Filing pursuant to Rule 424(b)(2)
Registration Statement No. 333-79857
(To Prospectus Dated July 26, 1999)
GENERAL MAGIC, INC.
You should read this entire prospectus supplement, our base prospectus
dated June 3, 1999 (effective as of July 15, 1999), the post-effective amendment
to our base prospectus, dated July 26, 1999 (effective as of August 2, 1999),
our prospectus supplement on Form 424(b)(4), dated November 29, 2000, our
Prospectus Supplement on Form 424(b)(4) dated December 12, 2000, our prospectus
supplement on Form 424(b)(4) dated December 21, 2000, our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and the other documents
incorporated by reference into this prospectus supplement before you invest.
These documents contain information you should consider carefully before making
your investment decision. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone else to provide you with different or
This prospectus supplement and the accompanying prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the common stock offered hereby. This prospectus supplement and the
accompanying prospectus do not constitute an offer to sell or a solicitation of
an offer to buy our common stock in any circumstances in which an offer or
solicitation is unlawful.
Information in this prospectus supplement replaces any inconsistent
information in the base prospectus or the post-effective amendment to our base
prospectus. Information in this prospectus supplement and the accompanying
prospectus may change after the date on the front of the applicable document.
You should not interpret the delivery of this prospectus supplement or the
accompanying prospectus or the sale of the common stock as an indication that
there has been no change in our affairs since that date.
Our principal executive offices are located at 420 North Mary Avenue,
Sunnyvale, California 94086. Our telephone number is (408) 774-4000.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE S-2 OF THE PROSPECTUS SUPPLEMENT.
LADENBURG THALMANN & CO., INC.
Ladenburg Thalmann is not required to sell
any specific number or dollar amount of
securities but will use its best efforts
to sell the securities offered.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is January 16, 2001.
ABOUT GENERAL MAGIC
General Magic is a voice application services provider. The Company offers
its customers premier voice-enabled applications developed on its VoiceXML-based
magicTalk(TM) platform. Primary applications for General Magic's magicTalk
platform include customer relationship management interactions, value added
telecommunication services, Internet voice portal services, and eCommerce
transactions. General Magic develops and deploys magicTalk voice applications
through the efforts of its professional services organization and offers its
customers around-the-clock hosting services in its network operations center
("NOC"). Each General Magic voice application features a personality-rich,
socially-engineered voice user interface ("VUI") that responds to ordinary
speech, all but eliminating the need to punch buttons or enter codes when using
technology such as email, voice mail, telephone, fax and the Internet.
General Magic's target markets are businesses with high volume customer
interactions, including telecommunication providers, enterprises, and Internet
companies. To support its customers General Magic provides a full range of
professional services to assist in the planning, design, development, deployment
and support of voice solutions developed with magicTalk. For customers who
require rapid time-to-market and elect to deploy end-to-end voice solutions
without investing in a separate hosting facility, General Magic provides
customers cost-effective hosting services through its NOC. General Magic's NOC
allows the Company to optimize the return on investment for each of its
customers by optimizing service performance, managing growth and taking
advantage of efficiencies of scale.
On November 6, 2000, General Magic announced an agreement with Ask Jeeves,
Inc. Pursuant to the agreement, General Magic will build the voice user
interface and provide hosting services for Ask Jeeves business solutions, which
currently serve over 125 corporate customers.
In July 2000, General Magic concluded an agreement with IBM contemplating
the integration of General Magic's magicTalk platform with IBM DirectTalk and
IBM WebSphere Voice Server. General Magic and IBM will market and sell voice
solutions integrating the companies' technologies. In August 2000, General Magic
announced that IBM's Via Voice Automated Speech Recognition engine is now
available to customers of General Magic's magicTalk voice solutions. General
Magic's open standards-based magicTalk platform currently supports speech
recognition technologies from Nuance Communications, Inc. In September 2000,
General Magic announced that it had signed a letter of intent to extend the
magicTalk platform to support speech recognition as well as text-to-speech
technologies from SpeechWorks International, Inc. SpeechWorks, in turn, intends
to offer its customers a hosted voice solution through General Magic. General
Magic and SpeechWorks currently plan to jointly market and sell their combined
In November 1999, General Magic entered into a licensing and technology
agreement with General Motors Corporation through what is now its OnStar
Corporation subsidiary ("OnStar"). The agreement licenses General Magic's
magicTalk platform and custom VUI for OnStar's Virtual Advisor, which provides
hands-free voice-activated access to Internet-based information services in
vehicles manufactured by General Motors, as well as other international auto
makers. General Magic is designing, developing and hosting the OnStar Virtual
Advisor service. General Magic delivered Phase I of the OnStar Virtual Advisor
for testing in June 2000.
In June 1999, General Magic launched myTalk, which was an advertising
sponsored service that lets people access email over the phone, reply to email
messages using their own spoken words
and make short calls anywhere in the United States. myTalk attracted more than
one million subscribers which management believes provided a successful proof
point and demonstrated the appeal of magicTalk-based services and the potential
for widespread adoption of voice-enabled services. In June 2000, General Magic
discontinued the myTalk consumer service in order to more effectively focus on
the development of custom voice solutions on the magicTalk platform. Customized
components similar to those offered through the myTalk service are part of
General Magic's current offerings.
In June 1999, Excite@Home launched the Excite Voicemail service, a free
advertising-supported service that allows Excite users to receive voicemail and
faxes in their Excite email accounts. Excite Voicemail employs General Magic's
communications platform and voice user interface technologies to guide callers
in leaving voicemail messages and faxes for registered Excite members.
Although we have made significant progress in our strategy to develop and
market voice application services and products, we are subject to all of the
risks inherent in the establishment of a new business enterprise. To succeed, we
must, among other things, secure adequate financial and human resources to meet
our requirements; achieve market acceptance for our voice application services
and products; establish and maintain relationships with businesses with high
volume customer interactions; establish and maintain alliances with companies
that offer technology solutions for businesses with high volume customer
interactions; respond effectively to competitive developments; meet the
challenges inherent in the timely development and deployment of complex
technologies; generate sufficient revenues from our services and products to
permit us to operate profitably; 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.
Common stock offered in this
prospectus.................................. 1,470,588 shares
Common stock outstanding after
the offering................................ 66,285,212 shares(1)
Use of proceeds.................................. For product development, capital
expenditure, sales and marketing and for
other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol.................... GMGC
(1) Based on shares outstanding as of January 15, 2000. Does not include
7,554,984 shares of common stock issuable upon exercise of outstanding
options, 14,480,500 shares of common stock issuable upon conversion of
outstanding preferred stock or 5,772,935 shares of common stock issuable
upon exercise of outstanding warrants as of January 15, 2001.
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 prospectus supplement.
WE HAVE A HISTORY OF LOSSES. WE EXPECT TO CONTINUE TO INCUR LOSSES, AND WE MAY
NEVER ACHIEVE AND SUSTAIN PROFITABILITY.
Since our inception, we have incurred significant losses, including a loss
of $27.2 million for the nine-month period ended September 30, 2000. As of
September 30, 2000, we had an accumulated deficit of $305.5 million. We expect
to have net losses and negative cash flow for at least the next twelve months.
We plan to continue to spend significant amounts to develop, enhance and
maintain our voice application services and products and to expand our marketing
and sales efforts. As a result, we will need to generate significant revenues to
achieve profitability. Even if we achieve profitability, we may be unable to
sustain or increase profitability on a quarterly or annual basis. If we fail to
achieve and sustain profitability, the price of our stock may decline
OUR LIMITED FUNDING MAY RESTRICT OUR OPERATIONS AND OUR ABILITY TO EXECUTE OUR
BUSINESS STRATEGY, AND THE AVAILABILITY OF ADDITIONAL FINANCING IS UNCERTAIN.
Our business model requires us to devote significant financial resources to
the development, enhancement and maintenance of magicTalk, our platform for
delivery of voice application services and products, to the expansion of our
sales and professional services organizations and to the buildout of our network
operations center. If we are not able to successfully manage our existing
resources or to secure additional financing in a timely manner, our ability to
generate sufficient revenues may be restricted and our business curtailed.
Effective July 30, 1999, we entered into a common stock investment
agreement with an institutional investor providing for an equity line of credit.
The common stock investment agreement permits us to require the investor to
purchase from time to time an aggregate of up to $20,000,000 of our common stock
in increments of up to $5,000,000. In addition, the investor has the right to
purchase in its sole discretion up to an aggregate of an additional $6,000,000
of common stock during the term of the common stock investment agreement. On
March 10, 2000, we agreed to amend the common stock investment agreement to
provide the institutional investor with the option to purchase additional shares
of our common stock equal to up to 100% of the amount specified in our put
notice to the investor. The aggregate amount of the equity line, however, was
not increased by this amendment. There are numerous conditions on our right to
draw down under the equity line, including that the closing bid price of the
common stock on the business day immediately preceding a draw down notice must
be at least $2.00 per share and that the common stock is listed on AMEX, NYSE,
The Nasdaq National Market or The Nasdaq SmallCap Market. In addition, the
dollar amount specified in any draw down notice will be decreased by one
twentieth (1/20) for each business day during the twenty business days
immediately following delivery of the draw down notice on which the weighted
average price of the common stock is less than $2.062. The weighted average
price of our common stock was less than $2.062 on each business day through much
of September, October and the first half of November of 1999. It is uncertain
that we will be able consistently to meet the closing bid price condition, the
listing condition or any other condition. In addition, although we may request
drawdowns in increments of up to $5,000,000, the actual dollar amount is subject
to limitations based on the daily trading volumes, the market price of our
common stock as well as the investor's percentage ownership of General Magic.
On September 7, 2000, the Company and the investment banking firm of
& Co. Inc. ("Ladenburg Thalmann") executed a letter agreement whereby Ladenburg
Thalmann agreed to act as the Company's exclusive placement agent for the
offering of up to $45,000,000 worth of the Company's common stock, par value
$0.001 per share, on a "reasonable best efforts" basis (the "Agreement").
Ladenburg Thalmann has agreed that it will seek to identify institutional
investors who may wish to purchase the Company's common stock from time to time
on specific terms to be negotiated between the Company and such institutional
investors. The securities will be offered by the Company under a prospectus to
be delivered pursuant to its pre-existing "shelf" registration statement on Form
S-3 (File No. 333-79857) under which the Company, during the summer of 1999,
registered 10,000,000 shares of its common stock for sale.
Ladenburg Thalmann is not committed to purchase any of the Company's
securities, regardless of whether Ladenburg Thalmann does or does not
successfully identify others to purchase the Company's securities. The Company,
in turn, is not obligated to sell any of its securities to any prospective
purchaser successfully identified by Ladenburg Thalmann.
On November 29, 2000, we consummated a sale of 1,020,926 shares of our
common stock to an institutional investor identified by Ladenburg Thalmann for
an aggregate purchase price of $3,297,591.
On December 12, 2000, we consummated a sale of 1,782,054 shares of our
common stock to an institutional investor identified by Ladenburg Thalmann for
an aggregate purchase price of $4 million.
On December 22, 2000, we consummated a sale of 826,593 shares of our common
stock to an institutional investor identified by Ladenburg Thalmann for an
aggregate purchase price of $1 million.
No assurance can be given that additional financing will be available under
the equity line or the Agreement with Ladenburg Thalmann or otherwise or that,
if available, it will be available on terms favorable to General Magic or its
stockholders. The unavailability or timing of revenues and financing may require
us to curtail our operations. In addition, if we are not able to generate
revenues or obtain funding, we may be unable to meet The Nasdaq National
Market's continued listing requirements, and our common stock could be delisted
from that market. See "-- Our common stock may be delisted from The Nasdaq
National Market if we are not able to demonstrate compliance with the continued
THE MARKET FOR OUR VOICE APPLICATION SERVICES AND PRODUCTS MAY NOT DEVELOP,
WHICH WOULD SUBSTANTIALLY IMPEDE OUR ABILITY TO GENERATE REVENUES.
Our future financial performance depends on growth in demand for voice
application services and products. If the market for voice application services
and products 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 operation will be adversely affected.
The market for voice application services and products is relatively new
and still evolving. Currently, there are a limited number of products and
services in this industry. The adoption of voice application services and
products could be hindered by the perceived cost, quality and reliability of
this new technology, as well as the reluctance of businesses that have invested
substantial resources in existing systems, such as touch-tone-based systems, to
replace their current systems with this new technology. Accordingly, in order to
achieve commercial acceptance, we will have to educate
prospective customers, including large, established companies, about the uses
and benefits of voice-driven applications in general and our products in
particular. If these efforts fail, or if our voice application services and
products do not achieve commercial acceptance, our business would be harmed.
The continued development of the market for our voice application services
and products will depend upon the:
o widespread adoption of voice-driven applications by businesses for use
in conducting transactions and managing relationships with their
o consumer acceptance of such applications; and
o continuing improvements in hardware and software technology that may
reduce the cost and improve the performance of voice solutions.
WE MUST ESTABLISH AND MAINTAIN RELATIONSHIPS WITH CUSTOMERS AND PARTNERS TO
Our business model for voice application services and products depends on
generation of revenue from licensing of our magicTalk communications platform
and from voice application development, support and hosting services. Our
success in generating these revenues depends on our ability to establish and
maintain relationships with organizations that engage in high-volume customer
interactions, such as companies with customer relationship management
applications, established eCommerce businesses, and value-added
telecommunications providers, and with partners that currently provide
technology solutions to these businesses. Competition for relationships with
companies such as these is extremely intense.
WE CURRENTLY RELY ON A LIMITED NUMBER OF LARGE ORDERS FOR SUBSTANTIALLY ALL OF
OUR REVENUES. AS A RESULT, OUR INABILITY TO SECURE ADDITIONAL SIGNIFICANT
CUSTOMERS DURING A GIVEN PERIOD OR THE LOSS OF ONE MAJOR CUSTOMER COULD CAUSE
OUR QUARTERLY RESULTS OF OPERATION TO SUFFER.
Due to the nature of our business, in any quarter we are dependent upon a
limited number of orders that are relatively large in relation to our overall
revenues. Our voice application products and services require significant
expenditures by our customers and typically involve lengthy sales cycles. We may
spend significant time and incur substantial expenses educating and providing
information to prospective customers. Any failure to complete a sale to a
prospective customer during a quarter could result in revenues and operating
results for the quarter that are lower than expected.
Our dependence on large customer orders makes it difficult to forecast
quarterly operating results. This could cause our stock price to be volatile or
OUR VOICE APPLICATION SERVICES AND PRODUCTS CAN HAVE LONG SALES AND
IMPLEMENTATION CYCLES AND, AS A RESULT, OUR QUARTERLY OPERATING RESULTS AND OUR
STOCK PRICE MAY FLUCTUATE.
Purchase of our voice application services and products requires a
significant expenditure by a
customer. Accordingly, the decision to purchase our services and products
typically requires significant pre-purchase evaluation. We may spend many months
educating and providing information to prospective customers regarding the use
and benefits of our voice application services and products. During this
evaluation period, we may expend substantial sales, marketing and management
After purchase, it may take substantial time and resources to implement our
solution and to integrate it with our customer's existing systems. If we are
performing significant professional services in connection with the
implementation, we do not recognize software revenue until after system
acceptance or deployment. In cases where the contract specifies milestones or
acceptance criteria, we may not be able to recognize services revenue until
these conditions are met. We have in the past and may in the future experience
unexpected delays in recognizing revenue. Consequently, the length of our sales
and implementation cycles may make it difficult to predict the quarter in which
revenue recognition may occur and may cause revenue and operating results to
vary significantly from period to period. These factors could cause our stock
price to be volatile or to decline.
WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE. IF OUR
QUARTERLY OPERATING RESULTS FAIL TO MEET THE EXPECTATIONS OF FINANCIAL ANALYSTS
AND INVESTORS, THE TRADING PRICE OF OUR COMMON STOCK MAY DECLINE.
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
o the timing of sales of our products and services, particularly in
light of our dependence on a relatively small number of large orders,
o the timing of product implementations, particularly large client
o unexpected delays in introducing new products and services,
o increased expenses, whether related to sales and marketing, product
development or administration,
o deferral of recognition of our revenue in accordance with applicable
accounting principles due to the time required to complete projects,
o the mix of product license and services revenue, and
o costs related to possible acquisitions of technology or businesses.
IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OR TO RETAIN KEY TECHNICAL,
PROFESSIONAL SERVICE, SALES, MARKETING AND OPERATIONAL PERSONNEL, OUR BUSINESS
COULD BE HARMED.
We intend to hire additional personnel, including engineers, professional
service, sales, marketing and operational personnel to support our business.
Competition for these individuals is keen, especially in the San Francisco Bay
Area. We may not be able to attract, assimilate or retain additional highly
qualified personnel. In addition, we rely upon the continued performance and
services of our existing employees, including key managerial, technical and
Our failure to attract, integrate, motivate and retain additional employees or
to motivate and retain existing employees could harm our business.
INTENSE COMPETITION IN THE MARKET FOR VOICE APPLICATION SERVICES AND PRODUCTS
COULD PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY.
The market for voice application services and products is intensely
competitive. A number of companies have developed, or are expected to develop,
voice applications and/or platform technologies that compete with ours.
Competitors in the voice application and platform technologies markets include
companies that offer hosted or customer premise equipment-based voice-activated
solutions to the telecommunications market, such as AccessLine Communications
Corporation, Call Sciences Inc., Comverse Technology, Inc., InterVoice-Brite
Inc. and Webley Systems, Inc.; speech recognition vendors, such as Nuance
Communications Inc., SpeechWorks International and Vocalis Group plc, to the
extent that they engage in or support the development of voice applications;
value-added resellers of speech recognition technology, such as NetbyTel.com,
Inc. and VocalPoint, Inc.; and companies in the voice portal category, such as
BeVocal, Inc., Lucent Technologies, Inc., Motorola Inc., and Tellme Networks
Inc. Wireless communications infrastructure companies, such as
Telefonaktiebolaget LM Ericsson or OPENWAVE Systems, Inc., may extend their
offerings to provide the capabilities of the magicTalk communications platform,
as may software developers such as Microsoft Corporation and Oracle Corp., or
telecommunications companies such as AT&T Corp. and Sprint Communications
Company, L.P. Many of these companies have longer operating histories,
significantly greater financial, technical, product development, marketing and
sales resources, greater name recognition, larger established customer bases,
and better-developed distribution channels than we do. Our present or future
competitors may be able to develop products that are comparable or superior to
those we offer, adapt more quickly than we do to new technologies, evolving
industry trends and standards or customer requirements, or devote greater
resources to the development, promotion and sale of their products than we do.
Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business.
TECHNOLOGY CHANGES RAPIDLY IN OUR MARKET, AND OUR FUTURE SUCCESS WILL DEPEND ON
OUR ABILITY TO MEET THE NEEDS OF OUR CUSTOMERS.
The market for voice application services and products is characterized by
rapid technological change, changing customer needs, increasingly 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 application services and products
obsolete and unmarketable.
Our success will depend upon our ability to timely develop and introduce
new voice application services and products, as well as enhancements to our
existing services and products, to keep pace with technological developments and
emerging industry standards and address the changing needs of customers,
partners, users, sponsors, and advertisers. We may not be successful in
developing and marketing new services or products 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 services or products. In addition, our new services and products may not
adequately meet the requirements of the marketplace or achieve market
WE MAY EXPERIENCE DELAYS IN PRODUCT DEVELOPMENT, WHICH COULD ADVERSELY AFFECT
OUR REVENUES OR RESULTS OF OPERATION.
Any delays in product development or market launch could adversely affect
our revenues or results of operation. To be successful, we must continue to
develop and enhance technologies to enable us to offer voice application
services and other products deployed on our magicTalk communications platform.
Software product development schedules are difficult to predict because they
involve creativity and may require implementation of original, untried solutions
or the use of new development tools. 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 services or products or the delivery of new versions of our
services or products.
THE FAILURE OR UNAVAILABILITY OF THIRD-PARTY TECHNOLOGIES AND SERVICES COULD
LIMIT OUR ABILITY TO GENERATE REVENUES.
We have incorporated technology developed by third parties in certain of
the voice application services and products offered to our customers, including
o email servers which process both emails and voice mails;
o calendar and contact software;
o voice recognition software;
o text-to-speech software;
o the billing system; and
o network operations center servers, routers and other equipment.
We will continue to incorporate third-party technologies in future voice
application services and products. We have limited control over whether or when
these third-party technologies will be 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 or
products, market acceptance of our services or products could be adversely
affected. Moreover, if these third-party technologies fail or otherwise prove to
be not viable, it may have a significant impact on our ability to provide our
services and/or to generate revenues. In addition, we rely and will continue to
rely on services supplied by third parties such as telecommunications, Internet
access and power for services hosted in our network operations center. If these
third-party services fail to meet industry standards for quality and
reliability, market acceptance of our services could be adversely affected.
CONVERSION OF PREFERRED STOCK OR ISSUANCE OF OTHER SECURITIES WOULD DILUTE
As of January 15, 2001, we have 186 shares of Series D preferred stock, 428
shares of Series F preferred stock, 1,500 shares of Series G preferred stock and
580 shares of Series H Preferred Stock outstanding, all of which are convertible
into common stock. In addition, we have outstanding a warrant to purchase up to
an additional 500 shares of Series G preferred stock and warrants to purchase
an aggregate, as of January 15, 2001, of 2,803,814 shares of common stock
outstanding. We also have an equity line of credit arrangement under which we
could issue up to $25,750,000 in common stock and an agreement with Ladenburg
Thalmann pursuant to which we may raise up to an additional $36,702,409 million
upon the sale of our common stock. The holders of common stock could experience
substantial dilution to their investment upon conversion of the preferred
shares, exercise of the warrants, drawdowns under the equity line of credit
arrangement, or in the event we elect to raise additional capital pursuant to
the Ladenburg Thalmann agreement. The number of shares of common stock issuable
upon the conversion of the Series D preferred stock and the Series F preferred
stock, upon exercise of the warrants issued in connection with the Series B,
Series C and Series D preferred stock transactions, and pursuant to the equity
line of credit arrangement, and the Ladenburg Thalmann arrangement depends in
part on future prices of our common stock on The Nasdaq National Market. The
number of shares of common stock issued pursuant to the equity line of credit
arrangement depends on the prices of common stock on The Nasdaq National Market
shortly before the date of issuance and sale. 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, exercise of the warrants issued in connection with the Series
B, Series C, and Series D preferred stock, drawdowns under the equity line of
credit, and sales of common stock pursuant to the Ladenburg Thalmann agreement
will increase and the holders of common stock would experience additional
dilution of their investment. Such dilution could cause the stock price of our
common stock to decrease further. A decrease in the stock price of our common
stock could cause our common stock to be delisted from The Nasdaq National
Market. Our board of directors may authorize issuance of up to 427,101
additional shares of preferred stock that are convertible into common stock
without any action by our stockholders. In addition, our board of directors may
authorize the sale of 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.
WE MAY BE REQUIRED TO REDEEM THE OUTSTANDING SERIES D PREFERRED STOCK AND SERIES
F PREFERRED STOCK, WHICH COULD SIGNIFICANTLY DEPLETE OUR CASH RESERVES AND
MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The holders of the Series D preferred stock, the Series F preferred stock
and the Series H Preferred Stock have redemption rights if we fail to meet the
requirements of the documents governing each. As of January 15, 2001, have 186
shares of Series D preferred stock, 428 shares of Series F preferred stock,
1,500 shares of Series G preferred stock and 580 shares of the Series H
preferred stock were outstanding. The redemption value of these shares could
total as much as approximately $16.4 million. If we were required to redeem
these shares, such payments would significantly deplete our cash balance, which
could materially and adversely affect our financial condition. In addition, such
a decrease in our cash balance could cause our common stock to be delisted from
The Nasdaq National Market. We cannot guarantee that we will be able to meet all
of the requirements necessary to avoid a redemption.
OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET IF WE ARE NOT
ABLE TO DEMONSTRATE COMPLIANCE WITH THE CONTINUED LISTING REQUIREMENTS.
We are subject to the continued listing requirements of The Nasdaq National
Market. In the event that we are not able to maintain continued compliance with
The Nasdaq National Market's "net tangible assets" requirement or any other of
its listing requirements, we would be subject to a delisting
process. In the event that we are delisted, we will seek to list our common
stock on other markets such as The Nasdaq Small Cap Market and AMEX, Inc. We
cannot guarantee that we will be able to meet the listing requirements of these
or any other markets. In the event that we are delisted from The Nasdaq National
Market or are not able to list on any other market, the ability to sell shares
of our common stock will be adversely affected.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD IMPAIR OUR COMPETITIVE
Our future success and ability to compete depends in part upon our
proprietary technology and our trademarks, which we attempt to protect under a
combination of patent, copyright, trademark and trade secret laws, as well as
with confidentiality procedures and contractual provisions. These legal
protections afford only limited protection and may be time-consuming and
expensive to obtain and/or maintain. Further, despite our efforts, we may be
unable to prevent third parties from infringing upon or misappropriating our
We hold seventeen patents issued by the United States Patent and Trademark
Office ("PTO"). We have eight patent applications pending before the PTO, as
well as selected counterpart patent applications pending in foreign
jurisdictions. There is no guarantee that patents will be issued with respect to
our current or future patent applications. Any patents that are issued to us
could be invalidated, circumvented or challenged. If challenged, our patents
might not be upheld or their claims could be narrowed. Our intellectual property
may not be adequate to provide us with a competitive advantage or to prevent
competitors from entering the markets for our products or services.
Additionally, our competitors could independently develop non-infringing
technologies that are competitive with, equivalent to, and/or superior to our
technology. Monitoring infringement and/or misappropriation of intellectual
property can be difficult, and there is no guarantee that we would detect any
infringement or misappropriation of our proprietary rights. Even if we do detect
infringement or misappropriation of our proprietary rights, litigation to
enforce these rights could cause us to divert financial and other resources away
from our business operations. Further, we expect to license our products
internationally, and the laws of some foreign countries would not protect our
proprietary rights to the same extent as do the laws of the United States.
OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, AND
RESULTING CLAIMS AGAINST US COULD BE COSTLY AND REQUIRE US TO ENTER INTO
DISADVANTAGEOUS LICENSE OR ROYALTY ARRANGEMENTS.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of intellectual property rights. Although we attempt to avoid
infringing proprietary rights of others, third parties may assert claims against
us from time to time alleging infringement, misappropriation or other violations
of proprietary rights, whether or not such claims have merit. Such claims can be
time consuming and expensive to defend and could require us to cease the use and
sale of allegedly infringing products and services, incur significant litigation
costs and expenses, and develop or acquire non-infringing technology or obtain
licenses to the alleged infringing technology. We may not be able to develop or
acquire alternative technologies or obtain such licenses on commercially
SECURITY PROBLEMS IN OUR VOICE APPLICATION SERVICES OR PRODUCTS WOULD LIKELY
RESULT IN SIGNIFICANT LIABILITY AND REDUCED REVENUES.
Security vulnerabilities and weaknesses may be discovered in our voice
application services or products, in the licensed technology incorporated in our
voice application services or products, in our network operations center hosting
environment, or in the media by which end users access our voice application
services or products. Any such security problems may require us to expend
significant capital and other resources to alleviate the problems. In addition,
these problems could result in the loss or misuse of personal information,
including credit card numbers, and may limit the number of customers or
subscribers for our voice application services or products. A decrease in the
number of customers could lead to decreased revenues. These problems may also
cause interruptions or delays in the development of enhancements to our voice
application services and products and may result in lawsuits against us.
We will continue to incorporate security technologies in our voice
application services and products. However, such technologies may not be
adequate to prevent break-ins. In addition, weaknesses in the media by which
users access our voice application services and products, including the
Internet, land-line telephones, cellular phones and other wireless devices, may
compromise the security of the electronic information accessed. We intend to
continue to limit our liability to end users and to our customers and partners,
including liability arising from failure of the security technologies
incorporated into our services and products, through contractual provisions.
However, we may not successfully negotiate such limitations with all our
customers and partners, nor may such limitations eliminate liability. We do not
currently have liability insurance to protect against risks associated with
forced break-ins or disruptions.
ANY SOFTWARE DEFECTS IN OUR PRODUCTS COULD HARM OUR BUSINESS AND RESULT IN
Complex software products such as ours may contain errors, defects and
bugs. With the planned release of any product, we may discover these errors,
defects and bugs, and, as a result, our products may take longer than expected
to develop. In addition, we may discover that remedies for errors or bugs may be
technologically unfeasible. Delivery of products with undetected production
defects or reliability, quality or compatibility problems could damage our
reputation. Errors, defects or bugs could also cause interruptions, delays or a
cessation of sales to our customers. We could be required to expend significant
capital and other resources to remedy these problems. In addition, customers
whose businesses are disrupted by these errors, defects and bugs could bring
claims against us. Although our contracts typically contain provisions designed
to limit our exposure to liability claims, a claim brought against us, even if
unsuccessful, could be time-consuming, divert management's attention, result in
costly litigation and harm our reputation. Moreover, existing or future laws or
unfavorable judicial decisions could limit the enforceability of the limitation
of liability, disclaimer of warranty or other protective provisions contained in
A CLAIM FOR DAMAGES COULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATION.
We may be subject to claims for damages related to system errors and other
defects in the services we host for our customers or in our General Magic
branded services. Agreements with end users of these 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.
Moreover, a claim brought against us, even if unsuccessful, could be
time-consuming, divert management's attention, result in costly litigation and
harm our reputation. 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.
WE DEPEND ON THE INTEGRITY AND RELIABILITY OF OUR SOFTWARE, COMPUTER HARDWARE
SYSTEMS AND NETWORK INFRASTRUCTURE, AND ANY INADEQUACIES MAY RESULT IN
SUBSTANTIAL INTERRUPTIONS TO OUR SERVICE.
Our ability to host services for our customers depends on the integrity of
our software, computer hardware systems and network infrastructure, and the
reliability of software and services supplied by our vendors, including
providers of telecommunications and electric power. We have encountered, and may
encounter in the future, errors in our software or our system design, or
inadequacies in the software and services supplied by our vendors. Any such
errors or inadequacies may result in substantial interruptions to our services
or those we host for our customers. Our errors may be expensive or difficult to
correct in a timely manner, and we may have little or no control over whether
any inadequacies in software or services supplied to us by third parties are
timely corrected, if at all.
OUR STOCK PRICE HAS BEEN EXTREMELY VOLATILE, AND EXTREME PRICE FLUCTUATIONS
COULD ADVERSELY AFFECT YOUR INVESTMENT.
The market price of our common stock has been extremely volatile. From
January 1, 2000 to January 15, 2001, the closing price of our common stock has
varied significantly from a high of $17.313 to a low of $1.218 per share.
Publicized events and announcements may have a significant impact on the
market price of our common stock. For example, shortfalls in our revenue or net
income, conversions of preferred stock into common stock, delays in development
of our services or products, disruptions in our services, or announcements of
partnerships, technological innovations or new products or services by our
competitors could have the effect of temporarily or permanently driving down the
price of our common stock. In addition, the stock market from time to time
experiences extreme price and volume fluctuations that particularly affect the
market prices for emerging and technology companies, such as ours. Such price
and volume fluctuations are often unrelated or disproportionate to the operating
performance of the affected companies. These broad market fluctuations may
adversely affect your ability to sell your shares at a price equal to or above
the price you purchased them. In addition, a decrease in the stock price of our
common stock could cause our common stock to be delisted from The Nasdaq
DELAWARE LAW AND CERTAIN PROVISIONS OF OUR CHARTER DOCUMENTS MAY INHIBIT A
CHANGE OF CONTROL OF GENERAL MAGIC.
Delaware law and provisions of our charter documents may make it more
difficult for a third party to acquire, or may discourage a third party from
attempting to acquire, General Magic. We are subject to the anti-takeover
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, 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 our common stock. These provisions include:
o authority to issue "blank check" preferred stock, which is preferred
stock that can be issued by the board of directors without prior
stockholder approval, with rights senior to those of common stock;
o prohibition on stockholder action by written consent;
o requirement that a two-thirds vote of the stockholders is required to
amend the bylaws; and
o advance notice requirements for submitting nominations for election to
the board of directors and for proposing matters that can be acted
upon by stockholders at a meeting.
Furthermore, the Series D preferred stock and the Series F preferred stock
provide holders rights to redemption of their Series D preferred stock or Series
F preferred stock, as the case may be, or penalty payments upon a change in
control. In addition, the documents governing the Series D preferred stock and
Series F preferred stock prohibit changes of control unless the surviving entity
assumes all of our obligations under the Series D preferred stock or Series F
preferred stock, as the case may be, and is a publicly traded corporation traded
on The Nasdaq National Market, NYSE or AMEX. All of these rights could make an
acquisition even more difficult.
OUR FACILITY IS LOCATED NEAR KNOWN EARTHQUAKE FAULTS, AND THE OCCURRENCE OF AN
EARTHQUAKE OR OTHER NATURAL DISASTER COULD CAUSE SIGNIFICANT DAMAGE TO OUR
FACILITY THAT MAY REQUIRE US TO CEASE OR CURTAIL OPERATIONS.
Our facility is located in the San Francisco Bay Area near known earthquake
faults and is vulnerable to damage from earthquakes. In October 1989, a major
earthquake that caused significant property damage and a number of fatalities
struck this area. We do not have redundant, multiple site capacity, and so are
also vulnerable to damage from other types of disasters, including fire, floods,
power loss, communications failures and similar events. Any damage to our
facility could lead to interruptions in the services hosted in our network
operations center and loss of subscriber information, and could substantially if
not totally impair our ability to operate our business. The insurance we
maintain may not be adequate to cover our losses resulting from disasters or
other business interruptions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus supplement and the documents
incorporated by reference are forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties, including, among
others, those listed under "Risk Factors" above and in the documents
incorporated by reference.
In some cases, you can identify forward-looking statements by words such as
"anticipates," "believes," "estimates," "seeks," expects," "plans," "intends,"
"future" and similar expressions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements and therefore such expectations may be
incorrect. You are cautioned not to place undue reliance on these
All subsequent written and oral forward-looking statements attributable to
us or to persons acting on our behalf are expressly qualified in their entirety
by our cautionary statements. The
forward-looking statements included or incorporated herein are made only as of
the date of this prospectus supplement, or as of the date of the documents
incorporated by reference. We do not intend, and undertake no obligation, to
update these forward-looking statements.
USE OF PROCEEDS
We cannot guarantee that we will receive any proceeds in connection with
We intend to use the net proceeds of this offering, if any, for product
development, capital expenditures, including those relating to the expansion of
our network operations center, sales and marketing and for other general
corporate purposes. The amounts actually expended for each purpose may vary
significantly depending upon numerous factors, including the amount and timing
of the proceeds from this offering, the progress of our product cycles, the
progress of our network operations center, the market acceptance of our products
and the status of competitive products. In addition, expenditures will also
depend on the establishment of strategic partnerships with other companies, the
availability of other financing and other factors.
We may also use a portion of the proceeds, if any, to acquire or invest in
complementary businesses or technologies. We are not planning or negotiating any
such transactions as of the date of this prospectus supplement.
The net tangible book value of General Magic at December 31, 2000 was
$25,904,000 or approximately $0.40 per share of common stock. Net tangible book
value per share represents the amount of General Magic's tangible assets less
total liabilities, divided by 64,814,624 shares of common stock, which is the
number of shares of common stock outstanding on December 31, 2000.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common stock in the
offering made hereby and the pro forma net tangible book value per share of
common stock immediately after completion of the offering. After giving effect
to the sale of 1,470,588 shares of common stock in this offering at an assumed
offering price of $1.70 per share and the application of the estimated net
proceeds therefrom (after deducting estimated offering expenses) the pro forma
net tangible book value of General Magic as of December 31, 2000 would have been
$28,329,000 per share, an immediate increase in net tangible book value of
$0.027 per share to existing stockholders and an immediate dilution in net
tangible book value of $1.273 per share to purchasers of common stock in the
offering, as illustrated in the following table:
Assumed public offering price per share.............................. $1.70
Net tangible book value per share at December 31,
Increase per share attributable to new investors................. $0.027
Pro forma net tangible book value per share after offering........... $0.427
Net tangible book value dilution per share to new investors.......... $1.273
Net tangible book value does not include $2.0 million related to
mandatorily redeemable preferred stock outstanding as of December 31, 2000. To
the extent that outstanding options, preferred stock and warrants are exercised
or converted, there will be further dilution to new investors.
PLAN OF DISTRIBUTION
ISSUANCES OF SHARES OF COMMON STOCK BY US
We engaged the investment banking firm of Ladenburg Thalmann & Co. Inc. on
September 7, 2000 to act as our exclusive placement agent for the offering of up
to $45,000,000 worth of our common stock, par value $0.001 per share, on a
"reasonable best efforts" basis. Ladenburg Thalmann has agreed with us that it
will seek to identify institutional investors who may wish to purchase our
common stock from time to time on specific terms to be negotiated between each
such institutional investor and us. The securities will be offered by us
pursuant to prospectus supplements to our base prospectus, dated June 3, 1999
(effective as of July 15, 1999), as supplemented. Ladenburg Thalmann is not
committed to purchase any of our securities, regardless of whether Ladenburg
Thalmann does or does not successfully identify others to purchase our
securities. We, in turn, are not obligated to sell any of our securities to any
prospective purchaser successfully identified by Ladenburg Thalmann.
Pursuant to our engagement agreement with Ladenburg Thalmann, Ladenburg
Thalmann has identified one institutional investor that will be included in this
We have agreed to pay Ladenburg Thalmann a cash placement fee equal to 3%
of the gross proceeds to General Magic from each such sale. We have also agreed
to pay Ladenburg Thalmann a special concession fee equal to an additional 3% of
the proceeds to General Magic from any sales made pursuant to this prospectus
supplement (or, put another way, 6% of the gross proceeds to General Magic from
any sales made pursuant to this prospectus supplement) and to issue Ladenburg
Thalmann a warrant to purchase 100,000 shares of our common stock at a strike
price of $8.6767 per share.
We also paid to Ladenburg Thalmann a $35,000 non-accountable expense
allowance, and we agreed to indemnify Ladenburg Thalmann against certain
underwriter's liabilities under the Securities Act of 1933, as amended.
The legality of the shares of common stock offered hereby is being passed
upon by Gibson, Dunn & Crutcher LLP.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 to register
the common stock offered by this prospectus supplement. However, this prospectus
supplement does not contain all of the information contained in the registration
statement and the exhibits and schedules to the registration statement. We
strongly encourage you to carefully read the registration statement and the
exhibits and schedules to the registration statement. However, because our
registration statement was filed with the Commission over a year ago, you are
cautioned not to place undue reliance on it as the information contained in that
registration statement has been modified or superseded by this prospectus
supplement and the documents incorporated by reference into this prospectus
supplement. We strongly encourage you to carefully read the documents
incorporated by reference into this prospectus supplement along with your review
of the registration statement.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. You can request copies of these documents by contacting the
SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's website at www.sec.gov.
The SEC allows us to "incorporate by reference" the information contained
in documents that we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus
supplement. Information in this prospectus supplement supersedes information
incorporated by reference that we filed with the SEC prior to the date of this
prospectus supplement, while information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed with the Commission on March 30, 2000.
2. Our Report on Form 8-K filed with the Commission on March 31, 2000.
3. Amendment Number 1 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, filed with the Commission on April 28,
4. Our Quarterly Report on Form 10-Q for the Quarter ended March 31,
2000, filed with the Commission on May 15, 2000.
5. Our Report on Form 8-K filed with the Commission on May 22, 2000.
6. Our Report on Form 8-K filed with the Commission on August 8, 2000.
7. Amendment Number 1 to our Report on Form 8-K (filed with the
Commission on March 31, 2000) filed with the Commission on August 8,
8. Our Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000,
filed with the Commission on August 14, 2000.
9. Our Report on Form 8-K filed with the Commission on August 16, 2000.
10. Our Report on Form 8-K filed with the Commission on September 14,
11. Our Report on Form 8-K filed with the Commission on November 2, 2000.
12. Our Report on Form 8-K filed with the Commission on November 7, 2000.
13. Our Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000, filed with the Commission on November 14, 2000.
14. Our Current Report on Form 8-K filed with the Commission on December
15. Our Current Report on Form 8-K filed with the Commission on January 4,
16. The description of the common stock contained in our Registration
Statement on Form 8-A filed under the Securities Exchange Act of 1934,
as amended, including any amendment or report filed for the purpose of
updating such description.
In addition, we incorporate by reference any future filings we will make
with the SEC under Sections 13(a), 13(c) 14 or 15(d) of the Securities Exchange
Act of 1934, as amended.
You may request a copy of these filings, at no cost to you, by writing or
telephoning us at:
General Magic, Inc.
Attention: Investor Relations
420 N. Mary Avenue
Sunnyvale, California 94086
Telephone: (408) 774-4000
TABLE OF CONTENTS
ABOUT GENERAL MAGIC S-1
THE OFFERING S-2
RISK FACTORS S-2
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS S-13
USE OF PROCEEDS S-14
PLAN OF DISTRIBUTION S-15
LEGAL MATTERS S-15
WHERE YOU CAN FIND MORE INFORMATION S-15
ABOUT GENERAL MAGIC 3
THE OFFERING 4
RISK FACTORS 5
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS 14
USE OF PROCEEDS 14
PLAN OF DISTRIBUTION 15
LEGAL MATTERS 16
WHERE YOU CAN FIND MORE INFORMATION 16