<PAGE> 1
MUSTANG SOFTWARE, INC.
6200 Lake Ming Road
Bakersfield, California 93306
(805) 873-2500
Fax : (805) 873-2474
November 3, 1998
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Mustang Software, Inc.
Dear Sirs:
On behalf of Mustang Software, Inc. (the "Company"), enclosed herewith is the
definitive copies of the Company's Proxy Statement and form of Proxy in the
form in which such material is being furnished to shareholders of the Company.
In accordance with Rule 14a-6(d), please be advised that such material is
being released (i.e. mailed) to shareholders beginning on November 3, 1998.
Very truly yours,
Mustang Software, Inc.
by: /s/ Donald M. Leonard
Donald M. Leonard
Vice President Finance and
Chief Financial Officer
<PAGE> 2
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Mustang Software, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 3
MUSTANG SOFTWARE, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On December 1, 1998
To the shareholders of Mustang Software, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Mustang
Software, Inc., a California corporation (the "Company"), will be held at
10:00 a.m., local time, on Tuesday, December 1, 1998, at the Rio Bravo Resort,
located at 11200 Lake Ming Road, Bakersfield, California 93306.
The Special Meeting of the Shareholders of the Company is being held for
the following purpose:
1. To approve the issuance of the Company's securities pursuant to a
Securities Purchase Agreement dated as of September 14, 1998 among the
Company, Settondown Capital International, Ltd. and the other investors named
in the Agreement; and
2. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of Common Stock of record at the close of business on
October 26, 1998 will be entitled to vote at the meeting.
Your proxy is enclosed. You are cordially invited to attend the
meeting, but if you do not expect to attend, or if you plan to attend, but
want the proxy holders to vote your shares, please date and sign your proxy
and return it in the enclosed postage paid envelope. The giving of this
proxy will not affect your right to vote in person if you find it convenient
to attend. Please return the proxy promptly to avoid the expense of
additional proxy solicitation.
Dated: November 3, 1998 For the Board of Directors
/s/ Michael S. Noling
Michael S. Noling,
Secretary
<PAGE> 4
MUSTANG SOFTWARE, INC.
PROXY STATEMENT
FOR SPECIAL MEETING TO BE HELD
December 1, 1998, at 10:00 a.m. Pacific time
Your proxy is solicited on behalf of the board of directors of Mustang
Software, Inc. (the "Company" or "Mustang") for use at the Special Meeting
of Shareholders (the "Special Meeting") to be held at the Rio Bravo Resort,
located at 11200 Lake Ming Road, Bakersfield, California, 93306, on December
1, 1998, at 10:00 a.m. Pacific Time. If a proxy in the accompanying form is
duly executed and returned, the shares represented by the proxy will be
voted as directed. If no direction is given, the shares will be voted for
approval of the issuance of the Company's securities pursuant to a Securities
Purchase Agreement (the "Agreement") dated as of September 14, 1998 among the
Company, Settondown Capital International, Ltd. and the other investors named
in the Agreement. Any proxy given may be revoked anytime prior to its
exercise by notifying the Secretary of the Company in writing of such
revocation, by giving another proxy bearing a later date, or by attending and
voting in person at the meeting.
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made by mail. In addition, the officers and regularly
engaged employees of the Company may, in a limited number of instances,
solicit proxies personally or by telephone. The Company will reimburse banks,
brokerage firms, other custodians, nominees and fiduciaries for reasonable
expenses incurred in sending proxy materials to beneficial owners of Common
Stock of the Company.
Holders of Common Stock of record at the close of business on October
26, 1998 (the "Record Date") will be entitled to vote at the meeting. There
were 4,092,845 shares of Common Stock outstanding at that date. There are no
other voting securities of the Company. Each share entitles the holder to one
vote with respect to all matters submitted to shareholders at the meeting. A
quorum for the meeting is a majority of the shares outstanding. The Company
intends to include abstentions and broker non-votes as present or represented
for purposes of establishing a quorum for the transaction of business.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date, information
regarding the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to be the beneficial owner of more than 5
percent of the outstanding shares of Common Stock, (ii) each director of the
Company beneficially owning Common Stock, (iii) each executive officer of
the Company whose annual salary and bonus were in excess of $100,000 during
1997 and (iv) the executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Common Stock
Beneficially owned(1)
- ------------------------------------------------------------------------------
Name of beneficial owner or identity of group Amount Percent(2)
- ------------------------------------------------------------------------------
<S> <C> <C>
James A. Harrer 722,450 17.5%
Richard J. Heming 356,634 8.5%
C. Scott Hunter 65,747 1.4%
Donald M. Leonard 27,492 0.8%
Stanley A. Hirschman 12,001 0.4%
Michael S. Noling 10,001 0.4%
All executive officers and directors as a
group (6 persons) 1,388,325 29.0%
</TABLE>
_________
(1) Includes any shares purchasable upon exercise of options that are held by
the persons listed but not by the other persons listed or otherwise issuable
without the satisfaction of any condition (other than lapse of time) within 60
days of the Record Date. Excludes shares of Common Stock issuable upon
exercise of Warrants or rights or upon conversion of Series A Preferred Stock
that were issued under the Agreement as such issuances require shareholder
approval that had not been obtained at the Record Date and thus were not
necessarily issuable within 60 days of the Record Date. Approval to issue such
Common Stock is being sought at the Special Meeting.
(2) Based on 4,092,845 shares outstanding on the Record Date.
<PAGE> 6
PROPOSAL TO APPROVE THE ISSUANCE OF THE COMPANY'S SECURITIES PURSUANT TO THE
AGREEMENT
Background
Effective on September 17, 1998, the Company entered into the Agreement
with four institutional investors (the "Investors"), consisting of Settondown
Capital International, Ltd. ("Settondown"); The Cuttyhunk Fund Limited; Canal,
Ltd.; and Manchester Asset Management Ltd. In addition to investing,
Settondown 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 (the "Initial Financing") an aggregate of 612,000
shares of its Common Stock, 5,246 shares of its Series A Convertible
Preferred Stock (the "Preferred Stock") and Warrants to purchase an aggregate
of 180,000 shares of Common Stock. In the transaction, Mustang and the
Investors also agreed to establish an equity line of credit under which,
subject to certain conditions, Mustang may "put" additional shares of its
Common Stock to the Investors, potentially raising additional gross proceeds
of up to $5,000,000 (the "Equity Line of Credit"). For its services in the
transaction, which included placing the initial $1,500,000 investment, and
arranging the Equity Line of Credit, 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 Preferred Stock and Warrants to purchase an aggregate of
57,000 shares of Common Stock.
The Common Stock was issued to the Investors at $1.59375 per share
(the "Purchase Price"), which was equal to 85% of the closing bid price of
Mustang's Common Stock as of the date the parties agreed to price the
issuance. Under agreement, the Investors received certain reset rights
(the "Reset Rights") which provide that they will be issued additional
shares of Preferred Stock if on the date ("Repricing Date") which is the
earlier of (i) the date a registration statement covering the Common Stock
issued and underlying the securities issued in the Initial Financing is
declared effective by the Securities and Exchange Commission or (ii)
September 17, 1999, the Reset Price is lower than the Purchase Price.
The Reset Price is 85% of the market price on the Repricing Date. If on
the Repricing Date, the Reset Price is lower than the Purchase Price then
the Company has agreed to issue to the Investors pro rata based on the number
of shares of Common Stock purchased by that Investor in the Initial
Financing that number of shares of Preferred Stock (rounded to the nearest
whole share of Preferred Stock) derived from the following formula:
((($975,375/Reset Price) - 612,000) x (the closing bid price per share of
Common Stock on the Repricing Date)) / 100).
The Company plans to use the net proceeds received from the initial
funding and any proceeds received by the exercises of puts pursuant the
Equity Line of Credit for working capital and general corporate purposes.
The 641,480 shares of Common Stock issued to the Investors and the
Placement Agent in the Initial Financing constituted approximately 18.7
percent of Mustang's Common Stock outstanding at September 17, 1998. It
is not the purpose of the Special Meeting to seek shareholder approval
for the issuance of that Common Stock. Rather, it is the purpose of the
Special Meeting to seek shareholder approval for the issuance of the
additional shares of Common Stock issuable upon conversion of the Preferred
Stock and exercise of the Warrants issued and issuable under the Agreement,
including the shares of Common Stock issuable upon exercise of the Company's
put rights under the Equity Line of Credit.
Under the terms applicable to the Preferred Stock, Warrants and Equity
Line of Credit, the Investors and the Placement Agent may not convert their
Preferred Stock or exercise their Warrants, and the Company may not put
shares of Common Stock to the Investors under the Equity Line of Credit,
until, among other things, Mustang obtains shareholder approval therefor
or Mustang's Common Stock is no longer listed on the Nasdaq Stock Market.
<PAGE> 7
Preferred Stock
Under the Agreement, the Company issued an aggregate of 5,456 shares
of Preferred Stock to the Investors and the Placement Agent. Additional
shares of Preferred Stock may be issued to the Investors under the
circumstances described above with respect to the Investors' Reset Rights.
Holders of Preferred Stock are not entitled to dividends and have no
voting rights, except as provided otherwise by law. For each share of
Preferred Stock held, holders are entitled to a liquidation preference of
$100 plus 5 percent per annum thereon from September 17, 1998 to 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 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 increased by two trading days every month commencing on January 17, 1998
and continue to increase by two trading days every month thereafter that the
Preferred Stock is outstanding until the Lookback Period equals a maximum of
thirty trading days.
If not earlier converted, the 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 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 Preferred Stock, up to a cumulative aggregate of 75% of the
total number of shares of Preferred Stock issued to the holders.
Warrants
Under the Agreement, the Company issued Warrants to purchase an
aggregate of 200,000 shares of Common Stock. Of these, Warrants to purchase
150,000 and 50,000 shares of Common Stock were issued to the Investors and
the Placement Agent, respectively. 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.
Under the Agreement, the Company also issued Warrants to purchase an
aggregate of 37,000 shares of Common Stock. Of these, Warrants to purchase
an aggregate of 30,000 and 7,000 shares of Common Stock were issued to the
Investors and the Placement Agent, respectively. In addition, the Company
has agreed to issue, on the closing date of each of the first two puts under
the Equity Line of Credit, Warrants to purchase an aggregate of 30,000 and
7,000 shares of Common Stock issued to the Investors and the Placement
Agent, respectively. 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.
<PAGE> 8
Equity Line of Credit
The Equity Line of Credit provides for a maximum funding of $5,000,000,
may be used at the election of the Company and is subject to various
conditions. The Equity Line of Credit contemplates the issuance of Common
Stock required to be purchased from time to time by the Investors over a
two-year period ("Put"), upon notice ("Put Notice") from the Company, at a
price equal to 88% of the Market Price (defined as the average of the three
lowest closing bid prices of the Company's Common Stock over the five-day
trading period beginning three days prior to a Put and ending on the trading
day following a Put) of the Common Stock as of the date of the Put Notice,
up to an aggregate of $5,000,000 in purchase price. The obligation of
Investors to purchase Common Stock under a Put is subject to conditions
relating to market price, trading volume and timing.
Pursuant to the Agreement, the Company may make a Put by delivering a
Put Notice at any time after the 45th day following the earlier to occur of
the effective date of the Company's registration of the Common Stock, the
Warrant shares and the shares underlying the Preferred Stock, or September
17, 1999. In furtherance of the Agreement, the Company entered into a
Registration Rights Agreement requiring Mustang to file a registration
statement relating to the Common Stock issued or underlying the other
securities issued or issuable under the Agreement, including the Common
Stock issuable upon exercise of puts pursuant to the Equity Line of Credit,
on or prior to November 2, 1998.
Reason For Shareholder Approval
The Company's Common Stock is currently listed on The Nasdaq SmallCap
Market. The rules of the Nasdaq Stock Market require issuers to obtain
shareholder approval prior to the issuance of securities in the following
circumstances:
* In connection with a transaction other than a public offering involving:
the sale or issuance by the company of common stock (or securities
convertible or exercisable to purchase common stock) equal to 20% or more
of the common stock or 20% or more of the voting power outstanding before
the issuance for less than the greater of book or market value of the
stock; or
* Where the issuance will result in a change in control of the issuer.
<PAGE> 9
Based on the closing bid price of $1.6875 per share of Common Stock on
the Record Date, the Common Stock then issuable:
* upon conversion of the outstanding Preferred Stock, would amount to
361,162 shares, which, together with the 641,480 shares of Common
Stock issued under the Agreement, would amount to 22.5% of the Common
Stock outstanding on September 17, 1998;
* upon exercise of the outstanding Warrants, would amount to 237,000
shares, which, together with the 641,480 shares of Common Stock issued
under the Agreement and the 361,162 shares of Common Stock issuable
upon conversion of the outstanding Preferred Stock, would amount to
26.4% of the Common Stock outstanding on September 17, 1998;
* if all conditions were met and the Company were to exercise its right
to exercise in full to the entire amount available under the Equity
Line of Credit, the Common Stock issuable would represent
approximately 57.2% of the shares outstanding on September 17, 1998
(assuming, and after taking into account, the Common Stock
issued on September 17, 1998, the full conversion of the Preferred
Stock, the Company's full exercise of the Puts and the exercise of
all Warrants issued pursuant to the Agreement, but not including
the conversion of any shares of Preferred Stock issued pursuant to
the Reset Rights under the Agreement).
If the closing bid price of the Common Stock were to decrease, the
conversion of the Preferred Stock or the Company's full exercise of the
Put pursuant to the Equity Line of Credit, the exercise of Reset Rights, or a
combination of the foregoing, would involve the issuance of additional
shares of Common Stock. In any event the issuances of such shares of Common
Stock could effect a change in control of the Company.
Under the terms applicable to the Preferred Stock, Warrants and Equity
Line of Credit, the Investors and the Placement Agent may not convert
their Preferred Stock or exercise their Warrants, and the Company may not
put shares of Common Stock to the Investors under the Equity Line of Credit,
until, among other things, Mustang obtains shareholder approval therefor
or Mustang's Common Stock is no longer listed on the Nasdaq Stock Market.
Similarly, the Investors Reset Rights are not applicable unless Mustang
obtains shareholder approval therefor or Mustang's Common Stock is no
longer listed on the Nasdaq Stock Market. In the event that approval is
not obtained from shareholders, the Company is obligated under the Agreement
to seek a waiver from The Nasdaq Stock Market for such issuances. In the
event the Company does not receive such a waiver, the Company is required
to voluntarily delist the Common Stock from The Nasdaq Stock Market and
immediately list the Common Stock on the OTC Bulletin Board.
Mustang expects the Nasdaq will not grant it any waiver. In fact,
Nasdaq has already informed Mustang that in order to maintain its current
conditional listing on the The Nasdaq SmallCap Market, Mustang must, among
other things, provide Nasdaq with written confirmation by December 2, 1998
that its shareholders have approved the plan to permit the Investors under
the Agreement to convert Preferred Stock and exercise the Warrants and permit
Mustang to utilize the Equity Line of Credit by December 31, 1998, if
necessary.
<PAGE> 10
Therefore, the Board of Directors seeks shareholder approval of the
proposed issuances of additional shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants (issued
or issuable to the Investors or the Placement Agent under the Agreement)
and issuable upon exercise of the Company's put rights under the Equity
Line of Credit. The issuance of these securities, coupled with the Common
Stock the Company has already issued pursuant to the Agreement, will
involve the issuance by the Company of 20% or more of the shares of
Common Stock outstanding on September 17, 1998 and could involve a change
of control of Mustang. Shareholders are being asked to approve only the
proposed issuances and are not being asked to approve any other aspect
of the financings provided by the Agreement.
Vote Required
A vote of the holders of a majority of the voting power of the issued
and outstanding Common Stock of the Company present in person or represented
by proxy at the Special Meeting and entitled to vote at the Special Meeting
is required to approve this proposal.
The Company's Board of Directors recommends a vote FOR this proposal.
OTHER BUSINESS
Management knows of no other matters that may be presented to the
Annual Meeting. However, if any other matter properly comes before the
Annual Meeting, it is intended that proxies in the accompanying form will
be voted according to the judgment of the persons named therein.
<PAGE> 11
PROPOSALS BY SHAREHOLDERS
Any proposal that a shareholder wishes to have presented at the 1999
Annual Meeting of shareholders and included in the Company's proxy statement
for such meeting must be received by January 1, 1999. Shareholder who
wish to submit a proposal for consideration at the Company's 1999 Annual
Meeting of shareholders, but do not wish to submit the proposal for inclusion
in the Company's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, must deliver a written copy of their proposal no later
than April 2, 1999. All Proposals should be delivered to the Company's
principal executive offices, at 6200 Lake Ming Road, Bakersfield, California
93306 to the attention of Mr. James A. Harrer, President. To avoid
controversy and establish timely receipt by the Company, it is suggested
that shareholders send their proposals by certified mail return receipt
requested.
November 3, 1998
By order of the Board of Directors
/s/ Michael S. Noling
Michael S. Noling, Secretary
<PAGE> 12
Mustang Software, Inc.
6200 Lake Ming Road
Bakersfield, California 93306
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James A. Harrer and Donald
M. Leonard, and each of them, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and
vote as designated below, all the shares of Mustang Software,
Inc. (the Company) held of record by the undersigned on October
26, 1998, at the Special Meeting of Shareholders to be held on
December 1, 1998 or any adjournments thereof.
1. 1. To approve the issuance of the Company's securities
pursuant to a Securities Purchase Agreement dated as of September
14, 1998 among the Company, Settondown Capital International,
Ltd. and the other investors named in the Agreement;
FOR __ AGAINST __ ABSTAIN __
2. To transact such other business as may properly come
before the meeting or any adjournments thereof.
This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder. If no
direction is made, this Proxy will be voted FOR Proposal 1.
Dated: _________________, 1998
_____________________________
(Signature)
_____________________________
(Signature)
_____________________________
(Signature if held jointly)
Please sign exactly as name
appears below. When shares
are held by joint tenants,
both should sign. When
signing as an attorney, as
executor, administrator,
trustee or guardian, please
give full title to such. If a
corporation, please sign in
full corporate name, by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
