<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): December 31,
1998
Mustang Software, Inc.
(Exact name of registrant as specified in its charter)
California 0-25678 70-0204718
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6200 Lake Ming Road, Bakersfield, CA 93306
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 873-2500
.................................................................
.................................................................
.......
(Former name or former address, if changed since last report.)
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro forma financial information.
Not Applicable.
(c) Exhibits.
4.3 Certificate of Determination of Mustang Software, Inc.
relating to the authorization and determination of the
Series A Convertible Preferred Stock.*
99.1 Securities Purchase Agreement dated as of December 31,
1998 between the Company and Settondown Capital
International Limited and the other investors named therein.
99.2 Escrow Agreement dated as of December 31, 1998 between the
Company and Settondown Capital International Limited and the
other investors named therein
99.3 Registration Rights Agreement dated as of December 31, 1998
between the Company and Settondown Capital International Limited
and the other investors named therein.
99.4 Form of Warrants issued on December 31, 1998 to Investors
and Placement Agent.
* Previously filed as an exhibit to the Company's registration statement
on Form S-3 (file no. 333-66663) filed November 2, 1998, and
incorporated herein by reference.
<PAGE> 3
Item 9. Sales of Equity Securities Pursuant to Regulation S.
On December 31, 1998, pursuant to a Securities Purchase
Agreement (the "Agreement") between the Company and the three
institutional investors named in the Agreement (collectively the
"Investors"), the Company completed a sale of equity securities
pursuant to Regulation S under the Securities Act of 1933 (the
"Securities Act"). Under the Agreement, the Company sold to the
Investors for $250,000 an aggregate of 2,500 shares of its Series
A Convertible Preferred Stock (the "Series A Preferred Stock")
and Warrants to purchase of 75,000 shares of its Common Stock
(the "Warrants").
Subject to certain conditions and limitations, beginning on
March 31, 1999, 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 December 31, 1998 to the date of conversion, by the
lower of $2.75 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 April 1, 1999 and continues 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 December 31, 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 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.
The Warrants are exercisable until December 31, 2000 at an
exercise price of $3.03 per share.
For its services in the transaction, the Company paid to
Settondown Capital International Limited, as Placement Agent, a
fee consisting of $5,000 cash, 125 shares of its Series A
Preferred Stock and Warrants to purchase an aggregate of 75,000
shares of Common Stock. The terms of the Series A Preferred Stock
and Warrants issued to the Placement Agent are identical to the
terms of the corresponding securities issued to the Investors.
The Company relied upon Regulation S under the Securities
Act for the transaction. The Company and persons acting on its
behalf believed that the buyers were outside the United States
and no directed selling efforts were made in the United States.
Each Investor and the Placement Agent(all of whom had addresses
outside the United States) represented that it was not a "U.S.
Person" as defined in Regulation S and, at the time the buy order
for this transaction was originated, each Investor was outside
the United States and no offer to purchase the Securities was
made in the United States. Each Investor agreed not to reoffer
or sell the securities, or to cause any transferee permitted
under the Securities Purchase Agreement to reoffer or sell the
Securities, within the United States, or for the account or
benefit of a U.S. person, (i) as part of the distribution of the
securities at any time, or (ii) otherwise, only in a transaction
meeting the requirements of Regulation S, including without
limitation, where the offer (i) is not made to a person in the
United States and either (A) at the time the buy order is
originated, the buyer is outside the United States or the Company
and any person acting on its behalf reasonably believe that the
buyer is outside the United States, or (B) the transaction is
executed in, on or through the facilities of a designated
offshore securities market and neither the seller nor any person
acting on its behalf knows that the transaction has been pre-
arranged with a buyer in the United States, and (ii) no direct
selling efforts shall be made in the United States by the buyer,
an affiliate or any person acting on their behalf, or in a
transaction registered under the Securities Act or pursuant to an
exemption from such registration. Appropriate legends were
affixed to the certificates evidencing the securities in such
transaction.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated January 14, 1999
MUSTANG SOFTWARE, INC.
By: __/s/ James A. Harrer______________
James A. Harrer
President and Chief Executive Officer
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EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of December
31, 1998 (the "Agreement"), between the entities listed
on Schedule A attached hereto (collectively referred to
as the "Investors"), 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 Investors, and the
Investors shall purchase 2,500 shares of Preferred
Stock (as defined below), and (b) Warrants to purchase
75,000 Warrant Shares, for a total aggregate purchase
price of $250,000 (the "Aggregate Purchase Price"); and
WHEREAS, the Company shall issue to the Placement
Agent (in addition to the fees set forth in Section
12.7 below), in return for services rendered herein,
125 shares of Preferred Stock (as defined below), and a
Warrant to purchase up to 10,000 Warrant Shares; and
WHEREAS, such investments will be made in reliance
upon the transaction exemption afforded by Regulation S
as promulgated by the Securities and Exchange
Commission ("SEC") under 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
Securities to be made hereunder.
NOW, THEREFORE, the parties hereto agree as
follows:
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ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that
meaning set forth in Section 2.5 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 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 the closing of
a purchase and sale of the Warrants and Preferred Stock
pursuant to Article II below.
Section 1.7 "Closing Date" shall be on the
Subscription Date. At the Closing Date, all conditions
contained in this Agreement (and in all Exhibits
annexed hereto) must have been fulfilled at or prior to
the 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 "Common Stock" shall mean the
Company's common stock, no par value per share.
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Section 1.9 "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 1.10 "Distribution Compliance Period"
means a period that begins when the Securities were
first offered to persons other than distributors in
reliance upon Regulation S as promulgated under the
Securities Act, or the date of closing of the offering,
whichever is later, and continues until the end of the
relevant provision of Regulation S (one year for equity
securities of the Company (a reporting domestic
issuer)).
Section 1.11 "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
Underlying Shares (as of the date the Registration
Statement is filed), and Warrant Shares, and (ii) two
hundred (200%) percent of that number of Underlying
Shares (as of the date the Registration Statement is
filed), and Warrant Shares issued to the Placement
Agent as set forth in Section 1.7 below.
Section 1.12 "Escrow Agent" shall mean the law
firm of The Goldstein Law Group, PC, pursuant to the
terms of the Escrow Agreement attached as Exhibit B.
Section 1.13 "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
Section 1.14 "Forced Conversion Period" shall
mean 10 consecutive Trading Days.
Section 1.15 "Issuance Price" shall mean $1.875
per share.
Section 1.16 "Legend" shall have the meaning set
forth in Section 8.1.
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Section 1.17 "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.
Section 1.18 "NASD" shall mean the National
Association of Securities Dealers, Inc.
Section 1.19 "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 such Shares then
directly or indirectly owned or held by or for the
account of the Company.
Section 1.20 "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 1.21 "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 1.22 "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.
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Section 1.23 "Purchase Price" shall mean with
respect to each share of Preferred Stock, an amount
equal to One Hundred ($100) Dollars.
Section 1.24 "Registrable Securities" shall mean
the Underlying 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 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 1.25 "Registration Rights Agreement"
shall mean the agreement regarding the filing of the
Registration Statement for the resale of the
Registrable Securities, entered into between the
Company, the Placement Agent, and the Investors on the
Subscription Date annexed hereto as Exhibit D.
Section 1.26 "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 1.27 "Regulation S" shall have the
meaning set forth in the recitals of this Agreement.
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Section 1.28 "SEC" shall mean the Securities and
Exchange Commission.
Section 1.29 "Securities" shall mean the
Preferred Stock, the Underlying Shares, the Additional
Shares, the Warrants, the Warrant Shares and any and
all Securities issued to the Placement Agent.
Section 1.30 "Securities Act" shall have the
meaning set forth in the recitals of this Agreement.
Section 1.31 "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 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 1.32 "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
Section 2.1 (b)shall have been fulfilled.
Section 1.33 "Trading Day" shall mean any day
during which the New York Stock Exchange shall be open
for business.
Section 1.34 "Underlying Shares" shall mean all
shares of Common Stock or other securities issued or
issuable pursuant to conversion of the Preferred Stock.
Section 1.35 "Warrants" shall have the meaning
set forth in Section 2.4 and substantially in the form
of Exhibit E.
Section 1.36 "Warrant Shares" shall mean all
shares of Common Stock or other securities issued or
issuable pursuant to the exercise of the Warrants.
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ARTICLE II
Purchase and Sale of Preferred Stock and Warrants
Section 2.1 Investments.
(a) The Company agrees to sell and the
Investors agree to purchase an aggregate of 2,500
shares of Preferred Stock and Warrants to purchase
75,000 Warrant Shares, against payment of the Purchase
Price.
(b) The right of the Company to receive the
Purchase from the Investors, and the right of the
Investors to receive the shares of Preferred Stock and
Warrants is subject to the satisfaction on the Closing
Date 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 Purchaser Price (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 Closing Date;
(iv) the Company shall have obtained all permits
and qualifications required by any state for the offer
and sale of the Preferred Stock and the Warrants, or
shall have the availability of exemptions therefrom;
(v) the sale and issuance of the Preferred Stock and
Warrants shall be legally permitted by all laws and
regulations to which the Investors and the Company are
subject;
(vi) delivery of the original shares of Preferred
Stock and Warrants as described herein;
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(vii) receipt by the Investors of an opinion of
counsel of the Company as set forth to 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 which had been filed with the Secretary
of State of the State of California remains in full
force and effect, and
(ix) payment of all fees as set forth in Section
12.7 below and the Escrow Agreement.
Section 2.2 Form of Payment. Each Investor
shall pay the Purchase Price by delivering clean funds
in United States Dollars by wire transfer to the Escrow
Agent, against delivery of the original Securities.
The parties have entered into an Escrow Agreement
annexed hereto as Exhibit C which is incorporated by
this reference.
Section 2.3 Wire Instructions. Wire
instructions for the Escrow Agent are as follows:
Chase Manhattan Bank, NA
ABA No. 021000021
For the Account of
United States Trust Company of New York
Account No. 920-1-073195
In favor of
The Goldstein Law Group, PC Attorney Escrow
Account
Account No. 59-01405
Section 2.4 The Warrants. On the Subscription
Date, the Company will issue to the Investors (pro
rata) and the Placement Agent Warrants exercisable
beginning on the Subscription Date and then exercisable
any time over the two year period thereafter, to
purchase an aggregate of 75,000 Warrant Shares for the
Investors and 10,000 Warrant Shares for the Placement
Agent at the Exercise Price (as defined in the
Warrant). The Warrants shall be delivered by the
Company to the Escrow Agent, and delivered by the
Escrow Agent 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.
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Section 2.5 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 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 2.6 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 VIII 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 VIII 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
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(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.
<PAGE> 14
ARTICLE III
Representations and Warranties of the Investors and
Placement Agent
Each of the Investors and the Placement Agent
represents and warrants to the Company that:
Section 3.1 Intent. Each of the Investors and
the Placement Agent 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
Securities to or through any person or entity;
provided, however, that by making the representations
herein, the Investors and the Placement Agent do not
agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the
Securities at any time in accordance with federal and
state securities laws applicable to such disposition.
Section 3.2 Authority. This Agreement has been
duly authorized and validly executed and delivered by
each of the Investors and the Placement Agent is a
valid and binding agreement of the Investors and the
Placement Agent 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 3.3 Organization and Standing. Each of
the Investors and the Placement Agent is duly
organized, validly existing, and in good standing under
the laws of the countries and/or states of their
incorporation or organization.
Section 3.4 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
<PAGE> 15
Investors and the Placement Agent, or, to the Investors
or the Placement Agent's 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 and the Placement
Agent 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 or the Placement Agent 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 or
the Placement Agent is subject or to which any of their
assets, operations or management may be subject.
Section 3.5 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 and the
Placement Agent 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 the Special Meeting
of Shareholders held on December 1, 1998 and Form 8-K's
filed for the twelve months prior to the Subscription
Date.
Section 3.6 Manner of Sale. At no time were
any of the Investors or the Placement Agent presented
with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any
other form of general solicitation or advertising.
<PAGE> 16
Section 3.7 Registration or Exemption
Requirements. Each of the Investors and the Placement
Agent 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 from such registration is
available. Each of the Investors and the Placement
Agent 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 3.8 No Legal, Tax or Investment Advice.
Each of the Investors understands that nothing in this
Agreement or any other materials presented to the
Investors and the Placement Agent in connection with
the purchase and sale of the Securities constitutes
legal, tax or investment advice. The Investors and the
Placement Agent 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.
Section 3.9 Accredited Investor. Each of the
undersigned is an "Accredited Investor" as defined
below who represents and warrants it is included within
one or more of the following categories of "Accredited
Investors":
(i) Any bank as defined in Section 3(a)(2) of the Act,
or any savings and loan associated or other institution
as defined in Section 3(a)(5)A of the Act whether
acting in its individual or fiduciary capacity, any
broker or dealer registered pursuant to Section 15 of
the 1934 Act, any insurance company as defined in
Section 2(13) of the Act , any investment company
registered under the Investment Company Act of 1958,
any plan established and maintained by a state, its
political subdivisions or any agency or instrumentality
of a state or its political subdivisions for the
benefits of its employees if such plan has total assets
<PAGE> 17
in excess of $500,000 any employee benefit plan within
the meaning of Title 1 of the Employee Retirement
Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section
3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered
investment advisor, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-
directed plan with investment decisions made solely by
persons that are accredited investors.
(ii) Any private business development company as
defined in Section 202(a)(22) of the Investment
Advisors Act of 1940.
(iii) Any organization described in Section
501(c)(3) of the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in
excess of $5,000,000.
(iv) Any director, executive officer, or general
partner of the issuer of the securities being offered
or sold, or any director, executive officer, or general
partner of a general partner;
(v) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time
of his purchase exceeds $1,000,000;
(vi) Any natural person who had an individual
income in excess of $200,000 in each of the two (2)
most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching that same
income level in the current year;
(vii) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in
Section 230.506(b)(2)(ii) of Regulation D under the
Act;
<PAGE> 18
(viii) Any entity in which all of the equity owners
are accredited investors; and
(ix) Any self-directed employee benefit plan with
investment decisions made solely by persons that are
accredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Act.
Section 3.10 No Registration, Review or
Approval. Each Investor and the Placement Agent
acknowledges and understands that the limited private
offering and sale of Securities pursuant to this
Agreement has not been reviewed or approved by the SEC
or by any state securities commission, authority or
agency, and is not registered under the Act or under
the securities or "blue sky" laws, rules or regulations
of any state. Each Investor and the Placement Agent
acknowledges, understands and agrees that the
Securities are being offered and sold hereunder
pursuant to (i) an offshore offering exemption to the
registration provisions of the Act pursuant to
Regulation S promulgated under such Act, and (ii) a
similar exemption to the registration provisions of
applicable state securities laws. Each Investor and
the Placement Agent understand that the company is
relying upon the truth and accuracy of the
representations, warranties, agreements,
acknowledgments and understandings of such Investor and
the Placement Agent set forth herein in order to
determine the applicability of such exemptions and the
suitability of each Investor to acquire the Securities.
Section 3.11 Investment Intent. Without
limiting its ability to resell the Securities pursuant
to an effective registration statement, each Investor
is acquiring the Securities solely for its own account
and not with a view to the distribution, assignment or
resale to others. Each Investor understands and agrees
that it may bear the economic risk of its investment in
the Securities for an indefinite period of time.
Section 3.12 Offering Outside the United States.
Each Investor is not a "U.S. Person" as defined in
Regulation S (as the same may be amended from time to
time) promulgated under the Act.1 At the time the buy
order for this transaction was originated, each
Investor was outside the United States and no offer to
<PAGE> 19
purchase the Securities was made in the United States.
Each Investor agrees not to reoffer or sell the
Securities, or to cause any transferee permitted
hereunder to reoffer or sell the Securities, within the
United States, or for the account or benefit of a U.S.
person, (i) as part of the distribution of the
Securities at any time, or (ii) otherwise, only in a
transaction meeting the requirements of Regulation S
under the Act, including without limitation, where the
offer (i) is not made to a person in the United States
and either (A) at the time the buy order is originated,
the Buyer is outside the United States or the Company
and any person acting on its behalf reasonably believe
that the buyer is outside the United States, or (B) the
transaction is executed in, on or through the
facilities of a designated offshore securities market
and neither the seller nor any person acting on its
behalf knows that the transaction has been pre-arranged
with a buyer in the United States, and (ii) no direct
selling efforts shall be made in the United States by
the buyer, an affiliate or any person acting on their
behalf, or in a transaction registered under the Act or
pursuant to an exemption from such registration.
Section 3.13 Regulation S Offering Transfer
Restrictions.
(i) The transaction restrictions in
connection with this offshore offer and sale restrict
each Investor and the Placement Agent from offering and
selling to U.S. Persons, or for the account or benefit
of a U.S. Person, for a period of time (the
"Distribution Compliance Period"). The Distribution
Compliance Period for the Securities is one (1) year
from the Subscription Date.
(ii) A legend substantially in the form of
Article VIII herein has been or will be placed on any
certificates or other documents evidencing the
Securities so as to restrict the resale, pledge,
hypothecation or other transfer thereof in accordance
with the provisions hereof and the provisions of
Regulation S promulgated under the Securities Act.
<PAGE> 20
(iii) Offers and sales of the Securities
prior to the expiration of the Distribution Compliance
Period (or the effective date of the Registration
Statement) may be made pursuant to the following
conditions:
a. The purchaser of the Securities,
other than a distributor, certifies that it is not a
U.S. Person and is not acquiring the Preferred Stock
for the account or benefit of any U.S. Person or is a
U.S. Person who purchased the Securities in a
transaction that did not require registration under the
Securities Act;
b. The Purchaser of the Securities
agrees to sell such securities only in accordance with
Regulation S as promulgated under the Securities Act,
pursuant to registration under the Securities Act, or
pursuant to an available exemption from registration;
and agrees not to engage in hedging transactions with
regard to such Securities unless in compliance with the
Securities Act; and
c. The Securities contain a legend,
substantially in the form of Article VIII herein, to
the effect that transfer of the Securities is
prohibited except in accordance with Regulation S,
pursuant to registration under the Securities Act, or
pursuant to an available exemption from registration;
and that hedging transactions involving those
Securities may not be conducted unless in compliance
with the Securities Act.
(iv) Offers and Sales of Warrants and Warrant
Shares by the Investors or the Placement Agent must
comply with the following conditions, in addition to
those listed in Section 3.13 (iii) above:
a. Each Warrant must bear a legend
stating that the Warrant and the securities to be
issued upon its exercise have not been registered under
the Securities Act, and that the Warrant may not be
exercised by or on behalf of any U.S. Person unless
registered under the Securities Act or an exemption
from such registration is available; and
<PAGE> 21
b. Each person exercising a Warrant is
required to give:
(1) Written certification that it
is not a U.S. Person and that the Warrant is not being
exercised on behalf of a U.S. Person; or
(2) A written opinion of counsel
to the effect that the Warrant and the securities
delivered upon exercise thereof have not been
registered under the Securities Act or are exempt from
registration thereunder; and
(A) Procedures are
implemented to ensure that the Warrant may not be
exercised within the United States, and that the
securities may not be delivered within the United
States upon exercise, other than in offerings deemed to
meet the definition of "offshore transaction" pursuant
to Regulation S, unless registered under the Securities
Act or an exemption from such registration is
available.
(v) Investors and the Placement Agent agree
not to engage in hedging transactions with respect to
the Securities prior to the expiration of the
Distribution Compliance Period. For offers and sales
of the Securities prior to the expiration of the
Distribution Compliance Period, such offering materials
must state that hedging transactions involving those
securities may not be conducted unless in compliance
with the Securities Act and Regulation S promulgated
thereunder.
(vi) Investors and the Placement Agent agree
to comply with the provisions of Regulation S in
connection with Offshore Resales, as defined therein.
Section 3.14 Understanding. The Subscriber
understands that the Company is the issuer of the
securities which are the subject of this Agreement, and
that, for purposes of Regulation S, a "distributor" is
any underwriter, dealer or other person who
participates, pursuant to a contractual arrangement, in
<PAGE> 22
the distribution of securities offered or sold in
reliance on Regulation S and that an "affiliate" is any
partner, officer, director or any person directly or
indirectly controlling, controlled by or under common
control with the person in question. In this regard,
the Subscriber shall no, in violation of the provisions
of Regulation S, act as a distributor, either directly
or through any affiliate, nor shall he sell, transfer,
hypothecate or otherwise convey the Securities or any
interest therein, other than outside the United States
to a non-U.S. person.
<PAGE> 23
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 to the
Investors the Preferred Stock and Warrants to the
Placement Agent, the Underlying Shares, Additional
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.
<PAGE> 24
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 4,098,845 shares are issued and outstanding, and
10,000,000 shares of preferred stock, no par value per
share, of which 15,246 have been designated as Series A
Preferred Stock, and 5,456 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 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 Small Cap Stock Market. The Company is a
"Reporting Issuer" as defined in Rule 902 of Regulation
S.
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
<PAGE> 25
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 Preferred Stock, Underlying Shares,
Warrants, and Warrant Shares, issued to the Placement
Agent, and the Additional 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
Preferred Stock, Underlying Shares, Warrants, or
Warrant Shares, to the Placement Agent, nor the sale of
the Additional 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 Preferred Stock,
Warrants, Warrant Shares, or Underlying Shares, issued
to the Placement Agent, the Additional Shares, the
Preferred Stock, the Underlying Shares, the Warrant
Shares issued to the 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 Corporate Documents. The Company
has furnished or made available to each of the
Investors true and correct copies of the Company's
<PAGE> 26
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 4.8 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 Securities, 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 "lock-up" 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 Securities,
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> 27
Section 4.9 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 4.10 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 4.11 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 4.12 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.
<PAGE> 28
Section 4.13 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).
Section 4.14 Dilution. The Company is aware and
acknowledges that the conversion of the Preferred
Stock, 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 4.15 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 4.16 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.
<PAGE> 29
Section 4.17 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 4.18 Board Approval. 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.
<PAGE> 30
ARTICLE V
Covenants of the Investors
Section 5.1 9.99%Limitations. The number of
shares of Common Stock which may be voluntarily
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 9.99% of the
issued and outstanding Common Stock of the Company in
accordance with Rule 13d-3 of the Exchange Act and the
regulations promulgated thereunder.
The preceding paragraph shall not interfere with
any Investor's right to convert Preferred Stock which
in the aggregate totals more than 9.99% of the then
outstanding shares of Common Stock so long as the
Investor does not own more than 9.99% of the
outstanding Common Stock at any given time. 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:
<PAGE> 31
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
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.
<PAGE> 32
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
<PAGE> 33
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 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.
<PAGE> 34
(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.
<PAGE> 35
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.
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,
Underlying 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, and 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 after the Subscription Date to list all of
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 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
<PAGE> 36
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.
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 Preferred Stock to be sold by the
Investors pursuant to Section 9.1 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 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.
<PAGE> 37
Section 6.8 Issuance of Underlying Shares, and
Warrant Shares. The issuance of the Underlying Shares,
and the Warrant Shares pursuant to exercise of the
Warrants, and the conversion of the Preferred Stock,
shall be made in accordance with the provisions and
requirements of Regulation S and any applicable state
securities law.
Section 6.9 Legal Opinion. The Company's
independent counsel shall deliver to the Investors upon
execution of this Agreement, 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 6.10 20% Rule Limitation. If required
by 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
<PAGE> 38
Company shall delist the Common Stock from The Nasdaq
Stock Market and immediately list the Common Stock on
the OTC Bulletin Board. Notwithstanding the foregoing,
in the event the Company has issued an amount of Common
Stock equal to twenty percent (20%) of the number of
shares of Common Stock outstanding as of Subscription
Date, the Investors and the Placement Agent may effect
conversions of the Preferred Stock at a price per
Underlying Share equal to the lesser of: (i) the
Issuance Price, or (ii) the Bid Price on the Trading
Day that a Conversion Notice is sent to the Company (or
such next successive Trading Day if such day is not a
Trading Day).
Section 6.11 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 6.12 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> 39
Section 6.13 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 6.14 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.
<PAGE> 40
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public
Information
Section 7.1 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 7.2 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.
<PAGE> 41
(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 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.
<PAGE> 42
ARTICLE VIII
Legends
Section 8.1 Legends. The certificates
representing the Securities shall be subject to a
legend restricting transfer under the Act, such legend
to be substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (TOGETHER WITH THE REGULATIONS
PROMULGATED THEREUNDER, THE "SECURITIES ACT"), AND
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED WITHIN THE UNITED STATES
(AS THAT TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE SECURITIES ACT) OR TO A U.S.
PERSON (AS THAT TERM IS DEFINED IN REGULATION S)
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE. HEDGING
TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT."
The Warrants shall also be subject to an
additional legend stating that the Warrants and the
securities to be issued upon their exercise have not
been registered under the Securities Act and that the
Warrants may not be exercised by or on behalf of any
U.S. Person (as defined under Regulation S) unless
registered under the Securities Act or any exemption
from registration is available.
The certificates representing the Securities, and
each certificate issued in transfer thereof, will also
bear any legend required under any applicable state
securities law.
Upon receipt of the Notice of Conversion annexed
hereto as Exhibit F the Company shall forward to the
Transfer Agent an opinion substantially in the form
annexed hereto as Exhibit G to have the legend removed
and the company shall issue replacement certificates.
<PAGE> 43
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 December , 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 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,
upon surrender of one or more certificates evidencing
the Warrants or Preferred Stock, 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
<PAGE> 44
Registration Statement 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
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, 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, 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 8.1 may be sent by facsimile to the Company's
transfer agent.
Section 8.2 No Other Legend or Stock Transfer
Restrictions. No legend other than those specified in
Section 8.1 have been or shall be placed on the share
certificates representing the Preferred Stock or the
Warrants, 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 VIII.
Section 8.3 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
Securities.
<PAGE> 45
ARTICLE IX
Choice of Law
Section 9.1 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.
<PAGE> 46
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. The Investor's
interest in this Agreement and its ownership of
Preferred Stock and Warrants 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 10.2 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 Subscription Date; 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 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.
<PAGE> 47
ARTICLE XI
Notices
Section 11.1 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.
<PAGE> 48
If to the Placement Agent, at the address listed
on the first page of this Agreement.
with a copy to:
The Goldstein Law Group, PC
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 11.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile
number to the other party hereto.
Section 11.2 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
<PAGE> 49
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
<PAGE> 50
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 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 11.3 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 11.2 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 11.2 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
<PAGE> 51
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 11.2 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.
<PAGE> 52
ARTICLE XII
Miscellaneous
Section 12.1 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 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 12.2 Entire Agreement. This Agreement,
the Exhibits or Attachments hereto, which include, but
are not limited to the Certificate of Determination,
the Warrants , 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 supersede 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 12.3 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.
<PAGE> 53
Section 12.4 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 12.5 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 12.6 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 Preferred Stock, 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 12.7 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 Five Thousand ($5,000) 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) 125 shares of Preferred Stock,
and (B) a Warrant to purchase 10,000 Warrant Shares,
for Placement Agent fees.
<PAGE> 54
Section 12.8 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]
<PAGE> 55
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/ Dawn E. Davis__________
Dawn E. Davis
AVALON CAPITAL, LTD.
By___/s/ Giora Lavie___________
Giora Lavie, Attorney-in-Fact
THE CUTTYHUNK FUND LIMITED
By__/s/ Geoffrey M. Lewis______
Geoffrey M. Lewis
Director
<PAGE> 56
SCHEDULE A
INVESTORS:
1. AVALON CAPITAL, LTD.
17 Earlsfort Terrace
Dublin #2 Ireland,
Attention: Giora Lavie
Telephone: 01197235441937
Facsimile: 01197235441870.
Initial Investment Amount: $125,000
No. of Shares of Preferred Stock: 1,250
Warrant: 37,500
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: $125,000
No. of Shares of Preferred Stock: 1,250
Warrant: 37,500
<PAGE> 57
EXHIBIT 99.2
EXHIBIT B
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 31st day of
December, 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 THE GOLDSTEIN LAW GROUP, PC, 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
Preferred Stock and Warrants (collectively the
"Securities"), from the Company at a purchase price as
set forth in a Securities Purchase Agreement (the
"Purchase Agreement") dated as of December 31, 1998,
which will be issued as per the terms contained herein
and in the Purchase Agreement executed by the Company
and Purchasers; and
WHEREAS, the Company will be issuing,
Preferred Stock, and Warrants (also referred to as the
"Securities") to the Placement Agent pursuant to the
Purchase Agreement; and
WHEREAS, it is intended that the purchase of
Securities be consummated in accordance with the
requirements set forth by Regulation S promulgated
under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the
Escrow Agent hold the Purchase Price in escrow until
the Escrow Agent has received the Securities. 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 Securities to the
Investors and the Securities to the Placement Agent as
per the terms and conditions in the Purchase Agreement.
<PAGE> 58
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 31st day of
December, 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 THE GOLDSTEIN LAW GROUP, PC, 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
Preferred Stock and Warrants (collectively the
"Securities"), from the Company at a purchase price as
set forth in a Securities Purchase Agreement (the
"Purchase Agreement") dated as of December 31, 1998,
which will be issued as per the terms contained herein
and in the Purchase Agreement executed by the Company
and Purchasers; and
WHEREAS, the Company will be issuing,
Preferred Stock, and Warrants (also referred to as the
"Securities") to the Placement Agent pursuant to the
Purchase Agreement; and
WHEREAS, it is intended that the purchase of
Securities be consummated in accordance with the
requirements set forth by Regulation S promulgated
under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the
Escrow Agent hold the Purchase Price in escrow until
the Escrow Agent has received the Securities. 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 Securities to the
Investors and the Securities to the Placement Agent as
<PAGE> 59
per the terms and conditions in the Purchase 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
Purchase Price 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 Purchase Agreement by both
parties, as evidenced by the Company's and the
Purchasers and Placement Agent's execution thereof,
shall deliver to the Escrow Agent the Securities issued
to the Purchasers and 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 Securities, the Escrow Agent
shall immediately wire that amount of funds necessary
to purchase the Securities 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 Purchase 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.
<PAGE> 60
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
MISCELLANEOUS
2.1 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.
2.2 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
<PAGE> 61
(d) The Goldstein Law Group, PC
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;
2.3 This Agreement shall be binding upon and
shall inure to the benefit of the permitted successors
and assigns of the parties hereto.
2.4 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.
2.5 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 Agreement.
2.6 The Company acknowledges and confirms
that it is not being represented in a legal capacity by
The Goldstein Law Group, PC and it has had the
opportunity to consult with its own legal advisors
prior to the signing of this Agreement.
2.7 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
<PAGE> 62
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.
2.8 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
<PAGE> 63
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.
2.9 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.
2.10 The Escrow Agent shall not be liable for
any 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.
2.11 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.
2.12 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
<PAGE> 64
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.
[Remainder of page intentionally blank]
[Signature page follows]
<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have cause
this Escrow Agreement to be executed as of the 31st day
of December, 1998.
MUSTANG SOFTWARE, INC.
By __/s/ James A. Harrer ______
James A Harrer, President
By___/s/ Donald M. Leonard_____
Donald M. Leonard, CFO
SETTONDOWN CAPITAL INTER NATIONAL LTD., Placement Agent
By__/s/ Dawn E. Davis__________
Dawn E. Davis
AVALON CAPITAL, LTD., Investor
By___/s/ Giora Lavie___________
Giora Lavie, Attorney-in-Fact
THE CUTTY HUNK FUND LIMITED, Investor
By__/s/ Geoffrey M. Lewis______
Geoffrey M. Lewis
Director
GOLDSTEIN, GOLDSTEIN & REIS, LLP,
Escrow Agent
By__/s/ Scott H. Goldstein_____
Scott H. Goldstein
<PAGE> 66
EXHIBIT 99.3
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the
31st day of December, 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 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 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 1.24
Securities Purchase Agreement.
<PAGE> 67
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.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the
31st day of December, 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").
<PAGE> 68
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 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 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 1.23
Securities Purchase Agreement.
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.
<PAGE> 69
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. 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"), no later than March 31,
1999, 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 under the Act.
The Company shall use its best efforts
to cause (i) the Registration Statement to become
effective on or before May 15, 1999. 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 were issued
on the day before the filing of the Registration
Statement.
(b) The Company will maintain the
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.
<PAGE> 70
(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 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 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 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 on
or before March 31, 1999 and/or the Registration
Statement is not declared effective by the Commission
on or before May 15, 1999, 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%)
<PAGE> 71
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) 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.
(g) 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.
(h) "Potential Material Event" means
any of the following: (a) the possession by the Company
<PAGE> 72
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 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;
<PAGE> 73
(c) register and qualify the securities
covered by the 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
SmallCap Stock 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, at
any time when a prospectus relating thereto covered by
the 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, 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 furnish to the Company
such information regarding such Holder and the
distribution proposed by such Holder as the Company may
request in writing and as shall be required in
connection with any registration, qualification or
compliance referred to in this Section.
<PAGE> 74
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
<PAGE> 75
untrue statement or alleged untrue statement of any
material fact contained in any such 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, 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 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, 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
<PAGE> 76
alleged untrue statement or omission or alleged
omission was made in such 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 thereof, the indemnifying party will not be
<PAGE> 77
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
<PAGE> 78
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 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.
<PAGE> 79
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
<PAGE> 80
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.
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.
<PAGE> 81
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/ James A. Harrer _ By___/s/ Donald M. Leonard_____
Name: James Harrer Name: Donald M. Leonard
Title: President Title: Chief Financial Officer
SETTONDOWN CAPITAL INTERNATIONAL LTD.,
Placement Agent
By__/s/ Dawn E. Davis__________
Dawn E. Davis
AVALON CAPITAL, LTD., Investor
By___/s/ Giora Lavie___________
Giora Lavie, Attorney-in-Fact
THE CUTTY HUNK FUND LIMITED, Investor
By__/s/ Geoffrey M. Lewis______
Geoffrey M. Lewis
Director
<PAGE> 82
EXHIBIT 99.4
EXHIBIT D
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (TOGETHER WITH THE REGULATIONS PROMULGATED
THEREUNDER, THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED
WITHIN THE UNITED STATES (AS THAT TERM IS DEFINED IN
REGULATION S PROMULGATED UNDER THE SECURITIES ACT) OR
TO A U.S. PERSON (AS THAT TERM IS DEFINED IN REGULATION
S) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. HEDGING TRANSACTIONS
INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS
IN COMPLIANCE WITH THE SECURITIES ACT. THIS WARRANT
MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON
(AS THAT TERM IS DEFINED IN REGULATION S) UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
STOCK PURCHASE WARRANT
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 December 30, 2000 (the "Termination Date")
but not thereafter, to subscribe for and purchase from
MUSTANG SOFTWARE, INC., a California 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
<PAGE> 83
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
<PAGE> 84
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
<PAGE> 85
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 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
<PAGE> 86
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.
<PAGE> 87
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
<PAGE> 88
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 SmallCap 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
<PAGE> 89
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 SECURITIES ACT OF
1933, AS AMENDED (TOGETHER WITH THE REGULATIONS
PROMULGATED THEREUNDER, THE "SECURITIES ACT"), AND
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED WITHIN THE UNITED STATES (AS
THAT TERM IS DEFINED IN REGULATION S PROMULGATED
UNDER THE SECURITIES ACT) OR TO A U.S. PERSON (AS
THAT TERM IS DEFINED IN REGULATION S) IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. HEDGING TRANSACTIONS INVOLVING THESE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE
WITH THE SECURITIES ACT. THIS WARRANT MAY NOT BE
EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON (AS
THAT TERM IS DEFINED IN REGULATION S) UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
<PAGE> 90
(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 to be executed by its officers thereunto
duly authorized.
Dated: December 31, 1998
MUSTANG SOFTWARE, INC.
By ______________________________
Name:
Title:
<PAGE> 91
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, 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> 92
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.
