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Filed Pursuant to Rule 424(c)
Registration Statement No. 333-59723
5,383,459 SHARES (issuable upon conversion of Series C
Convertible Preferred Stock) 225,000 SHARES
(issuable upon exercise of issued warrants)
GENERAL MAGIC, INC.
COMMON STOCK
The 5,608,459 shares of Common Stock of General Magic Inc., a Delaware
corporation ("General Magic" or the "Company"), offered by this Prospectus (the
"Shares") are issuable upon conversion of issued shares of Series C Convertible
Preferred Stock of the Company (the "Series C Shares") and upon exercise of
issued warrants to purchase Common Stock (the "Warrants"). 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"). Pursuant to Rule
416 promulgated under the Securities Act, this Registration Statement also
covers such indeterminable number of additional shares as may become issuable
upon conversion of Series C Shares and exercise of the Warrants (i) to prevent
dilution resulting from stock splits, stock dividends or similar transactions,
and (ii) if permitted by law, by reason of changes in the conversion rate of the
Series C Shares in accordance with the terms of the Certificate of Designations,
Preferences and Rights of Series C Convertible Preferred Stock (the "Series C
Certificate of Designations") or changes in the number of shares issuable upon
exercise of the Warrants in accordance with the terms of the Warrants.
The Series C Shares and the Warrants were issued in connection with a
privately placed equity financing to institutional investors (the "Institutional
Investors"), pursuant to a Securities Purchase Agreement (the "Agreement").
Pursuant to the Agreement, the Company issued 3,000 Series C Shares which are
convertible into shares of the Company's Common Stock as set forth in the Series
C Certificate of Designations. The Series C Shares are convertible, at the
option of the holder, into shares of Common Stock at the lower of (i) $19.49 and
(ii) a price based on the market price of the Common Stock prior to conversion.
With limited exceptions, the Series C Shares are not convertible into Common
Stock until five months after the date of issuance and, subject to extension
under certain circumstances, shall automatically convert into Common Stock on
June 25, 2001, unless sooner converted. The number of shares of Common Stock
into which the Series C Shares are convertible may be subject to adjustment in
the event (i) of stock splits, stock dividends or similar transactions; (ii) of
the Company's failure to comply with certain requirements, including
requirements relating to the registration of the Common Stock into which the
Series C Shares are convertible, and the timely conversion of the Series C
Shares in certain circumstances; (iii) the Company issues or sells, or is deemed
to have issued of sold, shares of Common Stock at a price less than $19.49; and
(iv) the Company issues or sells convertible securities within one year
following the date this registration statement becomes effective that are
convertible into Common Stock at a price which varies with the market price of
the Common Stock and which price is calculated using a different formula than
the formula used to calculate the conversion price of the Series C Shares. The
Series C Shares accrue dividends at a rate of 5% per annum, payable quarterly in
cash or in shares of Common Stock.
In connection with the sale of the Series C Shares, certain holders of
shares of the Company's 5 1/2% Cumulative Convertible Series B Preferred Stock
(the "Series B Preferred Stock") agreed (i) to purchase 2,000 additional shares
of Series B Preferred Stock and warrants to purchase an additional 160,000
shares of Common Stock for an aggregate purchase price of $2,000,000 and (ii) to
convert at least 2,500 currently outstanding shares of Series B Preferred Stock
into Common Stock. In addition, the Company waived its rights to require the
holders of the Series B Preferred Stock to purchase an additional 5,000 shares
of Series B Preferred Stock and warrants to acquire 400,000 shares of Common
Stock.
The Warrants are exercisable for 150,000 shares of the Company's Common
Stock at an exercise price of $17.22 per share, have a term of three (3) years,
and may be exercised for cash or on a cashless basis based on the net
appreciated value of the underlying shares.
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
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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, all 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 September 16, 1998, the last sale price of the Company's
Common Stock as reported on The Nasdaq National Market was $5.969.
----------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 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 COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSEDUPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------------------------
The date of this Prospectus is September 18, 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. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
filed with the Commission on August 14, 1998;
2. Report on Form 8-K filed with the Commission on June 29, 1998;
3. 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;
4. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 15, 1998;
5. Amended Annual Report on Form 10-K/A for the year ended December 31,
1997, filed with the Commission on April 30, 1998;
6. Annual Report on Form 10-K for the year ended December 31, 1997, filed
with the Commission on March 31, 1998; and
7. 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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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, continue to develop and enhance the Portico(TM)
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 June 30, 1998, the Company had an accumulated deficit
of $183.3 million, with net losses of $13.8 million, $28.4 million and $45.6
million for the six-month period ended June 30, 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 was
released in a progressive rollout beginning on 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.
POTENTIAL DILUTIVE EFFECTS. The number of shares of Common Stock which may
be issued upon conversion of the Series B Preferred Stock is dependent upon the
trading price of the 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 Preferred Stock will increase. The number of shares of Common Stock
which may be issued upon conversion of the Series C Shares is also dependent
upon the trading price of the Common Stock during the 20 days prior to the time
of conversion. If the sales price of the Common Stock decreases, the number of
shares of Common Stock issuable upon conversion of the Series C Shares will
increase.
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
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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
commercial release of the Portico service 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 device. The Company believes
that in order to successfully market its Portico service, it must, among other
things, enter into distribution arrangements with resellers, telephony providers
such as wireless and wireline carriers, as well as 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 three VARs. There can be no assurance that the
Company will be able to establish distribution relationships with 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, that it will develop as quickly as expected or that it will not 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 Portico
service will develop, or that the Company's Portico 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.
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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. Moreover, the Company has limited control over whether or to what
extent interests in such third parties or third-party technologies are acquired
by companies with which the Company may now or in the future compete. A third
party's failure or refusal, for any reason, to timely develop, license or
support the software technology, or the occurrence of errors in such technology,
could prevent or delay introduction or market acceptance, or continued
maintenance and support, 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. 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.
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 continues to incorporate authentication,
encryption and other security technologies in its Portico service. 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
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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 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
of enhancements to, or the cessation of, the Company's service. Any such
expenditures, lawsuits, reduction of subscribers, interruptions or delays in
enhancement to 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.
LIMITED RESOURCES. Building, maintaining and enhancing the Portico service
is a complex process that requires significant engineering and financial
resources. Among other things, the Company must develop enhancements to the
Portico service, establish strategic distribution 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 support 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 the 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 timely enhance the Portico service, or to respond to market
demand for the 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. 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.
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 market price of the Company's Common Stock has ranged from a high of
$26.625 to
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a low of $0.938 per share. Factors such as quarterly fluctuations in the
Company's results of operations or the announcements of technological
innovations or strategic alliances or the introduction of new products or
services by the Company or its competitors may have a significant impact on the
market price of the Company's Common Stock.
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 or services obsolete and
unmarketable. The Company's future success will depend upon its ability to
timely develop and introduce new products and services, 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.
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. In addition, the Company is
currently evaluating whether the systems of other companies on which the Company
relies, including its customers and suppliers, will be "Year 2000" compliant.
There can be no assurance that a failure by another company to be "Year 2000"
compliant would not have a material adverse effect on the Company's business,
operating results or 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
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the event of such a failure or disaster, the Company's business, operating
results and financial condition could be materially adversely affected.
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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 was released in a progressive
rollout beginning on July 30, 1998. The Portico service allows 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 designed 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 has developed 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.
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 C Shares.
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<PAGE> 11
SELLING STOCKHOLDERS
The Selling Stockholders hold or will hold shares of Common Stock which are
issuable upon conversion of the Series C Shares and upon exercise of the
Warrants. The table below lists the Selling Stockholders, the number of shares
of Common Stock which each owns or will own, assuming a conversion and exercise
date of July 23, 1998 for the Series C Shares and Warrants, respectively, 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
Shares Beneficially Shares Offered Beneficially
Owned Prior to the by this Owned After Percentage
Selling Stockholder (1) Offering (2) Prospectus (2) the Offering (3) of Class (4)
- --------------------------------------- ------------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Themis Partners L.P. 279,111 234,311 44,800 (5)
Heracles Fund 560,284 515,484 44,800 (5)
RGC International Investors, LDC 1,970,592 1,124,692 845,900 2.9
Halifax Fund, L.P. 2,065,904 656,070 1,409,833 4.9
Palladin Partners I, L.P. 93,724 93,724 -- (5)
Palladin Overseas Fund Limited 46,862 46,862 -- (5)
The Gleneagles Fund Company 46,862 46,862 -- (5)
Palladin Securities, LLC 46,862 46,862 -- (5)
Colonial Penn Life Insurance Company 46,862 46,862 -- (5)
AFO Capital Advisors, LLC 142,000 30,000 112,000 (5)
TOTALS: 5,299,063 2,841,729 2,457,333
</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) 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 Warrants as described in this Prospectus.
Pursuant to the Company's agreement with the Institutional Investors as set
forth in the 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) 200% of the shares of Common Stock that
would be issued had all Series C Shares been converted on July 23, 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 C 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
C Shares and exercise of the Warrants by reason of the floating rate
conversion price mechanism or other adjustment mechanisms described in the
Series C Certificate of Designations, 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 C Certificate of Designations, if the Series C
Shares had been actually converted on July 23, 1998, the
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<PAGE> 12
conversion price would have been $11.188, at which price the Series C
Shares would have been converted into approximately 2,691,729 shares of
Common Stock. Pursuant to the terms of the Series C Certificate of
Designations and the Warrants, the Series C Shares are convertible and the
Warrants are exercisable 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 C
Shares and unexercised portions of the Issued Warrants) would not exceed
4.99% of the Company's outstanding Common Stock as determined in accordance
with Section 13(d) of the Exchange Act. This 4.99% restriction may be
lifted or modified under certain circumstances, with at least 61 days
advance notice.
(3) Assumes the sale of all shares offered hereby.
(4) Based on 28,818,653 shares of Common Stock outstanding as of April 28,
1998.
(5) Represents less than 1%.
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 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.
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 commission or discount 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 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
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<PAGE> 13
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.
13
<PAGE> 14
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.................3
Incorporation of Certain
Documents by Reference..............3
Risk Factors..........................4
The Company...........................9
Use of Proceeds.......................9
Selling Stockholders.................10
Plan of Distribution.................11
Legal Matters........................12
Experts..............................12
</TABLE>
5,608,459 SHARES
GENERAL MAGIC, INC.
COMMON STOCK
--------------
PROSPECTUS
--------------
September 18, 1998
