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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K/A
AMENDMENT NO. 1
-------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------------- TO ---------------
COMMISSION FILE NUMBER: 0-25374
GENERAL MAGIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0250147
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
420 NORTH MARY AVENUE, SUNNYVALE, CALIFORNIA 94086
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 774-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of registrant's voting stock held by
nonaffiliates of registrant, based upon the closing sale price of the common
stock on February 27, 1998, as reported on the Nasdaq National Market, was
approximately $56,245,541. Shares of common stock held by each officer, director
and holder of 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
Outstanding shares of registrant's common stock, $.001 par value, as of
February 27, 1998: 26,927,886
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PART III
Part III is replaced in its entirety as follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The table below sets forth, for the current directors and for Philip
D. Knell, all of whom are management's nominees for election to the Board of
Directors at the Company's next Annual Meeting of Stockholders, certain
information with respect to age and background.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR NAME POSITION WITH THE COMPANY AGE SINCE
- -------------------- --------------------------------------------------------- --- --------
<S> <C> <C> <C>
Steven Markman, Ph.D. Chairman, Chief Executive Officer, President and Director 52 1996
Michael E. Kalogris Director 48 1997
Philip D. Knell Management's Nominee 53 --
Carl F. Pascarella Director 55 1994
Roel Pieper, Ph.D. Director 42 1996
Dennis F. Strigl Director 52 1997
Susan G. Swenson Director 49 1997
</TABLE>
STEVEN MARKMAN has served the Company as Chairman, Chief Executive
Officer and President since September 1996. Prior to joining the Company, Dr.
Markman served Novell, Inc. as Executive Vice President and General Manager of
the Products Group from January 1996 to September 1996, and as the Executive
Vice President and General Manager of the Information Access and Management
Group from August 1994 until January 1996. Dr. Markman was Vice President of
Engineering at First Pacific Networks, Inc. from March 1994 to August 1994, and
was a principal at Venture Consulting from September 1993 through March 1994.
From February 1993 to May 1993, Dr. Markman was acting Chief Executive Officer
of Adaptive Corporation, which was merged with Network Equipment Technologies,
Inc. ("NET") in May 1993. Dr. Markman served as Senior Vice President and
General Manager of the Network Systems Group of NET from April 1991 to May 1993.
Dr. Markman holds B.S. and M.S. degrees in Electrical Engineering and
Electrophysics, respectively, from the Polytechnic Institute of Brooklyn. He
also received a Ph.D. degree in Electrophysics from the Polytechnic Institute of
New York.
MICHAEL E. KALOGRIS has served as a director of the Company since
August 1997. Mr. Kalogris has been Chairman and Chief Executive Officer of
Triton Communications L.L.C. ("Triton") since June 1997. Before joining Triton,
Mr. Kalogris served as President and Chief Executive Officer of Horizon Cellular
Group from October 1991 to February 1997.
PHILIP D. KNELL has been nominated by the Company to serve as a
director. Mr. Knell has served as President and General Manager of the
networkMCI Conferencing division of MCI Communications Corporation since July
1995. From December 1992 through June 1995, he was President and Chief Executive
Officer of Darome Teleconferencing, Inc.
CARL F. PASCARELLA has served as a director of the Company since
July 1994. Mr. Pascarella has been President and Chief Executive Officer of VISA
U.S.A. Inc. since September 1993, and served as President of VISA
International's Asia-Pacific region from 1983 until September 1993. Mr.
Pascarella is also a director for BroadVision, Inc.
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ROEL PIEPER has served as a director of the Company since March
1996. Dr. Pieper has been appointed Executive Vice President of Technology,
Strategy and Planning for Philips Electronics N.V., effective May 1998. From
September 1997 to January 1998, he served as Senior Vice President and General
Manager of the Worldwide Sales, Marketing, Service and Support Group for Compaq
Computer Corporation. Dr. Pieper was Chief Executive Officer of Tandem Computers
Incorporated ("Tandem") from January 1996 to August 1997. From 1993 until he
joined Tandem in 1996, Dr. Pieper served as President and Chief Executive
Officer of Tandem's wholly-owned subsidiary, UB Networks. Before joining UB
Networks, Dr. Pieper was President and Chief Executive Officer at AT&T's UNIX
Systems Laboratories from January 1991 to August 1993. Dr. Pieper is also a
director of Lincoln National Corporation, Unify Corporation and VERITAS Software
Corporation.
DENNIS F. STRIGL has served as a director of the Company since
August 1997. Mr. Strigl has been President and Chief Executive Officer of Bell
Atlantic Mobile since February 1991. Mr. Strigl has also been Group President
and Chief Executive Officer of Bell Atlantic Global Wireless since August 1997.
Mr. Strigl is also a director of Grupo Iusacell, S.A.
SUSAN G. SWENSON has served as a director of the Company since
August 1997. Ms. Swenson has been President and Chief Executive Officer of
Cellular One since March 1994. From April 1993 to March 1994, she served as Vice
President and General Manager of Pacific Bell's Northern California regional
business unit. Ms. Swenson is also a director of Wells Fargo & Company.
EXECUTIVE OFFICERS
The following sets forth certain information regarding the executive
officers of the Company as of February 27, 1998. Information pertaining to Dr.
Markman, who is both a director and an executive officer of the Company, may be
found above under the caption "Directors."
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE EMPLOYED SINCE
---- ------------------------- ----- --------------
<S> <C> <C> <C>
Mary E. Doyle.................. Vice President, Business Affairs, General 45 July 1996
Counsel and Secretary
Linda A. Hayes................. Vice President, Marketing 56 September 1997
James P. McCormick............. Vice President, Finance and Administration, and 39 June 1997
Chief Financial Officer
Elena M. Morera................ Vice President, Human Resources 46 July 1996
Steven D. Schramm.............. Vice President and General Manager, 38 March 1992
Communication Products Division
Kevin J. Surace................ Vice President and General Manager, Products 35 November 1996
and Network Solutions Division
</TABLE>
MARY E. DOYLE joined the Company in July 1996 as General Counsel and
Secretary, and has served as its Vice President of Business Affairs since
January 1997. Before joining the Company, Ms. Doyle served Teledyne, Inc. as
General Counsel of the Aerospace and Electronics Segment from January 1995
through July 1996, as Assistant General Counsel from 1990 through 1994, and as
Counsel from 1984 through 1989. Ms. Doyle received an A.B. in Biology and
Economics from the University of California, Santa Cruz, and a J.D. from the
University of California, Berkeley.
LINDA A. HAYES joined the Company in September 1997 as Vice
President of Marketing. Ms. Hayes was Vice President of Marketing for Pretty
Good Privacy, Inc. ("PGP") from August 1996 to September 1997. Prior to joining
PGP, she served as Vice President of Marketing at Novell, Inc. from September
1995 to August 1996. Ms. Hayes was Vice President of Marketing Communications
Worldwide for Zenith Data Systems from January 1993 to September 1995.
Previously, from January 1987 to January 1993, Ms. Hayes held a variety of
management positions at Motorola Inc. in worldwide marketing communications and
public relations. Ms. Hayes holds an A.B. in English from Kansas State
University, and has completed the Corporate Communications Program at
Northwestern University's Kellogg Graduate School.
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JAMES P. MCCORMICK joined the Company in June 1997 as Vice President of Finance
and Administration and Chief Financial Officer. From September 1996 to June
1997, Mr. McCormick was Vice President of Finance and Administration and Chief
Financial Officer for UB Networks ("UB"), and from July 1994 through September
1995, he served first as Director and then as Group Director of Financial
Planning and Analysis for UB. Before joining UB, Mr. McCormick worked with
Tandem Computers, Incorporated in a variety of management capacities from July
1989 through May 1994, most recently as Senior Finance Manager for Revenue
Forecasting and Planning. Mr. McCormick received his B.S. in Business
Administration (Accounting) from the University of Toledo, and his M.B.A. from
the University of Michigan.
ELENA M. MORERA joined the Company in July 1996 as Vice President of
Human Resources. Before joining the Company, Ms. Morera served as Vice President
of Human Resources for Scantron Corporation from July 1992 to July 1996.
Previously, Ms. Morera was Manager of Employment and Employee Relations for
Calcomp, Inc. from April 1988 through July 1992. Ms. Morera holds a B.S. in
Education from Florida International University, and earned her M.A. in
Management from the Claremont Graduate School.
STEVEN D. SCHRAMM has served as Vice President and General Manager
of the Company's Communication Products Division since June 1996. He served as
Vice President and General Manager of the Company's Magic Cap Division from
September 1995 to June 1996. From September 1994 to September 1995, Mr. Schramm
served as Vice President, Engineering, and from March 1992 to September 1994, as
Director of Communication Engineering of the Company. Before joining the
Company, Mr. Schramm served as a Program Manager at Teknekron Communication
Systems, from January 1990 to March 1992, where he led the development of
network management systems. Mr. Schramm holds a B.S. in Mathematical Sciences
from Stanford University.
KEVIN J. SURACE joined the Company in November 1996 as Vice
President of Telephony Solutions, and has served as its Vice President of
Products and Network Solutions since January 1997. From March 1996 until
November 1996, Mr. Surace was an independent executive consultant in the
Internet, wireless, software and telecommunications industries. From 1992
through 1996, he held several positions with Air Communications, including
President and Chief Executive Officer. Prior to joining Air Communications, Mr.
Surace was Director of Marketing and Sales for Hestia Technologies from October
1989 through September 1992. Mr. Surace earned his B.S. in Electrical
Engineering Technology from the Rochester Institute of Technology.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who
beneficially own more than 10% of the Company's Common Stock to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such
persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were complied with, except
that an initial statement of beneficial ownership of securities for Linda A.
Hayes was not timely filed. Additionally, late annual statements of changes in
beneficial ownership were filed in connection with the repricing of certain
options of Martha E. Coleman, Mary E. Doyle, David P. Duckworth, Steven Markman,
Jeffrey F. McElroy, Elena M. Morera, Anthony M. Rutkowski, Steven D. Schramm and
James E. White and for automatic outside director option grants for Jerry Baker,
Carl F. Pascarella and Roel Pieper.
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ITEM 11. EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the total
compensation of the Chief Executive Officer, the four other highest compensated
executive officers of the Company whose salary and bonus for the year ended
December 31, 1997 exceeded $100,000 and a former executive officer of the
Company whose salary and bonus for the year ended December 31, 1997 exceeded
$100,000 but who was not an executive officer at December 31, 1997 (the "Named
Executive Officers") for the years ended December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------- --------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARD(S)($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Steven Markman, Ph.D.(1) ............... 1997 $ 301,154 $ 90,000(2) -- -- --
Chairman, Chief Executive Officer 1996 77,307 60,000(3) $ 155,250(4) 1,500,000(5) $ 50,000(6)
and President 1995 -- -- -- -- --
Mary E. Doyle(7) ....................... 1997 180,692 53,055(2) -- 70,000 61,762(8)
Vice President, Business Affairs, 1996 72,692 12,300(3) -- 200,000(9) 16,253(8)
General Counsel and Secretary 1995 -- -- -- -- --
Jeffrey F. McElroy(10) ................. 1997 140,539 28,000(2) -- 60,000 --
Vice President and General Manager, 1996 70,000 15,400(3) -- 300,000(11) --
Internet Applications and Services 1995 -- -- -- -- --
Steven D. Schramm ...................... 1997 170,654 50,108(2) -- 70,000 --
Vice President and General Manager, 1996 148,365 72,750(3) -- 210,000(12) --
Communication Products Division 1995 136,365 51,363(13) -- 37,500 --
Kevin J. Surace(14) .................... 1997 192,442 57,221(2) -- 70,000 --
Vice President and General Manager, 1996 14,231 -- -- 150,000 --
Product and Network Solutions 1995 -- -- -- -- --
Division
Former Officer:
James E. White(15) ..................... 1997 170,654 32,013(2) -- 50,000 --
Vice President and Chief Technical 1996 141,346 59,575(3) -- 127,500(16) --
Officer, Agent Technology 1995 134,904 30,625(13) -- -- --
</TABLE>
- -------------------
(1) Dr. Markman joined the Company in September 1996.
(2) Includes bonuses earned, but not paid, in fiscal 1997.
(3) Includes bonuses earned, but not paid, in fiscal 1996.
(4) As part of his compensation arrangement, the Company granted Dr. Markman
the right to acquire 135,000 shares of restricted Common Stock for $0.10
per share. In March 1997, Dr. Markman exercised this right and acquired
the restricted stock. 67,500 shares of the restricted stock vested in
September 1997. Effective as of the vesting date, Dr. Markman tendered
22,562 shares to the Company in satisfaction of income and employment tax
withholding obligations. The remaining 67,500 shares of the restricted
stock will vest in September 1998, assuming Dr. Markman's continued
employment with the Company. As of
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December 31, 1997, Dr. Markman held 67,500 restricted shares having a
value net of his purchase price equal to $86,062.50. The Company does
not currently pay dividends on its Common Stock.
(5) Includes options for an aggregate of 750,000 shares of Common Stock which
were repriced in November 1996, replacing options for an aggregate of
750,000 shares granted earlier in the year.
(6) Represents payment for costs incurred in connection with Dr. Markman's
employment transition.
(7) Ms. Doyle joined the Company in July 1996.
(8) Represents payment for costs incurred in connection with Ms. Doyle's
employment transition.
(9) Includes options for an aggregate of 100,000 shares of Common Stock which
were repriced in November 1996, replacing options for an aggregate of
100,000 shares granted earlier in the year.
(10) Mr. McElroy joined the Company in June 1996 and resigned from the Company
in connection with the closure of its South Carolina offices on January 2,
1998.
(11) Includes options for an aggregate of 150,000 shares of Common Stock which
were repriced in November 1996, replacing options for an aggregate of
150,000 shares granted earlier in the year.
(12) Includes options for an aggregate of 37,500 shares of Common Stock which
were repriced in February 1996, replacing options for an aggregate of
37,500 shares granted in 1995, and options for an aggregate of 142,500
shares of Common Stock which were repriced in November 1996, replacing
options for 67,500 shares granted in 1996, 62,500 shares granted in 1994
and 12,500 shares granted in 1993.
(13) Includes bonuses earned, but not paid, in fiscal 1995.
(14) Mr. Surace joined the Company in November 1996.
(15) Effective August 18, 1997, Mr. White resigned as Vice President and Chief
Technical Officer, Agent Technology, and was appointed Chief Technology
Officer of the Company. As a result of this change in Mr. White's duties
and responsibilities, he is no longer an executive officer of the Company.
(16) Includes options for an aggregate of 97,500 shares of Common Stock which
were repriced in November 1996, replacing options for an aggregate of
30,000 shares granted in 1996 and an aggregate of 67,500 shares granted in
1994.
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The following table provides the specified information concerning grants
of options to purchase the Company's Common Stock made during the year ended
December 31, 1997, to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN FISCAL 1997
------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(3)
OPTIONS IN FISCAL BASE EXPIRATION ------------------------
NAME GRANTED(1) YEAR PRICE(2) DATE 5% 10%
- -------------------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven Markman, Ph.D. .. -- -- -- -- -- --
Mary E. Doyle .......... 70,000 2.0% $ 1.0626 4/17/07 $ 46,778 $118,546
Jeffrey F. McElroy ..... 60,000(4) 1.7% 1.0626 4/17/07 40,096 101,611
Steven D. Schramm ...... 70,000 2.0% 1.0626 4/17/07 46,778 118,546
Kevin J. Surace ........ 70,000 2.0% 1.0626 4/17/07 46,778 118,546
Former Officer:
James E. White ......... 50,000 1.4% 1.6875 8/18/07 53,063 134,472
</TABLE>
- -------------------
(1) Generally, options granted in 1997 under the Company's Amended and
Restated 1990 Stock Option Plan (the "Option Plan") vest at the rate of
one-fourth on the first anniversary of the date of grant or of the
optionee's hire, as applicable, and 1/48 per month thereafter for each
full month of the continued employment of the option holder.
(2) All options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant.
(3) Potential gains are net of exercise price, but before taxes associated
with the exercise. These amounts represent certain hypothetical gains
based on assumed rates of appreciation, based on the Securities and
Exchange Commission's rules, and do not represent the Company's estimate
or projection of future Common Stock prices. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
Company, overall market conditions and the continued employment of the
option holders through the vesting period. The amounts reflected in this
table may not be achieved.
(4) One-fifth of the options granted to Mr. McElroy in 1997 were vested in
connection with his January 2, 1998, resignation from the Company; the
balance were cancelled.
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The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock during the year
ended December 31, 1997, and unexercised options held as of December 31, 1997,
by the Named Executive Officers:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/97(1) OPTIONS AT 12/31/97(2)
----------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven Markman, Ph.D. .. -- -- 234,375 515,625 -- --
Mary E. Doyle .......... -- -- 35,417 134,583 -- $ 21,868
Jeffrey F. McElroy ..... -- -- 90,625 119,375 -- 18,744
Steven D. Schramm ...... 23,750 $ 12,251 104,167 108,333 -- 21,868
Kevin J. Surace ........ -- -- 40,626 179,374 -- 21,868
Former Officer:
James E. White ......... 75,000 121,410 85,782 61,718 -- --
</TABLE>
- -------------------
(1) Includes options granted at an exercise price greater than the per share
closing price of $1.375, as reported on the Nasdaq National Market, on
December 31, 1997.
(2) Based on the per share closing price of $1.375, as reported on the Nasdaq
National Market, on December 31, 1997, less exercise price, multiplied by
the number of shares underlying the options.
(3) Based on the fair market price of the Company's Common Stock on the
exercise date, less exercise price, multiplied by the number of shares
underlying the options.
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COMPENSATION OF DIRECTORS
Effective June 12, 1997, each eligible outside director who is not
an employee of the Company or of any parent or subsidiary corporation of the
Company and was a director at time of disbursement, was entitled to receive the
following amounts of cash compensation for his or her services as a director of
the Company: (i) $10,000 per year, payable on the last day of the Company's
fiscal year and (ii) $1,000 or $500 for each regular or special meeting attended
by the eligible outside director in person or by telephone, respectively. In
addition, each eligible outside director was entitled to reimbursement of travel
expenses reasonably incurred by him or her in connection with attending any
regular or special meeting of the Board. Furthermore, the Company's 1994 Outside
Directors Stock Option Plan, as amended (the "Directors Plan"), provides for
automatic initial and annual grants of nonqualified stock options to directors
of the Company who are not employees of the Company or of any affiliated
corporation. However, any non-employee director will be ineligible to
participate in the Directors Plan if the director's employer is a stockholder of
the Company or an affiliated corporation of a stockholder of the Company, or if
the director's employer holds a technology license from the Company or is an
affiliated corporation of such license holder. During the fiscal year ended
December 31, 1997, each of Messrs. Kalogris and Strigl and Ms. Swenson received
under the Directors Plan an initial option grant for 40,000 shares of Common
Stock and each of Messrs. Pascarella and Pieper received an annual option grant
for 10,000 shares of Common Stock.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In September 1996, the Company entered into an employment agreement
with Steven Markman commencing September 19, 1996. Dr. Markman serves as the
Company's Chairman of the Board of Directors, President and Chief Executive
Officer for an annual salary of $300,000, and during the first of twelve months
of his employment, a guaranteed bonus of not less than twenty percent (20%) of
his then current salary. In accordance with his employment agreement, the
Company granted Dr. Markman options for 750,000 shares of the Company's Common
Stock. In addition, as further required by his employment agreement, the Company
granted Dr. Markman the right to purchase up to 135,000 restricted shares of the
Company's Common Stock at a price of $0.10 per share. Dr. Markman exercised this
right in March 1997. Either party may terminate the employment agreement at any
time, provided that, if prior to September 19, 2000, the Company terminates the
agreement other than for cause or Dr. Markman resigns for good reason (as
defined in the agreement), then (i) Dr. Markman will be entitled to receive his
final salary rate for the remaining term of the agreement, provided such period
of salary continuance will not be less than one year or more than two years, as
well as any bonus he would otherwise have earned in the year of his termination,
and (ii) all restricted stock and all stock options previously granted to Dr.
Markman by the Company will continue to vest during the period of salary
continuance, and such stock options will remain exercisable for a period of 18
months following the later of the date Dr. Markman is terminated as the
Company's Chief Executive Officer or the date of such option vesting. If Dr.
Markman's employment is terminated by the Company without cause or if Dr.
Markman resigns for good reason during the period beginning 30 days prior to the
first public announcement that the Company has entered into an agreement that
would result in a change in control (as defined in the agreement) and ending one
year following the change in control, Dr. Markman is entitled to the same
benefits described in the preceding sentence, except that all of his unvested
outstanding stock options and restricted stock will be immediately vested. In
December 1997, Dr. Markman's agreement was amended to permit him to surrender
shares of Common Stock of the Company having a fair market value equal to the
income and employment tax withholding obligations arising upon the vesting of
Dr. Markman's restricted shares.
Effective September 19, 1996, Marc Porat resigned as the Company's
Chief Executive Officer and Chairman of the Board of Directors. The Company
entered into a consulting agreement with Dr. Porat effective October 1, 1996
through September 30, 1997. Under the agreement, Dr. Porat acted as a consultant
to the Company and was paid a monthly consulting fee of $58,333 from October 1,
1996 through December 31, 1996 and $19,444 from January 1, 1997 through
September 30, 1997. Dr. Porat is no longer an employee of the Company. The
Company fulfilled any and all obligations under such agreement as of September
30, 1997.
In October 1997, the Company entered into an "at-will" employment
agreement with James E. White, the Company's Chief Technology Officer. Under the
agreement, Mr. White will receive an annual salary of $170,000, standard
benefits and, subject to his continued employment with the Company, certain
restricted stock and cash bonuses. In addition, the agreement requires the
Company to extend a loan to Mr. White of up to $600,000 to
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purchase, refinance or improve a principal residence, secured by such real
property and any restricted stock awards received by Mr. White under the
agreement, and bearing interest at a rate of no less than seven percent per
annum. Principal and interest due under the loan will be accelerated and become
payable within a specified period following any termination of Mr. White's
employment. The agreement requires Mr. White to apply the after-tax proceeds
from the sale of the restricted shares to repayment of loan principal and
interest. Provided that Mr. White remains an employee, the agreement calls for
the Company to pay to Mr. White cash bonuses in two annual installments to be
applied to loan repayment to the extent that the appreciation in the restricted
shares on an after-tax basis is insufficient to enable Mr. White to repay the
loan in full. If Mr. White's employment terminates as a result of his death or
disability, resignation for "good reason" or termination other than for "cause"
(as those terms are defined in the agreement), any restricted shares previously
granted to him under the agreement will vest in full, and, to the extent that
the after-tax proceeds from a sale of the shares is insufficient to repay the
loan in full, the Company will pay to Mr. White a cash bonus in an amount
sufficient on an after-tax basis to repay the loan in full. If Mr. White's
employment with the Company terminates for any other reason, he will be entitled
only to compensation and benefits earned through the date of his termination.
The agreement provides that in the event of the insolvency of the Company or the
termination of its business, the Company will forgive any unpaid balance of the
loan and will pay to Mr. White, in lieu of any other bonus due him under the
agreement, an amount equal to the tax liability incurred by Mr. White upon such
discharge of indebtedness to the Company.
In April 1998, the Board of Directors authorized the Company to
enter into Change of Control Agreements (the "Agreements") with its executive
officers which provide for the payment of certain severance benefits in the
event of a "Change of Control" of the Company (as defined in the Agreements).
Each Agreement will provide that in the event of a Change of Control in which
the individual's stock options are not assumed or substituted for by the
acquiring corporation, such options will become fully vested and exercisable as
of a date prior to the Change of Control. In addition, each Agreement provides
that severance benefits will be payable to the individual upon the occurrence of
both of the following: (1) a Change of Control of the Company, and (2) within 12
months after the Change of Control, such individual's employment is
involuntarily terminated by the Company other than for "Cause" (as defined in
the Agreement) or such individual terminates his or her employment for "Good
Reason" (as defined in the Agreement). Upon the occurrence of the events
described in the preceding sentence, such individual will be entitled to receive
the following benefits: (a) a lump sum cash payment equal to the sum of (i) his
or her then effective annual base salary, plus (ii) 100% of his or her bonus at
the "on-target" level for the year in which the termination occurs, and (b) full
accelerated vesting of any options to purchase shares of the Company's Common
Stock or any unvested shares of restricted stock.
10
<PAGE> 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31,
1998, with respect to the beneficial ownership of the Company's Common Stock by
(i) each person known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, (ii) each director and director nominee of the
Company, (iii) the Named Executive Officers and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF PREFERRED STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) BENEFICIALLY OWNED(2)(3) BENEFICIALLY OWNED(2)
- ------------------------------------------- ----------------------------- ------------------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE OF
SHARES OF CLASS SHARES CLASS
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Sony Corporation(4) ....................... 1,778,940 5.2% -- --
7-35 Kitashinagawa
6-Chrome Shinagawa-Ku
Tokyo 141 Japan, M0
Microsoft Corporation(5) .................. 3,629,000 10.5 50,000 90.9%
One Microsoft Way, Bldg #8
North Office 2211
Redmond, WA 98052
OFFICERS AND DIRECTORS
Steven Markman, Ph.D.(6) .................. 474,838 1.4 -- --
Mary E. Doyle(7) .......................... 72,292 * -- --
Michael E. Kalogris ....................... 2,500 * -- --
Philip D. Knell ........................... -- * -- --
Jeffrey F. McElroy(8) ..................... 49,776 * -- --
Carl F. Pascarella(9) ..................... 29,167 * -- --
Roel Pieper, Ph.D.(10) .................... 19,583 * -- --
Steven D. Schramm(11) ..................... 173,770 * -- --
Dennis F. Strigl .......................... 1,000 * -- --
Kevin J. Surace(12) ....................... 87,379 * -- --
Susan G. Swenson .......................... -- * -- --
James E. White(13) ........................ 482,650 1.4 -- --
Executive officers and directors as a group
(12 persons)(14) .......................... 934,544 2.7 -- --
</TABLE>
- -------------------
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is in
care of the Company at 420 North Mary Avenue, Sunnyvale, California 94086.
(2) Except as indicated in the footnotes to this table, the Company believes
that the persons named in the table have sole voting and dispositive power
with respect to all shares of Common Stock and/or Preferred Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
(3) Calculations of percentages of beneficial ownership are based upon
34,431,934 shares as of March 31, 1998, including all issued and
outstanding shares of Common Stock and Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and exercise of
warrants. Calculations assume the exercise by only the respective named
stockholder of all options to purchase Common Stock held by such
stockholder, if any, which are exercisable within 60 days of March 31,
1998.
11
<PAGE> 12
(4) According to Schedule 13G/A filed with the Securities and Exchange
Commission on February 13, 1997, Sony Corporation has sole power to vote
and dispose of all 1,778,940 shares. The 1,778,940 shares beneficially
owned by Sony Corporation include 428,940 shares of Common Stock held by
Sony Electronics, Inc., a wholly-owned subsidiary of SEL Holdings Inc.,
which is a wholly-owned subsidiary of Sony Corporation of America, which
is a wholly-owned subsidiary of Sony Corporation.
(5) According to Schedule 13G filed with the Securities and Exchange
Commission on March 9, 1998, Microsoft Corporation has sole power to vote
and dispose of all 3,629,000 shares. All of such 3,629,000 shares of
Common Stock are shares that may be acquired at any time upon conversion
of the 50,000 shares of Series A Preferred Stock.
(6) Includes 312,500 shares subject to stock options exercisable within 60
days of March 31, 1998, and 67,500 shares of restricted stock owned by Dr.
Markman which will vest in September 1998.
(7) Includes 64,792 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(8) Includes 49,376 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(9) Includes 29,167 shares subject to stock options exercisable within 60 days
of March 31, 1998. However, by letter dated March 12, 1998, Mr. Pascarella
has indicated his intention to cancel all options granted to him pursuant
to the Company's Option Plan and Directors Plan, and to decline any future
grants thereunder, as per the policy of VISA U.S.A. Inc.
(10) Includes 19,583 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(11) Includes 136,120 shares subject to stock options exercisable within 60
days of March 31, 1998.
(12) Includes 75,209 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(13) Includes 92,500 shares subject to stock options exercisable within 60 days
of March 31, 1998, and 280,000 shares of restricted stock owned by Mr.
White which will vest in August 1998.
(14) Includes 711,386 shares subject to stock options exercisable within 60
days of March 31, 1998, held by all current executive officers and
directors and 67,500 shares of restricted stock owned by Dr. Markman which
will vest in September 1998.
12
<PAGE> 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In each of September 1992 and May 1993, the Company loaned Dr. Porat
$55,000 at interest rates of 5.98% and 5.38% per annum, respectively, pursuant
to promissory notes originally due in 1999 and 2000. In connection with Dr.
Porat's resignation from the Company, the promissory notes were amended to
reflect that the loans are due on December 31, 1997, and that Dr. Porat is
obligated under one note and Ms. Slater, Dr. Porat's former wife, is obligated
under the other note.
The Company has entered into indemnification agreements with each of
its officers and directors containing provisions that may require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' insurance if available on reasonable terms. The Company maintains an
insurance policy covering officers and directors of the Company under which the
insurer has agreed to pay the amount of any claim made against the officers or
directors of the Company that such officers or directors may otherwise be
required to pay or for which the Company is required to indemnify such officers
and directors, subject to certain exclusions. The policy has a coverage limit of
$15,000,000.
13
<PAGE> 14
PART IV
Part IV is amended to include the following:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form:
3. Exhibits
EXHIBIT NUMBER DESCRIPTION
23.1 Consent of Independent Auditors
24.1 Power of Attorney (previously filed)
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL MAGIC, INC.
By: /s/ STEVEN MARKMAN
---------------------------------------------
Steven Markman
Chairman of the Board, Chief Executive
Officer and President
Dated: April 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE: DATE:
--------- ------ -----
<S> <C> <C>
By: /s/ STEVEN MARKMAN Chairman and Chief Executive April 30, 1998
------------------------------------ Officer (Principal Executive)
Steven Markman
By: * James P. McCormick Chief Financial Officer April 30, 1998
------------------------------------ (Principal Financial and
James P. McCormick Accounting Officer)
By: *Michael Kalogris Director April 30, 1998
------------------------------------
Michael E. Kalogris
By: *Carl F. Pascarella Director April 30, 1998
------------------------------------
Carl F. Pascarella
By: *Roel Peiper Director April 30, 1998
------------------------------------
Roel Pieper
By: *Dennis F. Strigl Director April 30, 1998
------------------------------------
Dennis F. Strigl
By: *Susan G. Swenson Director April 30, 1998
------------------------------------
Susan G. Swenson
*By: /s/ STEVEN MARKMAN
------------------------------------
Steven Markman
Attorney-in-Fact
</TABLE>
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------
23.1 Consent of Independent Auditors
24.1 Power of Attorney (previously filed)
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
General Magic, Inc.
We consent to incorporation by reference in the registration statements (Nos.
333-12667, 333-33329, and 333-45751) on Form S-8 of General Magic, Inc. of our
report dated January 23, 1998, except for note 12 which is as of March 6, 1998,
relating to the consolidated balance sheets of General Magic, Inc. and
subsidiary (a development stage enterprise) as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1997, and for the period from May 1, 1990 (inception) to December
31, 1997, which report appears in the December 31, 1997, annual report on Form
10-K of General Magic, Inc.
/s/ KPMG Peat Marwick
Mountain View, California
April 28, 1998
16
