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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GENERAL MAGIC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7372 77-0250147
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
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)
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, CA 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. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
Title of Each Class of AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
Securities to be REGISTERED OFFERING PRICE OFFERING REGISTRATION FEE
Registered PER SHARE PRICE
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<S> <C> <C> <C> <C>
Common Stock ($0.001 par 16,059,401 shares (1) 7.52 (2) $120,766,696 $35,626
value)
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Common Stock ($0.001 par 600,000 shares (3) 7.52 (4) $4,512,000 $ 1,331
value)
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Common Stock ($0.001 par 1,342,524 shares (5) 7.52 (2) $10,095,780 $ 2,978
value)
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TOTAL 18,001,925 shares $135,374,476 $39,935
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</TABLE>
(1) Represents 400% of the shares of Common Stock issuable upon conversion
of all issued or issuable shares of 5 1/2% Cumulative Convertible Series
B Preferred Stock as described in the Prospectus, assuming that such
conversion is as of the date of this Registration Statement. Additional
shares will be issuable upon exercise of warrants that may be 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 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).
(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 shares of Common Stock issued in connection with the
acquisition of a privately-held company.
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 MAY 1, 1998
16,059,401 SHARES (issuable upon conversion of 5 1/2% Cumulative Convertible
Series B Preferred Stock)
600,000 SHARES (issuable upon exercise of warrants)
1,342,524 SHARES (issued in connection with the acquisition of a privately-held
company)
GENERAL MAGIC, INC.
COMMON STOCK
The 18,001,925 shares of Common Stock of General Magic Inc., a
Delaware corporation ("General Magic" or the "Company"), offered by this
Prospectus (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 warrants to purchase Common Stock
(the "Issued Warrants"); and (ii) were issued in connection with the acquisition
of a privately-held company (the "Acquisition Shares," and together with the
Series B Shares, the "Shares").
The Series B Shares were issued or are to be issued, and the Issued Warrants
were 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 at 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 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 pluls any and all
accrued and unpaid dividends. 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 redemption, plus any
and all accrued and unpaid dividends, and (ii) the holders of Series B Shares
the option in the event of a reorganization, consolidation, merger or sale of
substantially all of the assets of the Company, to compel the Company to
repurchase any or all of such holder's Series B Shares at a per share price
equal to one hundred thirty percent (130%) of the sum of the purchase price of
the Series B Shares held by such holder, plus any and all accrued and unpaid
dividends.
The Issued Warrants are exercisable for 400,000 shares of the Company's Common
Stock 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") (the Issued Warrants and Additional Warrants collectively referred
to herein as the "Warrants"). If issued, the Additional Warrants 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.
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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 April 24, 1998, the last sale price of the Company's
Common Stock as reported on The Nasdaq National Market was $7.6875.
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SEE "RISK FACTORS" BEGINNING ON PAGE 6 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 PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------
The date of this Prospectus is May 1, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (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. Annual Report on Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 31, 1998;
2. Amended Annual Report on Form 10-K/A for the year ended December
31, 1997, filed with the Commission on April 30, 1998;
3. 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; and
4. The definitive Proxy Statement for registrant's 1997 Annual
Meeting of Stockholders filed with the Commission on April 30,
1997 pursuant to Regulation 14A.
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
General Magic, Inc. (the "Company") develops and markets integrated
voice and data applications. The Company is currently developing an advanced
network service, code-named Serengeti, to meet the communication and information
management requirements of today's mobile professionals. The advanced network
service will allow subscribers to access and respond to information important to
their success, either through a highly developed voice user interface or a
leading Web browser. Among other things, the 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 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 Serengeti 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 Securities 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 advanced network 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 December 31, 1997, the Company had an accumulated
deficit of $147.7 million, with net losses of $28.4 million, $45.6 million and
$20.6 million for the years ended December 31, 1997, 1996 and 1995,
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
advanced network service is expected to be released by the middle of the year.
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 an advanced network service is a complex
process that requires significant engineering and financial resources. Among
other things, to implement its advanced network 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 advanced network 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
advanced network service may overwhelm the Company's limited staffs such that
the Company is unable to adequately respond to and satisfy customers' demand for
the advanced network service. The Company's failure to develop and launch its
advanced network service, or to respond to market demand for its advanced
network service, will likely have a material adverse effect on the Company's
business, operating results and financial condition.
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FUTURE CAPITAL REQUIREMENTS AND AVAILABILITY OF ADDITIONAL FINANCING. In
February of 1998, the Company completed a private placement of $4,500,000 of
Series A Convertible Preferred Stock to Microsoft and in March of 1998 the
Company completed a separate private placement of $5,000,000 of 5 1/2%
Cumulative Convertible Series B Preferred Stock and warranTS to institutional
investors (collectively, the "1998 Private Placements"). 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, the Company may need to seek additional sources of capital for the
Company. The Company has no 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 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
trading price of the Common Stock decreases, the number of shares of Common
Stock issuable upon conversion of the Series B 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 an advanced network 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 advanced network 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 advanced
network 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
advanced network service after it is commercially released which may result in
loss of or a delay in market acceptance of the Company's advanced network
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 advanced network service and DataRover 840
devices. The Company believes that in order to successfully market its advanced
network 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 advanced network service.
The failure of the Company to establish and then successfully maintain
distribution relationships for its advanced network service will have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company plans to distribute its DataRover family of products 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
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with additional VARs and outside sales representatives for its DataRover
products. 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 devices 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
device for the particular customer. If a customer decides not to purchase the
DataRover devices, 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 products 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 an advanced network 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 advanced network 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 advanced network 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 advanced network
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
advanced network 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 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 advanced network
service, which could have a material adverse effect on the Company's business,
operating results and financial condition.
With respect to its DataRover devices, 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
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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 advanced
network service or DataRover devices 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 services
and products are the availability of the Company's products and services; the
quality, performance and functionality of the advanced network service and
DataRover products 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 market 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 Issued 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. 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 advanced network
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 advanced
network service. However, there can be
9
<PAGE> 11
no assurance that such technology 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 advanced network service, including the Internet,
telephones, cellular phones and other wireless devices, may compromise the
security of the confidential electronic information accessed from the advanced
network service. There can be no assurance that the Company will be able to
provide a safe and secure advanced network service. The Company's failure to
provide a secure advanced network 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 advanced network 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
advanced network service or licensed technology incorporated into such service
or in the mediums by which subscribers access the advanced network service. Any
security problems in the advanced network 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 users of the advanced network
service and may cause interruptions or delays in the development and completion
of, or the cessation of, the Company's advanced network service. Any such
expenditures, lawsuits, reduction of users, interruptions or delays in the
development and commercial release of the advanced network 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 and engineering 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 embodying new technologies and the emergence of new industry standards
could render the Company's products and services obsolete and unmarketable. The
Company's future success will depend upon its ability to timely develop and
introduce new products and services, including the advanced network 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
10
<PAGE> 12
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, financial condition and results of
operations. 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, financial condition and results of operations.
SINGLE CALIFORNIA LOCATION. Currently, the Company's only network
operations center is located at its office in Sunnyvale, California. Operation
of the advanced network service is dependent in part upon the Company's ability
to protect the network operation 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 advanced
network 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.
11
<PAGE> 13
SELLING STOCKHOLDERS
The Selling Stockholders hold or will hold shares of Common Stock which
are issuable upon conversion of the Series B Shares and 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 and Warrant exercise date of May 1,
1998, 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 by this Owned After
Selling Stockholder (1) the 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 Olsen 20,356 (5) 20,356 (5) --
Robert Burgess 17,314 (5) 17,314 (5) --
Richard Kwan 14,269 (5) 14,269 (5) --
James Lee 7,257 (5) 7,257 (5) --
Grace S. Rhie 90,455 (5)(9) 7,257 (5) --
Victor Huang 5,269 (5) 5,269 (5) --
Venkat Ramasamy 4,354 (5) 4,354 (5) --
Vellaisamy S. Senthilkumar 3,423 (5) 3,423 (5) --
James Brown 2,903 (5) 2,903 (5) --
George Papazian 2,874 (5) 2,874 (5) --
Phyllis Fletcher 2,634 (5) 2,634 (5) --
Young S. Kim 2,377 (5) 2,377 (5) --
John S. Hahn 2,177 (5) 2,177 (5) --
L. Leigh Dayley 1,451 (5) 1,451 (5) --
Ik Kim 1,197 (5) 1,197 (5) --
Craig Knox 1,197 (5) 1,197 (5) --
Erik Nordhagen 908 (5) 908 (5) --
Mark Lewis 862 (5) 862 (5) --
Jill Wagner 145 (5) 145 (5) --
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
TOTALS: 3,424,041 (10) 3,424,041 --
</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 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 Issued Warrants. The actual number of shares of Common Stock
issuable upon conversion of Series B Shares and exercise of the Issued
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 Issued
Warrants by reason of the floating rate conversion price mechanism or
other adjustment mechanisms described therein, 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 Series B Shares had been actually converted on May 1, 1998, the
conversion price would have been $3.00, at which price the 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 Issued Warrants, the Series B Shares and the Issued
Warrants are convertible or 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 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.
(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 83,198 shares held by Kyung H. Rhie, Ms. Rhie's spouse.
(10) Includes shares beneficially owned by more than one Selling Stockholder
only with respect to one 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
13
<PAGE> 15
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 or otherwise 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.
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 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.
14
<PAGE> 16
EXPERTS
The consolidated financial statements of the Company incorporated by
reference and appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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.
15
<PAGE> 17
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 .................................................. 4
Incorporation of Certain
Documents By Reference .............................................. 4
The Company ............................................................ 5
Risk Factors ........................................................... 6
Use of Proceeds ........................................................ 11
Selling Stockholders ................................................... 11
Plan of Distribution ................................................... 13
Legal Matters .......................................................... 14
Experts ................................................................ 15
</TABLE>
18,001,925 SHARES
GENERAL MAGIC, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
May 1, 1998
<PAGE> 18
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 $ 40,617
Nasdaq filing fee $ 35,000
Accounting fees and expenses $ 5,000
Legal fees and expenses $ 30,000
Miscellaneous expenses $ 9,383
Total....................................................... $120,000
</TABLE>
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 Certificate of
Incorporation.
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> 19
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------------- -------------------------------------------------------------
<S> <C>
3.1 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 Certificate of Designation of Series A Convertible Preferred
Stock filed with the Delaware Secretary of State on February
27, 1998.
4.1 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 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 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 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.
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 Power of Attorney (included in the Signature Page contained
in Part II of the Registration Statement).
</TABLE>
* Certain portions of this document are subject to an Application for
Confidential Treatment filed with the Commission on May 1, 1998.
II-2
<PAGE> 20
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
II-3
<PAGE> 21
claim for 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> 22
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 May 1, 1998.
GENERAL MAGIC, INC.
/s/ STEVEN MARKMAN
By: ______________________________________
Steven Markman
President, Chief Executive Officer
and Chairman of the Board of Directors
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven Markman and James P. McCormick, or
either of them, as his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form
S-3, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-facts and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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> /s/ STEVEN MARKMAN <C> <C>
- ---------------------------- President, Chief Executive Officer, May 1, 1998
Steven Markman Chairman of the Board, Director
(Principal Executive Officer)
/s/ JAMES P. MCCORMICK
- ---------------------------- Chief Financial Officer (Principal May 1, 1998
James P. McCormick Financial and Accounting Officer)
/s/ MICHAEL E. KALOGRIS
- ---------------------------- Director May 1, 1998
Michael E. Kalogris
/s/ CARL F. PASCARELLA
- ---------------------------- Director May 1, 1998
Carl F. Pascarella
/s/ ROEL PIPER
- ---------------------------- Director May 1, 1998
Roel Piper
/s/ DENNIS F. STRIGL
- ---------------------------- Director May 1, 1998
Dennis F. Strigl
/s/ SUSAN G. SWENSON
- ---------------------------- Director May 1, 1998
Susan G. Swenson
</TABLE>
II-5
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------------- -------------------------------------------------------------
<S> <C>
3.1 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 Certificate of Designation of Series A Convertible Preferred
Stock filed with the Delaware Secretary of State on February
27, 1998.
4.1 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 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 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 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.
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 Power of Attorney (included in the Signature Page contained
in Part II of the Registration Statement).
</TABLE>
* Certain portions of this document are subject to an Application for
Confidential Treatment filed with the Commission on May 1, 1998.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS
OF
5 1/2% CUMULATIVE CONVERTIBLE SERIES B PREFERRED STOCK
FOR
GENERAL MAGIC, INC.
GENERAL MAGIC, INC., a Delaware corporation (the "Corporation"), pursuant
to the provisions of Section 151 of the General Corporation Law of the State of
Delaware, does hereby make this Certificate of Designations and does hereby
state and certify that pursuant to the authority expressly vested in the Board
of Directors of the Corporation by the Certificate of Incorporation of the
Corporation, the Board of Directors duly adopted the following resolutions,
which resolutions remain in full force and effect as of the date hereof:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby authorizes the
issuance of, and fixes the designation and preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of
12,000 shares, par value $0.001, to be designated 5 1/2% Cumulative Convertible
Series B Preferred Stock" (the "Preferred Shares").
RESOLVED, that 5,000 Preferred Shares will be issued upon the closing
provided for in the Investment Agreement (as hereinafter defined), 5,000
Preferred Shares are issuable only upon the terms specified in Section 3.15 of
the Investment Agreement, and 2,000 Preferred Shares are issuable only upon the
terms specified in Section 3.16 of the Investment Agreement.
RESOLVED, that each of the Preferred Shares shall rank equally in all
respects and shall be subject to the following terms and provisions:
1. DIVIDENDS.
(a) Cumulative. The holders of the Preferred Shares shall be entitled
to receive cumulative dividends at the per share rate of five and one-half
percent (5 1/2%) of the Liquidation Preference of each Preferred Share, per
annum payable quarterly on March 31, June 30, September 30 and December 31 of
each year, commencing March 31, 1998 (each a "Dividend Payment Date"), in
preference and priority to any payment of any dividend on the Common Stock (as
defined below) or any other class or series of equity security of the
Corporation. Such dividends shall accrue on any given share from the most recent
date on which a dividend has been paid with respect to such share, or if no
dividends have been paid, from the date of the original issuance of such share,
and such dividends shall accrue from day to day whether or not declared, based
on the actual number of days elapsed. If at any time dividends on the
outstanding Preferred Shares at the rate set forth above shall not have been
paid or declared and set apart for payment with respect to all preceding
periods, the amount of the deficiency shall be fully paid or declared and set
apart for payment, but without
<PAGE> 2
interest, before any distribution, whether by way of dividend or otherwise,
shall be declared or paid upon or set apart for the shares of any other class or
series of equity security of the Corporation ranking junior to the Preferred
Shares. For so long as any Preferred Shares are outstanding, the Corporation
shall not pay any dividends on any shares of Common Stock or any shares of any
other capital stock with ranking junior to the Preferred Shares, without having
received written consent of a majority in interest of the holders of Preferred
Shares.
(b) Cash or PIK. Any dividend payable on the outstanding Preferred
Shares may be paid, at the election of the Corporation conveyed to the holders
in writing at least 5 days prior to the Dividend Payment Date, either (i) in
cash or (ii) by adding the amount thereof to the Liquidation Preference of such
Preferred Shares; provided, however, that if the Corporation shall fail to pay
any dividend on a Dividend Payment Date, the amount of such dividend shall be
added to the Liquidation Preference (as defined below) for such Preferred
Shares.
2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Preferred Shares shall be entitled to receive, prior and in preference to
any distribution of any assets of the Corporation to the holders of any other
class or series of equity securities ranking junior to the Preferred Shares, the
amount of $1,000 per share plus (x) dividends added to the Liquidation
Preference in accordance with Section 1(b)(ii) above, and (y) any accrued but
unpaid dividends (with dividends deemed accrued on a per diem basis through the
date of such event and thereafter even if such event or any distribution is not
on a Dividend Payment Date) (the "Liquidation Preference"). The Preferred Shares
will be pari passu with the Corporation's Series A Preferred Stock with respect
to Liquidation Preference in proportion to the maximum aggregate Liquidation
Preferences of the respective series at that time.
3. ISSUANCE OF PREFERRED SHARES. The Preferred Shares shall be issued by
the Corporation pursuant to a Preferred Stock Investment Agreement ("Investment
Agreement") to be entered into between the Corporation and the initial
subscribers for the Preferred Shares thereunder (the "Subscribers"), and holders
of Preferred Shares shall enjoy the benefits of the Registration Rights
Agreement ("Registration Rights Agreement") to be entered into between such
parties in connection with the Investment Agreement.
4. CONVERSION. Each holder of the Preferred Shares shall have the right
at any time and from time to time, at the option of such holder, to convert any
or all Preferred Shares for such number of fully paid, validly issued and
nonassessable shares ("Common Shares") of common stock, par value $0.001 of the
Corporation ("Common Stock"), free and clear of any liens, claims or
encumbrances, as is determined by dividing (i) the Liquidation Preference times
the number of Preferred Shares being converted (the "Conversion Amount"), by
(ii) the Conversion Price determined as hereinafter provided in effect on the
Conversion Date.
(a) Mechanics of Conversion. To convert Preferred Shares into Common
Shares, the holder shall give written notice ("Conversion Notice") to the
Corporation in the form of page 1 of Exhibit A hereto (which Conversion Notice
may be given by facsimile transmission) stating that such holder elects to
convert the same and shall state therein the number of Preferred Shares to be
converted and the name or names in which such holder wishes the certificate or
certificates for Common Shares to be issued (the date of such Conversion Notice
shall be referred to herein as the "Conversion Date"). Either simultaneously
with the delivery of the Conversion Notice, or within one (1) Trading Day
thereafter, the holder shall deliver (which
2
<PAGE> 3
also may be done by facsimile transmission) page 2 to Exhibit A hereto
indicating the computation of the number of Common Shares to be received. As
soon as possible after delivery of the Conversion Notice, such holder shall
surrender the certificate or certificates representing the shares being
converted, duly endorsed, at the office of the Corporation or, if identified in
writing to all the holders by the Corporation, at the offices of any transfer
agent for such shares, provided that the Corporation shall at all times maintain
an office or agency in Boston, MA for such purposes. The Corporation shall,
immediately upon receipt of such Conversion Notice, issue and deliver to or upon
the order of such holder, against delivery of the certificates representing the
shares which have been converted, a certificate or certificates for the number
of Common Shares to which such holder shall be entitled (with the number of and
denomination of such certificates designated by such holder), the Corporation
shall immediately issue and deliver to such holder a certificate or certificates
for the number of Preferred Shares which such holder has not yet elected to
convert hereunder but which are evidenced in part by the certificate(s)
delivered to the Corporation in connection with such Conversion Notice; the
Corporation shall effect such issuance within three (3) Trading Days of the
Conversion Date and shall transmit the certificates by messenger or overnight
delivery service to reach the address designated by such holder within three (3)
Trading Days after the receipt of such Conversion Notice ("T+3"). If such
certificates are not received by the holder within five (5) Trading Days of the
Conversion Notice, then the holder will be entitled to revoke and withdraw its
Conversion Notice, in whole or in part, at any time prior to its receipt of
those certificates. In lieu of delivering physical certificates representing the
Common Shares issuable upon conversion of Preferred Shares or the Warrant Shares
(as defined in the Investment Agreement) deliverable upon exercise of Warrants
(as defined in the Investment Agreement), provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder, the
Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the Common Shares and Warrant Shares issuable upon
conversion or exercise to the holder, by crediting the account of holder's prime
broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.
The time periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The parties agree to coordinate with DTC
to accomplish this objective. The conversion and purchase pursuant to this
Section 4 shall be deemed to have been made immediately prior to the close of
business on the Conversion Date. The person or persons entitled to receive the
Common Shares issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Shares at the close of business on
the Conversion Date.
(b) Determination of Conversion Price.
(i) Each Preferred Share may be converted into Common Shares by
dividing the then applicable Liquidation Preference of such Preferred Share
by the Conversion Price. The Conversion Price shall be equal to the lesser
of:
(A) $3 ("Fixed Conversion Price"), or
(B) 85% (as such percentage may be reduced pursuant to the
Registration Rights Agreement) of the lowest sales price of a
share of Common Stock (as reported on the Bloomberg financial
network) at any time during the 5 Trading Days prior to but
excluding the date of the Conversion Notice ("Floating Conversion
Price").
3
<PAGE> 4
(ii) In the event that during any period of consecutive Trading
Days provided for above, the Corporation shall pay any dividend on the
Common Stock payable in Common Stock or in rights to acquire Common Stock,
or shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, then the Conversion
Price shall be proportionately decreased or increased, as appropriate, to
give effect to such event.
(c) Optional Redemption. Upon the actual consummation, and not merely
the announcement, of a Change in Control Transaction (as defined below) (a
"Change in Control Date"), the Corporation will have the right to
contemporaneously redeem, on such Change in Control Date and at no other time
(provided that, solely in the event such Change in Control Transaction results
from the acquisition of beneficial ownership of in excess of 50% of the
Corporation's voting power in one or a series of privately negotiated
transactions not involving the prior filing of a Schedule 13D, such optional
redemption may occur within 10 days after the corresponding Change in Control
Date) (in either case, the date of redemption is referred to as the "Optional
Redemption Date"), all but not less than all of the Preferred Shares outstanding
(subject to the right of holders to convert Preferred Shares at any time and
from time to time in advance of such Optional Redemption Date); provided that if
such Optional Redemption Date occurs on or after the 150th day after the Closing
Date such optional redemption will only be permitted if there is Effective
Registration (as defined below) on such Optional Redemption Date and for each of
the 60 days preceding such Optional Redemption Date. On the Optional Redemption
Date, the Corporation will pay in respect of the redeemed Preferred Shares
immediately available funds by wire transfer equal to 120% of the Liquidation
Preference of the Preferred Shares (or fraction thereof) redeemed. The
Corporation, upon learning of the Change in Control Transaction, will promptly
notify the holders in writing of any impending Change in Control Transaction and
the Corporation's election to redeem all, but not less than all, of the
outstanding Preferred Shares at least 10 Trading Days in advance of its
consummation, assuming such impending Change in Control Transaction is or is
required to be publicly announced. "Effective Registration" will have the
meaning specified in the Investment Agreement, except that as it is used in this
paragraph only, such term shall exclude the Suspension Grace Period (as that
term is defined in the Registration Rights Agreement), but only to the extent
that the holders will have had at least 20 consecutive Trading Days to convert
without restriction (other than pursuant to Section 4(k)) prior to the Optional
Redemption Date. A "Change in Control Transaction" will be deemed to exist if
(x) there occurs any consolidation or merger of the Corporation with or into any
other corporation or other entity or person (whether or not the Corporation is
the surviving corporation), or any other corporate reorganization or transaction
or series of related transactions in which in excess of 50% of the Corporation's
voting power is transferred through a merger, consolidation, tender offer or
similar transaction, or (y) any person (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), together with
its affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act of 1933, as amended (the "Act")), beneficially owns or is deemed
to beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Corporation's
voting power.
(d) Stock Splits; Dividends; Adjustments.
(i) If the Corporation, at any time while the Preferred Shares
are outstanding, (A) shall pay a stock dividend or otherwise make a
distribution or distributions on any equity securities (including
investments or securities convertible into or
4
<PAGE> 5
exchangeable for such equity securities) in shares of Common Stock, (B)
subdivide outstanding Common Shares into a larger number of shares, (C)
combine outstanding Common Stock into a smaller number of shares, then the
Fixed Conversion Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding before such
event and the denominator of which shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this
Section 4(d)(i) shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision or combination.
(ii) In the event that the Corporation issues or sells any Common
Stock or securities which are convertible into or exchangeable for its
Common Stock or any convertible securities, or any warrants or other rights
to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or
options issued pursuant to the Corporation's employee or director option
plans or shares issued upon exercise of options, warrants or rights
outstanding on the date of the Agreement and listed in the Company's most
recent periodic report filed under the Exchange Act) at an effective
purchase price per share which is less than the greater of the Fixed
Conversion Price or the closing market price for shares of the Common Stock
on the Principal Market on the Trading Day next preceding such issue or
sale ("Fair Market Price"), then in each such case, the Fixed Conversion
Price in effect immediately prior to such issue or sale shall be reduced
effective concurrently with such issue or sale to an amount determined by
multiplying the Fixed Conversion Price then in effect by a fraction, (x)
the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, plus (2)
the number of shares of Common Stock which the aggregate consideration
received by the Corporation for such additional shares would purchase at
such Fair Market Price for shares of Common Stock or Fixed Conversion
Price, as the case may be, then in effect; and (y) the denominator of which
shall be the number of shares of Common Stock of the Company outstanding
immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights
to subscribe for or to purchase or exchange for, shares of Common Stock
("Convertible Securities"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon
exercise, exchange or conversion of such Convertible Securities.
Convertible Securities not exercisable or convertible because they are
unvested shall not be deemed outstanding until they become vested in
accordance with their terms, via acceleration or otherwise.
In the event of any such issuance for a consideration which is
less than such Fair Market Price and also less than the Conversion Price
then in effect, then there
5
<PAGE> 6
shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the
Purchase Price computed as aforesaid.
(iii) If the Corporation, at any time while the Preferred Shares
are outstanding, shall distribute to all holders of Common Stock evidences
of its indebtedness or assets or cash or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Section
4(d)(ii) above), then in each such case the holders of Preferred Shares
shall be entitled, upon conversion of the Preferred Shares after the date
of record for determining stockholders entitled to such distribution, to
receive the amount of such assets which would have been payable to the
holders with respect to the shares of Common Stock issuable upon such
conversion had such holders been holders of such shares of Common Stock on
the record date for determination of holders entitled to such distribution.
The adjustments shall be described in a statement provided to all holders
of Preferred Shares of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date
mentioned above.
(iv) Whenever the Conversion Price is adjusted pursuant to
Section 4(d)(i), (ii) or (iii), the Corporation shall promptly mail to each
holder of the Preferred Shares a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(e) Notice of Record Date. In the event of any taking by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional Common Shares, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall deliver to each holder of Preferred Shares at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
(f) Issue Taxes. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of Common Shares on conversion of
Preferred Shares pursuant hereto.
(g) Reservation of Stock Issuable Upon Conversion and Exercise of
Warrants. The Corporation shall at all times reserve and keep available out of
its authorized but unissued Common Stock, solely for the purposes of effecting
the conversion of the Preferred Shares and the exercise of the Warrants, such
number of shares of its Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Preferred Shares and exercise of all
Warrants, and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all the then
outstanding Preferred Shares and exercise of all Warrants, the Corporation
promptly will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose, including without
limitation engaging in
6
<PAGE> 7
best efforts to obtain the requisite stockholder approval. Without in any way
limiting the foregoing, so long as any Preferred Shares remain outstanding or
any Warrants remain unexercised, the Corporation agrees to reserve and at all
times keep available solely for purposes of conversion of Preferred Shares and
exercise of the Warrants, such number of authorized but unissued shares of
Common Stock that is set forth in the Investment Agreement.
(h) Fractional Shares. No fractional shares shall be issued upon the
conversion of any Preferred Shares. All Common Shares (including fractions
thereof) issuable upon conversion of more than one Preferred Share by a holder
thereof and all Preferred Shares issuable upon the purchase thereof shall be
aggregated for purposes of determining whether the conversion and/or purchase
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion and/or purchase would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on the
Conversion Date (as determined in good faith by the Board of Directors of the
Corporation).
(i) Reorganization, Merger or Going Private. In case of any
reorganization or any reclassification of the capital stock of the Corporation
or any consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale of all or substantially all of the assets
of the Corporation to any other person or a "going private" transaction under
Rule 13e-3 promulgated pursuant to the Exchange Act, then, as part of such
reorganization, consolidation, merger or sale, if the holders of shares of
Common Stock receive any publicly traded securities as part or all of the
consideration for such reorganization, consolidation, merger or sale, then
provision shall be made such that each Preferred Share shall thereafter be
convertible into, and carry with it a right to purchase for cash, such new
securities at a conversion price and a purchase price which places the holders
of Preferred Shares in an economically equivalent position as they would have
been if not for such event. In addition to the foregoing, if the holders of
shares of Common Stock receive any non-publicly traded securities or other
property or cash as part or all of the consideration for such reorganization,
consolidation, merger or sale, then such distribution shall be treated to the
extent thereof as a distribution under Section 4(d) above and such Section shall
also apply to such distribution. Each holder may elect, in lieu of receipt of
the consideration specified in the two preceding sentences, to compel the
Corporation to repurchase any or all of such holder's Preferred Shares within 3
days of a written notice from such holder requiring such repurchase at a price
per Preferred Share in cash equal to 130% of the Liquidation Preference then in
effect.
(j) Mandatory Conversion.
(1) Subject to subsection (j)(2) below, any Preferred Shares
held on (i) the date which is the fifth (5th) anniversary of the Closing Date
("Mandatory Redemption Date"), shall be converted upon written notice to the
holders of the Preferred Shares at least twenty (20) Trading Days prior to the
Mandatory Redemption Date, provided that such Mandatory Redemption Date shall be
deferred, at the sole option of the holders of Preferred Shares, for such number
of days as is equal to 1.5 times the number of days (A) there is not Effective
Registration, but not including the first 90 days after the Closing; (B) there
is not a sufficient amount of Common Stock available for conversion of all
outstanding Preferred Shares or exercise of all Warrants; (C) for any other
reason the Corporation refuses or announces its refusal to honor conversion of
Preferred Shares; or (D) there is a suspension, restriction or limitation (other
than the permitted "blackout periods" specified in Section 2(b)(iii) of the
Registration Rights Agreement) in the ability of holders of
7
<PAGE> 8
Preferred Shares to sell Common Shares received upon conversion of Preferred
Shares or under the Registration Statement and prospectus for any reason.
(2) Notwithstanding the preceding subsection (j)(1), no holder
of Preferred Shares shall be obligated to convert any Preferred Shares held by
such holder on the Mandatory Redemption Date unless and until each of the
following conditions has been satisfied or exists, each of which shall be a
condition precedent to any such forced conversion:
(A) no material default or breach exists, and no event
shall have occurred which constitutes (or would constitute with
notice or the passage of time or both) a material default or
breach of the Investment Agreement, the Registration Rights
Agreement, the Warrants or this Certificate of Designations;
(B) none of the events described in clauses (i) through
(iv) of Section 2(b) of the Registration Rights Agreement shall
have occurred and be continuing;
(C) Effective Registration (as defined in the Investment
Agreement) has occurred and is continuing and has continuously
existed for the prior 60 consecutive Trading Days;
(D) the Corporation and its direct and indirect
subsidiaries on a consolidated basis has assets with a net
realizable fair market value exceeding its liabilities and is
able to pay all its debts as they become due in the ordinary
course of business, and the Corporation is not subject to any
liquidation, dissolution or winding up of its affairs; and
(E) each holder of Preferred Shares shall have received a
certificate from an appropriate executive officer of the
Corporation certifying that each of the foregoing conditions
precedent exist or have been satisfied.
Such forced conversion shall be subject to and governed by all the provisions
relating to voluntary conversion of the Preferred Shares contained herein.
(k) Limitations on Holder's Right to Convert.
(1) Notwithstanding anything to the contrary contained herein,
no Preferred Share may be converted, other than pursuant to Section 4(j), to the
extent that, after giving effect to Common Shares to be issued pursuant to a
Conversion Notice, the total number of shares of Common Stock deemed
beneficially owned by such holder (other than by virtue of the ownership of
Preferred Shares or ownership of other securities that have limitations on a
holder's rights to convert or exercise similar to those limitations set forth
herein), together with all shares of Common Stock deemed beneficially owned by
the holder's "affiliates" (as defined in Rule 144 of the Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended, exists, would exceed the
Restricted Ownership Percentage for such holder specified on Schedule I to the
Investment Agreement of the total issued and outstanding shares of the
Corporation's Common Stock; provided that (w) each holder shall have the right
8
<PAGE> 9
at any time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Corporation, (x) each holder shall have the right
at any time and from time to time, to increase its Restricted Ownership
Percentage and otherwise waive in whole or in part the restrictions of this
Section 4(k) upon 61 days prior notice to the Corporation or immediately in the
event of a Change in Control Transaction, (y) each holder can make subsequent
adjustments pursuant to (w) or (x) any number of times from time to time (which
adjustment shall be effective immediately if it results in a decrease in the
percentage or shall be effective upon 61 days' prior written notice or
immediately in the event of a Change in Control Transaction if it results in an
increase in the percentage) and (z) each holder may eliminate or reinstate this
limitation at any time and from time to time (which elimination will be
effective upon 61 days' prior notice and which reinstatement will be effective
immediately). Without limiting the foregoing, in the event of a Change in
Control Transaction, any holder may reinstate immediately (in whole or in part)
the requirement that any increase in its Restricted Ownership Percentage be
subject to 61 days' prior written notice, notwithstanding such Change in Control
Transaction, without imposing such requirement on, or otherwise changing such
holder's rights with respect to, any other Change in Control Transaction. For
this purpose, any material modification of the terms of a Change in Control
Transaction will be deemed to result in a new Change in Control Transaction. The
delivery of a Conversion Notice by any holder shall be deemed a representation
by such holder that it is in compliance with this paragraph. The term "deemed
beneficially owned" as used in this Certificate of Designations shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the Preferred Shares. The Corporation shall provide all
holders of Preferred Shares with the earlier of (i) 20 days' prior written
notice of any such Change in Control Transaction, to the extent the Corporation
has prior knowledge of a Change in Control Transaction; or (ii) notice on the
day immediately following the Corporation's learning of any such transaction,
but only after, in the case of (i) and (ii), such Change in Control Transaction
has been publicly disclosed.
(2) Under certain circumstances specified in Section 3.12 of the
Investment Agreement, certain Preferred Shares that are the subject of a
Conversion Notice must be exchanged for cash (or, at the option of a holder of
Preferred Shares, for senior promissory notes) instead of shares of Common
Stock.
(l) Certificate for Conversion Price Adjustment. The Corporation
shall promptly furnish or cause to be furnished to each holder a certificate
prepared by the Corporation setting forth any adjustments or readjustments of
the Conversion Price pursuant to this Section 4.
(m) Specific Enforcement. The Corporation agrees that irreparable
damage would occur in the event that any of the provisions of this Certificate
of Designations were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the holders of Preferred
Shares shall be entitled to specific performance, injunctive relief or other
equitable remedies to prevent or cure breaches of the provisions of this
Certificate of Designations and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which any of them may be
entitled under agreement, at law or in equity.
9
<PAGE> 10
(n) Other Securities Offerings. If at any time before the earlier to
occur of the nine (9) month anniversary of the Closing Date or the date on which
in excess of eighty percent (80%) of the Preferred Shares to that date issued
have been converted, the Corporation sells or agrees to sell (including pursuant
to a letter of intent, term sheet, or similar means) Common Stock or securities
or options convertible into, exercisable for, or exchangeable for, Common Stock
(other than (i) a sale pursuant to a bona fide registered public offering of
Common Stock by the Corporation made pursuant to a firm commitment underwriting
with net proceeds in excess of $10,000,000, (ii) shares or options issued
pursuant to the Corporation's employee, director or consultant stock option
plans, (iii) a sale pursuant to the acquisition of all or part of another
corporation by merger or other reorganization, or by the purchase of all or part
of the assets of such other corporation, and (iv) a sale pursuant to, or in
connection with, a joint venture or research, development or production
distribution agreement with another corporation, including suppliers,
distributors and customers, pursuant to a plan or arrangement approved by the
Board of Directors; provided, in the case of (iii) or (iv), such transaction is
not essentially equivalent to a financing), then, if the effective or maximum
sales price of the shares of Common Stock with respect to such transaction
(including the effective or maximum conversion, exercise or exchange price)
("Other Price") is less than the effective conversion price of the Preferred
Shares at such time, the Corporation, at the option of the holders of 75% or
more of the Preferred Shares exercised by written notice to the Corporation,
shall adjust the conversion price applicable to the Preferred Shares not yet
converted in form and substance reasonably satisfactory to such holders of
Preferred Shares so that the conversion price applicable to those Preferred
Shares shall, in no event, be greater, after giving effect to all other
adjustments contained herein, than the Other Price. This Paragraph 4(n) shall
not apply to a financing transaction consisting of a private placement of the
Corporation's securities occurring after the ninth (9th) month after the Closing
Date pursuant to which the Corporation raises at least $10,000,000. This
Paragraph 4(n) shall not apply to a financing transaction occurring (x) before
the Corporation causes the Subscribers to purchase additional Preferred Shares
pursuant to Section 3.15 of the Investment Agreement if the Corporation
irrevocably waives in writing all its rights under that Section 3.15 and the
holders have converted in excess of eighty percent (80%) of the Preferred Shares
issued, and (y) after the Corporation causes the Subscribers to purchase
additional Preferred Shares pursuant to Section 3.15 of the Investment Agreement
if the holders have converted in excess of eighty percent (80%) of the Preferred
Shares issued.
(o) Mandatory Repurchase. Each holder shall have the unilateral
option and right to compel the Corporation to repurchase any or all of such
holder's Preferred Shares within 3 days of a written notice requiring such
repurchase (in the case of (iii), (iv) or (v) below only) or simultaneously with
the consummation or of the events described in (i) or (ii) below, at a price per
Preferred Share equal to 130% of the Liquidation Preference then in effect if
any of the following events involving the Corporation shall have been announced
as pending or planned (in the case of (iii), (iv) or (v) below only), or shall
have occurred:
(i) A Change in Control Transaction;
(ii) A "going private" transaction under Rule 13e-3 promulgated
pursuant to the Exchange Act;
(iii) A tender offer by the Corporation under Rule 13e-4
promulgated pursuant to the Exchange Act;
10
<PAGE> 11
(iv) The Corporation shall (A) be or become insolvent; (B) admit
in writing its inability to pay its debts generally as they mature; (C)
make an assignment for the benefit of creditors or commence proceedings for
its dissolution; or (D) apply for or consent to the appointment of a
trustee, liquidator or receiver for it or for a substantial part of its
property or business; or
(v) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any
law for the relief of debt shall be instituted by or against the
Corporation (except for such proceedings that the Corporation in good faith
believes are without basis, actively contests and is successful in having
dismissed with prejudice within 30 days), or the Corporation shall by any
action or answer approve of, consent to, or acquiesce in any such
proceedings or admit to any material allegations of, or default in
answering a petition filed in any such proceedings.
5. VOTING RIGHTS. In addition to all other requirements imposed by
Delaware law, the affirmative vote of seventy-five percent (75%) in interest of
the Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment of this Certificate of Designations or (ii) any amendment to the
Certificate of Incorporation or by-laws of the Corporation that may amend or
change or adversely affect any of the rights, preferences, or privileges of the
Preferred Shares, provided, however, that holders of Preferred Shares (other
than the Investors under the Investment Agreement and their affiliates) who are
affiliates of the Corporation (and the Corporation itself) shall not participate
in such vote and the Preferred Shares of such holders shall be disregarded and
deemed not to be outstanding for purposes of such vote.
6. NOTICES. The Corporation shall distribute to the holders of Preferred
Shares copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Corporation, at such times and
by such method as such documents are distributed to such holders of such Common
Stock.
7. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Preferred Shares held by any holder of Preferred Shares may be exchanged by such
holder at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Preferred Shares, as
reasonably requested by such holder, upon surrendering the same. No service
charge will be made for such registration or transfer or exchange.
8. ATTORNEYS' FEES. Any holder of Preferred Shares shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
11
<PAGE> 12
9. NO REISSUANCE. No Preferred Shares acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued.
Signed on March 3, 1998
GENERAL MAGIC, INC.
By:
------------------------------------
Name:
Title:
12
<PAGE> 13
EXHIBIT A
(To be Executed by Holder
in order to Convert Preferred Shares)
CONVERSION NOTICE
FOR
5 1/2% CUMULATIVE CONVERTIBLE SERIES B PREFERRED STOCK
The undersigned, as a holder ("Holder") of shares of 5 1/2% Cumulative
Convertible Series B Preferred Stock ("Preferred Shares") of General Magic, Inc.
(the "Corporation"), hereby irrevocably elects to convert _____________
Preferred Shares for shares ("Common Shares") of common stock, par value $0.001
per share (the "Common Stock"), of the Corporation according to the terms and
conditions of the Certificate of Designations for the Preferred Shares as of the
date written below. The undersigned hereby requests that share certificates for
the Common Stock to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. No fee will be charged to the Holder of Preferred
Shares for any conversion. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Certificate of
Designations.
Conversion Date: __________________________
Conversion Information: NAME OF HOLDER:
By:
Print Name:
Print Title:
Print Address of Holder:
----------------------------------------------------
----------------------------------------------------
Issue Common Stock to:
-----------------------------
at:
------------------------------------------------
------------------------------------------------
If Common Stock is to be issued to a person other than Holder, Holder's
signature must be guaranteed below:
SIGNATURE GUARANTEED BY:
- -------------------------------------
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON PAGE 2
OF THE CONVERSION NOTICE.
PAGE 1 OF CONVERSION NOTICE
<PAGE> 14
PAGE 2 TO CONVERSION NOTICE DATED
---------------------------------
(CONVERSION DATE)
FOR:
---------------------------------------------------------------
(NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Number of Preferred Shares converted: shares
--------------------------
Number of Preferred Shares converted x Liquidation Preference $
----------
TOTAL DOLLAR AMOUNT CONVERTED $
==========
CONVERSION PRICE $
----------
Number of Common Shares = Total dollar amount converted = $
-----------
Conversion Price $
-----------
NUMBER OF COMMON SHARES =
------------
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for Common Shares in the following amount(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the Holder is receiving certificate(s) for Preferred Shares upon the
conversion, please issue and deliver _____ certificate(s) for Preferred Shares
in the following amounts:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
FOR
GENERAL MAGIC, INC.
GENERAL MAGIC, INC., a Delaware corporation (the "Corporation"), pursuant
to the provisions of Section 151 of the General Corporation Law of the State of
Delaware, does hereby make this Certificate of Designation and does hereby state
and certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation, the Board of Directors duly adopted the following resolutions,
which resolutions remain in full force and effect as of the date hereof:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby authorizes the
issuance of, and fixes the designation and preferences and relative,
participating, optional, and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of
50,000 shares, par value $0.001, to be designated "Series A Convertible
Preferred Stock" (the "Series A Stock").
RESOLVED, that each share of the Series A Stock shall rank equally in all
aspects and shall be subject to the following terms and provisions:
1. Dividends. Dividends shall be declared and set aside, out of funds or
assets of the Company legally available therefor. Such dividends shall be
payable only upon resolution of the Board of Directors and shall be
noncumulative; provided, however:
1.1 Upon the happening of an Extraordinary Common Stock Event (as
defined below in this Section 1), the number of shares of common stock of the
Company, $0.001 par value per share (the "Common Stock"), to be received upon
the conversion of the shares of Series A Stock shall be adjusted as set forth in
Section 4;
1.2 If the Board of Directors declares a dividend payable upon shares
of Common Stock, (i) the holders of shares of Series A Stock shall be entitled
to the same dividend per share of Series A Stock as would be declared payable on
the largest number of whole shares of Common Stock into which the shares of
Series A Stock held by each holder thereof could be converted pursuant to the
provisions of Section 4 hereof on the date of such event;
1.3 No dividends (other than those payable solely in the Common Stock
of the Company) shall be paid on any Common Stock of the Company until dividends
shall have been paid or declared and set aside in an amount for each share of
Series A Stock equal to or greater than the aggregate amount of such dividends
for all shares of Common Stock into which each such share of Series A Stock
could then be converted.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) a
<PAGE> 2
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (iii) a combination of outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
2. Liquidation, Dissolution or Winding Up.
2.1 Treatment at Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the Company shall distribute or
cause to be distributed (whether directly or indirectly through agreement by a
purchaser) the amounts specified below:
(a) The holders of shares of Series A Stock shall be entitled to
be paid, before any sums shall be paid or any assets distributed among the
holders of Common Stock, the sum of $90.00 per share of Series A Stock
outstanding immediately prior to the event giving rise to the right to such
payment (which amount shall be referred to as the "Series A Purchase Price" and
shall be subject to proportional adjustment whenever there shall occur after the
Series A Original Issue Date, as hereinafter defined, a stock split,
combination, reclassification or other similar event involving the shares of
Series A Stock), plus any declared and unpaid dividends on the shares of Series
A Stock.
(b) After payment of the liquidation preferences set
forth in (a) above, the entire remaining assets and funds of the Company legally
available for distribution shall be distributed among the holders of Common
Stock.
"Series A Original Issue Date" shall mean the date that the first
share of Series A Stock is issued by the Company.
2.2 Treatment of Consolidations, Mergers, Tender Offers and Sales of
Assets. A (i) consolidation or merger of the Company into or with another
corporation as a result of which the holders of the Company's outstanding shares
immediately before such consolidation or merger do not, immediately after such
consolidation or merger, retain stock representing a majority of the voting
power of the surviving corporation resulting from such consolidation or merger;
(ii) tender offer (as that term is defined and interpreted (including judicial
and administrative interpretations) pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended) or agreements to sell shares, as a result of
which the holders of the Company's outstanding shares immediately before such
tender offer do not, immediately after such tender offer or such sales, retain
stock representing a majority of the voting power of the surviving corporation
resulting from such tender offer or such sales; or (iii) sale of all or
substantially all of the assets of the Company, shall each be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 2 and shall create an obligation on behalf of the
Company to pay, and a right on behalf of the holders of Series A Stock to
receive, the liquidation preference provided for in Section 2.1(a).
-2-
<PAGE> 3
2.3 Distributions Other Than Cash. Whenever the distribution provided
for in this Section 2 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors.
3. Voting Power. The holders of shares of Series A Stock shall vote
together with the Common Stock as though part of that class and shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series A Stock could be converted under Section 4 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. The holders of shares of
Series A Stock shall be entitled to vote as a separate class on any matter as to
which such class would be entitled to vote under applicable law.
4. Conversion Rights. As of the Original Issue Date, the holders of
shares of Series A Stock shall have the right to convert each such share held
into 72.58 shares of fully paid and non-assessable Common Stock. The right to
convert and the ratio of such conversion is subject to the following rights,
limitations and adjustments:
4.1 General.
(a) Voluntary Conversion. Any share of Series A Stock may, at
the option of the holder thereof, be converted at any time into such number of
fully paid and non-assessable shares of Common Stock as are equal to the product
obtained by multiplying the Applicable Series A Conversion Rate (determined
under Section 4.2) by the number of shares of Series A Stock being converted.
(b) Mandatory Conversion. All outstanding shares of Series A
Stock shall be converted automatically into the number of shares of Common Stock
into which such shares of Series A Stock are convertible pursuant to Section
4.1(a) hereof upon the consent of a majority of the holders of such Series then
outstanding, without any further action by the holders of such shares, and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent.
4.2 Applicable Conversion Rates.
(a) With respect to the shares of Series A Stock, the conversion
rate in effect at any time (the "Applicable Series A Conversion Rate") shall be
the quotient obtained by dividing $90.00 by the Applicable Series A Conversion
Value, calculated as provided in Section 4.3 and Section 5. On the Series A
Original Issue Date, the Applicable Series A Conversion Value shall be $1.24 per
share.
4.3 Adjustments to Applicable Series A Conversion Values Upon
Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common
Stock Event (as defined in Section 1.3) after the Series A Original Issue Date,
the Applicable Series A Conversion Value shall, simultaneously with the
happening of such Extraordinary Common Stock
-3-
<PAGE> 4
Event, be adjusted by multiplying the then effective Applicable Series A
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable Series A
Conversion Value. The Applicable Series A Conversion Value, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
4.4 Capital Reorganization or Reclassification. If the shares of
Common Stock issuable upon the conversion of shares of Series A Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than an Extraordinary Common Stock Event or a stock dividend, reorganization,
merger, consolidation or sale of assets provided for elsewhere herein), then and
in each such event the holder of each share of Series A Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series A Stock could have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
4.5 Accountant's Certificate as to Adjustments; Notice by Company. In
each case of an adjustment or readjustment of the Applicable Series A Conversion
Rate after the Series A Original Issue Date the Company, at its expense, will
furnish each holder of Series A Shares with a certificate, prepared by the
Company's independent public accountants, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
4.6 Exercise of Conversion Privilege and Procedure for Conversion. To
exercise its conversion privilege, a holder of shares of Series A Stock shall
surrender the certificate or certificates representing the shares being
converted to the Company at its principal office, duly endorsed, and shall give
written notice to the Company at that office that such holder elects to convert
such shares. As promptly as practicable after the Series A Conversion Date (as
defined below), the Company shall issue and shall deliver to the holder of
shares of Series A Stock being converted, such certificate or certificates as it
may request for the number of whole shares of Common Stock issuable upon the
conversion of such Series A Shares in accordance with the provisions of this
Section 4. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series A Conversion Date. At such time,
the rights of the holder as holder of the converted shares of Series A Stock
shall cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
"Series A Conversion Date" means: (i) the date when such written
notice required by Section 4.6 is received by the Company, together with the
certificate or certificates
-4-
<PAGE> 5
representing the shares of Series A Stock being converted, or (ii) the date on
which any event occurs causing a mandatory conversion of the shares of Series A
Stock pursuant to Section 4.1(b).
4.7 Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Stock. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of shares of
Series A Stock, the Company shall pay to the holder of converted shares of
Series A Stock, as promptly as possible after the date of receipt of written
notice from such holder, a cash payment in respect of such fractional shares in
an amount equal to the same fraction of the market price per share of Common
Stock (as determined in a reasonable manner prescribed by the Board of
Directors) at the close of business on the Series A Conversion Date.
4.8 Partial Conversion. In the event some but not all of the shares
of Series A Stock represented by a certificate or certificates surrendered by a
holder are converted, the Company shall execute and deliver to the holder a new
certificate representing the number of shares of Series A Stock which were not
converted.
4.9 Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Series A Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Series
A Stock, and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A Stock, the Company shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
5. Adjustment to Conversion Values.
5.1 Series A Conversion Value. Except as provided in Section 5.4, if
at any time or from time to time after the Series A Original Issue Date, the
Company shall issue or sell Additional Shares of Common Stock (as defined in
Section 5.4), other than as part of an Extraordinary Common Stock Event, as
provided in Section 1.1, or a reorganization, reclassification or other change
provided in Section 4.4, for a consideration per share less than the then
Applicable Series A Conversion Value, then the Applicable Series A Conversion
Value shall be reduced, as of the opening of business on the date of such issue
or sale, to a price determined by multiplying that Applicable Series A
Conversion Value by a fraction, (a) the numerator of which shall be (i) the
number of shares of Common Stock Equivalents (defined in Section 5.5 below)
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (ii) the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at the Applicable
Series A Conversion Value immediately prior to such sale, and (b) the
denominator of which shall be the number of shares of Common Stock Equivalents
outstanding at
-5-
<PAGE> 6
the close of business on the date of such issue or sale after giving effect to
the issuance of such Additional Shares of Common Stock.
5.2 Computation of Consideration. For the purpose of making any
adjustment in the Applicable Series A Conversion Value as provided above, the
consideration received by the Company for any issue or sale of securities shall:
(a) to the extent it consists of cash or debt forgiven, be
computed at the net amount of cash received or debt forgiven by the Company
after deduction of any expenses payable by the Company and any underwriting or
similar commissions, compensations or concessions paid or allowed by the Company
in connection with such issue or sale;
(b) to the extent it consists of property other than cash, be
computed at the fair market value of that property as determined in good faith
by the Board of Directors; and
(c) if Additional Shares of Common Stock, Convertible Securities
(as hereinafter defined in Section 5.3(a)) or rights or options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board of Directors to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
5.3 Convertible Securities.
(a) For the purpose of the adjustment provided in Section 5.1,
if at any time or from time to time after the Series A Original Issue Date, the
Company shall issue any rights or options for the purchase of, or stock or other
securities convertible into, Additional Shares of Common Stock (such convertible
stock or securities being hereinafter referred to as "Convertible Securities"),
then, in each case, if the Effective Price, as hereinafter defined, of such
rights, options or Convertible Securities shall be less than the then existing
Applicable Series A Conversion Value, the Company shall be deemed to have issued
at the time of the issuance of such rights or options or Convertible Securities
the maximum number of Additional Shares of Common Stock issuable upon exercise
or conversion thereof and to have received as consideration for the deemed
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such rights,
options, or Convertible Securities, plus the aggregate price to be paid upon the
exercise or conversion of such rights, options or Convertible Securities.
(b) No further adjustment of the Applicable Series A Conversion
Value adjusted upon the issuance of such rights, options or Convertible
Securities shall be made as a result of the actual issuance of Additional Shares
of Common Stock on the exercise of any such rights or options or the conversion
of any such Convertible Securities.
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<PAGE> 7
(c) "Effective Price" shall mean the quotient determined by
dividing the total of all such consideration deemed received by such maximum
number of Additional Shares of Common Stock deemed issued.
(d) If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Applicable Series A Conversion Value, adjusted upon the issuance
of such rights, options or Convertible Securities, shall be readjusted to the
Applicable Series A Conversion Value, which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold in the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company on the conversion of such Convertible
Securities.
5.4 Exceptions. The term "Additional Shares of Common Stock" as used
herein shall mean all shares of Common Stock or other debt or equity securities
of the Company convertible into Common Stock issued by the Company or deemed to
be issued pursuant to Section 5 after the Series A Original Issue Date, whether
or not subsequently reacquired or retired by the Company, other than (a) shares
of Common Stock issued upon the conversion of Series A Shares and (b) any shares
of Common Stock (as the number of shares may be equitably adjusted for stock
splits, stock dividends, recapitalizations and reorganizations affecting the
Common Stock after the Original Issue Date) issuable or to be issued pursuant to
any stock option plan or any stock purchase plan or arrangement for employees,
officers, directors of, or contractors, consultants or advisors to, the Company,
provided any such plan or arrangement is approved by a majority of the entire
Board of Directors.
5.5 Common Stock Equivalents. The term "Common Stock Equivalents"
shall mean the number of shares of Common Stock that is equal to the sum of (a)
all shares of Common Stock that are outstanding at the time in question, plus
(b) all shares of Common Stock that are issuable upon conversion of Preferred
Stock or other Convertible Securities that are outstanding at the time in
question, plus (c) all shares of Common Stock of the Company that are issuable
upon the exercise of rights or options that are outstanding at the time in
question, assuming the full conversion or exercise into Common Stock of all such
rights or options.
6. Notices. The Corporation shall distribute to the holders of shares of
Series A Stock copies of all notices, materials, annual and quarterly reports,
proxy statements, information statements and any other documents distributed
generally to the holders of shares of Common Stock of the Corporation, at such
times and by such method as such documents are distributed to such holders of
such Common Stock.
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<PAGE> 8
7. No Reissuance. No shares of Series A Stock acquired by the Corporation
by reason of redemption, purchase, conversion or otherwise shall be reissued.
RESOLVED, FURTHER, that the appropriate officers of the Corporation hereby
are authorized to execute and acknowledge a certificate setting forth these
resolution and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation
to be signed by its President, and attested by its Secretary, this _____ day of
February, 1998.
GENERAL MAGIC, INC.
By:
------------------------------------
Steven Markman, President
Attested:
By:
------------------------------------
Mary E. Doyle, Secretary
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<PAGE> 1
EXHIBIT 4.1
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("AGREEMENT") dated as of March 3,
1998 between General Magic, Inc., a Delaware corporation (the "COMPANY"), and
each person or entity listed as an investor on Schedule I attached to this
Agreement (each individually an "INVESTOR" and collectively the "INVESTORS").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and the
Investors wish to purchase from the Company 5,000 shares (with another 5,000 of
such shares being issuable at the option of the Company, and another 2,000 of
such shares being purchasable at the option of the Investors, only upon the
terms and subject to the conditions specified in Section 3.15 and/or Section
3.16, respectively, of this Agreement) of the Company's 5 "% Cumulative
Convertible Series B Preferred Stock, liquidation preference $1,000 per share
(all of such shares being the "PREFERRED SHARES"), having the rights,
designations and preferences set forth in the Certificate of Designations (the
"CERTIFICATE") in the form of Exhibit 1.1A attached hereto, on the terms and
conditions set forth herein; and
WHEREAS, the Preferred Shares will be convertible into shares ("COMMON
SHARES") of common stock, par value $0.001, of the Company ("COMMON STOCK"),
pursuant to the terms of the Certificate, and the Investors will have
registration rights with respect to such Common Shares and the Warrant Shares
(each as defined herein), pursuant to the terms of that certain Registration
Rights Agreement to be entered into between the Company and the Investors
substantially in the form of Exhibit 4.2(f) hereto ("REGISTRATION RIGHTS
AGREEMENT"); and
WHEREAS, to induce the Investors to purchase the Preferred Shares, the
Company has agreed to issue to the Investors warrants exercisable for 400,000
shares of Common Stock and additional warrants exercisable for up to 400,000
shares of Common Stock in the case of a mandatory future purchase pursuant to
Section 3.15 or up to 200,000 shares of Common Stock in the case of an optional
future purchase pursuant to Section 3.16, in the form attached as Exhibit 1.1B
(in each case, and/or collectively, as the context may reasonably and logically
require the "WARRANTS");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
<PAGE> 2
Section 1.1 Issuance of Preferred Shares. Upon the following terms and
conditions, the Company shall issue and sell to each Investor severally, and
each Investor severally shall purchase from the Company, the number of Preferred
Shares indicated next to such Investor's name on Schedule I attached hereto.
(a) Purchase Price. The purchase price for the Preferred Shares to be
acquired by each Investor (the "PURCHASE PRICE") shall be the Purchase Price set
forth next to such Investor's name on Schedule I.
(b) The Closing.
(i) The closing of the purchase and sale of 5,000 Preferred
Shares and the initial Warrants for 400,000 shares of Common Stock
(the "CLOSING"), shall take place at the offices of Kleinberg, Kaplan,
Wolff & Cohen, P.C. ("INVESTORS' COUNSEL"), at 10:00 am., local time
on the later of the following: (x) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof
and applicable to the Closing shall be fulfilled or waived in
accordance herewith, or (y) such other time and place and/or on such
other date as the Investors and the Company may agree. The date on
which the Closing occurs is referred to herein as the "CLOSING DATE".
(ii) On the Closing Date, the Company shall deliver to each
Investor (x) certificates (with the number of and denomination of such
certificates requested by such Investor) representing the Preferred
Shares purchased hereunder by such Investor at the Closing registered
in the name of such Investor or its nominee and (y) such Warrants
registered in the name of such Investor or its nominee in such
denominations as reasonably requested by such Investor, and such
Investor shall deliver to the Company the Purchase Price for the
Preferred Shares purchased by such Investor hereunder by wire transfer
in immediately available funds to an account designated in writing by
the Company. The delivery of payment by each Investor of the Purchase
Price applicable to it as set forth in this paragraph shall constitute
a payment delivered to the Company in satisfaction of such Investor's
obligation to pay the Purchase Price hereunder. In addition, each
party shall deliver all documents, instruments and writings required
to be delivered by such party pursuant to this Agreement at or prior
to the applicable Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Investors as of the date hereof and on each Closing Date:
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<PAGE> 3
(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any direct or indirect subsidiaries other than the subsidiaries
listed on Schedule 2.1 attached hereto. Except where specifically indicated to
the contrary, all references in this Agreement to subsidiaries shall be deemed
to refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is (either alone or together with all other
adverse effects) material to such entity and other entities controlling or
controlled by such entity taken as a whole, and any material adverse effect on
the transactions contemplated under this Agreement, the Registration Rights
Agreement or any other agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement and to issue the Preferred Shares
in accordance with the terms hereof, (ii) the execution and delivery of this
Agreement, the Warrants and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including the issuance of the Preferred Shares and the Warrant Shares and the
resolutions contained in the Certificate, have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors (or any committee or subcommittee thereof) or
stockholders is required, (iii) this Agreement, the Warrants and the
Registration Rights Agreement have been duly executed and delivered by the
Company, (iv) this Agreement, the Warrants, the Certificate and the Registration
Rights Agreement constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (v) the Preferred Shares
have been duly authorized and, upon issuance thereof in accordance with the
terms of this Agreement, the Preferred Shares and the Warrants will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
claims and encumbrances.
(c) Capitalization. The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock and 500,000 shares of preferred
stock, of which 50,000 shares are designated as "Series A Convertible Preferred
Stock, par value $0.001"; there are 26,927,201 shares of Common Stock and 50,000
shares of Series A Convertible Preferred Stock issued and outstanding; and
5,018,640 shares of Common Stock are reserved for issuance upon the exercise of
outstanding employee and non-employee director stock options, 773,863 shares of
Common Stock are available for future option grants, and no other shares of
preferred stock are reserved for issuance to persons other than the Investors.
After the Closing, 9,421,503 shares of Common Stock and no shares of preferred
stock will be reserved for issuance to persons other than the Investors. All of
the outstanding shares of the Company's Common Stock and preferred stock have
been validly issued and are fully paid and nonassessable. Except as set forth in
Schedule 2.1, no shares of capital stock are entitled to preemptive rights; and
there are as of the date hereof outstanding options for 5,018,640 shares of
Common Stock and no outstanding warrants for shares of Common Stock (excluding
the Warrants). The Company's issued and outstanding preferred stock is, and will
be, in all respects junior to the Preferred
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Shares, except the Preferred Shares will be pari passu with the Company's Series
A Convertible Preferred Stock as described in the Certificate. Except as set
forth in Schedule 2.1, there are no other scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
exchangeable or convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares, or securities or rights convertible into shares, of
capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is a true and
correct copy of the Company's Certificate of Incorporation (the "CHARTER"), as
in effect on the date hereof, and attached hereto as Exhibit 2.1(c)(ii) is a
true and correct copy of the Company's By-Laws, as in effect on the date hereof
(the "BY-LAWS").
(d) Issuance of Common Shares. The Common Shares and the shares of
Common Stock issuable upon the exercise of the Warrants (the "WARRANT SHARES")
are duly authorized and reserved for issuance and, upon such conversion and/or
purchase in accordance with the Certificate and/or exercise in accordance with
the Warrants such Common Shares and Warrant Shares will be validly issued, fully
paid and non-assessable, free and clear of any and all liens, claims and
encumbrances, and entitled to be traded on the Nasdaq National Market System
("NASDAQ NMS") (or the American Stock Exchange, the Nasdaq Small Cap Market or
the New York Stock Exchange, collectively with the Nasdaq NMS, the "APPROVED
MARKETS"), and the holders of such Common Shares and Warrant Shares shall be
entitled to all rights and preferences accorded to a holder of Common Stock. The
outstanding shares of Common Stock are currently listed on the Nasdaq NMS.
(e) No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby and the filing of the Certificate do not and will not (i) result in a
violation of the Company's Charter or By-Laws 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 the Company 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 the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. The business of the Company and its direct
and indirect subsidiaries is being conducted in material compliance with all
applicable laws, ordinances or regulations of any governmental entity. The
Company is not required under Federal, state, local or foreign law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement and the Certificate and the Warrants or issue and
sell the Preferred Stock in accordance with the terms hereof and issue the
Common Shares upon conversion thereof and issue the Warrant Shares on exercise
of the Warrants, except for the registration provisions provided in the
Registration Rights Agreement, provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy of
the relevant representations and agreements of the Investors herein.
(f) SEC Documents; Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT") and the
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Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange Commission ("SEC")
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC DOCUMENTS"). The Company has
delivered or made available to the Investors true and complete copies of all SEC
Documents (including, without limitation, proxy information and solicitation
materials and registration statements) filed with the SEC since December 31,
1996 and all annual SEC Documents filed with the SEC since December 31, 1995.
The Company has not provided to the Investor any material non-public information
or any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been so
disclosed. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations 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. The SEC Documents contain all material information
concerning the Company, and no event or circumstance has occurred which would
require the Company to disclose such event or circumstance in order to make the
statements in the SEC Documents not misleading on the date hereof or on the
Closing Date but which has not been so disclosed. The financial statements of
the Company 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 or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) Principal Exchange/Market. The principal market on which the
Common Stock is currently traded is the Nasdaq NMS.
(h) No Material Adverse Change. Since January 1, 1997, except as
disclosed in the SEC Documents, no Material Adverse Effect has occurred or
exists, and no event or circumstance has occurred that with notice or the
passage of time or both is reasonably likely to result in a Material Adverse
Effect with respect to the Company or its subsidiaries.
(i) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the SEC Documents or on Schedule
2.1, other than those liabilities incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since September 30, 1997,
which liabilities, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its direct or indirect subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its direct or indirect
subsidiaries or their respective businesses, properties,
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<PAGE> 6
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act of 1933, as amended (the
"ACT")) in connection with the offer or sale of the Preferred Shares, Warrants,
Common Shares or Warrant Shares.
(l) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor to its knowledge any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Preferred Shares, the Warrants or the Common Shares or
Warrant Shares under the Act.
(m) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 under the Act and rules promulgated thereunder, and Form
S-3 is permitted to be used for the transactions contemplated hereby under the
Act and rules promulgated thereunder.
(n) Intellectual Property. The Company (and/or its wholly-owned
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("INTELLECTUAL PROPERTY") associated with its business. Except as set
forth in Schedule 2.1, the Company and its subsidiaries have all intellectual
property rights which are needed to conduct the business of the Company and its
subsidiaries as it is now being conducted or as proposed to be conducted as
disclosed in the SEC Documents. Other than as set forth in Schedule 2.1, the
Company and its subsidiaries have no reason to believe that the intellectual
property rights which it owns are invalid or unenforceable or that the use of
such intellectual property by the Company or its subsidiaries infringes upon or
conflicts with any right of any third party, and neither the Company nor any of
its subsidiaries has received notice of any such infringement or conflict.
Except as set forth in Schedule 2.1, the Company and its subsidiaries have no
knowledge of any infringement of its intellectual property by any third party.
(o) Shareholder Rights Plan. None of the acquisition of Preferred
Shares, Warrants, Common Shares or Warrant Shares nor the deemed beneficial
ownership of shares of Common Stock prior to, or the acquisition of such shares
pursuant to, the conversion of Preferred Shares or the exercise of the Warrants
will in any event under any circumstance trigger the poison pill provisions of
any stockholders' rights or similar agreements, or a substantially similar
occurrence under any successor or similar plan.
(p) No Litigation. Except as set forth in the SEC Documents delivered
to the Investors prior to the date of this Agreement ("PRE-AGREEMENT SEC
DOCUMENTS") and on Schedule 2.1, no litigation or claim (including those for
unpaid taxes) against the Company or any of its subsidiaries is pending or, to
the Company's knowledge, threatened, and no other event has occurred, which if
determined adversely could reasonably be expected to have a Material Adverse
Effect on the Company or could reasonably be expected to materially and
adversely effect the transactions contemplated hereby. The legal proceedings
described in the Pre-Agreement SEC Documents will not have an effect on the
transactions contemplated hereby, and will not have a Material Adverse Effect on
the Company.
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(q) Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or any Investor relating to this Agreement or the
transactions contemplated hereby.
(r) Acknowledgement of Dilution. The number of shares of Common Stock
constituting Common Shares or Warrant Shares may increase substantially in
certain circumstances, including the circumstance where the trading price of the
Common Stock declines. The Company acknowledges that its obligation to issue
Common Shares upon conversion of Preferred Shares and Warrant Shares upon
exercise of the Warrants is absolute and unconditional, regardless of the
dilution that such issuance may have on other shareholders of the Company.
(s) Other Investors. Except as set forth on Schedule 2.1, there are
no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth in Schedule 2.1, there
are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, that have anti-dilution or similar rights that
would be affected by the issuance of the Preferred Shares, the Common Shares,
the Warrant Shares or the Warrants.
(t) Certain Transactions. Except as disclosed in the SEC Documents
and on Schedule 2.1 and except for arm's length transactions pursuant to which
the Company or any of its direct or indirect subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or any
of its direct or indirect subsidiaries could obtain from third parties, none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its direct or indirect subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(u) Permits; Compliance. The Company and each of its direct and
indirect subsidiaries is in possession of all franchises, grants,
uthorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "COMPANY PERMITS"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits except for such Company Permits the failure of which to
possess, or the cancellation or suspension of which, would not, individually or
in the aggregate, have a material adverse effect on the Company. Neither the
Company nor any of it direct or indirect subsidiaries is in material conflict
with, or in material default or material violation of, any of the Company
Permits. Since January 1, 1997, neither the Company nor any of its direct or
indirect Subsidiaries has received any notification with respect to possible
material conflicts, material defaults or material violations of applicable laws.
(v) Insurance. The Company and each of its direct and indirect
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its direct and indirect subsidiaries are engaged. Neither the Company nor any
such direct or indirect subsidiary has any
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<PAGE> 8
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(w) Internal Accounting Controls. The Company and each of its direct
and indirect subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(x) Margin Accounts. To the Company's knowledge, at no time since
January 1, 1997 has any director or executive officer of the Company maintained
more than 15% of such individual's Common Stock in a margin account or placed
more than 15% of such individual's Common Stock in a situation which could have
resulted in an involuntary sale thereof.
(y) NASD Contacts. Since July 30, 1997, the Company has not been
contacted by the National Association of Securities Dealers ("NASD"), either
orally or in writing, concerning potential delisting of the Common Stock from
the Nasdaq NMS.
Section 2.2 Representations and Warranties of the Investors. Each of the
Investors, severally (as to itself) and not jointly, hereby makes the following
representations and warranties to the Company as of the date hereof and on the
Closing Date:
(a) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement and to purchase the Preferred Shares being sold
hereunder or in accordance with the Certificate and to acquire the Warrant
Shares, (ii) the execution and delivery of this Agreement and the Registration
Rights Agreement by such Investor and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Agreement and the Registration
Rights Agreement constitute valid and binding obligations of such Investor
enforceable against such Investor in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the performance under the
Warrants and the consummation by such Investor of the transactions contemplated
hereby and thereby do not and will not (i) result in a violation of such
Investor's organizational documents, or (ii) conflict with any agreement,
indenture or instrument to which such Investor is a party, or (iii) result in a
material violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Investor. Such
Investor is not required to obtain any consent or authorization of any
governmental agency in order for it to perform its obligations under this
Agreement or the Registration Rights Agreement or the Warrants.
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(c) Investment Representation. Such Investor is purchasing the
Preferred Shares and the Warrants for its own account and not with a view to
distribution in violation of any securities laws. Such Investor has no present
intention to sell the Preferred Shares, Warrants, Common Shares or Warrant
Shares and such Investor has no present arrangement (whether or not legally
binding) to sell the Preferred Shares, Warrants, Common Shares or Warrant Shares
to or through any person or entity; provided, however, that by making the
representations herein, such Investor does not agree to hold the Preferred
Shares, Warrants, Common Shares or Warrant Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares,
Warrants, Common Shares or Warrant Shares at any time in accordance with Federal
and state securities laws applicable to such disposition.
(d) Accredited Investor. Such Investor is an "accredited investor" as
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general and investments in
particular, so that such Investor is able to evaluate the merits and risks of an
investment in the Preferred Shares and to protect its own interests in
connection with such investment. In addition (but without limiting the effect of
the Company's representations and warranties contained herein), such Investor
has received such information as it considers necessary or appropriate for
deciding whether to purchase the Preferred Shares pursuant hereto.
(e) Rule 144. Such Investor understands that there is no public
trading market for the Preferred Shares, that none is expected to develop, and
that the Preferred Shares must be held indefinitely unless and until such
Preferred Shares, or Common Shares received upon conversion thereof are
registered under the Act or an exemption from registration is available. Such
Investor has been advised or is aware of the provisions of Rule 144 promulgated
under the Act.
(f) Brokers. Such Investor has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby, except for amount owing to AFO Capital LLC, which amounts
will be paid exclusively by the Investors.
(g) Reliance by the Company. Such Investor understands that the
Preferred Shares and Warrants are being offered and sold in reliance on a
transactional exemption from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Investor set forth herein in order to determine the applicability of
such exemptions and the suitability of such Investor to acquire the Preferred
Shares and Warrants.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing; Effective Registration. Until such
time as no Preferred Shares or Warrants are outstanding, the Company will cause
the Common Stock to continue at all times to be registered
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under Section 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such reporting and filing obligations.
Until such time as no Preferred Shares or Warrants are outstanding, the Company
shall continue the listing or trading of the Common Stock on the Nasdaq NMS or
one of the other Approved Markets and comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Approved Market on which the Common Stock is listed. The Company shall cause the
Common Shares and the Warrant Shares to be listed on the Nasdaq NMS no later
than the registration of the Common Shares or the Warrant Shares under the Act,
and shall continue such listing(s) on one of the Approved Markets. As used
herein and in the Registration Rights Agreement, the Certificate, and the
Warrants, the term "EFFECTIVE REGISTRATION" shall mean that all registration
obligations of the Company pursuant to the Registration Rights Agreement and
this Agreement have been satisfied, such registration is not subject to any
suspension or stop order (other than suspensions or stop orders resulting in a
Suspension Grace Period (as defined in the Registration Rights Agreement), which
shall be excluded from this definition solely for purposes of determining the
number of days by which the Mandatory Conversion Date (as defined in the
Registration Rights Agreement) will be deferred for 1.5 days), the prospectus
for the Common Shares issuable upon conversion of the Preferred Shares and the
Warrant Shares issuable upon exercise of the Warrants is current and such Common
Shares and Warrant Shares are listed for trading on one of the Approved Markets
and such trading has not been suspended for any reason, and none of the Company
or any direct or indirect subsidiary of the Company is subject to any
bankruptcy, insolvency or similar proceeding.
Section 3.2 Certificates on Conversion and Warrants on Exercise.
(a) Upon any conversion by an Investor (or then holder of Preferred
Shares) of the Preferred Shares pursuant to the Certificate, the Company shall
issue and deliver to such Investor (or holder) within three (3) days of the
Conversion Date (as defined in the Certificate) a new certificate or
certificates for the number of Preferred Shares which such Investor (or holder)
has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the number of and denomination of such new certificate(s) designated by such
Investor or holder).
(b) Upon any partial exercise by an Investor (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to such Investor
(or holder) within three (3) days of the date on which such Warrants are
exercised, a new Warrant or Warrants representing the number of adjusted Warrant
Shares, in accordance with the terms of Section 2 of the Warrants.
Section 3.3 Replacement Certificates and Warrants.
(a) The certificate(s) representing the Preferred Shares held by any
Investor (or then holder) may be exchanged by such Investor (or such holder) at
any time and from time to time for certificates with different denominations
representing an equal aggregate number of Preferred Shares, as requested by such
Investor (or such holder) upon surrendering the same. No service charge will be
made for such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the Investor
(or then holder of the Warrants) at the office of the Company for other Warrants
of different denominations entitling the holder
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thereof to purchase in the aggregate the same number of Warrant Shares as are
purchasable under such Warrants. No service charge will be made for such
transfer or exchange.
Section 3.4 Expenses. The Company shall pay, at the Closing and promptly
upon receipt of any further invoices relating to same, all reasonable due
diligence fees and expenses and reasonable attorneys' fees and expenses of the
Investors' Counsel, up to a maximum amount of $25,000, incurred by the Investors
in connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement, the Certificate, the Warrants and
the related agreements and documents and the transactions contemplated hereunder
and thereunder. At Closing, the Company shall pay the amount due for such fees
and expenses (which may include fees and expenses estimated to be incurred for
completion of the transaction including post-closing matters). In the event such
amount is ultimately less than the actual fees and expenses, the Company shall
promptly pay such deficiency upon receipt of an invoice regarding same.
Section 3.5 Securities Compliance. The Company shall notify the SEC and the
Nasdaq NMS, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate, the Registration Rights
Agreement and the Warrants, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares hereunder,
the Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
Section 3.6 Notices. The Company agrees to provide all holders of Preferred
Shares and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Share holders.
Section 3.7 Use of Proceeds. The Company agrees that the proceeds received
by the Company from the sale of the Preferred Shares hereunder shall be used for
working capital purposes.
Section 3.8 Reservation of Stock Issuable Upon Conversion and Upon Exercise
of the Warrants. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares and the exercise of the
Warrants, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding Preferred Shares and
the full exercise of the Warrants, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Preferred Shares and the full exercise of
the Warrants, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Preferred Shares and the exercise of the Warrants, such number of
authorized but unissued shares of Common Stock that is at least equal to 400% of
the aggregate shares issuable upon conversion of Preferred Shares, and 150% of
the aggregate shares issuable on exercise of Warrants, which number may be
reduced by the number of Common Shares or Warrant Shares actually delivered
pursuant to conversion of Preferred Shares under the Certificate or exercise of
the Warrants and shall be appropriately adjusted for any stock split, reverse
split, stock dividend or reclassification of the Common Stock. If the Company
falls below the reserves specified in
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the immediately preceding sentence and does not cure such non-compliance within
10 days of the beginning of such non-compliance, then the Investors will be
entitled to the default adjustments specified in Section 2(b)(iv)(a) of the
Registration Rights Agreement. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the conversion of
all the then outstanding Preferred Shares or the full exercise of the Warrants,
the Investors shall be entitled to, inter alia, the premium price redemption
rights provided in the Registration Rights Agreement.
Section 3.9 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article IV of this Agreement.
Section 3.10 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Preferred Shares, Warrants, Common Shares and Warrant
Shares, as required under Regulation D and to provide a copy thereof to each
Investor promptly after such filing. The Company shall, on or before each
Closing Date, take such action as the Company shall have reasonably determined
is necessary to qualify the Preferred Shares, Warrants, Common Shares and
Warrant Shares for sale to the Investors at the applicable Closing pursuant to
this Agreement under applicable securities or "blue sky" laws of the states of
the United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Investor on or prior to the
Closing Date.
Section 3.11 No Senior Securities. The Company agrees that neither the
Company nor any direct or indirect subsidiary of the Company shall (i) create,
incur, assume, guarantee, secure or in any manner become liable in respect of
any indebtedness, or permit any liens, claims or encumbrances to exist against
the Company or any direct or indirect subsidiary of the Company or any of their
assets, except for indebtedness incurred and liens created in the ordinary
course of business consistent with past practices, (including without limitation
equipment financing occurring in the ordinary course of business consistent with
past practices), or (ii) subject to Section 3.13, issue any shares of its
preferred stock or any securities convertible into its preferred stock without
prior written approval of such preferred stock (or convertible security)
issuance by a majority in interest of the holders of outstanding Preferred
Shares, except for preferred stock which is junior to the Preferred Shares in
all respects, until (A) if the Company's rights under Section 3.15 have expired
or been waived, the earlier of the twelve (12) month anniversary of the Closing
Date and the date on which in excess of eighty percent (80%) of the Preferred
Shares then issued have been converted or (B) if the Company has compelled the
Investors to purchase additional Preferred Shares pursuant to Section 3.15 or
its rights thereunder have not expired or been waived, on the earlier of the
twelve (12) month anniversary of the date of purchase (or the last possible date
of purchase) pursuant to Section 3.15 and the date on which in excess of eighty
percent (80%) of the Preferred Shares then issued and issuable under Section
3.15 have been converted, but in any event the limitation imposed by this
Section 3.11(ii) will expire not later than the twenty-four (24) month
anniversary of the Closing Date, at which time the Company will be permitted to
issue preferred stock that is pari passu with the Preferred Shares; provided
that (subject to Section 3.13) the Company may issue such pari passu preferred
stock (or convertible securities) at any time as part of bona fide registered
public offering by the Company pursuant to a firm commitment underwriting led by
a nationally recognized underwriter resulting in net proceeds to the Company of
at least $10,000,000.
Section 3.12 Delisting. (a) If a conversion by an Investor would result in
the Company issuing to such Investor in excess of such Investor's pro rata
portion of 20% of the Company's outstanding Common Stock (such pro rata portion
adjusted pursuant to Section 3.16), which 20% issuance would, in the written
opinion of
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counsel for the Company, result in the Company being delisted from the Nasdaq
NMS for issuing in excess of 20% of its outstanding Common Stock to the
Investors without the approval of the Company's shareholders, then the Company
shall redeem for cash, within T+3 (as defined in the Certificate) of the
Conversion Date (as defined in the Certificate) (x) those Preferred Shares
covered by the applicable Conversion Notice (as defined in the Certificate) that
could not be converted into 20% or less of the outstanding Common Stock and (y)
at the election of such Investor, all other Preferred Shares (i.e., Preferred
Shares not covered by the applicable Conversion Notice) then held by such
Investor, at a price equal to 130% of the Liquidation Preference in effect at
that time; provided that (i) if the Company fails to complete the redemption of
such Preferred Shares within T+3 it will, at the option of and upon notice from
any Investor who so elects, exchange any or all Preferred shares convertible
into in excess of 20% of the outstanding Common Stock for a senior note in an
aggregate principal amount equal to 130% of the Liquidation Preference in effect
at such time in respect of such Preferred Shares and in the form of Exhibit 3.12
hereto, and (ii) the Company hereby agrees that at such time as the Preferred
Shares would be convertible into at least 15% of its outstanding Common Stock,
the Company will seek (without delay) and use its best efforts to obtain
shareholder approval to issue in excess of 20% of the Company's Common Stock to
the holders of Preferred Shares upon the conversion thereof, and (iii) if any
Investor has fully converted its Preferred Shares without exhausting its pro
rata portion of the 20% of outstanding Common Stock, then each such Investor's
remaining portion of that 20% will be allocated proportionally (subject to
adjustment pursuant to Section 3.16) among those Investors still holding
Preferred Shares in accordance with their pro rata share of the Preferred Shares
initially purchased on the Closing Date; provided that no reallocation under
this Section 3.12(a)(iii) shall occur until all possible purchases under
Sections 3.15 and 3.16 shall have been completed in full or shall have been
waived or shall have expired. The Company will use its best efforts to provide
at least 6 Trading Days prior written notice of any such redemption and will
reimburse converting Investors for any losses incurred as a result of the
failure to provide such notice. Notwithstanding the Company's obligation to so
reimburse for losses, in no event may the Company fail to honor a Conversion
Notice and redeem Preferred Shares submitted for conversion pursuant to this
Section 3.12 unless it has notified a converting Investor of its intention to do
so within 1 hour of such Investor's sending the Company a Conversion Notice.
(b) In the event the NASD threatens to delist the Common Stock from
the Nasdaq NMS because the per share market price of a share of Common Stock is
not at least $1.00, then the Company promptly shall take all steps necessary to
maintain such a $1 per share market price, including but not limited to
effecting a reverse stock split of the Company.
Section 3.13 No Discounted Convertible Offerings. Notwithstanding any other
provisions of this Agreement, the Certificate, the Registration Rights Agreement
or the Warrant, until (A) if the Company's rights under Section 3.15 have
expired or been waived, the earlier of the twelve (12) month anniversary of the
Closing or the date on which in excess of eighty percent (80%) of the Preferred
Shares then issued have been converted or (B) if the Company has compelled the
Investors to purchase additional Preferred Shares pursuant to Section 3.15 or
its rights thereunder have not expired or been waived, on the earlier of the
twelve (12) month anniversary of the date of purchase (or the last possible date
of purchase) pursuant to Section 3.15 and the date on which in excess of eighty
percent (80%) of the Preferred Shares then issued and issuable under Section
3.15 have been converted, but in any event the limitations imposed by this
Section 3.13 will expire not later than the twenty-four (24) month anniversary
of the Closing Date, the Company will not without the consent of the Investors
holding 75% or more of the Preferred Shares offer or sell any securities
convertible into or exercisable or exchangeable for Common Stock where the
conversion, exercise and/or exchange price
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of such security is a function of or varies with (i) the market price of the
underlying security at or during some period of time prior to such conversion or
(ii) the price at which any holder of the underlying security sells that
security on or about the date of such conversion.
Section 3.14 Capitalization Updates. The capitalization information
required by Section 2.1(c) will be updated quarterly in a certificate delivered
by the Company to each Investor on March 31, June 30, September 30 and December
31 of each year, beginning March 31, 1998.
Section 3.15 Mandatory Future Purchases. In the event that:
(i) the closing bid price of a share of Common Stock on the principal
Approved Market has been $3 (such $3 price being subject to the same
adjustments as may from time to time be made to the Fixed Conversion Price
(as defined in the Certificate)) or more for each of the preceding 30
Trading Days, and
(ii) there is, and has been for each of the preceding 60 Trading Days,
Effective Registration, and
(iii) there are not, and have not been in any of the preceding 60
Trading Days, any Interfering Events (as such term is defined in the
Registration Rights Agreement), and
(iv) no transaction or event specified in Section 4(o) of the
Certificate has been announced or is known or reasonably suspected by the
Company to be pending, and
(v) the aggregate market value of all the shares of Common Stock
trading on the principal Approved Market on a single Trading Day (exclusive
of "block trades", which shall mean trades in excess of 25,000 shares of
Common Stock) shall be in excess of $450,000 per Trading Day for each of
the 30 preceding Trading Days, and
(vi) the Company shall have a net worth of at least $17,000,000 as
certified in writing to the Investors by the chief financial officer of the
Company, and
(vii) there have been no breaches by the Company that have not been
fully cured under this Agreement, the Registration Rights Agreement, the
Certificate or the Warrant, and
(viii) all the Company's representations and warranties contained in
this Agreement, the Registration Rights Agreement and the Warrant shall
continue to be true, and all the Company's covenants contained in this
Agreement, the Registration Rights Agreement and the Warrant shall have
been performed when and as required, all as certified in writing by the
chief financial officer of the Company, and
(ix) 200% of the number of shares of Common Stock into which Preferred
Shares (whether already issued and outstanding or issuable pursuant to this
Section 3.15) could be converted shall be authorized, available, reserved
for such conversion and subject to an effective registration statement
under the Securities Act, and
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(x) the issuance of 5,000 Preferred Shares pursuant to this Agreement
as well as the issuance of additional Preferred Shares pursuant to this
Section 3.15 and Section 3.16 have been approved by the shareholders of the
Company pursuant to NASD Rule 4460(i);
then the Company may compel the Investors upon written notice (assuming the
conditions specified in (i) through (x) above were also satisfied as of the date
of such notice and as the date of the closing described below) thereto to
purchase, for immediately available funds, one additional Preferred Share (at a
price of $1,000 per Preferred Share) for each Preferred Share purchased by the
Investors at the Closing; provided that such mandatory purchase must be
consummated within 180 days of the date on which the condition specified in (i)
above is first satisfied and in addition, no later than twelve (12) months
following the Closing Date or else the Company's rights under this Section 3.15
will expire; provided further that such closing will take place no earlier than
5 Trading Days after receipt by the Investors of the written notice hereunder
unless the Investors agree otherwise in writing; provided additionally that such
additional Preferred Shares will be purchased by the Investors in proportion to
their purchases of the initial 5,000 Preferred Shares at the Closing and the
obligations of such Investors under this Section 3.15 shall be in all respects
several and not joint; and provided finally that (x) all the closing conditions
contained in Section 4.2 shall be satisfied again at the time additional
Preferred Shares are issued under this Section 3.15, and (y) the Common Shares
underlying the Preferred Shares to be purchased pursuant to this Section 3.15
will be subject to Effective Registration on the date of closing pursuant to
this Section 3.15. At the closing described in this Section 3.15, the Company
will issue to each Investor, with respect to its purchase of Preferred Shares
pursuant to this Section 3.15, 80 Warrants per Preferred Share purchased, in the
form of Exhibit 1.1B, struck at 150% of the Fair Market Price (as defined in the
Certificate) calculated on the day prior to the closing under this Section 3.15
and exercisable for five years following the date of issuance of such Warrants.
Section 3.16 Optional Future Purchases. In the event that:
(i) the closing bid price of a share of Common Stock on the principal
Approved Market has been $3 (such $3 price being subject to the same
adjustments as may from time to time be made to the Fixed Conversion Price
(as defined in the Certificate)) or more for each of the preceding 30
Trading Days, and
(ii) there is, and has been for each of the preceding 60 Trading Days,
Effective Registration, and
(iii) there are not, and have not been in any of the preceding 60
Trading Days, any Interfering Events (as such term is defined in the
Registration Rights Agreement), and
(iv) no transaction or event specified in Section 4(o) of the
Certificate has been announced or is known or reasonably suspected by the
Company to be pending, and
(v) the aggregate market value of all the shares of Common Stock
trading on the principal Approved Market on a single Trading Day (exclusive
of "block trades", which shall mean trades in
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excess of 25,000 shares of Common Stock) shall be in excess of $450,000 per
Trading Day for each of the 30 preceding Trading Days, and
(vi) the Company shall have a net worth of at least $17,000,000 as
certified in writing to the Investors by the chief financial officer of the
Company, and
(vii) there have been no breaches by the Company that have not been
fully cured under this Agreement, the Registration Rights Agreement, the
Certificate or the Warrant, and
(viii) all the Company's representations and warranties contained in
this Agreement, the Registration Rights Agreement and the Warrant shall
continue to be true, and all the Company's covenants contained in this
Agreement, the Registration Rights Agreement and the Warrant shall have
been performed when and as required, all as certified in writing by the
chief financial officer of the Company, and
(ix) 200% of the number of shares of Common Stock into which Preferred
Shares (whether already issued and outstanding or issuable pursuant to this
Section 3.16) could be converted shall be authorized, available, reserved
for such conversion and subject to an effective registration statement
under the Securities Act, and
(x) the issuance of 5,000 Preferred Shares pursuant to this Agreement
as well as the issuance of additional Preferred Shares pursuant to this
Section 3.16 and this Section 3.16 have been approved by the shareholders
of the Company pursuant to NASD Rule 4460(i);
then each Investor may (assuming the conditions specified in (i) through (x)
above were also satisfied as of the date of such notice and as the date of the
closing described below) purchase up to one (1) additional Preferred Share (at a
price of $1,000 per Preferred Share) for each 2.5 Preferred Shares purchased at
the Closing; provided that such optional purchase must be consummated within 180
days of the date on which the condition specified in (i) above is first
satisfied and, in addition, no later than twelve (12) months following the
Closing Date or else the Investor's rights under this Section 3.16 will expire;
provided further that the rights and obligations of Investors under this Section
3.16 shall be in all respects several and not joint; and provided finally that
all the closing conditions contained in Section 4.2 shall be satisfied again at
the time additional Preferred Shares are issued under this Section 3.16. If the
Investors' exercise of rights pursuant to this Section 3.16 is not in proportion
to the initial purchase of Preferred Shares on the Closing Date, then, for
purposes of Section 3.12, the Investors' pro rata portions of the 20% of the
Company's outstanding Common Stock will be adjusted by setting each such
Investor's percentage to be equal to a fraction, the numerator of which shall be
the total number of Preferred Shares purchased by such Investor and the
denominator of which shall be the total number of Preferred Shares issued to the
Investors. At the closing described in this Section 3.16, the Company will issue
to each Investor, with respect to its purchase of Preferred Shares pursuant to
this Section 3.16, 80 Warrants per Preferred Share purchased in the form of
Exhibit 1.1B, struck at 150% of the Fair Market Price (as defined in the
Certificate) calculated on the day prior to the closing under this Section 3.16
and exercisable for five years following the date of issuance of such warrants.
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Section 3.17 Shareholder Approval. The Company shall present to a
shareholders' meeting, anticipated to be held by June 30, 1998, resolutions
approving the issuance of the Preferred Shares on the Closing Date as well as
the mandatory purchase pursuant to Section 3.15 and the optional purchase
pursuant to Section 3.16, shall solicit proxies in favor of such resolutions and
shall use its best effort to obtain shareholder approval thereof.
Section 3.18 Vote Calculations. For purposes of determining the applicable
percentage of holders in favor of any waivers, consents, amendments or votes
undertaken in connection with this Agreement, the Certificate, the Registration
Rights Agreement or the Warrants between the date of this Agreement and any
closing pursuant to Section 3.15 or any expiration or waiver of all rights
thereunder, the percentage vote or consent will be calculated as a fraction, the
denominator of which will equal the sum of (A) the Liquidation Preference of all
unconverted and outstanding Preferred Shares plus (B) the aggregate of all
Investors' commitment (i.e., $5,000,000) to purchase Preferred Shares pursuant
to Section 3.15 without reference to the 20% limitation described in Section
3.12 (the "Commitment"), and the numerator of which will equal the sum of (C)
the aggregate Liquidation Preferences of all outstanding and unconverted
Preferred Shares being voted in favor of such measure plus (D) the Commitment
being voted in favor of such measure. By way of example, if a 75% vote was
needed under circumstances in which Preferred Shares with a total Liquidation
Preference of $1,000,000 remained unconverted and outstanding (such that the
denominator described above was $6,000,000), the votes of holders of Preferred
Shares with Liquidation Preferences and/or Commitments of $4,500,000 in the
aggregate would need to vote in favor of a measure for it to pass. Additionally,
holders of Preferred Shares (other than the Investors and their affiliates) who
are affiliates of the Company (and the Company itself) shall not participate in
such vote and the Preferred Shares of such holders shall be disregarded and not
deemed outstanding for purposes of any such vote.
ARTICLE IV
CONDITIONS TO CLOSINGS
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Preferred Shares. The obligation hereunder of the Company to issue and/or
sell the Preferred Shares to the Investors at the Closing (unless otherwise
specified) is subject to the satisfaction, at or before the Closing, of each of
the applicable conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor will be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which will be true and correct in all material respects as of such date).
(b) Performance by the Investors. Each Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by such Investor at or prior to the Closing.
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(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate or the
Warrants.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Preferred Shares. The obligation hereunder of each Investor to
acquire and pay for the Preferred Shares at the Closing (unless otherwise
specified) is subject to the satisfaction, at or before the Closing, of each of
the applicable conditions set forth below. (These conditions will also be
satisfied at a closing pursuant to Section 3.15 and/or 3.16, and references to
the Closing and Closing Date herein shall, in such case, be deemed to refer to
the date of closing under Section 3.15 or 3.16, as the case may be.) These
conditions are for each Investor's benefit and may be waived by each Investor at
any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) Nasdaq NMS. From the date hereof to the Closing Date, trading in
the Company's Common Stock shall not have been suspended by the SEC or the
Nasdaq NMS (or other Approved Market), and trading in securities generally as
reported by the Nasdaq NMS (or other Approved Market) shall not have been
suspended or limited, and the Common Stock shall not have been delisted from the
Nasdaq NMS (or any other Approved Market where they are currently listed), and
the market value of the outstanding Common Stock shall not have decreased below
$1.00 per share.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate or the
Warrants.
(e) Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of counsel to the Company in the form attached hereto as
Exhibit 4.2(e) and such other opinions, certificates and documents as the
Investors or their counsel shall reasonably require incident to the Closing.
(f) Registration Rights Agreement. The Company and the Investors
shall have executed and delivered the Registration Rights Agreement in the form
and substance of Exhibit 4.2(f) attached hereto.
(g) Adverse Changes. No event which had or is likely to have, in the
reasonable judgment of the Investors, a Material Adverse Effect on the Company
or any of its direct or indirect subsidiaries shall have occurred.
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<PAGE> 19
(h) Officer's Certificate. The Company shall have delivered to the
Investors a certificate in form and substance satisfactory to the Investors and
the Investors' Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Charter, By-Laws, good standing and
authorizing resolutions of the Company.
(i) Certificates and Warrants. The Investors shall have received
certificates representing the Preferred Shares and Warrants in the form and
substance of Exhibit 1.1A and 1.1B hereto.
(j) Certificate. The Certificate shall have been accepted for filing
by the Secretary of State of the State of Delaware and a stamped copy thereof
shall have been provided to the Investors' Counsel.
(k) Due Diligence. Each Investor shall have completed its financial,
accounting, operational and legal due diligence in a manner satisfactory to such
Investor in its sole discretion.
ARTICLE V
LEGEND AND STOCK
The Company will issue one or more certificates representing the Preferred
Shares and the Warrants in the name of the Investor or its designees and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Preferred Shares and
the Warrants and any shares of Common Stock issued upon conversion or exercise
thereof shall be stamped or otherwise imprinted with a legend substantially in
the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares and Warrants without the
legend set forth above at such time as (i) the holder thereof is permitted to
dispose of such Preferred Shares and/or Warrants and Common Stock issuable upon
conversion or exercise thereof pursuant to Rule 144(k) under the Act, or (ii)
such Preferred Shares and/or Warrants are sold to a purchaser or purchasers who
(in the opinion of counsel to the seller or such purchaser(s), in form and
substance reasonably satisfactory to the Company and its counsel) are able to
dispose of such shares publicly without registration under the Act.
Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Preferred Shares or Warrant Shares issued upon exercise of the
Warrants shall bear a legend in the same form as the legend indicated above;
provided that such legend shall be removed from the Common Shares and Warrant
Shares and the Company shall issue new certificates without such legend if (i)
the holder thereof is permitted to dispose of such Common Shares and/or Warrant
Shares pursuant to Rule 144(k) under the Act or (ii) such Common Shares and/or
Warrant Shares are sold to a purchaser or purchasers who (in the opinion of
counsel to the seller or such purchaser(s), in form and
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<PAGE> 20
substance reasonably satisfactory to the Company and it counsel) are able to
dispose of such shares publicly without registration under the Act. Upon such
Registration Statement becoming effective, the Company agrees to promptly, but
no later than three (3) business days thereafter, issue new certificates
representing such Common Shares and Warrant Shares without such legend. Any
Common Shares issued pursuant to conversion of Preferred Shares or Warrant
Shares issued upon exercise of the Warrants or after the Registration Statement
has become effective shall be free and clear of any legends, transfer
restrictions and stop orders. Notwithstanding the removal of such legend, each
Investor agrees to sell the Common Shares and Warrant Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to such Investor by
the Company) or in accordance with an exception from the registration
requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE VI
TERMINATION
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and a majority in interest of the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors of the Company or by any of the Investors at any time
if the Closing shall not have been consummated by the fifth business day
following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to sue for any
breach by the other party (or parties).
ARTICLE VII
MISCELLANEOUS
Section 7.1 Stamp Taxes. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Preferred Shares
pursuant hereto (other than taxes measured against the Investors' income), the
Common Shares issued upon conversion thereof or the Warrant Shares issued upon
exercise of the Warrants.
Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms
20
<PAGE> 21
and provisions hereof, this being in addition to any other remedy to which any
of them may be entitled by law or equity.
(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, THE
NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING IN NEW YORK
COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO
ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND EACH OF THE INVESTORS CONSENTS
TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY
THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE
LAW.
(c) THE COMPANY AND EACH INVESTOR HEREBY WAIVES ALL RIGHTS TO A TRIAL
BY JURY.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with the
Registration Rights Agreement, the Warrants, the Certificate and the agreements
and documents executed in connection herewith and therewith, contains the entire
understanding of the parties with respect to the matters covered hereby and
thereby and, except as specifically set forth herein or therein, neither the
Company nor any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the Company and
Investors holding 75% or more of the Preferred Shares.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
General Magic, Inc.
420 N. Mary Avenue
Sunnyvale, CA 94086
Attention: President
Facsimile: (408) 774-4033
with copies to:
Gray, Cary, Ware & Freidenrich
400 Hamilton Avenue
Paolo Alto, Ca 94301
Attention: James Koshland, Esq.
Facsimile: (650) 327-3699
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<PAGE> 22
to the Investors:
To each Investor at the address and/or fax number set
forth on Schedule I of this Agreement.
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Attention:Stephen M. Schultz, Esq.
Facsimile:(212) 986-8866
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees but excluding
consequential damages) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
Section 7.6 Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 7.7 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion), except that the Company may assign this
Agreement in connection with the sale of all or substantially all of its assets
provided that the Company is not released from any of its obligations hereunder,
such assignee assumes all obligations of the Company hereunder, and appropriate
adjustment of the provisions contained in this Agreement, the Registration
Rights Agreement, the Certificate and the Warrants is made, in form and
substance satisfactory to the Investors, to place the Investors in the same
position as they would have been but for such assignment, in accordance with the
terms of the Certificate and the Warrants. Any Investor may assign this
Agreement (in whole or in part) or any rights or obligations hereunder without
the consent of the Company in connection with any sale or transfer all or any
portion of the Preferred Shares or Warrants held by such Investor, provided that
no Investor may assign this Agreement prior to the Closing Date without the
Company's prior written consent except to an affiliate or affiliates of such
Investor.
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<PAGE> 23
Section 7.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the Closing.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company agrees
that it will deliver a copy of any public announcement regarding the matters
covered by this Agreement or any agreement and document executed herewith to
each Investor and any public announcement including the name of an Investor to
such Investor, prior to the release of such announcements.
Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 Like Treatment of Holders; Redemption. Neither the Company nor
any of its affiliates shall, directly or indirectly, pay or cause to be paid any
consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or exchange of Preferred Shares, or otherwise, to any
holder of Preferred Shares, for or as an inducement to, or in connection with
the solicitation of, any consent, waiver or amendment of any terms or provisions
of the Certificate or this Agreement or the Registration Rights Agreement or the
Warrants, unless such consideration is required to be paid to all holders of
Preferred Shares bound by such consent, waiver or amendment whether or not such
holders so consent, waive or agree to amend and whether or not such holders
tender their Preferred Shares for redemption or exchange. The Company shall not,
directly or indirectly, redeem any Preferred Shares unless such offer of
redemption is made pro rata to all holders of Preferred Shares on identical
terms.
Section 7.16 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GENERAL MAGIC, INC.
By:
------------------------------------
Name:
Title:
INVESTORS:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-fact
By: PALLADIN CAPITAL MANAGEMENT, L.L.C.,
General Partner
By:
------------------------------------
Name:
Title:
RGC INTERNATIONAL INVESTORS, LDC
By: ROSE GLEN CAPITAL MANAGEMENT, L.P.,
Investment Manager
By: RGC GENERAL PARTNER CORP.,
General Partner
By:
------------------------------------
Name:
Title:
HERACLES FUND
By: PROMETHEAN INVESTMENT GROUP, L.L.C.,
Its Investment Advisor
By:
------------------------------------
Name:
Title:
24
<PAGE> 25
THEMIS PARTNERS L.P.
By: PROMETHEAN INVESTMENT GROUP, L.L.C.,
Its Investment Advisor
By:
------------------------------------
Name:
Title:
25
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
March 3, 1998, between General Magic, Inc., a Delaware corporation with offices
at 420 N. Mary Avenue, Sunnyvale, California 94086 (the "Company") and each of
the entities listed under "Investors" on the signature page hereto (each an
"Investor" and collectively the "Investors"), each with offices at the address
listed under such Investor's name on Schedule I hereto.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Preferred Stock Investment Agreement,
dated as of the date hereof, by and between the Company and the Investors (the
"Purchase Agreement"), the Company has agreed to sell and issue to the
Investors, and the Investors have agreed to purchase from the Company, an
aggregate of up to 12,000 shares, Liquidation Preference $1,000, of the
Company's 5 1/2% Cumulative Convertible Series B Preferred Stock (the "Preferred
Shares") subject to the terms and conditions set forth therein; provided that
5,000 Preferred Shares will be issued upon the closing provided for in the
Purchase Agreement, 5,000 Preferred Shares will be issuable only upon the terms
specified in Section 3.15 of the Purchase Agreement and 2,000 Preferred Shares
will be issuable only upon the terms specified in Section 3.16 of the Purchase
Agreement; and
WHEREAS, the Purchase Agreement contemplates that the Preferred Shares will
be convertible into shares (the "Common Shares") of common stock, par value
$0.001, of the Company ("Common Stock") pursuant to the terms and conditions set
forth in the Certificate of Designations for the Preferred Shares (the
"Certificate"); and
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investors' agreement to enter into the Purchase Agreement, the Company has
agreed to issue the Warrants and to provide the Investors with certain
registration rights with respect to the Common Shares and Warrant Shares and
certain other rights and remedies with respect to the Preferred Shares as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Purchase Agreement and
this Agreement, the Company and the Investors agree as follows:
1. Certain Definitions. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement or the
Certificate. As used in this Agreement, the following terms shall have the
following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such terms
in the Purchase Agreement.
<PAGE> 2
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Holder" and "Holders" shall include an Investor or the Investors,
respectively, and any transferee of the Preferred Shares, Warrants, Common
Shares, Warrant Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with this Agreement.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean: (i) the Common Shares or other
securities issued or issuable to each Holder or its permitted transferee or
designee upon conversion of the Preferred Shares; (ii) the Warrant Shares or
other securities issued or issuable to each Holder or its permitted transferee
or designee upon exercise of the Warrants; (iii) securities issued or issuable
upon any stock split, stock dividend, recapitalization or similar event with
respect to such Common Shares or Warrant Shares; and (iv) any other security
issued as a dividend or other distribution with respect to, in exchange for or
in replacement of the securities referred to in the preceding clauses.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and disbursements of counsel to Holders
(using a single counsel selected by a majority in interest of the Holders) for a
"due diligence" examination of the Company and review of the Registration
Statement and related documents, and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company).
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
"Warrants" shall mean the Warrants in form and substance of Exhibit 1.1B to
the Purchase Agreement between the Company and the Investors, dated as of the
date hereof.
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<PAGE> 3
"Warrant Shares" shall mean shares of Common Stock of the Company issuable
upon exercise of the Warrants.
2. Registration Requirements. The Company shall use its best efforts to
effect the registration of the Registrable Securities (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the sale or distribution of all
the Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Holder. Such best efforts by the Company
shall include the following:
(a) The Company shall, as expeditiously as possible after the Closing
Date:
(i) But in any event within 60 days of the Closing, prepare and
file a registration statement with the Commission pursuant to Rule 415
under the Securities Act on Form S-3 under the Securities Act (or in
the event that the Company is ineligible to use such form, such other
form as the Company is eligible to use under the Securities Act)
covering the Registrable Securities ("Registration Statement"), which
Registration Statement, to the extent allowable under the Securities
Act and the rules promulgated thereunder (including Rule 416), shall
state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Shares or exercise of the Warrants.
The number of shares of Common Stock initially included in such
Registration Statement shall be no less than the sum of (A) four times
the sum of the number of Common Shares that are then issuable upon
conversion of the Preferred Shares plus (B) one and one-half times the
number of Warrant Shares issuable upon exercise of the Warrants, in
each case without regard to any limitation on the Investor's ability
to convert the Preferred Shares. Nothing in the preceding sentence
will limit the Company's obligations under Section 3.8 of the Purchase
Agreement. Thereafter the Company shall use its best efforts to cause
such Registration Statement and other filings to be declared effective
as soon as possible, and in any event prior to 90 days following the
Closing Date. Without limiting the foregoing, the Company will
promptly respond to all SEC comments, inquiries and requests, and
shall request acceleration of effectiveness at the earliest possible
date. The Company shall provide the Holders reasonable opportunity to
review any such Registration Statement or amendment or supplement
thereto prior to filing.
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to
comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement and notify
the Holders of
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<PAGE> 4
the filing and effectiveness of such Registration Statement and any
amendments or supplements.
(iii) Furnish to each Holder such numbers of copies of a current
prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any
documents incorporated by reference therein and such other documents
as such Holder may reasonably require in order to facilitate the
disposition of Registrable Securities owned by such Holder.
(iv) Register and qualify the securities covered by such
Registration Statement under such other securities or "Blue Sky" laws
of such jurisdictions as shall be reasonably requested by each Holder;
provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(v) Notify each Holder immediately of the happening of any event
as a result of which the prospectus (including any supplements thereto
or thereof) included in such Registration Statement, as then in
effect, includes an untrue statement of material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(vi) Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop
order suspending the effectiveness of the Registration Statement or
the threat or initiation of any proceedings for that purpose. The
Company shall use its best efforts to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof
at the earliest possible time.
(vii) Permit counsel to each Holder to review the Registration
Statement and all amendments and supplements thereto within a
reasonable period of time (but not less than 5 days) prior to each
filing, and shall not file any document in a form to which such
counsel reasonably objects and will not request acceleration of the
Registration Statement without prior notice to such counsel.
(viii) List the Registrable Securities covered by such
Registration Statement with all securities exchange(s) and/or markets
on which the Common Stock is then listed and prepare and file any
required filings with the National Association of Securities Dealers,
Inc. or any exchange or market where the Common Shares are traded.
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<PAGE> 5
(ix) Take all steps necessary to enable Holders to avail
themselves of the prospectus delivery mechanism set forth in Rule 153
(or successor thereto) under the Act.
(b) Set forth below in this Section 2(b) are (I) events that may arise
that the Investors consider will interfere with the full enjoyment of their
rights under this Agreement, the Purchase Agreement and the Certificate (the
"Interfering Events"), and (II) certain remedies applicable in each of these
events.
Paragraphs (i) through (iv) of this Section 2(b) describe the
Interfering Events, provide a remedy to the Investors if an Interfering Event
occurs and provide that the Investors may require that the Company redeem
outstanding Preferred Shares at a specified price if certain Interfering Events
are not timely cured.
Paragraph (v) provides, inter alia, that if default adjustments
required as the remedy in the case of certain of the Interfering Events are not
provided when due, the Company may be required by the Investors to redeem
outstanding Preferred Shares at a specified price.
Paragraph (vi) provides, inter alia, that the Investors have the
right to specific performance.
The preceding paragraphs in this Section 2(b) are meant to serve
only as an introduction to this Section 2(b), are for convenience only, and are
not to be considered in applying, construing or interpreting this Section 2(b).
(i) Delay in Effectiveness of Registration Statement. In the
event that such Registration Statement has not been declared effective
within 90 days from the Closing Date, then the Company shall provide
to each Holder a default adjustment by immediately and permanently
reducing by one percent (1%) for the first 30-day period or portion
thereof and by one and one-half percent (1.5%) for each subsequent
30-day period or portion thereof, beginning on the 91st day after
Closing, the percentage specified in Section 4(b)(i)(B) of the
Certificate. For example, that percentage would be reduced from 85% to
84% upon the commencement of the first 30-day period, and further
reduced to 82.5% upon the commencement of the next succeeding 30-day
period. If the Registration Statement has not been declared effective
within 120 days after the Closing Date, then each Holder shall have
the right to sell during the 30-day period commencing on the 120th day
after the Closing Date, any or all of its Preferred Shares to the
Company for consideration (the "Mandatory Purchase Price") equal to
130% of the Liquidation Preference of all such Preferred Shares being
sold to the Company, payable in cash. Payment of such cash amount
shall be due and payable from the Company to such Holder within 5
business days of demand therefor. Without limiting the foregoing, if
such cash payment is not made within such 5 business day period, the
Holder may revoke and withdraw its election to cause the
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<PAGE> 6
Company to make such mandatory purchase at any time prior to its
receipt of such cash. Notwithstanding the foregoing, there shall be
excluded (but only to the extent not covered by Section 2(a)(vii))
from the calculation of the number of days that the Registration
Statement has not been declared effective the delays which are solely
attributable to delays in the Investors providing information required
for the Registration Statement.
(ii) No Listing; Premium Price Redemption for Delisting of Class
of Shares.
(A) In the event that the Company fails, refuses or for any
other reason is unable to cause the Registrable Securities covered by
the Registration Statement to be listed with the Nasdaq NMS or one of
the other Approved Markets (as defined in the Purchase Agreement) at
all times during the period ("Listing Period") from the 90th day
following the Closing Date until the Mandatory Conversion Date (as
defined in the Certificate) then the Company shall provide to each
Holder a default adjustment by immediately and permanently reducing by
one percent (1%) for the first 30-day period or portion thereof and by
one and one-half percent (1.5%) upon the commencement of each
subsequent 30-day period or portion hereof, during the Listing Period
from and after such failure, refusal or inability to so list the
Registrable Securities, the percentage specified in Section 4(b)(i)(B)
of the Certificate.
(B) In the event that shares of Common Stock of the Company
are not listed on any of the Approved Markets at all times following
the 90th day after the Closing Date and remain delisted for 5
consecutive days, or if the Registrable Securities are not listed for
5 consecutive days after the 90th day following the Closing, then at
the option of each Holder and to the extent such Holder so elects,
each Holder shall have the right either (I) to sell to the Company the
Preferred Shares held by such Holder, in whole or in part, for the
consideration and on the terms set forth in Section 2(b)(i) above or
at Holder's sole election, (II) to defer the Mandatory Conversion Date
by 1.5 days for each day the Common Stock remains delisted and reduce
by 2% the percentage specified in Section 4(b)(i)(B) of the
Certificate over and beyond all other reductions that would otherwise
be applicable pursuant to this Agreement (e.g., from 85% to 83%,
assuming no other reductions are applicable).
(iii) Blackout Periods. In the event any Holder's ability to sell
Registrable Securities under the Registration Statement is suspended
for more than (i) fifteen (15) consecutive days or (ii) forty-five
(45) days in any calendar year ("Suspension Grace Period"), including
without limitation by reason of a suspension of trading of the Common
Stock on the Nasdaq NMS, any suspension or stop order with respect to
the Registration
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<PAGE> 7
Statement or the fact that an event has occurred as a result of which
the prospectus (including any supplements thereto) included in such
Registration Statement then in effect includes an untrue statement of
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, then the Company shall
provide to each Holder a default adjustment by immediately and
permanently reducing by one percent (1%) upon the commencement of the
first 30-day period or portion thereof and by one and one-half percent
(1.5%) upon the commencement of each subsequent 30-day period or
portion hereof, from and after the expiration of the Suspension Grace
Period, the percentage specified in Section 4(b)(i)(B) of the
Certificate. At any time following the expiration of the Suspension
Grace Period, a Holder shall have the right either (I) to sell to the
Company its Preferred Shares in whole or in part for the consideration
and on the terms set forth in Section 2(b)(i) above or at Holder's
sole election, (II) to defer the Mandatory Conversion Date by 1.5 days
for each day the Common Stock remains delisted and reduce by 2% the
percentage specified in Section 4(b)(i)(B) of the Certificate over and
beyond all other reductions that would otherwise be applicable
pursuant to this Agreement.
(iv) Conversion Deficiency; Mandatory Purchase Price Redemption
for Conversion Deficiency. In the event that the Company does not have
a sufficient number of Common Shares or Warrant Shares available to
satisfy the Company's obligations to any Holder upon receipt of a
Conversion Notice (as defined in the Certificate) or upon exercise of
the Warrant or is otherwise unable or unwilling to issue such Common
Shares or Warrant Shares (including without limitation by reason of
the limit described in Section 10 below)(each, a "Conversion
Deficiency") in accordance with the terms of the Certificate for any
reason after receipt of a Conversion Notice or after exercise of the
Warrant, then:
(A) The Company shall provide to each Holder a default
adjustment by immediately and permanently reducing by one percent (1%)
upon the commencement of the first 30-day period or portion thereof
and one and one-half percent (1.5%), upon the commencement of each
subsequent 30-day period or portion thereof that the Company fails or
refuses to issue Common Shares or Warrant Shares in accordance with
the Certificate or the Warrant, as the case may be, the percentage
specified in Section 4(b)(i)(B) of the Certificate; and
(B) At any time five days after the commencement of the
running of the first 30-day period described above in clause (A) of
this paragraph (iv), at the request of any Holder, the Company
promptly either (I) (1) shall purchase from such Holder, for the
greater of (a) the
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<PAGE> 8
consideration and on the terms set forth in Section 2(b)(i) above, and
(b) the Liquidation Preference for the Preferred Shares being sold to
the Company divided by the then applicable Conversion Price multiplied
by the last sale price of the Common Stock on (i) the date a Holder
exercises its option pursuant to this paragraph or (ii) the Conversion
Date relating to the Conversion Notice which triggered the Conversion
Deficiency, whichever is higher, the outstanding Preferred Shares
equal to such Holder's pro rata share of the "Deficiency", as such
term is defined below, if the failure to issue Common Shares results
from the lack of a sufficient number thereof and (2) shall purchase
all of such Holder's Preferred Shares (or such portion requested by
such Holder) for such consideration and on such terms if the failure
to issue Common Shares results from any other cause or, at Holder's
sole election, (II) shall defer the Mandatory Conversion Date by 1.5
days for each day there exists a Deficiency and reduce by 2% the
percentage specified in Section 4(b(i)(B) of the Certificate over and
beyond all other reductions that would otherwise be applicable
pursuant to this Agreement. The choice of remedies pursuant to the
preceding sentence shall be at the sole election of the Holder. The
"Deficiency" shall be equal to the number of outstanding Preferred
Shares that would not be able to be converted for Common Shares, due
to an insufficient number of Common Shares or Warrant Shares being
available, if all the outstanding Preferred Shares were submitted for
conversion at the Conversion Price set forth in the Certificate as of
the date such Deficiency is determined.
(v) Mandatory Purchase Price for Adjustment Defaults.
(A) The Company acknowledges that any failure, refusal or
inability by the Company to perform the obligations described in the
foregoing paragraphs (i) through (iv) will cause the Holders to suffer
damages in an amount that will be difficult to ascertain, including
without limitation damages resulting from the loss of liquidity in the
Registrable Securities and the additional investment risk in holding
the Registrable Securities. Accordingly, the parties agree, after
consulting with counsel, that it is appropriate to include in this
Agreement the foregoing provisions for default adjustments and
mandatory redemptions in order to compensate the Holders for such
damages. The parties acknowledge and agree that the default
adjustments and mandatory redemptions set forth above represent the
parties' good faith effort to quantify such damages and, as such,
agree that the form and amount of such default adjustments and
mandatory redemptions are reasonable and will not constitute a
penalty.
(B) Only one (1) default adjustment under paragraphs (i)
through (iv) above shall be provided by the Company to the Holder
during concurrent 30-day periods even if more than one Intervening
Event has occurred during that time; except that nothing in this
Section 2(b)(v)(B)
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<PAGE> 9
will preclude a Holder from deferring the Mandatory Conversion Date
and receiving an additional 2% reduction in the percentage specified
in Section 4(b)(i)(B) of the Certificate, together with the otherwise
applicable 1% or 1-1/2% reduction in that same percentage, in the
event the Holder chooses not to require the Company to repurchase such
Holder's Preferred Shares on the terms and for the price specified in
this Agreement.
(C) In the event that the Company fails or refuses to make
any default adjustment when due, at any Holder's request and option,
the Company shall purchase all (or such portion requested by the
Holder) of the Preferred Shares held by such Holder (with such default
adjustments accruing through the date of such purchase being added to
the Mandatory Purchase Price) (for example, if the percentage
specified in Section 4(b)(i)(B) of the Certificate is reduced by 1%,
then the Mandatory Purchase Price will be increased from 130% to 131%
of the Liquidation Preference), within five (5) days of such request,
for the consideration and on the terms set forth in Section 2(b)(i)
above, provided that such Holder may revoke such request, in whole or
in part, at any time prior to receipt of such payment of such purchase
price.
(vi) Cumulative Remedies. The default adjustments and mandatory
purchases provided for above are in addition to and not in lieu or
limitation of any other rights the Holders may have at law, in equity
or under the terms of the Certificate, the Purchase Agreement, the
Warrants or, subject to Section 2(b)(v)(B), this Agreement, including
without limitation the right to specific performance. Each Holder
shall be entitled to specific performance of any and all obligations
of the Company in connection with the registration rights of the
Holders hereunder.
(vii) Remedies for Registrable Securities. In any case in which a
Holder of Preferred Shares has the right to cause the purchase of its
Preferred Shares under this Section 2(b), it shall also have the right
to cause the purchase of the Registrable Securities that it owns as
follows: in the case of Common Shares issued to such Holder pursuant
to conversion of Preferred Shares and Warrant Shares issued to such
Holder pursuant to exercise of Warrants, such shares shall be
purchased at a price per share ("Common Purchase Price") equal to the
quotient obtained by dividing (I) the average of the closing bid and
ask prices of a share of Common Stock on the Approved Market on which
it is traded as of the time such Common Shares or Warrant Shares were
received pursuant to conversion of Preferred Shares, purchase of the
Preferred Shares or exercise of the Warrants, as the case may be, by
(II) 85% (or such lower percentage as results from an increase in the
conversion discount pursuant to the Certificate); provided, however,
that such Holder may revoke such request at any time prior to receipt
of such payment of such redemption price.
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<PAGE> 10
In the case in which a Holder of Preferred Shares would have the
right to receive default adjustments with respect to Preferred Shares
under Section 2(b), it shall also have the right to receive default
payments with respect to Registrable Securities owned by it in an
amount equal to one percent (1%) upon the commencement of the first
30-day period and one and a half percent (1.5%) upon the commencement
of each subsequent 30-day period of the aggregate Common Purchase
Price amount of such Registrable Securities, either (as determined by
the Company) in cash or Common Stock; provided that Common Stock may
only be elected if there is, at such time and at the time such shares
of Common Stock are delivered to the Holders, Effective Registration.
(c) If the Holder(s) intend to distribute the Registrable Securities
by means of an underwriting, the Holder(s) shall so advise the Company. Any such
underwriting may only be administered by nationally or regionally recognized
investment bankers reasonably satisfactory to the Company. The Company shall
only be obligated to permit one underwritten offering, which offering shall be
determined by a majority in interest of the Holders.
(d) The Company shall enter into such customary agreements for
secondary offerings (including a customary underwriting agreement with the
underwriter or underwriters, if any) and take all such other reasonable actions
reasonably requested by the Holders in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registrable Securities are to be sold in an underwritten offering:
(i) make such representations and warranties to the Holders and
the underwriter or underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in secondary
offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of
independent counsel to the Company, on and dated as of the effective
day (or in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto) of the
Registration Statement, and within ninety (90) days following the end
of each fiscal year thereafter, which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Holders
and the underwriter(s), if any, and their counsel and covering,
without limitation, such matters as the due authorization and issuance
of the securities being registered and compliance with securities laws
by the Company in connection with the authorization, issuance and
registration thereof and other matters that are customarily given to
underwriters in underwritten offerings, addressed to the Holders and
each underwriter, if any;
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<PAGE> 11
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each fiscal
year following a year during which the Company's independent certified
public accountants shall have reviewed any of the Company's books or
records, a "comfort" letter from the Company's independent certified
public accountants addressed to the Holders and each underwriter, if
any, stating that such accountants are independent public accountants
within the meaning of the Securities Act and the applicable published
rules and regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are customarily
covered by letters of the independent certified public accountants
delivered in connection with secondary offerings; such accountants
shall have undertaken in each such letter to update the same during
each such fiscal year in which such books or records are being
reviewed so that each such letter shall remain current, correct and
complete throughout such fiscal year; and each such letter and update
thereof, if any, shall be reasonably satisfactory to the Holders;
(iv) if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and
from the underwriters and procedures for secondary underwritten
offerings; and
(v) deliver such documents and certificates as may be reasonably
requested by the Holders of the Registrable Securities being sold or
the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement, if any.
(e) The Company shall make available for inspection by the Holders,
representative(s) of all the Holders together, any underwriter participating in
any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for purposes of the Holders' due diligence examination of the
Company and review of any Registration Statement, all SEC Documents (as defined
in the Purchase Agreement) filed subsequent to the Closing, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with such
Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, the Company may suspend the use of
any prospectus used in connection with the Registration Statement only in the
event, and for such period of time as, such a suspension is required by the
rules and regulations of the Commission. The Company will use its best efforts
to cause such suspension to terminate at the earliest possible date.
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<PAGE> 12
(g) The Company shall file a Registration Statement with respect to
any newly authorized and/or reserved shares within five (5) business days of any
stockholders meeting authorizing same and shall use its best efforts to cause
such Registration Statement to become effective within sixty (60) days of such
stockholders meeting. If the Holders become entitled, pursuant to an event
described in clause (iii) of the definition of Registrable Securities, to
receive any securities in respect of Registrable Securities that were already
included in a Registration Statement, subsequent to the date such Registration
Statement is declared effective, and the Company is unable under the securities
laws to add such securities to the then effective Registration Statement, the
Company shall promptly file, in accordance with the procedures set forth herein,
an additional Registration Statement with respect to such newly Registrable
Securities. The Company shall use its best efforts to (i) cause any such
additional Registration Statement, when filed, to become effective under the
Securities Act, and (ii) keep such additional Registration Statement effective
during the period described in Section 5 below and cause such Registration
Statement to become effective within 60 days of that date that the need to file
the Registration Statement arose. All of the registration rights and remedies
under this Agreement shall apply to the registration of such newly reserved
shares and such new Registrable Securities, including without limitation the
provisions providing for default payments and mandatory redemptions contained
herein.
3. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses of a Holder shall be borne by such Holder.
4. Registration on Form S-3. The Company shall use its best efforts to
remain qualified for registration on Form S-3 or any comparable or successor
form or forms, or in the event that the Company is ineligible to use such form,
such form as the Company is eligible to use under the Securities Act.
5. Registration Period. In the case of the registration effected by the
Company pursuant to this Agreement, the Company will use its best efforts to
keep such registration effective until all the Holders have completed the sales
or distribution described in the Registration Statement relating thereto or, if
earlier, until such Registerable Securities may be sold under Rule 144(k)
(provided that the Company's transfer agent has accepted an instruction from the
Company to such effect).
6. Indemnification.
(a) Company Indemnity. The Company will indemnify each Holder, each
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
or any violation by the Company of the Securities Act or any state securities
law or in either case, any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any
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<PAGE> 13
such registration, qualification or compliance, and will reimburse each Holder,
each of its officers, directors, agents and partners, and each person
controlling each of the foregoing, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to a Holder to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by such Holder or the
underwriter (if any) therefor and stated to be specifically for use therein. The
indemnity agreement contained in this Section 6(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
(b) Holder Indemnity. Each Holder will, severally and not jointly, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, and each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, each
other Holder (if any), and each of their officers, directors and partners, and
each person controlling such other Holder(s) against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances under which they were made, and will
reimburse the Company and such other Holder(s) and their directors, officers and
partners, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein, and provided that the maximum amount
for which such Holder shall be liable under this indemnity shall not exceed the
net proceeds received by such Holder from the sale of the Registrable Securities
pursuant to the registration statement in question. The indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any such claims, losses, damages or liabilities if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) Procedure. Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at its own expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 6 except to
the extent that the Indemnifying Party is materially and adversely affected by
such failure to provide notice. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any
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<PAGE> 14
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such non-privileged information regarding itself
or the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
7. Contribution. If the indemnification provided for in Section 6 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any Holder, the net proceeds received by such Holder from the sale of
Registrable Securities pursuant to the registration statement in question or
(ii) in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such Holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. Survival. The indemnity and contribution agreements contained in
Sections 6 and 7 and the representations and warranties of the Company referred
to in Section 2(d)(i) shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or the Purchase Agreement or
any underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of the Company, and (iii) the consummation
of the sale or successive resales of the Registrable Securities.
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<PAGE> 15
9. Information by Holders. Each Holder shall furnish to the Company such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement. The intended method or methods of
disposition and/or sale (Plan of Distribution) of such securities as so provided
by such Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of such Holder.
10. Limit on Stock Issuances. In the event that the Company is unable to
issue (i) any Common Shares upon conversion of Preferred Shares, (ii) any
Warrant Shares upon exercise of the Warrants, due to the rules or regulations of
any market or exchange regulator for the market or exchange on which the Common
Shares or Warrant Shares are then trading, the Company shall, at the request of
any Holder promptly following such determination, promptly purchase such
Preferred Shares of such Holder which cannot be converted or Warrant Shares
which cannot be issued, at a purchase price equal to the Mandatory Purchase
Price.
11. Replacement Certificates. The certificate(s) representing the Common
Shares or Warrant Shares held by any Investor (or then Holder) may be exchanged
by such Investor (or such Holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Common Shares or Warrant Shares, as reasonably requested by such Investor (or
such Holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
12. Transfer or Assignment. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investors by
the Company under this Agreement to cause the Company to register Registrable
Securities may be transferred or assigned (in whole or in part) to a transferee
or assignee of Preferred Shares, Warrants or Registrable Securities, and all
other rights granted to the Investors by the Company hereunder may be
transferred or assigned to any transferee or assignee of any Preferred Shares,
Warrants or Registrable Securities; provided in each case that the Company must
be given written notice by the such Investor at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned; and provided
further that the transferee or assignee of such rights agrees in writing to be
bound by the registration provisions of this Agreement.
13. Miscellaneous.
(a) Remedies. The Company and the Investors acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) Jurisdiction. THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT, THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING
IN NEW YORK COUNTY, NEW YORK
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<PAGE> 16
FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH SUIT
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER. THE COMPANY AND EACH OF THE INVESTORS CONSENTS TO PROCESS BEING SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(c) Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing by facsimile, mail or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
General Magic, Inc.
420 N. Mary Avenue
Sunnyvale, California 94086
Facsimile: (408) 774-4033
Attention: President
with copies to:
Gray, Cary, Ware & Freidenrich
400 Hamilton Avenue
Paolo Alto, California 94301
Facsimile: (650) 327-3699
Attention: James Koshland, Esq.
to the Investors:
To each Investor at the address and/or fax number set
forth on Schedule I of this Agreement.
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz, Esq.
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
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<PAGE> 17
(d) Indemnity. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
(e) Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. The representations and warranties and the agreements and
covenants of the Company and each Investor contained herein shall survive the
Closing.
(f) Execution in Counterpart. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
(g) Publicity. The Company agrees that it will not disclose, and will
not include in any public announcement, the name of any Investor without its
consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company agrees
to deliver a copy of any public announcement regarding the matters covered by
this Agreement or any agreement or document executed herewith to each Investor
and any public announcement including the name of an Investor to such Investor,
prior to the publication of such announcements.
(h) Entire Agreement; Amendment. This Agreement, together with the
Purchase Agreement, the Certificate and the Warrants and the agreements and
documents contemplated hereby and thereby, contains the entire understanding and
agreement of the parties, and may not be amended, modified or terminated except
by a written agreement signed by the Company plus the Holders of 75% of the
Preferred Shares issued under the Purchase Agreement to that date; provided that
for the purposes of this Section 13(h) the Holders of Common Shares still
entitled to registration rights under this Agreement will be deemed to still be
Holders of that number of Preferred Shares which were converted into such Common
Shares.
(i) Governing Law. This Agreement and the validity and performance of
the terms hereof shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts executed and to be performed
entirely within such state, except to the extent that the law of the State of
Delaware regulates the Company's issuance of securities.
(j) Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
(k) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.
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<PAGE> 18
(l) Titles. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(m) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GENERAL MAGIC, INC.
By:
---------------------------------------------------
Name:
Title:
INVESTORS:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-fact
By: PALLADIN CAPITAL MANAGEMENT, L.L.C.,
General Partner
By:
-------------------------------------------
Name:
Title:
RGC INTERNATIONAL INVESTORS, LDC
By: ROSE GLEN CAPITAL MANAGEMENT, L.P.,
Investment Manager
By: RGC GENERAL PARTNER CORP., General Partner
By:
---------------------------------------
Name:
Title:
19
<PAGE> 20
HERACLES FUND
By: PROMETHEAN INVESTMENT GROUP, L.L.C.,
Its Investment Advisor
By:
-----------------------------------------------
Name:
Title:
THEMIS PARTNERS, L.P.
By: PROMETHEAN INVESTMENT GROUP, L.L.C.,
Its Investment Advisor
By:
-------------------------------------------
Name:
Title:
[SIGNATURE PAGE 2 OF 2 TO GENERAL MAGIC, INC. REGISTRATION RIGHTS AGREEMENT]
20
<PAGE> 1
EXHIBIT 4.3
EXHIBIT 1.1B
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
--------------------------
March __, 1998
GENERAL MAGIC, INC.
--------------------------
Common Stock Purchase Warrant
General Magic, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [NAME OF PURCHASER], having an address at
[ADDRESS OF PURCHASER] ("PURCHASER") or any other Warrant Holder is entitled, on
the terms and conditions set forth below, to purchase from the Company at any
time beginning on the date hereof and ending on the fifth anniversary of the
Closing Date, as extended 1.5 times the number of days between the 90th day
following the Closing Date and such anniversary on which there had been no
Effective Registration, [400,000 IN THE AGGREGATE] fully paid and nonassessable
shares of Common Stock, $.001 par value, of the Company (the "COMMON STOCK"), at
a purchase price per share of Common Stock equal to [150% OF THE FAIR MARKET
PRICE (AS DEFINED IN THE CERTIFICATE) OF A SHARE OF COMMON STOCK CALCULATED ON
MARCH __, 1998)] (the "PURCHASE PRICE"), as the same may be adjusted pursuant to
Section 5 herein.
1. DEFINITIONS.
(a) The term "AGREEMENT" shall mean the Preferred Stock Investment
Agreement, dated as of March __, 1998, between the Company and the Investors
signatory thereto.
(b) The term "CERTIFICATE" shall mean the Certificate of Designations
filed by the Company with the Secretary of State of the State of Delaware on
March __, 1998.
(c) The term "EFFECTIVE REGISTRATION" shall have the meaning
specified in the Agreement.
(d) The term "CLOSING DATE" shall mean March __, 1998 OR the date of
the Section 3.15 or Section 3.16 closing under the Agreement, as relevant.
<PAGE> 2
(e) The term "PREFERRED SHARES" shall mean the 5"% Cumulative
Convertible Series B Preferred Shares of the Company issued pursuant to the
Certificate.
(f) The term "REGISTRATION RIGHTS AGREEMENT" shall mean the
Registration Rights Agreement, dated as of March __, 1998, between the Company
and the investors signatures hereto.
(g) The term "WARRANT HOLDER" shall mean the Purchaser or any
assignee of all or any portion of this Warrant.
(h) The term "WARRANT SHARES" shall mean the Shares of Common Stock
or other securities issuable upon exercise of this Warrant.
Capitalized terms used but not defined in this Warrant shall have the
meanings specified in the Agreement.
2. EXERCISE OF WARRANT.
This Warrant may be exercised by the Warrant Holder, in whole or in part,
at any time and from time to time by either of the following methods:
(a) The Warrant Holder may surrender this Warrant, together with the
form of subscription at the end hereof duly executed by Warrant Holder
("SUBSCRIPTION NOTICE"), at the offices of the Company or any transfer agent for
the Common Stock; or
(b) The Warrant Holder may also exercise this Warrant, in whole or in
part, in a "cashless" or "net-issue" exercise by delivering to the offices of
the Company or any transfer agent for the Common Stock this Warrant, together
with a Subscription Notice specifying the number of Warrant Shares to be
delivered to such Warrant Holder ("DELIVERABLE SHARES") and the number of
Warrant Shares with respect to which this Warrant is being surrendered in
payment of the aggregate Purchase Price for the Deliverable Shares ("SURRENDERED
SHARES"); provided that the Purchase Price multiplied by the number of
Deliverable Shares shall not exceed the value of the Surrendered Shares; and
provided further that the sum of the number of Deliverable Shares and the number
of Surrendered Shares so specified shall not exceed the aggregate number of
Warrant Shares represented by this Warrant. For the purposes of this provision,
each Warrant Share as to which this Warrant is surrendered will be attributed a
value equal to the fair market value (as defined below) of the Warrant Share
minus the Purchase Price of the Warrant Share.
In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for which
this Warrant is exercised and/or surrendered, and the Company, at its expense,
shall within three (3) Trading Days (as defined below) issue and deliver or upon
the order of Warrant Holder a new Warrant of like tenor in the name of Warrant
Holder or as Warrant Holder (upon payment by Warrant Holder of any applicable
transfer taxes) may request, reflecting such adjusted Warrant Shares.
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<PAGE> 3
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) Trading Days thereafter, the Company shall transmit the
certificates (together with any other stock or other securities or property to
which Warrant Holder is entitled upon exercise) by messenger or overnight
delivery service to reach the address designated by such holder within three (3)
Trading Days after the receipt of the Subscription Notice ("T+3"). If such
certificates are not received by the Warrant Holder within T+3, then the Warrant
Holder will be entitled to revoke and withdraw its exercise of its Warrant at
any time prior to its receipt of those certificates. For purposes of calculating
the lowest trading prices in a particular period or conducting a "lookback" only
(and not, inter alia, for purposes of calculating the number of days available
to the Company for making deliveries or issuances to the Warrant Holders), a day
shall not be considered a Trading Day if (i) trading of the Common Stock was
suspended during the entire day or (ii) no reported trades occurred on such day.
In lieu of delivering physical certificates representing the Common
Stock issuable upon exercise, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Warrant Holder, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon exercise to the Warrant Holder by crediting the
account of Warrant Holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system. The time periods for delivery described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.
The term Trading Day means (x) if the Common Stock is listed on the
New York Stock Exchange or the American Stock Exchange, a day on which there is
trading on such stock exchange, (y) if the Common Stock is not listed on either
of such stock exchanges but sale prices of the Common Stock are reported on an
automated quotation system, a day on which trading is reported on the principal
automated quotation system on which sales of the Common Stock are reported, or
(z) if the foregoing provisions are inapplicable, a day on which quotations are
reported by National Quotation Bureau Incorporated.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, "FAIR
MARKET VALUE" shall equal the closing trading price of the Common Stock on the
Approved Market which is the principal trading exchange or market for the Common
Stock (the "PRINCIPAL MARKET") on the date of determination or, if the Common
Stock is not listed or admitted to trading on any Approved Market, the average
of the closing bid and asked prices on the over-the-counter market as furnished
by any New York Stock Exchange member firm reasonably selected from time to time
by the Company for that purpose and reasonably acceptable to the Warrant Holder,
or, if the Common Stock is not listed or admitted to trading on any Approved
Market or traded over-the-counter and the average price cannot be determined a
contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors with the
concurrence of the Warrant Holder.
4. (A) REPRESENTATIONS AND COVENANTS OF THE COMPANY.
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<PAGE> 4
(a) The Company shall comply with its obligations under the
Registration Rights Agreement with respect to the Warrant Shares, including,
without limitation, the Company's obligation to have filed and declared
effective a registration statement registering the Warrant Shares under the
Securities Act of 1933, as amended (the "ACT").
(b) The Company shall take all necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation,
including, without limitation, the notification of the Principal Market, for the
legal and valid issuance of this Warrant and the Warrant Shares to the Warrant
Holder under this Warrant.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps necessary to insure
that the Common Stock remains listed on the Principal Market.
(d) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to Warrant Holder the requisite
number of shares of Common Stock to be issued pursuant to this Warrant.
(e) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such number of
shares of Common Stock as shall from time to time be issuable hereunder.
(f) With a view to making available to Warrant Holder the
benefits of Rule 144 promulgated under the Act and any other rule or regulation
of the Securities and Exchange Commission ("SEC") that may at any time permit
Warrant Holder to sell securities of the Company to the public without
registration, the Company agrees to use its reasonable best efforts to:
i) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT");
and
iii) furnish to any Warrant Holder forthwith upon request a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the
Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested to permit any
such Warrant Holder to take advantage of any rule or regulation
of the SEC permitting the selling of any such securities without
registration.
4
<PAGE> 5
(B) REPRESENTATIONS AND COVENANTS OF THE PURCHASER.
The Purchaser shall not resell Warrant Shares, unless such resale is
pursuant to an effective registration statement under the Act or pursuant to an
applicable exemption from such registration requirements.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and other Issuances. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate proportional adjustments
(decrease in the case of subdivision, increase in the case of combination) shall
also be made to the Purchase Price payable per share, so that the aggregate
Purchase Price payable for the total number of Warrant Shares purchasable under
this Warrant as of such date shall remain the same as it would have been before
such subdivision or combination.
(b) Stock Dividend. If at any time after the date hereof the Company
declares a dividend or other distribution on Common Stock payable in Common
Stock or other securities or rights convertible into Common Stock ("COMMON STOCK
EQUIVALENTS") without payment of any consideration by holders of Common Stock
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon exercise or
conversion thereof), then the number of shares of Common Stock for which this
Warrant may be exercised shall be increased as of the record date (or the date
of such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Purchase
Price shall be proportionately reduced so that the aggregate Purchase Price for
all the Warrant Shares issuable hereunder immediately after the record date (or
on the date of such distribution, if applicable), for such dividend shall equal
the aggregate Purchase Price so payable immediately before such record date (or
on the date of such distribution, if applicable).
(c) Other Distributions. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
Common Stock), then the number of Warrant Shares for which this Warrant is
exercisable shall be increased to equal: (i) the number of Warrant Shares for
which this Warrant is exercisable immediately prior to such event, (ii)
multiplied by a fraction, (A) the numerator of which shall be the fair market
value per share of Common Stock on the record date for the dividend or
distribution, and (B) the denominator of which shall be the fair market value
price per share of Common Stock on the record date for the dividend or
distribution minus the amount allocable to one share of Common Stock of the
value (as jointly determined in good faith by the Board of
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<PAGE> 6
Directors of the Company and the Warrant Holder) of any and all such evidences
of indebtedness, shares of capital stock, other securities or property, so
distributed. The Purchase Price shall be reduced to equal: (i) the Purchase
Price in effect immediately before the occurrence of any event (ii) multiplied
by a fraction, (A) the numerator of which is the number of Warrant Shares for
which this Warrant is exercisable immediately before the adjustment, and (B) the
denominator of which is the number of Warrant Shares for which this Warrant is
exercisable immediately after the adjustment.
(d) Merger, etc. If at any time after the date hereof there shall be
a merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon or after such transfer, merger
or consolidation becoming effective, and upon payment of the Purchase Price then
in effect, the number of shares or other securities or property of the Company
or of the successor corporation resulting from such merger or consolidation,
which would have been received by Warrant Holder for the shares of stock subject
to this Warrant had this Warrant been exercised just prior to such transfer,
merger or consolidation becoming effective or to the applicable record date
thereof, as the case may be. The Company will not merge or consolidate with or
into any other corporation, or sell or otherwise transfer its property, assets
and business substantially as an entirety to another corporation, unless the
corporation resulting from such merger or consolidation (if not the Company), or
such transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement reasonably satisfactory in form and substance to the
Warrant Holder, the due and punctual performance and observance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company.
(e) Reclassification, etc. If at any time after the date hereof there
shall be a reorganization or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Warrant Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Purchase Price then in effect,
the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
(f) Purchase Price Adjustment. In the event that within twelve (12)
months of the Closing Date the Company issues or sells any Common Stock or
securities which are convertible into or exchangeable for its Common Stock or
any convertible securities, or any warrants or other rights to subscribe for or
to purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Agreement and listed in the Company's most recent periodic report filed
under the Exchange Act) at an effective purchase price per share which is less
than the greater of the Purchase Price then in effect or the fair market value
(as defined in Section 3(b) above) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case (other than a private
placement after the sixth month following the Closing Date in which the Company
raises at least $10 million, such private placement being exempt from this
Section 5(f)), the Purchase Price in effect immediately prior to such issue or
sale shall be reduced effective concurrently with such issue or sale to an
amount determined by multiplying the Purchase Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate
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<PAGE> 7
consideration received by the Company for such additional shares would purchase
at such fair market value or, Purchase Price as the case may be, then in effect;
and (y) the denominator of which shall be the number of shares of Common Stock
of the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("CONVERTIBLE SECURITIES"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
The number of shares which may be purchased hereunder shall be
increased proportionately to any reduction in Purchase Price pursuant to this
paragraph 5(f), so that after such adjustments the aggregate Purchase Price
payable hereunder for the increased number of shares shall be the same as the
aggregate Purchase Price in effect just prior to such adjustments.
In the event of any such issuance for a consideration which is less
than such fair market value and also less than the Purchase Price then in
effect, than there shall be only one such adjustment by reason of such issuance,
such adjustment to be that which results in the greatest reduction of the
Purchase Price computed as aforesaid.
6. NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrant Holder
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS. Whenever the Purchase Price or number of Shares
purchasable hereunder shall be adjusted pursuant to Section 5 hereof, the
Company shall execute and deliver to the Warrant Holder a certificate setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated and the
Purchase Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a stockholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions thereon or be notified of
stockholder meetings. However, in the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall
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<PAGE> 8
mail to each Warrant Holder, at least 10 Trading Days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
9. LIMITATION ON EXERCISE. Notwithstanding anything to the contrary
contained herein, this Warrant may not be exercised by the Warrant Holder to the
extent that, after giving effect to Warrant Shares to be issued pursuant to a
Subscription Notice, the total number of shares of Common Stock deemed
beneficially owned by such holder (other than by virtue of ownership of this
Warrant, or ownership of other securities that have limitations on the holder's
rights to convert or exercise similar to the limitations set forth herein),
together with all shares of Common Stock deemed beneficially owned by the
holder's "affiliates" (as defined in Rule 144 of the Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") exists,
would exceed the Warrant Holder's Restricted Ownership Percentage specified on
Schedule I to the Agreement; provided that (w) each Warrant Holder shall have
the right at any time and from time to time to reduce its Restricted Ownership
Percentage immediately upon notice to the Company or in the event of a Change in
Control Transaction, (x) each Warrant Holder shall have the right at any time
and from time to time to increase its Restricted Ownership Percentage or
otherwise waive in whole or in part the restrictions of this Section 9 upon 61
days' prior notice to the Company or immediately in the event of a Change in
Control Transaction, (y) each Warrant Holder can make subsequent adjustments
pursuant to (w) or (x) any number of times from time to time (which adjustment
shall be effective immediately if it results in a decrease in the Restricted
Ownership Percentage or shall be effective upon 61 days' prior written notice or
immediately in the event of a Change in Control Transaction if it results in an
increase in the Restricted Ownership Percentage) and (z) each Warrant Holder may
eliminate or reinstate this limitation at any time and from time to time (which
elimination will be effective upon 61 days' prior notice and which reinstatement
will be effective immediately). Without limiting the foregoing, in the event of
a Change in Control Transaction, any holder may reinstate immediately (in whole
or in part) the requirement that any increase in its Restricted Ownership
Percentage be subject to 61 days' prior written notice, notwithstanding such
Change in Control Transaction, without imposing such requirement on, or
otherwise changing such holder's rights with respect to, any other Change in
Control Transaction. For this purpose, any material modification of the terms of
a Change in Control Transaction will be deemed to create a new Change in Control
Transaction. The term "deemed beneficially owned" as used in this Warrant shall
exclude shares that might otherwise be deemed beneficially owned by reason of
the convertibility of the Preferred Shares. A "CHANGE IN CONTROL TRANSACTION"
will be deemed to have occurred upon the earlier of the announcement or
consummation of a transaction or series of transactions (other than the Merger)
involving (x) any consolidation or merger of the Company with or into any other
corporation or other entity or person (whether or not the Company is the
surviving corporation), or any other corporate reorganization or transaction or
series of related transactions in which in excess of 50% of the Company's voting
power is transferred through a merger, consolidation, tender offer or similar
transaction, or (y) in excess of 50% of the Corporation's Board of Directors
consists of directors not nominated by the prior Board of Directors of the
Company, or (z) any person (as defined in Section 13(d) of the Exchange Act,
together with its affiliates and associates (as such terms are defined in Rule
405 under the Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's voting power. The delivery of
a Subscription Notice by the Warrant Holder shall be deemed a representation by
such holder that it is in compliance with this paragraph.
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<PAGE> 9
10. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of such Warrant, the Company at its expense promptly will
execute and deliver, in lieu thereof a new Warrant of like tenor.
11. SPECIFIC PERFORMANCE; CONSENT TO JURISDICTION; CHOICE OF LAW
(a) The Company and the Warrant Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall he entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) EACH OF THE COMPANY AND THE WARRANT HOLDER (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
NEW YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS WARRANT AND (II) HEREBY WAIVES, AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. EACH OF THE COMPANY AND THE WARRANT HOLDER
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT
UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY APPLICABLE LAW.
(c) THE COMPANY AND THE WARRANT HOLDER IRREVOCABLY WAIVE THEIR RIGHT
TO TRIAL BY JURY.
(d) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York applicable to
contracts executed and to be performed entirely within such State.
12. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Agreement or the Registration Rights Agreement
and incorporated into this Warrant and the Warrant Shares contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby and, except as specifically set forth herein and therein, neither the
Company nor the Warrant Holder makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
13. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back
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<PAGE> 10
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company:
General Magic, Inc.
420 N. Mary Avenue
Sunnyvale, CA 94086
Attention: President
Facsimile: (408) 774-4033
to the Warrant Holder:
[NAME AND ADDRESS OF WARRANT HOLDER]
Attention:
Facsimile:
with copies to:
[NAME AND ADDRESS]
Attention:
Facsimile:
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
15. ASSIGNMENT. This Warrant may be transferred or assigned, in whole or
in part, at any time and from time to time by the then Warrant Holder by
submitting this Warrant to the Company together with a duly executed Assignment
in substantially the form and substance of the Form of Assignment which
accompanies this Warrant and, upon the Company's receipt hereof, and in any
event, within three (3) business days thereafter, the Company shall issue a
Warrant to the Warrant Holder to evidence that portion of this Warrant, if any
as shall not have been so transferred or assigned.
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<PAGE> 11
Dated: GENERAL MAGIC, INC.
By:
------------------------------------
Name:
Title:
[CORPORATE SEAL]
Attest:
By:
-----------------------------------
Its
[SIGNATURE BLOCK OF WARRANT HOLDER]
(SIGNATURE PAGE OF GENERAL MAGIC, INC. COMMON STOCK PURCHASE WARRANT)
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<PAGE> 12
(SUBSCRIPTION NOTICE)
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO: GENERAL MAGIC, INC.
ATTN: SECRETARY
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant:
_____ (A) for, and to purchase thereunder, shares of Common Stock of
General Magic, Inc., a Delaware corporation (the "COMMON
STOCK"), and herewith, or by wire transfer, makes payment of $
therefor; or
_____ (B) in a "cashless" or "net-issue exercise" for, and to
purchase thereunder , ______ shares of Common Stock, and
herewith makes payment therefor with Surrendered Warrant
Shares.
The undersigned requests that the certificates for such shares be issued in the
name of, and
_____ (A) delivered to , whose address is ; or
_____ (B) Electronically transmitted and credited to the account of ,
undersigned's prime broker (Account No. ) with Depository Trust
Company through its Deposit Withdrawal Agent Commission system.
Dated:
------------- ----------------------------------------
(Signature must conform to name of holder
as specified on the face of the Warrant)
----------------------------------------
(Address)
Tax Identification Number:
-------------
12
<PAGE> 13
--------------
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
the right represented by the within Warrant to purchase shares of Common Stock
of GENERAL MAGIC, INC., a Delaware corporation, to which the within Warrant
relates, and appoints Attorney to transfer such right on the books of GENERAL
MAGIC, INC., a Delaware corporation, with full power of substitution of
premises.
Dated:
------------- ----------------------------------------
(Signature must conform to name of holder
as specified on the face of the Warrant)
----------------------------------------
(Address)
Signed in the presence of:
- ----------------------------------------
<PAGE> 1
EXHIBIT 4.4
CONFIDENTIAL TREATMENT REQUESTED -- EDITED COPY
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
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<PAGE> 2
will deliver to Microsoft a certificate representing the number of Preferred
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.
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<PAGE> 3
(b) The Preferred Shares, when issued, sold and delivered
in 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 Documents
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<PAGE> 4
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 party to preceding the date of this Agreement,
any transaction with GM, other than compensation
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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 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.
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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 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
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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 [* ]
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.
- --------
* CONFIDENTIAL TREATMENT REQUESTED
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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.
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
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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, 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 otherwise indicated. The words "INCLUDE,"
"INCLUDES," and "INCLUDING" when used therein shall
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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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<PAGE> 15
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 4.5
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "AGREEMENT") is made and entered into
as of February 27, 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"), on the terms and conditions set forth in the Certificate of
Designation (the "CERTIFICATE") attached as Exhibit A to that certain Preferred
Stock Purchase Agreement, dated February 26, 1998, by and between the Company
and Microsoft (the "PREFERRED STOCK PURCHASE AGREEMENT").
B. The Preferred Stock Purchase Agreement provides that Microsoft shall
be granted certain information and registration rights, all as more fully set
forth herein.
C. Terms beginning with an initial capital which are not otherwise
defined herein shall have the same meaning as set forth in the Certificate which
is incorporated as Exhibit A to the Preferred Stock Purchase Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Registration Rights.
1.1 Definitions. For purposes of this Section 1:
(a) Registration. The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
("SECURITIES ACT"), and the declaration or ordering of effectiveness of such
registration statement by the U.S. Securities and Exchange Commission (the
"SEC").
(b) Registrable Securities. The term "REGISTRABLE SECURITIES"
means: (1) all the shares of common stock of the Company ("COMMON STOCK") issued
or issuable upon the conversion of any Series A Shares as defined in and issued
pursuant to the Certificate; (2) all shares of Common Stock of the Company
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as a dividend or other distribution with respect to, or in
exchange for, in replacement of or in connection with a share split of, all such
shares of Common Stock described in clause (1) of this subsection (b); and (3)
all shares of Common Stock of the Company owned by Microsoft, but excluding any
shares acquired by Microsoft in breach of any agreement with the Company;
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which rights under this Section 1 are not assigned in
accordance with this Agreement or sold to the public or sold pursuant to Rule
144 promulgated under the Securities Act.
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1.2 Demand Registration.
(a) Request for Registration. If the Company shall receive at
any time a written request from Microsoft that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 1.2 (a "REGISTRATION REQUEST"), then the
Company shall, within ten (10) business days of the receipt of such Registration
Request, give written acknowledgment thereof ("REQUEST ACKNOWLEDGMENT") to
Microsoft, and effect, as soon as practicable thereafter, but in no event later
than sixty (60) days following receipt by Microsoft of the Request
Acknowledgment, the registration under the Securities Act of such Registrable
Securities which Microsoft so requests to be registered; provided that the
Registrable Securities requested by Microsoft to be registered pursuant to such
Registration Request must either: (i) be at least forty-five percent (45%) of
all Registrable Securities then held by Microsoft (including all Registrable
Securities issuable pursuant to the exercise or conversion of any warrant, right
or other security) or (ii) have an anticipated aggregate public offering price
(after any underwriting discounts and commissions) of not less than $1,000,000.
(b) Underwriting. If Microsoft initiates the registration
request under this Section 1.2 and intends to distribute the Registrable
Securities covered by its request by means of an underwriting (an "UNDERWRITTEN
OFFERING"), then Microsoft shall so advise the Company as a part of its request
made pursuant to this Section 1.2 and the Company shall include such information
in the written notice referred to in subsection 1.2(a). In such event, the
right of Microsoft to include its Registrable Securities in such registration
shall be conditioned upon Microsoft's participation in such underwriting and the
inclusion of Microsoft's Registrable Securities in the underwriting to the
extent provided herein. If Microsoft proposes to distribute its securities
through such underwriting, it shall enter into an underwriting agreement in
customary form with the managing underwriter or underwriters selected for such
underwriting by the Company and approved by Microsoft, which approval shall not
be unreasonably withheld. Any Registrable Securities excluded and withdrawn from
such underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is
obligated to effect only two (2) such registrations pursuant to this Section
1.2.
(d) Delay. If GM shall furnish to Microsoft a certificate signed
by the President of GM stating that, in the good faith judgment of the Board of
Directors of GM, the commencement of an Underwritten Offering pursuant to this
Section 1.2 would (i) require disclosure of material information GM has a bona
fide business purpose of retaining as confidential or (ii) have a material
adverse effect on GM or its shareholders, in relation to any financing,
acquisition, corporate reorganization or other material transaction contemplated
by the Board of Directors of GM, involving GM or any of its affiliates, in each
case as determined by GM, then GM may direct that the commencement of the
Underwritten Offering be delayed for a period not in excess of ninety (90) days,
and may only exercise this right once within any twelve (12) month period.
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1.3 Piggyback Registrations. The Company shall notify Microsoft in
writing at least thirty (30) days prior to filing any registration statement
under the Securities Act for purposes of effecting a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, and
registration statements relating to any registration under Section 1.2 or
Section 1.4 of this Agreement, but excluding registration statements relating to
any employee benefit plan or a transaction under Rule 145 of the Securities Act)
and will afford Microsoft an opportunity to include in such registration
statement all or any part of the Registrable Securities then held by Microsoft.
If Microsoft desires to include in any such registration statement all or any
part of its Registrable Securities, Microsoft shall, within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities Microsoft wishes to include in such registration
statement. If Microsoft decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, Microsoft shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein. An election by Microsoft to include Registrable
Securities in any registration statement pursuant to this Section 1.3 shall not
under any circumstances constitute a request for registration by Microsoft under
Section 1.2 hereof.
If a registration statement under which the Company gives notice under this
Section 1.3 is for an underwritten offering, then the Company shall so advise
Microsoft. In such event, the right of Microsoft to be included in a
registration pursuant to this Section 1.3 shall be conditioned upon Microsoft's
participation in such underwriting and the inclusion of Microsoft's Registrable
Securities in the underwriting to the extent provided herein. If Microsoft
proposes to distribute its Registrable Securities through such underwriting,
Microsoft shall enter into an underwriting agreement in customary form with the
managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, then the managing underwriter(s) may
exclude shares (including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the registration
and the underwriting shall be allocated, first, to the Company, second, to
Microsoft and to other holders of securities of the Company with piggyback
registration rights on a pro rata basis based on the total number of registrable
securities then held by Microsoft and such other holders, and third, to each of
the directors, officers, employees, consultants, contractors, advisors and
vendors requesting inclusion of their shares of Common Stock or Preferred Stock
(as applicable) in such registration statement on a pro rata basis based on the
total number of shares of Common Stock or Preferred Stock (as applicable) then
held by each such party. If Microsoft disapproves of the terms of any such
underwriting, Microsoft may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
1.4 Form S-3 Registration. In case the Company shall receive from
Microsoft a written request that the Company effect a registration on Form S-3
with respect to all or a part of the Registrable Securities owned by Microsoft,
then the Company will, as soon as reasonably
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practicable, effect such registration on Form S-3 as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion of
Microsoft's Registrable Securities as are specified in such request; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 1.4:
(i) if Form S-3 is not available for such offering by
Microsoft;
(ii) if the aggregate value of the Registrable Securities
proposed to be sold by Microsoft in such offering is no more than $1,000,000;
(iii) if the Company shall furnish to Microsoft a
certificate signed by the President or Chief Executive Officer of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than 90 days after receipt of the request of Microsoft under this Section
1.4;
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations for
Microsoft pursuant to Section 1.2 and Section 1.4; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
Only one (1) Form S-3 registration shall be deemed to be a demand
registration as described in Section 1.2 above.
1.5 Obligations of the Company.
(a) Expenses. All expenses incurred in connection with all
registrations pursuant to Sections 1.2, 1.3 and 1.4, including without
limitation all registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company (but excluding
underwriters' and brokers' discounts and commissions), shall be borne by the
Company. Microsoft shall bear its proportionate share (based on the total number
of shares sold in such registration other than for the account of the Company)
of all underwriting discounts or commissions payable to underwriters or brokers
in connection with such offerings.
(b) Registration. Whenever required to effect the registration
of any Registrable Securities under this Agreement, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities, use its best efforts to cause such
registration statement to become effective and, upon the request of Microsoft,
keep such registration statement effective
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for up to ninety (90) days plus any additional periods represented by any
"Black-Out Period" (as defined in the last paragraph of Subsection 1.5(b)
below).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as the Company may determine to be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(iii) Furnish to Microsoft such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by it and included in such registration.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by
Microsoft, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Microsoft
shall also enter into and perform its obligations under such an agreement.
(vi) Notify Microsoft at any time when a prospectus relating
to the Registrable Securities is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact necessary, in light of the
circumstances under which made, to make the statements therein not misleading,
and, at the request of Microsoft, the Company will promptly prepare and provide
to it a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of Microsoft's Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary, in light of the circumstances under which
made, to make the statements therein not misleading.
(vii) Furnish, at the request of Microsoft, on the date that
its Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to Microsoft,
addressed to the underwriters, if any, and to Microsoft and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
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certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to Microsoft, addressed to the underwriters, if any,
and to Microsoft.
(viii) Microsoft agrees that if the Company has delivered
preliminary or final prospectuses to Microsoft and after having done so (a) the
Company determines that the prospectus needs to be amended or supplemented to
comply with the requirements of the Securities Act, (b) a stop order suspending
the effectiveness of the registration statement is issued by the SEC or (c) the
Company shall, in good faith and for business reasons, enter into negotiations
relating to or otherwise commence a material business transaction, including,
without limitation, the acquisition or divestiture of assets or the offering or
sale of securities, then the Company shall promptly notify Microsoft and
Microsoft shall immediately cease making offers and sales of Registrable
Securities and return all remaining prospectuses to the Company. Following such
amendment or supplement, the lifting of any stop order or the completion or
termination of any material transaction, the Company shall promptly provide
Microsoft with revised prospectuses and, following receipt of the revised
prospectuses, Microsoft shall be free to resume making offers of the Registrable
Securities, or any portion thereof. The period during which the Company
exercises its rights as described in this paragraph to postpone, delay or
interrupt the offer and sale of the Registrable Securities or during the
pendency of any stop order, injunction or other order or requirement of the SEC
or any other governmental agency or court shall be referred to herein as
"BLACK-OUT PERIOD."
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 1.2, 1.3 or
1.4 that Microsoft shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities and such other information as the Company may
reasonably request to timely effect the registration of its Registrable
Securities.
1.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 1.2, 1.3 or 1.4:
(a) By the Company. To the extent permitted by law, the Company
will indemnify and hold harmless Microsoft, the officers and directors of
Microsoft, any underwriter (as defined in the Securities Act) for Microsoft and
each person, if any, who controls Microsoft or its underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 ACT"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"VIOLATION"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
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(iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the 1934 Act or any
federal or state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse Microsoft, its officers or directors, underwriter
or controlling persons for any legal or other expenses reasonably incurred by
them, as incurred, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this subsection 1.7(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of Microsoft, its officers, directors,
underwriter or controlling persons or by Microsoft's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished Microsoft or its underwriters with
copies of the same.
(b) By Microsoft. To the extent permitted by law, Microsoft will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the 1934 Act,
any underwriter and each person, if any, who controls such underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, underwriter, or controlling person of the Company may become
subject under the Securities Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by Microsoft expressly for use
in connection with such registration; and Microsoft will reimburse any legal or
other expenses reasonably incurred by the Company or any such director, officer,
underwriter or controlling person, as incurred, in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection 1.7(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
Microsoft, which consent shall not be unreasonably withheld; and provided
further, that the total amounts payable in indemnity by Microsoft under this
subsection 1.7((b)) in respect of any Violation shall not exceed the proceeds
(net of underwriters' and brokers' discounts and commissions) received by
Microsoft in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
this Section 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to
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<PAGE> 8
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.7, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.7.
(d) Contribution. If the indemnification provided in this
Section 1.7 is unavailable or insufficient to hold harmless an indemnified party
under subsection 1.7(a) or (b), then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other from
the offering of the securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the indemnifying party on the one hand and the
indemnified party on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other equitable considerations. The relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering received by the indemnifying party bear to the total net proceeds
received by the indemnified party. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
related to information supplied by the indemnifying party or information
supplied by the indemnified party, and the parties' relevant intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending against any action or claim that is the subject of this section.
Notwithstanding the provisions of this section, Microsoft shall not be required
to contribute any amount in excess of the amount of the total net proceeds (net
of underwriters' and brokers' discounts and commissions) received by Microsoft
from the sale of the securities pursuant to this Agreement. No person guilty of
fraudulent misrepresentation (within the meaning of Section II(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Survival. The obligations of the Company and Microsoft under
this Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
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<PAGE> 9
1.8 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as Microsoft owns any Registrable Securities, to
furnish to Microsoft forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144,
and of the Securities Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company, and (iii) such other reports and
documents of the Company as Microsoft may reasonably request in availing itself
of any rule or regulation of the Commission allowing Microsoft to sell any such
securities without registration.
1.9 Termination of the Company's Obligations. The Company shall have
no obligations pursuant to Sections 1.2 through 1.4 with respect to any
Registrable Securities proposed to be sold by Microsoft in a registration
pursuant to Section 1.2, 1.3 or 1.4 if, in the opinion of counsel to the
Company, all such Registrable Securities proposed to be sold by Microsoft may be
sold in a three month period without registration under the Securities Act
pursuant to Rule 144 under the Securities Act.
2. Transfer and Assignment.
Notwithstanding anything herein to the contrary, the registration rights of
Microsoft under Section 1 hereof may be assigned only to a party who acquires at
least twenty percent (20%) of the total Series A Shares originally acquired by
Microsoft pursuant to the Preferred Stock Purchase Agreement (or the shares of
Common Stock issued upon conversion thereof); provided, however, that no party
may be assigned any of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment stating the name
and address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; and provided further that any
such assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 2.
3. Covenants.
3.1 Standstill. Until the earlier of the sale by Microsoft of more
than fifty percent (50%) of the total Series A Shares originally acquired by
Microsoft pursuant to the
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<PAGE> 10
Preferred Stock Purchase Agreement (or the shares of Common Stock issued upon
conversion thereof) or such time that a third party or parties either (i) makes
a tender offer for forty percent (40%) or more of the combined voting power of
the then outstanding voting securities of the Company or (ii) accumulates
ownership, or executes a letter of intent or other document with the Company
that, when consummated, will result in ownership, of twenty percent (20%) or
more of the combined voting power of the then outstanding voting securities of
the Company (other than accumulations by a group of underwriters), Microsoft
covenants that it will not, unless the prior written consent of the Company has
been obtained: acquire, or permit any Subsidiary of Microsoft to acquire, by
purchase or otherwise, any equity securities of the Company if after such
acquisition Microsoft or any Subsidiary of Microsoft would hold, in the
aggregate, equity securities possessing, or which upon exercise or conversion
would possess equal to or more than twenty percent (20%) of the total combined
voting power of all outstanding voting securities of the Company (assuming
exercise or conversion of all outstanding equity securities of the Company held
by Microsoft or any of its Subsidiaries).
3.2 Proxy Solicitations; Voting Trusts. Until the earlier of the sale
by Microsoft of more than fifty percent (50%) of the total Series A Shares
originally acquired by Microsoft pursuant to the Preferred Stock Purchase
Agreement (or the shares of Common Stock issued upon conversion thereof) or such
time that a third party or parties either (i) makes a tender offer for forty
percent (40%) or more of the combined voting power of the then outstanding
voting securities of the Company or (ii) accumulates ownership, or executes a
letter of intent or other document with the Company that, when consummated, will
result in ownership, of twenty percent (20%) or more of the combined voting
power of the then outstanding voting securities of the Company (other than
accumulations by a group of underwriters), and for so long as the Company is
subject to the reporting requirements under Section 13(a) of the Exchange Act,
Microsoft and any Subsidiary of Microsoft shall provide ten (10) days advance
written notice to the Board of Directors of the Company before:
(i) becoming a "participant" in a "solicitation" of
proxies, as those terms are defined in Rule 14a-11 and Rule 14a-1, respectively,
of Regulation 14A under the Exchange Act in respect of any voting securities of
the Company that may be outstanding and entitled to vote at any time during such
period;
(ii) forming any group for the purpose of voting, purchasing
or disposing of the Company's securities; or
(iii) depositing any securities of the Company in a voting
trust or subjecting them to a voting agreement or other arrangement of similar
effect;
and shall not engage in any activity listed in (a) through (c) above if the
Company's Board of Directors prior to the end of such ten (10) day period
notifies Microsoft that the Company's Board of Directors by a majority vote does
not approve Microsoft's participation in such activity.
(b) Legend. To assist in effectuating the provisions of this
Section 3, Microsoft hereby consents to the placement of the following legend on
all certificates certifying ownership of any securities purchased by Microsoft
pursuant to the Preferred Stock Purchase
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<PAGE> 11
Agreement until such securities have been sold, transferred or disposed of
pursuant to the requirements of this Agreement:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT
PROVIDING THAT SUCH SECURITIES MAY NOT BE DEPOSITED IN A VOTING TRUST OR
SUBJECTED TO A VOTING AGREEMENT OR SIMILAR ARRANGEMENT EXCEPT IN ACCORDANCE
THEREWITH. A COPY OF SAID AGREEMENT IS ON FILE AT THE OFFICE OF THE
SECRETARY OF GENERAL MAGIC, INC."
4. General Provisions.
4.1 Assignment. Except as provided in Section 2 above, 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.
4.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
4.3 Governing Law and Venue. This Agreement shall be governed by and
construed under the internal laws of the State of Delaware as applied to
agreements among Delaware residents entered into and to be performed entirely
within Delaware, without reference to principles of conflict of laws or choice
of laws.
4.4 Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.5 Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
4.6 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 prepaid, 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
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Redmond, WA 98052-6399
Attention: Robert A. Eshelman
Telephone No.: (206) 882-8080
Facsimile No.: (206) 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 General Magic: General Magic, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: General Counsel
Telephone No.: (408) 774-4235
Facsimile No.: (408) 774-4033
With a copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301-1825
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 4.6.
4.7 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees, experts' fees and costs,
including those for pretrial, trial, on appeal, in arbitration and in bankruptcy
and all other costs and necessary disbursements associated with any such
actions, in addition to any other relief to which such party may be entitled.
4.8 Adjustments for Stock Splits, Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or Series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or Series of stock by such subdivision, combination or stock dividend.
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<PAGE> 13
4.9 Aggregation of Stock. All shares held or acquired by affiliated
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
4.10 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any provision of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Microsoft. Any
amendment or waiver effected in accordance with this Section shall be binding
upon Microsoft and Company. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall constitute a waiver of any other provisions
hereof, whether or not similar, nor shall any such waiver constitute a
continuing waiver. No waiver shall be binding unless expressed as such in a
document executed by the party making the waiver.
4.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
4.12 Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties with respect to the
subject matter hereof.
[REMAINDER OF THIS 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:
---------------------------------- ------------------------------------
[Name] [Name]
Its: Its:
--------------------------------- -----------------------------------
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<PAGE> 1
EXHIBIT 4.6
CONFIDENTIAL TREATMENT REQUESTED -- EDITED COPY
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 [* ]
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 [*] 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 [*] 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 [*] 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
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<PAGE> 3
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 this Agreement.
2.4 General Magic also grants to Microsoft and its current and
future Subsidiaries a [*] 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. [* ]
4. License Fee.
4.1 Microsoft agrees to pay to General Magic a nonrefundable
(except as set
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<PAGE> 4
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.
[*]
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<PAGE> 5
5. [*]
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<PAGE> 6
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 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. [*]
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<PAGE> 7
9. [*]
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.
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<PAGE> 8
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, 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: [*]
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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
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
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<PAGE> 10
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, 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.
10
<PAGE> 11
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
____________________________________ ____________________________________
Signature Signature
____________________________________ ____________________________________
Name Name
____________________________________ ____________________________________
Title Title
____________________________________ ____________________________________
Date Date
11
<PAGE> 1
EXHIBIT 5.1
[Gray Cary Ware & Freidenrich LLP LETTERHEAD]
May 1, 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 18,001,925 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 and (ii) issued by the Company in connection
with the acquisition of a privately-held company.
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 18,001,925 shares of
Common Stock of the Company being registered pursuant to the Registration
Statement and (i) to be issued to the purchasers will be, upon issuance in
accordance with the terms of the Company's Certificate of Designation of the 5
1/2% Cumulative Convertible Series B Preferred Stock or the terms of the
warrants, as applicable, and (ii) issued to certain persons in connection with
the acquisition of a privately-held company are, 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,
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 the registration statement dated
May 1, 1998 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
April 28, 1998
