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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-51685
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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GENERAL MAGIC, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0250147
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
420 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 774-4000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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STEVEN MARKMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD OF DIRECTORS
GENERAL MAGIC, INC.
420 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 774-4000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
JAMES M. KOSHLAND, ESQ.
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
(650) 328-6561
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time as described in the Prospectus after the effective date of this
Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
Title of Each Class of AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE
Securities to be Registered REGISTERED PER SHARE PRICE
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<S> <C> <C> <C> <C>
Common Stock ($0.001 par value) 16,059,401 shares(1) $7.52(2) $120,766,696 $35,626
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Common Stock ($0.001 par value) 600,000 shares(3) $7.52(4) $4,512,000 $1,331
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Common Stock ($0.001 par value) 840,000 shares(5) $10.69(4) $8,979,600 $2,649
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Common Stock ($0.001 par value) 1,336,198 shares(6) $7.52(2) $10,048,208 $2,964(7)
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Common Stock ($0.001 par value) 6,326 shares(6) $10.53(8) $66,613 $20
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Common Stock ($0.001 par value) 907,250 shares(9) $10.69(10) $9,698,503 $2,861
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TOTAL 19,749,175 shares $154,071,620 $45,451(11)
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</TABLE>
(1) Represents 400% of the shares of Common Stock issuable upon conversion of
all issued and issuable shares of 5 1/2% Cumulative Convertible Series B
Preferred Stock as described in the Prospectus, assuming that such
conversion is as of May 1, 1998. Pursuant to Rule 416 of the Securities
Act, this Registration Statement also covers such indeterminable
additional shares as may become issuable upon conversion of 5 1/2%
Cumulative Convertible Series B Preferred Stock as a result of any future
stock splits, stock dividends and antidilution provisions (including
floating rate conversion prices).
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(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(c) of the 1933 Act and based on the average of the
high and low sales prices of the Common Stock of General Magic, Inc.
reported on the Nasdaq National Market on April 24, 1998.
(3) Represents 150% of the shares of Common Stock issuable upon exercise of
outstanding warrants issued as described in the Prospectus. Pursuant to
Rule 416 of the Securities Act, this Registration Statement also covers
such indeterminable additional shares as may become issuable as a result
of any future stock splits, stock dividends or similar transactions.
(4) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(g)(1) of the Securities Act.
(5) Represents 150% of the shares of Common Stock issuable upon exercise of
issuable warrants as described in the Prospectus. Pursuant to Rule 416 of
the Securities Act, this Registration Statement also covers such
indeterminable additional shares as may become issuable as a result of any
future stock splits, stock dividends and similar transactions.
(6) Represents shares of Common Stock issued in connection with the
acquisition of a privately-held company.
(7) $2,978 previously paid in connection with Registration No. 333-51685 filed
on May 1, 1998.
(8) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(c) of the 1933 Act and based on the average of the
high and low sales prices of the Common Stock of General Magic, Inc.
reported on the Nasdaq National Market on June 2, 1998.
(9) Represents shares of Common Stock issuable upon conversion of twenty-five
percent (25%) of issued shares of Series A Convertible Preferred Stock as
described in the Prospectus, assuming that such conversion is as of the
date of this Registration Statement. Pursuant to Rule 416 of the
Securities Act, this Registration Statement also covers such
indeterminable additional shares as may become issuable upon conversion of
Series A Convertible Preferred Stock as a result of any future stock
splits, stock dividends or similar transactions.
(10) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(c) of the 1933 Act and based on the average of the
high and low sales prices of the Common Stock of General Magic, Inc.
reported on the Nasdaq National Market on May 18, 1998.
(11) $45,431 previously paid in connection with Registration No. 333-51685
filed on May 1, 1998 and amended on May 22, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JUNE ___, 1998
16,059,401 SHARES (issuable upon conversion of 5 1/2%
Cumulative Convertible Series B Preferred Stock)
1,440,000 SHARES (issuable upon exercise of
issued or issuable warrants)
1,342,524 SHARES (issued in connection with the
acquisition of a privately-held company)
907,250 SHARES (issuable upon conversion of
Series A Convertible Preferred Stock)
GENERAL MAGIC, INC.
COMMON STOCK
The 19,749,175 shares of Common Stock of General Magic Inc., a Delaware
corporation ("General Magic" or the "Company"), offered by this Prospectus (the
"Shares") (i) are issuable upon conversion of issued or issuable shares of 5
1/2% Cumulative Convertible Series B Preferred Stock of the Company (the "Series
B Shares") and upon exercise of issued or issuable warrants to purchase Common
Stock (the "Warrants"); (ii) were issued in connection with the acquisition of a
privately-held company (the "Acquisition Shares"); and (iii) are issuable upon
conversion of issued shares of Series A Convertible Preferred Stock of the
Company (the "Series A Shares"). The Shares may be sold from time to time, after
conversion or exercise, as applicable, by or on behalf of the holders of Shares
(the "Selling Stockholders").
The Series B Shares were issued or are to be issued, and the Warrants were
issued or are to be issued, in connection with a privately placed equity
financing to institutional investors (the "Institutional Investors"), pursuant
to a Preferred Stock Investment Agreement (the "Investment Agreement"). Pursuant
to the Investment Agreement, the Company issued a certain number of Series B
Shares and, depending on certain conditions relating to the performance of the
Company's stock, (i) the Company has the option to force the Institutional
Investors to purchase additional Series B Shares, and (ii) the Institutional
Investors have the option to purchase additional Series B Shares. The Series B
Shares are convertible into shares of the Company's Common Stock by dividing (a)
the aggregate purchase price of the Series B Shares plus any and all accrued and
unpaid dividends by (b) the lesser of (i) 85% of the lowest sales price of a
share of the Company's Common Stock during the 5 trading days prior to
conversion of the Series B Shares and (ii) $3.00, as set forth in the Company's
Certificate of Designation for the 5 1/2% Cumulative Convertible Series B
Preferred Stock (the "Series B Certificate of Designation"). The conversion
percentage identified in clause (b)(i) of the previous sentence is subject to
adjustment based on certain events, including, among others, (i) the failure by
the Company to timely cause this Registration Statement to become effective,
(ii) the failure by the Company to timely list the Common Stock of the Company
issuable upon conversion of the Series B Shares on the Nasdaq National Market
and (iii) the delisting of the Company's Common Stock. Each Series B Share is
entitled to receive cumulative dividends at 5 1/2% of the liquidation preference
per annum, which are payable in preference to any dividends on the Company's
equity securities. The Series B Certificate of Designation entitles holders of
Series B Shares, in the event of any liquidation, dissolution or winding up of
the Company, to a liquidation preference of $1,000 per share plus any and all
accrued and unpaid dividends, which is payable pari passu with the liquidation
preference for the Company's Series A Shares. The Series B Certificate of
Designation also gives (i) the Company the option, in the event of a change in
control transaction in which more than fifty percent (50%) of the voting power
of the Company is transferred, to redeem all of the then outstanding Series B
Shares at a per share price equal to one hundred twenty percent (120%) of the
sum of the purchase price of the Series B Shares being called for
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redemption, plus any and all accrued and unpaid dividends, and (ii) the holders
of Series B Shares the option to cause the Company to redeem any or all of the
Series B Shares for one hundred thirty percent (130%) of the purchase price of
the Series B Shares plus any and all accrued and unpaid dividends upon (a) a
change in control transaction, (b) a "going private" transaction under Rule
13e-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(c) a tender offer by the Company under Rule 13e-4 of the Exchange Act, (d) the
insolvency of the Company, or (e) institution of bankruptcy, reorganization,
insolvency or liquidation proceedings against the Company.
The outstanding Warrants (the "Issued Warrants") are exercisable for
400,000 shares of the Company's Common Stock, have a term of five (5) years, and
may be exercised for cash or on a cashless basis based on the net appreciated
value of the underlying shares. Depending on the performance of the Company's
Common Stock, among other factors, the Institutional Investors may receive
additional warrants to purchase Common Stock (the "Additional Warrants"). If
issued, the Additional Warrants will be exercisable for 560,000 shares of the
Company's Common Stock, will have a term of five (5) years and an exercise price
equal to one hundred fifty percent (150%) of the closing price of the Company's
Common Stock on the trading day immediately preceding the effective date of the
Additional Warrants.
The Acquisition Shares were issued in connection with the acquisition by
the Company of NetPhonic Communications, Inc. ("NetPhonic"), a privately-held
company, to certain shareholders of NetPhonic (the "NetPhonic Shareholders").
The NetPhonic Shareholders received certain registration rights in connection
with the acquisition of NetPhonic.
The Series A Shares were issued in connection with an agreement with
Microsoft Corporation ("Microsoft"), for the purchase of such shares and the
license of certain of the Company's technology. Each Series A Share is
convertible into 72.58 shares of the Company's Common Stock, subject to
adjustment for certain events, as set forth in the Company's Certificate of
Designation of Series A Convertible Preferred Stock (the "Series A Certificate
of Designation"). The Series A Certificate of Designation entitles holders of
Series A Shares, in the event of any liquidation, dissolution or winding up of
the Company, to a liquidation preference of $90 per share plus any declared but
unpaid dividends. Each Series A Share is entitled to receive, if and when the
Company's Board of Directors declares a dividend payable on the Company's Common
Stock, a dividend equal to the dividend per share of Common Stock on an "as if
converted" basis. Dividends on Series A Shares are payable in preference to any
dividends on the Company's Common Stock and are non-cumulative. Holders of
Series A Shares are eligible to vote with holders of Common Stock on an "as if
converted" basis.
The Company has agreed to register the Shares under the Securities Act of
1933, as amended (the "Securities Act"). The Company is also obligated to use
its best efforts to maintain its listing under the Nasdaq National Market and
list such shares accordingly, and in addition, take certain actions to comply
with applicable state securities laws and regulations. The Company will bear all
out-of-pocket expenses incurred in connection with the registration of the
Shares, including, without limitation, all registration and filing fees imposed
by the Securities and Exchange Commission (the "Commission"), the National
Association of Securities Dealers, Inc. (the "NASD") and blue sky laws, printing
expenses, transfer agents' and registrars' fees, and the reasonable fees and
disbursements of the Company's outside counsel and independent accountants, but
excluding transfer or other taxes and other costs and expenses incident to the
issuances of the Shares.
The Company's Common Stock is quoted on The Nasdaq National Market under
the symbol "GMGC." On June 2, 1998, the last sale price of the Company's Common
Stock as reported on The Nasdaq National Market was $10.44.
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SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
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COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is June ___, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements (if required)
and other information with the Commission. The reports, proxy statements and
other information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Regional Offices of the Commission located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60611 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Company's Common Stock is traded
on The Nasdaq National Market. Reports and other information concerning the
Company can also be inspected at the offices of the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006. Such reports and other information may also be inspected
without charge at a Web site maintained by the Commission. The address of the
site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by General Magic
pursuant to the Exchange Act are incorporated herein by reference:
1. The definitive Proxy Statement for the Company's 1998 Annual Meeting
of Stockholders filed with the Commission on May 18, 1998 pursuant
to Regulation 14A;
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 15, 1998;
3. Amended Annual Report on Form 10-K/A for the year ended December 31,
1997, filed with the Commission on April 30, 1998;
4. Annual Report on Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 31, 1998; and
5. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed under the
Exchange Act, including any amendment or report filed for the
purpose of updating such description.
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Registration Statement and prior to the effective date of this Registration
Statement shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated by reference or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Registration Statement. The Company
will provide without charge to each person to whom this Registration Statement
is delivered, upon written or oral request, a copy of any or all of the
foregoing documents incorporated by reference in this Registration Statement
(other than any exhibits thereto). Requests for such documents should be
directed to General Magic, Inc. at 420 North Mary Avenue, Sunnyvale, California
94086 (telephone number (408) 774-4000), Attn.: Investor Relations.
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THE COMPANY
The Company develops and markets integrated voice and data applications.
The Company is currently developing an advanced network service to meet the
communication and information management requirements of today's mobile
professionals. The first version of the advanced network service is named
Portico(TM) (formerly code-named Serengeti) and is planned for commercial
release on July 30, 1998. The Portico service will allow subscribers to access
and respond to information important to their success, either through a leading
Web browser or MagicTalk(TM), the Company's voice user interface platform. Among
other things, the Portico service is expectED to (i) manage the subscriber's
inbound and outbound calls; (ii) collect and consolidate the subscriber's email,
and notify the subscriber upon receipt of priority messages; (iii) maintain the
subscriber's calendar, address book and task list; (iv) collect and forward
stock quotes, news and selected public information based on subscriber
preferences; and (v) retrieve press releases and other news and information
concerning thousands of publicly traded companies. The Company is also
developing and marketing handheld communication devices based on its Magic Cap
platform technology. The first of these devices, the DataRover(TM) 840, was
commercialLY released in February 1998, and is intended to meet the data-access
and communication needs of mobile workers in the health care, utilities and
transportation industries.
The Company's current business strategy was announced early in 1997. In
prior years, the Company had developed and licensed two platform technologies,
Magic Cap and Telescript. Magic Cap is an integrated communication applications
platform, initially designed for handheld communication devices. Telescript was
the first implementation of the Company's patented agent technology. It was
comprised of two significant components: a programming language that enabled the
creation of agents, and a virtual machine that executed agents and transported
them from one device to another over a network. The Company initially licensed
its Magic Cap and Telescript platform technologies to multinational consumer
electronics companies and to telecommunications network operators. The consumer
market for handheld communication devices was slow to develop, however, and the
Company did not generate significant royalty revenues in connection with its
licensing efforts. In addition, the Internet emerged as the public data
communications network of choice, significantly reducing the market opportunity
for the proprietary Telescript platform.
During this period, demand for products and services that address the
communication and information management needs of an increasingly mobile society
rapidly expanded as evidenced by the proliferation of electronic devices and the
explosive growth of the Internet, corporate intranets and network services.
Advances in wireless telecommunication technologies enabled the growth of paging
and cellular telephone networks. Devices such as notebook and subnotebook
computers with modems (both wireline and wireless) allowed mobile professionals
to connect to their PCs from almost any location, as well as to access on-line
information and electronic mail services while traveling worldwide. In response
to the growing demand of users for a single resource to access and manage
communication and information, the Company adopted its new business strategy
designed to establish the Company as a leading provider of integrated voice and
data applications. The Company is developing the Portico service to provide a
single, easy-to-use, cost-effective solution to mobile professionals who need to
access, sort through and respond to a multitude of messages, manage their
business information, and obtain relevant news and other information on demand.
The Company was incorporated in California in May 1990 and was reorganized
as a Delaware corporation in February 1995. The principal executive offices of
the Company are located at 420 North Mary Avenue, Sunnyvale, California 94086,
and its telephone number at that location is (408) 774-4000.
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk and the Common Stock should not be purchased by persons who cannot afford
the loss of their entire investment. Purchasers should carefully consider the
following risk factors in conjunction with the other information included and
incorporated by reference in this Prospectus before purchasing or otherwise
acquiring the Common Stock offered hereby.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in these forward-looking
statements as a result of a variety of factors, including those set forth below
and elsewhere in this Prospectus.
CHANGE IN STRATEGY. The Company is at an early stage of development in its
new business strategy and is subject to all of the risks inherent in the
establishment of a new business enterprise. To address these risks, the Company
must, among other things, establish technical feasibility and complete
development of its Portico service, enter into strategic development and
distribution arrangements, respond to competitive developments, and attract,
retain and motivate qualified personnel. The Company's decision to become a
provider of an advanced network service is predicated on the assumption that in
the future, the number of subscribers to the service will be large enough to
permit the Company to operate profitably. There can be no assurance that the
Company's assumption will be correct or that the Company will be able to
successfully compete as a network service provider. If the Company's assumption
is not accurate, or if the Company is unable to compete as a network service
provider, the Company's business, operating results and financial condition will
be materially adversely affected.
MINIMAL REVENUES; HISTORY OF AND ANTICIPATION OF LOSSES. The Company has
generated minimal revenues, has incurred significant losses and has substantial
negative cash flow. As of March 31, 1998, the Company had an accumulated deficit
of $159.5 million, with net losses of $6.4 million, $28.4 million and $45.6
million for the three-month period ended March 31, 1998, and the years ended
December 31, 1997 and 1996, respectively.
Historically, a large percentage of the total revenue earned by the
Company to date has been attributable to up-front license fees and customer
support fees, as opposed to recurring royalty revenue. As a consequence of the
Company's recent change in business strategy, the Company expects that a
significant portion of future revenues will be derived from direct sales of its
products and services and not from license fees or royalties. The Company's
DataRover 840 device was commercially released in February 1998, and its Portico
service is expected to be released by July 30, 1998. However, the Company
expects to incur significant losses through 1998. There can be no assurance that
the Company will achieve or sustain significant revenues or become cash flow
positive or profitable at any time in the future.
LIMITED RESOURCES. Building the Portico service is a complex process that
requires significant engineering and financial resources. Among other things, to
implement its Portico service, the Company must develop certain technologies and
license other technologies from third parties, establish strategic distribution
and development arrangements and undertake a substantial marketing campaign. The
Company has limited technical, sales and marketing staffs and there can be no
assurance that such personnel will be able to manage and successfully complete
all of the tasks necessary to develop and launch the Company's Portico service.
In addition, because the Company has generated minimal revenues to date and does
not expect to generate substantial revenues in 1998, the Company must conserve
cash. As a result, the Company may not be able to fund the marketing efforts
required to successfully introduce the service to customers. Alternatively,
market acceptance for its Portico service may overwhelm the Company's limited
staffs such that the Company is unable to adequately respond to and satisfy
customers' demand for the Portico service. The Company's failure to develop and
launch its Portico service, or to respond to market demand for its Portico
service, will likely have a material adverse effect on the Company's business,
operating results and financial condition.
FUTURE CAPITAL REQUIREMENTS AND AVAILABILITY OF ADDITIONAL FINANCING. In
February of 1998, the Company completed a private placement of $4.5 million of
Series A Convertible Preferred Stock to Microsoft. In
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March of 1998 the Company completed a separate private placement of $5.0 million
of 5 1/2% Cumulative Convertible Series B Preferred Stock and warrants to
institutionAL investors (collectively, the "1998 Private Placements"). The
Company has an option to secure an additional $5.0 million of financing from the
holders of Series B Shares, and the holders of the Series B Shares have the
right to invest an additional $2.0 million. The proceeds of the 1998 Private
Placements will be used for working capital purposes. If expenditures required
to achieve the Company's plans are greater than projected or if the Company is
unable to generate adequate cash flow from sales of its products and services,
the Company may need to seek additional sources of capital. The Company has no
other commitments or arrangements to obtain any additional funding and there can
be no assurance that the Company will be able to obtain such additional funding,
if necessary, on acceptable terms or at all. The unavailability or timing of any
financing could prevent or delay the continued development and marketing of the
products and services of the Company and may require curtailment of operations
of the Company. The failure to raise needed funds on sufficiently favorable
terms or at all could have a material adverse effect on the Company's business,
operating results and financial condition.
POTENTIAL DILUTIVE EFFECTS. The number of shares of Common Stock which may
be issued upon conversion of the Series B Shares is dependent upon the trading
price of the Company's Common Stock at the time of conversion. If the lowest
sales price of the Common Stock in the five trading days prior to conversion is
less than $3.53, the number of shares of Common Stock issuable upon conversion
of the Series B Shares will increase. The Investment Agreement also provides for
the issuance of additional Series B Shares and Warrants, subject to certain
conditions. Issuance of such additional Series B Shares and Warrants may result
in additional dilution to the holders of the Company's Common Stock.
TECHNOLOGY DEVELOPMENT. The Company's future success is based
substantially upon its ability to develop new technology to enable it to provide
as well as bill for the Portico service, and to enhance and extend its existing
products and technologies. Software product development schedules are difficult
to predict because they involve creative processes, use of new development tools
and learning processes associated with development of new technologies, as well
as other factors. The Company has in the past experienced delays in its software
development efforts and there can be no assurance that the Company will not
experience future delays in connection with its current development or future
development activities. Delays or difficulties associated with the development
of new, and the enhancement of existing, technologies could have a material
adverse effect on the Company's business, operating results and financial
condition. Moreover, software products as complex as those being developed for
the Company's Portico service frequently contain undetected errors or
shortcomings, and may fail to perform or to scale as expected. Although the
Company has tested and will continue to test its Portico service prior to
releasing it, such tests may not accurately simulate actual use of the service
by customers. As a result, errors may be found in the Portico service after it
is commercially released which may result in loss of or a delay in market
acceptance of the Company's Portico service.
DISTRIBUTION RISKS. In connection with the change in its business
strategy, the Company must establish and maintain relationships with new
distribution channels for its Portico service and DataRover 840 devices. The
Company believes that in order to successfully market its Portico service, it
must, among other things, enter into distribution arrangements with telephony
providers such as wireless and wireline carriers, as well as resellers, device
manufacturers and Internet service providers. Competition in establishing such
relationships is extremely intense. In addition, decisions by such parties,
particularly cellular carriers, to enter into a distribution relationship with
the Company can entail a lengthy process during which the Company may be
required to incur significant expenditures without any assurance of success.
There can be no assurance that the Company will succeed in establishing
distribution relationships, or that if established, the Company will be able to
maintain such relationships or that such relationships will result in sales of
the Company's Portico service. The failure of the Company to establish and then
successfully maintain distribution relationships for its Portico service will
have a material adverse effect on the Company's business, operating results and
financial condition.
The Company plans to distribute the DataRover 840 device through a variety
of distribution channels, including a direct sales force, value-added resellers
("VARs") and outside sales representatives. To date, the Company has established
distribution arrangements with one VAR, the Fuld Institute for Technology in
Nursing Education. There can be no assurance that the Company will be able to
establish distribution relationships with
8
<PAGE> 10
additional VARs and outside sales representatives for its DataRover 840 device.
The Company's failure to establish, or if established, successfully maintain
such relationships could have a material adverse effect on the Company's
business, operating results and financial condition.
LENGTHY SALES CYCLES. Sales of the Company's DataRover 840 device depend,
in significant part, upon the decision of a prospective customer to choose
handheld devices as a means of communication for its employees. As a result, the
amount of time from the initial contact with a customer to the customer's
placement of an order may range from a few weeks to many months, depending on
such factors as the amount of time required to test and customize the DataRover
840 device for the particular customer. If a customer decides not to purchase
the DataRover 840 device, the Company may not have another opportunity to sell
its handheld devices to that customer for a number of years, if at all. For
these and other reasons, the Company expects its DataRover 840 device will have
a lengthy sales cycle during which the Company may expend substantial funds and
significant sales and technical effort. There can be no assurance that the
Company's expenditures or efforts during the lengthy sales process with any
potential customer will result in sales.
DEPENDENCE ON EMERGING MARKETS; ACCEPTANCE OF THE COMPANY'S SERVICES AND
PRODUCTS. The Company's future financial performance will depend in large part
on the growth in demand for the Portico service by mobile business professionals
and other consumers. This market is new and emerging, is rapidly evolving, is
characterized by an increasing number of market entrants and will be subject to
frequent and continuing changes in customer preferences and technology. As is
typical in new and evolving markets, demand and market acceptance for the
Company's technologies is subject to a high level of uncertainty. Because the
market for the Company's Portico service is evolving, it is difficult to assess
or predict with any assurance the size or growth rate, if any, of this market.
There can be no assurance that the market for the Company's Portico service will
develop, or that it will not develop more slowly than expected or attract new
competitors. In addition, even if a market develops for an advanced network
service, there can be no assurance that the markets for the Company's service
will develop, or that the Company's service will be adopted. If the market fails
to develop, develops more slowly than expected or attracts new competitors, or
if the Company's Portico service does not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected.
DEPENDENCE ON THIRD PARTY TECHNOLOGY AND PRODUCTS. To develop its Portico
service, the Company has incorporated and will continue to incorporate
technology developed by third parties. In addition to all the risks associated
with the development of complex technologies, the Company has limited control
over whether or when such third party technologies will be developed or
enhanced. A third party's failure or refusal to timely develop or license the
software technology, or the occurrence of errors in such technology, could
prevent or delay introduction or market acceptance of the Company's Portico
service, which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company has entered into an OEM agreement with Oki Electric for the
manufacture of DataRover 840 devices. To the extent Oki Electric fails to timely
manufacture the DataRover devices or meet the Company's volume and quality
requirements and delivery schedules, which has occurred in the past, the
Company's business, operating results and financial condition could be
materially adversely affected. In addition, because the Company currently
depends solely on Oki Electric for the manufacture of its DataRover devices, in
the event Oki Electric were to become unwilling or unable to manufacture the
DataRover devices, the Company would be required to identify and qualify an
acceptable replacement. The process of qualifying another manufacturer could be
lengthy, and no assurance can be given that another manufacturer would be
available to the Company on a timely basis. Because Oki Electric is located in
Japan, the Company is also directly affected by the political and economic
conditions of this region and subject to the risks normally attendant to the
conduct of foreign trade, including fluctuations in currency exchange rates and
longer delivery times.
COMPETITION. Many of the companies with which the Company competes, or
which are expected to offer products or services based on alternatives to the
Company's technologies, have substantially greater financial resources, research
and development capabilities, sales and marketing staffs, and better developed
distribution channels than the Company. There can be no assurance that the
services and products that the Company offers will achieve sufficient quality,
functionality or cost-effectiveness to compete with existing or future
alternatives.
9
<PAGE> 11
Furthermore, there can be no assurance that the Company's competitors will not
succeed in developing products or services which are more effective and lower
cost than those offered by the Company, or which render the Company's Portico
service or DataRover 840 device obsolete. The Company believes that its ability
to compete depends on factors both within and outside its control. The principal
competitive factors affecting the market for the Company's products and services
are the availability of the Company's products and services; the quality,
performance and functionality of the Portico service and DataRover 840 device
developed and marketed by the Company; the effectiveness of the Company in
marketing and distributing its products and services; and price. There can be no
assurance that the Company will be successful in the face of increasing
competition from new technologies, products or services introduced by existing
competitors and by new companies entering the market.
EXTREME VOLATILITY OF STOCK PRICE. Like the stock of other high technology
companies, the market price of the Company's Common Stock has been and may
continue to be extremely volatile. Since its initial public offering in February
1995, the closing price of the Company's Common Stock has ranged from a high of
$26.625 to a low of $0.938 per share. Factors such as quarterly fluctuations in
the Company's results of operations or the announcement of technological
innovations or strategic alliances or the introduction of new products by the
Company or its competitors may have a significant impact on the market price of
the Company's Common Stock.
COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS; DISCLOSURE RELATING TO
LOW-PRICED STOCK. The Company's Common Stock is quoted on the Nasdaq National
Market (the "National Market"). Pursuant to the Investment Agreement, the
Company is required to list the Common Stock issuable upon conversion of the
Series B Shares and exercise of the Warrants on the National Market. However, in
order to continue to be included in the National Market, a company must meet
certain maintenance criteria. Effective February 23, 1998, the maintenance
criteria require a minimum bid price of $1.00 per share, $4,000,000 in net
tangible assets (total assets less total liabilities and goodwill) and
$5,000,000 market value of the public float (excluding shares held directly or
indirectly by any officer or director of the Company and by any person holding
beneficially more than 10% of the Company's outstanding shares). Failure to meet
these maintenance criteria may result in the delisting of the Company's Common
Stock from the National Market and the quotation of the Company's Common Stock
on the Nasdaq SmallCap Market (the "SmallCap Market"), if the requirements for
inclusion on the SmallCap Market are met. As a result of quotation on the
SmallCap Market, an investor may find it more difficult to dispose of the
Company's Common Stock. Effective February 1998, a company must have $4,000,000
in net tangible assets or $50,000,000 market capitalization or $750,000 net
income in two of the last three years, a minimum bid price of $4.00 per share
and a public float of $5,000,000 for inclusion in the SmallCap Market, subject
to certain exceptions. Failure to meet the National Market inclusion criteria,
or the failure to meet the SmallCap Market maintenance criteria, may result in
the delisting of the Company's Common Stock. Trading, if any, in the Company's
Common Stock would thereafter be conducted in the over-the-counter market. As a
result of such delisting, an investor may find it more difficult to dispose of,
or to obtain accurate quotations as to the market value of, the Company's Common
Stock.
INTELLECTUAL PROPERTY. The Company seeks to protect its proprietary
information and technology through contractual confidentiality provisions and
the application for United States and foreign patents, trademarks and
copyrights. There can be no assurance of patents, trademarks or copyrights or
that third parties will not seek to challenge, invalidate or circumvent such
applications or resulting patents, trademarks or copyrights. Additionally,
competitors may independently develop equivalent or superior, non-infringing
technologies. The Company's revenue could be adversely affected to the extent
that such technologies avoid infringement of the Company's patents. Furthermore,
there can be no assurance that third parties will not assert claims of
infringement of intellectual property rights against the Company and that such
claims will not lead to litigation and/or require the Company to significantly
modify or even discontinue sales of certain of its products or services.. Any
such event may have a material adverse effect on the Company's business,
operating results and financial condition.
POTENTIAL SECURITY ISSUES. The implementation of the Portico service poses
several security issues, including the possibility of break-ins and other
similar disruptions. The Company intends to incorporate authentication,
encryption and other security technologies in its Portico service. However,
there can be no assurance that such technologies will be adequate to prevent
break-ins. In addition, as is generally known, weaknesses in the medium by which
users may access the Company's Portico service, including the Internet,
telephones, cellular phones and other wireless devices, may compromise the
security of the confidential electronic information accessed
10
<PAGE> 12
from the Portico service. There can be no assurance that the Company will be
able to provide a safe and secure service. The Company's failure to provide a
secure service may result in significant liability to the Company and may deter
potential users of the service. The Company intends to limit its liability to
users, including liability arising from failure of the authentication,
encryption and other security technologies that will be incorporated into its
Portico service, through contractual provisions. However, there can be no
assurance that such limitations will be effective. The Company currently does
not have liability insurance to protect against risks associated with forced
break-ins or disruptions. There can be no assurance that security
vulnerabilities and weaknesses will not be discovered in the Company's Portico
service or licensed technology incorporated into such service or in the mediums
by which subscribers access the Portico service. Any security problems in the
Portico service or the licensed technology incorporated in such service may
require significant expenditures of capital and resources by the Company to
alleviate such problems, may result in lawsuits against the Company, may limit
the number of subscribers of the Portico service and may cause interruptions or
delays in the development and completion of, or the cessation of, the Company's
service. Any such expenditures, lawsuits, reduction of subscribers,
interruptions or delays in the development and commercial release of the Portico
service, or the cessation of such service by the Company, could have a material
adverse effect on the Company's business, operating results and financial
condition.
PERSONNEL. The Company must continue to attract, retain and motivate
qualified personnel. Silicon Valley remains a highly competitive job market, and
there can be no assurance that key Company management, engineering, marketing,
sales, administrative and customer support personnel will remain employed by the
Company, or that the Company will be able to attract sufficient additional
personnel to execute its business plan. The Company experienced significant
attrition of engineering, marketing, administrative and sales personnel during
the latter part of 1996 and the first half of 1997, including an approximate
one-half reduction in its workforce between October 1996 and January 1997. These
reductions adversely affected, and may in the future adversely affect, the
Company's ability to attract, retain and motivate qualified personnel. There can
be no assurance that the Company's current employees will continue to work for
the Company or that the Company will be able to obtain the services of
additional personnel necessary for the Company's growth. Failure to attract or
retain qualified personnel could have a material adverse effect on the Company's
business, operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE. The communications technology market is
characterized by rapid technological change, changing customer needs, frequent
new product introductions and evolving industry standards. The introduction of
products or services embodying new technologies and the emergence of new
industry standards could render the Company's products and services obsolete or
unmarketable. The Company's future success will depend upon its ability to
timely develop and introduce new products and services, including the Portico
service, as well as enhancements to such products and services, to keep pace
with technological developments and emerging industry standards and address the
increasingly sophisticated needs of the user. There can be no assurance that the
Company will be successful in developing and marketing new products and services
that respond to technological changes or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products and services,
or that its new products and services will adequately meet the requirements of
the marketplace and achieve market acceptance. If the Company is unable, for
technological or other reasons, to timely develop and introduce new products and
services in response to changing market conditions or consumer requirements, the
Company's business, operating results and financial condition will be materially
adversely affected.
DEPENDENCE ON AND RESPONSIVENESS TO THE INTERNET. The Company believes
that its future success is in part dependent upon continued growth in the use of
the Internet. The Internet may prove not to be a viable means of conducting
commerce or communications for a number of reasons, including, but not limited
to, potentially unreliable network infrastructure, or untimely development of
performance improvements including high speed modems. In addition, to the extent
that the Internet continues to experience significant growth in the number of
users and level of use, there can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
any such growth. Failure of the Internet as a mode of conducting commerce and
communications could have a material adverse effect on the Company's business,
operating results and financial condition.
11
<PAGE> 13
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
software programs and operating systems in its internal operations, including
applications used in financial business systems and various administration
functions. To the extent that these software applications contain source code
that is unable to appropriately interpret the upcoming calendar year "2000,"
some level of modification or even replacement of such source code or
applications will be necessary. The Company is in the process of identifying the
software applications that are not "Year 2000" compliant. Given the information
known at this time about the Company's systems, coupled with the Company's
ongoing efforts to upgrade or replace business critical systems as necessary, it
is currently not anticipated that these "Year 2000" costs will have a material
adverse impact on the Company's business, operating results and financial
condition. However, the Company is still analyzing its software applications
and, to the extent they are not fully "Year 2000" compliant, there can be no
assurance that the costs necessary to update software or potential systems
interruptions would not have a material adverse effect on the Company's
business, operating results and financial condition.
SINGLE CALIFORNIA LOCATION. Currently, the Company's only network
operations center is located at its headquarters in Sunnyvale, California.
Operation of the Portico service is dependent in part upon the Company's ability
to protect the network operations center against physical damage from power
outages, telecommunications failures, physical break-ins and other similar
events. In addition, Northern California historically has been vulnerable to
certain natural disasters and other risks, such as earthquakes, fires and
floods, which at times have disrupted the local economy and pose physical risks
to the Company's property. The Company presently does not have redundant,
multiple site capacity in the event of a technical failure of its Portico
service or a natural disaster. In the event of such a failure or disaster, the
Company's business, operating results and financial condition could be
materially adversely affected.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders and all proceeds will go to the Selling Stockholders to
be used for their own purposes. The Company may receive cash proceeds upon the
exercise of the Warrants, and expects to use such proceeds, if any, for working
capital. The Company will not receive any proceeds from conversions of the
Series B Shares or the Series A Shares.
12
<PAGE> 14
SELLING STOCKHOLDERS
The Selling Stockholders hold or will hold shares of Common Stock which
are issuable upon conversion of the Series B Shares and the Series A Shares,
exercise of the Warrants, if any, and which were issued to the NetPhonic
Shareholders in connection with the acquisition of a privately-held company. The
table below lists the Selling Stockholders, the number of shares of Common Stock
which each owns or will own, assuming a conversion date of May 1, 1998 for the
Series B Shares, a Warrant exercise date of May 1, 1998 and a conversion date of
May 20, 1998 for the Series A Shares, the number of shares of Common Stock
subject to sale pursuant to this Registration Statement and the number of shares
of Common Stock each would own assuming sale of all shares of Common Stock
registered by this Registration Statement.
<TABLE>
<CAPTION>
Shares Beneficially Shares Offered Shares Beneficially
Owned Prior to the by this Owned After
Selling Stockholder (1) Offering Prospectus the Offering (2)
----------------------- ------------------- -------------- -------------------
<S> <C> <C> <C>
Halifax Fund, L.P. 1,000,758(3) 1,000,758(3) --
RGC International Investors, LDC 600,455(3) 600,455(3) --
Heracles Fund 200,152(3) 200,152(3) --
Themis Partners L.P. 200,152(3) 200,152(3) --
AFO Capital Advisors, LLC 80,000(4) 80,000(4) --
Forest Grove Holdings Limited 1,161,102(5)(6) 1,088,533(5) --
NeXperience Company 1,161,102(5)(7) 72,569(5) --
Kyung H. Rhie 90,455(5)(8) 83,198(5) --
Lee E. Olsen 26,638(5)(9) 20,356(5) 6,282
Robert E. Burgess 22,658(5)(10) 17,314(5) 5,344
Richard Kwan 18,676(5)(11) 14,269(5) 4,407
James Lee 7,257(5) 7,257(5) --
Grace S. Rhie 90,455(5)(12) 7,257(5) --
Victor Pai Shi Huang 6,957(5)(13) 5,269(5) 1,688
Venkat Ramasamy 4,354(5) 4,354(5) --
George A. Papazian 2,874(5) 2,874(5) --
Phyllis Fletcher 3,384(5)(14) 2,634(5) 750
Young S. Kim 2,377(5) 2,377(5) --
John S. Hahn 2,177(5) 2,177(5) --
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
L. Leigh Dayley 1,451(5) 1,451(5) --
Ik Kim 1,197(5) 1,197(5) --
Craig S. Knox 1,197(5) 1,197(5) --
Erik Peter Nordhagen 1,190(5)(15) 908(5) 282
Mark Lewis 862(5) 862(5) --
Jill Wagner 145(5) 145(5) --
Vellaisamy S. Senthilkumar 3,423(5) 3,423(5) --
James A. Brown 2,903(5) 2,903(5) --
Microsoft Corporation 3,629,000(16) 907,250(16) 2,721,750
TOTALS: 7,071,794(17) 4,331,291 2,740,503
</TABLE>
- ----------
(1) The persons named in the table have sole voting and investment power with
respect to all shares of General Magic Common Stock shown as beneficially
owned by them, subject to community property laws, where applicable.
(2) Assumes the sale of all shares offered hereby.
(3) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Selling Stockholder
and assumes the exercise of all Issued Warrants as described in this
Prospectus. Additional shares will be issuable upon conversion of issuable
Series B Shares and exercise of Additional Warrants, if any are issued as
described in this Prospectus. Pursuant to the Company's agreement with the
Institutional Investors as set forth in the Investment Agreement, the
number of shares of Common Stock registered in the name of the
Institutional Investors by this Registration Statement approximately
equals the sum of (i) 400% of the shares of Common Stock that would be
issued had (x) the Company been able to exercise its option to force the
Institutional Investors to purchase additional Series B Shares, (y) had
the Institutional Investors been able to exercise their option to purchase
additional Series B Shares, and (z) had all such Series B Shares been
converted on May 1, 1998, and (ii) 150% of the shares of Common Stock
issuable upon exercise of the Warrants. The actual number of shares of
Common Stock issuable upon conversion of Series B Shares and exercise of
the Warrants is indeterminate, is subject to adjustment and could be
materially less or more than such estimated number depending on factors
which cannot be predicted by the Company at this time, including among
other factors, the future market price of the Common Stock. The actual
number of shares of Common Stock offered hereby, and included in the
Registration Statement of which this Prospectus is a part, includes such
additional number of shares of Common Stock as may be issued or issuable
upon conversion of the Series B Shares and exercise of the Warrants by
reason of the floating rate conversion price mechanism or other adjustment
mechanisms described in the Series B Certificate of Designation, or by
reason of any stock split, stock dividend or similar transaction involving
the Common Stock, in order to prevent dilution, in accordance with Rule
416 under the Securities Act. Pursuant to the Series B Certificate of
Designation, if the outstanding Series B Shares had been actually
converted on May 1, 1998, the conversion price would have been $3.00, at
which price the outstanding Series B Shares would have been converted into
approximately 1,681,517 shares of Common Stock. Pursuant to the terms of
the Series B Certificate of Designation and the Warrants, the Series B
Shares and the Warrants are convertible by each of the Selling
Stockholders only to the extent that the number of shares of Common Stock
thereby issuable (but not including shares of Common Stock underlying
unconverted shares of Series B Shares and unexercised portions of the
Issued Warrants) would not exceed 4.9% of the Company's outstanding Common
Stock as determined in accordance with Section 13(d) of the Exchange Act.
This 4.9% restriction may be lifted or modified under certain
circumstances.
(4) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Selling Stockholder
and assumes the exercise of all Issued Warrants as described in this
Prospectus.
(5) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Selling Stockholder.
Pursuant to the Company's agreement with the NetPhonic Shareholders, the
actual number of shares of Common Stock offered hereby, and included in
the Registration Statement of which this Prospectus is a part, includes
such additional number of shares of Common Stock as may be issued upon any
stock split, stock dividend or similar transaction involving the Common
Stock, in order to prevent dilution, in accordance with Rule 416 under the
Securities Act.
(6) Includes 72,569 shares held by NeXperience Company, an affiliate of Forest
Grove Holdings Limited.
14
<PAGE> 16
(7) Includes 1,088,533 shares held by Forest Grove Holdings Limited, an
affiliate of NeXperience Company.
(8) Includes 7,257 shares held by Grace S. Rhie, Mr. Rhie's spouse. Mr. Rhie
also holds a minority ownership interest in NeXperience Company.
(9) Includes 6,282 shares subject to options which will be vested within 60
days following May 20, 1998.
(10) Includes 5,344 shares subject to options which will be vested within 60
days following May 20, 1998.
(11) Includes 4,407 shares subject to options which will be vested within 60
days following May 20, 1998.
(12) Includes 83,198 shares held by Kyung H. Rhie, Ms. Rhie's spouse.
(13) Includes 1,688 shares subject to options which will be vested within 60
days following May 20, 1998.
(14) Includes 750 shares subject to options which will be vested within 60 days
following May 20, 1998.
(15) Includes 282 shares subject to options which will be vested within 60 days
following May 20, 1998.
(16) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Selling Stockholder.
Pursuant to the Company's agreement with Microsoft, the number of shares
of Common Stock registered in the name of Microsoft by this Registration
Statement equals the number of shares of Common Stock issuable upon
conversion of twenty-five percent (25%) of the Series A Shares. The actual
number of shares of Common Stock offered hereby, and included in the
registration statement of which this Prospectus is a part, includes such
additional number of shares of Common Stock as may be issued upon
conversion of the Series A Shares by reason of any stock split, stock
dividend or similar transaction involving the Common Stock, in order to
prevent dilution, in accordance with Rule 416 under the Securities Act.
Pursuant to the Series A Certificate of Designation, if the Series A
Shares had been actually converted on May 18, 1998 at the fixed conversion
price of $1.24, the Series A Shares would have been converted into
approximately 3,629,000 shares of Common Stock. Assuming the sale of all
Shares offered hereby, Microsoft will own eight point six percent (8.6%)
of the outstanding shares of the Company's Common Stock at the conclusion
of this offering (based on the number of shares of the Company's Common
Stock outstanding as of April 30, 1998).
(17) Includes shares beneficially owned by more than one Selling Stockholder
only with respect to one such Selling Stockholder.
PLAN OF DISTRIBUTION
The Selling Stockholders or their respective pledgees, donees, transferees
or other successors in interest may, from time to time, sell all or a portion of
the Shares on the National Market, in privately negotiated transactions or
otherwise, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices related to such market prices or at negotiated
prices. The Shares may be sold by the Selling Stockholders by one or more of the
following methods, without limitation: (a) block trades in which the broker or
dealer so engaged will attempt to sell the Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction, (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus, (c) an exchange distribution in
accordance with the rules of such exchange, (d) ordinary brokerage transactions
and transactions in which the broker solicits purchasers, (e) privately
negotiated transactions, (f) short sales and (g) a combination of any such
methods of sale. In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the Selling Stockholders (or,
if any such broker-dealer acts as agent for the purchaser of such shares, from
such purchaser) in amounts to be negotiated which are not expected to exceed
those customary in the types of transactions involved. Broker-dealers may agree
with the Selling Stockholders to sell a specified number of such Shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principals may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the National Market at
prices and on terms then prevailing at the time of sale, at prices then related
to the then-current market price or in negotiated transactions and, in
connection with such resales, may pay to or receive from the purchasers of such
Shares commissions as described above. The Selling Stockholders may also sell
the Shares in accordance with Rule 144 under the Securities Act, rather than
pursuant to this Prospectus.
15
<PAGE> 17
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
an underwriting commissions or discounts under the Securities Act.
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. From time to time the
Selling Stockholders may pledge their Shares pursuant to the margin provisions
of their customer agreements with their brokers. Upon a default by the Selling
Stockholders, the broker may offer and sell the pledged Shares from time to
time.
The Company is required to pay all fees and expenses incident to the
registration of the Shares.
The Selling Stockholders and any other persons participating in the sale
or distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Stockholders or any other such person. The foregoing may affect the
marketability of the Shares.
The Company has agreed to indemnify in certain circumstances the Selling
Stockholders and the broker-dealers and agents who may be deemed to be
underwriters, if any, of the securities covered by the Registration Statement,
against certain liabilities, including liabilities under the Securities Act. The
Selling Stockholders have agreed to indemnify in certain circumstances the
Company against certain liabilities, including liabilities under the Securities
Act.
The Company has agreed to use its best efforts to keep the Registration
Statement, of which this Prospectus constitutes a part, effective until the
earlier of (i) the date on which the Selling Shareholders have completed the
sales or distribution described herein or (ii) until the Shares may be sold
pursuant to Rule 144(k) of the Securities Act.
LEGAL MATTERS
The legality of the Shares is being passed upon by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of General Magic, Inc. as of
December 31, 1997 and 1996, and 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 have been incorporated herein by reference and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, incorporated herein by reference and upon the authority of
said firm as experts in accounting and auditing.
16
<PAGE> 18
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................ 5
Incorporation of Certain Documents By Reference...................... 5
The Company ......................................................... 6
Risk Factors ........................................................ 7
Use of Proceeds...................................................... 12
Selling Stockholders ................................................ 13
Plan of Distribution ................................................ 15
Legal Matters ....................................................... 16
Experts ............................................................. 16
</TABLE>
================================================================================
================================================================================
19,749,175 SHARES
GENERAL MAGIC, INC.
COMMON STOCK
----------
PROSPECTUS
----------
June __, 1998
================================================================================
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees and Nasdaq
filing fee.
<TABLE>
<CAPTION>
To be Paid
By The
Registrant
----------
<S> <C>
SEC Registration Fee $ 45,451*
Nasdaq filing fee $ 52,500
Accounting fees and expenses $ 5,000
Legal fees and expenses $ 30,000
Miscellaneous expenses $ 2,049
Total.............................. $135,000
========
</TABLE>
* The Company will pay all expenses of registration, issuance and
distribution of the Shares being sold by the Selling Stockholders,
excluding underwriting commissions and similar charges. $45,431 was
previously paid in connection with Registration No. 333-51685, filed
on May 1, 1998 and amended on May 22, 1998.
- -----------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws provide that the Registrant shall indemnify to the
full extent authorized by law any person made or threatened to be made a party
to an action or a proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he or she, his or her testator or
intestate was or is a director, officer or employee of the Registrant or any
predecessor of the Registrant or serves or served any other enterprise as a
director, officer or employee at the request of the Registrant or a predecessor
of the Registrant. The Registrant's Bylaws also provide that the Registrant may
enter into one or more agreements with any person which provides for
indemnification greater or different than that provided in such Bylaws.
The Registrant has entered into indemnification agreements with its
directors and its officers.
The Registrant maintains insurance on behalf of any person who is a
director or officer against any loss arising from any claim asserted against him
or her and incurred by him or her in any such capacity, subject to certain
exclusions.
See also the undertakings set out in response to Item 17 herein.
II-1
<PAGE> 20
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
3.1(1) Certificate of Designation of the 5 1/2% Cumulative
Convertible Series B Preferred Stock filed with the
Delaware Secretary of State on March 4, 1998.
3.2(1) Certificate of Designation of Series A Convertible
Preferred Stock filed with the Delaware Secretary of
State on February 27, 1998.
4.1(1) Preferred Stock Investment Agreement by and among
Registrant, Halifax Fund, L.P., RBC International
Investors, LDC, Heracles Fund and Themis Partners L.P.
dated March 3, 1998.
4.2(1) Registration Rights Agreement by and among Registrant,
Halifax Fund, L.P., RBC International Investors, LDC,
Heracles Fund and Themis Partners L.P. dated March 3,
1998.
4.3(1) Form of Common Stock Purchase Warrant
4.4 Preferred Stock Purchase Agreement by and between
Registrant and Microsoft Corporation dated February 26,
1998.
4.5(1) Investor Rights Agreement by and between Registrant and
Microsoft Corporation dated February 27, 1998.
4.6 Patent License Agreement by and between Registrant and
Microsoft Corporation dated February 27, 1998.
4.7 Covenant Not to Sue by and between Registrant and
Microsoft Corporation dated February 27, 1998.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 Consent of KPMG Peat Marwick LLP, independent auditors.
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1(1) Power of Attorney (included in the Signature Page
contained in Part II of the Registration Statement).
(1) Incorporated by reference from the Company's Registration Statement No.
333-51685, filed with the Commission on May 1, 1998.
II-2
<PAGE> 21
- --------------------------
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
D. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
II-3
<PAGE> 22
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
E. The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Sunnyvale, State of California on June 5, 1998.
GENERAL MAGIC, INC.
By: /s/ STEVEN MARKMAN
-------------------------------------
Steven Markman
President, Chief Executive Officer
and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ STEVEN MARKHAM President, Chief Executive Officer, Chairman of the
- --------------------------------------- Board, Director (Principal Executive Officer) June 5, 1998
Steven Markman
JAMES P. McCORMICK Chief Financial Officer (Principal Financial and
- --------------------------------------- Accounting Officer) June 5, 1998
James P. McCormick *
MICHAEL E. KALOGRIS Director
- --------------------------------------- June 5, 1998
Michael E. Kalogris *
CARL F. PASCARELLA Director
- --------------------------------------- June 5, 1998
Carl F. Pascarella *
ROEL PIEPER Director
- --------------------------------------- June 5, 1998
Roel Pieper *
DENNIS F. STRIGL Director
- --------------------------------------- June 5, 1998
Dennis F. Strigl *
SUSAN G. SWENSON Director
- --------------------------------------- June 5, 1998
Susan G. Swenson *
/s/ STEVEN MARKMAN
- --------------------------------------- June 5, 1998
* By: Steven Markman,
Attorney-in-fact
</TABLE>
II-5
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
3.1(1) Certificate of Designation of the 5 1/2% Cumulative
Convertible Series B Preferred Stock filed with the
Delaware Secretary of State on March 4, 1998.
3.2(1) Certificate of Designation of Series A Convertible
Preferred Stock filed with the Delaware Secretary of
State on February 27, 1998.
4.1(1) Preferred Stock Investment Agreement by and among
Registrant, Halifax Fund, L.P., RBC International
Investors, LDC, Heracles Fund and Themis Partners L.P.
dated March 3, 1998.
4.2(1) Registration Rights Agreement by and among Registrant,
Halifax Fund, L.P., RBC International Investors, LDC,
Heracles Fund and Themis Partners L.P. dated March 3,
1998.
4.3(1) Form of Common Stock Purchase Warrant
4.4 Preferred Stock Purchase Agreement by and between
Registrant and Microsoft Corporation dated February 26,
1998.
4.5(1) Investor Rights Agreement by and between Registrant and
Microsoft Corporation dated February 27, 1998.
4.6 Patent License Agreement by and between Registrant and
Microsoft Corporation dated February 27, 1998.
4.7 Covenant Not to Sue by and between Registrant and
Microsoft Corporation dated February 27, 1998.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 Consent of KPMG Peat Marwick LLP, independent auditors.
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1(1) Power of Attorney (included in the Signature Page
contained in Part II of the Registration Statement).
(1) Incorporated by reference from the Company's Registration Statement No.
333-51685, filed with the Commission on May 1, 1998.
<PAGE> 1
EXHIBIT 4.4
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of February 26, 1998 (the "EFFECTIVE DATE"), by and between
General Magic, Inc., a Delaware corporation ("GM"), and Microsoft Corporation, a
Washington corporation ("Microsoft").
RECITALS:
GM desires to sell to Microsoft, and Microsoft desires to purchase from
GM, 50,000 shares of GM's Series A Convertible Preferred Stock (the "SERIES A
SHARES") with the rights and preferences set forth in the proposed Certificate
of Designation (the "CERTIFICATE") attached as Exhibit 4.2.7 to this Agreement;
GM and Microsoft will enter into a Patent License Agreement (the "PATENT
LICENSE AGREEMENT") concurrently with the closing of the purchase contemplated
by this Agreement; and
GM and Microsoft will, concurrently with the closing of the purchase
contemplated by this Agreement, enter into an Investor Rights Agreement (the
"RIGHTS AGREEMENT"), which provides certain rights to Microsoft.
This Agreement, together with the Certificate, the Patent License
Agreement and the Rights Agreement are referred to herein collectively as the
"TRANSACTION DOCUMENTS."
AGREEMENT:
NOW, THEREFORE, based on these premises and in consideration of the
mutual covenants and agreements contained herein, the parties hereby agree as
follows:
ARTICLE I
PURCHASE OF PREFERRED STOCK AND CLOSING
1.1 Agreement to Purchase and Sell Stock. GM agrees to sell to Microsoft
at the Closing (as defined below), and Microsoft agrees to purchase from GM at
the Closing, 50,000 shares of Series A Convertible Preferred Stock at a price of
$90.00 per share, for an aggregate purchase price of $4.5 million (the "PURCHASE
PRICE"). The Series A Shares purchased and sold pursuant to this Agreement will
be collectively hereinafter referred to as the "PREFERRED SHARES" and the shares
of Common Stock issuable upon conversion of the Preferred Shares will be
collectively hereinafter referred to as the "CONVERSION SHARES."
1.2 Closing. The purchase and sale of the Preferred Shares will take
place at 2:00 p.m. Pacific Standard Time, on February 27, 1998 (the "CLOSING
DATE") at the offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue,
Palo Alto, California 94301 (the "CLOSING") or at such other time and place as
GM and Microsoft mutually agree upon. At the Closing: (i) GM will deliver to
Microsoft a certificate representing the number of Preferred
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<PAGE> 2
Shares that Microsoft has agreed to purchase hereunder, together with executed
copies of the Transaction Documents and such other agreements, documents and
certificates required pursuant to Section 4.2 hereof; and (ii) Microsoft will
deliver to GM the Purchase Price by (a) a check payable to GM or (b) wire
transfer of immediately available funds, together with executed copies of the
Transaction Documents and such other agreements, documents and certificates
required pursuant to Section 4.3 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of GM. Except as disclosed in a
document referring specifically to the representations and warranties in this
Agreement which identifies by section number the section and subsection to which
such disclosure relates and is delivered by GM to Microsoft prior to the
execution of this Agreement (the "GM DISCLOSURE SCHEDULE") which is attached as
Exhibit 2.1 hereto, GM represents and warrants to Microsoft as follows.
2.1.1 Organization, Standing and Power. GM is a corporation duly
organized, validly existing and in good standing under the laws of Delaware. GM
has all requisite power and authority to own, lease and operate its properties
and to carry on its businesses as now being conducted and as proposed to be
conducted. GM is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where the failure to be so
qualified would not have a materially adverse effect on GM. GM does not own or
control, directly or indirectly, any corporation, partnership, limited liability
company, or other entity.
2.1.2 Capital Structure and Stock Issuance.
(a) The authorized capital stock of GM as of the Closing Date
and immediately prior to the Closing will consist of 60,000,000 shares of GM
Common Stock, par value $0.001 ("GM COMMON STOCK") of which 26,927,201 will be
issued and outstanding, and 500,000 shares of Preferred Stock of which 50,000
will be designated Series A Preferred Stock, par value $0.001 (the "SERIES A
SHARES"). In addition, as of the date hereof, 5,018,640 shares of GM Common
Stock are reserved for issuance upon the exercise of outstanding employee and
non-employee director stock options and 773,863 shares of GM Common Stock are
available for future options grants ("GM OPTIONS"). Those shares described above
as well as the GM Options are collectively referred to as the "GM SECURITIES."
Except for the GM Common Stock described above issuable pursuant to GM Options,
there are no options, warrants, calls, conversion rights, agreements, contracts,
or rights of any character to which GM is a party or by which GM may be bound
obligating GM to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of GM, or obligating GM to grant,
extend or enter into any such option, warrant, call, conversion right,
agreement, contract, or right. GM does not have outstanding any bonds,
debentures, notes or other indebtedness the holders of which have the right to
vote (or convertible or exercisable into securities having the right to vote)
with holders of GM Securities on any matter.
(b) The Preferred Shares, when issued, sold and delivered in
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<PAGE> 3
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and nonassessable. The Conversion Shares have been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Certificate will be duly and validly issued, fully paid and nonassessable.
2.1.3 Authority. All corporate action on the part of GM necessary
for the authorization, execution, delivery and performance of the Transaction
Documents by GM, the authorization, sale, issuance and delivery of the Purchased
Shares hereunder, and the performance of GM's obligations under said Transaction
Documents has been taken. Each Transaction Document constitutes a valid,
binding, and enforceable obligation of GM in accordance with its terms, except
as may be limited by (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (ii) the effect of rules of law governing the
availability of equitable remedies. GM hereby represents that it has full power
and authority to enter into the Transaction Documents.
2.1.4 Compliance with Laws and Other Instruments. GM holds all
licenses, permits, and authorizations from all Governmental Entities (as defined
below) necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules, and regulations of all such
authorities having jurisdiction over it or any part of its operations,
excepting, however, when such failure to hold would not have a material adverse
effect on GM's business and financial condition. Except for applicable filings
necessary to claim an exemption from the registration requirements under
applicable federal and state securities laws and the filing of the Certificate,
no consent, approval, order or authorization of or registration, declaration or
filing with or exemption (collectively "GOVERNMENTAL CONSENTS") by, any court,
administrative agency or commission or other governmental authority or
instrumentality, whether domestic or foreign (each a "GOVERNMENTAL ENTITY") is
required by or with respect to GM in connection with the execution and delivery
of the Transaction Documents by GM or the consummation by GM of the transactions
contemplated hereby.
2.1.5 No Conflicts. The execution, delivery and performance of the
Transaction Documents by GM and the consummation by GM of the transactions
contemplated hereby and thereby and the filing of the Certificate do not and
will not (i) result in a violation of GM's charter documents or bylaws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which GM or any of its
subsidiaries is a party, or (iii) result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to GM or any of
its subsidiaries or by which any property or asset of GM or any of its
subsidiaries is bound or affected. The business of GM and its direct and
indirect subsidiaries is being conducted in material compliance with all
applicable laws, ordinances or regulations of any Governmental Entity.
2.1.6 SEC Documents. GM has filed all required reports, schedules,
forms, statements and other documents with the Securities and Exchange
Commission (the "SEC") since February 16, 1995 (the "SEC Documents"). As of
their respective dates, the SEC
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<PAGE> 4
Documents complied in all material respects with requirements of the Securities
Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
the case may be and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except to
the extent that information contained in any SEC Document has been revised or
superseded by a later filed SEC Document, none of the SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of GM included in the SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP") (except,
in the case of unaudited statements as permitted by Form 10Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the financial position of GM as of the
dates thereof and the results of its operation and cashflows for the periods
then ending in accordance with GAAP (subject, in the case of the unaudited
statements, to normal year end audit adjustments). Except as set forth in the
filed SEC Documents, GM has no liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a balance sheet of GM or in the notes thereto and which could reasonably be
expected to have a material adverse effect on GM, except such liabilities
incurred in the ordinary course of GM's business since September 30, 1997, which
liabilities do not or would not have a material adverse effect on GM.
2.1.7 No Material Adverse Change. Except as disclosed in the SEC
Documents since the date of the most recent audited financial statements
included in the SEC Documents, there has not been (i) any declaration, setting
aside or payment of any dividend or distribution (whether in cash, stock or
property) with respect to any of GM's capital stock, (ii) any split, combination
or reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (iii) any damage,
destruction or loss of property, whether or not covered by insurance, that has
or could reasonably be expected to have a material adverse effect on GM, or (iv)
any change in accounting methods, principles or practices by GM materially
affecting its assets, liabilities, or business, except insofar as may have been
required by a change in GAAP.
2.1.8 No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to GM or its businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by GM but which has not been so publicly announced or disclosed.
2.1.9 Intellectual Property.
(a) The "GM INTELLECTUAL PROPERTY" consists of the following:
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<PAGE> 5
(i) all patents, trademarks, trade names, service marks,
trade dress, copyrights and any renewal rights therefor, mask works, net lists,
schematics, technology, manufacturing processes, supplier lists, trade secrets,
know-how, moral rights, computer software programs or applications (in both
source and object code form), applications and registrations for any of the
foregoing;
(ii) all goodwill associated with trademarks, trade names,
service marks and trade dress;
(iii) all software and firmware listings, and updated
software source code, and complete system build software and instructions
related to all software described herein;
(iv) all documents, records and files relating to design,
end user documentation, manufacturing, quality control, sales, marketing or
customer support for all intellectual property described herein;
(v) all other tangible or intangible proprietary
information and materials; and
(vi) all license and other rights in any third party
product, intellectual property, proprietary or personal rights, documentation,
or tangible or intangible property, including without limitation the types of
intellectual property and tangible and intangible proprietary information
described in (i) through (v) above;
that are owned or held by or on behalf of GM or that are being, and/or have
been, used, or are currently under development for use, in the business of GM as
it has been, is currently or is currently anticipated to be (up to the Closing),
conducted.
(b) GM has taken reasonable measures and precautions to
protect and maintain the confidentiality, secrecy and value of the GM
Intellectual Property.
(c) Except as set forth in the SEC Documents and to the best
knowledge of GM: (i) all patents, trademarks, service marks and copyrights held
by GM are valid, enforceable and subsisting; (ii) no GM Intellectual Property
and no GM Intellectual Property that is currently being developed by GM (either
by itself or with any other person) infringes, misappropriates or conflicts with
any intellectual property owned or used by and other person; (iii) none of the
products that are or have been designed, created, developed, assembled,
manufactured or sold by GM is infringing, misappropriating or making any
unlawful or unauthorized use of any intellectual property owned or used by any
other person, and none of such products has at any time infringed,
misappropriated or made any unlawful or unauthorized use of, and GM has not
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful or unauthorized use of, any intellectual property owned or used by any
other person; (iv) no other person is infringing, misappropriating or making any
unlawful or unauthorized use of, and no
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<PAGE> 6
intellectual property owned or used by any other person infringes or conflicts
with, any GM Intellectual Property.
(d) The GM Intellectual Property constitutes all the
intellectual property necessary to enable GM to conduct its business in the
manner in which such business has been and is being conducted. GM has not (i)
licensed any of the GM Intellectual Property to any person on an exclusive
basis, or (ii) entered into any covenant not to compete or contract limiting its
ability to exploit fully any of its GM Intellectual Property or to transact
business in any market or geographical area or with any person.
2.1.10 Brokers. GM has taken no action which would give rise to any
claim by any person, or brokerage commissions, finder's fees or similar payments
by GM or Microsoft relating to this Agreement or the transactions contemplated
hereby.
2.1.11 Litigation and Other Proceedings. Neither GM nor any of its
officers, directors, or employees is a party to any pending or, to GM's
knowledge, threatened action, suit, labor dispute (including any union
representation proceeding), proceeding, investigation, or discrimination claim
in or by any court or governmental board, commission, agency, department, or
officer, or any arbitrator, arising from the actions or omissions of GM or, in
the case of an individual, from acts in his capacity as an officer, director, or
employee of GM which individually or in the aggregate would be materially
adverse to GM. GM is not subject to any order, writ, judgment, decree, or
injunction that has or would be reasonably expected to have a material adverse
effect on the GM business and financial condition.
2.1.12 Registration Rights. Except as provided in the Rights
Agreement or in that certain Amended and Restated Registration Rights Agreement
dated as of November 30, 1994 by and among GM, Sony Corporation of America, AT&T
Crop., Apple Computer, Inc., France Telecom Cogecom, Fujitsu LTD., Motorola,
Inc., Nippon Telegraph and Telephone Corporation, Sony Corporation, Toshiba
Corporation, Marc Porat, Andy Hertzfeld, Bill Atkinson, Bill Atkinson as Trustee
of the William Dana Atkinson Trust date July 9, 1992, Cable & Wireless plc,
Mitsubishi Electric Corporation, Northern Telecom Inc., Oki Electric Industry
Co., Ltd., and Sanyo Electric Co., Ltd., GM is not under any obligation to
register any presently outstanding securities, or any securities which may
hereafter be issued, under the Securities Act of 1933, as amended ("1933 Act").
2.1.13 Contracts. All material contracts, arrangements, plans,
agreements, leases, licenses, franchises, permits, indentures, authorizations,
instruments and other commitments to which GM is a party and which are material
to its business have been disclosed in the SEC Documents and are valid and in
full force and effect. GM has not, nor, to the best knowledge of GM, has any
other party thereto, breached any material provisions of, or is in default in
any material respect under the terms thereof.
2.1.14 Related Party Transactions. None of the directors, officers,
or shareholders of GM, or any member of any of their families, is presently a
party to, or was a
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party to preceding the date of this Agreement, any transaction with GM, other
than compensation arrangements in the ordinary course of GM's business and
purchases of securities, including, without limitation, any contract, agreement,
or other arrangement: (i) providing for the furnishing of services to or by,
(ii) providing for rental of real or personal property to or from, or (iii)
otherwise requiring payments to or from, any such person or any corporation,
partnership, trust, or other entity in which any such person has or had a
10%-or-more interest (as a shareholder, partner, beneficiary, or otherwise) or
is or was a director, officer, employee, or trustee.
2.1.15 Disclosure. Neither the representations or warranties made by
GM in this Agreement, nor the final GM Disclosure Schedule or any other
certificate or document executed and/or delivered by GM pursuant to this
Agreement, when taken together, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished.
2.2 Representations and Warranties of Microsoft. Microsoft hereby
represents and warrants to, and agrees with GM that:
2.2.1 Authorization. Microsoft has full corporate power and
authority to enter into the Transaction Documents, and each such Agreement
constitutes Microsoft's valid and legally binding obligation, enforceable in
accordance with its terms except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the availability of equitable remedies. Microsoft
represents that it has full power and authority to enter into the Transaction
Documents.
2.2.2 No Conflict. The execution, delivery and performance of the
Transaction Documents by Microsoft and the consummation by Microsoft of the
transactions contemplated hereby will not (i) result in a violation of Microsoft
's charter documents or bylaws or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which Microsoft or any of its subsidiaries is a party, or (iii) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to Microsoft or any of its subsidiaries or by which any property or
asset of Microsoft or any of its subsidiaries is bound or affected.
2.2.3 Purchase for Own Account. The Preferred Shares to be purchased
by Microsoft hereunder and any Conversion Shares (collectively, the
"SECURITIES") will be acquired for investment for Microsoft's own account, not
as nominee or agent, and not with a view to public resale or distribution
thereof within the meaning of the 1933 Act, and Microsoft has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Microsoft further represents that it does not have any contract,
undertaking, agreement or
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arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
2.2.4 Investment Experience. Microsoft understands that the purchase
of the Securities involves substantial risk. Microsoft has experience as an
investor in securities of companies in the development stage and acknowledges
that Microsoft is able to fend for itself, can bear the economic risk of
Microsoft's investment in the Securities and has such knowledge and experience
in financial or business matters such that Microsoft is capable of evaluating
the merits and risks of this investment in the Securities and protecting its own
interests in connection with this investment.
2.2.5 Restricted Securities. Microsoft understands that the
Securities are characterized as "restricted securities" under the 1933 Act
inasmuch as they are being acquired from GM in a transaction not involving a
public offering and that under the 1933 Act and applicable regulations
thereunder such securities may be resold without registration under the 1933 Act
only in certain limited circumstances. In this connection, Microsoft represents
that it is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act.
Microsoft understands that GM is under no obligation to register any of the
securities sold hereunder except as provided in the Rights Agreement.
2.2.6 Legends. It is understood that the certificates evidencing the
Securities will bear the legends substantially as provided below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED
UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM. THE HOLDER HEREOF SHOULD
BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
(b) Any other legends required by Delaware law or other
applicable state securities laws.
The legends provided above shall be removed by GM from any certificate
evidencing the Securities upon delivery to GM of an opinion by counsel,
reasonably satisfactory to GM, that a
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registration statement under the 1933 Act is at that time in effect with respect
to the legended security or that such security can be freely transferred in a
public sale without such a registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registrations
pursuant to which GM issued the Securities.
For purposes of clarification, and provided that any transactions satisfy the
terms of SEC Rule 144, Microsoft may enter into bona fide transactions which
constitute a hedge against changes in the market price of the GM Common Stock,
provided, however, no public disclosure is made with respect to such hedge
transactions, except in an initial Schedule 13D, the text of which is reasonably
satisfactory to GM, or if in the opinion of counsel to Microsoft such disclosure
is required as a matter of law.
ARTICLE III
ADDITIONAL AGREEMENTS
Microsoft and GM each agree as follows:
3.1 Expenses. Whether or not the purchase and sale of the Preferred
Shares is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense.
3.2 Public Announcements. Prior to the Closing Date, Microsoft and GM
shall have executed a "CONFIDENTIALITY AGREEMENT" in substantially the form
attached hereto as Exhibit 3.2(a). In accordance with such Confidentiality
Agreement, Microsoft and GM agree to keep confidential and not to disclose the
terms and conditions of this Agreement, the Rights Agreement and the Patent
License. Notwithstanding the foregoing, Microsoft and GM, upon mutually agreed
upon timing as determined in good faith, shall issue the press release in the
form attached hereto as Exhibit 3.2(b). Nothing contained herein or in the
Confidentiality Agreement shall prevent either party at any time from furnishing
any information to any Governmental Entity to the extent required by judicial,
administrative process or federal securities laws or from issuing any release
when it believes in good faith and after consultation with the other party that
is legally required to do so.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions to Each Party's Obligation to Close. The respective
obligation of each party to close the transactions contemplated by this
Agreement shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
4.1.1 Governmental Approvals. Other than the filing of a Form D with
the SEC and the California Department of Corporations, all Governmental Consents
legally required for the consummation of the transactions contemplated by this
Agreement shall have been filed, occurred, or been obtained, other than such
Governmental Consents, for which the failure to obtain would have no material
adverse effect on the consummation of the transactions contemplated hereby.
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4.1.2 No Restraints. No statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered, promulgated or enforced
by any Governmental Entity of competent jurisdiction enjoining or prohibiting
the consummation of the transactions herein contemplated.
4.1.3 Securities Exemption. The offer and sale of the Preferred
Shares to Microsoft pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, and the registration and/or
qualification requirements of all other applicable state securities laws.
4.2 Conditions to Obligations of Microsoft. The obligations of Microsoft
to purchase the Preferred Shares are subject to the satisfaction of the
following conditions unless waived by Microsoft.
4.2.1 Representations and Warranties of GM. The representations and
warranties of GM set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement. Microsoft shall have received a certificate signed on behalf of
GM by an officer of GM to such effect on the Closing Date.
4.2.2 Performance of Obligations of GM. GM shall have performed in
all material respects all agreements and covenants required to be performed by
it under this Agreement prior to the Closing Date.
4.2.3 Rights Agreement. Microsoft and GM shall have each duly
executed a Rights Agreement substantially in the form attached hereto as Exhibit
4.2.3.
4.2.4 Patent License Agreement. Microsoft and GM shall have each
duly executed a Patent License Agreement in the form attached hereto as Exhibit
4.2.4.
4.2.5 Covenant Not to Sue. Microsoft and GM shall have each duly
executed a covenant not to sue substantially in the form attached hereto as
Exhibit 4.2.5.
4.2.6 Confidentiality Agreement. Microsoft and GM shall have each
duly executed the Confidentiality Agreement as described in Section 3.2 hereof.
4.2.7 Corporate Documentation. GM shall have filed with the Delaware
Secretary of State the Certificate of Designation in the form attached hereto as
Exhibit 4.2.7.
4.2.8 Opinion of Counsel. Microsoft shall have received from Gray
Cary Ware & Freidenrich LLP, counsel to GM, an opinion addressed to Microsoft,
dated the Closing Date, in form and substance reasonably satisfactory to
Microsoft.
4.3 Conditions to Obligation of GM. The obligation of GM to effect the
sale of the Preferred Shares is subject to the satisfaction of the following
conditions unless waived by GM.
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4.3.1 Representations and Warranties of Microsoft. The
representations and warranties of Microsoft set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement.
4.3.2 Performance of Obligations of Microsoft. Microsoft shall have
performed in all material respects all agreements and covenants required to be
performed by it under this Agreement prior to the Closing Date.
4.3.3 Payment of Purchase Price. Microsoft shall have delivered to
GM the Purchase Price specified in Article I hereof.
ARTICLE V
TERMINATION
5.1 Mutual Agreement. This Agreement may be terminated at any time prior
to the Closing by the written consent of Microsoft and GM.
5.2 Termination by GM. This Agreement may be terminated by GM alone, by
means of written notice to Microsoft, if there has been a material breach by
Microsoft of any representation, warranty, covenant or agreement set forth in
the Agreement or any Transaction Agreement, which breach has not been cured
within ten business days following receipt by Microsoft of notice of such
breach.
5.3 Termination by Microsoft. This Agreement may be terminated by
Microsoft alone, by means of written notice to GM, if there has been a material
breach by GM of any representation, warranty, covenant or agreement set forth in
the Agreement or any Transaction Agreement, which breach has not been cured
within ten business days following receipt by GM of notice of such breach.
5.4 Effect of Termination. In the event of termination of this Agreement
by either GM or Microsoft as provided in this Article, and notwithstanding that
GM may have taken certain actions in contemplation of the Closing, this
Agreement shall forthwith become void and have no effect, and there shall be no
liability or obligation on the part of Microsoft, GM or their respective
officers or directors or shareholders, except that (i) the provisions of
Sections 3.1, 3.2 and 6.2 shall survive any such termination and abandonment,
and (ii) no party shall be released or relieved from any liability arising from
the willful breach by such party of any of its representations, warranties,
covenants or agreements as set forth in this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, including the exhibits and
schedules delivered pursuant to this Agreement, together with the Transaction
Documents between the parties contain all of the terms and conditions agreed
upon by the parties relating to the subject matter of this Agreement and
supersede all prior agreements, negotiations, correspondence,
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undertakings, and communications of the parties, whether oral or written,
respecting that subject matter.
6.2 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
6.3 Headings. The headings contained in this Agreement are intended
principally for convenience and shall not, by themselves, determine the rights
of the parties to this Agreement.
6.4 Notices. All notices, requests, demands, or other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given: (i) on the date of
delivery if personally delivered by hand, (ii) upon the third day after such
notice is (a) deposited in the United States mail, if mailed by registered or
certified mail, postage prepared, return receipt requested, or (b) sent by a
nationally recognized overnight express courier, or (iii) by facsimile upon
written confirmation (other than the automatic confirmation that is received
from the recipient's facsimile machine) of receipt by the recipient of such
notice:
If to Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Robert A. Eshelman
Telephone No.: (425) 882-8080
Facsimile No.: (425) 869-1327
With a copy to: Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
Attention: Mark R. Beatty
Telephone No.: (206) 623-7580
Facsimile No.: (206) 623-7022
If to GM: General Magic, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: General Counsel
Telephone No.: (408) 774-4000
Facsimile No.: (408) 774-4022
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With a copy to: Gary Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James Koshland
Telephone No.: (650) 328-6561
Facsimile No.: (650) 327-3699
Such addresses may be changed, from time to time, by means of a notice given in
the manner provided in this Section 6.4.
6.5 Severability. In the event any provision of this Agreement shall be
unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceablility or invalidity shall not render this
Agreement unenforceable or invalid as a whole, and, in such even, such provision
shall be changed and interpreted so as to best accomplish the objectives of such
provision within the limits of applicable law or applicable court decisions.
6.6 Survival of Representations and Warranties. The representations,
warranties and covenants of GM and Microsoft contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Microsoft or its counsel or GM or its
counsel, as the case may be.
6.7 Assignment. No party to this Agreement may assign, by operation of
law or otherwise, all or any portion of its rights, obligations, or liabilities
under this Agreement.
6.8 Counterparts. This Agreement may be executed in two or more
partially or fully executed counterparts and by facsimile signatures each of
which shall be deemed an original and shall bind the signatory, but all of which
together shall constitute but one and the same instrument. The execution and
delivery of a signature page in the form annexed to this Agreement by any party
hereto who shall have been furnished the final form of this Agreement shall
constitute the execution and delivery of this Agreement by such party.
6.9 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
6.10 Extension, Waiver. At any time prior to the Closing, any party
hereto may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements, covenants or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
6.11 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section, Exhibit
or Schedule to this Agreement unless
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otherwise indicated. The words "INCLUDE," "INCLUDES," and "INCLUDING" when used
therein shall be deemed in each case to be followed by the words "WITHOUT
LIMITATION." The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"GM"
GENERAL MAGIC, INC.
By:____________________________
Its:___________________________
[NAME]
"MICROSOFT"
MICROSOFT CORPORATION
By:____________________________
[NAME]
Its:___________________________
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EXHIBIT 4.6
PATENT LICENSE AGREEMENT
This is a Patent License Agreement ("Agreement") between General Magic,
Inc., a Delaware corporation having a principal place of business at 420 N. Mary
Avenue, Sunnyvale, California 94086 ("General Magic"), and Microsoft
Corporation, a Washington corporation having a principal place of business at
One Microsoft Way, Redmond, Washington 98052-6339
("Microsoft").
RECITALS
WHEREAS General Magic owns all right, title and interest in and to the
Licensed Patents.
WHEREAS Microsoft and its Subsidiaries desire a license under the
Licensed Patents to develop, manufacture, use, sell, and exercise other rights
with respect to Licensed Product(s) as defined below.
NOW, THEREFORE, in view of the good and valuable consideration provided in this
Agreement, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Definitions.
1.1 "Licensed Patents" means (a) U.S. Patent No. 5,603,031 (the
"'031 Patent"), (b) any extensions, divisions, continuations,
continuations-in-part, reexaminations, and reissues thereof, (c) any foreign
patent applications or patents corresponding thereto, and (d) any other patent
applications, patents or intellectual property reasonably necessary to the
commercial practice of the inventions disclosed and claimed in any of the
patents or patent applications identified in (a), (b) or (c) above, where such
application, patent, or other intellectual property is owned or licensable by
General Magic at any time prior to or after the Effective Date.
1.2 "Microsoft Product" means any product developed,
manufactured, offered or distributed by or for Microsoft or its current or
future Subsidiaries, including without limitation operating systems, platforms,
development tools and languages.
1.3 "Licensed Product" means any product, including
redistributable portions thereof, which implements in whole or part an invention
of the Licensed Patents and which is either (a) a Microsoft Product, (b) a
product that executes on a Microsoft Product, or (c) a product created by a
Microsoft Product. "Licensed Products" includes products which may or may not
provide additional functionality beyond that claimed in the Licensed Patents.
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1.4 "Subsidiary" means a corporation, company or other entity:
(i) at least 50% of whose outstanding shares or securities (representing the
right to vote for the election of directors or other such managing authority)
are, now or hereafter, owned or controlled directly or indirectly by a party
hereto, but such corporation, company, or other entity shall be considered to be
a Subsidiary only so long as such ownership or control exists; or (ii) which
does not have outstanding shares or securities, as may be the case with a
partnership, joint venture, or unincorporated association, but at least 50% of
whose ownership interest representing the right to make decisions for such
corporation, company, or other entity is, now or hereafter, owned or controlled,
directly or indirectly by a party hereto, but such corporation, company, or
other entity shall be considered to be a Subsidiary only so long as such
ownership or control exists.
1.5 "Effective Date" shall mean the date on which Microsoft pays
General Magic the License Fee set forth in Section 4.1.
2. License Grants.
2.1 General Magic hereby grants to Microsoft and its current and
future Subsidiaries a worldwide, nonexclusive, perpetual, irrevocable, fully
paid license under the Licensed Patents to exercise any and all legal rights
with respect to Licensed Products, including without limitation the right and
license to make, have made, modify, improve, use, sell, offer to sell, import,
distribute, have distributed, or otherwise transfer Licensed Products and
products incorporating Licensed Products, and to practice any method in the
manufacture or use of such Licensed Products, and to provide services and allow
third parties to use those services.
2.2 Microsoft and its current and future Subsidiaries may grant
any third party a worldwide, nonexclusive, perpetual, irrevocable, fully paid
license under the Licensed Patents to exercise any and all legal rights with
respect to Licensed Products, including without limitation the right and license
to make, have made, modify, improve, use, sell, offer to sell, import,
distribute, have distributed, or otherwise transfer Licensed Products and
products incorporating Licensed Products, and to practice any method in the
manufacture or use of such Licensed Products, and to provide services and allow
others to use those services. Microsoft and its current and future Subsidiaries
may grant any third party the right under the Licensed Patents to sublicense
others through multiple tiers of manufacture and distribution to exercise any
rights granted to that third party hereunder.
2.3 For a period of two years after the Effective Date of this
Agreement, the license granted under Section 2.1 and 2.2 shall not permit
Microsoft and its current and future Subsidiaries to grant any third party the
right under the Licensed Patents to provide a product that exposes any
programming interfaces to any functionality of any invention of the Licensed
Patents for use by a product of another third party, except programming
interfaces to any original such functionality implemented by or for Microsoft or
its Subsidiaries in a Licensed Product. In any event, Microsoft and its
Subsidiaries may grant third parties the right to provide a product that exposes
programming interfaces to modified or improved existing functionality of
Licensed Products that are already released or available through beta release
prior to the Effective Date of
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this Agreement.
2.4 General Magic also grants to Microsoft and its current and
future Subsidiaries a worldwide, nonexclusive, perpetual, irrevocable, fully
paid license under the Licensed Patents for any product of a third party to
execute instructions on or otherwise interact with any Licensed Product,
including without limitation exchanging data or executable instructions with
that Licensed Product.
2.5 General Magic has no obligation to further provide to
Microsoft and its Subsidiaries any source code, know-how, technical information
or technical assistance beyond that already provided and disclosed in the
Licensed Patents.
3. Releases.
3.1 General Magic hereby fully and forever releases and
discharges Microsoft and its Subsidiaries from any and all damages, liability,
suits, claims, and causes of action of any kind, whether known or unknown,
suspected or unsuspected, arising out of patent infringement or alleged patent
infringement occurring prior to the Effective Date.
3.2 General Magic hereby fully and forever releases and
discharges any third party from any and all damages, liability, suits, claims,
and causes of action of any kind arising out of the infringement or alleged
infringement of the Licensed Patents occurring prior to the Effective Date,
whether known or unknown, suspected or unsuspected, with respect to any Licensed
Product or third party product incorporating a Licensed Product, to the extent
that such infringement or alleged infringement would have been licensed, or not
subject to suit due to a representation, warranty or covenant hereunder, if it
had occurred after the Effective Date.
3.3 General Magic hereby fully and forever releases and
discharges any third party from any and all damages, liability, suits, claims,
and causes of action of any kind arising out of the infringement or alleged
infringement of the Licensed Patents occurring prior to the Effective Date,
whether known or unknown, suspected or unsuspected, with respect to any product
of that third party executing instructions on or otherwise interacting with any
Licensed Product, including without limitation exchanging data or executable
instructions with that Licensed Product, to the extent that such infringement or
alleged infringement would have been licensed, or not subject to suit due to a
representation, warranty or covenant hereunder, if it had occurred after the
Effective Date.
4. License Fee.
4.1 Microsoft agrees to pay to General Magic a nonrefundable
(except as set forth in Sections 4.2, 4.3, 5.1, and 5.2), prepaid license fee of
One Million Five Hundred Thousand Dollars ($1,500,000) (the "License Fee"). The
License Fee shall be paid within 30 days of the execution of this Agreement.
4.2 If during the term of this Agreement, four or more of the
independent
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claims of the Licensed Patents are either (1) held to be invalid or
unenforceable by a court or administrative agency of competent jurisdiction, or
(2) are narrowed by an administrative agency with authority, then General Magic
shall refund a percentage of the License Fee to Microsoft. After any three
independent claims are found invalid, unenforceable, or narrowed ("Initial Three
Claims"), the percentage shall be calculated as follows: (a) for each additional
independent claim (not one of the Initial Three Claims) found invalid or
unenforceable, the percentage refunded for that claim shall be equal to 1/11th
of the License Fee; and (b) for each additional independent claim (not one of
the Initial Three Claims) that is narrowed, the percentage refunded for that
claim shall be equal to 1/22nd of the License Fee. These payments shall not be
due until a judgement or decision in such action or proceeding is final either
(i) because any and all appeals have been denied through entry of a final order,
or (ii) because General Magic does not file an appeal before the last period to
appeal terminates ("Final Decision"). General Magic shall pay the amount of the
refund to Microsoft within sixty (60) days of the Final Decision as set forth in
this Section 4.2.
The total refund under this Section 4.2 shall not exceed
two-thirds of the License Fee set forth in Section 4.1 above. Furthermore,
Microsoft shall not receive any refund of a percentage of the License Fee if
Microsoft or its Subsidiaries initiates or funds directly or indirectly any
proceedings to invalidate or narrow the claims of the Licensed Patents, except
that Microsoft or its Subsidiaries may initiate such proceedings and receive
such refund if General Magic sues Microsoft or its Subsidiaries for any cause of
action arising under this agreement.
4.3 If, at any time before or after the Effective Date, General
Magic enters into an agreement with any party granting rights under or to the
Licensed Patents with more favorable payment terms than that set forth in this
Agreement, General Magic shall notify Microsoft of such payment terms within
thirty (30) days. Any payment terms are more favorable payment terms if the
License Fee of this Agreement is more than the total of any payments made under
that agreement either as a lump sum payment, fixed payments, or royalty
payments. If the payment terms includes any minimum or capped payment amount,
then the payment terms are more favorable if the License Fee of this Agreement
is more than the minimum or capped payment amount of that agreement. The
notification shall be in writing and in sufficient detail for Microsoft to
understand and evaluate such terms. Upon written demand given to General Magic,
this Agreement shall be amended to make the License Fee equivalent to the lesser
of the total, minimum, or capped payment amount of any such favorable payment
terms. General Magic shall refund to Microsoft the amount of the previous
License Fee paid in excess of such payment terms within thirty (30) days of the
date on which General Magic receives Microsoft's written notice. The following
grant of rights under or to the Licensed Patents shall be excluded from
consideration of more favorable payment terms under this Section 4.3: (a) any
agreement in settlement of a law suit initiated by a third party against General
Magic or as a result of a third party placing General Magic on notice of
specific allegations of infringement; (b) any patent cross-license resulting in
no payment or consideration to General Magic beyond the receipt of a patent
license or other in-kind consideration including rights or licenses in
non-patented technology; (c) any license granted in connection with the
development, maintenance, sale or use of a product or service developed,
manufactured, offered, or distributed by or for General Magic;
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(d) any agreements with Apple, AT&T, Cable & Wireless, France Telecom, Fujitsu,
Matsushita Electric, Mitsubishi Electric, Motorola, NTT, Northern Telecom, OKI,
Philips, PTT Telecom, Sanyo, Sony, Toshiba; and (e) any license to any legal
entity that has an annual revenue, including all revenues of its Subsidiaries
and affiliates, of less than $100,000,000 at the time the license is executed.
5. Obligation to Preserve Enforceability and Enforce.
5.1 General Magic agrees to maintain and otherwise preserve the
enforceability of its Licensed Patents issued by the United States, including
payment of any fees, such as maintenance fees, and other costs associated with
such activities. Upon failure to so maintain or otherwise preserve the
enforceability of its Licensed Patents, Microsoft may terminate this agreement
provided General Magic fails to remedy the breach within thirty (30) days
following receipt of written notice from Microsoft. In the event Microsoft
terminates this Agreement, General Magic shall refund a pro rata portion of the
License Fee for the remaining term of the Agreement to Microsoft within thirty
(30) days. General Magic agrees to notify Microsoft in the event that General
Magic decides not to perfect, maintain, or otherwise preserve the enforceability
of its Licensed Patents in foreign jurisdictions and General Magic agrees that
MS will have a right of first offer to purchase all right, title and interest in
and to any such Licensed Patents in those foreign jurisdictions. The parties
agree to negotiate in good faith provided that neither will have any further
obligation to negotiate with the other if they do not enter into a definitive
agreement for the assignment of the applicable Licensed Patents within
forty-five (45) days of commencing negotiations.
5.2 General Magic agrees to take prompt action to abate any known
infringement of the Licensed Patents by any third party that has an annual
revenue, including all revenues of all of its Subsidiaries and affiliates, of at
least $100,000,000. Upon failure to take prompt action to abate any such
infringement of the Licensed Patents within ninety (90) days from the day that
General Magic becomes aware of any such infringement, Microsoft may terminate
this agreement provided General Magic fails to take prompt action to abate such
infringement within thirty (30) days following receipt of written notice from
Microsoft. In the event Microsoft terminates this Agreement, General Magic shall
refund a pro rata portion of the License Fee for the remaining term of the
Agreement to Microsoft within thirty (30) days.
6. Representations and Warranties. As of the Effective Date of this
Agreement, General Magic represents and warrants to Microsoft as follows:
6.1 General Magic is the owner of the entire right, title, and
interest in and to the Licensed Patents;
6.2 General Magic has the right and power to grant the licenses
granted herein;
6.3 General Magic has not entered into any agreement with any
third parties, and is under no other obligations, that conflict with or
limit its ability to provide the
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licenses granted herein;
6.4 General Magic knows of no prior art or other grounds that
present a reasonable risk that one or more claims of the Licensed
Patents would be found invalid or unenforceable by a court or
administrative body of competent jurisdiction; and
6.5 General Magic has no knowledge of any actions for or
allegations of infringement against General Magic, its licensees or
customers with respect to products it manufactures and sells embodying
any inventions disclosed or claimed in the Licensed Patents anywhere in
the world.
7. Disclaimer of Warranties.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, GENERAL MAGIC MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER IMPLIED WARRANTIES.
8. Indemnification.
8.1 General Magic hereby agrees to indemnify, defend, and hold
Microsoft and its Subsidiaries harmless from any and all claims, demands, costs,
liabilities, losses, expenses and damages (including attorneys' fees, costs, and
expert witnesses' fees) arising out of or in connection with any claim that,
assuming the claimant's allegations to be true, would represent or otherwise
involve a breach by General Magic of any of General Magic's warranties,
representations and covenants set forth in this Agreement. General Magic shall
reimburse Microsoft or its Subsidiaries on demand for any payment made by
Microsoft or its Subsidiaries in respect of any liability or claim to which the
foregoing indemnity relates, and which has resulted in an adverse judgment
against Microsoft or its Subsidiaries or has been settled with the written
consent of General Magic.
8.2 Microsoft and its Subsidiaries shall (i) give General Magic
reasonably prompt notice in writing of any claim to which the foregoing
indemnity relates and permit General Magic, through counsel approved by
Microsoft or its Subsidiaries, which approval will not be unreasonably withheld,
to answer and defend such claim; (ii) provide General Magic reasonable
information, assistance and authority, at General Magic's expense, to assist
General Magic in defending the claim or action; and (iii) have the right to
retain separate counsel and participate in the defense of a claim or action at
Microsoft's own expense or may do so at General Magic's expense if counsel for
Microsoft reasonably concludes that an actual conflict of interest would exist
between Microsoft and General Magic in the conduct of any such defense.
8.3 Microsoft and its Subsidiaries reserve the right to solely
defend against any actions brought against Microsoft or its Subsidiaries arising
out of or in connection with any claim covered under this Section 8. If
Microsoft or its Subsidiaries elect to solely defend against
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any actions under this Section 8.3, Sections 8.1 and 8.2 shall not apply.
9. Limitation on Liability.
GENERAL MAGIC'S AGGREGATE LIABILITY UNDER THIS AGREEMENT SHALL
NOT EXCEED AN AMOUNT EQUAL TO THE LICENSE FEE, EXCEPT:
(i) General Magic's liability for breach of its representation
and warranties under Sections 6.1, 6.2, and 6.3 are unlimited;
(ii) General Magic's liability for breach of its representation
and warranties under Section 6.5 shall be limited to twice the License Fee paid
by Microsoft to General Magic; and
(iii) EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY SHALL BE
LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES, WHETHER
GROUNDED IN TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, CONTRACT OR
OTHERWISE. THIS LIMITATION ON LIABILITY SHALL NOT APPLY TO CLAIMS ARISING OUT OF
GENERAL MAGIC'S BREACH OF ITS OBLIGATIONS UNDER SECTION 5 OR ARISING OUT OF
GENERAL MAGIC'S BREACH OF ITS REPRESENTATIONS AND WARRANTIES UNDER SECTION 6.
10. No Trademark License
Nothing in this Agreement or its performance shall grant either party any right,
title, interest, or license in or to the other's names, logos, logotypes, trade
dress, designs, or other trademarks.
11. Confidentiality and Public Disclosure.
11.1 The parties each expressly undertake to retain in confidence
all Confidential Information disclosed by one party to the other hereunder
pursuant to the terms and conditions set forth in that certain Non-Disclosure
Agreement entered into between Microsoft and General Magic on January 9, 1997,
which is incorporated herein by this reference. The parties agree that the terms
and conditions of this Agreement constitute Confidential Information. The timing
as to the disclosure of the existence of this Agreement shall be mutually agreed
upon between the parties. Under no circumstances shall the parties disclose the
financial terms of this Agreement unless required by law or in conjunction with
a judicial proceeding, in which case reasonable care will be taken to limit
disclosure and dissemination of terms. General Magic may, however, disclose the
Agreement and its terms to third parties which request such disclosure pursuant
to due diligence regarding the acquisition of General Magic or all or
substantially all of its assets or the acquisition of securities of General
Magic, provided that such third parties enter into written agreements to keep
the information in confidence and to use it only with respect to the transaction
contemplated by such diligence request. If either party is subsequently required
to make such disclosure or a filing with the Securities and Exchange Commission
("SEC Documents"), it shall advise the other party in advance of such
disclosure,
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and shall otherwise minimize the dissemination of information disclosed, for
example, by redacting to the fullest extent permissible the terms and conditions
of this Agreement, including payment information. This confidentiality provision
shall in all other respects continue to be in force for both parties even if
such disclosure is required.
11.2 The parties shall mutually agree upon the timing and exact
wording of a joint press release. Unless otherwise agreed to in writing, the
parties comments on this Agreement in the joint press release shall be limited
to substantially the following: "General Magic and Microsoft have entered into a
patent license agreement, the terms and conditions of which are confidential."
12. Term and Termination.
12.1 The term of this Agreement and the license granted hereunder
shall extend from the earliest filing date of the Licensed Patents to the
expiration of the enforceability of the last to expire of the Licensed Patents
or the termination of this agreement pursuant to Section 5.1, 5.2 or 12.2,
whichever occurs first.
12.2 Microsoft may terminate this Agreement if General Magic is
in material breach of any provision hereof and fails to remedy any such breach
within thirty (30) days after written notice thereof by Microsoft.
12.3 The following provisions survive any termination of this
Agreement: Sections 1 (Definitions), 2 (License Grants), 3 (Releases), 6
(Representations and Warranties), 7 (Disclaimer of Warranties), 8
(Indemnification), 9 (Limitations on Liability), 11 (Confidentiality and Public
Disclosure), 13.1, 13.5, and 13.6.
13. General.
13.1 All notices permitted or required under this Agreement shall
be in writing and shall be delivered as follows with notice deemed given as
indicated (i) by personal delivery when delivered personally, (ii) by overnight
courier upon written verification of receipt, (iii) by telecopy or facsimile
transmission when confirmed by telecopier or facsimile transmission, or (iv) by
certified or registered mail, return receipt requested, five (5) days after
deposit in the mail. All notices must be sent to the parties at the following
addresses:
If to General Magic:
GENERAL MAGIC, INC.
420 N. Mary Avenue
Sunnyvale, California 94806
Attn: General Counsel
Fax No.: (408) 774-4033
Phone: (408) 774-4000
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If to Microsoft:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052-6399
Attn: Associate General Counsel
Fax No.: (425) 936-7329
Phone: (425) 882-8080
cc: Law and Corporate Affairs
Fax No.: (425) 936-7409
or to such other address that the receiving party may have
provided for the purpose of notice in accordance with this Section 13.1.
13.2 Neither party shall be liable hereunder by reason of any
failure or delay in the performance of its obligations hereunder (except for the
payment of money) on account of strikes, shortages, riots, insurrection, fires,
flood, storm, explosions, acts of God, war, governmental action, labor
conditions, earthquakes, or any other cause which is beyond the reasonable
control of such party.
13.3 The failure of either party to require performance by the
other party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
13.4 In the event that any provision of this Agreement shall be
unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity shall not render this
Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such provisions within the limits of applicable law or applicable
court decisions.
13.5 This Agreement shall be governed by the laws of the State of
Washington. The parties hereby consent to and submit to the jurisdiction of the
federal and state courts located in the State of Washington. The parties will
not raise in connection with any action or suit hereunder, and hereby waive, any
defenses based upon the venue, the inconvenience of the forum, the lack of
personal jurisdiction or the like in any action or suit brought in the State of
Washington.
13.6 If either party employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs, including expert
witness fees.
13.7 Nothing contained herein shall be construed as creating any
agency,
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partnership, or other form of joint enterprise between the parties.
13.8 The Section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such Section or in any way affect such
Section.
13.9 This Agreement may be executed simultaneously in two or more
counterparts, each of which will be considered an original, but all of which
together will constitute one and the same instrument.
13.10 The parties hereto agree that this Agreement and the
Non-Disclosure Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior and
contemporaneous communications. This Agreement shall not be modified except by a
written agreement dated subsequent hereto signed on behalf of each party by
their duly authorized representatives.
13.11 General Magic must assign this Agreement to any person to
whom it transfers all or substantially all of its proprietary assets, and
Microsoft may assign this Agreement to any subsidiary or affiliate in which
Microsoft owns a 50% or greater share of the equity interest. General Magic may
also assign this Agreement without Microsoft's consent in the context of any
merger or acquisition or other corporate reorganization in which General Magic
is not the surviving entity or which involves a change of control of General
Magic. Otherwise, neither party may assign, voluntarily, by operation of law, or
otherwise, any rights or delegate any duties under this Agreement (excluding the
sublicensing of license rights authorized under Section 2.2) without the other
party's prior written consent, which consent will not be unreasonably withheld,
and any attempt to do so without that consent will be void. In the event General
Magic assigns any of the Licensed Patents, all obligations under this Agreement
must be assumed by the assignee. This Agreement will bind and inure to the
benefit of the parties and their respective successors and permitted assigns.
13.12 Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not be effective until it has been approved by the Board of
Directors of General Magic. Notwithstanding anything in this Agreement to the
contrary, payment of the License Fee under Section 4.1 shall not be due before
30 days after this Agreement has been approved by the Board of Directors of
General Magic.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate originals by their duly authorized officers or representatives.
General Magic, Inc. Microsoft Corporation
General Magic Microsoft
__________________________________ _________________________________________
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Signature Signature
__________________________________ _________________________________________
Name Name
__________________________________ _________________________________________
Title Title
__________________________________ _________________________________________
Date Date
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<PAGE> 1
EXHIBIT 4.7
COVENANT NOT TO SUE
This Covenant Not to Sue ("Agreement") is made and entered into as of
February ____, 1998 by and between General Magic, Inc., a Delaware corporation
(the "Company"), and Microsoft Corporation, a Washington corporation
("Microsoft").
RECITALS
A. Microsoft has agreed to purchase from the Company, and the Company
has agreed to sell to Microsoft, an aggregate of fifty thousand (50,000) shares
of the Company's Series A Convertible Preferred Stock, par value $0.001 (the
"Series A Shares"), upon the terms and conditions set forth in that certain
Preferred Stock Purchase Agreement of even date herewith by and between the
Company and Microsoft (the "Preferred Stock Purchase Agreement").
B. Microsoft and the Company will enter into a Patent License Agreement
("Patent License Agreement") concurrently with the closing of the purchase
contemplated by the Preferred Stock Purchase Agreement.
C. In connection with the purchase and sale of the Series A Preferred
Shares and the execution of the Patent License Agreement, the parties desire to
enter into this Agreement setting forth certain terms and conditions regarding
the agreement by the Company not to pursue claims related to its patents, as
more fully described herein. The parties intend that this Agreement shall be
supplemental to the Patent License Agreement pursuant to 11 U.S.C. Section
365(n).
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
1.1 Subsidiary. The term "Subsidiaries" means any corporation,
company or other entity: (i) at least 50% of whose outstanding shares or
securities (representing the right to vote for the election of directors or
other such managing authority) are, now or hereafter, owned or controlled
directly or indirectly by a part hereto, but such corporation, company, or other
entity shall be considered to be a Subsidiary only so long as such ownership or
control exists; or (ii) which does not have outstanding shares or securities, as
may be the case with a partnership, joint venture, or unincorporated
association, but at least 50% of whose ownership interest representing the right
to make decisions for such corporation, company, or other entity is, now or
hereafter, owned or controlled, directly or indirectly by a party hereto, but
such corporation, company, or other entity shall be considered to be a
Subsidiary only so long as such ownership or control exists.
1.2 Investment Period. The term "Investment Period" means the period
that commences upon the closing date of the Preferred Stock Purchase Agreement
and terminates
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upon Microsoft's sale or disposition of more than fifty percent (50%) of the
Series A Shares issued under the Preferred Stock Purchase Agreement, or shares
of Common Stock of the Company issued upon conversion of such Series A Shares.
1.3 Patents. The term "Patents" means all patents throughout the
world, other than design patents or the equivalents, which are entitled to an
effective filing date before or during the Investment Period and which are owned
or acquired by the Company or its Subsidiaries, or for which the Company or its
Subsidiaries has or acquires rights to, as of the Closing Date of the Preferred
Stock Purchase Agreement or during the Investment Period, including without
limitation those patents identified on Schedule 1.3.
1.4 Immunity Period. The term "Immunity Period" means the period
that commences upon the first filing and terminates upon the last to expire, of
any of the Patents in any jurisdiction.
2. Covenant of the Company Not To Sue. As partial consideration for the
Preferred Stock Purchase Agreement and other rights contemplated therein, and in
further consideration of Microsoft's agreement to evaluate the potential for a
further working relationship between the parties, the company and its
Subsidiaries agree not to (A) sue, or (B) bring, prosecute, assist or
participate in any judicial, administrative or other proceedings of any kind
against Microsoft or its Subsidiaries or its licensees (including without
limitation OEM customers and end users) for infringement of Patents which occurs
during the Immunity Period on account of the manufacture, use, sale, importation
or distribution of any releases of Microsoft products or products of Microsoft's
Subsidiaries. In the event the Company or its Subsidiaries assign any Patent or
rights to enforce any Patent, the Company or its Subsidiaries shall require as a
condition of any such assignment that the assignee agree to be bound by the
provisions of this Agreement, and any attempted assignment of any Patent or
rights to enforce any Patent in violation of the foregoing shall be deemed
invalid, null and void, and of no force or effect, and further shall have the
effects set forth in Section 3 below.
3. License in the Event of Breach. In the event Company assigns or
attempts to assign any Patent or rights to enforce any Patent in violation of
Section 2 hereof, Company shall be deemed to have granted a license to Microsoft
or its Subsidiaries or its licensees (including without limitation OEM customers
and end users) under the Patents, with such license having the same scope of the
license grant contained in Sections 2.1 and 2.2 of the Patent License Agreement.
4. General Provisions.
4.1 Termination; Survival. This Agreement and each of the covenants
and obligations contained herein shall terminate at the end of the Immunity
Period and shall not be affected by and shall survive (i) termination of the
Preferred Stock Purchase Agreement, the Patent License Agreement and any other
agreements contemplated in connection therewith, (ii) any merger or sale of
stock by any party hereto, (iii) dissolution or liquidation of any party hereto,
and (iv) any sale, assignment or exclusive license of one or more of the Patents
by the
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Company or its Subsidiaries, provided that no such sale or exclusive license
shall be consummated unless in compliance with Section 2 hereof.
4.2 Specific Performance. The parties agree that damages in the
event of breach of this Agreement by the Company or its Subsidiaries would be
difficult, if not impossible, to ascertain, and it is therefore agreed that
Microsoft, in addition to and without limiting any other remedy or right it may
have, shall have the right to an immediate injunction or other equitable relief
in any court of competent jurisdiction, enjoining any such threatened or actual
breach, and without posting any bond or other security. The existence of this
right shall not preclude Microsoft from pursuing any other rights and remedies
at law or in equity which Microsoft may have, including recovery of damages.
4.3 Waiver. The failure of either party to require performance by
the other party of any provision hereof shall not affect the full right to
require such performance at any time thereafter, nor shall the waiver of either
party of a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
4.4 Entire Agreement. This Agreement contains all of the terms and
conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersedes all prior agreements, negotiations, correspondence,
undertakings, and communications of the parties, whether oral or written,
respecting that subject matter.
4.5 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
4.6 Headings. The headings contained in this Agreement are intended
principally for convenience and shall not, by themselves, determine the rights
of the parties to this Agreement.
4.7 Severability. In the event any provision of this Agreement shall
be unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity shall not render this
Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such provision within the limits of applicable law or applicable
court decisions.
4.8 Assignment. Except as provided in Section 2 hereof, no party to
this Agreement may assign, by operation of law or otherwise, all or any portion
of its rights, obligations, or liabilities under this Agreement.
4.9 Counterparts. This Agreement may be executed in two or more
partially or fully executed counterparts and by facsimile signatures each of
which shall be deemed an original and shall bind the signatory, but all of which
together shall constitute but one and the same instrument. The execution and
delivery of a signature page in the form annexed to this Agreement by any party
hereto who shall have been furnished the final form of this Agreement shall
constitute the execution and delivery of this Agreement by such party.
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4.10 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
4.11 Notices. All notices, requests, demands, or other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given: (i)
on the date of delivery if personally delivered by hand, (ii) upon the third day
after such notice is (a) deposited in the United States mail, if mailed by
registered or certified mail, postage prepared, return receipt requested, or (b)
sent by a nationally recognized overnight express courier, or (iii) by facsimile
upon written confirmation (other than the automatic confirmation that is
received from the recipient's facsimile machine) of receipt by the recipient of
such notice:
If to Microsoft: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Robert A. Eshelman
Telephone No.: (425) 882-8080
Facsimile No.: (425) 869-1327
With a copy to: Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
Attention: Mark R. Beatty
Telephone No.: (206) 623-7580
Facsimile No.: (206) 623-7022
If to GM: General Magic, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: General Counsel
Telephone No.: (408) 774-4000
Facsimile No.: (408) 774-4022
With a copy to: Gary Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James Koshland
Telephone No.: (650) 328-6561
Facsimile No.: (650) 327-3699
Such addresses may be changed, from time to time, by means of a notice given in
the manner provided in this Section 4.11.
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4.12 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section, Exhibit
or Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein shall be deemed in each case to be
followed by the words "without limitation." The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(remainder of page intentionally left blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"COMPANY" "MICROSOFT"
GENERAL MAGIC, INC. MICROSOFT CORPORATION
By:_______________________________ By:______________________________________
Title:____________________________ Title:___________________________________
Date:_____________________________ Date:____________________________________
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EXHIBIT 5.1
[GRAY CARY WARE & FREIDENRICH LLP LETTERHEAD]
June 5, 1998
Securities and Exchange Commission
450 Fifth Street, N.W
Washington, D.C. 20549
RE: GENERAL MAGIC, INC.
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
As legal counsel for General Magic, Inc., a Delaware corporation (the
"Company"), we are rendering this opinion in connection with the preparation and
filing of a registration statement on Form S-3 (the "Registration Statement")
relating to the registration under the Securities Act of 1933, as amended, of
19,749,175 shares (the "S-3 Shares") of Common Stock, par value $0.001 per share
(the "Common Stock"), (i) to be issued by the Company upon conversion of shares
of the Company's 5 1/2% Cumulative Convertible Series B Preferred Stock and upon
exercise of certain warrants, (ii) issued by the Company in connection with the
acquisition of a privately-held company, and (iii) to be issued by the Company
upon conversion of shares of the Company's Series A Convertible Preferred Stock.
We have examined such instruments, documents and records as we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the S-3 Shares are, or
when issued will be, duly authorized shares, validly issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and the use of our name wherever it
appears in said Registration Statement.
This opinion is to be used only in connection with the issuance of the Common
Stock while the Registration Statement is in effect.
Respectfully submitted,
/s/ GRAY CARY WARE & FREIDENRICH LLP
- -------------------------------------
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
General Magic, Inc.:
We consent to incorporation by reference in Amendment No. 2 to the registration
statement (No. 333-51685) on Form S-3 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. We also consent to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Mountain View, California
June 5, 1998
