having agreed, conditionally upon Closing and otherwise upon terms satisfactory to Geoworks, to sell the Preference Shares to Geoworks for an aggregate consideration of L.100.00; (c) the passing at an Extraordinary General Meeting of Eden of the special resolution set out in the notice of Extraordinary General Meeting contained in Appendix V, to adopt new articles of association of Eden to enable the acquisition of the Shares of Geoworks to be completed pursuant to the Offer; (d) performance of all the obligations set out in clauses 3 and 4 of the Warranty and Covenant Agreement on the part of the Eden shareholders who are party to that agreement, and there having been no material breach of any of the representations, warranties, covenants or undertakings under that agreement; (e) each of the holders of options to subscribe for Eden Ordinary Shares having agreed pursuant to an option exercise agreement on terms satisfactory to Geoworks to exercise their options conditionally upon completion of the Offer and upon such exercise becoming unconditional to sell the resulting Ordinary Shares to Geoworks on the terms of the Offer in return for the issue, by Geoworks of Consideration Shares; (f) no law, order or injunction restraining Geoworks acquisition or ownership of the Ordinary Shares and the Preference Shares; 17 19 (g) there being no material adverse change to the business or prospects of Eden prior to Closing; (h) the receipt by Geoworks of a letter from Ernst & Young LLP regarding such firm's concurrence with Geoworks management's conclusions as to the appropriateness of pooling of interest accounting for the business combination effected by Geoworks' acquisition of Eden shares under United States' Accounting Principles Board Opinion No. 16; (i) each Affiliate of Eden having delivered to Geoworks an executed Affiliate Agreement satisfactory to Geoworks which shall be in full force and effect; and (j) all applicable consents, permissions, approvals or similar authorities from any person required to enable the Offer to proceed in the manner contemplated by this document and the Warranty and Covenant Agreement having been received or obtained to Geoworks' satisfaction. 4.2 Further detailed terms and conditions of the Offer are contained in paragraph 14 of this letter. 5 WAIVER OF TERMS AND CONDITIONS At the discretion of Geoworks any of the terms and conditions set out in paragraphs (a) to (j) of paragraph 4.1 of this Offer may be waived by Geoworks in whole or in part. 6 CIRCUMSTANCES IN WHICH THE OFFER WILL LAPSE The Offer will be open for acceptance by every Eden shareholder until 14 March 1997. If the conditions set out in this Offer have not been fulfilled or waived by Geoworks on or before the close of business on 14 March 1997 the Offer will lapse unless extended by Geoworks before then. 7 PROVISIONS AFFECTING PARTICULAR SHAREHOLDERS Management and employees 7.1 The aggregate number of Ordinary Shares in Eden which are under option in favour of management and employees is 151,650. Each of the employees of Eden holding Eden Employee Options has executed an option exercise agreement, as referred to in paragraph 4.1(e) above. A list of all the optionholders and their respective options appears as Appendix III. 7.2 The Warrantors (together holding 8.4% of the Ordinary Shares) and Geoworks have executed the Warranty and Covenant Agreement, which is available for inspection in accordance with paragraph 18 of this document; and the principal terms of which include provisions: (a) for Geoworks to make the Offer; (b) for the Warrantors and certain other Eden shareholders to irrevocably accept the Offer unless it lapses; (c) for Geoworks to have the right to consent to certain actions by Eden during the period from the date of the Offer to Completion or any earlier termination of the agreement; (d) for representations, warranties, undertakings, covenants and indemnities being given by the Warrantors in favour of Geoworks concerning, inter alia, the accounts, financial condition, material agreements, and intellectual property of Eden and the absence of litigation, breach of which may give Geoworks rights to claim the Escrow Amount held 18 20 under the Escrow Agreement with the effect that the Warrantors' Escrow Amount will be the subject of any claims thereunder; and (e) for the board of directors of Eden after Completion to comprise Gordon Mayer, Jordan Breslow and David Crisp. 7.3 Geoworks has adopted a supplemental stock option plan for the benefit of Eden employees after Completion enabling the grant of options to purchase up to 500,000 shares of Geoworks common stock. Geoworks currently expects to issue, subject to the approval of its Board of Directors, options to purchase an aggregate of approximately 351,000 shares of its Common Stock to individuals who continue as employees following the Final Closing Date. Of such options, Geoworks currently expects to issue to Messrs Crisp, Jenkins and Stevens options to purchase 50,000, 40,000 and 20,000 shares of Common Stock, respectively. The remainder are reserved for stock options to be issued to existing and new United Kingdom employees, in the discretion of the Geoworks Board. 3i Group plc and Acer 7.4 3i Group plc and Acer have agreed with Eden and Geoworks that the Shareholder Loans will upon Completion be capitalised and the new Ordinary Shares arising will be the subject of the Offer, as summarised in paragraph 2.8 above. 7.5 As described in paragraph 2.6 above, Geoworks has agreed to acquire the Preference Shares held by 3i upon Completion. 8 EXTRAORDINARY GENERAL MEETING 8.1 The directors of Eden have convened an Extraordinary General Meeting to take place on 14 March 1997 at 3.00pm (or earlier if the required consents to short notice are obtained) to, inter alia, adopt new articles of association of Eden to enable the acquisition of the Ordinary Shares to be completed pursuant to the Offer and to increase the authorised share capital of Eden and authorise the issue of 97,832 Ordinary Shares to 3i Group plc and Acer by way of capitalisation of their Shareholder Loans, referred to in paragraph 2.8 above. 8.2 Subject to obtaining consents (contained in the Acceptance Form) from shareholders being a majority in number and holding at least 95 per cent. in nominal amount of Eden's Ordinary Share capital, such meeting will be held at 3.00pm on 24 February 1997. 8.3 Notice of the meeting is set out in Appendix V to this document. 9 FINANCIAL EFFECTS OF ACCEPTANCE 9.1 By way of example, a holder (other than the Warrantors) of 1,000 Ordinary Shares in Eden who accepts the Offer will receive, if the Offer becomes unconditional, 867 shares of Geoworks Common Stock. The table below shows, for illustrative purposes only, the effect upon capital value of the Offer for a holder of 1,000 Ordinary Shares who accepts the Offer, if the Offer becomes or is declared unconditional in all respects, on the basis and assumptions set out below: NOTES Value of 1,000 Eden Ordinary Shares at valuation at latest (i) L.4,100.00
19 21 issue (other than in respect of the exercise of options) Market value of 867 shares of Common Stock in Geoworks (ii) L.12,713.86 Increase in capital value L.8,613.86 This represents a percentage increase of 210.09%
Notes: (i) Valuation of L.4.10 per share in private placing of May 1996. There has been no market in the Eden Ordinary Shares. (ii) Based upon US$23.80 being the average middle market closing price of Geoworks shares of Common Stock on the Nasdaq National Market for the 30 trading days ended on 7 February 1997, and at closing sterling - US dollar exchange rate on Friday 7 February 1997. For information, the actual middle market closing price on 7 February 1997 was US$22.75. 9.2 By way of example, an employee of Eden holding Eden Employee Options over 1,000 Ordinary Shares who accepts the loan from Geoworks would, upon the set off of Consideration Shares to be made by Geoworks in satisfaction of such loan, receive 745 shares of Geoworks Common Stock. See paragraph 2.7 for further details of such loan and the set off. 9.3 The effects of acceptance as shown above do not take account of the incidence of taxation, and your attention is drawn in particular to paragraph 10. Income 9.4 It is not currently proposed that any dividends will be declared in respect of shares of Geoworks Common Stock in the foreseeable future. No dividends have ever been declared or paid on Eden Ordinary Shares. Liquidity 9.5 The Consideration Shares being issued to Eden shareholders will not be registered in reliance on an exemption from the registration requirements of the United States federal securities laws provided by Regulation S of the Securities Act for issuances to non-U.S. persons in transactions outside the United States. Geoworks reliance on this exemption is based in part upon the representations being made by Eden shareholders in the Acceptance Form. Securities issued pursuant to an exemption from the registration requirements may not be resold in the United States or to a U.S. Person unless the resale is subsequently registered or another exemption is available. This restriction would also bar sales on the Nasdaq National Market. While it is widely believed that shares issued under Regulation S may be resold in the United States or to a U.S. person if held for a period of at least 40 days, Geoworks understands that the United States Securities and Exchange Commission (the "Commission") is currently reviewing Regulation S and there is considerable possibility that the Commission will conclude that shares issued pursuant to Regulation S should be subject to the restrictions on resale imposed by Rule 144 of the Securities Act. Such an interpretation by the Commission would, in effect, lengthen the holding period for Eden shareholders receiving Geoworks Common Stock from 40 days to two years and impose additional restrictions on resale relating to volume, manner of sale, notice and the availability of current public information. 9.6 In the light of the foregoing uncertainty, Geoworks has agreed, subject to certain conditions, to use its best efforts promptly upon consummation of the Offer to file a registration statement on Form S-3 covering the resale of the Consideration Shares. Upon effectiveness of such registration statement, and for so long as it remains effective, the Consideration Shares may be resold in the United States regardless of any Commission action regarding Regulation S. Geoworks has agreed 20 22 to keep the registration statement effective for up to two years after Completion (or such shorter time as the Commission may permit resale of restricted securities under Rule 144). 9.7 All sales by Eden shareholders of Consideration Shares in the United States pursuant to the registration statement must be accompanied by delivery of a current prospectus meeting the requirements of the United States securities laws. Geoworks will provide each Eden shareholder with such a prospectus. Geoworks may be required to update the prospectus periodically to reflect changed information concerning Geoworks. In such case Geoworks will provide each Eden shareholder with an updated prospectus. 9.8 Notwithstanding the foregoing Geoworks may suspend the ability of Eden shareholders to sell Consideration Shares in the United States or to U.S. persons under the registration statement if the Geoworks Board of Directors determines in good faith that it would be significantly disadvantageous to Geoworks and its shareholders for Geoworks to update the prospectus because Geoworks would be required to disclose material non-public information that it would not otherwise be obligated to disclose at such time which disclosure would have a material adverse effect on the business or prospects of Geoworks. In such event, Geoworks will furnish to the Eden shareholders a certificate to such effect and the Eden shareholders will be required to suspend any disposition of Consideration Shares pursuant to the registration statement. Geoworks may exercise this right: (a) no more than twice during any twelve-month period for a period of up to sixty (60) days each; and (b) no more than four times during any twelve-month period for a period of up to twenty (20) days each if updating the prospectus would require Geoworks to report financial results less favourable than the consensus estimates of the major financial analysts following Geoworks' stock prior to the time Geoworks would normally report such results. 9.9 In addition, Geoworks reserves the right to withdraw the registration statement at such time as Geoworks determines that dispositions of Consideration Shares may be made by Eden shareholders in the United States without the need of the registration statement. In such case, Geoworks will instruct its transfer agent that such dispositions are permitted without restriction. 9.10 For more detailed information of Geoworks' obligations to register the resale of the Consideration Shares and the conditions of the Eden shareholders ability to effect such sales, please refer to the Declaration of Registration Rights attached as Appendix VII. 9.11 The foregoing does not deal with the ability of Eden shareholders to dispose of Consideration Shares to non-U.S. persons in transactions occurring outside the United States. Such transactions are generally outside of the ambit of United States securities laws, but may be subject to securities laws of other jurisdictions. Eden shareholders are urged to consult their own legal advisors regarding requirements of or limitations on any such transactions. 9.12 In addition to the restrictions on transferability imposed by United States' securities laws, Affiliates of Geoworks and Eden will be required to enter into agreements restricting sales, dispositions or other transactions reducing their risk of investment in respect of the shares of Geoworks Common Stock held by them to help ensure that the business combination effected by the Offer will be treated as a pooling of interests for accounting and financial reporting purposes. Under such Affiliate Agreements, shares of Geoworks Common Stock currently held by affiliates of Geoworks or issued to affiliates of Eden in connection with the Offer may not be transferred until after the second day after the day that Geoworks publicly announces financial results covering at least 30 days of combined operations of Geoworks and Eden. 10 TAXATION 21 23 Set forth below is a general discussion of the principal tax considerations applicable to the holders of Ordinary Shares under the tax laws of the United Kingdom and the United States. This document does not deal with all of the tax consequences of the exchange of Ordinary Shares for shares of Common Stock ("the Exchange") that may be relevant to particular Eden shareholders in the light of their personal circumstances, such as persons who are neither resident nor ordinarily resident in the United Kingdom or the United States or shareholders who acquired their Ordinary Shares in a compensatory transaction or in their capacity as directors or employees of Eden. ALL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM OF THE EXCHANGE, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND REGULATORY AND EXCHANGE CONTROLS OR ANY EQUIVALENT LOCAL LAWS. UK Taxation Considerations Taxation of capital gains The directors of Geoworks have been advised that, for holders of Ordinary Shares in Eden holding 5 per cent. or less of the issued ordinary share capital of Eden, the exchange of their existing shares in Eden for new shares of Common Stock of Geoworks will not give rise to a United Kingdom capital gains tax liability, but instead the new shares in Geoworks will be treated as the same asset as the shareholder's existing holding of Ordinary Shares and as if they were acquired at the same time and for the same cost as the existing holding was acquired. For holders of Ordinary Shares in Eden owning more than 5 per cent. of the issued ordinary share capital of Eden, a United Kingdom capital gains tax liability may arise (depending on the shareholder's individual circumstances) unless it can be shown that the share exchange has been carried out for bona fide commercial reasons and does not form part of any scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax or corporation tax. Clearance has been obtained from the Inland Revenue that they accept that the share exchange will be carried out for bona fide commercial reasons and not as part of a tax-avoidance scheme or arrangement. A subsequent disposal of shares of Common Stock in Geoworks, depending on individual circumstances, may give rise to a liability to United Kingdom capital gains tax. US Federal Income Tax Considerations WITHHOLDING TAX Generally, dividends, if any, paid to a non-U.S. holder of Common Stock will be subject to United States federal withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Under the Income Tax Treaty currently in effect between the United States and the United Kingdom the rate of withholding on dividends paid by the Company is reduced to 15%. Under current U.S. Treasury regulations, dividends paid to an address outside the United States in a foreign country are presumed to be paid to a resident of such country for purposes of the withholding tax. Under current interpretation of U.S. Treasury regulations, the same presumption applies to determine the applicability of a reduced rate of withholding under a tax treaty. Under U.S. Treasury regulations that are proposed to be effective for distributions after 1997 (the "Proposed Regulations"), to claim the benefits of a tax treaty a non-U.S. holder of Common Stock would be required to satisfy applicable certification requirements. In addition, under the Proposed Regulations, in the case of Common Stock held by a foreign partnership, (x) the certification requirement would generally be applied to the partners of the partnership and (y) the partnership 22 24 would be required to provide certain information. The Proposed Regulations also provide look-through rules for tiered partnerships. It is not certain whether, or in what form, the Proposed Regulations will be adopted as final regulations. If there is excess withholding on a person eligible for a treaty benefit, the person can file for a refund with the United States Internal Revenue Service. Geoworks does not currently intend to pay dividends on its Common Stock. GAIN ON DISPOSAL OF COMMON STOCK A non-U.S. holder generally will not be subject to United States federal income tax in respect of gain recognised on a disposal of Common Stock unless (i) the gain is effectively connected with a trade or business of the non-U.S. holder in the United States, (ii) in the case of a non-U.S. holder who is an individual and holds the Common Stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the disposal and certain other conditions are met, or (iii) the non-U.S. holder is subject to tax pursuant to the provisions of United States tax law applicable to certain United States expatriates. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX Generally, the Company must report to the U.S. Internal Revenue Service the amount of dividends paid, the name and address of the recipient and the amount, if any, of tax withheld. Dividends not subject to withholding tax may be subject to backup withholding if the non-U.S. holder is not an "exempt recipient" and fails to provide a tax identification number and other information to the Company. Under the Proposed Regulations, dividend payments generally will be subject to information reporting and backup withholding unless applicable certification requirements are satisfied. If the proceeds of a disposal of Common Stock are paid over by or through a United States office of a broker, the payment is subject to information reporting and possible backup withholding at a 31% rate unless the disposing holder certifies under penalties of perjury as to his name, address, and non-U.S. holder status or otherwise establishes an exemption. Generally, United States information reporting and backup withholding requirement will not apply to a payment of disposal proceeds if the payment is made outside the United States through a non-United States office of a broker. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. FEDERAL ESTATE TAXES Common Stock held by a non-U.S. holder at the time of death will be included in such holder's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise. THE ABOVE PROVIDES ONLY A BRIEF AND GENERALISED SUMMARY OF THE TAX POSITION RELATING TO AN EXCHANGE OF EXISTING SHARES IN EDEN FOR NEW SHARES IN GEOWORKS, FOR WHICH NEITHER GEOWORKS NOR EDEN ACCEPT ANY LIABILITY. IF YOU ARE IN ANY DOUBT ABOUT YOUR TAXATION POSITION OR THE TAX IMPLICATIONS OF THE OFFER YOU SHOULD CONSULT YOUR OWN TAX ADVISER IMMEDIATELY. 11 INFORMATION REGARDING GEOWORKS AND EDEN 11.1 Geoworks develops and markets operating system and application software for the emerging market of mobile communications devices and electronic organisers, focusing principally on smart phones. Smart phones are next-generation, digital-cellular telephones that integrate voice and data 23 25 transmission capabilities - including voice mail, e-mail, facsimile and Internet access to content and services - within one handheld device. Available within Europe since August 1996, smart phones are targeted for broad availability within Asia and the US in 1997. Geoworks' objective is to establish its GEOS system software as a leading operating system for this market in the near term, and to leverage this position by developing and marketing an array of products and services to the installed base of GEOS-based devices. In particular, through its Wireless Content and Services division, Geoworks is working with content providers, hardware vendors, and integrated service vendors to create a complete, end-to-end smart phone solution, delivering content and services to users of GEOS- based smart phones. To achieve these objectives, Geoworks has established OEM licensing relationships with a number of leading manufacturers, including Nokia, Ericsson Mobile Communications AB ("Ericsson"), NEC, Toshiba Corporation ("Toshiba"), Hewlett-Packard Company ("Hewlett- Packard") and Brother International Corporation ("Brother"). Geoworks has also in the past developed products for America Online Incorporated ("America Online"), Casio Computer Company Limited ("Casio"), International Business Machines Corporation ("IBM"), Motorola Inc's EMBARC subsidiary ("Motorola") Canon Business Machines Inc. ("Canon") and Sharp Electronics Corporation ("Sharp"). In addition, Hewlett-Packard, Nokia, Novell, Inc. ("Novell") and Toshiba have made significant equity investments in Geoworks. Geoworks was incorporated under the laws of the State of California on September 27, 1983. Geoworks' principal offices are located at 960 Atlantic Avenue, Alameda, California 94501 USA. See Section 16 (Risk Factors) and Further Information relating to Geoworks in Appendix II. 11.2 Eden was founded by David Crisp in 1989. The management team consists of commercially and technically experienced staff from electronics and computer backgrounds. Eden's principal shareholders include 3i, Acer, and a number of private and institutional investors who financed the company in a private placing in May 1996. Eden is developing and is licensing powerful underlying software for the new, rapidly growing markets for compact consumer electronics and communications products. Eden has developed relationships with several manufacturers of consumer electronics and communications products. The company has already licensed its software to a number of such manufacturers, including Hitachi, which has launched a communicator product into the market. Other licensees are developing products and paying initial fees to Eden for the use of its software. Eden's software has a number of technical strengths - in particular; it has been developed for RISC processors, which are likely to be the preferred choice of hardware manufacturers in Eden's target markets; it is processor independent and can be made to run on different processors produced by different manufacturers; and EDEN OS has been developed as a set of independent modules, which allows software applications to be developed more easily whilst keeping hardware costs low and allowing flexibility for the manufacturers. Eden has, where appropriate, taken patents upon its intellectual property. 12 STATUS OF EDEN Upon Completion, Eden will be at least a 90 per cent. owned subsidiary of Geoworks and will continue business as such. Geoworks intends to proceed, as permitted under English company law, compulsorily to acquire any remaining shares of Eden not acquired by Geoworks pursuant to the Offer. Regardless of such proceedings, however, Geoworks will operate Eden as a controlled subsidiary from Completion. 24 26 13 ISSUE OF CONSIDERATION SHARES 13.1 No acknowledgement of receipt of documents will be issued but in the event of the Offer becoming, or being declared, unconditional in all respects and provided the form of acceptance and your share certificates and other documents of title (if any) are in order, a certificate in respect of the Consideration Shares will be posted or delivered in accordance with the authority contained in the Acceptance Form as soon as reasonably practicable after the Offer becomes or is declared unconditional in all respects or within five business days after the receipt of a valid acceptance (including all necessary documents of title or satisfactory indemnities for them), whichever is the later. 13.2 If the Offer lapses or does not become unconditional in all respects the completed acceptance form and share certificates and other documents of title (if any) will be returned to accepting shareholders by first class post or airmail (as appropriate) as soon as reasonably practicable after the lapse date. 13.3 ALL DOCUMENTS AND CERTIFICATES SENT BY OR TO SHAREHOLDERS OR THEIR AGENTS ARE SENT AT SHAREHOLDERS' OWN RISK. 14 FURTHER TERMS AND CONDITIONS 14.1 If the Offer becomes, or is declared, unconditional in all respects, it will remain open until further notice and Geoworks will give not less than 14 days' notice in writing to shareholders of it being closed. 14.2 The Offer will not be revised or increased. 14.3 The Offer will not be capable of becoming unconditional after the close of business on 14 March 1997 (or such later time and date as Geoworks may determine). 14.4 On, or as soon as is reasonably practicable after, the Business Day next following the day on which the Offer is due to expire, or as soon as reasonably practicable after the day on which the Offer becomes unconditional as to acceptances, Geoworks will notify shareholders by letter of the total number of shares (as nearly as practicable) for which acceptances of the Offer have been received. In computing the number of shares represented by acceptances there may be included for the above purposes acceptances not in all respects in order or which remain subject to verification. In any announcement of an extension of the Offer the next closing date for the Offer will be stated. 14.5 An acceptance of the Offer shall be irrevocable, so that once a shareholder has delivered a form of acceptance and authority in accordance with the provisions of this document, he or she will not be able to withdraw or alter it in any respect without the written consent of Geoworks (unless the Offer lapses). 14.6 If circumstances arise in which Geoworks is able compulsorily to acquire shares of any dissenting minority under Part XIIIA of the Companies Act 1985, Geoworks intends so to acquire those shares. 14.7 The form of acceptance (which includes an investment representation statement) and authority (including the instructions and notes thereon) shall be deemed to be an integral part of this document. 15 GOVERNING LAW The Offer and its acceptance (other than the investment representation statements made in paragraphs 11,12 and 14 of the Form of Acceptance) is governed by the laws of England and you, Eden and Geoworks agree to submit to the non-exclusive jurisdiction of the English Courts. 25 27 However, the terms and rights of the Consideration Shares, the Registration Rights Declaration and the Escrow Agreement are governed by the laws of the State of California, United States. 16 RISK FACTORS EDEN SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO ACCEPT THE OFFER 16.1 Effect of Wholesale Prices on Royalties Royalties from the licensing of Geoworks' operating system to hardware manufacturers represent a significant component of Geoworks' current revenues, and are expected to represent an increasing portion of Geoworks' revenues in future fiscal periods. The royalties Geoworks receives from these licences are usually correlated to the wholesale or comparable transfer price of the devices in which Geoworks' software is incorporated. The price of such devices is expected to decline over time as a result of competitive pressures and consumer demands and due to the efforts of Geoworks' OEM customers to achieve increased sales volume through price reductions. To the extent that Geoworks' royalty is determined as a percentage of said price, or to the extent that Geoworks responds to market pressures by reducing the amount of fixed-dollar royalties, any such reduction in the wholesale or comparable transfer price will have a material adverse effect on the royalty per unit Geoworks receives. There can be no assurance that an increase in sales volume will result from a decline in the wholesale or comparable price and thereby compensate for any decline in royalties per unit which Geoworks receives from its OEM licensees. 16.2 Acceptance of Geoworks Technology Geoworks' success in establishing the GEOS system software as a leading operating system in the mobile communicating device market is critically dependent on Geoworks' ability to establish and sustain business relationships with key market participants. The Company has already established relationships with several key hardware manufacturers, independent software developers and other companies which Geoworks believes will be significant participants in the market. Despite the importance of these relationships, Geoworks must secure additional strategic design wins with its existing partners and other device manufacturers in order to establish the GEOS system software as an accepted operating system. Accordingly, there can be no assurance that Geoworks' existing relationships will result in sustained partnership, successful products or substantial revenues for Geoworks. Furthermore, even if Geoworks is able to establish and sustain relationships with particular participants in the communicating mobile device market, Geoworks' success depends upon both the adoption of Geoworks' GEOS system software as an accepted operating system by hardware manufacturers and the development by Geoworks and others of aftermarket application products and services for such products. There can be no assurance that Geoworks will be able to establish any such relationships, that the GEOS system software will be accepted as an operating system or that successful aftermarket products and services will develop for mobile communicating devices. Geoworks' application strategy initially includes developing relationships with a limited number of independent software developers to create, produce and market GEOS-based applications and services. There can be no assurance that a limited number of independent software developer relationships will be sufficient for Geoworks to compete effectively in the mobile communicating device market that Geoworks or independent software developers will be able to develop GEOS-based applications and services in a timely manner or, if developed, that such applications and services will achieve market acceptance. 26 28 16.3 Dependence on New Market Geoworks' efforts are currently concentrated on developing and marketing operating system software for use in mobile communicating devices. Geoworks' success depends upon both the development of a new market for these products and upon the adoption of Geoworks' GEOS system software as an accepted operating system standard for such devices. Although the market for cellular telephones is well- established and is currently growing at an appreciable rate, the smart phone market is in the early stages of development, and, to date, no smart phone device has achieved broad market acceptance. In August 1996, Nokia released a smart phone in selected geographic markets which incorporates the Company's GEOS software. Although the device has been well received, the market acceptance of these products has not yet been fully established. More generally, the failure of these or any other early, highly publicised products or the discontinuance of any such products by their manufacturers could significantly affect the marketability of other similar or related products and components and the development of the market. The Company has no control over the pricing of GEOS- based devices and, therefore, cannot guarantee that any devices will reach the desired price points to achieve mass market acceptance. In addition, the development of the smart phone market, like that of other computer and consumer electronics markets is dependent upon the simultaneous development of a substantial infrastructure of related and supporting products and services, including hardware and software products, distribution channels and services, communications services and support and repair services. The Company has only limited influence over and, therefore, is substantially dependent upon, the activities of third parties for the development of this infrastructure. The success of smart phones also depends on a number of other general market factors outside Geoworks' control, including consumer acceptance of particular smart phone concepts. In addition, Geoworks' long- term results will depend upon its success in developing and marketing aftermarket wireless content products and services that operate on GEOS-based smart phones. There can be no assurance, however, that the wireless content and services market will develop as anticipated or that Geoworks will be able to execute its business plan successfully. 27 29 16.4 Limited success of previous-generation, Non-Communicating Devices Prior to the emergence of the smart phone market, the Company licensed its GEOS operating system software to manufacturers of non- communicating mobile devices, such as personal digital assistants and handheld electronic organisers. These non-communicating devices - including the Hewlett-Packard OmniGo and the Casio Z-7000, as well as those introduced by competitors, such as the Apple Newton, Sony MagicLink and Motorola Envoy - have achieved only modest unit sales to date, and the Casio Z-700. a first-generation personal digital assistant based upon the Company's GEOS system software has been discontinued. Sharp and Toshiba have each developed a non-communicating GEOS-based device and subsequently elected to cancel introduction of such devices into the market. Other market participants have announced restructurings of their efforts relating to such devices. In addition, sales of low-cost, GEOS-based educational computer systems fell short of the Company's expectations. In particular, these third-party product discontinuances and disappointments resulted in the Company recognising lower then expected recurring license revenues during the fiscal year ended 31 March 1996. More recently, Hewlett-Packard announced and shipped its OmniGo 100, a second-generation electronic organiser based on the Company's GEOS system software. 16.5 Dependence on Limited Number of Manufacturers Geoworks' business is critically dependent upon the timely introduction and successful marketing and sale of GEOS-based smart phones by a limited number of consumer product companies. Geoworks, however, has no direct control over any particular smart phone's hardware design, product functionality, perceived product speed, pricing strategy, release dates, market positioning, product promotion or distribution, all of which affect the product's success and therefore Geoworks' business results. In addition, foreign currency fluctuations may limit the ability of foreign consumer product companies to achieve production costs low enough to meet the pricing requirements of the smart phone market or otherwise affect the pricing of their products in foreign markets to the extent that pricing is denominated in U.S. dollars. If a particular GEOS-based smart phone does not achieve broad market acceptance and generate anticipated sales volume, Geoworks' operating system royalties from such product and Geoworks' opportunity for aftermarket sales of products and services to users of such product will be materially adversely affected. Furthermore, under the terms of Geoworks' agreements with hardware manufacturers, the manufacturer is generally permitted to add product enhancements or new products to the agreement. In such event, Geoworks may be obligated to apply unmortised advance payments under the agreement against licence revenue to be earned by Geoworks on per unit sales of such additional products. Geoworks may incur additional research and development expenses to provide software for such products. Any such activities are generally subject to reaching agreement on specifications, delivery, pricing and additional payments. 16.6 Development of Wireless Content and Services Even if the general smart phone market develops as anticipated by Geoworks and the GEOS system software becomes a leading platform for hardware and software products, Geoworks' long-term financial success is dependent on its ability to derive revenue from the delivery of wireless content and services for GEOS-based smart phones. Geoworks' plan for generating such revenue includes: sales by Geoworks of internally developed client and server software and services for, as well as upgrades to and associated products for, the GEOS based smart phones; recurring license revenue from communication services providers; and electronic and traditional distribution by Geoworks of its own and third-party applications and services. There can be no assurance, however, that Geoworks will be able to derive significant revenue from any of these sources. The Company currently offers only a very limited number of aftermarket applications in selected smart phones market segments. The Company's wireless server and client development resources, experience and 28 30 market presence are more limited than that of many other developers. There can be no assurance that Geoworks will be able to successfully develop additional aftermarket products or services or obtain distribution rights to third-party products or content, or that any such products or content will achieve acceptance in the market. Further, Geoworks has historically marketed an integrated package of operating system and applications, and has only limited experience marketing server and client applications to communication server providers. There can be no assurance that Geoworks will be able to offer sufficiently attractive additional functionality in GEOS system software and associated products to generate significant revenue. Moreover, Geoworks may be required to respond to competitive products and to customer demands by including features of its aftermarket products or services in updated versions of Geoworks' operating system software. To the extent that Geoworks is required to so include such products and services, Geoworks may be unable to derive the level of revenue from such products and services that Geoworks would derive if such products or services were sold separately. While, in the past, Geoworks has been able to obtain recurring license revenue from certain communication services providers, there can be no assurance that Geoworks will be able to obtain similar arrangements with other providers. Finally, practicable and effective cellular distribution of content and services is an unproved concept which depends on many factors for success, including the size of the data and applications to be distributed and the presence of an appropriate infrastructure. Accordingly, there can be no assurance that cellular distribution will prove to be feasible. Regardless of the success of the GEOS system software, if Geoworks is unable to derive significant revenue from one or more of the foregoing aftermarket sources, Geoworks' long term business, results of operations and financial condition will be materially adversely affected. 16.7 Risk of Software Product Development Geoworks' future success will depend on its ability to develop and release on a timely basis, new operating system and application software products and upgrades. Because of the short product life cycles and intense competition expected in the smart phone market in which Geoworks participates, the timeliness of new product introductions and shipments can be critical to whether a particular product will ever achieve market acceptance. There can be no assurance that Geoworks will be able to develop, introduce and ship new products or upgrades on a timely basis. Furthermore, from time to time, Geoworks and others may announce new products, features or technologies that have the potential to replace or shorten the life cycle of Geoworks' existing product offerings. There can be no assurance that announcements by Geoworks or competitors will not cause customers to defer purchasing existing products of Geoworks or its hardware partners, or cause distributors and dealers to return products. Delays or difficulties associated with developing or introducing new products could have a material adverse effect on Geoworks' business and results of operations. The Company has historically engaged in significant customisation of its GEOS system software for each hardware partner. The software development and customisation process is inherently unpredictable. Development time and the achievability of design objectives may not be determinable until very late in the development process. Problems and delays in product development or customisation may result in the delay or cancellation of planned product or service offerings by Geoworks and its strategic partners, and consequently could have an adverse effect on Company's operating results. In the past, Geoworks has experienced significant delays in the completion of development and customisation projects and the release of new products to hardware partners. Consequently, the receipt of development fees and licence revenue from these partners has at times also been delayed. Such delays have resulted from a number of factors, including changes in specifications initiated by Geoworks' hardware partners. The extent of these delays has varied depending upon the size and scope of the project and the nature of the problems encountered. There can be no assurance that Geoworks will not experience similar problems and delays in the future, resulting in material adverse effects on Geoworks' operating results. Furthermore, no complex software product is totally free of errors and significant errors may go undetected for some time. Discovery of significant errors may delay or cancel product releases and, if not discovered until 29 31 after product release, may necessitate recall of products by Geoworks and its strategic partners and expose Geoworks to substantial expense and claims for reimbursement. As is common in the industry, Geoworks has experienced product development delays. In particular, Geoworks experienced two significant delays relating to OEM projects in 1993, the more significant of which resulted in the OEM delaying payment of US$2.5 million owed to Geoworks for a period of approximately 12 months and forced Geoworks to cover its capital needs through short-term borrowings and extended payment terms with certain key vendors. There can be no assurance Geoworks will not experience other product development delays in the future with similar or other consequences. 16.8 Dependence on Complementary Technologies In certain markets, widespread adoption and use of smart phones may depend on the commercial availability of other technologies and business relationships. For example, widespread use of cellular telephones for data transfer in the United States or other regions may depend upon the development and rollout of a cellular network infrastructure capable of digital transmission. Other markets may depend upon the development of reliable, affordable and convenient wireless transmission of data. For smart phones and other communicating devices to achieve consumer level pricing, technologies which reduce the cost of manufacturing and the cost of goods may need to be developed and implemented. These cost reductions will also require Geoworks' OEM licensees to achieve economies of scale in manufacturing. There can be no assurance that such complementary technologies will develop, or that such cost and price reductions will be achieved. 16.9 Exchange rates The Common Stock of Geoworks is designated in US dollars. In the event that the Eden shareholders become able in the future to realise their investment in Geoworks Common Stock, or receive dividends, changes in the rates of exchange between the US dollar and pounds sterling, or any other currency into which such shareholders may wish to exchange such proceeds, may cause the value of their investment to diminish or to increase. 30 32 16.10 Acquisitions; Integration of Operations Geoworks and Eden are pursuing the Offer with the expectation that the business combination of Geoworks and Eden will result in long- term strategic benefits. These anticipated benefits will depend in part on whether the companies' operations can be integrated in an efficient and effective manner. There can be no assurance that this will occur. The combination of the companies will require, among other things, the integration of the companies' respective product offerings and the coordination of the companies' sales, marketing and research and development efforts. There can be no assurance that the combined company will be able to take full advantage of these combined efforts. The success of this process will be significantly influenced by the ability of the combined company to attract and retain key management, sales, marketing and research and development personnel and to integrate personnel with disparate business backgrounds working in different corporate cultures. Integrating the two companies will require the dedication of management resources, which may distract attention from the day-to-day operations of the combined company. In addition, Geoworks expects to incur significant additional operating costs in connection with the integration of the two companies. The inability of management to successfully integrate the operations of the companies in an efficient and cost-effective manner, the loss of customers or key personnel or the disruption of operations as a result of such integration, could have a material adverse effect upon the business, operating results or financial condition of the combined company. 17 ADDITIONAL INFORMATION The Appendices to this letter contain: I Rights attaching to the Consideration Shares II Further information relating to Geoworks and Eden III List of Eden Optionholders and their Options IV Summary of changes in the rights of Eden shareholders following Completion of the Offer V Notice, proxy form and instructions for the Extraordinary General Meeting of Eden VI Form of Acceptance and Authority VII Declaration of Registration Rights 18 DOCUMENTS AVAILABLE FOR INSPECTION The following documents are available for inspection free of charge at any time between the hours of 9.30 am and 5.30 pm on business days at the offices of: (1) S J Berwin & Co at 222 Grays Inn Road, London WC1X 8HB, England; (2) Dibb Lupton Alsop at Windsor House, Temple Row, Birmingham B2 5LF; and (3) Henry Cooke Corporate Finance Ltd at 1 King Street, Manchester M2 6AW: (a) the Warranty and Covenant Agreement and the related disclosure letter; (b) the Escrow Agreement; (c) the option agreements referred to in paragraph 2.7 above; 31 33 (d) the agreements relating to the Shareholder Loans referred to in paragraph 2.8 above; (e) the Preference Share Agreement; (f) a copy of the Articles of Incorporation and Bylaws of Geoworks; (g) the irrevocable undertakings received by Geoworks to accept the Offer; and (h) a copy of this document and its appendices. 19 PROCEDURE FOR ACCEPTANCE 19.1 To accept the Offer you should complete and sign the enclosed Acceptance Form in accordance with the instructions contained in it. 19.2 You should return the completed Acceptance Form together with your share certificates and any other documents of title in the enclosed pre-paid, pre-addressed envelope to S J Berwin & Co, (reference 11/383), 222 Grays Inn Road, London WC1X 8HB so as to arrive as soon as possible. In any event, forms should arrive not later than the close of business on 14 March 1997 (or such later date as may be notified to you in writing by Geoworks). 19.3 Even if any share certificate or document of title is not readily available, the Acceptance Form should nevertheless be completed and returned, so as to arrive by the time and date stated, and the share certificate or document of title forwarded as soon as possible thereafter, in each case to the address specified above and in the specified form. Geoworks reserves the right to treat as valid any acceptance which is not entirely in order or not accompanied by the relevant certificates or documents of title, but in any such case the Consideration Shares will not be issued until the acceptance is completely in order and the remaining documents or satisfactory indemnities have been received. 19.4 Please ensure that you comply with the instructions relating to the Extraordinary General Meeting of Eden as specified in Appendix V. Yours faithfully Gordon E Mayer President 32 34 APPENDIX I RIGHTS ATTACHING TO THE CONSIDERATION SHARES AND THE PREFERRED STOCK OF GEOWORKS 1 COMMON STOCK Geoworks' Articles of Incorporation authorise the issuance of up to 20,000,000 shares of Common Stock of no par value. The holders of Geoworks Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders except that, upon giving notice as required by law, shareholders may cumulate their votes in the election of directors. Subject to preferences that may be applicable to any outstanding Geoworks Preferred Stock, the holders of Geoworks Common Stock are entitled to receive rateably such dividends, if any, as may be declared from time to time by the Geoworks Board of Directors out of funds legally available therefor. Geoworks has never declared or paid any cash dividends on its capital stock, and currently has no intention of doing so. In the event of the liquidation, dissolution or winding up of Geoworks, the holders of Geoworks Common Stock are entitled to share rateably in all assets remaining after payment of liabilities, subject to any prior liquidation rights of the Geoworks Preferred Stock, if any, then outstanding. The Geoworks Common Stock has no pre-emptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Geoworks Common Stock. All outstanding shares of Geoworks Common Stock are fully paid and non-assessable, and the Consideration Shares will be fully paid and non-assessable when issued. The rights preferences and privileges of the holders of Geoworks Common Stock are subject to, and may be adversely affected by, the rights of the holders of any series of Preferred Stock which Geoworks may designate and issue in the future. It is Geoworks' strategy to achieve critical mass in the smart phone market through acquisitions, strategic alliances and other transactions which may involve the issuance of equity securities. Geoworks engages in discussions concerning such issuances as a regular course of its business. Without limiting the foregoing, however, Geoworks has no current commitments to issue any equity securities as of the date of this Offer, other than pursuant to employee equity plans. 2 PREFERRED STOCK Geoworks' Articles of Incorporation authorise the issuance of up to 2,000,000 shares of undesignated Preferred Stock. The Geoworks Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock, as well as to fix the number of shares constituting any series and the designations of such series, without any further vote or action by the shareholders. The Geoworks Board of Directors, without shareholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Geoworks Common Stock. The issuance of Geoworks Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of Geoworks Common Stock. In addition, the issue of Geoworks Preferred Stock may have the effect of delaying, deferring or preventing a change in control of Geoworks. The Geoworks Board of Directors has no current intention to issue any Geoworks Preferred Stock. 3 RESTRICTIONS ON TRANSFER OF CONSIDERATION SHARES Securities Laws The Consideration Shares being issued to Eden shareholders will not be registered in reliance on an exemption from the registration requirements of the United States federal securities laws provided by Regulation S of the Securities Act for issuances to non-U.S. persons in transactions outside the 33 35 United States. Geoworks' reliance on this exemption is based in part upon the representations being made by Eden shareholders in the Acceptance Form. Securities issued pursuant to an exemption from the registration requirements of the Securities Act may not be resold in the United States or to a U.S. Person unless the resale in subsequently registered or another exemption is available. This restriction would also bar sales on the Nasdaq National Market. While it is widely believed that shares issued under Regulation S may be resold in the United States or to a U.S. person if held for a period of at least 40 days, Geoworks understands that the United States Securities and Exchange Commission (the "Commission") is currently reviewing Regulation S and there is considerable possibility that the Commission will conclude that shares issued pursuant to Regulation S should be subject to the restrictions on resale imposed by Rule 144 of the Securities Act. Such an interpretation by the Commission would, in effect, lengthen the holding period for Eden shareholders receiving Geoworks Common Stock from 40 days to two years and impose additional restrictions on resale relating to volume, manner of sale, notice and the availability of current public information. In light of the foregoing uncertainty, Geoworks has agreed subject to certain conditions to use its best efforts promptly upon consummation of the Offer to file a registration statement on Form S-3 covering the resale of the Consideration Shares in the United States or to U.S. persons. Upon effectiveness of such registration statement, and for so long as it remains effective, the Consideration Shares may be resold in the United States regardless of any Commission action regarding Regulation S. Geoworks has agreed to keep the registration statement effective for up to two years after Completion (or such shorter time as the Commission may permit relate of restricted securities under Rule 144). All sales by Eden shareholders of Consideration Shares in the United States pursuant to the registration statement must be accompanied by delivery of a current prospectus meeting the requirements of the United States securities laws. Geoworks will provide each Eden shareholder with such a prospectus. Geoworks may be required to update the prospectus periodically to reflect changed information concerning Geoworks. In such case, Geoworks will provide each Eden shareholder with an updated prospectus. Notwithstanding the foregoing Geoworks may suspend the ability of Eden shareholders to sell Consideration Shares in the United States or to U.S. persons under the registration statement if the Geoworks Board of Directors determines in good faith that it would be significantly disadvantageous to Geoworks and its shareholders for Geoworks to update the prospectus because Geoworks would be required to disclose material non-public information that it would not otherwise be obliged to disclose at such time which disclosure would have a material adverse effect on the business or prospects of Geoworks. In such event Geoworks will furnish to the Eden shareholders a certificate to such effect and the Eden shareholders will be required to suspend any disposal of Consideration Shares pursuant to the registration statement. Geoworks may exercise this right: (a) no more than twice during any twelve-month period for a period of up to sixty (60) days each; and (b) no more than four times during any twelve-month period for a period of up to twenty (20) days each if updating the prospectus would require Geoworks to report financial results less favourable than the consensus estimates of the major financial analysts following Geoworks' stock prior to the time Geoworks would normally report such results. In addition Geoworks reserves the right to withdraw the registration statement at such time as Geoworks determines that disposals of Consideration Shares may be made by Eden shareholders in the United States without the need of the registration statement. In such case, Geoworks will instruct its transfer agent that such disposals are permitted without restriction. 34 36 For more detailed information of Geoworks' obligations to register the resale of the Consideration Shares and the conditions of the Eden shareholders ability to effect such sales, please refer to the Declaration of Registration Rights attached as Appendix VII. The foregoing does not deal with the ability of Eden shareholders to dispose of Consideration Shares to non-U.S. persons in transactions occurring outside of the United States. Such transactions are generally outside of the ambit of United States securities laws, but may be subject to securities laws of other jurisdictions. Eden shareholders are urged to consult their own legal advisors regarding requirements of or limitations on any such transactions. Restrictions Required under Pooling of Interest Rules In addition to the restrictions on transferability imposed by United States' securities laws, Affiliates of Geoworks and Eden will be required to enter into agreements restricting sales, disposal or other transactions reducing their risk of investment in respect of the shares of Geoworks Common Stock held by them to help ensure that the business combination effected by the Offer will be treated as a pooling of interests for accounting and financial reporting purposes. Under such Affiliate Agreements, shares of Geoworks Common Stock currently held by Affiliates of Geoworks or issued to Affiliates of Eden in connection with the Offer may not be transferred until after the second day after the day that Geoworks publicly announces financial results covering at least 30 days of combined operations of Geoworks and Eden. 4 GEOWORKS CHARTER DOCUMENTS The rights of the holders of the various classes and series of Common and Preferred Stock of Geoworks are set out in the following attached charter documents of Geoworks: (a) Amended and Restated Articles of Incorporation filed on October 20, 1994 with the Secretary of State of California; and (b) Bylaws adopted by the Board of Directors of Geoworks, as amended to date. 35 37 APPENDIX II FURTHER INFORMATION RELATING TO GEOWORKS 1 RESPONSIBILITY OF GEOWORKS Geoworks accepts responsibility for the information contained in this document relating to Geoworks and its directors. To the best of the knowledge and belief of Geoworks, which has taken all reasonable care to ensure that such is the case, such information is in accordance with the facts and does not omit anything likely to affect the import of such information. 2 DATE AND PLACE OF INCORPORATION Geoworks was incorporated on 27 September 1983 under the laws of the State of California, United States of America. 3 SECRETARY, PRINCIPAL OFFICE AND REGISTERED AGENT Secretary: Jordan Breslow, Esq Principal Office: 960 Atlantic Avenue, Alameda, California 94501, USA Registered Agent: Jordan Breslow Esq, 960 Atlantic Avenue, Alameda, California 94501, USA 4 GEOWORKS CAPITAL STRUCTURE The authorised capital stock of Geoworks consists of 20,000,000 shares of Common Stock, no par value, and 2,000,000 shares of undesignated Preferred Stock, no par value. As of December 31, 1996, there were 14,094,972 shares of Common Stock outstanding and no shares of Preferred Stock outstanding. See Appendix I for a description of the rights attaching to shares in the capital of Geoworks, which description is qualified in its entirety by reference to the attached charter documents of Geoworks. 5 PRO FORMA CAPITAL STRUCTURE OF GEOWORKS 5.1 Upon completion of the acquisition of Eden, the capital structure of Geoworks will be as set forth below (based on the shares of Geoworks Common Stock outstanding as at 31 December 1996): 36 38 PRO FORMA CAPITAL STRUCTURE
IDENTITY TYPE OF STOCK SHARES OF COMMON APPROX. STOCK PERCENTAGE OWNERSHIP Current Geoworks Shareholders Common 14,094,972 91.5% Current Eden Shareholders Common 1,304,250 8.5%
6 NATURE AND PARTICULARS OF BUSINESS; FINANCIAL INFORMATION Geoworks develops and markets operating system and application software for the emerging market for mobile communications devices and electronic organisers focusing primarily on smart phones. For a more detailed description of the nature of Geoworks' business, please refer to the copies of the following documents attached hereto: o Annual Report to Geoworks Stockholders for the fiscal year 1996 o Geoworks Proxy Statement dated July 10, 1996 o Geoworks' Annual Report on Form 10-K for the fiscal year ended March 31, 1996, as filed with the US Securities Exchange Commission o Geoworks' Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 1996, September 30, 1996 and December 31, 1996, as filed with the US Securities Exchange Commission 7 RESULTS Please refer to the documents listed above for full information. Summary audited financial information for Geoworks for the last three completed financial years and unaudited financial information for the nine months ended 31 December 1996 is set out below:
Nine months ended 31 Years ended 31 March December 1994 1995 1996 1996 $'000 $'000 $'000 $'000 Total net revenues 4,449 3,949 4,999 7,664 ======= ======= ====== ====== Loss before income taxes (8,581) (10,018) (8,693) (6,869) ======= ======= ======= ====== Provision for income taxes 234 175 - 55 ======= ======= ======= ====== Net loss (8,815) (10,193) (8,693) (6,924) ======= ======= ======== ====== Net loss per share (US$) (1.59) (1.11) (0.70) (0.49) ======= ======= ======= ======
37 39 Working capital (deficiency) (2,774) 6,856 43,130 35,968 ========= ======= ====== ====== Shareholders equity (deficit) (12,454) 7,652 44,457 38,525 ======== ======= ====== ======
The directors of Geoworks have adopted a policy of accounting for advanced license fees received as a deferred liability, and recognising them as license revenue when OEM hardware products which incorporate the licensed software are sold, or upon a project being cancelled, if applicable. 8 GEOWORKS CLOSING PRICES The following table shows the closing prices for Geoworks shares of Common Stock for the last trading day of each month from 31 August 1996 to 31 January 1997 inclusive:
DATE GEOWORKS COMMON STOCK (US$) 31 August 1996 22.125 30 September 1996 26.000 31 October 1996 20.375 30 November 1996 22.000 31 December 1996 24.500 31 January 1997 25.000
38 40 FURTHER INFORMATION RELATING TO EDEN 1 RESPONSIBILITY OF EDEN The directors of Eden, whose names are set out on page 9 of this document, accept responsibility for the information contained in this document other than that relating to Geoworks and its directors. To the best of the knowledge and belief of the directors of Eden (who have taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information. 2 FINANCIAL INFORMATION ON EDEN Summary audited financial information for Eden for the last three completed financial years is set out below:
YEARS ENDED 30 JUNE 1994 1995 1996 L.'000 L.'000 L.'000 Turnover 915 856 800 ===== ===== ===== Loss on ordinary activities before and after taxation (332) (223) (636) ====== ====== ====== Net current assets 135 475 1,837 ===== ===== ===== Net (liabilities)/assets (526) (498) 768 ====== ====== =====
Turnover consisted principally of advance royalties from product development until 1995. Subsequently, the company has also generated engineering fees by porting EDEN OS to various RISC processors and from advanced licensing fees from hardware manufacturers. The company has also incurred considerable expenditures in developing and commercialising EDEN OS during the period under review, which has been expensed as incurred. The accounting policy adopted by the directors of Eden in respect of advanced royalties and advanced license fees is to recognise these as income as they become payable. Shareholders in Eden have all previously received a copy of the report and accounts for the year ended 30 June 1996. Further copies can be obtained from the company secretary of Eden at the company's registered office. 39 41 APPENDIX III LIST OF EDEN OPTIONHOLDERS AND THEIR OPTIONS
NAME NO OF ORDINARY SHARES UNDER OPTION D E J Crisp 52,355 A Jenkins 26,147 D L Stevens 15,324 D P Taylor 45,324 J Axtell 1,000 M Baxter 1,000 B Bennett 300 G Brookman 300 H Clark 2,000 J Doggett 300 A G Ford 4,000 J S Hargreaves 300 A Law 2,000 I Standish 1,000 J Tune 300 3i Group plc 2,000 Henry Cooke Lumsden (London) 24,390 Limited
40 42 APPENDIX IV SUMMARY OF CHANGES IN THE RIGHTS OF EDEN SHAREHOLDERS FOLLOWING COMPLETION OF THE OFFER Those Eden shareholders who exchange their Ordinary Shares for Common Stock will, upon the exchange of Ordinary Shares, become stockholders of Geoworks and their rights as stockholders will be governed by the laws of the United States and the State of California, including the California Corporations Code (the "CCC"), by Geoworks' articles of incorporation (the "Geoworks Articles") and Geoworks' bylaws (the "Geoworks Bylaws") and by the rules and regulations of Nasdaq. The following discussion is a comparison of certain rights of Eden shareholders and stockholders of Geoworks. Such comparison does not purport to be a complete description of the differences between the statutory and other rights of Eden shareholders and stockholders of Geoworks. Such differences can be determined in full by reference to the laws and applicable regulatory requirements of England and the United States, the CCC and the common law thereunder, the regulations of Nasdaq, Eden's memorandum and articles of association (the "Eden Articles"), the Geoworks Articles and the Geoworks Bylaws. VOTING RIGHTS AND QUORUM REQUIREMENTS Eden Under English law, the voting rights of shareholders are regulated by a company's articles of association. The Eden Articles specify that three Eden shareholders (regardless of the number of shares held by them) present in person or by proxy and entitled to vote upon the business to be transacted at a meeting of shareholders shall be a quorum, provided that a representative of each of 3i and Acer be present. Any Eden shareholder on the register may vote in person or, assuming the proxy is received by Eden at least 48 hours prior to the time set for the meeting, by proxy. There is no record date for meetings under English law. Each registered Eden shareholder present in person (or, if a corporation, present by a duly authorised representative or proxy) is entitled to one vote at any Eden meeting for each resolution (ordinary or special) considered on a show of hands. Voting occurs by show of hands unless a poll is demanded. If a poll is taken, every Eden shareholder, or his proxy, is entitled to cast one vote for each Ordinary Share held. At shareholder meetings a poll may be demanded by any shareholder present in person or by proxy, or by the Chairman. 41 43 Geoworks Under Geoworks' Bylaws, the presence, either in person or by proxy, of the holders of a majority of the shares entitled to vote shall constitute a quorum for the transaction of business. If a quorum is present, the affirmative vote of a majority of the shares represented, in person or by proxy, and voting shall constitute an act of the shareholders. Each shareholder voting for the election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by such shareholder, or may distribute such shareholder's votes on the same principle among as many candidates as the shareholder may select, provided that votes cannot be cast for more than the number of directors to be elected. However, no shareholder will be entitled to cumulate votes unless the candidate's name has been placed in nomination prior to the voting, and the shareholder, or any other shareholder, has given notice at the meeting prior to the voting of the intention to cumulate votes. If any shareholder gives such notice, all shareholders may cumulate their votes for the candidates in nomination. On all other matters, each share has one vote. MEETINGS OF SHAREHOLDERS Eden Under English law, an annual general meeting (an "AGM") of a private company must be held each year and at least once every fifteen months, unless each shareholder consents to dispense with the AGM for a particular year. An extraordinary general meeting (an "EGM") of a company may be convened by the board of directors or, notwithstanding any provision to the contrary in a company's articles of association, by a request from shareholders holding not less than one-tenth of the paid-up capital of the company carrying voting rights at general meetings. An EGM at which an ordinary resolution is proposed requires 14 days' notice (other than an ordinary resolution to remove a director which requires 28 days' notice). Such ordinary resolution requires a majority vote of those present (in person or by proxy) and voting. An EGM at which a special resolution is proposed requires 21 days' notice and such resolution requires a three-quarters majority vote of those present (in person or by proxy) and voting. An AGM requires 21 days' notice regardless of the types of resolution to be proposed. Such notice periods exclude the day when the notice is given or deemed to be given and the day for which it is given. Geoworks Under the CCC and the rules applicable to Nasdaq listed companies, Geoworks is required to hold an annual meeting of stockholders. The Geoworks Bylaws provide that the annual meeting shall be held on such date and at such time as the directors shall designate. Absent such designation, the annual meeting of the shareholders is to be held on January 15th of each year. In recent years the meeting has been held in August. The Geoworks Bylaws provide that a special meeting may be called by the board of directors, the chairman of the board, the president or the holders of shares entitled to cast not less than ten percent of the votes at the meeting. Under the CCC, Geoworks must give notice to stockholders of any annual or special meeting not less than ten nor more than 60 days prior to such meeting. The record date for the meetings of the stockholders shall not be less than ten days nor more than 60 days before the date of such meetings. As a public company, Geoworks is required to send to each of its shareholders a proxy statement relating to its annual meeting of shareholders. The proxy statement will describe in detail the matters that shareholders will be entitled to vote upon at the meeting. While any shareholder may attend the meeting and vote in person, it is more customary to vote by submitting a written proxy, which will be provided by Geoworks along with the proxy statement. 42 44 BOARD OF DIRECTORS Eden The Eden Articles provide that unless otherwise approved by ordinary resolution of shareholders, there shall be not less than two nor more than eight directors. At present each of AII and 3i have the right to appoint a director. The quorum for any meeting of the directors is three, provided that two are the 3i and Acer directors. Geoworks The Geoworks Bylaws provide that the number of directors shall not be less than five nor more than nine, and currently set the number of directors at seven. Subject to certain restrictions the Geoworks Bylaws provide that the directors may increase or decrease the number of directors within this stated range and fill any vacancy on the Geoworks Board, including vacancies resulting from an increase in the number of directors. AUTHORISED BUT UNISSUED SHARE CAPITAL Eden The unissued share capital of Eden is at the disposal of the directors to allot to such persons as they see fit subject to any contrary direction given by resolution of the Company. Geoworks The authorised capital stock of Geoworks is 20,000,000 shares of Common Stock, no par value, and 2,000,000 shares of Preferred Stock, no par value (the "Preferred Stock"). After Completion, approximately 4,600,778 shares of Common Stock (based on the shares of Geoworks Common Stock outstanding as at 31 December 1996) and all 2,000,000 shares of Preferred Stock will be authorised but unissued. Under the CCC, these shares will be available for future issuance by Geoworks upon approval by Geoworks' Board of Directors but without the need to obtain the approval of Geoworks' stockholders. The issuance of additional shares of Common Stock (which will be identical to the shares being issued to the Eden shareholders in exchange for Ordinary Shares) will dilute the percentage ownership of the Eden shareholders in Geoworks. Moreover, Geoworks may issue such shares in transactions where the price per share is less than that effectively paid by the Eden shareholders for the Common Stock. In addition, the Geoworks Board of Directors is authorised without the need for further action by the stockholders to issue up to 2,000,000 shares of Preferred Stock in one or more series and to fix the designations, powers, preferences, rights, qualifications, limitations or restrictions of any such series, including, without limitation, the rate and nature of dividends, the price and terms and conditions on which shares may be redeemed, the amount payable in the event of voluntary or involuntary liquidation, the terms and conditions for conversion or exchange into any other class or series of stock, voting rights, pre-emptive rights and other terms, any or all of which may be greater than the rights of the Common Stock. The purpose of authorising the Geoworks Board of Directors to determine such rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The effect of issuing, or of threatening to issue, the Preferred Stock may be to delay or prevent a change in control of Geoworks. This could have a negative effect on the value of the Common Stock. Notwithstanding the CCC, Nasdaq requires shareholder approval when shares of common stock or securities convertible into or exercisable for common stock are to be issued in any transaction or series of related transactions, other than a public offering for cash, (i) if the common stock to be 43 45 issued will have voting power equal to or greater than 20 percent or more of the voting power outstanding before such issuance, or (ii) the number of shares of common stock to be issued will be in excess of 20 percent of the number of shares of common stock outstanding before the issuance of the stock. PREEMPTIVE RIGHTS Eden Under English law and under Eden's articles, when Eden issues equity shares (or grants certain other rights to acquire equity shares) ("equity securities") in consideration for payment of cash, then unless certain provisions of the Companies Act are disapplied by a special resolution of shareholders, existing shareholders are entitled to participate in the offer for such equity securities pro rata to their existing shareholdings. Geoworks Under the CCC, stockholders do not have preemptive rights unless a corporation affirmatively elects preemptive rights in its articles of incorporation. The Geoworks Articles do not provide holders of shares of the Common Stock with pre-emptive rights. Consequently, if Geoworks makes a private or public offering of its securities, it is not obliged to offer a portion of such shares to existing shareholders, which will have the effect of diluting the ownership interests of the existing shareholders of Geoworks. 44 46 DISCLOSURE OF INTERESTS Eden Under the Companies Act, a person who acquires an interest in a private company is not subject to any disclosure requirement. However, the Company is required to file an annual return which lists the current shareholders of the Company. Geoworks Geoworks is subject to the United States Securities Exchange Act of 1934 (the "Exchange Act"), which requires any person who acquires directly or indirectly the beneficial ownership of five percent of more of a public company's outstanding equity security to file with the United States Securities and Exchange Commission (the "SEC"), within ten days, disclosing such interest, and to update such information periodically. Officers, directors and 10 per cent. stockholders, are subject to additional, ongoing reporting requirements. TRANSFER OF SHARES Eden Under the Eden Articles, Eden shareholders who wish to transfer Ordinary Shares must, subject to the provisions detailed below, serve a transfer notice on the Company setting out the number and class of shares to be sold. The Company shall then offer such shares to the remaining shareholders pro rata according to their existing shareholdings at a price to be determined by the Company's auditors. If the remaining shareholders do not wish to purchase all such shares and the Company does not purchase them itself then the selling shareholder may transfer to a third party provided he does not sell them for less than the price determined by the auditors. However, shareholders may transfer shares to certain specified persons, being trusts, other shareholders, subsidiaries (if a corporate shareholder) and certain others provided that where necessary the transferee enters into a deed agreeing to adhere to the terms of the subscription agreement dated 27 June 1995. Geoworks Because Geoworks is a public company, the Geoworks Articles contain no restrictions on the transfer of the Common Stock. Under current U.S. securities laws, Eden shareholders (provided they are not U.S. persons and will not be "affiliates" of Geoworks following Completion) who exchange Ordinary Shares for Common Stock will be required under U.S. securities laws to hold the Common Stock for 40 days following Completion before selling the Common Stock through a transaction effected on Nasdaq or otherwise to any U.S. person or for the account or benefit of a U.S. person. Sales prior to the expiration of the 40-day period may be made to non- U.S. persons. Any Eden shareholder who exchanges Ordinary Shares for Common Stock and who is either a U.S. person or an affiliate of Geoworks following the Completion must comply with certain transfer restrictions imposed upon them by U.S. securities laws. The SEC is in the process of reviewing the legislation which currently permits Eden shareholders (who are not affiliates of Geoworks or U.S. persons) to resell the Common Stock acquired in the Offer on the Nasdaq market or otherwise to a U.S. person 40 days after the date of Completion. There is a considerable likelihood that the holding period for the Consideration Shares could be increased from 40 days to one or two years. Although it is impossible to predict when this change in legislation will occur, if the SEC were to increase the holding period prior to the one or two year anniversary of the date of Completion, Eden shareholders holding Consideration Shares would still 45 47 be able to sell the Consideration Shares on the Nasdaq market, or otherwise to a U.S. person, upon registration of the Consideration Shares in the United States. Each Eden shareholder who exchanges their Ordinary Shares for Common Stock will be granted certain rights to register their shares pursuant to a Declaration of Registration Rights pursuant to which Geoworks will undertake, subject to certain conditions, to register the Consideration Shares in the United States promptly following Completion, and maintain the applicable registration statement effective, subject to certain limitations, for a period not to exceed two years. Once registered, the Consideration Shares may be resold on the Nasdaq market without restriction by persons who are not affiliates of Geoworks. 46 48 APPENDIX V DOCUMENTATION FOR THE EXTRAORDINARY GENERAL MEETING This Appendix contains the following documents: FORM A Notice of the Eden Extraordinary General Meeting stating when and where it will be held and the wording of the special resolution that will be proposed. FORM B Proxy. This form, if completed by you, will allow another person to vote at the meeting on your behalf. If you sign and return the form but do not insert the name of the Proxy the Chairman of the meeting will vote on your behalf in accordance with your wishes stated on the form. Note Proxy forms, duly completed and accompanied by any documents required (as explained in note 5 on the proxy form) must be returned with the Form of Acceptance (in the case of offerees wishing to accept the Offer) to SJ Berwin & Co, 222 Grays Inn Road, London WC1X 8HB (reference: 11/383) in the envelope supplied by no later than 3.00pm on 12 March 1997. Forms returned later and/or without being properly completed will not be admitted for voting at the extraordinary general meeting. 47 49 EDEN GROUP LIMITED NOTICE OF EXTRAORDINARY GENERAL MEETING NOTICE is hereby given that an Extraordinary General Meeting of Eden Group Limited will be held at 222 Grays Inn Road, London WC1X 8HB on 14 March 1997 at 3.00pm, or 24 February 1997 at 3.00pm (or such other date as may be agreed) in the event that the holders, being a majority in number of shareholders, of not less than 95 per cent. of the issued Ordinary Shares in the capital of Eden agree, for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as a Special Resolution. SPECIAL RESOLUTION THAT, conditionally upon the recommended offer for the entire issued, and to be issued, ordinary share capital of Eden on the terms described in the recommended offer document dated 12 February 1997 becoming, or being declared, unconditional in all respects: (a) the authorised share capital of the Company be increased from L.1,138,500 to L.1,153,500 by the creation of 150,000 additional ordinary shares of L.0.10 each; (b) in substitution for any existing authority under that section (save to the extent relied upon prior to the passing of this Resolution), the Directors of the Company be hereby generally and unconditionally authorised pursuant to Section 80 of the Companies Act 1985 to allot relevant securities up to an aggregate nominal amount of L.53,357.50 during the period expiring on the fifth anniversary of the passing of this Resolution, (provided that the Company may before such expiry make an offer or agreement which would or might require such shares to be allotted after such expiry and the Directors may allot relevant securities pursuant to such an offer or agreement as if the authority conferred hereby had not expired); (c) the Directors be hereby empowered, during the period expiring on the earlier of 24 February 1998 and the date of the Company's Annual General Meeting to be held in 1998, to allot or make offers or agreements to allot equity securities pursuant to the authority granted by paragraph (b) of this Resolution as if Section 89(1) of the Companies Act 1985 did not apply to any such allotment; and (d) the draft new Articles of Association of the Company, in the form produced to the meeting and signed by the Chairman for the purposes of identification, 48 50 be hereby adopted as the Articles of Association of the Company in substitution for and to the exclusion of the existing Articles of Association. Dated 12 February 1997 BY ORDER OF THE BOARD David Stevens Secretary Registered Office: Beechfield House Lyme Green Business Park Macclesfield Cheshire SK11 0JP NOTE: A member entitled to attend and vote at the above-mentioned meeting may appoint a proxy to attend and (on a poll) vote instead of him. A proxy need not also be a member of the Company. 49 51 EDEN GROUP LIMITED PROXY FORM for the Extraordinary General Meeting convened for 14 March 1997, or 24 February 1997 (or such other date as may be agreed) in accordance with the notice of the Extraordinary General Meeting, in the event that the holders, being a majority in number of shareholders, of not less than 95 per cent. of the issued Ordinary Shares in the capital of Eden agree I/We ............................................................... (block capitals please) of .................................................................. being a member/members of the Company hereby appoint (see Note 1) ...................................................................... whom failing the Chairman of the Meeting to be my/our proxy and to attend and vote for me/us on my/our behalf at the Extraordinary General Meeting of the Company to be held on 14 March 1997 (or an earlier date determined in accordance with the notice) and at any adjournment thereof. My/our proxy is to vote as indicated below in respect of the Resolution set out in the Notice of Meeting (see Note 2): SPECIAL RESOLUTION To: (a) increase the authorised share capital of the Company; (b) give the Directors the power to allot securities up to an aggregate nominal amount of L.53,357.50; (c) allow the Directors to disapply the statutory pre-emption rights when allotting relevant securities; and d) adopt new Articles of Association. FOR/AGAINST Dated ............................................1997 Signed or sealed (see Note 3 ..................................... NOTES 1 If a member wishes to appoint as a proxy a person other than the Chairman of the meeting, the name and address of the other person should be inserted in block capitals in the space provided. A proxy need not be a member of the Company but must attend the meeting in person. Any alteration or deletion must be signed or initialled. 2 A member should indicate by deleting either FOR or AGAINST how he wishes his votes to be cast in respect of the Resolution set out in the Notice of Meeting. Unless so instructed, the proxy will vote or abstain as he thinks fit. The proxy will act at his discretion in relation to any other business arising at the meeting (including any resolution to amend a resolution or to adjourn the meeting). 50 52 3 In the case of a corporation this proxy form should be given under its seal or signed on its behalf by an attorney or duly authorised officer. In the case of joint holders the signature of any one of them will suffice, but the names of all joint holders should be shown. 4 Use of this proxy form does not preclude a member from attending the meeting and voting in person. 5 To be valid, this proxy form must be lodged together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, at SJ Berwin & Co, 222 Grays Inn Road, London WC1X 8HB (reference 11/383), not less than 48 hours before the meeting or any adjournment thereof or, in the case of a poll, not less than 48 hours before the time appointed for taking the poll. 51 53 APPENDIX VI FORM OF ACCEPTANCE AND AUTHORITY These forms are for completion if you wish to accept the Offer. Please read the following notes for guidance carefully before completing them. The Acceptance Form incorporates certain covenants necessary to ensure compliance with U.S. securities laws. 52 54 FORM OF ACCEPTANCE NOTES FOR GUIDANCE This form is for completion if you wish to accept the Offer. Please read the following notes for guidance prior to completing the Acceptance Form. 1 These notes relate to the Acceptance Form. 2 All shareholders must sign in person (except as mentioned in Note 5 below). A corporation must affix its seal or an authorised representative must sign. All signatures must be made in the presence of a witness who must also sign, where indicated, adding his or her full name, address and occupation in block capitals, where indicated. 3 If you wish to accept the Offer, this form, duly completed and signed, must be forwarded together with the share certificate(s) or other document(s) of title for all your shares in Eden to Geoworks' Solicitors, S J Berwin & Co, at the address on the enclosed addressed envelope so as to arrive as soon as possible and in any event not later than the close of business on 14 March 1997. An acceptance once lodged cannot be withdrawn or altered except with the written consent of Geoworks or in the circumstances envisaged by the Offer. 4 If prior to accepting the Offer you have sold or otherwise disposed of some of your Ordinary Shares, please complete this form in respect of the shares retained by you and immediately notify Geoworks' solicitors, S J Berwin & Co (by telephone between 10.00am and 5.00pm Monday to Friday on 0171 533 2222 and speak to Mr Martin Bowen or Mr Mark Sanders) of the name and address of the person who now has them. 5 IF A SHAREHOLDER IS AWAY FROM HOME (INCLUDING ON HOLIDAY), send this Form by the quickest means (such as airmail) to the shareholder for signature or, if he or she has left a power of attorney, have this Form signed by the attorney (in which case the power of attorney should be lodged with this Form). No other signatures will be accepted. 6 IF YOU CANNOT FIND THE CERTIFICATE FOR ANY OF YOUR EDEN SHARES, complete and return this Form and await further instructions; an indemnity may be required. 7 IF A SHAREHOLDER HAS DIED, TELEPHONE THE NUMBER GIVEN BELOW FOR GUIDANCE. 8 If you have any other queries on how to complete the enclosed forms, TELEPHONE S J BERWIN & CO ON 0171 533 2222 BETWEEN 10.00AM AND 5.00PM MONDAY TO FRIDAY AND SPEAK TO MR MARTIN BOWEN OR MR MARK SANDERS WHO WILL BE ABLE TO ASSIST YOU. 53 55 FORM OF ACCEPTANCE TO BE RETURNED TO S J BERWIN & CO (REF. 11/383) OF 222 GRAY'S INN ROAD, LONDON WC1X 8HB AS SOON AS POSSIBLE AND IN ANY EVENT BY THE CLOSE OF BUSINESS ON 14 MARCH 1997 (UNLESS GEOWORKS NOTIFIES YOU OF AN EXTENSION) For use by shareholders of EDEN GROUP LIMITED ("Eden") who wish to accept the Offer made by Geoworks to purchase their Ordinary Shares ("the Offer"). Name: Number of Ordinary Shares held To: Geoworks 960 Atlantic Avenue Alameda California 94501 USA ACCEPTANCE OF THE OFFER 1 I/We, being (or being entitled to be entered as) the registered holder(s) of the number of Ordinary Shares in the capital of Eden ("the Shares") specified in the box above, hereby irrevocably accept the Offer in respect of my/our entire holding of Shares subject to the terms and conditions set out in the Offer document dated 12 February 1997 issued by Geoworks and sent to me/us with this form ("the Offer Document"). 2 I/We hereby warrant to Geoworks that if the Offer becomes or is declared unconditional in all respects the Shares will be transferred by me/us in accordance with paragraph 4 below fully paid and free from all claims, liens, charges, equities and other encumbrances. 3 I/We hereby confirm that I/we have no interest in any asset, property or shares in the capital of Eden other than the Shares. 4 With effect from the date of this Form: 4.1 I/We hereby irrevocably appoint any executive officer of Geoworks as my/our attorney to execute any instrument of transfer in respect of the Shares: (a) provided always such transfer or further document is not executed or such other act or thing done before the Offer is declared unconditional in all respects and the expiry of two working days from the date the Consideration Shares due to me/us are dispatched; and 54 56 (b) to execute any further document and do any other act or thing (including voting at any general meeting of Eden, executing a form of proxy in respect of the Shares and signing any consent to short notice) which may be expedient for the purpose of completing the Offer or transferring the Shares; 4.2 I/We hereby irrevocably undertake that I/we will execute any further documents or assurances that may be necessary in connection with such transfer; and 4.3 I/We hereby authorise and request Geoworks to send by air courier certificates for the Consideration Shares due to me/us to Dibb Lupton Alsop. I/We further authorise Dibb Lupton Alsop to send such certificate(s) to me/us at our risk to my/our address set out in this Form. 5 I/we hereby agree to terminate in all respects all subsisting shareholder's agreements relating to the Company to which I/we are a party (including, without limitation, those dated 20 June 1989, 27 June 1995, 14 May 1996 and 12 November 1996), with effect from the Offer becoming, or being declared, unconditional in all respects, and waive all claims and rights of any nature arising therefrom. 6 I/We enclose all share certificate(s) and/or duly completed forms of indemnity relating to the Shares and I/we acknowledge that these documents are sent to you at my/our risk and that no receipt will be given. 7 If I/we execute this form under a power of attorney, I/we enclose the original of such power of attorney on the understanding that it will be returned to me/us in due course. 8 I/We hereby agree to notify you of any claim (contingent or otherwise) I/we have against Eden and confirm that there are no such claims at the date hereof (save as mentioned in paragraph 3 above). I/we confirm that as at and immediately after Completion of the Offer nothing is owed nor are there any outstanding claims between each of Eden and each of its group companies on the one hand and me/us on the other and to the extent that such claims may exist, they are waived. 9 If the Offer does not become unconditional I/we authorise the return of my/our said certificate(s) or other document(s) of title and this form by first class post or airmail (as appropriate) at my/our risk to me/us to the first address given above within seven days after the lapsing of the Offer. 10 Without limitation to the powers conferred upon Geoworks pursuant to paragraph 4.1, I/we hereby being a member of Eden, and having the right to attend and vote at the meeting convened by the notice of Extraordinary General Meeting set out on page 49 and 50 of this document, agree to the holding of the meeting at 3.00pm on 24 February 1997 (or such other time and date as Geoworks may determine) and to the passing at the meeting as a Special Resolution of the Resolution set out in the notice notwithstanding that less than the statutory notice of the meeting shall have been given. 11 I/we have full legal right, power and authority to enter into and perform this Acceptance and sell my/our ordinary shares of Eden. If I/we are acting as a fiduciary, officer, partner, or agent, I/we enclose with the Acceptance certified copies of the appropriate instruments pursuant to which I/we are authorised to act hereunder. 12 I/we will have good and marketable title to the shares to be sold by me/us pursuant to the Offer, free and clear of any and all liens, encumbrances, equities, securities interests, and claims whatsoever, with full right and authority to deliver the same under the Offer, and upon delivery of such Shares and payment of the purchase price therefor as contemplated in the Offer, will convey to Geoworks good and marketable title to the shares purchased by it free and clear of all liens, claims, encumbrances, equities, security interests, preemptive rights, rights of first refusal, and any other claim of any third party. 55 57 13 The Offer and this Form of Acceptance (save as indicated in paragraph 15 of the Offer) are governed by the laws of England and I/we agree to submit to the jurisdiction of the English Courts. 14 In addition to the representations, covenants and agreements set forth above, each shareholder of Eden represents and warrants to Geoworks as follows, with the understanding that Geoworks may rely upon such representations in order to comply with United States securities laws: (a) I/we have received, and have had an opportunity to review, the Offer document and its exhibits, containing the terms and conditions of the Offer, information about Geoworks' business and capital structure and certain risk factors involved in an investment in Geoworks; (b) Neither I/we nor any person for the account of whom I/we are acting, is a citizen or resident of the United States of America, including the estate of any such person, a trust of which any such person is a beneficiary, or a corporation, partnership, trust or other entity organised or operating under the laws of the United States of America, its territories and possessions and all areas under the jurisdiction of the United States of America (in each case, a "U.S. Person"); (c) I/we acknowledge that the Consideration Shares have not been registered under the Securities Act in reliance upon a specific exemption therefrom for issuances to non-U.S. Persons. Accordingly, I/we agree that I/we will not: (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Consideration Shares, to a U.S. Person, or (2) enter into any swap or similar agreement that transfers, in whole or in part, to a U.S. Person the economic consequences of ownership of the Consideration Shares, whether or not any such transaction described in clause (1) or (2) above is to be settled by delivery of such Consideration Shares, in cash or otherwise, for such period of time as may be now or hereinafter be required by the United States Securities and Exchange Commission to comply with the exemption from registration upon which Geoworks has relied in issuing the Consideration Shares, or until the registration statement filed by Geoworks pursuant to the Declaration of Registration Rights covering the resale of such shares (the "Registration Statement") has been declared effective; (d) II/we understand that Geoworks will not allow any transfer or other disposition of the Consideration Shares into the United States or to a U.S. Person unless (i)(a) the Registration Statement is effective and the prospectus is current and (b) I/we have complied with requirements of the Declaration of Registration rights, (ii) Geoworks shall have received an opinion of counsel satisfactory to Geoworks to the effect that such proposed transfer would not be in violation of the Securities Act or any applicable state securities law, or (iii) the holding period (currently 40 days) applicable to the specific exemption from the United States federal securities laws registration requirements for issuances to non-U.S. Persons in offshore transactions has expired; provided however, that for sales to Non-U.S. Persons effected prior to the expiration period noted in subparagraph (iii) above, transferee provides Geoworks with a representation statement consisting of paragraphs (a), (b), (c) and (d) of this Section 14; (e) I/we understand that the share certificate(s) of all shareholders receiving Consideration Shares shall bear the following legend in addition to any other legend require under this Agreement: THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE 56 58 UNITED STATES ("STATE ACT") AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF FOR A PERIOD OF FORTY (40) DAYS AFTER THE DATE ON THE FACE HEREOF TO A CITIZEN OR RESIDENT OF THE UNITED STATES OF AMERICA, INCLUDING THE ESTATE OF ANY SUCH PERSON, A TRUST OF WHICH ANY SUCH PERSON IS A BENEFICIARY, OR A CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY ORGANISED UNDER THE LAWS OF THE UNITED STATES OF AMERICA, ITS TERRITORIES AND POSSESSIONS AND ALL AREAS UNDER THE JURISDICTION OF THE UNITED STATES OF AMERICA, UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT OR ANY APPLICABLE STATE ACT, OR A REGISTRATION STATEMENT COVERING SUCH SHARES SHALL HAVE BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION. Dated this day of 1997 Signed and delivered as a deed by ................................................................... Signature of accepting shareholder Witnessed by ................................................................... Signature of witness ...................................................................... Name ...................................................................... Address ...................................................................... ...................................................................... Occupation 57 59 APPENDIX VII GEOWORKS DECLARATION OF REGISTRATION RIGHTS This Declaration of Registration Rights ("Declaration") is made as of February 24, 1997 by Geoworks, a California corporation ("Geoworks" or the "Company"), for the benefit of shareholders of Eden Group Limited, a company incorporated under the laws of England and Wales ("Eden Group"), acquiring shares of Common Stock of Geoworks ("Company Common Stock") pursuant to that certain Offer document distributed to all shareholders and optionees of Eden Group (the "Offer Document") concerning the acquisition of all outstanding Ordinary and Preference Shares of Eden Group by the Company (the "Acquisition"). 1. Definitions. As used in this Declaration: a. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. b. "Securities Act" means the United States Securities Act of 1933, as amended. c. "Form S-3" means such form under the Securities Act as is in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC which similarly permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC (as defined below). d. "Holder" means: (i) a shareholder of Eden Group to whom shares of Registrable Securities are issued pursuant to the Offer Document for so long as such holder continues to hold the registration rights contained herein or (ii) a transferee of Registrable Securities by a Holder to whom registration rights under this Declaration are assigned pursuant to Section 9 of this Declaration. e. "Registrable Securities" means for each Holder the shares of Company Common Stock issued to such Holder pursuant to the Offer Document, together with all other shares of Company Common Stock issued in respect thereof (by way of stock split, dividend or otherwise), and for all Holders the aggregate of all Registrable Securities held by all such Holders. Registrable Securities shall not include any shares of Company Common Stock transferred by a Holder for which registration rights are not also assigned pursuant to Section 9 hereof. f. "SEC" means the United States Securities and Exchange Commission. g. "Warranty Agreement" means that certain Warranty and Covenant Agreement dated as of February 12, 1997 between Geoworks and the persons listed in Part 1 of Schedule 1 to the Warranty Agreement (the "Warrantors") and the persons listed in Part 2 of Schedule 1 to the Warranty Agreement (the "Principal Sellers"). 60 Capitalized terms not otherwise defined herein have the meanings given to them in the Warranty and Covenant Agreement. 2. Registration. Geoworks shall use all best efforts to cause (i) all Registrable Securities held by each Holder following the Completion of the Offer to be registered under the Securities Act, and (ii) such Registration Statement to be declared effective by the SEC not later than 30 days after public release of Geoworks' financial statements for the period ended March 31, 1997, so as to permit the resale thereof on a continuous basis, subject to Section 3 hereof, and in connection therewith shall use all reasonable efforts to prepare and file with the SEC promptly following the Completion (as defined in the Warranty Agreement), and shall use all best efforts to cause to become effective as soon as practicable thereafter, a registration statement on Form S-3; provided, however, that each Holder shall provide all such information to Geoworks concerning the Holder (limited to the Holder's name and address and information relating to the beneficial ownership by such Holder of Company Common Stock) and take all such action as may be required (if any) in order to permit Geoworks to comply with all applicable requirements of the SEC and to obtain any desired acceleration of the effective date of such registration statement. Such provision of information is a condition precedent to the obligations of Geoworks pursuant to this Declaration. Geoworks shall not be required to effect more than one (1) registration under this Declaration. 3. Obligations of Geoworks. Subject to the limitations of Sections 4 and 11, Geoworks shall (i) keep the registration statement filed in accordance with Section 2 hereof continuously effective until the earlier of (a) two (2) years (or such lesser time as the SEC may permit resales of "Restricted Securities" pursuant to amendments to Rule 144(d) under the Securities Act) after the Completion or (b) such time as all Registrable Securities have been disposed of either hereunder or otherwise; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities proposed to be registered in such registration statement; (iii) furnish to each Holder such number of copies of any prospectus (including any preliminary prospectus and any amended or supplemented prospectus) in conformity with the requirements of the Securities Act, and such other documents, as each Holder may reasonably request in order to effect the offering and sale of the Registrable Securities to be offered and sold, but only while Geoworks shall be required under the provisions hereof to cause the registration statement to remain current. 4. Selling Procedures. (i) Notwithstanding the provisions of Section 3, if Geoworks shall furnish to the Holders a certificate signed by the chief executive officer or chief financial officer of Geoworks stating that in the good faith judgment of the Board of Directors of Geoworks it would be significantly disadvantageous to Geoworks and its shareholders for any such registration statement to be amended or supplemented because Geoworks would be required to disclose in such registration statement, either directly or through incorporation by reference, material non-public information that it would not -2- 61 otherwise be obligated to disclose at such time, the disclosure of which at such time would have a material adverse effect on the business or prospects of Geoworks. Geoworks may (A) no more than twice during any twelve-month period, defer such amending or supplementing of such registration statement for not more than sixty (60) days, and in such event the Holders shall be required to discontinue disposition of any Registrable Securities covered by such registration statement during such period, and (B) no more than four times during any twelve-month period, defer such amending or supplementing of such registration statement for not more than twenty (20) days, if such amendment or supplement is required to reflect the reporting of financial results less favorable than the consensus estimates of the Company's major analysts. (ii) Notwithstanding the foregoing, Geoworks shall notify each Holder or a representative designated by such Holder (A) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the registration statement for amendments or supplements to the registration statement or related prospectus or for additional information relating to the registration statement, (B) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose, (C) of the receipt by Geoworks of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (D) of the happening of any event which makes any statement made in the registration statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or which requires the making of any changes in the registration statement or prospectus so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In such event, Geoworks may suspend use of the prospectus on written notice to each Holder, in which case each Holder shall not dispose of Registrable Securities covered by the registration statement or prospectus until copies of a supplemented or amended prospectus are distributed to the Holders or until the Holders are advised in writing by the Company that the use of the applicable prospectus may be resumed. Geoworks shall use its reasonable efforts to ensure that the use of the prospectus may be resumed as soon as practicable. Geoworks shall use its reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the securities for sale in any jurisdiction, at the earliest practicable moment. Geoworks shall, upon the occurrence of any event contemplated by clause (D), prepare a supplement or post-effective amendment to the registration statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. -3- 62 5. Availability of Form S-3. Geoworks represents that it is currently eligible to utilize Form S-3. 6. Expenses. Geoworks shall pay all of the out-of-pocket expenses incurred, other than underwriting or selling discounts and commissions, in connection with the registration of Registrable Securities pursuant to this Declaration, including, without limitation, all SEC and NASD registration and filing fees, printing expenses, transfer agent's and registrar's fees, and the reasonable fees and disbursements of Geoworks' outside counsel and independent accountants. 7. Indemnification. In the event of any offering registered pursuant to this Declaration: a. Geoworks will indemnify each Holder and each person controlling a Holder, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, final prospectus, or any amendment or supplement thereto, incident to any offering registered pursuant to this Declaration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading, or any violation by Geoworks of any rule or regulation promulgated under the Securities Act or state securities laws applicable to Geoworks in connection with any such registration, and subject to Section 7(c), will reimburse each such Holder, and each person controlling such Holder, for any legal and any other out-of-pocket expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that Geoworks will not be liable in any such case to the extent that any such claim, loss, damage, or liability arises out of or is based on any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished to Geoworks by such Holder or controlling person. b. Each Holder will indemnify Geoworks, each of its directors and officers and its legal counsel and independent accountants, each underwriter, if any, of Geoworks' securities covered by such a registration statement, each person who controls Geoworks or such underwriter within the meaning of Section 15 of the Securities Act, and each other Holder and each person controlling such other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) or a material fact contained in any such registration statement, final prospectus, or any amendment or supplement thereto, incident to any offering registered pursuant to this Declaration or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse Geoworks, such other Holders, such directors, officers, legal counsel, independent accountants, underwriters or control persons for any legal or any other expenses out-of-pocket reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, final prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with -4- 63 information furnished to Geoworks by such Holder in writing for such purpose; provided, however, that the obligations of each Holder hereunder shall be several and not joint and shall be limited to an amount equal to the respective gross proceeds (before expenses and commissions) from the sale of Registrable Securities by such Holder as contemplated herein. c. Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party receives written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent, but only to the extent, that the Indemnifying Party's ability to defend against such claim or litigation is impaired as a result of such failure to give notice. Notwithstanding the foregoing sentence, the Indemnified Party may retain its own counsel to conduct the defense of any such claim or litigation, and shall be entitled to be reimbursed by the Indemnifying Party for expenses incurred by the Indemnified Party in defense of such claim or litigation, in the event that the Indemnifying Party does not assume the defense of such claim or litigation within sixty days after the Indemnifying Party receives notice thereof from the Indemnified Party. Further, an Indemnifying Party shall be liable for amounts paid in settlement of any such claim or litigation only if the Indemnifying Party consents in writing to such settlement (which consent shall not be unreasonably withheld). No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party a release from all liability with respect to such claim or litigation. d. If the indemnification provided for in this Section 7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any claim, loss, damage or liability referred to herein, then the Indemnifying Party, to the extent such indemnification is unavailable, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, losses, damages or liabilities in such proportion as is appropriate to reflect the relative benefit to or fault of the Indemnifying Party and indemnified parties in connection with the actions that resulted in such claims, losses, damages and liabilities. The relative benefit of such Indemnifying Party and indemnified parties shall be determined by reference to, among other things, in the case of Geoworks, the value of the entire issued ordinary share capital of Eden Group Limited received by Geoworks, and, in the case of each Holder, the gross proceeds received by each such Holder from the sale of Registrable Securities in the manner contemplated hereby. The relative fault of such Indemnifying Party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party -5- 64 as a result of the claims, losses, damages or liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above in this paragraph. No party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any party. e. The obligations of Geoworks and each Holder under this Section 7 shall survive the completion of any offering of stock in a registration statement under this Declaration. 8. Reports Under Securities Exchange Act of 1934. Geoworks agrees to: a. use all reasonable efforts to file with the SEC in a timely manner all reports and other documents required of Geoworks under the Securities Act and the Exchange Act; and b. furnish to each Holder forthwith upon request (i) a written statement by Geoworks that it has complied with the reporting requirements of the Securities Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time that it so qualifies), (ii) a copy of the most recent annual or quarterly report of Geoworks and (iii) such other information as may be reasonably requested in availing each Holder of any rule or regulation of the SEC which permits the selling of any such securities pursuant to Form S-3. 9. Assignment of Registration Rights. The rights of a Holder pursuant to this Declaration may be assigned by such Holder to a transferee of Registrable Securities only if: (a) Geoworks is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and a copy of a duly executed written instrument in form reasonably satisfactory to Geoworks pursuant to which such transferee agrees to be bound hereby and provides the Company with such reasonable information as the Company may request to permit the transferee to sell such Registrable Securities pursuant to the registration statement filed in accordance with Section 2 hereof, and (b) immediately following such transfer, the disposition of such Registrable Securities by the transferee is restricted under the Securities Act. 10. Amendment of Registration Rights. The Holders of a majority of the Registrable Securities then outstanding may, with the consent of Geoworks, amend the registration rights granted hereunder. 11. Termination. The registration rights set forth in this Declaration shall terminate with respect to a Holder (and the shares held by such Holder shall cease to constitute Registrable Securities) upon the earlier of (i) such time as all of the Registrable Securities then held by such Holder can be sold by such Holder in a three-month period in accordance with Rule 144 under the Securities Act, (ii) two years (or such lesser time as the SEC may permit resales of "restricted securities" pursuant to amendments to Rule 144 under the Securities Act) following Completion; or (iii) such time as the -6- 65 Company receives a legal opinion reasonably satisfactory to it, stating that the Registrable Securities may be transferred without registration under the Securities Act and that any legends appearing on the certificates representing such Registrable Securities may be removed, in which case either such legends shall be removed or Geoworks shall have offered to remove them. 12. Obligations of Holders. By exercising any rights hereunder, each Holder shall be deemed to assume all obligations of a Holder hereunder as though such Holder were a signatory hereto. Geoworks may require Holders to execute an instrument whereby such Holders expressly assume all obligations of Holders hereunder as a condition precedent to any obligations of Geoworks hereunder. GEOWORKS By: /s/ GORDON E. MEYER ------------------------------------ Name: Gordon E. Meyer Title: CEO -7- EX-2.2 3 WARRANTY AND COVENANT AGREEMENT 1 DATED February 12, 1997 WARRANTY AND COVENANT AGREEMENT in relation to EDEN GROUP LIMITED THE WARRANTORS (1) THE PRINCIPAL SELLERS (2) GEOWORKS (3) 2 INDEX PARTIES 1 INTRODUCTION 1 INTERPRETATION 1 OPERATIVE PROVISIONS 8 1 Conditions Precedent 8 2 The Offer and Termination of this Agreement 8 3 Operation of the Business Prior to Completion 9 4 Completion 12 5 Warranties, covenants, representations and undertakings 14 6 Confidentiality 17 7 Restrictions 17 8 Restrictive Trade Practices Act 18 9 Use of the Company's names 19 10 Access and Review 19 11 General Provisions 19 SCHEDULE 1 22 Part 1 22 The Warrantors 22 Part 2 23 Principal Sellers 23 Part 3 24 Other Shareholders 24 Part 4 31 Optionholders 31 SCHEDULE 2 33 Part 1 33 Particulars of the Company 33 Part 2 35 Particulars of the Subsidiaries 35 Part 3 37 Particulars of the Buyer 37 SCHEDULE 3 38 Warranties by the Warrantors 38 1 Information 38 2 Capital, distribution, contracts and liabilities 39 3 The Shares and the Company 40 4 Accounts 40 5 Business and Trading 41 6 Stocks, assets and insurance 42 7 Sale of the Shares 43 8 Taxation 44 9 Employees, agents and pensions 46 10 Pensions 47 11 Litigation 47 12 Capital commitments, unusual contracts, guarantees etc. 48 13 Borrowings and lendings 48 14 Continuation of facilities 49 15 The Properties 49 16 Environmental 52 17 Insolvency 52 18 Intellectual Property 53 19 Competition 55
3 20 Financial Services 55 21 Non Trading Companies 56 SCHEDULE 4 57 The Properties 57 SCHEDULE 5 58 Intellectual Property 58 Part 1 - Outward Licenses 58 Part 2 - Inward Licenses 58 Part 3 - Intellectual Property Registrations and Applications 59 Unregistered Intellectual Property 60 SCHEDULE 6 61 The Software 61 SCHEDULE 7 62 The Tax Covenants 62 1 Introduction 62 2 Covenant to pay 63 3 Exclusions 64 4 General 64 ATTESTATIONS 65 AGREED FORM DOCUMENTS REFERRED TO IN THIS AGREEMENT 1 The Disclosure Letter 2 Escrow Agreement 3 Irrevocable Undertakings 4 The Management Accounts 5 The Offer 6 Options Agreement 7 Termination Agreement 8 Resignations of Directors 9 Acknowledgements and waivers from each of the Sellers and the Company 10 Resignation of the Auditors 11 Waivers and consents by all members of Company to enable Buyer to be registered as the holder of the shares 12 Certified copies of Resolutions 13 Properties title deeds 14 Preference share sale letter agreement 15 3i/Acer releases and re-assignments 16 Ernst & Young Opinion Letter 17 Declaration of Registration Rights 18 Affiliates' Agreement
4 WARRANTY AND COVENANT AGREEMENT DATE February 12, 1997 PARTIES (1) THE PERSONS whose names and addresses are set out in Part 1 of Schedule 1 (collectively "the Warrantors" and individually a "Warrantor"); (2) THE PERSONS whose names and addresses are set out in Part 2 of Schedule 1 (collectively "the Principal Sellers" and individually a "Principal Seller"); and (3) GEOWORKS, a California corporation whose principal office is at 960 Atlantic Avenue, Alameda, California, CA 94501, United States of America ("the Buyer"). INTRODUCTION (A) The Company was incorporated in England and Wales on 9 March 1989 under the Companies Act 1985 and is registered under number 2357515 as a private company limited by shares. It has at the date of this Agreement an authorised share capital of L.1,138,500 divided into 1,611,580 ordinary shares of L.0.10 each and 977,342 redeemable cumulative preference shares, of which only the Shares have been issued and are fully paid or credited as fully paid. Each of the Sellers is the legal and beneficial owner of the Shares shown against his name in column (3) of Schedule 1 and as such has the right, power and authority to sell and transfer those Shares free from all and any claims, charges, liens, encumbrances and equities. (B) The business of the Company is the development, marketing and licensing of computer software for mobile communications devices, companion software for use on personal computers and the provision to customers of related services. (C) The Buyer was incorporated in California on September 27, 1983 under the California Corporations Code. The capital structure of the Buyer at the date of this Agreement consists of 20,000,000 shares of common stock, no par value (the "Common Stock"), and 2,000,000 shares of undesignated preferred stock, no par value (the "Preferred Stock"), of which there have been issued and are fully paid the shares set out in Part 3 of Schedule 2. (D) The Buyer wishes to make an offer to buy all the Shares on the terms and subject to the conditions of the Offer and each of the Sellers is willing to sell his Shares by accepting the Offer and on the terms and subject to the conditions of this Agreement. INTERPRETATION (1) In this Agreement (including the Introduction and Schedules), the following expressions shall have the meanings set out below: the Accounts the balance sheet of the Company and the consolidated audited balance sheets of the Company as at the Accounts Date and the profit and loss account of the Company and the consolidated audited profit and loss accounts of the Company for the year ended on the Accounts Date together with the directors' reports and other documents required by law to be annexed thereto 5 the Accounts Date 30 June 1996 Affiliates Agreement an agreement in the agreed form to be delivered by the shareholders or optionholders in the Company identified as Affiliates in Schedule 1 Board(s) the board of directors for the time being of the Buyer and the Company as specifically referred to the Business the activities of the Company described in paragraph (B) of the Introduction Business Day any day (not being a Saturday or a Sunday) on which the Stock Exchange and banks in San Francisco are open for business the Buyer's Solicitors S J Berwin & Co of 222 Grays Inn Road, London WC1X 8HB CAA the Capital Allowances Act 1990 the Companies the Company and the Subsidiaries and each of them Commercial Know-how all information, other than Computer Know-how, relating to the Business and the Company's prospects, markets, pricing, customers, suppliers, employees, consultants and such policies as it has the Company Eden Group Limited, brief details of which are set out in Part 1 of Schedule 2 the Company's Auditors Ernst & Young of Commercial Union House, Albert Square, Manchester M2 6LP Completion completion of this Agreement in accordance with the terms of clause 4, which will take place simultaneously with the completion of the Offer upon satisfaction of the Offer Conditions Computer Know-how all information not at present in the public domain (including information contained in or arising from research, designs, flow charts, expressions, methodology, logic flows, specifications, drawings, manuals lists and instructions in whatever form held) relating to computer hardware and software including: (a) systems integration, integrated and other circuits and digitiser technology; (b) memory organisation, object representation and display management; (c) porting, interfaces and signal processing; 6 (d) operating and applications software, including graphics, windows and hypermedia; (e) menu structures, macro facilities, programming languages and tools, software interfaces, and source code; (f) the design, selection, procurement, construction, installation use, repair, service or maintenance of any software; (g) the Company's current or future range of software; (h) the supply, storage computer software or components therefor; and (i) quality control, testing or certification the Conditions the conditions to this Agreement set out in clause 1 the Consideration Shares the 1,304,250 shares of Common Stock of the Buyer, having the rights and being subject to the restrictions set out in the Articles of Incorporation of the Buyer, to be issued to the Sellers upon Completion in accordance with and subject to the provisions of clause 4 the Declaration of Registration Rights the declaration of registration rights in the agreed form, proposed to be entered into by the Buyer for the benefit of all the Sellers and other shareholders of the Company selling pursuant to the Offer the Directors the persons specified as directors of the Company in Part 1 of Schedule 2, the expression "Director" meaning any of them the Disclosure Letter a letter dated the same date as this Agreement from the Warrantors to the Buyer in the agreed form disclosing certain facts in connection with the Warranties Disposal includes any disposal of any legal or beneficial interest whatever including, without limitation, any sale or transfer of or grant of any option or Encumbrance in the property in question and "Dispose" shall be construed accordingly the Employees those persons (including directors) whose names appear in the list attached to the Disclosure letter Encumbrance any security interest of any nature whatever including, without limitation, any mortgage, charge, pledge, lien, assignment by way of security Environment air, water, land, buildings, flora, fauna and humans 7 Environmental Consents any permit, licence, authorisation, approval or consent required under or agreement made pursuant to any Environmental Law Environmental Law all laws which are in force or enacted at the date of this Agreement (including common laws, statutes and subordinate legislation), regulations, codes of practice or guidance notes concerning the Environment or health and safety Escrow Agreement the agreement in the agreed form governing the establishment of an escrow fund of some of the Consideration Shares Escrow Amount 65,213 of the Consideration Shares to be issued to the Warrantors the Existing Options the options granted to directors, employees and others in the terms of the schemes and agreements set out in or annexed to the Disclosure Letter, brief details of which appear in Part 4 of Schedule 1 the Freehold Property the Chapel, Rainow, Cheshire SK10 5XF FSA Financial Services Act 1986 ICTA the Income and Corporation Taxes Act 1988 Incidental Amount the amount of a Material of Environmental Concern present in the Environment which is insufficient to cause harm or have a deleterious effect on the Environment Intellectual Property copyrights, trade and service marks, trade names, rights in logos and get-up, inventions, confidential information, trade secrets and know-how including Commercial Know-how and Computer Know-how, registered designs, design rights, patents, utility models, semi-conductor topographies, all rights of whatsoever nature in computer software and data, all moral rights, including rights of paternity and integrity, all rights of privacy and all intangible rights and privileges of a nature similar or allied to any of the foregoing, in every case in any part of the world and whether or not registered; and including all granted registrations and all applications for registration in respect of any of the same the Investor Loan Agreements the agreements in the agreed form between the Company and each of 3i Group plc and AII Holding Corporation dated 27 June 1995 Investor Loans the long term loans advanced to the Company by 3i Group plc and AII Holding Corporation pursuant 8 to the Investor Loan Agreements and all amounts due and payable thereunder Irrevocable Undertakings irrevocable undertakings to accept the Offer, in the agreed form the Management Accounts the management accounts of the Company for the period of seven months from the Accounts Date in the agreed form Materials of Environmental Concern any substance which may cause harm to or have a deleterious effect on the Environment the Properties the Freehold Property and leasehold properties short particulars of which appear in Parts 1 and 2 of Schedule 4 and references to "the Properties" shall extend to any part or parts thereof the Offer the offer proposed to be made in the agreed form by the Buyer to all the holders of the Shares the Offer Conditions the conditions precedent to the Offer, as set out therein the Options Agreement an agreement in the agreed form pursuant to which all the holders of Existing Options will agree to exercise their Existing Options and accept the Offer on the terms set out therein the Parties the parties to this Agreement, the expression "Party" meaning any of them the Patents the patents and applications for patents, brief particulars of which are set out in Schedule 5 Relief any relief, allowance, deduction or credit in respect of Taxation Restricted Activities the businesses carried on by the Company as at today's date as described in paragraph (B) of the Introduction the Sellers collectively, the Warrantors and the Principal Sellers, each of the foregoing being individually a "Seller" the Shares all the issued ordinary shares in the capital of the Company on the date of Completion, as set out in column (3) of Parts 1, 2 and 3 of Schedule 1 and the ordinary shares arising upon exercise of the options listed in Part 4 of Schedule 1 and upon capitalisation of the Investor Loans, shown in column (4) of Part 2 of Schedule 1 the Software all computer software developed or written or being developed or written by or on behalf of the 9 Company, or acquired or licensed to the Company, including that listed or referred to in Schedule 6 SSAP a statement of Standard Accounting Practice published by the former Accounting Standards Committee or the present Accounting Standards Boards, as the same have effect on the date of this Agreement Subsidiaries those companies short particulars of which appear in Part 2 of Schedule 2, being all the subsidiaries of the Company, and the expressions "Subsidiary" shall mean any of the Subsidiares the Stock Exchange London Stock Exchange Limited the Tax Covenants the covenants relating to Taxation, set out in Schedule 7 Taxation, Taxing Authority Transaction the same respective meanings as in the Tax and Covenants TCGA the Taxation of Chargeable Gains Act 1992 VAT Value Added Tax VATA the Value Added Tax Act 1994 Trade Marks all trade marks or names owned and/or used by or on behalf of the Company, including the registrations and the applications listed in Part 3 of Schedule 5 and the unregistered trade marks or names set out in Part 4 of Schedule 5 the Warranties the representations, warranties and undertakings pursuant to clause 5 and set out in Schedule 3 and including, where the context permits, any individual paragraph or statement in Schedule 3 the Warrantors the persons listed in Column (1) of Part 1 of Schedule 1 the Warrantors' Solicitors Dibb Lupton Alsop of Windsor House, Temple Row, Birmingham, B2 5LF (2) All references to statutory provisions or enactments shall include references to any amendment, modification or re-enactment of any such provision or enactment coming into force prior to the date hereof and to any regulation or order made under such provision or enactment which is currently in force. (3) The words "subsidiary" and "holding company" have the meanings given in sections 736 and 736A of the Companies Act 1985 and the expression "subsidiary undertakings" shall have the meaning given in section 258 of the Companies Act 1985. (4) References to documents "in the agreed form" are to documents in terms agreed on or before the date hereof between the Parties and signed (for the purpose of identification only) by the 10 Warrantors' Solicitors and the Buyer's Solicitors and on behalf of 3i Group plc and AII Holding Corporation where either is a party to such document. (5) References to those of the Parties who are individuals include references to their respective legal personal representative(s). (6) References to the clauses, Parties, Introduction, and Schedules are references respectively to the clauses of and the Parties, Introduction, and Schedules to this Agreement. (7) Section 839 of ICTA (connected persons) is to apply to determine whether a person is connected with another for the purposes of this Agreement. (8) References in clause 3 or in Schedule 3 to an "agreement" or a "contract" include any written or oral promise, undertaking or arrangement which is capable of being treated as a legally enforceable agreement. (9) Save where the context specifically requires otherwise, words importing one gender shall be treated as importing any gender, words importing the singular shall be treated as importing the plural and vice versa, wording importing individuals shall be treated as importing corporations and vice versa, and words importing the whole shall be treated as including a reference to any part thereof. The obligations of the Parties are, save where specifically provided, several and not joint or joint and several. (10) The captions, clause and paragraphs headings of this Agreement are included for ease of reference only and shall not affect construction. OPERATIVE PROVISIONS 1 CONDITIONS PRECEDENT 1.1 This Agreement is conditional upon the conditions in paragraphs (a) to (d) below of this clause 1.1 being fulfilled to the satisfaction of the Buyer or being waived in writing in whole or in part by the Buyer: (a) each of the holders of Existing Options and the Buyer executing and unconditionally exchanging the Options Agreement; (b) each of 3i Group plc and AII Holding Corporation agreeing in terms satisfactory to the Buyer to capitalise the Investor Loans as new ordinary shares of L.0.10 each in the Company and to release of the related security for the Investor Loans; (c) each of the persons listed in Schedule 1 marked with the suffix "I.U." having delivered to the Buyer duly executed Irrevocable Undertakings; (d) the execution and delivery by 3i Group plc and 3i plc of a letter agreement in the agreed form selling all its Preference Shares in the Company to the Buyer in return for the aggregate sum of L.100 in cash to be paid at Completion. 1.2 In the event that any of the Conditions are not or have not been satisfied or waived in writing by the Buyer upon the date of this Agreement immediately following its signature by all the Parties, or by such later date as may be agreed by the Warrantors' Solicitors and the Buyer's Solicitors and 3i Group plc and AII Holding Corporation, this Agreement shall lapse and be null and void and no Party shall have or make any claim against any other Party in respect of this Agreement. 1.3 Upon the Conditions being satisfied or waived pursuant to clause 1.2 the Warrantors shall deliver the Disclosure Letter to the Buyer. 11 2 THE OFFER AND TERMINATION OF THIS AGREEMENT 2.1 Subject to the terms and subject to the conditions of this Agreement: (a) the Buyer undertakes: (i) to make the Offer within 24 hours after the Conditions have all been satisfied or waived pursuant to clause 1.2; (ii) not to withdraw the Offer prior to 14 March 1997; and (iii) to declare the Offer unconditional as to acceptances if holders of shares holding at least 90% in nominal amount of the ordinary shares accept the Offer; (b) each of the Sellers agrees irrevocably to accept the Offer in accordance with the Irrevocable Undertakings within three Business Days of the making of the Offer; (c) each of the Sellers agrees to use reasonable endeavours to, procure (insofar as he is able using all voting powers at his disposal) that the Board of the Company unanimously recommend in accordance with the form of Chairman's letter set out in the Offer the acceptance of the Offer by the holders of the Shares; and (d) none of the Sellers shall effect or agree to effect any Disposal of any of the Shares held or beneficially owned by him or it other than pursuant to an acceptance of the Offer and none of the Sellers shall give a transfer notice under Article 13 of the Company's articles of association until Completion or the termination or lapse of this Agreement, whichever is the earliest to occur. 2.2 Each of the Sellers (other than 3i Group plc) shall use all reasonable endeavours to ensure that the Offer shall be accepted and become unconditional in accordance with its terms and shall (without limiting the foregoing general obligation) keep the Buyer informed of all relevant matters in connection with the acceptance of the Offer and fulfilment of the Offer Conditions. 2.3 This Agreement shall terminate forthwith and none of the Parties shall, other than for any breach of clauses 2.1 or 2.2, be under any further obligation to any other Party if the Offer lapses, is withdrawn or is declared incapable of becoming unconditional. 3 OPERATION OF THE BUSINESS PRIOR TO COMPLETION 3.1 Each of the Warrantors hereby covenants with and undertakes to the Buyer that neither he nor the Company nor either of the Subsidiaries shall at any time prior to Completion without the prior written consent of the Buyer do, knowingly allow or procure any act or omission which would (or would be likely to) cause, constitute or result in a breach of the Warranties if the same were to be expressly repeated at Completion or which they are aware would make any of Warranties untrue, incorrect, inaccurate or misleading if they were expressly repeated at Completion. 3.2 The Warrantors shall, and each of the other Sellers agrees to use reasonable endeavours to, procure (insofar as he is able using all voting and contractual powers at his disposal) that between the date of this Agreement and the earliest to occur of Completion or the date of termination or lapse hereof (both dates inclusive): (a) the Company shall advise the Buyer on operational developments which they consider to be material and the general status of its operations; and (b) the Company shall not without the Buyer's prior written consent: 12 (i) save as provided in the Offer permit or cause to be proposed any alteration to its share capital (including any increase thereof) or the rights attaching to its shares; (ii) save as provided in the Offer create, allot, issue, redeem, consolidate, convert or sub-divide any share or loan capital or grant or agree to grant any options for the issue of any share or loan capital; (iii) subscribe or otherwise acquire, or dispose of any shares in the capital of any company; (iv) acquire or dispose of the whole or part of the undertaking of it or of any other person, firm or company; (v) send any notice to its shareholders or pass any shareholder resolution save as required by law or relating to the matters dealt with by this Agreement or the Offer; (vi) cease or propose to cease to carry on its business or be wound up or enter into receivership, administrative receivership or any form of management or administration of its assets, save as required by law; (vii) permit or suffer any of its insurances to lapse or knowingly do anything which would make any policy of insurance of it null or voidable; (viii) apply or permit its directors to apply to petition to the Court for an administration order or similar order to be made in respect of it, save as required by law; (ix) make any change to its auditors, its bankers or the terms of the mandate given to such bankers in relation to its account(s), or its accounting reference date; (x) enter into or vary any transaction or arrangement with, or for the benefit of any of its directors or shareholders or any other person who is connected with any of its directors or shareholders; (xi) borrow monies (other than by way of its agreed overdraft facility) or accept credit (other than normal trade credit) or make payments out of or drawings on its bank accounts other than in the ordinary course of business prior to the date of this Agreement; (xii) make any payment otherwise than on an arm's length basis; (xiii) enter into or give or permit or (save in respect of the charges referred to in Schedule 2) suffer to subsist any guarantee of or indemnity or contract of suretyship for or otherwise commit itself in respect of the due payment of money or the performance of any contract, engagement or obligation of any other person or body; (xiv) grant any lease or third party right in respect of any of or any part of any of the Properties or assign or dispose or deal with any of the Properties or any part of any of them or acquire any right, title or interest in any other property; (xv) propose or pay any dividend or propose or make any other distribution; (xvi) enter into any partnership or joint venture; 13 (xvii) incur any capital expenditure (including obligations under hire purchase and leasing arrangements) exceeding in aggregate L.100,000 or as regards any single item L.25,000; (xviii) dispose of any asset of a capital nature with a book or market value in excess of L.50,000 with the exception of the Freehold Property; (xviv) engage any employee on terms that either his contract cannot be terminated by three months' notice or less or his emoluments and/or commissions or bonuses are or are likely to be at the rate of L.50,000 per annum or more or increase the emoluments and/or commissions or bonuses or any employee to more than L.50,000 per annum or vary the terms of employment of any employee earning (or so that after such variation he will, or is likely to earn) more than L.50,000 per annum; (xx) vary or make any binding decisions on the terms of employment and service of any officer or any of the Employees, increase or vary the salary or other benefits of any such officer or employee, or appoint or dismiss any officer or such employee; (xxi) mortgage or charge or permit the creation of or (save in respect of the charges referred to in Schedule 2) suffer to subsist any mortgage or charge over the whole or any part of its assets or (save as described in the Offer) redeem any of the foregoing; (xxii) make any loan or give any credit (other than normal trade credit or to employees in the normal course) or acquire any loan capital of any corporate body (wherever incorporated); (xxiii) effect or agree to any Disposal or licence of any of its Intellectual Property including the Software (xxiv) surrender or agree to any material change in or waive or compromise any rights under the terms of any supply, distribution, licensing or other commercial agreement to which it is from time to time a party; (xxv) enter into any leasing, hire, hire purchase or other agreement for payment on deferred terms, any contract not in the ordinary course of business or any unusual or onerous contract or any other material or major or long term contract; (xxvi) make any change in its business or do any act or thing outside the ordinary course of the business carried on by it; (xxvii) conduct any litigation (save for the collection of debts arising in the ordinary course of business) or settle or compromise any claim or dispute; or (xxviii) enter into any contract or commitment to do any of the acts or matters referred to in this clause 3.2. 3.3 Each of the Sellers hereby covenants with and undertakes to the Buyer that such Seller shall not at any time prior to the earliest to occur of Completion or the date of termination or lapse of this Agreement: (a) effect or attempt to Dispose of any of his Shares; 14 (b) enter into discussions with any persons as regards the Disposal of any of his Shares or a material part of the assets or business of the Company or the Subsidiaries; or (c) vote in favour of any resolution in general or class meeting, except in accordance with the Offer Conditions. 3.4 The Warrantors insofar as they are respectively able using the voting rights at their disposal hereby covenant with and undertake to the Buyer to procure that between the date of this Agreement and Completion or, if earlier, the date of termination or lapse: (a) the Company will continue to pay its creditors in the ordinary course of business or on its usual basis; (b) the Company will keep the Properties in no worse condition than as at the date of this Agreement; (c) the Company shall continue to operate in the ordinary course of business and will not knowingly take or permit any action, omission, neglect or default which would damage the Business; or (d) the Company will maintain the insurances as have been maintained prior to the date of this Agreement, as set out in the Disclosure Letter. 3.5 Each Warrantor shall give notice to the Buyer promptly upon the Warrantor becoming aware of any breach of clause 3.1 and/or any event or matter having or which may have a material adverse effect on the Company or its business operations or prospects. 3.6 Upon any breach of any of the provisions of clauses 3.1 to 3.4 (inclusive) the Buyer shall be entitled at any time prior to Completion (without liability and without prejudice to its other rights in respect of such breach) to terminate this Agreement by notice in writing to the Warrantors' Solicitors and to 3i Group plc and AII Holding Corporation. 4 COMPLETION 4.1 Subject to the other terms and conditions of this Agreement, Completion shall take place as soon as reasonably practicable and not later than two Business Days after satisfaction of the Offer Conditions. Completion shall take place at the offices of the Buyer's Solicitors or any other time and location agreed by the Warrantors' Solicitors and the Buyer's Solicitors and 3i Group plc and AII Holding Corporation. 4.2 At Completion the Sellers shall (in so far as they are respectively able using board and shareholder voting powers at their disposal) deliver or procure delivery of the following (where appropriate as agent for the Company or the Subsidiaries) to the Buyer: (a) transfers in respect of the Shares held by or for each of the Sellers, duly executed by the registered holders thereof in favour of the Buyer or as it may direct; (b) certificates for the Shares held by the each of the Sellers and any other documents which may be required to give good title to the Shares and to enable the Buyer to procure registration of the same in its name or as it may direct; (c) the Escrow Agreement duly executed by the Warrantors; (d) the resignations under seal of each of the Directors (other than David Crisp) of each of the Companies in the agreed form; 15 (e) acknowledgements and waivers in the agreed form from each of the Sellers and the Companies confirming that at and immediately after Completion nothing is owing nor is there any outstanding claims between any of the Companies on the one hand and any of the Sellers on the other and, to the extent that there are possible claims by the Sellers, that these are waived; (f) statements drawn up to the preceding day relating to the Company's bank accounts; (g) in relation to each of the Companies, certificates of incorporation, certificates of incorporation on change of name (if applicable), common seals, statutory registers, minute books, share certificate books, books of account and all other books (all duly written up to date); (h) all title deeds and documents in the agreed form relating to the Properties; (i) certificates for all shares in the Subsidiaries and duly executed transfers in favour of the Company or as the Buyer shall direct (to be delivered in the same manner as the Shares) of all such shares not registered in the Company's name; (j) all waivers and consents in the agreed form signed by all members of the Companies to enable the Buyer (or its nominee) to be registered as the holder of the Shares (each of the Sellers hereby irrevocably waiving all and any rights of pre-emption to which it may be entitled under any articles of association, agreement, law or otherwise in respect of the transfer of the Shares); (k) a release, discharge and reassignment in the agreed form of all and any fixed or floating charges and other securities over the Properties or any other assets of each of the Companies; (l) any power of attorney under which any document required to be delivered under this clause 4.2 has been executed; (m) certified copies of resolutions of the Company in the agreed form, passed pursuant to the Offer Conditions and (n) Affiliates Agreements duly executed by parties thereto. 4.3 At Completion the Buyer shall deliver to the Warrantors for the benefit of all the Sellers and other shareholders of the Company accepting the Offer the duly executed Declaration of Registration Rights 4.4 The Warrantors shall arrange for meetings of the board of Directors and members of the Company to be duly convened and held immediately prior to or at Completion at which resolutions in the agreed form shall be passed appointing Gordon Mayer and Jordan Breslow as directors and approving and authorising the registration of the transfers of the Ordinary Shares in respect of which the Offer has been accepted and the Preference Shares either pursuant to this Agreement or pursuant to the terms of the Offer (subject only to the forms being duly stamped) and the other matters referred to in clause 4.2. 4.5 Upon the Sellers and the Buyer having complied with their respective obligations under the terms of clauses 4.2, 4.3 and 4.4 the Buyer shall, in accordance with and subject to the terms and conditions of the Offer, on Completion issue the Consideration Shares to the Sellers and the shareholders who shall have assented their Shares to the Offer less the Escrow Amount, which shall be delivered to the Escrow Agent pursuant to the Escrow Agreement and shall deliver to the 16 Warrantors' Solicitors or, if the Sellers so request, post in accordance with the Offer duly executed stock certificates in respect of the Consideration Shares, less the Escrow Amount. 4.6 If for any reason the provisions of clause 4.2 are not fully complied with, the Buyer shall be entitled (in addition and without prejudice to any other right or remedy available to it) to elect: (a) to rescind this Agreement in which case the Buyer shall not be obliged to purchase any of the Shares or pay any of the Consideration; or (b) to complete the purchase of the Shares or some of the Shares (at the Buyer's option) in which case the Sellers shall be bound to complete the sale of all or part of the Shares accordingly and the Buyer shall be entitled to pay only the amount of the Consideration due for the Shares it is acquiring; or (c) to fix a new date for Completion: or (d) to proceed to Completion so far as practicable, each of the Sellers then being obliged to use all reasonable endeavours to perform or procure the performance of any of the outstanding provisions of clause 4.2 which have not been performed by him or it. 5 WARRANTIES, COVENANTS, REPRESENTATIONS AND UNDERTAKINGS 5.1 The Warrantors hereby: (a) acknowledge that the Buyer enters into this Agreement and will offer to purchase the Shares on the basis (inter alia) of the Warranties; and (b) jointly and severally warrant, represent and undertake to the Buyer that each and every Warranty is true, correct and not misleading at the date of this Agreement and undertakes to the Buyer that each and every Warranty will continue to be true and correct and not misleading throughout the period from the date of this Agreement up to and including Completion, subject only to: (i) the matters stated in the Disclosure Letter, provided that such matters will be treated as qualifying or limiting the application of any Warranty Statement only to the extent that such disclosure is fair, accurate in all material respects, and relates specifically to the subject matter thereof and does not omit any fact which may render the same untrue, inaccurate or misleading in any material respect; and (ii) any matter arising in the ordinary and proper course of its business and in its best interests after the date of this Agreement and prior to Completion, but without prejudice to the rights of the Buyer pursuant to clause 3; (iii) any exceptions for which express provision is made pursuant to this Agreement; and (c) covenant to the Buyer in the terms of the Tax Covenants. 5.2 Each Warranty is a separate and independent warranty, representation and undertaking in relation to each of the Warranty Statements and no Warranty shall be limited by reference to any other Warranty. 5.3 The Buyer shall not be entitled to make any claim for breach of the Warranties or under the Tax Covenants, unless: 17 (a) notice giving reasonable details of the claim: (i) shall, in the case of any claim under the Tax Covenants or relating to any Warranty Statement other than Warranty Statements 18.1 to 18.20 (inclusive), have been delivered to the Warrantors by the Buyer not later than the date of publication of audited financial statements for the period ending 31 March 1997; and (ii) insofar as such breach relates to Warranty Statements 18.1 - 18.20 (inclusive) or, shall have been delivered to the Warrantors by the Buyer on or before 31 December 1997; and (b) the amount of the claim when aggregated with all other claims exceeds L.150,000 in which event the whole of such claims (and not merely the excess) may be claimed under legal proceedings. (c) if the claim is due to any change after Completion in the accounting principles, bases, policies and methods adopted by the Companies from those used in the preparation of the Accounts or any provision or reserve in the Accounts or the Management Accounts is insufficient by reason only of any increase in rates of Taxation or change in the law after the date hereof having a retrospective effect; (d) if the breach arises as a result of the passing or amendment of any legislation (including any subsidiary legislation) after Completion with retrospective effect; (e) if the breach would not have arisen but for a voluntary act or transaction, which could reasonably have been avoided, which was carried out by the Buyer after Completion other than in the ordinary course of business and not as a consequence of anything done or omitted to be done before Completion, and which the Buyer was aware would cause the breach; (f) if the claim would not have arisen but for a claim, election, surrender or disclaimer made, or notice or consent given, after Completion, under or in connection with, a provision of an enactment or regulation relating to Taxation save where the same should have been made before Completion but was not or where it has been assumed the same will be made in preparing the Accounts or any tax computations for the Company for any period ended on or before Completion. 5.4 The Warrantors shall not be liable to make any payment in respect of any claim under the Warranties based upon a contingent liability of the Company, without prejudice to the Buyer's right to establish the Warrantors' liability in respect of that claim and save to the extent an amount in respect of the contingent liability is properly provided for in the accounts of the Company. 5.5 If the Company or the Buyer is or becomes entitled to be indemnified by or to recover from any other person (including any Taxation Authority or other authority) in respect of a matter which would (apart from this paragraph) give rise to a claim under the Warranties, the Buyer shall procure that: (a) the Warrantors are notified as soon as practicable after the Company or the Buyer becomes aware of the possible entitlement; (b) before enforcing that claim against the Warrantors, take all steps as the Warrantors reasonably request to enforce the indemnity or right of recovery. 18 5.6 The Buyer is not entitled to recover more than once in respect of any one matter giving rise to a claim under the Warranties but this shall not prejudice the Buyer's right to claim under more than one Warranty. 5.7 Nothing in this clause 5 restricts or limits the Buyer's general obligation at law to mitigate any loss or damage which it may incur in consequence of a matter giving rise to a claim under the Warranties. 5.8 The total amount of the liability of the Warrantors for damages for breach of the Warranties or under the Tax Covenants shall be limited to the portion of the Escrow Amount held by the Escrow Agent for the relevant Warrantor and shall be governed by the Escrow Agreement. 5.9 The rights and remedies of the Buyer in respect of any breach of the Warranties shall not be affected by Completion, by any investigation made by or on behalf of the Buyer into the affairs of the Companies. 5.10 If prior to the Completion any of the Warranties is found to be untrue, incorrect, inaccurate or misleading in a material respect the Buyer shall be entitled either to complete and claim damages or rescind this Agreement by notice to the Warrantors' Solicitors save that the Buyer's rights pursuant to clause 3 shall survive any such rescission. 5.11 The Warrantors shall promptly give written notice to the Buyer of the occurrence of any event which results or may result in any of the Warranties being untrue, incorrect, inaccurate or misleading giving sufficient details of the event. 5.12 Any information supplied by any of the Companies or any of their respective officers or employees to the Warrantors, their agents, representatives or advisers in connection with, or to form the basis of, the Warranties or any matter covered in the Disclosure Letter, or for any other reason, shall be deemed not to include or have included a representation, warranty or guarantee of its accuracy to the Warrantors and shall not constitute a defence to the Warrantors to any claim made by the Buyer. The Warrantors waive any and all claims against the Companies, their officers or employees in respect of any information so supplied. 5.13 References to the awareness or knowledge of the Warrantors in a Warranty Statement in Schedule 3 shall only limit that Warranty by the Warrantors' awareness or knowledge if each of the Warrantors has made all due and careful enquiries to ascertain if the relevant information in all material respects is true, correct and not misleading unless otherwise stated in the Warranty Statement. 5.14 Any amount paid or satisfied by the Warrantors pursuant to the Escrow Agreement in respect of any claim under the Warranties or Tax Covenants shall be treated as a reduction of the consideration paid for their Shares. 6 CONFIDENTIALITY Each of the Sellers hereby agrees (save as necessary to its professional advisers in connection with this Agreement) to keep secret and confidential and not to use, disclose or divulge to any third party or enable or cause any person to become aware of any confidential information relating to any of the Companies or the Buyer including but not limited to Intellectual Property (whether owned or licensed by any of the Companies), lists of customers and customer contract information, reports, product data and information concerning the supply and pricing of products or services, notes, marketing and sales research memoranda and all other documentary records pertaining to the Companies or the Buyer or their respective business affairs, finances, suppliers, customers or contractual or other arrangements ("Confidential Information") provided always that the restrictions contained in this clause 6 shall not apply to any Confidential Information which: 19 (a) is required to be disclosed by an order of a court or tribunal of competent jurisdiction or the Stock Exchange or any other regulatory authority to which the Seller is subject (provided that the Buyer is given prior written notice of such intended disclosure); (b) comes into the public domain otherwise than as a result of its wrongful disclosure by such Seller; or (c) any Seller is an employee of the Company is required to disclose in order to perform his duties to the Company; provided that nothing in clause 6 above shall prevent the use by 3i Group plc of confidential information concerning the Company solely within the group of companies of which 3i Group plc forms part, for investment appraisal and training purposes only. 7 RESTRICTIONS 7.1 To ensure that the Buyer receives the full benefit of the goodwill of the business of each of the Companies, each of the Warrantors hereby represents and undertakes that he will not for a period commencing on the date of this Agreement and ending two years after Completion or, if later, the date which is three months after the date of termination for any reason of such Warrantor's employment by the Company either alone or for, together with or as agent, officer or employee of any other person, firm or company or through the medium of any company directly or indirectly: (a) solicit, interfere with or attempt to entice away from any of the Companies any person who is at the date hereof or was within the previous 12 months an employee or agent of any of the Companies, or who is reasonably considered by any of the Companies to be or have been a regular client or customer of or supplier to the Companies on the date of this Agreement or during the 12 months immediately preceding the date of this Agreement; or (b) interfere or attempt to interfere with the supply or continued supply of goods or services to or by the Companies; or (c) carry on or be engaged, concerned, interested or hold shares or other securities in any company or businesses which competes with the Restricted Activities at the date of this Agreement, save pursuant to a holding of up to 3% of the issued shares in a company whose shares are listed on The Stock Exchange. 7.2 Each of the restrictions contained in each paragraph of clause 7.1 is a separate and distinct restriction and is to be construed separately from the other restrictions. Each of the Warrantors acknowledges that the restrictions are reasonable when taken together as well as individually, that the duration, extent and application of each restriction are no greater than is necessary for the protection of the goodwill of the businesses of the Companies and that the consideration to be paid by the Buyer to the Warrantors for their Shares takes into account and provides adequate compensation for the restraints and restrictions imposed. Should any restriction be found to be void or unenforceable without the deletion of some part of it or the reduction in area or duration specified, that restriction shall apply with such modification as may be necessary to make it valid. 7.3 The parties agree that the benefit of the covenants and undertakings given in clauses 7.1 and 7.2 shall be assignable in whole or in part by the Buyer to, and become enforceable by, any of the Companies and any subsidiary or holding company of any of the Companies or the Buyer, which from time to time is the holder of the Shares or of any shares of the Subsidiaries or to which any part of the business(es) of the Company and/or the Subsidiaries shall have been transferred. 20 7.4 After Completion, none of the Sellers shall without the Buyer's express agreement hold itself out as being interested in or in any way connected (other than as a matter of current or historic fact including, where relevant, as employees of the Company) with the Companies or any of them. 8 RESTRICTIVE TRADE PRACTICES ACT No provision of this Agreement or of any agreement or arrangement of which it forms part (or any modification, amendment or variation to any of the same) by virtue of which this Agreement or the relevant agreement or arrangement of which it forms part is subject to registration under the Restrictive Trade Practices Act 1976 shall take effect until the day after the day on which particulars of this Agreement or such agreement or arrangement are furnished to the Director General of Fair Trading for registration under the said Act and a copy of the Office of Fair Trading's acknowledgement of receipt of such particulars shall be conclusive evidence that such particulars shall have been received by the Director General of Fair Trading on the day indicated by such acknowledgement. 9 USE OF THE COMPANY'S NAMES The Warrantors shall not object to the Buyer after Completion using the Trade Marks or any variation thereof as part of the Companies and the Buyer's names and in the Companies and the Buyer's business dealings and each of the Warrantors hereby confirms that he shall do everything reasonably within his power to assist the Buyer in using the Trade Marks if it wishes and none of the Warrantors shall use any of the Trade Marks or any variations thereof in any dealings, except in accordance with the proper performance of their duties for the Companies or as otherwise expressly authorised by the Buyer. 10 ACCESS AND REVIEW 10.1 With effect from the date of this Agreement the Buyer shall be permitted to continue its due diligence in regard to the Company's business affairs without limiting any of the Buyer's rights under this Agreement or at law. The Sellers (to the extent they are respectively able using board and shareholder voting powers at their disposal) shall procure that the Company shall afford and, with respect to paragraph (b) of this clause 10 below, shall cause the Company's Auditors to afford: (a) to the officers, agent's and other authorised representatives of the Buyer reasonable access to the documents, Properties, records and personnel of the Company; and (b) to the internal and independent accountants of the Buyer reasonable access to the audit work papers and other records of the Company's Auditors and the Company. 10.2 The rights of the Buyer pursuant to clause 10.1 shall be exercised in consultation with the Warrantors. 11 GENERAL PROVISIONS 11.1 The Buyer may at its absolute discretion in whole or in part release, compound or compromise, or grant time or indulgence to the Sellers for any liability under this Agreement without affecting its rights against any Seller under the same or any other liability. 11.2 The express or implied waiver by any Party of any of its rights under this Agreement shall constitute neither a continuing waiver of the right waived nor a waiver of any other right under this Agreement. 11.3 This Agreement, together with any document expressly referred to in any of its terms, contains the entire agreement between the Parties relating to its subject-matter. No oral explanation or oral 21 information given by any Party shall alter the interpretation of this Agreement. There are no other agreements between any of the Parties other than this Agreement or the agreements referred to herein. 11.4 This Agreement is personal to the Parties and shall not be capable of assignment save that the Buyer may assign the whole or part of any of its rights in this Agreement to any wholly-owned subsidiary of the Buyer. 11.5 No amendment, change or addition to this Agreement shall be binding on any Party unless it is in writing and has been signed by all the Parties or their authorised representatives. 11.6 Any notices: (a) must be in writing and may be given: (i) to any company which is a Party at its registered office or, in the case of the Buyer, its principal office; (ii) to any individual who is a Party at the address of that individual given in Schedule 1 or as shown above together with a copy of the Warrantors' Solicitors; or in any case to such other address as may have been notified in accordance with this Agreement to the other Parties; (b) will be effectively served: (i) on the day of receipt where any hand-delivered letter, any fax message is received on a Business Day before or during normal working hours; or (ii) on the following Business Day, where any hand-delivered letter, any fax message is received either on a Business Day after normal working hours or on any day which is not a Business Day; provided that in the case of faxed copies a complete and legible copy shall have been received by the recipient. 11.7 This Agreement may be executed in any number of counterparts, each of which taken together shall be deemed to constitute one and the same agreement and each of which individually shall be deemed to be an original, whether being the original signed copy or a faxed copy of the original, with the same effect as if the signature on each counterpart were on the same original. 11.8 Each of the Sellers hereby undertakes with the Buyer at the request of the Buyer and at the expense of such Seller to do or procure to be done all such further acts and things and execute or procure to be executed all such further deeds and documents as may be necessary or desirable fully and effectively to vest in the Buyer the legal and beneficial ownership of the Shares owned by such Seller and the benefits of this Agreement and the agreements entered into in the agreed form to which such Seller is a party and, pending such vesting, each of the Sellers shall hold such Shares in trust for the Buyer and shall receive all monies in connection therewith as trustee of the Buyer and shall account to the Buyer forthwith on receipt. 11.9 No party shall divulge to any third party (other than their respective professional advisers or insurers) the fact that this Agreement or any of the documents in the agreed form has been entered into or any information regarding its terms or any matters contemplated by this transaction or make any announcement relating to it without the prior agreement (not to be unreasonably withheld or delayed) of the other parties unless such announcement or information is required by 22 the Inland Revenue and/or a court of competent jurisdiction, by the Securities Exchange Commission, National Association of Securities Dealers or by The Stock Exchange, or by any other regulatory authority the rules of which such Party is subject, in which event the other parties shall be given prior written notice of such intended announcement. Any announcement as to the entering into this Agreement shall in any event be made or issued only in a form approved by the Buyer and with the consent of the Sellers (not to be unreasonably withheld or delayed). 11.10 This Agreement is governed by and is to be construed in accordance with English law and save as otherwise provided under the Escrow Agreement and in regard to matters relating to the Consideration Shares and the Declaration of Registration Rights (which shall be governed by the laws of the State of California and the California courts) the Parties hereby submit to the jurisdiction of the English courts. 11.11 The Buyer irrevocably agrees that any service document may be sufficiently and effectively served on in connection with proceedings in England and Wales by service on its agent S J Berwin & Co (reference 11/G10687.1) of 222 Grays Inn Road, London WC1X 8HB or on a replacement agent if one has been appointed and notified to the other Parties. 11.12 The Sellers (other than 3i Group plc) irrevocably agree that any service document may be sufficiently and effectively served on in connection with proceedings in England and Wales by service on its agent Dibb Lupton Alsop of Windsor House, Temple Row, Birmingham, B2 5LL (for the attention of John Jackson) or on a replacement agent if one has been appointed and notified to the other Parties. Each of 3i Group plc and 3i plc may be served at its registered office for the time being. 23 SCHEDULE 1 PART 1 THE WARRANTORS
(1) (2) (3) NAME ADDRESS NO OF ORDINARY SHARES OF 10P EACH OWNED David Edward John Crisp The Woodlands 495 I.U. Moss Lane (Affiliate) Bollington Cheshire SK10 5HS David Lee Stevens 5 Stockdale Farm 12,000 I.U. Moor Lane (Affiliate) Flookburgh Grange Over Sands Cumbria LA11 7LR Alistair Jenkins 127 High Street 12,000 I.U. Yatton (Affiliate) Avon BS19 4DH ------- Total Part 1 24,495 =======
24 PART 2 PRINCIPAL SELLERS
(1) (2) (3) (4) NAME ADDRESS NO OF ORDINARY NO OF ORDINARY SHARES OF 10P SHARES OF 10P ARISING ON CAPITALISATION OF EACH OWNED INVESTOR LOANS Dennis Philip Taylor Hawthorn House - - Thurning (Affiliate) Dereham Norfolk NR20 5QS Skanco Trustees Limited Derby House 102,005 I.U. - as trusteeof The 2nd Floor D Crisp Settlement Athol Street Douglas Isle of Man IM1 1JD Skanco Trustees Limited Derby House 18,000 I.U. - as trustee of The 2nd Floor D L Stevens Settlement Athol Street Douglas Isle of Man IM1 1JD Skanco Trustees Limited Derby House 18,000 I.U. - as trustee of The 2nd Floor A Jenkins Settlement Athol Street Douglas Isle of Man IM1 1JD 3i Group plc* 91 Waterloo Road 330,000 I.U. 75,033 London (Affiliate) SE1 8XP A.I.I Holding Corporation Craigmuir Chambers 140,200 I.U. 22,799 (Affiliate) PO Box 71 Road Town Tortola British Virgin Islands -------------------------------------------------- total Part 2 608,205 97,832 730,532 c/f ================================================== 3i 977,342 Redeemable Preference Shares of L.1 each to be sold for L.100 in aggregate (325,782 legally and beneficially owned by 3i Group plc and 651,560 legally and beneficially owned by 3i plc)
__________________________________ * 185,033 legally and beneficially owned by 3i Group plc 220,000 legally owned by 3i plc but beneficially owned by 3i Group plc 25 SCHEDULE 3 WARRANTIES BY THE WARRANTORS 1 INFORMATION 1.1 The information contained or referred to in the Introduction relating to the Company and Schedules 1, 2, 4, 5 and 6 is true and accurate and not misleading, the Subsidiaries are the only subsidiaries of the Company and in the seven years prior to Completion and at Completion the Company has not had a subsidiary or an associated company other than the Subsidiaries. 1.2 All information contained or referred to in the Disclosure Letter is true, complete and accurate in all material respects. 1.3 So far as the Warrantors are aware, (without having made any specific enquiry) all statutory, municipal, governmental, court and other requirements applicable to the formation, continuance in existence, creation and issue of securities, management, property or operations of the Company, and all licences and consents (including planning consents) involved or that should be involved in the carrying on of the business of the Company, have been obtained and complied with and there is no contemplated revocation of any such licence or consent. 1.4 The records, statutory books and books of account of the Company are duly entered up and maintained in accordance with all statutory requirements applicable thereto and contain true and accurate records of all matters required to be dealt with therein and all such books and all records and documents (including, without limitation, all documents of title, accounts, books, ledgers and contracts to which it is a party) which are its property are in its possession or under its control and all accounts, documents, returns and forms required to be delivered or made to the Registrar of Companies have been duly and correctly delivered or made. 1.5 The Company has not committed and is not liable for any criminal, illegal, unlawful, ultra vires or unauthorised act or breach of covenant, contract or statutory duty and there is no violation of, or default with respect to, any statute, regulation, order, decree or judgment of any court or central or local government agency of the United Kingdom or any foreign country which has or could have a material adverse effect upon the assets, business or profitability of the Company and so far as each of the Warrantors is aware no director or engineer of the Company has been convicted of any crime (other than minor traffic offences). 1.6 All registers required to be kept by the Company under the provisions of the Companies Acts are true and accurate and the copy of the Memorandum and Articles of Association of the Company annexed to the Disclosure Letter (including resolutions passed by the Company in general meeting to which Section 380 of the Companies Act 1985 applies whether or not the same have yet been filed with the Registrar of Companies) are true and accurate. 1.7 No resolution has been passed by the Company or any class of its members since incorporation other than resolutions relating to business at Annual General Meetings which was not special business. 1.8 In the last three years the Company has not done any act or thing or engaged in any activity or incurred any debts and liabilities otherwise than in the ordinary course of the business carried on by it at the date of this Agreement. 1.9 Since changing its name to that shown in Schedule 1, the Company has not traded under any other name and no action has been taken against the Company under Section 28 of the Companies Acts. 2 CAPITAL, DISTRIBUTION, CONTRACTS AND LIABILITIES 26 2.1 The Company has no loan capital outstanding and since the Accounts Date no loan or share capital of the Company has been put under option or agreed to be allotted or issued or to be put under option and no person has the right (whether exercisable now or in the future and whether contingent or not) to call for the issue of any share or loan capital of the Company. 2.2 The Company has not at any time: (a) repaid, redeemed or purchased or agreed to repay, redeem or purchase any shares of any class of its share capital or otherwise reduced or agreed to reduce its issued share capital or any class thereof; or (b) directly or indirectly provided any financial assistance (as defined in section 151, Companies Act 1985) for the purpose of the acquisition of shares of the Company or for the purpose of reducing or discharging any liability incurred in any such acquisition; or (c) capitalised or agreed to capitalise in the form of shares, debentures or any other securities or in paying up any amounts unpaid on any shares, debentures or other securities any profits or reserves of any class or description or passed or agreed to pass any resolutions to do so. 2.3 The Company has not received a distribution from any company in contravention of section 263 Companies Act 1985. 2.4 There is not outstanding any indebtedness or other liability (of whatsoever nature, whether present or future, actual or contingent) owing: (a) by the Company to any Sellers or to any director or former director of the Company or to any independent contractor through which the services of any such persons are or were provided or to any person connected with the Company or with any Seller or with any such director, former director or contractor; or (b) to the Company by any Seller or by any such director, former director or contractor or by any person connected with the Company or with any Seller or with any such director, former director or contractor. 2.5 There are no existing contracts to which the Company is a party and in which any of the Sellers or any director of the Company or any person connected with any of them is interested (and for the purposes of this paragraph a person shall be deemed to be interested in a contract in accordance with the provisions of Section 317 of the Companies Act 1985). 2.6 The Company does not have one customer that is responsible for in excess of 10% of the Company's trade, turnover or profitability in the current financial year or one supplier that supplies in the current financial year in excess of 10% of the Company's supplies (as quantified by payments to all suppliers in that year). 3 THE SHARES AND THE COMPANY 3.1 The Shares constitute the whole of the issued and allotted share capital of the Company and are fully paid or credited as fully paid and, other than the Existing Options, there are no options over any shares or options to subscribe shares in the Company. 3.2 The Sellers are the legal and beneficial owners of the number of Shares set opposite their respective names in column (3) of Schedule 1 and sell the Shares with full title guarantee. 3.3 There is no pledge, lien, option, warrant, charge or encumbrance on, over or affecting any of the Shares or the shares in the Subsidiaries, no agreement to create such pledge, lien, option, warrant, 27 charge or encumbrance has been made and no claim has been received that is outstanding that any person is entitled to any such pledge, lien, charge or encumbrance. 4 ACCOUNTS 4.1 The Accounts have been prepared in accordance with the applicable requirements of the Companies Acts and in accordance with accounting principles, standards and practices which are generally accepted in the United Kingdom, are accurate in all material respects and give a true and fair view of the state of affairs of the Company at the Accounts Date and of the profits and losses for the period concerned. 4.2 The Accounts make proper provision for or, in the case of actual liabilities, disclose or take into account as at the Accounts Date: (a) all assets; (b) all liabilities whether actual contingent or disputed; (c) all capital commitments whether actual or contingent; and (d) all bad and doubtful debts. 4.3 The combined profits of the Companies for the three consecutive periods ending on the Accounts Date as shown by the Accounts and by the audited accounts of the Companies covering the two previous financial periods which have been delivered to the Buyer has not (except as disclosed in such accounts) resulted from inconsistencies in accounting practices or the inclusion of exceptional or extraordinary items of income or expenditure. 4.4 So far as the Warrantors are aware, no debt owing to any of the Companies is subject to any set-off or counter-claim. 4.5 The profits (or losses) shown in the Accounts have not to a material extent been affected (except as disclosed therein) by any extraordinary or exceptional event or circumstance or by any other factor rendering such profits unusually high or low. 4.6 None of the current book debts included in the Accounts and the Management Accounts or which have subsequently arisen have been outstanding for more than two months from their due dates for payment and all such debts (other than those shown in the Management Accounts as bad or doubtful) have realised or so far as the Warrantors are aware will realise in the normal course of collection their full value as included in the Accounts, the Management Accounts or in the books of the Company. 4.7 The Management Accounts have been prepared on a basis consistent with the Accounts and fairly reflect the financial position of the Company for the periods to which they relate. 5 BUSINESS AND TRADING 5.1 Since the Accounts Date: (a) no members' resolution of the Company of any kind has been passed other than resolutions relating to business at annual general meetings which was not special business; (b) no share, loan capital or (otherwise than in the ordinary course of business) loan has been issued or allotted or repaid, or agreed to be issued or allotted or repaid by the Company; 28 (c) the Company has not carried on its business otherwise than in the ordinary course as regards the nature of the same and so far as possible to maintain it as a going concern; (d) the Company has not acquired or disposed of or agreed to acquire or dispose of any business or any asset other than in the ordinary course of business or assumed or acquired any material liability (including any contingent liability) except on terms determined on an arm's length basis; (e) the Company has paid its creditors in accordance with its normal practice; (f) the Company's business and turnover (excluding seasonal variations) have not deteriorated or been adversely affected to a material extent by any act or omission of the Company or by the loss of any important employee, customer or supplier or by any abnormal factor and none of the Warrantors is aware of any facts likely to give rise to any such loss; (g) no dividend or other distribution has been declared, made or paid to the members of the Company except as provided for in the Accounts and all dividends or distributions declared, made or paid by the Company have been made, paid or declared in accordance with its Articles of Association and the provisions of any applicable legislation; (h) no change has been made in the emoluments or other terms of employment of any of the Company's employees who are in receipt of remuneration in excess of L.20,000 per annum or of any of the Directors and the Company has not paid any bonus or special remuneration to any such employee or any Director; (i) no liability or contingent liability for Taxation has arisen otherwise than as a result of trading activities in the ordinary course of business; (j) all amounts received by the Company have been paid into the relevant bank account and appear in the appropriate books of account; (k) the Company has not repaid or become liable to repay any loan, loan capital or other debenture by reason of its default (and no notification has been received since the Accounts Date that any such liability has arisen for any other reason) or (except in the ordinary course of business or for payments in reduction of bank overdrafts) borrowed any money; (l) no debtor has been released by the Company for less than the book value of any debt and no debt owing to the Company has been deferred, subordinated or written off or has proved to be irrecoverable to any material extent; and (m) no material commission has been paid and no material discount has been allowed by the Company at a rate or otherwise on terms different from those upon which commissions and discounts were paid or allowed for in the accounting period ended on the Accounts Date. 5.2 All the Company's assets and all debts due to it which are included in the Accounts or have otherwise been represented as being at the Accounts Date its property or due to it or used or held for the purposes of its business were at the Accounts Date its absolute property and (save for those subsequently disposed of or realised in the ordinary course of the business) all such assets and debts and all assets and debts which have subsequently been acquired or arisen are now its absolute property and none is the subject of any encumbrance (excepting only liens arising in the normal course of trading) or the subject of any factoring arrangement, hire- purchase, retention of title, conditional sale or credit sale agreement. 29 6 STOCKS, ASSETS AND INSURANCE 6.1 The Company owns or has on lease or hire purchase (as referred to) the motor vehicles the make, model, registration number and driver of which are set out opposite its name in the schedule annexed to the Disclosure Letter. 6.2 All equipment owned or used by the Company are in good repair, condition and working order and have been properly maintained as and when necessary and none is in need of renewal or replacement during the current financial year, save as provided for in the Management Accounts. 6.3 Maintenance contracts are in full force and effect in respect of all assets which the Company is obliged to maintain or repair under any leasing or similar agreement and in respect of any assets which it is necessary to have maintained by outside or specialist contractors. 6.4 The Company does not maintain an asset register. 6.5 All equipment used by the Company is the absolute property of the Company and is not subject to any leasing, hire or hire purchase agreement or agreement for payment on deferred terms or any similar agreement or arrangement nor are they loaned or otherwise unavailable to the Company. 6.6 Without being capable of remedy by the Company without undue expenditure or effort within a 30 day period, the Company has not sold or distributed any products which were, are or will become defective or which do not comply in any respect with and express or implied warranties or representations made by any person or with all applicable regulations, standards and requirements and the Company does not give and has not given express warranties, guarantees or indemnities as to the fitness for purpose, quality or otherwise of any of its products. 6.7 There has been no exercise or purported exercise of, or any claim for, any charge, lien, encumbrance or equity over any of the fixed assets of the Companies which is still outstanding. 6.8 All the assets of the Company which are of an insurable nature have been at all material times and are at the date of this Agreement insured to their replacement value against fire and other risks as shown in the relevant annexure to the Disclosure Letter and the Company has at all times been and is adequately covered against accident, employer's liability, third party (including products liability), loss of profits for the full replacement value of such assets as shown in the relevant annexure to the Disclosure Letter; and in respect of all such insurances: (a) all premiums have been duly paid to date; (b) all the policies are in full force and effect and so far as the Warrantors are aware are not voidable on account of any act, omission or non-disclosure on the part of the insured party; (c) particulars are contained in the Disclosure Letter; (d) so far as the Warrantors are aware there are no circumstances which would or might give rise to any claim and no insurance claim is outstanding; and (e) all policies are held in the name of the Company. 7 SALE OF THE SHARES 7.1 So far as each of the Warrantors is aware (without having made any specific enquiry of its customers or suppliers), as a result of the acquisition of the Shares by the Buyer: 30 (a) no material supplier of the Company will cease or reduce or be entitled to cease or reduce its supplies to the Company; (b) no material customer of the Company will, or will be entitled to, cease dealing with or reduce the level of business done with the Company; and (c) no director or engineer of the Company will leave (other than as may be provided for in this Agreement). 7.2 No consent, approval, authorisation or order of any court or government or local agency or body or any other policy which is required by any of the Sellers or the Company for the execution or implementation of this Agreement and the agreements in the agreed form and compliance with the terms of this Agreement is outstanding and each of the agreements in the agreed form does not and will not: (a) conflict with, result in the breach of or constitute a default under any obligation by which the Company may be bound or any provision of the Memorandum or Articles of Association of the Company; (b) relieve any person from any material obligation to the Company; (c) result in the creation, imposition, crystallisation or enforcement of any encumbrance on any of the assets of the Company; or (d) result in any present or future indebtedness of the Company becoming due, or capable of being declared due, and payable prior to its stated maturity. 7.3 No person is entitled to receive from any of the Companies any finder's fee, brokerage or other commission in connection with the sale and purchase of the Shares. 8 TAXATION 8.1 Proper provision or reserve has been made in the Accounts for all Taxation liable to be assessed on the Company or for which it is, or for which the Warrantors believe it may become, accountable in respect of the period ended on the Accounts Date. 8.2 The Company has duly and within the relevant time limits made all returns and given or delivered all notices and accounts which ought to have been made, given or delivered and information which it was requested to give, to any Taxing Authority and such returns, notices, accounts and information are up-to-date, complete and accurate and have been made or provided on a proper and consistent basis. 8.3 The Company is not involved in any dispute with any Taxing Authority concerning any liability (whether accrued, contingent or future) of it to Taxation and the Company is not aware of any matter which may lead to such dispute not having made inquiry of any Taxing Authority. 8.4 The Disclosure Letter contains sufficient details of all matters relating to Taxation in respect of which the Company (either alone or jointly with any other person) has, or at Completion will have, an entitlement to make any appeal against an assessment to or determination affecting Taxation, or to make any application for the postponement of Taxation. 8.5 No Relief has been claimed by and/or given to the Company, or taken into account in determining the provision for Taxation in the Accounts, which could be withdrawn, postponed or restricted. 31 8.6 All clearances and consents obtained from any Taxing Authority by the Company in the last six years have been disclosed to the Buyer in the Disclosure Letter and were based on full and accurate disclosure of all material facts and circumstances. 8.7 The Company has duly and within the relevant time limits paid all Taxation for which it is liable. 8.8 No liability of the Company to Taxation has arisen or will arise up to Completion save for tax payable in respect of the Company's normal trading or income tax deductible under PAYE regulations or national insurance contributions or VAT for which it is accountable to any Taxing Authority. 8.9 The Company is not, nor was at any time during the six years ended on the Accounts Date, a close company. 8.10 The Company is resident in the United Kingdom for Taxation purposes and will be so resident at Completion and is not and never has been resident for any purpose in any other country and does not have and has never had any permanent establishment, Taxation liability or taxable presence in any other country. 8.11 No amount of an income nature in excess of L.25,000 per annum which has been paid or is payable by the Company or which it is under an obligation entered into before Completion to pay is wholly or partly disallowable as a deduction, charge on income or otherwise in computing its liability to Taxation. 8.12 There are set out in the Disclosure Letter full details of all Reliefs available for carry forward for Taxation purposes by the Company and the Sellers are not aware of any reason why such Reliefs might cease to be available or might become restricted (including by virtue of the application of Section 245, 768 or 768A ICTA). 8.13 All capital expenditure incurred or to be incurred by the Company prior to Completion has qualified and continues to qualify for capital allowances and full disclosure in the Disclosure Letter of all allowances made to the Company has been made to the Buyer and the book value of the assets of the Company in or adopted for the purposes of the Accounts does not exceed the written down value of such asset for the purposes of CAA or where the assets form a pool for purposes of the CAA does not exceed the pool of qualifying expenditure. 8.14 The expenditure allowable as a deduction for the purposes of the computation of any chargeable gain or allowable loss attributable to any asset of the Company for the purposes of corporation tax on chargeable gains is not less than the value of that asset as shown in the Accounts. 8.15 There are set out in the Disclosure Letter full details of any held over gains within Section 154 TCGA. 8.16 The Company has not made any election or claim or given any consents under or entered into any agreements or arrangements relating to Section 240, 247 or 402 ICTA or Section 102 of the Finance Act 1989 respectively nor is it liable to make or repay any payment in relation to any such relief. 8.17 The Company has not acquired an asset which could be deemed to be disposed of if Section 179 TCGA were to apply and the entry into this Agreement and/or Completion will not give rise to any deemed disposal under Section 179 TCGA. 8.18 There is no liability to Taxation for which the Company is liable to be assessed or to account where such Taxation is primarily chargeable against some other person. 32 8.19 All documents in the possession of the Company or the production of which would be needed to prove its title to any of its assets and which attract stamp or transfer duty in the United Kingdom or elsewhere have been properly stamped. 8.20 The Company has not entered into or been a party to any schemes or arrangements designed wholly or partly for the purpose of it or any other person avoiding Taxation. 8.21 The Company: (a) has not agreed any special method of attributing, accounting or otherwise in relation to VAT with HM Customs & Excise; (b) does not own any capital items which are subject to Part XV of the Value Added Tax Regulations 1995; (c) does not own any land or buildings (including any interest in or right over any land or buildings) which is the subject of any lease or licence granted to any other party; and (d) is not and never has been a member of a group of companies for VAT purposes. 9 EMPLOYEES, AGENTS AND PENSIONS 9.1 The Employees are all the employees of any of the Companies as at Completion and the names, current weekly wage and other emoluments, date of birth, the date of commencement of the respective periods deemed to be their period of continuous employment with the Companies and job descriptions of the Employees are as set out in the schedule annexed to the Disclosure Letter. 9.2 The Disclosure Letter also includes full details of all employee share schemes, employee share option schemes, profit related pay schemes or other employee benefit schemes of any kind of the Companies now in force and there are no other such schemes planned. 9.3 There is no liability to make any payment to or for the benefit of any of the Employees or the wife or widow or any other relative of any of the Employees in respect of past service or the termination of the employment of that or any other person by way of pension contribution, pension retirement benefit or otherwise and the Company has no superannuation fund, retirement benefit or other pension schemes or arrangements to provide benefits to past or present employees or directors (or their dependants) by reason of retirement, death, disability or sickness or otherwise. 9.4 No assurances or undertakings (whether legally binding or not) have been given to any of the Employees as to the continuance or introduction or increase or improvement of any retirement, death, sickness or disability scheme. 9.5 There is no outstanding commitment (whether legally binding or not) to increase the remuneration of any Employee. 9.6 All contracts of service or consultancy or for services with directors or employees or consultants or independent contractors providing the services of individual personnel of the Company can be terminated by three months' notice or less without giving rise to any claim for damages or compensation (other than a statutory redundancy payment or statutory compensation for unfair dismissal, if applicable). 9.7 Except where any provision or allowance is made in the Accounts: (a) no liability has been incurred in the 12 months prior to Completion by the Company for breach of any contract of service or consultancy, for redundancy payments (including 33 protective awards), for compensation for wrongful dismissal or unfair dismissal or loss of office or for failure to comply with any order for the reinstatement or re-engagement of any officer or employee; and (b) no payment has been made or promised by the Company in connection with the termination, suspension or variation of any contract of service or consultancy or for services of any present or former officer or employee. 9.8 So far as the Warrantors are aware, the Company has in relation to each of the Employees and its former employees complied in all material respects with all material obligations imposed on it by all contracts, statutes, orders, regulations, collective agreements, awards and codes of conduct and practice relevant to conditions of service and to the relations between it and the Employees and former employees and has in all material respects maintained adequate and suitable records regarding the service of the Employees and former employees. 9.9 The Company has not entered into any recognition agreement with any trades union nor has it done any act which could be construed as an act of recognition and the Company is not involved in and there are no present circumstances which are likely to give rise to any industrial or trade dispute or any dispute or negotiation regarding a claim of material importance with any trade union or association of trade unions or organisation or body of employees. 9.10 In the 12 months prior to Completion, the Company has not given notice of any redundancies to the Secretary of State for Employment or started consultations with any trade union or unions under the provisions of Part IV of the Employment Protection Act 1975 and the Company has not failed to comply with any such obligations under Part IV. 10 PENSIONS The Company has no agreement, arrangement or understanding (whether contractual, under trust or otherwise) which exists for the provision of relevant benefits (as defined in Section 612 ICTA) for any past or present officer or employee of the Company (or a predecessor in business of the Company) or for any relative or dependant of such a person in connection with which the Company is or may become legally or morally liable to make any payment. 11 LITIGATION 11.1 The Company is not and so far as the Warrantors are aware no person for whose acts and defaults it may be vicariously liable is at present engaged whether as plaintiff, defendant or otherwise in any legal action, proceeding or arbitration which is either in progress, or is threatened or is pending (other than as plaintiff in the collection of debts arising in the ordinary course of the business carried on by it none of which exceeds L.1,000 and which do not exceed L.5,000 in aggregate) or is being prosecuted for any criminal offence and no written notice of any claim in damages or for an injunction has been received by the Company and the Warrantors are not aware of any governmental or official investigation or inquiry concerning the Company which is in progress or pending. 11.2 The Warrantors are not aware of any circumstances likely to lead to any such claim or legal action, proceeding or arbitration, prosecution, investigation or enquiry. 11.3 No distress, execution or other process has been levied in respect of the Company during the last six years nor is there any judgment or court order outstanding against the Company. 11.4 No act, transaction or omission has occurred as a result of which the Companies are or may be held liable to refund in whole or in part any investment grant (or other grant or loan received from any governmental department or agency or any local or other authority by virtue of any statute) or 34 any such grant or loan for which application has been made by them will or may not be paid or will or may be reduced. 12 CAPITAL COMMITMENTS, UNUSUAL CONTRACTS, GUARANTEES ETC. The Company: (a) has no capital commitments which individually exceed L.25,000 or in aggregate exceed L.100,000; (b) is not a party to any contract, arrangement or commitment (whether in respect of capital expenditure or otherwise) which is of a long term or an unusual or abnormal nature or outside the ordinary course of business; (c) has not delegated any powers under a power of attorney (other than as an incidental part of a larger transaction) which remains in effect or has appointed any agent under an authority which has not been revoked and other than any ostensible or implied authorities to directors or employees and consultants to enter into routine contracts in the normal course of their duties; (d) by reason of its default has not become bound, and no person has become entitled (or with the giving of notice and/or the issue of a certificate will become entitled) to require it, to repay prior to its stipulated due date any loan capital or other debenture, redeemable preference share capital or borrowed money and no notice has been received since the Accounts Date of such liability having arisen for any other reason; (e) is not a party to any agreement which is or may become terminable as a result of the entry into or Completion under this Agreement; (f) has not entered into or is bound by any guarantee or indemnity under which any liability or contingent liability is outstanding; (g) is not or was not the original lessee or surety of a lessee of any leasehold property other than the leasehold Properties or has at any time acquired, assigned or otherwise disposed of any other leasehold property in such a way that it retains any residual liability; (h) has not entered into any agreement which is outstanding and which requires or confers any right to require the sale (whether for cash or otherwise) or transfer by them of any material asset; (i) is not party to any joint venture, consortium, partnership or profit sharing arrangement or agreement; (j) is not aware of any default under any written agreement or covenant to which it is a party; or (k) has not, nor has agreed to, charge any of its assets or shares. 13 BORROWINGS AND LENDINGS 13.1 Full details of all limits on the Company's bank facilities are accurately set out in the Disclosure Letter and the total amount borrowed by the Company from its bankers does not exceed its overdraft facilities (if any). 35 13.2 The total amount borrowed by the Company does not exceed any limitation on its borrowing powers contained in its Articles of Association, or in any debenture or other deed or document binding on it. 13.3 The Company does not have outstanding, nor has agreed to create or issue, any loan capital, nor has it factored any of its debts, or engaged in financing of a type which would not require to be shown or reflected in the Accounts, or borrowed any money which it has not repaid, except for borrowings not exceeding the amounts shown in the Accounts. 13.4 Other than in the ordinary course of business, the Company has not lent any money which has not been repaid, or owns the benefit of any debt (whether or not due for payment), other than debts which have arisen in the ordinary course of business and the Company has not made any loan or quasi-loan contrary to any legislation. 14 CONTINUATION OF FACILITIES In relation to all debentures, acceptance credits, overdrafts, loans or other financial facilities outstanding as at the date hereof or available to the Companies or any of them (referred to in this Warranty as "Facilities"): (a) there are attached to the Disclosure Letter full and complete copies of all documents relating to the Facilities; (b) so far as each of the Warrantors is aware there has been no material contravention of, or material non-compliance with, any provision of any document relating to any of the Facilities; (c) no steps for the early repayment of any indebtedness have been taken of which they are not having made enquiry or threatened in writing; (d) so far as each of the Warrantors is aware not having made enquiry there have not been, nor are there, any circumstances as a result of which the continuation of any of the Facilities might cease or be prejudiced, or which may give rise to any alteration in the terms and conditions of any of the Facilities; (e) none of the Facilities is dependent on the guarantee or indemnity of, or any security provided by, any party other than any of the Companies; (f) none of the Facilities may according to its terms be terminated or mature prior to their stated maturity as a result of the making of the Offer or the acquisition of the Shares (or any of the Shares) by the Buyer; and (g) the Facilities are adequate to allow the Companies to continue trading after Completion on the same basis as prior to Completion. 15 THE PROPERTIES 15.1 The Company is the sole legal and beneficial owner of each of the Properties, shown against its name in Schedule 4. 15.2 The particulars of the Properties specified in Schedule 4 are true, complete and accurate in all respects. 15.3 Save as specified in Schedule 4 the Company exclusively occupies the whole of each of the Properties shown against its name in Schedule 4 and the Properties are free from all leases, 36 licences, service occupancies, tenancies, options, rights of pre-emption, mortgages, charges, rent charges, liens or rights of occupation or any agreement to create any of the same. 15.4 The Company does not own or have any interest in any land or building other than the Properties, and the Company has not entered into any legally binding agreement for the purchase of any such interest. 15.5 The Company occupies and uses the Properties for the purpose of conducting the Business only and occupies or uses no other properties for such purpose. 15.6 So far as the Warrantors are aware, all covenants, obligations, restrictions and conditions affecting the Property have been observed and performed and all outgoings have been duly paid and all consents (where necessary) obtained and complied with and no notice of any alleged breach of such covenants, obligations, restrictions and conditions has been received and so far as the Warrantors are aware, there are no circumstances now existing which would entitle the landlord of any leasehold Property to exercise any power of entry upon or take possession of any Property or to draw upon any rental deposit or other security available to it. 15.7 No notice, action or proceedings affecting any of the Properties has been served (so far as the Warrantors are aware) and there are no disputes concerning any of the Properties with any person and (so far as the Warrantors are aware) there are no circumstances now existing which are likely to result in any such notice, action or proceedings being served or commenced or any such dispute arising. 15.8 So far as the Warrantors are aware, there has been no notice or complaint that any of the Properties does not comply (as to buildings and use) with the lease (if any) under which any leasehold Property is held, the applicable provisions of the Town and Country Planning Acts, and with all associated statutory and bye-law requirements and all necessary consents relating to any such requirements are subject only to conditions which have been satisfied and the Company is not aware of any intended or contemplated refusal or revocation of any such licence consent or requirements. 15.9 None of the Properties or the Company as owner or lessee of any of the Properties: (a) is, so far as the Warrantors are aware, subject to any rights, reservations, covenants, obligations, restrictions, conditions or overriding interests (as defined by Section 70 of the Land Registration Act 1925) which are of an unusual or onerous nature or which would affect the use or continued use of any of the Properties for the purposes of the business carried on at that Property by the Company or the value of that Property; (b) is affected by any of the following matters: (i) any closing order, demolition order or clearance order; (ii) any planning application which has not yet been determined; (iii) any enforcement or stop notice; (iv) any compensation received upon a refusal of any planning consent or the imposition of restrictions on or the modification or withdrawal of any such consent; (v) any order or proposal or private Act for the compulsory acquisition or requisition of the whole or any part thereof or the modification of any planning permission or the discontinuance of any use or the removal of any building; 37 (vi) any agreement with any planning authority, statutory undertaker or other public body or authority regulating the use or development thereof; (vii) any rights of common; or (viii) any other notice compliance with which would involve expenditure; and, so far as the Warrantors are aware there are no circumstances which may result in any of the matters referred to in this paragraph (b) arising. 15.10 Where the title to any of the Properties is, or is required to be, registered at H M Land Registry it is so registered with Title Absolute. 15.11 In so far as the Warrantors are aware (but without having carried out any survey) no deleterious materials not approved by the relevant Codes of Practice (including without limitation High Alumina cement) have been used in the construction of any of the Properties or any alterations thereto or are now present in any of the Properties and no subsidence flooding or other defect of any kind has affected the Properties. 15.12 The Company is entitled to rights of way and rights for the supply of services and all other rights and easements sufficient for the present use of the Properties or for the use for which they were valued in the preparation of the Accounts and all such rights are perpetual and unconditional. 15.13 The Company is not under any immediate or prospective liability certain or contingent as a result of notices under sections 25 or 26 of the Landlord and Tenant Act 1954 in respect of any of the Properties or as a result of improvements made to any of the Properties by any tenant or undertenant thereof to pay any compensation under section 1 of the Landlord and Tenant Act 1927 and the Company has not received any notice under section 3(d) of that Act. 15.14 No lease under which the Company holds any of the leasehold Properties: (a) was granted pursuant to an order excluding the operation of any part of the Landlord and Tenant Act 1954 from the tenancy created by that lease; (b) contains any provision enabling the landlord to terminate the lease prior to the term determination date other than by reason of the tenant's default. 15.15 The Company is not engaged in any negotiation for review of the rent payable under any lease under which it holds any of the leasehold Properties, no such negotiations have been concluded changing the rent from that specified in Schedule 4 and there are no rent reviews capable of being implemented by the landlord in respect of the period prior to completion. 15.16 In so far as the Warrantors are aware, the replies given to enquiries raised by the Buyer's Solicitors in respect of the Properties are true and accurate in all material respects. 15.17 The Warrantors are not aware of any alteration refurbishment or renewal of the whole or any part of any of the Properties or the building or estate of which any Property forms part which may be incurred by or charged in whole or part to the Company. 15.18 The Company is entitled to transitional relief in accordance with Schedule 7A to the Local Government Finance Act l988 for non- domestic rates in respect of each of the Properties and has not done anything which would or might cause (it) (them) to lose such relief nor made any proposal for alteration of the April l990 rating list in respect of any of the Properties. 38 15.19 There is no actual or contingent liability on the part of the Company arising directly or indirectly out of any lease, agreement for lease, conveyance or licence or other deed including any actual or contingent liability arising directly or indirectly out of: (a) any estate or interest previously held by the Company as an original lessee or underlessee; or (b) any covenant made by the Company in favour of any lessor or any guarantee given by the Company in relation to a lease or underlease. 16 ENVIRONMENTAL 16.1 The Company has received written no indication and is not otherwise aware that it has or may have failed to obtain or is or may be in material breach of the terms and conditions of all Environmental Consents required in respect of the Company's activities. 16.2 The Company has received no written indication that and is not otherwise aware that it is or may be responsible for all or any part of costs or expenses imposed as a result of Environmental Law. 16.3 The Company has received no written indication and is not otherwise aware of any actual or threatened actions by regulatory authorities or third parties in respect of any alleged non-compliance with or liability arising under Environmental Law. 17 INSOLVENCY 17.1 No administrator, administrative receiver, receiver, manager of assets, liquidator or any other similar officer has ever been appointed in respect of the whole or any part of the assets or undertaking of the Company and no order has been made, petition presented or resolution passed for the purpose of the making of any order in relation to administration, administrative receivership, receivership, liquidation, management of assets or any other similar situation of the Company. 17.2 The Company is not insolvent nor unable to pay its debts as they fall due (as such expression is defined in either sub-section (1)(a) to (d) (inclusive) or sub-section (2) of Section 123 of the Insolvency Act 1986). 17.3 No voluntary arrangement (as referred to in the Insolvency Act 1986) or scheme of arrangement as regards its creditors has been proposed by the Directors or is in operation in relation to the Company. 17.4 The Company has not entered into any transaction nor been given a preference to which sections 238, 239 or 423 of the Insolvency Act 1986 apply or which may otherwise be liable to be set aside or avoided for any reason. 18 INTELLECTUAL PROPERTY 18.1 So far as the Warrantors are aware, the businesses of the Company and the processes, data, material and software employed by it and the goods, services and software including the Software supplied by it in the United Kingdom or elsewhere in the world do not infringe, use, involve the misappropriation of, or embody the subject matter of, or (except as set out in Part 2 of Schedule 5) require a licence which has not been granted on terms disclosed to the Buyer under any Intellectual Property in which any other person has rights of any nature; and no claims have been made by any person which, if pursued, might be in breach of or be otherwise material to any of the warranties in this or any other part of this paragraph 18. 39 18.2 Where Software is owned by the Company, it has sole possession of the source code and has not granted any rights whatsoever in or over the source code to any person or entity, subject to the terms of the licence agreements set out in Part 1 of Schedule 5. 18.3 In the case of any Software licensed to the Company, the Company has full rights of access to and use of the source code to the Software in the event of any insolvency, administrative receivership, receivership, administration or bankruptcy (or equivalent event in any relevant jurisdiction). 18.4 Short particulars of all licences entered into by the Company in relation to Intellectual Property, and in respect of which any of the Company is a licensor, are set out in Part 1 of Schedule 5; and in respect of which the Company is a licensee or otherwise a party, are set out in Part 2 of Schedule 5 and the entitlement of the Company to use the software concerned is subject to the terms thereof. 18.5 No goods, services, documentation, software, data or other items used by the Company in the course of its business has or have been supplied under: (a) any agreement or arrangement which precludes its or their sale, transfer, assignment, disposal or use by any other person; or (b) any licence or permission that may cease on any change in the control of any of the Companies or any transfer of the legal or beneficial interest in any shares in any of the Companies. 18.6 No Intellectual Property in which the Company has any interest and which is, or is likely to be, material to the Business of the Company is: (a) so far as the Warrantors are aware (without having made specific enquiry of the customers of the Company), being infringed, misappropriated or used without permission by any other person; or (b) subject to any licence, estoppel or authority or similar right in favour of any other person, except as set out in the agreements listed in Part 1 & 2 of Schedule 5. 18.7 Details of all Intellectual Property which is owned or used by any of the Companies, or in respect of which any of the Companies has made application for registration is: (a) listed and briefly described in Part 3 of Schedule 5; (b) legally and beneficially vested in or validly granted to the Company, are not restricted in any way and all renewal fees and steps required for their maintenance and protection have been paid and taken; and (c) so far as each of the Warrantors is aware, valid and enforceable. 18.8 Such copyright as the Company has in its products and all unregistered trade marks owned or used by the Companies are: (a) listed and briefly described in Part 4 of Schedule 5; (b) legally and beneficially vested or validly granted to the Companies and are not restricted in any way; and (c) so far as each of the Warrantors is aware, valid and enforceable. 40 18.9 The Company has not received any notice that any other person has registered or applied to register in any country any Intellectual Property made, or claimed to be owned, by the Companies. 18.10 The licences, agreements and arrangements listed in Parts 1 and 2 of Schedule 5 (true, current and complete copies of each of which have been supplied to the Buyer) have been entered into in the ordinary course of business, are in full force and effect and no notice has been given on either side to terminate any of them and no amendment has been made or accepted to their terms since they were first entered into; and the obligations of all parties under each of the same have been fully complied with and no disputes exist or are anticipated in respect of any of them. 18.11 Other than to the Buyer and to agents, employees, shareholders or professional advisers of the Buyer under the provisions of the Non- Disclosure Agreement dated 31 October 1996, none of the Companies has not knowingly disclosed, or knowingly or recklessly permitted to be disclosed, or undertaken or arranged to disclose, to any person any of its Confidential Information. 18.12 No claim has been made, and none of the Warrantors is aware of any facts or circumstances which may result in any claim, for compensation by an employee of any of the Companies carrying on trade in the UK under Section 40 of the Patents Act 1977 or under any comparable legislation in any part of the world or under any award scheme. 18.13 The Software and all earlier versions of and predecessors to the Software were developed and all the Computer Know-how was conceived by, employees of the Company in their capacities as such and without any reliance on any trade secret or proprietary information belonging to any other person and constitute original works of authorship of such persons. 18.14 The Company does not operate as a computer bureau, as that term is defined in the Data Protection Act 1984, in the United Kingdom or elsewhere in the world; and no notice of any kind has been served on the Company under any provision under any part of that Act or any analogous legislation in any part of the world. Insofar as the Company is a "Data User" under the Act or in an equivalent position under any analogous legislation in any other country: (a) all necessary applications for registration have been duly made; and (b) the details supplied to the Registrar, or other official concerned, in relation to each application are accurate and complete. 18.15 The Company owns or has valid and enforceable licences in respect of all Intellectual Property necessary to operate its business. 18.16 Neither of the Subsidiaries owns or has any legal or equitable right, title or interest in, over or in respect of any of the Software or Computer Know-how. 18.17 The Company has taken all steps necessary and desirable for the protection of all Intellectual Property where the same is registrable in the markets in which it operates. In addition, the appropriate copyright notices have been placed on all copies of the Software which have been distributed to the public. The appropriate restricted rights legend required under the Federal Acquisition Regulation to reserve the Company's full ownership rights has been placed on all copies of the Software which have been distributed to agencies or instrumentalities of the United States government. 18.18 The Company is not aware that the Software fails to conform and perform in any of its material functions to the specifications set out in the user manuals and other documentation written for and/or supplied with the Software and any defects, bugs or faults other than those of a minor or cosmetic nature in any code for the Software and which are not more extensive or damaging to the performance or functioning of the Software than can reasonably be expected given the nature of computer software; none of the Warrantors is aware of any defect other than those of a minor or 41 cosmetic nature in any code for the Software that has an adverse effect on the performance, functionality of the Software or future developments and enhancements of the Software. 18.19 The Company does not require any intellectual or industrial property rights other than the Intellectual Property identified in Schedules 5 for the operation of any part of the Business as presently carried on. 18.20 Brief details of all the Software are set out in Schedule 6 and a disk containing the Software has been delivered to the Buyer. 19 COMPETITION So far as the Warrantors are aware, the Company has not done anything which, and is not a member or party to any agreement or arrangement which, contravenes or requires registration or notification under any of the provisions of the Fair Trading Act 1973, the Restrictive Trade Practices Acts, the Resale Prices Act 1976, the Treaty of Rome; or the Competition Act 1980 or any other anti- trust, anti-monopoly or anti-cartel legislation or regulation in any country of the world in which or with which it does business. 20 FINANCIAL SERVICES None of the Companies carries on or has carried on at any time any investment business in the United Kingdom within the meaning of the FSA nor has any of the Companies contravened, or received notice from the Securities and Investments Board or the Department of Trade and Industry or any other regulator that it may have contravened any provision of the FSA or any rules or regulations made thereunder (whether relating to cold calling, investment advertisements or otherwise). 21 NON TRADING COMPANIES As regards each of the Subsidiaries: (a) it has not at any time been the holding company of any company or a member of or the beneficial owner of shares in any company; (b) there are no agreements or arrangements (whether legally enforceable or not) for the payment of any pensions, allowances, lump sums or other like benefits on retirement or on death or during periods of sickness or disablement for the benefit of any director or former director or employee or former employee of it or for the benefit of the dependants of any such person; (c) it has not traded or undertaken any activities of any sort and (save as contemplated by this Agreement and other agreements specifically referred to herein) has no liabilities or obligations actual or contingent (save in relation to incorporation and setting up costs and expenses) nor is it involved in any litigation nor has been threatened with any proceedings of any kind; and (d) Save as expressly anticipated by this Agreement, it has not charged any of its assets or granted any option or issued any warrant or other right to subscribe any shares or debentures or agreed conditionally or unconditionally to grant any such option or issue any such warrant or other right and has not (save as aforesaid) entered into any agreement which requires or may require or confers any right to require the issue by it of any shares or debentures or options or warrants or other rights to subscribe shares or debentures. 42 SCHEDULE 7 THE TAX COVENANTS 1 INTRODUCTION 1.1 In this Schedule, unless the context otherwise requires, words and expressions not expressly defined in paragraph 1.2 below shall have the respective meanings given to them in the Interpretation Section of this Agreement. 1.2 The following expressions shall have the following meanings: Claim any notice, demand, assessment, letter or other document issued, or action taken, by or on behalf of any Taxing Authority (including the imposition of any withholding) from which it appears that a Taxation Liability is or may be imposed which may give rise to a claim under clause 5.1 of this Agreement and this Schedule; Relief any loss, relief, allowance, exemption, set off, deduction or credit in computing or against income, profits, gains or Taxation and any right to a repayment of Taxation; Taxation all forms of taxation, duties, rates, levies, contributions, withholdings, deductions, charges and imposts imposed or arising in the United Kingdom , including but not limited to: (a) income tax to which the Pay as You Earn system applies, advance corporation tax, any liability arising under Sections 419 or 601 ICTA, national insurance contributions, value added tax and input tax within the meaning of Section 24 VATA; (b) all penalties, charges, costs and interest levied by or awarded to a Taxing Authority or arising under any Taxation legislation in respect of any of the above; Taxing Authority the Inland Revenue, H M Customs & Excise and any other governmental, local governmental or municipal authority, body or official of the United Kingdom; Transaction any transaction, act, omission, arrangement or event whatsoever (including, but not limited to, entering into this Agreement, Completion, any change in the residence of any person or the death, winding up or insolvency of any person). 1.3 In this Schedule, references to a "Taxation Liability" mean not only a liability to make any payment (or increased payment) of or in respect of Taxation (whether or not such payment is primarily payable by the Buyer or the Company and whether or not the Buyer or the Company has or may have any right of reimbursement from any other person) but also include: 43 (a) the loss or set off of any Relief arising in respect of any Transaction occurring on or before Completion; (b) the use or set off of any Relief which arises after Completion where the use or set off of that Relief has the effect of reducing or eliminating any liability to Taxation which would otherwise have arisen and have constituted a Taxation Liability for the purposes of this Schedule; PROVIDED THAT: (i) in any case falling within paragraph (a) or (b) above, where the Relief lost or set off would have operated as a deduction from gross income, profits or gains, the Taxation Liability shall be treated as being equal to the amount of the Relief multiplied by the rate of corporation tax in force at the date when it is lost, or set off; (ii) in any other case falling within paragraph (a) or (b) above, the Taxation Liability shall be treated as being equal to the amount of the Relief lost used or set off. 1.4 In this Schedule: (a) any reference to a Transaction occurring on or before Completion shall include the combined effects of two or more Transactions provided that the first or some of which shall have occurred on or before Completion; (b) any reference to the occurrence of a Transaction on or before a particular date shall include a Transaction which is deemed for Taxation purposes to have, or is regarded for Taxation purposes as having occurred or existed on or before that date; and (c) any reference to income, profits or gains arising, earned, accrued, received or payable on or before a particular date shall include income, profits or gains which are deemed for Taxation purposes to have arisen or are deemed for Taxation purposes to have been earned, accrued, received or payable on or before that date. 2 COVENANT TO PAY Subject as provided in this Schedule and in clauses 5.3, 5.4, 5.5 and 5.8 of this Agreement the Warrantors shall be liable to the Buyer in an amount equal to: (a) any Taxation Liability of the Company arising in respect of or by reference to or in consequence of any of the following: (i) any Transaction occurring on or before Completion; or (ii) any income, profits or gains arising, earned, accrued, received or payable on or before Completion; (b) any Taxation Liability which is also a Taxation Liability of another person and which is payable by the Company by virtue of: (i) the other person failing to discharge such Taxation Liability; and (ii) the Company having been at any time prior to Completion a member of the same group as such other person or otherwise connected with or related to such other person for any Taxation purpose; 44 (c) any liability of the Company to make a payment by way of reimbursement, recharge, indemnity or damages in respect of or arising from any Transaction occurring on or before Completion or any income, profits or gains arising, earned, accrued, received or payable on or before Completion; and (d)] all third party costs and expenses properly and reasonably incurred and payable by the Buyer or the Company in connection with or in consequence of a Taxation Liability which is imposed and for which the Buyer has a claim under this Schedule. 3 EXCLUSIONS 3.1 The Warrantors shall not be liable under this Schedule in respect of any Taxation Liability: (a) to the extent that specific provision or reserve (not including any provision for deferred Taxation) has been made for such liability in the Accounts; or (b) to the extent that it arises out of a Transaction undertaken after the Accounts Date but before Completion by the Company in the ordinary course of its day to day trading operations. 3.2 The Buyer shall not be entitled to make a claim under this Schedule if and to the extent that the same subject matter has given rise to a claim for breach of the Warranties and that claim has been satisfied in full. 4 GENERAL 4.1 The liability of the Warrantors under this Schedule and the Escrow Agreement shall be joint and several but shall only be recoverable by the Buyer in accordance with clause 5.8 of this Agreement and the maximum of their combined liability shall be in accordance with clause 5.8 of this Agreement. 4.2 Any liability to the Buyer under this Schedule may be released, compounded or compromised in whole or in part and time or indulgence may be given by the Buyer in its absolute discretion as regards a Warrantor under such liability without in any way prejudicing or affecting its rights against such Warrantor in respect of any other liability under this Schedule or against any other Warrantor under the same or a like liability. 45 ATTESTATIONS SIGNED by ) /s/ D. P. Taylor DENNIS PHILIP TAYLOR ) in the presence of: Neil Fletcher ) /s/ Neil Fletcher SIGNED by ) /s/ David Edward John Crisp DAVID EDWARD JOHN CRISP ) in the presence of: Charles Cook ) /s/ Charles Cook SIGNED by ) /s/ David Lee Stevens DAVID LEE STEVENS ) in the presence of: Neil Fletcher ) /s/ Neil Fletcher SIGNED by ) /s/ Alistair Jenkins ALISTAIR JENKINS ) in the presence of: Charles Cook ) /s/ Charles Cook SIGNED by ) duly authorised for and on behalf of ) SKANCO TRUSTEES LIMITED ) /s/ Skanco Trustees Limited as duly authorised trustee of the ) D Crisp Settlement ) SIGNED by ) duly authorised for and on behalf of ) SKANCO TRUSTEES LIMITED ) /s/ Skanco Trustees Limited as duly authorised trustee of the ) D L Stevens Settlement ) SIGNED by ) duly authorised for and on behalf of ) SKANCO TRUSTEES LIMITED ) /s/ Skanco Trustees Limited as duly authorised trustee of the ) A Jenkins Settlement ) SIGNED by ) duly authorised for and on behalf of ) /s/ Peter Charles Cox 3i GROUP plc ) /s/ Neil Fletcher in the presence of: Neil Fletcher ) 46 SIGNED by ) duly authorised for and on behalf of ) /s/ Peter Charles Cox 3i plc ) /s/ Neil Fletcher in the presence of: Neil Fletcher ) SIGNED by ) duly authorised for and on behalf of ) /s/ A.I.I. Holding Corporation A.I.I. HOLDING CORPORATION ) /s/ Joe Coppins in the presence of: Joe Coppins ) SIGNED by ) duly authorised for and on behalf of ) /s/ Jordan Breslow GEOWORKS ) /s/ Martin Bowen in the presence of: Martin Bowen ) EX-2.3 4 ESCROW AGREEMENT 1 EXHIBIT 2.3 ESCROW AGREEMENT This Escrow Agreement is made as of this 24th day of February, 1997 (the "Agreement"), by and among State Street Bank and Trust Company, a Massachusetts trust company ("Escrow Agent"), Geoworks, a California corporation ("Parent") and David Edward John Crisp, as agent of certain of the Company's shareholders ("Securityholders' Agent"). Terms not otherwise defined herein shall have the meaning set forth in the Offer or the Warranty (each as defined below), copies of which are attached hereto. WITNESSETH Parent desires to acquire all of the outstanding Ordinary and Preference Shares of Eden Group Limited, a corporation organized under the laws of England and Wales (the "Company"), pursuant to that certain Offer document distributed to all shareholders and optionees of the Company (the "Offer"), and pursuant to that certain Warranty and Covenant Agreement dated as of February 12, 1997 (the "Warranty Agreement") among Geoworks and certain shareholders and officers of the Company set forth in schedules thereto, including the persons listed in Annex A hereof (the persons listed in Annex A hereof referred to collectively as, the "Indemnifying Shareholders"); and WHEREAS, pursuant to Article 4.5 of the Warranty ("Article 4.5"), an escrow fund (the "Escrow Fund") will be established to compensate Parent for certain Losses it may incur by reason of any inaccuracy or breach of the warranties contained in Schedule 3 of the Warranty Agreement or any failure by the Company, the Warrantors or the Principal Sellers (as each such term is defined in the Warranty Agreement) to perform or comply with any covenants contained in the Warranty Agreement; and WHEREAS, the Securityholders' Agent has been constituted as agent for and on behalf of the Indemnifying Shareholders to undertake certain obligations specified in this Agreement; and WHEREAS, Article 4.5 provides for the establishment of an Escrow Fund of 65,212 shares of the Parent Common Stock upon the Acquisition otherwise payable to the Indemnifying Shareholders, such Escrow Fund to be held by the Escrow Agent; and WHEREAS, the parties hereto desire to set forth further terms and conditions in addition to those set forth in the Offer relating to the operation of the Escrow Fund. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants contained herein, and intending to be legally bound, hereby agree as follows: 1. Escrow and Escrow Shares. Pursuant to the Offer, Parent shall deposit in escrow with the Escrow Agent, as escrow agent, a stock certificate or certificates representing 65,212 shares of Parent Common Stock (the "Escrow Shares"), which shall be registered in the name of the Escrow Agent as nominee for the beneficial owners of such shares. The Escrow Shares shall be held and distributed by the Escrow Agent in accordance with the terms and conditions of this Agreement. The number of Escrow Shares held on behalf of each Indemnifying Shareholder is set forth in Annex A attached hereto. The 2 Escrow Fund shall be available to compensate Parent and its affiliates for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses, and expenses of investigation and defense (hereinafter individually a "Loss" and collectively "Losses") incurred by Parent, its officers, directors, or affiliates directly or indirectly as a result of any inaccuracy or breach of a warranty of the Company, the Warrantors or the Principal Sellers made in the Warranty Agreement (as modified by the Company Schedules), or any failure by the Company, the Warrantors or the Principal Sellers to perform or comply with any covenant contained therein. Parent and the Company each acknowledge that such Losses, if any, would relate to unresolved contingencies existing at the Completion, which if resolved at the Completion (as defined in the Offer) would have led to a reduction in the Consideration Shares (as defined in the Offer). 2. Rights and Obligations of the Parties. The Escrow Agent shall be entitled to such rights and shall perform such duties of the Escrow Agent as set forth herein (collectively, the "Duties") in accordance with the terms and conditions of this Agreement. Parent, Company and the Securityholders' Agent shall be entitled to their respective rights and shall perform their respective duties and obligations as set forth herein, in accordance with the terms hereof. The duties and obligations of the Escrow Agent shall be determined solely with reference to this Agreement. In the case of the other parties to this Agreement, however, in the event that the terms of this Agreement conflict in any way with the provisions of Article 4.5, Article 4.5 shall control. 3. Escrow Period; Escrow Fund. a. The period of time during which the Escrow Fund shall be in existence (the "Escrow Period") shall commence immediately following the Completion, which shall be set forth in a certificate of Parent delivered to the Escrow Agent, and shall terminate at 5:00 p.m., California time, on December 31, 1997 (the "Release Date"); provided, however, that a portion of the Escrow Shares and other assets held in the Escrow Fund, which is necessary to satisfy any unsatisfied claims specified in any Officer's Certificate theretofore delivered to the Escrow Agent prior to termination of the Escrow Period with respect to facts and circumstances existing prior to expiration of the Escrow Period shall remain in the Escrow Fund until such claims have been resolved. As soon as practicable after all such claims have been finally resolved, the Escrow Agent shall requisition from the transfer agent, if necessary, and deliver to such Indemnifying Shareholders, at their addresses set forth in a certificate of the Securityholders' Agent, all of the Escrow Shares and other property remaining in the Escrow Fund and not required to satisfy such claims and expenses. Each Indemnifying Shareholder shall receive that number of Escrow Shares (and cash in lieu payments when appropriate), and a portion of any other assets held in the Escrow Fund, which bears the same relationship to the total number of Escrow Shares and other assets in the Escrow Fund and available for distribution as the number of Escrow Shares set forth opposite the name of each such Indemnifying Shareholder on Annex A hereto bears to 65,212, as calculated by the Securityholders' Agent. b. Upon receipt of written notice from the Securityholders' Agent to the Escrow Agent (a) directing the Escrow Agent to sell a number of shares of the Escrow Shares set forth in such notice, (b) specifying how the proceeds of such sales are to be allocated for tax-reporting purposes, setting forth, as appropriate, the names, addresses and social security or tax identification numbers of -2- 3 each person to whom a sale is to be attributed, (c) certifying that the restrictions on the transferability of such shares applicable to affiliates of Subsidiary pursuant to pooling of interest rules, as set forth in the Affiliate Agreement among such affiliates, Parent and Subsidiary have expired, (d) further certifying that such sale may be effected pursuant to the terms of the Declaration of Registration Rights made by Parent for the benefit of Company shareholders, (e) identifying the name, address and telephone number of a broker through whom such sale should be made, (f) setting forth such broker's good faith estimate of the commissions and expenses that will be incurred to make such sale and (g) accompanied by a check in the amount of 100% of the amount of such estimated commissions and expenses, which such amount shall be paid or forwarded to such broker by the Escrow Agent (a "Sales Notice"), the Escrow Agent shall sell that number of Escrow Shares as is indicated in and in accordance with the Sales Notice. Any such sales effectuated at the request of the Indemnifying Shareholders shall be made on a pro rata basis for all Indemnifying Shareholders from among the Escrow Shares then held in Escrow. The Securityholders' Agent and the Indemnifying Shareholders agree that any such sales shall be made in a single transaction or group of transactions effected over not more than a three (3) day period, the aggregate gross sales proceeds of which are expected as of the date of receipt by the Escrow Agent of the Sales Notice to be not less than $250,000. The Escrow Agent may rely on the Sales Notice without inquiry and shall have no liability to the Securityholders' Agent, the Indemnifying Shareholders or any other party for relying on the Sales Notice or effectuating a sale or sales of Escrow Shares in accordance with the Sales Notice. The Securityholders' Agent and the Indemnifying Shareholders, jointly and severally, agree to indemnify and hold harmless the Escrow Agent from and against all liability and costs, other than (a) the commissions and expenses of the broker set forth in the Sales Notice and (b) any liabilities and costs caused by the gross negligence or willful misconduct of the Escrow Agent, incurred in connection with making any sale of Escrow Shares in accordance with a Sales Notice. To secure such indemnity obligation, the Escrow Agent shall have a first lien on any Escrow Shares or other property otherwise distributable to the Indemnifying Shareholders (but not on any Escrow Shares or any other property distributable to Parent). If the actual commissions and expenses of effecting a sale directed in a Sales Notice are less than the amount of funds advanced by the Securityholders' Agent with such Sales Notice, the Escrow Agent may keep the excess as a fee for effecting the sale. c. All proceeds from the sale of Escrow Shares shall be held in escrow as part of the Escrow Fund on the same basis as Escrow Shares are held. 4. Duties of Escrow Agent. The Duties of the Escrow Agent shall include the following: a. The Escrow Agent shall hold and safeguard the Escrow Shares and any other assets in the Escrow Fund during the Escrow Period, shall treat such Escrow Fund in accordance with the terms of this Agreement and not as the property of Parent or the Indemnifying Shareholders, and shall hold and dispose of the Escrow Shares and any other assets in the Escrow Fund only in accordance with the terms hereof. b. Each Indemnifying Shareholder shall have voting rights with respect to such Shareholder's proportionate interest in the shares of Parent Common Stock remaining in the Escrow Fund (and on any voting securities added to the Escrow Fund in respect of such shares of Parent Common Stock). The Escrow Shares shall be voted by the Escrow Agent on behalf of the Indemnifying -3- 4 Shareholders in accordance with the written instruction received by the Escrow Agent from the Securityholders' Agent. The Securityholders' Agent agrees with the Indemnifying Shareholders (but the Escrow Agent need not verify) that such instructions shall be in conformance with the written instructions received by the Securityholders' Agent from each Indemnifying Shareholder. In the absence of such written instructions, received by the Escrow agent at least five business days prior to the date on which such shares must be voted, the Escrow Agent need not vote such shares. The Escrow Agent shall forward all proxy information and other reports it receives with respect to Escrow Shares to the Securityholders' Agent. c. In making any distribution of Escrow Shares pursuant to the terms of this Agreement, the Escrow Agent shall round down (if necessary) to a whole number of shares and pay to each Indemnifying Shareholder, as appropriate, from funds provided by Parent, cash in lieu of the fractional interests not distributed. Any shares for which Parent has provided cash in lieu payments shall be distributed to Parent, which shall be deemed to have purchased them. 5. Claims Upon Escrow Fund. a. Upon receipt by the Escrow Agent at any time on or before the last day of the Escrow Period of a certificate signed by the President, any Vice President or General Counsel of Parent (an "Officer's Certificate") (A) stating that Parent has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses (expressed in U.S. Dollars at a conversion rate of 1.6113 U.S. Dollars to a British Pound (the "Conversion Rate")), and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall, subject to the provisions of Section 6 hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable, Escrow Shares (or a combination of Escrow Shares and cash determined in accordance with Section 4(c) hereof) having a value (determined pursuant to Section 5(b)) equal to such Losses. b. For the purposes of determining the number of Escrow Shares to be delivered to Parent pursuant to Section 5(a) hereof, the shares of Parent Common Stock shall be valued at the average of the closing prices of Parent's Common Stock on the principal securities exchange on which Parent's Common Stock is then traded, or if not so traded, the National Market System of the National Association of Securities Dealers Automated Quotation system, in either case as reported in The Wall Street Journal, for the thirty (30) consecutive trading days ending on the date that is one (1) trading day prior to the Completion. Parent and the Securityholders' Agent shall certify such fair market value in a certificate signed by both Parent and the Securityholders' Agent, and shall deliver such certificate to the Escrow Agent. c. Parent may not receive any shares from the Escrow Fund unless and until Officer's Certificates (as defined in Section 5(a) above) identifying Losses, the aggregate amount of which exceed $241,695, which Parent, the Securityholders' Agent and the Indemnifying Shareholders agree is the equivalent of L.150,000, converted to U.S. Dollars at the Conversion Rate, have been delivered to the -4- 5 Escrow Agent as provided in Section 6. In such case, Parent may recover from the Escrow Fund the total of its Losses, including the first $241,695. d. To the extent that the aggregate amount of Losses for which Parent is entitled to receive indemnification exceeds the value of Escrow Shares then held in the Escrow Fund, Parent shall be entitled to receive, in addition to all Escrow Shares then held in the Escrow Fund, other assets held in the Escrow Fund equal to the lesser of (i) all other assets held in the Escrow Fund or (ii) the amount by which the Losses for which the Parent is entitled to indemnification exceeds the value of the Escrow Shares then held in the Escrow Fund. 6. Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Securityholders' Agent, and for a period of thirty (30) days after receipt by the Escrow Agent of an Officer's Certificate, the Escrow Agent shall make no delivery to Parent of any Escrow Amounts pursuant to Section 5 hereof unless the Escrow Agent shall have received written authorization from the Securityholders' Agent to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of shares of Parent Common Stock (and, if applicable under Section 4(c) or Section 5(d), other assets in the Escrow Fund) from the Escrow Fund in accordance with Section 5 hereof, provided that no such payment or delivery may be made if the Securityholders' Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty (30) day period. 7. Resolution of Conflicts; Arbitration. a. In case the Securityholders' Agent shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholders' Agent and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholders' Agent and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock (and, if applicable, other assets) from the Escrow Fund in accordance with the terms thereof. b. If no such agreement can be reached after good faith negotiation, either Parent or the Securityholders' Agent may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Parent and the Securityholders' Agent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the same extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was -5- 6 refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 6 hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision, which shall be furnished to the Escrow Agent, shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. c. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Alameda County, California under the rules then in effect of the American Arbitration Association. For purposes of this Section 7, in any arbitration hereunder in which any claim or the amount thereof stated in the Officer's Certificate is at issue, Parent shall be deemed to be the Non-Prevailing Party in the event that the arbitrators award Parent one-half (1/2) or less of the disputed amount; otherwise, the shareholders of the Company as represented by the Securityholders' Agent shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative costs of the arbitration and the expenses, including without limitation, reasonable attorneys' fees and costs, incurred by the other party to the arbitration. 8. Securityholders' Agent; Power of Attorney. a. In the event that the Offer is accepted, effective upon Completion (as set forth in a certificate delivered to the Escrow Agent pursuant to Section 3(a)), and without further act of any Indemnifying Shareholder, David Edward John Crisp shall be appointed Securityholders' Agent, as agent and attorney-in-fact for each Indemnifying Shareholder, for and on behalf of Indemnifying Shareholders, to give and receive notices and communications, to authorize delivery to Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, to authorize the sale of Escrow Shares from the Escrow Fund, and to take all actions necessary or appropriate in the judgment of Securityholders' Agent for the accomplishment of the foregoing. Such agency may be changed by the Indemnifying Shareholders from time to time upon not less than thirty (30) days' prior written notice to Parent and the Escrow Agent; provided that the Securityholders' Agent may not be removed unless holders of a two-thirds interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in the position of Securityholders' Agent may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholders' Agent, and the Securityholders' Agent shall not receive compensation for his or her services. Notices or communications to or from the Securityholders' Agent shall constitute notice to or from each of the Indemnifying Shareholders. Unless and until the Escrow Agent has notice of a new Securityholders' Agent, it may assume that any such notice constitutes valid notice under this provision. b. The Securityholders' Agent shall not be liable for any act done or omitted hereunder as Securityholders' Agent while acting in good faith and in the exercise of reasonable judgment. The Indemnifying Shareholders on whose behalf the Escrow Amount was contributed to the Escrow -6- 7 Fund shall severally indemnify the Securityholders' Agent and hold the Securityholders' Agent harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Securityholders' Agent and arising out of or in connection with the acceptance or administration of the Securityholders' Agent's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholders' Agent. c. A decision, act, consent or instruction of the Securityholders' Agent, in each case in a writing signed by the Securityholders' Agent, shall constitute a decision of all the Indemnifying Shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such Indemnifying Shareholders, and the Escrow Agent and Parent may rely upon any such decision, act, consent or instruction of the Securityholders' Agent as being the decision, act, consent or instruction of each every such Indemnifying Shareholder. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Securityholders' Agent. d. In the event Parent becomes aware of a third-party claim which Parent believes may result in a demand against the Escrow Fund, Parent shall notify the Securityholders' Agent of such claim, and the Securityholders' Agent, as representative for the Indemnifying Shareholders, shall be entitled, at their expense, to participate in any defense of such claim. Parent shall have the right in its sole discretion to settle any such claim; provided, however, that except with the consent of the Securityholders' Agent, no settlement of any such claim with third-party claimants shall alone be determinative of the amount of any claim against the Escrow Fund. In the event that the Securityholders' Agent has consented in writing to any such settlement, the Securityholders' Agent shall have no power or authority to object under any provision of this Agreement to the amount of any claim by Parent against the Escrow Fund with respect to such settlement. 9. Stock Splits, Investments and Tax Allocations. a. Any cash dividends, dividends payable in securities or other distributions of any kind, including any shares of Parent capital stock received upon a stock split, shall be retained in the Escrow Fund and become a part thereof. Any provision hereof or of Article 4.5 shall be adjusted to appropriately reflect any stock split or reverse stock split. b. Upon receipt by the Escrow Agent of specific written investment instructions from the Securityholders' Agent, available uninvested cash in the Escrow Fund shall be invested (and reinvested, as the case may be) from time to time by the Escrow Agent in any of the following investments, as specified in such instruction: (i) obligations issued or guaranteed by The United States of America or any agency or instrumentality thereof; -7- 8 (ii) certificates of deposit of or interest bearing accounts with national banks or corporations endowed with trust powers, including the Escrow Agent, having capital and surplus in excess of $100,000,000; (iii) commercial paper that at the time of investment is rated A-1 by Standard & Poors Corporation or Prime-1 by Moody's Investors Service, Inc.; (iv) repurchase agreements with any bank or corporation described in clause (ii) fully secured by obligations described in clause (i); (v) State Street Bank Insured Money Market Deposit Account ("IMMA"). Investments pursuant to such investment instructions described above shall in all instances be subject to availability (including any time-of-day requirements). In no instance shall the Escrow Agent have any obligation to provide investment advice of any kind. In the absence of such written investment instructions, Parent, the Securityholders' Agent and the Indemnifying Shareholders agree that any available, uninvested cash in the Escrow Fund at the end of a business day shall be invested by the Escrow Agent overnight in IMMA. c. The Escrow Agent shall be authorized at all times and from time to time to liquidate any investment of cash in the Escrow Fund as may be necessary to provide available cash to make any release, disbursement or payment called for under the terms of this Agreement. The Escrow Agent shall have no responsibility or liability for any losses resulting from liquidation of any investment (such as liquidation prior to maturity). d. Investment earnings and other income from investment of cash in the Escrow Fund (net of transaction costs) shall be deposited in the Escrow Fund and shall become part of the Escrow Fund (and may be reinvested pursuant to the terms of Section 9(b) above), and all losses incurred on any investment shall be debited to the Escrow Fund. In no event shall the Escrow Agent have any liability under this Agreement for investment losses incurred on any investment or reinvestment. e. The parties hereto agree that, for tax reporting purposes, all dividends on Parent Capital Stock or on Parent capital stock received upon a stock split, and all interest or other income earned from the investment of any monies in the Escrow Fund shall be allocable to the Indemnifying Shareholders in accordance with their percentage interests in the Escrow Fund as set forth in Annex A hereof. f. Each of Parent and the Shareholders' Agent agrees, on or before April 1, 1997, to execute and deliver to the Escrow Agent a Form W-9 (or Form W-8, in the case of non-U.S. persons) which certifies such person's social security or taxpayer identification number. The parties hereto understand that, in the event their social security or tax identification numbers are not so certified to the Escrow Agent, the Internal Revenue Code of 1986, as it may be amended from time to time, may require withholding of a portion of any interest or other income earned on the investments of monies in the Escrow Fund. -8- 9 10. Exculpatory Provisions; Indemnification. a. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and as set forth in any additional written escrow instructions (which instructions shall not expose Escrow Agent to any liability additional to that assumed by Escrow Agent hereunder) which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Securityholders' Agent, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. b. The Escrow Agent is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court of law, notwithstanding any notices, warnings or other communications from any party or any other person to the contrary. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. c. In performing any duties under or in connection with this Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under or in connection with this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. d. If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold the Escrow Shares and all documents relating thereto and may wait for settlement of any such controversy by final appropriate legal proceedings or other means. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, and at the expense of the Escrow Fund, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and Escrow Shares, except all cost, expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the interpleader action (and which the parties jointly and severally agree to pay). Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. -9- 10 e. Parent and the Securityholders' Agent and their respective successors and assigns agree jointly and severally to indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his/her duties under or in connection with this Agreement, including but not limited to any litigation arising from or in connection with this Agreement or involving its subject matter. f. Parent and the Securityholders' Agent undertake to instruct the Escrow Agent in writing with respect to the Escrow Agent's responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting in connection with its acting as Escrow Agent under this Agreement. Parent and the Securityholders' Agent, jointly and severally, agree to indemnify and hold the Escrow Agent harmless from any liability on account of taxes, assessments or other governmental charges, including without limitation the withholding or deduction or the failure to withhold or deduct same, and any liability for failure to obtain proper certifications or to properly report to governmental authorities, to which the Escrow Agent may be or become subject in connection with or which arises out of this Agreement, including costs and expenses (including reasonable legal fees), interest and penalties. Notwithstanding the foregoing, no distributions will be made unless the Escrow Agent is supplied with an original, signed W-8 form, W-9 form or their equivalent prior to distribution. 11. Alteration of Duties. The provisions of this Agreement, and the duties arising hereunder may only be altered, amended, modified or revoked by a writing signed by all of the parties hereto. The Securityholders' Agent may sign such a writing only if Indemnifying Shareholders representing at least two-thirds interest of the Escrow Fund agree to such alteration, amendment, modification or revocation. 12. Resignation and Removal of the Escrow Agent. The Escrow Agent may resign at any time upon giving at least thirty (30) days' written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business in the States of California or Massachusetts. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. The Escrow Agent shall be discharged from any further duties and liability under this Agreement. 13. Further Instruments. If the Escrow Agent reasonably requires other or further instruments in connection with performance of the Duties, the necessary parties hereto shall join in furnishing such instruments. 14. Disputes. It is understood and agreed that should any dispute arise with respect to the delivery, ownership, right of possession, and/or disposition of the Escrow Shares, or should any claim be made upon such shares by a third party, the Escrow Agent upon receipt of written notice of such -10- 11 dispute or claim by the parties hereto or by a third party, is authorized and directed to retain in its possession without liability to anyone, all or any of said shares until such dispute shall have been settled in accordance with the procedures set forth in this Agreement. The Escrow Agent may, but shall be under no duty whatsoever to, institute or defend any legal proceedings which relate to the Escrow Shares. 15. Escrow Fees and Expenses. a. All reasonable fees of the Escrow Agent for performance of its duties hereunder shall be paid by Parent. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorney's fees, and expenses occasioned by such default, delay, controversy or litigation. Parent agrees to pay any such reasonable sums promptly upon demand. b. Any out-of-pocket fees and expenses described in a certificate of the Securityholders' Agent delivered to the Escrow Agent as having been incurred by the Securityholders' Agent shall be paid by the Escrow Agent out of the proceeds of sales of Escrow Shares otherwise distributable to the Indemnifying Shareholders, but shall not reduce any payment or distribution to Parent. Accordingly, the Escrow Agent need not make any distribution to the Securityholders' Agent until (i) it has first set aside or paid any amounts set forth in an Officer's Certificate of Parent delivered to the Escrow Agent pursuant to Section 5 of the this Agreement and (ii) it would otherwise make a distribution to the Indemnifying Shareholders. 16. General. a. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given if delivered personally or if mail certified or registered mail, postage prepaid, to the parties at their address set forth below or to such other address as they may hereafter designate: To Parent: Geoworks 960 Atlantic Avenue Alameda, California 94501 Attention: Jordan J. Breslow, Esq. Telephone No.: (510) 814-5753 Facsimile No.: (510) 814-4251 -11- 12 With a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304 Attention: Herbert P. Fockler, Esq. Telephone No.: 415/493-9300 Facsimile No.: 415/496-4006 To Securityholders' Agent: David Edward John Crisp The Woodlands Moss Lane Bollington Cheshire SK10 5HS With a copy to: Dibb Lupton Alsop Windsor House Temple House Birmingham B2 SLF United Kingdom Attention: John Jackson, Esq. Telephone No.: 011-44-121-200-5085 Facsimile No.: 11-44-121-212-2730 To the Escrow Agent: (i) if by Courier, to: State Street Bank and Trust Company Two International Place, 4th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Department (1997 Geoworks Escrow) Telephone No.: 617/664-5669 Facsimile No.: 617/664-5371 -12- 13 (ii) or if by mail, to: State Street Bank and Trust Company P. O. Box 778 Boston, MA 02102 Attention: Corporate Trust Department (1997 Geoworks Escrow) or to such other address as any party may have furnished in writing to the other parties in the manner provided above. b. Neither Parent nor the Securityholders' Agent nor the Escrow Agent shall be responsible for delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, computer viruses, power failures, earthquakes or other disasters. c. The captions in this Escrow Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Escrow Agreement. d. This Escrow Agreement may be executed in any number of counterparts, each of which when so executed shall constitute an original copy hereof, but all of which together shall constitute one agreement. e. No party may, without the prior express written consent of each other party, assign this Escrow Agreement in whole or in part. This Escrow Agreement shall be binding upon the respective parties hereto and their heirs, executors, successors and assigns. f. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within the State of California; provided, however, that issues arising out of, or relating to, the warranties and indemnities set forth in the Warranty Agreement shall be construed under the laws of the United Kingdom, as indicated in the Warranty Agreement. The parties to this Escrow Agreement hereby agree to submit to personal jurisdiction in the State of California. g. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, and (b) certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. -13- 14 h. This Agreement may not be altered or modified except in writing, nor shall the conduct of the parties constitute a waiver of any of the terms and conditions of this Escrow Agreement, unless such waiver is specified in writing, and then only to the extent so specified. A waiver of any of the terms and conditions of this Escrow Agreement on one occasion shall not constitute a waiver of the other terms of this Escrow Agreement, or of such terms and conditions on any other occasion. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -14- 15 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first above written. STATE STREET BANK AND TRUST COMPANY By /s/ DONALD E. SMITH ---------------------------------- Name: Donald E. Smith Title: Vice President GEOWORKS By /s/ JORDAN BRESLOW --------------------------------- Name: Jordan Breslow Title: Secretary SECURITYHOLDERS' AGENT On his own behalf and on behalf of all Indemnifying Shareholders /s/ DAVID E. J. CRISP ------------------------------------ Name: David E. J. Crisp * * * ESCROW AGREEMENT * * * 16 ANNEX A
Indemnifying Shareholder's Name and Address Number of Shares in Escrow David Edward John Crisp 28,222 The Woodlands Moss Lane Bollington Cheshire SK10 5HS Alistair Jenkins 21,380 127 High Street Yatton Avon BS19 4DH David Lee Stevens 15,610 5 Stockdale Farm Moor Lane Flookburgh Cumbria LA11 7LR
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