<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION VIA EDGAR
ON NOVEMBER 2, 1998
REGISTRATION NO. 333- _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MUSTANG SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
California 7372 77-0204718
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
6200 Lake Ming Road
Bakersfield, California 93306
(805) 873-2500
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
JAMES A. HARRER
President and Chief Executive Officer
Mustang Software, Inc.
6200 Lake Ming Road
Bakersfield, California 93306
(805) 873-2500 Extension 9001
(805) 873-2457 (Fax)
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Mark A. Klein, Esq.
David M. Tamman, Esq.
Freshman, Marantz, Orlanski,
Cooper & Klein
9100 Wilshire Boulevard,
8-East
Beverly Hills, CA 90212-3480
Telephone: (310) 273-1870
Facsimile: (310) 274-8357
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
--------------------------- ----------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common stock, no par value per share(2) 1,780,833(3) $2.00 $3,569,569 $992.00
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) and (g) based on the average
between the bid and ask prices on The Nasdaq SmallCap Market on October 30,
1998.
(2) The shares of Common stock being registered hereunder are being registered
for resale by the selling shareholders named in the prospectus (the
"Selling Shareholders") and consist of outstanding shares of common stock,
shares of common stock issuable upon conversion of outstanding shares of
Series A Convertible Preferred Stock ("Series A Preferred Stock") and
shares of common stock issuable upon exercise of outstanding warrants. Such
common stock, Series A Preferred Stock and warrants were sold by the
Company to the Selling Shareholders on September 17, 1998 pursuant to a
Securities Purchase Agreement (the "Agreement") between the Company and the
Selling Shareholders dated as of September 14, 1998.
(3) In accordance with a Registration Rights Agreement dated as of September
14, 1998 between the Company and the Selling Shareholders, entered into in
conjunction with the Agreement, the number of shares being registered
equals the sum of the following: 641,480 shares of outstanding common
stock; 200% of 451,176 shares of common stock issuable upon conversion
of 5,456 shares of outstanding Series A Preferred Stock (determined based
on 90% of the average of the four lowest closing bid prices of the Company
during the 10 trading-day period ending October 30, 1998); and 237,000
shares of common stock issuable upon exercise of outstanding "A" Warrants
and "B" Warrants (collectively the "Warrants").
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 2
The information contained in this Prospectus is not yet complete, and we may
supplement or amend it in the final version. We have filed a registration
statement relating to the securities described in this Prospectus with the
Securities and Exchange Commission. The Selling Shareholders may not sell these
securities, or accept offers to buy them, until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities, and
we are not soliciting offers to buy them. These securities will not be sold in
any state where their offer or sale, or solicitations of offers to buy them,
would be unlawful prior to their registration or qualification under the
securities laws of any such state.
SUBJECT TO COMPLETION--DATED NOVEMBER 2, 1998
MUSTANG SOFTWARE, INC.
COMMON STOCK
The shareholders of Mustang Software, Inc. listed below in the section of this
Prospectus called "Selling Shareholders" are offering and selling up to
1,780,833 shares of Mustang's common stock. Of that common stock, the selling
shareholders are offering up to
- 641,480 shares that they own outright;
- 902,353 shares that they may get upon their conversion of Mustang's
Series A Convertible Preferred Stock which they own; and
- 237,000 shares that they may purchase upon their exercise of Warrants
which they own
The selling shareholders acquired Mustang's common stock, Series A Convertible
Preferred Stock and Warrants in a private placement that was completed on
September 17, 1998. Mustang will not receive any proceeds from the sale of
shares by the selling shareholders.
Mustang's common stock is listed on The Nasdaq SmallCap Market under the symbol
"MSTGC." On ________ __, 1998, the closing price on The Nasdaq SmallCap Market
was $______ per share.
The selling shareholders may offer their Mustang shares through public or
private transactions, in or off the over-the-counter market in the United
States, at prevailing market prices, or at privately negotiated prices. For
details of how the Selling Shareholders may offer their Mustang common stock,
please the section of this Prospectus called "Plan of Distribution."
Your purchase of the common stock involves a high degree of risk. See "Risk
Factors" beginning at page 4.
----------
The Securities and Exchange Commission or any state securities commission has
not approved the Mustang shares offered or sold under this Prospectus, nor have
these organizations determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
----------
The date of this Prospectus is ____________________, 1998
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
Mustang files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document it files at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
The SEC allows Mustang to "incorporate by reference" the information it files
with it, which means that Mustang can disclose important information to you by
referring you to those documents. The information incorporated by reference is
part of this Prospectus, and later information that Mustang files with the SEC
will automatically update and supersede this information. Mustang incorporates
by reference the documents listed below. Mustang also incorporates by reference
any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d)
of the Securities Exchange Act of 1934 until the selling shareholders sell all
their shares. This Prospectus is part of a registration statement that Mustang
filed with the SEC (Registration No. 333-____).
- Annual Report on Form 10-KSB for the year ended December 31, 1997;
- Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998
and June 30, 1998,
- Current Reports on Form 8-K dated June 2, 1998 and October 23, 1998.
You may request a copy of these filings, at no cost, by writing us at the
following address: 6200 Lake Ming Road, Bakersfield, California 93306,
Attention: Chief Financial Officer. You should rely only on the information
incorporated by reference or provided in this Prospectus or any supplement.
Mustang has not authorized anyone else to provide you with different
information. The selling shareholders will not make an offer of these shares in
any state that does not permit the offer. You should not assume that the
information in this Prospectus or any supplement is accurate as of any date
other than the date of those documents.
Table of Contents
<TABLE>
<CAPTION>
Page Page
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<S> <C> <C> <C>
Where You Can Find More Information.... 2 Selling Shareholders................ 13
About Mustang.......................... 3 Plan of Distribution................ 15
Risk Factors........................... 4 Description of Securities........... 16
Use of Proceeds........................ 11 Legal Matters....................... 18
Dividend Policy........................ 11 Experts............................. 19
Price Range of Common Stock............ 12
</TABLE>
2
<PAGE> 4
ABOUT MUSTANG
Mustang develops and sells software that assists computer users to
communicate with each other more efficiently through the Internet, local area
networks called "LANs" or "intranets," wide area networks called "WANs" and
standard telephone lines. Mustang markets these products as "Web Essentials."
Mustang's Web Essentials line of software applications include:
- IMC, short for Internet Message Center, an application that lets
businesses manage incoming e-mail with the same efficiency and
tracking as call centers handle incoming telephone calls;
- FileCenter, a high performance program that permits operators of
worldwide web sites known as "webmasters" to provide their users with
an organized, searchable library of files;
- and ListCaster, a powerful e-mail message server that allows easy mass
e-mailings from maintained lists and enables e-mail recipients to
correspond with each other through the originating web site.
Mustang's other product lines include the Wildcat! line of web server software
and the QmodemPro line of telecommunications software.
Mustang's products are used for a wide range of services including e-mail
exchange, file transfer, fax-back services and information gathering and
dissemination using multiple sources such as LANs, WANs, the Internet and the
global World Wide Web of the Internet. These products offer the capability for
businesses to enhance sales, improve customer service, market products and
increase employee productivity. The Company has targeted IMC, its flagship
product which has received several prestigious awards as best new product, at
the rapidly growing customer management, call center and help desk markets.
Mustang began operations in 1986 as a sole proprietorship, became a general
partnership in 1987 and incorporated in California on December 23, 1988. Its
executive offices and sales, marketing and administration facilities are located
at 6200 Lake Ming Road, Bakersfield, California, 93306 and its telephone number
is (805) 873-2500.
The following are Mustang's trademarks: Mustang(TM), Web Essentials(TM),
Internet Message Center(TM), FileCenter(TM), ListCaster(TM), WinServer(TM),
Wildcat!(TM), QmodemPro(TM) and Off-Line Xpress(TM). "Windows," "Windows 95" and
"Windows NT" are trademarks of Microsoft Corporation. This Prospectus also
contains or incorporates trademarks of other companies.
3
<PAGE> 5
RISK FACTORS
This prospectus contains or incorporates forward-looking statements. You
can identify these forward-looking statements by our use of the words
"believes," "anticipates," "plans," "expects," "may," "will," "intends,"
"estimates" and similar expressions, whether in the negative or affirmative.
Although we believe that these forward-looking statements reflect our plans,
intentions, and expectations reasonably, we can give no assurance that we
actually will achieve these plans, intentions or expectations. Our actual
results could differ materially from the plans, intentions and expectations
disclosed in the forward-looking statements we make. We have put in the
cautionary statements below important factors that we believe could cause our
actual results to differ materially from the forward-looking statements that we
make. We do not intend to update information contained in any forward-looking
statement we make.
DECLINE IN REVENUES AND RECENT LOSSES.
New technology involving the Internet made our legacy products outmoded.
The market place did not accept new versions of our communications products.
We still have not had sufficient revenues from our Web Essentials to offset our
cost of producing that revenue and our operating expenses and we may never be
profitable
Over the last several years and recently, our revenues have declined and we have
reported losses. The following table shows the revenues and losses we have
reported:
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $4,819,999 $3,810,240 $1,898,402 $1,258,050 $ 802,638
Net loss 1,096,852 3,452,825 1,340,673 574,366 747,037
</TABLE>
The decline in our revenue directly corresponds to the decline in sales of our
legacy products, QmodemPro and Wildcat! Bulletin Board System software. These
communication products predated the emergence of the Internet and the Web as a
widely accepted and used communication medium. Our old products became
antiquated for several reasons:
- - the built-in communication functions of Windows 95 and Windows NT operating
systems;
- - the emergence of internet service providers, which provided their own
communications software, and Web browsers; and
- - the use of commercial web sites instead of bulletin boards.
While we were early to release our QmodemPro telecommunications software for
Windows 95 and our Wildcat!5 Interactive Net Server, which was capable of
creating and managing a web site on the World Wide Web in addition to a
traditional bulletin board and was designed to take advantage of the power built
into the new Windows 95 and Windows NT operating systems, the products did not
achieve the market acceptance that we had expected and did not stem the decline
in our revenues. We announced our new Web Essentials product line in April 1997
and released the ListCaster, IMC and FileCenter modules of Web Essentials from
May 1997 through October 1997. However, we still have not derived substantial
revenues from these products and have continued to have losses. There can be no
assurance that we will be able to market any of our new Web Essential products
or any other products we may develop successfully.
4
<PAGE> 6
MARKET ACCEPTANCE OF NEW PRODUCTS
Before we can succeed, our targeted market must accept our new web utilities,
especially IMC.
Our future depends upon the market place's acceptance of our new Web Essential
line of web utilities. We hope that the market will accept Web Essentials,
especially our Internet Mail Center program. However, there can be no assurance
that Web Essentials will attain the levels of market acceptance necessary for us
to become profitable or succeed.
VARIABILITY OF OPERATING RESULTS
Revenues during any period are dependent on numerous factors, many of which are
beyond our control.
We typically cannot adjust expenses quickly enough to compensate for an
unexpected shortfall in revenues
Our operating results from quarter to quarter have varied significantly.
Historically, we have not had a material backlog of unfilled orders, and
revenues in any quarter or other period are substantially dependent on orders
booked in that period. Revenues for any period are dependent upon numerous
factors, including
- - the scheduled release of new products and product enhancements and updates
of our products or those of our competitors;
- - the release or anticipated release of complementary products by other
software suppliers, the market acceptance of these products, enhancements
and updates; and
- - numerous other factors, many of which are beyond our control.
In addition, we fix, to a significant extent, our expense levels for each
quarter in advance based upon our expectations as to net sales during that
quarter. Accordingly, we are generally unable to adjust spending in a timely
manner to compensate for any unexpected shortfall in net sales. Thus, any delay
in product introductions, whether due to internal delays or delays caused by
third party difficulties or any significant shortfall of demand in relation to
our expectations would have an almost immediate adverse impact on our operating
results. In the past, we have experienced significant variations in
quarter-to-quarter operating results.
COMPETITION
Our competition is typically larger than we are. We may not be able to exploit
our technological advantages over our competition.
The markets for our products are intensely competitive. We compete with a number
of companies, many of which have far greater financial, technical and marketing
resources than we do. There can be no assurance that we will be able to compete
successfully with these companies. Although we think some of our products have
certain technological advantages, there can be no assurance that we will be able
to maintain or capitalize on these perceived competitive advantages.
5
<PAGE> 7
PRODUCT DEVELOPMENT, INTRODUCTION AND ENHANCEMENT OF PRODUCTS; PRODUCT
CONCENTRATION
Our success depends on choosing to develop and support products that achieve
market acceptance.
Delays in introducing new products, enhancements or upgrades have hurt us.
Our inadvertent release of products with undetected bugs could harm our
business.
Rapidly changing technology and frequent new product introductions are
characteristic of the markets for our products. Accordingly, we believe that our
future prospects depend on our ability not only to enhance and successfully
market our existing products, but also to develop and introduce new products in
a timely fashion which achieve market acceptance. There can be no assurance that
we will be able to identify, design, develop, market or support such products
successfully or that we will be able to respond effectively to technological
changes or product announcements by our competitors. Key to our business our
correct anticipation of customer demand for new products, product enhancements
or upgrades, and making correct product development decisions. If we do not, our
business could suffer, both by the loss of anticipated revenue and, possibly, by
the increase in the installed base of our competitor's customers. These adverse
results could be particularly significant if we were to make a number of
incorrect product development decisions in succession or within a short period.
We have had delays on a number of occasions in starting commercial shipments of
new products and enhancements, resulting in the delay or loss of product
revenues. From time to time, our competition and we may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycle of our existing product offerings. Announcements of currently planned
or other new product offerings could cause customers to defer purchasing our
existing products. In addition, complex programs such as our software may
contain undetected errors or "bugs" when we first introduce them or release new
versions. Delays or difficulties associated with new product introductions or
product enhancements, or the introduction of unsuccessful products or products
containing undetected "bugs," could have a material adverse effect on our
business, operating results and financial condition."
PRODUCT RETURN RIGHTS
Product returns in excess of allowances would adversely affect our financial
results.
We generally give our customers the right to return our software within 30 days
after purchase. Although we believe that we have made adequate allowances for
returns, actual returns could exceed our allowances. Product returns in amounts
that are more than recorded allowances could have a material adverse effect on
our business, operating results and financial condition.
6
<PAGE> 8
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Third parties might duplicate our software and we may not be able to enforce our
rights, especially in foreign countries.
Third parties could claim our products infringe on theirs, resulting in costly
litigation.
We regard our software as proprietary and attempt to protect it with copyrights,
trademarks, restrictions on disclosure, copying and transferring title and
enforcement of trade secret laws. Despite these precautions, it is possible for
unauthorized third parties to copy our products and it may be possible for them
to obtain and use information that we feel is proprietary. We have no patents,
and existing copyright laws afford only limited protection for our software. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent, as do the laws in the United States. Our licenses may
be unenforceable under the laws of certain jurisdictions. As the number of
software products increases and the functionality of these products further
overlaps, we believe that software will increasingly become the subject of
claims that it infringes the rights of others. We do not believe our products
infringe on the rights of third parties. Nevertheless, third parties could
assert infringement claims against us in the future and such assertion could
result in costly litigation or require us to obtain a license to the
intellectual property rights of such parties. There can be no assurance that
such licenses will be available on reasonable terms, or at all.
DEPENDENCE ON KEY PERSONNEL.
Our business may suffer if we lose the services of either our President or Chief
Technical Officer
Our business also may suffer if we cannot recruit or retain qualified technical
personnel
We are dependent upon James A. Harrer, our President and Chief Executive Officer
and C. Scott Hunter, our Vice President and Chief Technical Officer. The loss of
either of these executives could have a material adverse effect on us. While we
have employment agreements with these executives, they may terminate them
without any reason upon four months notice. Moreover, unforeseen circumstances
could cause either of them to no longer render services to the Company. The
Company has key-man life insurance on the life of Mr. Harrer for $1,000,000.
However, the proceeds from this policy may be insufficient to compensate us in
case of Mr. Harrer's death. Further, this policy does not cover us in the event
that he becomes disabled or is otherwise unable to render services. The
continued success of the Company is also dependent upon its ability to attract
and retain highly qualified personnel. There can be no assurance that the
Company will be able to recruit and retain such personnel.
7
<PAGE> 9
RISKS FROM INTERNATIONAL SALES
We face a variety of risks by making sales oversees.
Historically, international sales have accounted for a significant amount of our
revenues. International sales are subject to inherent risks including exposure
to currency fluctuations, regulatory requirements, political and economic
instability and trade restrictions. Our sales have been typically made in U.S.
dollars. However, a weakening in the value of foreign currencies relative to the
U.S. dollar could have an adverse impact on us by increasing the effective price
of our products in international markets. In addition, lower sales levels in
Europe, which typically occur during the summer months, may adversely affect our
business.
POSSIBLE NASDAQ DELISTING
Nasdaq has listed our common stock on The Nasdaq SmallCap Market conditionally.
We currently list our common stock on The Nasdaq SmallCap Market. Nasdaq moved
the listing from the Nasdaq National Market to The Nasdaq Small Cap Market on
October 15, 1998 because we did not meet the maintenance requirements for the
Nasdaq National Market. We recently raised $1,500,000 in a private placement of
common stock, Series A Convertible Preferred Stock and Warrants. In this
transaction, we also arranged for an equity line of credit under which we may
"put" to the investors more shares of our common stock, potentially raising
additional gross proceeds of up to $5,000,000. Nasdaq moved our listing to The
Nasdaq Small Cap Market via an exception from its net tangible assets
requirement. In order for us to maintain our listing on The Nasdaq SmallCap
Market, we must satisfy each of the following conditions:
(1) On or before November 16, 1998, Mustang must file with the SEC and Nasdaq
our Form 10-Q for the quarter ended September 30, 1998 evidencing a minimum
1998 evidencing a minimum of $2,000,000 in net tangible assets;
(2) On or before December 2, 1998, we must provide Nasdaq with written
confirmation that our shareholders have approved the plan to permit the
investors in the private financing to convert the Convertible Series A
Preferred Stock and exercise the Warrants and permit us to utilize the
equity line of credit, if necessary.
(3) We must be able to demonstrate compliance with all requirements for
continued listing on The Nasdaq SmallCap Market.
8
<PAGE> 10
If we do not meet the conditions imposed by Nasdaq, our common stock will be
delisted from the Nasdaq Small Cap Market.
We also need to continue comply with The Nasdaq Small Cap Market's Maintenance
Requirements to keep our listing.
We believe that we can meet these conditions, but there can be no assurance that
we will do so. In particular, shareholders may not approve our issuance of
common stock upon conversion of the Series A Preferred Stock or exercise of the
Warrants sold in the private placement. They may not approve our use of the
equity line of credit or we may elect not to utilize it. We may be unable to
clear our proxy materials with the SEC in time to obtain shareholder approval
by December 2, 1998. If any of these events occurred or if we failed to meet the
other conditions imposed for continued listing, Nasdaq will delist our common
stock from the Nasdaq Stock Market.
We will have to maintain certain minimum requirements for the continued listing
of our common stock on The Nasdaq SmallCap Market. In this regard, we need:
- - net tangible assets of at least $2,000,000, or a market capitalization of
at least $35,000,000, or net income in two of the last three years of at
least $500,000,
- - a public float of at least 500,000 shares with a minimum market value of
$1,000,000,
- - a minimum bid price of at least $1.00 per share, and a
- - minimum of two active market makers and 300 round lot shareholders.
If we are unable to satisfy Nasdaq's maintenance requirements, the Nasdaq may
delist our common stock from The Nasdaq Stock Market. In that event, public
trading, if any, in the common stock would be limited to the over-the-counter
markets in the so-called "pink sheets" or the NASD's OTC Electronic Bulletin
Board. Consequently, the liquidity of our common stock could be impaired.
9
<PAGE> 11
RISK OF LOW PRICED ("PENNY") STOCKS
If Nasdaq delisted our common stock we could become subject to the SEC's penny
stock rules.
In that event, because of the burden placed on broker-dealers to comply with the
rules applicable to penny stocks, investors may have difficulty selling our
common stock in the open market.
If Nasdaq delisted our common stock from the Nasdaq Stock Market, it could
become subject to Rule 15g-9 under the Securities Exchange Act of 1934. This
rule imposes additional sales practice requirements on broker-dealers who sell
so-called "penny" stocks to persons other than established customers and
"accredited investors." Generally, accredited investors are individuals with a
net worth more than $1,000,000 or annual incomes exceeding $200,000, or $300,000
together with their spouses). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction before
sale. Consequently, the rule may adversely affect the ability of broker-dealers
to sell our shares in the secondary market.
Subject to some exceptions, the SEC's regulations define a "penny stock" to be
any non-Nasdaq equity security that has a market price of less than $5.00 per
share, or with an exercise price of less than $5.00 per share. Unless exempt,
the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule relating to the penny stock market and the associated risks.
The rules also require disclosure about commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, the rules require that broker-dealers send monthly
statements disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
If our common stock became subject to the rules applicable to penny stocks, the
market liquidity for the common stock could be severely adversely affected.
10
<PAGE> 12
USE OF PROCEEDS
The Company will not receive any proceeds from the sales of shares of
common stock by the selling shareholders. The Company will add the net proceeds,
if any, received from the exercise of the Warrants to working capital and used
its for general corporate purposes. There can be no assurance as to whether any,
or the number of, Warrants that may be exercised.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on the common stock
since its inception. The Company currently intends to retain all of its
earnings, if any, for use in the operation and expansion of its business and
does not intend to pay any cash dividends to its stockholders in the foreseeable
future.
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK
Through October 14, 1998, Mustang listed its common stock on the Nasdaq
National Market under the symbol "MSTG." Effective on October 15, 1995, Mustang
began listing its common stock on The Nasdaq SmallCap Market under the symbol
"MSTGC." Nasdaq moved the listing from the Nasdaq National Market to The Nasdaq
Small Cap Market conditionally because Mustang did not meet the maintenance
requirements for the Nasdaq National Market. In order to maintain the listing on
the Nasdaq SmallCap Market, the Company must satisfy certain conditions. See
"Risk Factors - Possible Delisting from the Nasdaq Stock Market. The following
table sets forth for the quarters indicated the high and low last reported sale
prices as reported on the Nasdaq National Market through October 14, 1998 and
the high and low bid prices as reported on The Nasdaq SmallCap market from
October 15, 1998. Quotations since October 15, 1998 reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter $ 9.00 $ 5.50
Second Quarter 7.50 4.00
Third Quarter 3.75 2.25
Fourth Quarter 2.63 1.00
1997
First Quarter $ 2.50 $ .63
Second Quarter 1.63 .63
Third Quarter 2.13 .56
Fourth Quarter 1.88 .50
1998
First Quarter $ 4.06 $ 1.25
Second Quarter 3.25 1.25
Third Quarter 2.28 1.50
Fourth Quarter (through ______, 1998) 2.06 1.25
</TABLE>
The 4,098,845, shares of common stock of the Company outstanding as of
October 26, 1998 were held of by 185 shareholders of record, who, the Company
believes, held for in excess of 1,538 beneficial holders. On _______ __, 1998,
the last sale price of the common stock as reported on The Nasdaq SmallCap
Market was $_______per share.
12
<PAGE> 14
SELLING SHAREHOLDERS
Effective on September 17, 1998, pursuant to a Securities Purchase
Agreement (the "Agreement"), the Company completed a private placement of its
securities with the four institutional investors (the "Selling Shareholders")
named in the table below. One of the investors, namely, Settondown Capital
International Limited, served as the placement agent (the "Placement Agent") for
itself and the other investors. Under the Agreement, the Company sold to the
investors for $1,500,000 an aggregate of 612,000 shares of its common stock,
5,246 shares of its Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and Warrants to purchase an aggregate of 180,000 shares of
common stock. For its services in the transaction, which included placing the
initial $1,500,000 investment, and arranging an equity line of credit for the
Company, the Company paid Settondown, as Placement Agent, a fee consisting of
$60,000 cash, 29,480 shares of its common stock, 210 shares of its Series A
Preferred Stock and Warrants to purchase an aggregate of 57,000 shares of common
stock. The Selling Shareholders (including the Placement Agent) are offering for
resale pursuant to this Prospectus the shares of common stock issued and
underlying the Series A Preferred Stock and Warrants sold on September 17, 1998.
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock by the Selling Shareholders as of October
30, 1998. The information in the table concerning the Selling Shareholders who
may offer shares hereunder from time to time is based on information provided to
the Company by such shareholder, except for the assumed conversion of the Series
A Preferred Stock into common stock and the assumed exercise of the Warrants by
the holders, which are based solely on the assumptions referenced in footnote
(1), (2), (3) and (4) to the table. Because the Selling Shareholders may offer
all or some of the shares pursuant to this Prospectus, and to the Company's
knowledge there are currently no agreements, arrangements or understandings with
respect to the sale of any of the shares that may be held by the Selling
Shareholders after completion of this offering, no estimate can be given as to
the amount of Shares that will be held by the Selling Shareholders after
completion of this offering. Information concerning the Selling Shareholders may
change from time to time and any changes of which the Company is advised will be
set forth in a Prospectus Supplement to the extent required. See "Plan of
Distribution."
<TABLE>
<CAPTION>
Number of shares of common stock
--------------------------------------------------------
Issuable
upon
Beneficially conversion Issuable
owned of upon
before Series A exercise Offered Percent of
this Preferred of the in this outstanding
offering Stock Warrants offering shares
Name of Selling Shareholder (1) (1)(2)(3) (1)(2) (1)(2)(3) (2)(4)
- --------------------------------------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Settondown Capital International Ltd. 182,480 251,719 102,000 586,199 12.0
The Cutty Hunk Fund Ltd. 153,000 216,823 45,000 414,823 9.5
Canal, Ltd. 153,000 216,988 45,000 414,988 9.5
Manchester Asset Management Ltd. 153,000 216,823 45,000 414,823 9.5
</TABLE>
- ----------
(1) The Series A Preferred Stock is not convertible and the Warrants are not
exercisable unless, among other things, shareholders so approve or the
Company's common stock is no longer listed on The Nasdaq Stock Market.
Prior to
13
<PAGE> 15
December 2, 1998, the Company plans to hold a Special Meeting of
Shareholders seeking approval for the conversion of the Series A Preferred
Stock and exercise of the Warrants. Nasdaq has notified the Company that
its common stock will be delisted from the Nasdaq Stock Market if
shareholders do not approve such conversion or exercise by that date.
(2) The information assumes that the Series A Preferred Stock will be
convertible and the Warrants will be exercisable either because
shareholders approve the same or because the Company's common stock is no
longer listed on The Nasdaq Stock Market.
(3) Consists of 200% of 451,176 shares of common stock issuable upon exercise
of 5,456 shares of outstanding Series A Preferred Stock. The number of
shares issuable upon conversion of the Series A Preferred Stock has been
determined based on 90% of the average of the four lowest closing bid
prices of the Company during the 10-day trading period ended October 30,
1998). The Company agreed to register the number of shares of common stock
so determined in a Registration Rights Agreement with the Selling
Shareholders entered into concurrently with the Agreement. The number of
shares of common stock actually issued upon conversion of the Series A
Preferred Stock will depend on the market price of the Company's common
stock at the time the Series A Preferred Stock is converted by the Selling
Shareholders from time to time. See "Description of Securities."
Accordingly, information concerning the number of shares of common stock
issuable upon conversion of the Series A Preferred Stock and the number of
shares that the Selling Shareholders will offer may change from time to
time and any changes of which the Company is advised will be set forth in a
Prospectus Supplement to the extent required.
(4) Beneficial ownership for purpose of computing the percent of outstanding
shares is determined in accordance with the rules of the Securities and
Exchange Commission. Shares of common stock issuable upon exercise of the
Series A Preferred Stock and Warrants are considered outstanding for
purpose of computing the percentage ownership of the Selling Shareholder
holding the Series A Preferred Stock and Warrants but are not considered
outstanding for purpose of computing percentage ownership of any other
Selling Shareholder.
To the knowledge of the Company, none of the Selling Shareholders has
any material relationship or engaged in any transaction with the Company except
pursuant to the Agreement.
14
<PAGE> 16
PLAN OF DISTRIBUTION
The distribution of the shares by the Selling Shareholders may be effected
from time to time in one or more transactions (which may involve block
transactions), in special offerings, exchange distributions and/or secondary
distributions, in negotiated transactions, in settlement of short sales of
common stock or a combination or such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Such transactions may be effected on the
over-the-counter market or privately. The Selling Shareholders may effect such
transactions by selling the shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders for whom they may act
as agent (which compensation may be in excess of customary commissions). Without
limiting the foregoing, such brokers may act as dealers by purchasing any and
all of the shares covered by this Prospectus either as agents for others or as
principals for their own accounts and reselling such securities pursuant to this
Prospectus. The Selling Shareholders and any broker-dealers or other persons
acting on the behalf of parties that participate with such Selling Shareholders
in the distribution of the shares may be deemed to be underwriters and any
commissions received or profit realized by them on the resale of the shares may
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933 (the "Securities Act"). As of the date of this Prospectus, the Company
is not aware of any agreement, arrangement or understanding between any broker
or dealer and the Selling Shareholders with respect to the offer or sale of the
shares pursuant to this Prospectus.
At the time that any particular offering of shares is made, to the extent
required by the Securities Act, a prospectus supplement will be distributed,
setting forth the terms of the offering, including the aggregate number of
shares being offered, the names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Shareholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
Selling Shareholders may also sell their shares pursuant to Rule 144
promulgated under the Securities Act. Each of the Selling Shareholders may from
time to time pledge the shares owned by it to secure margin or other loans made
to such Selling Shareholder. Thus, the person or entity receiving the pledge of
any of the shares may sell them, in a foreclosure sale or otherwise, in the same
manner as described above for such Selling Shareholder.
The Company will not receive any of the proceeds from any sale of the
shares by the Selling Shareholders offered hereby.
Pursuant to a Registration Rights Agreement that the Company and the
Selling Stockholders entered into at the same time they entered into the
Agreement (the "Registration Rights Agreement"), the Company and the Selling
Shareholders have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act. The Company shall bear customary
expenses incident to the registration of the shares for the benefit of such
Selling Shareholders in accordance with such agreements, other than underwriting
discounts commissions.
The Company has agreed to use its best efforts to keep the Registration
Statement of which this Prospectus is a part effective until the earliest of (i)
the date that all of the common stock which it
15
<PAGE> 17
has agreed to register under the Registration Rights Agreement has been sold
pursuant to the Registration Statement of which this Prospectus is a part or any
post-effective amendment thereto (ii) the date the Selling Shareholders may sell
all the shares under the provisions of Rule 144 or (iii) September 17, 2001.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares
of common stock, no par value, and 10,000,000 shares of preferred stock, no par
value.
THE PRIVATE PLACEMENT
Effective on September 17, 1998, pursuant to the Agreement, the Company
completed a private placement of its securities to the Selling Shareholders.
Under the Agreement, the Company sold to the Selling Shareholders for $1,500,000
an aggregate of 612,000 shares of its common stock, 5,246 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and Warrants to
purchase an aggregate of 180,000 shares of common stock. For its services in the
transaction, which included placing the initial $1,500,000 investment, and
arranging an equity line of credit for the Company, the Company paid Settondown
Capital International Limited, as Placement Agent, a fee consisting of $60,000
cash, 29,480 shares of its common stock, 210 shares of its Series A Preferred
Stock and Warrants to purchase an aggregate of 57,000 shares of common stock.
COMMON STOCK
As of October 26, 1998, 4,063,365 shares of common stock were outstanding.
The holders of common stock are entitled to receive dividends when and as
declared by the Board of Directors out of any funds legally available therefor.
Holders of common stock are entitled to one vote per share on all matters on
which the holders of common stock are entitled to vote and the holders of common
stock may cumulate their votes in the election of directors upon giving notice
as required by law. Cumulative voting means that in any election of directors,
each shareholder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by such
shareholder, or such shareholder may distribute such number of votes among as
many candidates as the shareholder sees fit. There are no preemptive rights
associated with any of the shares of common stock. In the event of a
liquidation, dissolution or winding up of the Company, holders of common stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debt and liabilities of the Company and the
liquidation preference of any outstanding class or series of preferred stock.
The shares of common stock offered by the Selling Shareholders hereby will be,
when sold, fully paid and nonassessable. The rights, preferences and privileges
of holders of common stock are subject to any series of preferred stock which
the Company may issue in the future.
16
<PAGE> 18
PREFERRED STOCK
The Company is authorized to issue preferred stock in series to be
designated by the Board of Directors. Material provisions describing the terms
of any series of preferred stock which may be issued in the future, such as
dividend rate, conversion features, voting rights, redemption rights and
liquidation preferences, are determined by the Board of Directors of the Company
at the time of issuance. The right of the Board of Directors to issue "blank
check" preferred stock may adversely affect the rights of holders of shares of
common stock and also could be used by the Company as a means of resisting a
change of control of the Company.
Of the 10,000,000 shares of preferred stock authorized in general, the
Company has authorized 15,246 shares of Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), of which 5,456 shares have been issued. All of
the Series A Preferred Stock has been issued to the Selling Shareholders.
Holders of Series A Preferred Stock are not entitled to dividends and have
no voting rights, except as provided otherwise by law. For each share of Series
A Preferred Stock held, holders are entitled to a liquidation preference of $100
plus 5 percent per annum thereon from September 17, 1998 to the day immediately
prior to any liquidation, dissolution or winding up of Mustang.
Subject to certain conditions and limitations (including shareholder
approval or the delisting of the Company's common stock from The Nasdaq Stock
Market) beginning on December 15, 1998, each share of Series A Preferred Stock
will be convertible into that number of shares of the Company's common stock
which is determined by dividing $100 plus 5% per annum thereon from September
17, 1998 to the date of conversion, by the lower of $1.875 per share or the
"market price" per share at the time of conversion. The "market price" for
purposes of conversion is 90% of the average of the four lowest closing bid
prices of the common stock during the 10 day trading period immediately
preceding the conversion date (the "Lookback Period"). The Lookback Period is be
increased by two trading days every month commencing on January 17, 1999 and
continue to increase by two trading days every month thereafter that the Series
A Preferred Stock is outstanding until the Lookback Period equals a maximum of
thirty trading days.
If not earlier converted, the Series A Preferred Stock will automatically
convert into common stock on September 17, 2000. Subject to certain conditions
and limitations, the Company has the right to force conversion by the holders of
the Series A Preferred Stock in the event the closing bid price of the common
stock is equal to or greater than $2.8125, $3.28125 or $3.75. In such event,
the Company may force conversion by the holder of up to 15% of the total number
of shares of Series A Preferred Stock, up to a cumulative aggregate of 75% of
the total number of shares of Series A Preferred Stock issued to the holders.
WARRANTS
Under the Agreement, the Company issued Warrants (the "A" Warrants) to
purchase an aggregate of 200,000 shares of common stock. These Warrants will be
exercisable until September 13, 2000 at an exercise price of $1.90, an amount
equal to 110% of the average closing bid price of the common stock for the five
trading days preceding September 17, 1998.
17
<PAGE> 19
Under the Agreement, the Company also issued Warrants (the "B" Warrants) to
purchase an aggregate of 37,000 shares of common stock. These Warrants are
exercisable until September 13, 2000 at an exercise price of $2.08, an amount
equal to 120% of the average closing bid price of the common stock for the five
trading days preceding September 17, 1998.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock of the Company is
U.S. Stock Transfer Corporation, Glendale, California.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon for
the Company by Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation,
Beverly Hills, California.
EXPERTS
The financial statements of the Company incorporated into this Prospectus
by reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, and are incorporated herein and in the Registration Statement of
which this Prospectus is a part in reliance upon the report of Arthur Andersen
LLC and upon the authority of said firm as experts in accounting and auditing.
18
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the Common Stock being registered
hereby, other than underwriting commissions and discounts, all of which are
estimated except for the SEC and NASD filing fees.
<TABLE>
<CAPTION>
Item Amount
---- ------
<S> <C>
SEC registration fee $ 992
Nasdaq Additional Listing Fee
Blue Sky fees and expenses
Printing and engraving expenses
Legal fees and expenses
Accounting fees and expenses
Transfer Agent and registrar fees 2,500
Miscellaneous expenses
------
Total
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws of Mustang Software, Inc., (the "Company") require the Company
to indemnify officers and directors of the Company to the fullest extent
permissible under California law. Section 317 of the California General
Corporation Law makes provision for the indemnification of officers, directors
and other corporate agents in terms sufficiently broad to indemnify such
persons, under certain circumstances, for liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act").
ITEM 16. EXHIBITS
4.1 Form of Common Stock certificate (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement of Form SB-2 (file no.
33-89900-LA)).
4.2 Securities Purchase Agreement dated as of September 14, 1998 between
the Company and Settondown Capital International Limited and the other
investors named therein.
4.3 Certificate of Determination of Mustang Software, Inc. relating to the
authorization and determination of the Series A Convertible Preferred
Stock.
4.4 Escrow Agreement dated as of September 14, 1998 between the Company and
Settondown Capital International Limited and the other investors named
therein
4.5 Registration Rights Agreement dated as of September 14, 1998 between
the Company and Settondown Capital International Limited and the other
investors named therein
4.6 Form of Stock Purchase Warrant A
4.7 Form of Stock Purchase Warrant B
5 Opinion of Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation (to be filed by amendment)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation (contained in Exhibit 5)
24.1 Power of Attorney (contained on Signature page)
1
<PAGE> 21
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(c) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
provided, however, that the undertakings set forth in paragraph (a) and (b)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in
this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
2
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chatsworth, State of California, on the 2nd day of
November, 1998.
MUSTANG SOFTWARE, INC.
By: /s/ James A. Harrer
---------------------------------
James A. Harrer, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James A. Harrer and Donald M. Leonard,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution for him in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Names Title Date
----- ----- ----
<S> <C> <C>
/s/ James A. Harrer President and Chief Executive Officer
James A. Harrer (Principal Executive Officer) and a Director November 2, 1998
/s/ Donald M. Leonard Vice President Finance, Chief Financial November 2, 1998
Donald M. Leonard Officer (Principal Financial and Accounting
Officer) and a Director
/s/ C. Scott Hunter Director November 2, 1998
C. Scott Hunter
/s/ Stanley A. Hirschman Director November 2, 1998
Stanley A. Hirschman
/s/ Michael S. Noling Director November 2, 1998
Michael S. Noling
</TABLE>
3
<PAGE> 1
EXHIBIT 4.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of September 14, 1998 (the
"Agreement"), between the entities listed on Schedule A attached hereto
(collectively referred to as the "Investor"), SETTONDOWN CAPITAL INTERNATIONAL
LTD. (the "Placement Agent") located at Charlotte House, Charlotte Street, P.O.
Box N. 9204, Nassau, Bahamas, a corporation organized under the laws of Bahamas,
and MUSTANG SOFTWARE, INC., a corporation organized and existing under the laws
of the State of California (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase up to (a)
5,246 shares of Preferred Stock (as defined below), (b) 612,000 shares of Common
Stock, (c) Warrants to purchase up to 240,000 Warrant Shares, and (d) pursuant
to the Company's option of exercising its "Put" rights upon the Investors for
the purchase and sale of up to an additional $5,000,000 of the Common Stock for
a total aggregate purchase price of $6,500,000 (the "Aggregate Purchase Price");
and
WHEREAS, the Company shall issue to the Placement Agent (in addition to
the fees set forth in Section 13.7 below), in return for services rendered, from
time to time as provided herein, up to 210 shares of Series A Convertible
Preferred Stock, a Class A Warrant to purchase up to 50,000 Warrant Shares, a
Class B Warrant to purchase up to 21,000 Warrant Shares, and 15,000 shares of
Common Stock; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.6 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.4 "Capital Shares Equivalents" shall mean any
<PAGE> 2
securities, rights, or obligations that are convertible into or exchangeable
for, or giving any right to, subscribe for any Capital Shares of the Company or
any warrants, options or other rights to subscribe for or purchase Capital
Shares or any such convertible or exchangeable securities.
Section 1.5 "Certificate of Determination" shall mean the Company's
Certificate of Determination setting forth all of the rights, privileges and
preferences of the Preferred Stock, as annexed hereto as Exhibit A.
Section 1.6 "Closing" shall mean one of the closings of a purchase and sale
of the Common Stock, Warrants, and Preferred Stock pursuant to Article II below.
Section 1.7 "Closing Date" shall mean, with respect to the purchase of the
Initial Shares the Closing Date shall be on the Subscription Date. The Closing
Date for the Put Shares shall be on the Fifth Trading Day following each Put
Date. For each Closing Date, all conditions contained in this Agreement (and in
all Exhibits annexed hereto) must have been fulfilled at or prior to each
Closing Date. In the event such date shall fall on a holiday or a weekend, then
the next Trading Day thereafter shall be the Closing Date.
Section 1.8 "Commitment Amount" shall mean up to the $6,500,000 which the
Investors have agreed to provide to the Company in order to purchase the Initial
Shares, and Put Shares pursuant to the terms and conditions of this Agreement.
Section 1.9 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and all of the Investors may mutually agree in writing, and expiring on
the earliest to occur of (x) the date on which the Investors shall have
purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price
of $5,000,000, (y) the date this Agreement is terminated pursuant to Section
2.4, or (z) the date occurring two years after the Effective Date.
Section 1.10 "Common Stock" shall mean the Company's common stock, no par
value per share.
Section 1.11 "Condition Satisfaction Date" shall have the meaning set forth
in Section 7.2.
Section 1.12 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses which shall include, but not be limited to, reasonable attorney's
fees, disbursements, costs and expenses of expert witnesses and investigation.
Section 1.13 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
following: (i) two hundred (200%) percent of the Initial Shares of Common Stock,
Underlying Shares (as of the date the Registration Statement is filed), and
Warrant Shares, and (ii) two hundred (200%) percent of that number of shares of
Common Stock, Underlying Shares (as of the date the Registration Statement is
filed), and Warrant Shares issued to the Placement Agent as set forth in Section
13.7 below.
<PAGE> 3
Section 1.14 "Escrow Agent" shall mean the law firm of Goldstein, Goldstein
& Reis, LLP, pursuant to the terms of the Escrow Agreement attached as Exhibit
B.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.16 "Forced Conversion Period" shall mean 10 consecutive Trading
Days.
Section 1.17 "Floor Price" shall mean a Bid Price of One Dollar ($1.00) per
share of Common Stock.
Section 1.18 "Initial Shares" shall mean collectively the Initial Shares of
Common Stock and the Initial Shares of Preferred Stock as set forth in Section
2.8.
Section 1.19 "Initial Shares of Common Stock" shall mean the shares of
Common Stock issuable by the Company to the Investors pursuant to Section 2.8
below.
Section 1.20 "Initial Shares of Preferred Stock" shall mean the shares of
Preferred Stock issuable by the Company to the Investors pursuant to Section 2.8
below.
Section 1.21 "Initial Shares Investment Amount" shall mean
$1,500,000.
Section 1.22 "Initial Shares of Common Stock Investment Amount" shall mean
$975,400.
Section 1.23 "Investment Amount" shall mean, upon proper notification by
the Company to each of the Investors, the dollar amount to be invested by each
of the Investors to purchase Put Shares with respect to any Put Notice in
accordance with Section 2.2 hereof.
Section 1.24 "Issuance Price" shall mean $1.875 per share.
Section 1.25 "Legend" shall have the meaning set forth in Section 9.1.
Section 1.26 "Market Price" on any given date shall mean the average of the
three lowest Bid Prices of the Common Stock during the Valuation Period.
Section 1.27 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise in any material respect interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Determination or the Warrants in any material respect.
<PAGE> 4
Section 1.28 "Maximum Put Amount" on any Put Date shall mean the amount
indicated opposite the range in which the Closing Price is on such Put Date and
below the 30 Day Average Daily Trading Volume on such Put Date, as set forth in
the Table below:
<TABLE>
<CAPTION>
30-Day 30-Day 30-Day 30-Day 30-Day 30-Day
Avg. Avg. Avg. Avg. Avg. Avg.
Closing Daily Daily Daily Daily Daily Daily
Price Trading Trading Trading Trading Trading Trading
Volume Volume Volume Volume Volume Volume
20,000- 50,001- 75,001- 100,001- 125,001- 150,001-
50,000 75,000 100,000 125,000 150,000 Above
<S> <C> <C> <C> <C> <C> <C>
$1.00 - $1.50 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000
$1.51 - $2.00 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000
$2.01 - $2.50 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
$2.51 - $3.00 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000
$3.01 - $3.50 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000
$3.51 - $4.00 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000
$4.01 - $4.50 $400,000 $450,000 $500,000 $550,000 $600,000 $650,000
$4.51 - $5.00 $450,000 $500,000 $550,000 $600,000 $650,000 $700,000
$5.01 - $5.50 $500,000 $550,000 $600,000 $650,000 $700,000 $750,000
$5.51 - $6.00 $550,000 $600,000 $650,000 $700,000 $750,000 $800,000
$6.01 - $6.50 $600,000 $650,000 $700,000 $750,000 $800,000 $850,000
$6.51 - $7.00 $650,000 $700,000 $750,000 $800,000 $850,000 $900,000
$7.01 - Above $700,000 $750,000 $800,000 $850,000 $900,000 $950,000
</TABLE>
Section 1.29 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.30 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any
<PAGE> 5
such Shares then directly or indirectly owned or held by or for the account of
the Company.
Section 1.31 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.32 "Preferred Stock" shall mean the Company's Series A Preferred
Stock with the rights, privileges and preferences, as set forth in the
Certificate of Determination.
Section 1.33 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the OTC Electronic
Bulletin Board operated by the National Association of Securities Dealers, Inc.,
the "pink sheets" published by the National Quotation Bureau, Inc., or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
Section 1.34 "Purchase Price" shall mean (a) with respect to the Initial
Shares of Common Stock, eighty five (85%) percent of the Bid Price on the
Trading Day immediately preceding the Subscription Date, (b) with respect to
each Initial Share of Preferred Stock, an amount equal to $100, and (c) with
respect to Put Shares, eighty eight (88%) percent of the Market Price upon a Put
Date (or such other date on which the Purchase Price is calculated in accordance
with the terms and conditions of this Agreement).
Section 1.35 "Put" shall mean each occasion in which the Company elects to
exercise its right to tender a Put Notice requiring the Investors (pro rata) to
purchase shares of the Company's Common Stock, subject to the terms of this
Agreement.
Section 1.36 "Put Date" shall mean the Trading Day during the Commitment
Period that a Put Notice to issue and sell Put Shares to the Investors is deemed
delivered pursuant to Section 2.2(b) hereof.
Section 1.37 "Put Notice and/or Compliance Certificate" shall mean a
written notice to each of the Investors setting forth the Investment Amount that
the Company intends to Put to the Investors (pro rata), including the
certification that the Company has complied in all material respects with all
obligations and conditions contained in this Agreement, in the form annexed
hereto as Exhibit C.
Section 1.38 "Put Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to a Put that has occurred or may occur
in accordance with the terms and conditions of this Agreement.
Section 1.39 "Registrable Securities" shall mean the Initial Shares of
Common Stock, the Underlying Shares (not including the shares of Common Stock
underlying the Repricing Shares), the Additional Shares, the Warrant Shares, and
all Securities issued to the Placement Agent, (i) in respect of which the
Registration Statement (covering these securities) has not
<PAGE> 6
been declared effective by the SEC, (ii) which have not been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) which have not been otherwise transferred to holders who may trade such
shares without restriction under the Securities Act, or (iv) the sales of which,
in the opinion of counsel to the Company, are subject to any time, volume or
manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act.
Section 1.40 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, and the shares of Common Stock underlying the Repricing
Shares, entered into between the Company, the Placement Agent, and the Investors
on the Subscription Date annexed hereto as Exhibit D.
Section 1.41 "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement, and the Warrants and in accordance
with the intended method of distribution of such securities), for the
registration of the resale by the Investors and the Placement Agent of the
Registrable Securities under the Securities Act.
Section 1.42 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.43 "Repricing Date" shall mean the earlier to occur of (i) the
Effective Date or (ii) the first anniversary of the Subscription Date.
Section 1.44 "Repricing Shares" shall mean that number of shares of
Preferred Stock issuable pursuant to Section 2.9 below.
Section 1.45 "Reset Price" shall mean eighty five (85%) percent of the
Market Price on the applicable Repricing Date.
Section 1.46 "SEC" shall mean the Securities and Exchange Commission.
Section 1.47 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.48 "Securities" shall mean the Initial Shares, the Put Shares,
the Repricing Shares, the Underlying Shares, the Additional Shares, the Warrant
Shares and any and all Securities issued to the Placement Agent.
Section 1.49 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.50 "SEC Documents" shall mean the Company's latest Form 10-K (and
all amendments thereto) or 10-KSB (and all amendments thereto) as of the time in
question, all Form 10-Qs or 10-QSBs and Form 8-Ks filed thereafter, and the
Proxy Statement
<PAGE> 7
for its latest fiscal year as of the time in question until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.51 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered by
the parties hereto and all of the conditions relating to the Initial Shares
shall have been fulfilled.
Section 1.52 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between Put Dates.
Section 1.53 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.54 "Underlying Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.55 "Valuation Event" shall mean an event in which the Company at
any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares") at a price per share less, or for other consideration, lower than the
Bid Price in effect immediately prior to such issuance, or without
consideration, other than (i) as provided in the foregoing Subsections (a) and
(b) above, , (ii) upon exercise of warrants and options outstanding on the
Subscription Date, (iii) pursuant to the Company's employee benefit plans as in
effect as of the Subscription Date, and (iv) a firmly underwritten public
offering of the Common Stock;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to the issuance of such warrants, options or other
rights, except pursuant to the Company's employee benefit plan as in effect as
of the Subscription Date;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be at or less than the Bid Price in
effect immediately prior to the issuance of such warrants, options or other
rights, except pursuant to the Company's employee benefit plan as in effect as
of the Subscription Date;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for
<PAGE> 8
dividends under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing subsections (a)
through (e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put or exercise of the Warrants.
Notwithstanding anything to the contrary contained in this Section 1.54, a
Valuation Event shall not include any event involving the issuance of any
Registrable Securities, Common Stock underlying the Repricing Shares, Preferred
Stock or
Warrants.
Section 1.56 "Valuation Period" shall mean, (i) with respect to the
Purchase Price on any Put Date, the five (5) Trading Day period consisting of
the three (3) Trading Days immediately preceding and the one (1) Trading Day
following the Trading Day on which a Put Notice is deemed to be delivered, and
the Trading Day on which such notice is deemed to be delivered; and (ii) with
respect to the Repricing Shares, the five (5) Trading Days immediately preceding
the Repricing Date; provided, however, that if a Valuation Event occurs during a
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the fifth
Trading Day thereafter.
Section 1.57 "Warrant A" shall have the meaning set forth in Section 2.5
and substantially in the form of Exhibit E.
Section 1.58 "Warrant B" shall have the meaning set forth in Section 2.6
and substantially in the form of Exhibit F.
Section 1.59 "Warrants" shall mean collectively the Warrant A and Warrant
B.
Section 1.60"Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to the exercise of Warrant A or Warrant
B.
ARTICLE II
Purchase and Sale of Common Stock, Preferred Stock and Warrants
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date the
Company may make a Put by the delivery of a Put Notice/Compliance Certificate in
the form attached hereto as Exhibit C. The number of Put Shares that the
Investors shall receive pursuant to such Put shall be determined by dividing the
Investment Amount specified in the Put Notice by the Purchase Price on such Put
Date, which aggregate Investment Amount shall not exceed the Maximum Put Amount
on such date, and
<PAGE> 9
shall be distributed pro rata amongst the Investors.
(b) Maximum Aggregate Amount of Puts. Notwithstanding the provisions
of section 2.1(a), the Company may not make a Put, and the Investors may not be
compelled to purchase any Put Shares, unless and until holders of Common Stock
approve the issuance of shares of Common Stock (and securities convertible into
or exercisable for Common Stock) equal to 20% or more of the Common Stock
outstanding immediately prior to the Subscription Date in accordance with
applicable rules of The Nasdaq Stock Market; provided, however, that if at the
time the Company wishes to make a Put, the Common Stock is not listed on The
Nasdaq Stock Market or the rules of the Principal Market do not otherwise
require shareholder approval for the issuance of shares of Common Stock (and
securities convertible into or exercisable for Common Stock) equal to 20% or
more of the Common Stock outstanding immediately prior to the Subscription Date,
such approval by holders of Common Stock shall not be required to make a Put.
Section 2.2 Mechanics For a Put.
(a) Put Notice. At any time after the forty fifth (45th) day
following the Repricing Date, the Company may deliver a Put Notice to the
Investors, subject to the conditions set forth in Section 7.2 and below;
provided, however, the Investment Amount for each Put as designated by the
Company in the applicable Put Notice shall be neither less than $50,000 nor more
than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investors if such notice is received prior to 12:00 p.m. Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 p.m. Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 Put Closings. On each Closing Date for a Put (i) the Company
shall deliver to the Escrow Agent for the benefit of the Investors one or more
certificates, at the Investors option, representing the Put Shares to be
purchased by the Investors pursuant to Section 2.1 herein, registered in the
name of the Investors; and (ii) each of the Investors shall deliver to escrow
their portion of the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to the Escrow Agent on or before the
Closing Date. In addition, on or prior to the Closing Date for a Put, each of
the Company, and the Investors shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company, payment of
Placement Agent fees as set forth in Section 13.7 below and delivery of the
certificates to the Investors shall occur on the Closing Date for the applicable
Put in accordance with the Escrow Agreement; provided, however, that to the
extent the Company has not paid the fees, expenses, and disbursements of the
Escrow Agent and Placement Agent in accordance with Section 13.7, the amount of
such fees, expenses and disbursements shall be paid out of the funds that the
Escrow Agent is holding for the Company to the respective parties, in
immediately available funds, at the
<PAGE> 10
direction of the Investors, with no reduction in the number of Put Shares
issuable to the Investors on such Closing Date.
Section 2.4 Termination of Investment Obligation. The obligation of the
Investors to purchase shares of Common Stock pursuant to a Put shall terminate
permanently (including with respect to a Closing Date that has not yet occurred
but for which a Put Notice has been delivered to the Investors) in the event
that (i) there shall occur any stop order or suspension of the effectiveness of
the Registration Statement for an aggregate of twenty (20) Trading Days during
the Commitment Period, for any reason other than deferrals or suspensions in
accordance with the Registration Rights Agreement as a result of corporate
developments subsequent to the Subscription Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act or (ii)
the Company shall at any time fail to comply with the requirements of Section
6.3, 6.4 or 6.6; provided, that in the case of clause (i) above, the Investors'
obligation to purchase shares of Common Stock shall be reinstated when the
Investors receive copies of the supplemented or amended prospectus contemplated
by the Registration Rights Agreement.
Section 2.5 The Warrants.
(a) Warrant A. On the Subscription Date, the Company will issue to the
Investors (pro rata) and the Placement Agent Warrant A's exercisable beginning
on the Subscription Date and then exercisable any time over the two year period
there following, to purchase an aggregate of 150,000 Warrant Shares for the
Investors and 50,000 Warrant Shares for the Placement Agent at the Exercise
Price (as defined in the Warrant). The Warrant A's shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors and Placement Agent
pursuant to the terms of this Agreement and the Escrow Agreement. All of the
aforementioned Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
(b) Warrant B. On the Subscription Date, and thereafter on the Closing
Date of each of the first two Puts, the Company will issue warrants to the
Investors (pro rata) and the Placement Agent in the form of Warrant B to
purchase an aggregate of 30,000 Warrant Shares for the Investors (pro rata), and
7,000 Warrant shares for the Placement Agent, at the Exercise Price (as defined
in the Warrant). Subject to the express provisions of the Warrant B, each
Warrant B shall be exercisable for a two year period commencing on the date a
Warrant B is issued. When issuable, each Warrant B shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors and the Placement
Agent pursuant to the terms of this Agreement and the Escrow Agreement. All of
the aforementioned Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
Section 2.6 Additional Shares. In the event that (a) within five Trading
Days after the date in which the Investors and/or the Placement Agent receive
any of the Securities issued hereunder, a "blackout period" occurs in accordance
with the Sections 3(h) and 3(i) of the Registration Rights Agreement, and (b)
the Bid Price on the Trading Day immediately preceding such "blackout period"
(the "Old Bid Price") is greater than the Bid
<PAGE> 11
Price on the first Trading Day following such "blackout period" (the "New Bid
Price"), the Investors and/or the Placement Agent may sell its Registrable
Securities at the New Bid Price pursuant to an effective Registration Statement,
and the Company shall issue to the Investors and/or the Placement Agent the
number of additional shares equal to the difference between (y) the product of
the number of Registrable Securities held by the Investors and/or the Placement
Agent during such "blackout period" that are or were not otherwise freely
tradeable and the Old Bid Price, divided by the New Bid Price and (z) the number
of Registrable Securities held by the Investors and/or the Placement Agent
during such "blackout period" that were not otherwise freely tradeable during
such Blackout Period.
Section 2.7 Liquidated Damages. In addition to any other provisions for
liquidated damages in this Agreement or any Exhibit annexed hereto, in the event
that the Company does not deliver unlegended Common Stock in connection with the
sale of such Common Stock by the Investor(s) and/or the Placement Agent as set
forth in Article IX below within three (3) Trading Days of surrender by the
Investor(s) of the Common Stock certificate in accordance with the terms and
conditions set forth in Article IX below (such date of receipt is referred to as
the "Receipt Date"), the Company shall pay to the Investor(s), in immediately
available funds, upon demand, as liquidated damages for such failure and not as
a penalty, one (1%) percent of the Purchase Price of the Common Stock
undelivered for every day thereafter for the first ten (10) days and two (2%)
percent for every day thereafter that the unlegended shares of Common Stock are
not delivered, which liquidated damages shall run from the fourth (4th) Trading
Day after the Receipt Date. The parties hereto acknowledge and agree that the
sum payable pursuant to the Registration Rights Agreement and as set forth
above, and the obligation to issue Registrable Securities under Section 2.6
above, shall constitute liquidated damages and not penalties. The parties
further acknowledge that the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, and the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
Notwithstanding the above, in the event that the Company does not deliver
unlegended Common Stock in connection with the sale of such Common Stock by the
Investor(s) and/or the Placement Agent as set forth in Article IX below within
three (3) Trading Days of the Receipt Date), the Company shall also pay to the
Investor(s), in immediately available funds, interest (at the then current prime
rate) on the Purchase Price of the Common Stock undelivered for every day
thereafter that the unlegended shares of Common Stock are not delivered. Any and
all payments required pursuant to this paragraph shall be payable only in cash.
Section 2.8 Initial Purchase.
(a) The Company agrees to sell and the Investors agree to purchase (i)
an aggregate of 612,000 Initial Shares of Common Stock , and (ii) 5,246 shares
of Preferred Stock, against payment of the Initial Shares Investment Amount. The
Initial Shares of Common Stock will be subject to repricing as described in
Section 2.9 herein.
(b) The right of the Company to receive the Initial
<PAGE> 12
Shares Investment Amount from the Investors, and the right of the Investors to
receive the Initial Shares and Warrants A and B (as set forth in Section 2.5) is
subject to the satisfaction on the Closing Date for the Initial Shares, of each
of the following conditions:
(i) acceptance by the Company, and by all of the Investors, of this
Agreement and all duly executed Exhibits thereto by an authorized
officer of the Company;
(ii) delivery into escrow by the Investors of clear funds for the
Initial Shares Investment Amount (as more fully set forth in the
Escrow Agreement attached hereto as Exhibit B);
(iii) all representations and warranties of the Investors and of the
Company contained herein shall remain true and correct in all
material respects as of the Subscription Date;
(iv) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Common Stock
and the Warrants, or shall have the availability of exemptions
therefrom;
(v) the sale and issuance of the Common Stock, the Warrants, and the
proposed issuance of the Common Stock underlying both the
Preferred Stock and Warrants shall be legally permitted by all
laws and regulations to which the Investors and the Company are
subject; and all duly executed Exhibits hereto for the sale of the
Securities;
(vi) delivery of the original Initial Shares and Warrants as described
herein;
(vii) receipt by the Investors of an opinion of counsel of the Company
as set forth in Exhibit G attached hereto and instructions to the
Transfer Agent as set forth in Exhibit H annexed hereto;
(viii) written proof that the Certificate of Determination has been filed
with the Secretary of State of the State of California; and
(ix) payment of all fees as set forth in Section 13.7 below and the
Escrow Agreement.
Section 2.9 Repricing.
(a) If on the Repricing Date, the Reset Price is lower than the
Purchase Price with respect to the Initial Shares of Common Stock, then the
Company shall issue to the Investors pro rata based on the number of Initial
Shares of Common Stock purchased by that Investor on the Subscription Date, that
number of shares of Preferred Stock (if any, rounded to the nearest
<PAGE> 13
whole share of Preferred Stock) derived from the following formula:
{[(Initial Shares of Common Stock Investment Amount/Reset
Price) - 612,000] x the Bid Price on the Repricing Date}/100
Such shares of Preferred Stock so issuable, if any, pursuant to this
repricing shall be delivered within three (3) Trading Days after the Repricing
Date.
(b) The Company agrees to file and use its best efforts to cause to be
effective, a post effective amendment to the Registration Statement (or
registration statement) to include the shares of Common Stock underlying the
Repricing Shares (pursuant to the terms of the Registration Rights Agreement).
The Company may only issue the Repricing Shares if the Certificate of
Determination remains in full force and effect as of the applicable Repricing
Date and the Company files an amendment to the Certificate of Determination
authorizing these additional shares. In the event the Company is obligated to
issue Repricing Shares, as set forth above, but is unable to issue such
Repricing Shares, for any reason, within five Trading Days after the applicable
Repricing Date, the Company agrees that it shall immediately pay to the
Investors, and/or Placement Agent, the dollar value equal to the number of
shares of Common Stock underlying the Repricing Shares (had the Repricing Shares
been converted on the Repricing Date) to be issued multiplied by the Bid Price
on the Repricing Date. In the event the Company has not obtained approval from a
majority of the holders of the Common Stock of the issuance of shares of Common
Stock (and securities convertible into or exercisable for Common Stock) equal to
20% or more of the Common Stock outstanding immediately prior to the
Subscription Date in accordance with applicable rules of The Nasdaq Stock Market
or the Principal Market, if so required, the Company agrees that it will issue
such Repricing Shares and comply with the provisions set forth in Section 6.11
below.
ARTICLE III
Representations and Warranties of the Investors
Each of the Investors represents and warrants to the Company that:
Section 3.1 Intent. Each of the Investors is entering into this Agreement
for its own account and has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investors do not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. Each of the Investors are sophisticated
investors (as described in Rule 506(b)(2)(ii) of Regulation D) and accredited
investors (as defined in Rule 501 of Regulation D), and the Investors have such
experience in business and financial matters that they are capable of evaluating
the merits and risks of an investment in the Securities. Each of the Investors
acknowledge that an investment in the Common Stock is speculative and involves a
high degree of risk. Each of the Investors currently has the ability
<PAGE> 14
to fund the purchase of the Initial Shares and the Put Shares.
Section 3.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by each of the Investors and is a valid and binding
agreement of the Investors enforceable against each of them in accordance with
its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4 Not an Affiliate. None of the Investors is an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5 Organization and Standing. Each of the Investors is duly
organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investors, or, to
the Investors knowledge, (a) violate any provision of any indenture, instrument
or agreement to which any of the Investors are a party or are subject, or by
which any of the Investors or any of their assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investors to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or to
which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the Investors has
received all documents, records, books and other information pertaining to
Investors investment in the Company that have been requested by Investors,
including the opportunity to ask questions and receive answers. The Company is
subject to the periodic reporting requirements of the Exchange Act, and each of
the Investors has reviewed or received copies of any such reports that have been
requested by it. Each of the Investors represents that it has reviewed the
Company's, Form 10- KSB for the year ended December 31, 1997, Form 10-QSB's, the
proxy statement for the Company's 1998 Annual Meeting, and Form 8- K's filed for
the twelve months prior to the Subscription Date.
Section 3.8 Manner of Sale. At no time were any of the Investors presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the Investors
further acknowledges and understands that the Securities may not be transferred,
resold or otherwise disposed of except in a transaction registered under the
Securities Act and any applicable state securities laws, or unless an exemption
<PAGE> 15
from such registration is available. Each of the Investors understands that the
certificate(s) evidencing the Securities will be imprinted with a legend that
prohibits the transfer of these Securities unless (i) they are registered or
such registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration.
Section 3.10 No Legal, Tax or Investment Advice. Each of the Investors
understands that nothing in this Agreement or any other materials presented to
the Investors in connection with the purchase and sale of the Securities
constitutes legal, tax or investment advice. The Investors have relied on, and
have consulted with, such legal, tax and investment advisors as they, in their
sole discretion, have deemed necessary or appropriate in connection with their
purchase of the Securities.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors and the Placement
Agent that:
Section 4.1 Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
California and has all requisite corporate authority to own its properties and
to carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not reasonably be
expected to have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Common Stock and Preferred
Stock to the Placement Agent, the Initial Shares, Underlying Shares, Additional
Shares, Put Shares, Repricing Shares, Preferred Stock, Warrants and the Warrant
Shares, (ii) the execution, issuance and delivery of this Agreement, and all
Exhibits annexed hereto by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors, and (iii) this Agreement, and all Exhibits annexed hereto
have been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock, no par value per share, of which
3,457,365 shares are issued and outstanding, and 10,000,000 shares of Preferred
Stock, no par value per share, none of which are issued and outstanding. All of
the outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid
<PAGE> 16
and nonassessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted on the Nasdaq National Market.
Section 4.5. SEC Documents. The Company has delivered or made available to
the Investors true and complete copies of the SEC Documents filed by the Company
with the SEC during the twelve (12) months immediately preceding the
Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to any of the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. The SEC Documents comply in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and rules and regulations of the SEC promulgated thereunder and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. When issued and payment has been made therefor
(in the case of the Investors), the Common Stock, Preferred Stock, Repricing
Shares, Underlying Shares, Warrants, and Warrant Shares, issued to the Placement
Agent, and the Initial Shares, the Put Shares, the Additional Shares, the
Repricing Shares, the Underlying Shares, the Warrants, and the Warrant Shares
sold to the Investors will be duly and validly issued, fully paid, and
nonassessable. Neither the issuance of Common Stock, Preferred Stock, Repricing
Shares, Underlying Shares, Warrants, or Warrant Shares, to the Placement Agent,
nor the sale of the Initial Shares, the Additional Shares, the Put Shares, the
Repricing Shares, the Underlying Shares, the Warrants, or the Warrant Shares to
the Investors, pursuant to, nor the Company's performance of its obligations
under, this Agreement, and all Exhibits annexed hereto will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Common Stock, Preferred Stock, Warrant Shares, Repricing
Shares, or Underlying Shares, issued to the Placement Agent, the Initial Shares,
the Additional Shares, the Put Shares, the Repricing Shares, the Preferred
Stock, the Underlying Shares, the Warrant Shares issued to the
<PAGE> 17
Investors, or any of the assets of the Company, or (ii) entitle the holders of
Outstanding Capital Shares to preemptive or other rights to subscribe to or
acquire the Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Initial Shares, Put Shares,
the Additional Shares, the Repricing Shares, the Underlying Shares, the
Warrants, or the Warrant Shares, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Common Stock issued to the Placement
Agent, the Initial Shares, the Additional Shares, the Put Shares, the Repricing
Shares, the Underlying Shares, the Warrants, or the Warrant Shares under the
Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to each of the Investors true and correct copies of the Company's
Articles of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Common
Stock, Preferred Stock, Underlying Shares, Warrants, and Warrant Shares, do not
and will not (i) result in a violation of the Company's Articles of
Incorporation or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lockup"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or in default under any of the
foregoing as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not reasonably be expected to have a Material Adverse Effect. The Company
is not required under federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Common Stock,
Preferred Stock, or Warrants A and B, in accordance with the terms hereof;
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
<PAGE> 18
Section 4.10 No Material Adverse Change. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, that are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
set forth in the Company's financial statements or as incurred in the ordinary
course of the Company's businesses since December 31, 1997, and which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December 31,
1997, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. To the Company's knowledge, neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, other than pursuant to this Agreement
or pursuant to the Company's existing employee benefit plan, under circumstances
that would require registration of the Common Stock under the Securities Act, or
cause the offering of the Securities pursuant to this Agreement to be integrated
with prior or future offerings by the Company for purposes of the Securities Act
or any applicable stockholder approval provisions, except as set forth in the
SEC Documents.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.15 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act. The Company has registered
its Common Stock pursuant to Section 12 of the 1934 Act and the Common Stock is
listed and trades on the Nasdaq National Market. The Company has complied in all
material respects and to the extent applicable with all reporting obligations,
under either Section 13(a) or 15(d) of the 1934 Act for a period of at least
twelve (12) months immediately preceding the offer and sale of the Securities
(or for such shorter period that the Company has been required to file such
material).
<PAGE> 19
Section 4.16 Dilution. The Company is aware and acknowledges that issuance
of the Common Stock, and the conversion of the Preferred Stock and the Repricing
Shares, and/or exercise of the Warrants, may cause dilution to existing
stockholders and may significantly increase the outstanding number of shares of
Common Stock.
Section 4.17 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.18 Environmental Laws. The Company is (i) in compliance with any
and all foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants and which the Company know is
applicable to them ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required under applicable Environmental Laws to
conduct its business, and (iii) is in compliance with all terms and conditions
of any such permit, license or approval.
Section 4.20 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
Section 4.21 Board Approval and Agreement To Vote. The board of directors
of the Company has concluded, in its good faith business judgment, that the
issuances of the securities of the Company in connection with this Agreement are
in the best interests of the Company.
ARTICLE V
Covenants of the Investors
Section 5.1 4.99% Limitation. The number of shares of Common Stock required
to be acquired by any of the Investors pursuant to the terms of this Agreement
shall not exceed the number of such shares which, when aggregated with all other
shares of Common Stock then owned by any of the Investors beneficially or deemed
beneficially owned by any of the Investors inclusive of Warrant Shares, would
result in any of the Investors owning more than 4.99% of all of such Common
Stock as would be outstanding on such Closing Date, as determined in accordance
with Rule 13d-3 of the Exchange Act and the regulations promulgated thereunder.
For purposes of this Section, in the event that the amount of Common Stock
outstanding as determined in accordance with Rule 13d-3 of the Exchange Act and
the regulations promulgated thereunder is greater on a Closing Date
<PAGE> 20
than on the date upon which any Put Notice associated with such Closing Date is
given, the amount of Common Stock outstanding on such Closing Date shall govern
for purposes of determining whether any of the Investors, when aggregating all
purchases of Common Stock made pursuant to this Agreement and, if any, Warrant
Shares, would own more than 4.99% of the Common Stock following such Closing.
Each Investor agrees that it will not convert any share or shares of Preferred
Stock which would result, at any one time, in any Investor being the owner of
more than 4.99% of the total number of shares of Common Stock then outstanding.
The preceding sentence shall not interfere with any Investor's right to convert
Preferred Stock into more than 4.99% of the then outstanding shares of Common
Stock in the aggregate, over time, and is not intended to mean that each
Investor is limited in its conversion to an aggregate total of no more than
4.99% of then outstanding shares of Common Stock. The foregoing limitation shall
not apply to the Automatic Conversion provision contained in Section IV K of the
Certificate of Determination.
Section 5.2 Forced Conversion.
(a) Circumstances of Forced Conversion. Subject to the other
provisions of this Section 5.2, from and after the Effective Date the Company
shall have the right to force conversion by the holders of the Preferred Stock
of up to a cumulative aggregate of 75% of the total number of shares of
Preferred Stock issued by the Company by telecopying written notice of its
election to force conversion containing the information set forth in Section
5.2(c) (the "Forced Conversion Notice") to the holders under the following
circumstances:
1. In the event at any time and from time to time the Closing Bid
Price of the Common Stock is equal to or greater than 150% of the
Issuance Price during a Forced Conversion Period the Company may force
conversion by the holder of up to a maximum of 15% of the total number
of shares of Preferred Stock - issued by the Company to the holders.
Such right to force conversion pursuant to the provisions of this
Subsection 5.2(a) 1 shall continue until the total number of shares of
Preferred Stock converted by holders pursuant to the provisions of
this Subsection 5.2(a) equals 25% of the total number of shares of
Preferred Stock issued by the Company.
2. In the event, at any time and from time to time, the Closing
Bid Price of the Common Stock is equal to or greater than 175% of the
Issuance Price during a Forced Conversion Period, the Company may
force conversion by the holder of up to a maximum of 15% of the total
number of shares of Preferred Stock issued by the Company to the
holders. Such right to force conversion pursuant to the provisions of
this Subsection 5.2(a) 2 shall continue until the total number of
shares of Preferred Stock converted by holders pursuant to the
provisions of this Subsection 5.2(a) 2 equals 25% of the total number
of shares of Preferred Stock issued by the Company.
3. In the event, at any time and from time to time, the Closing
Bid Price of the Common Stock is equal to or greater than 200% of the
Issuance Price during a Forced Conversion Period the Company may force
<PAGE> 21
conversion by the holder of up to a maximum of 15% of the total number
of shares of Preferred Stock issued by the Company to the holders.
Such right to force conversion pursuant to the provisions of this
Subsection 5.2(a) 3 shall continue until the total number of shares of
Preferred Stock converted by holders pursuant to the provisions of
this Subsection 5.2(a) 3 equals 25% of the total number of shares of
Preferred Stock issued by the Company.
4. In the event the Company causes a forced conversion as set
forth herein the Accrual Deduction shall not apply. A Forced
Conversion Notice shall not be deemed to affect or otherwise reduce
the holders conversion rights as set forth herein as to the shares of
Preferred Stock not subject to a Forced Conversion Notice.
(b) Delivery of Forced Conversion Notice. No more than 15% of the
total number of shares of Preferred Stock issued by the Company shall be subject
to forced conversion pursuant to the provisions of Section 5.2(a) during any
single 30 calendar day period. The Company shall effect such forced conversions
pro rata amongst the holders according to the number of shares of Preferred
Stock held by each holder of Preferred Stock. The Forced Conversion Notice must
be delivered by the Company prior to 12:00 p.m. Eastern Time on the first
Trading Day immediately following the expiration of the Forced Conversion
Period. A Forced Conversion Notice shall be deemed delivered on (i) the Trading
Day it is faxed by the Company if such notice is faxed (with confirmation that
it was received by the holder) prior to 12:00 p.m. Eastern Time, or (ii) the
immediately succeeding Trading Day if it is faxed (with confirmation that it was
received by the holder) after 12:00 p.m. Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day. No Forced Conversion Notice may be
deemed delivered, on a day that is not a Trading Day. The Company must forward
the original Forced Conversion Notice to the holder via reputable overnight
courier for delivery on the Trading Day immediately following transmission of
the Forced Conversion Notice via facsimile. In the event the original Forced
Conversion Notice is not sent to the holder of the Preferred Stock as set forth
above, the Forced Conversion Notice shall be deemed revoked and ineffective.
Once the Company has exercised its right to force conversion of the Preferred
Stock by giving a Forced Conversion Notice to the holder as set forth above it
shall be deemed irrevocable. Each Trading Day on which the Forced Conversion
Notice is telecopied to and received by the holder shall be deemed a Conversion
Date for the purposes of completing the forced conversion and calculating the
number of shares of Common Stock to be issued upon the forced conversion. The
Company will transmit the certificates representing shares of Common Stock
issuable pursuant to the Forced Conversion Notice (together with the
certificates representing the remaining shares of Preferred Stock not being
forced to convert, if any) to the holder via reputable overnight courier, by
electronic transfer or otherwise within three (3) Trading Days after the Forced
Conversion Notice was faxed to holder (the "Forced Conversion Date"). In the
event the Company does not deliver the shares of Common Stock upon the forced
conversion within seven days after the Forced Conversion Notice was faxed to
holder, the holder shall be entitled to liquidated damages determined as set
forth in Section IV D above. In the event the Company fails to comply with the
terms of the
<PAGE> 22
forced conversion in any manner on more than three separate occasions, which
shall not include any such failure which has been amicably resolved between the
Company and two thirds of the holders within seven days after the holder has
received a Forced Conversion Notice or a Forced Conversion Notice within the
meaning of the last sentence of this Section, it shall have waived its right to
serve a Forced Conversion Notice upon that particular holder at any time in the
future. A Forced Conversion Notice shall be deemed to be effective if the
information it contains is inaccurate provided that the actual facts would have
supported the delivery of the Forced Conversion Notice and the holders are not
prejudiced by the inaccurate information.
(c) Contents of Forced Conversion Notice. The Forced Conversion
Notice shall set forth (i) a calculation referencing the conversion formula
contained herein showing the number of shares of Common Stock being issued
pursuant to the applicable forced conversion, and (ii) a statement identifying
which subsection among 5.2(a)1, 5.2(a) 2, or 5.2(a) 3, that the Company is
relying on to force conversion, and the Closing Bid Prices of the Common Stock
during the Forced Conversion Period.
(d) Mechanics of Forced Conversion. Upon the Company's full
compliance with the forced conversion provisions set forth in Sections
5.2(a),(b) and (c), the shares of Preferred Stock that are the subject of a
forced conversion shall be automatically canceled and converted into a right to
receive shares of Common Stock, and all rights of the Preferred Stock which are
the subject of the forced conversion, including the right to conversion, shall
cease without further action, provided the holder receives the correct number of
shares of Common Stock due upon the forced conversion. Immediately following
receipt of the Forced Conversion Notice, if the holder concurs with the
Company's conversion calculations in the Forced Conversion Notice, the holder
shall surrender their original shares of Preferred Stock which are the subject
of the Forced Conversion Notice at the office of the Company, and the Company
shall send to the holder a new Preferred Stock certificate for that number of
shares of Preferred Stock which remains outstanding, if any, within three
Business Days after such surrender by the holder.
(e) Adjustments. The number of shares of Common Stock issuable upon
the forced conversion of the Preferred Stock shall be adjusted in the manner and
under the circumstances as set forth in Section IV of the Certificate of
Determination.
(f) Holders' Right to Convert. At any time up to the date immediately
prior to the Forced Conversion Date, the holders shall have the right to convert
the Preferred Stock into Common Stock as more fully provided in Section IV of
the Certificate of Determination.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
<PAGE> 23
Section 6.2 Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Additional Shares,
Repricing Shares, Underlying Shares, Put Shares and Warrant Shares; such amount
of shares of Common Stock to be reserved shall be calculated based upon the
minimum Purchase Price therefor under the terms of this Agreement, the
Certificate of Determination, the Warrants. The number of shares so reserved
shall be increased or decreased to reflect potential increases or decreases in
the Common Stock that the Company may thereafter be so obligated to issue by
reason of adjustments to the Preferred Stock, the Warrants.
Section 6.3 Listing of Common Stock. The Company hereby agrees to maintain
the listing of the Common Stock on the Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list all of the Initial Shares of Common Stock, the Additional
Shares, the Put Shares, the shares of Common Stock underlying the Repricing
Shares, the Underlying Shares, and the Warrant Shares issuable hereunder. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Principal Market, it will include in such application all of the
Initial Shares of Common Stock, the Put Shares, the Additional Shares, the
shares of Common Stock underlying the Repricing Shares, the Underlying Shares,
and the Warrant Shares, and will take such other action as is reasonably
necessary or desirable in the opinion of the Investors to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will comply with the listing and trading requirements of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
In the event the Company receives notification from Nasdaq concerning delisting
of the Common Stock on the Principal Market, the Company will comply with all
applicable listing standards of the Principal Market. The Company has received
notice from the Nasdaq National Market that the Company does not meet the
listing requirements of the Nasdaq National Market, and the Company represents
that immediately following the Closing of the Initial Shares the Company will
not meet all of the listing requirements of the Nasdaq National Market.
Section 6.4 Exchange Act Registration. Until the earlier to occur of (i)
four years after the Subscription Date, or (ii) the Securities are no longer
held by the Investors, the Company will use its best efforts to maintain the
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and until the earlier to occur of (i) four years after the
Subscription Date or (ii) the Securities are no longer held by the Investors,
the Company will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investors pursuant to Section 9.1
<PAGE> 24
shall be free of legends, except as set forth in Article IX.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration; Suspension of
Right to Make a Put. The Company will immediately notify each of the Investors
and the placement Agent upon the occurrence of any of the following events in
respect of a registration statement or related prospectus in respect of an
offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue 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 that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate. The Company will
promptly make available to the Investors any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investors any Put
Notice during the continuation of any of the foregoing events.
Section 6.8 Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investors and the Placement Agent such shares of
stock and/or securities as the Investors and the Placement Agent are entitled to
receive pursuant to this Agreement.
Section 6.9 Issuance of Put Shares, Underlying Shares, Common Stock
underlying the Repricing Shares, and Warrant Shares. The issuance of the
Underlying Shares, Put Shares, and the Warrant Shares pursuant to exercise of
Warrants A and B, and the conversion of the Preferred Stock, shall be made in
accordance with the provisions and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state
<PAGE> 25
securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall deliver
to the Investors upon execution of this Agreement, and upon the Closings for (i)
Initial Shares, and (ii) Put Shares as set forth in Section 7.2 (m) below, an
opinion in the form of Exhibit G annexed hereto. The Company will obtain for the
Investors and the Placement Agent, at the Company's expense, any and all
opinions of counsel which may be reasonably required in order to convert the
Preferred Stock, including, but not limited to, obtaining for the Investors and
the Placement Agent an opinion of counsel, subject only to receipt of a notice
of conversion (the "Notice of Conversion") in the form of Exhibit I, directing
the Transfer Agent to remove the legend from the certificate.
Section 6.11 20% Rule Limitation. If required by The Nasdaq Stock Market or
otherwise on the Principal Market on which the Company's Common Stock is then
listed, the Company shall use its best efforts to obtain, as soon as
practicable, but no later than seventy-five days after the Subscription Date,
shareholder approval of the below market issuances of shares of Common Stock
(and securities convertible into and exercisable for Common Stock) to the
Investors and the Placement Agent in excess of twenty percent (20%) of the
number of shares of Common Stock outstanding as of Subscription Date. In the
event that the aforementioned proposal is not so approved (other than in a case
where the failure to so obtain shareholder approval has resulted from the
failure of the Investors or the Placement Agent to vote all Capital Shares owned
by them on the applicable record date in favor of the relevant proposal), the
Company shall seek a waiver from The Nasdaq Stock Market (or such other
Principal Market) for such below market issuances. In the event the Company does
not receive such waiver within the earlier of ten (10) days after the
stockholders meeting or eighty-five days after the Subscription Date, the
Company shall delist the Common Stock from The Nasdaq Stock Market and
immediately list the Common Stock on the OTC Bulletin Board.
Section 6.12 Restrictions on Future Financings. The Company agrees that it
will not, without the prior written consent of all of the Investors, enter into
any subsequent or further offer or sale of Common Stock, or any securities or
other instruments convertible into shares of Common Stock, with any party that
is not a party to this Agreement until the Registration Statement has been
effective for sixty days. This restriction shall not apply to: (a) the issuance
of securities (other than for cash) in connection with a merger, consolidation,
sale of assets, or other disposition, (b) the exchange of Capital Shares for
assets, stock, or joint venture interest, (c) an offering of any of the
Company's securities at then current market prices with no repricing or reset
provisions, or (d) any employee benefit plan; provided, however, that any action
contemplated under this Section is subject to the condition that registration
right if any, in connection with such action shall not require the filing by the
Company of a registration statement of such shares prior to sixty days after the
Effective Date.
Section 6.13 Conversion of Preferred Stock. The Company will permit the
Investors and the Placement Agent to exercise their right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company as is set forth in the Certificate of Determination.
<PAGE> 26
Section 6.14 Restriction on Future Issuances of Preferred Stock. The
Company agrees that except as provided for in this Agreement, it will not issue
any additional share or shares of Preferred Stock.
Section 6.15 Forced Conversion Limitation. The Company may not serve a
Forced Conversion Notice (as defined in Section 5.2(c)) upon any of the
Investors if such notice would result in any one Investor holding, at any time,
more than 9.99% of the number of shares of Common Stock then outstanding.
ARTICLE VII
Conditions to Delivery of Puts and Conditions to Closing
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock Associated With A Put. The obligation hereunder of the
Company to issue and sell the Put Shares to the Investors incident to each
Closing for Put Shares is subject to the satisfaction, at or before each such
Closing, of each of the conditions set forth below.
(a) Accuracy of each of the Investors Representation and Warranties.
The representations and warranties of each of the Investors shall be true and
correct in all material respects as of the date of this Agreement and as of the
date of each such Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investors at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver a
Put Notice and the Obligation of the Investors to Purchase Put Shares. The right
of the Company to deliver a Put Notice and the obligation of the Investors
hereunder to acquire and pay for the Put Shares incident to a Closing for Put
Shares is subject to the satisfaction, on (i) the date of delivery of such Put
Notice and (ii) the applicable Closing Date for each Put (each a "Condition
Satisfaction Date"), of the conditions in Section 2.1, 2.2, 2.3 above, and each
of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
that number of Put Shares indicated in the applicable Put Notice and all
Registrable Securities, and the shares of Common Stock underlying the Repricing
Shares, if any, in accordance with the terms of the Registration Rights
Agreement. As set forth in the Registration Rights Agreement and herein, the
Registration Statement (including all Put Shares in the Put Notice) shall have
previously become effective and shall remain effective during at least the five
Trading Days immediately preceding each Condition Satisfaction Date and each Put
Date, and (i) neither the Company nor any of the Investors shall have received
notice that the SEC has issued or intends to issue a stop order with respect to
the Registration Statement or that the SEC otherwise has suspended or withdrawn
the effectiveness of the Registration Statement, either
<PAGE> 27
temporarily or permanently, or intends or has threatened to do so, and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Put Shares,
or shall have the availability of exemptions therefrom. The sale and issuance of
the Put Shares shall be legally permitted by all laws and regulations to which
the Company is subject.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company in this Agreement and all Exhibits
attached hereto shall be true and correct in all material respects as of each
Condition Satisfaction Date as though made at each such time with respect to all
periods, and as to all events and circumstances occurring or existing to and
including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Escrow Agreement, the
Registration Rights Agreement, the Certificate of Determination, the Warrants to
be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or adversely affects any of the transactions contemplated by this
Agreement or any of the Exhibits annexed hereto, and no proceeding shall have
been commenced that may have the effect of prohibiting or adversely affecting
any of the transactions contemplated by this Agreement or any of the Exhibits
annexed hereto.
(f) Adverse Changes. No event that had or is reasonably likely to have
a Material Adverse Effect has occurred since the Subscription Date.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares) is
not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Put Closing, if any, shall not violate the shareholder approval requirements of
the Principal Market. The Company shall not have received any notice from the
Principal Market concerning delisting of the Common Stock on the Principal
Market (other than that set forth in this Agreement), and the Company shall meet
all listing requirements during the thirty (30) day period immediately preceding
any Closing Date for a Put. However, in no event shall the Company be permitted
to serve a Put Notice if the Principal Market is the "pink sheets".
(h) 9.99% Percent Limitation. On each Closing Date
<PAGE> 28
for the Put Shares, the number of Put Shares then to be purchased by any of the
Investors shall not exceed the number of such shares of Common Stock which, when
aggregated with all other shares of Common Stock then owned by any of the
Investors beneficially or deemed beneficially owned by any of the Investors,
would result in any of the Investors owning more than 9.99% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Rule 16a-1 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(h), in the event that the amount of
Common Stock outstanding as determined in accordance with Rule 16 a-1 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Put Notice associated with such Closing
Date is given, the amount of Common Stock outstanding on such Closing Date shall
govern for purposes of determining whether any of the Investors, when
aggregating all purchases of Common Stock made pursuant to this Agreement and,
if any, Warrant Shares, would own more than 9.99% of the Common Stock following
such Closing.
(i) Minimum Bid Price. The Bid Price must equal or exceed the Floor
Price during the three Trading Day immediately preceding each Condition
Satisfaction Date (as adjusted for stock splits, stock dividends, reverse stock
splits, and similar events);
(j) Minimum Average Trading Volume. The average trading volume for the
Common Stock during the 30 Trading Days immediately preceding each Condition
Satisfaction Date must exceed 20,000 shares per Trading Day.
(k) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement
(including all Put Shares in the Put Notice) to be suspended or otherwise
ineffective (which event is more likely than not to occur within the ten Trading
Days following the Trading Day on which such Notice is deemed delivered).
(l) Trading Cushion. The Trading Cushion shall have elapsed since the
next preceding Put Date.
(m) Legal Opinion. The Investors shall receive an opinion from
counsel to the Company substantially in the form of Exhibit G annexed hereto on
each Closing for Put Shares, dated as of the particular Put Closing Date.
(n) 20% Approval. The Company shall have obtained shareholder
approval (or a waiver) for the issuance of below market securities pursuant to
the terms of this Agreement, including the Put Shares in the Put Notice, if
required by the Principal Market.
(o) Other. On each Condition Satisfaction Date, the Investors shall
have received from the Company and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by the
Investors in order for the Investors to confirm the Company's satisfaction of
the conditions set forth in this Section 7.2, including, without limitation, a
certificate in substantially the form and substance of Exhibit C hereto,
executed in either case by an executive officer of the Company and to the effect
that all the conditions
<PAGE> 29
to such Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by any of the Investors or any such representative, advisor
or underwriter in connection with such Registration Statement (including,
without limitation, in response to all questions and other inquiries reasonably
made or submitted by any of them), prior to and from time to time after the
filing and effectiveness of the Registration Statement for the sole purpose of
enabling the Investors and such representatives, advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2 Non-Disclosure of Non-Public Information
(a) The Company shall not disclose non-public information to the
Investors, advisors to, or representatives of, the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides each Investor, and its advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require each of the Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose non-public
information to any of the Investors or their advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investors and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include
<PAGE> 30
a material misstatement or to omit a material fact required to be stated therein
in order to make the statements, therein, in light of the circumstances in which
they were made, not misleading. Nothing contained in this Section shall be
construed to mean that such persons or entities other than the Investors
(without the written consent of the Investors prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
Legends
Section 9.1 Legends. Unless otherwise provided below, or covered by an
effective registration statement or an exemption to registration, each
certificate representing the Initial Shares of Common Stock, Warrants, Preferred
Stock, and the shares of Common Stock underlying the Repricing Shares, will bear
the following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
In addition to the Legend, each certificate representing Preferred Stock
will bear the following legend:
"These securities may be forcibly converted and are subject to a
restriction on transfer provided in that certain Securities Purchase
Agreement dated September __, 1998 (the `Agreement') by and between Mustang
Software, Inc., the entities listed on Schedule A attached to the Agreement
and Settondown Capital International Ltd. A copy of the Agreement is
available upon request from Mustang Software, Inc., 6200 Lake Ming Road,
Bakersfield, CA 93306, Attention: Chief Financial Officer."
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit H hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly
<PAGE> 31
provided in the Registration Rights Agreement. It is the intent and purpose of
such instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time upon transfer of Registrable Securities by the
Investors or the Placement Agent to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investors:
(a) at any time after the Effective Date, or the effective date of the
effective date of a registration statement covering the shares of Common Stock
underlying the Repricing Shares, upon surrender of one or more certificates
evidencing the Initial Shares of Common Stock, Warrants, Preferred Stock, or
shares of Common Stock underlying the Repricing Shares, that bear the Legend, to
the extent accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered; provided that (i) the
Registration Statement (or a registration statement covering the shares of
Common Stock underlying the Repricing Shares) shall then be effective; (ii) the
Investor(s) and/or the Placement Agent confirm to the transfer agent that it has
sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise
transfer such Common Stock in a bona fide transaction to a third party that is
not an affiliate of the Company; and (iii) the Investor(s) and/or Placement
Agent confirm to the transfer agent that the Investor(s) and/or Placement Agent
have complied with the prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities or shares of Common Stock underlying the
Repricing Shares, that bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Investor(s) and/or the
Placement Agent is permitted to dispose of such Registrable Securities, or
shares of Common Stock underlying the Repricing Shares, without limitation as to
amount or manner of sale pursuant to Rule 144(k) under the Securities Act or
(ii) the Investor(s) and/or Placement Agent has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Registrable
Securities, or shares of Common Stock underlying the Repricing Shares, in a
manner other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities. The Company shall have counsel provide any and all opinions
necessary for the sale under Rule 144.
Any of the notices referred to above in this Section 9.1 may be sent by
facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Common Stock, and no instructions or "stop
transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
<PAGE> 32
Section 9.3 Investor's Compliance. Nothing in this Article shall affect in
any way any of the Investors obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law
Section 10.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of California, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. The party commencing any legal
action shall have the option of choosing the jurisdiction of the U.S. District
Court sitting in the Southern District of the State of New York or in the
Northern or Central District of California in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law. Each party waives its right to a trial by jury.
ARTICLE XI
Assignment; Entire Agreement, Amendment; Termination
Section 11.1 Assignment. The Investor's interest in this Agreement and its
ownership of Preferred Stock may be assigned or transferred at any time, in
whole or in part, to any other person or entity (including any affiliate of the
Investor) who agrees to, and truthfully can, make the representations and
warranties contained in Article III and who agrees to be bound by the covenants
of Article V. The provisions of this Agreement shall inure to the benefit of,
and be enforceable by, any transferee of any of the Common Stock purchased or
acquired by the Investors hereunder with respect to the Common Stock held by
such person.
Section 11.2 Termination. This Agreement shall terminate upon the earliest
of (i) the date that all the Registrable Securities have been sold by the
Investors pursuant to the Registration Statement; (ii) the date the Investors
receive an opinion from counsel to the Company that all of the Registrable
Securities may be sold under the provisions of Rule 144; or (iii) three years
after the commencement of the Commitment Period; provided, however, that the
provisions of Articles III, IV, V, VI (as long as the Securities are
beneficially owned by any of the Investors or the Placement Agent, or their
permitted assigns), VIII, IX, X, XI, and XII, herein, and the registration
rights
<PAGE> 33
provisions for the Registrable Securities held by the Investors and the
Placement Agent set forth in this Agreement, and the Registration Rights
Agreement, shall survive the termination of this Agreement.
ARTICLE XII
Notices
Section 12.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to Mustang Software, Inc.:
Mustang Software, Inc.
6200 Lake Ming Road
Bakersfield, CA 93306
Attention: Jim Harrer
Facsimile: (805) 873-2457
Telephone: (805) 873-2500
If to the Investors, at the addresses listed on Schedule A.
If to the Placement Agent, at the address listed on the first page of this
Agreement.
with a copy to:
Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Floor
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
<PAGE> 34
Section 12.2 Indemnification. The Company agrees to indemnify and hold
harmless each of the Investors and each officer, director of the Investors or
person, if any, who controls the Investor within the meaning of the Securities
Act against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Investors may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the breach of any term of this Agreement. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
Each Investor agrees that it will indemnify and hold harmless the Company,
and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investors, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including
<PAGE> 35
any impleaded parties) include both the Investor and the indemnifying party and
the Investor shall have been advised by such counsel that there may be one or
more legal defenses available to the indemnifying party different from or in
conflict with any legal defenses which may be available to the Investors (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Investors, it being understood, however, that
the indemnifying party shall, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Investor(s), which firm shall be designated in writing by the Investor(s)). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 12.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 12.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the applicable Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 12.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
ARTICLE XIII
Miscellaneous
Section 13.1 Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original
<PAGE> 36
documents shall be as effective and enforceable as the original. This Agreement
may be amended only by a writing executed by the Company on the one hand, and
all of the Investors, and the Placement Agent, on the other hand.
Section 13.2 Entire Agreement. This Agreement, the Exhibits or Attachments
hereto, which include, but are not limited to the Certificate of Determination,
Warrant A and B, the Escrow Agreement, and the Registration Rights Agreement set
forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Attachments to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
Section 13.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investor and the Company shall be required to employ any other
reporting entity.
Section 13.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 Fees and Expenses. Each of the parties shall pay its own fees
and expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Subscription Date (i) the sum of Twelve Thousand ($12,000) Dollars in cash out
of the proceeds received by the Company on the Subscription Date to Goldstein,
Goldstein & Reis, LLP for legal, administrative, and escrow fees, and (ii) to
the Placement Agent (A) the sum equal to four percent (4%) of the Initial Shares
Investment Amount payable in cash out of the proceeds
<PAGE> 37
received by the Company on the Subscription Date, (B) 210 shares of Preferred
Stock, (C) a Warrant A to purchase 50,000 Warrant Shares, (D) a Warrant B to
purchase 7,000 Warrant Shares and (E) 29,480 shares of Common Stock, for
Placement Agent fees. On each Closing Date for a Put, the Company shall pay (i)
one-half of one (.5%) percent of the proceeds to Goldstein, Goldstein & Reis,
LLP for legal, administrative, and escrow agent fees, and (ii) five and one-half
(5.50%) percent of the proceeds to the Placement Agent. In addition to the
aforementioned fees, on the first Closing for a Put, the Company shall issue to
the Placement Agent 5,000 shares of Common Stock to be included in the
Registration Statement and a Warrant B to purchase 7,000 shares of Common Stock,
and on the second Closing for a Put, the Company shall issue to the Placement
Agent 5,000 shares of Common Stock and a Warrant B to purchase 7,000 shares of
Common Stock for Placement Agent fees.
Section 13.8 Noncircumvention. The Company and the Investors agree that
they shall not circumvent this Agreement and the Company's obligation to pay
fees to the Placement Agent, and the Company, the Investors and the Placement
Agent agree that they will not circumvent the provisions of this Agreement or
the Escrow Agreement and the Company's obligation for the payment of fees to the
Escrow Agent.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
MUSTANG SOFTWARE, INC.
By /s/ JAMES A. HARRER
---------------------------------
James A Harrer, President
By /s/ DONALD M. LEONARD
---------------------------------
Donald M. Leonard,
Chief Financial Officer
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Placement Agent
By /s/ [Signature Illegible]
---------------------------------
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Investor
By /s/ [Signature Illegible]
---------------------------------
<PAGE> 38
THE CUTTY HUNK FUND LIMITED,
Investor
By /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
CANAL LTD, Investor
By /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
MANCHESTER ASSET
MANAGEMENT LTD, Investor
By /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
SCHEDULE A
INVESTORS:
1. Settondown Capital International, Ltd., Charlotte House, Charlotte Street,
P.O. Box N. 9204, Nassau, Bahamas, Attention: Anthony L.M. Inder Riden,
Telephone: (242) 325- 1033,
Facsimile: (242) 323-7918.
Initial Investment Amount: $375,000
No. of Initial Shares of Common Stock: 153,000
No. of Initial Shares of Preferred Stock: 1,312
Warrant A: 37,500
Warrant B: 7,500
2. The Cuttyhunk Fund Limited, 73 Front Street, Hamilton HM 12, Bermuda,
Attention: Robert Rans, Telephone: (441) 295-8658,
Facsimile: (441) 292-6274.
Initial Investment Amount: $375,000
No. of Initial Shares of Common Stock: 153,000
No. of Initial Shares of Preferred Stock: 1,311
Warrant A: 37,500
Warrant B: 7,500
3. Canal, Ltd., c/o Hemisphere Management Limited, Hemisphere House, 9 Church
Street, P.O. Box HM 951, Hamilton, HM DX Bermuda, Attention: Marty Brandt,
Telephone: (441) 295-9166,
Facsimile: (441) 292-6145.
Initial Investment Amount: $375,000
No. of Initial Shares of Common Stock: 153,000
No. of Initial Shares of Preferred Stock: 1,312
Warrant A: 37,500
Warrant B: 7,500
4. Manchester Asset Management Ltd., Charlotte House, Charlotte Street, P.O.
Box N. 9204, Nassau, Bahamas, Attention: Anthony L.M. Inder Riden,
Telephone: (242) 325-1033,
Facsimile: (242) 323-7918.
Initial Investment Amount: $375,000
No. of Initial Shares of Common Stock: 153,000
No. of Initial Shares of Preferred Stock: 1,311
Warrant A: 37,500
Warrant B: 7,500
<PAGE> 1
EXHIBIT 4.3
[STATE OF CALIFORNIA LOGO]
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the attached transcript has been compared with the record on file in
this office, of which it purports to be a copy, and that it is full, true and
correct.
IN WITNESS WHEREOF, I execute
this certificate and affix
the Great Seal of the State
of California this
Sept. 08 1998
---------------------------------
/s/ BILL JONES
---------------------------------
[SEAL] Secretary of State
<PAGE> 2
A0513452
ENDORSED - FILED
IN THE OFFICE OF THE
SECRETARY OF STATE
OF THE STATE OF CALIFORNIA
AUG 28 1998
BILL JONES, SECRETARY OF STATE
CERTIFICATE OF DETERMINATION OF
MUSTANG SOFTWARE, INC.
JAMES A. HARRER and DONALD M. LEONARD certify that:
1. They are the President and Chief Financial Officer of Mustang Software,
Inc., a California corporation (hereinafter referred to as "the Company").
2. The Company is authorized to issue 10,000,000 shares of Preferred Stock,
none of which has been issued. The Company is authorized to issue 15,246 shares
of Series A Preferred Stock, none of which has been issued.
3. The following resolution was duly adopted by the Board of Directors:
WHEREAS, the board of directors is authorized by the Articles of Incorporation
to divide the Preferred Stock into any number of series, and to fix the
designation and number of shares of such series, and to determine the rights,
preferences, privileges and restrictions of any wholly unissued series of
Preferred Stock,
BE IT RESOLVED, that the Board of Directors hereby establishes a series of
Preferred Stock, designated Series A Preferred Stock, and the number of shares
of such series shall be 15,246.
RESOLVED FURTHER, that the rights, preferences, privileges and restrictions of
the Series A Preferred Stock shall be as follows:
I. Dividends.
The Series A Preferred Stock shall not be entitled to receive dividends.
II. Liquidation, Dissolution or Winding Up
A. Treatment at Liquidation, Dissolution or Winding Up. In the event of
any liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, before any distribution may be made with respect to the Company's
Common Stock or any other series of capital stock, holders of each share of
Series A Preferred Stock shall be entitled to receive out of the assets
available for distribution to shareholders $100 plus 5 percent per annum thereon
from the Issuance Date (as defined below) to the Trading Day (as defined below)
immediately prior to such liquidation, dissolution or winding up of the Company
( the "Liquidation Amount").
B. If the assets of the Company available for distribution to shareholders
shall be insufficient to pay the holders of shares of Series A Preferred Stock
the full Liquidation Amount to which they shall be entitled, then the entire
assets and funds of the Company shall be distributed ratably to the holders of
shares of Series A Preferred Stock
<PAGE> 3
C. After the payment of the Liquidation Amount shall have been made in full
to the holders of the Series A Preferred Stock or funds necessary for such
payment shall have been set aside by the Company in trust for the account of
holders of the Series A Preferred Stock so as to be available for such payments,
the holders of the Series A Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Common Stock and any
other classes or series of Preferred Stock of the Company in accordance with
their respective terms.
III. Voting. Holders of Series A Preferred Stock shall have no
voting rights except as expressly required by law or as expressly
provided herein.
IV. Conversion of Series A Preferred Stock. The holder of Series A Preferred
Stock shall have the right, at such holder's option, to convert the Series A
Preferred Stock into shares of Common Stock, on the following terms and
conditions:
A. Conversion. Subject to the provisions of Section IV. M hereof, at any
time or times from and after the ninetieth day after the Issuance Date, any
holder of the Series A Preferred Stock shall be entitled to convert any whole
number of shares of Series A Preferred Stock into fully paid and nonassessable
shares of Common Stock, which is determined by dividing (x) $100 plus five
percent per annum thereon from the Issuance Date (as defined below) to the
Trading Day immediately prior to the Conversion Date (as defined below), by (y)
the Conversion Price (as defined below) (the "Conversion Rate").
B. Certain Definitions. For purposes of this Certificate
of Determination, the following terms shall have the following
meanings:
A "Business Day" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is closed.
The "Closing Bid Price" shall mean, for any security as of any date,
the last closing bid price for such security on the Nasdaq Stock Market as
reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Nasdaq Stock
Market is not the principal trading market for such security, the last closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the OTC Electronic Bulletin board for such security
as reported by Bloomberg, or, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing bid or trade price is reported for
such security by Bloomberg, the closing bid price shall be determined by
reference to the closing bid price as reported on the Principal Market, and if
not so reported shall be determined from the average of the bid prices of any
market makers for such security as reported in the "pink sheets" published by
the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually
<PAGE> 4
agreed by the Company and the holders of two thirds of the outstanding shares of
Series A Preferred Stock.
The "Conversion Price" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) one hundred (100%) percent of the Closing Bid
Price of the Common Stock on the Trading Day immediately preceding the Issuance
Date, or (ii) ninety percent (90%) of the average of the four lowest Closing Bid
Prices of the Common Stock during the ten (10) day trading period (the "Lookback
Period") immediately preceding the Conversion Date (the "Market Price"). The
Lookback Period shall be increased by two Trading Days every month commencing on
the first Trading Day of the fourth month after the Issuance Date, and continue
to increase by two Trading Days every month thereafter that the Series A
Preferred Stock is outstanding until the Lookback Period equals a maximum of
thirty Trading Days.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of two hundred (200%) percent of the number of
shares of Common Stock issuable (irrespective of any shareholder approval
requirement) upon conversion of all of the Series A Preferred Stock outstanding
on the Trading Day immediately preceding the day such Registration Statement is
filed.
The "Issuance Date" shall mean, with respect to each share of Series
A Preferred Stock, the date of issuance of the applicable share of Series A
Preferred Stock.
A "Trading Day" shall mean a day on which the New York Stock Exchange
is open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the OTC Electronic
Bulletin Board operated by the National Association of Securities Dealers, Inc.,
the "pink sheets" published by the National Quotation Bureau, Inc., or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
C. Accrual Deduction. In the event the Market Price is greater than
$2.8125, then the number of shares of Common Stock to be issued upon the
conversion of the Series A Preferred Stock shall be reduced by the number of
shares of Common Stock derived from the following formula:
((100 x Market Price) / $1.875) - 150) / (Market Price x 2)
D. Exercise of Conversion Rights. Holders of Series A Preferred Stock may
exercise their right to convert the Series A Preferred Stock by telecopying an
executed and completed notice of conversion (the "Notice of Conversion") to the
Company and delivering to Company the original Notice of Conversion and the
certificate representing the Series A Preferred Stock being converted by
reputable overnight courier. Each business date on which a Notice of Conversion
is telecopied to and received by the Company along with a copy of the originally
executed Series A Preferred Stock certificates in accordance with the provisions
hereof shall be deemed a "Conversion Date". The Company will
<PAGE> 5
transmit, or instruct its transfer agent to transmit, the certificates
representing shares of Common Stock issuable upon conversion of any share of
Series A Preferred Stock (together with the certificates representing the share
or shares of Series A Preferred Stock not so converted) to the holder thereof
via reputable overnight courier, by electronic transfer or otherwise within
three (3) Business Days after the Conversion Date, provided the Company has
received the original Notice of Conversion and Series A Preferred Stock
certificate being so converted on or before the close of business of the second
Business Day after the Conversion Date. In addition to any other remedies which
may be available to the holders of shares of Series A Preferred Stock, in the
event that the Company fails to deliver, such shares of Common Stock within such
three (3) Business Day period, the holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
The Notice of Conversion and Series A Preferred Stock certificates representing
the portion of the Series A Preferred Stock converted shall be delivered as
follows:
To the Company:
Mustang Software, Inc.
6200 Lake Ming Road
Bakersfield, California 93306
Attention: Don Leonard
Telephone: (805) 873-2580
Facsimile: (805) 873-2474
In the event that shares representing the Common Stock issuable upon
conversion of the Series A Preferred Stock (the "Conversion Shares") are not
delivered by the Company within three (3) Business Days after the Conversion
Date, the Company shall pay to the holders thereof, in immediately available
funds, upon demand, as liquidated damages for such failure and not as a penalty,
for each shares of Series A Preferred Stock sought to be converted, $0.50 for
each of the first ten (10) days and $1.00 for each day thereafter that the
Conversion Shares are not delivered.
Such liquidated damages shall run from the fourth (4th) Business Day
after the Conversion Date. Any and all payments required pursuant to this
paragraph shall be payable only in cash.
E. Capital Reorganization or Reclassification. If the Common Stock issuable
upon the conversion of the Series A Preferred Stock shall be changed into the
same or different number of shares of any class or classes of stock, whether by
capital reorganization, reclassification or otherwise, then and in each such
event, the holders of Series A Preferred Stock shall have the right thereafter
to convert such shares into the kind and amount of shares of stock and other
securities and property receivable upon such capital reorganization,
reclassification or other change which such holders would have received had
their shares of Series A Preferred Stock been converted immediately prior to
such capital reorganization, reclassification or other change.
<PAGE> 6
F. Reorganization, Merger or Sale of Assets. If at any time or from time to
time there shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section) or a merger or consolidation of the Company with or
into another corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person (any of which events is
herein referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series A Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section with respect to the rights of the
holders of the Series A Preferred Stock after the Reorganization, to the end
that the provisions of this Section (including adjustment of the number of
shares issuable upon conversion of the Series A Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
G. Adjustments. Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of such Series A Preferred
Stock a certificate executed by the president and chief financial officer (or in
the absence of a person designated as the chief financial officer, by the
treasurer) setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment are based. The Company
shall, upon written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a certificate setting
forth (A) the Conversion Price at the time in effect, and (B) the number or
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock.
H. Lost or Stolen Certificates. Upon receipt by the Company of evidence of
the loss, theft, destruction or mutilation of any Series A Preferred Stock
certificate(s), and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon the cancellation of
the Series A Preferred Stock certificate(s), if mutilated, the Company shall
execute and deliver new certificates for Series A Preferred Stock of like tenure
and date. However, the Company shall not be obligated to reissue such lost or
stolen certificates for shares of Series A Preferred Stock if the holder
contemporaneously requests the Company to convert such shares of Series A
Preferred Stock into Common Stock.
I. Fractional Shares. The Company shall not issue any fraction of a share
of Common Stock upon any conversion. The Company shall round such fraction of a
share of Common Stock up to the nearest whole share.
J. Partial Conversion. In the event some but not all of
<PAGE> 7
the shares of Series A Preferred Stock represented by a certificate or
certificates surrendered by a holder are converted, the Company shall execute
and deliver to or on the order of the holder, at the expense of the Company, a
new certificate representing the number of shares of Series A Preferred Stock
which were not converted.
K. Automatic Conversion. Each share of Series A Preferred Stock outstanding
two years from the Issuance Date shall automatically be converted into Common
Stock on such date at the Conversion Price and such date shall be deemed the
Conversion Date with respect to such shares.
L. Taxes. The Company shall pay any and all original issue and/or transfer
taxes which may be imposed upon it with respect to the issuance and delivery of
Common Stock upon conversion of the Series A Preferred Stock.
M. Conversion Restrictions. Holders may not convert shares of Series A
Preferred Stock unless and until the Company receives shareholder approval for
the below market issuance of the Common Stock and the Common Stock issuable upon
the exercise of the Warrants and conversion of the Series A Preferred Stock, of
more than 20% of the outstanding shares of Common Stock on the initial Issuance
Date, provided, however, that the foregoing restriction shall not apply in the
event the Common Stock is not listed on The Nasdaq Stock Market or the rules of
the Principal Market do not otherwise require shareholder approval for the below
market issuance of the Common Stock and the Common Stock issuable upon the
exercise of the Warrants and conversion of the Series A Preferred Stock, of more
than 20% of the outstanding shares of Common Stock immediately prior to the
initial Issuance Date. Subject to the provisions of the foregoing sentence each
holder may convert no more than one third of the number of shares of Series A
Preferred Stock originally issued to it for each 30 calendar day period, which
shall be cumulative such that if a holder does not convert any shares of Series
A Preferred Stock in one 30 calendar day period, it may then convert up to two
thirds during the subsequent 30 day period.
V. No Reissuance of Series A Preferred Stock. No share or shares of Series A
Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series A Preferred
Stock accordingly.
VI. Reservation of Shares. The Company shall, so long as any of the Series A
Preferred Stock are outstanding reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all of the Series A
Preferred Stock then outstanding; provided that the number of shares of Common
Stock so reserved shall at no time be less than 200% of the number of shares of
Common Stock for which the Series A Preferred Stock are at any time convertible
and if at any time the number of authorized but
<PAGE> 8
unissued shares of Common Stock shall not be sufficient to maintain such number
of shares of Common Stock, the Company shall take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
VII. Restrictions and Limitations.
A. Corporate Action. Except as expressly provided herein or as required
by law, so long as any shares of Series A Preferred Stock remain outstanding,
the Company shall not, without the approval by vote or written consent by the
holders of at least two thirds of the then outstanding shares of Series A
Preferred Stock, voting as a separate class take any action that would adversely
affect the rights, preferences or privileges of the holders of Series A
Preferred Stock.
B. Protective Provisions. Without limiting the generality of the
preceding paragraph, the Company shall not so long as any shares of Series A
Preferred Stock remain outstanding amend its Articles of Incorporation without
the approval by the holders of at least two thirds of the then outstanding
shares of Series A Preferred Stock if such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of
Series A Preferred Stock;
2. reduce the amount payable to the holders of Series A Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the
liquidation preferences of the holders of Series A Preferred Stock to
the rights upon liquidation of the holders of other capital stock of
the Company,
3. cancel or modify the conversion rights of the holders of Series
A Preferred Stock provided for in Section IV herein;
4. cancel or modify the rights of the holders of the Series A
Preferred Stock provided for in this Section.
VIII. No Dilution or Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Certificate of Determination set forth herein, but shall at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Series A Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) shall not establish a par value of any shares of stock
receivable on the conversion of the Series A Preferred Stock above the amount
payable therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock on the conversion of all Series A
Preferred Stock from time to time outstanding, and (c) shall not consolidate
with or merge into any other person or entity, or permit any such person or
entity to consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other person or entity shall
<PAGE> 9
expressly assume in writing and will be bound by all of the terms of the Series
A Preferred Stock set forth herein.
IX. Notices of Record Date. In the event of:
1. 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
2. any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger of the Company,
or any transfer of all or substantially all of the assets of the Company to any
other corporation, or any other entity or person, or
3. any voluntary or involuntary dissolution, liquidation or winding up
of the Company, then and in each such event the Company shall mail or cause to
be mailed to each holder of Series A Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least ten (10) Business Days prior
to the date specified in such notice on which such action is to be taken.
We 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 own
knowledge.
Dated: August 27, 1998
/s/ JAMES A HARRER
___________________________________
James A. Harrer
/S/ DONALD M. LEONARD
___________________________________
Donald M. Leonard
<PAGE> 1
EXHIBIT 4.4
ESCROW AGREEMENT
THIS AGREEMENT is made as of the day of September, 1998 by and among
MUSTANG SOFTWARE, INC., with its principal office at 6200 Lake Ming Road,
Bakersfield, CA 93306 (hereinafter the "Company"), the "Purchasers" specified on
Schedule A attached hereto, with their respective principal offices at the
addresses set forth in Schedule A, SETTONDOWN CAPITAL INTERNATIONAL LTD.,
(the "Placement Agent") located at Charlotte House, Charlotte Street, P.O. Box
N. 9204, Nassau, Bahamas, and GOLDSTEIN, GOLDSTEIN & REIS, LLP, 65 Broadway,
10th Fl., New York, NY 10006 (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Purchasers will be purchasing Common Stock, Preferred
Stock and Warrants (collectively the "Initial Shares"), from the Company at a
purchase price as set forth in a Securities Purchase Agreement (the "Agreement")
dated as of September , 1998, which will be issued as per the terms contained
herein and in the Agreement executed by the Company and Purchaser; and
WHEREAS, the Company will be issuing Common Stock, Preferred Stock,
and Warrants (also referred to as the Initial Shares) to the Placement Agent
pursuant to the Agreement; and
WHEREAS, the Company shall have a Put of additional Common Stock to
the Purchasers for the remainder of the Commitment Amount after the Initial
Shares Investment Amount and the Purchase Price for the Preferred Stock has been
paid to the Company, in accordance with the terms and conditions in the
Agreement; and
WHEREAS, it is intended that the purchase of Securities be consummated
in accordance with the requirements set forth by Regulation D promulgated under
the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold the
Initial Shares Investment Amount, and the remainder of the Commitment Amount in
escrow until the Escrow Agent has received the Initial Shares, and the Put
Shares. The Escrow Agent will then immediately wire transfer or otherwise
deliver at the Company's discretion immediately available funds to the Company's
account and arrange for delivery of the Initial Shares, and Put Shares to the
Investors, and the shares of Preferred Stock, Common Stock and Warrants to the
Placement Agent as per the terms and conditions in the Agreement.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW FOR THE INITIAL SHARES
1.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
the Initial Shares.
1.2 Upon Escrow Agent's receipt of the Initial Shares Investment
Amount into its attorney trustee account, it shall notify the Company, or the
Company's designated attorney or agent, of the amount of funds it has received
into its account.
1.3 The Company, upon receipt of said notice and acceptance of the
Agreement by both parties, as evidenced by the Company's and the Purchasers and
Placement Agent's execution
<PAGE> 2
thereof, shall deliver to the Escrow Agent the Initial Shares and the Securities
issued to the Placement Agent. Escrow Agent shall then communicate with the
Company to confirm the validity of such issuance.
1.4 Once Escrow Agent confirms the validity of the issuance of the
Initial Shares and the Securities issued to the Placement Agent, the Escrow
Agent shall immediately wire that amount of funds necessary to purchase the
Initial Shares per the written instructions of the Company. The Company will
furnish Escrow Agent with a "Net Letter" directing payment of Placement Agent
fees, and administrative, legal and escrow fees as per the terms of the
Agreement, such fees are to be remitted to in accordance with wire instructions
that will be sent to Escrow Agent from the Company, with the net balance payable
to the Company. Once the funds (as set forth above) have been received per the
Company's instructions, the Escrow Agent shall then arrange to have the
Securities delivered as per instructions from the Purchasers and the Placement
Agent.
ARTICLE 2
TERMS OF THE ESCROW FOR THE PUT SHARES
2.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
the Put Shares.
2.2 Upon Escrow Agent's receipt of confirmation in writing that the
Company has properly served a Put Notice in accordance with the Agreement, and
once it has received the Purchase Price for the Put Shares into its attorney
trustee account, it shall notify the Company, or the Company's designated
attorney or agent, of the amount of funds it has received into its account.
2.3 The Company, upon receipt of said notice and acceptance by the
Purchasers, as evidenced by written notice by the Purchasers, shall deliver to
the Escrow Agent the Put Shares being purchased, along with the Securities being
issued to the Placement Agent (as per the terms of the Subscription Agreement).
Escrow Agent shall then communicate with the Company to confirm the validity of
such issuance.
2.4 Once Escrow Agent confirms the validity of the issuance of the Put
Shares along with the Securities being issued to the Placement Agent (as per the
terms of the Subscription Agreement), he shall immediately wire that amount of
funds necessary to purchase of the Put Shares per the written instructions of
the Company. The Company will furnish Escrow Agent with a "Net Letter" directing
payment of placement agent fees and legal, administrative and escrow fees as per
the terms of the Agreement. Such fees are to be remitted to in accordance with
wire instructions that will be sent to Escrow Agent from the Company, with the
net balance payable to the Company. Once the funds have been received per the
Company's instructions, the Escrow Agent shall then arrange to have the
Securities delivered as per instructions from the Purchasers and the Placement
Agent.
ARTICLE 3
<PAGE> 3
MISCELLANEOUS
3.1 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
3.2 All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by fax, overnight courier,
registered or certified mail, postage prepaid, return receipt requested, and
shall be deemed received upon receipt thereof, as follows:
(a) Mustang Software, Inc.
6200 Lake Ming Road
Bakersfield, CA 93306
Attention: Jim Harrer
Facsimile: (805) 873-2457
Telephone: (805) 873-2500
(b) If to the Purchasers, at the addresses set forth on Schedule A
hereto.
(c) Settondown Capital International Ltd.
Charlotte House, Charlotte Street
P.O. Box N. 9204
Nassau, Bahamas
Attention: Anthony L. M. Inder Riden
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
(d) Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Fl.
New York, NY 10006
Attn: Sheldon E. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
or to such other person at such other place as shall
designated in writing;
3.3 This Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and assigns of the parties hereto.
3.4 This Agreement is the final expression of, and contains the entire
Agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto.
3.5 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this
<PAGE> 4
Agreement.
3.6 The Company acknowledges and confirms that it is not being
represented in a legal capacity by Goldstein, Goldstein & Reis, LLP and it has
had the opportunity to consult with its own legal advisors prior to the signing
of this Agreement.
3.7 This Agreement will be construed and enforced in accordance with
and governed by the laws of the State of New York, except for matters arising
under the Act, without reference to principles of conflicts of law. Each of the
parties consents to the jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law. Each party waives its right to a trial by jury.
3.8 This Agreement may be altered or amended only with the consent of
all of the parties hereto. Should the Company, any of the Purchasers or the
Placement Agent attempt to change this Agreement in a manner which, in the
Escrow Agent's discretion, shall be undesirable, the Escrow Agent may resign as
Escrow Agent by notifying the Company and the Purchasers in writing. In the case
of the Escrow Agent's resignation or removal pursuant to the foregoing, its only
duty, until receipt of notice from the Company and the Purchasers or their agent
that a successor escrow agent shall have been appointed, shall be to hold and
preserve the funds. Upon receipt by the Escrow Agent of said notice from the
Company and the Purchasers of the appointment of a successor escrow agent, the
name of a successor escrow account and a direction to transfer the funds, the
Escrow Agent shall promptly thereafter transfer all of the funds held in escrow
to said successor escrow agent. Immediately after said transfer, the Escrow
Agent shall furnish the Company and the Purchasers with proof of such transfer.
The Escrow Agent is authorized to disregard any notices, requests, instructions
or demands received by it from the Company or the Purchasers after notice of
resignation or removal shall have been given, unless the same shall be the
aforementioned notice from the Company and the Purchasers to transfer the funds
to a successor escrow agent or to return same to the respective parties.
3.9 The Escrow Agent shall be reimbursed by the Company and the
Purchasers for any reasonable expenses incurred in the event there is a conflict
between the parties and the Escrow Agent shall deem it necessary to retain
counsel.
3.10 The Escrow Agent shall not be liable for any
<PAGE> 5
action taken or omitted by it in good faith in accordance with the advice of the
Escrow Agent's counsel; and in no event shall the Escrow Agent be liable or
responsible except for the Escrow Agent's own gross negligence or willful
misconduct.
3.11 The Company and the Purchasers warrant to and agree with the
Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any part
thereof;
(ii) no financing statement under the Uniform Commercial Code is
on file in any jurisdiction claiming a security interest or in
describing (whether specifically or generally) the Securities or
any part thereof; and
(iii) the Escrow Agent shall have no responsibility at any time
to ascertain whether or not any security interest exists in the
Securities or any part thereof or to file any financing statement
under the Uniform Commercial Code with respect to the Securities
or any part thereof.
3.12 The Escrow Agent in its capacity as such has no liability
hereunder to either party other than to hold the funds and the Securities and to
deliver them under the terms hereof. Each party hereto agrees to indemnify and
hold harmless the Escrow Agent in its capacity as such from and with respect to
any suits, claims, actions or liabilities arising in any way out of this
transaction including the obligation to defend any legal action brought which in
any way arises out of or is related to this Escrow.
IN WITNESS WHEREOF, the parties hereto have cause this Escrow Agreement to
be executed as of the ____ day of September, 1998.
MUSTANG SOFTWARE, INC.
By /s/ JAMES A HARRER
------------------------------
James A Harrer, President
By /S/ DONALD M. LEONARD
------------------------------
Donald M. Leonard,
Chief Financial Officer
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Placement Agent
By /s/ [SIGNATURE ILLEGIBLE]
------------------------------
SETTONDOWN CAPITAL INTER-
NATIONAL LTD., Investor
By /s/ [SIGNATURE ILLEGIBLE]
------------------------------
THE CUTTY HUNK FUND LIMITED,
Investor
By /s/ [SIGNATURE ILLEGIBLE]
------------------------------
<PAGE> 6
CANAL, LTD, Investor
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
MANCHESTER ASSET
MANAGEMENT LTD, Investor
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
GOLDSTEIN, GOLDSTEIN & REIS, LLP,
Escrow Agent
By /s/ SCOTT H. GOLDSTEIN
-------------------------------
Scott H. Goldstein
<PAGE> 1
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 14th day of September,
1998, between the entities listed on Schedule A attached hereto (referred to as
a the "Purchaser" or "Purchasers"), SETTONDOWN CAPITAL INTERNATIONAL LTD. (the
"Placement Agent" together with the Purchaser is also hereinafter referred to as
the "Holder" or "Holders") located at Charlotte House, Charlotte Street, P.O.
Box N. 9204, Nassau, Bahamas, a corporation organized under the laws of Bahamas,
and MUSTANG SOFTWARE, INC., a corporation incorporated under the laws of the
State of California, and having its principle place of business at 6200 Lake
Ming Road, Bakersfield, CA 93306 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Purchaser is purchasing from the Company, pursuant to a
Securities Purchase Agreement dated the date hereof (the "Securities Purchase
Agreement"), shares of Common Stock, shares of Preferred Stock, and Warrants
(hereinafter collectively referred to as the "Securities" of the Company); All
capitalized terms not hereinafter defined shall have that meaning assigned to
them in the Securities Purchase Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company shall issue to the Placement Agent, in return for
services rendered, from time to time as provided in the Securities Purchase
Agreement, shares of Common Stock, shares of Preferred Stock, and Warrants
(hereinafter also collectively referred to as the "Securities" of the Company).;
and
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein with respect to the securities set forth in Section 1.36
of the Securities Purchase Agreement, and the shares of Common Stock underlying
the Repricing Shares.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the "1933
Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act is
no longer required for the immediate public distribution of such security as a
result of the provisions of Rule 144 promulgated under the 1933 Act, or (iii) it
has ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holder acknowledges and
understands that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act.
<PAGE> 2
The Holder understands that no disposition or transfer of the Securities may be
made by Holder in the absence of (i) an opinion of counsel to the Holder that
such transfer may be made without registration under the 1933 Act or (ii) such
registration.
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within forty five (45) days
after the Subscription Date, a registration statement (on Form S-3, or other
appropriate registration statement) under the 1933 Act (the "Registration
Statement"), at the sole expense of the Company (except as provided in Section
3(c) hereof), in respect of all holders of Registrable Securities, so as to
permit a public offering and sale of the Registrable Securities (except for the
shares of Common Stock underlying the Repricing Shares) under the Act. The
Company agrees that it will file a post effective amendment or supplement to the
Registration Statement, so as to permit a public offering and sale of the shares
of Common Stock underlying the Repricing Shares (the "Repricing Shares
Amendment") within thirty days after the Repricing Date. In the event the
Effective Date does not occur prior to the Repricing Date, or the Registration
Statement is not effective on the Repricing Date, the Company agrees to file
within forty five days after the Repricing Date, with the Commission a
registration statement (on Form S-3, or other appropriate registration
statement) under the 1933 Act (the "Repricing Shares Registration Statement"),
at the sole expense of the Company (except as provided in Section 3(c) hereof),
so as to permit a public offering and sale of the Registrable Securities.
The Company shall use its best efforts to cause (i) the
Registration Statement to become effective within one hundred twenty (120) days
from the Subscription Date, (ii) the Repricing Shares Amendment to become
effective within one hundred twenty (120) days after the Repricing Date, and
(iii) the Repricing Shares Registration Statement to become effective within one
hundred twenty (120) days after the Repricing Date. The number of shares of
Common Stock designated in the Registration Statement to be registered shall be
two hundred (200%) percent of the number of Securities that would be required if
all the Registrable Securities (excluding the shares of Common Stock underlying
the Repricing Shares) were issued on the day before the filing of the
Registration Statement. The number of shares of Common Stock designated in the
Repricing Shares Amendment (and the Repricing Shares Registration Statement) to
be registered shall be two hundred (200%) percent of the number of shares of
Common Stock that would be required if all the Repricing Shares were issued on
the day before the filing of the Registration Statement.
(b) The Company will maintain the Registration Statement,
Repricing Shares Amendment, and the Repricing Shares Registration Statement, or
post-effective amendment filed under this Section 3 hereof current under the
1933 Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the applicable Registration Statement,
(ii) the date the holders thereof receive an opinion of counsel that the
Registrable Securities may be sold under the provisions of Rule 144 or (iii)
three years after the Subscription Date for the Registration Statement, and two
years after the Repricing
<PAGE> 3
Date.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement, Repricing Shares Amendment, or Repricing Shares
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holder shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall qualify any of the securities for sale in such states as such
Holder reasonably designates and shall furnish indemnification in the manner
provided in Section 6 hereof. However, the Company shall not be required to
qualify in any state which will require an escrow or other restriction relating
to the Company and/or the sellers. The Company at its expense will supply the
Holder with copies of the Registration Statement, Repricing Shares Amendment,
and Repricing Shares Registration Statement and the prospectus or offering
circular included therein and other related documents in such quantities as may
be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which is
to be filed if, in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the 1933 Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed with the Commission within
forty five (45) days from the Subscription Date and/or the Registration
Statement is not declared effective by the Commission within one hundred twenty
(120) days from the Subscription Date, then the Company will pay Holder (pro
rated on a daily basis), as liquidated damages for such failure and not as a
penalty, two (2%) percent of the purchase price of the then outstanding
Securities for every thirty (30) day period until the Registration Statement has
been filed and/or declared effective. Such payment of the liquidated damages
shall be made to the Holder in cash, immediately upon demand, provided, however,
that the payment of such liquidated damages shall not relieve the Company from
its obligations to register the Securities pursuant to this Section.
(f) In the event the Repricing Shares Amendment and/or Repricing
Shares Registration Statement to be filed by the Company pursuant to Section
3(a) above is not filed with the Commission and/or the Repricing Shares
Amendment, and Repricing Shares Registration Statement is not declared effective
by the Commission as set forth in Section 3(a) above, then the Company will pay
Holder (pro rated on a daily basis), as liquidated damages for such failure and
not as a penalty, two (2%) percent of the purchase price of the then outstanding
Repricing Shares for every thirty (30) day period until the Repricing Shares
<PAGE> 4
Amendment and/or Repricing Shares Registration Statement, has been filed and/or
declared effective. Such payment of liquidated damages shall be made to the
Holder in cash, immediately upon demand, provided, however, that the payment of
such liquidated damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section.
If the Company does not remit the damages to the Holder as set
forth above, the Company will pay the Holder reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(g) No provision contained herein shall preclude the Company
from selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(h) If at any time or from time to time after the Effective Date,
the Company notifies the Holders in writing of the existence of a Potential
Material Event (as defined in Section 3(i) below), the Holders shall not offer
or sell any Registrable Securities or engage in any other transaction involving
or relating to Registrable Securities, from the time of the giving of notice
with respect to a Potential Material Event until such Holder receives written
notice from the Company that such Potential Material Event either has been
disclosed to the public or no longer constitutes a Potential Material Event;
provided, however, that the Company may not so suspend the right to such holders
of Securities for more than one (1) twenty (20) day period in the aggregate
during any twelve month period, during the periods the Registration Statement is
required to be in effect. If a Potential Material Event shall occur prior to the
date the Registration Statement is filed, then the Company's obligation to file
the Registration Statement shall be delayed without penalty for not more than
twenty (20) days. The Company must give each Holder notice in writing at least
two (2) business days prior to the first day of the blackout period.
(i) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information not for disclosure in a
registration statement; or (b) any material engagement or activity by the
Company which would be adversely affected by disclosure in a registration
statement at such time, that the Registration Statement would be materially
misleading absent the inclusion of such information.
Section 4. Cooperation with Company. Holder will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such
<PAGE> 5
amendments and supplements to the registration statements and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with respect to
the sale or other disposition of all securities covered by such registration
statement whenever the Holder of such securities shall desire to sell or
otherwise dispose of the same (including prospectus supplements with respect to
the sales of securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Act, and such other documents, as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by such Holder;
(c) register and qualify the securities covered by the
Registration Statement, Repricing Shares Amendment and Repricing Shares
Registration Statement, under such other securities or blue sky laws of such
jurisdictions as the Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable each Holder to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) list such securities on the NASDAQ National Market or other
national securities exchange on which any securities of the Company are then
listed, if the listing of such securities is then permitted under the rules of
such exchange or NASDAQ;
(e) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering;
(f) notify each Holder of Registrable Securities covered by the
Registration Statement, Repricing Shares Amendment and Repricing Shares
Registration Statement, at any time when a prospectus relating thereto covered
by the Registration Statement, Repricing Shares Amendment and Repricing Shares
Registration Statement, is required to be delivered under the Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, Repricing Shares Amendment
and/or Repricing Shares Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing.
Section 6. Information by Holder. Each Holder of Registrable
Securities included in any registration statement shall furnished to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the
<PAGE> 6
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section.
Section 7. Assignment. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. This Agreement is binding upon
and inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
Section 8. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Investor (and permitted
transferee under Section 7 above) upon the occurrence of any of the following:
(a) all such Holder's securities subject to this Agreement have
been registered;
(b) all of such Holder's securities subject to this Agreement
may be sold without such registration pursuant to Rule 144 promulgated by the
SEC pursuant to the Securities Act;
(c) all of such Holder's securities subject to this Agreement
can be sold pursuant to Rule 144(k); or
(d) two years from the issuance of the Registrable Securities.
Section 9. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, Repricing Shares Amendment and/or Repricing Shares Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, Repricing Shares Amendment
and/or Repricing Shares Registration Statement, preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto
in reliance upon, and in conformity with, written information furnished to the
Company by the Distributing Holders, specifically for use in the
<PAGE> 7
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof; arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in a Registration
Statement, Repricing Shares Amendment and/or Repricing Shares Registration
Statement, requested by such Distributing Holder, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement, Repricing
Shares Amendment and/or Repricing Shares Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by such Distributing Holder, specifically for use in
the preparation thereof and, provided further, that the indemnity agreement
contained in this Section 9(b) shall not inure to the benefit of the Company
with respect to any person asserting such loss, claim, damage or liability who
purchased the Registrable Securities which are the subject thereof if the
Company failed to send or give (in violation of the Securities Act or the rules
and regulations promulgated thereunder) a copy of the prospectus contained in
such Registration Statement to such person at or prior to the written
confirmation to such person of the sale of such Registrable Securities, where
the Company was obligated to do so under the Securities Act or the rules and
regulations promulgated thereunder. This indemnity agreement will be in addition
to any liability which the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense
<PAGE> 8
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is the Distributing Holder, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 10. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Holder makes a claim for indemnification pursuant to Section 9 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the applicable
Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable
<PAGE> 9
if contribution pursuant to this Section 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 this Section. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 11. Notices. Any notice pursuant to this Agreement by the
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Holder, to its, his or her address set forth on
the signature page of this Agreement, with a copy to the person designated in
the Securities Purchase Agreement.
(b) If to the Company, at the address set forth herein, or to
such other address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
(5) days after they are mailed in the manner set forth above. If notice is
delivered by facsimile to the Company and followed by mail, delivery shall be
deemed given two (2) days after such facsimile is sent.
Section 12. 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.
Section 13. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Choice of Law; Venue; Jurisdiction. This Agreement will
be construed and enforced in accordance with and governed by the laws of the
State of California, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. The party commencing any
legal action shall have the option of choosing the jurisdiction of the U.S.
District Court sitting in the Southern District of the State of New York or in
the Northern or Central District of California in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement
<PAGE> 10
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law. Each
party waives its right to a trial by jury.
Section 15. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
Attest: MUSTANG SOFTWARE, INC.
By: /s/ DONALD M. LEONARD By: /s/ JAMES HARRER
------------------------ -----------------------------
Name: Donald M. Leonard Name: James Harrer
Title: Chief Financial Title: President
Officer
SETTONDOWN CAPITAL INTERNATIONAL
LTD., Placement Agent
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
SETTONDOWN CAPITAL INTERNATIONAL
LTD., Investor
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
THE CUTTY HUNK FUND LIMITED,
Investor
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
CANAL LTD, Investor
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
MANCHESTER ASSET
MANAGEMENT LTD, Investor
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
<PAGE> 1
EXHIBIT 4.6
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
FORM OF STOCK PURCHASE WARRANT A
No. __
To Purchase ______ Shares of Common Stock of
MUSTANG SOFTWARE, INC.
THIS CERTIFIES that, for value received, ___________________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to September , 2000 (the "Termination Date") but not thereafter, to subscribe
for and purchase from MUSTANG SOFTWARE, INC., a ____ corporation (the
"Company"), ( ) shares of Common Stock (the "Warrant Shares"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be equal to one hundred ten (110%) percent of the average closing bid
price of the Common Stock on the Principal Market, for the five (5) trading days
preceding the Subscription Date, as defined in the Securities Purchase Agreement
(the "Agreement") between the Company and Investor and is subject to its terms.
The Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with the Agreement In the event of any conflict between the terms
of this Warrant and the Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. The Holder may not exercise its purchase
rights granted hereunder until one of the following two events has occurred: (i)
the Company has obtained shareholder approval for the below market issuance of
more than 20% of the outstanding shares of Common Stock as set forth in the
Agreement, or (ii) the Common Stock is no longer traded on a Principal Market.
In the event the Common Stock is traded on a Principal Market that does not
mandate such shareholder approval, then the aforementioned exercise restrictions
shall not apply. In the event the Company fails to obtain shareholder approval
as set forth in (i) above, the Company agrees to immediately list the Common
Stock on the OTC Bulletin Board (pursuant to the terms of the Agreement) and in
such case the aforementioned restrictions shall not apply. Exercise of the
purchase rights represented by this Warrant may be made at any time or times, in
whole, before the close of business on the Termination Date, or such earlier
date on which this Warrant may terminate as provided in paragraph 11 below,
assuming one of the aforementioned events has occurred, by the surrender of this
Warrant and the Subscription Form annexed hereto duly executed, at the office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased; whereupon the holder of this Warrant
shall be entitled to receive a certificate for the number of shares of Common
Stock so purchased. Certificates for shares purchased hereunder shall be
delivered to the holder hereof within five business days after the date on which
this Warrant shall have been exercised as aforesaid. Payment of the Exercise
Price of the shares may be by certified check or cashier's check or by wire
transfer (of same day funds) to an account designated by the Company in an
amount equal to the Exercise Price multiplied by the number of shares being
purchased.
<PAGE> 2
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold
<PAGE> 3
or otherwise transferred except (i) in a transaction registered under the
Securities Act, or (ii) in a transaction pursuant to an exemption, if available,
from such registration and whereby, if requested by the Company, an opinion of
counsel reasonably satisfactory to the Company is obtained by the holder of this
Warrant to the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events. If at any time the Company proposes (i)
to sell or otherwise convey all or substantially all of its assets or (ii) to
effect a transaction (by merger or otherwise) in which more than 50% of the
voting power of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), in which the consideration to be received by the Company or its
shareholders consists solely of cash, and in case the Company shall at any time
effect a Sale or Merger Transaction in which the consideration to be received by
the Company or its shareholders consists in part of consideration other than
cash, the holder of this Warrant shall have the right thereafter to purchase, by
exercise of this Warrant and payment of the aggregate Exercise Price in effect
immediately prior to such action, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such transaction had this Warrant been exercised
immediately prior thereto.
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been
<PAGE> 4
exercised in advance thereof. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at its
warrant, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant 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 computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
NASDAQ National Market or any domestic securities exchange upon which the Common
Stock may be listed.
16. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The
provisions of this Warrant shall be construed and shall be given effect in all
respects as if it had been issued and delivered by the Company on the date
hereof. This Warrant shall be binding upon any successors or assigns of the
Company. This Warrant will be construed and enforced in accordance with and
governed by the laws of the State of New York, except for matters arising under
the Securities Act, without reference to principles of conflicts of law. The
party commencing any legal action shall have the option of choosing the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or in the Northern or Central District of California in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if the other
<PAGE> 5
party to this Warrant obtains a judgment against it in such a proceeding, the
party which obtained such judgment may enforce same by summary judgment in the
courts of any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses available to it
under local law and agrees to the enforcement of such a judgment. Each party to
this Warrant irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law. Each party waives its right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered (or if no
exemption from registration exists), will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares issued to the Holder upon exercise (if not registered or if no exemption
from registration exists) will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant A to be
executed by its officers thereunto duly authorized.
Dated: September __, 1998
MUSTANG SOFTWARE, INC.
By ______________________________
Name:
Title:
NOTICE OF EXERCISE
<PAGE> 6
To: MUSTANG SOFTWARE, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
MUSTANG SOFTWARE, INC. pursuant to the terms of the attached Warrant A, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
____________________________________________________________ whose address is
____________________________________________________________________________.
_____________________________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed:
_________________________________________
<PAGE> 1
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT 4.7
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
FORM OF STOCK PURCHASE WARRANT B
No. __
To Purchase ______ Shares of Common Stock of
MUSTANG SOFTWARE, INC.
THIS CERTIFIES that, for value received, ___________________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to September , 2000 (the "Termination Date") but not thereafter, subject to the
restrictions set forth in paragraph 3 below, to subscribe for and purchase from
MUSTANG SOFTWARE, INC., a ____ corporation (the "Company"), ( ) shares of Common
Stock (the "Warrant Shares"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be equal to one hundred twenty
(120%) percent of the average closing bid price of the Common Stock on the
Principal Market, for the five (5) trading days preceding the Subscription Date,
as defined in the Securities Purchase Agreement (the "Agreement") between the
Company and Investor and is subject to its terms. The Exercise Price and the
number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection with
the Agreement In the event of any conflict between the terms of this Warrant and
the Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
<PAGE> 2
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. The Holder may not exercise its purchase
rights granted hereunder until one of the following two events has occurred: (i)
the Company has obtained shareholder approval for the below market issuance of
more than 20% of the outstanding shares of Common Stock as set forth in the
Agreement, or (ii) the Common Stock is no longer traded on a Principal Market.
In the event the Common Stock is traded on a Principal Market that does not
mandate such shareholder approval, then the aforementioned exercise restrictions
shall not apply. In the event the Company fails to obtain shareholder approval
as set forth in (i) above, the Company agrees to immediately list the Common
Stock on the OTC Bulletin Board (pursuant to the terms of the Agreement) and in
such case the aforementioned restrictions shall not apply. Exercise of the
purchase rights represented by this Warrant may be made at any time or times, in
whole, before the close of business on the Termination Date, or such earlier
date on which this Warrant may terminate as provided in paragraph 11 below,
assuming one of the aforementioned events has occurred, by the surrender of this
Warrant and the Subscription Form annexed hereto duly executed, at the office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased; whereupon the holder of this Warrant
shall be entitled to receive a certificate for the number of shares of Common
Stock so purchased. Certificates for shares purchased hereunder shall be
delivered to the holder hereof within five business days after the date on which
this Warrant shall have been exercised as aforesaid. Payment of the Exercise
Price of the shares may be by certified check or cashier's check or by wire
transfer (of same day funds) to an account designated by the Company in an
amount equal to the Exercise Price multiplied by the number of shares being
purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached
<PAGE> 3
hereto duly executed by the holder hereof; and provided further, that upon any
transfer involved in the issuance or delivery of any certificates for shares of
Common Stock, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events. If at any time the Company proposes (i)
to sell or otherwise convey all or substantially all of its assets or (ii) to
effect a transaction (by merger or otherwise) in which more than 50% of the
voting power of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), in which the consideration to be received by the
<PAGE> 4
Company or its shareholders consists solely of cash, or in case the Company
shall at any time effect a Sale or Merger Transaction in which the consideration
to be received by the Company or its shareholders consists in part of
consideration other than cash, the holder of this Warrant shall have the right
thereafter to purchase, by exercise of this Warrant and payment of the aggregate
Exercise Price in effect immediately prior to such action, the kind and amount
of shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such transaction had this
Warrant been exercised immediately prior thereto.
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following:
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at its
warrant, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant 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 computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock
<PAGE> 5
upon the exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the NASDAQ National
Market or any domestic securities exchange upon which the Common Stock may be
listed.
16. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The
provisions of this Warrant shall be construed and shall be given effect in all
respects as if it had been issued and delivered by the Company on the date
hereof. This Warrant shall be binding upon any successors or assigns of the
Company. This Warrant will be construed and enforced in accordance with and
governed by the laws of the State of New York, except for matters arising under
the Securities Act, without reference to principles of conflicts of law. The
party commencing any legal action shall have the option of choosing the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or in the Northern or Central District of California in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if the other party to this Warrant
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered (or if no
exemption from registration exists), will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares issued to the Holder upon exercise (if not registered or if no exemption
from registration exists) will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
TO AN
<PAGE> 6
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant B to be
executed by its officers thereunto duly authorized.
Dated: September __, 1998
MUSTANG SOFTWARE, INC.
By ______________________________
Name:
Title:
NOTICE OF EXERCISE
To: MUSTANG SOFTWARE, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
MUSTANG SOFTWARE, INC. pursuant to the terms of the attached Warrant B, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
________________________________
Signature
<PAGE> 7
ASSIGNMENT FORM
(To assign the foregoing warrant,
execute this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
_____________________________________________________________ whose address is
____________________________________________________________________________.
_____________________________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed:___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation of
our report dated February 6, 1998 on the financial statements of Mustang
Software, Inc. (the "Company") from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997 and to all references to our firm included
in or made a part of its Registration Statement on Form S-3.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
October 30, 1998
