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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-25374
GENERAL MAGIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0250147
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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420 NORTH MARY AVENUE, SUNNYVALE, CALIFORNIA 94086
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 774-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of registrant's voting stock held by
nonaffiliates of registrant, based upon the closing sale price of the common
stock on February 26, 1999, as reported on the Nasdaq National Market, was
approximately $166,915,616. Shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
Outstanding shares of registrant's common stock, $.001 par value, as of
February 26, 1999: 34,527,836
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive Proxy Statement for registrant's 1999 Annual
Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
Form are incorporated by reference into Part III of this Form 10-K Report.
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PART I
This report on Form 10-K includes a number of forward-looking statements
that reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed in the Risk Factors section
of Item 1 and elsewhere in this Form 10-K, that could cause our actual results
and financial position to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"future," "intends," and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
ITEM 1. BUSINESS
COMPANY
We develop and market voice-enabled services designed to make it easy and
convenient for subscribers to access and act on information important to them.
Our primary offerings are the Portico(TM) virtual assistant service, introduced
in 1998, and voice-enabled services for the Web. One of our core technology
assets is the magicTalk(TM) voice user interface, used both in the Portico
service and for voice enabling Web content. We host voice-enabled services in
our network operations center, located in Sunnyvale, California.
The Portico service provides many of the services of a human assistant on
an around-the-clock basis. Subscribers -- who today are principally mobile
professionals -- may access voice mail, email, calendar, address book, company
news and stock quotes from any telephone or, using a standard Web browser, from
any personal computer. When accessing the Portico service over the telephone,
subscribers interact with magicTalk, a personality-rich natural language voice
user interface. With magicTalk, the user doesn't need to remember special voice
commands or navigate lengthy push-button menus. The virtual assistant recognizes
a full range of conversational commands, from "Call John Smith" to "Would you
please call John Smith at home."
We distribute the Portico virtual assistant service through a nationwide
network of resellers, as well as direct to consumers through signup on the Web.
We are also conducting trials of the service with telecommunications carriers,
including Qwest Communications Corporation. We expect to host customized,
private-label versions of the Portico service for those carriers that elect to
make the service commercially available to their customers.
Voice enabling Web content is an emerging growth opportunity for us. The
Web offers a broad base of potential subscribers, including consumers who may
find voice to be an easy way to keep in touch with their favorite Web content
when away from home. In 1998, we announced an agreement with Intuit(R) Inc. to
voice enable certain features of Intuit's Quicken.com(TM) personal finance Web
site.
We are at an early stage of development in our strategy to develop and
market voice-enabled services, and are subject to all of the risks inherent in
the establishment of a new business enterprise. In order to succeed, we must,
among other things, secure adequate financial and human resources to meet our
requirements; meet the challenges inherent in the timely development and
deployment of complex technologies; establish and maintain relationships with
telecommunications carriers, device manufacturers, Internet companies and other
partners for resale, remarketing and distribution of our services; achieve
market acceptance for our Portico service and other voice-enabled services;
generate sufficient revenues from our services to permit us to operate
profitably; expand our network operations center to timely accommodate any
demand for our services; ensure that third-party developers timely develop,
license, deliver and support technologies upon which our services depend;
respond effectively to competitive developments; and protect our intellectual
property. Any failure to achieve these objectives could have a material adverse
effect on our business, operating results and financial condition.
General Magic, Inc. was incorporated in California in May 1990 and
reorganized as a Delaware corporation in February 1995. We are a development
stage enterprise. This report on Form 10-K contains the trademarks of General
Magic and those of other companies.
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STRATEGY
We have two long-term objectives. The first is to build the market for
voice-enabled services. The second is to establish General Magic as a leading
provider of voice-enabled services directly to end users, and a premium supplier
of voice-enabled applications to partners, including telecommunications
carriers, device manufacturers and Internet companies. The key elements of our
strategy are:
Establish leadership in virtual assistant services market. We believe that
we have set the standard for virtual assistant services with our Portico
service. The service provides subscribers a superior user experience through our
magicTalk voice user interface and a full range of features and functions. We
intend to build market leadership through the following efforts:
- We will continue to enhance the features and functionality of the Portico
service to address the preferences and requirements of our subscribers,
and to respond to competitive developments. We collect feedback from our
existing subscribers, host focus groups nationwide, and monitor the
products and services introduced by our competitors to ensure that the
Portico service meets the demands of our markets.
- We have initiated new sales and marketing programs aimed at increasing
the subscriber base for our Portico service. Among other things, we are
focusing our efforts on the most productive of our resellers, providing
them additional training and sales tools. We have also launched a Web
banner advertising program, a new direct mail campaign, and a customer
referral program to attract new subscribers to the Portico service.
Capitalize on market leadership to increase our subscriber base by
providing private-label versions of the Portico service to partners. We will
seek to capitalize on our leadership in the virtual assistant services market to
attract large telecommunications carriers, portable device manufacturers and
other companies seeking private-label versions of the Portico service.
Telecommunications carriers and device manufacturers typically have large
existing mobile professional customer bases and substantial marketing, sales and
other resources to devote to the promotion of their services.
Penetrate new markets to further increase our subscriber base. Natural
speech is the most intuitive user interface for many information technology
products and services. We believe that voice user interfaces such as magicTalk
will enable consumers to access the Internet and other sources of data and
information more readily, further enlarging the market for communications,
information, entertainment and electronic commerce services. We plan to deploy
the magicTalk voice user interface for Internet applications, which will enable
us to quickly gain access to a much larger potential subscriber base. We will
continue to seek partnerships with Internet companies to voice enable their Web
content and other services.
Establish the magicTalk voice user interface as the de facto standard. We
believe that the quality of the user experience provided by our magicTalk voice
user interface will be an important factor in maintaining our leadership in the
virtual assistant services market. In addition, we believe that the quality and
sophistication of our magicTalk voice user interface will be instrumental in
penetrating the Internet and other markets. To ensure that we maintain and
extend this leadership, we will continue to refine our magicTalk voice user
interface platform. We will also continue to pursue strategic relationships with
third-party developers and providers to ensure that we are able to incorporate
next generation voice technologies as they become available.
Leverage our network operations center. Our network operations center was
built in late 1997 and has been in commercial operation since July 1998. All of
the technology necessary for the operation of the Portico service, including the
magicTalk voice user interface platform, is centralized in our network
operations center. We anticipate that the private-label versions of the Portico
service and the voice-enabled services we develop for Internet applications will
operate through our network operations center as well. We believe that this will
differentiate us from our competitors by minimizing the capital investment
required by our partners and by enabling them to deploy their services more
expeditiously. We intend to continue to develop the technology and
infrastructure deployed in our network operations center, both to enhance its
performance and reliability,
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and to reduce its cost. We also plan to expand the network operations center as
the number of users supported by the center increases.
Continue to develop our agent and other proprietary technologies for
application in connection with voice-enabled services. We are engaged in ongoing
product marketing and research and development efforts to enhance our
voice-enabled service offerings and to identify and penetrate new markets for
our services. We are currently developing agent technology designed to simplify
the customization of our voice-enabled services for individual subscribers and
to extend our services for new markets. We are also developing agent-based
applications that will allow subscribers, for example, to be notified of events
important to them and to carry out transactions even while not logged on to our
services. In addition, we have prototyped an Internet appliance for the consumer
market. The appliance affords voice access through our magicTalk voice user
interface to information stored on the device, as well as to network-based
information accessible through our network operations center.
Expand Global Presence. Our magicTalk voice user interface can be
customized for use in languages other than English. We plan to work with
development partners in Europe and Asia-Pacific to bring local-language versions
of voice-enabled services to market in these regions.
To concentrate our resources on the development and marketing of
voice-enabled services, we divested our DataRover handheld communication
products division in a transaction with DataRover Mobile Systems, Inc.,
effective October 1998. DataRover Mobile Systems is a new company formed to
develop and market handheld communications devices targeted to mobile workers in
vertical markets. Pursuant to the transaction, we contributed cash and certain
assets of our DataRover division, and licensed certain of our technologies, to
DataRover Mobile Systems in exchange for an equity position in that company.
SERVICES
THE PORTICO SERVICE
Overview. Launched in July 1998, the Portico service is a second-generation
virtual assistant for today's mobile professionals that allows them to access
and manage their key information through the most natural interface
known -- their own words. Among other things, the service:
- answers, forwards and places telephone calls for the subscriber;
- collects and consolidates the subscriber's email from multiple email
accounts, and notifies the subscriber upon receipt of priority messages;
- allows the subscriber to retrieve voice mail and email over the phone;
- maintains the subscriber's calendar, address book and task list, and
synchronizes with popular desktop information management applications;
- collects and forwards company news and stock quotes based on subscriber
preferences; and
- retrieves press releases and other news and information concerning
thousands of publicly traded companies.
Users can access the Portico service from any telephone or from any
personal computer equipped with one of the leading Web browsers. Subscribers may
sign up for the service through resellers or directly on our Web site. We offer
our subscribers usage-driven monthly and annual pricing plans.
Integrated Communications Features. The Portico service manages a
subscriber's calls. It answers inbound calls to the subscriber and either allows
the caller to leave a message, or, if the subscriber has selected the "find me
follow me" option, routes the call to different phone numbers in an effort to
locate the subscriber. If the caller leaves a message, the subscriber can
retrieve it later and, if desired, instruct the virtual assistant to return the
call. The Portico service will also collect email messages from multiple email
accounts, read email messages to the subscriber using text-to-speech technology,
and let the subscriber respond by return message or by placing a call to the
sender. The subscriber can set parameters so that only email messages from known
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contacts or with certain key words are collected. The service will notify the
subscriber upon receipt of a key message, based on parameters preset by the
subscriber.
Business Information Management. Like a real personal assistant, the
Portico service maintains the subscriber's address book and calendar. It can
synchronize with popular desktop information managers, such as Microsoft
Outlook, Microsoft Schedule+, Lotus Organizer, Symantec ACT! and Starfish
Sidekick as well as Windows CE based information appliances and the PalmPilot.
The subscriber may set preferences for news and information that may be read,
faxed or emailed to the subscriber by the service. The service will also
retrieve on demand news and information about any of thousands of public
companies. In addition, the subscriber can retrieve stock prices, create and
track a personal stock portfolio and receive notification of changes in the
prices of portfolio stocks based on preset preferences.
PRIVATE-LABEL PORTICO SERVICES
In 1998, we initiated internal trials of the Portico service with a number
of telecommunications carriers. We expect to host in our network operations
center customized, private-label versions of the Portico service for those
carriers that elect to make the service commercially available to their
customers, as well as for portable device manufacturers and other companies that
launch private-label versions of the service.
In November 1998, we entered into an agreement with Qwest Communications
Corporation to develop a Qwest-branded version of the Portico service. Qwest
launched its market trial of the Qwest-branded virtual assistant service in
December 1998.
OTHER VOICE-ENABLED SERVICES
We are currently developing new voice-enabled services. Some of these
services will provide voice access to information available on the Web but now
accessible only by means of the graphical user interface provided by a Web
browser. These additional services, which like Portico will be deployed in our
network operations center, are being built on our magicTalk voice user interface
platform.
In November 1998, we entered an exclusive agreement with Intuit Inc. to
develop voice access to certain financial services and information on Intuit's
Quicken.com Web site. We will offer tiered levels of service for the Quicken.com
user base. Quicken.com will also become an integral part of the Portico service.
Through Portico, our subscribers will be able to access certain of their
personal financial information and enhanced banking features, as well as
Portico's convenient array of virtual assistant services. The voice-enabled
Quicken.com service is expected to be available to customers in mid-1999.
TECHNOLOGY
We have developed a number of technologies that provide a foundation for
the deployment of the Portico virtual assistant and other voice-enabled
services. These technologies include the magicTalk voice user interface
platform, our second-generation agent technology, the network operations center
and our Internet appliance hardware platform.
magicTalk Voice User Interface. magicTalk is an intelligent voice user
interface that allows users to access and interact with complex data using their
own voice, words and style. magicTalk projects a persona scripted with the help
of nationally-recognized scholars, producers and directors. Users interact with
the magicTalk voice user interface simply by speaking in an ordinary, continuous
manner, just as people communicate with each other. They do not need to follow
menus, "train" magicTalk to recognize their voice, or limit their spoken
commands to a specialized vocabulary or syntax or to isolated groups of discrete
words. magicTalk recognizes various ways of expressing a particular command. For
example, the magicTalk voice user interface will recognize "Check my voice
mail," "Get my voice messages," and "Do I have any new voice mail?" We believe
these characteristics materially enhance the user experience and that they
establish the magicTalk voice user interface as the de facto industry standard.
Network Operations Center. Our network operations center has been in
commercial operation since July 1998. The center features a high-availability
architecture and fault-tolerant network backbone running
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Pentium II-based Windows NT servers to implement the functionality of the
Portico service and other voice-enabled services. The network operations center
was designed based on industry standards to allow us to optimize the
configuration of the Portico services and other voice-enabled services on an
ongoing basis, to incorporate next-generation features and technologies as they
are developed, and to do so dynamically without requiring significant periods of
system downtime. We believe our network operations center will differentiate us
from our competitors by minimizing the capital investment required by our
partners and by enabling our partners to deploy their services more
expeditiously.
Agent technology. We are developing second-generation agent technology
designed to allow our Portico virtual assistant service and other voice-enabled
services built on the magicTalk platform to be more easily customized for
particular subscribers and more easily extended and enhanced for particular
applications. Today, such customization and extension can be accomplished only
by systems programmers with extensive technical knowledge of our voice platform.
We expect that with agent technology such work can be performed with far less
effort. We think this will enable us and our partners to develop and deploy
voice-enabled service more quickly and to maintain and enhance them more easily.
Internet appliance. We are also developing a flexible, low-cost hardware
platform to deliver voice-enabled services to home consumers. The technology was
demonstrated during 1998 in a screenphone device that incorporates
state-of-the-art speech recognition and voice compression and relies on Internet
as well as other telecommunications standards. We demonstrated the ability of
the device to recognize spoken commands, retrieve information from our Portico
service and support voice communications over the Internet. We hope to provide
this technology to OEM device manufacturers who would market the device bundled
with a subscription to a set of voice-enabled services addressed to the consumer
market and deployed in our network operations center.
CUSTOMER SERVICE AND SUPPORT
We believe that a high level of customer service and support is important
to the success of our Portico virtual assistant service and private-label
virtual assistant services introduced by our partners. We have established a
customer service department that is responsible for educating, enrolling and
assisting subscribers of the Portico service and, in consultation with our
technical support personnel, resolving any technical difficulty subscribers may
have in using the service. Our customer service department is staffed seven days
a week, and is accessible by a toll-free call or over the Web.
COMPETITION
Competition in the voice-enabled services market is intense, rapidly
evolving and subject to rapid technological change. We expect competition to
increase in the future. Many of our current and potential competitors have
longer operating histories, greater name recognition, established customer bases
and substantially greater financial, technical, marketing, sales and other
resources than we do.
We believe that we have a competitive advantage because we are one of the
first to offer voice-enabled services. magicTalk, our personality-rich natural
language voice user interface, differentiates our services from the offerings of
our competitors. We also believe that our network operations center provides a
competitive advantage by minimizing the capital investment required of our
potential partners. We believe that the principal competitive factors affecting
the market for voice-enabled services are price, performance, quality and
functionality. We believe that we will be able to compete effectively in these
areas.
Wildfire Communications, Inc. and Webley Systems, Inc. currently offer a
virtual assistant service similar to the Portico service. These companies
compete directly with us for subscribers and partners. In addition, many of our
competitors and potential competitors have substantial resources and technical
expertise and could likely develop such a service. Many companies also offer
some of the functionality that our Portico service provides, and that other of
our voice-enabled services are expected to provide. For example, call forwarding
and voice mailbox features are offered by companies such as AT&T Corp., MCI
Communications Corporation and Sprint Corporation, as well as the regional
telephone operating companies and other independent voice mail vendors. An
electronic mail reading feature is provided by such companies as
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Planetary Motion, Inc. and JFax Communications, Inc. In addition, software
developers such as Microsoft Corporation and Oracle Corporation, and voice mail
hardware, software and service providers such as AccessLine Technologies, Inc.,
Call Sciences Ltd., Intellivoice Communications, Inc., International Business
Machines Corporation, Lucent Technologies, Inc., Motorola Inc., Premiere
Technologies Inc. and others may extend the capability of their current
offerings, or develop new products and services, to provide many if not all of
the features and functionality of our voice-enabled service offerings. On-line
service providers such as America Online, Inc. and Internet companies such as
Yahoo! may also enhance their services to compete with our voice-enabled
services.
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development throughout
our existence. We believe that our future performance largely depends on our
ability to continue to develop and enhance our magicTalk voice user interface
platform, our network operations center, and the features and functionality of
the Portico service, as well as the continued creation and further development
of new products, services and technologies that will help to expand the market
for voice-enabled services, win widespread customer acceptance of our products
and services and maintain our technological competitiveness.
Our total expenses for research and development for the years ended
December 31, 1998, 1997 and 1996 were $21.1 million, $20.5 million and $23.0
million, respectively. We expect to continue to invest substantial funds in
research and development activities.
SALES AND MARKETING
We market and sell the Portico service through our nationwide network of
resellers and directly through our inside telesales staff. We also offer direct
signup on our Web site. Our sales and marketing groups provide training programs
and sales incentive programs to the reseller network, including cash incentives
and market development funds. Marketing activities to promote the Portico
service include direct mail campaigns, Web advertising and promotion, a customer
referral program, trade show participation and an ongoing public relations
program.
A key component of our strategy is to increase our subscriber base by
engaging multiple channel partners to provide customized private-label versions
of our Portico service, and by partnering with Internet and other companies to
voice enable their Web content and other services. We maintain a direct sales
force to pursue such relationships with telecommunications carriers, device
manufacturers, Internet and other companies. The marketing group promotes the
Company as a leading provider of voice-enabled services through on ongoing
public relations program, exhibits and presentations at trade shows and
conferences, product brochures and other marketing programs.
PROPRIETARY RIGHTS AND LICENSES
Our success will depend in part on our ability to obtain and enforce
intellectual property protection for our technology in both the United States
and other countries. In February 1997, the United States Patent and Trademark
Office ("PTO") issued to us a pioneering patent with respect to our agent
technology. We have filed counterpart patent applications in Canada, Europe and
Japan. However, we cannot guarantee that counterpart patents will be issued. In
addition, the PTO has issued to us a total of eight patents regarding various
features of the communications hardware and software platform upon which our
Internet appliance is based.
We have a total of ten patent applications pending with the PTO, two of
which have been allowed but not yet granted. Three of these applications relate
to our voice user interface technology or to telephonic access of the Web, two
of them relate to our agent technology, and the balance relate to certain
features or components of our communications hardware and software platform and
other technologies. We cannot guarantee that our pending patent applications
will result in the issuance of patents.
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Our patents may not provide competitive advantages to us. In addition, our
patents may be challenged, invalidated or circumvented, and we cannot guarantee
that the patent laws will provide effective legal or injunctive remedies to stop
any infringement of our patents. Also, our competitors may independently develop
or patent technologies that are equivalent to or superior to our technology.
We rely in part on copyright laws to prevent unauthorized duplication of
our software and documentation. However, existing copyright laws afford only
limited protection, especially in certain jurisdictions outside the United
States where we may license our technology, or sell products or services
incorporating our technology. Unauthorized parties may copy our technologies or
reverse engineer or otherwise obtain and use information that we regard as
proprietary. Moreover, the laws and courts of foreign nations against piracy and
infringement may not adequately protect our proprietary technology.
From time to time, we have received communications from third parties
claiming that features or content of certain of our products, services and/or
technologies may infringe their intellectual property rights. It is our practice
to review all such claims and determine if a license is appropriate. To date, no
such claim has resulted in litigation against us. However, a third party may
commence litigation against us in the future. If a third party were to commence
litigation against us, it is likely to claim damages and/or seek to enjoin
commercial activities relating to our technology, services or products. Such
litigation could be costly and a diversion of management's attention, whether or
not the suit is ultimately successful. The costs of such litigation may divert
resources from the continued development, maintenance and support of our
services. In addition, if the suit is successful, we could lose our proprietary
rights and may be required to significantly modify or even discontinue sales or
licensing of our services. In addition, we may be required to pay significant
damages.
EMPLOYEES
As of December 31, 1998, we had 169 full-time employees, of whom 66 were
primarily engaged in engineering, 13 in customer service and support, and 90 in
sales, general and administrative. We have not experienced any work stoppages
and believe that our employee relations are good. Competition for employees in
the computer and software industries is intense. We believe that our future
success will depend, in part, on our continuing ability to attract, assimilate
and retain highly skilled management, technical, marketing, sales,
administrative and customer support personnel.
RISK FACTORS
In this section we summarize certain risks regarding our business and
industry. Readers should carefully consider the following risk factors in
conjunction with the other information included in this report on Form 10-K.
OUR BUSINESS STRATEGY IS NEW, AND WE MAY BE UNABLE TO IMPLEMENT IT SUCCESSFULLY.
In early 1997, we changed our business strategy to focus on the marketing
and sale of voice-enabled services. We are still at an early stage in the
implementation of our new strategy. We face many of the risks faced by new
businesses, especially companies in new and rapidly evolving markets. Such risks
include, among others:
- our business model has not been tested;
- the market for voice-enabled services is not established;
- we may not be able to capture a significant part of the market;
- we may not be able to anticipate and adapt to changes in the market; and
- we may be unable to secure profitable relationships with additional
partners, including telecommunications carriers, device manufacturers,
and Internet companies.
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In order to compete successfully as a provider of voice-enabled services,
among other things, we believe we must:
- develop and maintain at reasonable cost a significant subscriber base for
our Portico and other voice-enabled services;
- establish and maintain relationships with companies seeking to
private-label our services and with companies seeking to voice-enable
their services;
- enhance the features and functionality of the Portico service to address
the preferences and requirements of our subscribers, and to respond to
competitive developments;
- develop and enhance our core technologies, including our magicTalk voice
user interface platform, our network operations center, and our
second-generation agent technology, both to enhance the performance and
lower the cost of our services; and
- continue to attract, retain and motivate qualified personnel.
We may not have the resources necessary to fully execute each of these
goals. If we fail to accomplish any of them or otherwise address the risks
stated above, our ability to compete as a provider of voice-enabled services may
be compromised.
WE MAY NEVER ACHIEVE AND SUSTAIN PROFITABILITY.
We may never achieve and sustain profitability. Since our inception, we
have generated only minimal revenues. We have incurred significant losses, and
we have substantial negative cash flow. As of December 31, 1998, we had an
accumulated deficit of $209.5 million, with a net loss of $38.9 million for the
year ended December 31, 1998.
Historically, we have derived a large percentage of our total revenue from
license fees and customer support fees. As a consequence of our 1997 change in
business strategy, we expect to derive a significant portion of any future
revenues from sales of services and products by us and by our partners and not
from license fees. Although the Portico service was released on July 30, 1998,
we expect to incur significant losses through the year 1999, and we may never
achieve or sustain significant revenues or become profitable.
THE ACCEPTANCE OF OUR PRODUCTS AND SERVICES IS UNCERTAIN.
Our future financial performance depends in large part on growth in demand
for the Portico service and our other voice-enabled services and products. If
the market for voice-enabled services does not develop or if we are unable to
capture a significant portion of that market either directly or through our
partners, our revenues and our results of operations will be adversely affected.
The market for voice-enabled services is still evolving. Currently, there
are only a limited number of products and applications in this industry.
Negative consumer perceptions regarding reliability, cost, ease-of-use and
quality of speech-based products affects consumer demand and may impact the
growth of the market. As a result, we cannot guarantee that the market for
voice-enabled services and products will grow or that consumers will accept any
of the services or products built on our magicTalk voice user interface
platform.
In particular, our success is dependent upon the number of subscribers to
our services that we are able to attract and retain, and the number of
subscribers to private-label and other voice-enabled services that our partners
are able to attract and retain. Although Portico was launched in July 1998,
revenues from Portico subscriptions to date have not been significant. In
addition, although we have entered into arrangements with Qwest and Intuit, we
cannot guarantee that any of the services contemplated by these companies will
be commercially launched. Even if these services were commercially launched, our
partners may not be able to attract and retain a sufficient number of
subscribers to attain profitability. If we and our partners are not able to
attract and retain a sufficient number of subscribers, our revenues and results
of operations will be adversely affected.
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WE WILL NEED TO EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO EXPAND OUR
BUSINESS, AND WE ARE DEPENDENT ON DISTRIBUTION RELATIONSHIPS.
We plan to distribute our services through multiple channels. If we do not
successfully implement this multi-channel strategy, our revenues and results of
operations may be adversely affected. We believe that to successfully market our
services, we must:
- undertake a marketing campaign to identify and successfully pursue
effective ways to market General Magic-labeled services to mobile
professionals and other users;
- identify, establish and maintain arrangements with telecommunications
carriers, device manufacturers and other companies seeking private-label
versions of our services; and
- identify, establish and maintain arrangements with Internet companies and
other companies seeking to voice enable Web content and other
network-based services.
If one or more of these distribution channels fails, development and sales
of our products and services could be adversely affected.
Competition for relationships with telecommunications carriers, device
manufacturers and Internet companies is extremely intense. In addition,
decisions by these third parties, particularly telecommunications carriers, to
enter into distribution relationships can be a lengthy, expensive process, with
no assurance of success.
On November 6, 1998, we entered into an agreement with Intuit Inc. to
develop voice access to certain financial services and information on Intuit's
Quicken.com Web site. The agreement provides for an initial two-year term, with
automatic one-year renewal terms unless either party provides written notice to
the other 60 days prior to the end of the then current term. However, the
agreement will automatically terminate if the services to be provided under the
agreement are not commercially released by December 31, 1999. We cannot
guarantee that this deadline will be met. In addition, Intuit may terminate the
agreement if we fail to perform or observe any material term or obligation under
the agreement.
On November 11, 1998, we entered into an agreement with Qwest
Communications Corporation to develop a Qwest-branded version of our Portico
service. The agreement provides for an initial six-month term, with automatic
one-year renewal terms thereafter. However, either party has the right to
terminate the agreement for any reason by providing written notice of
non-renewal 60 days prior to the end of the then current term. We cannot
guarantee that Qwest will renew the agreement in any given year. In addition,
Qwest may terminate the agreement if we fail to perform or observe any material
term or obligation under the agreement.
In February 1998, we, along with Wireless Knowledge LLC, announced plans to
provide Revolv service users with voice-enabled access to information and
corporate groupware. Although we have signed a letter of intent with Wireless
Knowledge, the letter of intent is non-binding. Wireless Knowledge may terminate
the arrangement at any time.
We may not succeed in maintaining these distribution relationships. In
addition, we may not be successful in establishing additional relationships.
Even if we are able to establish and maintain these relationships, these
companies may be unable to successfully remarket our voice-enabled services. Our
control over the marketing efforts of Qwest, Intuit and Wireless Knowledge are
limited under our agreements. We cannot guarantee that Qwest, Intuit, Wireless
Knowledge or any future partner will actively market the services incorporating
our technology.
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<PAGE> 11
OUR LIMITED RESOURCES MAY RESTRICT OUR OPERATIONS AND OUR ABILITY TO IMPLEMENT
OUR NEW STRATEGY.
Building, maintaining and enhancing our Portico and other voice-enabled
services, and developing private-label services with third parties are complex
processes that require significant financial and other resources. Among other
things, we must:
- enhance the features and functionality of the Portico service to address
the preferences and requirements of our subscribers, and to respond to
competitive developments;
- develop and deploy private-label versions of the Portico service for
existing and future partners;
- develop and deploy our magicTalk voice user interface to voice enable Web
content and other network-based services, such as Intuit's Quicken.com
Web site;
- continue to identify, establish and maintain relationships with
telecommunications carriers, device manufacturers, Internet firms and
other companies for the resale, remarketing and distribution of our
services;
- enhance our core technologies, including our magicTalk voice user
interface platform, network operations center, second-generation agent
technology and Internet appliance; and
- undertake related marketing and advertising campaigns.
We have limited technical, business development, sales and marketing staffs
and such personnel may not be able to manage and successfully complete all of
the tasks necessary to support the various aspects of our business.
In addition, we must conserve cash because we have generated minimal
revenues to date and do not expect to generate significant revenues until the
second half of 1999, if at all. As a result, we may not be able to fund all of
the product development and marketing efforts required to successfully introduce
all of our services.
WE WILL HAVE TO SECURE ADDITIONAL FINANCING TO MEET OUR FUTURE NEEDS, AND THE
AVAILABILITY OF ADDITIONAL FINANCING IS UNCERTAIN.
If expenditures required to achieve our plans are greater than projected or
if we are unable to generate adequate cash flow from sales of our Portico
services, private-label Portico services and services built on our magicTalk
voice user interface platform, we will need to seek additional sources of
capital. The Portico service was introduced in July 1998, and to date we have
not generated significant revenue. In addition, although we have entered into
arrangements with Qwest and Intuit, we cannot guarantee that we will be able to
generate significant revenue from these arrangements. We have no commitments or
arrangements to obtain any additional funding. We may not be able to obtain such
additional funding if it becomes necessary. The unavailability or timing of any
financing could prevent or delay the continued development and marketing of our
services and may require us to curtail our operations.
WE ARE DEPENDENT ON THE INTERNET, AND WE ARE NOT CERTAIN THAT THE BUSINESS MODEL
FOR SERVICES TO BE PROVIDED THROUGH THE INTERNET WILL SUCCEED.
Voice enabling content on the Internet is a key element of our strategy,
and we plan to seek additional partnerships with Internet companies. However,
the business model common among Internet companies is untested. Many Internet
companies provide free services which are supported by advertising revenue and
revenue generated from upgrades to fee-based services. We expect to be required
to adopt a similar business model, and we cannot guarantee that revenue
generated from advertising or from upgrades to fee-based services, if any, will
be sufficient to offset the cost of providing a free baseline service to users.
In addition, our 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
potentially unreliable network infrastructure and poor performance. In addition,
if the Internet continues to experience significant growth in the number of
users and level of use, the Internet
10
<PAGE> 12
infrastructure may not be able to support the demands placed on it by such
growth. Failure of the Internet as a mode of conducting commerce and
communications could have a material adverse effect on our business.
WE MAY EXPERIENCE INTERRUPTIONS IN SERVICE DUE TO ERRORS IN OUR SOFTWARE AND
SYSTEM ARCHITECTURE, AND OUR NETWORK OPERATIONS CENTER MAY NOT BE ABLE TO
ACCOMMODATE POTENTIAL GROWTH.
The ability to provide the Portico service and the services of our partners
depends on the integrity of our software, computer hardware systems and network
infrastructure. Since launching the Portico service, we have encountered errors
in our software and our system design which have resulted in interruptions of
service. Although we were able to correct such errors, we may encounter
additional errors. These errors may be expensive to correct, and may lead to
substantial interruptions in our service.
In addition, in the event that the number of subscribers to our services
increases substantially in a short period of time or we are successful in
establishing a relationship with a partner with a large existing customer base,
our network operations center may not be capable of meeting the resulting
increase in demand. Although we believe that our systems are scalable, we cannot
test conclusively for scalability. A sudden increase in demand could lead to
slow downs or failures in our services.
Currently, our only network operations center is located at our
headquarters in Sunnyvale, California. Operation of our Portico and other
voice-enabled services is dependent upon our ability to protect the network
operations center against physical damage from power outages, telecommunications
failures, physical break-ins and other similar events. 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 our property. We presently do not have
redundant, multiple site capacity in the event of a technical failure of our
services or a natural disaster.
Any damage to or failure of our systems could lead to interruptions in
service and/or the loss of customer information. Such interruptions or loss
could damage our reputation and ability to attract and retain subscribers and
partners. In addition, we may experience negative publicity that could adversely
affect our stock price.
WE MAY EXPERIENCE DELAYS IN PRODUCT DEVELOPMENT.
Any delays in product development or market launch could adversely affect
our revenues or results of operations. To be successful, we must, among other
things, develop technology to enable us to provide, bill for and enhance our
Portico services and other voice-enabled services, including those we agree to
supply for third parties. Software product development schedules are difficult
to predict because they involve creativity and the use of new development tools
and learning processes. Our software development efforts have been delayed in
the past. In addition to software development delays, we may also experience
delays in other aspects of product development. Any product development delays
could delay or prevent successful introduction or marketing of new or improved
products or services or the delivery of new versions of products or services.
WE ARE DEPENDENT ON THIRD-PARTY TECHNOLOGIES AND SERVICES.
We have incorporated technology developed by third parties in the Portico
service and the services to be provided to our partners. We will continue to
incorporate third-party technology in future products and services. We have
limited control over whether or when these third-party technologies will be
developed or enhanced. In addition our competitors may acquire interests in
these third parties or their technologies, which may render the technology
unavailable to us. If a third-party fails or refuses to timely develop, license
or support technology necessary to our services, market acceptance of our
services could be adversely affected. In addition, we rely and will continue to
rely on services supplied by third parties such as telecommunications, Internet
access and power. If these services fail to meet industry standards for quality
and reliability, market acceptance of our services could be adversely affected.
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<PAGE> 13
THE MARKET FOR VOICE-ENABLED SERVICES IS EXTREMELY COMPETITIVE.
The market for voice-enabled services is intensely competitive and subject
to rapid technological change. We may be unable to compete with existing
companies or new companies entering the market. Many of these companies have
greater financial resources, name recognition, research and development
capabilities, sales and marketing staffs, and better developed distribution
channels than we do. The services that we offer may not achieve sufficient
quality, functionality or cost-effectiveness to compete with existing or future
alternatives. Furthermore, our competitors may succeed in developing competing
products or services which are more effective and cheaper or which render our
services or technology obsolete. If we are unable to compete effectively, our
business would be adversely affected.
TECHNOLOGY CHANGES RAPIDLY IN OUR MARKET, AND OUR FUTURE SUCCESS WILL DEPEND ON
OUR ABILITY TO MEET THE NEEDS OF OUR CUSTOMERS.
The telecommunications services market is characterized by rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards. The introduction of products or
services embodying new technologies and the emergence of new industry standards
could render our voice-enabled services obsolete and unmarketable. If we fail to
timely develop and introduce new products and services in response to changing
market conditions or consumer requirements our business would be adversely
affected.
Our success will depend upon our ability to timely develop and introduce
new products and services, as well as enhancements to our existing products and
services, to keep pace with technological developments and emerging industry
standards and address the changing needs of users. We may not be successful in
developing and marketing new products and services that respond to technological
changes, or evolving industry standards. We may experience difficulties that
could delay or prevent the successful development, introduction and marketing of
new products and services. In addition, our new products and services may not
adequately meet the requirements of the marketplace or achieve market
acceptance.
WE ARE DEPENDENT ON KEY PERSONNEL.
Our success depends in part on our ability to attract, retain and motivate
qualified personnel. Silicon Valley remains a highly competitive job market, and
our key management, technical, marketing, sales, administrative and customer
support personnel may not remain with us. In addition, we may be unable to
attract sufficient additional personnel to execute our business plan.
OUR INVESTMENT IN AND OTHER COMMITMENTS TO DATAROVER MOBILE SYSTEMS, INC. MAY
RESULT IN A SIGNIFICANT LOSS TO US.
Effective October 1998, we divested our DataRover handheld communications
device division in a transaction with DataRover Mobile Systems, Inc. ("DSI"). In
connection with the transaction, we made an investment in DSI totaling
$3,361,000, and received non-voting, non-redeemable preferred stock and 49% of
the outstanding common stock of DSI. We accounted for our investment under the
equity method, requiring us to record 100% of the losses incurred by DSI up to a
total of $3,361,000. As of December 31, 1998, we had recorded a decrease of
$725,000 in the value of our investment to reflect our equity in the losses
incurred by DSI through that date. In the event that DSI incurs further losses
in any future period, we will be required to record a corresponding decline in
the value of our investment. In addition, if we determine that the value of our
investment in DSI has been impaired, we will be required to write off our
investment, in whole or in part.
In connection with this transaction, we also agreed to purchase DataRover
840 units for DSI from Oki Electric Industry Co., Ltd. under an existing letter
of credit. As of December 31, 1998, this purchase commitment was valued at
approximately $2,267,000. We are to be reimbursed by DSI the cost of such units
upon the earlier of five days following the sale of the units by DSI, or 120
days following shipment by Oki Electric. DSI's obligation to reimburse us is
secured by all of its personal property. We cannot guarantee that DSI will be
able to reimburse us, or that our security interest in their personal property
will be adequate to satisfy their obligation to us.
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<PAGE> 14
PROTECTION OF OUR INTELLECTUAL PROPERTY IS UNCERTAIN.
We believe that our success depends, in part, on our ability to protect our
intellectual property. In order to do that, we must take the following measures:
- obtain patent, copyright and trademark protection where appropriate;
- preserve our trade secrets;
- defend our patents, copyrights, trademarks and trade secrets against
infringement;
- operate without infringing the intellectual property rights of others;
and
- prevent unauthorized disclosure of confidential information through the
use of confidentiality agreements with employees, consultants and
partners.
We may be unable to accomplish these measures. In addition, we cannot be
certain that they will be adequate to protect our intellectual property. In
spite of our efforts, third parties may successfully copy our products or use
our confidential information. Furthermore, third parties may assert claims of
infringement against us. These claims may lead to litigation and/or require us
to significantly modify or even discontinue sales of our products or services.
OUR SERVICE MAY RAISE SECURITY ISSUES.
The implementation of our voice-enabled services poses several security
issues, including the possibility of break-ins and other similar disruptions.
Failure to provide a secure service may result in significant liability to us.
In addition, failure to provide a secure service may deter potential users of
our services, and potential channel and strategic partners and may adversely
affect market acceptance.
Security vulnerabilities and weaknesses may be discovered in our services
or licensed technology incorporated into a service or in the media by which
subscribers access the service. Any security problems in a service or the
licensed technology incorporated in the service may require us to expend
significant capital and other resources to alleviate the problems. In addition,
these problems could limit the number of subscribers to our Portico service and
to services of our partners, which could lead to decreased revenues and
termination of our relationships with partners. These problems may also cause
interruptions or delays in the development of enhancements to our services and
those of third parties and may result in lawsuits against us.
We will continue to incorporate authentication, encryption and other
security technologies in our services. However, such technologies may not be
adequate to prevent break-ins. In addition, weaknesses in the media by which
users access these services, including the Internet, land-line telephones,
cellular phones and other wireless devices, may compromise the security of the
electronic information accessed from the service. We intend to continue to limit
our liability to end users and to our partners, including liability arising from
failure of the authentication, encryption and other security technologies
incorporated into our services, through contractual provisions. However, such
limitations may not eliminate liability. We do not currently have liability
insurance to protect against risks associated with forced break-ins or
disruptions.
A PRODUCT LIABILITY CLAIM ASSERTED AGAINST US COULD MATERIALLY AND ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We may be subject to claims for damages related to system errors and other
defects in our services. Agreements with end users of our services typically
contain provisions designed to limit exposure to potential product liability
claims. However, these provisions may not be sufficient to protect us from
liability. We currently have liability insurance to protect against certain
risks associated with system errors and other defects in our services. However,
we cannot guarantee that such insurance will be sufficient.
CONVERSION OF PREFERRED STOCK OR ISSUANCE OF OTHER SECURITIES WOULD DILUTE
CURRENT STOCKHOLDERS.
We have four series of preferred stock outstanding, all of which are
convertible into common stock. In some cases, the number of shares of common
stock issuable upon the conversion of the preferred stock
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<PAGE> 15
depends on the prices of the common stock as quoted on Nasdaq shortly before the
date of conversion. We cannot predict the price of the common stock in the
future. If the price of our common stock decreases over time, the number of
shares of common stock issuable upon conversion of the preferred stock will
increase and the holders of common stock would experience substantial dilution
of their investment. The following shares of preferred stock are currently
outstanding:
- 50,000 shares of Series A preferred stock. Each share of Series A
preferred stock is convertible into 72.58 shares of common stock, subject
to adjustment for stock splits, dividends and similar events and for
future issuances of stock at a price below $1.24 per share. The 50,000
shares of Series A preferred stock outstanding as of March 20, 1999,
would be convertible into approximately 3,630,000 shares of common stock.
- 3,500 shares of Series B preferred stock. Each share of Series B
preferred stock is convertible into that number of shares of common stock
equal to: (A) $1,000 plus accrued but unpaid dividends divided by (B) the
lower of (i) $3.00 and (ii) 85% of the lowest sales price of a share of
common stock at any time during the five trading days prior to a
conversion date. The number of shares of common stock issuable upon
conversion is subject to adjustment, among other things: for stock
splits, dividends and similar events; and for future issuances of stock
at a price below $3.00 per share or below the trading price as of the
date of the issuance. The 3,500 shares of Series B preferred stock
outstanding as of March 20, 1999, would be convertible into approximately
1,230,000 shares of common stock.
- 1,152 shares of Series C preferred stock. Each share of Series C
preferred stock is convertible into that number of shares of common stock
equal to: (A) $10,000 plus accrued but unpaid dividends plus certain
other penalty amounts divided by (B) the lower of (i) $10.00 and (ii) the
average of the four lowest closing bid prices of a share of common stock
during the 20 trading days prior a conversion date. The number of shares
of common stock issuable upon conversion is subject to adjustment, among
other things: for stock splits, dividends and similar events; for
issuances of stock at a price below $10.00 per share; for future
issuances of convertible stock with a variable conversion price; and in
the event we fail to comply with certain requirements. The 1,152 shares
of Series C preferred stock outstanding as of March 20, 1999, would be
convertible into approximately 3,240,000 shares of common stock.
- 2,000 shares of Series D preferred stock. Each share of Series D
preferred stock is convertible into that number of shares of common stock
equal to: (A) $10,000 plus accrued but unpaid dividends divided by (B)
110% of the average of closing bid prices of a share of common stock
during the ten trading days after, at our sole election, April 29, 1999,
May 29, 1999, or June 28, 1999 (the "initial conversion price"). The
number of shares of common stock issuable upon conversion is subject to
adjustment: for stock splits, dividends and similar events; for future
issuances of stock at a price below the initial conversion price; on
December 31, 1999, June 30, 2000, and on the last day of each September
and March through March 2002, depending on the closing bid prices of our
common stock at such times; for future issuances of convertible stock
with a variable conversion price; and in the event we fail to comply with
certain requirements.
In order to comply with the rules of the Nasdaq Stock Market, we must
obtain stockholder approval prior to issuing shares of common stock upon
conversion of our Series D preferred stock in excess of 19.9% of our common
stock outstanding as of March 30, 1999, the date of issuance of the Series D
preferred stock. If we do not obtain approval, we could in certain circumstances
be required to redeem the outstanding shares of the Series D preferred stock. In
addition, certain other events could require us to redeem Series D preferred
stock and other preferred stock. Redemption of any series of preferred stock
could significantly deplete our cash reserves, which would materially adversely
affect our financial condition.
Our board of directors has the authority to issue 433,000 additional shares
of preferred stock that are convertible into common stock without any action by
our stockholders. In addition, our board of directors may sell additional shares
of common stock or other equity securities that are convertible into common
stock without any action by our stockholders. The issuance and conversion of any
such preferred stock or equity securities would further dilute the percentage
ownership of our stockholders.
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<PAGE> 16
OUR STOCK PRICE HAS BEEN EXTREMELY VOLATILE.
The market price of our common stock has been and may continue to be
extremely volatile. Since our initial public offering in February 1995, the
closing price of our common stock has ranged from a high of $26.625 to a low of
$0.938 per share. The following factors may have a significant impact on the
market price of our common stock:
- any shortfall in our revenue or net income or in the revenue or net
income expected by securities analysts;
- conversion of preferred stock into common stock that results in
substantial dilution to the holders of our common stock;
- quarterly fluctuations in our financial results or the results of other
companies in our industry;
- changes in analyst's estimates of our financial performance or the
financial performance of our competitors;
- delays in product development or disruptions in our service;
- investments by large equity partners;
- the announcement of arrangements with channel or strategic partners by us
or our competitors;
- the announcement of technological innovations by us or our competitors;
- the introduction of new products or services by us or our competitors;
- sales of large blocks or significant short selling of our common stock;
and
- conditions in the financial markets in general and in our industry in
particular.
WE MAY HAVE YEAR 2000 COMPLIANCE ISSUES.
We face risks related to the inability of computer systems to accurately
identify and process dates beyond the year 1999. We are currently taking steps
to address these risks for all of our computer systems, including internal
systems and systems supplied to us by third parties. These systems include those
that are commonly thought of as information technology systems, such as our
billing, accounting and network systems. In addition, these systems include
those that are non-information technology systems, such as our building control
systems, building safety systems and communications systems. Based on currently
available information, we do not believe that year 2000 issues will have a
material adverse impact on our results of operations or financial condition.
However, we may fail to identify all critical year 2000 problems, may not
properly assess, remediate or test our systems, and may encounter unexpected
delays or costs associated with our year 2000 effort. In addition, we have not
completed our assessment of the year 2000 readiness of significant suppliers. We
believe that noncompliance of products and services supplied to us by third
parties presents the most significant year 2000 risk. We rely on third-party
suppliers for a significant number of systems related to our Portico service,
such as:
- the calendar and contact software;
- the voice recognition software;
- the text-to-speech software;
- the billing system; and
- the network operations center equipment.
In addition, we rely on third parties for key services, such as
telecommunications, Internet access and power. In the event that we, or any of
our third-party suppliers, are not year 2000 ready, we could experience
significant disruptions in our operations and service offerings. Such
interruptions could lead to lost sales, loss of relationships with partners and
damage to our business reputation.
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<PAGE> 17
DELAWARE LAW AND CERTAIN PROVISIONS OF OUR CHARTER DOCUMENTS MAY INHIBIT
POTENTIAL ACQUISITION BIDS.
Certain provisions of Delaware law and certain provisions of our charter
may inhibit potential acquisition bids for General Magic. We are subject to the
antitakeover provisions of the Delaware General Corporation Law, which could
delay a merger, tender offer or proxy contest or make such a transaction more
difficult. In addition, certain provisions of our certificate of incorporation
and bylaws may have the effect of delaying or preventing a change in control or
in management, or may limit the price that certain investors may be willing to
pay in the future for shares of common stock. Furthermore, certain series of our
preferred stock provide holders rights to redemption of their preferred stock
upon a change in control, which could make an acquisition more difficult.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 26, 1999, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, were as
follows:
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE EMPLOYED SINCE
---- ------------------------- --- --------------
<S> <C> <C> <C>
Steven Markman, Chairman, Chief Executive Officer 53 September 1996
Ph.D. ............... and President
Mary E. Doyle.......... Senior Vice President of Business 46 July 1996
Affairs, General Counsel and
Secretary
Linda A. Hayes......... Senior Vice President of Marketing 57 September 1997
James P. McCormick..... Chief Operating Officer and 40 June 1997
Chief Financial Officer
Elena M. Morera........ Vice President of Human Resources 47 July 1996
Robert J. Sandor....... Vice President of Network 45 August 1998
Operations and Customer Support
Kevin J. Surace........ Executive Vice President of 36 November 1996
Business Development and Strategy
James E. White......... Chief Technology Officer 52 April 1991
</TABLE>
STEVEN MARKMAN is the Company's Chairman, Chief Executive Officer and
President. Prior to joining the Company in September 1996, Dr. Markman served
Novell, Inc. as executive vice president and general manager of the Products
Group from January 1996 to September 1996, and as the executive vice president
and general manager of the Information Access and Management Group from August
1994 until January 1996. Dr. Markman was vice president of engineering at First
Pacific Networks from March 1994 to August 1994, and was a principal at Venture
Consulting from September 1993 through March 1994. Dr. Markman holds a B.S. and
a M.S. in Electrical Engineering and Electrophysics, respectively, from the
Polytechnic Institute of Brooklyn. He also received a Ph.D. in Electrophysics
from the Polytechnic Institute of New York.
MARY E. DOYLE joined the Company in July 1996 as General Counsel and
Secretary. She was appointed its Vice President of Business Affairs in January
1997, and its Senior Vice President of Business Affairs in September 1998.
Before joining the Company, Ms. Doyle was with Teledyne, Inc. from 1984 to July
1996, where she last served as general counsel of the Aerospace and Electronics
segment. Ms. Doyle received an A.B. in Biology and Economics from the University
of California, Santa Cruz, and a J.D. from the University of California,
Berkeley.
LINDA A. HAYES joined the Company in September 1997 as Vice President of
Marketing, and was appointed Senior Vice President of Marketing in September
1998. Ms. Hayes was vice president of marketing for Pretty Good Privacy, Inc.
("PGP") from August 1996 to September 1997. Prior to joining PGP, she served as
vice president of marketing at Novell, Inc. from September 1995 to August 1996.
Ms. Hayes was vice president of marketing communications worldwide for Zenith
Data Systems from January 1993 to September 1995. Ms. Hayes holds an A.B. in
English from Kansas State University, and has completed the Corporate
Communications Program at Northwestern University's Kellogg Graduate School.
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<PAGE> 18
JAMES P. MCCORMICK was appointed the Company's Chief Operating Officer and
Chief Financial Officer in February 1999. He joined the Company in June 1997 as
Vice President of Finance and Administration and Chief Financial Officer, and
was appointed Senior Vice President of Finance and Administration in September
1998. From September 1996 to June 1997, Mr. McCormick was vice president of
finance and administration and chief financial officer for UB Networks ("UB"),
and from July 1994 through September 1995, he served first as director and then
as group director of financial planning and analysis for UB. Before joining UB,
Mr. McCormick worked with Tandem Computers in a variety of management capacities
from July 1989 through May 1994, most recently as senior finance manager for
revenue forecasting and planning. Mr. McCormick received his B.S. in Business
Administration (Accounting) from the University of Toledo, and his M.B.A. from
the University of Michigan.
ELENA M. MORERA is the Company's Vice President of Human Resources. Before
joining the Company in July 1996, Ms. Morera served as vice president of human
resources for Scantron Corporation from July 1992 to July 1996. Previously, Ms.
Morera was manager of employment and employee relations for Calcomp, Inc. from
April 1988 through July 1992. Ms. Morera holds a B.S. in Education from Florida
International University, and earned her M.A. in Management from the Claremont
Graduate School.
ROBERT J. SANDOR joined the Company in August 1998 as Vice President of
Network Operations and Customer Support. Before joining the Company, he served
as senior manager of network operations for Healtheon Corporation from February
1998 to July 1998, and was vice president of operations for InterNex Information
Systems, Inc. from June 1997 to February 1998. From April 1993 to June 1997, he
was director of MIS and network operations for StarSight Telecast, Inc. Mr.
Sandor earned his B.S. in Electrical Engineering and Computer Sciences from the
University of California, Berkeley, and his M.S. in Electrical Engineering from
Stanford University.
KEVIN J. SURACE is the Company's Executive Vice President of Business
Development and Strategy. He joined the Company in November 1996 as Vice
President of Telephony Solutions, and served as its Vice President of Products
and Network Solutions from January 1997 until September 1998. From March 1996
until November 1996, Mr. Surace was an independent executive consultant in the
Internet, wireless, software and telecommunications industries. From 1992
through 1996, he held several positions with Air Communications, including
president and chief executive officer. Mr. Surace earned his B.S. in Electrical
Engineering Technology from the Rochester Institute of Technology.
JAMES E. WHITE has been the Company's Chief Technology Officer since August
1997. He joined the Company as Director of Communications Engineering in April
of 1991, and then served as its Vice President and Chief Technical Officer,
Agent Technology, from February 1992 until August 1997. Mr. White received his
B.S. in Electrical Engineering from the University of California, Santa Barbara,
and an M.S. in Computer Engineering from Stanford University.
ITEM 2. PROPERTIES
The Company's principal operations are located in a single building in
Sunnyvale, California. This facility consists of three floors, each comprising
approximately 39,000 square feet, and is occupied under a lease that expires in
June 2002. In April 1997, the Company surrendered one floor of its Sunnyvale
facility, and terminated office leases in both Paris, France and Tokyo, Japan.
The Company also occupies a second facility in Sunnyvale consisting of 20,000
square feet under a lease that expires in April 2003.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company effected an initial public offering ("IPO") on February 9,
1995, with its Common Stock traded on the Nasdaq National Market under the
symbol "GMGC." As of December 31, 1998, there were 725 stockholders of record of
the Company's Common Stock. Because many of such shares are held by brokers and
other institutions on behalf of stockholders, the Company is unable to estimate
the total number of stockholders represented by these holders of record. The
following table sets forth, for the quarters indicated, the high and low bid
price per share of the Company's Common Stock for the last two fiscal years as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
PRICE RANGE
---------------
HIGH LOW
------ -----
<S> <C> <C>
CALENDAR 1998:
First Quarter............................................... $ 6.66 $1.25
Second Quarter.............................................. 15.44 3.75
Third Quarter............................................... 13.75 4.50
Fourth Quarter.............................................. 7.88 4.50
CALENDAR 1997:
First Quarter............................................... $ 2.63 $1.00
Second Quarter.............................................. 2.06 0.94
Third Quarter............................................... 2.22 2.19
Fourth Quarter.............................................. 3.38 1.38
</TABLE>
The Company has never paid cash dividends on its capital stock. The Company
currently expects that it will retain its future earnings for use in the
operation and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from the
Company's audited consolidated financial statements. This data should be read in
conjunction with Item 8, Consolidated Financial Statements and Supplementary
Data thereto, and with Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED DECEMBER 31, 5/1/90
---------------------------------------------------- (INCEPTION)
1998 1997 1996 1995 1994 TO 12/31/98
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................ $ 2,286 $ 3,456 $ 5,917 $ 14,165 $ 2,500 $ 28,324
Research and development..... 21,133 20,548 23,028 19,297 13,426 114,556
Selling, general and
administrative............. 21,861 12,676 23,944 18,092 10,394 102,057
Write-off of acquired
technology and in-process
research and development... 2,827 -- 1,542 -- -- 4,369
Compensation expense
associated with DSI
divestiture................ 1,634 -- -- -- -- 1,634
Restructuring................ -- -- 3,170 -- -- 3,170
Loss from operations......... (45,651) (30,696) (48,527) (25,337) (21,320) (203,745)
Net loss..................... (38,908) (28,384) (45,634) (20,619) (21,531) (186,625)
Loss applicable to common
stockholders............... (61,783) (28,384) (45,634) (20,619) (21,531) (209,500)
Basic and diluted loss per
share...................... (2.09) (1.06) (1.74) (0.84) (1.36)
BALANCE SHEET DATA:
Total assets................. $ 47,298 $ 36,297 $ 75,936 $115,866 $ 45,891
Deferred revenue,
noncurrent................. 2,000 4,186 8,200 15,760 10,600
Long-term debt............... 3,778 3,199 -- -- --
Other long-term
liabilities................ 683 2,446 1,369 2,702 2,539
Redeemable convertible
preferred stock............ 28,235 -- -- -- --
Total stockholders' (deficit)
equity..................... (1,113) 17,298 45,462 89,092 24,929
</TABLE>
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<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements that
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in the Risk Factors section of Item 1
and elsewhere in this report on Form 10-K, that could cause actual results to
differ materially from historical results or those anticipated. In this report,
the words "anticipates," "believes," "expects," "future," "intends," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
General Magic, Inc. (the "Company") develops and markets voice-enabled
services designed to make it easy and convenient for subscribers to access and
act on information important to them. The Company's primary offerings are the
Portico(TM) virtual assistant service, introduced in 1998, and voice-enabled
services for the Web. One of the Company's core technology assets is its
magicTalk(TM) voice user interface, used both in the Portico service and for
voice enabling Web content. The Company hosts operations for voice-enabled
services in its network operations center, located in Sunnyvale, California.
The Portico service provides many of the services of a human assistant on
an around-the-clock basis. Subscribers -- who today are principally mobile
professionals -- may access voice mail, email, calendar, address book, news and
stock quotes, either over any telephone or using a standard Web browser from a
personal computer. When accessing the Portico service over the telephone,
subscribers interact with magicTalk, a personality-rich, natural language voice
user interface. With magicTalk, a user doesn't need to remember special voice
commands or navigate lengthy push-button menus. The virtual assistant recognizes
a full range of conversational commands, from "Call John Smith" to "Would you
please call John Smith at home."
The Company distributes the Portico virtual assistant service through a
nationwide network of resellers, as well as direct to consumers through signup
on the Web. The Company is also conducting trials of the service with
telecommunications carriers, including Qwest Communications Corporation. The
Company expects to host customized, private-label versions of the Portico
service for those carriers that elect to make the service commercially available
to their customers.
Voice enabling Web content is an emerging growth opportunity for the
Company. The Web offers a broad base of potential subscribers, including
consumers who may find voice to be an easy way to keep in touch with their
favorite Web content when away from home. In 1998, the Company announced an
agreement with Intuit, Inc. to voice enable the Quicken.com personal finance Web
site.
The Company is at an early stage of development in its strategy to develop
and market voice-enabled services, and is subject to all of the risks inherent
in the establishment of a new business enterprise. In order to succeed, the
Company must, among other things, secure adequate financial and human resources
to meet its requirements; meet the challenges inherent in the timely development
and deployment of complex technologies; establish and maintain relationships
with telecommunications carriers, device manufacturers Internet companies and
other partners for resale, remarketing and distribution of its services; achieve
market acceptance for its Portico service and other voice-enabled services;
generate sufficient revenues from its services to permit the Company to operate
profitably; expand its network operations center to timely accommodate any
demand for its services; ensure that third-party developers timely develop,
license, deliver and support technologies upon which the Company's services
depend; respond effectively to competitive developments; and protect its
intellectual property. Any failure to achieve these objectives could have a
material adverse effect on the Company's business, operating results and
financial condition.
RESULTS OF OPERATIONS
The Company recorded a net loss of $38.9 million, or $2.09 per share, for
the year ended December 31, 1998, compared to a net loss of $28.4 million, or
$1.06 per share, for the year ended December 31, 1997, and a net loss of $45.6
million, or $1.74 per share, for the year ended December 31, 1996. The net loss
per share for
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<PAGE> 22
the year ended December 31, 1998, included the net loss for the period and $22.9
million in adjustments to accumulated deficit related to preferred stock with
favorable conversion and redemption rights issued during the period. Excluding
the effect of these adjustments, the loss per share for the year ended December
31, 1998, would have been $1.31 per share.
TOTAL REVENUE
Total revenue for the year ended December 31, 1998, was $2.3 million,
compared to $3.5 million and $5.9 million for the years ended December 31, 1997
and 1996, respectively. Total revenue consists of license fees for the Company's
Magic Cap, Telescript and software modem technologies, proceeds from sales of
the DataRover handheld communications device ("DataRover 840"), and subscription
fees for the Portico service. Licensing revenue consists primarily of
nonrefundable, nonrecoupable license fees for the Company's technologies. Other
revenue in 1998 consists of proceeds from sales of the DataRover 840 device,
fees earned under customer-specific support service contracts, and subscription
fees for the Portico service. Other revenue in 1997 and 1996 consists of fees
earned under customer-specific engineering, maintenance and support services
contracts. Fees from customer-specific engineering projects were recognized
under the percentage-of-completion method based on achievement and acceptance of
milestones or performance of services, as applicable. Support and maintenance
fees were recognized over the period the service or maintenance was provided.
The decrease in total revenue from 1997 to 1998 was due to a decline in
licensing revenue from the Company's legacy Magic Cap technologies partially
offset by the receipt of $1.5 million in licensing fees from Microsoft Corp.
("Microsoft"), sales of the DataRover 840 device, and subscriptions to the
Portico service. The decrease in total revenue from 1996 to 1997 was due to a
decline in support services provided by the Company to licensees of its Magic
Cap technology.
The Company anticipates that revenue from the Portico service will grow
gradually in the first half of 1999 due to its efforts to further support the
reseller channel and to direct sales over the Web spurred by affiliate marketing
programs and banner advertising. The Company expects significant revenue growth
in the second half of the year as its partners launch commercial services.
Effective October 1998, the Company divested its DataRover handheld
communications device division ("DataRover Division"). Therefore, the Company's
future financial performance will depend on growth in demand for the Company's
Portico service and other voice-enabled services and products. If the market for
voice-enabled services does not develop or if the Company is unable to capture a
significant portion of that market, the Company's revenues and results of
operations will be materially adversely affected.
COST OF OTHER REVENUE
Cost of other revenue for the year ended December 31, 1998, was $482,000,
compared to $928,000 and $2.8 million for the years ended December 31, 1997 and
1996, respectively. In 1998, cost of other revenue consisted of hardware costs
associated with the DataRover 840 device and equipment depreciation costs
associated with the Company's network operations center. The decrease from 1997
to 1998 was due to a decline in support services provided by the Company to
licensees of its Magic Cap technology partially offset by hardware and equipment
depreciation costs associated with the DataRover 840 device and the network
operations center, respectively. The decrease from 1996 to 1997 was due to a
decline in support services provided by the Company to licensees of its Magic
Cap technology. Cost of other revenue is expected to increase in 1999 compared
to 1998 due to an expansion of the Company's network operations center to
accommodate up to 500,000 active users by the end of 1999, offset by the
elimination of costs associated with the DataRover 840 device.
RESEARCH AND DEVELOPMENT
Research and development expense for the year ended December 31, 1998, was
$21.1 million, compared to $20.5 million and $23.0 million for the years ended
December 31, 1997 and 1996, respectively. The increase from 1997 to 1998 was due
to an increase in costs associated with the development of the Portico service
and the DataRover 840 device. The decrease from 1996 to 1997 was primarily the
result of savings attributed to
21
<PAGE> 23
reductions in headcount and discretionary spending, partially offset by $1.1
million in one-time charges for technology license fees related to the
development of the Portico service. To date, the Company has expensed all
software development costs as incurred.
The Company expects research and development expenses to increase modestly
in 1999 as compared to 1998 as the Company continues to develop the Portico
service and other voice-enabled services.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense for the year ended December 31,
1998, was $21.9 million, compared to $12.7 million and $23.9 million for the
years ended December 31, 1997 and 1996, respectively. The increase from 1997 to
1998 was due to staffing increases and additional advertising and marketing
expenses associated with the Portico service. The decrease from 1996 to 1997 was
primarily due to the implementation of the Company's 1996 restructuring plan,
which resulted, among other things, in a decrease in headcount and reduced sales
and marketing programs. In addition, the Company closed its sales offices in
France and Japan during 1997.
The Company expects that selling, general and administrative expense will
increase modestly in 1999 compared to 1998 as a result of the Company's
continued efforts to develop market demand and distribution channels for its
Portico service and other voice-enabled services.
WRITE-OFF OF ACQUIRED TECHNOLOGY AND IN-PROCESS RESEARCH AND DEVELOPMENT
In 1998, the Company recognized a charge of $2.8 million for the write-off
of acquired in-process research and development in connection with the purchases
of NetPhonic Communications, Inc. and NETalk, Incorporated. In 1996, the Company
recognized a one-time charge of $1.5 million. Included in this charge was a $1.3
million write-off of the purchase cost of acquired software technology
previously capitalized and $200,000 of in-process research and development.
COMPENSATION EXPENSE ASSOCIATED WITH DSI DIVESTITURE
In 1998, the Company recorded compensation expense of $1.6 million
associated with the divestiture of its DataRover Division. In connection with
the divestiture of the DataRover Division, approximately 30 employees of the
Company became employees of DataRover Mobile Systems, Inc.("DSI"). The Company
provided for accelerated vesting of options to acquire 256,000 shares of the
Company's common stock held by such employees, and granted an additional 320,000
options to acquire the Company's common stock to such employees. The newly
granted options will vest ratably at 1/24 per month over a two-year period. The
compensation expense consists of the fair value of the accelerated and newly
granted options and severance paid pursuant to an agreement with a Company
executive. The compensation expense relating to the options was determined using
the Black-Scholes fair market valuation method. The fair value attributable to
the accelerated options was expensed in the fourth quarter of 1998, while the
fair value associated with the new grant will be expensed over the two-year
vesting period of the grant.
RESTRUCTURING
In the fourth quarter of 1996, the Company announced and began to implement
a restructuring plan designed to reduce costs and achieve long-term
profitability in the Company's operations. Adoption of the restructuring plan
resulted in a charge of $3.2 million in 1996. From the inception of the plan
through 1997, the Company incurred cash expenditures of $2.4 million relating to
involuntary employee terminations, canceled and vacated leases, and contract
settlement costs. In addition, the Company incurred noncash expenditures of
$789,000 related to the disposal of office and computer equipment. No other
similar charge was taken in 1997 or 1998.
22
<PAGE> 24
OTHER INCOME, NET
Total other income, net for the year ended December 31, 1998, was $6.8
million, compared to $2.3 million and $3.0 million for the years ended December
31, 1997 and 1996, respectively. In 1997, the Company transferred certain
technology and other assets of its software modem technology group to AltoCom,
Inc. ("AltoCom"). The Company retained a minority interest in AltoCom and a
share of its ongoing revenue stream. In January 1998, the Company and AltoCom
agreed to discontinue the revenue sharing agreement in exchange for certain
consideration, including the assumption by AltoCom of a $2.2 million obligation
to one of the Company's legacy partners and the Company recognized approximately
$2.4 million in other income in connection with this transaction. In April of
1998, the Company sold its minority interest in AltoCom for a total of $2.5
million, and recognized in other income a gain of $2.2 million on the sale. In
1998, the Company recognized a gain of $1.3 million in connection with the sale
of the Company's minority investment in Starfish Software, Inc. ("Starfish"),
which was purchased by Motorola, Inc. in September 1998. Also in 1998, the
Company recorded $0.8 million in losses to account for 100% of the equity in net
losses of DSI from inception through December 31, 1998.
Excluding the gains from the AltoCom transactions, the investment gains
associated with the sales of the Company's investment in Starfish, and the DSI
losses, other income, net consisted primarily of interest income and expense.
The decreases in net interest income from 1997 to 1998, and from 1996 to 1997
were primarily due to the Company's declining cash, cash equivalent and
short-term investment balances. Future net interest income is likely to decrease
as cash equivalents and short-term investments are consumed by the Company's
normal operating requirements, unless the Company generates additional cash.
INCOME TAXES
Income taxes for the year ended December 31, 1998, were $19,000, compared
to $17,000 and $131,000 for the years ended December 31, 1997 and 1996,
respectively. Income taxes were primarily related to foreign withholding taxes
on revenue generated from the Company's Japan-based customers.
As of December 31, 1998, the Company had cumulative federal net operating
losses of $181.5 million, which can be used to offset future income subject to
federal income tax. The federal tax loss carryforwards will expire from 2006
through 2018. The Company has cumulative California net operating losses of
$87.0 million, which can be used to offset future income subject to California
income tax. The California tax loss carryforwards will expire from 1999 through
2003.
As of December 31, 1998, foreign tax credits of $1.7 million were available
to reduce future federal income taxes. Foreign tax credit carryforwards expire
from 1999 through 2000.
As of December 31, 1998, unused research and development tax credits of
$5.7 million and $3.0 million were available to reduce future federal and
California income taxes, respectively. Federal credit carryforwards will expire
from 2007 through 2018; California credits will carry forward indefinitely.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are its cash, cash equivalents
and short-term investment balances that totaled $33.9 million as of December 31,
1998, up $5.1 million from $28.8 million as of December 31, 1997.
In February 1998, the Company entered into an agreement with Microsoft for
the sale of 50,000 shares of Series A Convertible Preferred Stock and the
license of certain of the Company's technology. The aggregate consideration for
the sale of Series A preferred stock was $4.5 million. Series A preferred stock
is eligible to vote with common stock on an "as if converted" basis. Each share
of Series A preferred stock is entitled to receive, if and when the Company's
Board of Directors declares a dividend payable on common stock, a dividend equal
to the dividend per share of common stock on an "as if converted" basis. Series
A preferred stock dividends are payable in preference to any dividends on the
Company's common stock and are non-cumulative. The liquidation preference of
each share of Series A preferred stock is $90 plus any declared but unpaid
dividends. Subject to adjustment in certain circumstances, each share of Series
A preferred stock is
23
<PAGE> 25
convertible into shares of the Company's common stock at a conversion rate
obtained by dividing $90 by the applicable conversion value which, as of
December 31, 1998, was $1.24. As of December 31, 1998, 3.6 million shares of the
Company's common stock were issuable upon conversion of the Series A preferred
stock, representing 7.2% of the Company's then outstanding common stock and
common stock equivalents on a fully diluted basis.
In March 1998, the Company entered into a financing transaction with a
group of private investors that provided $5.0 million in cash to the Company
from the sale of 5,000 shares of its 5 1/2% Cumulative Convertible Series B
Preferred Stock. Each share of Series B preferred stock is entitled to one vote
and has special voting rights with respect to matters that adversely affect the
rights of holders of Series B preferred stock. Each share of Series B preferred
stock is entitled to receive cumulative dividends at 5 1/2% per annum of the
liquidation preference of the Series B preferred stock, which are payable in
preference to any dividends on the Company's common stock. The liquidation
preference of Series B preferred stock is $1,000 per share plus any accrued but
unpaid dividends and is payable pari passu with the Company's Series A preferred
stock. Subject to adjustment in certain circumstances, each share of Series B
preferred stock is convertible into shares of the Company's common stock at a
conversion rate obtained by dividing the liquidation preference by the lesser of
$3.00 or 85% of the lowest sales price per share of common stock during the five
trading days prior to conversion. The holders of Series B preferred stock have
the right to require the Company to redeem any or all then outstanding Series B
preferred stock at 130% of the liquidation preference upon the occurrence of
certain events, including a change of control transaction, bankruptcy or
insolvency of the Company. The Company has the right to redeem all then
outstanding Series B preferred stock at 120% of the liquidation preference upon
a change of control transaction. As part of the financing transaction, the
Company issued warrants to acquire 400,000 shares of common stock at an exercise
price of $3.38 per share. The warrants have a five-year term and are immediately
exercisable.
In June 1998, for an aggregate purchase price of $2.0 million, certain
holders of the Company's Series B preferred stock exercised their right to
purchase 2,000 additional shares of Series B preferred stock and warrants to
acquire an additional 160,000 shares of the Company's common stock at an
exercise price of $18.75 per share. The holders of Series B preferred stock also
agreed to convert at least 2,500 then outstanding shares of Series B preferred
stock into common stock. The Company waived its rights to require the holders of
the Series B preferred stock to purchase an additional 5,000 shares of Series B
preferred stock and warrants to acquire 400,000 shares of common stock. As of
December 31, 1998, a total of 2.4 million shares of common stock were issuable
upon the conversion of all Series B preferred stock and associated warrants,
representing 4.8% of the Company's then outstanding common stock and common
stock equivalents on a fully diluted basis.
In June 1998, the Company entered into a financing transaction with a group
of private investors that provided $30.0 million in cash to the Company from the
sale of 3,000 shares of its Series C Convertible Preferred Stock. Each share of
Series C preferred stock has special voting rights with respect to matters that
adversely affect the rights of holders of Series C preferred stock and otherwise
has no voting rights except as may be required by law. Each share of Series C
preferred stock is entitled to receive cumulative dividends at 5% per annum of
the stated value ($10,000 per share) of the Series C preferred stock, which are
payable in preference to any dividends on the Company's common stock. The
liquidation preference of Series C preferred stock is $10,000 per share plus any
accrued but unpaid dividends and penalties, and is payable pari passu with the
Series A and Series B preferred stock. Subject to adjustment in certain
circumstances, each share of Series C preferred stock was convertible into
shares of the Company's common stock at a conversion rate obtained by dividing
the liquidation preference by the lesser of $19.49 ("Fixed Conversion Price") or
the average of the four lowest closing bid prices per share of the Company's
common stock for the 20 trading days prior to the conversion date which, as of
December 31, 1998, was $4.80.
In October 1998, the holders of the Series C preferred stock and the
Company entered into a Voting and Waiver Agreement pursuant to which the holders
agreed to amend the Certificate of Designations, Preferences and Rights of the
Series C Convertible Preferred Stock to provide the Company the flexibility to
issue shares of its common stock in connection with mergers, acquisitions and
other strategic transactions without triggering antidilution protection related
adjustments to the number of shares of common stock into which the Series C
preferred stock may be converted in exchange for a reduction of the Fixed
Conversion
24
<PAGE> 26
Price from $19.49 to $10.00. This amendment was approved by the stockholders of
the Company at a Special Meeting of Stockholders held on January 21, 1999. As of
December 31, 1998, a total of 3.5 million shares of the Company's common stock
were issuable upon the conversion of the Series C preferred stock and exercise
of associated warrants, representing 6.9% of the Company's then outstanding
common stock and common stock equivalents on a fully diluted basis.
In certain circumstances (including upon a change of control transaction,
the transfer of substantially all of the assets of the Company, or a tender
offer made to and accepted by holders of more than 50% of the outstanding common
stock of the Company), the holders of Series C preferred stock may require the
Company to redeem any or all of the then outstanding Series C preferred stock at
130% of the liquidation preference and, in more limited circumstances (relating
to the registration and listing of the common stock of the Company issuable upon
conversion of the Series C preferred stock and the Company's timely conversion
of such stock) may require the Company to redeem any or all of the then
outstanding Series C preferred stock at the greater of 130% of the liquidation
preference or the then applicable closing bid price per common share equivalent.
Upon submission of Series C preferred stock for conversion at a conversion price
of less than $5.00, the Company has the option to redeem any or all of such
stock at 110% of the liquidation preference. As part of the financing
transaction, the Company issued warrants to acquire 150,000 shares of common
stock at a price of $17.22 per share. The warrants have a three-year term and
are immediately exercisable.
During 1998, adjustments to accumulated deficit of approximately $3.7
million were recorded to recognize the value of favorable conversion rights
associated with the Series A preferred stock issued during the period,
representing the difference between the fair market value of the Company's
common stock on the date of the agreement of $2.25 and the sale price of $1.24
per common share equivalent. Adjustments to accumulated deficit of approximately
$8.4 million were recorded in the year ended December 31, 1998, to recognize the
value of favorable conversion, redemption and exercise rights associated with
the Series B preferred stock and related warrants issued during the period, as
well as dividends that accrued during the year. The adjustments principally
represent the difference between the fair market value of the Company's common
stock on the date of the financing transactions of $3.69 at March 3, 1998, and
$12.50 at June 25, 1998, and the per share conversion price of $3.00.
Adjustments to accumulated deficit of approximately $10.9 million were recorded
in the year ended December 31, 1998, to recognize the value of the favorable
redemption rights associated with the Series C preferred stock and dividends
that accrued during the year. The adjustments principally represent the
difference between the redemption value (130% of the liquidation preference) and
the amount of the liquidation preference.
In December 1997, the Company entered into a $4.0 million term loan with a
financial institution. The loan bears interest at 0.25% above the financial
institution's prime rate (7.75% as of December 31, 1998), and has a term of 40
months with interest only due in the first four months and principal and
interest due monthly thereafter. This loan is secured by all of the assets of
the Company, including its intellectual property. As of December 31, 1998, $3.1
million was outstanding under this loan.
In June 1998, the Company secured a $3.0 million term loan with the same
financial institution. The loan bears interest at the financial institution's
prime rate (7.75% as of December 31, 1998), and has a term of 42 months with
interest only due in the first six months and principal and interest due monthly
thereafter. This loan is secured by all of the assets of the Company, including
its intellectual property. As of December 31, 1998, $3.0 million was outstanding
under this loan.
As of December 31, 1998, the current and noncurrent portions due under
these loans were $2.3 million and $3.8 million, respectively. Both of these term
loans contain customary covenants and events of default. As of December 31,
1998, the Company was in full compliance with all loan covenants.
In April 1998, the Company entered into an agreement with Qwest
Communications International, Inc. to purchase telecommunications services at
fixed prices for an initial term of three years. The Company is obligated to
purchase $13.0 million in telecommunications services during the three-year
period ending April 30, 2001. The charges underlying this commitment will be
expensed in the periods in which they occur.
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<PAGE> 27
During 1997, the Company entered into an OEM agreement with Oki Electric
Industry Co., Ltd. ("Oki Electric") for the manufacture of the DataRover 840
device. In connection therewith, the Company obtained an irrevocable letter of
credit with a term of one year to collateralize the Company's obligations under
the OEM agreement ("Letter of Credit"). Effective September 1998, the Company
amended the terms of the Letter of Credit in connection with an agreement
reached with DSI, to increase the total purchase commitment and to allow for an
extension in the delivery dates through March 31, 1999. As of December 31, 1998,
the Company had $2.3 million on deposit as security with the financial
institution issuing the Letter of Credit. This commitment is denominated in
Japanese yen and, as a result, is at risk of foreign currency fluctuations. The
Company's purchase commitment was valued at $2.3 million as of December 31,
1998. All of this amount is expected to be due in the first three months of
1999. The liability will be recorded upon acceptance of units shipped by Oki
Electric.
In connection with its prior strategy, the Company entered into Magic Cap
master license agreements with eight of its stockholders. The Company has
satisfied its obligations under five of these agreements, and is subject to the
following obligations under the remaining three agreements. The Company must
refund to one licensee a prepaid royalty, together with interest, which totaled
$2.7 million as of December 31, 1998. This amount will be paid upon demand, and
was classified in accrued expenses as of December 31, 1998. The Company has
agreed to refund a second licensee the amount of a $1.5 million unrecouped
prepaid royalty. The refund is secured by a license in certain of the Company's
intellectual property, is non-interest bearing and is payable in August 1999.
The amount of this refund was also classified in accrued expenses as of December
31, 1998. Finally, the Company has agreed to refund the third licensee any
amount of a $2.0 million prepaid royalty not recouped by January 1, 2003, plus
accrued interest. The amount of any such refund is payable on or before December
31, 2003. As of December 31, 1998, this obligation was classified in noncurrent
deferred revenue. There can be no assurance that the third such licensee will
develop products that incorporate the Company's Magic Cap technology. It is
uncertain when prepaid royalties currently classified as noncurrent deferred
revenue will be recognized as licensing revenue or if they will ever be fully
recouped, if at all.
The Company expects that its cash, cash equivalents and short-term
investment balances of $33.9 million as of December 31, 1998, together with
additional financing received in the first quarter of 1999, will be adequate to
fund the Company's operations through 1999. However, the Company will continue
to evaluate additional sources of capital. The Company's capital requirements
will depend on many factors, including, but not limited to, the market
acceptance and competitive position of its Portico service and other
voice-enabled services; the equipment required to support the network operations
for these services; the levels of promotion and advertising required to market
the Company's products and services and attain a competitive position in the
marketplace; the extent to which the Company invests in new technology and
management and staff infrastructure to support its business; and the response of
competitors to the Company's services. To the extent that the Company needs
additional public or private financing, no assurance can be given that
additional financing will be available or that, if available, it will be
available on terms favorable to the Company or its stockholders. If adequate
funds are not available to satisfy the Company's short-term or long-term capital
requirements, the Company may be required to significantly limit its operations,
which would have a material adverse effect on the Company's business, financial
condition and results of operation. In the event the Company raises additional
equity financing, further dilution to the Company's stockholders will result.
As part of its business strategy, the Company assesses opportunities to
enter joint ventures, to acquire or sell businesses, products or technologies
and to engage in other like transactions. The Company has made no significant
commitment or agreement with respect to any such transaction at this time.
YEAR 2000
Status. Like many companies and organizations, the Company faces risks
related to the inability of computer systems to accurately identify and process
dates beyond the year 1999. The Company is currently taking steps to ensure its
year 2000 readiness by addressing these risks for all of its computer systems,
including its internal systems and systems supplied to it by third parties.
These systems include those that are commonly thought of as information
technology systems, such as billing, accounting and network systems. In
26
<PAGE> 28
addition, these systems include those that are non-information technology
systems, such as building control systems, building safety systems and
communications systems.
The Company has assembled a year 2000 project team and engaged outside
consultants to advise it on year 2000 issues. The year 2000 project team has
developed a plan to evaluate and to mitigate the risks related to year 2000
issues for (i) systems related to the Company's Portico virtual assistant
service and (ii) all other systems. The plan includes each of the following
phases for both Portico and other systems:
- creation of an inventory of all potentially date-sensitive systems,
including third-party systems;
- evaluation and/or testing of all systems;
- remediation or replacement of systems which are not year 2000 ready;
- verification of corrected systems;
- development and implementation of configuration control procedures to
assure that systems remain year 2000 ready once they have been determined
to be year 2000 ready; and
- development and implementation of a contingency plan in the event that
the Company or its suppliers fail for any reason to attain year 2000
readiness.
The Company's year 2000 plan has executive sponsorship, is regularly
reviewed by senior management, and includes progress reports to the board of
directors on a regular basis.
For all systems related to the Portico service, the Company has completed
the inventory and has initiated evaluation and/or testing of the systems
identified. The Company believes that certain of these systems are year 2000
ready, and is now in the process of remediating or replacing systems which are
not. The Company expects to begin verification of corrected Portico systems
during the second quarter of 1999.
The Company has completed the inventory for all other systems and is now in
the process of evaluating and/or testing such systems. The Company believes that
certain of these systems are year 2000 ready. The Company expects to complete
remediation or replacement of the systems which are not year 2000 ready during
the second quarter and to begin verification of corrected systems by the end of
the second quarter of 1999.
The Company expects to complete all phases of the year 2000 plan for
systems related to Portico and for all other of its systems by the end of the
third quarter of 1999, except that the contingency plan will be developed and
implemented during the third and fourth quarters of 1999.
In the process of evaluating its systems, the Company has contacted certain
of its key suppliers to determine whether their operations and the products and
services they provide are year 2000 ready. During the second quarter, the
Company will request written assurances of year 2000 readiness from all
significant suppliers who have not otherwise provided sufficient written
assurances. Based on its inquiries to date, the Company believes that certain
third-party systems will require remediation or replacement. If remediation or
replacement is not practicable, the Company will seek alternative suppliers
whose products and services are year 2000 ready.
Costs. The Company believes that the costs related to its year 2000 effort
will not exceed $600,000, approximately 14% of its actual and anticipated
information technology operating budget for fiscal years 1998 and 1999. The
Company estimates that the total costs will include approximately $160,000 for
external consultants and advisers, approximately $100,000 for replacement of
systems which are not year 2000 ready and approximately $330,000 for the direct
costs of internal employees working on the year 2000 project. The Company does
not expect to incur any costs related to delay of its non-year 2000 information
technology efforts or to the acceleration of system upgrades or replacements.
The Company has and will continue to fund its year 2000 effort from cash on
hand. As of December 31, 1998, the Company had incurred approximately $180,000
in costs related to the execution of its year 2000 plan.
Risks. Based on currently available information, the Company does not
believe that year 2000 issues will have a material adverse impact on its results
of operations or financial condition. However, the Company may
27
<PAGE> 29
fail to identify all critical year 2000 problems, may not properly assess,
remediate or test its systems, and may encounter unexpected delays or costs
associated with its year 2000 effort. In addition, the Company has not completed
its assessment of the year 2000 readiness of significant suppliers. The Company
believes that products and services supplied by third parties present the
greatest year 2000 risks to the Company. The Company relies on third-party
suppliers for a significant number of systems related to its Portico service,
such as:
- the calendar and contact software;
- the voice recognition software;
- the text-to-speech software;
- the billing system; and
- the network operations center equipment.
In addition, the Company relies on third parties for key services, such as
telecommunications, Internet access and power. In the most reasonably likely
worst case scenario, one of the Company's critical systems and/or one of the
critical systems supplied by a third party could prove to be noncompliant and
fail. Such a failure could lead to interruptions in the Company's operations and
service offerings. Such interruptions could lead to lost sales, loss of
relationships with partners and damage to the Company's business reputation. Due
to the large number of variables involved, the Company cannot provide an
estimate of the damages it may suffer if it or its suppliers are not year 2000
ready.
Note: The foregoing discussion of year 2000 issues shall be considered
"Year 2000 Readiness Disclosure" for purposes of the Year 2000 Information and
Readiness Disclosure Act.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates. The fair value of our investment portfolio or related income
would not be significantly impacted by a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of our
investment portfolio. An increase or decrease in interest rates would not
significantly increase or decrease interest expense on debt obligations. We do
have a letter of credit denominated in Japanese yen. A subsequent 10%
fluctuation that strengthens the Japanese yen would increase our commitment as
of December 31, 1998, by approximately $243,000.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data of the Company required by
this Item are set forth at the pages indicated at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
28
<PAGE> 30
PART III
Certain information required by Part III is omitted from this report in
that the Company intends to file its definitive proxy statement pursuant to
Regulation 14A (the "definitive Proxy Statement") not later than 120 days after
the end of the fiscal year covered by this report, and certain information
therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
information set forth in the definitive Proxy Statement under the heading
"Proposal No. 1 -- Election of Directors" and in Part I of this Report under the
heading "Executive Officers of the Registrant."
The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the definitive Proxy Statement under the
heading "Executive Compensation and Other Matters."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
information set forth in the definitive Proxy Statement under the heading
"Executive Compensation and Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
information set forth in the definitive Proxy Statement under the heading "Stock
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
information set forth in the definitive Proxy Statement under the heading
"Certain Relationships and Related Transactions."
29
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form:
1. FINANCIAL STATEMENTS PAGE
Report of Management..................................................F-2
Report of Independent Auditors........................................F-3
Consolidated Balance Sheets...........................................F-4
Consolidated Statements of Operations.................................F-5
Consolidated Statements of Stockholders' Equity (Deficit).............F-6
Consolidated Statements of Cash Flows.................................F-7
Notes to Consolidated Financial Statements............................F-8
2.FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the required information is not
present or not present in amounts sufficient to require submission of the
schedules or because the information required is included in the
Consolidated Financial Statements or Notes thereto.
3.EXHIBITS
See Index to Exhibits. The Exhibits listed in the accompanying Index to
Exhibits are filed as part of this report.
(b) REPORTS ON FORM 8-K
A Form 8-K was filed on October 22, 1998, to report an amendment to the
terms upon which the Company's Series C Convertible Preferred Stock was offered.
F-1
<PAGE> 32
REPORT OF MANAGEMENT
Responsibility for the preparation, integrity and objectivity of the
financial information presented in this annual report rests with the management
of General Magic, Inc. (the "Company"). The accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles, applying certain estimates and judgments as required.
The Company maintains a system of internal accounting control designed to
be cost-effective while providing reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with management's
authorization and are properly recorded in the financial records. Internal
control effectiveness is supported through careful selection and training of
personnel and quarterly financial reviews with the Company's senior management.
Management believes that the Company's accounting controls provide reasonable
assurance that errors or irregularities that could be material to the
consolidated financial statements are prevented or would be detected within a
timely period by employees in the normal course of performing their assigned
functions.
KPMG LLP, independent auditors, are retained to express an opinion on the
Company's consolidated financial statements. Their opinion is based on
procedures believed by them to be sufficient to provide reasonable assurance
that the consolidated financial statements are free of material misstatement.
The Audit Committee of the Board of Directors is composed solely of
nonemployee directors, and is responsible for recommending to the Board the
independent auditors firm to be retained for the coming year, subject to
stockholder approval. The Audit Committee meets periodically and privately with
the independent auditors and with the Company's management to review accounting,
auditing, financial control and financial reporting matters.
Steven Markman
Chairman of the Board, Chief Executive
Officer, and President
James P. McCormick
Chief Operating Officer
and Chief Financial Officer
F-2
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of General Magic, Inc.:
We have audited the accompanying consolidated balance sheets of General
Magic, Inc. and subsidiary (a development stage enterprise) as of December 31,
1998 and 1997, 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, 1998, and for the period from May 1, 1990
(inception) to December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of General
Magic, Inc. and subsidiary (a development stage enterprise) as of December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1998, and for the
period from May 1, 1990 (inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Mountain View, California
January 22, 1999, except as to note 17,
which is as of March 30, 1999
F-3
<PAGE> 34
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash of
$2,280 and $3,300 in 1998 and 1997, respectively)....... $ 21,845 $ 17,414
Short-term investments.................................... 12,075 11,387
Other current assets...................................... 1,700 1,206
--------- ---------
Total current assets............................... 35,620 30,007
--------- ---------
Property and equipment, net................................. 7,507 5,148
Other assets................................................ 4,171 1,142
--------- ---------
Total assets....................................... $ 47,298 $ 36,297
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,348 $ 952
Accrued expenses.......................................... 9,980 7,191
Current portion of long-term debt......................... 2,333 801
Other current liabilities................................. 54 224
--------- ---------
Total current liabilities.......................... 13,715 9,168
Deferred revenue............................................ 2,000 4,186
Long-term debt.............................................. 3,778 3,199
Other long-term liabilities................................. 683 2,446
--------- ---------
Total liabilities.................................. 20,176 18,999
========= =========
Commitments
Redeemable, convertible Series C preferred stock, $0.001 par
value
Stated at involuntary liquidation preference
Authorized: 3 shares
Issued and outstanding: 1998 -- 2; 1997 -- None........... 20,658 --
Redeemable, convertible Series B preferred stock, $0.001 par
value
Stated at involuntary liquidation preference
Authorized: 12 shares
Issued and outstanding: 1998 -- 6; 1997 -- None........... 7,577 --
Stockholders' (deficit) equity:
Convertible Series A preferred stock, $0.001 par value
Liquidation preference: 1998 -- $4,500; 1997 -- None
Authorized: 50 shares
Issued and outstanding: 1998 -- 50; 1997 -- None........ -- --
Preferred stock, $0.001 par value
Authorized: 435 shares
Issued and outstanding: 1998 and 1997 -- None........... -- --
Common stock, $0.001 par value
Authorized: 60,000 shares
Issued and outstanding: 1998 -- 33,400;
1997 -- 26,892........................................ 33 27
Additional paid-in capital................................ 208,557 165,039
Deferred compensation..................................... -- (58)
Accumulated other comprehensive loss...................... -- 7
Deficit accumulated during development stage.............. (209,500) (147,717)
--------- ---------
(910) 17,298
Less treasury stock, at cost: 1998 -- 46; 1997 -- 0....... (203) --
--------- ---------
Total stockholders' (deficit) equity............... (1,113) 17,298
--------- ---------
$ 47,298 $ 36,297
========= =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-4
<PAGE> 35
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1990
YEARS ENDED DECEMBER 31, (INCEPTION) TO
-------------------------------- DECEMBER 31,
1998 1997 1996 1998
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Statement of operations data:
Licensing revenue..................... $ 1,610 $ 2,454 $ 2,451 $ 18,905
Other revenue......................... 676 1,002 3,466 9,419
-------- -------- -------- ---------
Total revenue................. 2,286 3,456 5,917 28,324
-------- -------- -------- ---------
Costs and expenses:
Cost of other revenue.............. 482 928 2,760 6,283
Research and development........... 21,133 20,548 23,028 114,556
Selling, general and
administrative................... 21,861 12,676 23,944 102,057
Write-off of acquired technology
and in-process research and
development...................... 2,827 -- 1,542 4,369
Compensation expense associated
with DSI divestiture............. 1,634 -- -- 1,634
Restructuring...................... -- -- 3,170 3,170
-------- -------- -------- ---------
Total costs and expenses...... 47,937 34,152 54,444 232,069
-------- -------- -------- ---------
Loss from operations.................... (45,651) (30,696) (48,527) (203,745)
Other income, net....................... 6,762 2,329 3,024 19,427
-------- -------- -------- ---------
Loss before income taxes................ (38,889) (28,367) (45,503) (184,318)
Income taxes............................ 19 17 131 2,307
-------- -------- -------- ---------
Net loss...................... (38,908) (28,384) (45,634) (186,625)
-------- -------- -------- ---------
Favorable conversion rights on
convertible Series A preferred
stock................................. (3,665) -- -- (3,665)
Favorable conversion and redemption
rights on redeemable, convertible
Series B preferred stock, favorable
exercise rights on warrants and
preferred stock dividend.............. (8,352) -- -- (8,352)
Favorable redemption rights on
redeemable, convertible Series C
preferred stock and preferred stock
dividend.............................. (10,858) -- -- (10,858)
-------- -------- -------- ---------
Loss applicable to common
stockholders.......................... $(61,783) $(28,384) $(45,634) $(209,500)
======== ======== ======== =========
Basic and diluted loss per share........ $ (2.09) $ (1.06) $ (1.74)
======== ======== ========
Shares used in computing per share
amounts............................... 29,630 26,778 26,181
======== ======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-5
<PAGE> 36
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE DEFICIT
SERIES A PREFERRED ACCUMULATED TOTAL
STOCK COMMON STOCK ADDITIONAL DURING STOCKHOLDERS'
------------------ ------------ PAID-IN DEVELOPMENT TREASURY EQUITY
SHARES AMT SHARES AMT CAPITAL OTHER STAGE STOCK (DEFICIT)
---------- ----- ------ --- ---------- ----- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock...... -- $ -- 6,480 $ 6 $ 417 $ -- $ -- $ -- $ 423
Issuance of stock warrants.... -- -- -- -- 250 -- -- -- 250
Transfer of equipment from a
related party, at fair market
value........................ -- -- -- -- 35 -- -- -- 35
Net loss...................... -- -- -- -- -- -- (474) -- (474)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1990... -- -- 6,480 6 702 -- (474) -- 234
-------- ---- ------ --- -------- ----- --------- ----- --------
Issuance of common stock...... -- -- 1,350 1 134 -- -- -- 135
Issuance of common stock under
employee stock option plan... -- -- 26 -- 2 -- -- -- 2
Termination of stock
warrants..................... -- -- -- -- (250) -- -- -- (250)
Contribution of capital....... -- -- -- -- 125 -- -- -- 125
Net loss...................... -- -- -- -- -- -- (3,579) -- (3,579)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1991... -- -- 7,856 7 713 -- (4,053) -- (3,333)
-------- ---- ------ --- -------- ----- --------- ----- --------
Issuance of common stock under
employee stock option plan... -- -- 557 1 55 -- -- -- 56
Net loss...................... -- -- -- -- -- -- (10,055) -- (10,055)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1992... -- -- 8,413 8 768 -- (14,108) -- (13,332)
-------- ---- ------ --- -------- ----- --------- ----- --------
Issuance of common stock under
employee stock option plan... -- -- 102 1 27 -- -- -- 28
Employee compensation for
founder stock gift to
employees, at fair market
value........................ -- -- -- -- 127 -- -- -- 127
Net loss...................... -- -- -- -- -- -- (17,441) -- (17,441)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1993... -- -- 8,515 9 922 -- (31,549) -- (30,618)
-------- ---- ------ --- -------- ----- --------- ----- --------
Issuance of common stock under
employee stock option plan... -- -- 273 -- 111 -- -- -- 111
Termination of preferred stock
redemption feature........... 6,843 7 -- -- 30,447 -- -- -- 30,454
Repurchase of common stock.... -- -- (800) (1) (51) -- -- -- (52)
Issuance of Series I through N
preferred stock.............. 3,609 3 -- -- 46,562 -- -- -- 46,565
Net loss...................... -- -- -- -- -- -- (21,531) -- (21,531)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1994... 10,452 10 7,988 8 77,991 -- (53,080) -- 24,929
-------- ---- ------ --- -------- ----- --------- ----- --------
Proceeds from issuance of
common stock in initial
public offering, net of
expenses..................... -- -- 6,325 7 81,248 -- -- -- 81,255
Conversion of preferred stock
into common stock............ (10,452) (10) 10,452 10 -- -- -- -- --
Issuance of common stock under
stock option and purchase
plans........................ -- -- 1,024 1 3,356 -- -- -- 3,357
Unrealized gain on
investments.................. -- -- -- -- -- 170 -- -- 170
Net loss...................... -- -- -- -- -- -- (20,619) -- (20,619)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1995... -- -- 25,789 26 162,595 170 (73,699) -- 89,092
-------- ---- ------ --- -------- ----- --------- ----- --------
Purchase of technology in
exchange for shares of common
stock........................ -- -- 141 -- 697 -- -- -- 697
Issuance of common stock under
stock option and purchase
plans........................ -- -- 489 -- 1,242 -- -- -- 1,242
Unrealized gain on
investments.................. -- -- -- -- -- 65 -- -- 65
Net loss...................... -- -- -- -- -- -- (45,634) -- (45,634)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1996... -- -- 26,419 26 164,534 235 (119,333) -- 45,462
-------- ---- ------ --- -------- ----- --------- ----- --------
Issuance of common stock under
stock option and purchase
plans........................ -- -- 293 1 261 -- -- -- 262
Issuance of restricted common
stock........................ -- -- 135 -- 169 (155) -- -- 14
Amortization of deferred
compensation................. -- -- -- -- -- 97 -- -- 97
Purchase of technology in
exchange for shares of common
stock........................ -- -- 45 -- 75 -- -- -- 75
Unrealized loss on
investments.................. -- -- -- -- -- (228) -- -- (228)
Net loss...................... -- -- -- -- -- -- (28,384) -- (28,384)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1997... -- -- 26,892 27 165,039 (51) (147,717) -- 17,298
-------- ---- ------ --- -------- ----- --------- ----- --------
Issuance of common stock under
stock option and purchase
plans........................ -- -- 1,241 1 2,683 -- -- -- 2,684
Issuance of Series A preferred
stock........................ 50 -- -- -- 8,128 -- (3,665) -- 4,463
Issuance of Series B preferred
stock........................ -- -- -- -- 5,849 -- (8,033) -- (2,184)
Issuance of Series C preferred
stock........................ -- -- -- -- 496 -- (9,984) -- (9,488)
Issuance of restricted common
stock........................ -- -- 280 -- 394 (401) -- -- (7)
Conversion of preferred
stock........................ -- -- 3,330 3 21,055 -- -- -- 21,058
Dividends on preferred
stock........................ -- -- -- -- -- -- (1,193) -- (1,193)
Purchase of treasury stock.... -- -- -- -- -- -- -- (203) (203)
Amortization of deferred
compensation................. -- -- -- -- -- 452 -- -- 452
Purchase of NetPhonic and
NETalk....................... -- -- 1,577 2 3,253 -- -- -- 3,255
Compensation associated with
DSI divestiture.............. -- -- -- -- 1,390 -- -- -- 1,390
Exercise of warrants.......... -- -- 80 -- 270 -- -- -- 270
Net loss...................... -- -- -- -- -- -- (38,908) -- (38,908)
-------- ---- ------ --- -------- ----- --------- ----- --------
Balances, December 31, 1998... $ 50 $ -- 33,400 $33 $208,557 $ -- $(209,500) $(203) $ (1,113)
======== ==== ====== === ======== ===== ========= ===== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-6
<PAGE> 37
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1990
YEARS ENDED DECEMBER 31, (INCEPTION) TO
-------------------------------- DECEMBER 31,
1998 1997 1996 1998
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(38,908) $(28,384) $(45,634) $(186,625)
Adjustments to reconcile net loss to net cash used in
operating activities:
Employee compensation for founder stock gift to
employees, at fair market value....................... -- -- -- 127
Depreciation and amortization........................... 3,044 2,849 3,233 13,793
Equity in net loss of unconsolidated affiliate.......... 725 -- -- 725
Amortization of deferred gain from sale and leaseback
financing............................................. -- (72) (96) (285)
Compensation expense associated with DSI divestiture.... 1,390 -- -- 1,390
Deferred revenue........................................ (2,186) (2,339) 200 13,049
Amortization of deferred compensation................... 452 97 -- 549
Write-off of acquired technology and in-process research
and development....................................... 2,827 -- 1,343 4,170
Changes in items affecting operations:
Other current assets.................................. (1,540) 6 2,294 (3,246)
Accounts payable and accrued expenses................. 1,620 (10,775) 4,570 1,285
-------- -------- -------- ---------
Net cash used in operating activities....................... (32,576) (38,618) (34,090) (155,068)
-------- -------- -------- ---------
Cash flows from investing activities:
Purchases of short-term investments....................... (22,430) (53,352) (52,338) (276,175)
Proceeds from sales and maturities of short-term
investments............................................. 21,733 85,894 72,408 264,098
Investments in unconsolidated affiliates.................. (2,834) -- -- (2,834)
Acquisitions of NetPhonic and NETalk...................... (300) -- -- (300)
Purchases of property and equipment....................... (5,711) (2,716) (2,203) (20,970)
Other assets.............................................. 1,163 (630) (902) (812)
-------- -------- -------- ---------
Net cash provided by (used in) investing activities......... (8,379) 29,196 16,965 (36,993)
-------- -------- -------- ---------
Cash flows from financing activities:
Proceeds from sale and leaseback financing................ -- -- -- 1,885
Repayment of capital lease obligations.................... (209) (985) (718) (2,553)
Proceeds from issuance of debt............................ 3,000 4,000 -- 7,000
Repayment of debt......................................... (903) -- -- (903)
Proceeds from sale of common stock and warrants, net of
offering cost........................................... 2,953 351 1,242 90,073
Proceeds from sale of redeemable, preferred stock......... 36,433 -- -- 80,433
Proceeds from sale of preferred stock..................... 4,463 -- -- 37,482
Repurchase of common stock................................ (203) -- -- (255)
Other long-term liabilities............................... (148) (236) (256) 744
-------- -------- -------- ---------
Net cash provided by financing activities................... 45,386 3,130 268 213,906
-------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ 4,431 (6,292) (16,857) 21,845
Cash and cash equivalents, beginning of year/period......... 17,414 23,706 40,563 --
-------- -------- -------- ---------
Cash and cash equivalents, end of year/period............... $ 21,845 $ 17,414 $ 23,706 $ 21,845
======== ======== ======== =========
Supplemental disclosures of cash flow information:
Income taxes paid during the year/period.................. $ 19 $ 22 $ 136 $ 2,066
Interest paid during the year/period...................... 410 118 261 789
Noncash investing and financing activities:
Deferred compensation for restricted stock issuances.... 394 155 -- 548
Reclassification of advance royalties from deferred
revenue to other long-term liabilities................ 1,500 -- 1,500
Purchase of technology and other intangibles in exchange
for shares of common stock............................ 3,255 75 697 4,027
Reclassification of advance royalties from deferred
revenue to accrued liabilities........................ -- -- 9,049 9,049
Reclassification of long-term liability to accrued
expenses.............................................. 1,563 -- -- 1,563
Capital equipment acquired under capital lease
obligations........................................... -- -- -- 2,622
Preferred stock redemption and conversion rights and
dividends............................................. 22,875 -- -- 22,874
Transfer of assets to unconsolidated affiliate.......... 1,469 -- -- 1,469
Conversion of redeemable preferred stock into preferred
stock................................................. -- -- -- 44,000
Conversion of preferred stock into common stock......... 21,058 -- -- 21,327
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-7
<PAGE> 38
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company
General Magic, Inc. (the "Company") develops and markets voice-enabled
services designed to make it easy and convenient for subscribers to access and
act on information important to them. The Company's primary offerings are the
Portico(TM) virtual assistant service, introduced in 1998, and voice-enabled
services for the Web. The Company's core technology asset is the magicTalk(TM)
voice user interface, used both in the Portico service and for voice enabling
Web content. The Company hosts operations for voice-enabled services in its
network operations center, located in Sunnyvale, California.
The Company was incorporated in California in May 1990, and reorganized as
a Delaware corporation in February 1995. The Company is a development stage
enterprise. The Company has generated minimal revenues to date and, as a
consequence of its change in business strategy, expects to incur significant
losses through 1999. 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. The Company expects that its cash, cash equivalents, and
short-term investment balances as of December 31, 1998, together with the
additional financing received in the first quarter of 1999, will be adequate to
fund the Company's operations through 1999.
The Company is at an early stage of development in its strategy to develop
and market voice-enabled services, and is subject to all of the risks inherent
in the establishment of a new business enterprise. In order to succeed, the
Company must, among other things, secure adequate financial and human resources
to meet its requirements; meet the challenges inherent in the timely development
and deployment of complex technologies; establish and maintain relationships
with telecommunications carriers, device manufacturers, Internet companies and
other partners for resale, remarketing and distribution of its services; achieve
market acceptance for its Portico service and other voice-enabled services;
generate sufficient revenues from its services to permit the Company to operate
profitably; expand its network operations center to timely accommodate any
demand for its services; ensure that third-party developers timely develop,
license, deliver and support technologies upon which the Company's services
depend; respond effectively to competitive developments; and protect its
intellectual property. Any failure to achieve these objectives could have a
material adverse effect on the Company's business, operating results and
financial condition.
Foreign Currency and International Operations
The Company's operations outside the United States related primarily to its
foreign sales offices in France and Japan. In November 1995, the Company formed
a wholly owned subsidiary, General Magic France, to centralize its European
sales and marketing efforts. As a result of the restructuring plan adopted and
implemented by the Company in the fourth quarter of 1996, the Company closed its
sales offices in Japan and France. The assets, liabilities and results of these
foreign operations were not significant for any of the years presented. The
Company denominated substantially all of its transactions in the U.S. dollar.
Gains and losses on foreign currency transactions were not significant.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
F-8
<PAGE> 39
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
Licensing revenue primarily represents revenue from nonrefundable,
nonrecoupable license fees for the Company's technologies and royalty revenue
from original equipment manufacturer ("OEM") shipments of devices incorporating
the Company's technologies. Other revenue in 1998 consists of proceeds from
sales of the DataRover handheld communication device ("DataRover 840"), fees
earned under customer-specific support service contracts, and subscription fees
for the Portico service. Other revenue in 1997 and 1996 consists of fees earned
under customer-specific engineering, maintenance and support services contracts.
The Company recognizes nonrefundable, nonrecoupable license fees upon
delivery of its technology to its licensees. Royalties associated with OEM
licensees are recognized upon shipment of the product incorporating the
Company's technology to the OEM's customers provided that the collection of the
related receivable is deemed probable. Royalties associated with potential OEM
product returns are estimated and provided for in the period of sale. Licensing
revenue from network operators is recognized as earned based upon usage and, in
certain cases, based on subscriber registration. Advance payments of licensing
revenue and fees received prior to revenue recognition are recorded as deferred
revenue.
Fees from customer-specific engineering projects are recognized under the
percentage-of-completion method based on achievement and acceptance of
milestones or performance of services. Support and maintenance fees are
recognized over the period the service or maintenance is provided.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid debt instruments with remaining
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash equivalents consist primarily of commercial paper and money
market mutual funds.
In connection with a purchase commitment, the Company had $2,280,000 in
restricted cash as of December 31, 1998 (see Note 14, "Commitments").
The Company has classified its investments as "available-for-sale."
Investments are recorded at fair value and unrealized gains and losses, if
material, are recorded as a component of comprehensive income. Interest income
is recorded using the effective interest rate, with amortization of associated
premium or discount included in "investment income." The cost of securities sold
is determined based upon the specific identification method.
Property and Equipment
Property and equipment are recorded at original cost less accumulated
depreciation. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the respective assets, generally three
to five years. Assets recorded under capital leases are amortized on a
straight-line basis over the shorter of the lease terms or the estimated useful
lives of the respective assets.
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
Software Development Costs
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility has been
established. Software development expenses incurred for product enhancements
after the product has reached technological feasibility have not been material
and,
F-9
<PAGE> 40
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accordingly, also have been charged to operations as incurred. From inception
through December 31, 1998, no software development costs have been capitalized.
Income Taxes
The Company provides for income taxes using the asset and liability method
under which provision for deferred income taxes is based on enacted tax laws and
rates applicable to the periods in which the taxes become payable.
Net Loss Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." In accordance with
SFAS No. 128, primary earnings per share have been replaced with basic earnings
per share, and fully diluted earnings per share have been replaced with diluted
earnings per share. Prior and current periods have been recalculated to conform
to SFAS No. 128. However, as the Company has had net losses for all periods
presented, basic and diluted loss per share are no different than the primary
loss per share previously disclosed. The computation of diluted loss per share
does not include common stock issuable upon the exercise of outstanding options
or warrants or upon the conversion of outstanding preferred stock. As of
December 31, 1998, 1997 and 1996, there were 7,315,000, 4,991,000 and 3,926,000
options outstanding, respectively. As of December 31, 1998, there were warrants
for the purchase of 630,000 shares of common stock outstanding, 3,629,000 shares
of common stock issuable upon the conversion of Series A preferred stock,
1,943,000 shares of common stock issuable upon the conversion of Series B
preferred stock, and 3,313,000 shares of common stock issuable upon the
conversion of Series C preferred stock.
Basic and diluted loss per share are computed by dividing loss available to
holders of common stock by the weighted-average number of shares of common stock
outstanding during the period.
Comprehensive Income/Loss
Effective January 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires disclosure of comprehensive loss in
interim periods and additional disclosures of the components of comprehensive
loss on an annual basis. Comprehensive loss includes all changes in equity
during a period except those resulting from investments by and distributions to
the Company's stockholders. There were no material differences between the
Company's comprehensive loss and net loss for the periods presented.
Accounting Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates of the Company relate to the computation and
classification of deferred revenue, including the accrual, if applicable, of
interest payable thereon.
Advertising Costs
Costs incurred for producing and publishing advertisements are expensed
when incurred. Advertising expense was $1,946,000, $118,000, and $733,000 for
1998, 1997, and 1996, respectively.
F-10
<PAGE> 41
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amortization of Intangibles
Goodwill and other intangibles are amortized on a straight-line basis over
periods ranging from two to five years.
Stock-Based Compensation
The Company has elected to continue to use the intrinsic value-based method
of Accounting Principles Board ("APB") Opinion No. 25, as allowed under SFAS No.
123, "Accounting for Stock-Based Compensation," to account for all of its
employee stock-based compensation plans. The adoption of SFAS No. 123 did not
have a material effect on the Company's consolidated financial position or
results of operations.
New Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance on
accounting for the costs of computer software intended for internal use. SOP
98-1 must be adopted by the Company effective as of fiscal 1999 and is not
expected to have a material impact on the Company's consolidated results of
operations.
NOTE 2: AGREEMENTS WITH STOCKHOLDERS AND DEFERRED REVENUE
In connection with the Company's initial strategy to promote its Magic Cap
and Telescript technologies, the Company entered into various contractual
arrangements with certain stockholders. Substantially all of the Company's
revenue from its May 1, 1990, inception was generated from such stockholders, or
their affiliates.
Five companies, which became stockholders of the Company prior to 1993,
entered into license agreements to pay royalties for the Company's Magic Cap
technology. The agreements provided for the payment of up to $2,500,000 in
prepaid royalties by each licensee in the event the Company met certain
technology development milestones. These prepayments were to be offset at a rate
of $0.50 for every dollar of royalties payable by the licensees upon shipments
of products incorporating the Company's technology. If the prepayments were not
fully recouped by the fifth anniversary of the license agreements (November 30,
1997), the licensees were each entitled to demand repayment of the unrecouped
amount plus interest.
In September 1996, the Company entered into an agreement with one of these
five Magic Cap licensees which, among other things, permitted the licensee to
recoup 100% of any royalties owed to the Company under a software modem license
agreement against the Magic Cap royalty prepayment, amended the Magic Cap
license agreement to provide for 100% recoupment of any royalties due
thereunder, extended the date for refund of unrecouped prepaid royalties to
November 2, 1999, and provided that no interest will be due upon any refund.
During 1998, the Company transferred this obligation to Altocom, Inc. in
exchange for discontinuing a certain revenue sharing agreement (see Note 7).
As of December 31, 1998, three of the remaining four companies had demanded
and received repayment of the unrecouped prepaid royalties. The obligations
outstanding under the agreements with the five companies as of December 31,
1998, amounted to $2,717,000 and was classified in current liabilities.
Additionally, in 1994 and 1995, the Company entered into Magic Cap
technology license agreements with three other stockholders. These license
agreements each provided for the payment of a $2,500,000 nonrefundable,
nonrecoupable license fee. The agreements also provided for the payment of up to
$2,500,000 in prepaid royalties, payable in installments upon the Company's
achievement of certain technology milestones. Failure to deliver the technology
milestones entitled each licensee to terminate its agreement and obtain a refund
of unrecouped prepaid royalties in two equal annual installments of principal,
plus interest
F-11
<PAGE> 42
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from the date of termination, payable commencing one year following termination
of the agreement. During the fourth quarter of 1996, each of the three licensees
demanded delivery of the final milestone due under the license agreements. The
Company delivered the final milestone in January 1997.
In June 1997, the Company reached an agreement to resolve the claims of,
and terminate the license agreement with, one of the three licensees. In
consideration, the Company agreed to refund the unrecouped prepaid royalties of
$1,500,000, waive any further payments otherwise due under the agreement, and
grant a royalty-free license to certain software modem technology. The
$1,500,000 refund is secured by a license in certain of the Company's
intellectual property, is non-interest bearing, is classified in accrued
expenses, and is payable in August 1999. In September 1997, the Company reached
agreement with a second of the three licensees providing for acceptance of the
final milestone, subject to certain conditions which were satisfied by the
Company later that month. Pursuant to this agreement, the Company waived payment
of the final $500,000 installment of the prepaid royalties and recognized
$2,000,000 in licensing revenue. In October 1997, the Company reached agreement
with the third licensee, which also provided for acceptance of the final
milestone. Pursuant to this agreement, the Company waived payment of the final
$500,000 installment of the prepaid royalties and agreed to refund prepaid
royalties not recouped by January 1, 2003, plus any accrued interest, on or
before December 31, 2003. The remaining obligation of $2,000,000 is classified
as noncurrent deferred revenue.
NOTE 3: RESTRUCTURING
In the fourth quarter of 1996, the Company announced and implemented a
restructuring plan designed to reduce costs and achieve long-term profitability
in the Company's operations. The Company's restructuring consisted primarily of
terminating approximately 60 employees; vacating certain facilities and
canceling auto leases related to the employee terminations; disposing of certain
office and computer equipment; and settling a contractual obligation resulting
from a change in the Telescript product strategy.
The restructuring resulted in an initial charge of $3,170,000. From the
inception of the restructuring plan through December 31, 1997, the Company
incurred cash expenditures of $2,381,000 and noncash expenditures of $789,000.
F-12
<PAGE> 43
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restructuring costs and related accrual consisted of the following (in
thousands):
<TABLE>
<CAPTION>
ACCRUED ACCRUED
BALANCE AS OF BALANCE AS OF
DECEMBER 31, DECEMBER 31,
COMPONENTS 1996 SPENDING ADJUSTMENTS 1997
---------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Payments to employees involuntarily
terminated(C).................................. $ 823 $ 724 $(99) $ --
Payments on canceled or vacated facilities and
auto leases(C)................................. 394 394 -- --
Disposal of office and computer equipment(NC).... 690 789 99 --
Contract settlement costs(C)..................... 900 900 -- --
------ ------ ---- ------
$2,807 $2,807 $ -- $ --
====== ====== ==== ======
</TABLE>
- ---------------
(C): Cash; (NC): Noncash.
NOTE 4: CONSOLIDATED FINANCIAL STATEMENT DETAILS
Cash Equivalents and Short-Term Investments
Cash equivalents and short-term investments consisted of the following (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998
Money market funds............................... $ 9,868 $-- $-- $ 9,868
Certificates of deposit.......................... 2,280 -- -- 2,280
Government securities............................ 2,839 -- -- 2,839
Commercial paper................................. 18,022 -- -- 18,022
------- -- -- -------
$33,009 $ $ $33,009
======= == == =======
AS OF DECEMBER 31, 1997
Money market funds............................... $10,717 $-- $-- $10,717
Certificates of deposit.......................... 3,324 -- -- 3,324
Commercial paper................................. 13,875 7 -- 13,882
------- -- -- -------
$27,916 $7 $-- $27,923
======= == == =======
</TABLE>
The Company's investments were classified as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Cash equivalents......................................... $20,934 $16,536
Short-term investments................................... 12,075 11,387
------- -------
$33,009 $27,923
======= =======
</TABLE>
All short-term investments have weighted-average original maturities of
less than one year.
F-13
<PAGE> 44
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
The components of property and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Office equipment and computers........................... $13,175 $ 9,133
Furniture and fixtures................................... 2,373 2,315
Leasehold improvements................................... 996 546
------- -------
16,544 11,994
Less accumulated depreciation and amortization........... 9,037 6,846
------- -------
$ 7,507 $ 5,148
======= =======
Capital lease equipment included in property and
equipment consisted of:
Cost................................................... $ 483 $ 688
Less accumulated amortization.......................... 479 516
------- -------
$ 4 $ 172
======= =======
</TABLE>
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Prepaid royalty payment and accrued interest.............. $4,217 $3,318
Employee compensation..................................... 3,688 2,384
Other..................................................... 2,075 1,489
------ ------
$9,980 $7,191
====== ======
</TABLE>
Other Income, net
Other income, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Gain on AltoCom transactions.................... $4,686 $ -- $ --
Gain on sale of Starfish, Inc. ................. 1,318 -- --
Equity in net loss of DSI....................... (725) -- --
Interest income................................. 1,925 2,917 4,691
Interest expense................................ (574) (142) (1,818)
Other........................................... 132 (446) 151
------ ------ -------
$6,762 $2,329 $ 3,024
====== ====== =======
</TABLE>
NOTE 5: FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
short-term investments. The Company invests its excess
F-14
<PAGE> 45
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cash in U.S. government securities and commercial paper. These investments
typically bear minimal risk. This diversification of risk is consistent with the
Company's policy to ensure safety of principal.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. These financial institutions
are located in the United States, and the Company's policy is designed to limit
exposure to any one institution. The Company's periodic evaluations of the
relative credit standing of these financial institutions are considered in the
Company's investment strategy.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, other accrued liabilities,
and long-term debt, the carrying amounts approximate fair value.
NOTE 6: PURCHASED TECHNOLOGIES FROM ACTIVE PAPER, INC. AND CONTERRA, INC.
In April 1996, the Company purchased rights to two Internet applications
from Active Paper, Inc. Upon the date of acquisition, $1,596,000 associated with
the purchase cost of this acquired developed technology was capitalized. In
September 1996, the Company conducted an analysis of expected cash flows and
determined that the carrying amount of the asset's then recorded value of
$1,343,000, net of $253,000 in amortization, was in excess of the expected
undiscounted cash flows associated with the asset. As the fair value of the
asset, which was calculated using the discounted expected future cash flows
method, was not significant, the Company recognized in the third quarter of 1996
an impairment loss equal to the carrying amount of the asset.
In July 1996, the Company acquired certain assets from Conterra, Inc. for
approximately $230,000 and recognized a $199,000 charge for in-process research
and development costs in connection with the acquisition.
NOTE 7: INVESTMENTS IN CONITA TECHNOLOGIES, INC. AND ALTOCOM, INC.
In January 1998, the Company discontinued operations of its South Carolina
office and entered into an agreement with Conita Technologies, Inc. ("Conita"),
a company founded by former employees of the South Carolina office. Under the
agreement, the Company obtained a 10% minority interest in Conita through the
purchase of preferred stock for a total of $758,000. The Company accounts for
its investment in Conita under the cost method.
In 1997, the Company transferred certain technology and other assets of its
software modem technology group to AltoCom, Inc. ("AltoCom"). The Company
retained a minority interest in AltoCom and a share of its ongoing revenue
stream. In January 1998, the Company and AltoCom agreed to discontinue the
revenue sharing agreement in exchange for certain consideration, including the
assumption by AltoCom of a $2,186,000 obligation to one of the Company's legacy
partners. The Company recognized $2,446,000 in other income during the first
quarter of 1998 in connection with this transaction. In April 1998, the Company
sold its minority interest in AltoCom for a total of $2,495,000, and recognized
in other income a gain of $2,240,000 on the sale.
NOTE 8: DIVESTITURE OF THE DATAROVER DIVISION AND INVESTMENT IN DATAROVER MOBILE
SYSTEMS, INC.
Effective October 1998, the Company divested its DataRover handheld
communications device division ("DataRover Division") in a transaction with
DataRover Mobile Systems, Inc. ("DSI"). Pursuant to the transaction, the Company
contributed cash and certain other assets of the DataRover Division totalling
$3,361,000 in value to DSI. The Company also licensed certain of its
technologies to DSI. In consideration
F-15
<PAGE> 46
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
therefor, the Company received non-voting, non-redeemable preferred stock and
49% of the outstanding common stock of DSI. The majority of DSI's common stock
is owned by employee founders of DSI. The Company did not recognize any gain or
loss as a result of the divestiture of the DataRover Division, and has accounted
for its investment in DSI under the equity method. As of December 31, 1998, the
Company had recorded a decrease of $725,000 in the value of its investment to
reflect its equity in loss incurred by DSI between the date of the divestiture
and the end of the year.
In connection with the divestiture of the DataRover Division, approximately
30 employees of the Company became employees of DSI. The Company provided for
accelerated vesting of options to acquire 256,000 shares of the Company's common
stock held by such employees, and granted an additional 320,000 options to
acquire the Company's common stock to such employees. The newly granted options
will vest ratably at 1/24 per month over a two-year period. The Company recorded
compensation expense of $1,634,000 associated with the fair value of the
accelerated and newly granted options and severance paid pursuant to an
agreement with a Company executive. The compensation expense relating to the
options was determined using the Black-Scholes fair market valuation method. The
fair value attributable to the accelerated options was expensed in the fourth
quarter of 1998 while the fair value associated with the new grant will be
expensed over the two-year vesting period of the grant.
The Company will purchase units from Oki Electric Industry Co., Ltd. ("Oki
Electric") for DSI under an existing letter of credit (see Note 14), and will be
reimbursed the actual cost of such units by DSI upon the earlier of five (5)
days following the sale of the units by DSI or 120 days following shipment by
Oki Electric. DSI's obligation to reimburse the Company is secured by all
personal property of DSI. The Company has also agreed to provide office space to
DSI at a discount to market value for a period of one year. As of December 31,
1998, the receivable from DSI, reflected in other assets in the accompanying
consolidated financial statements, was $605,000, comprised of purchases made
from Oki Electric by the Company on behalf of DSI.
NOTE 9: ACQUISITION OF NETPHONIC COMMUNICATIONS, INC
In March 1998, the Company acquired all of the outstanding shares of common
and preferred stock of NetPhonic Communications, Inc. ("NetPhonic"), a
development stage enterprise, for a total consideration of $2,050,000,
consisting of $200,000 cash and 1,342,524 shares of the Company's common stock.
The Company's common stock was issued to NetPhonic shareholders of record as of
the date of the transaction. NetPhonic had developed patent-pending voice
browser software that enabled touch-tone telephone access to Web content. The
acquisition was accounted for under the purchase method and, accordingly, the
results of operations of NetPhonic have been included in the Company's
consolidated financial statements as of the date of acquisition. The operations
of NetPhonic were not material relative to the Company's consolidated results of
operations. The Company allocated the total purchase price to acquired
in-process research and development that had not yet reached technological
feasibility and had no alternative future use to the Company. As a result, the
Company recognized a charge of $2,050,000 for the write-off of in-process
research and development as of the date of the acquisition. The value assigned
to purchased in-process research and development was determined by identifying
the cost to develop the purchased technology into a commercially viable feature
of the Company's Portico service, estimating the resulting net cash flows for
this project, and discounting the net cash flows back to their present value.
The efforts to develop the purchased in-process technology centered around the
integration of the purchased touch-tone Web access technology into the magicTalk
voice user interface utilized in the Portico service. The estimated cost to be
incurred to develop the purchased technology into a commercially viable feature
of the Portico service at the time of the acquisition was estimated at
approximately $2,330,000 in the aggregate through the year 1999 ($845,000 in
1998 and $1,485,000 in 1999). The Company had expected this effort to be
completed by the end of 1999 and to benefit from the effort beginning in the
year 2000. In the fourth quarter of 1998, the Company decided not to
F-16
<PAGE> 47
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
implement the technology purchased from NetPhonic into the Portico service and
suspended any additional development efforts.
NOTE 10: ACQUISITION OF NETALK, INC.
In October 1998, the Company acquired substantially all of the assets of
NETalk, Incorporated ("NETalk"), a development stage enterprise, for a total
consideration of $1,505,000, consisting of $100,000 in cash and 234,104 shares
of the Company's common stock. NETalk was engaged in the development of
applications providing users with advanced speech recognition tools to access
Web content over the telephone. The acquisition was accounted for under the
purchase method and, accordingly, the results of operations of NETalk have been
included in the Company's consolidated financial statements as of the date of
acquisition. The operations of NETalk were not material relative to the
Company's consolidated results of operations. Of the total purchase price,
$777,000 has been allocated to in-process research and development while the
remainder was allocated to certain intangible assets. The purchased in-process
technology represents the present value of the estimated after-tax benefit after
application of an attribution factor. The technology, as of the acquisition
date, had not reached technological feasibility. The cash flow projections for
revenues were based on estimates of relevant market sizes and growth factors,
expected industry trends, the anticipated nature and timing of new product
introductions by the Company and its competitors, individual product sales
cycles, and the estimated life of each product's underlying technology.
Estimated operating expenses and income taxes were deducted from estimated
revenue projections to arrive at estimated after-tax cash flows. Projected
operating expenses include cost of goods sold, marketing and selling expenses,
general and administrative expenses, and research and development, including
estimated costs to complete the technology and maintain the products once they
have been introduced into the market and are generating revenue. The rates
utilized to discount projected cash flows ranged from 30% to 40% for in-process
technologies and were based primarily on venture capital rates of return and the
weighted-average cost of capital for the Company at the time of the acquisition.
The in-process technology was expensed immediately, while the intangible assets
are being amortized over periods ranging from two to five years. The intangible
assets are included under "Other assets" on the balance sheet.
NOTE 11: PREFERRED STOCK
In February 1998, the Company entered into an agreement with Microsoft
Corp. ("Microsoft") for the sale of 50,000 shares of Series A Convertible
Preferred Stock and the license of certain of the Company's technology. The
aggregate consideration for the sale of Series A preferred stock was $4,500,000.
Series A preferred stock is eligible to vote with common stock on an "as if
converted" basis. Each share of Series A preferred stock is entitled to receive,
if and when the Company's Board of Directors declares a dividend payable on
common stock, a dividend equal to the dividend per share of common stock on an
"as if converted" basis. Series A preferred stock dividends are payable in
preference to any dividends on the Company's common stock and are
non-cumulative. The liquidation preference of each share of Series A preferred
stock is $90 plus any declared but unpaid dividends. Subject to adjustment in
certain circumstances, each share of Series A preferred stock is convertible
into shares of the Company's common stock at a conversion rate obtained by
dividing $90 by the applicable conversion value which, as of December 31, 1998,
was $1.24. As of December 31, 1998, 3,629,000 shares of the Company's common
stock were issuable upon conversion of the Series A preferred stock,
representing 7.2% of the Company's then outstanding common stock and common
stock equivalents on a fully diluted basis.
In March 1998, the Company entered into a financing transaction with a
group of private investors that provided $5,000,000 in cash to the Company from
the sale of 5,000 shares of its 5 1/2% Cumulative Convertible Series B Preferred
Stock. Each share of Series B preferred stock is entitled to one vote and has
special voting rights with respect to matters that adversely affect the rights
of holders of Series B preferred stock. Each share
F-17
<PAGE> 48
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of Series B preferred stock is entitled to receive cumulative dividends at
5 1/2% per annum of the liquidation preference of the Series B preferred stock,
which are payable in preference to any dividends on the Company's common stock.
The liquidation preference of Series B preferred stock is $1,000 per share plus
any accrued but unpaid dividends and is payable pari passu with the Company's
Series A preferred stock. Subject to adjustment in certain circumstances, each
share of Series B preferred stock is convertible into shares of the Company's
common stock at a conversion rate obtained by dividing the liquidation
preference by the lesser of $3.00 or 85% of the lowest sales price per share of
common stock during the five trading days prior to conversion. The holders of
Series B preferred stock have the right to require the Company to redeem any or
all then outstanding Series B preferred stock at 130% of the liquidation
preference upon the occurrence of certain events, including a change of control
transaction, bankruptcy or insolvency of the Company. The Company has the right
to redeem all then outstanding Series B preferred stock at 120% of the
liquidation preference upon a change of control transaction. As part of the
financing transaction, the Company issued warrants to acquire 400,000 shares of
common stock at an exercise price of $3.38 per share. The warrants have a
five-year term and are immediately exercisable.
In June 1998, for an aggregate purchase price of $2,000,000, certain
holders of the Company's Series B preferred stock exercised their right to
purchase 2,000 additional shares of Series B preferred stock and warrants to
acquire an additional 160,000 shares of the Company's common stock at an
exercise price of $18.75 per share. The holders of Series B preferred stock also
agreed to convert at least 2,500 then outstanding shares of Series B preferred
stock into common stock. The Company waived its rights to require the holders of
the Series B preferred stock to purchase an additional 5,000 shares of Series B
preferred stock and warrants to acquire 400,000 shares of common stock. As of
December 31, 1998, a total of 2,423,000 shares of common stock were issuable
upon the conversion of all Series B preferred stock and associated warrants,
representing 4.8% of the Company's then outstanding common stock and common
stock equivalents on a fully diluted basis.
In June 1998, the Company entered into a financing transaction with a group
of private investors that provided $30,000,000 in cash to the Company from the
sale of 3,000 shares of its Series C Convertible Preferred Stock. Each share of
Series C preferred stock has special voting rights with respect to matters that
adversely affect the rights of holders of Series C preferred stock and otherwise
has no voting rights except as may be required by law. Each share of Series C
preferred stock is entitled to receive cumulative dividends at 5% per annum of
the stated value ($10,000 per share) of the Series C preferred stock, which are
payable in preference to any dividends on the Company's common stock. The
liquidation preference of Series C preferred stock is $10,000 per share plus any
accrued but unpaid dividends and penalties, and is payable pari passu with the
Series A and Series B preferred stock. Subject to adjustment in certain
circumstances, each share of Series C preferred stock was convertible into
shares of the Company's common stock at a conversion rate obtained by dividing
the liquidation preference by the lesser of $19.49 ("Fixed Conversion Price") or
the average of the four lowest closing bid prices per share of the Company's
common stock for the 20 trading days prior to the conversion date which, as of
December 31, 1998, was $4.80.
In October 1998, the holders of the Series C preferred stock and the
Company entered into a Voting and Waiver Agreement pursuant to which the holders
agreed to amend the Certificate of Designations, Preferences and Rights of the
Series C Convertible Preferred Stock to provide the Company the flexibility to
issue shares of its common stock in connection with mergers, acquisitions and
other strategic transactions without triggering antidilution protection related
adjustments to the number of shares of common stock into which the Series C
preferred stock may be converted in exchange for a reduction of the Fixed
Conversion Price from $19.49 to $10.00. This amendment was approved by the
stockholders of the Company at a Special Meeting of Stockholders held on January
21, 1999. As of December 31, 1998, a total of 3,463,000 shares of the Company's
common stock were issuable upon the conversion of the Series C preferred stock
and exercise
F-18
<PAGE> 49
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of associated warrants, representing 6.9% of the Company's then outstanding
common stock and common stock equivalents on a fully diluted basis.
In certain circumstances (including upon a change of control transaction,
the transfer of substantially all of the assets of the Company, or a tender
offer made to and accepted by holders of more than 50% of the outstanding common
stock of the Company), the holders of Series C preferred stock may require the
Company to redeem any or all of the then outstanding Series C preferred stock at
130% of the liquidation preference and, in more limited circumstances (relating
to the registration and listing of the common stock of the Company issuable upon
conversion of the Series C preferred stock and the Company's timely conversion
of such stock) may require the Company to redeem any or all of the then
outstanding Series C preferred stock at the greater of 130% of the liquidation
preference or the then applicable closing bid price per common share equivalent.
Upon submission of Series C preferred stock for conversion at a conversion price
of less than $5.00, the Company has the option to redeem any or all of such
stock at 110% of the liquidation preference. As part of the financing
transaction, the Company issued warrants to acquire 150,000 shares of common
stock at a price of $17.22 per share. The warrants have a three-year term and
are immediately exercisable.
During 1998, adjustments to accumulated deficit of approximately $3,665,000
were recorded to recognize the value of favorable conversion rights associated
with the Series A preferred stock issued during the period, representing the
difference between the fair market value of the Company's common stock on the
date of the agreement of $2.25 and the sale price of $1.24 per common share
equivalent. Adjustments to accumulated deficit of approximately $8,352,000 were
recorded in the year ended December 31, 1998, to recognize the value of
favorable conversion, redemption and exercise rights associated with the Series
B preferred stock and related warrants issued during the period, as well as
dividends that accrued during the year. The adjustments principally represent
the difference between the fair market value of the Company's common stock on
the date of the financing transactions of $3.69 at March 3, 1998, and $12.50 at
June 25, 1998, and the per share conversion price of $3.00. Adjustments to
accumulated deficit of approximately $10,858,000 were recorded in the year ended
December 31, 1998, to recognize the value of the favorable redemption rights
associated with the Series C preferred stock, and dividends that accrued during
the year. The adjustments principally represent the difference between the
redemption value (130% of the liquidation preference) and the amount of the
liquidation preference.
NOTE 12: STOCKHOLDERS' EQUITY
Initial Public Offering and Preferred Stock
The Company completed an initial public offering ("IPO") on February 9,
1995, issuing 6,325,000 shares of its common stock at $14.00 per share. The
proceeds, net of commissions and expenses, totaled $81,255,000.
As of December 31, 1994, the Company had authorized 30,000,000 shares of
convertible preferred stock. Upon the closing of the Company's IPO on February
9, 1995, all outstanding preferred stock automatically converted into common
stock. The Board of Directors has since authorized 500,000 shares of preferred
stock, of which 58,000 are issued and outstanding as of December 31, 1998.
Common Stock
As of December 31, 1998, the Company was authorized to issue 60,000,000
shares of common stock. On January 21, 1999, the stockholders approved an
amendment to the Company's Certificate of Incorporation to increase the
authorized common stock of the Company from 60,000,000 shares to 100,000,000
shares.
F-19
<PAGE> 50
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting for Stock-Based Compensation
As of December 31, 1998, the Company had three stock-based compensation
plans, which consist of two stock option plans and an employee stock purchase
plan. The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans for stock options issued to employees. The Company
recorded compensation expense in 1998 for its stock-based compensation plans of
approximately $1,390,000, principally in conjunction with the DSI divestiture
(see Note 8). The Company has adopted the pro forma disclosure provisions of
SFAS No. 123. Compensation expense recognized under these three plans for 1998,
1997, and 1996 was $1,390,000, none, and none, respectively. Excluding the
compensation expense recorded in 1998, had compensation cost for the Company's
three stock-based compensation plans been determined based on the fair value
approach described in SFAS No. 123, the Company's net loss and loss per share
would have been increased to the pro forma amounts indicated below. In the
initial phase-in period, the effects of applying SFAS No. 123 for disclosing
compensation cost may not be representative of the effects on reported net
income or loss for future years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net loss
As reported.............................. $(38,908) $(28,384) $(45,634)
Pro forma................................ (42,928) (30,641) (48,224)
Net loss per share
As reported.............................. $ (2.09) $ (1.06) $ (1.74)
Pro forma................................ (2.22) (1.14) (1.84)
</TABLE>
Stock Option Plans
The Company has two stock option plans, the Amended and Restated 1990 Stock
Option Plan ("1990 Stock Option Plan") and the 1994 Outside Directors Stock
Option Plan, as amended ("Directors Option Plan"). Under the 1990 Stock Option
Plan, the Company has reserved an aggregate of 12,870,000 shares of common stock
for issuance. In June 1998, the stockholders of the Company approved a proposal
to increase by 4,850,000 shares the aggregate number of shares issuable under
the 1990 Stock Option Plan, which is reflected in the 12,870,000 total reserve.
The 1990 Stock Option Plan provides that stock options may be granted to
employees (including officers), consultants, advisers and other independent
contractors, at an exercise price not less than 100% of the fair market value,
as determined by the Board of Directors, for incentive stock options, and 50% of
the fair market value for nonqualified stock options, at the grant date. All
options granted under the 1990 Stock Option Plan must have a term not greater
than 10 years from the date of grant. The Board of Directors determines the
number of shares for which an option may be granted. Options issued generally
vest 25% after one year and then ratably at 1/48 per month thereafter. However,
in April 1997, 1,182,500 options were granted to Company employees (excluding
officers), subject to acceleration of vesting upon achievement of specified
milestones. As of December 31, 1998, up to 41% of the grant was accelerated
based on the achievement of certain of those milestones.
In order to retain and motivate the Company's employees, the Board of
Directors approved repricings of certain stock options issued under the 1990
Stock Option Plan. Under the February 27, 1996, repricing, holders of stock
options with exercise prices in excess of $7.44 could elect to surrender any or
all of their outstanding options for options priced at $7.44, the fair market
value of the Company's common stock on February 27, 1996, as determined by the
Board of Directors. The vesting period for the repriced February 27, 1996,
options commenced on February 27, 1996. Under the November 12, 1996, repricing,
holders of stock options with exercise prices in excess of $2.84, including
those options previously repriced, could elect to
F-20
<PAGE> 51
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
surrender any or all of their outstanding options for options priced at $2.84,
the fair market value of the Company's common stock on November 12, 1996, as
determined by the Board of Directors. Each option that was repriced on November
12, 1996, was subject to the vesting schedule of the surrendered option it
replaced. On February 27, 1996, and November 12, 1996, options for an aggregate
of 1,597,183 and 2,948,846 shares of common stock, respectively, were repriced.
Under the Directors Option Plan, the Company has reserved an aggregate of
550,000 shares of common stock for issuance. In June 1998, the stockholders of
the Company approved a proposal to increase by 250,000 shares the aggregate
number of shares issuable under the Directors Option Plan, which is reflected in
the 550,000 total reserve. The Directors Option Plan provides for the automatic
grant of nonqualified stock options to directors of the Company who are not
employees of (i) the Company, (ii) a stockholder of the Company, (iii) a holder
of a technology license from the Company, or (iv) any parent or subsidiary of
the same ("Eligible Outside Directors"). Each person who is newly elected or
appointed as an Eligible Outside Director is automatically granted an option to
purchase 40,000 shares of common stock. Each Eligible Outside Director is
automatically granted an option to purchase 10,000 shares of common stock on the
day following each anniversary date of election or appointment, subject to the
director's option to decline the grant. The exercise price of the options in all
cases is equal to the fair market value of common stock on the grant date. The
initial grant options generally vest and become exercisable 25% after the first
year and then ratably at 1/48 per month thereafter. The anniversary grant
options generally vest and become exercisable at the rate of 1/12 per month
beginning three years after the grant date. Generally, options must be exercised
within 10 years.
Under SFAS No. 123, the fair value of each option grant and option
repricing under the two stock option plans is estimated on the respective date
of grant or repricing using the Black-Scholes option pricing model with the
following weighted-average assumptions used for 1998, 1997 and 1996: zero
dividend yield; expected volatility of 70%; risk free interest rates of 4.59%,
6.42%, and 6.12%, respectively; and expected lives of 3.50, 3.24, and 3.14
years, respectively. The expected volatility assumption was estimated based on
historical industry stock price volatility as well as the Company's historical
stock price volatility, and assumes increases and decreases in stock prices. The
expected volatility assumption used in the Black-Scholes option pricing model
may not be indicative of the historic or future performance of the Company's
common stock.
F-21
<PAGE> 52
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Option activity under the Company's two stock option plans was as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year................ 4,991 3,926 3,779
Granted....................................... 3,811 3,494 2,902
Exercised..................................... (1,117) (208) (367)
Canceled...................................... (370) (2,221) (2,388)
Repriced -- granted........................... -- -- 4,546
Repriced -- canceled.......................... -- -- (4,546)
------- ------- -------
Outstanding, end of year...................... 7,315 4,991 3,926
Shares available for future grant............. 2,361 802 2,074
Options authorized to be issued............... 13,420 8,320 8,320
Options exercisable, end of year.............. 1,932 1,387 1,031
------- ------- -------
Weighted-average exercise prices:
Outstanding at beginning of year............ $ 2.28 $ 3.17 $ 10.08
Granted..................................... 6.40 1.78 5.23
Exercised................................... 2.27 0.63 1.50
Canceled.................................... 2.19 3.22 12.57
Repriced -- granted......................... -- -- 4.46
Repriced -- canceled........................ -- -- 6.72
Outstanding, end of year.................... 4.44 2.28 3.17
Options exercisable, end of year.............. 2.52 2.99 3.36
Weighted-average fair value of options granted
during the year............................. $ 3.44 $ 0.95 $ 2.70
</TABLE>
The following table summarizes information about options outstanding under
the Company's two stock option plans as of December 31, 1998 (shares in
thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
------------------------ ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.40 to $2.75............................ 2,116 8.48 $ 1.64 870 $1.58
$2.84 to $5.88............................ 1,763 8.04 3.21 1,002 2.97
$6.00 to $7.28............................ 3,353 9.71 6.68 28 6.81
$8.94 to $13.06........................... 83 7.92 11.16 32 9.89
----- -----
$0.40 to $13.06........................... 7,315 8.93 $ 4.44 1,932 $2.52
===== =====
</TABLE>
1994 Employee Stock Purchase Plan
As of December 31, 1998, the Company had reserved an aggregate of 505,000
shares of common stock for issuance under the 1994 Employee Stock Purchase Plan,
as amended ("Purchase Plan"). The Purchase Plan permits eligible employees to
purchase common stock at a discount through payroll deductions during 24-month
offering periods. The price for the initial offering period was equal to 85% of
the fair market value of common stock at the close of business on the day prior
to the first day of the initial offering period or the fair
F-22
<PAGE> 53
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
market value of common stock on the last day of the purchase period, whichever
was lower. The price at which stock is purchased under the Purchase Plan for all
subsequent periods is equal to 85% of the fair market value of common stock on
the first day of the offering period, or the last day of the purchase period,
whichever is lower. Under the Purchase Plan, the Company sold 124,813, 84,890,
and 121,445 shares to its employees in 1998, 1997 and 1996, respectively.
Under SFAS No. 123, the fair value of employees' purchase rights was
estimated using the Black-Scholes model with the following assumptions for 1998,
1997 and 1996: zero dividend yield and expected life of 15 months for each year;
expected volatility of 70%; and risk free interest rates of 5.37%, 5.53%, and
5.20%, respectively. The expected volatility assumption was estimated based on
historical industry stock price volatility as well as the Company's historical
stock price volatility, and assumes increases and decreases in stock prices. The
expected volatility assumption used in the Black-Scholes option pricing model
may not be indicative of the historic or future performance of the Company's
common stock. The weighted-average fair value of purchase rights (including the
15% discount off of the quoted market price of common stock) granted in 1998,
1997 and 1996 was $0.73, $0.70, and $2.08, respectively.
Restricted Stock Grant
During 1997, the Company sold to its Chairman, Chief Executive Officer and
President 135,000 shares of restricted common stock for $0.10 per share. The
Company recorded approximately $155,000 of deferred compensation in connection
with the sale of these shares which had been fully expensed by December 31,
1998. During 1998, the Company sold to its Chief Technology Officer 280,000
shares of restricted common stock for $0.10 per share. The Company recorded
approximately $393,000 of deferred compensation in connection with the sale of
these shares which had been amortized completely as of December 31, 1998.
NOTE 13: RETIREMENT PLAN
The Company has a deferred compensation plan for all employees who are at
least 21 years of age. Under the plan, which qualifies under Section 401(k) of
the Internal Revenue Code of 1986, as amended, eligible employees may contribute
from 2% to 20% of their pretax compensation, up to the annual limits imposed by
the Internal Revenue Service.
The Company may, at its discretion, contribute to the plan. No employer
contributions have been made in any of the periods presented.
NOTE 14: COMMITMENTS
Purchase Commitments
In April 1998, the Company entered into an agreement with Qwest
Communications International, Inc. to purchase telecommunications services at
fixed prices for an initial term of three years. The Company is obligated to
purchase $13,000,000 in telecommunications services during the three-year period
ending April 30, 2001. The charges underlying this commitment will be expensed
in the periods in which they occur.
During 1997, the Company entered into an OEM agreement with Oki Electric
for the manufacture of handheld communications devices. In connection therewith,
the Company obtained an irrevocable letter of credit with a term of one year to
collateralize the Company's obligations under the OEM agreement ("Letter of
Credit"). Effective September 1998, the Company amended the terms of the Letter
of Credit in connection with an agreement reached with DSI (see Note 8), to
increase the total purchase commitment and to allow for an extension of the
delivery dates through March 31, 1999. As of December 31, 1998, the Company had
$2,280,000 on deposit as security with the financial institution issuing the
Letter of Credit. This commitment
F-23
<PAGE> 54
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is denominated in Japanese yen and, as a result, is at risk of foreign currency
fluctuations. The Company's purchase commitment was valued at $2,267,000 as of
December 31, 1998. The liability will be recorded upon acceptance of units
shipped by Oki Electric.
Long-Term Debt
In December 1997, the Company entered into a $4,000,000 term loan with a
financial institution. The loan bears interest at 0.25% above the financial
institution's prime rate (7.75% as of December 31, 1998), and has a term of 40
months with interest only due in the first four months and principal and
interest due monthly thereafter. This loan is secured by all of the assets of
the Company, including its intellectual property. As of December 31, 1998,
$3,111,000 was outstanding under this loan.
In June 1998, the Company secured a $3,000,000 term loan with the same
financial institution. The loan bears interest at the financial institution's
prime rate (7.75% as of December 31, 1998), and has a term of 42 months with
interest only due in the first six months and principal and interest due monthly
thereafter. This loan is secured by all of the assets of the Company, including
its intellectual property. As of December 31, 1998, $3,000,000 was outstanding
under this loan.
As of December 31, 1998, the current and noncurrent portions due under
these loans were $2,333,000 and $3,778,000, respectively. Both of these term
loans contain customary covenants and events of default. As of December 31,
1998, the Company was in full compliance with all loan covenants.
Lease Commitments
The Company leases its facilities under two operating leases extending
through 2002 and 2003, respectively. The leases require the Company to pay all
executory costs, such as maintenance and insurance, and provide for escalating
rent payments. The Company is amortizing the total rent payments over the lease
term on a straight-line basis for the leases. In addition, the Company also
leases certain phone equipment and computers under capital lease agreements.
Rent expense was approximately $175,000, $790,000, and $1,690,000 for the
fiscal years ended December 31, 1998, 1997 and 1996, respectively. Future
minimum lease payments under noncancelable operating leases as of December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
YEARS ENDING DECEMBER 31, LEASES
------------------------- ---------
<S> <C>
1999....................................................... $ 811
2000....................................................... 880
2001....................................................... 914
2002....................................................... 691
2003 and thereafter........................................ 200
------
Total minimum lease payments............................... $3,496
======
</TABLE>
NOTE 15: INCOME TAXES
Income tax expense for the years ended December 31, 1998, 1997, and 1996 is
comprised primarily of foreign withholding taxes.
F-24
<PAGE> 55
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total income tax expense differs from expected tax expense (computed by
multiplying the U.S. income statutory rate of 34% by loss before income tax) as
a result of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Computed expected tax benefit....................... $(13,222) $(9,645) $(15,471)
Losses and temporary differences for which no tax
benefit was recognized............................ 11,599 9,248 14,776
Nondeductible expenses.............................. 1,623 397 695
Foreign tax withholding............................. 19 17 131
-------- ------- --------
Total tax expense................................... $ 19 $ 17 $ 131
======== ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Accruals and other reserves................................. $ 1,634 $ 1,670
Deferred revenue............................................ 857 1,793
Loss carryovers and deferred start-up expenditures.......... 69,386 53,110
Foreign tax credit carryforward............................. 1,740 1,740
Research and development credit carryforward................ 8,661 6,650
Fixed assets................................................ 916 787
-------- -------
Total gross deferred tax assets............................. 83,194 65,750
Less valuation allowance.................................... 83,194 65,750
-------- -------
Net deferred tax assets..................................... $ -- $ --
======== =======
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1998, was a net increase of $17,444,000.
Deferred tax assets as of December 31, 1998, include approximately
$5,085,000 relating to the exercise of stock options, which will be credited to
equity if and when realized.
As of December 31, 1998, the Company had cumulative federal net operating
losses of approximately $181,457,000, which can be used to offset future income
subject to federal income taxes. The federal tax loss carryforwards will expire
from 2006 through 2018. The Company has cumulative California net operating
losses of approximately $86,995,000, which can be used to offset future income
subject to California income taxes. The California tax loss carryforwards will
expire from 1999 through 2003.
As of December 31, 1998, foreign tax credits of approximately $1,740,000
were available to reduce future federal income taxes. Foreign tax credit
carryforwards expire from 1999 through 2000.
As of December 31, 1998, unused research and development tax credits of
approximately $5,650,000 and $3,011,000 were available to reduce future federal
and California income taxes, respectively. Federal credit carryforwards will
expire from 2007 through 2018; California credits will carry forward
indefinitely.
NOTE 16: SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in
F-25
<PAGE> 56
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
annual financial statements. It also establishes standards for related
disclosures about products and services, major customers, and geographic areas.
Operating segments are defined as components of an enterprise about which
separate financial information is available and is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company's chief operating decision maker is its Chief
Operating Officer ("COO"). Financial information for separate components of the
Company's business is not available to the COO for review and analysis.
Allocation of resources and assessment of performance is based on the Company's
consolidated financial information, which is available to the COO in
substantially the form presented in the accompanying consolidated statement of
operations. The Company therefore operates in a single operating segment:
voice-enabled services.
From its inception through the year ended December 31, 1998, the Company
has derived revenue from two product lines. Initially, the Company derived
revenues from the development, licensing, manufacturing and sale of handheld
communications device technologies and products, including object-oriented
software platform technologies ("Handheld Technologies"). In 1997, the Company
began developing and marketing an advanced network service for communication and
information management, the first of the Company's voice-enabled services and
products ("Voice-enabled Services"). Effective October 1998, the Company
divested itself of its DataRover handheld communications device division in
order to focus on the development, marketing and sale of Voice-enabled Services.
Revenue by product offering was as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Voice-enabled Services................................... $1,654 $ -- $ --
Handheld Technologies.................................... 632 3,456 5,917
$2,286 $3,456 $5,917
====== ====== ======
</TABLE>
For the year ended December 31, 1998, revenue from one major customer, a
stockholder in the Company, accounted for 66% of total revenue. For the year
ended December 31, 1997, revenue from two major customers, both then
stockholders in the Company, accounted for 69% and 13% of total revenue,
respectively. For the year ended December 31, 1996, revenue from two major
customers, both then stockholders in the Company, accounted for 33% and 11% of
total revenue, respectively; also, a third major customer accounted for 13% of
total revenue in the period.
The Company's revenue was generated principally from its headquarters in
North America. Revenue from customers in Japan amounted to $387,000, $2,875,000
and $3,516,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. For the years ended December 31, 1998, 1997 and 1996, revenue from
customers in Europe amounted to none, none, and $54,000, respectively.
Substantially all of the Company's tangible assets are located at its North
American headquarters.
NOTE 17: SUBSEQUENT EVENTS
Conversion of Preferred Stock
On January 21, 1999, 397 shares of Series C Preferred Stock were converted
into 852,000 shares of common stock. As of March 20, 1999, the remaining 1,152
shares of Series C Preferred Stock were convertible into 3,240,000 shares of
common stock. On March 17, 1999, 2,100 shares of Series B Preferred Stock were
converted into 926,000 shares of common stock. As of March 20, 1999, the
remaining 3,500 shares of Series B Preferred Stock were convertible into
1,230,000 shares of common stock.
F-26
<PAGE> 57
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financing Transaction
On March 30, 1999, the Company entered into a private financing transaction
that provided $20,000,000 in cash to the Company from the sale of convertible
redeemable preferred stock. As part of this transaction, the Company also issued
three-year warrants to purchase additional shares of common stock at a premium
to the common stock price as of the date of the private financing transaction.
F-27
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL MAGIC, INC.
By: /s/ STEVEN MARKMAN
------------------------------------
Steven Markman
Chairman of the Board, Chief
Executive
Officer and President
Dated: March 31, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven Markman and Mary E. Doyle his/her
true and lawful attorney-in-fact and agent, with full power of substitution and,
for him/her and in his/her name, place and stead, in any and all capacities to
sign any and all amendments to this Report on Form 10-K, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent 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/she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE: DATE:
--------- ------ -----
<C> <C> <S>
By: /s/ STEVEN MARKMAN Chairman and Chief Executive March 31, 1999
------------------------------------------------- Officer (Principal Executive)
Steven Markman
By: /s/ JAMES P. MCCORMICK Chief Financial Officer March 31, 1999
------------------------------------------------- (Principal Financial and
James P. McCormick Accounting Officer)
By: /s/ MICHAEL E. KALOGRIS Director March 31, 1999
-------------------------------------------------
Michael E. Kalogris
By: /s/ CARL F. PASCARELLA Director March 31, 1999
-------------------------------------------------
Carl F. Pascarella
By: /s/ ROEL PIEPER Director March 31, 1999
-------------------------------------------------
Roel Pieper
By: /s/ SUSAN G. SWENSON Director March 31, 1999
-------------------------------------------------
Susan G. Swenson
By: /s/ DENNIS F. STRIGL Director March 31, 1999
-------------------------------------------------
Dennis F. Strigl
</TABLE>
F-28
<PAGE> 59
GENERAL MAGIC, INC.
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
2.1(2) Stock Purchase Agreement between the Company and DataRover
Mobile Systems, Inc. dated October 28, 1998
3.1 Agreement and Plan of Merger between General Magic, Inc., a
California corporation, and the Company is incorporated by
reference to Exhibit 2.1 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on January 13, 1995 (File No.
33-87164)
3.2 Certificate of Incorporation of the Company is incorporated
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on February 9, 1995 (No. 33-87164)
3.3 Certificate of Amendment of Certificate of Incorporation of
the Company is incorporated by reference to Exhibit 3.3 to
Amendment No. 1 to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission
on January 13, 1995 (File No. 33-87164)
3.4 Certificate of Correction of the Certificate of Amendment of
the Company is incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on September 25, 1996
(File No. 333-12667)
3.5 Certificate of Retirement and Elimination of Classes of
Common Stock and Series of Preferred Stock of the Company is
incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on August 11, 1997 (File No.
333-33329)
3.6 Certificate of Designation of Series A Convertible Preferred
Stock of the Company is incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on May 1,
1998 (File No. 333-51685)
3.7 Certificate of Designation of the 5 1/2% Cumulative
Convertible Series B Preferred Stock of the Company is
incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on May 1, 1998 (File No. 333-51685)
3.8 Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock of the Company is
incorporated by reference to Exhibit 3.1 to the Company's
Report on Form 8-K filed with the Securities and Exchange
Commission on June 29, 1998 (File No. 000-25374)
3.9 Certificate of Amendment to Certificate of Incorporation of
the Company is incorporated by reference to Exhibit 4.10 to
the Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on February 4, 1999
(File No. 333-71781)
3.10 Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series C Convertible Preferred
Stock of the Company is incorporated by reference to Exhibit
4.11 to the Company's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on
February 4, 1999 (File No. 333-71781)
3.11 Second Amended and Restated Bylaws of the Company are
incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on February 6, 1998 (File No.
333-45751)
3.12 Certificate of Merger of Netphonic Communications, Inc. into
the Company is incorporated by reference to Exhibit 4.7 to
the Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on February 4, 1999
(File No. 333-71781)
4.1 Form of Certificate for Common Stock is incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on January 31, 1995 (File No.
33-87164)
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
4.2 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 is incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on May 1, 1998 (File No.
333-51685)
4.3 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
is incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on May 1, 1998 (File No. 333-51685)
4.4 Form of Common Stock Purchase Warrant is incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on May 1, 1998 (File No. 333-51685)
4.5(1) Preferred Stock Purchase Agreement by and between Registrant
and Microsoft Corporation dated February 26, 1998 is
incorporated by reference to Exhibit 4.4 to Amendment No. 2
to the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on June 5, 1998
(File No. 333-51685)
4.6 Investor Rights Agreement by and between Registrant and
Microsoft Corporation dated February 27, 1998 is
incorporated by reference to Exhibit 4.5 to Amendment No. 2
to the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on June 5, 1998
(File No. 333-51685)
4.7(1) Patent License Agreement by and between Registrant and
Microsoft Corporation dated February 27, 1998 is
incorporated by reference to Exhibit 4.6 to Amendment No. 2
to the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on June 5, 1998
(File No. 333-51685)
4.8 Covenant Not to Sue by and between Registrant and Microsoft
Corporation dated February 27, 1998 is incorporated by
reference to Exhibit 4.7 to Amendment No. 2 to the Company's
Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on June 5, 1998 (File No. 333-51685)
4.9 Voting and Waiver Agreement by and among the Registrant and
holders of the Registrant's Series C Convertible Preferred
Stock dated October 22, 1998 is incorporated by reference to
Exhibit 4.1 to the Company's Report on Form 8-K filed with
the Securities and Exchange Commission on October 27, 1998
4.10 Securities Purchase Agreement by and among the Registrant
and the Institutional Investors dated June 24, 1998 is
incorporated by reference to Exhibit 4.1 to the Company's
Report on Form 8-K filed with the Securities and Exchange
Commission on June 29, 1998
4.11 Registration Rights Agreement by and among the Registrant
and the Institutional Investors dated June 24, 1998 is
incorporated by reference to Exhibit 4.3 to the Company's
Report on Form 8-K filed with the Securities and Exchange
Commission on June 29, 1998
4.12 Form of Warrant issued to the Institutional Investors
pursuant to the Securities Purchase Agreement dated June 24,
1998 1998 is incorporated by reference to Exhibit 4.2 to the
Company's Report on Form 8-K filed with the Securities and
Exchange Commission on June 29, 1998
10.1 Form of Indemnity Agreement for officers and directors of
the Company is incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on February 9, 1995
(File No. 33-87164)
10.2 The Company's Amended and Restated 1990 Stock Option Plan,
as amended, is incorporated by reference to Exhibit 10.2. to
Amendment No. 1 to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission
on January 13, 1995 (File No. 33-87164)
10.3 The Company's 1995 Employee Stock Purchase Plan is
incorporated by reference to Exhibit 10.3 to Amendment No. 1
to the Company's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on January 13,
1995 (File No. 33-87164)
10.4 The Company's 1994 Outside Directors Stock Option Plan is
incorporated by reference to Exhibit 10.4 to Amendment No. 1
to the Company's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on January 13,
1995 (File No. 33-87164)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
10.5 Loan and Security Agreement between the Company and Silicon
Valley Bank dated December ---, 1997
10.6 Loan Modification Agreement between the Company and Silicon
Valley Bank dated December 18, 1998
10.7 Loan and Security Agreement between the Company and Silicon
Valley Bank dated June 22, 1998
10.8 Loan Modification Agreement between the Company and Silicon
Valley Bank dated February 15, 1999
10.9 Amendment No. 1 and Partial Termination of Sublease
Agreement between the Company and ArgoSystems, Inc. dated
April 1, 1997
10.10 Amendment No. 2 to Sublease Agreement between the Company
and ArgoSystems, Inc. dated January 1, 1998
10.11(2) Services Agreement between the Company and Qwest
Communications Corporation dated April 30, 1998
10.12(2) Service Agreement between the Company and Qwest
Communications Corporation dated November 11, 1998
10.13(2) Product Integration and Marketing Agreement between the
Company and Intuit, Inc. dated November 6, 1998
10.14 Letter Agreement between the Company and Steven Markman
dated September 12, 1996
10.15 Letter Agreement between the Company and Linda A. Hayes
dated August 7, 1997
10.16 Letter Agreement between the Company and James P. McCormick
dated May 30, 1997
10.17 Severance and Change of Control Agreement between the
Company and Steven D. Schramm dated October 2, 1998
10.18 Letter Agreement between the Company and Steven D. Schramm
dated October 2, 1998
11.1 Computation of Net Loss Per Share
23.1 Consent of Independent Auditors
24.1 Power of Attorney (See signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) Certain portions of this document are subject to an Application for
Confidential Treatment filed with the Commission on May 1, 1998.
(2) Certain portions of this document are subject to an Application for
Confidential Treatment filed with the Commission on March 31, 1999.
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R.
Sections 200.80(b)(4), 200.83 and 230.406.
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 28, 1998
BY AND BETWEEN
GENERAL MAGIC, INC.,
A DELAWARE CORPORATION
AND
DATAROVER MOBILE SYSTEMS, INC.,
A CALIFORNIA CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. TERMS OF PURCHASE AND SALE......................................................1
1.1 Sale of Common Stock, Series A Preferred Stock and Warrant...................1
1.2 The Closing..................................................................1
1.3 Allocation of Asset Consideration............................................2
1.4 GM Expenses..................................................................2
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................3
2.1 Organization, Standing and Power.............................................3
2.2 Authority and Enforceability.................................................3
2.3 Subsidiaries.................................................................4
2.4 No Violations Resulting From Transactions....................................4
2.5 Compliance with Laws.........................................................4
2.6 Litigation...................................................................4
2.7 Capitalization...............................................................5
2.8 Offering Valid...............................................................5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF GENERAL MAGIC...............................5
3.1 Organization, Standing and Power.............................................5
3.2 Authority....................................................................6
3.3 No Violations Resulting From Transactions....................................6
3.4 Compliance with Laws.........................................................6
3.5 Litigation...................................................................6
3.6 Real/Tangible Personal Property..............................................7
3.7 DR Contracts.................................................................7
(a) List of DR Contracts..................................................7
(b) Enforceability; Defaults..............................................7
3.8 Employee Confidential Information and Inventions Agreements..................7
3.9 Preexisting Relationship with the Company....................................7
3.10 Investigation; Economic Risk.................................................8
3.11 Purchase for Own Account.....................................................8
3.12 Accredited Investor..........................................................8
3.13 Exemption from Registration; Restricted Securities...........................8
3.14 Restrictive Legends..........................................................8
ARTICLE IV. COVENANTS RELATING TO CONDUCT OF BUSINESS......................................9
ARTICLE V. ADDITIONAL AGREEMENTS; WAIVER...................................................9
5.1 Access to Information........................................................9
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.2 Additional Agreements........................................................9
(a) Obtaining Consents, Etc...............................................9
(b) Further Assurances...................................................10
(c) Non-Assignable Agreements............................................10
5.3 Publicity...................................................................10
5.4 Assignment of Rights........................................................11
5.5 Taxes.......................................................................11
5.6 DR Employees................................................................11
5.7 Arrangements Relating to OEM Supply Agreement...............................12
5.8 No Third-Party Licensing....................................................13
5.9 Non-Solicitation............................................................13
5.10 Company Repurchase Limitations..............................................13
5.11 Books, Documents and Records................................................14
ARTICLE VI. CONDITIONS PRECEDENT..........................................................14
6.1 Conditions to Obligations of All Parties....................................14
(a) Governmental Approvals...............................................14
(b) Contractual Consents.................................................14
(c) No Injunctions or Restraints.........................................14
(d) Amendment to Charter.................................................14
(e) Board Composition....................................................14
(f) Ancillary Agreements.................................................14
(g) Founder Stock Purchase Agreements....................................15
(h) Release of Lien on DR Assets and Licensed Assets.....................15
(i) Stock Option Plan....................................................15
6.2 Conditions of Obligations of the Company....................................15
(a) Representations and Warranties.......................................15
(b) Performance of Obligations...........................................15
(c) Secretary's Certificate..............................................15
(d) Good Standing Certificates...........................................16
(e) DR Assets/Liabilities Transfer Documents.............................16
(f) DR Employees Termination Letters.....................................16
6.3 Conditions of Obligations of General Magic..................................16
(a) Representations and Warranties.......................................16
(b) Performance of Obligations...........................................16
(c) Secretary's Certificate..............................................16
(d) Good Standing Certificates...........................................16
(e) Employment Offer Letters.............................................17
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VII. TERMINATION PRIOR TO CLOSING.................................................17
7.1 Termination.................................................................17
7.2 Effect on Obligations.......................................................17
ARTICLE VIII. SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND COVENANTS AND INDEMNIFICATION..........................................17
8.1 Agreement Survival of Representations, Warranties and Covenants.............17
8.2 Indemnification by General Magic............................................17
8.3 Indemnification by the Company..............................................18
8.4 Additional Indemnification by General Magic.................................18
8.5 Additional Indemnification by the Company...................................19
8.6 Limitations on Indemnification..............................................19
8.7 Procedure for Indemnification...............................................20
ARTICLE IX. MISCELLANEOUS.................................................................22
9.1 Interpretive Provisions.....................................................22
9.2 Entire Agreement............................................................22
9.3 Successors and Assigns......................................................22
9.4 Headings....................................................................22
9.5 Modification and Waiver.....................................................22
9.6 Expenses....................................................................22
9.7 Notices.....................................................................23
9.8 Governing Law...............................................................23
9.9 Third Party Beneficiaries...................................................23
9.10 Severability................................................................24
9.11 Dispute Resolution..........................................................24
9.12 Counterparts and Facsimile Signatures.......................................25
9.13 California Corporate Securities Law.........................................25
9.14 Advice of Legal Counsel.....................................................25
</TABLE>
-iii-
<PAGE> 5
SCHEDULES
Schedule 1.3 Asset Allocation
Schedule 2.4 No Violations of DataRover
Schedule 3.3 No Violations of General Magic
Schedule 3.4 Compliance with Laws by General Magic
Schedule 3.5 General Magic Litigation
Schedule 3.6 Real/Tangible Personal Property
Schedule 3.7 List of DR Contracts
Schedule 5.6 DR Employees
EXHIBITS and APPENDICES
Exhibit A License Agreement
Exhibit B Bill of Sale
Exhibit C Assignment and Assumption Agreement
Exhibit D Amended and Restated Articles of Incorporation
Exhibit E DR Employee Offer Letter
Exhibit F Registration Rights Agreement
Exhibit G Real Estate License Agreement
Exhibit H Management Services Agreement
Exhibit I Founder Stock Purchase Agreement
Exhibit J Employment Termination Letter
Exhibit K Warrant
Exhibit L Stock Option Plan
-iv-
<PAGE> 6
Appendix A DR Assets
Appendix B Assumed Liabilities
Appendix C Founder Purchase Amounts
-v-
<PAGE> 7
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as of
October 28, 1998 by and between General Magic, Inc., a Delaware corporation
("General Magic") and DataRover Mobile Systems, Inc., a California corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, General Magic desires to (i) invest $2,000,000 in cash in the
Company, (ii) assign to the Company certain assets (the "DR Assets") set forth
on Appendix A and (iii) license to the Company certain assets (the "Licensed
Assets"), pursuant to a license agreement substantially in the form attached
hereto as Exhibit A (the "License Agreement"), in exchange for (w) the
assumption of certain liabilities by the Company set forth on Appendix B (the
"Assumed Liabilities" and together with the DR Assets and the Licensed Assets,
the "DR Assets/Liabilities"), (x) 490,000 shares of Common Stock of the Company
("Common Stock"), (y) 6,600,000 shares of Series A Preferred Stock of the
Company ("Series A Preferred Stock"), and (z) a warrant to purchase up to
100,000 shares of Common Stock at a per share price of $0.50, substantially in
the form attached hereto as Exhibit K (the "Warrant").
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I.
TERMS OF PURCHASE AND SALE
1.1 Sale of Common Stock, Series A Preferred Stock and Warrant. At the
Closing (as defined below), upon the terms and subject to the conditions set
forth herein, as consideration for the assignment or license, as the case may
be, of the DR Assets and the Licensed Assets (the "Asset Consideration") and the
payment of $2,000,000 in cash (the "Cash Consideration"), less the GM Expenses,
on or before the Closing Date, General Magic shall (i) purchase from the
Company, and the Company shall sell to General Magic, 490,000 shares of Common
Stock at a purchase price of $0.10 per share, 6,600,000 shares of Series A
Preferred Stock at a purchase price of $0.50 per share and a warrant to purchase
up to 100,000 shares of Common Stock at a per share price of $0.50 and (ii) the
Company shall assume the Assumed Liabilities.
1.2 The Closing.
(a) The closing of the transactions contemplated hereby (the
"Closing") shall take place at the Palo Alto offices of Gary Cary Ware &
Freidenrich LLP, commencing at 9:00 a.m. on November 4, 1998 or at such other
time and/or place and/or such other date as the parties may mutually agree (the
"Closing Date"); provided, however, that the Closing Date shall not be later
than November 6, 1998 unless otherwise mutually agreed by the parties.
1
<PAGE> 8
(b) At the Closing, upon the terms and subject to the conditions
set forth herein, the Company shall issue and deliver or cause to be issued and
delivered to General Magic a stock certificate representing 490,000 shares of
Common Stock, a stock certificate representing 6,600,000 shares of Series A
Preferred Stock and the Warrant.
(c) At the Closing, upon the terms and subject to the conditions
set forth herein, General Magic shall (i) tender cash, payable by check or wire
transfer, in an amount equal to the Cash Consideration less the GM Expenses and
(ii) execute and deliver such documentation and agreements necessary to
effectuate the assignment or license, as the case may be, of the DR Assets and
the Licensed Assets and the transfer of the Assumed Liabilities to the Company,
including but not limited to, the License Agreement, a bill of sale
substantially in the form attached hereto as Exhibit B, an assignment and
assumption agreement substantially in the form attached hereto as Exhibit C, and
any other instruments of conveyance or transfer which may be reasonably
necessary as requested by the Company, each in form and substance reasonably
acceptable to the Company, pursuant to which General Magic shall (A) sell,
convey, assign, transfer and deliver to the Company all right, title and
interest in, to and under the DR Assets, free and clear of any and all Liens (as
defined below) and (B) license to the Company the Licensed Assets pursuant to
the License Agreement, and the Company shall assume the Assumed Liabilities from
General Magic. General Magic shall simultaneously with such deliveries take all
additional steps as may be necessary to put the Company in actual possession and
operating control of all of the DR Assets and the Licensed Assets.
(d) On and after the Closing Date, the parties hereto shall
enter into, execute and deliver such other and further agreements, documents and
instruments, as any of them may reasonably request, for the purpose of
effectuating the transactions contemplated by this Agreement, in each case upon
the terms and conditions of Section 5.2(b) below.
1.3 Allocation of Asset Consideration. General Magic and the Company
agree to allocate the Asset Consideration among the DR Assets and Licensed
Assets for all purposes (including financial accounting and tax purposes) in
accordance with the allocation schedule set forth on Schedule 1.3. Neither
General Magic nor the Company shall take any position for purposes of any
federal, state, provincial or local income tax with respect to the allocation of
the Asset Consideration that is inconsistent with such allocation.
1.4 GM Expenses. For the purposes of this Agreement, the term "GM
Expenses" shall be the (A) sum of the following: (x) $10,500 (which represents
the rental payment for the month of October 1998 that would have been owing to
General Magic by the Company under the Real Estate License Agreement,
substantially in the form attached hereto as Exhibit G, had such agreement been
in effect on October 1, 1998); (y) $20,000 (that represents the payment for the
month of October 1998 which would have been owing to General Magic by the
Company under the Management Services Agreement, substantially in the form
attached hereto as Exhibit H, had such agreement been in effect on October 1,
1998) and (z) the aggregate dollar amount of payroll and other operating
expenses incurred by General Magic directly attributable to the operation of the
DR Business (as defined below) from October 1, 1998 until the Closing Date, to
be estimated at the Closing Date (the "GM Operating Expenses"); provided, that
the GM Operating Expenses
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shall not include any other allocations of expenses by General Magic to the DR
Business that are not directly attributable to the DR Business minus (B) the
revenue from sales and services related to the DR Business accrued or received
on and after October 1, 1998 until the Closing Date, to be estimated at the
Closing Date. The parties agree that General Magic shall pay, or the Company
shall reimburse, whichever the case may be, any difference in the amounts
estimated at the Closing Date and the actual amounts as determined by General
Magic within a reasonable period after the Closing Date.
ARTICLE II.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to General Magic as follows:
2.1 Organization, Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of California and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as contemplated to be
conducted (the "Business"). The Company is duly qualified and in good standing
to conduct business in each jurisdiction in which the business it is conducting,
or the operation, ownership or leasing of its properties, makes such
qualification necessary, except where the failure to be so qualified would not
result in a Business Material Adverse Effect (as defined below). For purposes of
this Agreement, the term "Business Material Adverse Effect" means any material
adverse change in, or material adverse effect on, the business, assets,
prospects, results of operations, value or condition (financial or otherwise) of
the Company and/or the Business (individually or taken as a whole), or any event
or circumstance which would likely prevent, hinder or materially delay the
consummation of any of the transactions contemplated by this Agreement or any
other agreements executed in connection herewith and substantially in the forms
attached hereto as exhibits (collectively, the "Ancillary Agreements").
2.2 Authority and Enforceability. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements and to perform fully its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and, assuming this Agreement and the
Ancillary Agreements constitute valid and binding agreements of the other
parties hereto and thereto, this Agreement and the Ancillary Agreements
constitute the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
regardless of whether enforceability is considered in a proceeding at law or in
equity.
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2.3 Subsidiaries. The Company does not (i) own beneficially or of record
any shares of capital stock or any other security of any other entity or (ii)
have any other investment in any other entity.
2.4 No Violations Resulting From Transactions. Except as set forth in
Schedule 2.4, the execution and delivery by the Company of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby by the Company will not (a) conflict with or violate any
provision of the Amended and Restated Articles of Incorporation or by-laws of
the Company, (b) require any consent, waiver, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity, (c) result in or
constitute a Default (as defined below), or require any consent or approval of
or notice to any person or entity, or result in the creation of a Lien (as
defined below) other than as contemplated herein, under or pursuant to any
material agreement which in any way relates to the Business of the Company or by
which any of its assets are bound, or (d) violate any court order or injunction
or Law (as defined below) applicable to the Company or by which any of its
assets are bound. For purposes of this Agreement, (w) the term "Lien" shall mean
any mortgage, lien, pledge, security interest, conditional sale agreement,
charge, claim, easement, right, condition, restriction or other encumbrance or
defect of title of any nature whatsoever (including without limitation, any
assessment, charge or other type of notice which is levied or given by any
Governmental Entity and for which a lien could be filed), (x) the term
"Governmental Entity" shall mean any governmental authority, court,
administrative agency or commission or other governmental or regulatory body or
entity, whether federal, state, local or foreign, (y) the term "Law" shall mean
any statute, law, ordinance, rule, regulation or administrative ruling or any
governmental permit, franchise or license or any injunction, judgment, order or
consent or similar decree or agreement, whether federal, state, local or
foreign, and (z) the term "Default" means, with respect to any contract,
agreement or other arrangement (a "Contract") (A) any breach or violation of, or
default under, such Contract, (B) any event which could (either with or without
notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration or any obligation to repay with respect to such
Contract or (C) any event which could result in either an increase in the
obligations or liabilities of, or a loss of any benefit to which, the party in
question or any of its affiliates may be entitled or subject to under such
Contract.
2.5 Compliance with Laws. Except for those matters which in the
aggregate would not result in a Business Material Adverse Effect, (x) the
Business is, and at all times has been, in compliance with all Laws applicable
to the Business or the use of its properties (including any leased properties)
and assets and (y) the Company has not received, and does not know of the
issuance or threatened issuance by any Governmental Entity, of any notices of
violation or alleged violation of any Law applicable to the Business.
2.6 Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Company, threatened that relates in any way to the
Business or that questions the validity of this Agreement or the Ancillary
Agreements or any action taken or to be taken by the Company in connection with
the consummation of the transactions contemplated hereby or thereby. There is no
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<PAGE> 11
outstanding or, to the knowledge of the Company, threatened judgment,
injunction, order or consent or similar decree or agreement of any Governmental
Entity against, affecting or naming the Company or affecting any of its
properties or assets.
2.7 Capitalization.
(a) Prior to the consummation of the transactions contemplated
herein, the authorized capital stock of the Company consisted solely of
20,000,000 shares of Common Stock, none of which is issued and outstanding, and
of 10,000,000 shares of Preferred Stock, none of which is issued and
outstanding. There are no outstanding securities convertible into, exchangeable
for, or carrying the right to acquire, equity securities of the Company, or
subscriptions, warrants, options, rights, calls, agreements, demands or other
arrangements or commitments of any character obligating the Company to issue,
offer or dispose of any of its equity securities or any ownership interest
therein or otherwise relating to the capital stock of the Company.
(b) Upon the filing of the Amended and Restated Articles of
Incorporation of the Company substantially in the form attached hereto as
Exhibit D in accordance with the terms of this Agreement, the shares of Common
Stock and Series A Preferred Stock, and the shares of Common Stock underlying
the Warrant, when issued and sold to General Magic in accordance with the terms
of this Agreement, and in the case of the shares of Common Stock underlying the
Warrant, in accordance with the terms of the Warrant, and against payment
therefor as described herein and therein, will be duly and validly issued, fully
paid and non-assessable.
2.8 Offering Valid. Assuming the accuracy of certain representations and
warranties of General Magic contained in Article III hereof, the offer, sale and
issuance of the Common Stock, the Series A Preferred Stock and the Warrant to
General Magic in accordance with the terms of this Agreement will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Act"), and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell, or has
offered to sell or will offer to sell, any shares of Common Stock or Series A
Preferred Stock to any person or persons so as to bring the sale of the Common
Stock or Series A Preferred Stock by the Company within the requirements for
registration under the Act.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF GENERAL MAGIC
General Magic hereby represents and warrants to the Company as follows:
3.1 Organization, Standing and Power. General Magic is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
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3.2 Authority. General Magic has all requisite corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to perform fully its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of General Magic. This Agreement and
the Ancillary Agreements have been duly executed and delivered by General Magic
and, assuming this Agreement and the Ancillary Agreements constitute valid and
binding agreements of the other parties hereto, this Agreement and the Ancillary
Agreements constitute the legal, valid and binding obligations of General Magic,
enforceable against General Magic in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
3.3 No Violations Resulting From Transactions. Except as set forth in
Schedule 3.3 and except for those matters which in the aggregate would not
result in a DR Material Adverse Effect (as defined below), the execution and
delivery by General Magic of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby by General
Magic will not (a) conflict with or violate any provision of the Certificate of
Incorporation or by-laws of General Magic, (b) require any consent, waiver,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, (c) result in or constitute a Default, or require any
consent or approval of or notice to any person or entity, or result in the
creation of a Lien, under or pursuant to any DR Contract (as defined below) or
(d) violate any court order or injunction or Law applicable to General Magic or
by which any of its assets are bound.
3.4 Compliance with Laws. Except as set forth in Schedule 3.4 and except
for those matters which in the aggregate would not result in a DR Material
Adverse Effect (as defined below), (x) General Magic is, and at all times has
been, in compliance with all Laws applicable to the DR Assets/Liabilities, and
(y) General Magic has not received, and does not know of the issuance or
threatened issuance by any Governmental Entity, of any notices of violation or
alleged violation of any Law applicable to the Assets/Liabilities. For the
purposes of this Agreement, (y) the term "DR Business" means the business and
operations of General Magic's DataRover hand-held communications products
division, prior to the Closing, and (z) the term "DR Material Adverse Effect"
means any material adverse change in, or material adverse effect on, the
business, assets, prospects, results of operations, value or condition
(financial or otherwise) of the DR Business, or any event or circumstance which
would likely prevent, hinder or materially delay the consummation of any of the
transactions contemplated by this Agreement or the Ancillary Agreements.
3.5 Litigation. Except as set forth in Schedule 3.5, there is no Legal
Proceeding, pending or, to the knowledge of General Magic, threatened that
relates in any way to the DR Assets/Liabilities or that questions the validity
of this Agreement or the Ancillary Agreements or any action taken or to be taken
by General Magic in connection with the consummation of the transactions
contemplated hereby or thereby. To the knowledge of General
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<PAGE> 13
Magic, no event has occurred and no circumstance, matter or set of facts exist
which would constitute a valid basis for the assertion by any third party of any
claim or Legal Proceeding, other than those listed on Schedule 3.5, which could
reasonably be expected to result in a DR Material Adverse Effect. No event has
occurred and no circumstance, matter or set of facts exists that would
constitute a valid basis for an assertion by General Magic against a third party
of any claim or Legal Proceeding, other than those listed on Schedule 3.5, which
could reasonably be expected to result in a DR Material Adverse Effect, and
General Magic has no intention of pursuing any such Legal Proceeding against a
third party.
3.6 Real/Tangible Personal Property. General Magic does not own or have
the right to acquire, pursuant to any agreement, arrangement or understanding,
any real property used in the DR Business. General Magic is in possession of and
has good title to all the tangible personal property included on Appendix A.
Except as set forth in Schedule 3.6, all the tangible personal property is free
and clear of all Liens.
3.7 DR Contracts.
(c) List of DR Contracts. Schedule 3.7(a) sets forth a complete
and accurate list of the contracts, agreements and other arrangements included
in the DR Assets to be assigned by General Magic to the Company (collectively,
the "DR Contracts").
(d) Enforceability; Defaults. Except as set forth in Schedule
3.7(b) and except for those matters which in the aggregate would not result in a
DR Material Adverse Effect: (i) each of the DR Contracts listed on Schedule
3.7(a) is a valid and enforceable obligation of General Magic in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity); (ii)
General Magic is not aware of the assertion (written or oral) by any third party
of any claim of Default or breach under any of the DR Contracts listed, or
required to be listed, in Schedule 3.7(a); and (iii) none of the terms of this
Agreement nor the consummation of the transactions contemplated hereby conflicts
with or would cause a Default under any of the DR Contracts.
3.8 Employee Confidential Information and Inventions Agreements. To the
knowledge of General Magic, each former and current employee, officer and
consultant who has performed services in connection with the DR Business has
executed a confidential information and inventions agreement with respect to the
DR Business. To the knowledge of General Magic, no Default exists under any such
agreements by any party thereto.
3.9 Preexisting Relationship with the Company. General Magic has a
preexisting personal or business relationship with the Company or its officers,
directors and controlling shareholders of a nature and duration that allows
General Magic to be aware of the general business and financial circumstances of
the Company.
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<PAGE> 14
3.10 Investigation; Economic Risk. General Magic has had an opportunity
to discuss the business, affairs and current prospects of the Company and to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance by the Company of the shares of Common Stock and
Series A Preferred Stock. General Magic has been furnished with, and has had
access to, such information that it considers necessary or appropriate for
deciding whether to engage in the transactions contemplated by this Agreement.
General Magic is able to fend for itself in the transactions contemplated by
this Agreement, has such knowledge and experience in financial or business
matters necessary to evaluate the merits and risks of the transactions
contemplated by this Agreement and has the ability to bear the economic risks of
its investment pursuant to this Agreement.
3.11 Purchase for Own Account. The shares of Common Stock and Series A
Preferred Stock, including the shares of Common Stock underlying the Warrant, to
be purchased by General Magic will be acquired for its own account and not with
a view to or in connection with the sale or distribution of any part thereof.
3.12 Accredited Investor. General Magic is an "Accredited Investor" as
defined in Rule 501(a) of Regulation D promulgated under the Act.
3.13 Exemption from Registration; Restricted Securities. General Magic
understands that the sale of shares of Common Stock, Series A Preferred Stock
and Common Stock underlying the Warrant will not be registered under the Act on
the ground that such sale provided for in this Agreement is exempt from
registration under the Act, and that the reliance of the Company on such
exemption is predicated in part on General Magic's representations set forth in
this Agreement. General Magic understands that the shares of Common Stock and
Series A Preferred Stock are restricted securities within the meaning of Rule
144 under the Act, and must be held pursuant to the requirements of Rule 144
unless they are subsequently registered or an exemption from such registration
is available, or they are sold in compliance with Regulation S.
3.14 Restrictive Legends. The certificates representing the shares of
the Company's Preferred Stock will bear some or all of the following legends
giving notice of restrictions on transfer under the Act and this Agreement as
follows:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
OR TRANSFERRED IN A TRANSACTION WHICH WAS NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), IN RELIANCE UPON AN
EXEMPTION AFFORDED BY THE ACT. NO SALE OR TRANSFER OF THESE SHARES SHALL
BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS
(A) SUCH TRANSACTION SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT OR
(B) THE ISSUER SHALL HAVE FIRST RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION IS NOT REQUIRED";
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<PAGE> 15
(b) "THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF
EXCEPT IN ACCORDANCE WITH THE TERMS OF A REGISTRATION RIGHTS AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST OF THE SHARES) WHICH MAY RESTRICT THE TRANSFER
OF THE SHARES FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION STATEMENT
OF THE COMPANY FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED"; and
(e) Any other legends required by applicable state securities
laws as determined by the Company.
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until
the Closing, the Company agrees that, except as expressly contemplated or
permitted by this Agreement, it shall not conduct any business without the prior
written consent of General Magic.
ARTICLE V.
ADDITIONAL AGREEMENTS; WAIVER
5.1 Access to Information. The Company agrees that, prior to the Closing
Date, General Magic shall be entitled, through its officers, employees and
representatives (including, without limitation, its legal advisors and
accountants), to make such investigation of the properties, businesses and
operations and financial condition of the Business and examination of its books
and records as General Magic may reasonably request, and to make extracts and
copies of such books and records. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances,
and the Company shall cooperate fully therein. In order that General Magic may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Business, the Company shall use its best efforts to cause the Company's
officers, employees, consultants, agents, accountants, attorneys and other
representatives to cooperate fully with such representatives in connection with
such review and examination.
5.2 Additional Agreements.
(a) Obtaining Consents, Etc. Each of the parties hereto agrees
to use its respective best efforts to (i) take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Ancillary
Agreements, (ii) obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and parties
to contracts with General Magic and the Company as
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<PAGE> 16
are necessary for consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements and (iii) fulfill all conditions
precedent applicable to such party pursuant to this Agreement.
(b) Further Assurances. In case at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Ancillary Agreements, each party hereto shall use its
respective commercially reasonable efforts to take or cause to be taken all such
necessary action. Without limiting the generality of the foregoing, at any time
and from time to time after the Closing Date, at the request of and reasonable
expense of the Company, General Magic shall execute and deliver such other
instruments of assignment and transfer, and shall take such action as the
Company may reasonably deem necessary or appropriate, in order to more
effectively transfer, convey and assign to the Company and to confirm the
Company's right, title and interest in, all of the DR Assets to be transferred
pursuant to this Agreement, to put the Company in actual possession and
operating control thereof and to permit the Company to exercise all rights with
respect thereto (including, without limitation, rights under any Non-Assignable
Agreements (as defined below)).
(c) Non-Assignable Agreements. In the event and to the extent
that General Magic is unable to obtain any required consent to the transfer at
the Closing to the Company of any DR Contract (any such contract, the
"Non-Assignable Agreement"), then (i) General Magic shall remain a party to and
shall continue to be bound by such Non-Assignable Agreement, (ii) the Company
shall pay, perform and discharge fully all of the obligations of General Magic
thereunder from and after the Closing Date, upon the terms and subject to the
conditions of such Non-Assignable Agreement, (iii) the Company shall indemnify
General Magic for any Losses (as defined below) arising out of any failure on
the part of the Company to fulfill any of its obligations referred to under
clause (ii) above, from and after the Closing Date, (iv) General Magic shall,
without further consideration therefor, pay, assign and remit to the Company
promptly all monies, rights and other consideration received in respect of such
Non-Assignable Agreement on and after the Closing Date, and (v) General Magic
shall, without further consideration therefor, exercise and exploit its rights
and options under such Non-Assignable Agreement in the manner and only to the
extent directed by the Company and at the Company's sole expense. If and when
any consent shall be obtained following the Closing Date with respect to the
transfer by General Magic to the Company of any such Non-Assignable Agreement or
such Non-Assignable Agreement shall otherwise become assignable following the
Closing Date, General Magic shall promptly assign all of its rights and
obligations thereunder to the Company, without further consideration therefor,
and the Company shall, without further consideration therefor, assume such
rights and obligations, to the fullest extent permitted. The existence of the
provisions of this Section 5.2 shall not reduce or otherwise adversely affect
any party's ability to enforce any of its rights under this Agreement.
5.3 Publicity. On or prior to the Closing Date and for the sixty-day
period following the Closing Date, the Company and General Magic will consult
with each other and will mutually agree, which agreement shall not be
unreasonably withheld or delayed, upon any press release or public announcement
pertaining to this Agreement, the Ancillary Agreements, the Company, the
Business or the DR Assets/Liabilities, and shall not issue any such press
release or
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make any such public announcement prior to such consultation and agreement,
except that either party may issue any such release or make any such public
announcement as it determines, in its sole discretion, may be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange, in which case the parties shall use reasonable
efforts to consult in good faith with each other (but shall not be required to
obtain the agreement of either party) before issuing any such press release or
making any such public announcement. Notwithstanding the foregoing, the Company
may issue a press release or public announcement without the approval or
agreement of General Magic with the Company if General Magic fails to respond to
the Company regarding any such press release or public announcement within 72
hours of receipt of the proposed press release or public announcement from the
Company.
5.4 Assignment of Rights. Effective as of the Closing, General Magic
hereby grants to the Company the right to assert as third party beneficiary any
and all rights of General Magic to enforce against any current or former
director, officer or employee of General Magic, any remedies it may have to
protect any trade secret, trade right, process, formula, customer list,
confidential or proprietary report or information of General Magic to the extent
related to the DR Assets/Liabilities. General Magic shall cooperate in such
enforcement by the Company and, if and to the extent that the Company is unable
to enforce such rights directly against any such director, officer or employee,
to the maximum extent permitted by law, shall use commercially reasonable
efforts to enforce any and all such rights on behalf of and for the benefit of
the Company and shall assign to the Company any judgments or awards rendered on
behalf of or for the benefit of the Company in connection with the enforcement
of such rights. All reasonable costs associated with the enforcement of rights
by or on behalf of the Company under this Section 5.4 will be the sole
responsibility of the Company. The Company shall indemnify General Magic for all
claims or judgments entered against General Magic arising out of General Magic's
actions undertaken in good faith pursuant to this Section 5.4 or under the
direction of the Company.
5.5 Taxes. All sales, value added, use, transfer, registration, stamp
and similar taxes imposed in connection with the assignment of the DR Assets
(the "Taxes") will be borne by General Magic, and General Magic will indemnify,
and hold the Company harmless against, any such Taxes.
5.6 DR Employees. As of the Closing Date, the Company will offer
employment to each employee of General Magic set forth on Schedule 5.6 (the "DR
Employees") by delivering to each of the DR Employees an offer of employment
substantially in the form attached hereto as Exhibit E. All salary, bonus,
benefits, severance and other compensation, payments or other obligations
accrued or due to any DR Employees and any other employees of General Magic as
of the Closing Date, whether or not they are offered or accept employment with
the Company as of the Closing Date, shall be the exclusive responsibility of
General Magic; and General Magic shall indemnify, and hold the Company harmless
against, any and all such obligations.
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5.7 Arrangements Relating to OEM Supply Agreement. In connection with
the assignment by General Magic to the Company and the assumption by the Company
of the OEM Supply Agreement for Magic Cap Devices dated as of August 11, 1997 by
and between General Magic and OKI Electric Industry Co., Ltd. ("OKI"), as
amended (the "OKI Agreement"), the Company and General Magic agree as follows:
(a) General Magic shall, notwithstanding the assignment to and
assumption by the Company of the OKI Agreement, take no action to withdraw or
terminate the documentary letter of credit (the "Letter of Credit") established
by General Magic in favor of OKI to permit payments to OKI of amounts due and
owing OKI under the OKI Agreement.
(b) The Company agrees to reimburse General Magic upon notice by
General Magic to the Company for each remittance General Magic is required to
make to the lending institution which issued the Letter of Credit (each such
remittance is referred to as an "OKI Obligation" and all such remittances
collectively as the "OKI Obligations") in connection with each draw (a "Draw")
made by OKI on the Letter of Credit on or after October 1, 1998. The Company
shall reimburse General Magic for each OKI Obligation upon the earlier of (i)
five business days following the receipt by the Company of payment for the sale
of the products the supply of which under the OKI Agreement gave rise to a Draw
and subsequent OKI Obligation and (ii) 120 days following the specific Draw
which gave rise to an OKI Obligation.
(c) As collateral security for the prompt reimbursement when due
of the OKI Obligations by the Company to General Magic, effective as of the
Closing, the Company hereby grants to General Magic a continuing first priority
security interest in all personal property of the Company whether owned as of
the Closing (including such property acquired by the Company pursuant to this
Agreement) or created or acquired thereafter including, without limitation, (i)
all accounts, goods, fixtures, instruments, documents, chattel paper (as such
terms are defined in Article 9 of the California Uniform Commercial Code as now
in existence or hereafter amended (the "UCC")), wherever located, and all
replacements and substitutions therefor and products and proceeds thereof, and
(ii) all general intangibles (as such term is defined in the UCC), together with
all renewals, replacements and substitutions therefor, all rights accruing
therefrom and all proceeds thereof (the "Collateral"). In the event the Company
fails to make the required payments when due to General Magic required under
Section 5.7(b), General Magic shall be entitled to exercise all rights and
remedies of a secured party under the UCC or any other applicable law. Nothing
herein shall prevent the Company from granting security interests in the
Company's assets so long as such security interests are expressly subordinate to
the security interest granted in this Section 5.7(c).
(d) The Company hereby irrevocably constitutes and appoints
General Magic and any officer or agent thereof, with full power of substitution,
as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of the Company and in the name of the Company
or in its own name, from time to time in General Magic's discretion, to take any
and all appropriate action and to execute any and all documents and instruments
which may be reasonably necessary to accomplish the purposes of Section 5.7(c).
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(e) At the Closing or any time thereafter, the Company agrees to
take such further action and to execute such additional agreements, documents
and instruments as General Magic shall reasonably request to effect the security
interest granted in Section 5.7(c).
5.8 No Third-Party Licensing. During the period from the date of this
Agreement and continuing until the Closing, General Magic shall not license,
assign or otherwise transfer any right, title or interest in the Licensed
Technology (as defined in the License Agreement) to any third party, except as
would have been permitted under the License Agreement had it been effective
during such period.
5.9 Non-Solicitation.
(a) General Magic agrees that it will not without the prior
written consent of the Company (i) solicit, engage, compensate, induce away or
hire for employment or other representation, any employee, agent, representative
or independent contractor known by General Magic to be employed or retained by
the Company, (ii) solicit or induce any such person to terminate any
relationship such person may have with the Company or (iii) encourage any third
party to do any of the foregoing (provided that General Magic shall not be
prevented from hiring any person who contacts General Magic pursuant to a
general employment solicitation or advertisement placed by General Magic in a
newspaper or other medium of general circulation or on his or her own initiative
without direct or indirect solicitation from General Magic).
(b) The Company agrees that it will not without the prior written
consent of General Magic (i) solicit, engage, compensate, induce away or hire
for employment or other representation, any employee, agent, representative or
independent contractor known by the Company to be employed or retained by
General Magic, (ii) solicit or induce any such person to terminate any
relationship such person may have with General Magic, or (iii) encourage any
third party to do any of the foregoing (provided that the Company shall not be
prevented from hiring any person who contacts the Company pursuant to a general
employment solicitation or advertisement placed by the Company in a newspaper or
other medium of general circulation or on his or her own initiative without
direct or indirect solicitation from the Company).
5.10 Company Repurchase Limitations. The Company agrees that it shall
not, without the prior written consent of General Magic, repurchase any shares
of its Common Stock under any circumstances, if such repurchase would cause
General Magic to own fifty percent (50%) or more of the total shares of Common
Stock outstanding immediately following such repurchase.
5.11 Books, Documents and Records. The parties agree that at any time
after the Closing, they will take any actions necessary to the transfer of
books, documents and records related to the DR Business as both parties deem
necessary.
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ARTICLE VI.
CONDITIONS PRECEDENT
6.1 Conditions to Obligations of All Parties. The respective obligations
of each party under this Agreement shall be subject to the satisfaction prior to
the Closing Date of the following conditions:
(a) Governmental Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity, prerequisite to the transactions
contemplated hereby, shall have been filed, occurred or been obtained, as the
case may be; provided, however, that any other state or federal securities law
filings shall be made after the Closing Date within the time frame required by
applicable law.
(b) Contractual Consents. General Magic shall have given all
notices to, and obtained all assignments, consents, approvals or authorizations
of or from, any individual, corporation or other party which may be necessary to
permit the consummation of the transactions contemplated hereby (including,
without limitation, any assignments or consents required under contracts and
agreements to which General Magic is a party, or by which General Magic or any
DR Assets may be bound, or which may be required to permit the assignment and
license of the DR Assets and the Licensed Assets, respectively).
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement or the Ancillary
Agreements shall be in effect; provided that prior to invoking this condition,
each party shall use all commercially reasonable efforts to have any such order,
injunction, legal restraint or prohibition vacated.
(d) Amendment to Charter. The Amended and Restated Articles of
Incorporation substantially in the form attached hereto as Exhibit D shall have
been filed with the Secretary of State of the State of California.
(e) Board Composition. Steven D. Schramm, Jeffrey J. Ellis, Mary
E. Doyle, James P. McCormick and Michael R. Migliore shall have been duly
elected or appointed, effective as of the Closing, to the Board of Directors of
the Company.
(f) Ancillary Agreements. Each Ancillary Agreement, including,
without limitation, the Registration Rights Agreement substantially in the form
attached hereto as Exhibit F, the License Agreement substantially in the form
attached hereto as Exhibit A, the Real Estate License Agreement substantially in
the form attached hereto as Exhibit G, the Management Services Agreement
substantially in the form attached hereto as Exhibit H and a
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Shareholders' Agreement by and among General Magic and the Founders (as defined
below) in a form mutually satisfactory to the parties thereto, shall have been
duly executed and delivered by the Company and the other parties thereto.
(g) Founder Stock Purchase Agreements. Each of Steven D.
Schramm, Jeffrey J. Ellis, Michael R. Migliore and Eric D. Popejoy (the
"Founders") shall have entered into a Founder Stock Purchase Agreement,
substantially in the form attached hereto as Exhibit I, for the amount set forth
on Appendix C hereto opposite such Founder's name.
(h) Release of Lien on DR Assets and Licensed Assets. Silicon
Valley Bank shall have executed a consent and release terminating its security
interest in and releasing its lien on the DR Assets and consenting to the
license of the Licensed Assets by General Magic.
(i) Stock Option Plan. The Company shall have duly authorized
and adopted a Stock Option Plan (the "Plan") with an initial reserve of 750,000
shares of Common Stock, substantially in the form attached hereto as Exhibit L,
and entered into Stock Option Agreements with each DR Employee, substantially in
the form attached to the Plan.
6.2 Conditions of Obligations of the Company. The obligations of the
Company to effect the transactions contemplated by this Agreement are subject to
the satisfaction of the following conditions (which are for the exclusive
benefit of the Company) prior to the Closing Date, any or all of which may be
waived in whole or in part by the Company (provided that such waiver, to be
binding upon the Company, must be in a writing duly executed by the Company):
(a) Representations and Warranties. The representations and
warranties of General Magic set forth in this Agreement and qualified as to
materiality are true and correct, and those not so qualified are true and
correct in all material respects, as of the date of this Agreement and (except
to the extent such representations and warranties speak as of a specified,
earlier date) as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement, and the Company shall
have received an officer's certificate of General Magic certifying to such
effect.
(b) Performance of Obligations. General Magic shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and the Company shall have received an officer's
certificate of General Magic certifying to such effect.
(c) Secretary's Certificate. General Magic shall have delivered
to the Company at the Closing a certificate of the Secretary or Assistant
Secretary of General Magic certifying (a) attached copies of the charter and
by-laws as currently in effect, (b) attached copies of the resolutions of the
Board of Directors of General Magic authorizing this Agreement and each of the
other documents and transactions contemplated hereby and (c) the signatures and
titles of the officers of General Magic who have executed any agreement
delivered in connection herewith.
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(d) Good Standing Certificates. General Magic shall have
delivered or caused to be delivered to the Company a current good standing
certificate of General Magic in each jurisdiction in which it is qualified to
transact business.
(e) DR Assets/Liabilities Transfer Documents. General Magic shall
have delivered a duly executed Bill of Sale substantially in the form attached
hereto as Exhibit B, and an Assignment and Assumption Agreement substantially in
the form attached hereto as Exhibit C.
(f) DR Employees Termination Letters. General Magic shall have
delivered to each DR Employee a Termination of Employment Letter substantially
in the form attached hereto as Exhibit J.
6.3 Conditions of Obligations of General Magic. The obligations
of General Magic to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of General Magic) prior to the Closing Date, any or all of
which may be waived in whole or in part by General Magic (provided that such
waiver, to be binding upon General Magic, must be in a writing duly executed by
General Magic):
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement and qualified as to
materiality are true and correct, and those not so qualified are true and
correct in all material respects, as of the date of this Agreement and (except
to the extent such representations and warranties speak as of a specified,
earlier date) as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement, and General Magic
shall have received an officer's certificate of the Company certifying to such
effect.
(b) Performance of Obligations. The Company shall have performed
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and General Magic shall have received an officer's
certificate of the Company certifying to such effect.
(c) Secretary's Certificate. The Company shall have delivered to
General Magic at the Closing a certificate of the Secretary or Assistant
Secretary of the Company certifying (a) attached copies of the Amended and
Restated Articles of Incorporation and by-laws of the Company, as currently in
effect, (b) attached copies of the resolutions of the Board of Directors of the
Company authorizing the Amended and Restated Articles of Incorporation, this
Agreement and each of the other documents and transactions contemplated hereby
and (c) the signatures and titles of the officers of the Company who have
executed any agreement delivered in connection herewith.
(d) Good Standing Certificates. The Company shall have delivered
or caused to be delivered to General Magic a current good standing certificate
of the Company in each jurisdiction in which it is qualified to transact
business.
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(e) Employment Offer Letters. Each DR Employee shall have
received an offer of employment reasonably acceptable to General Magic from the
Company substantially in the form attached hereto as Exhibit E.
ARTICLE VII.
TERMINATION PRIOR TO CLOSING
7.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) By the mutual written consent of the Company and General
Magic; or
(b) By either General Magic or the Company by written notice,
without liability to the terminating party on account of such termination
(provided the terminating party is not otherwise in default or in breach of this
Agreement), if there shall have been a breach by the other party of any of its
representations, warranties, covenants or agreements contained herein, which
breach results in a failure to satisfy a condition to the terminating party's
obligation to consummate the transactions provided herein.
7.2 Effect on Obligations. Termination of this Agreement pursuant to
this Article VII shall terminate all obligations of the parties hereunder,
except for their obligations under Sections 5.3, 9.6 and 9.11; provided,
however, that termination pursuant to Section 7.1(b) shall not relieve the
defaulting or breaching party from any liability to the other party hereto.
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS AND INDEMNIFICATION
8.1 Agreement Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained in this Agreement and any
certificate, document or instrument delivered hereunder or in connection
herewith shall be deemed continuing representations, warranties and covenants
and shall survive the Closing Date for a period of one year.
8.2 Indemnification by General Magic. General Magic shall indemnify and
hold the Company and each of its affiliates, officers and directors
(collectively, the "Company Indemnitees") harmless against and with respect to,
and shall reimburse the Company Indemnitees for:
(a) Any and all Losses resulting from a breach of any
representation or warranty of or nonfulfillment of any covenant or agreement by
it contained herein or in any Ancillary Agreement (other than the License
Agreement) to which General Magic is a party and are delivered to the Company
hereunder or in connection herewith; and
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(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
For purposes of this Article VIII, "Losses" shall mean all assessments,
losses, damages, costs, expenses, liabilities, fines, sanctions, penalties,
charges and amounts paid in settlement (net of insurance proceeds actually
received), including (a) interest on cash disbursements in respect of any of the
foregoing at the rate of 7%, compounded quarterly, from the date each such cash
disbursement is made until the person incurring the same shall have been
indemnified in respect thereof and (b) reasonable costs, fees and expenses of
attorneys, accountants and other agents of such person.
8.3 Indemnification by the Company. The Company shall indemnify General
Magic and each of its affiliates, officers and directors (the "General Magic
Indemnitees") harmless against and with respect to, and shall reimburse each of
General Magic Indemnitees for:
(a) Any and all Losses resulting from a breach of any
representation or warranty of the Company or nonfulfillment of any covenant or
agreement by it contained herein or in any Ancillary Agreement delivered to
General Magic hereunder or in connection herewith; and
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
8.4 Additional Indemnification by General Magic. In addition to the
indemnification obligations of General Magic under Section 8.2, General Magic
shall indemnify and hold the Company Indemnitees harmless against and with
respect to, and shall reimburse the Company Indemnitees for:
(a) Any and all obligations and liabilities of General Magic
relating to the DR Assets prior to the Closing Date;
(b) Any and all Losses relating to the conduct or operation of
the DR Business (other than the Assumed Liabilities) prior to the Closing Date;
(c) Any and all Losses imposed upon or incurred by the Company
arising out of General Magic's infringement or misappropriation of the
intellectual property rights (including, without limitation, patents,
copyrights, trade secrets, trademarks, software, technology, know-how or
processes) of any third party relating to the DR Business, prior to the Closing
Date; and
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(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
8.5 Additional Indemnification by the Company. In addition to the
indemnification obligations of the Company under Section 8.3, the Company shall
indemnify and hold General Magic and each General Magic Indemnitee harmless
against and with respect to, and shall reimburse each of the General Magic
Indemnitees for:
(a) Any and all obligations and liabilities of the Company
relating to the DR Assets/Liabilities from and after the Closing Date;
(b) Any and all Losses relating to the conduct or operation of
the Company's Business from and after the Closing Date;
(c) Any and all Losses imposed upon or incurred by General Magic
arising out of the Company's infringement or misappropriation of the
intellectual property rights (including, without limitation, patents,
copyrights, trade secrets, trademarks, software, technology, know-how or
processes) of any third party relating to the DR Assets/Liabilities, subsequent
to the Closing Date; and
(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
8.6 Limitations on Indemnification.
(a) Notwithstanding Sections 8.2, 8.3, 8.4 and 8.5 hereof, the rights
and obligations under this Article VIII of the General Magic Indemnitees and the
Company Indemnitees are subject to the following:
(i) neither the General Magic Indemnitees nor the
Company Indemnitees shall be entitled to any recovery unless a claim for
indemnification is made in accordance with Section 8.7(a), the claim for
indemnification is made within the time period of survival set forth in Section
8.1 and the entity seeking indemnification complies with the procedures set
forth in Section 8.7;
(ii) the General Magic Indemnitees, on the one hand, and
the Company Indemnitees, on the other hand, shall not be entitled to any
indemnification pursuant to Sections 8.2, 8.3, 8.4 and 8.5 hereunder and Section
8.1 of the License Agreement, as applicable, unless and until the Losses that
the relevant party is entitled to be indemnified for pursuant to Sections 8.2,
8.3, 8.4 and 8.5 hereunder and Section 8.1 of the License Agreement, as
applicable, exceed, in the aggregate, $50,000 (the "Deductible"), in which event
the relevant party shall be
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entitled to recover any Losses exceeding such amount; provided that the maximum
aggregate amount that General Magic shall be liable for pursuant to Section 8.2
and Section 8.1 of the License Agreement is $250,000 and that the maximum
aggregate amount that the Company shall be liable for pursuant to Section 8.3 is
$250,000; and
(iii) NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL,
INDIRECT, COLLATERAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY
CLAIMS, LOSSES, DAMAGES, OR INJURIES ARISING OUT OF THE CONDUCT OF THE PARTIES
PURSUANT TO THIS AGREEMENT.
Notwithstanding anything herein to the contrary, the limitations set
forth in this Section 8.6 shall not apply to any claims arising out of fraud or
intentional misconduct in the making of representations and warranties set forth
herein.
(b) Notwithstanding Sections 8.2 and 8.4 hereto, General Magic
shall have no indemnification obligation with respect to any breach of any
representation or warranty made by General Magic in this Agreement if such
breach is based solely on a claim that, or arises solely as a result of the fact
that: (i) intellectual property of General Magic included in the DR Assets or
the Licensed Assets infringes on the intellectual property rights of any third
party, (ii) the intellectual property of General Magic included in the DR Assets
or the Licensed Assets does not constitute all of the intellectual property
necessary for the operation by the Company of its business as contemplated to be
conducted as of the Closing Date or (iii) General Magic did not have title to,
or had insufficient rights to, the intellectual property included in the DR
Assets or the Licensed Assets.
(c) Except as otherwise provided in this Agreement, the
indemnification provisions in this Article VIII shall be the exclusive remedy
for any breach of the representations and warranties set forth in this
Agreement.
8.7 Procedure for Indemnification. The procedure for indemnification
shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall
promptly give notice to the party from whom indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought by a
third party, specifying (i) in reasonable detail, the factual basis for such and
(ii) in good faith, the estimated amount of the claim. If the claim relates to
an action, suit or proceeding filed by a third party against the Claimant, such
notice shall be given by Claimant within ten business days after written notice
of such action, suit or proceeding was received by Claimant. The failure of the
Claimant to provide such written notice within the time period specified shall
not relieve the Indemnifying Party of its indemnification liability under
Sections 8.2, 8.3, 8.4 and 8.5, unless such failure materially prejudices the
rights of the Indemnifying Party in defending against the claim or action.
(b) Following receipt of notice from the Claimant of a claim, the
Indemnifying Party shall have 30 days to make such investigation of the claim as
the Indemnifying Party deems
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necessary or desirable. For the purposes of such investigation, the Claimant
agrees to make available to the Indemnifying Party and/or its authorized
representative(s) the information relied upon by the Claimant to substantiate
the claim. If the Claimant and the Indemnifying Party agree at or prior to the
expiration of said 30-day period (or any mutually agreed upon extension thereof)
to the validity and amount of such claim, the Indemnifying Party shall
immediately pay to the Claimant the full amount of the claim. If the Claimant
and the Indemnifying Party do not agree within said period (or any mutually
agreed upon extension thereof), subject to clause (0) below with respect to
third party claims, the Claimant may seek appropriate legal remedy.
(c) With respect to any claim by a third party as to which the
Claimant is entitled to indemnification hereunder, the Indemnifying Party shall
have the right, at its own expense, to participate in or assume control of the
defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
Claimant shall have the right to approve legal counsel selected by Indemnifying
Party, which approval shall not be unreasonably withheld. If the Indemnifying
Party elects to assume control of the defense of any third-party claim, the
Claimant shall have the right to participate in the defense of such claim with
legal counsel of its own selection; provided, however, that the Claimant shall
pay the fees and expenses of such counsel unless the named parties to any such
claim include both the Claimant and the Indemnifying Party and the Claimant has
been advised by counsel that representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them, it being understood that the Indemnifying Party shall not, in connection
with any one claim, be liable for the fees and expenses of more than one
separate firm of attorneys at any time for the Claimant. If the Indemnifying
Party does not elect to assume control or otherwise participate in the defense
of any third party claim, it shall be bound by the results obtained by the
Claimant with respect to such Claim; provided, however, that no settlement or
compromise of any claim which may result in any indemnification liability may be
made by the Claimant without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld or delayed. No settlement or
compromise of any claim may be made by the Indemnifying Party without the prior
written consent of the Claimant, which written consent shall not be unreasonably
withheld or delayed.
(d) If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) Upon satisfaction of any third party claim pursuant to this
Article VIII, the Indemnifying Party shall be subrogated to all rights and
remedies of the Claimant against any third party with respect to such claim;
provided that such right of subrogation shall be limited in amount to the amount
actually received by the Claimant from the Indemnifying Party with respect to
such claim; and provided, further, that any claim by an Indemnifying Party
against any such third party resulting from such right of subrogation shall be
subordinated to any claim of the Claimant against such third party for amounts
in excess of the amount actually received by the Claimant from the Indemnifying
Party pursuant to this Article VIII.
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(f) The indemnification rights provided in Sections 8.2, 8.3, 8.4
and 8.5 shall extend to the shareholders, members, directors, officers,
employees and representatives of the Claimant, although for the purpose of the
procedures set forth in this Section 8.7, any indemnification claims by such
parties shall be made by and through the Claimant.
ARTICLE IX.
MISCELLANEOUS
9.1 Interpretive Provisions. No party hereto, nor its respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any party hereto.
9.2 Entire Agreement. This Agreement, the Schedules to this Agreement,
the Registration Rights Agreement, and the documents referred to or implementing
the provisions hereof and thereof, set forth the entire agreement between the
parties with regard to the subject matter of this Agreement. No other covenants,
representations or warranties, express or implied, oral or written, have been
made by either party to the other with respect to the subject matter of this
Agreement.
9.3 Successors and Assigns. This Agreement may not be assigned by any
party hereto without the prior written consent of the other party hereto. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors, executors, beneficiaries and permitted
assigns of the parties hereto.
9.4 Headings. The headings of the articles, sections and paragraphs of
this Agreement are inserted for convenience of reference only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
9.5 Modification and Waiver. No amendment, modification, alteration or
supplement of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party that is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof.
9.6 Expenses. Each party shall bear its own costs and expenses incurred
in connection with the negotiation of this Agreement and the performance of the
transactions contemplated hereby, including, without limiting the generality of
the foregoing, the reasonable fees and expenses of its and their accountants and
legal counsel against receipt of itemized invoices.
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9.7 Notices. Any notice required or permitted hereunder will be given in
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as follows:
if to General Magic:
General Magic, Inc.
420 North Mary Avenue
Sunnyvale, California 94086
Attention: General Counsel
Telecopier No.: (408)744-4023
if to the Company, to:
DataRover Mobile Systems, Inc.
420 North Mary Avenue
Sunnyvale, California 94086
Attention: President
Telecopier No.: (408)744-4014
in each case, with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Diane Holt Frankle, Esq.
Telecopier No.: (650) 327-3699
or at such other address for a party as shall be designated in writing by like
notice.
9.8 Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made among California residents and to be performed wholly within such
jurisdiction, without regard to conflicts of laws principles.
9.9 Third Party Beneficiaries. Nothing herein expressed or implied is
intended to or shall be construed to confer upon or give any person or entity,
other than the parties hereto, and their respective successors, executors,
beneficiaries, permitted assigns and affiliates, any rights or remedies under or
by reason of this Agreement.
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9.10 Severability. If any provisions of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
9.11 Dispute Resolution.
(a) Any controversy or claim arising out of or relating to this
Agreement (or breach thereof), whether arising in tort, contract or otherwise,
shall be settled in accordance with the following procedures:
(i) With the exception of injunctive relief sought by
either party, the parties shall attempt to resolve any disputes that may arise
between them in connection with this Agreement on an amicable basis through
their good faith discussions;
(ii) If the parties are not able to resolve their
dispute through good faith discussions within sixty (60) days of one party
notifying the other of a dispute, except for injunctive relief sought by either
party, the parties agree to submit any disputes arising under this Agreement to
binding arbitration under the rules and auspices of the American Arbitration
Association ("AAA") in San Francisco, California. The arbitration site shall be
in San Francisco, California; and
(iii) A single arbitrator shall be selected according to
AAA rules within thirty (30) days of submission of the dispute to AAA. The
arbitrator shall conduct the arbitration in accordance with the California
Evidence Code. The parties shall be entitled to discovery as provided in
Sections 1283.05 and 1283.1 of the California Code of Civil Procedure.
(b) The arbitrator shall have the power to enter any award that
could be entered by a Judge of the Superior Court of the State of California
sitting without a jury, and only such power, except that the arbitrator shall
not have the power to award punitive damages, treble damages, or any other
damages which are not compensatory, even if permitted under the laws of the
State of California or any other applicable law.
(c) The arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration. The
award from any binding arbitration shall be binding upon the parties and their
successors and permitted assigns, whether or not any party fails or refuses to
participate therein, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.
(d) The parties irrevocably consent to the non exclusive personal
jurisdiction of the federal and state courts located in California for the
purpose of any action for injunctive relief.
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(e) Each party shall bear its own costs and expenses in
connection with any proceeding commenced under this Section 9.11, including,
without limitation, legal fees and disbursements, travel expenses, witness fees
and costs, photocopying and other preparation expenses. The costs and other fees
charged by the independent mediator or AAA, whether in connection with a
mediation and/or arbitration, shall be borne fifty percent (50%) by the Company,
on the one hand, and fifty percent (50%) by General Magic, on the other.
9.12 Counterparts and Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original and all of which shall together constitute one and the
same instrument. This Agreement may be executed by facsimile signature and
facsimile signatures shall be fully binding and effective for all purposes and
shall be given the same effect as original signatures. If any party delivers a
copy of this Agreement containing a facsimile signature, such party shall
promptly forward an originally executed copy to the other party; however, the
failure by any party to so deliver an originally executed copy shall not affect
in any way the binding nature of such party's facsimile signature.
9.13 California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
9.14 Advice of Legal Counsel. Each party acknowledges and represents
that, in executing this Agreement and the Ancillary Agreements, it has had the
opportunity to seek advice as to its legal rights from legal counsel and that
the person signing on its behalf has read and understood all of the terms and
provisions of this Agreement.
25
<PAGE> 32
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by or on behalf of each of the parties hereto as of the date first above
written.
GENERAL MAGIC, INC.
a Delaware corporation
By: /s/ Steven Markman
---------------------------------
Name: Steven Markman
---------------------------------
Title: Chairman, President & CEO
---------------------------------
DATAROVER MOBILE SYSTEMS, INC.
a California corporation
By: Steven D. Schramm
---------------------------------
Name: Steven D. Schramm
---------------------------------
Title: Chief Executive Officer
<PAGE> 33
EXHIBIT A TO EXHIBIT 2.1
LICENSE AGREEMENT
<PAGE> 34
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. Sections 200.800(b)(4), 200.83
and 230.406.
EXHIBIT A
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is entered into as of
November 4, 1998 (the "Effective Date") by and between DATAROVER MOBILE SYSTEMS,
INC., a California corporation ("DataRover") and GENERAL MAGIC, INC., a
Delaware corporation ("Magic").
BACKGROUND
A. Magic has developed the Magic Cap platform, associated know-how,
development tools and hardware designs (including ASICs) for Magic Cap-based
devices and applications, and other related technology for mobile computing and
communication devices.
B. DataRover has been formed to carry on the business of developing and
marketing Magic Cap-based mobile computing devices. DataRover wishes to obtain
various exclusive and non-exclusive licenses to exploit the Magic Cap software,
hardware designs and other Magic technology, and to acquire certain Magic
trademarks.
C. Magic wishes to grant DataRover various exclusive and non-exclusive
licenses to the Magic Cap software and related hardware design technology and to
transfer certain trademarks to DataRover.
The parties therefore agree as follows:
AGREEMENT
1. DEFINITIONS. As used in this Agreement:
1.1 "ACTION" means any claim, legal action, suit, arbitration, inquiry,
proceeding or investigation by or before any mediator, arbitrator, court or
government agency or office.
1.2 "AFFILIATE" of a party means a person or entity that controls, is
controlled by, or is under common control with such party. For these purposes
"control" means ownership of more than fifty percent (50%) of the voting stock
or other voting securities or interests.
1.3 "CHANGE OF CONTROL" means any transaction or series of transactions in
which a party merges with another entity or in which more than fifty percent
(50%) of the voting stock or other voting securities or interests of a party are
acquired by another entity (alone or in combination with its Affiliates),
provided that an underwritten public offering of common stock shall not be a
Change of Control.
1.4 "CONFIDENTIAL INFORMATION" means any data or information disclosed
hereunder (whether written, oral or graphical) that relates to the disclosing
party's products, technology, research, development, customers or business
activities, and which is confidential or proprietary to or a trade secret of the
disclosing party, provided that, if disclosed in a tangible form it is labeled
as confidential or proprietary, or if provided orally, is identified as
confidential or proprietary at the time of disclosure. Confidential Information
shall not include any information,
1.
<PAGE> 35
data or material which: (a) the disclosing party expressly agrees in writing
(including, but not limited to, pursuant to this Agreement) is free of any
non-disclosure obligations; (b) at the time of disclosure to the receiving party
was known to the receiving party (as evidenced by documentation in the receiving
party's possession) free of any non-disclosure obligations; (c) is independently
developed by the receiving party (as evidenced by documentation in the receiving
party's possession); (d) is lawfully received by the receiving party, free of
any non-disclosure obligations, from a third party having the right to so
furnish such Confidential Information; or (e) is or becomes generally available
to the public without any breach of this Agreement or unauthorized disclosure of
such Confidential Information by the receiving party. Regardless of (i) whether
information contained in the Licensed Technology was known to DataRover, its
employees or consultants prior to the Effective Date, or (ii) the Licensed
Technology or any portion thereof is labeled as confidential or proprietary when
delivered to DataRover by Magic, the Licensed Technology is Confidential
Information of Magic.
1.5 "DATA COMMUNICATOR" means a hand-held mobile computing device designed
and intended primarily for data communication and that has no more than an
auxiliary capacity for audible voice communication (such that an end user would
be unlikely to acquire the device primarily to use it as a telephone). For the
purposes of this definition, a "hand-held" device is one that is designed to be
used while held in one or both hands without further human or mechanical
assistance but may also be strapped to the body, carried in a pouch or sling, or
docked in a cradle or other machine.
1.6 "DATAROVER EXCLUSIVE FIELD OF USE" means the use of the Licensed
Technology (including the SRE Technology, but on a non-exclusive basis only) for
the design, development, manufacturing, marketing, sale and support of any Data
Communicator other than one falling into the Magic Exclusive Field of Use.
1.7 "DATAROVER IMPROVEMENTS" means all inventions claimed in any patent
owned or controlled by DataRover issued in any jurisdiction worldwide (including
divisions, continuations in part, renewals and reissues) after the Effective
Date which are directed to any improvement, enhancement or derivative work of
the Licensed Technology.
1.8 "HARDWARE DESIGN PACKAGE" means the documentation (including the IC
design specifications and a high level description in Verilog or other file
format of the Betty and Dino ASICs) for the reference hardware designs of Magic
Cap-based devices developed by Magic as of the Effective Date and described in
Exhibit A (Magic Cap Technology).
1.9 "INTELLECTUAL PROPERTY RIGHTS" means all existing and future utility
models, copyrights, mask work rights, moral rights, trade secrets and patents
and other patent rights, including all applications and registrations with
respect thereto, but excluding trademarks, trade names, service marks, logos and
other corporate identifiers.
1.10 "LICENSED TECHNOLOGY" means the Magic Cap Software, the Hardware
Design Package, the Magic Cap Documentation, the Magic Development Tools, Magic
Application Software and SRE Technology. The Licensed Technology does not
include any Safari Technology or Third Party Technology.
2.
<PAGE> 36
1.11 "MAGIC APPLICATION SOFTWARE" means the web browser, games and other
applications for the Magic Cap platform developed by or for Magic in existence
as of the Effective Date and described in Exhibit A (Magic Cap Technology).
1.12 "MAGIC CAP SOFTWARE" means the versions of the Magic Cap platform
developed by or for Magic as of the Effective Date and described in Exhibit A
(Magic Cap Technology).
1.13 "MAGIC CAP DOCUMENTATION" means the documentation for the Magic Cap
Software developed by or for Magic as of the Effective Date and described in
Exhibit A (Magic Cap Technology).
1.14 "MAGIC EXCLUSIVE FIELD OF USE" means the use of the Licensed
Technology for the design, development, manufacturing, marketing, sale, or
support of any computing device designed to provide either (1) access to a
Virtual Assistant, or (2) a Voice User Interface which is distributed between
the device and another computing environment.
1.15 "MAGIC DEVELOPMENT TOOLS" means the development, test, diagnostic and
other tools and documentation for the Magic Cap platform developed by or for
Magic as of the Effective Date and described in Exhibit A (Magic Cap
Technology).
1.16 "MAGIC INTELLECTUAL PROPERTY RIGHTS" means all existing utility
models, copyrights, mask work rights, moral rights and trade secrets and all
Magic Patent Rights, including all applications and registrations with respect
thereto, but excluding trademarks, trade names, service marks, logos and other
corporate identifiers.
1.17 "MAGIC PATENT RIGHTS " means the (a) the patents listed on Exhibit H
(Magic Patents); (b) the patent applications listed on Exhibit H (Magic Patents)
and any additional patent applications filed by Magic pursuant to Section 4.4
("Maintenance of Intellectual Patent Rights"), and all patents that issue
thereon, including all reissues, divisions and continuations in part; and (c)
patents owned or controlled (and licensable by Magic without requiring Magic to
pay any fees, royalties or other consideration of any kind) by Magic which issue
during the term of this Agreement and which would be infringed by the Licensed
Technology (other than the SRE Technology) or DataRover Improvements in the
absence of a license from Magic.
1.18 "MAGIC TRADEMARKS" means the trademarks and applications and
registrations with respect thereto listed in Exhibit B (Magic Trademarks).
1.19 "MLAS" means the Master License Agreement between Magic and OKI
Electric Industry Co. Ltd. and between Magic and Sanyo Electric Co. Ltd.
1.20 "PRE-EXISTING LICENSEES" means any entity which has been granted a
license, directly or indirectly, in any component of the Licensed Technology or
under the Magic Trademarks which is still in effect as of the Effective Date,
including but not limited to the following companies and their Affiliates: Apple
Computer, Inc., Motorola, Inc., Sony Corporation, Matsushita Electric Industrial
Co. Ltd., Philips Electronics N.V., OKI Electric Industry Co. Ltd. and Sanyo
Electric Co. Ltd.
3.
<PAGE> 37
1.21 "OBJECT CODE" means the fully-compiled, machine-readable version of a
software program that can be executed by a computer without further compilation.
1.22 "SAFARI TECHNOLOGY" means the Magic-developed technology and know-how
for screen phones described in Exhibit C (Safari Technology).
1.23 "SPEECH RECOGNITION ENGINE" or "SRE" means the speech recognition and
voice user interface software, documentation and other materials developed by
Magic and described in Exhibit E (SRE Technology).
1.24 "SOURCE CODE" means the human-readable version of a software program
that requires compilation or other manipulation before it can be executed by a
computer.
1.25 "STOCK PURCHASE AGREEMENT" means that Stock Purchase Agreement of even
date herewith between Magic and DataRover.
1.26 "THIRD PARTY TECHNOLOGY" means the software, documentation and related
materials licensed by Magic from third parties as of the Effective Date under
the agreements listed in Exhibit D (Third Party Technology).
1.27 "VIRTUAL ASSISTANT" means an application all or part of which is on a
computer other than the end user's device that lets an end user carry out three
or more of the following tasks by means of a Voice User Interface: (1) access
his or her electronic appointment calendar, (2) access his or her electronic
address book, (3) access his or her electronic messages (whether or not they
contain human speech, either recorded, synthesized, or both), and (4) place
outgoing or receive incoming telephone calls.
1.28 "VOICE USER INTERFACE" means software, hardware or data, or a
combination thereof, that enables a computer user and a computer application to
interact by means of the spoken word. A Voice User Interface enables such
interaction by using a combination of at least two of the following techniques:
(1) converting human speech to text (speech recognition); (2) converting text to
human speech (speech synthesis); or (3) playing previously recorded human
speech.
2. INTENTIONALLY OMITTED
3. LICENSES TO DATAROVER
3.1 EXCLUSIVE AND NON-EXCLUSIVE LICENSES IN EXCLUSIVE FIELD OF USE.
3.1.1 EXCLUSIVE LICENSE TO MAGIC CAP SOFTWARE. Subject to the terms
and conditions of this Agreement, Magic hereby grants DataRover, under all of
the Magic Intellectual Property Rights in the Magic Cap Software, an exclusive
(including with respect to Magic, but not with respect to the Pre-Existing
Licensees), perpetual, irrevocable, non-transferable (except as set forth in
Section 12.3 ("Successors and Assigns")), royalty-free, fully-paid, worldwide
(except in Japan, until the MLAs terminate or expire) license, subject to the
restrictions set forth in Section 3.4 ("Restrictions on Use of Licensed
Technology"), to:
4.
<PAGE> 38
(a) Internally use, modify, reproduce, create derivative works
of, display, perform and compile into Object Code for distribution the Magic Cap
Software Source Code in the DataRover Exclusive Field of Use; and to make, have
made, use, offer for sale, sell and import any product in the DataRover
Exclusive Field of Use. DataRover may sublicense the foregoing rights in the
Magic Cap Software Source Code through multiple tiers of distribution.
(b) Internally use, modify, display, perform and reproduce the
Magic Cap Software Object Code and to distribute and sublicense copies of such
Object Code through multiple tiers of distribution in the DataRover Exclusive
Field of Use and to make, have made, use, offer for sale, sell and import any
product in the DataRover Exclusive Field of Use.
3.1.2 HARDWARE DESIGN PACKAGE, MAGIC CAP DOCUMENTATION, MAGIC
DEVELOPMENT TOOLS AND MAGIC APPLICATION SOFTWARE. Subject to the terms and
conditions of this Agreement, Magic hereby grants DataRover, under all of the
Magic Intellectual Property Rights in the Hardware Design Package, Magic Cap
Documentation, Magic Development Tools and Magic Application Software, an
exclusive (including with respect to Magic, but not with respect to the
Pre-Existing Licensees), perpetual, irrevocable, non-transferable (except as
set forth in Section 12.3 ("Successors and Assigns")), royalty-free, fully-
paid, worldwide (except in Japan, until the MLAs terminate or expire) license,
subject to the restrictions set forth in Section 3.4 ("Restrictions on Use of
Licensed Technology"), to (a) use, modify, create derivative works of, perform,
display, reproduce, distribute and sublicense its rights in the Hardware Design
Package, Magic Cap Documentation, Magic Development Tools (in both Source Code
and Object Code Form) and Magic Application Software (in both Source Code and
Object Code form) through multiple tiers of distribution in the DataRover
Exclusive Field of Use; and (b) make, have made, use, offer to sell, sell and
import any product in the DataRover Exclusive Field of Use.
3.1.3 NON-EXCLUSIVE LICENSE TO SRE TECHNOLOGY. Subject to the terms
and conditions of this Agreement, Magic hereby grants DataRover, under all the
Magic Intellectual Property Rights in the SRE Technology, a non-exclusive,
perpetual, irrevocable (subject to Section 11 .4 ("Termination of License to SRE
Technology for Change of Control")), non-transferable (except as set forth in
Section 12.3 ("Successors and Assigns")), royalty-free, fully-paid, worldwide
(except in Japan, until the MLAs terminate or expire) license, subject to the
restrictions set forth in Section 3.4 ("Restrictions on Use of Licensed
Technology"), to:
(a) Internally use, modify, reproduce, create derivative works
of, display, perform and compile into Object Code for distribution the SRE
Technology Source Code solely in the DataRover Exclusive Field of Use; and to
make, have made, use, offer for sale, sell and import any product solely in the
DataRover Exclusive Field of Use. DataRover may sublicense the foregoing rights
(including any copyright rights) solely for the purposes of exercising
DataRover's have made rights and not for any other use or for further
distribution.
(b) Internally use, modify, display, perform and reproduce the
SRE Technology Object Code and to distribute and sublicense copies of such
Object Code through multiple tiers of distribution solely in the DataRover
Exclusive Field of Use and to make, have made, use, offer for sale, sell and
import any product in the DataRover Exclusive Field of Use, provided that the
SRE Technology Object Code may only be distributed solely for use in a
5.
<PAGE> 39
product containing the Magic Cap Software or derivative works or modifications
thereof and not on a standalone basis.
3.2 NON-EXCLUSIVE LICENSES OUTSIDE EXCLUSIVE FIELD OF USE.
3.2.1 MAGIC CAP SOFTWARE. Subject to the terms and conditions of
this Agreement, Magic hereby grants DataRover, under all of the Magic
Intellectual Property Rights in the Magic Cap Software, a non-exclusive,
perpetual, irrevocable (except as set forth in Section 11.3 ("Effects of
Termination"), non-transferable (except as set forth in Section 12.3
("Successors and Assigns")), royalty-bearing, worldwide (except in Japan, until
the MLAs terminate or expire) license, subject to the restrictions set forth in
Section 3.4 ("Restrictions on Use of Licensed Technology"), to:
(a) Internally use, modify, reproduce, create derivative
works of, display, perform and compile into Object Code for distribution the
Magic Cap Software Source Code outside of the DataRover Exclusive Field of Use;
and to make, have made, use, offer for sale, sell and import any product outside
the DataRover Exclusive Field of Use. DataRover may sublicense the foregoing
rights through multiple tiers of distribution, provided DataRover makes any
payments required by Section 6.1 ("Unit Royalties") and Section 6.2
("Sublicensing Fees") in connection with such sublicenses.
(b) Internally use, modify, display, perform and reproduce
the Object Code for the Magic Cap Software and to distribute and sublicense
copies of the Object Code through multiple tiers of distribution outside the
DataRover Exclusive Field of Use; and to make, have made, use, offer for sale,
sell and import any product outside the DataRover Exclusive Field of Use.
3.2.2 HARDWARE DESIGN PACKAGE. Subject to the terms and conditions of
this Agreement, Magic hereby grants DataRover, under all of the Magic
Intellectual Property Rights in the Hardware Design Package, a non-exclusive,
perpetual, irrevocable (except as set forth in Section 11.3 ("Effects of
Termination")), non-transferable (except as set forth in Section 12.3
("Successors and Assigns")), royalty-bearing, worldwide (except in Japan, until
the MLAs terminate or expire) license, subject to the restrictions set forth in
Section 3.4 ("Restrictions on Use of Licensed Technology"), to (a) use, modify,
create derivative works of, perform, display, reproduce, distribute and
sublicense the Hardware Design Package through multiple tiers of distribution
outside of the DataRover Exclusive Field of Use; and (b) make, have made, use,
offer for sale, sell and import any product outside the DataRover Exclusive
Field of Use.
3.2.3 MAGIC CAP DOCUMENTATION, MAGIC DEVELOPMENT TOOLS AND MAGIC
APPLICATION SOFTWARE. Subject to the terms and conditions of this Agreement,
Magic hereby grants DataRover, under all of the Magic Intellectual Property
Rights in the Magic Cap Documentation, Magic Development Tools and Magic
Application Software, a non-exclusive, perpetual, irrevocable (except as set
forth in Section 11.3 ("Effects of Termination")), non-transferable (except as
set forth in Section 12.3 ("Successors and Assigns")), royalty-free, worldwide
(except in Japan, until the MLAs terminate or expire) license, subject to the
restrictions set forth in Section 3.4 ("Restrictions on Use of Licensed
Technology") to (a) use, modify, create derivative works of, perform, display,
reproduce, distribute and sublicense the
6.
<PAGE> 40
Magic Cap Documentation, Magic Development Tools (in both Source
Code and Object Code Form) and Magic Application Software (in both Source Code
and Object Code form) through multiple tiers of distribution outside of the
DataRover Exclusive Field of Use; and (b) to make, have made, use, offer for
sale, sell and import any product outside the DataRover Exclusive Field of Use.
3.3 THIRD PARTY TECHNOLOGY SUBLICENSES. Magic hereby grants DataRover a
non-exclusive sublicense to those rights in the Third Party Technology which are
sublicensable without requiring Magic to pay any fees, royalties or other
consideration of any kind and which are authorized under the agreements with
respect to the Third Party Technology listed in Exhibit D (Third Party
Technology) to be sublicensed, subject to all of the applicable terms and
conditions for such sublicenses in such agreements. Magic also hereby divisibly
assigns its rights and obligations with respect to the Technology Transfer,
Development and License Agreement dated February 19, 1997 between Magic and
AltoCom, and the License Agreement dated October 17, 1996 between Magic and
Refac International, to DataRover, such that both Magic and DataRover shall be
entitled to the rights and bound by the obligations of such agreements
originally applicable to Magic. Copies of all of the agreements with respect to
the Third Party Technology referenced in this Section have been provided to
DataRover and are incorporated in this Agreement by reference.
3.4 RESTRICTIONS ON USE OF LICENSED TECHNOLOGY. DataRover has only the
license rights expressly granted under this Agreement, and whatever rights are
not granted in this Agreement are reserved by Magic. DataRover may not use or
sublicense others to use the Licensed Technology or any component thereof in the
Magic Exclusive Field of Use or to design, develop, make, have made, sell, offer
for sale or market a Virtual Assistant or Voice User Interface, provided that
DataRover may use, and sublicense others to use, the Licensed Technology or any
component thereof, to design, develop, make, have made, sell, offer for sale and
market a device that uses voice for command-and-control of the device and its
resident applications, including personal information management (PIM)
applications.
3.5 DISTRIBUTOR AND END USER AGREEMENTS. Any distribution or sublicensing
of the Licensed Technology shall be pursuant to an executed distribution or
reseller agreement and/or to a binding end user license agreement ("EULA") that
disclaims all representations and warranties, and all liability, on behalf of
Magic and Magic's suppliers and requires such distributors and resellers to
comply with the provisions in Section 3.4 ("Restrictions on Use of Licensed
Technology"), Section 3.6 ("Proprietary Notices") of this Agreement, and, if
applicable, Sections 3.1.1 ("Exclusive License to Magic Cap Software") and 3.2.1
("Magic Cap Software"). The EULA may be in shrink-wrap or electronic
click-through form in jurisdictions where such contracts are enforceable,
provided that the end user is required to make an affirmative act of assent to
the terms of such shrink-wrap or click-through agreement, such as opening a
package or tapping on or otherwise selecting a button or icon to initiate a
device or install or launch the applicable software only after an opportunity to
view and signify agreement to the applicable terms and conditions.
3.6 PROPRIETARY NOTICES. DataRover will not obfuscate, remove or alter any
copyright and other proprietary notices contained on or in the Licensed
Technology as delivered to DataRover, and all such markings shall be included on
or in all copies of any portion of the
7.
<PAGE> 41
Licensed Technology made by DataRover or any DataRover reseller or OEM.
DataRover shall mark, and shall cause all of its sublicensees to mark, any
product containing any Licensed Technology with any patent numbers supplied by
Magic.
3.7 TECHNOLOGY TRANSFER . Within five (5) business days after the Effective
Date, Magic will deliver complete copies of each component of the Licensed
Technology to DataRover at Magic's Sunnyvale, California facilities. All such
Licensed Technology shall be deemed accepted upon delivery. Magic and DataRover
will cooperate to insure that only software and documentation which are part of
the Licensed Technology licensed hereunder are delivered to DataRover pursuant
to this Agreement. DataRover will give Magic reasonable access to DataRover's
facilities and equipment on three (3) business days notice and other assistance
reasonably requested by Magic to verify this, provided that Magic's right to
inspect DataRover's facilities and equipment will expire ninety (90) after the
Effective Date. In addition, DataRover will cooperate with Magic to insure that
Magic retains at least one readily-accessible copy of each component of the
Licensed Technology after the Effective Date, and will promptly provide Magic,
at Magic's expense, with copies of any component of the Licensed Technology
which Magic requests.
3.8 NO SUPPORT; MAINTENANCE. Magic has no obligation to provide any
telephone, on-line or other technical support for the Licensed Technology. Magic
will, at DataRover's request, promptly provide DataRover with the first
commercially-viable release of the SRE Technology available after the Effective
Date, but shall otherwise have no obligation to provide any updates, upgrades or
new releases of the Licensed Technology or any component thereof to DataRover.
3.9 OKI OBLIGATIONS. DataRover acknowledges and agrees that the
consideration for the licenses and other rights granted to DataRover in this
Agreement includes DataRover's agreement to pay the OKI Obligations, as defined
in the Stock Purchase Agreement.
3.10 CONTRACTORS. DataRover may use independent contractors and consultants
to exercise any of the license rights granted in this Agreement, provided such
contractors are bound by appropriate written agreements that require them to
comply with the applicable terms and conditions of this Agreement.
4. OWNERSHIP
4.1 MAGIC TECHNOLOGY. Magic shall retain sole and exclusive ownership of
the Licensed Technology and Safari Technology and all modifications,
improvements or derivative works thereof made by or for Magic before or after
the Effective Date, including all Intellectual Property Rights therein.
4.2 MODIFICATIONS, DERIVATIVE WORKS. DataRover shall own the DataRover
Improvements and all other modifications, enhancements and derivative works of
the Licensed Technology other than the SRE Technology developed by or for
DataRover after the Effective Date, including all Intellectual Property Rights
therein, subject to Magic's ownership of the underlying Licensed Technology. All
modifications, enhancements and derivative works of the SRE Technology ("SRE
Enhancements") developed by or for DataRover after the Effective
8.
<PAGE> 42
Date, including all Intellectual Property Rights therein, shall be the exclusive
property of Magic. DataRover shall disclose and deliver copies of all such SRE
Enhancements to Magic no later than when made available to any DataRover
customer. DataRover hereby assigns all right, title and interest, including all
Intellectual Property Rights, in the SRE Enhancements to Magic, subject to the
licenses to the SRE Technology granted to DataRover in this Agreement. DataRover
will execute all documents and take all actions required to effect such an
assignment and to evidence Magic's ownership of the SRE Enhancements, at Magic's
expense.
4.3 PATENT LICENSE TO MAGIC. Subject to the terms and conditions of this
Agreement, DataRover hereby grants Magic a perpetual, irrevocable, royalty-free,
fully-paid, non-exclusive, worldwide license under the DataRover Improvements
to use, make, have made, sell, offer for sale and import any product or service
outside the DataRover Exclusive Field of Use, and to sublicense the foregoing
rights through multiple tiers of distribution.
4.4 MAINTENANCE OF INTELLECTUAL PROPERTY RIGHTS. Magic will prosecute at
its expense patent applications included in the Magic Patent Rights as of the
Effective Date and agrees to file and prosecute at its expense United States
patent applications with respect to mutually-agreed inventions concerning
improvements of the Licensed Technology in existence as of the Effective Date.
Any issued patent resulting from such applications shall be a part of the Magic
Patent Rights and subject to the license granted to DataRover under Section 3
("Licenses to DataRover") of this Agreement.
4.5 RIGHTS OF DATAROVER IN MAINTENANCE OF INTELLECTUAL PROPERTY. Magic
shall provide DataRover with a copy of all patent applications, responses to
office actions (along with a copy of the office action triggering such
response), and other patent prosecution documents to be filed with any
governmental authorities, with sufficient time for DataRover to review and
provide written comment on such documents prior to the filing by Magic of the
same. Magic will endeavor in good faith to incorporate DataRover's comments in
the version of such documents that are eventually filed. In the event that
DataRover desires that a patent application be filed on an invention disclosure
described in Section 4.4 ("Maintenance of Intellectual Property Rights") for
which Magic does not wish to file a patent application, Magic agrees to assign
its ownership rights in such invention disclosure to DataRover. DataRover shall
then have the right, at DataRover's expense, to file and prosecute one or more
patent applications, continuations, continuations-in-part, and divisional
applications with respect to such invention disclosure. Magic shall provide
DataRover with reasonable cooperation, including but not limited to reasonable
access by DataRover's patent attorneys to the inventor(s) of the subject matter
of such invention disclosure, with the prosecution of any such patent
applications. Any patent issuing from such patent applications shall be a part
of the DataRover Improvements for purposes of this Agreement.
5. TRADEMARKS
5.1 ASSIGNMENT OF MAGIC TRADEMARKS. Magic hereby assigns all right, title
and interest in the Magic Trademarks to DataRover, subject to: (a) the rights of
Pre-Existing Licensees; (b) the terms and conditions of the Settlement Agreement
and Mutual General Release between Magic and Magic Software Enterprises, Ltd., a
copy of which is attached hereto as Exhibit B-1 (MSE Settlement Agreement); (c)
the terms and conditions of the Consent
9.
<PAGE> 43
Agreement dated January 28, 1993 between Magic and Magic Teleprompter, Inc., a
copy of which is attached hereto as Exhibit B-2 (Magic Teleprompter Agreement);
(d) the rights granted to Magic in Section 5.3 ("Trademark Licenses"); and (e)
the restrictions in Section 5.6 ("DataRover Covenants"). Magic will pay the
costs and fees associated with the recording of the assignment with respect to
the Magic Trademarks in the U.S. Patent and Trademark Office. DataRover shall
bear the costs and fees for all other filings or other proceedings (including
legal fees and disbursements) with respect to the prosecution, recording of
assignment and ownership and maintenance of the Magic Trademarks in all
jurisdictions worldwide. DataRover shall notify all registries and foreign
associates of the assignment of the Magic Trademarks. If Magic receives,
directly or indirectly, through its foreign associates or trademark counsel, any
notices pertaining to the Magic Trademarks, Magic will use reasonable efforts to
promptly forward such notices to DataRover, provided that Magic will have no
responsibility to meet any deadlines or take any actions with respect to the
Magic Trademarks. Magic undertakes, at the request and expense of DataRover, to
do all acts and execute all documents that may be necessary to confirm
DataRover's ownership of the Magic Trademarks after the Effective Date.
5.2 AS IS. The Magic Trademarks are being assigned on an "as is basis."
MAGIC MAKES NO WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE MAGIC TRADEMARKS.
5.3 TRADEMARK LICENSES. DataRover hereby grants to Magic a non-exclusive,
limited license to use the Magic Trademarks on or in Magic products and services
containing or based on the Licensed Technology and in printed and electronic and
online materials related to Magic's past business activities using the Licensed
Technology. Magic shall have no obligation to use the Magic Trademarks. Magic
hereby grants DataRover the limited license to use the "General Magic" trademark
on and in DataRover's products and printed marketing literature as they exist as
of the Effective Date until the inventory of such products and literature in
existence as of the Effective Date is exhausted.
5.4 RESTRICTIONS. Magic acknowledges the ownership of the Magic Trademarks
in DataRover as of the Effective Date, agrees that it will do nothing
inconsistent with such ownership, agrees to use reasonable efforts to preserve
DataRover's rights in the Magic Trademarks, and that all uses of the Magic
Trademarks by Magic after the Effective Date shall inure to the benefit of and
be on behalf of DataRover. Magic acknowledges Magic's use of the Magic
Trademarks after the Effective Date will not create any right, title or interest
in or to such trademarks. Magic agrees not to do anything contesting or
impairing the trademark rights of DataRover in the Magic Trademarks after the
Effective Date.
5.5 QUALITY STANDARDS. DataRover is familiar with and approves of the
quality of Magic products and services which contained or were based on the
Licensed Technology. The quality of products or services supplied by Magic in
connection with the Magic Trademarks after the Effective Date shall be
substantially the same as the quality of such Magic products and services. Magic
will, at DataRover's request, provide DataRover with samples of Magic's use of
the Magic Trademarks.
10.
<PAGE> 44
5.6 DATAROVER COVENANTS. DataRover agrees that (a) it will not object to
Magic's use or registration, worldwide, of any trademarks, trade names, service
marks, domain names, corporate identifiers or logos (collectively, "Marks")
containing the term "Magic"; (b) it will not adopt, use, register or attempt to
register any Mark which is the same or confusingly similar to any Magic Mark or
which contains the term "Magic"; (c) the only "Magic"-formative Marks that it
will use or register will be "Magic Cap" and "Magic Bus" and that such marks
will be used solely on goods and services as described in the respective U.S.
registrations for such Magic Trademarks.
6. ROYALTIES
6.1 UNIT ROYALTIES. DataRover will pay to Magic the royalty per unit set
forth in Exhibit F (Royalties) for each product sold by DataRover or (except as
set forth below) any of its sublicensees (whether to a distributor, reseller,
end user, or any other person) outside the DataRover Exclusive Field of Use that
contains any Magic Cap Software or is based on, derived from or incorporating
any portion of the Hardware Design Package. For these purposes, a sale will be
deemed to have occurred on the date on which DataRover or its sublicensee
receives payment of the price therefor, and the term "sale" includes any sale,
lease, or other transaction in which title passes but does not include the
provision of free demonstration units to manufacturers, developers,
distributors, resellers, or independent sales agents, or any alpha or beta
versions or any product returns. If a DataRover sublicensee pays DataRover only
license fees as consideration for use of the Licensed Technology, and does not
pay DataRover any per-unit royalties for units containing or based on the
Licensed Technology, such units which are outside the DataRover Exclusive Field
of Use shall not be royalty-bearing to Magic, provided DataRover pays Magic the
portion of such license fees required by Section 6.2 ("Sublicensing Fees"). Upon
any Change of Control, the per-unit royalties shall be increased as set forth in
Exhibit F (Royalties).
6.2 SUBLICENSING FEES. DataRover will pay to Magic [**] of any license fees
received by DataRover for any sublicense of the Magic Cap Software or Hardware
Design Package for use outside of the DataRover Exclusive Field of Use. It is
understood and agreed that "license fees" shall not include any unit royalties
(whether pre-paid or otherwise) or payments of non-recurring engineering fees or
other payments specifically allocated in good faith (as shown by documentation
satisfactory to Magic) to the development of identified enhancements or
modifications of DataRover products for DataRover customers.
6.3 REPORTS AND PAYMENTS. Within thirty (30) days after the end of each
calendar quarter, DataRover will provide Magic with a written report stating (a)
the number of units of royalty-bearing products (pursuant to Section 6.1 ("Unit
Royalties")) sold by DataRover during such quarter (less any units returned for
a full refund), (b) the total number of royalty-bearing units that DataRover's
sublicensees have reported to DataRover as having been sold during such quarter
(less any units reported as having been returned for a full refund), (c) the
aggregate amount of royalties owed to Magic as a result of sales and reported
sales, and (d) the amount of any licensee fees received by DataRover during such
quarter and the portion thereof payable to Magic pursuant to Section 6.2
("Sublicensing Fees"). Payment of the royalties and fees owed to Magic will be
due along with such reports. All payments shall be made in U.S. dollars.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11.
<PAGE> 45
6.4 TAXES. DataRover shall pay, and indemnify and hold Magic harmless
against, all sales, use, excise, value-added or similar tax, fee or duty not
based on Magic's net income, including any penalties and interest, as well as
any costs associated with the collection or withholding thereof, levied on the
delivery of the Licensed Technology to DataRover or DataRover's use thereof, or
any payments made by DataRover to Magic hereunder.
6.5 RECORDS AND AUDIT RIGHTS. DataRover will keep complete and accurate
records of its sales of royalty-bearing products and receipt of license fees for
at least three (3) years after the quarter in which such sales are made or such
fees received. Magic will have the right to have a nationally recognized
independent accounting firm (or any other mutually acceptable independent third
party) audit DataRover's relevant books and records no more than once per year
to verify that DataRover has paid the correct amount of royalties and license
fees due under this Agreement. Magic must give at least thirty (30) days advance
written notice to DataRover before any such audit is conducted. All such audits
will be conducted during normal business hours and in a manner that does not
unreasonably interfere with DataRover's business operations. Magic will pay all
costs and fees of the auditing firm unless the audit reveals underpayments by
more than five percent (5%) for the audited period, in which case DataRover will
pay such costs and fees. DataRover will immediately pay to Magic the amount of
any underpayment revealed by any such audit, plus interest on such amount at the
rate of one and one half per cent (1.5%) per month or the highest interest rate
payable under applicable law, whichever is lower. At DataRover's request, the
auditing firm will execute a confidentiality agreement reasonably acceptable to
DataRover. The auditing firm may report to Magic the aggregate amount of
royalties and license fees owed and paid, respectively, for the period being
audited, but otherwise will not disclose any information in the books and
records of DataRover to Magic.
7. REPRESENTATIONS AND WARRANTIES
7.1 RIGHT, POWER, AND AUTHORITY. Magic represents and warrants that it has
full right, power, and authority to enter into and perform its obligations under
this Agreement and to grant the licenses granted and to make the assignments
made in this Agreement.
7.2 NO INFRINGEMENT. Except for the matters disclosed in Schedule 3.5 of
the Stock Purchase Agreement to the best of Magic's knowledge neither the
Licensed Technology, nor its use, sale, disclosure, execution, reproduction,
distribution, performance, or display, to the extent permitted under this
Agreement, infringes or misappropriates any patent, copyright, trade secret, or
other Intellectual Property Rights of any third party.
7.3 DISCLAIMER OF WARRANTIES. The Licensed Technology and Third-Party
Technology is licensed on an "as is" basis. EXCEPT AS SET FORTH IN SECTION 7.1
("RIGHT, POWER AND AUTHORITY") AND SECTION 7.2 ("NO INFRINGEMENT"), MAGIC MAKES
NO WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY WITH RESPECT TO THE
LICENSED TECHNOLOGY AND THIRD PARTY TECHNOLOGY, INCLUDING WITHOUT LIMITATION THE
IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS.
12.
<PAGE> 46
8. INFRINGEMENT INDEMNITY AND THIRD-PARTY INFRINGEMENT
8.1 MAGIC INDEMNITY. Subject to the limitation of liability in Section 9
("Limitation of Liability"), Magic will indemnify DataRover and its officers,
directors and employees for, and defend and hold them harmless against, any
loss, expense, damages or liability, including, without limitation, any
reasonable attorneys' and expert witness fees, arising from any breach of
Magic's representations and warranties in Section 7 ("Representations and
Warranties") or from any Action alleging that the Licensed Technology infringes
or misappropriates any third party's United States patents, United States
copyrights or trade secrets recognized as such under the Uniform Trade Secrets
Act, provided that (a) Magic is given prompt written notice of the existence of
such Action and is given the right to control the investigation, preparation,
defense and settlement of such Action; and (b) DataRover provides reasonable
cooperation at Magic's request and expense. DataRover may participate in the
defense of such claims with its own counsel at its own expense.
8.2 DATAROVER REMEDIES. In addition to Magic's obligations pursuant to
Section 8.1 ("Magic Indemnity"), following notice of an infringement Action, or
if Magic reasonably believes that such a claim may occur, Magic may, at Magic's
option and expense, either procure for DataRover the right to continue to use
the affected component of the Licensed Technology as furnished, or to replace or
modify the affected component of the Licensed Technology to make it
non-infringing, provided that such replacement or modification has equivalent
functionality and performance.
8.3 EXCEPTIONS TO MAGIC'S OBLIGATIONS. Magic shall have no liability to
DataRover for Actions (a) based on the combination of the Licensed Technology
with software, firmware or hardware not provided by Magic when such combination
is the object of the Action; or (b) based on any misuse of Licensed Technology
or any modification thereof by anyone other than Magic.
8.4 MAGIC DISCLAIMER. THE FOREGOING SHALL BE DATAROVER'S SOLE AND EXCLUSIVE
REMEDIES FOR ANY CLAIM OF INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS.
8.5 INFRINGEMENT BY THIRD PARTIES. DataRover shall use reasonable efforts
to promptly notify Magic in writing in the event that DataRover learns of the
existence of actual or potential infringement by a third party of any
Intellectual Property Rights in the Licensed Technology. Within thirty (30) days
of the receipt of such written notice from DataRover (or such longer time as the
parties may agree), Magic will provide a written response to DataRover stating
whether or not Magic will promptly prosecute, at Magic's expense, an Action
against such third party. If Magic agrees to prosecute the Action against the
third party, DataRover shall nevertheless have the right, at DataRover's
expense, to participate in such Action with DataRover's choice of counsel.
Regardless of whether DataRover chooses to participate in such Action, no such
Action shall be settled or compromised, nor shall any injunction be consented
to, without DataRover's consent, which shall not be unreasonably withheld.
Should Magic prosecute the Action, any recoveries realized from the successful
prosecution of such an Action shall first go to pay Magic's damages, costs and
expenses, then to DataRover's damages, costs and expenses, if any, and the
remainder shall go to Magic. In the event that Magic does not agree to promptly
prosecute an Action against the third party, DataRover shall have the right to
13.
<PAGE> 47
bring such an Action in DataRover's own name. Should DataRover prosecute such an
action, Magic shall nevertheless have the right, at Magic's expense, to
participate in such Action with Magic's choice of counsel. Regardless of whether
Magic chooses to participate in such Action, no such Action shall be settled or
compromised, nor shall any injunction be consented to, without Magic's consent,
which shall not be unreasonably withheld. Should DataRover prosecute the Action,
any recoveries realized from the successful prosecution of such an Action shall
first go to pay DataRover's damages, costs and expenses, then to Magic's
damages, costs and expenses, if any, and the remainder shall go to DataRover.
9. LIMITATIONS OF LIABILITY
9.1 CONSEQUENTIAL DAMAGES. Except for a breach of Sections 3.1 ("Exclusive
and Non-Exclusive Licenses in Exclusive Field of Use"), 3.4 ("Restrictions on
Use of Licensed Technology") and 10 ("Confidentiality"), neither party will be
liable for any lost profits or other incidental, consequential, indirect, or
special damages arising from or relating to this agreement, even if advised of
the possibility of such damages and even if any exclusive remedy stated in this
Agreement is deemed to fail of its essential purpose.
9.2 CAP ON MAGIC'S LIABILITY. IN NO EVENT SHALL MAGIC'S AGGREGATE LIABILITY
UNDER OR IN CONNECTION WITH SECTION 8.1 OF THIS AGREEMENT AND FOR ANY
INDEMNIFICATION OBLIGATION UNDER OR IN CONNECTION WITH SECTION 8.2 OF THE STOCK
PURCHASE AGREEMENT EXCEED [**]. THIS LIMITATION IS CUMULATIVE, WITH ALL PAYMENTS
FOR ALL CLAIMS UNDER OR IN CONNECTION WITH SECTION 8.1 OF THIS AGREEMENT AND
FOR INDEMNIFICATION OBLIGATIONS UNDER OR IN CONNECTION WITH SECTION 8.2 OF THE
STOCK PURCHASE AGREEMENT BEING AGGREGATED TO DETERMINE SATISFACTION OF THE
LIMIT.
9.3 LIMITATIONS ARE REASONABLE AND ESSENTIAL. Each party acknowledges and
agrees that the limitations of the other party's liability set forth in this
Section 9 are reasonable and a fundamental part of this Agreement and that the
other party would not enter into this Agreement without these limitations.
10. CONFIDENTIALITY
10.1 NON-DISCLOSURE AND NON-USE. Each party receiving Confidential
Information shall treat such information as strictly confidential, and shall use
the same care to prevent disclosure of such information as such party uses with
respect to its own confidential and proprietary information, which shall not be
less than the care a reasonable person would use under similar circumstances. In
any event, each party receiving Confidential Information shall (a) disclose such
Confidential Information to (i) only those authorized employees and contractors
of such party whose duties justify their need to know such information and who
have been clearly informed of their obligation to maintain the confidential
and/or proprietary status of such Confidential Information; or (ii) for
Confidential Information other than the Licensed Technology, only those third
parties required for the performance of the receiving party's obligations under
this Agreement pursuant to a written confidentiality agreement as least as
14.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE> 48
extensive as the confidentiality provisions of this Agreement; and (b) use such
Confidential Information only for the purposes set forth in this Agreement.
10.2 CERTAIN EXCEPTIONS. The obligations set forth in this Section 10
("Confidentiality") shall not apply to any Confidential Information which must
be disclosed pursuant to applicable federal, state or local law, regulation,
court order, or other legal process.
10.3 TERMS OF THIS AGREEMENT . Except as required by law, neither party
shall disclose the terms of this Agreement to any third party without the
express prior written consent of the other party; provided however that either
party may disclose the terms of this Agreement to its attorneys and accountants
or as otherwise may be required by law or to a potential investor or purchaser
under a duty of confidentiality in connection with a contemplated financing of
such party or sale of such party's business, provided, that such investor or
purchaser is not a competitor of the other party.
11. TERM AND TERMINATION
11.1 TERM. This Agreement will commence on the Effective Date and will
remain in effect indefinitely unless terminated pursuant to Section 11.2
("Termination").
11.2 TERMINATION. This Agreement may be terminated by either party on sixty
(60) days written notice to the other party only if the other party commits a
Material Breach of this Agreement and such breach is not cured within such sixty
(60) day period. In all other cases, disputes regarding the parties' obligations
and rights under the Agreement shall be resolved in accordance with Section
12.10 ("Dispute Resolution"). For purposes of this Section, a "Material Breach"
shall mean:
(a) Material Breach By Magic: (i) Magic's breach of the scope of the
DataRover Exclusive Field of Use; or (ii) any act of infringement of the
Intellectual Property Rights in the DataRover Improvements that is not otherwise
licensed under Section 4.3 ("Patent License to Magic").
(b) Material Breach By DataRover: (i) an assignment of DataRover's
rights or obligations under the Agreement in contravention of Section 12.3
("Successors and Assigns"); (ii) a breach of DataRover's obligations under
Section 3.9 ("OKI Obligations"); or (iii) a breach of DataRover's obligations
under Section 3.4 ("Restrictions on Use of Licensed Technology").
In the event that either party gives the other party notice of a Material
Breach, the parties shall arrange for the following escalation of dispute
resolution procedures within the sixty (60) day cure period for such Material
Breaches: First, within five (5) business days after such notice is given,
arrange for their chief executive officers (or another senior executive
specifically requested to act for such chief executive officer) to seek to
resolve the dispute. Second, if the dispute cannot be resolved by the parties'
senior executives within a week after such discussions are initiated, the
parties shall engage in non-binding mediation to be conducted by a
mutually-accepted mediator with specific industry expertise.
11.3 EFFECTS OF TERMINATION.
15.
<PAGE> 49
11.3.1 TERMINATION BY MAGIC FOR BREACH. If Magic terminates the
Agreement for DataRover's uncured Material Breach, DataRover's licenses to the
Licensed Technology (other than the SRE Technology) and the Third Party
Technology in the DataRover Exclusive Field of Use granted in Section 3.1
("Exclusive and Non-Exclusive Licenses in Exclusive Field of Use") and Section
3.3 ("Third Party Technology Sublicenses") shall remain in effect and all of
DataRover's other licenses, including the license to the SRE Technology granted
in Section 3.1.3 ("Non-Exclusive License to SRE Technology"), shall immediately
terminate. DataRover shall cease use, distribution and sublicensing of the
Licensed Technology outside of the DataRover Exclusive Field of Use, provided
that DataRover and DataRover's resellers may ship any products in their
inventories as of the termination date which contain the Licensed Technology or
any portion thereof and which are intended for use outside the DataRover
Exclusive Field of Use. DataRover shall return or destroy all Magic Confidential
Information and certify that it has done so, provided that (a) DataRover may
retain any copies of the Source Code for the Magic Cap Software and Magic
Application Software and of the other components of the Licensed Technology
(other than the SRE Technology) for use as licensed in Section 3.1 ("Exclusive
and Non-Exclusive Licenses in Exclusive Field of Use") in the DataRover
Exclusive Field of Use and to support DataRover's installed base of products
outside the DataRover Exclusive Field of Use; and (b) DataRover shall not be
required to purge backup and archival copies of DataRover information made in
the ordinary course of business which may contain Magic Confidential
Information. All sublicenses for distribution and use granted by DataRover
before the termination date shall remain in effect in accordance with their
terms. Magic will return or destroy all DataRover Confidential Information and
certify that it has done so, provided that Magic shall not be required to purge
backup and archival copies of Magic information made in the ordinary course of
business which may contain DataRover Confidential Information.
11.3.2 TERMINATION BY DATAROVER FOR BREACH. If DataRover terminates
the Agreement for Magic's uncured Material Breach, DataRover's licenses to the
Licensed Technology and the Third Party Technology granted in Section 3.1
("Exclusive and Non-Exclusive Licenses in Exclusive Field of Use"), Section 3.2
("Non-Exclusive Licenses Outside Exclusive Field of Use") and Section 3.3
("Third Party Technology Sublicenses") shall remain in effect. Magic's license
under Section 4.3 ("Patent License to Magic") will survive such termination, but
only with respect to patents issued as of the effective date of termination.
Magic will return or destroy all DataRover Confidential Information and certify
that it has done so, provided that Magic shall not be required to purge backup
and archival copies of Magic information made in the ordinary course of business
which may contain DataRover Confidential Information.
11.4 TERMINATION OF LICENSE TO SRE TECHNOLOGY FOR CHANGE OF CONTROL. Magic,
in Magic's sole discretion, may terminate DataRover's license to the SRE
Technology granted in Section 3.1 .3 ("Non-Exclusive License to SRE Technology")
in the event of a Change of Control of DataRover. The effects of termination
with respect to the SRE Technology shall be the same as set forth in Section
11.3.1 ("Termination by Magic for Breach") for the Licensed Technology.
11.5 SURVIVAL. Each party's rights and obligations under, and the other
provisions of, the following Sections will survive the termination of this
Agreement by either party for any reason: Sections 1 ("Definitions"); 3.4
("Restrictions on Use of Licensed Technology"), 3.5 ("Distributor and End User
Agreements"); 3.6 ("Proprietary Notices"); 4 ("Ownership"); 5
16.
<PAGE> 50
("Trademarks"); 7.3 ("Disclaimer of Warranties") 8 ("Infringement Indemnity");
9 ("Limitations of Liability"); 10 ("Confidentiality"); 11.3 ("Effects of
Termination"); and 12 ("General").
12. GENERAL
12.1 INTERPRETATIVE PROVISIONS. Neither party hereto, nor its respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any party hereto.
12.2 ENTIRE AGREEMENT. This Agreement, the Stock Purchase Agreement and the
Ancillary Agreements (as defined in the Stock Purchase Agreement) set forth the
entire agreement between the parties with regard to the subject matter of this
Agreement. No other covenants, representations or warranties, express or
implied, oral or written, have been made by either party to the other with
respect to the subject matter of this Agreement.
12.3 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any rights or
obligations of DataRover under this Agreement may be assigned (by operation of
law or otherwise) in whole or in part without the prior written consent of
Magic, other than pursuant to a Change of Control or sale of all or
substantially all of DataRover's assets, provided (a) any such assignee in the
context of a Change of Control or asset sale shall agree in writing to be bound
by all of the terms and conditions of this Agreement; (b) the SRE Technology may
not be so assigned without Magic's prior written consent; and (c) Magic may
terminate DataRover's license to the SRE Technology upon a Change of Control
pursuant to Section 11.4 ("Termination of License to SRE Technology for Change
of Control"). Magic may assign this Agreement or any rights or obligations
hereunder. Any attempted assignment in violation of this Section will be void
and will be a Material Breach of this Agreement. This Agreement will bind and
inure to the benefit of the respective successors and permitted assigns of the
parties.
12.4 HEADINGS. The headings of the articles, sections and paragraphs of
this Agreement are inserted for convenience of reference only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
12.5 MODIFICATION OR WAIVER. No amendment, modification, alteration or
supplement of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party that is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provisions hereof (whether
or not similar). No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof.
12.6 EXPENSES. Each party hereto shall pay its own costs and expenses
incurred in connection with the negotiation of this Agreement and the
performance of the transactions contemplated hereby.
12.7 NOTICES. All notices, consents, waivers, and other communications
intended to have legal effect under this Agreement shall be in writing and shall
be given (and will be deemed
17.
<PAGE> 51
to have been duly given upon receipt) by delivery in person, by electronic
facsimile transmission, cable, telegram or other standard forms of written
telecommunications, by overnight courier or by registered or certified mail,
postage prepaid. Each party may change its address for receipt of notices by
giving notice of the new address to the other party.
DataRover: DataRover Mobile Systems, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: President
Telecopier: (408) 774-4014
Magic: General Magic, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: General Counsel
Telecopier: (408) 774-4023
12.8 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made among California residents and to be performed wholly within such
jurisdiction, without regard to conflicts of laws principles. The parties agree
that the United Nations Convention on the Sale of International Goods will not
apply to this Agreement.
12.9 THIRD PARTY BENEFICIARIES. Nothing herein express or implied is
intended to or shall be construed to confer upon or give any person or entity,
other than the parties hereto, and their respective successors, executors,
beneficiaries , permitted assigns and affiliates, any rights or remedies under
or by reason of this Agreement.
12.10 DISPUTE RESOLUTION. Except as set forth in Section 12.11 ("Injunctive
Relief"), any controversy or claim arising out of or related to this Agreement
(or breach thereof), whether arising in tort, contract or otherwise, shall be
settled in accordance with the dispute resolution procedures set forth in the
Stock Purchase Agreement.
12.11 INJUNCTIVE RELIEF. It is understood and agreed by both parties that a
breach of the certain provisions of this Agreement by the other may cause
irreparable damage for which recovery of monetary damages would be inadequate,
and that either party may seek injunctive or other equitable relief to protect
their Confidential Information, Intellectual Property Rights and license rights
under the Agreement or to enforce the scope of the DataRover Exclusive Field of
Use or the Magic Exclusive Field of Use.
12.12 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original and all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile signature and facsimile
signatures shall be fully binding and effective for all purposes and shall be
given the same effect as original signatures. If any party delivers a copy of
this Agreement containing a facsimile signature, such party shall promptly
forward an originally executed copy to the other party; however, the failure by
any party to so deliver an
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<PAGE> 52
originally executed copy shall not affect in any way the binding nature of such
party's facsimile signature.
12.13 SEVERABILITY. If any provision of this Agreement is unenforceable or
invalid under any applicable law or is so held by applicable court decision,
such unenforceability or invalidity will not render this Agreement unenforceable
or invalid as a whole, and such provision will be changed and interpreted so as
to best accomplish the objectives of such unenforceable or invalid provision
within the limits of applicable law or applicable court decisions.
12.14 EXPORT CONTROL. DataRover shall comply with all U.S. and other
governmental laws and regulations concerning the export or re-export of the
Licensed Technology.
12.15 RELATIONSHIP OF PARTIES. Nothing in this Agreement will be construed
as creating any agency, partnership, or other form of joint enterprise between
the parties. Neither party will have the authority to act or create any binding
obligation on behalf of the other party.
12.16 FORCE MAJEURE. Each party will have no liability to the other party
as a result of any delay or failure in the performance of such party's
obligations under this Agreement (except payment obligations) if the delay or
failure is caused by events or circumstances beyond such party's control
including earthquakes, fires, floods, riots, wars, labor disputes, shortages of
materials or supplies, changes in laws or government requirements, and
transportation difficulties. If either party is prevented from performing any of
its obligations hereunder due to any such event or circumstance beyond its
control, it will use reasonable efforts under the circumstances to notify the
other party and to resume performance as soon as reasonably possible.
12.17 FURTHER ASSURANCES. On and after the Effective Date, the parties
hereto shall enter into, execute and deliver such other and further agreements,
documents and instruments, as any of them may reasonably request, for the
purpose of carrying out and effectuating the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties, by their duly authorized representatives,
have executed this Agreement as of the Effective Date.
GENERAL MAGIC, INC. DATAROVER MOBILE SYSTEMS, INC.
By: /s/ Steven Markman By: /s/ Steven D. Schramm
---------------------------------- --------------------------------
Name: Steven Markman Name: Steven D. Schramm
--------------------------------- -------------------------------
Title: Chairman, CEO and President Title: CEO and President
-------------------------------- ------------------------------
19.
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EXHIBIT A
MAGIC CAP TECHNOLOGY
1. MAGIC CAP SOFTWARE
a. Magic Cap native source code, executables and the source control version
history information for all internal and external versions of Magic Cap,
including but not limited to production releases 1.0, 1.5, 1.6, 3.0, and 3.1,
excluding any Telescript implementation in any such version.
b. Magic Cap for Windows (MCW), source code, executables, and the source
control version history information for all internal and external versions of
MCW, including but not limited to production release 1.0, excluding any
Telescript implementation in any such version.
2. MAGIC CAP DOCUMENTATION
a. End user manuals and other documentation intended for public release in
both electronic and hard copy form, if available.
b. Design and reference documentation in electronic and hard copy form as
available including but not limited to "About Sample Packages," "Magic Cap
Concepts," "Class and Methods References," "ICF Reference Manual," "Bowser Pro"
(class and source browser), "Telebug", "Interface Design", "Construction",
"Using Magic Cap" and "Guide to Magic Cap Developer" and their successor
versions in existence as of the Effective Date.
c. Training documentation
3. MAGIC APPLICATION SOFTWARE
a. Magic Cap application (package) source code, executables, supporting
user and developer documentation and source control version history information
for all internal and external versions of these packages (excluding Third Party
Technology).
4. MAGIC DEVELOPMENT TOOLS
a. Windows version of the Magic Cap Software Developers Kit (SDK) source
code, executables, supporting user and developer documentation and source
control version history information for all internal and external versions of
the Magic Cap Software, including but not limited to production releases 1.0,
1.5, 1.6, 3.0, and 3.1. This includes the Magic Cap Remote Access Kit (RAK) and
all supporting tools, including the RAK proxy server.
b. Macintosh version of the SDK source code, executables, supporting user
and developer documentation and source control version history information for
all internal and external versions of the Magic Cap Software.
c. Sample application code not included in SDKs.
d. Windows version of the Magic Cap ROM Developers Kit (RDK) source code,
executables, supporting user and developer documentation and source control
version history
1.
<PAGE> 54
information for all internal and external versions of the Magic Cap Software,
including but not limited to production releases 1.0, 1.5, 1.6, 3.0, and 3.1.
e. IRIX version of the RDK source code, executables, supporting user and
developer documentation and source control version history information for all
internal and external versions of the Magic Cap Software, including but not
limited to production releases 1.0, 1.5, 1.6, 3.0, and 3.1.
f. Windows version of the Magic Cap Internal Developers Kit (IDK) source
code, executables, supporting user and developer documentation and source
control version history information for all internal and external versions of
the Magic Cap Software, including but not limited to production releases 1.0,
1.5, 1.6, 3.0, and 3.1.
g. Macintosh version of the IDK source code, executables, supporting user
and developer documentation and source control version history information for
all internal and external versions of the Magic Cap Software, including but not
limited to production releases 1.0, 1.5, 1.6, 3.0, and 3.1.
h. IRIX version of the IDK source code, executables, supporting user and
developer documentation and source control version history information for all
internal and external versions of the Magic Cap Software, including but not
limited to production releases 1.0, 1.5, 1.6, 3.0, and 3.1.
i. Documentation in Web-accessible format (HTML) containing information for
supporting Magic Cap developers conferences.
5. HARDWARE DESIGN PACKAGE
a. Hardware reference design and implementation documentation in both
electronic and hard copy forms as available, including the manuals generally
referred to as "Magic Cap Device Gen-2" specifications, reference design
handbooks and hardware descriptions, for hardware reference devices that can be
targeted by versions of Magic Cap Software (internal and external) through Magic
Cap version 3.1.
b. Betty and Dino specifications.
c. Hardware diagnostics and monitor source code, executables, supporting
user and developer documentation and source code control version information for
hardware reference devices that can be targeted by versions of Magic Cap
Software (internal and external) through Magic Cap version 3.1.
6. BUG DATA
a. The information concerning Magic Cap Software bugs contained in the
"Mantis" tool, but not the tool itself.
2.
<PAGE> 55
EXHIBIT B
MAGIC TRADEMARKS
The Magic Trademarks being assigned to DataRover are:
1. "Data Rover"
2. "Magic Cap"
3. "Magic Cap" and design
4. "Magic Bus"
5. Miscellaneous design (rabbit-from-the-hat, aka Bowser)
1.
<PAGE> 56
EXHIBIT B-1
MSE SETTLEMENT AGREEMENT
<PAGE> 57
SETTLEMENT AGREEMENT
AND
MUTUAL GENERAL RELEASE
THIS AGREEMENT is made and entered into this 31 day of October, 1994 by
and between GENERAL MAGIC, INC. ("General Magic") and MAGIC SOFTWARE
ENTERPRISES, LTD. ("Magic Software").
I
FACTUAL RECITALS
1.0 This Agreement is entered into with reference to the following facts:
1.1 On or about December 7, 1993, Magic Software filed a "Notice of
Opposition" with the Trademark Trial and Appeal Board, Opposition No. 93,288
(the "93,288 Opposition"), opposing General Magic's application for
registration of the mark "MAGIC CAP" (the "MARK"), Application No. 74/361,562,
for use on "computer programs; namely, operating system programs, user
interface programs and applications software for controlling the operations of
personal communicators, digital assistants and computers; computer programs for
conducting personal and business communications and for developing applications
for personal and business communications" in International Class 9 (the "MAGIC
CAP Application").
1.2 On or about ______, 1994, Magic Software filed a "Notice of
Opposition" with the Trademark Trial and Appeal Board, Opposition No. 94,197
(the "94,197 Opposition"), opposing General Magic's application for
registration of the "MAGIC CAP" mark and design (the "DESIGN MARK"),
Application No. 74/406,695, for use on
1
<PAGE> 58
"computer programs; namely, operating system programs, user interface programs
and applications software for controlling the operations of personal
communicators, digital assistants and computers; computer programs for
conducting personal and business communications and for developing applications
for personal and business communications" in international Class 9 (the "MAGIC
CAP DESIGN Application").
1.3 The 93,288 Opposition and 94,197 Opposition shall be referred to
herein collectively as the "Oppositions."
1.4 It is now the desire and intention of General Magic and Magic
Software to settle and resolve all disputes, differences and claims which exist
or may exist between them as of the date of this Agreement. Pursuant to and in
accordance with this desire and in consideration of the mutual promises and
release contained herein, the parties agree as hereinafter set forth.
II
OBLIGATIONS OF GENERAL MAGIC
2.0 General Magic consents to the world-wide registration and use by
Magic Software of any trademarks or service marks that consist of the term
"MAGIC" alone, or comprise the term "MAGIC" as a component portion of the
trademark or service mark, and of any design marks consisting of or comprising
the term "MAGIC" (the "MAGIC SOFTWARE MARKS").
2.1 General Magic will take any reasonably necessary further action in
any country, state or other jurisdiction, and execute any further documents, to
avoid potential confusion between the GENERAL MAGIC MARKS (as defined below)
and the
2
<PAGE> 59
MAGIC SOFTWARE MARKS and to assist Magic Software, upon its reasonable request
and at Magic Software's expense, to obtain trademark or service mark
registration or comparable protection for the MAGIC SOFTWARE MARKS. If Magic
Software is nevertheless prevented from registering one or more of the MAGIC
SOFTWARE MARKS in any country because of the existence in that country of an
application or registration for one or more of the GENERAL MAGIC MARKS, General
Magic covenants not to sue Magic Software, its licensees or sublicensees for
infringement of the GENERAL MAGIC MARKS in that country.
2.2 General Magic covenants not to sue Magic Software, its licensees or
sublicensees for use or registration of the MAGIC SOFTWARE MARKS world-wide.
This Agreement will not affect the ability of Magic Software to license or
assign its rights in the MAGIC SOFTWARE MARKS within the scope of the consents
set forth in this Article II.
2.3 General Magic shall not use or file an application to register any
"GENERAL MAGIC" or "MAGIC" formative marks, or the mark "MAGIC," for software
development tools or programs for developing applications, other than software
development tools and programs that aid in the development of either (i)
applications, tools or system resources that execute on or in conjunction with
the Magic Cap(TM) communications platform or the Telescript(TM) communications
language (including extensions and derivatives thereof) or (ii) aid in the
creation or implementation of modifications (including derivative works),
enhancements or extensions to General Magic's communications platforms or
languages.
3
<PAGE> 60
2.4 General Magic shall not use the word "MAGIC" in a design format
which is identical or confusingly similar to the design formats for the word
"MAGIC" used by Magic Software, which design formats are attached hereto as
Exhibit "A".
2.5 Upon execution of this Agreement, General Magic shall sign and
return to Magic Software an express consent to the registration in the United
Kingdom of Magic Software's "MAGIC" trademark and design, Application Number
1,486,743; "Magic" Application Number 1,556,714; "MAGIC GATE" Application Number
1,556,711; and "Magic Frame" Application Number 1,570,775, in the form annexed
hereto as Exhibit "B".
2.6 General Magic shall add to the words "and for developing
applications for personal and business communications" the following with
respect to the identification of goods of the MAGIC CAP Application and the
MAGIC CAP DESIGN Application, prior to the issuance of Registration for said
Marks:
"that aid in the development of either (i) applications, tools or system
resources that execute on or in conjunction with the Magic Cap(TM)
communications platform or the Telescript(TM) communications language
(including extensions and derivatives thereof) or (ii) aid in the creation
or implementation of modifications (including derivative works),
enhancements or extensions to General Magic's communications platforms or
languages."
2.7 General Magic shall take no further actions in connection with its
request for an extension of time within which to file a Statement of Opposition
to Application No. 728,538 for the registration of the MAGIC mark in Canada by
Magic Software.
4
<PAGE> 61
III
OBLIGATIONS OF MAGIC SOFTWARE
3.0 Magic Software consents to the world-wide registration and use by
General Magic of any trademarks or service marks that consist of the term
"MAGIC" alone, or comprise the term "MAGIC" as a component portion of the
trademark or service mark, and of any design marks comprising the term "MAGIC,"
including but not limited to the MARK, the DESIGN MARK and the "MAGIC TV"
trademark (the "GENERAL MAGIC MARKS").
3.1 Magic Software will take any reasonably necessary further action in
any country, state or other jurisdiction, and execute any further documents,
to avoid potential confusion between the MAGIC SOFTWARE MARKS and the GENERAL
MAGIC MARKS and assist General Magic, upon its reasonable request and at General
Magic's expense, to obtain trademark or service mark registration or comparable
protection for the GENERAL MAGIC MARKS. If General Magic is nevertheless
prevented from registering one or more of the GENERAL MAGIC MARKS in any country
because of the existence in that country of an application or registration for
one or more of the MAGIC SOFTWARE MARKS, Magic Software covenants not to sue
General Magic, its licensees or sublicensees for infringement of the MAGIC
SOFTWARE MARKS in that country.
3.2 Magic Software covenants not to sue General Magic, its licensees or
sublicensees for use or registration of the GENERAL MAGIC MARKS world-wide. This
Agreement will not affect the ability of General Magic to license or assign its
rights
5
<PAGE> 62
in the GENERAL MAGIC MARKS within the scope of the consents set forth in this
Article III.
3.3 Promptly upon execution of this Agreement and upon satisfaction of 2.7
above, Magic Software shall withdraw the Oppositions.
3.4 Magic Software shall take no further actions in connection with its
request for an extension of time within which to file a Notice of Opposition to
Application No. 74-430,489 for the registration of the "MAGIC TV" mark in
International Class 9 in the U.S. by General Magic.
3.5 Promptly upon execution of this Agreement, Magic Software shall
withdraw the cancellation proceeding pending in the United Kingdom against U.K.
Registration No. B1168431, previously owned by Reuters Limited, which
registration is now owned by General Magic.
IV
MUTUAL GENERAL RELEASE
4.0 Except with respect to the obligations created by, acknowledged, or
arising out of this Agreement, General Magic and Magic Software do hereby for
themselves and their respective legal successors and assigns, release and
absolutely and forever discharge each other and their respective shareholders,
officers, directors, employees, agents, attorneys, legal successors and assigns,
of and from any and all claims, demands, damages, debts, liabilities, accounts,
reckonings, obligations, costs, expenses, liens, actions and causes of action of
every kind and nature whatsoever, whether now known or unknown, suspected or
unsuspected which either now has, owns or holds or at any time
6
<PAGE> 63
heretofore ever had, owned or held or could, shall or may hereafter have, own or
hold against the other based upon or arising out of any matter, cause, fact,
thing, act or omission whatsoever occurring or existing at any time to and
including the date hereof (all of which are hereinafter referred to as and
included within the "Released Matters").
4.1 It is the intention of the parties in executing this Agreement that
this Agrement shall be effective as a full and final accord and satisfaction and
mutual general release of and from all Released Matters.
4.2 In furtherance of the intentions set forth herein, each of the parties
acknowledges that it is familiar with Section 1542 of the Civil Code of the
State of California which provides as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Each of the parties waives and relinquishes any right or benefit which it has or
may have under Section 1542 of the Civil Code of the State of California or any
similar provision of the statutory or nonstatutory law of any other
jurisdiction, including Israel, to the full extent that it may lawfully waive
all such rights and benefits pertaining to the subject matter of this Agreement.
In connection with such waiver and relinquishment, each of the parties
acknowledges that it is aware that it or its attorneys or accountants may
hereafter discover claims or facts in addition to or different from those which
it now knows or believes to exist with respect to the subject matter of this
Agreement or the other party hereto, but that it is its intention hereby fully,
finally and forever to settle and release all of the Released Matters, disputes
and differences known or unknown, suspected or unsuspected, which now exist, may
exist or heretofore have existed between
7
<PAGE> 64
General Magic and Magic Software, except as otherwise expressly provided. In
furtherance of this intention, the releases herein given shall be and remain in
effect as full and complete mutual releases notwithstanding the discovery or
existence of any such additional or different claim or fact.
4.3 General Magic and Magic Software each warrant and represent to the
other that it is the sole and lawful owner of all right, title and interest in
and to all of the respective Released Matters and that it has not heretofore
voluntarily, by operation of law or otherwise, assigned or transferred or
purported to assign or transfer to any person whomsoever any Released Matter or
any part or portion thereof of any claim, demand or right against the other.
General Magic and Magic Software shall indemnify and hold harmless the other
from and against any claim, demand, damage, debt, liability, account, reckoning,
obligation, cost, expense, lien, action or cause of action (including payment of
attorneys' fees and costs actually incurred whether or not litigation be
commenced) based on or in connection with or arising out of any assignment or
transfer or purported or claimed assignment or transfer.
V
BENEFICIARIES
5.0 This Agreement is not for the benefit of any person who is not a
party signatory hereto or specifically named a beneficiary in this paragraph.
The provisions of this Agreement and the releases contained herein shall extend
to and inure to the benefit of and be binding upon, in addition to General Magic
and Magic Software, just as if they had executed this Agreement: the respective
legal successors and assigns of each of
8
<PAGE> 65
General Magic and Magic Software; each and every entity which now is or ever was
a division, parent or subsidiary of General Magic and Magic Software and their
respective legal successors and assigns; the respective past and present
shareholders, officers, directors, agents, employees and attorneys of General
Magic and Magic Software and of each such division, parent or subsidiary entity
and their respective legal successors and assigns; and each of the foregoing.
VI
NOTICES
6.0 All notices which any party to this Agreement may be required or
may wish to give in connection with this Agreement may be given by the party
desiring to give such notice or notices by addressing them to the other party at
the addresses set forth below (or at such other addresses as may be designated
by written notices given in the manner designated herein) and by personal
delivery or by depositing such notices, first class postage prepaid in the
United States mail or by delivering them toll prepaid to a telegraph or cable
company, and if so mailed, telegraphed or cabled, shall be deemed and presumed
to have been given on the third business day following the date of mailing or
the first business day following the date of delivery to the telegraph or cable
company. The addresses of the parties until further notice are:
Magic Software Enterprises, Ltd. General Magic, Inc.
c/o Perla Kuhn, Esq. c/o Ian N. Feinberg, Esq.
Kuhn and Muller Gray Cary Ware & Freidenrich
405 Lexington Avenue 400 Hamilton Avenue
New York, New York 10174 Palo Alto, California 94301-1825
9
<PAGE> 66
VII
ATTORNEY'S FEES
7.0 Each party shall bear its own costs and attorney's fees.
7.1 The prevailing party or parties shall be entitled to recover from
the losing party or parties their attorneys' fees and costs incurred in any
lawsuit or other action brought to enforce any right arising out of this
Agreement.
VIII
GENERAL
8.0 This Agreement and the releases contained herein shall not be
construed as an admission by a party hereto of any liability of any kind to the
other party. Each party expressly denies that it is in any way liable or
indebted to the party, except as set forth herein.
8.1 Each party acknowledges to the other party that it has been
represented by independent legal counsel of its own choice throughout all of
the negotiations which preceded the execution of this Agreement and that it has
executed this Agreement with the consent and on the advice of such independent
legal counsel. Each party further acknowledges that it and its counsel have
had adequate opportunity to make whatever investigation or inquiry they may
deem necessary or desirable in connection with the subject matter of this
Agreement prior to the execution hereof and the delivery and acceptance of the
consideration specified herein.
8.2 This Agreement and any other documents referred to herein shall in
all respects be interpreted, enforced and governed by and under the laws of the
State of
10
<PAGE> 67
California applicable to instruments, persons and transactions which have legal
contacts and relationships solely within the State of California. Counsel for
all parties have read and approved the language of this Agreement. The language
of this Agreement shall be construed as a whole according to its fair meaning,
and not strictly for or against any of the parties.
8.3 The title of the various articles of this Agreement are used for
convenience of reference only and are not intended to and shall not in any way
enlarge or diminish the rights or obligations of the parties or affect the
meaning or construction of this document.
8.4 This Agreement may be executed in counterparts which, taken
together, shall constitute one and the same agreement and shall be effective as
of the date first written above.
8.5 Whenever in this instrument the context so requires, the masculine
gender shall be deemed to refer to and include the feminine and neuter, and the
singular to refer to and include the plural.
8.6 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior negotiations
and agreements, whether written or oral. This Agreement may not be altered or
amended except by an instrument in writing executed by all of the parties
hereto.
11
<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have executed this Settlement
Agreement and Mutual General Release as of the day and year first written above.
GENERAL MAGIC, INC. MAGIC SOFTWARE ENTERPRISES,
LTD.
By: /s/ MICHAEL STERN By: /s/ D. ASSIA
-------------------------------- --------------------------------
Its: VP, Business Affairs Its: CEO & President
APPROVED AS TO FORM: APPROVED AS TO FORM:
GRAY CARY WARE & FREIDENRICH KUHN & MULLER
By: /s/ IAN N. FEINBERG By: /s/ PERLA M. KUHN
-------------------------------- --------------------------------
Its: Counsel for General Magic, Inc. Its: Counsel for Magic Software
Enterprises, Ltd.
12
<PAGE> 69
[MAGIC LOGO]
<PAGE> 70
[Text of letter to be typed on letterhead of
General Magic, Inc.]
To: The Registrar
The Patent Office
Trade Marks Registry
Cardiff Road
Newport
Gwent, NP9 1RH
England
Dear Sir:
Trade Mark Application No.: 1,486,743
for the mark : MAGIC & Device
in the name of : Magic Software Enterprises Limited
(by Change of Name from MSE Ltd.)
___________________________________________________________________________
We are registered proprietors of the following trade mark registrations and
applications.
B1168431 MAGIC Class 9
1451893 GENERAL MAGIC Class 9
1539055 MAGIC CAP & Device Class 9
1539063 MAGIC CAP Class 9
1484829 GENERAL MAGIC Class 38
We hereby give our consent to use and registration by Magic Software
Enterprises Ltd. (by Change of Name from MSE Ltd.) of the mark MAGIC & Device
in relation to the goods covered by their Application No. 1,486,743.
Yours faithfully,
Signed by ______________________
for and on behalf
General Magic, Inc.
<PAGE> 71
[Text of letter to be typed on letterhead of
General Magic, Inc.]
To: The Registrar
The Patent Office
Trade Marks Registry
Cardiff Road
Newport
Gwent, NP9 1RH
England
Dear Sir:
Trade Mark Application No.: 1,556,714
for the mark : MAGIC
in the name of : Magic Software Enterprises Limited
(by Change of Name from MSE Ltd.)
___________________________________________________________________________
We are registered proprietors of the following trade mark registrations and
applications.
B1168431 MAGIC Class 9
1451893 GENERAL MAGIC Class 9
1539055 MAGIC CAP & Device Class 9
1539063 MAGIC CAP Class 9
1484829 GENERAL MAGIC Class 38
We hereby give our consent to use and registration by Magic Software
Enterprises Ltd. (by Change of Name from MSE Ltd.) of the mark MAGIC
in relation to the goods covered by their Application No. 1,556,714.
Yours faithfully,
Signed by ______________________
for and on behalf
General Magic, Inc.
<PAGE> 72
[Text of letter to by typed on letterhead of
General Magic, Inc.]
To: The Registrar
The Patent Office
Trade Marks Registry
Cardiff Road
Newport
Gwent, NP9 1RH
England
Dear Sir:
Trade Mark Application No.: 1,570,775
for the mark : MAGIC FRAME
in the name of : Magic Software Enterprises Limited
(by Change of Name from MSE Ltd.)
- -----------------------------------------------------------------------------
We are registered proprietors of the following trade mark registrations and
applications.
<TABLE>
<S> <C> <C>
B1168431 MAGIC Class 9
1451893 GENERAL MAGIC Class 9
1539055 MAGIC CAP & Device Class 9
1539063 MAGIC CAP Class 9
1484829 GENERAL MAGIC Class 38
</TABLE>
We hereby give our consent to use and registration by Magic Software
Enterprises Ltd. (by Change of Name from MSE Ltd.) of the mark MAGIC FRAME in
relation to the goods covered by their Application No. 1,570,775.
Yours faithfully,
Signed by
----------------------------------
for and on behalf
General Magic, Inc.
<PAGE> 73
[Text of letter to by typed on letterhead of
General Magic, Inc.]
To: The Registrar
The Patent Office
Trade Marks Registry
Cardiff Road
Newport
Gwent, NP9 1RH
England
Dear Sir:
Trade Mark Application No.: 1,556,711
for the mark : MAGICGATE
in the name of : Magic Software Enterprises Limited
(by Change of Name from MSE Ltd.)
- -----------------------------------------------------------------------------
We are registered proprietors of the following trade mark registrations and
applications.
<TABLE>
<S> <C> <C>
B1168431 MAGIC Class 9
1451893 GENERAL MAGIC Class 9
1539055 MAGIC CAP & Device Class 9
1539063 MAGIC CAP Class 9
1484829 GENERAL MAGIC Class 38
</TABLE>
We hereby give our consent to use and registration by Magic Software
Enterprises Ltd. (by Change of Name from MSE Ltd.) of the mark MAGIC FRAME in
relation to the goods covered by their Application No. 1,556,711.
Yours faithfully,
Signed by
----------------------------------
for and on behalf
General Magic, Inc.
<PAGE> 74
EXHIBIT B-2
MAGIC TELEPROMPTER AGREEMENT
1.
<PAGE> 75
CONSENT AGREEMENT
This Agreement is entered into this 28th day of January, 1993 (the
"Agreement") by and between General Magic, Inc., a California corporation,
having its principal place of business at 2465 Latham Street, Suite 100,
Mountain View, CA 94040 ("General Magic") and Magic Teleprompting, Inc., a
California corporation, having its principal place of business at 1390 Waller
Street, San Francisco, CA 94117 ("Magic Teleprompting").
WHEREAS, Magic Teleprompting has adopted and is using a rabbit-in-hat logo
design with the word "Magic" (MT Logo Mark"), attached hereto as Exhibit A, for
teleprompting goods and services;
WHEREAS, General Magic has adopted and/or used, a rabbit-in-hat logo
design (the GM Logo Mark"), attached hereto as Exhibit B, for which it has
applied for registration at the U.S. Patent and Trademark Office ("PTO"),
Application Serial Nos. 74/240802 and 74/240801;
WHEREAS, the parties have considered the actual and prospective uses of
the respective marks by the other party and the channels of trade and potential
customers of the other party;
WHEREAS, the parties are not aware of any instances of confusion between
their marks, and;
WHEREAS, the parties wish to avoid any conflict and permit each to use
their respective marks in their respective markets.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth below, the parties agree as follows:
1
<PAGE> 76
1. Acknowledgement of No Confusing Similarity.
(a) Acknowledgement of General Magic. General Magic acknowledges and
agrees that Magic Teleprompting's use of the MT Logo Mark for its teleprompting
goods and services (the "MT Goods and/or Services") is not confusingly similar
to General Magic's use of the GM Logo Mark for its computer products and
telecommunications services (the "GM Goods and/or Services") based upon the
differences between the parties' goods and services, the prospective customers
and the channels of trade.
(b) Acknowledgement of Magic Teleprompting. Magic Teleprompting
acknowledges and agrees that General Magic's use of the GM Logo Mark for the GM
Goods and/or Services is not confusingly similar to Magic Teleprompting's use of
the MT Logo Mark for the MT Goods and/or Services based upon the differences
between the parties' goods and services, the prospective customers and the
channels of trade.
2. Obligations of Magic Teleprompting.
a. Identification of Services and Goods. Magic Teleprompting shall
restrict its use of the MT Logo Mark to teleprompting goods and services.
General magic consents to the use and registration of the MT Logo Mark by Magic
Teleprompting on the MT Goods and/or Services;
b. Display of Mark. Magic Teleprompting shall prominently display
the word "Magic" in close proximity with the MT Logo mark, on all advertisements
and other materials used in connection with the MT Services with which the MT
Logo mark is used, and on all labelling and packaging for the MT Goods bearing
the MT Logo Mark.
2
<PAGE> 77
3. Obligations of General Magic.
a. Identification of Services and Goods. General Magic shall not use
and/or register the GM Logo Mark for teleprompting goods and services. Magic
Teleprompting consents to the use and registration of the GM Logo Mark by
General Magic on all other goods and services.
b. Payment to Magic Teleprompting. In consideration of Magic
Teleprompting entering into this Agreement, General Magic agrees to pay to Magic
Teleprompting the sum of Twenty-Five Thousand Dollars ($25,000.00), by certified
check, upon execution of this Agreement by the parties.
4. Non-Opposition to Registration.
a. Non-Opposition by Magic Teleprompting. Magic Teleprompting will
not oppose or otherwise challenge the application or registration of the GM Logo
Mark for the GM Goods and/or Services (or such other description of the GM Goods
and/or Services not including the MT Goods and/or Services as is reasonably
requested by the appropriate authorities).
b. Non-Opposition by General Magic. General Magic will not oppose or
otherwise challenge the application or registration of the MT Logo Mark for the
MT Goods and/or Services.
c. Cancellation for Non-Use. Notwithstanding Sections 4(a) and 4(b)
above, nothing in this Agreement will prohibit Magic Teleprompting from
canceling the GM Logo Mark or General Magic from canceling the MT Logo Mark on
the grounds of non-use at any time following five years from the Effective Date
of this Agreement.
5. Efforts to Avoid Confusion Between the Marks. The parties agree to use
reasonable efforts to advertise and promote their respective products in a
manner the avoids any market confusion with the other party's products. Should
either party become aware at any time of any
3
<PAGE> 78
actual confusion between their respective marks, they will cooperate in
undertaking such steps as they shall mutually determine are necessary in order
to avoid such continued confusion.
6. Further Actions. The parties may each file copies of this Agreement
with the PTO as evidence of their mutual consent to the use and registration of
their respective marks. Should the PTO reject the sufficiency of this Agreement
as a basis for permitting either party to register their respective marks, then
each party shall cooperate with the other in filing such further consents as may
be reasonably necessary to effect the intent of this Agreement.
7. Scope of the Agreement. The scope of this Agreement shall be
worldwide.
8. Miscellaneous. This Agreement and the rights and obligations of any
party hereunder may not be assigned by one party without the prior written
consent of the other party. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
entered into and performed entirely within California between California
residents. This Agreement shall be the entire agreement between the parties with
respect to rights in the MT Logo Mark and the GM Logo Mark. This Agreement
supersedes and the terms of this Agreement govern any prior agreements,
proposals or other communications, oral or written. This Agreement may only be
changed by mutual agreement of authorized representatives of the parties in
writing. All notices permitted or required under this Agreement shall be in
writing and shall be delivered by personal delivery, telegram, telex or
telecopier to the addresses listed in the first paragraph.
4
<PAGE> 79
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
Magic Teleprompting, Inc. General Magic, Inc.
By /s/ JAPJI SINGH KHALSQ By /s/ MICHAEL STERN
---------------------- ---------------------
Print Japji Singh Khalsq Print Michael Stern
------------------- ------------------
Title President, CEO Title VP/General Counsel
------------------- ------------------
Dated 1-27-93 Dated 1/28/93
------------------- ------------------
5
<PAGE> 80
[MAGIC LOGO]
EXHIBIT A
<PAGE> 81
[LOGO]
EXHIBIT B
<PAGE> 82
EXHIBIT C
SAFARI TECHNOLOGY
The Safari Technology currently consists of both modified components of the
Magic Cap Software, Magic Application Software and Hardware Design Package, and
materials that are not based on Magic Cap Technology.
1. The Safari Technology is currently described in the following documentation
on Magic's internal website:
[**]
2. [**]
2. Safari Technology not based on Magic Cap Technology currently includes:
[**]
3. Safari Technology currently includes Zazu/Safari versions of:
[**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE> 83
EXHIBIT D
THIRD PARTY TECHNOLOGY
1. Letter agreement dated November 13, 1997 with Fastline for Fastline's
REAL-TIME TRAFFIC MONITORING SYSTEM. Magic may reproduce and distribute the
object code of the Fastline real-time traffic monitoring system as ported to the
Magic Cap system solely to demonstrate the software to customers or end-users.
Magic may sublicense such rights through multiple tiers of sublicensees.
2. Object Incorporation License Agreement dated March 17, 1995 with U.S.
Software. U.S. Software grants Magic a non-transferable license to use the
software for the sale and limited purpose of incorporating part or all of the
software into an unlimited number of Magic's products (in executable form only).
No right is granted to Magic's customers to incorporate the software in any of
their products or use the software except as incorporated in Magic's products;
no right of Magic to sublicense.
3. License Agreement executed October 17, 1996 with Refac International for
PATENT NO. 5,167,011 ISSUED ON NOVEMBER 24, 1992 AND PATENT APPLICATION SERIAL
NO. 07/979,527 FILED ON NOVEMBER 23, 1992 (for information storage and retrieval
technologies). Refac grants Magic and its subsidiaries, successors and assigns,
distributors, customers, including OEM and private-label customers, dealers and
suppliers of Magic or its Subsidiaries, successors and assigns a license to
make, have made, use, sell lease, or otherwise dispose of products using the
patent and the patent application in the United States and its territories and
possessions. Magic and its subsidiaries may not otherwise grant sublicenses to
any third party to manufacture, use or sell products under the patent or patent
application. [**]
4. Technology Transfer, Development and License Agreement dated February 19,
1997 with AltoCom for THE V.34 TECHNOLOGY, THE V.34 MODIFICATIONS, THE 56K
TECHNOLOGY, AND THE NEW TECHNOLOGY (together, the "Licensed Technology"). The
"V.34 Technology" consists of full C source code developed at Magic through
December 31, 1996 for: V.34 modulation; V.32bis modulation; V.22bis and V.22
modulation; V.27 and V.29 FAX modulations; V.21 modulation; V.42 and V.42bis
error correction and compression; CallerID support; general purpose tone
detector; Hayes AT command parser; optimized, ported versions of V.34 Technology
for DINO MIPS and Magic Cap; ported versions of V.34 Technology for SGI
workstations; and development tools developed by the softmodem group used
exclusively for the design, simulation and testing of the V.34 Technology. The
V.34 Technology further includes the following U.S. patent applications:
Efficient Implementation of an FIR filter on a General Purpose Processor (Nov.
13, 1996); System and Method for Improving Convergence During Modem Training and
Reducing Computational Load During Steady-State Modem Operations (Dec. 5, 1996);
and System and Method for Reducing Processing Requirements of Modem During Idle
Receive Time (Jan. 7, 1997). The "V.34 Modifications" consist of the source and
object code versions of any modifications made to the V.34 Technology by or on
behalf of AltoCom that are commercially released by AltoCom during the term of
Magic's license with AltoCom. The "56K Technology" means the 56
kilobits-per-second modem technology developed by AltoCom pursuant to this
agreement with Magic, in source and object code form, and any modifications
thereto developed by AltoCom during the term of Magic's license with
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE> 84
AltoCom. The "New Technology" means any new technology developed and
commercially released by AltoCom during the term of Magic's license with
AltoCom, other than the V.34 Modifications, and any modifications thereto
developed by AltoCom during the term of Magic's license with AltoCom. Magic may
sublicense the right to use and modify the Licensed Technology in source code
form for the sole purpose of developing and supporting devices incorporating
current and future versions of (i) the Magic Cap hardware reference design, and
(ii) the Magic Cap operating system (provided that the Magic Cap operating
system shall not be deemed to include the user interface on a standalone basis).
Magic may not further sublicense in source code form. Magic may use, reproduce,
modify and distribute the object code for the Licensed Technology as
pre-installed and fully-embedded in products incorporating current and future
versions of (i) the Magic Cap hardware reference design, and (ii) the Magic Cap
operating system (provided that the Magic Cap operating system shall not be
deemed to include the user interface on a standalone basis), and to sublicense
the use and distribution of such technology as pre-installed and fully embedded
in such devices. The Licensed Technology in source code form will be deemed
Confidential Information for the purpose of this Agreement. Magic must require
each sublicensee to disclaim in writing any representations and warranties and
any liability on the part of Magic's suppliers. Magic and its sublicensees may
not separate the 56K Technology or the New Technology from the Magic product in
which it is embedded or use or distribute it on a standalone basis.
7. Software License Agreement dated November 10, 1997 with Driftwood Systems for
MINDBENDER AND MC SOLITAIRE. Driftwood grants Magic a license to use, modify,
reproduce, and distribute (through Magic's distribution channels) Mindbender and
MC Solitaire (the "Games") as ported by Magic in executable form only to
customers who have purchased a product containing, or who otherwise have
obtained a license to use, the Magic Cap software. Magic must pay Driftwood [**]
per copy of the Games distributed by Magic until May 10, 1999.
8. Software License Agreement dated February 25, 1993 with Halestorm for the
MUSIC DRIVER software. Halestorm grants Magic a license to use, modify, copy and
distribute the Music Driver, or any portions thereof, in source code and object
code form, as incorporated into the Magic Cap operating system or on a
standalone basis. Magic may sublicense the source code and object code of the
Music Driver through multiple tiers of distribution in the same manner Magic
sublicenses the source and object code of the Magic Cap operating system.
9. License Agreement for SPELL FINDER dated November 5, 1993 between Microlytics
(succeeded by Inso) and Sony Electronic Publishing, as amended and assigned to
Magic pursuant to an amendment dated June 20, 1997. Magic may sublicense use of
the object code of the software as ported to Magic Cap for sale and distribution
to end-users. Magic may not combine fully functioning Spell Finder software with
a version of Magic Cap that is not fully functioning for public distribution
without Inso's prior written approval, but this limitation will not apply to
alpha or beta versions of Magic Cap. Magic may implement the Spell Finder
software using device ROM as a medium, except any such implementation may not
include: (i) spelling correction/verification devices in the form of stand-alone
calculator-like, handheld, or desktop consumer electronics products; (ii)
spelling correction/verification devices in the form of a standalone hardware
product, or an external retrofit hardware product; (iii) typewriters, standalone
personal word processors, or retrofit products thereto; or (iv) a wrist product.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2.
<PAGE> 85
Notwithstanding the above, Magic may implement the Spell Finder software in
laptop, notebook, or other general purpose computers. No sublicensee of Magic
may have the right to further sublicense, other than to end-users. Magic must
include in all sublicenses: (a) provisions granting Inso the right to terminate
such sublicense in the event of termination of the agreement pursuant to Section
6 of the agreement; and (b) a provision requiring the sublicensee to allow Inso
to review, or to request Inso's agents or Magic to audit, such sublicensee's
records. Magic must place a copyright notice on all products containing the
software in the accompanying documentation and display the copyright notice to
users using the software. If Magic sublicenses to an OEM, and the OEM agrees to
pay a cash advance to Magic, Magic will pay [**] of the advance to Inso. For
sublicenses granted to OEMs, Magic shall pay Inso a royalty equal to a minimum
of [**] (as defined in the agreement) [**]. For all other units sublicensed and
distributed by Magic, Magic shall pay Inso a royalty equal to the [**].
10. Letter agreement dated February 2, 1995 with Matsushita for CERTAIN
MATSUSHITA TECHNOLOGY USEFUL IN CREATING INTERNATIONALIZED AND LOCALIZED
VERSIONS OF MAGIC CAP (the "Technology"). Matsushita grants Magic a license to
use, modify, reproduce and distribute the Technology, including the right to
sublicense all such rights through multiple tiers of distribution. Matsushita's
expression of the Technology as represented by literal lines of computer code is
excluded from the above license unless such expression is reasonably necessary
to represent the underlying ideas.
11. Letter agreement dated February 15, 1995 with Sony for CERTAIN SONY
TECHNOLOGY USEFUL IN CREATING INTERNATIONALIZED AND LOCALIZED VERSIONS OF MAGIC
CAP (the "Technology"). Sony grants Magic a license to use, modify, reproduce
and distribute the Technology, including the right to sublicense all such rights
through multiple tiers of distribution. Sony's expression of the Technology as
represented by literal lines of computer code is excluded from the above license
unless such expression is reasonably necessary to represent the underlying
ideas.
12. Letter agreement dated February 8, 1995 with Sanyo for CERTAIN SANYO
TECHNOLOGY USEFUL IN CREATING INTERNATIONALIZED AND LOCALIZED VERSIONS OF MAGIC
CAP (the "Technology"). Sanyo grants Magic a license to use, modify, reproduce
and distribute the Technology, including the right to sublicense all such rights
through multiple tiers of distribution. Sanyo's expression of the Technology as
represented by literal lines of computer code is excluded from the above license
unless such expression is reasonably necessary to represent the underlying
ideas.
13. Software License dated July 12, 1996 with Nimble Corporation for the
FAXRECEIVE software. Nimble grants Magic a license to use, modify, reproduce,
distribute, publicly perform, and display FaxReceive and to incorporate
FaxReceive into Magic Cap devices, products, and other software and systems that
use or incorporate Magic Cap. Magic may sublicense such rights through multiple
tiers of sublicensees. Such rights do not extend to use of FaxReceive with any
other operating system.
14. Letter agreement dated July 11, 1996 with Oki for PROGRAM CODE OR OTHER
MATERIALS FOR USE ON THE ROSEMARY PROJECT (the "Materials"). Oki grants Magic a
license to (i) use, modify, reproduce and distribute the Materials, and (ii)
sublicense the Materials through multiple tiers of distribution in conjunction
with Magic's products.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3.
<PAGE> 86
15. Agreement dated August 13, 1997 with Sony for STAMP SOFTWARE FOR MAGIC CAP
1.X. Sony grants Magic a license to (i) use, copy, and modify the software in
source code form internally, and (ii) use, copy, distribute and grant
sublicenses of the software in object code form. Magic may not alter the
bitmapped images in the software.
16. Development and OEM Distribution Agreement dated March 10, 1996 with
Integrated Device Technology for resale of the IDT/SIM SYSTEM INTEGRATION
MANAGER V 5.1. Magic may sublicense third parties to use and reproduce the
software as part of Magic's products to develop, market, and sell OEM products
which copy, merge, or incorporate the software, provided that the software is
embedded in the finished OEM product in object code form. Magic may also grant
licenses to independent software developers to use the software as part of
Magic's products for the purpose of developing, marketing, and selling the
software products of that independent software developer. Magic must inform IDT
of any sublicense completed with an OEM, and disclose further terms of the
agreement with such OEM if that agreement contains less restrictive terms than
those of the pre-approved OEM agreement. Magic shall duplicate all IDT
proprietary notices incorporated in, marked on, or fixed to the software, and
include a notice on all products shipped with the software that the product
contains software, portions of which are copyrighted by IDT.
17. Asset Acquisition Agreement dated June 16, 1996 with Active Paper for the
PRESTO!MAIL V1.5 AND PRESTO!LINKS V1.0 SOFTWARE. Magic owns the software, but
must pay royalties to Active Paper until December 31, 1998. Until that time,
Magic must keep, and obligate its sublicensees to keep, accurate records
relating to Browser Copies, Email Copies, and Similar Products (as those terms
are defined in the agreement) for the payment of royalties. Magic must provide
attribution to Active Paper for the design, development, and engineering of the
software in all collateral material, and prominently acknowledge Active Paper on
the "Package" scene in the storeroom (along with Active Paper's logo) as the
designer and developer of the software. Magic will alert Active Paper whenever
Active Paper's company or product names are to be used in press, marketing,
documentation, or other collateral materials.
18. Asset Purchase Agreement dated March 14, 1997 with Sony for Sony's rights in
MAGIC BAG, MAGIC BROKER, FARCAST, SPELL FINDER, AND TRAVEL STAMPS for Magic Cap.
Sony assigns ownership of the Magic Bag games and the Travel Stamps artwork.
Sony assigns its interest under licenses for Magic Broker, Farcast, and Spell
Finder.
19. Magic Cap Software Development and Porting Agreement dated May 20, 1998 with
Sands Management Systems for the PARKING PARTNER SOFTWARE. Sands grants Magic a
license to use, reproduce, modify, create derivative works of, market,
distribute, publicly perform, and publicly display the application in connection
with the further development, marketing, distribution, sale, and use of the
application (including the right to sublicense through multiple tiers), as
ported to Magic Cap, only if Sands fails to "actively market" (as defined in the
agreement) and sell the application to police and security organizations in the
U.S.
4.
<PAGE> 87
EXHIBIT E
SRE TECHNOLOGY
The Zazu Speech Recognition Engine [**].
The SRE Technology currently consists of the program code in the following files
and the associated documentation:
[**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE> 88
EXHIBIT F
ROYALTIES
1. UNIT ROYALTIES FOR PRODUCTS CONTAINING MAGIC CAP SOFTWARE
(a) After the Effective Date until the occurrence of a Change of Control of
DataRover, DataRover shall pay the [**] of the selling price (as defined below)
received; or (b) [**], for each unit of all DataRover products outside the
DataRover Exclusive Field of Use subject to royalties in accordance with
subsection (a) of Section 3.2.1 ("Magic Cap Software") and Section 6.1 ("Unit
Royalties") and which are made by or for DataRover or its sublicensees and sold
through their normal distribution channels.
(b) Immediately upon any Change of Control of DataRover, DataRover shall
pay the [**] of the selling price received or [**] for each such product sold
after the effective date of such Change of Control.
2. UNIT ROYALTIES FOR PRODUCTS CONTAINING OR BASED ON HARDWARE DESIGN PACKAGE
(a) After the Effective Date until the occurrence of a Change of Control of
DataRover, DataRover shall pay the [**] of the selling price (as defined below)
received; or (b) [**], for each unit of all DataRover products outside the
DataRover Exclusive Field of Use subject to royalties in accordance with Section
3.2 ("Hardware Design Package") and Section 6.1 ("Unit Royalties") and which are
made by or for DataRover or its sublicensees and sold through their normal
distribution channels.
(b) Immediately upon any Change of Control of DataRover, DataRover shall
pay the [**] of the selling price received or [**] for each such product sold
after the effective date of such Change of Control.
3. SELLING PRICE
For the purposes of this Agreement, "selling price" shall mean the amount
invoiced by DataRover or a DataRover Affiliate to an unaffiliated third party,
less any separately-stated amount for taxes and less any refunds, rebates or
discounts actually granted.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE> 89
EXHIBIT G
MAGIC PATENTS
1.
<PAGE> 90
PATENTS GRANTED
<TABLE>
<CAPTION>
DESCRIPTION PATENT NUMBER FILING DATE ISSUE DATE
----------- ------------- ----------- ----------
<S> <C> <C> <C>
Graphical User Interface For 5611031 4/29/94 3/11/97
Modifying Object Characteristics
Using Coupon Objects
Method For Transmitting Information 5675811 8/18/95 10/07/97
Over An Intelligent Low Power Serial
Bus
Graphical User Interface For 5689669 4/29/94 11/18/97
Navigating Between Levels Displaying
Hallway And Room Metaphors
Shadow Mechanism Having Masterblocks 5692187 6/07/95 11/25/97
For A Modifiable Object Oriented System
Bus Interface Circuit For An 5787298 8/18/95 7/28/98
Intelligent Low Power Serial Bus
Method For Transmitting Bus Commands 5793993 8/18/95 8/11/98
And Data Over Two Wires Of A
Serial Bus
Support Structures For An Intelligent 5812796 8/18/95 9/22/98
Low Power Serial Bus
Shadow Mechanism For A Modifiable 5819306 2/28/97 10/06/98
Object Oriented System
</TABLE>
PATENTS PENDING
<TABLE>
<CAPTION>
DESCRIPTION APPLICATION NUMBER FILING DATE
----------- ------------------ -----------
<S> <C> <C>
[**] [**] [**]
</TABLE>
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 91
EXHIBIT B TO EXHIBIT 2.1
BILL OF SALE
<PAGE> 92
EXHIBIT B
BILL OF SALE
This Bill of Sale is executed and delivered by General Magic, Inc., a
Delaware corporation ("General Magic"), pursuant to that certain Stock Purchase
Agreement dated October 28, 1998 (the "Agreement"), by and between DataRover
Mobile Systems, Inc., a California corporation (the "Company") and General
Magic. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, General Magic does hereby sell,
convey, assign, transfer and deliver to the Company, all right, title and
interest in and to the DR Assets. The Company and General Magic agree that
General Magic shall retain, and the Company shall not acquire, any other assets,
properties, contracts, obligations or liabilities of General Magic other than
those described in the Agreement. General Magic hereby agrees that it will, from
time to time, without further consideration, execute and deliver such further
instruments or assignment and transfer as may be reasonably requested to
implement and effectuate the Agreement and this Bill of Sale.
IN WITNESS WHEREOF, each of the following has caused this Bill of Sale
to be executed effective on this 4th day of November 1998.
GENERAL MAGIC, INC.,
a Delaware corporation
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
ACKNOWLEDGED BY:
DATAROVER MOBILE SYSTEMS, INC.,
a California corporation
By:
------------------------
Name:
----------------------
Title:
----------------------
<PAGE> 93
EXHIBIT C TO EXHIBIT 2.1
ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE> 94
EXHIBIT C
ASSIGNMENT AND ASSUMPTION OF AGREEMENT
The Assignment and Assumption of Agreement ("Agreement") is entered as
of November 4, 1998 (the "Effective Date"), by and between General Magic, Inc.,
a Delaware corporation ("General Magic"), and DataRover Mobile Systems, Inc., a
California corporation (the "Company"), pursuant to that certain Stock Purchase
Agreement dated October 28, 1998 (the "Stock Purchase Agreement") by and between
the Company and General Magic. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Stock Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties agree as follows:
1. Assignment. Subject to the terms set forth in the Stock Purchase
Agreement, General Magic hereby assigns all of General Magic's right, title and
interest in and to the contracts set forth on Appendix A to the Stock Purchase
Agreement (the "DR Contracts") to the Company.
2. Assumptions. Subject to the terms set forth in the Stock Purchase
Agreement and Appendix A thereto, the Company accepts the assignment from
General Magic and hereby assumes all of General Magic's obligations, duties,
responsibilities and liabilities with respect to the DR Contracts and agrees to
pay, perform and discharge, when due, all of the duties and obligations on the
part of General Magic to be paid, performed or discharged in connection with the
DR Contracts from and after the Effective Date or as set forth on Appendix A.
3. Amendment. This Agreement may not be amended, modified or
supplemented except pursuant to an instrument in writing executed and delivered
on behalf of the Company and General Magic which instrument, when so executed
and delivered, shall thereupon become a part of this Agreement.
4. Binding Effect. This Agreement and the terms and provisions hereof,
shall inure to the benefit of, and be binding upon, the Company and General
Magic and each of their respective assigns, successors and legal
representatives.
5. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California as applied to agreements
made and performed in California by residents of California.
6. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
7. Facsimile Signatures. This Agreement may be executed by facsimile
signature, and facsimile signatures shall be fully binding and effective for all
purposes and shall be given the same effect as original signatures. If any party
delivers a copy of this Agreement containing a facsimile signature, such party
shall promptly forward an originally signed executed copy to the
<PAGE> 95
other party; however, a failure by any party to so deliver an originally
executed copy shall not affect in any way the binding nature of such party's
facsimile signature.
IN WITNESS WHEREOF, each of the following has caused this Assignment and
Assumption Agreement to be executed effective on this 4th day of November 1998.
GENERAL MAGIC, INC.,
a Delaware corporation
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
DATAROVER MOBILE SYSTEMS, INC.,
a California corporation
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 96
EXHIBIT D TO EXHIBIT 2.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 97
EXHIBIT D
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
DATAROVER MOBILE SYSTEMS, INC.
The undersigned, Jeffrey J. Ellis and Steven D. Schramm, do hereby
certify that:
1. They are all of the directors of DataRover Mobile Systems, Inc., a
California corporation (the "Corporation").
2. The articles of incorporation of the Corporation are amended and
restated to read in their entirety as follows:
I.
The name of the Corporation is DataRover Mobile Systems, Inc.
II.
The purpose of the Corporation is to engage in any lawful act or
activity for which a Corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares of Common Stock which this Corporation is authorized to issue is
10,000,000, and the total number of shares of Preferred Stock this Corporation
is authorized to issue is 15,000,000. The first series of Preferred Stock shall
be comprised of 6,600,000 shares designated as Series A Preferred Stock ("Series
A Preferred").
IV.
The rights, preferences, privileges and restrictions granted to or imposed
upon the Common Stock and Preferred Stock are as follows:
1. Dividend Provisions. The holders of Series A Preferred shall be
entitled to receive in any fiscal year, out of any assets at the time legally
available therefor, dividends in cash at the rate per annum of $0.025 per share
of Series A Preferred, adjusted for any stock split,
1
<PAGE> 98
combination, consolidation, or stock distributions or stock dividends with
respect to such shares, payable in preference and priority to any payment of any
cash dividend on Common Stock or other capital stock. The right to such cash
dividends on the Series A Preferred shall be cumulative, and shall be due and
payable quarterly in arrears.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, distributions to the
shareholders of the Corporation will be made in the following manner:
(i) The holders of Series A Preferred shall be entitled
to receive, prior and in preference to any distribution of any of the assets of
the Corporation to the holders of Common Stock by reason of their ownership
thereof, an amount per share equal to $0.50 for each outstanding share of Series
A Preferred plus an amount equal to any unpaid dividends on such share up to the
date fixed for distribution. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series A Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred in proportion to the amount of such Series A Preferred owned
by each such holder.
(ii) Upon the completion of the distributions required
by subsection (a)(i) of this Section 2, if assets remain in the Corporation, the
holders of Common Stock shall receive all of the remaining assets of the
Corporation pro rata based on the number of shares of Common Stock held by each.
(b) A merger or reorganization in which the shareholders of the
Corporation immediately prior to the transaction possess less than 50% of the
voting power of the surviving entity (or its parent) immediately after the
transaction, or a sale of all or substantially all of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2; provided that the holders of Preferred
Stock and Common Stock shall be paid in cash or in securities received or in a
combination thereof (which combination shall be in the same proportions as the
consideration received in the transaction). Any securities to be delivered to
the holders of Preferred Stock and Common Stock upon merger, reorganization or
sale of substantially all the assets of the Corporation shall be valued as
follows:
(i) if traded on a securities exchange, the value shall
be deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices (or closing sales
prices, whichever is applicable) over the 30-day period ending three (3)
business days prior to the closing; and
2
<PAGE> 99
(iii) if there is no active public market, the value
shall be the fair market value thereof as mutually determined by the Corporation
and the holders of not less than a majority of the outstanding shares of
Preferred Stock, provided that if the Corporation and the holders of a majority
of the outstanding shares of Preferred Stock are unable to reach agreement, then
by independent appraisal by an investment banker hired and paid by the
Corporation, but acceptable to the holders of a majority of the outstanding
shares of Preferred Stock.
3. Notices of Record Date. In the event of any taking by the Corporation
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 Corporation shall mail
to each holder of Series A Preferred at least ten (10) days prior to such record
date, a notice specifying the date on which any such record is to be taken for
the purpose of such dividend or distribution or right, and the amount and
character of such dividend, distribution or right.
4. Notices. Any notice required by the provisions hereof to be given to
the holder of shares of Series A Preferred shall be deemed given if deposited in
the United States mail, postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Corporation.
5. Voting Rights. The holders of shares of Series A Preferred shall not
have voting rights with respect to such shares, except as otherwise provided
herein.
6. Protective Provisions.
(a) In addition to any other class vote that may be required by
law, so long as any shares of Series A Preferred are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the then
outstanding shares of Series A Preferred:
(i) amend these Articles of Incorporation or the Bylaws
of the Corporation if such action would change the rights, preferences,
privileges or restrictions of the Series A Preferred;
(ii) increase or decrease the aggregate number of
authorized shares of Preferred Stock;
(iii) create a new class or series of shares having
rights, preferences or privileges prior to or on parity with the Series A
Preferred;
(iv) sell, convey or otherwise dispose of all or
substantially all of its property or business, or merge into or effect a
reorganization with any other corporation (other than a wholly owned subsidiary
of the Corporation) in which the shareholders of the Corporation
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<PAGE> 100
immediately prior to the transaction possess less than 50% of the voting power
of the surviving entity (or its parent) immediately after the transaction; and
(v) repurchase or redeem any of the outstanding shares
of Common Stock (except for repurchase of Common Stock from officers, employees,
directors and consultants upon termination of their employment or service, as
applicable, with the Corporation).
7. Repurchase of Shares. In connection with repurchases by the
Corporation of its Common Stock, pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
8. Redemption. On November 1, 2005 (the "Redemption Date"), the
Corporation shall redeem all, but not less than all, of the outstanding shares
of Series A Preferred by paying therefor an amount per share equal to $0.50
(subject to adjustment for stock splits, recapitalization and the like) (the
"Redemption Price") plus any dividends unpaid as of the Redemption Date, with
respect to such shares. On the Redemption Date, each holder of shares of Series
A Preferred shall surrender to the Corporation the certificate or certificates
representing such shares, and thereupon the Redemption Price shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be canceled. From
and after the Redemption Date, unless there shall have been a default in payment
of the Redemption Price, all rights of the holders of such shares as holders of
Series A Preferred (except the right to receive the Redemption Price upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of this
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares are
insufficient to redeem all of the outstanding shares of Series A Preferred,
those funds which are legally available will be used to redeem the maximum
possible number of shares pro rata among the holders of such Series A Preferred
shares to be redeemed in proportion to the number of Series A Preferred shares
held by each such holder. The shares of Series A Preferred not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of shares of Series A Preferred, such funds
will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on the Redemption Date but which it
has not redeemed.
V.
1. Limitation of Directors' Liability. The liability of the directors of
the Corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Indemnification of Corporate Agents. The Corporation is authorized to
indemnify its agents to the fullest extent permissible under California law. For
purposes of this provision the term "agent" has the meaning set forth in Section
317 of the California Corporations Code.
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3. Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article V shall not adversely affect any right of
indemnification or limitation of liability for an agent of the Corporation
relating to acts or omissions occurring prior to such repeal or modification.
VI.
The name and address in the State of California of this corporation's
initial agent for service of process is: Lillie Mae Stephens, c/o Gray, Cary et
al, 400 Hamilton Ave., Palo Alto, Ca. 93401.
3. No shares of the Corporation have been issued.
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IN WITNESS WHEREOF, the undersigned declare under penalty of perjury
under the laws of the State of California that the matters set forth in this
certificate are true and correct of their own knowledge.
DATE:
------------------------
------------------------------------
Jeffrey J. Ellis, Director
------------------------------------
Steven D. Schramm, Director
<PAGE> 103
EXHIBIT E TO EXHIBIT 2.1
DR. Employee Offer Letter
<PAGE> 104
EXHIBIT E
[LOGO]
CONFIDENTIAL
October 5, 1998
Dear ,
It is a pleasure to restate and formalize our offer for you to join the team of
DATAROVER MOBILE SYSTEMS, INC. (DATAROVER). The following details summarize
your position, compensation, benefits, and other pertinent information relative
to your employment with DataRover.
1. POSITION:
You will be employed as a _______ employee in the position ________,
beginning on the closing date of the sale of CPD to DataRover Mobile
Systems, Inc.
2. COMPENSATION:
We are offering you the following compensation package:
a. BASE SALARY:
Your semi-monthly base salary will be _______ ($_____ per year). Pay
periods are the 1st through the 15th and the 16th through the end of
the month. Paychecks will be delivered on the 1st and the 16th of each
month.
b. EMPLOYEE STOCK OPTION PROGRAM:
We will recommend to the DataRover Board of Directors that you be
granted an incentive stock option for ______ shares of the Company's
Common Stock. Subject to Board approval, your initial vesting date
will be twelve months from the date of the option grant and the
exercise price of the options will be the fair market value of the
Company's stock on the date the Board approves the option grant.
Options vest over a two-year period, with one-fourth vesting on the
initial vesting date and 1/24th of the shares vesting each month
thereafter. Board meetings typically occur once a quarter, and the
fair market value of the Company's stock may change based on the
Company's financing activities, technical and business success, and
other factors.
3. BENEFITS:
You will be eligible to participate in our standard benefits package. You
will be subject to the group program's terms and provisions, limitations,
exclusions, and the company's eligibility requirements as defined (e.g.,
in the respective plan booklets and company handbook). The hire date used
to calculate your PTO accumulation will be your General Magic date of hire.
4. PERFORMANCE REVIEWS:
Your performance will be reviewed periodically, and your next formal
performance review with DataRover will take place during February, 1999.
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5. AT-WILL EMPLOYMENT:
DataRover's employment relationship with all employees is an "at-will"
arrangement where the employment relationship is voluntary and based on
mutual consent. You may leave your employment at any time and DataRover
reserves the right to terminate your employment at any time, with or
without cause.
6. COMPANY POLICIES:
As an employee of DataRover, you will be subject to and required to adhere
to all of the company's policies and procedures pertaining to its
employees. This includes all policies relating to standards of conduct,
conflicts of interest, and compliance with the company's rules and
regulations. You will be provided an Employee Handbook as soon as it has
been completed.
7. EMPLOYMENT DOCUMENTS:
As a condition of your employment with DataRover, you will be required to
complete and sign an Employee Proprietary Information Agreement. You will
also be required to provide evidence of your identity and eligibility for
employment in the United States. It is required that you bring the
appropriate documentation for verification with you at time of employment.
The required documentation is described within this package.
If you are in agreement with the provisions of this employment offer, please
sign, date, and return the original of this letter acknowledging your
understanding and acceptance; retain a copy for your records. This letter must
be signed and returned by 5PM Friday, October 30, 1998.
, I am pleased and excited about you joining the team at DATAROVER MOBILE
SYSTEMS, INC! I look forward to working with you.
Sincerely,
Steve Schramm
CEO & President
DataRover Mobile Systems, Inc.
enclosures
ACKNOWLEDGEMENT AND ACCEPTANCE
My signature below acknowledges my understanding and acceptance of your offer
of employment subject to the terms and conditions set forth in this letter.
- ------------------------------ ----------------
Date
Page 2
<PAGE> 106
EXHIBIT F TO EXHIBIT 2.1
REGISTRATION RIGHTS AGREEMENT
<PAGE> 107
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of
November 4, 1998 is entered into by DataRover Mobile Systems, Inc., a California
corporation (the "Company"), General Magic, Inc., a Delaware Corporation
("GMGC"), Steven D. Schramm, Jeffrey J. Ellis, Michael R. Migliore and Eric D.
Popejoy (each a "Founder Shareholder", and together with GMGC a "Shareholder").
RECITALS
A. The Company and GMGC have entered into a Stock Purchase Agreement
dated October 28, 1998 (the "Stock Purchase Agreement") pursuant to which, among
other things, GMGC purchased from the Company shares of Series A Preferred Stock
and Common Stock, par value $0.001 per share ("Common Stock") and a warrant to
purchase up to 100,000 shares of Common Stock (the "Warrant").
B. The Company and each of the Founder Shareholders have entered into a
Founder Stock Purchase Agreement of even date herewith pursuant to which each
Founder Shareholder purchased from the Company shares of Common Stock.
C. The execution of this Agreement is a condition to closing of the
transactions contemplated by the Stock Purchase Agreement.
AGREEMENT
1. Definitions. As used herein:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the 1933 Act.
(b) "Common Stock" shall have the meaning set forth in the
recitals of this Agreement.
(c) "Company" shall have the meaning set forth in the preamble
of this Agreement.
(d) "Demand Registration" shall have the meaning specified in
Section 2.1.
(e) "Demand Request" shall have the meaning specified in Section
2.1(a).
(f) "Form S-3" means such form under the 1933 Act as in effect
on the date hereof or any successor registration form under the 1933 Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
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(g) "Holder" shall mean any Shareholder and any person who
acquires Registrable Securities in accordance with Section 5.3, directly or
indirectly, from a Shareholder from and after the date hereof.
(h) "Maximum Number of Shares" shall have the meaning specified
in Section 2.1(d).
(i) "1933 Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time referenced herein.
(j) "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time referenced herein.
(k) "Other Holder Notice" shall have the meaning specified in
Section 2.1(a).
(l) "Piggy-Back Registration" shall have the meaning specified
in Section 2.2.
(m) "Registrable Securities" shall mean, collectively, (i) the
shares of Common Stock issued to the Shareholders, including without limitation,
shares of Common Stock issuable to GMGC upon exercise of the Warrant, and (ii)
any stock dividend, stock split, recapitalization, merger, consolidation or
similar event effecting any such shares of Common Stock described in the
foregoing clause (i). As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement covering such securities shall have become effective under the 1933
Act and such securities shall have been disposed of in accordance with such
registration statement, (ii) such securities shall have been distributed to the
public pursuant to Rule 144 or Rule 144A (or any successor provisions) under the
1933 Act, (iii) the Holder of such securities, together with all other persons
with whom such Holder would be required to aggregate sales under Rule 144 (or
any successor provision) is free to sell such securities without volume
limitation under Rule 144(k) (or any successor provision), or (iv) such
securities shall have ceased to be outstanding.
(n) "Selling Holder" shall mean a Holder who is selling
Registrable Securities pursuant to a registration statement under the 1933 Act.
(o) "Underwriter" shall mean a securities dealer who purchases
any Registrable Securities as principal in an underwritten public offering
pursuant to a registration statement under the 1933 Act and not as part of such
dealer's market-making activities.
2. Registration Rights.
2.1 Demand Registration.
(a) Request for Registration. At any time and from time
to time on or after the earlier to occur of (i) the second anniversary of the
date of this Agreement and (ii) the expiration of any lock-up period applicable
in connection with the Company's first underwritten
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public offering of Common Stock for its own account, any Holder or Holders
owning, individually or in the aggregate, Registrable Securities representing
not less than 20% of the outstanding Registrable Securities may make a written
request for registration under the 1933 Act of all or part of such Holder's or
Holders' Registrable Securities (a "Demand Registration"), subject to the
provisions of Section 2.1(f) pursuant to which the Company has a one-time right
to convert such Demand Registration into a Piggy-Back Registration. The Company
shall not be obligated to effect more than three Demand Registrations under this
Section 2.1, and in no event shall the Company be obligated to effect a
registration under this Section 2.1 within six (6) months of the effective date
of another registration effected pursuant to this Section 2 or within six (6)
months of the effective date of a registration effected pursuant to an
underwritten public offering of Common Stock. Any request for a Demand
Registration (a "Demand Request") must specify the number of shares of
Registrable Securities proposed to be sold and must also specify the intended
method of disposition thereof, it being agreed by the parties hereto that, in
the event the offering to be made pursuant to such Demand Registration will be
the initial public offering of the Company's Common Stock, then the intended
method of disposition must be a firm commitment underwriting being underwritten
by a reputable investment banking firm selected by the Holder or Holders
participating therein as provided in Section 2.1(c) hereof, and reasonably
acceptable to the Company. The Company shall give written notice of any such
registration request within 10 days after the receipt thereof to all
non-initiating Holders of Registrable Securities, if any. Within 10 days after
receipt of such notice by any Holder of Registrable Securities, such Holder may
request in writing that all or any of such Holder's Registrable Securities be
included in such registration and the Company shall, subject to the limitations
of Section 2.1(c) and the cut-back provisions of Section 2.1.(d), include in the
Demand Registration the Registrable Securities of any such Holder requested to
be so included. Each such request by such other Holders (each, an "Other Holder
Notice") shall specify the number of shares of Registrable Securities proposed
to be sold and the intended method of disposition thereof. Subject to the
foregoing, the Company shall file such registration statement covering the
Registrable Securities as specified in each Demand Request and Other Holder
Notice as soon as practicable, and in no event later than 90 days in the case of
filing a registration statement on Form S-1 and 60 days in the case of filing a
registration statement other than on Form S-1 or other than pursuant to Section
2.3, after receipt of the Other Holder Notices.
(b) Effective Registration. A registration will not count as a
Demand Registration until it has become effective and has remained effective
until all the securities covered by such registration statement have been sold
or withdrawn (which period shall not exceed the period required to satisfy the
prospectus delivery requirements of the federal securities laws, in the case of
an underwritten offering, and 180 days, in the case of any other offering).
(c) Underwritten Offering. If the Holder or Holders initiating a
Demand Registration so elect (and, in the case of the initial public offering of
the Company's Common Stock, such Holders must so elect), the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of an underwritten offering. The Holder or Holders participating in the Demand
Registration shall select one or more firms of investment bankers, which
investment bankers must be reasonably acceptable to the Company, to act as the
managing Underwriter or Underwriters in connection with such offering.
Thereafter, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon
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such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
(d) Reduction of Offering. If the managing Underwriter or
Underwriters for a Demand Registration that is to be an underwritten offering
advise the Company and the Holder or Holders who have elected to participate in
such Demand Registration pursuant to Section 2.1(a), in writing, that the dollar
amount or number of shares of Registrable Securities and other shares of Common
Stock or securities to be included in the offering exceeds the maximum dollar
amount or number that can be sold in such offering without adversely affecting
the proposed offering price, the timing, the distribution method or the
probability of success of such offering (the "Maximum Number of Shares"), then
the Company shall include in such registration: (i) first, the Registrable
Securities as to which registration has been requested pursuant to Section
2.1(a) which can be sold without exceeding the Maximum Number of Shares
(allocated, pro rata among such Holders, as nearly as practicable, on the basis
of the number of shares of Registrable Securities requested by each such Holder
to be included in such offering), (ii) second, to the extent the Maximum Number
of Shares has not been reached under the foregoing clause (i), the shares of
Common Stock or other securities that the Company proposes to sell which can be
sold without exceeding the Maximum Number of Shares, and (iii) third, to the
extent the Maximum Number of Shares has not been reached under the foregoing
clauses (i) and (ii), the shares of Common Stock or other securities requested
to be included by any other shareholders with registration rights entitling them
to request to participate in such offering which can be sold without exceeding
the Maximum Number of Shares (allocated pro rata among such other shareholders,
as nearly as practicable, on the basis of the number of shares of Common Stock
or other securities requested by such other shareholders to be included in such
offering).
(e) Withdrawal. If any Holder of Registrable Securities
requesting registration disapproves of the terms of any underwriting or is not
entitled to include all of such Holder's Registrable Securities in any offering,
it may elect to withdraw from such offering by giving written notice to the
Company and the Underwriter of its request to withdraw prior to the
effectiveness of the registration statement. If, by the withdrawal of such
Registrable Securities, a greater number of shares of Registrable Securities,
held by other Holders of Registrable Securities, may be included in such
registration (up to the maximum of any limitation imposed by the Underwriter),
then the Company shall offer to all Holders of Registrable Securities who have
included Registrable Securities in the registration, the right to include
additional shares of Registrable Securities in the same proportion used in
determining the limitation imposed by the provisions of Section 2.1.(d). If all
of the Holders of Registrable Securities which have requested to be included in
a Demand Registration withdraw from any proposed offering and, as a result, the
registration statement is withdrawn prior to being declared effective, such
request shall either (i) count as a Demand Registration provided for in Section
2.1, or (ii) not count as a Demand Registration if the withdrawing Holders pay
their pro rata share (based on the number of shares initially proposed to be
included in such registration statement) of the expenses incurred in connection
with such registration statement.
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(f) Company Right to Convert Demand Registration into a
Piggy-Back Registration on Initial Public Offering. The provisions of this
Section 2.1 notwithstanding, in the event of a request for a Demand Registration
by Holders of Registrable Securities pursuant to Section 2.1 hereof which would
constitute the initial public offering of the Common Stock, the Company may, by
giving written notice to the Holder or Holders making such registration request
within 10 days after the receipt of such request, elect to effect an
underwritten public offering of Common Stock for its own account rather than
effect the requested Demand Registration, in which an event, the registration
will be deemed to be a Piggy-Back Registration pursuant to Section 2.2 hereof
and will not count as a Demand Registration and the cutback provisions of
Section 2.2(b)(i) shall apply.
(g) Delay of Offering. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting registration pursuant to this
Section 2.1, a certificate signed by the President 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 registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement (and if such judgment is based on legal restrictions, the
Board shall have obtained written advice confirming such restrictions from
outside legal counsel), the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of the Holders initiating such registration; provided, however,
that the Company may not utilize this right more than once in any twelve month
period.
The Company may include in the registration under this
Section 2.1 any other shares of Common Stock, subject to the priority of the
cutback provisions of Section 2.1(d) above.
2.2 Piggy-Back Registration.
(a) Piggy-Back Rights. If at any time (but without any
obligation to do so) the Company proposes to file a registration statement under
the 1933 Act with respect to an offering of Common Stock by the Company for its
own account or for the account of any other shareholders solely for cash, other
than a registration statement (i) on Form S-4 or S-8 (or any substitute or
successor form that may be adopted by the Commission), (ii) filed in connection
with any employee stock option or other benefit plan, (iii) for an exchange
offer or offering of securities solely to the Company's existing shareholders,
or (iv) for a dividend reinvestment plan, then the Company shall:
(i) give written notice of such proposed filing to the
Holders of Registrable Securities as soon as practicable but in no event less
than 20 days before the anticipated filing date, which notice shall describe the
number of shares of Common Stock to be included in such offering, the intended
method(s) of distribution, and the name of the proposed managing Underwriter or
Underwriters, if any, of the offering; and
(ii) offer in such notice to the Holders of Registrable
Securities the opportunity, subject to Section 2.2(b), to register such number
of shares of Registrable Securities as each such Holder may request in writing
within 10 days following receipt of such
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notice (a "Piggy-Back Registration"). The Company shall, subject to Section
2.2(b), cause such Registrable Securities to be included in such registration
and shall use reasonable efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as the other shares of Common Stock included
therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof.
(b) Reduction of Offering. If the managing Underwriter or
Underwriters for a Piggy-Back Registration that is to be an underwritten
offering advises the Company and the Holders requesting inclusion in the
Piggy-Back Registration, in writing, that the dollar amount or number of shares
of Registrable Securities and other shares of Common Stock to be included in the
offering exceeds the Maximum Number of Shares, then the Company shall include in
such registration:
(i) if the registration is a primary offering for the
Company, (A) first, the shares of Common Stock that the Company proposes to sell
which can be sold without exceeding the Maximum Number of Shares; (B) second, to
the extent the Maximum Number of Shares has not been reached under the foregoing
clause (A), the Registrable Securities as to which registration has been
requested by the Holders of Registrable Securities which can be sold without
exceeding the Maximum Number of Shares (allocated pro rata among such Holders of
Registrable Securities, as nearly as practicable, on the basis of the number of
shares of Registrable Securities requested to be included in such offering by
the Holders of Registrable Securities), and (C) third, to the extent the Maximum
Number of Shares has not been reached under the foregoing clauses (A) and (B),
the shares of Common Stock or other securities requested to be included in such
registration by other shareholders entitled to request to participate in such
offering which can be sold without exceeding the Maximum Number of Shares
(allocated pro rata among other shareholders, as nearly as practicable, on the
basis of the number of shares of Common Stock or other securities requested to
be included in such offering by such other shareholders); and
(ii) if the registration is for a secondary offering for
any of the Company's shareholders pursuant to any registration rights of such
shareholders, (A) first, the shares of Common Stock, including Registrable
Securities, that such shareholders have requested to be included in such
offering which can be sold without exceeding the Maximum Number of Shares
(allocated pro rata among such Holders, as nearly as practicable, on the basis
of the number of shares of Registrable Securities requested to be included in
such offering) and (B) second, to the extent the Maximum Number of Shares has
not been reached under the foregoing clause (A), the shares of Common Stock that
any other shareholder proposes to sell which can be sold without exceeding the
Maximum Number of Shares.
(c) Withdrawal. Any Holder may elect to withdraw its
request for inclusion of its Registrable Securities in any Piggy-Back
Registration by giving written notice to the Company of its request to withdraw
prior to the effectiveness of the registration statement. The Company may also
elect to withdraw a Piggy-Back Registration at any time prior to the
effectiveness of the registration statement, and such withdrawal shall not
require the consent of
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<PAGE> 113
any Holder of Registrable Securities included therein; provided, however that
the Company shall reimburse Holders of Registrable Securities requested to be
included in such Piggy-Back Registration for all out-of-pocket expenses, if any,
incurred by such Holders in connection with such Piggy-Back Registration prior
to such withdrawal by the Company.
2.3 Request for Registration on Form S-3. In case the Company shall
receive from any Holder or Holders owning, individually or in the aggregate,
Registrable Securities representing not less than 20% of the outstanding
Registrable Securities, a written request or requests that the Company effect a
registration on Form S-3 or Form S-2, or any successor form to Form S-3 or Form
S-2, and any related qualification or compliance with respect to all or a part
of the Registrable Securities owned by such Holder (an "S-3 Registration"), the
Company will promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and at any time after 180 days following the effective date of any
firm commitment underwritten initial public offering or after 180 days following
the effective date of any subsequent registered underwritten offering of the
Company's Common Stock to the general public, as applicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company. Notwithstanding the foregoing, the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.3: (i) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $1,000,000, (ii) if the Company has, within the
six (6) month period preceding the date of such request, already effected a
registration for the Holders pursuant to this Section 2.3, (iii) 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, or (iv) notwithstanding the
foregoing, if the Company shall furnish to Holders requesting registration
pursuant to this Section 2.3, a certificate signed by the President 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 registration statement to be filed and it is therefore essential to
defer the filing of such registration statement (and if such judgment is based
on legal restrictions, the Board shall have obtained written advice confirming
such restrictions from outside legal counsel), the Company shall have the right
to defer taking action with respect to such filing for a period of not more than
90 days after receipt of the request of the Holders initiating such
registration; provided, however, that the Company may not utilize this right
more than once in any twelve-month period. The Company may include in the
registration under this Section 2.3 any other shares of Common Stock, subject to
the priority of the cutback provisions of Section 2.1(d) above. Subject to the
foregoing, the Company shall file such registration statement as is then
available to the Company covering the Registrable Securities and other
securities so requested to be registered as soon as practicable, and in no event
later than 30 days, after receipt of the request or requests of the Holders. The
Holders shall have the right to make unlimited requests for registration under
this Section 2.3.
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3. Registration Procedures.
3.1 Filings; Information. If and whenever the Company is
required to effect the registration of any Registrable Securities under the 1933
Act pursuant to Section 2.1, 2.2 or 2.3., the Company shall use its best efforts
to effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof as expeditiously as
practicable, and in connection with any such request:
(a) Filing Registration Statement. The Company shall, as
expeditiously as possible, prepare and file with the Commission a registration
statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof, and use its best efforts to
cause such filed registration statement to become and remain effective.
(b) Copies. The Company shall, prior to filing a
registration statement or prospectus or any amendment or supplement thereto,
furnish without charge to each Selling Holder of the Registrable Securities
covered by such registration statement and legal counsel for any such Selling
Holder, copies of such registration statement as proposed to be filed, each
amendment and supplement to such registration statement (in each case including
all exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus), and such other documents as such Selling Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Selling Holder.
(c) Amendments and Supplements. The Company shall
prepare and file with the Commission such amendments, including post-effective
amendments and supplements to such registration statement and the prospectus
used in connection therewith, as may be necessary to keep such registration
statement effective and in compliance with the provisions of the 1933 Act until
all Registrable Securities and other securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition set forth in such registration statement (which period shall not
exceed the period required to satisfy the prospectus delivery requirements of
the federal securities laws, in the case of an underwritten offering, and nine
months, in the case of any other offering) or such securities have been
withdrawn.
(d) Notification. After the filing of the registration
statement, the Company shall promptly notify each Selling Holder, and confirm
such advice in writing upon request, (i) when such registration statement
becomes effective, (ii) when any post-effective amendment to such registration
statement becomes effective, (iii) of any stop order issued or threatened by the
Commission (and the Company shall take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered) and (iv) of any
request by the Commission for any amendment or supplement to such registration
statement or any prospectus relating thereto or for additional information or of
the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
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statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
promptly make available to each Selling Holder any such supplement or amendment;
except that before filing with the Commission a registration statement or
prospectus or any amendment or supplement thereto, including documents
incorporated by reference, the Company shall furnish to each Selling Holder and
to legal counsel representing any Selling Holder, copies of all such documents
proposed to be filed sufficiently in advance of filing to provide such Selling
Holders, Underwriters and legal counsel with a reasonable opportunity to review
such documents and comment thereon, and any such comments shall be sent by such
reviewing party to the Company or its legal counsel within seven (7) days of
receiving documents, and the Company shall not file any registration statement
or prospectus or amendment or supplement thereto, including documents
incorporated by reference to which such Selling Holders or legal counsel shall
reasonably object on a timely basis in light of the requirements of the 1933 Act
or any other applicable laws and regulations.
(e) State Securities Laws Compliance. The Company shall use its
best efforts to (i) register or qualify the Registrable Securities covered by
the registration statement under such securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder (in light of such
Selling Holder's intended plan of distribution) requests and (ii) cause such
Registrable Securities covered by the registration statement to be registered
with or approved by such other governmental agencies or authorities in the
United States as may be necessary by virtue of the business and operations of
the Company and do any and all other acts and things that may be necessary or
advisable to enable such Selling Holder to consummate the disposition of the
Registrable Securities owned by such Selling Holder in such jurisdictions;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (e), or subject itself to taxation in any such
jurisdiction.
(f) Agreements for Disposition. The Company shall enter into
customary agreements (including, if applicable, an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of such Registrable Securities. The
Selling Holders may, at their option, require that any or all of the
representations, warranties and covenants of the Company in any underwriting
agreement to or for the benefit of any Underwriters also be made to and for the
benefit of the Selling Holders.
(g) Cooperation. The Chief Executive Officer of the Company and
the Chief Financial Officer of the Company and other members of the management
of the Company shall cooperate fully in any offering of Registrable Securities
hereunder, which cooperation shall include, without limitation, the preparation
of the Registration Statement and all other offering materials and related
documents, and participation in meetings with Underwriters, attorneys,
accountants and potential investors.
(h) Records. The Company shall make available for inspection by
any Selling Holder, any Underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other professional
retained by any such Selling Holder
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or Underwriter all financial and other records, pertinent corporate documents
and properties of the Company as shall be necessary to enable such persons to
exercise their due diligence responsibility, and shall cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such person in connection with such registration statement.
(i) Earnings Statement. The Company shall comply with all
applicable rules and regulations of the Commission and the 1933 Act, and make
available to its shareholders, as soon as practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section II (a) of the 1933 Act and Rule 158
thereunder.
(j) Listing. The Company shall use its best efforts to cause all
such Registrable Securities to be listed on such exchanges or otherwise
designated for trading in the same manner as similar securities issued by the
Company are then listed or designated.
(k) Transfer Agent. The Company shall provide a transfer agent
and registrar for all Registrable Securities registered hereunder and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration.
3.2 Selling Holder's Obligation to Suspend Distribution. Each Selling
Holder agrees that, upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 3.1.(d)(iv), such Selling Holder
will forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Selling
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.1.(d)(iv), and, if so directed by the Company, such
Selling Holder will deliver to the Company all copies, other than permanent file
copies then in such Selling Holder's possession, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice.
3.3 Registration Expenses. Except as otherwise provided in the final
sentence of Section 2.l(e), the Company shall pay all expenses incurred in
connection with any Demand Registration pursuant to Section 2.1, any Piggy-Back
Registration pursuant to Section 2.2, any S-3 Registration pursuant to Section
2.3 and all expenses incurred in performing or complying with the Company's
obligations under this Section 3, whether or not the registration statement
becomes effective, in each case including, but not limited to: (i) all
registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses incurred in connection
with the listing of the Registrable Securities as required by Section 3.1.(i),
(vi) National Association of Securities Dealers, Inc. fees, (vii) fees and
disbursements of counsel for the Company and fees and expenses for independent
certified public accountants retained by the Company, (viii) the fees and
expenses of any special experts retained by the Company in connection with such
registration, and (ix) all
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reasonable fees and expenses incurred by the Selling Holders in connection with
their participation in such registration, including, without limitation, the
reasonable fees and expenses of one legal counsel for, and chosen by, a majority
in interest of the Selling Holders. The Company shall have no obligation to pay
any underwriting fees, discounts or selling commissions attributable to the
Registrable Securities being sold by the Selling Holders, which expenses shall
be borne by the Selling Holders.
4. Indemnification and Contribution.
4.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Selling Holder, its officers, directors,
partners, members and agents, and each person, if any, who controls such Selling
Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act from and against any loss, claim, damage or liability and any action in
respect thereof to which such Selling Holder, its officers, directors, partners,
members or agents, and any such controlling person may become subject under the
1933 Act or the 1934 Act or any other statute or common law, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (a)
any untrue statement or alleged untrue statement of a material fact contained or
incorporated by reference in any registration statement or prospectus relating
to the Registrable Securities (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, (b) any omission or alleged omission to state a material fact
required to be stated in any registration statement or prospectus or necessary
to make the statements therein not misleading or (c) any violation by the
Company of the 1933 Act, the 1934 Act, any state securities laws or any rule or
regulation promulgated thereunder in connection with such registration. The
Company also shall pay directly or reimburse each Selling Holder, its officers,
directors, partners, members and agents, and each such controlling person for
any legal and other expenses incurred by such Selling Holder, its officers,
directors, partners, members and agents, or any such controlling person in
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action. The Company shall either promptly pay directly all
amounts which it is required to pay hereunder or shall reimburse the requesting
party for such amounts within 30 days after any request for such payment. The
Company also shall indemnify any Underwriter of the Registrable Securities,
their officers, directors, partners, members and agents and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 4.1.
The indemnity agreement contained in this Section 4.1 shall not apply to
amounts paid in settlement of any such loss, claim, damage or liability or any
action in respect thereof if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable to any Selling Holder or its officers, directors, partners,
members or agents in any such case for any loss, claim, damage, liability or any
action in respect thereof to the extent that it arises from or is based upon and
is in conformity with written information relating to such Selling Holder
furnished expressly for use in connection with such registration by such Selling
Holder or its agents, nor shall the Company be liable to any Selling Holder for
any such loss, claim, damage or liability or any action in respect thereof to
the extent it arises from or is based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable
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Securities delivered by such Selling Holder after the Company had provided
written notice to such Selling Holder that such registration statement or
prospectus contained such untrue statement or alleged untrue statement of a
material fact, (ii) 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 after the Company had provided written notice to such Selling
Holder that such registration statement or prospectus contained such omission or
alleged omission, or (iii) the failure of such Selling Holder to deliver any
preliminary or final prospectus, or any amendments or supplements thereto,
required under applicable securities laws, including the 1933 Act, to be so
delivered, provided that a sufficient number of copies thereof had been timely
provided by the Company to such Selling Holder.
4.2 Indemnification by Holders of Registrable Securities. Each
Selling Holder shall indemnify and hold harmless the Company, its officers,
directors, partners, members and agents and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act to the same extent as the foregoing indemnity from the Company to
such Selling Holder, but solely with reference to information in conformity with
and related to such Selling Holder furnished in writing by such Selling Holder
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. The indemnity agreement contained in this Section 4.2
shall not apply to amounts paid in settlement of any such loss, claim, damage or
liability or any action in respect thereof if such settlement is effected
without the consent of the Selling Holder (which consent shall not be
unreasonably withheld). Such Selling Holder also shall pay directly or reimburse
the Company, its officers, directors, partners, members and agents, and each
such controlling person for any legal and other expenses incurred by the
Company, its officers, directors, partners, members and agents, or any such
controlling person in investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action. Such Selling Holder shall
either promptly pay directly all amounts which it is required to pay hereunder
or shall reimburse the requesting party for such amounts within 30 days after
any request for such payment. Each Selling Holder shall also indemnify and hold
harmless any Underwriter of the Registrable Securities, their officers,
directors, partners, members and agents and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2: provided, however, that in no event
shall any indemnity obligation under this Section 4.2 exceed the dollar amount
of the net proceeds actually received by such Selling Holder from the sale of
Registrable Securities which gave rise to such indemnification obligation under
such registration statement or prospectus.
4.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any person of any notice of any loss, claim, damage or liability or
any action in respect of which indemnity may be sought pursuant to Section 4.1
or 4.2, such person (the "Indemnified Party") shall, if a claim in respect
thereof is to be made against any other person for indemnification hereunder,
notify such other person (the "Indemnifying Party") in writing of the loss,
claim damage, liability or action; provided, however, that the failure by the
Indemnified Party to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which the Indemnifying Party may have to
such Indemnified Party hereunder unless the Indemnifying Party is prejudiced
thereby. If the Indemnified Party is seeking indemnification with respect to any
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claim or action brought against the Indemnified Party, then the Indemnifying
Party shall be entitled to participate in such claim or action, and, to the
extent that it wishes, jointly with all other Indemnifying Parties, to assume
the defense thereof with counsel satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable to the Indemnified Party for any legal or other expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that in any action in
which both the Indemnified Party and the Indemnifying Party are named as
defendants, the Indemnified Party shall have the right to employ separate
counsel (but no more than one such separate counsel for all Indemnified Parties)
to represent the Indemnified Party and its controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Indemnified Party against the Indemnifying Party, with the fees
and expenses of such counsel at the expense of such Indemnifying Party if, based
upon the written opinion of counsel of such Indemnified Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, consent to entry of judgment
or effect any settlement of any claim or pending or threatened proceeding in
respect of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such judgment or settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or proceeding.
4.4 Contribution. If the indemnification provided for in the
foregoing Sections 4. 1, 4.2 and 4.3 is unavailable to any Indemnified Party in
respect of any loss, claim, damage, liability or action referred to herein, 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 loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the Indemnified Parties and the
Indemnifying Parties in connection with the actions or omissions which resulted
in such loss, claim, damage, liability or action, as well as any other relevant
equitable considerations. The relative fault of any Indemnified Party and any
Indemnifying Party 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 relates to information
supplied by such Indemnified Party or such Indemnifying Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of any loss, claim,
damage, liability or action referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Selling Holder shall be required to
contribute any amount in excess of the dollar amount of the net proceeds
actually received by such Selling Holder from the sale of Registrable Securities
which gave rise to such contribution
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obligation. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
4.5 Superseding Provisions. The indemnification provisions of
any underwriting agreement entered into by the Company and any Selling Holder
with respect to any registration rights granted to such Selling Holder pursuant
to this Agreement shall supersede the indemnification provisions of this Section
4.
5. Underwriting and Distribution.
5.1 Restrictions on Sale by the Company and Others. The Company
agrees (i) not to effect any sale or distribution of any securities similar to
those being registered in accordance with Section 2.1, or any securities
convertible into or exchangeable or exercisable for such securities, during the
14 days prior to, and during the 120-day period beginning on, the effective date
of any registration statement (except as part of such registration statement
where the Holder making such Demand Registration consents); and (ii) that any
agreement entered into after the date hereof pursuant to which the Company
issues or agrees to issue any privately placed securities shall contain a
provision under which holders of such securities agree not to effect any sale or
distribution of any such securities during the periods described in (i) above,
other than a sale pursuant to Rule 144 or 144A under the 1933 Act (except as
part of any such registration, if permitted); provided, however, that the
provisions of this Section 5.1, shall not prevent the conversion or exchange of
any securities pursuant to their terms into or for other securities and shall
not prevent the issuance of securities by the Company under any employee
benefit, stock option or stock subscription plans.
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5.2 Agreement by Holders of Registrable Securities.
(a) The Holders of Registrable Securities, by their
acceptance thereof, agree that, upon request, in connection with any
underwritten public offering by the Company, they will enter into "lock-up"
agreements, in customary form, pursuant to which they will agree not to effect
any sale or distribution of any securities similar to those being registered by
the Company in the Company's first registration which covers Common Stock (or
other securities) to be sold on its behalf in an underwritten offering, or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 or 144A under the 1933 Act, during such
period as may be requested by the managing Underwriters, which shall not exceed
180 days, beginning on the effective date of the registration statement relating
to such offering (except as part of such registration statement), provided that
all officers and directors of the Company and holders of 1% or more of the
Company's outstanding shares enter into similar agreements. In order to enforce
the foregoing covenant, the Company may impose appropriate stop-transfer
instructions with respect to the Registrable Securities of each Holder.
(b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Agreement with respect to the
Registrable Securities of any Selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities. The
Company shall have no obligation (including the obligation to pay expenses
pursuant to Section 3.3 hereof) with respect to any registration requested
pursuant to Section 2.1 or Section 2.3 if, in light of the information furnished
pursuant to the preceding sentence, the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.1 or Section 2.3,
whichever is applicable.
(c) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any registration being made for or
on behalf of the Company as a result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
5.3 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Agreement may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under Sections 2.2 or 2.3 hereof unless it acquires at least
50,000 shares of Registrable Securities (as adjusted for stock splits and
combinations) and the Company shall, within a reasonable time, be furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided further, that such assignment shall be effective only if
immediately following such transfer, the further disposition of such securities
by the transferee or assignee is restricted under the 1933 Act. Any such
assignee shall be subject to all rights and obligations hereunder and, if
requested by the Company, shall agree in writing to be bound by the terms of
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this Agreement. Notwithstanding the foregoing, rights to cause the Company to
register securities may be assigned to any subsidiary, parent, partner or
shareholders of a Holder without restriction as to the percentage of shares
acquired by any such subsidiary, parent, partner or shareholder; provided that
all such assignees and transferees who do not meet the 50,000 share threshold
shall appoint a single Holder as their attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this
Agreement.
5.4 Reports Under the 1934 Act. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the 1933 Act and any
other rule or regulation of the Commission that may at any time permit a Holder
to sell securities of the Company to the public without registration, the
Company agrees to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company covering an underwritten public offering of its securities to the
general public;
(ii) file with the Commission in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act; and
(iii) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of said first registration
statement filed by the Company), the 1933 Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), and (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company.
6. Stock Legend. In addition to any other legend that may be required to
be placed on the certificates representing the Registrable Securities under
applicable law or under the terms of any other agreement of which any of the
parties hereto are subject, certificates representing the Registrable Securities
shall bear substantially the following legend:
"THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE TERMS OF A REGISTRATION RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE
REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST OF THE SHARES)
WHICH MAY RESTRICT THE TRANSFER OF THE SHARES FOLLOWING THE EFFECTIVE DATE OF A
REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT OF 1933."
All certificates representing the Registrable Securities hereafter
issued to any party subject to this Agreement shall bear the legend set forth
above.
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7. Information Rights.
7.1 GMGC shall be entitled to receive from the Company, and the
Company shall use its best efforts to deliver: (i) within 90 days after the end
of each fiscal year of the Company, an audited balance sheet as of the end of
such year and the related statements of income and cash flow and stockholders
equity for such fiscal year and (ii) within 15 days, but in no event later than
45 days, of the end of each fiscal quarter (except for the last quarter of each
fiscal year) of the Company, an unaudited balance sheet as of the end of such
quarter and the related statements of income and cash flow for such quarter. All
of such financial statements shall be prepared be in accordance with generally
accepted accounting principles ("GAAP").
7.2 The Company shall use its best efforts to deliver to GMGC,
solely to assist it in satisfying its reporting obligations as a public company,
on or before January 15th of each year, an unaudited balance sheet as of
December 31st and the related statements of income and cash flow and
stockholders' equity; provided, however, that all parties understand that the
financial information provided will not be final, will be subject to change,
will be derived from the preliminary year end accounting records of the Company,
and may deviate substantially from the Company's final year end financial
statements.
7.3 GMGC shall be entitled to visit and inspect, or have an
authorized representative visit and inspect, any of the properties of the
Company and its subsidiaries (at GMGC's expense), including inspection of the
Company's financial and accounting records and to make copies and take extracts
therefrom, and to discuss the Company's affairs, finances and accounts with its
officers and accountants, all upon reasonable notice and at such reasonable
times during normal business hours as may be reasonably requested and pursuant
to any other reasonable procedures the Company may establish to avoid
unnecessary interference with its business operations.
8. Miscellaneous.
8.1 Limitation on Subsequent Registration Rights. After the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority in interest of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company providing for the granting to such holder of
registration rights superior to those granted to the Holders pursuant to this
Agreement.
8.2 Successors and Assigns. Subject to the limitations of, and
in compliance with the provisions of Section 5.3, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. The provisions of Section 5.2
shall bind the successors and assigns of each Holder, whether or not assigned
pursuant to Section 5.3 hereof.
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8.3 Severability. If any provisions of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
8.4 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively), by a writing signed by the holders of a majority of the then
outstanding Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities and the Company or any of its successors or assigns.
8.5 Notices. All notices, demands or other communications which
are required or are permitted to be given hereunder shall be in writing and
shall be deemed to have been sufficiently given in the manner set forth in the
Stock Purchase Agreement.
8.6 Arbitration. Any dispute or controversy concerning this
Agreement, including a dispute pertaining to the validity of this Section 8.6,
shall be determined by binding arbitration before a single arbitrator in Santa
Clara County, California in accordance with the Commercial Rules of Arbitration
of the American Arbitration Association then in effect. The award of the
arbitrator may be enforced in any court of competent jurisdiction. No Holder
shall have any right to obtain or seek an injunction restraining or otherwise
delaying any registration being made for or on behalf of the Company as a result
of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
8.7 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without regard to conflicts of laws principles.
8.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which together shall constitute one and
the same instrument.
8.9 Facsimile Signatures. This Agreement may be executed by
facsimile signature and facsimile signatures shall be fully binding and
effective for all purposes and shall be given the same effect as original
signatures. If any party delivers a copy of this Agreement containing a
facsimile signature, such party shall promptly forward an originally executed
copy to the other party; however, the failure by any party to so deliver an
originally executed copy shall not affect in any way the binding nature of such
party's facsimile signature.
18
<PAGE> 125
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
THE "COMPANY": THE "SHAREHOLDERS":
DATAROVER MOBILE SYSTEMS, INC., GENERAL MAGIC, INC.,
a California corporation a Delaware corporation
By: By:
Steven D. Schramm, ------------------------------
Chief Executive Officer Name:
------------------------------
Title:
----------------------------
----------------------------------
Steven D. Schramm, an individual
----------------------------------
Jeffrey J. Ellis, an individual
----------------------------------
Michael R. Migliore, an individual
----------------------------------
Eric D. Popejoy, an individual
<PAGE> 126
EXHIBIT G TO EXHIBIT 2.1
REAL ESTATE LICENSE AGREEMENT
<PAGE> 127
EXHIBIT G
REAL ESTATE LICENSE AGREEMENT
THIS REAL ESTATE LICENSE AGREEMENT (this "Agreement"), effective as of
November 4, 1998 ("Commencement Date"), is made by and between General Magic,
Inc. ("General Magic") and DataRover Mobile Systems, Inc. ("DataRover").
RECITALS
WHEREAS, General Magic leases space at 420 North Mary Avenue, Sunnyvale,
California comprising approximately 78,000 usable square feet of space
("Premises"), under a sublease between ARGO Systems Inc. as "Sublessor" and
General Magic as "Sublessee" (the "Sublease") which Sublease has a termination
date in June, 2002 (the "Termination Date");
WHEREAS, DataRover desires permission to use certain space in the
Premises for the purpose of conducting its business; and
WHEREAS, General Magic desires to grant DataRover permission to use a
portion of the Premises together with all other services or amenities described
on Exhibit A, subject to the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. License. Subject to the terms and conditions set forth herein,
General Magic hereby authorizes DataRover to use approximately 10,500 usable
square feet of space ("Licensed Area") in the Premises currently occupied by
General Magic's DataRover handheld products division. During the term of this
Agreement, those employees of DataRover, as designated in Exhibit B hereto (the
"Designated Employees") shall have access (a) to the Licensed Area (through the
Premises and such other access ways as are available to General Magic), (b) to
such other parts of the Premises as the parties may agree upon in writing, and
(c) to such toilet facilities and common areas as are available to General
Magic. Only the Designated Employees and invitees related to the business of
DataRover shall be entitled to use the Licensed Area and receive the services
described in Exhibit A (the "Services").
2. Term. This Agreement shall begin as of the Commencement Date and
shall terminate upon the earlier of (a) the date DataRover shall no longer
require the use of the Premises or (b) February 28, 1999.
3. Termination. Notwithstanding the foregoing, General Magic may
terminate this Agreement at any time (a) if the Sublease expires or is otherwise
terminated, (b) if DataRover violates any of the terms of the Sublease in its
use of the Licensed Area or the Premises and fails to cure same within 10 days
or (c) upon no less than thirty (30) days written notice by General Magic.
<PAGE> 128
4. Use of Premises. DataRover shall use and occupy the Licensed Area
only as permitted to General Magic under the terms and conditions of the
Sublease, a copy of which has been furnished to DataRover.
5. Condition of Premises; Fixtures and Equipment.
(a) DataRover shall accept the Licensed Area in its current "AS
IS" condition.
(b) DataRover shall have the right to utilize furniture and
equipment owned or leased by General Magic and in the Licensed Area on the
Commencement Date. All such furniture and equipment shall at all times remain
the property of General Magic or General Magic's vendor and may not be removed
from the Licensed Area by DataRover without General Magic's written consent.
DataRover shall not install any trade fixtures within the Licensed Area.
(c) All furniture and equipment brought onto the Licensed Area
by DataRover shall remain at all times the property of DataRover, except that
any such furniture or equipment remaining in the Licensed Area after the
termination of this Agreement shall be deemed abandoned and shall become the
property of General Magic without payment therefor. All such furniture and
equipment shall be reasonably appropriate given the nature of the Premises and
the commercial usage thereof. DataRover shall be solely liable for all expenses
and damages incurred in removing such furniture and equipment after the
termination of this Agreement.
6. Alterations and Improvements. General Magic shall have no obligation
to make any alterations or improvements to the Licensed Area or the Premises for
DataRover's use or occupancy thereof. DataRover shall not make any alterations
and additions to the Premises without the written consent of General Magic and
Sublessor, which consent may be granted or withheld in General Magic's and
Sublessor's sole and absolute discretion.
7. Provision of Services. The License Fee (as defined below) shall
constitute payment for all the items and services to be furnished to DataRover
hereunder. If DataRover requests from General Magic any services not provided
for in this Agreement and such services are in fact rendered, DataRover shall be
solely responsible for the actual cost therefor, and DataRover shall pay such
cost within twenty (20) days after receipt of an invoice from General Magic,
accompanied by supporting documentation; provided, however, that General Magic
shall have no obligation to provide any services not specified in Exhibit A.
8. License Fee. DataRover shall pay General Magic, in advance of each
month, without credit or offset and without additional notice or demand, a
monthly fee of $10,500 for use of the Licensed Area and the Services ("License
Fee") so long as this Agreement shall be in effect. The License Fee shall be
paid to General Magic on or before the first day of each month to: General
Magic, Inc., c/o Chief Financial Officer, 420 North Mary Avenue, Sunnyvale, CA
94086 or to such other place as General Magic shall indicate to DataRover in
advance in writing. If this Agreement shall begin or terminate at a time other
than at the beginning or ending of a month, General Magic shall prorate the
License Fee accordingly.
<PAGE> 129
9. Subleased Premises. General Magic and DataRover covenant and agree
that on or before the termination of this Agreement, they shall enter into a
mutually agreeable sublease agreement with respect to new premises which shall
be occupied by DataRover (the "New Premises") and which shall be leased by
General Magic for at least a twenty-four (24) month term (the "New Sublease").
The New Sublease shall provide that DataRover shall pay General Magic rent equal
to $1/per square foot per month during the first twelve (12) month period (the
"Rent") and thereafter an amount equal to 100% of General Magic's rent and any
additional payments required to be paid under the terms of the master lease
between General Magic and the landlord of the New Premises. Such Rent shall
include all taxes, insurance, utilities (excluding telephone and data
transmission charges), janitorial and groundskeeping services. In addition to
the foregoing, General Magic shall pay (i) all of DataRover's reasonable moving
expenses from the Premises to the New Premises, (ii) the cost of furnishing the
New Premises in a manner consistent with the Licensed Area and (iii) the cost of
wiring the New Premises for telephone service and data transmission.
10. Holding Over. DataRover shall have no right to occupy the Licensed
Area after termination of this Agreement. If DataRover remains in possession of
the Licensed Area after the expiration or other termination of this Agreement,
DataRover shall be responsible for all damages and costs incurred by General
Magic as a result of such unauthorized occupancy. Further, in addition to any
and all damages and costs incurred by General Magic, DataRover shall be required
to pay Two Hundred Percent (200%) of the License Fee throughout the period of
its unauthorized occupancy. Nothing in this paragraph shall be construed to
grant DataRover any right to occupy the Licensed Premises after termination.
11. Relationship of Parties. General Magic shall exercise no supervision
over DataRover's manner of performance of its obligations hereunder and
DataRover's employees and agents shall not be deemed to be employees or agents
of General Magic.
12. Default. In the event DataRover fails to pay the License Fee when
due or fails to perform any of its obligations under this Agreement, after five
(5) days written notice from General Magic, then DataRover shall be in default,
and General Magic shall have the right to immediately terminate this Agreement
and DataRover shall vacate the Premises upon such notice. DataRover shall be
responsible for all sums due under this Agreement accruing before such
termination and any other costs resulting from the default and termination,
which sums shall be immediately due upon receipt by DataRover of written notice
thereof from General Magic.
13. Assignment and Sublicensing. DataRover may not assign this Agreement
or further sublet or license all or any part of the Licensed Area.
14. Notices or Demands. Any notice required or permitted hereunder will
be given in writing and will be deemed effectively given upon personal delivery,
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested), one (1) business day after its
deposit with any return receipt express courier (prepaid), or one (1) business
day after transmission by telecopier, addressed to the other party at its
address (or facsimile number, in the case of transmission by telecopier) as
shown below or to such other address as such party may designate in writing from
time to time to the other party:
<PAGE> 130
If to General Magic: General Magic, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: General Counsel
Facsimile: (408) 774-4023
If to DataRover: DataRover Mobile Systems, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: President
Facsimile: (408) 774-4014
15. Severability. If any provisions of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
16. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to conflicts of laws principles.
17. Section and Paragraph Headings. The section and paragraph headings
are included only for the convenience of the parties and are not part of this
Agreement and shall not be used to interpret the meaning of provisions contained
herein or the intent of the parties hereto.
18. Entire Agreement; Amendments. This Agreement, along with any
exhibits and attachments hereto, constitute the entire agreement between General
Magic and DataRover relative to the Licensed Area and the Premises, and may be
altered or amended only by an instrument in writing signed by both parties
hereto. General Magic and DataRover hereby agree that all prior or
contemporaneous oral agreements, if any, between and among themselves relative
to the Premises and Licensed Area are merged into this Agreement.
19. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the respective heirs, administrators, executors, successors
and permitted assigns of the parties hereto, provided, however, that any
assignment by a party of this Agreement shall not be effective without the
written consent of the other party; provided, further, that this provision shall
not be construed to allow an assignment or sublicensing which is otherwise
specifically prohibited herein.
20. Attorneys' Fees. If any action or proceeding at law or in equity, or
an arbitration proceeding (collectively an "action"), shall be brought to
enforce or interpret any of the terms, covenants, or conditions of this
Agreement, or for the recovery of possession of the Licensed Area, the
prevailing party shall be entitled to recover from the other party as a part of
such action,
<PAGE> 131
or in a separate action brought for that purpose, its reasonable
attorneys' fees and costs and expenses incurred in connection with the
prosecution or defense of such action.
21. Arbitration. Any claim or controversy arising out of or related to
this Agreement (or breach thereof), whether arising in tort, contract or
otherwise, shall be settled in accordance with the procedures set forth in
Section 9.11 of the Stock Purchase Agreement dated as of October 28, 1998
between the parties hereto.
22. Facsimile Signatures. This Agreement may be executed by facsimile
signature and facsimile signatures shall be fully binding and effective for all
purposes and shall be given the same effect as original signatures. If any party
delivers a copy of this Agreement containing a facsimile signature, such party
shall promptly forward an originally executed copy to the other party; however,
the failure by any party to so deliver an originally executed copy shall not
affect in any way the binding nature of such party's facsimile signature.
<PAGE> 132
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the following parties have caused this Agreement to
be executed by their respective officers, duly authorized.
"GENERAL MAGIC": "DATAROVER":
GENERAL MAGIC, INC., DATAROVER MOBILE SYSTEMS, INC.,
a Delaware corporation a California corporation
By: By:
---------------------- -----------------------------
Name: Name:
--------------------- ---------------------------
Title: Title:
-------------------- --------------------------
<PAGE> 133
Exhibit A
DESCRIPTION OF SERVICES
Mail service, janitorial service, electrical power, HVAC, parking, use of copy
machine, and use of telephones and fax machine (subject to payment by DataRover
of all telephone charges).
<PAGE> 134
Exhibit B
DESIGNATED EMPLOYEES
The Designated Employees shall be those persons listed on Schedule 5.6
to the Stock Purchase Agreement dated October 28, 1998 by and between DataRover
and General Magic.
<PAGE> 135
EXHIBIT H TO EXHIBIT 2.1
MANAGEMENT SERVICES AGREEMENT
<PAGE> 136
EXHIBIT H
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement"), effective as of
November 4, 1998 ("Effective Date"), is entered into by and between General
Magic, Inc., a Delaware corporation, ("General Magic") and DataRover Mobile
Systems, Inc., a California corporation (the "Company").
RECITALS
WHEREAS, General Magic and the Company have agreed to enter into certain
related transactions set forth in that certain Stock Purchase Agreement dated
October 28, 1998 between the parties hereto (the "Stock Purchase Agreement"),
and agreed to execute certain related agreements set forth therein, each of even
date herewith (collectively, the Stock Purchase Agreement and the related
agreements shall be referred to hereinafter as the "Related Agreements");
WHEREAS, the Company wishes to procure certain services from General
Magic; and
WHEREAS, General Magic is willing to provide such services on the terms
and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in the Related Agreements and herein, the parties agree as follows:
AGREEMENT
1. Services Appendix. The Company will purchase and General Magic will
provide the services set forth in Exhibit A, as amended from time to time by
mutual agreement of General Magic and the Company ("Services"). The Services are
currently being provided by General Magic to its DataRover handheld products
division. General Magic will continue to provide these Services for the period
of this Agreement.
2. Fee for Services. The Company will pay General Magic the fees for
specific Services in the amounts set forth in Exhibit A (all such fees in the
aggregate being the "Monthly Fee"). In the event the Company requests General
Magic to provide additional services, the Monthly Fee shall be increased by the
mutually determined value of such additional services.
3. Payment Term. Payment for the Services shall be made on or before the
first day of each month, with appropriate proration for the initial month, as
may be required.
4. Term and Termination. The term of this Agreement shall begin on the
Closing Date (as defined in the Stock Purchase Agreement) and continue for
ninety (90) days thereafter unless earlier terminated as provided herein. Either
party may terminate this Agreement for default by the other party of any
material obligation, unless the defaulting party cures such material breach
within ten (10) days after receipt of written notice from the non-defaulting
party.
<PAGE> 137
Additionally, the Company may terminate, in whole or in part, any of the
Services provided upon five (5) days written notification to General Magic.
5. Standard of Services. General Magic shall perform its obligations
under this Agreement with the same degree of care, skill and diligence with
which General Magic performs or would perform similar services for its own
account.
6. Force Majeure. General Magic shall be excused from performing its
obligations hereunder to the extent such nonperformance arises from any cause or
causes beyond the control of General Magic. Without limiting the generality of
the foregoing, the following causes shall be deemed to be beyond the control of
General Magic: strikes, lockouts or other industrial disturbances irrespective
of the ability of General Magic to settle the same, acts of an enemy, blockades,
insurrections, riots, acts of God, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, hurricanes, washouts, governmental
restraints, military or civil orders or requirements, civil disturbances,
explosions, breakages or accident to machinery or lines of pipe, shortages,
interruptions or delays in transportation, inability of General Magic to acquire
raw materials or utilities required to supply services hereunder, and any other
causes, whether of the kind herein enumerated or otherwise, not within the
control of General Magic.
7. No Liability. So long as General Magic performs the Services
hereunder in the same manner as it performs similar services for itself, General
Magic shall have no liability to the Company with respect to any of the Services
performed by it hereunder. Provided General Magic has met the foregoing standard
and the Company has provided General Magic all information, documents or other
items on a timely basis necessary to meet such standard, in no event shall
General Magic have any obligation, liability, cost or expense to any employee,
sales representative, creditor or customer of the Company, or any other person
or entity, including, without limitation, any taxing authority, as a result of
General Magic's Services hereunder and the Company shall promptly, upon demand,
indemnify and hold harmless General Magic and its officers, directors,
stockholders and affiliates from and against any and all obligations,
liabilities, costs and expenses (including reasonable attorney's fees) incurred
by General Magic or any such persons in respect thereof.
8. No Warranty. ALL SERVICES ARE PROVIDED BY GENERAL MAGIC AS IS, WITH
NO WARRANTY, EXPRESS, IMPLIED OR STATUTORY, OF ANY KIND. EXCEPT FOR THE EXPRESS
OBLIGATIONS UNDERTAKEN BY GENERAL MAGIC HEREIN, GENERAL MAGIC DISCLAIMS ALL
WARRANTIES AS TO THE NATURE OR QUALITY OF THE SERVICES. THE COMPANY ASSUMES SOLE
RESPONSIBILITY FOR DETERMINING WHETHER THE SERVICES ARE APPROPRIATE TO THE
COMPANY'S REQUIREMENTS.
9. Limits of Liability. GENERAL MAGIC SHALL NOT BE RESPONSIBLE FOR
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING, WITHOUT
LIMITATION, LOST PROFITS OR REVENUES), WHETHER OR NOT INFORMED OF THE
POSSIBILITY THEREOF, OR FOR DIRECT DAMAGES IN EXCESS OF THE AGGREGATE FEES PAID
TO GENERAL MAGIC BY THE COMPANY HEREUNDER.
<PAGE> 138
10. Taxes. The Monthly Fee does not include any sales, excise, customs
or similar tax, charge, duty or cost levied or imposed from and after this date
by any federal, state, municipal or other governmental authority upon the
provision of any Service, including without limitation, payroll taxes and other
employee taxes, and any such tax, charge or cost, as well as any increases
therein or any similar taxes or charges levied after the date of this Agreement
shall be for the account of the Company and the Company shall indemnify General
Magic and its officers, directors, stockholders and affiliates, promptly upon
demand, with respect to the payment thereof. Income, franchise, gross receipts,
excess profit, and other similar taxes are not to be regarded as taxes, charges
or costs within the meaning of this section.
11. Notices. All notices, demands, or other communications which are
required or are permitted to be given hereunder shall be in writing and shall be
deemed to have been sufficiently given in the manner set forth in the Stock
Purchase Agreement.
12. Entire Agreement. This Agreement constitutes the entire and only
understanding and agreement among the parties hereto with respect to the matters
addressed herein, and this Agreement supersedes all prior negotiations,
understandings and agreements, if any, among the parties hereto relating to such
matters. This Agreement may be amended only by a written instrument duly
executed by the parties hereto.
13. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to conflicts of laws principles.
14. Arbitration. Any claim or controversy arising out of or related to
this Agreement (or breach thereof), whether arising in tort, contract or
otherwise, shall be settled in accordance with the procedures set forth in
Section 9.11 of the Stock Purchase Agreement.
15. Headings. 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 or any of the provisions thereof.
16. Assignment. Neither this Agreement nor any rights or obligations
hereunder is assignable by either party without the prior written consent of the
other party.
17. Successors and Assigns. This Agreement shall be binding on and inure
to the benefit of the parties and their respective successors, including any
successor by reason of amalgamation of any party, and permitted assigns. Nothing
herein, express or implied, is intended to confer on any person, other than the
parties and their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
18. No Relationship. This Agreement is not intended to establish any
employment relationship or partnership between or among any of the parties
hereto, including their affiliates, subsidiaries, employees, officers, directors
or agents. In no event shall any of General Magic's personnel be deemed to be
employees of the Company.
<PAGE> 139
19. Severability. If any provisions of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which together shall constitute one and
the same instrument.
Facsimile Signatures. This Agreement may be executed by facsimile
signature and facsimile signatures shall be fully binding and effective for all
purposes and shall be given the same effect as original signatures. If any party
delivers a copy of this Agreement containing a facsimile signature, such party
shall promptly forward an originally executed copy to the other party; however,
the failure by any party to so deliver an originally executed copy shall not
affect in any way the binding nature of such party's facsimile signature.
IN WITNESS WHEREOF, the following parties have caused this Agreement to
be executed by their respective officers, duly authorized.
"GENERAL MAGIC": THE "COMPANY":
GENERAL MAGIC, INC., DATAROVER MOBILE SYSTEMS, INC.,
a Delaware corporation a California corporation
By: By:
--------------------------- ---------------------------------
Name: Name:
-------------------------- --------------------------------
Title: Title:
------------------------ -------------------------------
<PAGE> 140
Exhibit A
SERVICES APPENDIX
A. FINANCE SYSTEMS AND SERVICES For a period not to exceed sixty (60) days from
the date of this Agreement and at a monthly cost of $6,000, General Magic will:
- provide an accounts payable function which will record and code
invoices. Company checks will be used to pay these liabilities
through the same accounts payable function.
- process the payroll for the Company's employees. The Company
will provide the funds in advance to cover the related payroll
periods processed.
B. MIS SERVICES Commencing with a $14,000 initial payment and at a monthly cost
of $14,000, and for so long as the Company is occupying space at General Magic's
current headquarters:
- General Magic will set up all equipment and services needed to
create an independent client entity. This will include the
following:
- Internet connection
- Email
- File and directory services
- File backup
General maintenance with respect to the foregoing
- General Magic will provide telephone, PBX and Audix support.
C. SHIPPING AND RECEIVING For so long as the Company is occupying space at
General Magic's current headquarters and at no cost other than as set forth in
Section A above:
- Assist in the receipt of shipments of DataRover 840 units
including counting units received versus the count on the
packing slip.
- Assist in the packaging of the DataRover 840 units for shipment
to end customers as well as arranging third-party shipment.
- All out-of-pocket expenses related to the foregoing will be the
responsibility of the Company.
D. MANTIS BUG-TRACKING SYSTEM
- General Magic will provide the Company access to the server on
which the Mantis bug-tracking database is currently maintained
until such time as the Company is able to implement an
independent bug-tracking system.
<PAGE> 141
EXHIBIT I TO EXHIBIT 2.1
FOUNDER STOCK PURCHASE AGREEMENT
<PAGE> 142
EXHIBIT I
FOUNDER STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 4th day of November 1998, by and
between DataRover Mobile Systems, Inc., a California corporation (the
"Corporation"), and _________________ (the "Founder").
WITNESSETH:
WHEREAS, the Corporation desires to issue and the Founder desires to
acquire the Common Stock of the Corporation.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Corporation and the Corporation agrees to sell to the Founder
_____________________________ (_______) shares of the Corporation's Common Stock
(the "Stock") for an aggregate purchase price of _______________________ Dollars
($_________) (the "Purchase Price") or $0.10 per share. The purchase price shall
be payable by check or wire transfer of funds upon execution of this Agreement.
2. Legends. All certificates representing any shares of Stock subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(b) Any legend required to be placed thereon by the California
Commissioner of Corporations.
3. Representations and Warranties. In connection with the proposed
purchase of the Stock, the Founder hereby agrees, represents and warrants as
follows:
(a) The Founder is purchasing the Stock solely for his own
account for investment and not with a view to, or for resale in connection with,
any distribution thereof within the meaning of the Act. The Founder further
represents that he does not have any present intention of selling, offering to
sell or otherwise disposing of or distributing the Stock or any
1
<PAGE> 143
portion thereof; and that the entire legal and beneficial interest of the Stock
he is purchasing is being purchased for, and will be held for the account of,
the Founder only and neither in whole nor in part for any other person.
(b) The Founder is aware of the Corporation's business affairs
and financial condition and has acquired sufficient information about the
Corporation to reach an informed and knowledgeable decision to acquire the
Stock. The Founder further represents and warrants that he has discussed the
Corporation and its plans, operations and financial condition with its officers,
has received all such information as he deems necessary and appropriate to
enable him to evaluate the financial risk inherent in making an investment in
the Stock and has received satisfactory and complete information concerning the
business and financial condition of the Corporation in response to all inquiries
in respect thereof.
(c) The Founder realizes that his purchase of the Stock will be
a highly speculative investment, and he is able, without impairing his financial
condition, to hold the Stock for an indefinite period of time and to suffer a
complete loss on his investment.
(d) The Corporation has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under
the Act, and the Stock must be held indefinitely unless a transfer of it is
subsequently registered under the Act or an exemption from such registration is
available, and that the Corporation is under no obligation to register the Stock
(except as set forth in that certain Registration Rights Agreement of even date
herewith by and among the Corporation, General Magic, Inc., a Delaware
corporation, Steven D. Schramm, Jeffrey J. Ellis, Michael R. Migliore and Eric
D. Popejoy); and
(ii) The Corporation will make a notation in its records
of the aforementioned restrictions on transfer and legends.
(e) The Founder is aware of the provisions of Rule 144,
promulgated under the Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or an affiliate of such issuer), in a non-public offering subject to
the satisfaction of certain conditions, including among other things: the resale
occurring not less than one (1) year from the date the Founder has purchased and
paid for the Stock; the availability of certain public information concerning
the Corporation; the sale being through a broker in an unsolicited "brokers
transaction" or in a transaction directly with a market maker (as said term is
defined under the Exchange Act); and that any sale of the Stock may be made by
him only in limited amounts during any three-month period not exceeding
specified limitations. The Founder further represents that he understands that
at the time he wishes to sell the Stock there may be no public market upon which
to make such a sale, and that, even if such a public market then exists, the
Corporation may not be satisfying the current public information requirements of
Rule 144, and that, in such event, he would be precluded from selling the Stock
under Rule 144 even if the two-year minimum holding period had been satisfied.
The Founder represents that he understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Act or
compliance with an exemption from registration will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the staff of the
2
<PAGE> 144
Securities and Exchange Commission has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
4. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
5. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to the other party hereto at the address
hereinafter shown below his signature or at such other address as such party may
designate by ten (10) days advance written notice to the other party hereto.
6. Successors and Assigns. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and, subject to the restrictions
on transfer herein set forth, be binding upon the Founder, his heirs, executors,
administrators, successors and assigns.
7. Entire Agreement; Amendments. This Agreement shall be construed under
the laws of the State of California, and constitutes the entire agreement of the
parties with respect to the subject matter hereof superseding all prior written
or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties hereto.
8. Right to Specific Performance. The Founder agrees that the
Corporation shall be entitled to a decree of specific performance of the terms
hereof or an injunction restraining violation of this Agreement, said right to
be in addition to any other remedies available to the Corporation.
9. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
3
<PAGE> 145
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE "FOUNDER" THE "CORPORATION"
DATAROVER MOBILE SYSTEMS, INC.
a California corporation
By: By:
------------------------- ---------------------------
_________________ Name:
--------------------------
Title:
------------------------
<PAGE> 146
EXHIBIT J TO EXHIBIT 2.1
EMPLOYMENT TERMINATION LETTER
<PAGE> 147
EXHIBIT J
October 28, 1998
VIA HAND DELIVERY
[NAME]
Dear [NAME]:
As you know, General Magic has entered into an agreement to sell the assets and
license the technology of its DataRover division to DataRover Mobile Systems,
Inc. ("DSI") in a transaction expected to close on October 28, 1998 (the
"Closing Date"). As an employee in the DataRover division, you have been
offered employment with DSI effective as of the next business day following the
Closing Date. The purpose of this letter is to provide you with formal notice
of your termination of employment with General Magic effective as of the close
of business on the Closing Date.
You will receive your final paycheck, which will include all unpaid wages you
have earned through your final day of work with General Magic, as well as any
unused vacation which you have accrued. You will continue to be covered under
General Magic's applicable group medical and dental plan through your last day
worked at General Magic. After that date, you will be able to elect continued
insurance coverage (COBRA) in accordance with federal law. Also, you may be
entitled to a distribution from the General Magic 401(k) Savings and Retirement
Plan in accordance with the Plan's provisions. Please set up an appointment
with Human Resources in order to receive information regarding your COBRA
election, the 401(k) Plan, completion of General Magic's exit checklist and
other matters related to the conclusion of your employment with General Magic.
In recognition of your continued support of General Magic and agreement to join
DSI, we would like to offer you the opportunity to have your existing General
Magic stock options which are unvested as of the Closing Date amended to
provide for continued vesting as long as you remain an employee of DSI. In
addition, the amendment will provide for full vesting of those stock options
after completion of six months of employment with DSI or
<PAGE> 148
upon certain earlier events. However, you will need to exercise your General
Magic options within three months following the Closing Date for any shares
that have vested as of the Closing Date. These amendments are covered in
greater detail in the form of "Amendment of Stock Option" enclosed with this
letter. If you wish to have your existing unvested General Magic stock options
amended, please sign the Amendment of Stock Option and bring it to your meeting
with Human Resources.
Finally, we have attached a copy of the General Magic Proprietary Rights and
Information Agreement which you signed when you joined the company. Please
review it carefully, as your obligations under this agreement are ongoing and
survive the termination of your employment with General Magic.
I would like to take this opportunity to thank you for all your hard work and
support of General Magic. I am confident that you'll attain great success with
DSI, and I wish you all the best of luck.
Sincerely,
Elena M. Morera
<PAGE> 149
GENERAL MAGIC, INC.
AMENDMENT OF STOCK OPTION
THIS AMENDMENT OF STOCK OPTION (the "AGREEMENT") is made and entered into
by and between General Magic, Inc., a Delaware corporation (the "COMPANY"), and
the undersigned Optionee, effective as of the Closing Date (as defined below).
RECITALS
A. The Company previously granted to the Optionee prior to September
1998 one or more options (each an "OPTION") to purchase shares of the common
stock of the Company pursuant to the Company's 1990 Stock Option Plan (the
"PLAN") and the terms and conditions of a Stock Option Agreement between the
Company and the Optionee (each an "OPTION AGREEMENT"). A list of such Options
is attached to this Agreement as Exhibit A. This Agreement shall be deemed a
separate agreement with respect to each such Option and Option Agreement.
B. The Optionee is currently an employee of the Company working in the
Company's DataRover division.
C. The Company intends to sell the assets of the DataRover division to
DataRover Mobile Systems, Inc. ("DataRover") on the date of the closing (the
CLOSING DATE") of the transactions contemplated by a Stock Purchase Agreement
among DataRover, the Company and others.
D. A number of shares subject to the Option, as designated in Exhibit A
(the "DESIGNATED SHARES"), will remain unvested and unexercisable under the
terms of the Option Agreement as of the Closing Date.
E. In order to induce the Optionee to enter into an employment
relationship with DataRover, the Company is willing to amend certain provisions
of the Option Agreement with respect to the Designated Shares, as set forth
below.
F. Unless otherwise defined herein, all capitalized terms shall have the
meanings assigned to such terms by the Option Agreement or the Plan.
AGREEMENT
In consideration of the mutual covenants and conditions contained herein,
it is hereby agreed by and among the parties hereto that the Option Agreement
shall be amended effective as of the Closing Date as follows:
1
<PAGE> 150
1. Deemed Continuation of Employment. In determining whether the
Optionee remains an employee of or has ceased employment with the Participating
Company Group for purposes of the treatment of the Designated Shares only,
DataRover shall be deemed a "Participating Company" for all purposes applicable
to the treatment of the Designated Shares under the Option Agreement and this
Agreement. In accordance with the foregoing.
(a) the Optionee shall be deemed an employee of the Participating
Company Group and shall continue to vest in the Designated Shares in accordance
with the vesting provisions of the Option Agreement for so long as the Optionee
remains an employee of DataRover or any other Participating Company;
(b) termination of the Optionee's employment with DataRover (unless
the Optionee remains or immediately becomes an employee of another
Participating Company) shall be deemed termination of employment with the
Participating Company Group for purposes of the exercisability of the
Designated Shares, and, accordingly, the applicable post-termination exercise
periods provided in paragraph 7 of the Option Agreement shall commence with
respect to the Designated Shares upon the Optionee's termination of employment
with DataRover (unless the Optionee remains or immediately becomes an employee
of another Participating Company); and
(c) upon the Optionee's termination of employment with the Company,
the vesting of the shares subject to the Option which are not Designated Shares
shall cease, and the applicable post-termination exercise periods provided in
paragraph 7 of the Option Agreement shall commence with respect to such shares.
2. Acceleration of Vesting.
(a) Provided that the Optionee accepts employment with DataRover,
the Designated Shares shall become immediately exercisable and vested in full
(and the Vested Ratio shall be deemed to equal 48/48) on the first to occur of:
(i) the date occurring six (6) months after the Closing Date,
provided that the Optionee's employment with DataRover has not terminated prior
to such date;
(ii) the date on which the Optionee's employment with DataRover
terminates, provided that such termination of employment does not result from
the Optionee's voluntary resignation or involuntary termination for Cause, as
defined below; or
(iii) the date ten (10) days prior to the consummation of a
Transfer of Control of either the Company or DataRover if, in connection with
such Transfer of Control, the Acquiring Corporation fails to assume the
Company's rights and obligations under the Option or to substitute for the
Option a substantially equivalent option for the Acquiring Corporation's
2
<PAGE> 151
stock. In the event of a Transfer of Control of DataRover in which the Acquiring
Corporation assumes or substitutes for the Options, the Acquiring Corporation
shall be deemed a "Participating Company" for all purposes applicable to the
treatment of the Designated Shares under the Option Agreement and this
Agreement.
(b) For purposes of this Section 2, "Cause" shall mean any of the
following: (i) the Optionee's theft, dishonesty, or intentional falsification of
any Participating Company employment or company records; (ii) the Optionee's
improper disclosure of a Participating Company's confidential or proprietary
information; (iii) any action by the Optionee which has a detrimental effect on
a Participating Company's reputation or business; (iv) the Optionee's failure or
inability to perform any reasonable assigned duties after written notice from a
Participating Company of, and a reasonable opportunity to cure, such failure or
inability; or (v) the Optionee's conviction (including any plea of guilty or
nolo contendere) of any criminal act that impairs the Optionee's ability to
perform his or her duties with the Participating Company Group.
3. Acknowledgment of Tax Consequences. The Optionee understands and
acknowledges that the amendments contemplated by this Agreement may result in
the Option ceasing to be an "incentive stock option" within the meaning of
Section 422(b) of the Internal Revenue Code of 1986, as amended, to the extent,
if any, that it was an incentive stock option prior to these amendments. In any
event, to the extent that the Optionee does not exercise the Option within three
months following the date on which the Optionee ceases to be an employee of the
Company, the Option will not be an incentive stock option. The Optionee further
acknowledges that the tax law applicable to stock options is complex and subject
to change, and that the Optionee is advised to consult with his or her tax
advisor regarding the tax consequences of the Option and the amendments
contemplated by this Agreement.
4. Continuation of Other Terms. Except as set forth herein, all other
terms and conditions of the Option Agreement shall remain in full force and
effect.
GENERAL MAGIC, INC.
Date: By:
-------------------------------- ----------------------------------
Title:
-------------------------------
OPTIONEE
Date:
-------------------------------- -------------------------------------
Signature
-------------------------------------
Name printed
3
<PAGE> 152
EXHIBIT K TO EXHIBIT 2.1
WARRANT
<PAGE> 153
EXHIBIT K
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
NOVEMBER 4, 1998
DATAROVER MOBILE SYSTEMS, INC.
COMMON STOCK WARRANT
This certifies that, for good and valuable consideration, DATAROVER
MOBILE SYSTEMS, INC., a California corporation (the "Company"), grants to
GENERAL MAGIC, INC., a Delaware corporation (the "Warrantholder"), the right to
subscribe for and purchase from the Company up to one hundred thousand
(100,000), subject to adjustment as per Section 6 below, validly issued, fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, no par value per share (the "Common Stock"), at the exercise price per
share of $.50 (the "Exercise Price"), exercisable at any time and from time to
time, subject to the terms, conditions and adjustments herein set forth, during
the period (the "Exercise Period") commencing on the date hereof and ending on
the earlier of (i) the fifth anniversary of the date hereof, (ii) the closing of
the sale and issuance of Common Stock of the Company in a firmly underwritten
public offering, pursuant to an effective registration statement under the
Securities Act of 1933, as amended, the gross proceeds of which equal or exceed
$10,000,000 or (iii) immediately preceding a Change of Control (as defined
below). This Warrant is granted in connection with the purchase by the
Warrantholder of 6,600,000 shares of the Company's Series A Preferred Stock and
490,000 shares of the Company's Common Stock pursuant to a Stock Purchase
Agreement by and between the Company and the Warrantholder dated as of October
28, 1998.
1. Exercise of Warrant; Payment of Taxes; Information.
1.1 Exercise of Warrant.
(a) Exercise. This Warrant may be exercised by the Warrantholder by (i)
the surrender of this Warrant to the Company, with a duly executed Exercise Form
specifying the number of Warrant Shares to be purchased, during normal business
hours on any Business Day during the Exercise Period and (ii) the delivery of
payment to the Company, by (A) cash, wire transfer of immediately available
funds to a bank account specified by the Company, or by certified or bank
cashier's check in lawful money of the United States of America, or (B) by
cancellation by the Warrantholder of indebtedness of the Company to the
Warrantholder, or (C) by a combination of (A) and (B), of the Exercise Price for
the number of Warrant Shares
<PAGE> 154
specified in the Exercise Form. The Company agrees that such Warrant Shares
shall be deemed to be issued to the Warrantholder as the record holder of such
Warrant Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for the Warrant Shares as
aforesaid. A stock certificate or certificates for the Warrant Shares specified
in the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within 10 days, thereafter. The stock certificate
or certificates so delivered shall be in denominations of 100 shares each or
such lesser or greater denominations as may be reasonably specified by the
Warrantholder in the Exercise Form. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), if the fair market value of one share of Common Stock is greater
than the exercise price, this Warrant may be exercised by the Warrantholder by
the surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect a "Net Issue Exercise" and specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day during
the Exercise Period. The Company agrees that such Warrant Shares shall be deemed
to be issued to the Warrantholder as the record holder of such Warrant Shares as
of the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
-----
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock purchasable under this
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation);
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
<PAGE> 155
(c) Fair Market Value. For purposes of Section 1.1(b), the fair market
value of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or,
(ii) if not listed or traded on any such exchange, the last
reported sales price per share on the Nasdaq National Market or the
Nasdaq Small-Cap Market (collectively, "Nasdaq") or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. (the "pink
sheets") or,
(iv) if such quotations are not available, the fair market value
per share of the Company's Common Stock on the date such notice was
received by the Company as reasonably determined by the Board of
Directors of the Company.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
2. Transfer of Warrant.
2.1 Warrant Register. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Warrantholder or
Warrantholders. Any Warrantholder of this Warrant or any portion thereof may
change his address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the Warrantholder may be delivered or given by mail to
such Warrantholder as shown on the Warrant Register and at the address shown on
the Warrant Register. Until this Warrant is transferred on the Warrant Register
of the Company, the Company may treat the Warrantholder as shown on the Warrant
Register as the absolute owner of this Warrant for all purposes, notwithstanding
any notice to the contrary.
<PAGE> 156
2.2 Warrant Agent. The Company may, by written notice to the
Warrantholder, appoint an agent for the purpose of maintaining the Warrant
Register referred to in Section 2.1 above, issuing the Warrant Shares or other
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any
such registration, issuance, exchange, or replacement, as the case may be, shall
be made at the office of such agent.
2.3 Transferability and Nonnegotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act, title to this Warrant may be transferred by
endorsement (by the Warrantholder executing the Assignment Form annexed hereto)
and delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
2.4 Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act and with the
limitations on assignments and transfers and contained in this Section 2, the
Company at its expense shall issue to or on the order of the Warrantholder a new
warrant or warrants of like tenor, in the name of the Warrantholder or as the
Warrantholder (on payment by the Warrantholder of any applicable transfer taxes)
may direct, for the number of shares issuable upon exercise hereof.
2.5 Compliance with Securities Laws.
(a) The Warrantholder, by acceptance hereof, acknowledges that this
Warrant and the shares of Warrant Shares to be issued upon exercise hereof are
being acquired solely for the Warrantholder's own account and not as a nominee
for any other party, and for investment, and that the Warrantholder will not
offer, sell or otherwise dispose of this Warrant or any shares of Warrant Shares
to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any state securities laws. Upon exercise of
this Warrant, the Warrantholder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of Warrant
Shares so purchased are being acquired solely for the Warrantholder's own
account and not as a nominee for any other party, for investment, and not with a
view toward distribution or resale.
(b)(i) This Warrant shall (and each Warrant issued in substitution for
this Warrant issued pursuant to Section 4 shall) be stamped or otherwise
imprinted with a legend in substantially the following form:
<PAGE> 157
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
(ii) Except as otherwise permitted by this Section 2, each stock
certificate for Warrant Shares issued upon the exercise of any Warrant and each
stock certificate issued upon the direct or indirect transfer of any such
Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
2.6 Removal of Legends. Notwithstanding the foregoing, the Warrantholder
may require the Company to issue a stock certificate for Warrant Shares without
a legend if (i) such Warrant Shares, as the case may be, have been registered
for resale under the Securities Act or sold pursuant to Rule 144 under the
Securities Act (or a successor rule thereto) or (ii) the Warrantholder has
received an opinion of counsel reasonably satisfactory to the Company that such
registration is not required with respect to such Warrant Shares.
3. Reservation and Registration of Shares, Etc. The Company covenants
and agrees that all Warrant Shares which are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may require, and, in the case of such mutilation,
upon surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor. The term "Warrant" as used in this
Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
<PAGE> 158
5. Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to
<PAGE> 159
adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current Closing Price per share of Common
Stock.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
<PAGE> 160
7. Notices of Corporate Action. In the event of:
(a) 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 or other distribution, 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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected 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 any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior to
the date therein specified, in the case of any date referred to in the foregoing
subdivision (i) or (ii).
8. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of San Francisco,
State of California.
Change of Control: shall mean (i) the acquisition of the Company
pursuant to a consolidation of the Company with or merger of the Company with or
into any other person in which the Company is not the surviving corporation
(other than a reincorporation), (ii) the sale of all or substantially all of the
assets of the Company to any other person or (iii) any merger or reorganization
after which the shareholders of the Company immediately prior to the transaction
possess less than 50% of the voting power of the surviving entity (or its
parent) immediately after the transaction.
Company: DATAROVER MOBILE SYSTEMS, INC., a California corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as
<PAGE> 161
amended, shall include a reference to a comparable section, if any, of any
successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified on the cover of this Warrant, as
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
SEC: the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act or the Exchange Act, whichever is
the relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 6.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
9.3 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.4 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
<PAGE> 162
9.5 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.6 Notices. Any notice required or permitted hereunder will be given in
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as shown below, or
to such other address as such party may designate in writing from time to time
to the other party.
(a) if to the Company, addressed to:
DATAROVER MOBILE SYSTEMS, INC.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: President
Telecopier No.: (408) 744-4014
(b) if to the Warrantholder, addressed to:
General Magic, Inc.
420 North Mary Avenue
Sunnyvale, CA 94086
Attention: General Counsel
Telecopier No.: (408) 744-4023
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.7 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.8 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California as entered into in California between
residents of California.
<PAGE> 163
9.9 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: November 4, 1998
DATAROVER MOBILE SYSTEMS, INC.
By
--------------------------------
Steven D. Schramm, President
<PAGE> 164
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
-------herewith tenders payment for _______ of the Warrant
Shares to the order of DATAROVER MOBILE SYSTEMS, INC. in the amount of
$_________ in accordance with the terms of this Warrant; or
-------herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
--------------------------------
(Signature)
--------------------------------
(Print Name)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
<PAGE> 165
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Shares
<S> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint ___________________, as
Attorney-In-Fact, to make such transfer on the books of DATAROVER MOBILE
SYSTEMS, INC., maintained for the purpose, with full power of substitution in
the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or any shares of stock to be
issued upon exercise hereof except under circumstances which will not result in
a violation of the Securities Act of 1933, as amended, or any state securities
laws. Further, the Assignee has acknowledged that upon exercise of this Warrant,
the Assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.
Dated: __________, 19___.
--------------------------
Signature of Warrantholder
<PAGE> 166
EXHIBIT L TO EXHIBIT 2.1
STOCK OPTION PLAN
<PAGE> 167
EXHIBIT L
DATAROVER MOBILE SYSTEMS, INC.
1998 STOCK OPTION PLAN
Adopted by Board on October 28, 1998
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. This 1998 Stock Option Plan (the "PLAN") is
hereby established effective as of October 28, 1998 (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its shareholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
shareholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
(d) "COMPANY" means DataRover Mobile Systems, Inc., a
California corporation, or any successor corporation thereto.
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<PAGE> 168
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(g) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value
of a share of Stock or other property as determined by the Board, in its
discretion, or by the Company, in its discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, the Stock is listed on a
national or regional securities exchange or market system, the Fair Market Value
of a share of Stock shall be the closing price of a share of Stock (or the mean
of the closing bid and asked prices of a share of Stock if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
discretion.
(ii) If, on such date, there is no public market
for the Stock, the Fair Market Value of a share of Stock shall be as determined
by the Board in good faith without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to
be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
2
<PAGE> 169
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
(n) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted one
or more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(t) "RULE 16b-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of 1933,
as amended.
(v) "SERVICE" means an Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service
3
<PAGE> 170
shall be deemed to have terminated either upon an actual termination of Service
or upon the corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its discretion,
shall determine whether the Optionee's Service has terminated and the effective
date of such termination.
(w) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(x) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(y) "TEN PERCENT OWNER OPTIONEE" means an Optionee who,
at the time an Option is granted to the Optionee, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered
by the Board. All questions of interpretation of the Plan or of any Option shall
be determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such Option.
3.2 AUTHORITY OF OFFICERS. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
determination or election.
3.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.4 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its discretion:
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<PAGE> 171
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability
of any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
5
<PAGE> 172
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be seven hundred and fifty thousand shares
(750,000) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled or if shares of Stock are acquired upon the
exercise of an Option subject to a Company repurchase option and are repurchased
by the Company at the Optionee's exercise price, the shares of Stock allocable
to the unexercised portion of such Option or such repurchased shares of Stock
shall again be available for issuance under the Plan. Notwithstanding the
foregoing, at any such time as the offer and sale of securities pursuant to the
Plan is subject to compliance with Section 260.140.45 of Title 10 of the
California Code of Regulations ("SECTION 260.140.45"), the total number of
shares of Stock issuable upon the exercise of all outstanding Options (together
with options outstanding under any other stock option plan of the Company) and
the total number of shares provided for under any stock bonus or similar plan of
the Company shall not exceed thirty percent (30%) (or such other higher
percentage limitation as may be approved by the shareholders of the Company
pursuant to Section 260.140.45) of the then outstanding shares of the Company as
calculated in accordance with the conditions and exclusions of Section
260.140.45.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded down to the nearest whole number, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationships
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
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<PAGE> 173
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such options which exceed such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the number of
shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set
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<PAGE> 174
forth above if such Option is granted pursuant to an assumption or substitution
for another option in a manner qualifying under the provisions of Section 424(a)
of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time
or times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
(c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Optionee having a Fair Market Value
(as determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less than
the exercise price, (iii) by the assignment of the proceeds of a sale or loan
with respect to some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless
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otherwise provided by the Board, an Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves, at
any and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(iii) PAYMENT BY PROMISSORY NOTE. No promissory
note shall be permitted if the exercise of an Option using a promissory note
would be a violation of any law. Any permitted promissory note shall be on such
terms as the Board shall determine at the time the Option is granted. The Board
shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired
upon the exercise of the Option or with other collateral acceptable to the
Company. Unless otherwise provided by the Board, if the Company at any time is
subject to the regulations promulgated by the Board of Governors of the Federal
Reserve System or any other governmental entity affecting the extension of
credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its discretion at the
time the Option is granted. The Company shall have the right to assign at any
time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
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6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination of the
Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer period of time as determined by the
Board, in its discretion) after the date on which the Optionee's Service
terminated, but in any event no later than the date of expiration of the
Option's term as set forth in the Option Agreement evidencing such Option (the
"OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months (or such longer period of time as determined by the Board, in its
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
thirty (30) days (or such longer period of time as determined by the Board, in
its discretion) after the Optionee's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within ninety (90) days (or such longer period of time
as determined by the Board, in its discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 11 below, the
Option shall remain exercisable until thirty (30) days (or such longer period of
time as determined by the Board, in its discretion) after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth
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(10th) day following the date on which a sale of such shares by the Optionee
would no longer be subject to such suit, (ii) the one hundred and ninetieth
(190th) day after the Optionee's termination of Service, or (iii) the Option
Expiration Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 OPTION AGREEMENT. Unless otherwise provided by the Board at
the time the Option is granted, an Option shall comply with and be subject to
the terms and conditions set forth in the form of Option Agreement adopted by
the Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, a
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
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8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. In the event the Acquiring
Corporation elects not to assume or substitute for outstanding Options in
connection with a Change in Control, any unexercisable or unvested portions of
outstanding Options held by Optionees whose Service has not terminated prior to
such date shall become immediately exercisable and vested in full (and any
unvested share repurchase option shall lapse) as of the date ten (10) days prior
to the date of the Change in Control. The accelerated exercise or vesting of any
Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Change in Control. Any Options which
are neither assumed or substituted for by the Acquiring Corporation in
connection with the Change in Control nor exercised as of the date of the Change
in Control shall terminate and cease to be outstanding effective as of the date
of the Change in Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Change in Control and any consideration
received pursuant to the Change in Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its discretion.
9. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and
income statement for the just completed fiscal year shall be made available to
each Optionee and purchaser of shares of Stock upon the exercise of an Option.
The Company shall not be required to provide such information to key employees
whose duties in connection with the Company assure them access to equivalent
information.
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10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
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13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's shareholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's shareholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
14. SHAREHOLDER APPROVAL.
The Plan or any increase in the maximum aggregate number of
shares of Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED
SHARES") shall be approved by the shareholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
shareholder approval of the Plan or in excess of the Authorized Shares
previously approved by the shareholders shall become exercisable no earlier than
the date of shareholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.
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STANDARD FORM OF
TERMS OF STOCK OPTION AGREEMENT
<PAGE> 182
DATAROVER MOBILE SYSTEMS, INC.
TERMS OF STOCK OPTION AGREEMENT
The Company has granted to the Optionee, pursuant to a Stock Option
Grant Agreement (the "GRANT AGREEMENT") and the Company's 1998 Stock Option Plan
(the "PLAN"), an Option to purchase certain shares of Stock, upon the terms and
conditions set forth in this Agreement. The Option shall in all respects be
subject to the terms and conditions of the Grant Agreement and the Plan, the
provisions of which are incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Grant Agreement or
the Plan.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Agreement. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. As indicated in the Grant Agreement,
this Option is intended to be either an Incentive Stock Option ("ISO") within
the meaning of Section 422(b) of the Code or a nonstatutory stock option, which
is not intended to qualify as an ISO. The Optionee should consult with the
Optionee's own tax advisor regarding the tax effects of this Option (and any
requirements necessary to obtain favorable income tax treatment under Section
422 of the Code, including, but not limited to, holding period requirements).
2.2 ISO FAIR MARKET VALUE LIMITATION. If this Option is
designated an ISO in the Grant Agreement, to the extent that the Option
(together with all Incentive Stock Options granted to the Optionee under all
stock option plans of the Participating Company Group, including the Plan)
becomes exercisable for the first time during any calendar year for shares
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000),
the portion of such options which exceeds such amount will be treated as
Nonstatutory Stock Options. For purposes of this Section 2.2, options designated
as Incentive Stock Options are taken into account in the order in which they
were granted, and the Fair Market Value of stock is determined as of the time
the option with respect to such stock is granted. If the Code is amended to
provide for a different limitation from that set forth in this Section 2.2, such
different limitation shall be deemed incorporated herein effective as of the
date required or permitted by such amendment to the Code. If the Option is
treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option
in part by reason of the limitation set forth in this Section 2.2, the Optionee
may designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
(NOTE TO OPTIONEE: If the aggregate Exercise Price of the Option (that is, the
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
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exercise price of any other Incentive Stock Options you hold (whether granted
pursuant to the Plan or any other stock option plan of the Participating Company
Group) is greater than $100,000, you should contact the Chief Financial Officer
of the Company to ascertain whether the entire Option qualifies as an Incentive
Stock Option.)
2.3 ELECTION UNDER SECTION 83(b) OF THE CODE. If this Option is
designated in the Grant Agreement as Immediately Exercisable and the Optionee
exercises this Option prior to vesting (or option is otherwise nontransferable
and subject to a substantial risk of forfeiture), the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code. This election must be filed no later than thirty (30)
days after the date on which the Optionee exercises the Option. Shares acquired
upon exercise of the Option are nontransferable and subject to a substantial
risk of forfeiture if, for example, (a) they are unvested and are subject to a
right of the Company to repurchase such shares at the Optionee's original
purchase price if the Optionee's Service terminates, (b) the Optionee is an
Insider and, under certain circumstances, exercises the Option within six (6)
months of the Date of Option Grant (if a class of equity security of the Company
is registered under Section 12 of the Exchange Act), or (c) the Optionee is
subject to a restriction on transfer to comply with "Pooling-of-Interests
Accounting" rules. Failure to file an election under Section 83(b), if
appropriate, may result in adverse tax consequences to the Optionee. The
Optionee acknowledges that the Optionee has been advised to consult with a tax
advisor prior to the exercise of the Option regarding the tax consequences to
the Optionee of the exercise of the Option. AN ELECTION UNDER SECTION 83(b) MUST
BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE EXERCISES OPTIONS.
THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY
FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN
IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION
ON HIS OR HER BEHALF.
3. EXERCISE OF THE OPTION.
3.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Date of Option Grant and prior to
the termination of the Option (as provided in Section 5) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's Unvested Share Repurchase
Option and Right of First Refusal (as such terms are defined herein).
3.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Agreement. The written notice must be signed by the Optionee
and must be delivered in person, by certified or registered mail, return receipt
requested, by confirmed facsimile transmission, or by such other means as the
Company may permit, to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 5, accompanied by
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(i) full payment of the aggregate Exercise Price for the number of shares of
Stock being purchased and (ii) an executed copy, if required herein, of the then
current form of escrow agreement referenced below. The Option shall be deemed to
be exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreement.
3.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company, or
attestation to the ownership, of whole shares of Stock owned by the Optionee
having a Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such stock by reason of federal or
state securities laws or agreements with an underwriter for the Company) not
less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise,
as defined in Section 3.3(b), or (iv) by any combination of the foregoing.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender, or
attestation to the ownership, of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock. The Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. A "CASHLESS EXERCISE"
means the assignment in a form acceptable to the Company of the proceeds of a
sale or loan with respect to some or all of the shares of Stock acquired upon
the exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure. Generally, and without
limiting the Company's absolute discretion, a "cashless exercise" will only be
permitted at such times in which the shares underlying this Option are publicly
traded.
3.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon
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exercise of the Option, (iii) the operation of any law or regulation providing
for the imputation of interest, or (iv) the lapsing of any restriction with
respect to any shares acquired upon exercise of the Option. The Optionee is
cautioned that the Option is not exercisable unless the tax withholding
obligations of the Participating Company Group are satisfied. Accordingly, the
Optionee may not be able to exercise the Option when desired even though the
Option is vested, and the Company shall have no obligation to issue a
certificate for such shares or release such shares from any escrow provided for
herein.
3.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the Optionee's heirs.
3.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
3.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
4. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee
only by the Optionee or the Optionee's guardian or legal representative and may
not be assigned or transferred in any manner except by will or by the laws of
descent and distribution. Following the death of the Optionee, the Option, to
the extent provided in Section 6, may be exercised by the Optionee's legal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
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5. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the
first to occur of (a) the Option Expiration Date, (b) the last date for
exercising the Option following termination of the Optionee's Service as
described in Section 6, or (c) pursuant to a Change in Control, to the extent
provided in the Plan.
6. EFFECT OF TERMINATION OF SERVICE.
6.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. (NOTE: If
the Option is exercised more than three (3) months after the date on which the
Optionee's Service as an Employee terminated as a result of a Disability other
than a permanent and total disability as defined in Section 22(e)(3) of the
Code, the Option will be treated as a Nonstatutory Stock Option and not as an
Incentive Stock Option to the extent required by Section 422 of the Code.)
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within one
(1) month after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within ninety (90) days (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
6.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding
the provisions of Section 6.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be acquired
upon exercise of the Option would be subject to the Unvested Share Repurchase
Option.
6.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 6.1 is prevented by the provisions of Section 3.6, the Option
shall remain exercisable until one (1) month after the date the Optionee is
notified by the Company that the Option is exercisable, but
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in any event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences of any such delayed exercise.
6.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.
7. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a stockholder with respect
to any shares covered by the Option until the date of the issuance of a
certificate for the shares for which the Option has been exercised (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 4.2 of the Plan. If
the Optionee is an Employee, the Optionee understands and acknowledges that,
except as otherwise provided in a separate, written employment agreement between
a Participating Company and the Optionee, the Optionee's employment is "at will"
and is for no specified term. Nothing in this Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
8. UNVESTED SHARE REPURCHASE OPTION.
8.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event this
Option is designated as Immediately Exercisable in the Grant Agreement and
subsequently Optionee's Service with the Participating Company Group is
terminated for any reason or no reason, with or without cause, or, if the
Optionee, the Optionee's legal representative, or other holder of shares
acquired upon exercise of the Option attempts to sell, exchange, transfer,
pledge, or otherwise dispose of (other than pursuant to an Ownership Change
Event) any shares acquired upon exercise of the Option which exceed the Vested
Shares as defined in Section 8.2 below (the "UNVESTED SHARES"), the Company
shall have the right to repurchase the Unvested Shares under the terms and
subject to the conditions set forth in this Section 8 (the "UNVESTED SHARE
REPURCHASE OPTION").
8.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "VESTED
SHARES" shall mean, on any given date, a number of shares of Stock equal to the
Number of Option Shares multiplied by the Vested Ratio determined as of such
date and rounded down to the nearest whole share. On such given date, the
"UNVESTED SHARES" shall mean the number of shares of
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Stock acquired upon exercise of the Option which exceed the Vested Shares
determined as of such date.
8.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice to the
Optionee within sixty (60) days after (a) termination of the Optionee's Service
(or exercise of the Option, if later) or (b) the Company has received notice of
the attempted disposition of Unvested Shares. If the Company fails to give
notice within such sixty (60) day period, the Unvested Share Repurchase Option
shall terminate unless the Company and the Optionee have extended the time for
the exercise of the Unvested Share Repurchase Option. The Unvested Share
Repurchase Option must be exercised, if at all, for all of the Unvested Shares,
except as the Company and the Optionee otherwise agree.
8.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
4.2 of the Plan (the "REPURCHASE PRICE"). The Company shall pay the aggregate
Repurchase Price to the Optionee in cash within thirty (30) days after the date
of the written notice to the Optionee of the Company's exercise of the Unvested
Share Repurchase Option. For purposes of the foregoing, cancellation of any
purchase money indebtedness of the Optionee to any Participating Company for the
shares shall be treated as payment to the Optionee in cash to the extent of the
unpaid principal and any accrued interest canceled. The shares being repurchased
shall be delivered to the Company by the Optionee at the same time as the
delivery of the Repurchase Price to the Optionee.
8.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
8.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.
9. RIGHT OF FIRST REFUSAL.
9.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 9.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise
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dispose of any Vested Shares (the "TRANSFER SHARES") to any person or entity,
including, without limitation, any stockholder of a Participating Company, the
Company shall have the right to repurchase the Transfer Shares under the terms
and subject to the conditions set forth in this Section 9 (the "RIGHT OF FIRST
REFUSAL"). This Right of First Refusal terminates in accordance with Section
9.9.
9.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer
of the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
9.3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 9, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 9. The Optionee shall not be permitted to transfer the
Transfer Shares if the proposed transfer is not bona fide.
9.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
determines the proposed transfer to be bona fide, the Company shall have the
right to purchase all, but not less than all, of the Transfer Shares (except as
the Company and the Optionee otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Optionee of a notice
of exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any
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indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
9.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 9.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 9.
9.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 9 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 9 are met.
9.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right
of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change Event. If the consideration received
pursuant to such transfer or exchange consists of stock of a Participating
Company, such consideration shall remain subject to the Right of First Refusal
unless the provisions of Section 9.9 below result in a termination of the Right
of First Refusal.
9.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
9.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Change in Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the
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over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
10. ESCROW.
10.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to
the Unvested Share Repurchase Option will be available for repurchase, the
Company may require the Optionee to deposit the certificate evidencing the
shares which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of escrow and security
agreements approved by the Company. If the Company does not require such deposit
as a condition of exercise of the Option, the Company reserves the right at any
time to require the Optionee to so deposit the certificate in escrow. Upon the
occurrence of an Ownership Change Event or a change, as described in Section 9,
in the character or amount of any of the outstanding stock of the corporation
the stock of which is subject to the provisions of this Option Agreement, any
and all new, substituted or additional securities or other property to which the
Optionee is entitled by reason of the Optionee's ownership of shares of Stock
acquired upon exercise of the Option that remain, following such Ownership
Change Event or change described in Section 4.2 of the Plan, subject to the
Unvested Share Repurchase Option shall be immediately subject to the escrow to
the same extent as such shares of Stock immediately before such event. The
Company shall bear the expenses of the escrow.
10.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option, but not more
frequently than twice each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such
restriction.
10.3 NOTICES AND PAYMENTS. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Unvested
Share Repurchase Option or the Right of First Refusal, the notices required to
be given to the Optionee shall be given to the escrow agent, and any payment
required to be given to the Optionee shall be given to the escrow agent. Within
thirty (30) days after payment by the Company, the escrow agent shall deliver
the shares and any other property which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.
11. STOCK DISTRIBUTIONS SUBJECT TO THIS AGREEMENT.
If, from time to time, there is any stock dividend, stock split
or other change, as described in Section 4.2 of the Plan, in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Agreement, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of the Optionee's ownership of the shares acquired upon exercise of the Option
shall be immediately subject to the Unvested Share Repurchase Option and the
Right of First Refusal with the same force and effect as the shares subject to
the Unvested Share Repurchase Option and the Right of First Refusal immediately
before such event.
12. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.
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The Optionee shall dispose of the shares acquired pursuant to the
Option only in accordance with the provisions of this Agreement. In addition,
the Optionee shall promptly notify the Chief Financial Officer of the Company if
the Optionee disposes of any of the shares acquired pursuant to the Option
within one (1) year after the date of the Optionee exercises all or part of the
Option or within two (2) years after the Date of Grant. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Grant. At any time during the one-year or two-year periods set forth above,
the Company may place a legend on any certificate representing shares acquired
pursuant to the Option requesting the transfer agent for the Company's stock to
notify the Company of any such transfers. The obligation of the Optionee to
notify the Company of any such transfer shall continue notwithstanding that a
legend has been placed on the certificate pursuant to the preceding sentence.
13. LEGENDS.
The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, and any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Agreement. The
Optionee shall, at the request of the Company, promptly present to the Company
any and all certificates representing shares acquired pursuant to the Option in
the possession of the Optionee in order to carry out the provisions of this
Section. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
13.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
13.2 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
13.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE
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CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION
AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
13.4 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY
THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO
ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [INSERT DISQUALIFYING
DISPOSITION DATE HERE]. SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF
THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT
FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER
SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE
REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE
OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
14. PUBLIC OFFERING.
The Optionee hereby agrees that in the event of any underwritten
public offering of stock, including an initial public offering of stock, made by
the Company pursuant to an effective registration statement filed under the
Securities Act, the Optionee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
15. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold,
exchanged, transferred (including, without limitation, any transfer to a nominee
or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed
of, including by operation of law, in any manner which violates any of the
provisions of this Agreement and, except pursuant to an Ownership Change Event,
until the date on which such shares become Vested Shares, and any such attempted
disposition shall be void. The Company shall not be required (a) to transfer on
its books any shares which will have been transferred in violation of any of the
provisions set forth in this Option Agreement or (b) to treat as owner of such
shares or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such shares will have been so transferred.
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16. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
17. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any
time; provided, however, that except in connection with a Change in Control, no
such termination or amendment may adversely affect the Option or any unexercised
portion hereof without the consent of the Optionee unless such termination or
amendment is necessary to comply with any applicable law or government
regulation or is required to enable the Option to qualify as an Incentive Stock
Option. No amendment or addition to this Agreement shall be effective unless in
writing.
18. NOTICES.
Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown on the Notice or at such other address as such
party may designate in writing from time to time to the other party.
19. INTEGRATED AGREEMENT.
The Grant Agreement, this Agreement and the Plan constitute the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein and therein and there
are no agreements, understandings, restrictions, representations, or warranties
among the Optionee and the Participating Company Group with respect to such
subject matter other than those as set forth or provided for herein or therein.
To the extent contemplated herein or therein, the provisions of the Grant
Agreement and this Agreement shall survive any exercise of the Option and shall
remain in full force and effect.
20. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within the State of California.
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Optionee:
---------------------
Date:
------------------------
STOCK OPTION
EXERCISE NOTICE
DataRover Mobile Systems, Inc.
- --------------------------
- --------------------------
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. Exercise of Option. I was granted a stock option (the "OPTION") to
purchase shares of the common stock of DataRover Mobile Systems, Inc. (the
"COMPANY") on _____________, _____, pursuant to the Company's 1998 Stock Option
Plan (the "PLAN") and pursuant to the Stock Option Grant Agreement dated ______,
19__ and the related Terms of Stock Option Agreement (together, the "OPTION
AGREEMENT"). I hereby elect to exercise the Option as to a total of
______________ shares of the common stock of the Company (the "SHARES"), of
which ___________ are Vested Shares and __________ are Unvested Shares as
determined in accordance with the Option Agreement.
2. Payments. Enclosed herewith is full payment in the aggregate amount
of $_____________ (representing $_______ per share) for the Shares in the manner
set forth in the Option Agreement. I authorize payroll withholding and otherwise
will make adequate provision for federal, state, local and foreign tax
withholding obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, including the Unvested Share Repurchase Option (if applicable)
and the Right of First Refusal set forth therein, to all of which I hereby
expressly assent. This Agreement shall inure to the benefit of and be binding
upon my heirs, executors, administrators, successors and assigns. I agree, that
if required by the Company, I will deposit the certificate or certificates
evidencing the Shares, along with a blank stock assignment separate from
certificate executed by me, with an escrow agent designated by the Company, to
be held by such escrow agent pursuant to the Company's standard Joint Escrow
Instructions, an executed copy of which I have delivered herewith.
4. Transfer. I am aware that Rule 144, promulgated under the Securities
Act, which permits limited public resale of securities acquired in a nonpublic
offering, is not currently available with respect to the Shares and, in any
event, is available only if certain conditions are satisfied. I understand that
any sale of the Shares that might be made in reliance upon Rule 144
1
<PAGE> 196
may only be made in limited amounts in accordance with the terms and conditions
of such rule and that a copy of Rule 144 will be delivered to me upon request.
I agree that, if the Option is designated an Incentive Stock Option in
the Grant Agreement I will promptly notify the Chief Financial Officer of the
Company if I transfer any of the Shares acquired pursuant to such incentive
stock option within one (1) year from the date I exercise all or part of the
Option or within two (2) years of the date of grant of the Option.
My address of record is:
------------------------------------------------------------------
------------------------------------------------------------------
My Social Security Number is:
-------------------------------------
5. Election Under Section 83(b) of the Code. (NOTE: This section only
applies if the Option was designated as Immediately Exercisable.) I understand
and acknowledge that if I am exercising the Option to purchase Unvested Shares
(i.e., shares that remain subject to the Company's Unvested Share Repurchase
Option), that I should consult with my tax advisor regarding the advisability of
filing with the Internal Revenue Service an election under Section 83(b) of the
Code, which must be filed no later than thirty (30) days after the date on which
I exercise the Option.
I acknowledge that I have been advised to consult with a tax advisor
prior to the exercise of the Option regarding the tax consequences to me of
exercising the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30
DAYS AFTER THE DATE ON WHICH I PURCHASE SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. I ACKNOWLEDGE THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS MY
SOLE RESPONSIBILITY, EVEN IF I REQUEST THE COMPANY OR ITS REPRESENTATIVES TO
FILE SUCH ELECTION ON MY BEHALF.
2
<PAGE> 197
I understand that I am purchasing the Shares pursuant to the terms of
the 1998 Stock Option Plan and my Option Agreement, copies of which I have
received and carefully read and understand.
Very truly yours,
-----------------------------
Receipt of the above is hereby acknowledged.
DATAROVER MOBILE SYSTEMS, INC.
By:
------------------------------------
Title:
----------------------------------
Dated:
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3
<PAGE> 198
STANDARD FORM OF
STOCK OPTION GRANT AGREEMENT
<PAGE> 199
DATAROVER MOBILE SYSTEMS, INC.
STOCK OPTION GRANT AGREEMENT
___________________ (the "OPTIONEE") has been granted an option (the "OPTION")
to purchase shares of the Common Stock of DataRover Mobile Systems, Inc. (the
"COMPANY") pursuant to this Stock Option Grant Agreement, the Company's 1998
Stock Option Plan (the "Plan") and a standard form of the Terms of Stock Option
Agreement (the "OPTION AGREEMENT"), the provisions of which are incorporated
herein by reference. The following terms shall have their respective meanings
as set forth below or in the Plan.
"DATE OF OPTION GRANT" means _____________________________________.
"NUMBER OF OPTIONS SHARES" means__________________ shares of Stock.
"EXERCISE PRICE" means $________________________________ per share.
"IMMEDIATELY EXERCISABLE" ___ (Yes or No. If left blank, deemed NO)
"INCENTIVE STOCK OPTION" ____ (Yes or No. If left blank, deemed NO)
"INITIAL VESTING DATE" means the date occurring one (1) year after
_________________________________________________________________.
"OPTION EXPIRATION DATE" means the date ten (10) years after the
Date of Option Grant.
"VESTED RATIO" means, on any relevant date, the ratio determined as
follows:
Prior to Initial Vesting Date: 0
On Initial Vesting Date, provided Optionee's
Service has not terminated prior to the
Initial Vesting Date: 1/2
For each month of Optionee's Service from the
Initial Vesting Date until the Vested Ratio
equals 1/1, an additional: 1/24
The Optionee represents that he/she is familiar with the terms and
provisions of the Option Agreement, including the Unvested Share Repurchase
Option and the Right of First Refusal, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under the Option. The Optionee acknowledges receipt
of a copy of the Plan.
OPTIONEE DATAROVER MOBILE SYSTEMS, INC.
By:
- ---------------------------- ---------------------------------
Its:
---------------------------------
Address: Address:
-------------------- ----------------------------
- ---------------------------- ----------------------------
Attachments: 1998 Stock Option Plan
Terms of Stock Option Agreement
<PAGE> 1
EXHIBIT 10.5
This LOAN AND SECURITY AGREEMENT, dated as of December [ ], 1997, is between
SILICON VALLEY BANK ("Bank") and GENERAL MAGIC, INC., a Delaware corporation
("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"Adjusted Quick Ratio" means at any time for Borrower on a
consolidated basis, the ratio of Quick Assets to Current Liabilities (excluding
deferred revenue).
"Advance" has the meaning set forth in Section 2.1.
"Affiliate" means, with respect to any Person, any Person that owns
or controls directly or indirectly, such person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Person's managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding)
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation, ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
<PAGE> 2
"Collateral" means the property described on Exhibit A attached
hereto.
Committed Equipment Line means a credit extension of up to
$4,000,000.
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate
cap agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided that the term
"Contingent Obligation" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith;
provided that such amount shall not in any event exceed the maximum amount of
the obligations under the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or any other extension of
credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
including all Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than one
year from the date of determination, but excluding Subordinated Debt.
"Debt Service Coverage Ratio" means for any fiscal quarter of Borrower
on a consolidated basis, the ratio of (a) the sum of quarterly net income,
quarterly depreciation and amortization, and interest expense to (b) the sum of
capital lease payments due during such quarter, the current portion of long term
debt as at the end of such fiscal quarter.
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<PAGE> 3
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Availability Date" has the meaning set forth in Section 2.1.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property Collateral" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents,
Trademarks, or Mask Works, and all license fees and royalties arising from such
use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
-3-
<PAGE> 4
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance (or any agreement to grant any of the foregoing,
whether or not contingent on the happening of any future event).
"Liquidity Ratio" means at any time for Borrower on a consolidated basis,
the ratio of (a) cash and cash equivalents plus 50% of trade accounts
receivable (net of reserves) to (b) the outstanding balance of all loans owing
to Bank (including the Advances).
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other present or future agreement entered into
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means April 30, 2001.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
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<PAGE> 5
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Payment Date" means the first calendar day of each month commencing on
the first such date after the Closing Date and ending on the Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document or in respect of letters of credit or
foreign exchange contracts;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank; and
(c) Investments in accordance with Borrower's written investment policies
as approved by Borrower's board of directors.
"Permitted Liens" means the following:
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<PAGE> 6
(a) Any Liens existing on the Closing Date and disclosed in the Schedule
or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies (including customs duties), either not delinquent or being contested in
good faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or
any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Leases or subleases and licenses or sublicenses granted to others in
the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower and its Subsidiaries taken as a whole,
and any interest or title of a lessor, licensor or under any lease or license
provided that such leases, subleases, licenses and sublicenses do not prohibit
the grant of the security interest granted hereunder;
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;
(f) Liens securing claims and demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or entities imposed
without action of such parties; provided that the payment thereof is not yet
required; and
(g) Liens incidental to the conduct of Borrower's business or the
ownership of its property which (i) arise in the ordinary course of business,
(ii) do not secure Indebtedness, and (iii) do not in the aggregate materially
detract from the value of its property or materially impair the use thereof in
the operation of its business;
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
-6-
<PAGE> 7
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer, and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by such Person or one or more Affiliates of
such Person.
"SVB Account" means a certificate of deposit, money market account or
demand deposit account maintained with Bank.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Total Liabilities" means as of any applicable date, all obligations
that should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all Indebtedness,
but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
"UCC" means the California Uniform Commercial Code.
1.2. Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding." Periods of days referred to
in this Agreement shall be counted in calendar days unless otherwise stated.
-7-
<PAGE> 8
References to the plural include the singular and to the singular include the
plural, references to any gender include any other gender, the part includes the
whole, the term "including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or."
The words "hereof," "herein," hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. Article, section, subsection, clause, exhibit and schedule
references are to this Agreement, unless otherwise specified. All of the
exhibits and schedules attached hereto shall be deemed incorporated herein by
reference. All terms contained in this Agreement which are not otherwise
specifically defined herein (including the term "good faith") shall have the
meanings provided by the UCC to the extent the same are used or defined therein.
1.3. No Presumption Against Any Party. Neither this Agreement nor any
other Loan Document nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto or thereto,
whether under any rule of construction or otherwise. On the contrary, this
Agreement and the other Loan Documents have been reviewed by each of the parties
and their counsel and, in the case of any ambiguity or uncertainty, shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
2. LOAN AND TERMS OF PAYMENT
2.1. Equipment Advances.
2.1.1. Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through April 30, 1998 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Advance" and collectively, the "Advances") to Borrower in an aggregate
outstanding amount not to exceed the Committed Equipment Line. To evidence the
Advance or Advances, Borrower shall deliver to Bank, at the time of each Advance
request, an invoice for the equipment purchased, and, on the Closing Date, shall
present to Bank invoices or evidence of net book value with respect to equipment
purchased by Borrower before the Closing Date and which Borrower wishes to have
financed hereunder. Advances shall be used only to finance Equipment purchased
on or after 90 days prior to the date of such Advance and shall not exceed the
lesser of 100% of the net book value or of the invoice amount (net of, in either
case, sales tax, freight, and installation expense) of such equipment, approved
from time to time by Bank, excluding taxes, shipping, warranty charges, freight
discounts and installation expense; provided that software licenses, leasehold
improvements and other soft costs may constitute up to 20% of the total
Advances. Each Advance must be in a minimum amount of $25,000.
2.1.2. When Borrower desires to obtain an Advance, Borrower shall
notify Bank (which notice shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time one Business Day before the day on
which the Advance is to be made. Such notice shall be substantially in the form
of the Advance Request Form attached hereto as Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for the Equipment to be financed.
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<PAGE> 9
2.2. Interest Rates, Payments, and Calculations.
(a) Interest Rate. All Advances shall bear interest, on the average
daily balance thereof, at a per annum rate equal to 0.25 percentage points above
the Prime Rate; provided that, from and after the occurrence of an Event of
Default, all Obligations shall bear interest at a rate equal to two percentage
points above the interest rate otherwise applicable prior to the occurrence of
the Event of Default.
(b) Payments. Accrued interest hereunder shall be paid by
Borrower on each Payment Date and on the date the Advances are repaid in full.
Any Advances that are outstanding on the Equipment Availability End Date will be
payable by the Borrower in 36 equal monthly installments of principal, plus
accrued interest as above provided, beginning on the Payment Date of each month
following the Equipment Availability End Date and ending on the Maturity Date.
Advances, once repaid, may not be reborrowed. Borrower hereby authorizes Bank to
debit any accounts with Bank (other than accounts specifically designated as
payroll accounts), including, without limitation, Account Number 273226270 for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(c) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a 360-day
year for the actual number of days elapsed.
2.3. Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
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<PAGE> 10
2.4. Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to $20,000, which fee
shall be due on the Closing Date and shall be fully earned and non-refundable.
(b) Maintenance Fee. If, for any month after the Closing Date,
the average daily balance for such month and the immediately preceding month of
all SVB Accounts maintained by Borrower is less than 25% of the total of the
Borrower's cash, cash equivalents, readily marketable securities and other
liquid assets as at the end of such month as reflected in the financial
statements pursuant to Section 6.3 hereof for such month, then Borrower shall
promptly pay a maintenance fee of $3,000 with respect to such month;
(c) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank and its agents;
(d) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses,
as and when they become due.
3. CONDITIONS OF LOANS
3.1. Conditions Precedent to Initial Advance. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof;
(g) Certificate of Foreign Qualification (if applicable); and
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<PAGE> 11
(h) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to all Advances. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Request Form
as provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have occurred
and be continuing, or would result from such Advance. The making of each
Advance shall be deemed to be a representation and warranty by Borrower on the
date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1. Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that upon the occurrence and during the continuance of an Event of
Default, Bank may place a "hold" on any Deposit Account pledged as Collateral to
secure the Obligations. Notwithstanding termination of this Agreement, Bank's
Lien on the Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2. Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the reasonable request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
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4.3. Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2. Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3. No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4. Intellectual Property. Borrower is the sole owner of the Intellectual
Property Collateral, except for licenses granted by Borrower to its customers in
the ordinary course of business. Each of the material Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has been judged
invalid or unenforceable, in whole or in part, and no claim has been made that
any material part of the Intellectual Property Collateral violates the rights of
any third party. Except for and upon the filing with the United States Patent
and Trademark Office with respect to the Patents and Trademarks and the Register
of Copyrights with respect to the Copyrights and Mask Works necessary to perfect
the security interests created hereunder, and except as has been already made or
obtained, no authorization, approval or other action by, and no notice to or
filing with, any United States governmental authority or United States
regulatory body is required either (i) for the grant by Borrower of the security
interest granted hereby or for the execution, delivery or performance of Loan
Documents by Borrower in the United States or (ii) for the perfection in the
United States or the exercise by Bank of its rights and remedies hereunder.
5.5. Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least 30 days
prior written notice to Bank do business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
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5.6. Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.7. No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.8. Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.9. Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other governmental agency
concerning any action or omission by Borrower or any Subsidiary resulting in
the release, or other disposition of hazardous waste or hazardous substances
into the environment.
5.10. Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate
reserves under GAAP.
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5.11. Subsidiaries. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.12. Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.13. Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum requirements of ERISA with respect to any
employee benefit plans subject to ERISA. Borrower shall comply, and shall cause
each Subsidiary to comply, with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Bank's Lien on the Collateral.
6.3. Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within 30 days after the end of
each month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a form and
certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon
as available, but in any event within 120 days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; and
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000 or
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more; (e) prompt notice of any material change in the composition of the
Intellectual Property Collateral, including, but not limited to, any subsequent
ownership right of the Borrower in or to any Copyright, Patent or Trademark not
specified in any intellectual property security agreement between Borrower and
Bank or knowledge of an event that materially adversely effects the value of
the Intellectual Property Collateral; and (f) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Borrower shall deliver to Bank with each of the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with, at any month-end
where the outstanding balance of Borrower's accounts receivable (determined in
accordance with GAAP) exceed $250,000, a detailed accounts receivable aging as
at the end of such month.
6.4 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Bank, on demand, appropriate certificates attesting to the
payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with
proof satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is (i) contested in good
faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least 20
days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
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6.6 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, an Adjusted Quick Ratio of at least 2.00 to 1.00.
6.7 Liquidity Ratio. Borrower shall maintain, as of the last day of each
calendar month, a Liquidity Ratio of at least 2.00 to 1.00 until such time as
Borrower's Debt Service Coverage Ratio has been at least 1.50 to 1.00 for two
consecutive fiscal quarters.
6.8 Debt Service Coverage Ratio. Commencing at such time as Borrower's
Debt Service Coverage Ratio has been at least 1.50 to 1.00 for two consecutive
fiscal quarters, Borrower shall thereafter maintain, as of the last day of each
fiscal quarter, a Debt Service Coverage Ratio of at least 1.50 to 1.00.
6.9 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than $12,000,000 plus (a)
40% of proceeds (net of reasonable offering and issuance costs) received by
Borrower after the Closing Date and on or before the end of such calendar month
with respect to the issuance of equity securities by Borrower and (b) 50% of
cumulative monthly income (but without reduction for any monthly losses) for the
period from the Closing Date to the end of such month.
6.10 Liquidity. Borrower shall at all times maintain not less than
$12,000,000 in cash and cash equivalents which are either unrestricted, or, if
restricted, on deposit with Bank.
6.11 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within 30 days of the date of this Agreement. Borrower shall register
or cause to be registered with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those additional material
intellectual property rights (a material intellectual property right shall be
deemed to include any such right which contributes five per cent or more of
Borrower's gross revenues in any fiscal quarter) developed or acquired by
Borrower from time to time in connection with any product prior to the sale or
licensing of such product to any third party, including, without limitation,
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents, Copyrights, and Mask Works, (ii)
use its best efforts to detect infringements of the Trademarks, Patents,
Copyrights and Mask Works and promptly advise Bank in writing of material
infringements detected and (iii) not
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allow any Trademarks, Patents, Copyrights, or Mask Works to be abandoned,
forfeited or dedicated to the public without the written consent of Bank, which
shall not be unreasonably withheld.
(d) Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Section 6.11 to take but which Borrower fails to take, after 15 days notice
to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable
costs and reasonable expenses incurred in the reasonable exercise of its rights
under this Section 6.11.
6.12. Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1. Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business; (ii) of licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (iv) of worn-out,
surplus, or obsolete Equipment.
7.2. Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's board of directors or management.
Borrower will not, without at lease 30 days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3. Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person except (i)
such transactions that do not involve an amount that in the aggregate exceeds
$1,000,000 during the term of this Agreement; and, in addition to the
transactions permitted under clause (i), (ii) an acquisition of a single company
before December 31, 1997, for a total cash outlay not to exceed $2,000,000;
provided that in the case of (i) or (ii), Borrower shall be the surviving or
continuing corporation.
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7.4. Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any cash dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock (other than repurchases of the stock of departing
employees).
7.7. Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person.
7.9. Intellectual Property Agreements. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts.
7.10. Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11. Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12. Compliance. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation,
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which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral; or
permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2. Covenant Default.
(a) If Borrower fails to perform any obligation under Section
6.3, 6.6, 6.7, 6.8, 6.9, or 6.10 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Bank and as to any default under such
other term, provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten days after the occurrence thereof;
provided that if the default cannot by its nature be cured within the ten day
period or cannot after diligent attempts by Borrower be cured within such 10
day period, and such default is likely to be cured within a reasonable time,
then Borrower shall have an additional reasonable period (which shall not in
any case exceed 30 days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3. Material Adverse Change. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
the Borrower, or (ii) is a material impairment of the prospect of repayment of
any portion of the Obligations or (iii) is a material impairment of the value
or priority of Bank's security interests in the Collateral;
8.4. Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ of distress warrant, or is levied upon,
or comes into possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within 20 days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within 20 days after Borrower receives notice thereof, provided that none of
the foregoing shall constitute an Event of Default where such action or event
is stayed or an adequate bond has been posted
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pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);
8.5. Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of $100,000.00 or that could have a
Material Adverse Effect;
8.7. Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least $150,000.00 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a
period of 20 days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or
8.9. Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter (as of the date when made or deemed made)
in any warranty or representation set forth herein or in any certificate or
writing delivered to Bank by Borrower or any Person acting on Borrower's behalf
pursuant to this Agreement or, to induce Bank to enter into this Agreement or
any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in Section 8.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security
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interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in
equity, or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2. Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance (other than outright cancellation
or reductions of coverage not made in connection with the settlement and
adjustment of claims); and (e) settle and adjust disputes and claims
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<PAGE> 22
respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; (f) to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature to
such modification by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit D,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer
has or claims any right, title or interest; (g) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower where
permitted by law; and (h) to transfer the Intellectual Property Collateral into
the name of Bank or a third party to the extent permitted under the UCC provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3. Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposits.
9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof or (b) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts
so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the UCC, by law, or in
-22-
<PAGE> 23
equity. No exercise by Bank of one right or remedy shall be deemed an election,
and no waiver by Bank of any Event of Default on Borrower's part shall be
deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below for such party on the signature pages hereof. The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
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<PAGE> 24
12. GENERAL PROVISIONS
12.1. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2. Indemnification. Borrower shall, indemnify, defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential
to transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3. Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5. Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this
Agreement, if any, are merged into this Agreement and the Loan Documents.
12.6. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenant, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8. Confidentiality. In handling any confidential information Bank
shall exercise the same degree of care that is exercises with respect to its
own proprietary information of the same types to maintain the confidentiality
of any non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made
-24-
<PAGE> 25
(i) to the subsidiaries or affiliates of Bank in connection with their present
or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank, and
(v) as Bank may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided Bank does not have actual knowledge or substantial
reason to believe that such third party is prohibited from disclosing such
information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
GENERAL MAGIC, INC.
By /s/ STEVEN MARKMAN
------------------------------
Title: Chairman, President & CEO
------------------------------
By /s/ JAMES McCORMICK
------------------------------
Title: Chief Financial Officer
------------------------------
Address for Notices:
SILICON VALLEY BANK
By /s/ [Signature Illegible]
------------------------------
Title: Vice President
------------------------------
Address for Notices:
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<PAGE> 26
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower, whether now existing or hereafter acquired or created, in and to the
following:
(a) All goods, equipment, machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
(c) All contract rights, general intangibles, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
(d) All accounts, contract rights, royalties, license rights and all
other forms of obligations owing to Borrower, whether or not arising out of the
sale or lease of goods, the licensing of technology or the rendering of services
by Borrower, and whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment
property, letters of credit, certificates of deposit, instruments and chattel
paper and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished; all trade secret rights,
including all right to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; all mask work or similar rights available for the protection
or semiconductor chips; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interest in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
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<PAGE> 27
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ___________
FAX #: (408)_______________ TIME: ___________
FROM: ____________________________________________________________
BORROWER'S NAME
FROM: ____________________________________________________________
AUTHORIZED SIGNER'S NAME
____________________________________________________________
AUTHORIZED SIGNATURE
PHONE: ____________________________________________________________
FROM ACCOUNT # _______________ TO ACCOUNT # _______________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $__________
PRINCIPAL PAYMENT (ONLY) $__________
INTEREST PAYMENT (ONLY) $__________
PRINCIPAL AND INTEREST (PAYMENT) $__________
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the
Loan and Security Agreement are true, correct and complete in all material
respects as of the telephone request for and Advance confirmed by this Advance
Request; provided that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_____________________ ____________________
Authorized Requester
_________________________________________
Authorized Signature (Bank)
Phone # _________________________________
1
<PAGE> 28
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: GENERAL MAGIC, INC.
The undersigned authorized officer of __________________ hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ___________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
[10Q and 10K Within 5 days after filing with the SEC] Yes No
A/R Agings Monthly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 2.00:1.00 ___:1.0 Yes No
Minimum Liquidity Ratio 2.00:1.00 ___:1.0 Yes No
Minimum Tangible Net Worth $12,000,000 Yes No
Plus 40% of equity proceeds $__________ Yes No
Plus 50% of cumulative net income Equals $__________ Yes No
Maintain on a Quarterly Basis: $__________ $________
Minimum Debt Service Ratio 1.50:1.00 ___:1.0 Yes No
Maintain at all times:
Liquidity: $12,000,000 $______ Yes No
</TABLE>
BANK USE ONLY
Received By:__________
Date:_________________
Reviewed By:__________
Compliance Status: Yes/No
-1-
<PAGE> 29
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
______________________________ Date: _____________
Signature
______________________________
Title
-2-
<PAGE> 1
EXHIBIT 10.6
This LOAN MODIFICATION AGREEMENT, dated as of December [18], 1998 (this
"Agreement"), is between GENERAL MAGIC, INC., a Delaware corporation
("Borrower") and SILICON VALLEY BANK ("Bank").
Recitals
A. In addition to any obligations which may be owing by Borrower to Bank,
Borrower is indebted to Bank pursuant to a Loan and Security Agreement, dated
as of December [___], 1997 (as may have been amended to the date hereof, the
"Loan Agreement"). The term "Obligations" and the other terms defined in the
Loan Agreement are used herein with the same meanings unless otherwise defined
herein.
B. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by
the Collateral described in the Loan Agreement and an Intellectual Property
Security Agreement. The foregoing security documents, the Loan Agreement and
all other documents evidencing or securing the Obligations are called the
"Existing Loan Documents" herein.
The parties hereto hereby agree as follows:
1. Amendments.
The Loan Agreement is hereby amended:
(a) To amend and restate in their entirety certain definitions in
Section 1.1, as follows:
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as
current liabilities on the consolidated balance sheet of
Borrower and its Subsidiaries, as at such date, including all
Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is
renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt and current
deferred revenues.
"Debt Service Coverage Ratio" means for any fiscal quarter of
Borrower on a consolidated basis, the ratio of (a) the sum of
quarterly net income, quarterly depreciation and amortization,
and quarterly interest expenses minus any income from
capitalized software development to (b) the sum of capital lease
payments due during such quarter, the current portion of long
term debt during such quarter, and quarterly interest expenses.
(b) To amend the defined term "Equipment Availability Date" in
Section 1.1 thereof, to insert the word "End" after the words "Equipment
Availability."
(c) To amend subsection (f) of the definition of "Permitted Liens"
in Section 1.1 thereof, to substitute the word "constituting" before the words
"an Event of Default" with the word "constituting."
-1-
<PAGE> 2
(d) To amend and restate in its entirety Exhibit C thereof in the
form attached hereto.
(e) To amend subsection (f) of Section 3.1 thereof, to substitute
the number "2.5" before the word "Section" with the number "2.4."
(f) To amend and restate in its entirety Section 5.2 as follows:
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor
constitute a breach of any provision contained in Borrower's
Articles/Certificate of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound, nor is
Borrower in default under any agreement to which it is a party
or by which it is bound, which default could have a Material
Adverse Effect.
(g) To amend and restate in its entirety Section 6.3 as follows:
6.3. Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event
within 30 days after the end of each month, a company prepared
consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, in a form
and certified by an officer of Borrower reasonably acceptable to
Bank; (b) as soon as available, but in any event within 120 days
after the end of Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with
GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (c) within five
days of filing, copies of all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission and at the
request of Bank, all statements, reports and notices sent or
made available generally by Borrower to its security holders or
to any holders of Subordinated Debt; (d) promptly upon receipt
of notice thereof, a report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result
in damages or costs to Borrower or any Subsidiary of $100,000 or
more; (e) prompt notice of any material change in the
composition of the Intellectual Property Collateral, including,
but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not
specified in any intellectual property security agreement
between Borrower and Bank or knowledge of an event that
materially adversely effects the value of the Intellectual
Property Collateral; and (f) such budgets, sales projections,
operating plans or other financial information as Bank may
reasonably request from time to time.
Borrower shall deliver to Bank with each of the monthly
financial statements a Compliance Certificate signed by a
Responsible Officer in
-2-
<PAGE> 3
substantially the form of Exhibit C hereto, together with,
at any month-end where the outstanding balance of
Borrower's accounts receivable (determined in accordance
with GAAP) exceed $250,000, a detailed accounts receivable
aging as at the end of such month.
(h) To amend and restate in its entirety Section 6.9 as
follows:
6.9 Tangible Net Worth. Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net Worth
of not less than $14,000,000 plus (a) 25% of proceeds (net
of reasonable offering and issuance costs) received by
Borrower after June 22, 1998, with respect to the issuance
of equity securities by Borrower and (b) 25% of cumulative
quarterly net income (not excluding any losses), measured
as of the last fiscal quarter.
(i) To amend and restate in its entirety Section 7.3 as
follows:
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate,
with or into any other business organization, or acquire,
or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of
another Person except (i) such transactions that do not
involve an amount that in the aggregate exceeds $1,000,000
in cash or property (other than equity securities of the
Borrower) during the term of this Agreement; and, in
addition to the transactions permitted under clause (i),
(ii) an acquisition of a single company for a total cash
outlay not to exceed $1,000,000; provided that in the case
of (i) or (ii), Borrower shall be the surviving or
continuing corporation.
2. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
3. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
4. Continuing Validity. Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents. Except as expressly modified pursuant to this Agreement, the terms
of the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Obligations pursuant to this
Agreement in no way shall obligate Bank to make any future modifications to the
Obligations. Nothing in this Agreement shall constitute a satisfaction of the
Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party
is expressly released by Bank in writing. No maker, endorser, or guarantor will
be released by virtue of this Agreement. The terms of this paragraph apply not
only to this Agreement, but also to all subsequent loan modification agreements.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
GENERAL MAGIC, INC., SILICON VALLEY BANK
a Delaware corporation
By /s/ JAMES MCCORMICK By [Signature Illegible]
--------------------------------- ------------------------------------
James McCormick
Title: Sr. VP, Finance and Title: V.P.
Administration and CFO
-4-
<PAGE> 5
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: GENERAL MAGIC, INC.
The undersigned authorized officer of ___________________ hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending _________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA audited) FYE within 120 days Yes No
[10Q and 10K Within 5 days after filing with the SEC] Yes No
A/R Agings Monthly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 2.00:1.00 ____:1.0 Yes No
Minimum Liquidity Ratio 2.00:1.00 ____:1.0 Yes No
Minimum Tangible Net Worth $14,000,000 Yes No
Plus 25% Equity Proceeds $________ Yes No
Plus 25% Quarterly Net Income $________ Yes NO
Maintain on a Quarterly Basis:
Minimum Debt Service Ratio 1.50:1.00 ____:1.0 Yes No
Maintain at all times:
Liquidity: $12,000,000 $______ Yes No
</TABLE>
-1-
<PAGE> 6
BANK USE ONLY
Received By: ______________________
Date: ____________________
Reviewed By: ______________________
Compliance Status: Yes/No
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
_________________________ Date: ____________
SIGNATURE
_________________________
TITLE
-2-
<PAGE> 1
EXHIBIT 10.7
This LOAN AND SECURITY AGREEMENT, dated as of June 22, 1998, is between SILICON
VALLEY BANK ("Bank") and GENERAL MAGIC, INC., a Delaware corporation
("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"Adjusted Quick Ratio" means at any time for Borrower on a
consolidated basis, the ratio of Quick Assets to Current Liabilities (excluding
deferred revenue).
"Advance" has the meaning set forth in Section 2.1.
"Affiliate" means, with respect to any Person, any Person that owns
or controls directly or indirectly, such person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Person's managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding)
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation, ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
<PAGE> 2
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Equipment Line" means a credit extension of up to
$3,000,000.
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate
cap agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided that the term
"Contingent Obligation" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith;
provided that such amount shall not in any event exceed the maximum amount of
the obligations under the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or any other extension of
credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
including all Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than one
year from the date of determination, but excluding Subordinated Debt and
current deferred revenues.
"Debt Service Coverage Ratio" means for any fiscal quarter of
Borrower on a consolidated basis, the ratio of (a) the sum of quarterly net
income, quarterly depreciation and amortization, and quarterly interest
expenses minus any income from capitalized software development to (b) the sum
of capital lease payments due during such quarter, the current portion of long
term debt during such quarter, and quarterly interest expenses.
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"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Availability End Date" has the meaning set forth in Section 2.1.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property Collateral" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents,
Trademarks, or Mask Works, and all license fees and royalties arising from such
use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
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(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance (or any agreement to grant any of the foregoing,
whether or not contingent on the happening of any future event).
"Liquidity Ratio" means at any time for Borrower on a consolidated basis,
the ratio of (a) cash and cash equivalents plus 50% of trade accounts
receivable (net of reserves) to (b) the outstanding balance of all loans owing
to Bank (including the Advances).
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other present or future agreement entered into
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means December 31, 2001.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
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"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Payment Date" means the first calendar day of each month commencing on
the first such date after the Closing Date and ending on the Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document or in respect of letters of credit or
foreign exchange contracts;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing or committed on the Closing Date disclosed in
the Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank; and
(c) Investments in accordance with Borrower's written investment policies
as approved by Borrower's board of directors.
"Permitted Liens" means the following:
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<PAGE> 6
(a) Any Liens existing on the Closing Date and disclosed in the Schedule
or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies (including customs duties), either not delinquent or being contested in
good faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or
any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Leases or subleases and licenses or sublicenses granted to others in
the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower and its Subsidiaries taken as a whole,
and any interest or title of a lessor, licensor or under any lease or license
provided that such leases, subleases, licenses and sublicenses do not prohibit
the grant of the security interest granted hereunder;
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;
(f) Liens arising from judgments, decrees, or attachments not
constituting an Event of Default;
(g) Liens securing claims and demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or entities imposed
without action of such parties; provided that the payment thereof is not yet
required; and
(h) Liens incidental to the conduct of Borrower's business or the
ownership of its property which (i) arise in the ordinary course of business,
(ii) do not secure Indebtedness, and (iii) do not in the aggregate materially
detract from the value of its property or materially impair the use thereof in
the operation of its business;
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
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<PAGE> 7
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer, the Corporate Secretary, and the
Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by such Person or one or more Affiliates of
such Person.
"SVB Account" means a certificate of deposit, money market account or
demand deposit account maintained with Bank.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Total Liabilities" means as of any applicable date, all obligations
that should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all Indebtedness,
but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
"UCC" means the California Uniform Commercial Code.
1.2. Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding." Periods of days referred to
in this Agreement shall be counted in calendar days unless otherwise stated.
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<PAGE> 8
References to the plural include the singular and to the singular include the
plural, references to any gender include any other gender, the part includes the
whole, the term "including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or."
The words "hereof," "herein," hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. Article, section, subsection, clause, exhibit and schedule
references are to this Agreement, unless otherwise specified. All of the
exhibits and schedules attached hereto shall be deemed incorporated herein by
reference. All terms contained in this Agreement which are not otherwise
specifically defined herein (including the term "good faith") shall have the
meanings provided by the UCC to the extent the same are used or defined therein.
1.3. No Presumption Against Any Party. Neither this Agreement nor any
other Loan Document nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto or thereto,
whether under any rule of construction or otherwise. On the contrary, this
Agreement and the other Loan Documents have been reviewed by each of the parties
and their counsel and, in the case of any ambiguity or uncertainty, shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
2. LOAN AND TERMS OF PAYMENT
2.1. Equipment Advances.
2.1.1. Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through December 31, 1998 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Advance" and collectively, the "Advances") to Borrower in an aggregate
outstanding amount not to exceed the Committed Equipment Line. To evidence the
Advance or Advances, Borrower shall deliver to Bank, at the time of each Advance
request, an invoice for the equipment purchased, and, on the Closing Date, shall
present to Bank invoices or evidence of net book value with respect to equipment
purchased by Borrower before the Closing Date and which Borrower wishes to have
financed hereunder. Advances shall not exceed the lesser of 100% of the net book
value or of the invoice amount (net of, in either case, sales tax, freight, and
installation expense) of such equipment, approved from time to time by Bank,
excluding taxes, shipping, warranty charges, freight discounts and installation
expense; provided that software licenses, leasehold improvements and other soft
costs may constitute up to 20% of the total Advances. Each Advance must be in a
minimum amount of $25,000.
2.1.2. When Borrower desires to obtain an Advance, Borrower shall
notify Bank (which notice shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time one Business Day before the day on
which the Advance is to be made. Such notice shall be substantially in the form
of the Advance Request Form attached hereto as Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for the Equipment to be financed.
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2.2. Interest Rates, Payments, and Calculations.
(a) Interest Rate. All Advances shall bear interest, on the
average daily balance thereof, at a per annum rate equal to 0.25 percentage
points above the Prime Rate, except that upon confirmed receipt that Borrower
has raised an additional $5,000,00 in equity pursuant to section 3.2(c), all
Advances shall thereafter bear interest at a per annum rate equal to the Prime
Rate; provided that, from and after the occurrence of an Event of Default, all
Obligations shall bear interest at a rate equal to two percentage points above
the interest rate otherwise applicable prior to the occurrence of the Event of
Default.
(b) Payments. Accrued interest hereunder shall be paid by
Borrower on each Payment Date and on the date the Advances are repaid in full.
Borrower shall pay accrued interest only through the Equipment Availability End
Date. Any Advances that are outstanding on the Equipment Availability End Date
will be payable by the Borrower in 36 equal monthly installments of principal,
plus accrued interest as above provided, beginning on the Payment Date of each
month following the Equipment Availability End Date and ending on the Maturity
Date. Advances, once repaid, may not be reborrowed. Borrower hereby authorizes
Bank to debit any accounts with Bank (other than accounts specifically
designated as payroll accounts), including, without limitation, Account Number
273226270 for payments of principal and interest due on the Obligations and any
other amounts owing by Borrower to Bank. Bank will notify Borrower of all debits
which Bank has made against Borrower's accounts. Any such debits against
Borrower's accounts in no way shall be deemed a set-off. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(c) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a 360-day
year for the actual number of days elapsed.
2.3. Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
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2.4. Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to $10,000, which fee
shall be due on the Closing Date, and Additional Facility Fee equal to $5,000,
which fee shall be due on the date that the total of the Advances made
hereunder have exceeded $2,000,000. Each fee shall be fully earned and
non-refundable as of the date paid.
(b) Maintenance Fee. If, for any month after the Closing Date,
the average daily balance for such month and the immediately preceding month of
all SVB Accounts maintained by Borrower is less than 25% of the total of the
Borrower's cash, cash equivalents, readily marketable securities and other
liquid assets as at the end of such month as reflected in the financial
statements pursuant to Section 6.3 hereof for such month, then Borrower shall
promptly pay a maintenance fee of $3,000 with respect to such month;
(c) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank and its agents;
(d) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses,
as and when they become due.
3. CONDITIONS OF LOANS
3.1. Conditions Precedent to Initial Advance. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof;
(g) Certificate of Foreign Qualification (if applicable); and
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<PAGE> 11
(h) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to all Advances. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Advance Request Form as
provided in Section 2.1;
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have occurred
and be continuing, or would result from such Advance. The making of each
Advance shall be deemed to be a representation and warranty by Borrower on the
date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b);
(c) prior to obtaining any Advances in excess of the first
$1,000,000 of Advances the Borrower must have obtained after the Closing Date a
minimum of $5,000,000 in new equity capital in the form of cash or cash
equivalents; and
(d) prior to obtaining any Advances in excess of the first
$2,000,000 of Advances the Borrower must have obtained after the Closing Date a
minimum of $15,000,000 in new equity capital in the form of cash or cash
equivalents.
4. CREATION OF SECURITY INTEREST
4.1. Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that upon the occurrence and during the continuance of an Event of
Default, Bank may place a "hold" on any Deposit Account pledged as Collateral to
secure the Obligations. Notwithstanding termination of this Agreement, Bank's
Lien on the Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2. Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the reasonable request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
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4.3. Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2. Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound, nor is
Borrower in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3. No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4. Intellectual Property. Borrower is the sole owner of the Intellectual
Property Collateral, except for licenses granted by Borrower to its customers in
the ordinary course of business. Each of the material Patents is valid and
enforceable to the best knowledge of Borrower, and no part of the Intellectual
Property Collateral has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any material part of the Intellectual
Property Collateral violates the rights of any third party. Except for and upon
the filing with the United States Patent and Trademark Office with respect to
the Patents and Trademarks and the Register of Copyrights with respect to the
Copyrights and Mask Works necessary to perfect the security interests created
hereunder, and except as has been already made or obtained, no authorization,
approval or other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory body is required either (i)
for the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of Loan Documents by Borrower in the United
States or (ii) for the perfection in the United States or the exercise by Bank
of its rights and remedies hereunder.
5.5. Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least 30 days
prior written notice to Bank do business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
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5.6. Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.7. No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.8. Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations G, T and U of the Board of Governors of the
Federal Reserve System). Borrower is in material compliance with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.9. Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other governmental agency
concerning any action or omission by Borrower or any Subsidiary resulting in
the release, or other disposition of hazardous waste or hazardous substances
into the environment.
5.10. Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate
reserves under GAAP.
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5.11. Subsidiaries. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.12. Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.13. Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum requirements of ERISA with respect to any
employee benefit plans subject to ERISA. Borrower shall comply, and shall cause
each Subsidiary to comply, with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Bank's Lien on the Collateral.
6.3. Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within 30 days after the end of
each month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a form and
certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon
as available, but in any event within 120 days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five days of filing, copies of all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission and at the request of Bank, all statements, reports and notices sent
or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt; and (d) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of $100,000 or
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more; (e) prompt notice of any material change in the composition of the
Intellectual Property Collateral, including, but not limited to, any subsequent
ownership right of the Borrower in or to any Copyright, Patent or Trademark not
specified in any intellectual property security agreement between Borrower and
Bank or knowledge of an event that materially adversely effects the value of
the Intellectual Property Collateral; and (f) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Borrower shall deliver to Bank with each of the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with, at any month-end
where the outstanding balance of Borrower's accounts receivable (determined in
accordance with GAAP) exceed $250,000, a detailed accounts receivable aging as
at the end of such month.
6.4 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Bank, on demand, appropriate certificates attesting to the
payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with
proof satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is (i) contested in good
faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least 20
days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
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<PAGE> 16
6.6 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, an Adjusted Quick Ratio of at least 2.00 to 1.00.
6.7 Liquidity Ratio. Borrower shall maintain, as of the last day of each
calendar month, a Liquidity Ratio of at least 2.00 to 1.00 until such time as
Borrower's Debt Service Coverage Ratio has been at least 1.50 to 1.00 for two
consecutive fiscal quarters.
6.8 Debt Service Coverage Ratio. Commencing at such time as Borrower's
Debt Service Coverage Ratio has been at least 1.50 to 1.00 for two consecutive
fiscal quarters, Borrower shall thereafter maintain, as of the last day of each
fiscal quarter, a Debt Service Coverage Ratio of at least 1.50 to 1.00.
6.9 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than $14,000,000 plus (a)
25% of proceeds (net of reasonable offering and issuance costs) received by
Borrower after the Closing Date and on or before the end of such calendar month
with respect to the issuance of equity securities by Borrower and (b) 25% of
cumulative quarterly net income (not excluding any losses), measured as of the
last fiscal quarter.
6.10 Liquidity. Borrower shall at all times maintain not less than
$12,000,000 in cash and cash equivalents which are either unrestricted, or, if
restricted, on deposit with Bank.
6.11 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within 30 days of the date of this Agreement; provided that Borrower
shall have no obligation to register intellectual property rights that have no
significant material value. Borrower shall register or cause to be registered
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, those additional material intellectual property
rights (a material intellectual property right shall be deemed to include any
such right which contributes five per cent or more of Borrower's gross revenues
in any fiscal quarter) developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including, without limitation, revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the material Trademarks, Patents, Copyrights,
and Mask Works, (ii) use its best efforts to detect infringements of the
material Trademarks, Patents, Copyrights and Mask Works and promptly advise
Bank in writing of material infringements detected and (iii) not
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<PAGE> 17
allow any Trademarks, Patents, Copyrights, or Mask Works to be abandoned,
forfeited or dedicated to the public without the written consent of Bank, which
shall not be unreasonably withheld.
(d) Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Section 6.11 to take but which Borrower fails to take, after 15 days notice
to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable
costs and reasonable expenses incurred in the reasonable exercise of its rights
under this Section 6.11.
6.12. Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1. Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any substantial part of its business or property, other than Transfers:
(i) of inventory in the ordinary course of business; (ii) of licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business; or (iv) of
worn-out, surplus, or obsolete Equipment.
7.2. Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's board of directors or management.
Borrower will not, without at lease 30 days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3. Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person except (i)
such transactions that do not involve an amount that in the aggregate exceeds
$1,000,000 in cash or property (other than equity securities of the Borrower)
during the term of this Agreement; and, in addition to the transactions
permitted under clause (i), (ii) an acquisition of a single company for a total
cash outlay not to exceed $1,000,000; provided that in the case of (i) or (ii),
Borrower shall be the surviving or continuing corporation.
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<PAGE> 18
7.4. Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any cash dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock (other than repurchases of the stock of departing
employees).
7.7. Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person.
7.9. Intellectual Property Agreements. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts.
7.10. Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11. Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12. Compliance. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation,
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<PAGE> 19
which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral; or
permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2. Covenant Default.
(a) If Borrower fails to perform any obligation under Section
6.3, 6.6, 6.7, 6.8, 6.9, or 6.10 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Bank and as to any default under such
other term, provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten days after the occurrence thereof;
provided that if the default cannot by its nature be cured within the ten day
period or cannot after diligent attempts by Borrower be cured within such 10
day period, and such default is likely to be cured within a reasonable time,
then Borrower shall have an additional reasonable period (which shall not in
any case exceed 30 days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3. Material Adverse Change. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
the Borrower, or (ii) is a material impairment of the prospect of repayment of
any portion of the Obligations or (iii) is a material impairment of the value
or priority of Bank's security interests in the Collateral;
8.4. Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ of distress warrant, or is levied upon,
or comes into possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within 20 days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within 20 days after Borrower receives notice thereof, provided that none of
the foregoing shall constitute an Event of Default where such action or event
is stayed or an adequate bond has been posted
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pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);
8.5. Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of $100,000 or that could have a
Material Adverse Effect;
8.7. Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least $150,000 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a
period of 20 days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or
8.9. Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter (as of the date when made or deemed made)
in any warranty or representation set forth herein or in any certificate or
writing delivered to Bank by Borrower or any Person acting on Borrower's behalf
pursuant to this Agreement or, to induce Bank to enter into this Agreement or
any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in Section 8.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security
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interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in
equity, or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2. Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance (other than outright cancellation
or reductions of coverage not made in connection with the settlement and
adjustment of claims); and (e) settle and adjust disputes and claims
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respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; (f) to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature to
such modification by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit D,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer
has or claims any right, title or interest; (g) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower where
permitted by law; and (h) to transfer the Intellectual Property Collateral into
the name of Bank or a third party to the extent permitted under the UCC provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3. Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposits.
9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof or (b) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts
so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the UCC, by law, or in
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equity. No exercise by Bank of one right or remedy shall be deemed an election,
and no waiver by Bank of any Event of Default on Borrower's part shall be
deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below for such party on the signature pages hereof. The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
-23-
<PAGE> 24
12. GENERAL PROVISIONS
12.1. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2. Indemnification. Borrower shall, indemnify, defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential
to transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3. Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5. Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this
Agreement, if any, are merged into this Agreement and the Loan Documents.
12.6. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenant, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8. Confidentiality. In handling any confidential information Bank
shall exercise the same degree of care that is exercises with respect to its
own proprietary information of the same types to maintain the confidentiality
of any non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made
-24-
<PAGE> 25
(i) to the subsidiaries or affiliates of Bank in connection with their present
or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank, and
(v) as Bank may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided Bank does not have actual knowledge or substantial
reason to believe that such third party is prohibited from disclosing such
information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
GENERAL MAGIC, INC.
By /s/ STEVEN MARKMAN
------------------------------
Title:
------------------------------
By /s/ JAMES McCORMICK
------------------------------
Title:
------------------------------
Address for Notices:
SILICON VALLEY BANK
By /s/ [Signature Illegible]
------------------------------
Title: Vice President
------------------------------
Address for Notices:
-25-
<PAGE> 26
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower, whether now existing or hereafter acquired or created, in and to the
following:
(a) All goods, equipment, machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
(c) All contract rights, general intangibles, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
(d) All accounts, contract rights, royalties, license rights and all
other forms of obligations owing to Borrower, whether or not arising out of the
sale or lease of goods, the licensing of technology or the rendering of services
by Borrower, and whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment
property, letters of credit, certificates of deposit, instruments and chattel
paper and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished; all trade secret rights,
including all right to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; all mask work or similar rights available for the protection
or semiconductor chips; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interest in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
-1-
<PAGE> 27
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ___________
FAX #: (408)_______________ TIME: ___________
FROM: ____________________________________________________________
BORROWER'S NAME
FROM: ____________________________________________________________
AUTHORIZED SIGNER'S NAME
____________________________________________________________
AUTHORIZED SIGNATURE
PHONE: ____________________________________________________________
FROM ACCOUNT # _______________ TO ACCOUNT # _______________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $__________
PRINCIPAL PAYMENT (ONLY) $__________
INTEREST PAYMENT (ONLY) $__________
PRINCIPAL AND INTEREST (PAYMENT) $__________
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the
Loan and Security Agreement are true, correct and complete in all material
respects as of the telephone request for and Advance confirmed by this Advance
Request; provided that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_____________________ ____________________
Authorized Requester
_________________________________________
Authorized Signature (Bank)
Phone # _________________________________
1
<PAGE> 28
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: GENERAL MAGIC, INC.
The undersigned authorized officer of __________________ hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ___________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
[10Q and 10K Within 5 days after filing with the SEC] Yes No
A/R Agings Monthly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 2.00:1.00 ___:1.0 Yes No
Minimum Liquidity Ratio 2.00:1.00 ___:1.0 Yes No
Minimum Tangible Net Worth $14,000,000 Yes No
Plus 25% of Equity Proceeds Yes No
Plus 25% of Quarterly Net Income Yes No
Maintain on a Quarterly Basis:
Minimum Debt Service Ratio 1.50:1.00 ___:1.0 Yes No
Maintain at all times:
Liquidity: $12,000,000 $______ Yes No
</TABLE>
BANK USE ONLY
Received By:__________
Date:_________________
Reviewed By:__________
Compliance Status: Yes/No
-1-
<PAGE> 29
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
______________________________ Date: _____________
Signature
______________________________
Title
-2-
<PAGE> 30
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Bank: Silicon Valley Bank
LOAN TYPE. This is a Variable Rate, Line of Credit of a principal amount up to
$________.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: ___________.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Line
----
Amount paid to Borrower directly: $______
Undisbursed Funds $______
Principal $______
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $______
$10,000 Loan Fee
$ 5,000 Additional Loan Fee when Total Advances Exceed $2,000,000
Accounts Receivables Audit
Other Charges Paid in Cash: $______
$______ UCC Search Fees
$______ UCC Filing Fees
$______ PATENT FILING FEES
$______ TRADEMARK FILING FEES
$______ COPYRIGHT FILING FEES
$______ OUTSIDE COUNSEL FEES AND EXPENSES
Total Charges Paid in Cash $______
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______ the amount of any loan payment. If the
funds in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.
FINANCIAL CONDITION, BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF __________, 19__.
BORROWER:
______________________________
Authorized Officer
-1-
<PAGE> 1
EXHIBIT 10.8
This LOAN MODIFICATION AGREEMENT, dated as of February 15, 1999 (this
"Agreement"), is between GENERAL MAGIC, INC., a Delaware corporation
("Borrower") and SILICON VALLEY BANK ("Bank").
Recitals
A. In addition to any other obligations which may be owing by Borrower to
Bank, Borrower is indebted to Bank pursuant to a Loan and Security Agreement,
dated as of December [___], 1997, and the Loan and Security Agreement, dated as
of June 22, 1998 (as each may have been amended to the date hereof,
collectively, the "Loan Agreement"). The term "Obligations" and the other terms
defined in the Loan Agreement are used herein with the same meanings unless
otherwise defined herein.
B. Repayment of the Obligations is secured by the Collateral described in
the Loan Agreement and the Intellectual Property Security Agreements thereto.
The foregoing security documents, the Loan Agreement and all other documents
evidencing or securing the Obligations are called the "Existing Loan Documents"
herein.
The parties hereto hereby agree as follows:
1. Amendments.
The Loan Agreement is hereby amended:
(a) To add certain definitions to Section 1.1 thereof, to be inserted
in appropriate alphabetical order, as follows:
"Cash Burn" with respect to any month means unrestricted cash as
of the end of the preceding month minus unrestricted cash as of
the end of the current month plus any increase in Indebtedness,
or any proceeds from issuances of equity securities during the
current month.
"Covenant Activation Events" means (a) on or before 5:00 p.m.,
Pacific Standard Time, March 31, 1999, the receipt by Borrower of
a minimum of $20,000,000 from its sale of Series D Preferred
Stock to the Palladin Group, LLC (the "Series D Issue"), or (b)
in the event Bank deems it necessary, on or before 5:00 p.m.,
Pacific Standard Time, April 7, 1999, the execution of a
subordination agreement in connection with Borrower's Series D
Issue, in a form and substance acceptable to Bank.
"Remaining Months Liquidity" means at any time, the ratio of the
sum of Unrestricted Cash plus 50% of net trade receivables
divided by average monthly Cash Burn for the six (6) months
preceding such time. For the sole purpose of this definition,
"Unrestricted Cash" means unrestricted cash and cash equivalents
minus the current certificate of deposit of $1,824,159 supporting
the Borrower's letter of credit issued by Bank.
(b) To amend and restate in its entirety Exhibit C thereof in the
form attached hereto.
1
<PAGE> 2
(c) To amend and restate in its entirety Section 4.1 as follows:
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure
prompt payment of any and all Obligations and in order to secure
prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. Borrower shall immediately
pledge cash to Bank, in the form of a certificate of deposit at
Bank, on terms acceptable to Bank, as part of the Collateral, in
an amount equal to 100% of the outstanding loan balances (the
"Cash Collateral"), in the event that the Covenant Activation
Events shall not have occurred. In the event such Cash Collateral
is provided to Bank, and so long as Borrower maintains such Cash
Collateral, Borrower shall not be required to comply with the
financial covenants set forth in Sections 6.6, 6.7, 6.8, 6.9,
6.10 and 6.13 of the Loan Agreement. Except as set forth in the
Schedule, Bank's security interest constitutes a valid, first
priority security interest in the presently existing Collateral,
and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof. Borrower acknowledges
that upon the occurrence and during the continuance of an Event
of Default, Bank may place a "hold" on any Deposit Account
pledged as Collateral to secure the Obligations. Notwithstanding
termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are
outstanding.
(d) To amend and restate in its entirety Section 6.6 as follows:
6.6 Quick Ratio. Upon the occurrence of both events described in
clauses (a) and (b) of the definition of Covenant Activation
Events, Borrower shall maintain, as of the last day of each
calendar month, an Adjusted Quick Ratio of at least 1.50 to 1.00.
(e) To amend and restate in its entirety Section 6.7 as follows:
6.7 Liquidity Ratio. Upon the occurrence of both events
described in clauses (a) and (b) of the definition of Covenant
Activation Events, this covenant shall be deleted in its
entirety.
(f) To amend and restate in its entirety Section 6.9 as follows:
6.9 Tangible Net Worth. Borrower shall maintain, as of the last
day of February 1999, a Tangible Net Worth of not less than
$18,000,000. Upon the occurrence of both events described in
clauses (a) and (b) of the definition of Covenant Activation
Events, Borrower shall maintain, as of the last day of each
calendar month, a Tangible Net Worth of not less than $8,000,000,
plus (a) 25% of proceeds from issuances of equity securities by
Borrower (net of reasonable offering and issuance costs, and
including the planned Series D Issue) during the quarter ending
March 31, 1999, and (b) 25% of cumulative quarterly net income
(exclusive of net losses), measured as of the immediately
preceding fiscal quarter.
2
<PAGE> 3
(g) To amend and restate in its entirety Section 6.10 as follows:
6.10 Liquidity. Upon the occurrence of both events described in
clauses (a) and (b) of the definition of Covenant Activation
Events, Borrower shall at all times maintain not less than
$12,000,000 in cash and cash equivalents which are unrestricted,
except that Borrower shall be permitted to maintain $8,000,000 of
such funds in Bank's certificates of deposit with a maturity of
six (6) months or less.
(h) To add Section 6.13 thereto to be inserted after Section 6.12
thereof as follows:
6.13 Remaining Months Liquidity. Upon the occurrence of both
events described in clauses (a) and (b) of the definition of
Covenant Activation Events, Borrower shall maintain Remaining
Months Liquidity, as of the last day of each calendar month, of
at least six (6) times the average of monthly Cash Burn for the
immediately preceding six (6) month period.
(i) To amend Section 8.8 thereto to delete the word "or" after the
semi-colon (";").
(j) To amend Section 8.9 thereto to delete the period (".") after the
words "Loan Document" and to insert in lieu of such period "; or" after the
words "Loan Document."
(k) To add Section 8.10 thereto to be inserted after Section 8.9
thereof as follows:
8.10 Failure to Consummate Sale of Series D Issue. If Borrower
fails to consummate the sale of its Series D Issue for cash
consideration of at least $20,000,000 by March 31, 1999, and
fails to provide the Cash Collateral required by Section 4.1 of
this Agreement.
2. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
3. Amendment Fee. Borrower shall pay to Bank a fee in the amount of
$1,000 (the "Amendment Fee") plus all reasonable legal fees and costs incurred
in connection with the negotiation, documentation and preparation of this
Agreement.
4. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
5. Continuing Validity. Borrower understands and agrees that in modifying
the existing Obligations, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Obligations pursuant to this Agreement in no way
shall obligate Bank to make any future modifications to the Obligations. Nothing
in this Agreement shall constitute a satisfaction of the Obligations. It is the
intention of Bank and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Bank in writing. No maker, endorser, or guarantor will be
3
<PAGE> 4
released by virtue of this Agreement. The terms of this paragraph apply not only
to this Agreement, but also to all subsequent loan modification agreements.
6. Conditions. The effectiveness of this Agreement is conditioned upon
the following:
(a) Borrower's payment of the Amendment Fee plus all reasonable legal
fees and costs incurred in connection with the negotiation, documentation and
preparation of this Agreement; and
(b) Delivery of an executed Amendment to the Intellectual Property
Security Agreement, dated of even date herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
GENERAL MAGIC, INC., SILICON VALLEY BANK
a Delaware corporation
By By
----------------------------------- -----------------------------------
Title: Title:
------------------------------- -------------------------------
4
<PAGE> 5
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: GENERAL MAGIC, INC.
The undersigned authorized officer of [______________________] hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreements between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending [______________________] with all
required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) and are consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer expressly
acknowledges that no borrowings may be requested by the Borrower at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that such compliance is determined not just at the date
this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
[10Q and 10K Within 5 days after filing with the SEC] Yes No
A/R Agings* Monthly within 30 days Yes No
</TABLE>
*if the outstanding balance of Borrower's accounts receivables exceeds $250,000
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.50:1.00 _____:1.00 Yes No
Minimum Tangible Net Worth $8,000,000 Yes No
Plus 25% Equity Proceeds $_________ Yes No
Plus 25% Quarterly Net Income $_________ Yes No
Remaining Months Liquidity 6 times average Yes No
monthly Cash
Burn for preceding
6 months
Maintain on a Quarterly Basis:
Minimum Debt Service Ratio 1.50:1.00 _____:1.00 Yes No
Maintain at all times:
Liquidity: $12,000,000 $________ Yes No
</TABLE>
1
<PAGE> 6
BANK USE ONLY
Received By:
--------------------
Date:
---------------------------
Reviewed By:
--------------------
Compliance Status: Yes / No
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
Date:
- ------------------------ ----------------
SIGNATURE
- ------------------------
TITLE
2
<PAGE> 1
EXHIBIT 10.9
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AND PARTIAL TERMINATION OF SUBLEASE AGREEMENT
BETWEEN ARGOSYSTEMS, INC. AND GENERAL MAGIC, INC.
- --------------------------------------------------------------------------------
This Amendment No. 1 ("Amendment") to and partial termination of the
Sublease Agreement (the "Sublease") between ARGOSystems, Inc., as Sublessor
(hereinafter, "Sublessor"), and General Magic, Inc., as Sublessee (hereinafter,
"Sublessee"), for the premises located at 420 N. Mary Avenue, Sunnyvale,
California, which Sublease was dated April 12, 1994 for reference purposes
only, and such Amendment to Sublease is made and entered into as of April 1,
1997. In consideration of the mutual promises, covenants, and conditions as
hereinafter provided, the parties hereto do agree to the following provisions,
which amend the Sublease, as follows:
1. Early Surrender of Portion of Premises.
1.1 For purposes of this Amendment, the term, "Surrendered Space,"
shall mean and refer to those portions of the Premises (as that term is defined
in paragraph 1 of the Sublease) consisting of (i) the second floor of 420 N.
Mary Avenue and consisting of approximately 38,862 square feet of office/R&D
space, and which is depicted in Exhibit A attached hereto and incorporated
herein by reference; (ii) approximately 10,966 square feet of office/R&D space
on the first floor of 420 N. Mary Avenue, and which is depicted in Exhibit B
attached hereto and incorporated by reference; and (iii) for purposes of
calculation of Rent, Rebate Rent (as defined below), and reduction of Security
Deposit only under the Sublease, as amended hereby, 1,727 square feet of
office/R&D space on the first floor, which represents a proportionate share of
the core and common area on the first floor, excluding the cafeteria, gym,
locker rooms, shipping and receiving, all conference rooms, and the corridors
adjacent to the conference rooms from the core and common area for purposes of
establishing the proportionate share, which is depicted in Exhibit C attached
hereto and incorporated herein by reference (collectively, the "Surrendered
Space"). Sublessor and Sublessee agree that the square footage of the Premises
shall be deemed to be 116,586 square feet, consisting of three floors of 38,862
square feet each, regardless of actual dimensions.
1.2 As used in this Amendment, the term, "Remaining Space," shall
mean and refer to the Premises, excluding therefrom the Surrendered Space. All
capitalized terms not defined in this Amendment shall have the meanings defined
in the Sublease, except as otherwise specified in this Amendment.
1.3 Except as provided in Paragraph 6 and 10, effective as of July
28, 1997, Sublessee shall relinquish the Surrendered Space to Sublessor in
broom clean condition. In relinquishing the Surrendered Space as of July 28,
1997, Sublessor agrees that Sublessee shall not have any obligation to
surrender the Surrendered Space with all interior walls freshly painted or
cleaned so they appear freshly painted, any carpets cleaned, the air
conditioning and heating equipment serviced by a reputable service man, or with
all floors cleaned and waxed. Sublessee
- --------------------------------------------------------------------------------
FINAL -1-
<PAGE> 2
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AND PARTIAL TERMINATION OF SUBLEASE AGREEMENT
BETWEEN ARGOSYSTEMS, INC. AND GENERAL MAGIC, INC.
- --------------------------------------------------------------------------------
must otherwise comply with its surrender obligations as provided in the
Sublease, including but not limited to those obligations stated in paragraph 27
thereof. Sublessor shall have the right to inspect the Surrendered Space.
1.4 Effective as of April 1, 1997, the Base Rent payable under the
sublease shall be reduced proportionately based on the square footage of the
Surrendered Space hereof as a percentage of the square footage of the Premises.
Therefore, effective April 1, 1997, the Base Rent shall be the sum as provided
in the Sublease, multiplied by a fraction, the numerator of which is 65,031 (the
square footage of the Remaining Space), and the denominator of which is 116,586
(the square footage of the Premises).
1.5 From and after April 1, 1997, Sublessee shall have no further
obligation to pay Additional Rent with respect to the Surrendered Space, and
Sublessor shall reimburse Sublessee for all operating expenses incurred with
respect thereto, including but not limited to landscaping and maintenance fees
for the Common Area of the Property, within 10 days of request.
2. Rebate Rent.
As and for consideration for Sublessee's surrender of the Surrendered
Space, and as and for further consideration for the other promises, conditions,
and covenants herein, commencing April 1, 1997, Sublessor shall pay or credit to
Sublessee as appropriate the monthly rebate rent set forth in the table below
for each square foot of the Surrendered Space determined in accordance with
paragraph 1.1 hereof (hereinafter, the "Rebate Rent"). Such Rebate Rent will be
paid to Sublessee or credited as appropriate against the Base Rent or Additional
Rent payable by Sublessee or Sublessor for the Remaining Space.
<TABLE>
<CAPTION>
Period Rebate Rent/Sq. ft.
------- -------------------
<S> <C>
April 1997 - June 1997 $.625
July 1997 - March 1998 $.575
April 1998 - March 1999 $.625
April 1999 - June 1999 $.675
July 1999 - March 2000 $.650
April 2000 - June 2000 $.700
July 2000 - March 2001 $.650
April 2001 - June 2002 $.700
</TABLE>
- --------------------------------------------------------------------------------
FINAL -2-
<PAGE> 3
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AND PARTIAL TERMINATION OF SUBLEASE AGREEMENT
BETWEEN ARGOSYSTEMS, INC. AND GENERAL MAGIC, INC.
- --------------------------------------------------------------------------------
3. Security Deposit.
The Security Deposit as required under the Sublease shall be reduced
as follows: the Security Deposit shall be in the amount of $139,903.20,
multiplied by a fraction, the numerator of which is 65,031 (the square footage
of the Remaining Space), and the denominator of which is 116,586 (the square
footage of the Premises) (the "Reduced Security Deposit"). The difference
between the Security Deposit and the Reduced Security Deposit shall be
refunded to Sublessee promptly upon execution of the Sublease. Except as
specifically provided herein, the terms and conditions of the Sublease with
respect to the Security Deposit, including paragraph 4 thereof, shall remain
unaffected by this Amendment.
4. Additional Consideration.
As and for additional consideration for Sublessee's Surrender of the
Surrendered Space, and as and for further consideration for the other promises,
conditions, and covenants herein, promptly upon execution of this Amendment,
Sublessor shall credit Sublessee: the amount of $38,000 in one lump sum.
5. Option Rights and Rights of First Refusal.
5.1 Notwithstanding anything to the contrary in the Sublease, and,
in particular, paragraph 36 thereof, in the event that Sublessee exercises its
expansion option for one full floor of additional space (consisting of
approximately 38,862 sq. ft.), Sublessor, at Sublessor's sole discretion, may
satisfy its obligations under the Sublease by providing to Sublessee either:
one full floor of 430 N. Mary Avenue (comprising approximately 38,862 sq. ft.);
or the second floor of 420 N. Mary Avenue (comprising approximately 38,862 sq.
ft.).
5.2 Sublessor shall have the Right of First Refusal in the event
Sublessee or Sublessee's successor in interest, if any, hereafter chooses to
sublease or assign any space at 420 or 430 N. Mary Avenue, subject to Master
Lessor's consent.
5.3 In the event that Sublessee or its successor chooses to sublease
or assign any space at 420 or 430 N. Mary Avenue, Sublessee shall first give
written notice to Sublessor identifying the space to be sublet or that will be
the subject of an assignment, and specifying the basic economic terms on which
Sublessee proposes to sublet such space or assign such Sublease, or, in the
event of any unsolicited offer received by Sublessee from a third party to
sublease such space, Sublessee shall notify Sublessor of all material terms of
any such offer. The Right of First Refusal granted to Sublessor hereunder shall
otherwise be on the same basis as the Right of First Refusal granted to
Sublessee in the Sublease, Paragraph 35 thereof, except that, for purposes of
- --------------------------------------------------------------------------------
FINAL -3-
<PAGE> 4
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AND PARTIAL TERMINATION OF SUBLEASE AGREEMENT
BETWEEN ARGOSYSTEMS, INC. AND GENERAL MAGIC, INC.
- --------------------------------------------------------------------------------
this Amendment, wherever Paragraph 35 refers to "Sublessor," it shall mean
"Sublessee," and wherever Paragraph 35 refers to "Sublessee," it shall mean
"Sublessor."
6. Sublessee's Access to the Surrendered Space.
6.1 From April 1, 1997 to July 28, 1997, Sublessee shall have access
to the Surrendered Space for the sole and exclusive purpose of satisfying its
surrender obligations. Sublessee shall coordinate with Sublessor to minimize
any disruption to or conflict with Sublessor's plans for the Surrendered Space
during this period.
6.2 From June 1, 1997 through the end of the Term of the Sublease
(unless the Sublease is earlier terminated), Sublessee, through no more than
four (4) of its employees, agents, contractors or invitees, but no more than
two (2) at any given time: (a) shall have unlimited card key access to the
second floor of 420 N. Mary Avenue upon sign-in for any urgent situations
requiring entry to the two (2) telephone/wiring utility closets on said second
floor; and (b) shall otherwise have access to the utility closets on said
second floor upon a minimum of four (4) hours' notice to Sublessor also upon
sign-in. These four (4) designated employees, agents, contractors or invitees,
who may change from time to time, will first obtain a Sun picture badge by
successfully completing the Sun Screening Process as provided in Exhibit D, as
amended from time to time.
7. Sublessor's Access to the Surrendered Space.
From April 1, 1997 to July 28, 1997, Sublessor and the prospective
occupant of the Surrendered Space shall both have access to the Surrendered
Space, but shall be accompanied at such times by a designated representative of
Sublessee.
8. Parking Spaces.
Notwithstanding anything to the contrary in the Sublease, and, in
particular, paragraph 34(i) thereof, Sublessee shall have a non-exclusive right
to use 240 parking spaces located in the Common Area.
9. Signage.
The occupant of the Surrendered Space shall be entitled to place
signage adjacent to the Premises, and in and around the common area on the
first floor of the Premises, subject to written approval of the Sublessee,
Sublessor and Master Lessor as to the reasonable placement, appearance, and
size thereof, which approval shall not be unreasonably withheld, conditioned or
delayed. No occupant of the Surrendered Space shall be entitled to place
signage on the exterior of the Premises.
- --------------------------------------------------------------------------------
FINAL -4-
<PAGE> 5
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AND PARTIAL TERMINATION OF SUBLEASE AGREEMENT
BETWEEN ARGOSYSTEMS, INC. AND GENERAL MAGIC, INC.
- --------------------------------------------------------------------------------
10. Demising Costs.
10.1 Sublessor and Sublessee shall cooperate with one another to
determine in good faith those modifications or improvements to the Premises
which are reasonably necessary to provide appropriate access and security for
the occupant of the Surrendered Space. Subject to the approval of the City of
Sunnyvale, Sublessee shall construct, at its sole cost, a cap to enclose the
stairwell at the third floor, and shall pay an amount not to exceed $20,000 for
any other demising cost or other costs necessary at the first floor to obtain
approval of the City of Sunnyvale in connection with this transaction. In the
event such other demising costs would exceed $20,000, the parties hereto agree
to renegotiate in good faith the terms of this Amendment to effectuate the
spirit and intent of said agreement.
10.2 Any and all demising costs within the Surrendered Space shall be
borne by Sublessor.
10.3 Subject to approval by Master Lessor, Sublessor shall be
entitled to install, at its sole cost, a cardkey security system in the common
area on the first floor and on the exterior of the Premises to provide access
to the Surrendered Space.
11. Commissions.
11.1 Sublessee represents and warrants to Sublessor that Sublessee
has not dealt with any broker in connection with this transaction other than
Cornish & Carey, and Sublessor represents and warrants to Sublessee that
Sublessor has not engaged any broker in connection with this transaction.
11.2 Sublessor agrees that Sublessee shall not have any
responsibility for any real estate commission that may be paid to LaSalle
Partners as a result of this transaction.
11.3 Sublessee shall be liable for and shall pay any and all real
estate brokerage commissions due to Cornish & Carey in connection with this
transaction. Neither Sublessor nor Sun Microsystems, Inc. ("Sun") shall have
any responsibility for any real estate commission that may be paid to Cornish &
Carey in connection with this transaction.
11.4 Each party agrees to indemnify, defend and hold harmless the
other party from any and all liabilities, claims or damages arising out of such
party's breach of the foregoing warranties and representations.
- --------------------------------------------------------------------------------
FINAL -5-
<PAGE> 6
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AND PARTIAL TERMINATION OF SUBLEASE AGREEMENT
BETWEEN ARGOSYSTEMS, INC. AND GENERAL MAGIC, INC.
- --------------------------------------------------------------------------------
12. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and when taken together shall constitute one
and the same Agreement.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions
of said April 12th, 1994 Sublease Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this
Amendment No. 1 to Sublease as of April 1, 1997.
SUBLESSOR: SUBLESSEE:
ARGOSYSTEMS, INC. GENERAL MAGIC, INC.,
a California Corporation a Delaware Corporation
By /s/ Allan F. Sauln By /s/ Mary E. Doyle
------------------------------ ------------------------------
Allan F. Sauln
Title Vice President, Engineering Title Vice President, Business
and Operations Affairs
--------------------------- ---------------------------
- --------------------------------------------------------------------------------
FINAL -6-
<PAGE> 7
SUBLEASE AMENDMENT/GENERAL MAGIC/ARGOSystems
EXHIBIT A
[SECOND FLOOR MAP]
<PAGE> 8
SUBLEASE AMENDMENT/GENERAL MAGIC/ARGOSystems
EXHIBIT B
[FIRST FLOOR MAP]
<PAGE> 9
SUBLEASE AMENDMENT/GENERAL MAGIC/ARGOSystems
EXHIBIT C
[FIRST FLOOR MAP]
<PAGE> 10
<TABLE>
<S><C>
EXHIBIT D
Page 1 of 2
[SUN MICROSYSTEMS LOGO] Sunscreen
Temporary/Contractor Application
Please complete this application thoroughly and neatly. If it is not complete or
legible, it cannot be processed.
Last Name First Name Middle Name
- ----------------------------- ------------------------------- ---------------------
Please list any other names that you have been known by (AKA's, aliases, maiden
names, etc.):
- ---------------------------------------------------------------------------------------
Current Address Home Phone #
( )
- ----------------------------------------------- -------------------------------------
City State Zip Code Work Phone #
( )
- ------------------ ---------- ------------- -------------------------------------
Please list all previous addresses within the past 5 years:
- ---------------------------------------------------------------------------------------
Social Security Number Drivers License Number State Month and Day of birth
- ----------------------- ------------------------ ------- ------------------------
Have you held any other drivers licenses within the past 5 years? [ ] Yes [ ] No
If yes, please list states and license numbers.
- ---------------------------------------------------------------------------------------
Have you ever worked at Sun before? [ ] Yes [ ] No If yes, were you a [ ] Temp
[ ] Contr [ ] Sun Employee
- --------------------------------------------------- ---------------------------------
Employment History:
1 Present (or most recent) Employer City and State Position Start Date End Date
--------------------------------- -------------- -------- ---------- --------
2 Previous Employer City and State Position Start Date End Date
--------------------------------- -------------- -------- ---------- --------
3 Previous Employer City and State Position Start Date End Date
--------------------------------- -------------- -------- ---------- --------
4 Previous Employer City and State Position Start Date End Date
--------------------------------- -------------- -------- ---------- --------
Have you ever been convicted of a crime, other than minor traffic citations, or are you
pending trial for a criminal offense for which you are out on bail or your own
recognizance? IF YES, LIST DATES, PLACES, CHARGES AND DISPOSITION. (A conviction is
not an automatic disqualification from employment.) Yes [ ] No [ ]
- ----------------------------------------------------------------------------------------
Sun Proprietary/Confidential: Need to know Page 1 of 2 Rev Date: 02/94
</TABLE>
<PAGE> 11
EXHIBIT D
Page 2 of 2
[SUN MICROSYSTEMS LOGO]
Sunscreen
Temporary/Contractor Application
- ---------------------------------- ----------------------------- -----------
Last Name First Name Middle Name
- --------------------------------------------------- ---------------------------
Agency Hiring Manager Position
- --------------------------------------------------- ---------------------------
Can you show evidence of the legal right to work in the U.S.? Yes [ ] No [ ]
If yes, residency status:
------------------------------------------------------
Are you a citizen of any of the countries listed below? Yes [ ] No [ ]
<TABLE>
<S> <C> <C> <C> <C>
Albania Armenia Azerbaijan Belarus Burgaria
China, Peop. Rep. of Cuba Czech Republic Estonia Georgia
Haiti Iran Iraq Kampuches (Cambodia) Kazakhastan
Kyrgyzstan Laos Latvia Libya Lithuania
Mongolia Muldovia North Korea Poland Romania
Russia Slovak Republic Syria Tajikstan Turkmenistan
Ukraine Uzebkistan Vietnam Yugoslavia
</TABLE>
Are you a permanent resident (Green Card holder) of the U.S.? Yes [ ] No [ ]
Please read the following before signing:
I certify that all statements I have made on this application and resume
submitted with this application, or other supplementary material are true and
correct. In the event that I am placed on a temporary/contractor assignment at
Sun Microsystems, Inc., I hereby authorize Sun Microsystems, Inc. to investigate
the accuracy of the information on my application of employment with ___________
Agency/self employed, from any person or organization, and I release Sun
Microsystems, Inc. and all persons and organization from all claims and
liabilities of any nature arising from such investigation. I acknowledge that my
assignment at Sun Microsystems, Inc. is conditional upon results of such
investigation and upon my execution of the Sun Microsystems, Inc. proprietary
information agreements. If such investigation results in the disclosure of
misleading, or false information supplied by me, Sun Microsystems, Inc. has
grounds for immediate disqualification of assignment or if already assigned,
grounds for terminating assignment. I also understand that any temporary
assignment at Sun Microsystems, Inc. is not to be construed as a contract of
assignment for any length of time, nor as an offer for full time employment by
Sun Microsystems, Inc. I also understand that any statements or representations
made to me with respect to such employment are not binding on Sun Microsystems
unless and until a written offer is made to me from the Human Resources
Department of Sun Microsystems.
I have read and understand the foregoing statement.
Signature: ________________________________ Date:______________________
Sun Proprietary/Confidential: Need to know Page 2 of 2 Rev/ Date: 02/94
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 2 TO SUBLEASE AGREEMENT BETWEEN ARGOSYSTEMS, INC. AND GENERAL
MAGIC, INC.
- --------------------------------------------------------------------------------
This Amendment No. 2 ("Amendment") to Sublease Agreement (the "Sublease")
between ARGOSystems, Inc., as Sublessor (hereinafter, "Sublessor"), and General
Magic, Inc., as Sublessee (hereinafter, "Sublessee"), for the Premises located
at 420 N. Mary Avenue, Sunnyvale, California ("Building 11"), which Sublease was
dated April 12, 1994 for reference purposes only (and was thereafter amended
and partially terminated by Amendment No. 1 entered into as of April 1, 1997),
is made and entered into as of January 1, 1998. Sublessee has heretofore
properly exercised its expansion option (hereinafter, the "Expansion Option")
pursuant to Paragraph 36 of the Sublease. Sun Microsystems, Inc. (hereinafter,
"Sun"), pursuant to the terms of its sublease with ARGOSystems, Inc., as
amended, dated as of November 1, 1996, which sublease was for the Premises
located in Sunnyvale, California at 410 N. Mary Avenue ("Building 12") and 430
N. Mary Avenue ("Building 10"), and the Sublease, as amended, has exercised its
right of first refusal with respect to 27,033 square feet of rentable space. In
connection with Sublessee's exercise of its Expansion Option and Sun's exercise
of its right of first refusal, and prior to or concurrently with the execution
hereof, the parties hereto, along with Sun, have executed an agreement,
entitled, "Agreement Regarding General Magic Expansion Option" (hereinafter, the
"Agreement"), which Agreement is attached hereto as Exhibit A and is
incorporated herein by reference. This Amendment also includes the Rent Schedule
which identifies the rent obligations for Sublessee and Sun with respect to
Building 11 and the rent obligation of Sun as to the First Floor of Building 10,
and which Rent Schedule is attached hereto as Exhibit B and is incorporated
herein by reference. In consideration of the mutual promises, covenants, and
conditions as hereinafter provided and as provided in the Agreement attached
hereto, Sublessor and Sublessee do agree to the following provisions, which
amend the Sublease, as follows:
1. In accordance with the Agreement, and specifically paragraph 1
thereof, Sublessor hereby delivers to Sublessee, in response to Sublessee's
exercise of its Expansion Option, 38,862 square feet on the first floor of
Building 10 (the "Expansion Option Space"). Of this Expansion Option Space,
Sublessee, pursuant to the Agreement, hereby surrenders 27,033 sq. ft., that
would otherwise have been available for sublease by Sublessee, to Sublessor
pursuant to Sublessor's Right of First Refusal under the Sublease. Sublessor,
in turn, is making this space available to Sun pursuant to Sun's Right of First
Refusal in its sublease. In exchange, Sun is surrendering to Sublessor, 11,829
rentable square feet on the first floor of Building 11 (420 North Mary Avenue,
Sunnyvale, CA) (hereinafter, the "Additional General Magic Space"). Sublessor,
(pursuant to the Agreement) hereby delivers to Sublessee the Additional General
Magic Space for Sublessee's use and occupancy, receipt of such delivery being
hereby acknowledged by Sublessee. Also pursuant to the Agreement, Sublessee is
surrendering 11,829 sq. ft. on the first floor of Building 10 to Sublessor,
which space Sublessor, in turn, is making available to Sun for Sun's use and
occupancy.
1
<PAGE> 2
2. In accordance with the Agreement, and specifically paragraph 3
thereof, Sublessee delivers to Sublessor, for delivery to Sun, the 27,033
square feet of rentable space (hereinafter, the "Additional Sun Space") which
would otherwise have been transferred to Sublessee as a result of the exercise
of Expansion Option. Sublessee hereby accepts delivery from Sublessor through
Sun of the Additional General Magic Space. Sublessor and Sublessee agree that
the Additional General Magic Space shall be included in the Premises subleased
by Sublessee under the Sublease for the period from January 1, 1998 through the
end of the Sublease term.
3. The Sublease is hereby amended consistent with all of the terms of
the attached Agreement applicable to the Sublease, including but not limited to
the terms of the attached Agreement concerning: Sublessee's obligation to pay
the Rent for the Additional General Magic Space specified in paragraph 36 of
the Sublease (as provided in Paragraph 4(1) of the attached Agreement and as
provided in the Rent Schedule attached hereto as Exhibit B); Sublessee's right
to receive Rebate Rent (as defined in Amendment No. 1 to the Sublease) for the
Additional Sun Space (as provided in Paragraph 4(2) of the Agreement and as
provided in the Rent Schedule attached hereto as Exhibit B); the satisfaction
of obligations under the Sublease with respect to the exercise of the General
Magic Expansion Option (as provided in paragraph 4 of the attached Agreement);
the effect of Sublessee's exercise of the Expansion Option on Sublessee's
obligations to furnish a Security Deposit (Paragraph 4(4) of the attached
Agreement); and the effect of Sublessee's exercise of the Expansion Option upon
Sublessee's non-exclusive rights to parking (as provided in Paragraph 5 of the
attached Agreement).
4. Sublessor represents and warrants to Sublessee that Sublessor has not
engaged any new broker in connection with this transaction. Sublessor agrees to
indemnify, defend, and hold harmless Sublessee from any and all liabilities,
claims, damages, costs or attorneys' fees arising out of Sublessor's breach of
the foregoing warranty and representation.
5. Sublessee represents and warrants to Sublessor that Sublessee has not
engaged any broker in connection with this transaction. Sublessee agrees to
indemnify, defend, and hold harmless Sublessor from any and all liabilities,
claims, damages, costs or attorneys' fees arising out of Sublessee's breach of
the foregoing warranty and representation.
6. This Amendment shall become effective upon its execution by Sublessor
and Sublessee, upon execution of the Consent of Landlord thereto, upon
execution of the Second Amendment to Sublease dated as of January 1, 1998 as
between ARGOSystems, Inc., as sublessor, and Sun Microsystems, Inc., as
sublessee, and upon execution of the Consent of Landlord to such Second
Amendment.
7. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, and when taken together shall constitute one
and the same agreement.
2
<PAGE> 3
EXCEPT AS EXPRESSLY MODIFIED HEREIN AND PURSUANT TO THE TERMS OF THE
AGREEMENT ATTACHED HERETO AS EXHIBIT A AND THE RENT SCHEDULE ATTACHED HERETO AS
EXHIBIT B, all other terms, covenants, and conditions of the April 12, 1994
Sublease between the parties hereto, as said Sublease was amended and partially
terminated by Amendment No. 1 entered into as of April 1, 1997, shall remain
unmodified and in full force and effect.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Amendment
No. 2 to Sublease Agreement as of January 1, 1998.
SUBLESSOR: SUBLESSEE:
ARGOSYSTEMS, INC., GENERAL MAGIC, INC.,
a California Corporation a Delaware Corporation
By: /s/ SIGNATURE ILLEGIBLE By: /s/ JAMES McCORMICK
----------------------------- -----------------------------
Title: Title: Vice President Finance
-------------------------- --------------------------
CONSENT OF LANDLORD
The Tarigo-Paul Limited Partnership, Lessor under the Master Lease with
ARGOSystems, Inc., Lessee, dated as of November 25, 1987, hereby consents to
the foregoing Amendment No. 2 to Sublease Agreement between ARGOSystems, Inc.,
Sublessor, and General Magic, Inc., Sublessee, entered into as of January 1,
1998.
The Tarigo-Paul Limited Partnership,
a California Limited Partnership
By: /s/ SIGNATURE ILLEGIBLE
-----------------------------------
Jay Paul, Managing General Partner
3
<PAGE> 4
- --------------------------------------------------------------------------------
AGREEMENT REGARDING GENERAL MAGIC EXPANSION OPTION
- --------------------------------------------------------------------------------
ARGOSystems, Inc., a California Corporation ("ARGOSystems"), General Magic,
Inc., a Delaware Corporation ("General Magic"), and Sun Microsystems, Inc., a
Delaware Corporation ("Sun"), hereby agree to the following:
Recitals
a. WHEREAS, ARGOSystems, as sublessor, and Sun, as sublessee, entered
into a written sublease agreement dated November 1, 1996, which sublease was
thereafter amended as of April 1, 1997. (Said sublease, as amended, is
hereinafter referred to as the "Sun Sublease.")
b. WHEREAS, ARGOSystems, as sublessor, and General Magic, as sublessee,
entered into a written sublease agreement dated April 12, 1994, which sublease
was thereafter amended as of April 1, 1997. (Said sublease, as amended, is
hereinafter referred to as the "General Magic Sublease.")
c. WHEREAS, the Sun Sublease and General Magic Sublease, collectively,
generally concern certain real property located in Sunnyvale, California,
having the street addresses of 410 North Mary Avenue ("Building 12"), 420 North
Mary Avenue ("Building 11"), and 430 North Mary Avenue ("Building 10").
d. WHEREAS, as of December 31, 1997, Sun and General Magic occupy the
following portions of Buildings 10, 11, and 12.
(1) Sun occupies all three floors of Building 12, consisting of
approximately 116,586 square feet;
(2) Sun occupies approximately one and one-third floors of Building
11, consisting of the entire second floor (approximately 38,862 square feet),
and 12,693 square feet of space on the first floor (including 10,966 square
feet plus 1,727 square feet of shared allocation of common area);
(3) General Magic occupies approximately one and two-thirds floors
of Building 11, consisting of the entire third floor (approximately 38,862
square feet), and approximately 26,169 square feet of the first floor; and
(4) Sun occupies two and one-half floors of Building 10, consisting
of one-half of the first floor (approximately 19,431 square feet) (the
remainder of said floor being occupied through December 31, 1997 by Synopsys
pursuant to a sublease agreement with ARGOSystems), the entire second floor
(approximately 38,862 square feet), and the entire third floor (approximately
38,862 square feet).
- --------------------------------------------------------------------------------
01/19/98 FINAL Page 1 of 5
EXHIBIT A
<PAGE> 5
- --------------------------------------------------------------------------------
AGREEMENT REGARDING GENERAL MAGIC EXPANSION OPTION
- --------------------------------------------------------------------------------
e. WHEREAS, the parties contemplate that, effective January 1, 1998,
upon execution of this Agreement, the execution of the Second Amendment to Sun
Sublease (described below), and the execution of the Amendment No. 2 to the
General Magic Sublease (described below), the occupancy of Buildings 10, 11 and
12, irrespective of the question of to whom the premises are demised under the
two subleases, shall be as follows:
(1) Sun shall continue to occupy all of Building 12;
(2) Sun shall occupy one floor of Building 11, consisting of the
entire second floor, and Sun shall have access to that floor through the first
floor lobbies;
(3) General Magic shall occupy two floors of Building 11, consisting
of the entire third floor (approximately 38,862 square feet), and the entire
first floor subject to Sun's right of access (approximately 38,862 less 864, or
37,998 square feet); and
(4) Sun shall occupy all of Building 10.
f. WHEREAS, General Magic, pursuant to its letter dated September 18,
1997, exercised its Expansion Option pursuant to the terms of the General Magic
Sublease for an additional 38,862 sq. ft., of which it intended to occupy
11,829 sq. ft. and make available for sublease 27,033 sq. ft.; and
g. WHEREAS, Sun, through ARGOSystems, has exercised its Right of First
Refusal for this additional 27,033 sq. ft., and
h. WHEREAS, General Magic and Sun have agreed, through ARGOSystems, to
effectively exchange 11,829 sq. ft. of space that would otherwise have been
occupied by General Magic in Building 10 for an equal amount of space that Sun
will vacate on the first floor of Building 11; and
i. WHEREAS, the parties hereto, for good and valuable consideration,
receipt of which is hereby acknowledged, desire to memorialize their agreement
as it relates to General Magic's exercise of its Expansion Option as set forth
below.
Agreement
1. The terms used, but otherwise not defined, in this paragraph 1 shall
have the meanings given them in the Sun Sublease. Sun will deliver 38,862
rentable square feet on the first floor of Building 10 (the "Expansion Option
Space") to ARGOSystems, no later than January 1, 1998, in full and complete
satisfaction of Sun's obligation to deliver one floor of either Building 10 or
11 to ARGOSystems for the General Magic Expansion Option, pursuant to the Sun
Sublease. Of this Expansion Option Space, General Magic shall surrender 27,033
sq. ft.,
- --------------------------------------------------------------------------------
01/19/98 FINAL Page 2 of 5
<PAGE> 6
- --------------------------------------------------------------------------------
AGREEMENT REGARDING GENERAL MAGIC EXPANSION OPTION
- --------------------------------------------------------------------------------
that would otherwise have been available for sublease, to ARGOSystems pursuant
to ARGOSystems' Right of First Refusal under the General Magic Sublease.
ARGOSystems, in turn, shall make this space available to Sun pursuant to Sun's
Right of First Refusal under the Sun Sublease. Sun shall surrender 11,829 sq.
ft. on the first floor of Building 11 (hereinafter, the "Additional General
Magic Space") to ARGOSystems, which ARGOSystems shall make available for
General Magic's use and occupancy, and General Magic shall surrender 11,829
sq. ft. on the first floor of Building 10 to ARGOSystems, which ARGOSystems
shall make available for Sun's use and occupancy. Sun shall continue to have
access to approximately 864 square feet of shared common area on the first
floor to access the second floor of Building 11 through the first floor
lobbies, to access the mechanical closet, and for use of the first floor
restrooms and waiting areas.
2. In consideration of the covenants, conditions, and agreements herein,
and subject to General Magic's right to receive Rebate Rent as defined in the
General Magic Sublease for the Additional Sun Space (as defined below), delivery
by Sun and ARGOSystems to General Magic of the Additional General Magic Space
shall be in full satisfaction of any obligation arising under either the General
Magic Sublease or the Sun Sublease for either Sun or ARGOSystems to deliver
either the entire second floor of Building 11 or one entire floor of Building 10
in compliance with the exercise of the General Magic Expansion Option.
3. Pursuant to Paragraph 2 hereof, it is agreed that the remaining
27,033 square feet of rentable space (the "Additional Sun Space") which would
otherwise have been available for sublease by General Magic (pursuant to the
terms of the General Magic Sublease as a result of the exercise of the General
Magic Expansion Option) is transferred by General Magic to ARGOSystems for
delivery to Sun under the sublease right of first refusal provisions of the
General Magic Sublease and Sun Sublease. Sun hereby exercises its right under
the Sun Sublease to lease such remaining 27,033 rentable square feet, for the
period from January 1, 1998 through the remainder of the Sun Sublease term. Sun
and ARGOSystems will execute a Second Amendment to the Sun Sublease to remove
the Additional General Magic Space from Sun's Premises and to adjust the Rent
for the Additional Sun Space pursuant to the terms of the Sun Sublease.
4. The terms used in this paragraph 4, but not otherwise defined in this
Agreement, shall have the meanings given them in the General Magic Sublease. As
a result of General Magic's exercise of its Expansion Option under the General
Magic Sublease, and in full satisfaction of ARGOSystems' obligations under the
General Magic Sublease in response to the exercise of such General Magic
Expansion Option, ARGOSystems and General Magic hereby agree as follows:
(1) ARGOSystems agrees to deliver the Additional General Magic Space
to General Magic, effective January 1, 1998, and General Magic agrees to pay
the Rent specified in Section 36 of the General Magic Sublease therefor;
- --------------------------------------------------------------------------------
01/19/98 FINAL Page 3 of 5
<PAGE> 7
- --------------------------------------------------------------------------------
AGREEMENT REGARDING GENERAL MAGIC EXPANSION OPTION
- --------------------------------------------------------------------------------
(2) ARGOSystems shall pay General Magic Rebate Rent with respect to
the Additional Sun Space in accordance with the schedule provided in Amendment
No. 1 to the General Magic Sublease, Paragraph 2.
(3) In consideration of the promises, covenants, and conditions
contained in this agreement, General Magic specifically waives any right under
the General Magic Sublease, including but not limited to Paragraph 36 of the
Sublease, to claim from ARGOSystems a tenant improvement allowance of $7.50 per
square foot (or of any other amount), in connection with the Additional General
Magic Space and/or Additional Sun Space referenced in this agreement.
(4) In consideration of the promises, covenants, and conditions
contained in this agreement, ARGOSystems specifically waives any right under the
General Magic Sublease to require that the Security Deposit furnished by General
Magic under the Sublease be increased in any amount to reflect additional square
footage leased by General Magic pursuant to this agreement.
ARGOSystems and General Magic will execute an Amendment No. 2 to the General
Magic Sublease to reflect the foregoing agreement.
5. Notwithstanding anything to the contrary in General Magic Sublease
and the Sun Sublease, and in order to allocate equitably between General Magic
and Sun the parking spaces required by each as a result of the change in the
amount of square footage subleased by said parties after this agreement becomes
effective, the parties to this agreement hereby agree that General Magic and
Sun, respectively, shall have non-exclusive rights to parking spaces (for
Building 11) as follows:
(1) General Magic shall have non-exclusive rights to a total of 287
parking spaces, located in the Common Area as defined in the original Sublease.
(2) Sun shall have non-exclusive rights to 3.7 parking spaces per
1,000 rentable square feet leased (147 parking spaces) located in the Common
Area as defined in the original General Magic Sublease, and, in addition,
ARGOSystems will continue to allocate 15 non-exclusive parking spaces to Sun in
the parking lot of 324 N. Mary Avenue as specified in the First Amendment to
the Sun Microsystems Sublease Agreement.
(3) In the event General Magic exercises its rights under Paragraph
34 of the General Magic Sublease to designate up to twenty (20) parking spaces
for its sole use, General Magic shall release six (6) of these spaces
back to ARGOSystems. ARGOSystems shall provide these six (6) spaces to Sun,
which Sun shall have the right to designate for its exclusive use.
6. This Agreement shall become binding upon execution by all three
parties, and upon consent by Landlord, and sets forth the intentions and
understanding of the parties as to the subject matter hereof. All of the parties
acknowledge that Sun may rely on this agreement to
- --------------------------------------------------------------------------------
01/19/98 FINAL Page 4 of 5
<PAGE> 8
- -----------------------------------------------------------------------------
AGREEMENT REGARDING GENERAL MAGIC EXPANSION OPTION
- -----------------------------------------------------------------------------
proceed with significant expenditures to replan the location of its new lab from
the first floor of 420 North Mary Avenue to the first floor of 430 North Mary
Avenue. All of the parties agree to use best efforts to reach agreement on
commercially reasonable amendments to the Sun Sublease and the General Magic
Sublease as soon as practicable.
Agreed and Accepted: Agreed and Accepted:
GENERAL MAGIC, INC. ARGOSystems, INC.,
a Delaware Corporation a California Corporation
By: ________________________ By: __________________________
Its: _______________________ Its: _________________________
Date: ______________________ Date: ________________________
Agreed and Accepted: Consent of Landlord:
SUN MICROSYSTEMS, INC. THE TARIGO-PAUL LIMITED
a Delaware Corporation PARTNERSHIP,
a California Limited Partnership
By: ________________________ By: __________________________
Its: _______________________ Its: _________________________
Date: ______________________ Date: ________________________
- -----------------------------------------------------------------------------
01/19/98 FINAL PAGE 5 OF 5
<PAGE> 9
SECOND AMENDMENT TO SUBLEASE AGREEMENT EXHIBIT B
BETWEEN ARGOSYSTEMS, INC., SUBLESSOR, AND
GENERAL MAGIC, INC., SUBLESSEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SUN MICROSYSTEMS RENT OBLIGATIONS/BUILDING 11
AFTER JANUARY 1, 1998 EXPANSION OPTION
- ------------------------------------------------------------------------------------------------------
Dates Sq. Footage Rental Rate Total Rent Rebate Rate Total Rebate
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
1/1/98 - 3/31/98 39,726 $2.20 $ 87,397.20 $0.575 $22,842.45
- ------------------------------------------------------------------------------------------------------
4/1/98 - 3/31/99 39,726 $2.30 $ 91,369.80 $0.625 $24,828.75
- ------------------------------------------------------------------------------------------------------
4/1/99 - 6/30/99 39,726 $2.40 $ 95,342.40 $0.675 $26,815.05
- ------------------------------------------------------------------------------------------------------
7/1/99 - 3/31/00 39,726 $2.40 $ 95,342.40 $0.650 $25,821.90
- ------------------------------------------------------------------------------------------------------
4/1/00 - 6/30/00 39,726 $2.50 $ 99,315.00 $0.700 $27,808.20
- ------------------------------------------------------------------------------------------------------
7/1/00 - 3/31/01 39,726 $2.50 $ 99,315.00 $0.650 $25,821.90
- ------------------------------------------------------------------------------------------------------
4/1/01 - 6/30/02 39,726 $2.60 $103,287.60 $0.700 $27,808.20
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
GENERAL MAGIC RENT OBLIGATIONS/BUILDING 11
AFTER JANUARY 1, 1998 EXPANSION OPTION
- ------------------------------------------------------------------------------------------------------
Dates Sq. Footage Rental Rate Total Rent
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1/1/98 - 6/30/99 76,860 $1.05 $ 80,703.00
- ------------------------------------------------------------------------------------------------------
7/1/99 - 6/30/00 76,860 $1.10 $ 84,546.00
- ------------------------------------------------------------------------------------------------------
7/1/00 - 6/30/02 76,860 $1.20 $ 92,232.00
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SUN MICROSYSTEMS RENT OBLIGATIONS/BUILDING 10 (FIRST FLOOR)*
AFTER JANUARY 1, 1998 EXPANSION OPTION
- ------------------------------------------------------------------------------------------------------
Rent for this
Dates Sq. Footage Rental Rate Portion Rebate Rate Total Rebate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1/1/98 - 3/31/98 38,862 $2.20 $ 85,496.40 $0.575 $22,345.65
- ------------------------------------------------------------------------------------------------------
4/1/98 - 3/31/99 38,862 $2.30 $ 89,382.60 $0.625 $24,288.75
- ------------------------------------------------------------------------------------------------------
4/1/99 - 6/30/99 38,862 $2.40 $ 93,268.80 $0.675 $26,231.85
- ------------------------------------------------------------------------------------------------------
7/1/99 - 3/31/00 38,862 $2.40 $ 93,268.80 $0.650 $25,260.30
- ------------------------------------------------------------------------------------------------------
4/1/00 - 6/30/00 38,862 $2.50 $ 97,155.00 $0.700 $27,203.40
- ------------------------------------------------------------------------------------------------------
7/1/00 - 3/31/01 38,862 $2.50 $ 97,155.00 $0.650 $25,260.30
- ------------------------------------------------------------------------------------------------------
4/1/01 - 6/30/02 38,862 $2.60 $101,041,20 $0.700 $27,203.40
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MONTHLY FIGURES AFTER EXPANSION OPTION
- -------------------------------------------------------------
General Magic
Dates Sun Rent* Rent Rebate Total
- -------------------------------------------------------------
<S> <C> <C> <C>
1/1/98 - 3/31/98 $172,893.60 $80,703.00 $45,188.10
- -------------------------------------------------------------
4/1/98 - 3/31/99 $180,752.40 $80,703.00 $49,117.50
- -------------------------------------------------------------
4/1/99 - 6/30/99 $188,611.20 $80,703.00 $53,046.90
- -------------------------------------------------------------
7/1/99 - 3/31/00 $188,611.20 $84,546.00 $51,082.20
- -------------------------------------------------------------
4/1/00 - 6/30/00 $196,470.00 $84,546.00 $55,011.60
- -------------------------------------------------------------
7/1/00 - 3/31/01 $196,470.00 $92,232.00 $51,082.20
- -------------------------------------------------------------
4/1/01 - 6/30/02 $204,328.80 $92,232.00 $55,011.60
- -------------------------------------------------------------
</TABLE>
* Remainder of Building 10 (116,586 - 38,862) will be paid by Sun at Master
Lease Rate after Expansion.
EXHIBIT B
<PAGE> 1
EXHIBIT 10.11
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. Sections 200.80(b)(4), 200.83
and 230.406.
QWEST COMMUNICATIONS CORPORATION
SERVICES AGREEMENT
This Services Agreement, having Service Agreement No. ________, is entered into
as of April 30, 1998 (the "EFFECTIVE DATE"), by and between Qwest Communications
Corporation, a Delaware corporation ("QWEST"), and General Magic, Inc. a
Delaware corporation ("CUSTOMER")
Qwest will provide to Customer intrastate, interstate, and international inbound
and outbound telecommunications services pursuant to the terms of this Service
Agreement, any Exhibits or Schedules, and Service Orders as defined in Section
1.1, and Qwest Tariff FCC No. 3 and Cal. P.U.C. Schedule No. 3-T, all of which
are hereby incorporated by reference, (collectively the "Agreement"). Qwest may
modify its tariffs from time to time in accordance with law and thereby affect
the service(s) provided to Customer.
In the event that Qwest is required to or elects to withdraw its tariff
currently on file with the Federal Communications Commission pursuant to a final
Report and Order in CC Docket No. 96-61 or any other federal or state decision,
order, or regulation permitting or requiring such tariff withdrawal, the terms
and conditions contained in Qwest's Tariff FCC No. 3 in effect on the effective
date of this Agreement and not in conflict with the terms and conditions of this
Services Agreement shall be deemed incorporated into this Agreement and made a
part hereof.
1. SERVICES TO BE PROVIDED BY QWEST:
1.1 Telecommunications services (the "SERVICE" or "SERVICES") available from
Qwest are identified in the Service and Pricing Exhibit attached hereto
as "EXHIBIT A", which is incorporated by this reference (the "SERVICE
AND PRICING EXHIBIT"). Services requested by Customer shall be requested
on Qwest's service order forms in effect from time to time (hereafter,
any such order is a "SERVICE ORDER(S)"). Each Service Order shall
reference this Agreement by Service Agreement Number and shall become a
part of this Services Agreement when executed by a duly authorized
representative of Qwest. Qwest reserves the right to reject any Service
Order not consistent with this Services Agreement.
1.2 Upon receipt by Qwest of a duly executed Service Order during the Term
(as defined in Section 4.3 of this Agreement) of this Agreement, Qwest
shall provide to Customer those Services identified in the Service
Order.
2. OBLIGATIONS OF CUSTOMER:
2.1 Customer shall perform those duties outlined in the Service and Pricing
Exhibit in addition to those described herein and in any Service
Order(s).
1
<PAGE> 2
3. TERM:
3.1 This Agreement shall be effective between the parties as of the
Effective Date. The initial term (the "INITIAL TERM") of this Agreement
shall expire three (3) years from the Effective Date, unless either
party earlier terminates this Agreement in the manner provided herein.
3.2 Upon the expiration of the Initial Term, if Customer is not then in
default hereunder, the term of this Agreement shall be renewed
automatically for successive ninety (90) day periods (hereafter, the
"RENEWAL TERM") unless and until an Amendment is executed by both
parties extending the Renewal Term, or either party terminates this
Agreement in the manner provided herein.
3.3 The Initial Term and Renewal Term are sometimes referred to together
herein as the "TERM."
4. MINIMUM COMMITMENTS, RATES AND PAYMENTS:
4.1 Rates and charges for the Services, as well as Customer's Revenue Level
Commitment, are set forth in the Service and Pricing Exhibit except as
otherwise specifically provided in this Agreement.
4.2 Recurring charges shall be invoiced by Qwest on a monthly basis in
advance and non-recurring charges shall be invoiced in arrears.
4.3 Qwest will provide invoices to Customer in a mutually agreed upon CD-ROM
format.
4.4 Customer shall make all payments due hereunder according to the terms of
Qwest's Tariff FCC No. 3 and Cal. P.U.C. Schedule 3-T, Rule 4 as amended
and in effect at the time the payment is due.
4.5 All disputes or requests for billing adjustments must be submitted in
writing and submitted with payment of undisputed amounts due. Any
amounts which are determined by Qwest to be in error or not in
compliance with this Agreement shall be adjusted on the next month's
invoice. Any disputed amounts which, after investigation, are deemed by
Qwest to be correct as billed and in compliance with this Service
Agreement, shall be due and payable by Customer, upon notification and
demand by Qwest, along with any late payment charges which Qwest may
impose pursuant to Tariff FCC No. 3 or Cal. P.U.C. Schedule 3-T, as
amended from time to time. In the event that Customer continues to
dispute the amount billed, the dispute resolution procedures set forth
in Qwest's Tariff FCC No. 3 or Cal. P.U.C. Schedule 3-T shall apply.
Disputes shall not be cause for Customer to delay payment of the
undisputed balance to Qwest according to the terms outlined in Section
4.3 above.
2
<PAGE> 3
4.6 Any applicable federal, state, or local taxes, and all use, sales,
commercial, gross receipts, privilege or other similar taxes or license
fees, surcharges or similar impositions imposed by the Federal
Communications Commission or any state regulatory commission, whether
charged to or against Qwest or Customer, with respect to the Services
provided by Qwest, as well as any other imposition by any governmental
authority which has the effect of increasing Qwest's cost of providing
the Services, shall be payable by Customer in addition to the other
charges set forth in this Agreement. Such charges shall not contribute
to the Revenue Level Commitment.
5. EVENTS OF DEFAULT:
5.1 A "DEFAULT" shall occur if: (a) Customer fails to make any undisputed
payment required to be made by it under this Agreement and any such
failure remains uncorrected for five (5) business days after Qwest has
notified Customer that such undisputed payment was past due; (b) either
party fails to perform or observe any material term or obligation (other
than making payment) contained in this Agreement, and any such failure
remains uncorrected for thirty(30) calendar days after written notice
from the non-defaulting party informing the defaulting party of such
failure (except for a Default by Customer under Section 8.2 of this
Service Agreement, which shall require no advance written notice); (c)
there is an Adverse Material Change (as defined in Section 5.2 of this
Service Agreement) in Customer's creditworthiness and Qwest and Customer
are unable to negotiate an acceptable deposit arrangement or other
procedure for restoring Customer's creditworthiness within thirty (30)
days of notice of the Adverse Material Change.
5.2 For purposes of Section 5.1 of this Service Agreement, an Adverse
Material Change in Customer's creditworthiness shall include, but not be
limited to: (a) failure of Customer to make full payment of undisputed
charges due hereunder on or before the date due on three (3) or more
occasions during any period of twelve (12) months, or Customer's failure
to make such undisputed payment on or before the date due in any two (2)
consecutive months; (b) acquisition of Customer (whether in whole or by
majority or controlling interest) by an entity which is insolvent, which
is subject to bankruptcy or insolvency proceedings, or which presents a
materially greater credit risk than Customer; or (c) Customer's being
subject to or having filed for bankruptcy or insolvency proceedings, or
the legal insolvency of Customer.
5.3 Notwithstanding Section 5.1 of this Service Agreement, the non-chronic,
non-material (as measured according to Schedule 3 to Exhibit A to the
Agreement) failure of any particular Service shall not be deemed a
Default by Qwest, but may obligate Qwest to provide Customer with
Credits for Interruption, as provided for in Qwest's Tariff FCC No. 3.
3
<PAGE> 4
6. REMEDIES FOLLOWING DEFAULT:
6.1 If Customer is in Default, Qwest may, in addition to any other remedies
it has under this Agreement or under the law: (a) suspend its
performance under this Agreement without the requirement of any further
notice to Customer, until Customer has remedied all breaches of this
Agreement and paid in full all charges then due, including any late fees
specified herein plus, at Qwest's option, the prepayment of up to two
(2) months recurring charges, as is specified in Section 4.3 of this
Agreement; (b) condition provision of Services or acceptance of a
Service Order on Customer's assurance of payment and compliance with
this Agreement, which may be in the form of a deposit or such other
means as is required by Qwest to establish assurance of payment and
compliance; or (C) terminate this Agreement by providing written notice
to Customer in the manner provided in Section 7.2 of this Agreement.
6.2 If Qwest is in Default, Customer may, in addition to any other remedies
it has under this Agreement or under the law, terminate this Agreement
in the manner provided for in Section 7.1 of this Agreement, but may not
withhold or suspend payment of undisputed charges.
7. TERMINATION:
7.1 Customer may terminate this Agreement: (a) effective upon written notice
to Qwest, if Qwest is in Default (as provided in Section 6.2 of this
Service Agreement); (b) effective upon thirty (30) calendar days prior
written notice, if any material rate or term contained herein and
relevant to the affected Services is materially changed by order of the
highest court of competent jurisdiction to which the matter is appealed,
the Federal Communications Commission, or other local, state or federal
government authority; (c) effective upon ninety (90) calendar days prior
written notice, with or without cause, following the expiration of the
Initial Term; or (d) effective upon written notice to Qwest, if
unplanned system-wide outages (as defined in Section 2.5 of Schedule 3
to Exhibit A) affecting all services exceed sixty (60) consecutive
minutes more than two (2) times in any thirty (30) day period.
7.2 Qwest may terminate this Agreement: (a) effective upon written notice to
Customer, if Customer is in Default (as provided in Section 5.1 of this
Service Agreement); (b) effective upon ninety (90) days prior written
notice, with or without cause, following the expiration of the Initial
Term; or (c) effective immediately and without any advance written
notice, if Qwest does not maintain or loses any required regulatory or
other governmental authorizations to provide the Services, as described
in Section 8.1 of this Agreement , provided Qwest will use commercially
reasonable efforts to notify Customer prior to such termination;
following a Default by Customer under Section 8.2 of this Agreement; or
if Customer makes an unauthorized Transfer under Section 11.1 of this
Agreement.
4
<PAGE> 5
7.3 Customer may terminate the affected portion or portions of a Service
Order or Service Orders or the Services Agreement in its entirety upon
ten (10) calendar days prior written notice following failure of
performance, in the manner and subject to Section 9.2 of this Agreement
or Section 1.2 of the Service and Pricing Exhibit.
7.4 Customer may, upon thirty (30) days written notice, terminate the
affected portions of a Service Order or Service Orders or the Service
Agreement in the event that Qwest modifies either Tariff FCC No. 3 or
Cal. P.U.C. Schedule 3-T and such modification materially changes the
rates, terms, or conditions governing the Services provided by Qwest.
8. GOVERNMENTAL AUTHORITY:
8.1 Customer acknowledges that the obligation of Qwest to provide the
Services to Customer is subject to the receipt by Qwest of any required
regulatory or other governmental authorizations. If required, Qwest will
file with the appropriate regulatory agency a tariff that is consistent
with the terms of this Service Agreement and any applicable Exhibits,
Schedules, and Service Orders. In the event that the regulatory agency
requires modifications to the tariff that would be inconsistent with
this Services Agreement, Qwest and Customer will utilize best efforts to
develop mutually acceptable replacement provisions. Qwest reserves the
right to terminate this Agreement pursuant to Section 7.2 of this
Service Agreement if at any time Qwest does not have or loses the
required regulatory or other governmental authorizations to provide the
Services.
8.2 Customer represents and warrants that Customer has received all
necessary permits, licenses, approvals, grants, and charters of
whatsoever kind which materially affect Customer's ability to carry out
the business in which Customer is engaged and to lawfully utilize the
services acquired under the Agreement. A breach by Customer of any of
the representations, warranties or covenants of this Section 8.2 shall
be deemed a Default hereunder, and shall allow Qwest to terminate this
Agreement in the manner described in Section 7.2 of this Service
Agreement.
9. FORCE MAJEURE:
9.1 Except as is provided in Section 9.2 below, Qwest shall not be liable
for any failure of performance hereunder due to causes beyond its
reasonable control, including, but not limited to: acts of God, fire,
explosion, vandalism, fiber optic cable cut, storm, extreme temperatures
or other similar catastrophes; any law, order, regulation, direction,
action or request of the United States government, or of any other
government, including state and local governments having jurisdiction
over either of the parties, or of any department, agency, commission,
court, bureau, corporation or other instrumentality of any one or more
said governments, or of any civil or military authority; national
emergencies,
5
<PAGE> 6
insurrections, riots, wars, or strikes, lock-outs, work stoppages or
other labor difficulties; actions or inactions of a third party provider
or operator of facilities employed in provision of the Services; or any
other conditions or circumstances beyond the reasonable control of Qwest
which impede or affect the Services or the transmission of
telecommunications services.
9.2 If any failure of performance on the part of Qwest described in Section
9.1 of this Service Agreement shall be: (a) for thirty (30) calendar
days or less, then this Agreement shall remain in effect, but Customer
shall be relieved of its obligation to pay for that portion of the
Services affected for the period of such failure of performance; or (b)
for more than thirty (30) days, then Customer may terminate either that
portion of any Service Order or Service Orders related to the Services
so affected, or the Services Agreement in its entirety, by written
notice to Qwest, in accordance with Section 7.3 of this Service
Agreement.
10. INDEMNIFICATION:
10.1 Each party shall indemnify and hold harmless the other (and the other's
affiliates, officers, directors and employees; hereafter, "THE
AFFILIATES"), and any third party provider or operator of services
employed by that party or its Affiliates in the provision of the
Services, from and against, and shall reimburse the indemnitee and/or
its Affiliates for, any and all losses, liabilities, deficiencies,
claims and expenses (including, but not limited to, costs of defense and
reasonable attorneys' fees) incurred by the indemnitee or its Affiliates
and arising from or in connection with: (A) any claims which may be
asserted by parties other than Customer or Qwest who have use of or
access to the Services. The party seeking indemnification shall promptly
notify the indemnifying party regarding any such claim, and the
indemnifying party shall have sole control over the investigation,
defense, negotiation and settlement of any such claim. The indemnitee
shall cooperate with the defense and settlement of such claims (at no
cost to the indemnitee) as reasonably requested by the indemnifying
party, and may elect to participate in the defense with counsel of its
own choosing at its expense. [**].
10.2 Notwithstanding anything to the contrary in Tariff FCC No. 3 and Cal.
P.U.C. Schedule 3-T, Rule 3, as amended from time to time, or their
successors, neither party shall have any indemnification liability or
obligation to the other except as expressly set forth in this Section
10.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
6
<PAGE> 7
11. ASSIGNMENT:
11.1 Neither this Agreement nor any of Customer's rights or obligations
hereunder may be sold, assigned, sublet, encumbered or transferred by
operation of law or otherwise (hereafter, a "TRANSFER"), except (A) to a
Customer Affiliate, or (B) in connection with a sale or assignment by
operation of law of all or substantially all of Customer's assets,
without the prior written consent of Qwest, which will not be
unreasonably withheld. Any Transfer other than those set forth in
clauses (a) and (b) above by Customer without Qwest's prior written
consent shall entitle Qwest, at its option, to: (X) consider the
Transfer void; (Y) consent to the Transfer, and hold the Customer and
any transferee(s) liable hereunder; or (Z) terminate this Agreement upon
delivering written notice to Customer. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors or assigns. Qwest may transfer,
assign, or otherwise in any manner encumber this Agreement and its
rights and obligations hereunder without the need to obtain Customer's
prior consent.
12. TITLE:
12.1 Customer expressly disclaims any right, title, perpetual right of use or
any other interest in or to any equipment or property used or supplied
by Qwest under this Agreement.
13. WARRANTIES AND LIMITATION OF LIABILITY:
13.1 Qwest warrants that the Services shall be provided to Customer and shall
operate in accordance with the standards set forth in EXHIBIT A
(hereinafter the "TECHNICAL STANDARDS"). If the Services are not being
provided in accordance with the Technical Standards (hereinafter, a
"DEFECT" or "DEFECTS"), Qwest shall conform the Services to the
Technical Standards.
13.2 Qwest's liability to Customer in all actions or claims arising under
this Agreement is set forth in and limited by its Tariff FCC No. 3 and
Cal. P.U.C. Schedule 3-T, Rule 3, as amended from time to time, provided
that the exclusion or disclaimer of Qwest's liability for direct damages
for any Default, for any Defects in the Services or for any other breach
of this Services Agreement set forth in such tariffs and any successors
thereto shall be modified so that Qwest's liability to Customer for
direct damages shall not exceed [**].
13.3 Customer's liability to Qwest in all actions or claims arising under
this Agreement shall be limited to direct damages which shall not exceed
[**]. Such limitation does not include any amounts that may be due and
owing to Qwest by Customer under the terms of this Agreement, including
usage charges, underutilization and early termination charges, and late
payment charges.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
7
<PAGE> 8
13.4 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, LOST PROFITS, OR LOSS OF
USE ARISING FROM ANY CLAIM ON ANY THEORY OF LIABILITY.
14. NON-DISCLOSURE AND PUBLICITY:
14.1 Qwest and Customer shall execute a Non-disclosure Agreement in the
form attached hereto as EXHIBIT B.
15. ARBITRATION:
15.1 The parties shall endeavor to equitably settle all disputes arising out
of or related to this Agreement in an informal manner and in good faith.
All disputes not resolved in this manner shall be determined and
resolved by arbitration in Denver, Colorado, in accordance with the
rules of the American Arbitration Association ("AAA"). The arbitrator
shall be appointed in accordance with the rules then prevailing of the
AAA. The arbitration shall be conducted before a single arbitrator
appointed according to the AAA rules.
15.2 The award rendered by the arbitrator shall be final and binding upon the
parties hereto. Neither party shall have the right to further appeal or
redress the matters arbitrated except for the purposes of obtaining the
judgment rendered by the arbitrator. Judgment upon any arbitration award
may be entered and enforced in any court of competent jurisdiction.
15.3 The parties hereto agree that a prevailing party shall be entitled to
recover all reasonable costs and expenses (including all reasonable
attorney's fees and disbursements) of such arbitration proceeding, as
well as all cost for said proceeding. Such prevailing party shall also
be entitled to reasonable attorney's fees and costs incurred in
enforcing a judgment of the arbitrators separately from and in addition
to any other amount included in such judgment. This Section 15.3 shall
be severable from the other provisions of this Service Agreement and
shall survive and not be merged into any such judgment.
16. USE OF SERVICES:
16.1 Qwest's obligation to provide the Services specified herein is
conditioned upon the Services not being used for any unlawful purpose or
in violation of any governmental regulations or authorizations as
outlined in Section 8 of this Service Agreement.
8
<PAGE> 9
17. CHANGES IN TECHNOLOGIES OR BUSINESS CONDITIONS:
17.1 In the event of a business downturn or other change beyond Customer's
control, a corporate restructuring, downsizing, divestiture, or network
optimization using other telecommunications services, changes in price
or tariff terms that substantially affect this Agreement, changes in
Customer's network configuration or design, or significant changes in
available technology or network performance which significantly reduce
the volume or change the nature of telecommunications services required
by the Customer, with the result that the Customer will be unable to
meet its Revenue Level Commitment under this Agreement, Qwest and
Customer will cooperate in efforts to develop a mutually agreeable
alternative that will address the concerns of both parties and comply
with all legal and regulatory requirements and restrictions. By way of
example and not limitation, such alternatives may include changes in
rates, nonrecurring charges, revenue commitments, the multiyear service
period, and other potential solutions. In the event the parties are
unable to agree, the rates, terms, and conditions for the remaining
Service will be established, by arbitration if necessary, according to
comparable rates, terms, and conditions for similar services provided by
Qwest to Similarly Situated Customers, as defined in Section 17.2,
below. Notwithstanding the foregoing, this paragraph shall not apply to
a change resulting from the Customer's deliberate movement of like
services from Qwest to another telecommunications vendor, unless such
migration is to utilize a technology or service that is not reasonably
available from Qwest or as a result of Qwest's failure to perform
according to the terms of this Service Agreement. The Customer will give
Qwest written notification of the conditions it believes will require
the application of this provision. The provision does not construe a
waiver of any charges incurred by the Customer prior to the time the
parties mutually agree to amend or replace this Agreement.
17.2 [**] may, [**] this Agreement [**] if (a) [**] and with a Term at least
[**] or (b) [**] and with a Term at least [**]. For purposes of this
section, [**] is any customer of Qwest which has executed a contract
for [**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
9
<PAGE> 10
[**]. It shall be [**] responsibility to request [**] of the Agreement
pursuant to this Section 17.2
18. MISCELLANEOUS:
18.1 Each party shall execute such other documents, provide such information
and cooperate with the other party, all as may be reasonably required in
connection with providing the Services.
18.2 Neither this Agreement, nor the provision of Services hereunder, shall
constitute, create, give effect to or otherwise recognize a joint
venture, partnership, or business entity of any kind, or result in a
joint communications service offering to any third parties, and the
rights and obligations of the parties will be limited to those expressly
set forth herein. Nothing herein will be construed as providing for the
sharing of profits or losses arising out of the efforts of the parties
hereto, except as may be provided for herein.
18.3 The failure of either party to give notice of default or to enforce or
insist upon compliance with any of the terms or conditions of this
Agreement shall not constitute a waiver of any term or condition of this
Agreement.
18.4 Subject to Section 15 of this Service Agreement, in the event suit is
brought or an attorney is retained by either party to enforce the terms
of this Agreement or to collect any moneys due hereunder or to collect
money damages for breach hereof, the prevailing party shall be entitled
to recover, in addition to any other remedy, reimbursement for
reasonable attorneys' fees, court costs, costs of investigation and
other related expenses incurred in connection therewith.
18.6 No subsequent agreement concerning the Services or modification to this
Agreement shall be binding upon the parties unless it is made in writing
by an authorized representative of Customer and an authorized
Representative of Qwest Communications at its headquarters in Denver,
Colorado.
18.7 If any part of any provision of this Agreement shall be invalid or
unenforceable under applicable law, said part shall be ineffective to
the extent of such invalidity only, without in any way affecting the
remaining parts of said provision or the remaining provisions of this
Agreement, and the Customer and Qwest agrees to negotiate with respect
to any such invalid or unenforceable part to the extent necessary to
render such part valid and enforceable.
18.8 The terms and provisions contained in this Agreement that by their sense
and context are intended to survive the performance thereof by the
parties hereto shall survive the completion of performance and
termination of this Agreement, including, without limitation, the making
of any and all payments due hereunder.
18.9 Words having technical or trade meanings shall be so construed.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
10
<PAGE> 11
18.10 All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be given by: (a) hand
delivery; (b) first-class registered or certified mail with postage
prepaid; (c) overnight receipted courier service; or (d) telephonically
confirmed facsimile transmission, which notice is addressed to the party
at the address set forth below, or such other address as may hereafter
be designated in writing by the party. Notices given in accordance with
this Section shall be effective upon receipt or when receipt is refused.
All notices to Qwest shall be addressed to:
Qwest Communications Corporation
555 17th Street, Suite 1000
Denver, Colorado 80202
Facsimile: (303) 291-1724 Phone: (303) 291-1400
Attn.: Mr. Marc Walters
All notices to Customer shall be addressed to:
General Magic, Inc.
420 North Mary Avenue
Sunnyvale, California 94086
Facsimile: (408) 774-4022 Phone: (408 (774-4400)
Attn.: Mr. Kevin J. Surace and Mary Doyle, Esq.
The addresses set forth may be changed by appropriate notice to
the other party.
18.11 This Services Agreement, including its Exhibits and Schedules, Services
Orders, and Qwest's Tariff FCC No. 3 and Cal. P.U.C. Schedule 3-T
incorporated herein by reference, comprises the complete and exclusive
statement of the agreement of the parties concerning the subject matter
hereof, and supersedes all previous statements, representations, and
agreements concerning the subject matter hereof. In the event of any
conflict between the provisions of this Services Agreement and the terms
of any Service Order(s) issued and accepted hereunder, any exhibits
hereto, or tariffs filed with the FCC or any state regulatory agency
(including Qwest's Tariff FCC No. 3 and Cal. P.U.C. Schedule 3-T), the
conflict shall be resolved by reference to said documents in the
following order of priority of interpretation (except as is otherwise
specifically provided in this Agreement or in any exhibits): (A) the
Services Agreement and any Service Orders; (B) any exhibit, with
reference to the same in order of attachment to this Agreement; and (C)
Qwest's tariffs on file with the FCC or any state regulatory commission.
Notwithstanding the foregoing, no provision or term of any Service Order
or exhibit shall be a part of this Agreement or binding on Qwest unless
and until
11
<PAGE> 12
such Service Order or document has been executed by an authorized
representative of Qwest.
DATED as of the first date written above.
GENERAL MAGIC, INC.:
By: /s/ Kevin J. Surace
----------------------------------------
Name: Kevin J. Surace
Title: Vice President and General Manager
Date: 4/30/98
-----------------------------
QWEST COMMUNICATIONS CORPORATION:
By: /s/ Lewis Wilks
----------------------------------------
Name: Lewis Wilks
Title: President, Bus Mkts
Date: 4/30/98
-----------------------------
APPROVED AS TO LEGAL FORM
April 30, 1998
/s/ Signature Illegible
----------------------------------------
Law Dept.
12
<PAGE> 13
EXHIBIT A
TO
QWEST COMMUNICATIONS CORPORATION
SERVICE AGREEMENT
SERVICE AND PRICING EXHIBIT
This Service and Pricing Exhibit (this "SERVICE AND PRICING EXHIBIT") is
made as of April 30, 1998(the "Effective Date) with respect to Service
Agreement No.________, (the "AGREEMENT") by and between Qwest
Communications Corporation, a Delaware corporation ("QWEST"), and
General Magic, Inc. a Delaware corporation ("CUSTOMER").
1. QWEST SERVICES:
1.1 During the Term of the Agreement, Qwest will provide to Customer the
Services described in this EXHIBIT A, at the terms and conditions set
forth herein.
1.2 Qwest will use commercially reasonable efforts to provide Customer with
up to [**] toll free telephone numbers at the Effective Date of this
EXHIBIT A and to provide additional toll free numbers in accordance with
the projected requirements set forth in Schedule 1 to this EXHIBIT A.
2. EARLY TERMINATION
2.1 In the event that Qwest is unable to satisfy Customer's requirement for
toll free numbers as set forth in Schedule 1 to this EXHIBIT A for
reasons other than those set forth in Section 3.7 of this EXHIBIT A,
Customer may elect to terminate the Agreement in its sole discretion.
Should Customer elect to terminate the Agreement, it will have no
further obligation to Qwest and shall not be required to maintain the
Revenue Level Commitment for the remainder of the year in which the
Agreement is terminated or for any subsequent period. Customer is liable
for all charges incurred through and including the date of termination.
2.2 In the event that Customer terminates the Agreement prior to the end of
the initial Term, for reasons other than as set forth in Section 2.1
above, or pursuant to subsections (a), (b), and (d) of Section 7.1,
Section 7.3, Section 7.4 or Section 9.2(b), then Customer shall pay to
Qwest a fee (the "Early Termination Fee") equal to the difference
between the Revenue Level Commitment for the year in which the Agreement
was terminated, as adjusted according to Sections 3.2 and 3.7, if
applicable, and the actual revenues that contribute towards the Revenue
Level Commitment during that year, plus an amount equal to the
Customer's Revenue Level Commitment for the remaining years of the Term.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE> 14
3. REVENUE LEVEL COMMITMENT AND RATES
3.1 Set forth below is Customer's Revenue Level Commitment for each of the
three (3) years of the Initial Term of this Agreement commencing on the
Effective Date.
[**]
3.2 To the extent that Customer's payments for Services in a given year are
below the applicable Revenue Level Commitment for that year, the amount
of such underutilization shall be added to the Revenue Level Commitment
for the next annual period. If, at the completion of the Initial Term,
total Customer payments are below the total Revenue Commitment for the
Initial Term, Customer shall also pay to Qwest, in addition to the Rates
set forth below for Services provided to Customer, a fee (the
"Underutilization Fee") equal to the difference between the Revenue
Level Commitment for the Initial Term and the actual revenues that
contribute towards the Revenue Level Commitment for the entire Initial
Term. Any Underutilization Fee shall be due and payable by Customer on
completion of the Initial Term. To the extent that Customer's payments
for Services in a given year exceeds the applicable Revenue Level
Commitment for that year, the amount of such excess shall be credited
toward the Revenue Level Commitment for the next annual period. No
Underutilization Fee shall be payable for any year in which Customer
terminates the Services Agreement pursuant to subsections (a), (b), and
(d) of Section 7.1, Section 7.3, Section 7.4 or Section 9.2(b), and the
Underutilization Fee shall be reduced on a pro rata basis if any Service
Order is terminated in the applicable year due to Qwest's failure or
inability to deliver the applicable Services. Calculation of the
Underutilization Fee may be amended in the event that Section 17.1 of
the Services Agreement is invoked.
3.3 In consideration of the Revenue Level Commitment, Qwest shall provide
the Services at the rates (the "RATES") set forth in this Section 3
(exclusive of all sales, use, commercial or other taxes, surcharges or
license fees). [**]. The Rates are as follows:
(a) MONTHLY RECURRING CHARGES:
[**].
(b) USAGE CHARGES:
All usage charges will be calculated based on the duration of the call.
[**].
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2
<PAGE> 15
Jurisdiction Base Rate Per Minute
- ------------ --------------------
[**]
(c) OTHER CHARGES:
In addition to the foregoing Rates, Customer shall pay to Qwest the
following additional charges, as applicable, including any and all
recurring charges imposed on Qwest for the handling of calls under this
agreement:
(i) WAIVED CHARGES:
Notwithstanding the other provisions of this Agreement, [**].
Customer will cooperate with Qwest to obtain access to these [**]
including, if necessary, executing any Letters of Agency required
by [**].
(ii) ADDITIONAL SERVICES:
Qwest will provide additional services requested by Customer at
the rates set forth in Schedule 2 to this EXHIBIT A.
3.5 The Rates set forth in this Section 3 shall be in effect for the entire
Initial Term of this Agreement.
3.6 [**]. In the event that Customer desires to [**], Customer shall issue a
change order to Qwest identifying the [**] for which it is requesting
[**] and any other information that is deemed necessary to implement
Customer's request.
3.7 In the event that Qwest is unable to obtain assignments of the toll free
numbers as set forth in Schedule 1 to this EXHIBIT A from the entity
responsible for number assignment (the "Assigning Entity") or as a
result of rationing or any other policy imposed by the Assigning Entity
which has the result of limiting the availability of toll free numbers
and which prevents Qwest, despite its reasonable efforts, from
maintaining an inventory of toll-free numbers sufficient to satisfy
customer's requirements, Qwest may, subject to Customer approval, (a)
substitute local exchange telephone numbers obtained from a local
exchange carrier which provides telecommunications services within a
geographic territory specified by Customer for some portion of the toll
free numbers required by Schedule 1 to this EXHIBIT A or (b) reduce the
Revenue Level Commitment by an amount [**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
3
<PAGE> 16
[**] that Qwest is unable to provide to Customer for the reasons set
forth in this Section 3.7 and which Qwest is required to provided
pursuant to Schedule 1 to this EXHIBIT A. This reduction of Revenue
Level Commitment shall continue month to month for each toll free number
that is not provided until Qwest is able to satisfy the monthly
requirements set forth in Schedule 1 to this EXHIBIT A. For purposes of
satisfying these requirements, each toll free number obtained by Qwest
in excess of the monthly requirement for a current month shall be used
to satisfy the deficit created during the first month then each
subsequent month in chronological order, as such excess permits, that
Qwest was unable to provide toll free numbers required by Schedule 1 to
this EXHIBIT A.
4. BILLING
4.1 For ISDN Primary Rate Interface lines only, Qwest shall accept a calling
number information element during call setup, which shall contain the
number to which the associated call will be billed. The calling number
provided shall be contained in the billing record for the call. On
interfaces utilizing channel associated signaling, Qwest shall accept a
fixed number of inband Dial Tone Multi-Frequency ("DTMF") tones during
the call setup identifying the number to which the call shall be billed.
The digits provided shall be contained in the billing record for the
call.
5. TECHNICAL STANDARDS
5.1 Qwest will support a P-.01 service level for all Services provided under
this Agreement.
5.2 Qwest will load balance calls over multiple servers through most idle
inbound balancing.
5.3 Customer and Qwest will mutually agree upon service level commitments to
be included in Schedule 3 to this EXHIBIT A.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
4
<PAGE> 17
EXHIBIT B
TO
QWEST COMMUNICATIONS CORPORATION
SERVICE AGREEMENT
CONFIDENTIALITY AGREEMENT
5
<PAGE> 18
GENERAL MAGIC, INC.
CONFIDENTIALITY AGREEMENT (MUTUAL)
This Mutual Confidentiality Agreement (the "Agreement") is entered into and is
effective as of March 19, 1998 (the "Effective Date") by and between GENERAL
MAGIC, INC., 420 North Mary Avenue, Sunnyvale, California 94086 ("Magic"), and
Qwest Communications ("Company").
WHEREAS, the parties may disclose to each other certain confidential
information defined below and Magic and/or Company desires to keep such
information confidential;
WHEREAS, in consideration of the disclosure of such information to Magic
and/or Company, Magic and/or Company is willing to keep such information
confidential in accordance with the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, Magic and Company hereby agree as follows:
1. DEFINITION OF CONFIDENTIAL INFORMATION. The parties acknowledge that the
terms and conditions of this Confidentiality Agreement, the existence of the
discussions between Company and Magic and other information, including but
not limited to, each party's product plans, designs, costs, prices and
names, finances, marketing plans, business opportunities, personnel,
research, development or know-how, or any third-party confidential
information disclosed by one party hereto to the other, will be considered
confidential ("Confidential Information"); provided that information
disclosed by the disclosing party ("Discloser") will be considered
Confidential Information by the receiving party ("Recipient"), only if such
information is conspicuously designated as "Confidential": (i) in writing,
if communicated in writing, or (ii) confirmed in writing within thirty (30)
days of disclosure if disclosed orally; and provided further that
Confidential Information shall not include information that: 1) is now or
subsequently becomes generally available to the public through no fault or
breach on the part of Recipient; 2) Recipient can demonstrate to have had
rightfully in its possession prior to disclosure to Recipient by Discloser;
3) is independently developed by Recipient without the use of any
Confidential Information; or 4) Recipient rightfully obtains from a third
party who has the right to transfer or disclose it.
2. NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION. Recipient agrees to
use reasonable care, but in no event less than the same degree of care that
it uses to protect its own confidential and proprietary information of
similar importance, to prevent the unauthorized use, disclosure, publication
or dissemination of Confidential Information. Recipient agrees to accept
Discloser's Confidential Information for the sole purpose of evaluation in
connection with Recipient's business discussions with Discloser. Recipient
agrees not to use Confidential Information otherwise for its own or any
third party's benefit without the prior written approval of an authorized
representative of Discloser in each instance. Recipient may disclose
Confidential Information if required by any judicial or governmental
request, requirement or order; provided that Recipient will take reasonable
steps to give Discloser sufficient prior notice in order to contest such
request, requirement or order by notifying Discloser of such request.
3. OWNERSHIP OF CONFIDENTIAL INFORMATION. All Confidential Information, and any
Derivatives thereof whether created by Discloser or Recipient, remains the
property of Discloser and no license or other rights to Confidential
Information is granted or implied hereby. For purposes of this Agreement,
"Derivatives" shall mean: (i) for copyrightable or
Page 1 of 2
<PAGE> 19
copyrighted material, any translation, abridgement, revision or other form
in which an existing work may be recast, transformed or adapted; (ii) for
patentable or patented material, any improvement thereon; and (iii) for
material which is protected by trade secret, any new material derived from
such existing trade secret material, including new material which may be
protected by copyright, patent and/or trade secret.
4. INDEPENDENT DEVELOPMENT. Discloser understands that Recipient may currently
or in the future be developing information internally, or receiving
information from other parties that may be similar to Discloser's
information. Accordingly, nothing in this Agreement will be construed as a
representation or inference that Recipient will not develop products, or
have products developed for it, that, without violation of this Agreement,
compete with the products or systems contemplated by Discloser's
Confidential Information.
5. NO WARRANTY. All Confidential Information remains the property of Discloser
and no license or other rights in the Confidential Information is granted
hereby. Discloser warrants that it has the right to disclose the
Confidential Information to Recipient. Otherwise, all information is
provided "AS IS" and without any warranty, express, implied or otherwise,
regarding its accuracy or performance. Recipient will return all tangible
Confidential Information, including but not limited to all computer
programs, documentation, notes, plans, drawings, and copies thereof, to
Discloser immediately upon Discloser's written request.
6. TERM. The term of this Agreement shall be two (2) years, provided that
Recipient's duty to protect Discloser's Confidential Information shall
survive expiration or termination of this Agreement and shall expire four
(4) years from the date of disclosure of Confidential Information.
7. NO EXPORT. For each instance in which Magic is the Discloser, Recipient
certifies that no Confidential Information, or any portion thereof, will be
exported to any country in violation of the United States Export
Administration Act and regulations thereunder.
8. ENTIRE AGREEMENT AND GOVERNING LAW. This Agreement constitutes the entire
agreement with respect to the Confidential Information disclosed herein and
supersedes all prior or contemporaneous oral or written agreements
concerning such Confidential Information. This Agreement may not be amended
except by the written agreement signed by authorized representatives of both
parties. This Agreement will be governed by and construed in accordance with
the laws of the State of California as applied to agreements entered into
and to be performed entirely within California by California residents.
Understood and agreed:
<TABLE>
<S> <C>
FOR: GENERAL MAGIC, INC. FOR COMPANY:
Qwest Communications Corporation
----------------------------------
Insert Company Name
/s/Kevin J. Surace 3/19/98 /s/Lewis O. Wilks, President, Business Markets
- ---------------------------------------------- ----------------------------------------------
By (Signature) Date By (Signature) Date
Kevin J. Surace Lewis O. Wilks
- ---------------------------------------------- ----------------------------------------------
Printed Name and Title Printed Name and Title
APPROVED AS TO FORM
MARCH 19, 1998
/s/ Signature Illegible
---------------------------------
Legal Department
</TABLE>
Page 2 of 2
2
<PAGE> 1
EXHIBIT 10.12
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. Sections 200.80(b)(4), 200.83
and 230.406.
SERVICE AGREEMENT
THIS SERVICE AGREEMENT is made effective as of November 11, 1998 (the
"Effective Date") by GENERAL MAGIC, INC., a Delaware corporation having a place
of business at 420 North Mary Avenue, Sunnyvale, California 94086 ("Magic"), and
QWEST COMMUNICATIONS CORPORATION, a Delaware corporation having a place of
business at 555 17th Street, Denver, Colorado 80202 ("Qwest").
RECITALS
A. Magic is engaged in the business of, among other things, designing,
developing, and providing a network service known as "Portico," which includes
features such as individual calendar and contact information management and
communication services and which may be accessed either through the World Wide
Web or through the telephone by means of a voice user interface that uses
state-of-the-art speech recognition technology.
B. Qwest provides intrastate, interstate, and international inbound and
outbound telecommunications services to enterprise and consumer customers, and
currently supplies the telecommunications backbone for the Portico service under
a separate written agreement.
C. Magic and Qwest desire to enter into a trial relationship whereby
Magic will provide a Qwest-branded version of the Portico service to Qwest
customers.
The parties therefore agree as follows:
AGREEMENT
ARTICLE I--DEFINITIONS
As used in this Agreement:
"INTELLECTUAL PROPERTY RIGHTS" means all current and future worldwide
copyrights, trade secrets, patents and other patent rights, utility models, mask
work rights, moral rights, trademarks, trade names, service marks, and all other
intellectual property rights, including all applications and registrations with
respect thereto.
"LAUNCH SCHEDULE" means the target dates listed in Exhibit A (Launch
Schedule) for completion of various aspects of the work to be undertaken by the
parties pursuant to this Agreement to launch the QDA, as such list may be
modified and updated from time to time by written agreement of the parties.
"PORTICO SERVICE" means Magic's proprietary network service as described
above in the form commercially available as of the Effective Date, including the
Portico Service GUI and the Portico Service VUI.
"PORTICO SERVICE GUI" means the graphic user interface for the Portico
Service, as displayed on the Web Site whose URL address, as of the Effective
Date, is http://www.portico.net (it being understood that this user interface
will be modified by Magic from time to time).
"PORTICO SERVICE VUI" means the voice user interface for the Portico
Service based on and incorporating Magic's proprietary speech recognition
technology (it being understood that this user interface will be modified by
Magic from time to time).
1
<PAGE> 2
"PORTICO TECHNOLOGY" means the software, programming code, application
programming interfaces and other technology used by Magic to develop and provide
the Portico Service.
"QDA ACCESS SITE" means the Qwest-branded web site or set of pages to be
developed and maintained by Qwest and hosted by Magic at a URL address to be
mutually agreed upon by the parties for access to selected customer services,
including login to the QDA Web Site.
"QDA WEB SITE" means the Qwest-branded version of the Portico Service
GUI to be developed, hosted and maintained by Magic.
"QWEST DIGITAL ASSISTANT SERVICE" OR "QDA" means the Qwest-branded
version of the Portico Service to be made available to Qwest Subscribers by
Magic pursuant to this Agreement and further described in Exhibit B (QDA
Features).
"QWEST MARKS" means the selected trademarks, service marks, trade names,
and logos of Qwest listed in Exhibit C (Qwest Marks), as such list may be
updated from time to time by Qwest.
"QWEST SUBSCRIBER" means any individual who has an account with Magic or
any third party through which such individual receives all or any portion of the
QDA.
"SUBSCRIBER MANUALS" means the end user documentation provided by Magic
for users of the QDA.
"SYNCHRONIZATION SOFTWARE" means the TrueSync+"! software or its
successor which Magic provides for synchronization of Qwest Subscribers'
PC-based address books, calendars and other personal information management
applications with their QDA account.
ARTICLE II QWEST DIGITAL ASSISTANT SERVICE
2.1 LAUNCH. Magic will use reasonable commercial efforts to develop and
launch the QDA in accordance with the Launch Schedule, with assistance and input
from Qwest as specified below and in the Launch Schedule. This work is expected
to include, among other things: (a) creation of the QDA Web Site; (b) the
implementation of the Qwest branding for the QDA as set forth below; and (c)
acquisition, modification or development, and implementation, of the hardware,
software and other technology, including the Portico Technology, needed to
provide the QDA.
2.2 QWEST ASSISTANCE. Qwest will use reasonable efforts to assist Magic
in the development and deployment of the QDA. Without limiting the generality of
the foregoing, such Qwest assistance is expected to include, among other things:
(a) making available to Magic the necessary telecommunications service
interconnections for the provisioning of the QDA as specified in this Agreement;
(b) making available to Magic the necessary Qwest personnel, which may consist
of agents or contractors, as Qwest may reasonably determine; (c) providing Magic
with groups of local or toll-free numbers for use by Qwest Subscribers at no
cost to Magic; and (d) bearing all telecommunications charges related to use of
the QDA, including without limitation calls to, and calls, faxes and pages
originated through or from, the QDA.
2.3 BRANDING, PROMOTION. The QDA will be marketed exclusively under
present or future Qwest Marks in the manner prescribed by Qwest hereunder,
including the use of the Qwest Marks in the QDA version of the Portico Service
GUI and Portico Service VUI, other than a mutually agreeable reference to the
Magic magicTalk"!" technology powering the QDA. The parties may endeavor to
develop mutually agreed upon co-marketing programs. Magic
2
<PAGE> 3
hereby grants Qwest the limited right to use internally and distribute to Qwest
Subscribers printed copies of all or any part of the Subscriber Manual. The
Subscriber Manual will be branded exclusively with present or future Qwest Marks
(other than a mutually agreeable reference to Magic's magicTalk"!" technology
powering the QDA and to a Magic copyright notice) in the manner prescribed by
Qwest hereunder.
2.4 PROVISION OF QDA. When the parties agree that the QDA is ready to be
released, Magic will begin providing the QDA.
(a) As between Magic and Qwest, Magic will have sole responsibility
for providing Qwest-branded first-level customer service and support to Qwest
Subscribers in accordance with Section 2.5 ("Service Levels"), provided that
Magic is granted access for this purpose to the [**] electronic administrative
sign-up site. Notwithstanding the foregoing, upon thirty (30) days written
notice from Qwest to Magic, Qwest may elect to transfer the responsibility for
customer service and support to another provider of Qwest's choice.
(b) Magic will provide a paper-free sign-up procedure for Qwest
Subscribers via a toll-free telephone number that connects to Magic's
Qwest-branded customer service and support operation for the QDA, provided that
Magic is granted access for this purpose to the [**] electronic administrative
sign-up site.
(c) Magic will host the Qwest Access Site, which shall be developed
and maintained by or on behalf of Qwest, and shall host and maintain the QDA Web
Site.
2.5 SERVICE LEVELS. Magic will provide the QDA and customer service
operations for Qwest Subscribers in accordance with the service levels set forth
in Exhibit D (Service Level Agreements).
2.6 SUBSCRIBER AGREEMENTS. Qwest shall require all Qwest Subscribers to
enter into subscriber agreements with minimum terms and conditions substantially
similar to those in Exhibit E (Subscriber Agreement Terms), as amended from time
to time. Before Magic begins providing the QDA pursuant to Section 2.4
("Provision of QDA"), Qwest will provide Magic with such additional liability or
warranty disclaimers, proprietary rights notices, or similar clauses regarding
the QDA that Qwest wants included in the "Terms and Conditions of Use" posted on
the QDA Web Site. Once such clauses are posted, Magic will not modify or remove
any such disclaimers, notices, or other clauses without the prior written
consent of Qwest.
2.7 HOOK, FLASH AND RECAPTURE. Magic and Qwest will cooperate to
implement the digital equivalent of "hook, flash and recapture" telephony
capabilities for the QDA as soon as commercially feasible.
2.8 TRANSITION TO VOIP. Magic and Qwest will cooperate to implement VOIP
connections between Qwest's telecommunications network and Magic's QDA servers
as soon as commercially feasible. The parties will negotiate in good faith any
changes to this Agreement which are appropriate following the implementation of
such VOIP connections.
ARTICLE III--BILLING AND PAYMENT
3.1. BILLING BY MAGIC. Magic will bill Qwest Subscribers monthly by
forwarding billing information to [**]. At the direction of Qwest, Magic may
bill Qwest Subscribers monthly via the credit cards authorized by such Qwest
Subscribers. All funds (other than Taxes,
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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if any, that must be withheld) remitted by Qwest Subscribers to Magic shall be
paid directly to Qwest's acquiring banks in accordance with the merchant codes
provided to Magic by Qwest. Qwest shall have sole discretion over the rates
charged by Qwest for the QDA, customer support and other ancillary services
provided by Magic. Qwest will give Magic at least fifteen (15) days notice
before the planned effective date of any changes in the charges to be billed by
Magic on Qwest's behalf, provided that such changes do not contemplate a change
in any ratable event, and further provided that such changes may not be
initiated more than once in any forty-five (45) day period. Changes in charges
to be billed by Magic on Qwest's behalf that require a change in a ratable event
will be implemented on a schedule to be mutually agreed by the parties.
3.2 PAYMENTS BY QWEST. Following release of the QDA pursuant to Section
2.4 ("Provision of QDA"), Magic will bill Qwest monthly not less than ten (10)
days nor more than thirty (30) days after the end of the preceding calendar
month for all QDA services used by Qwest Subscribers during such calendar month.
Qwest will pay Magic the undisputed fees for such services set forth in Exhibit
F (Fees). All such invoices shall be due and payable by Qwest net thirty (30)
days. All disputes or requests for billing adjustments must be submitted in
writing and submitted with payment of undisputed amounts due. Any amounts which
are determined by Magic to be in error or not in compliance with this Agreement
shall be adjusted on the next month's invoice. Any disputed amounts which, after
investigation, are deemed by Magic to be correct as billed and in compliance
with this Agreement, shall be due and payable by Qwest upon notification and
demand by Magic, together with interest thereon at the rate of one and one half
per cent (1.5%) per month from the date first invoiced, or the highest interest
rate payable under applicable law, whichever is lower. In the event that Qwest
continues to dispute the amount billed, the matter shall be resolved in
accordance with the dispute resolution procedures set forth in Section 9.8
("Dispute Resolution") of this Agreement.
3.3 TAXES. Qwest will be solely responsible for all applicable taxes or
other governmental fees, charges, or assessments, other than taxes on Magic's
net income (collectively, "Taxes") imposed on or resulting from the services
provided, or the fees billed and collected, by Magic on Qwest's behalf
hereunder, and on all payments made by Qwest to Magic hereunder. Qwest agrees to
indemnify Magic for any liability incurred by Magic as a result of Qwest's
failure to pay any such Taxes. If Magic is required by law to withhold any Taxes
from fees billed and collected by Magic on Qwest's behalf hereunder, Magic will
use reasonable efforts to provide Qwest with copies of official receipts for the
payment of such Taxes to the appropriate governmental authority.
3.4 AUDIT RIGHTS. Magic will keep complete and accurate records
regarding the services rendered and fees billed and collected by Magic on
Qwest's behalf hereunder. During the term of this Agreement and for six (6)
months thereafter, Qwest will have the right to have an inspection and audit of
Magic's relevant books and records conducted by an independent audit
professional chosen by Qwest and reasonably acceptable to Magic, no more often
than once every twelve (12) months, during regular business hours at Magic's
offices and in a manner that does not interfere materially with Magic's business
operations. [**] If any such audit reveals that Magic has under-reported or
over-reported the services rendered and fees billed and collected by Magic under
this Agreement, then Magic will promptly pay Qwest for any amounts overpaid by
Qwest or Qwest will promptly pay Magic the amount underpaid by Qwest, as the
case may be.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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ARTICLE IV--EVENTS OF DEFAULT
4.1 DEFAULT. A "Default" shall occur if (a) Qwest fails to make any
undisputed payment required to be made by it under this Agreement and any such
failure remains uncorrected for five (5) business days after Magic has notified
Qwest that such undisputed payment was past due; or (b) either party fails to
perform or observe any material term or obligation (other than making payment)
contained in this Agreement, and any such failure remains uncorrected for thirty
(30) calendar days after written notice from the non-defaulting party informing
the defaulting party of such failure.
4.2 CREDITS FOR INTERRUPTION. Notwithstanding the foregoing, the
non-chronic, non-material failure of the QDA shall not be deemed a Default by
Magic, but may obligate Magic to provide Qwest with credits for interruption in
service, as provided in Exhibit F (Fees).
4.3 EXCEPTIONS. Any failure of Magic to achieve the service levels set
forth in paragraphs 1 and 2 of Exhibit D (Service Level Agreements) during the
Initial Term of this Agreement shall not be deemed a Default by Magic under
Section 4.1 ("Default"), and shall not entitle Qwest to any credits for
interruption in service under Section 4.2 ("Credits for Interruption").
ARTICLE V--TERM AND TERMINATION
5.1 TERM. The term of this Agreement will begin as of the Effective Date
and will continue for an initial term of six (6) months ("Initial Term") unless
earlier terminated by written agreement of the parties or as provided in this
Agreement. The Agreement will automatically renew for successive one (1) year
terms unless one party provides the other with written notice of non-renewal at
least sixty (60) days prior to the expiration of the then-current term or if the
Agreement is terminated earlier in accordance with its terms.
5.2 TERMINATION. Each party will have the right to terminate this
Agreement effective upon written notice to the other party if the other party is
in Default, and the Default remains uncured as of the effective date of
termination. In addition to any other available legal remedies, this Agreement
will automatically terminate if the QDA has not been released pursuant to
Section 2.4 ("Provision of QDA") by January 31, 1999 (or such other date as the
parties may agree in writing). Upon termination of this Agreement for any
reason, (i) each party will promptly return all Confidential Information of the
other party, (ii) Qwest will pay all amounts due and owing to Magic under this
Agreement within forty-five (45) days after the effective date of such
termination, and (iii) the following provisions will nonetheless remain in
effect: Article I ("Definitions"); Article III ("Billing and Payment"); Section
5.2 ("Termination"); Section 6.3 ("Warranty Disclaimers"); Article VII
("Indemnity"); Article VIII ("Limitation of Liability"); and Article IX
("General"), except for Section 9.1(a) ("Trademark License").
ARTICLE VI--WARRANTY
6.1 WARRANTY. Magic warrants that the QDA will conform in all material
respects with the description in Exhibit B (QDA Features) and will be operated
in accordance with the service levels set forth in Exhibit D (Service Level
Agreements).
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6.2 YEAR 2000. Magic warrants that the QDA, including the QDA Web Site,
will be "Year 2000 Compliant." For the purposes of this Agreement, the term
"Year 2000 Compliant" means that the QDA is capable, when used in accordance
with the subscriber manual and any other written instructions provided by Magic,
of correctly processing, providing and receiving date data for dates within and
between the 20th and 21st Centuries, provided that all third-party software,
hardware and firmware used in conjunction with the QDA properly exchange
accurate and properly formatted date data with the QDA.
6.3 WARRANTY DISCLAIMERS. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, MAGIC MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, REGARDING
MAGIC'S PRODUCTS, SERVICES, DELIVERABLES, OR TECHNOLOGY, INCLUDING THE PORTICO
SERVICE, PORTICO TECHNOLOGY, QDA WEB SITE AND QDA. MAGIC DISCLAIMS THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT WITH RESPECT TO THE FOREGOING. MAGIC MAKES NO WARRANTY AS TO
THE RESULTS THAT MAY BE OBTAINED FROM USE OF THE QDA OR THE ACCURACY OR
RELIABILITY OF ANY TRANSACTIONS CONDUCTED OR INFORMATION, GOODS OR SERVICES
OBTAINED THROUGH THE QDA (INCLUDING CONTENT PROVIDED BY THIRD PARTIES).
ARTICLE VII--INDEMNITY
7.1 BY MAGIC. Magic will defend, at its own expense, the following suits
or actions against Qwest:
(a) INFRINGEMENT; COMPLIANCE WITH LAW. All suits or actions against
Qwest brought by third parties based upon claims that the Portico Technology or
QDA provided hereunder, or the trademarks or service marks associated therewith
(other than the Qwest Marks), excluding features or content provided by Qwest or
third parties or implemented at Qwest's request and in accordance with Qwest's
instructions, infringes or misappropriates any Intellectual Property Right of a
third party, or violates any law.
(b) CUSTOMER CLAIMS. All suits or actions brought by Qwest
Subscribers relating to their use of the QDA, provided that such Qwest
Subscriber is bound by a subscriber agreement complying with the requirement of
Section 2.6 ("Subscriber Agreements") and that such claim does not arise in any
way from any act or omission of Qwest.
Magic will pay all amounts agreed to in a monetary settlement of all of the
foregoing suits and actions and all damages awarded as a final judgment by a
court of competent jurisdiction, subject to the limitations on liability in
Article VIII ("Limitation of Liability") and subject to the conditions that (i)
Qwest gives Magic prompt written notice of the claim, (ii) Qwest gives Magic
sole control of the defense and settlement of the claim, and (iii) Qwest
cooperates with Magic, at Magic's reasonable request and expense, in the defense
or settlement of the claim. Qwest may, at its own expense, participate in any
such suit or action with counsel of its own choice.
7.2 BY QWEST. Qwest will defend, at its own expense, the following suits
or actions against Magic:
(a) INFRINGEMENT, COMPLIANCE WITH LAW. All suits or actions against
Magic brought by third parties based upon claims that any QDA features or
content supplied by Qwest hereunder, including but not limited to the Qwest
Marks, or any features or content implemented
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at Qwest's request and in accordance with Qwest's instructions, infringes or
misappropriates any Intellectual Property Right of a third party, or violates
any law.
(b) CUSTOMER CLAIMS. All suits or actions brought by Qwest
Subscribers relating to their use of the QDA arising from or related to any act
or omission of Qwest or from any representation or warranty by Qwest concerning
the QDA that exceeds the scope of the representations and warranties in the form
of subscriber agreement prescribed by Section 2.6 ("Subscriber Agreements").
Qwest will pay all amounts agreed to in a monetary settlement of all of the
foregoing suits and actions and all damages awarded as a final judgment by a
court of competent jurisdiction, subject to the limitations on liability in
Article VIII ("Limitation of Liability") and subject to the conditions that (i)
Magic gives Qwest prompt written notice of the claim, (ii) Magic gives Qwest
sole control of the defense and settlement of the claim, and (iii) Magic
cooperates with Qwest, at Qwest's reasonable request and expense, in the defense
or settlement of the claim. Magic may, at its own expense, participate in any
such suit or action with counsel of its own choice.
ARTICLE VIII--LIMITATION OF LIABILITY
8.1 DISCLAIMER OF LIABILITY. EXCEPT FOR ANY LIABILITY ARISING UNDER
ARTICLE VII, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT,
CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES, INCLUDING LOST PROFITS OR LOSS OF
USE, ARISING FROM ANY CLAIM ON ANY THEORY OF LIABILITY IN CONNECTION WITH THIS
AGREEMENT.
8.2 LIMITATION. EXCEPT FOR ANY LIABILITY FOR INDEMNIFICATION WITH
RESPECT TO INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS
ARISING UNDER SECTION 7.1(A) OR SECTION 7.2(A) OF THIS AGREEMENT, AS APPLICABLE,
EACH PARTY'S TOTAL, CUMULATIVE LIABILITY FOR ANY AND ALL CLAIMS AND CAUSES OF
ACTION ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY BREACH THEREOF UNDER
ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, IN TORT, OR OTHERWISE, WILL NOT
EXCEED [**]. EACH PARTY'S TOTAL, AGGREGATE LIABILITY FOR INDEMNIFICATION WITH
RESPECT TO INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS
ARISING UNDER SECTION 7.1(A) OF THIS AGREEMENT, IN THE CASE OF MAGIC, AND UNDER
SECTION 7.2(A) OF THIS AGREEMENT, IN THE CASE OF QWEST, WILL NOT EXCEED [**].
ARTICLE IX--GENERAL
9.1 QWEST MARKS.
(a) TRADEMARK LICENSE. Subject to the terms and conditions set forth
in this Section, Qwest grants to Magic a limited, non-exclusive,
non-transferable, worldwide license during the term of this Agreement to use the
Qwest Marks in connection with the marketing, promotion, and administration of
the QDA under the quality standards set forth in Section 2.5 ("Service Levels").
Before making use of any Qwest Mark, Magic will provide Qwest with a
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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sample of the proposed use of the Qwest Mark for prior approval by Qwest. If
Qwest does not object in writing to the proposed use of the Qwest Mark within
ten (10) days after receipt of the sample from Magic, Qwest will be deemed to
have approved the proposed use. If Qwest does so object to the proposed use of
the Qwest Mark, Magic will modify or cancel the proposed use, as requested by
Qwest. In addition, Magic will comply with any reasonable trademark usage
guidelines or policies that Qwest may furnish to Magic in writing from time to
time concerning use of the Qwest Marks, including but not limited to the use of
the symbol "" for registered marks and the use of the symbol "SM" for
unregistered service marks. Notwithstanding the foregoing, Qwest may at any time
modify the Qwest Marks or the manner in which they must be displayed, even
though the use of the mark may have previously been approved by Qwest. All use
of the Qwest Marks hereunder will inure to the benefit of Qwest.
(b) OWNERSHIP OF QWEST MARKS. Qwest has and will retain exclusive
ownership of the Qwest Marks, and Magic will not contest or challenge, or do
anything inconsistent with, Qwest's exclusive ownership of the Qwest Marks.
Without limiting the generality of the foregoing, Magic may not affix, append,
or place any of its trademarks, service marks, trade names, or logos on, or in
close proximity to, the Qwest Marks in a manner that results or could result in
the creation of a unitary composite mark.
9.2 CONFIDENTIALITY
(a) DEFINITION OF CONFIDENTIAL INFORMATION. For purposes of this
Agreement, "Confidential Information" of a party means the information and
documents identified in this Agreement as confidential information of such
party, as well as any and all other information whether written or oral that (i)
such party considers to be confidential or proprietary to its business
(including trade secrets, technical information relating to ongoing research and
development, business strategies, marketing plans, customer lists, and financial
data) and (ii) either (A) is clearly labeled or identified as confidential or
proprietary when disclosed to the other party or (B) the other party knew, or
under the circumstances should have known, was considered confidential or
proprietary by such party.
(b) GENERAL CONFIDENTIALITY OBLIGATIONS. Each party agrees that it
will (i) not disclose the other party's Confidential Information to any third
party (other than independent contractors as provided below); (ii) use the other
party's Confidential Information only to the extent necessary to perform its
obligations or exercise its rights under this Agreement; (iii) disclose the
other party's Confidential Information only to those of its employees and
independent contractors who need to know such information for purposes of this
Agreement and who are bound by confidentiality agreements containing terms no
less restrictive than those in this Section 9.2; and (iv) protect all
Confidential Information of the other party from unauthorized use, access, or
disclosure in the same manner as it protects its own confidential information of
a similar nature, and in no event with less than reasonable care.
(c) EXCEPTIONS. Each party's obligations with respect to any portion
of the other party's Confidential Information will terminate when the receiving
party can document that (i) such Confidential Information was in the public
domain at the time it was communicated to the receiving party by the disclosing
party; (ii) such Confidential Information entered the public domain after it was
communicated to the receiving party by the disclosing party through no fault of
the receiving party; (iii) such Confidential Information was in the receiving
party's possession free of any obligation of confidence at the time it was
communicated to the receiving party by the disclosing party; or (iv) such
Confidential Information was developed by employees or agents of the receiving
party independently of and without reference to any information
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communicated to the receiving party by the disclosing party. In addition,
Section 9.2(b) will not be construed to prohibit any disclosure that is (A)
necessary to establish the rights of either party under this Agreement or (B)
required by a valid court order or subpoena, provided in the latter case that
the party required to make such disclosure notifies the other party (whose
Confidential Information is to be disclosed) thereof promptly and in writing and
cooperates with the other party if the other party seeks to contest or limit the
scope of such disclosure.
(d) TERMS OF AGREEMENT. Neither party will disclose the existence or
any terms of this Agreement to anyone other than its attorneys, accountants, and
other professional advisors, except (i) with the other's written consent; (ii)
in connection with a contemplated change of control of such party or sale of
such party's business (provided that any third party to whom the terms of this
Agreement are to be disclosed signs a confidentiality agreement reasonably
satisfactory to the other party hereto before such disclosure is made); or (iii)
as may be required by law.
9.3 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS. As between Qwest and
Magic, subject to Qwest's ownership of the Qwest Marks, Magic will retain
exclusive ownership of all Intellectual Property Rights in the Portico Service,
the Portico Technology, the Portico Service GUI, the Portico Service VUI, the
QDA, the QDA Web Site and any modifications, improvements, enhancements, and
derivative works made to or from any of the foregoing by either party in
connection with this Agreement. Each party agrees to cooperate with the other
party in executing and filing any documents and taking any other action
necessary or reasonably requested by the other party in order to give effect to
the foregoing allocation of Intellectual Property Rights. Qwest shall solely own
all Qwest Subscriber data and information obtained in connection with the QDA.
Magic has the right to use or disclose end user data solely for the purpose of
operating, maintaining and enhancing the QDA. Upon any expiration or termination
of this Agreement, Magic shall promptly deliver to Qwest any and all such end
user data and information in a form and manner to be specified by Qwest, shall
not thereafter use such data for any other purpose whatsoever, and shall certify
to Qwest that, except for the copy delivered to Qwest, Magic has destroyed any
and all such data and information in its possession, provided that Magic shall
not be obligated to purge backup and archival copies of Magic information made
in the ordinary course of business which may contain Qwest Subscriber data.
9.4 RELATIONSHIP OF PARTIES. Nothing in this Agreement will be construed
as creating any agency, partnership, or other form of joint enterprise between
the parties. Neither party will have the authority to act or create any binding
obligation on behalf of the other party, and neither party will represent to any
third party that it has the authority to act or create any binding obligation on
behalf of the other party.
9.5 NOTICES. All notices, consents, waivers, and other communications
intended to have legal effect under this Agreement must be in writing, must be
delivered to the other party at the address set forth at the top of this
Agreement by personal delivery, certified mail (postage pre-paid), or a
nationally recognized overnight courier, and will be effective upon receipt (or
when delivery is refused). Any such notices sent to Magic must be addressed to
the attention of its General Counsel. Each party may change its address for
receipt of notices by giving notice of the new address to the other party.
9.6 GOVERNING LAW AND VENUE. This Agreement will be governed by and
interpreted in accordance with the laws of the State of California without
regard to its conflict of laws provisions.
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9.7 INJUNCTIVE RELIEF. It is understood and agreed that, notwithstanding
any other provision of this Agreement, any breach of Section 9.2
("Confidentiality") by either party will cause irreparable damage for which
recovery of money damages would be inadequate, and that the non-breaching party
will therefore be entitled to seek timely injunctive relief to protect such
party's rights under this Agreement in addition to any and all remedies
available at law.
9.8 DISPUTE RESOLUTION.
(a) Any controversy or claim arising out of or relating to this
Agreement (or breach thereof), whether arising in tort, contract or otherwise,
shall be settled in accordance with the following procedures:
(i) With the exception of injunctive relief sought by either
party, the parties shall attempt to resolve any disputes that may arise between
them in connection with this Agreement on an amicable basis through their good
faith discussions.
(ii) If the parties are not able to resolve their dispute
through good faith discussions within sixty (60) days of one party notifying the
other of a dispute, except for injunctive relief sought by either party, the
parties agree to submit any disputes arising under this Agreement to binding
arbitration under the rules and auspices of the American Arbitration Association
("AAA") in San Francisco, California.
(iii) A single arbitrator shall be selected according to the AAA
rules within thirty (30) days of submission of the dispute to AAA. The
arbitrator shall conduct the arbitration in accordance with the California
Evidence Code. The parties shall be entitled to discovery as provided in
Sections 1283.05 and 1283.1 of the California Code of Civil Procedure.
(b) The arbitrator shall have the power to enter any award that
could be entered by a Judge of the Superior Court of the State of California
sitting without a jury, and only such power, except that the arbitrator shall
not have the power to award punitive damages, treble damages, or any other
damages not permitted under the terms of this Agreement, even if permitted under
the laws of the Sate of California or any other applicable law.
(c) The arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration. The
award from any binding arbitration shall be binding upon the parties and their
successors and permitted assigns, whether or not any party fails or refuses to
participate therein, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.
(d) Each party shall bear its own costs and expenses in connection
with any proceeding commenced under this Section 9.8, including, without
limitation, legal fees and disbursements, travel expenses, witness fees and
costs, photocopying and other preparation expenses. The costs and other fees
charged by the independent mediator or AAA, whether in connection with a
mediation and/or arbitration, shall be borne fifty percent (50%) by Magic, on
the one hand, and fifty percent (50%) by Qwest, on the other.
9.9 WAIVER. The failure of either party to require performance by the
other party of any provision of this Agreement will not affect the full right to
require such performance at any time thereafter; nor will the waiver by either
party of a breach of any provision of this Agreement be taken or held to be a
waiver of the provision itself.
9.10 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable under any applicable law or is so held by applicable court
decision, the remainder of this Agreement and application of such
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provision to other persons or circumstances shall be interpreted so as best to
reasonably effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
9.11 ASSIGNMENT. Neither this Agreement nor any rights or obligations of
either party under this Agreement may be assigned in whole or in part without
the prior written consent of the other party except in connection with a merger
or sale of all or substantially all of the business or assets of the assigning
party. Any attempted assignment in violation of the preceding sentence will be
void. This Agreement will bind and inure to the benefit of the respective
successors and permitted assigns of the parties.
9.12 FORCE MAJEURE.
(a) Except as provided in Section 9.12(b) below, Magic shall not be
liable for any failure of performance hereunder due to causes beyond its
reasonable control, including, but not limited to: acts of God, fire, explosion,
vandalism, cable cut, storm, extreme temperatures, earthquake, or other similar
catastrophes; any law, order, regulation, direction, action or request of the
United States government, or of any other government, including state and local
governments having jurisdiction over either of the parties, or of any
department, agency, commission, court, bureau, corporation or other
instrumentality of any one or more said governments or of any civil or military
authority; national emergencies, insurrection, riots, wars, or strikes,
lock-outs, work stoppages or other labor difficulties; actions or inactions of a
third party provider or operator of facilities employed in provision of the QDA;
or any other conditions or circumstances beyond the reasonable control of Magic
which impede or affect the QDA or the transmission of telecommunications
services.
(b) If any failure of performance on the part of Magic described in
Section 9.12 (a) shall be: (i) for thirty (30) calendar days or less, then this
Agreement shall remain in effect, but Qwest shall be relieved of any obligation
to pay for that portion of the QDA affected for the period of such failure of
performance; or (ii) for more than thirty (30) days, then Qwest may terminate
this Agreement in its entirety pursuant to Section 5.2 ("Termination") hereof.
9.13 FULL POWER. Each party warrants that it has full power to enter
into and perform this Agreement, and the person signing this Agreement on such
party's behalf has been duly authorized and empowered to enter into this
Agreement.
9.14 CONSTRUCTION. 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 this
Agreement. Unless otherwise expressly stated, when used in this Agreement the
word "including" means "including but not limited to." Neither party shall be
deemed the drafter of the Agreement for the purposes of construing it.
9.15 ENTIRE AGREEMENT AND AMENDMENT. This Agreement together with the
Exhibits completely and exclusively states the agreement of the parties
regarding its subject matter. It supersedes, and its terms govern, all prior
understandings, agreements, or other communications between the parties, oral or
written, regarding such subject matter. This Agreement may be executed in
counterparts and may be amended only in a document signed by both parties.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
QWEST COMMUNICATIONS CORPORATION GENERAL MAGIC, INC.
By: /s/ Lewis Wilks By: /s/ Steven Markman
-------------------------------- ----------------------------
Name: Lewis Wilks Name: Steven Markman
Title: President, Business Mkts Title: Chairman, President & CEO
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EXHIBIT A
LAUNCH SCHEDULE
[**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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EXHIBIT B
QDA FEATURES
BASELINE FEATURES
1. [**] features as described [**]
2. [**]
3. [**]
4. [**]
5. [**]
6. [**]
7. [**]
8. [**]
EXTRA FEATURES
1. [**]
2. [**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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GENERAL MAGIC CONFIDENTIAL
o This document contains information regarding [**] within the [**] as well as
known issues in the [**] of General Magic, Inc. This information is not be
made generally available to the public.
o [**] provides information [**]
o [**] provides information concerning [**]
o [**] states [**]
o [**] provides detailed information for [**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE> 16
PORTICO ADDENDUM
Cover page:
[**]
First page:
[**]
TABLE OF CONTENTS
Additional Features
[**]
Addendum to User Guide
[**]
ADDITIONAL FEATURES
[**]
ADDENDUM TO USER GUIDE
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE> 17
FAQ Questions
Portico
Frequently Asked Questions
Last Updated: 11-11-98
GENERAL QUESTIONS
How do I get TrueSync?
I'm using Windows NT 4.0 and having trouble installing TrueSync. What's wrong?
I tried to log into my account via the Web and received the following error
"This account is already logged in over the telephone."
I am getting two copies of every email Portico collects from my Netcom account
(or any other ISP account).
My appointments seem to be "off" by an hour or two when I synchronize.
I am not receiving any messages from my AOL account (or any other ISP account).
Why am I not receiving pages for new messages?
How do I check my "old" messages over the phone?
I created a meeting in Microsoft Outlook with several attendees, but after I
synced it shows me as the only attendee.
I'm having trouble using my NexTel pager/cell phone with Portico.
I can't get Portico to call my contact "Harry Beast Jr."
I told Portico to "Read News" and wanted to hear an interesting article from
last week, but Portico didn't read it. Why not?
PHONE ACCESS QUESTIONS
I'm having trouble using Portico over my speakerphone.
How much time do people have to leave me a voicemail?
How long will Portico stay on hold after telling her to "Take a Break?"
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Portico thought I said "Goodbye" and hung up on me. What can I do to keep her
from hanging up?
I keep getting phone calls from my Portico account, but they don't say anything.
Portico is unable to find a contact when I ask for one over the phone.
Portico does not accept my passcode when accessing my account over the phone.
How do I call a number that is not in my Address Book?
WEB ACCESS QUESTIONS
Portico says my transmission is not secure. I thought all data transmission was
now secure.
I am unable to get Portico to accept my passcode or account number over the web.
My RealAudio messages play too quietly to hear.
My RealAudio messages played fine until I upgraded the RealAudio player.
I am not receiving any messages from my AOL account (or any other ISP account).
I created an appointment over the Web, but I cannot find it.
GENERAL QUESTIONS
HOW DO I GET TRUESYNC?
Page 76 and following of the Portico User's Guide refer to the TrueSync software
being on the CD-ROM included as part of your Portico Welcome Kit. At this time,
TrueSync is available only by download from your Portico personal Web page.
Refer to the bottom of page 77 of the Portico User's Guide for download
instructions.
I'M USING WINDOWS NT 4.0, AND HAVING TROUBLE INSTALLING TRUESYNC. WHAT'S WRONG?
TrueSync does not always function properly under Windows NT 4.0. We are aware of
this problem, and expect to have it corrected soon.
I TRIED TO LOG INTO MY ACCOUNT VIA THE WEB AND RECEIVED THE FOLLOWING ERROR
"THIS ACCOUNT IS ALREADY LOGGED IN OVER THE TELEPHONE."
For security, Portico allows only one telephone or Web session at a time. If you
are accessing Portico by phone and you attempt to log in over the Web, you will
receive the
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error listed above. Additionally, if you are logged into the Web and then call
your account by phone, you will be logged out of the Web automatically. You will
also be automatically logged out of the Web after a period of inactivity.
I AM GETTING TWO COPIES OF EVERY EMAIL PORTICO COLLECTS FROM MY NETCOM ACCOUNT
(OR ANY OTHER ISP ACCOUNT).
You may receive the same message twice when consolidating email into your
account. This is a known issue, and we are working to correct it. If you
received duplicate messages, send feedback to Portico Support by using the
Feedback button or [email protected]. Please include the name of your
Internet service provider.
MY APPOINTMENTS SEEM TO BE "OFF" BY AN HOUR OR TWO WHEN I SYNCHRONIZE.
TrueSync defaults to the Pacific Time Zone when synchronizing appointments,
overriding settings made in Portico or your PIM. We are aware of this problem
and expect to have it corrected very soon.
I AM NOT RECEIVING ANY MESSAGES FROM MY AOL ACCOUNT (OR ANY OTHER ISP ACCOUNT).
Currently, we are experiencing problems with the Email Consolidation system. You
may experience sporadic failures in consolidating mail from your ISP or AOL
accounts. We are working to correct this problem as soon as possible.
WHY AM I NOT RECEIVING PAGES FOR NEW MESSAGES?
Your pager may not be properly set up for paging. You can check this by logging
into the Web page and clicking on "Setup," then "Phone Numbers." Under "Phone
Numbers," ensure that your correct pager service is selected. (At this time, we
only support Airtouch, PageMart, PageNet, and Skytel alpha pagers) Next, verify
your pager telephone number. Select "Ok" to go to the Basic Pager Information
page. Here, make sure all the data is correct and then click "Test Page."
Be sure to select the appropriate Modem access number. The number is most likely
the one that starts with the same Area Code as the one on your pager. If you are
unsure of this number, we recommend contacting Support for your pager service.
PageMart and Skytel users:
1. If you are unsure of your pin number, try the following:
2. Use your pager's ten-digit telephone number (4085551212).
3. Use your pager's seven-digit telephone number (5551212).
4. Contact your pager service for your pin number.
HOW DO I CHECK MY "OLD" MESSAGES OVER THE PHONE?
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Using the phone interface, you can ask Portico to "Check my old messages," and
the system will list the messages for you. Via the Web, Portico displays all
your messages--regardless of whether they are old or new. (They are sorted by
date and time, with the most recent at the top).
I CREATED A MEETING IN MICROSOFT OUTLOOK WITH SEVERAL ATTENDEES, BUT AFTER I
TRUESYNCED IT SHOWS ME AS THE ONLY ATTENDEE.
This is a known problem with TrueSync and Outlook meetings, and we expect to
have it corrected soon. Meanwhile, to avoid this problem, you might want to use
One-Way Synchronization (in which your Outlook data overwrites and supersedes
Portico data) whenever you have a meeting in your Outlook calendar that you want
to include in your Portico calendar.
PHONE ACCESS QUESTIONS
I'M HAVING TROUBLE USING MY NEXTEL PAGER/CELL PHONE WITH PORTICO.
Some NexTel pager phones permit you to create an "infinite loop" when
configuring the paging or call forwarding. For example, if you have configured
your NexTel phone to forward calls to Portico, and you have configured Portico
to contact you at your NexTel telephone number, yo set up a loop at which
Portico believes you to be unavailable, and you will receive no calls at all.
I'M HAVING TROUBLE USING PORTICO OVER MY SPEAKERPHONE.
Use of a hands-free phone or speakerphone with Portico is not recommended at
this time. While you may enjoy some success in this situation, it's important to
remember that Portico normally listens to everything it hears over the phone
line. Hands-free phones pick up a great deal more ambient noise than handheld
phones, so you may find that Portico has more trouble recognizing and responding
to your commands. If you need to use a hands-free phone with Portico, try having
it ignore interruptions (press zero zero (00) on your telephone keypad), but
remember that you will need to wait for Portico to stop speaking before you make
a request. General Magic is continually improving the voice-recognition and
noise-cancellation capabilities of Portico, and we expect this problem to be
corrected soon.
HOW MUCH TIME DO PEOPLE HAVE TO LEAVE ME A VOICEMAIL?
Portico will record a voicemail for up to two minutes.
HOW LONG WILL PORTICO STAY ON HOLD AFTER TELLING HER TO "TAKE A BREAK?"
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When you give Portico the "take a break" command, she will stay on hold for 90
seconds. After that time, she will come back on the line. If she does not
receive any further commands, she will hang up after an additional 30-50
seconds.
PORTICO THOUGHT I SAID "GOODBYE" AND HUNG UP ON ME. WHAT CAN I DO TO KEEP HER
FROM HANGING UP?
After saying goodbye, Portico will now wait four seconds before hanging up the
phone. You can issue a new command to Portico anytime during those four seconds,
and she will stay on the line.
I KEEP GETTING PHONE CALLS FROM MY PORTICO ACCOUNT, BUT THEY DON'T SAY ANYTHING.
Portico is most likely trying to transfer a call to you. When Portico contacts
you with a caller, Portico will wait for you to say "hello." After saying
"hello" (or any other telephone greeting), Portico will then announce your
caller and ask if you want to take the call. Additionally, if you interrupt
Portico while she is announcing the call, she will not restate the name of the
caller but will ask if you wish to take the call.
PORTICO IS UNABLE TO FIND A CONTACT WHEN I ASK FOR ONE OVER THE PHONE.
You may have several names that are very similar, i.e. John Smith and John
Smyth. If Portico is having trouble finding a contact when you use the "Look up
[Contact first and last name]" command, try just "look up" (without saying the
name of the contact). Portico will then search for the three names that most
closely match the name you asked for and ask you to choose one.
If this doesn't work, please delete the last name of the contact via the Web
Address Book and re-enter it. This will refresh the contact's pronunciation in
the system, allowing Portico to properly recognize the name.
PORTICO DOES NOT ACCEPT MY PASSCODE WHEN ACCESSING MY ACCOUNT OVER THE PHONE.
Verify that you are using the correct passcode and you are attempting to log in
using the correct method. To verify, log in using the phone, use the * key to
tell Portico it's you. When the system asks you for your passcode, enter it
using the keypad on the phone.
HOW DO I CALL A NUMBER THAT IS NOT IN MY ADDRESS BOOK?
To dial a number not listed in your Address Book, go to your Address Book and
say, "Dial a number." Portico will then prompt you for the number you wish to
call.
I CAN'T GET PORTICO TO CALL MY CONTACT "HARRY BEAST, JR."
Because you have entered Harry's full name in your contact list - including the
suffix "Jr." - Portico waits for you to specify the full name when you call. You
can either ask
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Portico to call "Harry Beast, Junior," or specify Harry's telephone number for
Portico to call.
WEB ACCESS QUESTIONS
PORTICO SAYS MY TRANSMISSION IS NOT SECURE. I THOUGHT ALL DATA TRANSMISSION WAS
NOW SECURE.
It is! However, some browsers may incorrectly display messages reporting that
the transmission is not secure. You need not worry; all data transmissions you
send to and from Portico are secured via the Secure Socket Layer (SSL)
technology.
I AM UNABLE TO GET PORTICO TO ACCEPT MY PASSCODE OR ACCOUNT NUMBER OVER THE WEB.
Verify that you are going to www.portico.net. Enter your account number,
including the 877 Area Code. For example, 8775551212 is a valid account, while
5551212 is not. Do not use any parentheses, dashes, or periods. Enter your
passcode without using parentheses, dashes, or periods, and click on the "OK"
button.
MY REALAUDIO MESSAGES PLAY TOO QUIETLY TO HEAR.
RealAudio has its own volume control. Please turn up the RealAudio player's
volume to its loudest setting. The vertical scroll bar located on the right side
of the application controls the volume.
IF YOU'RE USING WINDOWS95 OR NT 4.0:
You can also try to adjust the volume using Volume Control Panel. You can find
the Volume Control Panel by clicking on Start, then Settings, and then Control
Panel. Double-click on the Multimedia icon. Once the window has loaded, check to
see that the "Show volume control on the taskbar" is checked, then the control
panel opens, turn up the Volume Control slider.
IF YOU'RE USING A MACINTOSH OS:
Go to control Panel and select Sound or Monitor and Sound. In this control
panel, you can adjust the overall system volume of your computer.
MY REALAUDIO MESSAGES PLAYED FINE UNTIL I UPGRADED THE REALAUDIO PLAYER.
Portico works with the RealAudio player, version 5.0; it does not yet support
RealAudio G2 (Beta or Production). If you have installed the RealPlayer G2
version, uninstall it and use your Portico CD-ROM to reinstall the version 5.0
RealAudio player.
I AM NOT GETTING ANY EMAIL IN MY PORTICO ACCOUNT.
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Verify that you are receiving messages into your ISP or AOL account from which
Portico is consolidating. Do this by sending yourself an email to your ISP or
AOL account.
Verify that you have properly configured the Email Setup section of your
account. You can check this by logging into the Web page and clicking on
"Setup," and then "Email." Verify that your settings are correct by clicking on
"Edit" and selecting the "Test Email." Based on the error returned, correct the
incorrect data.
Some of the most common problems with Email Consolidation are incorrect
passwords and incorrect incoming mail server.
Verify that your rules are not conflicting with one another. To check your
Consolidation Rules, go to "Setup" and click "Consolidation."
Remove all Consolidation Rules and re-create. To remove Consolidation Rules, go
to "Setup," click on "Consolidation," and then delete each rule.
As mentioned in the General FAQ section, we are currently experiencing sporadic
failures with Email Consolidation. If all of your settings are correct and you
are still not receiving email, contact Customer Support to report your problem.
I CREATED AN APPOINTMENT OVER THE WEB, BUT I CANNOT FIND IT.
After creating a new appointment, Portico will return you to the current date,
not the date of the appointment. Verify that you are looking at the correct day,
month, and year. You can also view your Calendar by month in order to try and
find a misplaced appointment.
I told Portico to "Read news" and wanted to hear an interesting article from
last week, but Portico didn't read it. Why not?
To avoid cluttering your Portico account with a large number of news articles,
the Portico "Read News" feature stores articles only until they are 48 hours
old. You can, however, use the Search feature to find news articles up to 20
days old.
NEWFAQS
PORTICO'S
NEW FREQUENTLY ASKED QUESTIONS
NEW QUESTIONS AND ANSWERS
Why am I not getting pages on my numeric pager?
My work number has an extension, so how do I get Portico to forward my calls?
I am unable to dial a phone number in Mexico.
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I am using AOL and am having trouble connecting to my personal Portico web site.
I received a message from an AOL user. When I opened it, the message was empty.
WHY AM I NOT GETTING PAGES ON MY NUMERIC PAGER?
At this time, Portico supports pager notification via supported alpha pager
services (such as Airtouch or Skytel). We are currently looking into the
addition of new alpha pager services and the support of numeric pager services.
MY WORK NUMBER HAS AN EXTENSION, SO HOW DO I GET PORTICO TO FORWARD MY CALLS?
Portico's Follow Me feature works in much the same way as does standard call
forwarding systems, such as your cell phone or office phone system. At this
time, the standard Call Forwarding technology is unable to dial phone extensions
as part of the forwarded call.
I AM UNABLE TO DIAL A PHONE NUMBER IN MEXICO.
Portico only supports North American dialing. Mexico is an international call
and, at this time, Portico does not support dialing international numbers.
I AM USING AOL AND AM HAVING TROUBLE CONNECTING TO MY PERSONAL PORTICO WEB SITE.
To properly access your personal Portico web site via an AOL Internet
connection, you must configure your web browser to use the proxy settings that
best work through an AOL connection. The following information will instruct you
on how to set up your Wev browser to work with AOL.
AOL DEFAULT WEB BROWSER:
The AOL default browser does not have the ability to modify the proxy server
setup. We recommend the use of a supported stand-alone Web browser such as
Netscape Navigator 4.05 or Internet Explorer 4.01.
WHEN USING AOL SERVICE DIAL-UP ACCESS
MICROSOFT INTERNET EXPLORER 3.02+ (IBM/PC COMPATIBLE)
1. Select menu "View"
2. Select menu item "Internet Options..."
3. Mouse click-on "Connection" tab
4. Mouse click-on checkbox "Connect through a proxy server" (checkbox
should display a check mark)
5. Mouse click-on "Settings..." button
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6. Enter "www3.proxy.aol.com" into "HTTP:" field
7. Enter "80" into the adjacent "Port:" field
8. Mouse click-on "OK" to confirm configuration
MICROSOFT INTERNET EXPLORER 4.0X (MACINTOSH)
1. Select menu "Edit"
2. Select menu item "Preferences..."
3. Expand "Network" and select "Proxies"
4. Mouse click-on "Enabled" button
5. Select "HTTP" from "Protocol" pull-down menu
6. Enter "www3.proxy.aol-com" into "Address: http://" field
7. Enter "80" into the adjacent "Port:" field
8. Mouse click-on "OK" to confirm configuration
MICROSOFT INTERNET EXPLORER 4.0X (IBM/PC COMPATIBLE)
1. Select menu "View"
2. Select menu item "Internet Options..."
3. Mouse click-on "Connection" tab
4. Mouse click-on checkbox "Access the Internet using a proxy server"
(checkbox should display a check mark)
5. Mouse click-on "Advanced..." button
6. Enter "www3.proxy.aol.com" into "HTTP:" field
7. Enter "80" into the adjacent "Port:" field
8. Mouse click-on "OK" to confirm configuration
NETSCAPE NAVIGATOR 3.04+ (MACINTOSH & IBM/PC COMPATIBLE)
1. Select menu "Options"
2. Select menu item "Network Preferences..."
3. Mouse click-on "Proxies" tab
4. Mouse click-on "Manual Proxy Configuration" button
5. Mouse click-on "View..."
6. Enter "www3.proxy.aol.com" into "HTTP Proxy:" field
7. Enter "80" into the adjacent "Port:" field
8. Mouse click-on "OK" to confirm configuration
NETSCAPE NAVIGATOR 4.0X (MACINTOSH)
1. Select menu "Edit"
2. Select menu item "Preferences..."
3. Expand "Advanced" and select "Proxies"
4. Mouse click-on "Manual proxy configuration" button
5. Mouse click-on "Configure..."
6. Enter "www3.proxy.aol.com" into "HTTP Proxy:" field
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7. Enter "80" into the adjacent "Port:" field
8. Mouse click-on "OK" to confirm configuration
NETSCAPE NAVIGATOR 4.0X (IBM/PC COMPATIBLE)
1. Select menu "Edit"
2. Select menu item "Preferences..."
3. Expand "Advanced" and select "Proxies"
4. Mouse click-on "Manual proxy configuration" button
5. Mouse click-on "View..."
6. Enter "www3.proxy.aol.com" into "HTTP:" field
7. Enter "80" into the adjacent "Port:" field
8. Mouse click-on "OK" to confirm configuration
WHEN USING ISP DIAL-UP ACCESS
MICROSOFT INTERNET EXPLORER 3.02+ (IBM/PC COMPATIBLE)
1. Select menu "View"
2. Select menu item "Internet Options..."
3. Mouse click-on "Connection" tab
4. If checkbox "Connect through a proxy server" displays a check mark, then
mouse-click on checkbox to remove check mark. ("Connect through a proxy
server" will be disabled)
5. Mouse click-on "OK" to confirm configuration
MICROSOFT INTERNET EXPLORER 4.0X (MACINTOSH)
1. Select menu "Edit"
2. Select menu item "Preferences..."
3. Expand "Network" and select "Proxies"
4. Mouse click-on "Disabled" button
5. Mouse click-on "OK" to confirm configuration
MICROSOFT INTERNET EXPLORER 4.0X (IBM/PC COMPATIBLE)
1. Select menu "View"
2. Select menu item "Internet Options..."
3. Mouse click-on "Connection" tab
4. If checkbox "Access the Internet using a proxy server" displays a check
mark, then mouse click-on checkbox to remove check mark ("Access the
Internet using a proxy server" will be disabled)
5. Mouse click-on "OK" to confirm configuration
NETSCAPE NAVIGATOR 3.04+ (MACINTOSH & IBM/PC COMPATIBLE)
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1. Select menu "Options"
2. Select menu item "Network Preferences..."
3. Mouse click-on "Proxies" tab
4. Mouse click-on "No Proxies"
5. Mouse click-on "OK" to confirm configuration
NETSCAPE NAVIGATOR 4.0X (MACINTOSH)
1. Select menu "Edit"
2. Select menu item "Preferences..."
3. Expand "Advanced" and select "Proxies"
4. Mouse click-on "Direct connection to the Internet"
5. Mouse click-on "OK" to confirm configuration
NETSCAPE NAVIGATOR 4.0X (IBM/PC COMPATIBLE)
1. Select menu "Edit"
2. Select menu item "Preferences..."
3. Expand "Advanced" and select "Proxies"
4. Mouse click-on "Direct connection to the Internet"
5. Mouse click-on "OK" to confirm configuration
MY AOL (OR OTHER ISP) BILL IS HIGHER THAN NORMAL SINCE I STARTED USING PORTICO.
IS THERE ANY RELATION?
When Portico consolidates email from your ISP (AOL) account, it is incurring
access charges of one to three minutes. If you are billed for access on a per
minute basis, you will encounter higher than normal bills for your ISP service
due to Portico consolidating email to your account.
Currently, we are working on a possible solution that will allow users to
schedule when consolidation occurs. Until that time, we do not recommend using
consolidation if you have a per-minute billing plan.
I RECEIVED A MESSAGE FROM AN AOL USER. WHEN I OPENED IT, THE MESSAGE WAS EMPTY.
At this time, Portico is having sporadic trouble reading the body of messages
sent from or consolidated from AOL. We expect to have this fixed shortly.
HOT TIPS
PORTICO
HOT TIPS AND NOTICES
HOT TIPS AND NOTICES (LAST UPDATED 08/16/98)
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NOTICES (INCLUDING MANUAL UPDATE)
HOT TIPS
CATEGORIES
NOTICES
Online billing details not yet available
Portico now dials a number from any desktop application
Pager notification system updated
E-mail consolidation systems updated and improved
Additional Internet security
"On Hold" music added
Support for all Time Zones
Alert message for failed faxes
Improved call handling shortens wait time on "Follow me"
Updated online documentation
Updated Portico's phone help
Improved voice recognition
Calling Canada
Contact lookup via the telephone
Faxing Attachments
TrueSync Plus for Portico (Synchronization)
Schedule + (ver. 7.5 and 7.0)
Act (3.0.8, 3.0.7, and 3.0.6)
Lotus Organizer 97, Palm Pilot and Windows CE
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Other Organizers
Maximum recommended number of contacts
Outlook Express Uuencode attachments can now be read by Portico
Paging Services currently supported in Portico
Pager Notification
PowerPoint attachments can now be faxed via Portico
HOT TIPS
Got a Hot Tip?
Reading messages first: How to set it up
NOTICES
ONLINE BILLING DETAILS NOT YET AVAILABLE
Page 29 of the Portico User's Guide provides instructions for accessing online
billing details. This service is not yet available
PORTICO NOW DIALS A NUMBER FROM ANY DESKTOP APPLICATION
You can now tell Portico to dial a number from anywhere within the Portico
desktop. (Previously, Portico would dial a number only from within the Address
Book) At any time when talking to Portico, just say "Dial a number" and Portico
will ask for the number to call.
PAGER NOTIFICATION SYSTEM UPDATED
The pager notification system has now been updated to add:
o Improved overall operation of the paging notification system
o Added support for the NexTel SMS paging service
o Added Support for one-way message to the BellSouth 2-way paging
service
E-MAIL CONSOLIDATION SYSTEM UPDATED AND IMPROVED
A new e-mail collection and consolidation system has been put into place to
improve the features and functionality of e-mail collection and filtering.
Portico subscribers are now able to automatically consolidate and filter their
e-mail from any publicly accessible (not
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through a firewall) ISP mailbox, as well as filter any mail forwarded into
Portico, such as corporate e-mail. You can also define a unique set of filtering
and notification rules for each mailbox, using the
<AccountNumber>[email protected] e-mail address.
ADDITIONAL INTERNET SECURITY
General Magic has upgraded the Portico Web site so that all transmissions
between the subscriber's personal Portico Web page and the Portico system are
secured via SSL technology. When you access your account over the Web, all of
your data will now be protected from outside intrusion.
"ON HOLD" MUSIC ADDED
When your callers ask Portico to "find him/her," they'll now hear music while
Portico locates you.
SUPPORT FOR ALL TIME ZONES
Portico will now adjust your calendar, follow-me rules, message time stamps, and
pager notification messages based on the time zone you specify in your Calendar
preferences. Additionally, Portico will provide the date and time according to
the same time zone. Be careful when synchronizing your data using multiple time
zones. For example, if you synchronize your appointments in the Pacific Time
Zone, switch to the Eastern Time Zone, and then synchronize again, the
synchronization may produce unexpected results.
ALERT MESSAGE FOR FAILED FAXES
If a fax transmission fails to go through for any reason, Portico will
automatically send an e-mail to the subscriber's account to inform them that
there was a problem with the transmission.
IMPROVED CALL HANDLING SHORTENS WAIT TIME ON "FOLLOW ME"
When trying to find a Portico subscriber, Portico will now ignore answering
machines and voice mail. If Portico gets a machine or voice mail message, it
will hang up and return to the caller to give an option to leave a message or
try another number.
UPDATED ONLINE DOCUMENTATION
The Portico online documentation and Frequently Asked Questions are regularly
updated with the latest Portico information. To access the online user manual or
the Frequently Asked Questions (you're reading it now!), just click on the Help
button on the main menu bar of your Portico personal account Web page.
UPDATED PORTICO'S PHONE HELP
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Portico's automatic Help functions have been improved, when you access Portico
by phone. To access the phone Help system, try using one of the following
commands: "Where am I?" "Where are we?" "What am I looking at?" "What are my
options?" or "Help."
IMPROVED VOICE RECOGNITION
General Magic is making continual improvements to the Portico telephone
interface. Since June of 1998 we have improved Portico's recognition of voice
commands by 65%.
TRUESYNC PLUS FOR PORTICO (SYNCHRONIZATION)
The following is an update of the Portico User Manual.
On page 74 of your manual is a list of Personal Information Managers that works
with Portico. The following is an update to that list.
SCHEDULE + (VER.7.5 AND 7.0)
If you use repeating appointments, we recommend that you only perform One Way
Synchronization from Schedule + to Portico. To properly synchronize, you will
want to One Way Synchronize twice (one immediately after the other). This will
ensure that all your repeating appointments will appear in Portico. Failure to
use One Way Sync could result in the accidental deletion of your repeating
appointments.
ACT! (3.0.6 THROUGH 4.0)
At this time, TrueSync Plus for Portico and Act! are not properly synchronizing.
If you are an Act! user, you may encounter unexpected results when you
synchronize your contact database with Portico. E-mail addresses from Act! 4.0
are not properly synchronized into Portico. We expect this problem to be fixed
shortly.
LOTUS ORGANIZER 97, PALM PILOT AND WINDOWS CE
Currently, support for these organizers have not been implemented in TrueSync
for Portico. We are currently working on implementing these organizers and hope
to release them in a future update of TrueSync.
As a workaround, we suggest the importing of your organizer's data into a
currently supported format (Outlook, Sidekick, etc.) and synchronize from there
to Portico. Contact your organizer's customer service or visit their web site
for information on how to export your data into a supported format.
SIDEKICK 98
Names sorted out of order - first name shows as last & vice versa for items
created in P.
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To-do items created in P appear a day early when synced into Sidekick.
OTHER ORGANIZERS
At this time, all other Portico-supported organizers are working with no
reported problems.
CALLING CANADA
As per page 97 of the user manual, Portico is able to place and receive calls
from Canadian numbers, the continental United States, Alaska, and Hawaii.
However, there is an additional $0.20 per minute international access charge for
Canadian access. This charge will be added to your Portico bill for all Canadian
calls to or from your Portico account.
PAGING SERVICES CURRENTLY SUPPORTED IN PORTICO
On page 39 of the user manual, we provide a list of supported pager services.
The following is a current update of the supported services.
PORTICO SUPPORTED ALPHA PAGER SERVICES
Active
Airtouch Communications, Inc.
NexTel Communications
PacBell Mobile Systems
PageMart Wireless, Inc.
Paging Network, Inc. (PageNet(R))
SkyTel Corporation
These alpha pager services are currently functioning with no reported problems.
NOT ACTIVE
Mobile Communications Corporation of America (MobilComm(R))
AT&T Wireless Services, Inc.
Metrocall, Inc.
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Ameritech, Inc.
Arch Communications Group, Inc.
Currently, support for these alpha pager services have not been implemented in
the Portico service. We are currently working on implementing these pager
services and hope to release them in a future update of Portico.
POWERPOINT ATTACHMENTS CAN NOW BE FAXED VIA PORTICO
Portico will now fax PowerPoint email attachments when accessing via the
telephone. If you receive an email with an attachment with the extension ".ppt,"
just say "fax that to me" to receive a hard copy of the presentation.
OUTLOOK EXPRESS UUENCODE ATTACHMENTS CAN NOW BE READ BY PORTICO
You will now be able to view and fax Uuencode attachments sent from Outlook
Express mail clients. When you view your mailbox over the web, the Uuencode
attachment will be seen as a hyperlink at the bottom of your message. When
accessing your messages over the phone, you will now be able to fax the Uuencode
document by saying "fax that to me."
MAXIMUM RECOMMENDED NUMBER OF CONTACTS
Currently, Portico works best when loaded with 300 or fewer contacts. Loading
more than 300 contacts could possibly affect the speed of your account for
yourself and incoming callers. We expect to increase the recommended number of
contacts soon.
PAGER NOTIFICATION
At this time, we are experiencing sporadic failures with Pager Notification. If
you do not receive a notification page (Message, Stock, Meeting Reminder, etc.)
when you should have received one, please send feedback to Customer Support via
the Web feedback button.
FAXING ATTACHMENTS
Currently, attachments with the following extensions will not be faxed by
Portico:
GIF - Graphic Image File
BMP - Bitmap File
TIFF - Graphics File
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Contact lookup via the telephone
We recommend that you do not use special characters for the contact names in
your Portico account. Special characters are dashes, underscores, commas, etc.
At this time, you will be unable to look up information (address, phone number,
etc.) or call or fax a contact that contains any special characters.
Hot Tips
Got a Hot Tip?
Send it to Portico Customer Service and share it with your fellow Portico users.
Now Portico always reads my message first thing
Thanks to Robert Young of San Francisco, CA
I went to "Setup" in my Portico web site and selected "Preferences." From there
I told Portico to always go directly to my mailbox whenever I call. Now when I
call Portico, she tells me how many messages I have first thing!
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EXHIBIT C
QWEST MARKS
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EXHIBIT D
SERVICE LEVEL AGREEMENTS
1. Service Availability Requirements: The QDA Service will be available [**] of
the time outside of periods of weekly scheduled downtime for system maintenance
and enhancement (currently anticipated to be 10 p.m. Saturday through 2 a.m.
Sunday, although subject to change at Magic's discretion).
2. Website Availability Requirements: The QDA Web Site will be available [**] of
the time outside of periods of weekly scheduled downtime for system maintenance
and enhancement (currently anticipated to be 10 p.m. Saturday through 2 a.m.
Sunday, although subject to change at Magic's discretion).
3. Operations Center: [**].
4. Customer Support: [**], with response time goals as follows:
o Customers service telephone queues will have a wait time before first
answer of [**]
o Automated answer in [**]
o [**]
o Electronic mail inquiries will be responded to within [**]
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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EXHIBIT E
SUBSCRIBER AGREEMENT TERMS
[Magic's current form of Portico subscriber agreement to be attached]
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EXHIBIT F
FEES
BASELINE FEES
1. [**] per Subscriber, pro-rated for portions of [**] Qwest Subscribers
subscribe for the QDA.
2. [**] of the QDA by Qwest Subscribers
3. [**] provided to Qwest Subscribers.
ADDITIONAL FEES
1. [**]
2. [**]
CREDITS FOR INTERRUPTION
Qwest may be eligible for credits for unscheduled interruptions in the
provision of the QDA service or the availability of the QDA Web Site, subject to
the following conditions:
a. An interruption in the provision of the QDA service, or the
availability of the QDA Web Site, shall be deemed to have commenced upon
verifiable notification thereof by Qwest to Magic, or when indicated by network
control information actually known to Magic's personnel, whichever is earlier.
Each such interruption shall terminate upon restoration of the QDA service or
the QDA Web Site, as applicable, as determined by Magic.
b. Qwest will be given a credit allowance upon request as follows:
.01 When the QDA service, or the availability of the QDA Web
Site, is interrupted for [**], no credit allowance will be given;
.02 When the QDA service, or the availability of the QDA Web
Site, is interrupted for a period of [**], the amount of the credit allowance
shall not exceed [**]; or
.03 When the QDA service, or the availability of the QDA Web
Site, is interrupted for [**], the amount of the credit allowance shall not
exceed [**] the QDA service, or the availability of the QDA Web Site, was
interrupted.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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c. Credit allowances for interruptions shall be granted upon Qwest's
request and at Magic's sole discretion. No credit allowances shall be made for:
.01 Interruptions that are due to the failure of power, equipment,
systems, or services not provided by Magic;
.02 Interruptions that are caused by the negligence of Qwest or the
user of the QDA service;
.03 Interruptions during any period when Qwest or a Qwest Subscriber
has refused to release the QDA service, or an account thereon, for testing or
repair;
.04 Interruptions during any period when the non-completion of calls
is due to network busy conditions; or
.05 Interruptions not promptly reported to Magic.
d. All credit allowances for interruptions shall be included in a
subsequent monthly invoice to Qwest, and the total of all service interruption
credits applicable to or accruing in a given month shall not exceed the amount
payable by Qwest to Magic for [**] per subscriber charges for [**] for the QDA.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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EXHIBIT 10.13
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. Sections 200.80(b)(4), 200.83
and 230.406
PRODUCT INTEGRATION AND MARKETING AGREEMENT
THIS PRODUCT INTEGRATION AND MARKETING AGREEMENT is made effective as of
November 6, 1998 (the "EFFECTIVE DATE") by GENERAL MAGIC, INC., a Delaware
corporation having a place of business at 420 North Mary Avenue, Sunnyvale,
California 94086 ("MAGIC"), and INTUIT INC., a Delaware corporation having a
place of business at 2535 Garcia Avenue, Mountain View, California 94043
("INTUIT"). Magic and Intuit sometimes are referred to collectively as the
"PARTIES" and individually as a "PARTY."
RECITALS
A. Magic is engaged in the business of, among other things, designing,
developing, and providing a network service known as "Portico," which includes
features such as individual calendar and contact information management and
communication services and which may be accessed either through the World Wide
Web or through the telephone by means of a voice user interface that uses
state-of-the-art speech recognition technology.
B. Intuit is engaged in the business of, among other things, developing
and providing individual financial information and management products and
services including the products and services available through its "Quicken.com"
web site.
C. Magic and Intuit desire to enter into a long-term relationship
whereby the Parties will work together to integrate certain features of Magic's
Portico service with Intuit's personal finance technology and the "Quicken.com"
web site and to make the benefits of both Parties' technology available to both
Parties' customers. The Parties expect that there will be three distinct aspects
of their relationship: (1) Intuit will promote, and Magic will provide, a [**]
(based on Portico technology) to users of the "Quicken.com" web site that allows
such users to access and act upon financial information available on the web
site through the telephone; (2) Intuit's personal finance technology will be
incorporated into the Portico service and offered to Portico customers; and (3)
Intuit will promote to users of this [**] Portico service.
AGREEMENT
ARTICLE I -- DEFINITIONS
As used in this Agreement:
"API" means an applications programmer's interface.
"BASE FEATURES" means the personal finance features of the Portico
Service to be designed and developed by Magic based upon and incorporating the
Intuit Personal Finance Technology and to be offered to Portico Subscribers as a
[**] so that these subscribers will have access to the applicable portions of
the Intuit Personal Finance Content and Personal Financial Information.
"DERIVATIVES" means (i) for copyrightable or copyrighted material, any
translation, abridgment, revision, or other form in which such material may be
recast, transformed, or adapted; (ii) for patentable or patented material, any
improvement thereon; and (iii) for material which is protected by trade secret,
any new material derived from such existing trade secret material, including new
material which may be protected by copyright, patent and/or trade secret.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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"EXCLUSIVITY PERIOD" means the period beginning on the Effective Date
and expiring the earlier of (a) [**] after the Effective Date or (b) thirty (30)
days after Intuit notifies Magic in writing that Magic is not in compliance with
the Magic Exclusivity Criteria and Magic fails to correct such non-compliance
within the thirty (30) day period.
"INTELLECTUAL PROPERTY RIGHTS" means all current and future worldwide
copyrights, trade secrets, patents and other patent rights, utility models, mask
work rights, moral rights, trademarks, trade names, service marks, and all other
intellectual property rights, including all applications and registrations with
respect thereto.
"INTUIT MARKS" means the trademarks, service marks, trade names, and
logos of Intuit listed in EXHIBIT A, as such list may be updated from time to
time by Intuit.
"INTUIT PERSONAL FINANCE CONTENT" means the images and information,
including stock quotes and ticker-based news, designated by Intuit for inclusion
in the Portico Service but excluding Personal Financial Information.
"INTUIT PERSONAL FINANCE TECHNOLOGY" means the software, programming
code, API's, and other technology designated by Intuit and provided to Magic to
allow the Portico Service to make available the Intuit Personal Finance Content
and Personal Financial Information.
"INTUIT SITES" means Intuit or Quicken branded or co-branded world wide
web sites or online services, including the Quicken Web Site, and any product or
service which includes access to the world wide web.
"LAUNCH DATE" means the first date on which the agreed-upon initial
Personal Finance Feature Set is made commercially available to Portico
Subscribers.
"LINK" means a hypertext link, in a textual or graphical form, from one
website to another website.
"MAGIC EXCLUSIVITY CRITERIA" means the following Magic requirements: (a)
the Quicken.Com Voice Service is commercially released by the applicable Target
Date, (b) the Quicken.Com Voice Service must be competitive with other similar
technologies in terms of [**], (c) for the number of people using a voice
activated service (similar to Portico) for retrieving information (virtual
assistant), Magic is [**], and (d) Magic must not be in breach of this
Agreement.
"MAGIC MARKS" means the trademarks, service marks, trade names, and
logos of Magic listed in EXHIBIT B, as such list may be updated from time to
time by Magic.
"PERSONAL FINANCIAL INFORMATION" means an individual's unique personal
financial information including portfolio holdings, banking information, bill
presentment, and transaction data (e.g., buy and sell orders) stored in or
accessible through the Quicken Web Site or the Portico Service, as the case may
be.
"PERSONAL FINANCE FEATURE SET" means the [**] and [**].
"PORTICO SERVICE" means Magic's proprietary network service as described
above, which Magic may market directly or through resellers, in whole or in
functional subsets, through multiple levels of distribution, which may be
bundled with other goods and services by Magic or third parties, and which may
be sublicensed directly or indirectly to enterprise licensees for internal
deployment by such licensees.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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"PORTICO SERVICE GUI" means the graphic user interface for the Portico
Service, as displayed on the Web Site whose URL address, as of the Effective
Date, is http://www.portico.net (it being understood that this user interface
will be modified by Magic from time to time, pursuant to this Agreement and
otherwise).
"PORTICO SERVICE VUI" means the voice user interface for the Portico
Service based on and incorporating Magic's proprietary speech recognition
technology (it being understood that this user interface will be modified by
Magic from time to time).
"PORTICO SUBSCRIBER" means any individual who has an account with Magic
or any third party through which such individual receives all or any portion of
the Portico Service.
"PORTICO TECHNOLOGY" means the software, programming code, API's, and
other technology used by Magic to develop and provide the Portico Service.
[**] means the [**] to be designed and developed by Magic based upon and
incorporating [**] so that these subscribers will have access to the applicable
portions of the Intuit Personal Finance Content and Personal Financial
Information.
"QUICKEN WEB SITE" means the web site whose home page is currently (as
of the Effective Date) located at the URL "http://www.quicken.com", as such web
site may be modified and updated by Intuit from time to time.
"QUICKEN.COM VOICE SERVICE" means a service to be designed and developed
by Magic based upon the Portico Technology and incorporating certain features of
the Portico Service and to be offered to users of the Quicken Web Site and to
any other Intuit Site designated by Intuit so that such users can access the
Intuit Personal Finance Content and their Personal Financial Information through
the telephone.
"TARGET DATES" means the target dates listed in EXHIBIT C for completion
of various aspects of the work to be undertaken by the Parties pursuant to this
Agreement, as such list may be modified and updated from time to time by written
agreement of the Parties.
ARTICLE II - QUICKEN.COM VOICE SERVICE
2.1 DESIGN AND DEVELOPMENT. Subject to SECTION 2.2 (b), with reasonable
assistance and input from Intuit regarding the Intuit Personal Finance
Technology, Magic will use commercially reasonable efforts to design and develop
the Quicken.Com Voice Service by the applicable Target Dates. It is understood
and agreed that Magic cannot guarantee the results or success of these efforts,
the Target Dates are subject to change as circumstances warrant, and Magic will
have no liability to Intuit for any change in the Target Dates, or any failure
to complete any portion of this work by the applicable Target Date, as long as
Magic is using good faith, commercially reasonable efforts to fulfill its
responsibilities in performing this work. This work is expected to include,
among other things, (a) identification of the features of the Portico Service to
be included in the Quicken.Com Voice Service; (b) the identification of the
Intuit Personal Financial Content and Personal Financial Information to be
included in the Quicken.Com Voice Service; (c) the development of technical and
functional specifications for such features, based on the specifications for the
equivalent features of the Portico Service, to be attached hereto as EXHIBIT D
when completed; (d) acquisition or development, and implementation, of the
hardware, software, and other technology needed to provide the
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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Quicken.Com Voice Service, which may include modifications to the
Portico Technology and interfaces between the Quicken Web Site and the computers
and software used by Magic to provide the Quicken.Com Voice Service; and (e)
internal and external (i.e., at customer beta sites) evaluation and testing of
the Quicken.Com Voice Service until both Parties are satisfied with the quality
and reliability of the Quicken.Com Voice Service such that the Quicken.Com Voice
Service is suitable for commercial release.
2.2 INTUIT ASSISTANCE.
(a) Intuit will assist Magic regarding the Intuit Personal Finance
Technology, as Magic may reasonably request from time to time, in the design and
development of the Quicken.Com Voice Service. Without limiting the generality of
the foregoing, and except as specified in CLAUSE (b) below, Intuit will (i) make
available to Magic the facilities and personnel of Intuit or its agents or
contractors, as Magic may reasonably request and which is necessary for Magic to
fulfill Magic's development obligations under this Agreement ("INTUIT QVS
ASSISTANCE"), and (ii) deliver to Magic the APIs, software, and other technology
used in connection with the Quicken Web Site, as Magic may reasonably request
and as mutually agreed to by the Parties (collectively, the "QUICKEN
DELIVERABLES") that are necessary for Magic to fulfill its development
obligations under this Agreement.
(b) In the event Intuit elects not to provide the Intuit QVS
Assistance as specified in CLAUSE (a) above, Magic shall not be obligated to
include the feature in the Quicken.Com Voice Service which is dependent upon
receiving such assistance from Intuit and Intuit shall have no further
obligation with respect thereto.
(c) Magic will have a non-exclusive, non-transferable, [**]
license during the term of this Agreement to use and reproduce the Quicken
Deliverables, and upon receiving Intuit's consent, may modify and create
Derivatives, solely for the purpose of performing the work described in SECTION
2.1. Magic acknowledges that notwithstanding anything to the contrary in the
Agreement, Intuit shall not be obligated to provide any support for any
modifications or Derivatives to the Quicken Deliverables made by Magic. The
Quicken Deliverables will be considered Confidential Information of Intuit
subject to the provisions of SECTION 5.3. In addition, if Intuit acquires
ownership of any Voice Service Upgrades pursuant to SECTION 5.4(c), Intuit
grants to Magic a non-exclusive, non-transferable, [**] license during
the term of this Agreement to use, reproduce and perform such Voice Service
Upgrades as part of the Quicken.Com Voice Service.
2.3 ROLL-OUT OF QUICKEN.COM VOICE SERVICE. There will be, [**] as
specified in SECTION 2.7 (b) below is sufficient to cover
the cost of the [**] and [**] Users of the [**], which would be [**]. Intuit
will establish a Link from pages/sections of the Quicken Web Site to one or more
web pages through which users will be able to get a passcode (customizable for
each individual user) for use with the Introductory QVS Version and initiate use
of the
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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Introductory QVS Version. The specific appearance and placement of each Link
will be determined by Intuit.
2.4 [**]. In order to [**]. Magic will be permitted to [**], provided
that Magic obtains Intuit's approval (which will not be unreasonably withheld)
before entering into any binding agreement [**]. Such [**]. The Parties shall
mutually agree to the [**] in the Introductory QVS Version.
2.5 BRANDING, PROMOTION. The Quicken.Com Voice Service will be marketed
under present or future Intuit Marks. When the Parties agree that the
Quicken.Com Voice Service is or soon will be ready for commercial release,
Intuit will promote the Quicken.Com Voice Service on the Quicken Web Site in a
manner deemed reasonable by Intuit.
2.6 PROVISION OF QUICKEN.COM VOICE SERVICE. When the Parties agree that
the Quicken.Com Voice Service is ready for commercial release, Magic will begin
providing the Quicken.Com Voice Service. Magic shall make available and manage
the Quicken.Com Voice Service throughout the term of this Agreement. As between
Magic and Intuit, Magic will have sole responsibility for customer service and
support of the Introductory QVS Version (it being understood that [**] and the
Full QVS Version (it being understood that Magic shall provide the same level of
support to users of the Full QVS Version as it provides to users of the Portico
Service). Intuit will have sole responsibility for operation of the Quicken Web
Site and will [**] Magic to resolve customer questions and problems solely
attributable to the content or operation of the Quicken Web Site. Magic will
also be solely responsible for making arrangements with, and paying the fees of,
one or more telephone service providers in connection with the Quicken.Com Voice
Service.
2.7 FEES AND PAYMENT
(a) DEVELOPMENT COSTS. Magic shall be responsible for [**]
associated with the design and development of the Quicken.Com Voice Service,
except that Intuit will be responsible for [**] it incurs in providing
assistance and support to Magic pursuant to SECTION 2.2 and SECTION 2.6.
(b) COST SHARING -- INTRODUCTORY QVS VERSION. [**] of providing
the Introductory QVS Version of the Quicken.Com Voice Service to users as
follows. Such costs are limited to the costs of operating the Introductory QVS
Version (which shall in no event exceed [**] and [**] set forth in SUBSECTION
5.1 below ("INTRODUCTORY QVS COSTS"). [**] All payments received by Magic [**]
of the [**], as described in SECTION 2.4, will be applied first toward the [**],
second [**], and then any remaining amounts shall be retained by Magic and shall
be applied to any [**]. Any remaining Introductory QVS
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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Costs [**] as described in the preceding sentence shall be [**] split as
follows: (i) [**] will be responsible for [**] of the remaining Introductory QVS
Costs, and (ii) with respect to [**] ("[**]"), [**]. Any portion of [**] that is
not recovered in any quarter (either from [**] described in the preceding
sentence) will carry forward to the next quarter. In no event will [**] be
required to (a) pay to [**] any portion of [**] not recovered either from
advertising and sponsorship revenue or from deductions from payments made to
[**], or (b) refund to [**] any payments made to [**] pursuant to SECTION 2.7(c)
and SECTION 4.3.
(c) REVENUE SHARING - FULL QVS VERSION. Magic will determine, after
consultation with Intuit, the fees charged to users of the Quicken.Com Voice
Service (subject to SECTION 2.3). Such fee must be approved by Intuit. Magic
will bill and receive payments from users of the Quicken.Com Voice Service. [**]
of the "VOICE SERVICE REVENUE" (as defined below) received by [**], subject to
SECTION 2.7(B). Within forty-five (45) days after the end of each quarter, [**]
will provide [**] with a written report stating 1) the amount of Voice Service
Revenue received by [**] during such quarter, 2) the total number of QVS
Customers, total number of new QVS Customers, and the total number of QVS
Customers that have cancelled their subscription, 3) usage statistics for QVS
Customers available to [**] and agreed to by the Parties, and 4) [**] of the
costs of operating the Introductory QVS Version during such quarter (to the
extent that [**] has not been recovered through [**] as described in SECTION
2.7(b)), along with payment of the amount due to [**] hereunder for such
quarter. As used herein, "VOICE SERVICE REVENUE" means [**] ("QVS CUSTOMER")
after deducting any taxes (other than income taxes), rebates (based upon
programs mutually agreed to by the Parties), refunds, and credits paid or given
by [**] in connection with the payment of such fees to [**].
2.8 VOICE SERVICE UPGRADES. During the term of this Agreement, Magic
shall develop enhancements to existing features of the Quicken.Com Voice Service
or new features of the Quicken.Com Voice Service (collectively, "VOICE SERVICE
UPGRADES") as (a) may be reasonably requested by Intuit from to time, (b) to
ensure the Portico Service functionality within the Quicken.Com Voice Service
remains in parity, in terms of quality, features and functionality, with the
then-current version of the Portico Service, and (c) as necessary to ensure that
the Quicken.Com Voice Service remains competitive with any similar service
commercially available in the United States. Magic's obligation to develop Voice
Service Upgrades pursuant to CLAUSE (A) above is subject to the Parties'
agreeing on the fees, if any, to be paid to Magic by Intuit for such
development. Magic [**] if the Voice Service Upgrade is included in the Portico
Service.
ARTICLE III - PERSONAL FINANCE FEATURE SET
3.1 DESIGN AND DEVELOPMENT.
(a) Magic will use commercially reasonable efforts to design and
develop the Personal Finance Feature Set by the applicable Target Dates. It is
understood and agreed that neither Party can guarantee the results or success of
these efforts, the Target Dates are subject to change as circumstances warrant,
and neither Party will have any liability to the other for any change in the
Target Dates, or any failure to complete any portion of this work by the
applicable
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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Target Date, as long as such Party is using good faith, commercially reasonable
efforts to fulfill its responsibilities in performing this work. It is also
understood that such design and development by the Target Dates [**] from Intuit
with respect to the Intuit Personal Finance Technology ("INTUIT PFF
ASSISTANCE"). This work is expected to include, among other things, (a) [**];
(b) the development [**] and the [**], and otherwise [**]; (c) the incorporation
by Magic of certain components of the [**] into the [**]; and (d) internal and
external (i.e., at customer beta sites) evaluation and testing of the Personal
Finance Feature Set until both Parties are satisfied with the quality and
reliability of the Personal Finance Feature Set such that the Personal Finance
Feature Set is suitable for commercial release. EXHIBIT F contains an overview
of the Parties' expected roles and responsibilities in performing this work.
(b) [**]
(c) In the event Intuit elects not to provide the Intuit PFF
Assistance as specified in CLAUSE (A) above, Magic shall not be obligated to (1)
complete the design and development of the applicable portion of the Personal
Finance Feature Set by the applicable Target Dates, or (2) complete the
integration of such Personal Finance Feature Set with the Portico Service.
Intuit shall have no further obligation with respect to the applicable Intuit
Personal Finance Technology thereto.
(d) When the Parties agree the Personal Finance Feature Set is ready
for commercial release, Magic will begin providing the Personal Finance Feature
Set as part of the Portico Service. Magic shall make available and manage the
Personal Finance Feature Set and Portico Service throughout the term of this
Agreement.
3.2 TECHNOLOGY DELIVERY AND LICENSES
(a) INTUIT PERSONAL FINANCE TECHNOLOGY. Intuit will deliver to
Magic those components of the Intuit Personal Finance Technology as are
necessary for Magic to fulfill its development obligations under this Agreement
and reasonably requested by Magic in order for Magic to fulfill its
responsibilities in performing the work described in SECTION 3.1 (collectively,
the "INTUIT DELIVERABLES"). Magic will have a non-exclusive, non-transferable,
[**] license during the term of this Agreement to use and reproduce, and to the
extent necessary modify and create Derivatives from, the Intuit Deliverables,
solely for the purpose of Magic's development of the Personal Finance Feature
Set under this Agreement. The Intuit Deliverables and Derivatives will be
considered Confidential Information of Intuit subject to the provisions of
SECTION 5.3. Magic acknowledges that notwithstanding anything to the contrary in
the Agreement, Intuit shall not be obligated to provide any support for any
modifications or Derivatives to the Intuit Deliverables made by Magic. In
addition, if Intuit acquires ownership of any Upgrade pursuant to SECTION 5.4
(C), Intuit grants to Magic a non-exclusive, non-
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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transferable, [**] license during the term of this Agreement to use and
reproduce such Upgrade solely in connection with Magic's delivery of the Portico
Service.
(b) PORTICO TECHNOLOGY. Magic will deliver to Intuit those
components of the Portico Technology as are needed or reasonably requested by
Intuit in order for Intuit to assist Magic in the design and development of the
Personal Finance Feature Set as described in SECTION 3.1 (collectively, the
"MAGIC DELIVERABLES"). Intuit will have a non-exclusive, non-transferable,
[**] license during the term of this Agreement to use and reproduce, and to the
extent necessary modify and create Derivatives from, the Magic Deliverables,
solely for the purpose of performing this work. The Magic Deliverables will be
considered Confidential Information of Magic subject to the provisions of
SECTION 5.3.
3.3 MARKETING. Magic will market and promote the Personal Finance
Feature Set when it promotes the Portico Service or OEM versions of the Portico
Service. Magic agrees at least [**] of its total marketing and advertising
expenditures shall be attributable to the Portico Service, OEM versions of the
Portico Service, and/or the Quicken.Com Voice Service.
3.4 BRANDING; CUSTOMER SUPPORT. The Personal Finance Feature Set,
including the components of the Quicken Web Site incorporated into the Portico
Service GUI, will be prominently identified by the Intuit Marks in a manner
reasonably acceptable to both Parties, it being understood that the Portico
Service is, and will continue to be, marketed under and branded with the Magic
Marks (or, in some cases, the trademarks of Magic's resellers). Magic will
provide all customer service and support to Portico Subscribers for the Portico
Service including the Personal Finance Feature Set. Intuit will [**] to Magic
for questions and problems solely attributable to the Quicken Web Site or the
Intuit Personal Finance Technology. The Parties will at all times cooperate to
ensure that customer questions and complaints are handled in a prompt and
professional manner. The level of such customer services shall be equal to or
better than the level of service generally provided and/or marketed by Magic to
customers of the Portico Service.
3.5 PROVISION OF CONTENT AND BACK-END SERVICE. As needed for beta tests
and otherwise during the development of the Personal Finance Feature Set, and
beginning upon the Launch Date, Intuit will (a) make available the Intuit
Personal Finance Content and Personal Financial Information for access and use
by Portico Subscribers who are entitled to receive the Personal Finance Feature
Set; and (b) maintain the Quicken Web Site to permit access by Portico
Subscribers to the Personal Finance Feature Set or, to the extent the Personal
Finance Feature Set is not provided through the Quicken Web Site, assist Magic
in receiving such back-end technical service and support as is needed by Magic
for the provision of the Personal Finance Feature Set by Magic.
3.6 FEES AND PAYMENT.
(a) Magic shall be responsible for all costs associated with the
design and development of the Portico Service, except that Intuit will be
responsible for all costs it incurs in providing assistance and support to Magic
pursuant to SECTION 3.1(a), SECTION 3.4, and SECTION 3.5.
(b) [**]. As between Intuit and Magic, Magic will determine, in its
sole discretion, the fees charged to Portico Subscribers for the Premium
Options. Magic (or its resellers) will bill and receive payment from Portico
Subscribers for the Premium Options. The fees to be paid by Magic to Intuit for
the Premium Options ("PREMIUM OPTION FEES") will be mutually agreed on a
case-by-
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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case basis for each Premium Option as the Parties decide to add to the Personal
Finance Feature Set; [**]. No Premium Option shall be made available by Magic
(or its resellers) until the fee to Intuit is agreed to by the Parties. Within
forty-five (45) days after the end of each quarter, Magic will provide Intuit
with a written report with Premium Option usage data for such quarter, along
with payment of the Premium Option Fees due to Intuit for such quarter.
3.7 UPGRADES. During the term of this Agreement, Magic shall develop
enhancements to the existing Personal Finance Feature Set, or new Base Features
or Premium Options (collectively, "UPGRADES"), as (a) may be reasonably
requested by Intuit from to time and (b) necessary to ensure that the Personal
Finance Feature Set remains competitive with any similar service commercially
available in the United States. Magic's obligation to develop Upgrades pursuant
to CLAUSE (a) above is subject to the Parties' agreeing on the fees, if any, to
be paid to Magic by Intuit for such development. Magic [**] if the Upgrade is
included in the Portico Service in order for the Portico Service to remain
competitive with any similar service commercially available in the United
States.
3.8 EXCLUSIVITY COVENANTS
(a) BY MAGIC. Magic agrees that during the Exclusivity Period,
Intuit will be the sole and exclusive sponsor of and provider of the personal
finance features of the Portico Service and Magic will not directly or
indirectly enter into any agreement for the provision of personal finance
features nor authorize a third party to refer to itself as a provider or sponsor
of personal finance functionality for the Portico Service. It is understood that
the foregoing covenant is not intended to restrict Magic from incorporating
additional personal finance content or functionality (other than the Intuit
Personal Finance Content and the Personal Finance Feature Set) supplied by a
third party into the Portico Service, provided that (i) Magic uses commercially
reasonable efforts to first obtain such content and/or functionality from
Intuit; and (ii) in the event Intuit elects not to provide such feature/content,
Magic obtains the consent of any such third party to allow the content or
functionality it provides to be identified, in a manner approved by Intuit, as
being sponsored by Intuit. It is further understood that Magic may provide a
subset of the features and functionality of the Portico Service (excluding the
Personal Finance Feature Set) to third party resellers for incorporation into
products or services marketed and distributed by such third parties under their
own marks and that such third party products and services may contain personal
finance content or functionality not provided by Intuit, provided that such
third party resellers agree to provide Intuit with the right to be identified as
the sponsor of such personal finance content or functionality in a manner
approved by Intuit.
(b) BY INTUIT. Intuit agrees that during the Exclusivity Period,
Magic will be (and will have the right to refer to itself as) the "exclusive
provider" of voice access to users of the Quicken Web Site located in the United
States. As long as Magic has this "exclusive provider" status, (i) Intuit will
not enter into any agreement or arrangement with any third party for such third
party to provide a voice service similar to either the Introductory QVS Version
or the Full QVS Version of the Quicken.Com Voice Service (i.e., access through a
designated telephone number to the content available through the Quicken Web
Site), and (ii) when marketing the Quicken.Com Voice Service, Intuit will refer
to Magic as the exclusive provider of voice access to the Quicken Web Site.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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ARTICLE IV - UPGRADE TO PORTICO SERVICE
4.1 PROMOTION OF UPGRADE. Within a reasonable period of time not to
exceed thirty (30) days after the Quicken.Com Voice Service becomes commercially
available, Intuit will begin to promote, on the Quicken Web Site an upgrade from
the Quicken.Com Voice Service to [**] Portico Service (including the [**]
available at such time). At the same time, [**] the Quicken.Com Voice Service.
[**]. This version of the Portico Service shall, at Intuit's discretion, be
marketed under the Intuit Marks in a manner reasonably acceptable to Magic
(which may include use of the "MagicTalk" marks), under the Magic Marks, or
under the name and trademarks of a third party reseller chosen by Magic and
reasonably acceptable to Intuit, pursuant to a separate agreement between Magic
and such reseller. Intuit will notify Magic in writing which of these three
branding options Intuit prefers. The Parties will work together to develop
technical and functional specifications for this version of the Portico Service
by the applicable Target Date, to be attached hereto as EXHIBIT G when
completed. Magic shall develop and provide to Intuit within sixty (60) days from
the Effective Date the initial technical and functional specification for this
version of the Portico Service. In the event Magic fails to deliver such initial
specification or in the event Intuit does not approve the initial specification
developed by Magic (it being understood and agreed that Intuit will not
unreasonably withhold such approval), Intuit shall have the right to terminate
this Agreement.
4.2 PROVISION OF SERVICE, CUSTOMER SUPPORT. As between Intuit and Magic,
Magic will be solely responsible for operating, providing, and administering the
Portico Service offered to users of the Quicken.Com Voice Service, and Magic
will provide all customer service and support for the Quicken.Com Voice Service
and Portico Service (with Intuit providing [**] to Magic for the Personal
Finance Feature Set as described in SECTION 2.6 and SECTION 3.4).
4.3 FEES AND PAYMENT. As between [**], [**] will determine,[**], the
fees charged to users of the Portico Service offered to users of the Quicken.Com
Voice Service. [**] will bill and receive payments from these Portico
Subscribers. [**] will pay [**] of the "UPGRADE REVENUE" (as defined below)
received by [**], subject to SECTION 2.7(b). Within forty-five (45) days after
the end of each quarter, [**] will provide [**} with a written report stating 1)
the amount of Upgrade Revenue received by [**] during such quarter, 2) the total
number of Upgrade Customers, total number of new Upgrade Customers, and the
total number of Upgrade Customers that have cancelled their subscription, 3)
usage statistics for Upgrade Customers relating to the Personal Finance Feature
Set, available to [**] and agreed to by the Parties, 4) [**] of the costs of
operating the Introductory QVS Version during such quarter, and 5) the [**]
received by [**} during such quarter as described in SECTION 2.7(B).
Accompanying each such report shall be the payment of the amount due to [**]
hereunder for such quarter. As used herein, "UPGRADE REVENUE" means the fees
charged by [**] to each [**] who upgrades to the [**] from the [**] ("UPGRADE
CUSTOMER"), after deducting any taxes (other than income taxes), rebates (based
upon programs mutually agreed to by the Parties), refunds, and credits paid or
given by [**] in connection with the payment of such fees to [**], during the
[**] after such upgrade.
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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ARTICLE V - GENERAL
5.1 COOPERATION. Intuit and Magic will cooperate and use commercially
reasonable efforts to assist one another from time to time in identifying and
developing opportunities to market and promote the Quicken Web Site, the
Quicken.Com Voice Service, and the Portico Service, provided the Portico Service
includes the Personal Finance Feature Set, and other products and services of
the Parties as agreed to by the Parties. The Parties will also cooperate in
establishing Links between their respective web sites in a manner reasonably
acceptable to both Parties. In addition, to facilitate fast access to the Intuit
Personal Finance Content and Personal Financial Information, the Parties will
work together to establish a high-speed connection between their respective
service facilities; the Parties will share equally the costs of establishing and
maintaining this connection.
5.2 TRADEMARK LICENSES
(a) INTUIT MARKS. Subject to the terms and conditions set forth in
this paragraph, Intuit grants to Magic a limited, non-exclusive,
non-transferable license during the term of this Agreement to use the Intuit
Marks in connection with the marketing, promotion, and administration of the
Personal Finance Feature Set and the Quicken.Com Voice Service as described in
SECTIONS 2.5 and 3.4. Before making use of any Intuit Mark, Magic will provide
Intuit with a sample of the proposed use of the Intuit Mark for prior approval
by Intuit. If Intuit does not approve in writing the proposed use of the Intuit
Mark within [**] after receipt of the sample from Magic, Intuit will be deemed
to have disapproved the proposed use. If Intuit disapproves the proposed use of
the Intuit Mark, Magic will modify or cancel the proposed use. In addition,
Magic will comply with Intuit's then-current, trademark usage guidelines or
policies that Intuit may furnish to Magic in writing from time to time
concerning use of the Intuit Marks. A copy of such guidelines in effect as of
the Effective Date is set forth in EXHIBIT H attached and incorporated herein.
All use of the Intuit Marks hereunder will inure to the benefit of Intuit.
Intuit has and will retain exclusive ownership of the Intuit Marks, and Magic
will not contest or challenge, or do anything inconsistent with, Intuit's
exclusive ownership of the Intuit Marks. Without limiting the generality of the
foregoing, Magic may not affix, or append to, or place any of its trademarks,
trade names, or logos, on or in close proximity to, the Intuit Marks in a manner
that results or could result in the creation of a unitary composite mark.
(b) MAGIC MARKS. Subject to the terms and conditions set forth in
this paragraph, Magic grants to Intuit a limited, non-exclusive,
non-transferable license during the term of this Agreement to use the Magic
Marks in connection with the advertising, marketing, and promotion of the
Personal Finance Feature Set, the Quicken.Com Voice Service, and the Portico
Service. Before making use of any Magic Mark, Intuit will provide Magic with a
sample of the proposed use of the Magic Mark for prior approval by Magic. Once
such sample is approved no further approval is required for subsequent uses of
the Magic Mark in a manner similar to such sample. If Magic does not approve in
writing the proposed use of the Magic Mark within [**] after receipt of the
sample from Intuit, Magic will be deemed to have disapproved the proposed use.
If Magic disapproves the proposed use of the Magic Mark, Intuit will modify or
cancel the proposed use. In addition, Intuit will comply with Magic's
then-current trademark usage guidelines or policies that Magic may furnish to
Intuit in writing from time to time concerning use of the Magic Marks. A copy of
such guidelines in effect as of the Effective Date is set forth in EXHIBIT I
attached and incorporated herein. All use of the Magic Marks hereunder will
inure to the benefit of Magic. Magic has and will retain exclusive ownership of
the Magic Marks, and Intuit will not contest or challenge, or do anything
inconsistent with, Magic's exclusive ownership of the Magic Marks. Without
limiting the generality of the foregoing, Intuit
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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may not affix, or append to, or place any of its trademarks, trade names, or
logos, on or in close proximity to, the Magic Marks in a manner that results or
could result in the creation of a unitary composite mark.
5.3 CONFIDENTIALITY
(a) DEFINITION OF CONFIDENTIAL INFORMATION. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" of a Party means the information and
documents identified in this Agreement as confidential information of such
Party, as well as any and all other information that (i) such Party considers to
be confidential or proprietary to its business (including trade secrets,
technical information relating to ongoing research and development, business
strategies, marketing plans, customer lists, and financial data) and (ii) either
(A) is clearly labeled or identified in writing as confidential or proprietary
when disclosed to the other Party or (B) the other Party knew was considered
confidential or proprietary by the other Party.
(b) GENERAL CONFIDENTIALITY OBLIGATIONS. Each Party agrees that it
will (i) not disclose the other Party's Confidential Information to any third
party (other than independent contractors as provided below); (ii) use the other
Party's Confidential Information only to the extent necessary to perform its
obligations or exercise its rights under this Agreement; (iii) disclose the
other Party's Confidential Information only to those of its employees and
independent contractors who need to know such information for purposes of this
Agreement and who are bound by confidentiality agreements containing terms no
less restrictive than those in this SECTION 5.3; and (iv) protect all
Confidential Information of the other Party from unauthorized use, access, or
disclosure in the same manner as it protects its own confidential information of
a similar nature, and in no event with less than reasonable care.
(c) EXCEPTIONS. Each Party's obligations with respect to any portion
of the other Party's Confidential Information will terminate when the receiving
Party can document that (i) such Confidential Information was in the public
domain at the time it was communicated to the receiving Party by the disclosing
Party; (ii) such Confidential Information entered the public domain after it was
communicated to the receiving Party by the disclosing Party through no fault of
the receiving Party; (iii) such Confidential Information was in the receiving
Party's possession free of any obligation of confidence at the time it was
communicated to the receiving Party by the disclosing Party; or (iv) such
Confidential Information was developed by employees or agents of the receiving
Party independently of and without reference to any Confidential Information
communicated to the receiving Party by the disclosing Party. In addition,
SECTION 5.3(B) will not be construed to prohibit any disclosure that is (A)
necessary to establish the rights of either Party under this Agreement or (B)
required by a valid court order or subpoena, provided in the latter case that
the Party required to make such disclosure notifies the other Party (whose
Confidential Information is to be disclosed) thereof promptly and in writing and
cooperates with the other Party if the other Party seeks to contest or limit the
scope of such disclosure.
(d) TERMS OF AGREEMENT. Neither Party will disclose the existence or
any terms of this Agreement to anyone other than its attorneys, accountants, and
other professional advisors, except (i) pursuant to a mutually acceptable press
release or as otherwise approved by the other Party in writing; (ii) in
connection with a contemplated change of control of such Party or sale of such
Party's business (provided that any third party to whom the terms of this
Agreement are to be disclosed signs a confidentiality agreement reasonably
satisfactory to the other Party hereto before such disclosure is made); or (iii)
as may be required by law.
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5.4 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS. As between Intuit and
Magic, subject to each Party's ownership of its trademarks as provided in
SECTION 5.1, ownership of the Intellectual Property Rights under this Agreement
are as follows.
(a) Intuit will retain exclusive ownership of all Intellectual
Property Rights in the Intuit Personal Finance Content, the Intuit Personal
Finance Technology, the Quicken Web Site, the Personal Financial Information,
the Quicken Deliverables, the Intuit Deliverables and any modifications,
improvements, enhancements, and Derivatives made to or from any of the foregoing
by either Party in connection with this Agreement.
(b) Except as set forth in SECTION 5.4 (c) below, Magic will retain
exclusive ownership of all Intellectual Property Rights in the Portico Service,
the Portico Technology, the Portico Service GUI, the Portico Service VUI, the
Magic Deliverables, the Personal Finance Feature Set, and the Quicken.Com Voice
Service (subject to Intuit's ownership rights set forth in SECTION 5.4 (a)
above).
(c) Intuit will retain exclusive ownership of all Intellectual
Property Rights in (i) any Voice Service Upgrade paid for by Intuit pursuant to
SECTION 2.8 above, and (ii) any Upgrade paid for by Intuit pursuant to SECTION
3.7 above.
(d) Each Party agrees to cooperate with the other Party in executing
and filing any documents and taking any other action necessary or reasonably
requested by the other Party in order to give effect to the foregoing allocation
of Intellectual Property Rights.
5.5 INDEMNIFICATION
(a) BY INTUIT. Intuit will defend, at its own expense, all suits or
actions against Magic brought by third parties based upon claims that (A) the
Intuit Marks, the Intuit Personal Finance Technology, the Quicken Web Site, the
Intuit Deliverables, the Quicken Deliverables, the Intuit Personal Finance
Content, as provided by Intuit, infringes or misappropriates any Intellectual
Property Right of a third party or (B) the delivery of the Intuit Personal
Finance Content to Magic or to any subscriber of the Quicken.Com Voice Service
or any version of the Portico Service (provided such content has not been
modified by Magic or such subscriber) violates any law and Intuit will pay all
amounts agreed to in a monetary settlement of such claims and all damages
awarded as a final judgment by a court of competent jurisdiction, subject to the
limitations on liability in SECTION 5.10 and subject to the conditions that (i)
Magic give Intuit prompt written notice of the claim, (ii) Magic give Intuit
sole control of the defense and settlement of the claim, and (iii) Magic
cooperate with Intuit, at Intuit's reasonable request and expense, in the
defense or settlement of the claim. Magic may, at its own expense, participate
in any such suit or action with counsel of its own choice.
(b) BY MAGIC. Magic will defend, at its own expense, all suits or
actions against Intuit brought by third parties based upon claims that (A) all
versions of the Quicken.Com Voice Service, the Magic Marks, the Magic
Deliverables, the Portico Technology, the Portico Service, the Portico Service
GUI, or the Portico Service VUI infringes or misappropriates any Intellectual
Property Right of a third party or (B) the delivery of the Portico Service and
all versions of the Quicken.Com Voice Service (other than the Intuit Personal
Financial Content) violates any law and Magic will pay all amounts agreed to in
a monetary settlement of such claims and all damages awarded as a final judgment
by a court of competent jurisdiction, subject to the limitations on liability in
SECTION 5.10 and subject to the conditions that (i) Intuit give Magic prompt
written notice of the claim, (ii) Intuit give Magic sole control of the defense
and settlement of the claim, and (iii) Intuit cooperate with Magic, at Magic's
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reasonable request and expense, in the defense or settlement of the claim.
Intuit may, at its own expense, participate in any such suit or action with
counsel of its own choice.
5.6 AUDIT RIGHTS. Magic will keep complete and accurate records
regarding the Premium Options Fees, the Voice Service Revenue, the Upgrade
Revenue, the payments received by Magic from sponsors and advertisers of the
Introductory QVS Version of the Quicken.Com Voice Service, and Intuit's Share of
the costs of operating the Introductory QVS Version of the Quicken.Com Voice
Service. During the term of this Agreement and for two (2) years thereafter,
Intuit will have the right to have an inspection and audit of Magic's relevant
books and records conducted by an independent audit professional chosen and paid
by Intuit and reasonably acceptable to Magic, no more often than once every
twelve (12) months (except as specified below), during regular business hours at
Magic's offices and in a manner that does not interfere with Magic's business
operations. If any such audit reveals that Magic has underpaid or overpaid the
amounts owed to Intuit under this Agreement, then 1) Magic will promptly pay to
Intuit the amount owed or Intuit will promptly refund to Magic the amount
overpaid, as the case may be, and 2) Intuit may conduct a further audit within
such twelve (12) month audit period.
5.7 TAXES. Intuit will be solely responsible for all applicable taxes or
other governmental fees, charges, or assessments imposed on or resulting from
the fees paid to Intuit hereunder. Magic will be solely responsible for all
applicable taxes or other governmental fees, charges, or assessments imposed on
or resulting from the fees collected by Magic under this Agreement other than
income taxes due from Intuit on the fees paid by Magic to Intuit hereunder.
5.8 DOWNSTREAM LIABILITY DISCLAIMERS. Before Magic begins providing the
Personal Finance Feature Set or the Quicken.Com Voice Service, Magic will
provide Intuit with a copy of Magic's then-current form of subscriber agreement
for the Portico Service or the Quicken.Com Voice Service, as the case may be,
and Intuit will have a reasonable period of time, not to exceed forty-five (45)
days, to notify Magic if Intuit wants Magic to include any additional liability
or warranty disclaimers, proprietary rights notices, or similar clauses in such
form of agreement. Magic will comply with any reasonable request by Intuit.
Similarly, before Magic begins providing the Quicken.Com Voice Service, Magic
will notify Intuit if Magic wants Intuit to include any additional liability or
warranty disclaimers, proprietary rights notices, or similar clauses regarding
the Quicken.Com Voice Service in the "TERMS AND CONDITIONS OF USE" posted on the
Quicken Web Site, and Intuit will comply with any reasonable request by Magic.
Neither Party will modify or remove any such disclaimers, notices, or other
clauses without the prior written consent of the other Party.
5.9 WARRANTY DISCLAIMERS. NEITHER PARTY MAKES ANY WARRANTIES TO THE
OTHER PARTY, EXPRESS OR IMPLIED, REGARDING SUCH PARTY'S PRODUCTS, SERVICES,
DELIVERABLES, OR TECHNOLOGY, INCLUDING THE PORTICO SERVICE, PERSONAL FINANCE
FEATURE SET, QUICKEN WEB SITE, QUICKEN.COM VOICE SERVICE, PORTICO TECHNOLOGY,
INTUIT PERSONAL FINANCE TECHNOLOGY, INTUIT PERSONAL FINANCE CONTENT, MAGIC
DELIVERABLES, INTUIT DELIVERABLES, AND QUICKEN DELIVERABLES AND EACH PARTY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND NON-INFRINGEMENT WITH RESPECT TO THE FOREGOING.
5.10 LIMITATION OF LIABILITY. NEITHER PARTY WILL BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES, INCLUDING
LOST PROFITS, IN CONNECTION WITH THIS AGREEMENT. EXCEPT FOR AMOUNTS OWED BY
MAGIC TO INTUIT UNDER SECTIONS 2.7, 3.6, AND 4.3 AND EXCEPT FOR OBLIGATIONS OF
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EITHER PARTY UNDER SECTION 5.5, AND EXCEPT IN THE EVENT OF AN UNCURED BREACH OF
SECTIONS 5.2, 5.3 AND 5.4, THE TOTAL, CUMULATIVE LIABILITY OF EACH PARTY TO THE
OTHER PARTY FOR ANY AND ALL CLAIMS AND CAUSES OF ACTION ARISING FROM OR RELATING
TO THIS AGREEMENT UNDER ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, IN TORT,
OR OTHERWISE, WILL NOT EXCEED [**].
5.11 TERM AND TERMINATION.
(a) The term of this Agreement will begin as of the Effective Date
and will continue for a period of two (2) years thereafter ("INITIAL TERM) the
Agreement will automatically renew for additional one (1) year periods ("RENEWAL
TERM"), unless one of the following occurs: (i) either party terminates this
Agreement earlier as specified in this SECTION 5.11; or (ii) either party
provides written notice to the other sixty (60) days prior to the expiration of
the Initial Term or any Renewal Term.
(b) Each Party will have the right to terminate this Agreement upon
written notice to the other Party if (i) the other Party has committed a
material breach of this Agreement, (ii) the other Party has not cured such
breach within a reasonable period of time of no less than sixty (60) days after
receipt of written notice of such breach from the other Party, and (iii) such
breach remains uncured as of the effective date of termination.
(c) In addition, this Agreement will automatically terminate if both
the Quicken.Com Voice Service has not been commercially released, and the Launch
Date has not occurred, by December 31, 1999 (or such other date as the Parties
may agree in writing).
(d) Upon termination of this Agreement for any reason and upon
Intuit's request, Magic will continue to offer the Quicken.Com Voice Service, on
a non-exclusive basis, to Quicken.Com Voice Service customers for a period not
to exceed ninety (90) days ("WIND DOWN PERIOD").
(e) Upon termination of this Agreement for any reason and upon
completion of the Wind Down Period, if any, (i) each Party will promptly return
all Confidential Information of the other Party, (ii) Magic will pay all
outstanding amounts owed to Intuit under this Agreement within forty-five (45)
days after the effective date of such termination, and (iii) the following
provisions will nonetheless remain in effect: ARTICLE I ("Definitions") and all
of ARTICLE V ("General") except SECTIONS 5.1 ("Cooperation"), 5.2 ("Trademark
Licenses"), and 5.8 ("Downstream Liability Disclaimers").
(f) In the event the Agreement is (i) terminated by Intuit pursuant
to SECTION 5.11 (b) above, or (ii) terminated by Magic pursuant to SECTION 5.11
(a), in addition to the provisions in SECTION 5.11 (e) above, SECTION 4.3 (Fees
and Payments) will nonetheless remain in effect.
5.12 RELATIONSHIP OF PARTIES. Nothing in this Agreement will be
construed as creating any agency, partnership, or other form of joint enterprise
between the Parties. Neither Party will have the authority to act or create any
binding obligation on behalf of the other Party, and neither Party will
represent to any third party that it has the authority to act or create any
binding obligation on behalf of the other Party.
5.13 NOTICES. All notices, consents, waivers, and other communications
intended to have legal effect under this Agreement must be in writing, must be
delivered to the other Party at the address set forth at the top of this
Agreement by personal delivery, certified mail (postage pre-paid), or a
nationally recognized overnight courier, and will be effective upon receipt (or
[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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when delivery is refused). Any such notices sent to Magic must be addressed to
the attention of its General Counsel. Each Party may change its address for
receipt of notices by giving notice of the new address to the other Party.
5.14 GOVERNING LAW AND VENUE. This Agreement will be governed by and
interpreted in accordance with the laws of the State of California as such laws
apply to contracts made between California residents to be performed entirely
within California. The United Nations Convention for the Sale of International
Goods will not apply to this Agreement. Any suit, action or proceeding arising
from or relating to this Agreement must be brought in a federal court in the
Northern District of California or in state court in Santa Clara County,
California, and each Party irrevocably consents to the jurisdiction and venue of
any such court in any such suit, action or proceeding.
5.15 INJUNCTIVE RELIEF. It is understood and agreed that,
notwithstanding any other provision of this Agreement, any breach of SECTION 5.3
by either Party will cause irreparable damage for which recovery of money
damages would be inadequate, and that the non-breaching Party will therefore be
entitled to seek timely injunctive relief to protect such Party's rights under
this Agreement in addition to any and all remedies available at law.
5.16 WAIVER. The failure of either Party to require performance by the
other Party of any provision of this Agreement will not affect the full right to
require such performance at any time thereafter; nor will the waiver by either
Party of a breach of any provision of this Agreement be taken or held to be a
waiver of the provision itself.
5.17 SEVERABILITY. If any provision of this Agreement is unenforceable
or invalid under any applicable law or is so held by applicable court decision,
such unenforceability or invalidity will not render this Agreement unenforceable
or invalid as a whole, and such provision will be changed and interpreted so as
to best accomplish the objectives of such unenforceable or invalid provision
within the limits of applicable law or applicable court decisions.
5.18 ASSIGNMENT. Neither this Agreement nor any rights or obligations of
either Party under this Agreement may be assigned in whole or in part without
the prior written consent of the other Party except in connection with a merger
or sale of all or substantially all of the business or assets of the assigning
Party. Any attempted assignment in violation of the preceding sentence will be
void. This Agreement will bind and inure to the benefit of the respective
successors and permitted assigns of the Parties.
5.19 FORCE MAJEURE. Neither Party will be liable for any failure to
fulfill its obligations hereunder due to causes beyond its reasonable control,
including acts or omissions of government or military authority, acts of God,
shortages of materials, transportation delays, earthquakes, fires, floods, labor
disturbances, riots, or wars.
5.20 FULL POWER. Each Party warrants that it has full power to enter
into and perform this Agreement, and the person signing this Agreement on such
Party's behalf has been duly authorized and empowered to enter into this
Agreement.
5.21 CONSTRUCTION. 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 this
Agreement. Unless otherwise expressly stated, when used in this Agreement the
word "including" means "including but not limited to."
5.22 ENTIRE AGREEMENT AND AMENDMENT. This Agreement together with the
Exhibits completely and exclusively states the agreement of the Parties
regarding its subject matter. It supersedes, and its terms govern, all prior
understandings, agreements, or other communications
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between the Parties, oral or written, regarding such subject matter. This
Agreement may be executed in counterparts (each of which will be deemed an
original and all of which will be deemed to be one instrument) and may be
amended only in a document signed by both Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
INTUIT INC. GENERAL MAGIC, INC.
By: /s/ Mark R. Gomes By: /s/ Steven Markman
-------------------------------- ------------------------------------
Name: Mark R. Gomes Name: Steven Markman
----------------------------- ---------------------------------
Title: Senior Vice President Title: Chairman, President & CEO
---------------------------- --------------------------------
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EXHIBIT A
INTUIT MARKS
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EXHIBIT B
MAGIC MARKS
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EXHIBIT C
TARGET DATES
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EXHIBIT D
SPECIFICATIONS FOR QUICKEN.COM VOICE SERVICE
21
<PAGE> 22
EXHIBIT E
SPECIFICATIONS FOR PERSONAL FINANCE FEATURE SET
22
<PAGE> 23
EXHIBIT F
PROJECT PLAN
23
<PAGE> 24
EXHIBIT G
SPECIFICATIONS FOR PORTICO SERVICE UPGRADE
24
<PAGE> 25
EXHIBIT H
INTUIT TRADEMARK GUIDELINES
1. INTUIT TRADEMARKS MUST BE USED AS ADJECTIVES, NOT NOUNS
Trademarks are adjectives, and should always be used with the generic term that
they modify. For example:
CORRECT: Quicken(R) software is an excellent product.
INCORRECT: Quicken(R) is the ideal product for your needs.
The above is the most important rule of trademark usage. The word "software," or
similar generic language (i.e. "personal finance software"), should immediately
follow all Intuit trademarks in each piece of advertising, promotion or other
written material. On occasion, the generic term may be omitted where the
immediate context makes it clear that a generic term is intended, such as in
repetitive uses of the trademark within a single paragraph or section, but these
exceptions should be used with care. The generic term should always be used at
the beginning of a piece and at significant points subsequently. In addition,
Intuit trademarks must not be used as possessives. (This follows from the
principle that trademarks are adjectives, not nouns.) For example:
CORRECT: The efficiency of QuickBooks(R) Pro software is outstanding.
INCORRECT: QuickBooks(R) Pro's efficiency is outstanding.
2. RETAIN THE DISTINCTIVE APPEARANCE OF INTUIT TRADEMARKS WITHOUT USING
SPECIALIZED TYPE OR LOGO FORMS Intuit trademarks should always be presented in a
distinctive, but non-stylized fashion. Special typefaces/fonts should not be
used, and Company logos and typefaces cannot be used. This means that the marks
must appear in a regular typeface while retaining their distinctive
capitalization and/or spacing. Marks may also appear in all upper-case letters
while retaining correct spacing. For Example:
CORRECT: TurboTax(R) software; or TURBOTAX(R) software
INCORRECT: Turbo Tax software
3. USE APPROPRIATE STATUS AND OWNERSHIP LEGENDS WITH INTUIT TRADEMARKS All
Intuit- and subsidiary-owned Registered trademarks should appear with the "(R)"
symbol directly next to the mark and generally in superscript form. Intuit
trademarks that are not registered should appear with the superscript "TM". The
appropriate legend must be used each time an Intuit trademark is printed.
(Please contact Intuit if you need information on the registration status of a
particular trademark.) In addition, all written documents, displays or
advertisements which include an Intuit trademark must contain the appropriate
ownership legend, ideally at the beginning of the piece. For example:
Quicken(R) is a registered trademark of Intuit Inc.
4. DO NOT USE INTUIT TRADEMARKS IN COMPANY NAMES OR ON DIRECT BUSINESS SOURCE
IDENTIFIERS Intuit trademarks may not be used in company names or on direct
business source identifiers like stationery, business cards, and company signs.
These items identify the name of a business
25
<PAGE> 26
and, thus, the source of its products or services. In order to avoid any
possible confusion with regard to the source of Intuit products, no use of
Intuit trademarks on these identifiers is allowed. (Of course, the use of Intuit
trademarks in detailed brochures, certain advertisements, presentations and the
like, is permitted as long as all of the other guidelines contained herein are
followed.)
5. ONLY INTUIT MAY USE THE COMPANY TRADE NAME, TRADEMARK AND COMPANY LOGO
TRADEMARK No one except Intuit may use the Company name, trademark or logo
trademark in connection with the sale, provision or advertisement of any product
or service. The only use of the Company name that is permitted (in connection
with selling products or services) is to display the ownership legend for
Intuit's trademarks, as shown in Number 4 above.
PLEASE CONTACT TODD SANTOS AT (650) 944-3013 IF YOU HAVE ANY QUESTIONS.
26
<PAGE> 27
EXHIBIT I
MAGIC TRADEMARK GUIDELINES
[to be attached by Magic]
27
<PAGE> 1
EXHIBIT 10.14
September 12, 1996
Mr. Steve Markman
Re: Employment Agreement
Dear Steve:
Pursuant to our recent discussions, this letter sets forth the terms of
your employment with General Magic, Inc. (the "Company") as well as our
understanding with respect to any termination of that employment relationship.
1. POSITION AND DUTIES: You will be employed by the Company as its
Chairman, President and Chief Executive Officer, reporting to the Company's
Board of Directors (the "Board"). The Company will undertake its best efforts
to have you elected to the Board during your employment, and you agree that
upon the termination of your employment for any reason you shall promptly
resign from the Board. You accept employment with the Company on the terms and
conditions set forth in this Agreement, and you agree to devote your full
business time, energy and skill to your duties at the Company. However, you
shall be entitled to engage in other professional activities, including, but
not limited to, participating on other boards of directors (provided that you
receive advance approval from the Board of your participation on such other
boards), so long as such activities do not materially interfere with the
performance of your duties for the Company. Your duties shall include, but not
be limited to, the overall general management of the Company, as well as any
other reasonable duties that may be assigned to you from time to time by the
Board. This Paragraph 1 shall not be construed as preventing you from investing
your assets in such form and manner as will not require any substantial
services on your part in the operation of the affairs of the business entities
in which such investments are made.
2. TERM OF EMPLOYMENT; INITIAL CONSULTING SERVICES: Your employment with
the Company will start on September 19, 1996 ("Start Date"), will be for no
specified term, and may be terminated by you or the Company at any time, with
or without cause, subject to the provisions of Paragraphs 4 and 5 below. From
the date of execution of this Agreement until the Start Date, you agree to
consult with the Board as it may request from time to time on such matters as
you and the Board shall agree.
<PAGE> 2
Steve Markman
September 12, 1996
Page 2
3. COMPENSATION: You will be compensated by the Company for your
services as follows:
(a) Salary: Commencing on the Start Date, you will be paid an
annual salary of $300,000 in accordance with the Company's normal payroll
procedures, less applicable withholding. Your salary will be reviewed by the
Board on an annual basis, and may be subject to upward adjustment based upon
various factors including, but not limited to, your performance and the
Company's profitability. Any upward adjustment to your salary shall be in the
sole discretion of the Board.
(b) Bonus: You will be eligible to receive annual bonuses based
upon the Company's achievement of various financial and/or other goals
established by the Board. In any Company fiscal year, we expect that your
target eligibility will equal 80% of your then-current annual base salary. The
goals that govern your bonus eligibility will be set by the Board or its
Compensation Committee, and communicated to you in writing prior to (or within
90 days following the start of) any applicable Company fiscal year and your
actual bonus will vary depending on attainment of such goals. To the extent
earned, bonuses will be paid to you on the later of 30 days after (i) the end
of the applicable fiscal year, or (ii) the date on which the financial or other
data necessary to determine your entitlement to the bonus becomes available
except as provided below. All bonuses paid to you shall be subject to
applicable withholding. During the first twelve months of your employment,
payment of your bonus will be guaranteed at a rate of not less than 30% of your
then current salary ($60,000) and paid on a monthly basis in accordance with
the Company's normal payroll procedures.
(c) Transition Payment: You will be paid a transition payment
of $50,000 to cover incidental expenses related to your change of employment.
Actual expenses will be reimbursed upon presentation of documentation, with the
balance to be paid subject to applicable withholding within forty-five (45)
days of your Start Date.
(d) Benefits: You will have the right, on the same basis as
other executive employees of the Company, to participate in and to receive
benefits under any Company medical, disability or other group insurance plans,
as well as under the Company's 401(k) plan and business expense reimbursement
and vacation policies.
(e) Initial Stock Options: You will be granted options to
purchase an aggregate of 750,000 shares of the Company's common stock at an
exercise price per share equal to the closing price of the stock on the date
your service with the company begins. Of such options, an option to purchase
250,000 shares will be granted to you under the Company's existing stock option
plan (the "Plan Option"). The Plan Option shall be governed by and subject to
the terms and conditions of the Company's existing
<PAGE> 3
Steve Markman
September 12, 1996
Page 3
stock option plan and standard form of stock option agreement (which you will be
required to sign in connection with the issuance of the Plan Option). An option
for the remaining 500,000 shares will be granted to you outside of the Company's
existing stock option plan (the "Nonplan Option"). The Nonplan Option shall be
governed by and subject to the terms and conditions of a stock option agreement
substantially similar to those of the Company's standard form of stock option
agreement. The Company will undertake, as soon as practicable following the
grant of the Nonplan Option, to register the shares underlying the Nonplan
Option as well as the restricted shares described in Subparagraph (g) below on
Form S-8 under the Securities Act of 1933 and shall keep such Form S-8 in effect
for the entire period the Nonplan Option and restricted shares remain
outstanding. The Plan Option and the Nonplan Option shall be evidenced by the
stock option agreements attached as Exhibit A. Shares underlying each of the
Plan Option and Nonplan Option shall become vested and exercisable during your
service with the Company at the rate of one quarter of such shares on the first
anniversary of the Start Date and thereafter at the rate of one forty-eighth of
such shares for each additional full month of your service with the Company. The
Plan Option and the Nonplan Option will each have a maximum term of ten (10)
years, subject to earlier termination 180 days after the later of (i) the date
of your termination of service with the Company or any successor entity or (ii)
the date all further vesting pursuant to this Agreement ceases, subject,
however, to any longer exercise period provided under subparagraph 5(b) and (c).
For purposes of the Plan Option, the Nonplan Option and the restricted stock
described in Subparagraph (g) below, you will be deemed to continue in service
with the Company for so long as you render services as an employee, director or
independent consultant to the Company or any parent or subsidiary corporation.
(f) Additional Stock Options: In addition, to the extent the
Company issues prior to the second anniversary of your Start Date, any
securities which are common share equivalents, other than to employees,
consultants or directors, the Company's Board of Directors will make best
efforts (which will include presenting a plan share reserve increase to the
shareholders in the event the Company's existing stock option plans do not have
sufficient reserved shares) to grant you additional options to allow you to
maintain your then current equivalent percentage ownership in the Company
calculated on a fully diluted basis. Any such options shall have an exercise
price per share equal to the fair market value of a share of the Company's
common stock on the date of grant and shall be subject to the Company's
standard vesting for employee options commencing on the date of their grants.
(g) Restricted Shares: You will be granted the right to purchase
up to 135,000 restricted shares of the Company's Common Stock at a price of
10 cents per share. During your continued service with the Company, the
restricted shares will vest at the
<PAGE> 4
Steve Markman
September 12, 1996
Page 4
rate of fifty percent (50%) on the first anniversary of your Start Date and
fifty percent (50%) on the second anniversary of your Start Date. The
restricted shares will be evidenced by the Company's restricted share purchase
agreement attached as Exhibit B.
4. VOLUNTARY TERMINATION:
(a) Resignation. In the event that you voluntarily resign from your
employment with the Company other than for Good Reason as defined in
Subparagraph 5(d), you will be entitled to no compensation or benefits from the
Company other than those earned under Paragraph 3 through the date of your
termination of employment. In particular, you shall not be entitled to any
bonus or pro rata portion thereof under Subparagraph 3(b) for the year in which
you resign or your employment so terminates. You agree that in the event you
voluntarily terminate your employment with the Company for any reason
(including Good Reason as defined in Subparagraph 5(d)), you shall provide the
Company with sixty days' written notice of your resignation. The Company may,
in its sole discretion, elect to waive all or any part of such notice period
and accept your resignation at an earlier date.
(b) Death or Disability. In the event that your employment terminates
as a result of your death or disability (meaning that you are unable to perform
your duties for any 120 days in any one year period as a result of a physical
and/or mental impairment), you or your heirs will continue to be paid at your
then applicable salary rate, less applicable withholding, for a period of five
(5) months following the termination of your employment due to death or
disability. During such five-month period you will continue to vest in any
unvested stock options and restricted stock previously granted to you by the
Company. Such stock options shall remain exercisable for a period of eighteen
(18) months following the later of (i) the date of your termination of service
as Chief Executive Officer of the Company or (ii) the date of such option
vesting; provided, however, that such stock options shall not be exercisable
following the expiration of the option term.
5. OTHER TERMINATION: Your employment may be terminated by the Company
under the circumstances set forth below.
(a) Termination for Cause: If your employment is terminated by the
Company for cause as defined below, you shall be entitled to no compensation or
benefits from the Company other than those earned under Paragraph 3 through the
date of your termination for cause. In particular, you shall not be entitled to
any bonus or pro rata portion thereof under Subparagraph 3(b) for the year in
which your termination occurs.
<PAGE> 5
Steve Markman
September 12, 1996
Page 5
For purposes of this Agreement, a termination "for cause" occurs if you
are terminated for any of the following reasons: (i) theft, dishonesty, or
intentional falsification of any employment or Company records; (ii) intentional
and improper disclosure of the Company's confidential or proprietary
information; (iii) willful and repeated failure to comply with the lawful
written directions of the Company; (iv) your failure or inability to perform any
assigned duties reasonably expected of a chief executive officer after written
notice from the Board to you of, and a reasonable opportunity to cure, such
failure or inability; (v) any material breach of this Agreement by you, which
breach is not cured within ten (10) days following written notice to you of such
breach; or (vi) your conviction (including any plea of guilty or nolo
contendere) for a felony involving moral turpitude causing material harm to the
reputation and standing of the Company, as determined by the Board of Directors
of the Company in good faith.
(b) Termination Without Cause Before Fourth Anniversary. Subject to
Subparagraph 5(c), if your employment is terminated by the Company without cause
(and not as a result of your death or disability), or you resign for Good Reason
(as defined in Subparagraph 5(d)), before the fourth anniversary of your Start
Date, then,
(i) for the duration of the Additional Period:
(A) you shall continue to be considered an employee (but
not an officer or an executive and you shall have no authority to act on behalf
of the Company);
(B) you shall continue to be paid at your final salary
rate, less applicable withholding;
(C) your restricted stock and all stock options previously
granted to you by the Company shall continue to vest, and such stock options
shall remain exercisable for a period of eighteen (18) months following the
later of (i) the date of your termination of service as Chief Executive Officer
of the Company or (ii) the date of such option vesting; provided, however, that
such stock options shall not be exercisable following the expiration of the
option term; and
(D) you shall be entitled to participate in the Company's
benefit programs, in accordance with the terms thereof.
(ii) In addition, you shall be entitled to the bonus you would
have earned (had your employment not been terminated) in the year such
termination
<PAGE> 6
Steve Markman
September 12, 1996
Page 6
occurs, such bonus to be paid in accordance with Subparagraph 3(b), but you
shall not be entitled to any bonus payment thereafter.
(iii) For purposes of this Agreement, the "Additional Period"
shall mean the period of time from the date of your termination of employment
until the fourth anniversary of your Start Date; provided, however, that the
Additional Period shall be no less than one year and no more than two years.
(c) Termination Without Cause Following Change in Control: If
your employment is terminated by the Company without cause or you resign for
Good Reason (as defined in Subparagraph 5(d)) during the period commencing
thirty (30) days prior to the date of the Company's first public announcement
that the Company has entered into an agreement that would result in a Change in
Control (as defined below) and ending one year following such Change in
Control, you shall receive the compensation and benefits described in
Subparagraph 5(b), except that all of your unvested outstanding stock options
and restricted stock shall vest immediately. Such stock options shall remain
exercisable for a period of eighteen (18) months following the later of (i) the
date of your termination of service as Chief Executive Officer of the Company
or (ii) the date of such option vesting; provided, however, that such stock
options shall not be exercisable following the expiration of the option term.
If, due to the benefits provided under this Agreement, you are subject to
any excise tax due to characterization of any amounts payable hereunder as
excess parachute payments pursuant to Section 4999 of the Internal Revenue Code,
the Company agrees to "gross-up" the amount payable to you such that the net
amount realizable by you is the same as if there were no such excise tax;
provided, however, that the foregoing shall be conditioned upon your cooperating
with the Company in such manner as may be reasonably requested (other than
reducing amounts payable hereunder) so as to minimize the amount of such excise
tax and provided further, that the maximum amount that the Company shall be
obligated to pay pursuant to this provision shall be $100,000. Notwithstanding
the foregoing, however, upon a Change in Control, you may elect in your sole
discretion, not to have any portion of such options or restricted stock vest in
order to avoid any "excess parachute payment" under Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended.
For purposes of this Agreement, a "Change in Control" of the Company
shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities of the
Company under an employee benefit
<PAGE> 7
Steve Markman
September 12, 1996
Page 7
plan of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of (A) the outstanding shares of common
stock of the Company or (B) the combined voting power of the Company's
then-outstanding securities entitled to vote generally in the election of
directors; or
(ii) the Company (A) is party to a merger or consolidation
which results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or (B) sells or disposes of all or substantially all of the
Company's assets (or any transaction having similar effect is consummated), or
(C) the individuals constituting the Board immediately prior to such merger,
consolidation, sale or disposition shall cease to constitute at least 50% of the
Board, unless the election of each director who was not a director prior to such
merger, consolidation, sale or disposition was approved by a vote of at least
two-thirds of the directors then in office who were directors prior to such
merger, consolidation, sale or disposition.
(d) Good Reason. For purposes of this Agreement, "Good Reason"
means the occurrence of any of the following conditions, without your written
consent, which condition(s) remain(s) in effect 20 days after written notice to
the Board from you of such condition(s):
(i) a material decrease in your base salary and/or a
material decrease in your standard management bonus plan or employee benefits
following a Change of Control; or
(ii) a material decrease in your base salary and/or a
material decrease in your standard management Bonus Plan or employee benefits
prior to a Change of Control, unless such decreases apply to the Company's
executives generally.
(iii) a material, adverse change in your responsibilities or
duties, as measured against your responsibilities or duties immediately prior to
such change causing it to be of materially less stature or responsibility, and
such a materially adverse change shall in all events be deemed to occur if you
no longer serve as Chief Executive Officer of a publicly traded company
reporting to the Board of Directors; or
<PAGE> 8
Steve Markman
September 12, 1996
Page 8
(iv) in the event of the relocation of your work place for
the Company to a location more than 50 miles from the Company's current
headquarters following a Change of Control.
6. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of
your employment, you agree to sign the Company's standard form of employee
confidentiality and assignment of inventions agreement ("Exhibit C").
7. DISPUTE RESOLUTION: In the event of any dispute or claim
relating to or arising out of your employment relationship with the Company,
this Agreement, or the termination of your employment with the Company for any
reason (including, but not limited to, any claims of breach of contract,
wrongful termination or age, disability or other discrimination), you and the
Company agree that all such disputes shall be fully, finally and exclusively
resolved by binding arbitration conducted by the American Arbitration
Association in Santa Clara County, California. You and the Company hereby
knowingly and willingly waive your respective rights to have any such disputes
or claims tried to a judge or jury. However, this arbitration provision shall
not apply to any disputes or claims relating to or arising out of the actual or
alleged misuse or misappropriation of the Company's property, including, but
not limited to, its trade secrets or proprietary information. Arbitration of
this Agreement shall include claims of fraud or fraud in the inducement
relating to this Agreement. Arbitration further includes all claims, regardless
of whether the dispute arises during the term of the Agreement, at the time of
termination or thereafter.
8. INTERPRETATION: This Agreement shall be interpreted in
accordance with and governed by the laws of the State of California.
9. ASSIGNMENT: In view of the personal nature of the services to
be performed under this Agreement by you, you cannot assign or transfer any of
your rights or obligations under this Agreement. The rights and obligation of
the Company under this Agreement shall inure to the benefit and shall be
binding upon the successors and assigns of the Company.
10. ENTIRE AGREEMENT: This Agreement and the agreements referred to
above constitute the entire agreement between you and the Company regarding the
terms and conditions of your employment, and they supersede all prior
negotiations, representations or agreements between you and the Company
regarding your employment, whether written or oral.
<PAGE> 9
Steve Markman
September 12, 1996
Page 9
11. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by you and another authorized member of
the Board.
12. REFERENCES: This Agreement is conditioned upon receiving satisfactory
references for Mr. Markman as determined in the sole discretion of the Company's
Compensation Committee. Mr. Markman will be advised in writing whether this
condition is satisfied.
13. INDEMNIFICATION: During the period you remain an officer or member of
the Board of Directors, you shall be entitled to such indemnification as the
Company generally provides its officers and directors including but not limited
to that provided pursuant to the terms of the Company's Indemnification
Agreement, a copy of which is attached hereto as Exhibit D.
Steve, we look forward to working with you at General Magic. Please sign
and date this letter on the spaces provided below to acknowledge your
acceptance of the terms of this Agreement.
Sincerely,
General Magic, Inc.
By: /s/ R. PIEPER
---------------------------
Director
I agree to and accept employment with General Magic, Inc. on the terms and
conditions set forth in this Agreement.
Date: September 15, 1996 /s/ STEVE MARKMAN
---------------------------
Steve Markman
<PAGE> 10
EXHIBIT A
GENERAL MAGIC, INC.
NONQUALIFIED STOCK OPTION AGREEMENT (PLAN OPTION)
AND
GENERAL MAGIC, INC.
NONQUALIFIED STOCK OPTION AGREEMENT (NONPLAN OPTION)
<PAGE> 11
EXHIBIT A TO EXHIBIT 10.14
GENERAL MAGIC, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
General Magic, Inc. (the "Company"), granted to the individual named
below an option to purchase certain shares of Common Stock of the Company, in
the manner and subject to the provisions of this Option Agreement.
1. Summary & Definitions:
SUMMARY
<TABLE>
<S> <C>
Optionee: Steve Markman
Employee's ID#:
Date of Option Grant: September 13, 1996
Number of Option Shares: 500,000 shares of Common Stock of the Company as
adjusted from time to time pursuant to paragraph
9 below.
Exercise Price of Options: $3.75
</TABLE>
DEFINITIONS
"Initial Vesting Date" - Date occurring one year after the date on which your
employment with the Company commenced, which date was September 19, 1996 (the
"Start Date").
"Initial Exercise Date" - Date occurring one year after the Start Date.
1
<PAGE> 12
"Vested Ratio" - Except as otherwise provided below, the Vested Ratio shall be
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the Date of Option
Grant until the Initial Vesting Date
Plus
For each full month of the 1/48
Optionee's continuous Service from the
Initial Vesting Date until the Vested
Ratio is 1/1, an additional
</TABLE>
"Option Term Date" - Ten years after the Date of Option Grant.
"Code" - Internal Revenue Code of 1986, as amended.
"Company" - General Magic, Inc., a Delaware corporation, and any successor
corporation thereto.
"Disability" - The Optionee's disability as defined in Subparagraph 4(b) of the
Employment Agreement.
"Employment Agreement" - The Employment Agreement between the Company and the
Optionee dated as of September 12, 1996.
"Participating Company" - The Company and any present or future parent and/or
subsidiary corporation of the Company while such corporation is a parent or
subsidiary of the Company. For purposes of this Option Agreement, a parent
corporation and a subsidiary corporation shall be as defined in Sections 424(e)
and 424(f) of the Code.
"Participating Company Group" - At any point in time all corporations
collectively which are then a Participating Company.
"Service" - Optionee's employment or service with the Participating Company
Group in the capacity of an employee, director or consultant. Optionee's Service
shall not be deemed to have terminated merely because of a change in the
capacity in which Optionee renders Service or a change in the member of the
Participating Company
2
<PAGE> 13
Group for which Optionee renders Service, provided there is no interruption or
termination of Optionee's Service. Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which Optionee renders Service ceasing to be a member of the Participating
Company Group. Subject to the foregoing, the Company, in its sole discretion,
shall determine whether Optionee's Service has terminated and the effective date
of such termination.
"Special Exercise Termination Date" - The date occurring eighteen (18) months
following the later of (i) the date on which the Optionee's service as Chief
Executive Officer of the Company terminated or (ii) the date on which the Option
ceases to vest; provided, however, that such date shall in no event be later
than the Option Term Date.
"Termination Without Cause Before Fourth Anniversary" - Termination of the
Optionee's Service by the Company other than "for cause" (as defined
Subparagraph 5(a) of the Employment Agreement), or the Optionee's resignation
for "Good Reason" (as defined in Subparagraph 5(d) of the Employment Agreement),
before the fourth anniversary of the Start Date.
"Termination Without Cause Following Change in Control" - Termination of the
Optionee's Service by the Company other than "for cause" (as defined in
Subparagraph 5(a) of the Employment Agreement) or the Optionee's resignation for
"Good Reason" (as defined in Subparagraph 5(d) of the Employment Agreement)
during the period commencing thirty (30) days prior to the date of the Company's
first public announcement that the Company has entered into an agreement that
would result in a "Change in Control" (as defined in Subparagraph 5(c) of the
Employment Agreement) and ending one year following such Change in Control.
2. Status of the Option. The Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in Section 422 of the Code.
3. Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed.
All determinations by the Board shall be final and binding upon all persons
having an interest in the Option. Any officer of a Participating Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
3
<PAGE> 14
4. Exercise of the Option.
(a) Right to Exercise. Except as provided in paragraph 4(f)
below, the Option shall first become exercisable on the Initial Exercise Date.
The Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option in the amount equal to the Number of Option
Shares multiplied by the Vested Ratio as set forth in paragraph 1 above less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
(b) Method of Exercise. The Option shall be exercisable by
written notice to the Company which shall state the election to exercise the
Option, the number of shares for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and shall
be delivered in person, by certified or registered mail, return receipt
requested, or by facsimile transmission to the Chief Financial Officer of the
Company, or other authorized representative of the Participating Company Group,
prior to the termination of the Option as set forth in paragraph 6 below,
accompanied by full payment of the exercise price for the number of shares being
purchased.
(c) Form of Payment of Exercise Price. Payment of the exercise
price for the number of shares for which the Option is being exercised shall be
made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's Common Stock owned by the Optionee and having a fair
market value not less than the exercise price, which either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company, (iii) by Immediate Sales Proceeds, as defined
below, or (iv) by any combination of the foregoing. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
the Company's Common Stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's Common Stock. "Immediate Sales Proceeds" shall
mean the assignment in form acceptable to the Company of the proceeds of a sale
of some or all of the shares acquired upon the exercise of the Option pursuant
to a program and/or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System). The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to decline to approve any such program and/or
procedure.
(d) Tax Withholding. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes payroll withholding and otherwise agrees to make
adequate provision for foreign, federal and state tax withholding obligations of
the
4
<PAGE> 15
Participating Company Group, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option. The
Optionee is cautioned that the Option is not exercisable unless the
Participating Company Group's withholding obligations are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares.
(e) Certificate Registration. Except in the event the exercise
price is paid by Immediate Sales Proceeds, the certificate or certificates for
the shares as to which the Option is exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
foreign, federal or state law with respect to such securities. The Option may
not be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company. As
a condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
5
<PAGE> 16
6. Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
Service as described in paragraph 7 below, or (c) upon a Transfer of Control as
described in paragraph 8 below.
7. Termination of Service.
(a) Option Exercisability and Vesting. Except as provided in
this paragraph 7(a), the Option shall terminate and may not be exercised after
termination of the Optionee's Service with the Participating Company Group.
(i) Death or Disability. If the Optionee's Service with
the Participating Company Group terminates because of the death or Disability of
the Optionee, (1) the Option will continue to vest to the extent provided in
Subparagraph 4(b) of the Employment Agreement, and (2) the Option may be
exercised, to the extent unexercised and exercisable by the Optionee on the
proposed exercise date, by the Optionee (or the Optionee's legal representative)
at any time prior to the Special Exercise Termination Date. The Optionee's
Service shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of Service.
(ii) Termination Without Cause Before Fourth
Anniversary. If the Optionee's Service with the Participating Company Group
terminates due to Termination Without Cause Before Fourth Anniversary, (1) the
Option will continue to vest during the "Additional Period" (as defined in
Subparagraph 5(b) of the Employment Agreement), and (2) the Option may be
exercised, to the extent unexercised and exercisable by the Optionee on the
proposed exercise date, by the Optionee at any time prior to the Special
Exercise Termination Date.
(iii) Termination Without Cause Following Change in
Control. Notwithstanding any provision of paragraphs 8 or 9 below to the
contrary, if the Optionee's Service with the Participating Company Group
terminates due to Termination Without Cause Following Change in Control, (1) any
unexercised portion of the Option shall become immediately exercisable and
vested in full as of the date of the Optionee's termination of Service, and (2)
the Option may be exercised, to the extent unexercised and exercisable by the
Optionee on the proposed exercise date, by the Optionee at any time prior to the
Special Exercise Termination Date.
(iv) Other Termination of Service. If the Optionee's
Service with the Participating Company Group terminates for any reason except
death, Disability, Termination Without Cause Before Fourth Anniversary or
Termination Without Cause Following Change in Control, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
6
<PAGE> 17
Service terminated, may be exercised by the Optionee within three (3) months
after the date on which the Optionee's Service terminates, but in any event no
later than the Option Term Date.
(b) Exercise Prevented by Law. Except as provided in this
paragraph 7, the Option shall terminate and may not be exercised after the
Optionee's Service with the Participating Company Group terminates unless the
exercise of the Option in accordance with this paragraph 7 is prevented by the
provisions of paragraph 4(f) above. If the exercise of the Option is so
prevented, the Option shall remain exercisable until three (3) months after the
date the Optionee is notified by the Company that the Option is exercisable, but
in any event no later than the Option Term Date.
(c) Optionee Subject to Section 16(b). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Term Date.
(d) Leave of Absence. For purposes hereof, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's Service shall be deemed to
terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as Service for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. For purposes hereof, the
"Control Company" shall mean the Participating Company whose stock is subject to
the Option. An "Ownership Change" shall be deemed to have occurred in the event
any of the following occurs with respect to the Control Company:
(a) the direct or indirect sale or exchange by the stockholders
of the Control Company of all or substantially all of the stock of the Control
Company;
(b) a merger in which the Control Company is a party; or
(c) the sale, exchange, or transfer (including, without
limitation, pursuant to a liquidation or dissolution) of all or substantially
all of the Control Company's assets (other than a sale, exchange, or transfer to
one (1) or more
7
<PAGE> 18
corporations where the stockholders of the Control Company before such sale,
exchange, or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
A "Transfer of Control" shall mean either (i) a "Change in
Control" as defined in Subparagraph 5(c) of the Employment Agreement or (ii) an
Ownership Change in which the stockholders of the Control Company before such
Ownership Change do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company after such
transaction or in which the Control Company is not the surviving corporation.
In the event of a Transfer of Control, the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "Acquiring Corporation"), shall either assume the
Company's rights and obligations under this Option Agreement or substitute for
the Option a substantially equivalent option for the Acquiring Corporation's
stock. In the event the Acquiring Corporation elects not to assume the Company's
rights and obligations under the Option Agreement or substitute for the Option
in connection with the Transfer of Control, any unexercised portion of the
Option shall become immediately exercisable and vested in full as of the date
ten (10) days prior to the date of the Transfer of Control. Any exercise of the
Option that was permissible solely by reason of this paragraph 8 shall be
conditioned upon the consummation of the Transfer of Control. The Option shall
terminate effective as of the date of the Transfer of Control to the extent that
the Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Stockholder or Employee. The Optionee shall have no
rights as a stockholder with respect to any shares covered by the Option until
the Option has been exercised pursuant to paragraph 4(b) above and the Company
has received full payment for the shares for which the Option has been
exercised. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date of exercise and payment in
full, except as provided in paragraph 9 above. Nothing in the Option shall
confer upon the Optionee any right
8
<PAGE> 19
to continue in the employ of a Participating Company or interfere in any way
with any right of the Participating Company Group to terminate the Optionee's
Service at any time.
11. Legends. The Company may at any time place legends referencing any
applicable federal, state and/or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to effectuate
the provisions of this paragraph 11.
12. Public Offering. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in such public offering under
the Securities Act.
13. Binding Effect. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
14. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Option at any time; provided,
however, that no such termination or amendment may adversely affect the Option
or any unexercised portion hereof without the consent of the Optionee.
15. Integrated Agreement. This Option Agreement and the Employment
Agreement constitute the entire understanding and agreement of the Optionee and
the Participating Company Group with respect to the subject matter contained
herein, and there are no agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company
Group other than those as set forth or provided for herein or in the Employment
Agreement. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
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<PAGE> 20
16. Applicable Law. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
GENERAL MAGIC, INC.
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
Date:
----------------------------- ------------------------------------
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<PAGE> 21
GENERAL MAGIC, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
General Magic, Inc. (the "Company"), granted to the individual named
below an option to purchase certain shares of Common Stock of the Company, in
the manner and subject to the provisions of this Option Agreement.
1. Summary & Definitions:
<TABLE>
<S> <C>
SUMMARY
Optionee: Steve Markman
Employee's ID#:
Date of Option Grant: September 13, 1996
Number of Option Shares: 250,000 shares of Common Stock of the Company
as adjusted from time to time pursuant to
paragraph 9 below.
Exercise Price of Options: $3.75
</TABLE>
DEFINITIONS
"Initial Vesting Date" - Date occurring one year after the date on which your
employment with the Company commenced, which date was September 19, 1996 (the
"Start Date").
"Initial Exercise Date" - Date occurring one year after the Start Date.
1
<PAGE> 22
"Vested Ratio" - Except as otherwise provided below, the Vested Ratio shall be
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the Date of Option
Grant until the Initial Vesting Date
Plus
----
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio is 1/1,
an additional
</TABLE>
"Option Term Date" - Ten years after the Date of Option Grant.
"Code" - Internal Revenue Code of 1986, as amended.
"Company" - General Magic, Inc., a Delaware corporation, and any successor
corporation thereto.
"Disability" - The Optionee's disability as defined in Subparagraph 4(b) of the
Employment Agreement.
"Employment Agreement" - The Employment Agreement between the Company and the
Optionee dated as of September 12, 1996.
"Participating Company" - The Company and any present or future parent and/or
subsidiary corporation of the Company while such corporation is a parent or
subsidiary of the Company. For purposes of this Option Agreement, a parent
corporation and a subsidiary corporation shall be as defined in Sections 424(e)
and 424(f) of the Code.
"Participating Company Group" - At any point in time all corporations
collectively which are then a Participating Company.
"Plan" - General Magic, Inc. Amended and Restated 1990 Stock Option Plan.
"Service" - Optionee's employment or service with the Participating Company
Group in the capacity of an employee, director or consultant. Optionee's Service
shall not be
2
<PAGE> 23
deemed to have terminated merely because of a change in the capacity in which
Optionee renders Service or a change in the member of the Participating Company
Group for which Optionee renders Service, provided there is no interruption or
termination of Optionee's Service. Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which Optionee renders Service ceasing to be a member of the Participating
Company Group. Subject to the foregoing, the Company, in its sole discretion,
shall determine whether Optionee's Service has terminated and the effective date
of such termination.
"Special Exercise Termination Date" - The date occurring eighteen (18) months
following the later of (i) the date on which the Optionee's service as Chief
Executive Officer of the Company terminated or (ii) the date on which the Option
ceases to vest; provided, however, that such date shall in no event be later
than the Option Term Date.
"Termination Without Cause Before Fourth Anniversary" - Termination of the
Optionee's Service by the Company other than "for cause" (as defined
Subparagraph 5(a) of the Employment Agreement), or the Optionee's resignation
for "Good Reason" (as defined in Subparagraph 5(d) of the Employment Agreement),
before the fourth anniversary of the Start Date.
"Termination Without Cause Following Change in Control" - Termination of the
Optionee's Service by the Company other than "for cause" (as defined in
Subparagraph 5(a) of the Employment Agreement) or the Optionee's resignation for
"Good Reason" (as defined in Subparagraph 5(d) of the Employment Agreement)
during the period commencing thirty (30) days prior to the date of the Company's
first public announcement that the Company has entered into an agreement that
would result in a "Change in Control" (as defined in Subparagraph 5(c) of the
Employment Agreement) and ending one year following such Change in Control.
2. Status of the Option. The Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in Section 422 of the Code.
3. Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all persons
having an interest in the Option. Any officer of a Participating Company shall
have the authority to act on behalf of the
3
<PAGE> 24
Company with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
(a) Right to Exercise. Except as provided in paragraph 4(f)
below, the Option shall first become exercisable on the Initial Exercise Date.
The Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option in the amount equal to the Number of Option
Shares multiplied by the Vested Ratio as set forth in paragraph 1 above less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
(b) Method of Exercise. The Option shall be exercisable by
written notice to the Company which shall state the election to exercise the
Option, the number of shares for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and shall
be delivered in person, by certified or registered mail, return receipt
requested, or by facsimile transmission to the Chief Financial Officer of the
Company, or other authorized representative of the Participating Company Group,
prior to the termination of the Option as set forth in paragraph 6 below,
accompanied by full payment of the exercise price for the number of shares being
purchased.
(c) Form of Payment of Exercise Price. Payment of the exercise
price for the number of shares for which the Option is being exercised shall be
made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's Common Stock owned by the Optionee and having a fair
market value not less than the exercise price, which either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company, (iii) by Immediate Sales Proceeds, as defined
below, or (iv) by any combination of the foregoing. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
the Company's Common Stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's Common Stock. "Immediate Sales Proceeds" shall
mean the assignment in form acceptable to the Company of the proceeds of a sale
of some or all of the shares acquired upon the exercise of the Option pursuant
to a program and/or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System). The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to decline to approve any such program and/or
procedure.
4
<PAGE> 25
(d) Tax Withholding. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes payroll withholding and otherwise agrees to make
adequate provision for foreign, federal and state tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired on exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired on exercise of
the Option. The Optionee is cautioned that the Option is not exercisable unless
the Participating Company Group's withholding obligations are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares.
(e) Certificate Registration. Except in the event the exercise
price is paid by Immediate Sales Proceeds, the certificate or certificates for
the shares as to which the Option is exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
foreign, federal or state law with respect to such securities. The Option may
not be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company. As
a condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5
<PAGE> 26
5. Non-Transferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
Service as described in paragraph 7 below, or (c) upon a Transfer of Control as
described in paragraph 8 below.
7. Termination of Service.
(a) Option Exercisability and Vesting. Except as provided in this
paragraph 7(a), the Option shall terminate and may not be exercised after
termination of the Optionee's Service with the Participating Company Group.
(i) Death or Disability. If the Optionee's Service with
the Participating Company Group terminates because of the death or Disability of
the Optionee, (1) the Option will continue to vest to the extent provided in
Subparagraph 4(b) of the Employment Agreement, and (2) the Option may be
exercised, to the extent unexercised and exercisable by the Optionee on the
proposed exercise date, by the Optionee (or the Optionee's legal representative)
at any time prior to the Special Exercise Termination Date. The Optionee's
Service shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of Service.
(ii) Termination Without Cause Before Fourth Anniversary.
If the Optionee's Service with the Participating Company Group terminates due to
Termination Without Cause Before Fourth Anniversary, (1) the Option will
continue to vest during the "Additional Period" (as defined in Subparagraph 5(b)
of the Employment Agreement), and (2) the Option may be exercised, to the extent
unexercised and exercisable by the Optionee on the proposed exercise date, by
the Optionee at any time prior to the Special Exercise Termination Date.
(iii) Termination Without Cause Following Change in
Control. Notwithstanding any provision of paragraphs 8 or 9 below to the
contrary, if the Optionee's Service with the Participating Company Group
terminates due to Termination Without Cause Following Change in Control, (1) any
unexercised portion of the Option shall become immediately exercisable and
vested in full as of the date of the Optionee's termination of Service, and (2)
the Option may be exercised, to the extent unexercised and exercisable by the
Optionee on the proposed exercise date, by the Optionee at any time prior to the
Special Exercise Termination Date.
(iv) Other Termination of Service. If the Optionee's
Service with the Participating Company Group terminates for any reason except
death,
6
<PAGE> 27
Disability, Termination Without Cause Before Fourth Anniversary or
Termination Without Cause Following Change in Control, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within three (3) months
after the date on which the Optionee's Service terminates, but in any event no
later than the Option Term Date.
(b) Exercise Prevented by Law. Except as provided in this
paragraph 7, the Option shall terminate and may not be exercised after the
Optionee's Service with the Participating Company Group terminates unless the
exercise of the Option in accordance with this paragraph 7 is prevented by the
provisions of paragraph 4(f) above. If the exercise of the Option is so
prevented, the Option shall remain exercisable until three (3) months after the
date the Optionee is notified by the Company that the Option is exercisable, but
in any event no later than the Option Term Date.
(c) Optionee Subject to Section 16(b). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Term Date.
(d) Leave of Absence. For purposes hereof, the Optionee's Service
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's Service shall be deemed to
terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as Service for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. For purposes hereof, the
"Control Company" shall mean the Participating Company whose stock is subject to
the Option. An "Ownership Change" shall be deemed to have occurred in the event
any of the following occurs with respect to the Control Company:
(a) the direct or indirect sale or exchange by the stockholders
of the Control Company of all or substantially all of the stock of the Control
Company;
(b) a merger in which the Control Company is a party; or
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<PAGE> 28
(c) the sale, exchange, or transfer (including, without
limitation, pursuant to a liquidation or dissolution) of all or substantially
all of the Control Company's assets (other than a sale, exchange, or transfer to
one (1) or more corporations where the stockholders of the Control Company
before such sale, exchange, or transfer retain, directly or indirectly, at least
a majority of the beneficial interest in the voting stock of the corporation(s)
to which the assets were transferred).
A "Transfer of Control" shall mean either (i) a "Change in
Control" as defined in Subparagraph 5(c) of the Employment Agreement or (ii) an
Ownership Change in which the stockholders of the Control Company before such
Ownership Change do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company after such
transaction or in which the Control Company is not the surviving corporation.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "Acquiring Corporation"), shall either assume the Company's rights
and obligations under this Option Agreement or substitute for the Option a
substantially equivalent option for the Acquiring Corporation's stock. In the
event the Acquiring Corporation elects not to assume the Company's rights and
obligations under the Option Agreement or substitute for the Option in
connection with the Transfer of Control, any unexercised portion of the Option
shall become immediately exercisable and vested in full as of the date ten (10)
days prior to the date of the Transfer of Control. Any exercise of the Option
that was permissible solely by reason of this paragraph 8 shall be conditioned
upon the consummation of the Transfer of Control. The Option shall terminate
effective as of the date of the Transfer of Control to the extent that the
Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Stockholder or Employee. The Optionee shall have no
rights as a stockholder with respect to any shares covered by the Option until
the Option has been exercised pursuant to paragraph 4(b) above and the Company
has received full payment for the shares for which the Option has been
exercised. No adjustment
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<PAGE> 29
shall be made for dividends or distributions or other rights for which the
record date is prior to the date of exercise and payment in full, except as
provided in paragraph 9 above. Nothing in the Option shall confer upon the
Optionee any right to continue in the employ of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service at any time.
11. Legends. The Company may at any time place legends referencing any
applicable federal, state and/or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to effectuate
the provisions of this paragraph 11.
12. Public Offering. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in such public offering under
the Securities Act.
13. Binding Effect. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
14. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee.
15. Integrated Agreement. This Option Agreement and the Employment
Agreement constitute the entire understanding and agreement of the Optionee and
the Participating Company Group with respect to the subject matter contained
herein, and there are no agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company
Group other than those as set forth or provided for herein or in the Employment
Agreement. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
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<PAGE> 30
16. Applicable Law. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
GENERAL MAGIC, INC.
By:
--------------------------------------
Title:
------------------------------------
Date:
------------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
Date:
--------------------------------- ------------------------------
10
<PAGE> 31
EXHIBIT B
GENERAL MAGIC, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
<PAGE> 32
EXHIBIT B TO EXHIBIT 10.14
GENERAL MAGIC, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
September 13, 1996 by and between General Magic, Inc., a Delaware corporation
(the "Company"), and Steve Markman ("Purchaser").
RECITALS
A. Purchaser has entered into an Employment Agreement with the Company,
dated September 12, 1996, pursuant to which Purchaser is employed as the
Chairman, President and Chief Executive Officer of the Company, a copy of which
is attached hereto as Exhibit A (the "Employment Agreement").
B. Pursuant to the Employment Agreement, Purchaser's employment with the
Company is to commence on September 19, 1996 (the "Start Date"), and from the
date hereof until the Start Date Purchaser will serve as a consultant to the
Board of Directors of the Company.
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. Purchase of Shares.
(a) Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase from the Company, and the Company agrees to sell
and issue to Purchaser one hundred thirty-five thousand (135,000) shares (the
"Shares") of the Common Stock of the Company at a purchase price of $0.10 per
share. This Agreement, as executed and delivered by Purchaser, shall be
accompanied by a check from Purchaser made payable to the Company in the amount
of Thirteen Thousand Five Hundred Dollars ($13,500.00) representing the
aggregate purchase price of the Shares.
(b) The closing of such purchase shall occur within two (2)
weeks of the date hereof at the offices of the Company, subject to Section 14
below. Notwithstanding the foregoing, in the event that the sale to Purchaser of
the Shares has not been registered on Form S-8 under the Securities Act of 1933
as of such closing date, the closing of the purchase shall be extended to such
date occurring within two weeks following the effective date of the registration
of the Shares on Form S-8 as the parties hereto may agree.
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<PAGE> 33
2. Determination of Vested and Unvested Shares.
a. Standard Vesting. Except as otherwise provided below, the
Shares shall become vested ("Vested Shares") at the rate of fifty percent (50%)
of the Shares on the first anniversary of the Start Date and fifty percent (50%)
of the Shares on the second anniversary of the Start Date provided that
Purchaser has remained in continuous Service with the Company Group from the
Start Date through the respective anniversary date. "Unvested Shares" shall
mean, at any point in time, the excess, if any, of the number of Shares over the
number of Vested Shares determined in accordance with this Section 2. For
purposes of this Agreement:
(i) "Service" shall mean Purchaser's employment or
service with the Company Group in the capacity of an employee, director or
consultant. Purchaser's Service shall not be deemed to have terminated merely
because of a change in the capacity in which Purchaser renders Service or a
change in the member of the Company Group for which Purchaser renders Service,
provided there is no interruption or termination of Purchaser's Service.
Purchaser's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which Purchaser renders
Service ceasing to be a member of the Company Group. Subject to the foregoing,
the Company, in its sole discretion, shall determine whether Purchaser's Service
has terminated and the effective date of such termination.
(ii) "Company Group" shall mean the Company and, at any
point in time, all corporations which are then either a parent corporation
within the meaning of Section 424(e) of the Internal Revenue Code of 1986, as
amended (the "Code"), or a subsidiary corporation within the meaning of Section
424(f) of the Code.
(b) Upon Death or Disability. Notwithstanding the foregoing, if
Purchaser's employment terminates by reason of the Purchaser's death or
disability (as defined in Subparagraph 4(b) of the Employment Agreement), the
Shares shall continue to vest to the extent provided in Subparagraph 4(b) of the
Employment Agreement.
(c) Termination Without Cause Before Fourth Anniversary. Subject
to Section 2(d) below, if Purchaser's employment is terminated by the Company
other than "for cause" (as defined in Subparagraph 5(a) of the Employment
Agreement) and not as a result of Purchaser's death or disability, or Purchaser
resigns for Good Reason (as defined in Subparagraph 5(d) of the Employment
Agreement), before the fourth anniversary of the Start Date, the Shares shall
continue to vest to the extent provided in Subparagraph 5(b) of the Employment
Agreement.
(d) Termination Without Cause Following Change in Control. If
Purchaser's employment is terminated by the Company other than "for cause" (as
defined in Subparagraph 5(a) of the Employment Agreement) or Purchaser resigns
for Good Reason (as defined in Subparagraph 5(d) of the Employment Agreement)
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<PAGE> 34
during the period commencing thirty (30) days prior to the date of the Company's
first public announcement that the Company has entered into an agreement that
would result in a Change in Control (as defined in Subparagraph 5(c) of the
Employment Agreement) and ending one year following such Change in Control, the
Shares shall vest to the extent provided in Subparagraph 5(c) of the Employment
Agreement.
3. Unvested Share Repurchase Option.
(a) Grant of Unvested Share Repurchase Option. In the event
Purchaser's Service is terminated for any reason or no reason, with or without
cause, or if Purchaser or Purchaser's legal representative attempts to sell,
exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an
Ownership Change, as defined below) any Unvested Shares, the Company shall have
the right to repurchase the Unvested Shares, other than those Unvested Shares as
to which continued or immediate vesting is provided in accordance with Sections
2(b), 2(c) or 2(d) above, under the terms and subject to the conditions set
forth in this Section 3 (the "Unvested Share Repurchase Option").
(b) Exercise of Unvested Share Repurchase Option. The Company
may exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to Purchaser within sixty (60) days
after (i) termination of Purchaser's Service or (ii) the Company has received
notice of the attempted disposition of Unvested Shares. If the Company fails to
give notice within such sixty (60) day period, the Unvested Share Repurchase
Option shall terminate unless the Company and Purchaser have extended the time
for the exercise of the Unvested Share Repurchase Option. The Unvested Share
Repurchase Option must be exercised, if at all, for all of the Unvested Shares,
other than those Unvested Shares as to which continued or immediate vesting is
provided in accordance with Sections 2(b), 2(c) or 2(d) above, except as the
Company and Purchaser otherwise agree.
(c) Payment for Shares and Return of Shares. The purchase price
per Share being repurchased by the Company shall be an amount equal to
Purchaser's original cost per Share, as adjusted pursuant to Section 9 (the
"Repurchase Price"). The Company shall pay the aggregate Repurchase Price to
Purchaser in cash within thirty (30) days after the date of personal delivery or
mailing of the written notice of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of Purchaser to the Company shall be treated as payment to
Purchaser in cash to the extent of the unpaid principal and any accrued interest
canceled. The Shares being repurchased shall be delivered to the Company by
Purchaser at the same time as the delivery of the Repurchase Price to Purchaser.
(d) Effect of Ownership Change. Except to the extent provided by
Section 2(d) above, upon the occurrence of an Ownership Change, as defined
below, any and all new, substituted or additional securities or other property
to which
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<PAGE> 35
Purchaser is entitled by reason of Purchaser's ownership of Unvested Shares
shall be immediately subject to the Unvested Share Repurchase Option and
included in the terms "Shares" and "Unvested Shares" for all purposes of the
Unvested Share Repurchase Option with the same force and effect as the Unvested
Shares immediately prior to the Ownership Change. While the aggregate Repurchase
Price shall remain the same after such Ownership Change, the Repurchase Price
per Unvested Share upon exercise of the Unvested Share Repurchase Option
following such Ownership Change shall be adjusted as appropriate. For purposes
of determining the number of Vested Shares following an Ownership Change,
credited Service shall include all Service with the Company Group, including the
Company's successor.
For purposes of this Agreement, an "Ownership Change" will be deemed to
have occurred if any of the following events occur with respect to the Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more subsidiary corporations of the Company); or
(iv) a liquidation or dissolution of the Company.
4. Escrow. To ensure the availability for delivery of the Shares upon
exercise of the Unvested Share Repurchase Option herein provided for, Purchaser
agrees to deliver to and deposit with the Secretary of the Company as escrow
agent (the "Escrow Agent") two Stock Assignments duly endorsed (with date and
number of shares blank) in the form attached hereto as Exhibit B, together with
the certificate or certificates evidencing the Shares; such documents are to be
held by the Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and Purchaser set forth in Exhibit C attached hereto and incorporated by
this reference, which instructions shall also be delivered to the Escrow Agent
at the closing hereunder.
5. Tax Withholding. At the time that this Agreement is executed, or at
any time thereafter as requested by the Company, Purchaser hereby authorizes
payroll withholding and otherwise agrees to make adequate provision for the
federal, state, local and/or foreign tax withholding obligations of the Company
Group, if any, which arise in connection with this Agreement, including, without
limitation, obligations arising upon (i) the transfer to Purchaser of any
Shares, (ii) the lapsing of any restriction with respect to any Shares acquired
hereby, or (iii) the filing of an election to recognize a tax liability.
Purchaser is cautioned that the Company shall have no obligation to release
Shares from the escrow established pursuant to
4
<PAGE> 36
Section 4 unless the tax withholding obligations of the Company Group have been
satisfied.
6. Employment Matters. Nothing in this Agreement will create in any
manner whatsoever an employment agreement between Company and Purchaser or
affect in any manner the right or power of the Company, or a parent or
subsidiary corporation of the Company, to terminate Purchaser's Service for any
reason or no reason, with or without cause, subject to any other agreements
between the Company and Purchaser.
7. Rights as Stockholder. Subject to the provisions of this Agreement,
Purchaser shall, during the term of this Agreement, exercise all rights and
privileges of a stockholder of the Company with respect to the Shares deposited
in escrow.
8. Assignment of Rights. The Company may assign its rights under Section
3 hereof at any time, whether or not any event has occurred which permits the
Company to exercise such rights, to one or more persons, who will have the right
to so exercise such rights in his, her or their own names and for his, her or
their own account.
9. Adjustment to Shares Subject to Company's Rights. If, from time to
time during the term of this Agreement, there is any stock dividend or
liquidating dividend of cash and/or property, stock split, reverse stock split,
recapitalization, reclassification or other similar change in the character or
amount of any of the outstanding securities of the Company, then, in such event
any and all new, substituted or additional securities or other property to which
Purchaser is entitled by reason of his ownership of Shares will be immediately
subject to the provisions of this Agreement on the same basis as all Shares
originally purchased hereunder, and will be included in the word "Shares" for
all purposes of this Agreement with the same force and effect as the Shares
presently subject to this Agreement. For purposes of Section 3 hereof, while the
total price payable to exercise the rights provided in such section will remain
the same after each such event, the price payable per share to exercise such
rights will be appropriately adjusted.
10. Legends. All certificates representing any Shares subject to the
provisions of this Agreement will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE COMPANY OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR
HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY."
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<PAGE> 37
11. Transfer Restrictions.
(a) Notwithstanding any other provision herein to the contrary,
other than pursuant to an Ownership Change, no Shares issued pursuant to this
Agreement may be sold, exchanged, transferred (including, without limitation,
any transfer to a nominee or agent of Purchaser), assigned, pledged,
hypothecated or otherwise disposed of, including by operation of law, in any
manner except by will or by the laws of descent and distribution prior to date
on which such Shares become Vested Shares, and any such attempted disposition
shall be void.
(b) The Company will not be required (i) to transfer on its
books any Shares which will have been sold or transferred in violation of any of
the provisions set forth in this Agreement or (ii) to treat as owner of such
shares or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such shares will have been so transferred.
12. Certificate Registration. The certificate or certificates for Shares
acquired pursuant to this Agreement shall be registered in the name of
Purchaser, or if applicable, the heirs of Purchaser.
13. Election Under Section 83(b) of the Code.
(a) Purchaser understands that Section 83 of the Code taxes as
ordinary income the difference between the amount paid for the Shares and the
fair market value of the Shares as of the date any restrictions on the Shares
lapse. In this context, "restriction" means the right of the Company to
repurchase the Shares pursuant to the Unvested Share Repurchase Option contained
in this Agreement. Purchaser understands that he may elect to be taxed at the
time the Shares are purchased rather than when and as the Unvested Share
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the Internal Revenue Service ("IRS") within thirty (30) days from the date
of purchase. Even if the fair market value of the Shares equals the amount paid
for the Shares, the election must be made to avoid adverse tax consequences in
the future. The form for making this election is attached as Exhibit D hereto.
Purchaser understands that failure to make this filing timely will result in the
recognition of ordinary income by Purchaser, as the Unvested Share Repurchase
Option lapses, on the difference between the purchase price and the fair market
value of the Shares at the time such restrictions lapse.
(b) Purchaser understands that he should consult with the his
tax advisor regarding the advisability of filing with the IRS an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date of this Agreement. Failure to file an election under Section
83(b), if appropriate, may result in adverse tax consequences to Purchaser.
Purchaser acknowledges that he has been advised to consult with a tax advisor
regarding the tax consequences to Purchaser of the purchase of Shares hereunder.
AN ELECTION UNDER
6
<PAGE> 38
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH Purchaser
PURCHASES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. Purchaser
ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS PURCHASER'S SOLE
RESPONSIBILITY, EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO
FILE SUCH ELECTION ON HIS BEHALF.
14. Compliance with Applicable Law. Notwithstanding any other provision
herein to the contrary, no Shares shall be issued pursuant to this Agreement if
the issuance and delivery of such shares would constitute a violation of any
applicable federal, state or foreign securities law or other law or regulation,
or would fail to satisfy the requirements of any stock exchange upon which the
Shares may then be listed. Inability of the Company to obtain from any
regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance of the Shares
hereunder shall relieve the Company of any liability in respect of the failure
to issue such shares as to which such requisite authority shall not have been
obtained. As a condition to the issuance and delivery of any Shares pursuant to
this Agreement, the Company may require Purchaser to satisfy any qualifications
that may be necessary or appropriate, to evidence compliance with any applicable
law or regulation and to make any representation or warranty with respect
thereto as may be requested by the Company.
15. Miscellaneous.
(a) The parties agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent
of this Agreement.
(b) Any notice required or permitted hereunder will be given in
writing and will be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to the other party hereto at the address
shown below that party's signature or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
(c) This Agreement will inure to the benefit of the successors
and assigns of the Company and, subject to the restrictions on transfer herein
set forth, be binding upon Purchaser and Purchaser's heirs, executors,
administrators, successors and assigns; provided, however, that Purchaser may
not assign his rights under this Agreement without the Company's prior written
consent.
(d) This Agreement, together with the Employment Agreement and
other exhibits hereto, will be construed under the laws of the State of
California and constitutes the entire agreement of the parties with respect to
the subject matter hereof, superseding all prior written or oral agreements with
respect to the subject
7
<PAGE> 39
matter hereof, and no amendment or addition hereto will be deemed effective
unless agreed to in writing by the parties hereto.
(e) No failure on the part of any party to exercise or delay in
exercising any right hereunder will be deemed a waiver thereof, nor will any
such failure or delay, or any single or partial exercise of any such right,
preclude any further or other exercise of such right or any other right.
(f) If any provision of this Agreement, or the application
thereof, is for any reason and to any extent determined by a court of competent
jurisdiction to be invalid or unenforceable, the remainder of this Agreement and
the application of such provision to other persons or circumstances will be
interpreted so as best to reasonably effect the intent of the parties hereto.
The parties agree to use their best efforts to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent greatest possible, the economic, business and
other purposes of the void or unenforceable provision.
(g) This Agreement may be executed in counterparts, each of
which will be an original and all of which together will constitute one and the
same agreement.
(h) All questions of interpretation concerning this Agreement
will be determined by the Company's Board of Directors (the "Board") and/or by a
duly appointed committee of the Board having such powers as will be specified by
the Board. All determinations by the Board will be final and binding upon all
persons having an interest in this Agreement. Any officer of the Company will
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
8
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENERAL MAGIC, INC.
By:
---------------------------------
Title:
---------------------------------
Address:
420 N. Mary Avenue
Mountain View, California 94040
PURCHASER
------------------------------------
Address:
------------------------------------
------------------------------------
9
<PAGE> 41
EXHIBIT A
EMPLOYMENT AGREEMENT
BETWEEN
STEVE MARKMAN
AND
GENERAL MAGIC, INC.
<PAGE> 42
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
______________________ ( ) shares of the Common Stock of General Magic, Inc., a
Delaware corporation, standing in the undersigned's name on the books of said
corporation represented by Certificate No. _________ herewith, and do hereby
irrevocably constitute and appoint my ______________ attorney to transfer the
said stock on the books of the said corporation with full power of substitution
in the premises.
Dated: , 199 By:
------------------ -- ---------------------------------
<PAGE> 43
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
________________, 1996
Corporate Secretary
General Magic, Inc.
420 N. Mary Avenue
Mountain View, California 94040
Sir/Madam:
As Escrow Agent for both General Magic, Inc., a Delaware corporation
("Company"), and the undersigned purchaser ("Purchaser") of shares of the common
stock of the Company ("Shares"), you are hereby authorized and directed to hold
the documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement (the "Agreement"), dated as of the date hereof, to
which a copy of these Joint Escrow Instructions is attached as Exhibit C, in
accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") shall elect to exercise
the Unvested Share Repurchase Option set forth in the Agreement, the Company
shall give to Purchaser and you a written notice specifying the number of Shares
to be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of such notice.
2. At the closing of a transaction pursuant to Paragraph 1, you are
directed (a) to date the stock assignments necessary for the transfer in
question, (b) to fill in the number of Shares being transferred, and (c) to
deliver same, together with the certificates evidencing the Shares to be
transferred, to the Company against the simultaneous delivery to you of the
purchase price (by check) for the number of Shares being purchased pursuant to
the exercise of the Unvested Share Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing Shares to be held by you hereunder and any additions and
substitutions to said shares as defined in the Agreement. Purchaser does hereby
irrevocably constitute and appoint you as his or her attorney-in-fact and agent
for the term of this escrow to execute with respect to such securities all stock
certificates, stock assignments, or other documents necessary or appropriate to
make such
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<PAGE> 44
securities negotiable and complete any transaction herein contemplated. Subject
to the provisions of this paragraph 3, Purchaser shall exercise all rights and
privileges of a stockholder of the Company while the Shares are held by you.
4. This escrow shall terminate at such time as there are no longer any
Shares subject to the Unvested Share Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence to
such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary or proper to advise you in connection with your
obligations
2
<PAGE> 45
hereunder, may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be the Secretary of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instructions in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or rights of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to any one all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree, or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United State Post, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
COMPANY: General Magic, Inc.
420 N. Mary Avenue
Mountain View, California 94040
PURCHASER: Steve Markman
------------------------------------
------------------------------------
ESCROW AGENT: Corporate Secretary
General Magic, Inc.
420 N. Mary Avenue
Mountain View, California 94040
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
3
<PAGE> 46
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
General Magic, Inc.,
a Delaware corporation
By:
---------------------------------
PURCHASER:
------------------------------------
Agreed to and accepted as of the
date set forth above:
ESCROW AGENT:
-----------------------------------
Corporate Secretary,
General Magic, Inc.
4
<PAGE> 47
EXHIBIT D
________________, 1996
Internal Revenue Service
5045 East Butler Avenue
Fresno, CA 93888
Re: Election Under Section 83(b) of the Internal Revenue Code of
1986, as Amended
Gentlemen:
The following information is submitted pursuant to Treas. Reg. Section
1.83-2 in connection with this election by the undersigned under section 83(b)
of the Internal Revenue Code of 1986, as amended.
1. The name and address of the taxpayer are:
Name: Steve Markman
Address: ____________________________________
____________________________________
Taxpayer ID: ____________________________________
2. The following is a description of each item of property with
respect to which the election is made:
One hundred thirty-five thousand (135,000) shares of
Common Stock (the "Shares") of General Magic, Inc. (the
"Company").
3. The property was transferred to the undersigned on:
September __, 1996
The taxable year for which the election is made is:
Calendar, 1996.
1
<PAGE> 48
4. The nature of the restriction to which the property is subject:
The Shares are subject to a right of repurchase by the
Company for a price equal to the taxpayer's original
purchase price, lapsing at the rate of 50% of the Shares
on each of the first two anniversaries of the taxpayer's
employment with the Company.
5. The following is the fair market value at the time of transfer
(determined without regard to any restriction other than a
restriction which by its terms will never lapse) of each property
with respect to which the election is made:
$______________ (135,000 shares at $_________ per share)
6. The following is the amount paid for the property:
$13,500.00 in cash
7. A copy of this election has been furnished to General Magic,
Inc., the corporation for which services are performed by the
undersigned.
Please acknowledge receipt of this election by signing or stamping the
enclosed copy of this letter and returning it to the undersigned in the enclosed
envelope.
Very truly yours,
Steve Markman
Enclosures
cc: General Magic, Inc.
2
<PAGE> 49
EXHIBIT C
FORM OF
GENERAL MAGIC, INC.
EMPLOYEE CONFIDENTIALITY AND
ASSIGNMENT OF INVENTIONS AGREEMENT
<PAGE> 50
EXHIBIT C TO EXHIBIT 10.14
Page 1
GENERAL MAGIC, INC.
PROPRIETARY RIGHTS AND INFORMATION AGREEMENT
This Agreement sets forth the understanding between you and General Magic, Inc.
("General Magic") concerning any discoveries and inventions you may make in
connection with your employment by General Magic and your treatment of General
Magic's confidential and proprietary information. General Magic has agreed to
employ you or continue to employ with the understanding and expectation that
you agree to and will abide by the following terms and conditions:
1.0 INVENTIONS.
As used in the Agreement, the term "Inventions" means any and all inventions
and discoveries, including improvements, original works of authorship, designs,
formulas, processes, computer programs, databases, and trade secrets and
related proprietary information and materials.
a. Your Rights in Inventions:
(i) Previous Employee Inventions belong to you.
(ii) Future Employee Inventions: General Magic acknowledges and agrees as
provided in Section 2870 of the California Labor Code* that any
Inventions: (a) that you develop entirely on your own time, and (b)
that you developed without using General Magic equipment, supplies,
facilities, or trade secret information; and (c) that do not result
from any work performed by you for General Magic and (d) that do not
relate to General Magic's business, or to its actual or demonstrably
anticipated research or development, will be owned entirely by you,
even if developed by you during the time period in which you are
employed by General Magic.
b. General Magic's Rights In Inventions.
(i) Disclosure. You agree to make full written disclosure in confidence
to General Magic of any and all Inventions that you develop during or
as the result of your employment at General Magic.
(ii) Assignment of Inventions to General Magic. You agree that all
Inventions that: (a) are developed using the equipment, supplies,
facilities or trade secrets of General Magic, (b) result from work
performed by you for General Magic, or (c) relate to the business, or
actual or demonstrably anticipated research or development of General
Magic ("General Magic Inventions"), will be the sole and exclusive
property of General Magic, and you will and hereby transfer and assign
any "moral" rights that you may have in any General Magic Inventions
under any copyright or similar law, whether U.S. or foreign. You
agree to waive and never to assert any such "moral" rights in General
Magic Inventions during or after the termination of your employment
with General Magic. This Assignment applies only to those Inventions
that are directly or indirectly related your assignment and
responsibility at General Magic.
<PAGE> 51
Page 2
c. Protection of General Magic Inventions.
You agree (at General Magic's expense) to assist General Magic in every
proper way to obtain and to help General Magic enforce patents,
copyrights, and other legal protections for General Magic Inventions in
any and all countries. You agree to execute any documents that General
Magic may reasonably request for use in obtaining or enforcing such
patents, copyrights and other legal protections. You acknowledge that all
original works of authorship that are made by you (solely or jointly with
others) within the scope of your employment at General Magic, and that are
protectable by copyright, are "works made for hire," as that term is
defined in the United States Copyright Act (17 U.S.C. section 101).
2.0 PROPRIETARY INFORMATION.
You understand that your employment with General Magic creates a relationship
of confidence and trust with respect to any information of a confidential or
secret nature that may be disclosed to you by General Magic or learned by you
in the course of your duties at General Magic, and that relates to: (i) the
business of General Magic or that of any of its subsidiaries, affiliates,
customers, suppliers, or (ii) any confidential information of third parties
disclosed to General Magic. Such confidential and secret information includes
information concerning Inventions, marketing plans, product plans, business
strategies, financial information and forecasts, personnel information and
customer lists and is referred to collectively in the Agreement as "Proprietary
Information."
a. Confidentiality of Proprietary Information. At all times, both during your
employment by General Magic and after its termination, you agree to keep
all Proprietary Information in confidence and trust, and you will not use
or disclose Proprietary Information without the written consent of General
Magic, except as may be necessary to perform your duties as an employee of
General Magic. Upon termination of your employment with General Magic, you
will promptly deliver to General Magic all documents and materials of any
kind pertaining to your work with General Magic, and you will not take
with you any documents, materials or copies thereof, whether on paper,
magnetic or optical media or any other medium, containing any Proprietary
Information.
b. Information of Former Employer. You agree that during your employment at
General Magic you will not improperly use of disclose any confidential or
proprietary information or trade secrets of your former employers.
3.0 NO CONFLICTING OBLIGATIONS.
a. No Conflicting Employment. You agree that during the term of your
employment at General Magic you will not plan or engage in any other
employment, occupation, consulting or other business activity directly
related to the business in which General Magic is now involved or becomes
involved during the term of your employment, nor will you engage in any
other activities that conflict with your employment obligation to General
Magic. This restriction may only be modified by written permission of a
member of the Management Team.
b. No Conflicting Agreements. You represent to General Magic that you have no
other agreements or commitments that would hinder or prevent the full
performance of your duties as a General Magic employee or obligations
under this Agreement,
<PAGE> 52
Page 3
and you agree not to enter into any such conflicting agreement during the
term of your employment at General Magic.
c. Disclosure of Agreement: You hereby authorize General Magic to notify
others, including customers of General Magic, and any future employers you
may have, of the terms of this Agreement and your responsibilities under
this Agreement.
4.0 NO IMPLIED EMPLOYMENT RIGHTS.
You understand and agree that this Agreement does not confer upon you any rights
to continued employment by General Magic that you would not otherwise have, nor
does this Agreement obligate General Magic to employ you for any specific period
of time.
5.0 GENERAL PROVISIONS.
a. Severability. If one or more of the provisions of this Agreement are
deemed void by law, then the remaining provisions will continue in full
force and effect.
b. Governing Law. This agreement will be governed by the laws of the State of
California, excluding that body of law concerning conflicts of law. Any
litigation or dispute resolution between the parties relating to this
Agreement will take place in Santa Clara County, California, and you and
General Magic each consent to the personal jurisdiction of and venue in
the state and federal courts within that county.
c. Entire Agreement: This Agreement sets forth the entire Agreement an
understanding between you and General Magic relating to the subject matter
of this Agreement. No modification to or amendment of this Agreement, not
any waiver of any rights under this Agreement, will be effective unless in
writing signed by both you and an authorized representative of General
Magic. Any subsequent changes in your duties, salary or compensation will
not affect the validity or scope of this Agreement.
d. Successors and Assigns. This Agreement will be binding upon your heirs,
executors, administrators and other legal representatives and will be for
the benefit of General Magic, its successors and assigns.
PLEASE MAKE AND RETAIN A COPY OF THIS AGREEMENT FOR YOUR RECORDS.
- ------------------------------ ---------------------
Employee Signature Date Signed
- ------------------------------
Print Name
<PAGE> 53
Page 4
* Section 2870. Employment Agreements; assignment of rights. (a) Any provision
in an employment agreement which provides that an employee shall assign, or
offer to assign, any of his or her rights in an invention to his or her
employer shall not apply to an invention that the employee developed entirely
on his or her own time without using the employer's equipment, supplies,
facilities, or trade secret information except for those inventions that
either: (1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; (2) Result from any work performed by
the employee for the employer, (b) To the extent a provision in an employment
agreement purports to require an employee to assign an invention otherwise
excluded from being required to be assigned under subdivision (a), the
provision is against the public policy of this state and is unenforceable.
<PAGE> 54
EXHIBIT D
FORM OF
GENERAL MAGIC, INC.
INDEMNIFICATION AGREEMENT
<PAGE> 55
EXHIBIT D to EXHIBIT 10.14
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of September 19, 1996 is made by and
between GENERAL MAGIC, INC., a Delaware corporation (the "Company"), and Steve
Markman (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of
corporations unless they are protected by comprehensive liability or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of
such directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that
the defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases the
director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experiences as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and
attract talented and experienced individuals to serve as directors, officers
and agents of the Company and its subsidiaries and to encourage such
individuals to take the business risks necessary for the success of the Company
and its subsidiaries, it is necessary for the Company to contractually
indemnify its directors, officers and agents and the directors, officers and
agents of its subsidiaries, and to assume for itself maximum liability for
expenses and damages in connection with claims against such directors, officers
and agents in connection with their service to the Company and its
subsidiaries, and has further concluded that the failure to provide such
contractual indemnification could result in great harm to the Company and its
subsidiaries and the Company's stockholders.
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<PAGE> 56
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of a Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the
Company or a subsidiary of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise; or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Company or a subsidiary of the Company, or was a director, officer, employee or
agent of another enterprise at the request of, for the convenience of, or to
represent the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements, other
out-of-pocket costs actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement or
Section 145 or otherwise; provided, however, that "expenses" shall not include
any judgments, fines, ERISA excise taxes or penalties, or amounts paid in
settlement of a proceeding.
(c) Proceeding. For the purpose of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as agent of the Company, at its will (or under separate, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company
2
<PAGE> 57
or any subsidiary of the company or until such time as he tenders his
resignation in writing; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain
or maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is
or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, the Company shall indemnify the Indemnitee against
any and all expenses and liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by reason
of the fact that he is or was an agent of the Company, or by reason of anything
done or not done by him in any such capacity, the Company shall indemnify the
Indemnitee against any amounts paid in settlement of any such proceeding and
all expenses actually and reasonably incurred by him in connection with the
investigation, defense, settlement, or appeal of such proceeding, provided the
Indemnitee acted in
3
<PAGE> 58
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company and its stockholders. The Company shall
indemnify the Indemnitee against judgments, fines, and ERISA excise taxes and
penalties to the same extent and subject to the same conditions as described in
the immediately preceding sentence. Notwithstanding the foregoing, no
indemnification under this subsection 4(c) shall be made in respect to any
claim, issue or matter as to which such person shall have been finally adjudged
to be liable to the Company by a court of competent jurisdiction unless and
only to the extent that the court in which such proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding the Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to
which the Indemnitee is a party or is threatened to be made a party by reason
of the fact that the Indemnitee is or was an agent of the Company. Indemnitee
hereby undertakes to repay such amounts advanced only if, and to the extent
that, it shall be determined ultimately that the Indemnitee is not entitled to
be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20)
days following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in
4
<PAGE> 59
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such proceeding in accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board, (iii) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested in the Company
under the General Corporation Law of Delaware or (iv) the proceeding is brought
to establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that the proceeding was not brought by the Indemnitee
in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.
9. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both
as to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement
(other than an action brought to enforce a claim for expenses pursuant
5
<PAGE> 60
to Section 6 hereof, provided that the required undertaking has been tendered
to the Company) that Indemnitee is not entitled to indemnification because of
the limitations set forth in Sections 4 and 8 hereof. Neither the failure of
the Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and
shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
13. Interpretation of Agreement. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent required by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii)
to the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
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<PAGE> 61
17. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
18. Consent to Jurisdiction. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
THE COMPANY:
GENERAL MAGIC, INC.
By
-------------------------------------
Title
Address: 420 N. Mary Avenue
Sunnyvale, California 94086
INDEMNITEE:
By
-------------------------------------
Address:
7
<PAGE> 62
September 16, 1996
Mr. Steve Markman
c/o Scott Spector, Esq.
Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Re: Your Employment Agreement
Dear Steve:
This will confirm that the condition in your employment agreement with
respect to the receipt of satisfactory references is satisfied.
Sincerely your,
/s/ Roel Pieper
-------------------
Roel Pieper
For the General Magic, Inc.
Compensation Committee
<PAGE> 1
EXHIBIT 10.15
[GENERAL MAGIC LETTERHEAD]
August 7, 1997
CONFIDENTIAL
Linda A. Hayes
1517 Country Club Drive
Los Altos, CA 94024
Dear Linda:
We are very pleased to extend an offer to you to join the General Magic team as
Vice President, Marketing, reporting to Steve Markman, Chairman of the Board,
President and CEO. Your base salary will be $6,923.07 (annualized $180,000),
paid bi-weekly. In addition, you will receive our standard benefit package as
described in the employee handbook.
Along with your base salary and benefits, we are offering you the ability to
participate in General Magic's Executive Bonus Plan. This program is based on a
combination of your Management Objectives and the Company's financial
performance. The payments are made annually. Your annual target bonus is set at
36 percent of your base pay which may fluctuate based on your performance on
your MBO's and the company's performance. Your incentive compensation for the
second half of 1997 and the first half of 1998 ($64,800) will be guaranteed. The
1997 bonus will be paid in January, 1998 and the bonus for the first half of
1998 will be paid in July 1998.
We will recommend to the General Magic Board of Directors that you be granted
an incentive stock option for 130,000 shares of Common Stock. Subject to Board
approval, 20% of the total number of shares under such option will vest 90 days
from the date you start work; the remaining balance will vest in equal monthly
increments over a four-year period, beginning on the date 90 days after the
date you start work. In addition, in the event of a Transfer of Control of the
Company (as defined in the Company's standard form of stock option agreement),
all of the shares subject to your option will become fully vested and
exercisable as of the date 10 days prior to the date of the Transfer of Control
(such acceleration of vesting and exercisability conditioned on the
consummation of the Transfer of Control). Except as described above, your
option will be governed by and subject to the terms and conditions of the
Company's Amended and Restated 1990 Stock Option Plan and standard form of
stock option agreement. The exercise price of the options will be fair market
value of the Company's stock on the date of the Board's action. Board meetings
typically occur once a quarter, and the fair market value of the Company's
stock may change based on the Company's financing activities, technical and
business success, and other factors.
If General Magic, or any legal successor to General Magic, in its sole
discretion, terminates your employment within twenty-four months of your date
of employment for any reason (other than for just cause or upon your death,
disability or voluntary resignation), (a) you will receive continuation of your
base salary and the bonus you would have earned (had your employment not been
terminated), less any applicable state and federal payroll taxes, for a period
of six months from the date of your termination, in accordance with the
company's payroll procedures then in effect, and (b) an additional 30% of the
shares subject to your stock option will become vested and exercisable as of
the date of your termination of employment. You will not be entitled to any
other separation or similar benefits.
<PAGE> 2
The term "just cause" shall mean fraud, falsification of any Company records, or
misappropriation of or intentional material damage to the property or business
of the Company. The term "disability" shall mean a physical or mental infirmity
which substantially impairs your ability to perform the material duties of your
position for a period of at least ninety (90) consecutive calendar days.
This offer is contingent upon your completion of the General Magic Employee
Proprietary Information Agreement, without modification, on your first day of
work. In addition, you will also be required to provide evidence of your
identity and eligibility for employment in the United States. It is imperative
that you bring the appropriate documentation for verification with you on your
first day of employment. You can not be put on General Magic's payroll until it
is received. The required documentation is described within this package.
General Magic's employment relationship with all employees is an "at-will"
arrangement where the employment relationship is voluntary and based on mutual
consent. You may leave your employment at any time, and subject to the
foregoing, General Magic also reserves the right to terminate your employment at
any time, with or without cause.
This offer is valid until Thursday, August 7, 1997. The terms and conditions of
this offer letter supersede any prior written or oral communications with you
concerning employment at General Magic. Please indicate that these terms and
conditions are acceptable by signing and dating the enclosed original of this
letter and returning it in the envelope provided. Please retain the duplicate
for your records.
Your acceptance of our offer represents a unique opportunity for us both to grow
and succeed. We look forward to working with you.
Welcome to General Magic!
GENERAL MAGIC, INC.
/s/ STEVE MARKMAN
- ---------------------
Steve Markman
Chairman of the Board
President and CEO
Accepted by:
/s/ LINDA A. HAYES
- ---------------------
Linda A. Hayes
Sept. 1, 1997
- ---------------------
Start Date
<PAGE> 1
EXHIBIT 10.16
[LOGO]
May 30, 1997
CONFIDENTIAL
Mr. James P. McCormick
119 Madera Court
Los Gatos, CA 95032
Dear James:
We are very pleased to extend an offer to you to join the General Magic team as
Vice President, Finance and Administration and CFO, reporting to Steve Markman,
Chairman of the Board, President and CEO. Your base salary will be $6,923.07
(annualized $180,000), paid bi-weekly. In addition, you will receive our
standard benefit package as described in the employee handbook included in this
package.
Along with your base salary and benefits, we are offering you the ability to
participate in General Magic's Key Employee Bonus Plan. This program is based on
a combination of your Management Objectives (MBO's) and the Company's financial
performance. The payments are made annually. Your annual target bonus is set at
35 percent of your base pay. Your incentive compensation for the second half of
1997 ($31,500) will be guaranteed and paid in January 1998.
We will recommend to the General Magic Board of Directors that you be granted an
incentive stock option for 200,000 shares of Common Stock. Subject to Board
approval, your initial vesting date will be one year from the date you start
work, and the exercise price of the options will be fair market value of the
Company's stock on the date of the Board's action. Options vest over a four-year
period, with one quarter vesting on the initial vesting date and 1/48th of the
shares vesting each month thereafter. Board meetings typically occur once a
quarter, and the fair market value of the Company's stock may change based on
the Company's financing activities, technical and business success, and other
factors.
If General Magic, in its sole discretion, terminates your employment within
twenty-four months of your date of employment for any reason (other than for
just cause or upon your death, disability or voluntary resignation), you will
receive continuation of your base salary, less any applicable state and federal
payroll taxes, for the remaining balance of the twenty-four (24) month period,
but not for less than six months from the date of your termination, in
accordance with the company's payroll procedures then in effect. You will not be
entitled to any other separation or similar benefits.
For purposes of this memorandum of agreement, the term "just cause" shall mean
fraud, falsification of any company records, or misappropriation of or
intentional material damage to the property or business of the company. The term
"disability" shall mean a physical or mental infirmity which substantially
impairs your ability to perform the material duties of your position for a
period of at least ninety (90) consecutive calendar days.
<PAGE> 2
Mr. James P. McCormick
May 30, 1997
Page 2
This offer is contingent upon your completion of the General Magic Employee
Proprietary Information Agreement, without modification, on your first day of
work. In addition, you will also be required to provide evidence of your
identity and eligibility for employment in the United States. It is imperative
that you bring the appropriate documentation for verification with you on your
first day of employment. You cannot be put on General Magic's payroll until it
is received. The required documentation is described within this package.
General Magic's employment relationship with all Magicians is an "at-will"
arrangement where the employment relationship is voluntary and based on mutual
consent. You may leave your employment at any time, and General Magic also
reserves the right to terminate your employment at any time, with or without
cause.
This offer is valid until Monday, June 2, 1997. The terms and conditions of this
offer letter supersede any prior written or oral communications with you
concerning employment at General Magic. Please indicate that these terms and
conditions are acceptable by signing and dating the enclosed original of this
letter and returning it in the envelope provided. Please retain the duplicate
for your records.
Your acceptance of our offer represents a unique opportunity for us both to grow
and succeed. We want to thank you in advance for your faith in us, and for the
commitment you have made to our common vision. We look forward to working with
you.
Welcome to General Magic!
GENERAL MAGIC, INC.
/s/ Steve Markman
- -------------------------------
Steve Markman
Chairman of the Board
President and CEO
Accepted by:
/s/ James P. McCormick
- -------------------------------
James P. McCormick
6/10/97
- -------------------------------
Start Date
<PAGE> 1
EXHIBIT 10.17
GENERAL MAGIC, INC.
SEVERANCE AND CHANGE OF CONTROL AGREEMENT
This Severance and Change of Control Agreement (the "Agreement") is
effective as of October 2, 1998, by and between Steven D. Schramm (the
"Employee") and General Magic, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Employee presently serves as Vice President and General Manager
of the Communications Products Division of the Company and performs significant
strategic and management responsibilities necessary to the continued conduct of
the Company's business and operations.
B. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility or occurrence of a Change of Control
(as defined below) of the Company or another event affecting the continued
employment of the Employee.
C. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the circumstances described below which provide
the Employee with enhanced financial security and provide sufficient incentive
and encouragement to the Employee to remain with the Company.
D. Certain capitalized terms used in the Agreement are defined in
Section 5 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. Change of Control.
(a) Acceleration Upon Non-Assumption of Options. In the event of a
Change of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations under
all then-outstanding options granted to the Employee or substitute for such
options substantially equivalent options for the Acquiring Corporation's stock.
The Employee's outstanding options shall be deemed assumed if, following the
Change of Control, such options confer the right to purchase in accordance with
their terms and conditions, for each share of stock subject to such options
immediately prior to the Change of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of the Common
Stock of the Company on the effective date of the Change of Control was
entitled. Subject to the limitation set forth in Section 4, in the event that
the Acquiring Corporation fails to assume the Company's rights and obligations
under the Employee's outstanding options or
1
<PAGE> 2
substitute for such options in connection with the Change of Control, and
provided that the Employee's employment with the Company has not terminated
prior to such date, any unexercised portions of the Employee's outstanding
options shall be immediately exercisable and vested in full as of the date ten
(10) days prior to the date of the Change of Control. An exercise of the
Employee's outstanding options that was permissible solely by reason of the
acceleration of exercisability provided by this subsection shall be conditioned
upon the consummation of the Change of Control.
(b) Benefits Upon Termination After Change of Control. Subject to the
limitations set forth in Section 4, if the Employee's employment is terminated
as a result of a Termination After Change of Control, then the Employee shall be
entitled to the following severance benefits:
(i) The Employee shall receive (1) severance pay in an amount
equal to one hundred percent (100%) of the Employee's annual base salary at the
time of such termination, and (2) the full amount of the Employee's annual bonus
at the "on-target" level for the fiscal year in which the Employee is
terminated, which amount shall be paid in lieu of any bonus or commission that
may be owing, or becomes owed, to the Employee at any time thereafter. Any
severance payments to which the Employee is entitled pursuant to this subsection
shall be paid in a lump sum within thirty (30) days of the Employee's
termination.
(ii) For a period of up to twelve (12) months after any
termination under this Section 1(b), the Company shall reimburse the Employee
for any COBRA premiums paid by the Employee for continued group health insurance
coverage. Such reimbursement shall terminate upon the earlier of (1) twelve
months from the date of the Employee's termination of employment or (2)
commencement of coverage of the Employee under other plans which provide for
equal or greater benefits and which do not exclude any pre-existing conditions.
(iii) Any unexercisable or unvested portion of any
then-outstanding stock options granted to the Employee by the Company shall be
automatically accelerated and become immediately exercisable and vested in full
effective as of the date of the termination of the Employee's employment.
(iv) Any unvested shares of restricted stock issued by the
Company to the Employee shall become fully vested effective as of the date of
the termination of the Employee's employment.
2. Benefits Upon Termination Before Change of Control. Subject to the
limitations set forth in Section 4, if, prior to the occurrence of a Change of
Control, the Employee resigns from all capacities in which the Employee is then
rendering services to the Company within a reasonable period of time following
either (i) the Company's sale of the Communications Products Division of the
Company or (ii) the Company's elimination of the Employee's current position as
Vice President and General Manager of the Communications Products Division of
the Company and failure at the time of such elimination to offer the Employee a
position with the Company of equivalent or greater title, stature,
responsibilities and total compensation, then the Employee shall be entitled to
the following severance benefits:
2
<PAGE> 3
(a) The Employee shall receive (i) severance pay in an amount equal
to 100% of the Employee's annual base salary at the time of such termination,
and (ii) a prorated bonus in an amount equal to the Employee's annual bonus at
the "on-target" level for the fiscal year in which Employee is terminated,
prorated on the basis of the number of days elapsed from the beginning of such
fiscal year through the date of the Employee's termination, which amount shall
be paid in lieu of any bonus or commission that may be owing, or becomes owed,
to the Employee at any time thereafter. Any severance payments to which the
Employee is entitled pursuant to this subsection shall be paid in a lump sum
within thirty (30) days of the Employee's termination.
(b) For a period of up to twelve (12) months after any termination
under this Section 2, the Company shall reimburse the Employee for any COBRA
premiums paid by the Employee for continued group health insurance coverage.
Such reimbursement shall terminate upon the earlier of (i) twelve months from
the date of the Employee's termination of employment or (ii) commencement of
coverage of the Employee under other plans which provide for equal or greater
benefits and which do not exclude any pre-existing conditions.
(c) The vesting and exercisability of fifty percent (50%) of the
number of shares subject to those portions, if any, of the then-outstanding
stock options granted to the Employee by the Company prior to January 1, 1998
which have not vested and become exercisable as of the date of termination of
the Employee's employment shall be automatically accelerated and become
immediately exercisable and vested effective as of the date of the termination
of the Employee's employment.
3. Other Termination of Employment. If the Employee's employment with
the Company terminates for any reason other than as provided in Section 1(b) or
Section 2, then the Employee shall not be entitled to receive severance or other
benefits pursuant to this Agreement following the date of such termination, and
the Company shall have no obligation to provide for the continuation of any
health and medical benefit or life insurance coverage existing on the date of
such termination, except as otherwise required by applicable law.
4. Limitation of Payments and Benefits.
(a) Excess Parachute Payment. If, due to the benefits provided under
this Agreement, the Employee is subject to any excise tax pursuant to Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), due to
characterization of any amounts payable hereunder as excess parachute payments
under Section 280G(b)(1) of the Code, the Employee may elect in his or her sole
discretion, to reduce the amounts payable under this Agreement or not to have
any portion of such options or restricted stock vest in order to avoid any
"excess parachute payment" under Section 280G(b)(1) of the Code.
(b) Other Benefits. All of the foregoing benefits described in this
Agreement shall be reduced by the amount of other similar severance benefits to
which the Employee may otherwise be entitled from the Company; provided that the
foregoing shall not be construed to apply to any benefits received pursuant to
an Incentive Agreement entered into between the Employee and the Company on or
about the date of this Agreement.
3
<PAGE> 4
5. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean any of the following:
(i) the Employee's theft, dishonesty, or intentional
falsification of any employment or Company records;
(ii) the Employee's improper disclosure of the Company's
confidential or proprietary information; or
(iii) the Employee's conviction (including any plea of guilty or
nolo contendere) for any criminal act that impairs his ability to perform his
duties for the Company.
(b) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) the direct or indirect sale or exchange by the stockholders
of the Company of all or substantially all of the stock of the Company where the
stockholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such sale or exchange;
(ii) a merger in which the stockholders of the Company before
such merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company after such merger; or
(iii) the sale, exchange, or transfer (including, without
limitation, pursuant to a liquidation or dissolution) of all or substantially
all of the Company's assets (other than a sale, exchange, or transfer to one (1)
or more corporations where the stockholders of the Company before such sale,
exchange, or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
(c) Disability. "Disability" shall mean that the Employee is unable
to perform his duties as an employee of the Company as the result of his
incapacity due to physical or mental illness for 120 days (not necessarily
consecutive) in any one year period. Termination resulting from Disability may
only be effected after at least 30 days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the Employee
resumes the performance of substantially all of his duties as an employee of the
Company before the termination of his employment becomes effective, the notice
of intent to terminate shall automatically be deemed to have been revoked.
(d) Good Reason. "Good Reason" shall mean the occurrence of any of
the following conditions after a Change of Control, without the Employee's
written consent, which condition(s) remain(s) in effect twenty (20) days after
written notice to the Company from Employee of such condition(s):
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<PAGE> 5
(i) a reduction of the Employee's total compensation (base salary
and bonus) as in effect immediately prior to the Change of Control by more than
fifteen percent (15%), or a failure to provide to the Employee benefit plans,
arrangements, policies and procedures, which, taken as a whole, are not
materially less favorable to the Employee than those, taken as a whole, provided
by the Company to the Employee immediately prior to the Change of Control;
(ii) a material, adverse change in the Employee's
responsibilities or duties, as measured against the Employee's responsibilities
or duties immediately prior to the Change of Control, causing the Employee's
position to be of materially less stature or responsibility; provided, that for
purposes of this Agreement, a material, adverse change shall be deemed to occur
if the Employee no longer serves as a Vice President and General Manager (or
other equivalent or greater position assumed prior to the Change of Control as
described in Section 2) of a publicly-traded company reporting to the Chief
Executive Officer;
(iii) the relocation of the Employee's work place for the Company
to a location more than thirty-five (35) miles from the Employee's then present
work location; or
(iv) any material breach of this Agreement by the Company.
(e) Termination After Change of Control. "Termination After Change of
Control" shall mean the occurrence, within twelve (12) months following a Change
of Control, of either (i) termination of the Employee's employment by the
Company for any reason other than for Cause, or (ii) the Employee's resignation
for Good Reason from all capacities in which the Employee is then rendering
services to the Company. "Termination After Change of Control" shall not include
any termination of the employment of the Employee (i) by the Company for Cause;
(ii) by the Company as a result of the Disability of the Employee; (iii) as a
result of the death of the Employee; or (iv) as a result of the voluntary
termination of employment by the Employee other than for Good Reason.
6. Employee Covenant Regarding Nonsolicitation. For a period of one (1)
year following termination of employment for any reason, the Employee shall not
recruit, solicit, or invite the solicitation of any employees of the Company to
terminate their employment with the Company.
7. Successors.
(a) Company's Successors. The Company shall require any successor to
the Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) or to all or substantially all of the
Company's business and/or assets to assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or
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<PAGE> 6
which becomes bound by the terms of this Agreement by operation of law. Failure
of the Company to obtain such agreement shall be a material breach of this
Agreement.
(b) Employee's Successors. All rights of the Employee hereunder shall
inure to the benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. The Employee shall have no right to assign any of his
obligations or duties under this Agreement to any other person or entity.
8. Notice.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation (including resignation
for Good Reason) shall be communicated by a notice of termination to the other
party hereto given in accordance with this Section 8. Such notice shall indicate
the specific termination provision in this Agreement relied upon, shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than 15 days after the giving of such
notice).
9. Miscellaneous Provisions.
(a) At Will Employment. The Company and the Employee agree that the
Employee's employment is at will, and that their employment relationship may be
terminated by either party at any time, with or without cause. If the Employee's
employment terminates for any reason, the Employee shall not be entitled to any
payments, benefits, damages, awards or compensation other than as provided by
this Agreement.
(b) Term of Agreement. The provisions of this Agreement shall
terminate on January 1, 2000 (except that the Employee's employment by the
Company shall continue to be "at will"), unless a Change of Control occurs on or
prior to that date, in which case the provisions of this Agreement shall
terminate upon the earlier to occur of (i) the date that all obligations of the
parties hereunder have been satisfied, or (ii) twelve (12) months after the
Change of Control. Any termination of this Agreement shall not affect any
required payment or benefit that accrues prior to such termination.
(c) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment
6
<PAGE> 7
or in any other manner), nor shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(d) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(g) Arbitration. In the event of any dispute or claim relating to or
arising out of this Agreement, the Employee and the Company agree that all such
disputes shall be fully, finally and exclusively resolved by binding arbitration
conducted by the American Arbitration Association ("AAA") in Santa Clara County,
California in accordance with AAA's National Employment Dispute Resolution rules
as those rules are currently in effect, and not as those rules may be modified
in the future. The Employee and the Company hereby knowingly and willingly waive
their respective rights to have any such disputes or claims tried to a judge or
jury. However, this arbitration provision shall not apply to any disputes or
claims relating to or arising out of the actual or alleged misuse or
misappropriation of the Company's property, including, but not limited to, its
trade secrets or proprietary information.
(h) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (h) shall be
void.
(i) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(j) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case of
any such assignment, the term "Company" when used in a section of this Agreement
shall mean the corporation that actually employs the Employee.
7
<PAGE> 8
(k) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY GENERAL MAGIC, INC.
By: /s/ Steven Markman
-------------------------------------
Title: Chairman, President & CEO
-----------------------------------
EMPLOYEE /s/ Steven D. Schramm
-----------------------------------------
Steven D. Schramm
8
<PAGE> 1
EXHIBIT 10.18
CONFIDENTIAL
October 2, 1998
Mr. Steven D. Schramm
RE: INCENTIVE AGREEMENT
Dear Steve:
The Compensation Committee of the Board of Directors of General Magic,
Inc. (the "Company") has approved providing you with certain additional
incentives described in this letter agreement. The terms of this agreement are
as follows:
1. Sale of Division. You will be entitled to receive the incentives
described in paragraphs 2 and 3 below upon the closing of the sale (the "Sale")
on or before December 31, 1998 of the Company's Communication Products Division
(the "Division") (or a subsidiary of the Company to which the assets of the
Division are contributed). The Sale for purposes of this agreement will not be
deemed to have occurred in the event of a change in control of a majority of the
Company's voting stock, whether effected by merger, sale of assets, sale or
exchange by the stockholders of shares of the Company's stock, or otherwise.
2. Cash Bonus. Within thirty (30) days following the date of the closing
of the Sale, the Company will pay to you a bonus in an amount equal to one
hundred fifty percent (150%) of your annual bonus at the "on-target" level for
the fiscal year in which the closing of the Sale occurs.
3. Acceleration of Option Vesting. The vesting and exercisability of
fifty percent (50%) of the number of shares subject to those portions, if any,
of the then-outstanding stock options granted to you by the Company prior to
January 1, 1998 which have not vested and become exercisable as of the date of
the closing of the Sale will be automatically accelerated and become immediately
exercisable and vested effective as of the date of the closing of the Sale.
Provided that you remain an employee of the Company, such accelerated vesting
will reduce the remaining period of continued employment required for full
vesting of your remaining unvested options; the remaining unvested shares
subject to your outstanding options will continue to vest at the same rate as
provided in your applicable stock option agreement, subject to your continued
employment with the Company.
4. Other Benefits. The benefits provided by this agreement are in
addition to, and will not be reduced by nor will they reduce, any other benefits
to which you may be entitled under any other agreement with the Company,
including, without limitation, any severance or change of control agreement.
5. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) or to all or substantially all of the Company's
business and/or assets shall assume the obligations under this agreement and
shall expressly agree in writing to perform the obligations under this
<PAGE> 2
Steven D. Schramm CONFIDENTIAL
October 2, 1998
Page 2
agreement in the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a succession. For all
purposes under this agreement, the term "Company" shall include any successor to
the Company's business and/or assets which executes and delivers the assumption
agreement described in this subsection (a) or which becomes bound by the terms
of this agreement by operation of law.
(b) Employee's Successors. All of your rights hereunder shall
inure to the benefit of, and be enforceable by, your personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. You shall have no right to assign any of your obligations
or duties under this agreement to any other person or entity.
6. Arbitration. In the event of any dispute or claim relating to or
arising out of this agreement, you and the Company agree that all such disputes
shall be fully, finally and exclusively resolved by binding arbitration
conducted by the American Arbitration Association ("AAA") in Santa Clara County,
California in accordance with AAA's National Employment Dispute Resolution rules
as those rules are currently in effect, and not as those rules may be modified
in the future. You and the Company hereby knowingly and willingly waive their
respective rights to have any such disputes or claims tried to a judge or jury.
7. Employment Taxes. All payments made pursuant to this agreement will
be subject to withholding of applicable income and employment taxes.
8. Modification. This agreement may only be modified or amended by a
supplemental written agreement signed by you and another officer of the Company.
Please sign and date this letter on the spaces provided below to
acknowledge your acceptance of the terms of this agreement.
Sincerely,
General Magic, Inc.
By: /s/ Steven Markman
-------------------------------------
Steven Markman,
President and Chief Executive Officer
I agree to the terms and conditions set forth in this agreement.
Date: October 2, 1998 /s/ Steven D. Schramm
-----------------------------------------
Steven D. Schramm
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Weighted-average common shares outstanding
for the period:
Common stock 29,630 26,778 26,181
Preferred stock -- -- --
-------- -------- ---------
Shares used in computing per share amount 29,630 26,778 26,181
-------- -------- ---------
Net loss applicable to common stockholders $(61,783) $(28,384) $(45,634)
Net loss per share $ (2.09) $ (1.06) $ (1.74)
-------- -------- ---------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
General Magic, Inc.:
We consent to incorporation by reference in the registration statements
Nos. 33-93648, 333-12667, 333-33329, 333-45751 and 333-71781 on Form S-8 and
Nos. 333-67683, 333-59723 and 333-51685 on Form S-3 of General Magic, Inc. of
our report dated January 22, 1999, except as to note 17 which is as of March 30,
1999, relating to the consolidated balance sheets of General Magic, Inc. and
subsidiary (a development stage enterprise) as of December 31, 1998 and 1997,
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, 1998, which report appears in the December 31, 1998, annual report
on Form 10-K of General Magic, Inc.
/s/ KPMG LLP
Mountain View, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,845
<SECURITIES> 12,075
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,620
<PP&E> 16,544
<DEPRECIATION> 9,037
<TOTAL-ASSETS> 47,298
<CURRENT-LIABILITIES> 13,715
<BONDS> 4,461
28,235
0
<COMMON> 33
<OTHER-SE> (1,146)
<TOTAL-LIABILITY-AND-EQUITY> 47,298
<SALES> 0
<TOTAL-REVENUES> 2,286
<CGS> 0
<TOTAL-COSTS> 482
<OTHER-EXPENSES> 47,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 574
<INCOME-PRETAX> (38,899)
<INCOME-TAX> 19
<INCOME-CONTINUING> (38,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,908)
<EPS-PRIMARY> (2.09)
<EPS-DILUTED> (2.09)
</TABLE>
