<PAGE> 1
MUSTANG SOFTWARE, INC.
6200 Lake Ming Road
Bakersfield, California 93306
(805) 873-2500
Fax : (805) 873-2474
May 11, 1999
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Mustang Software, Inc.
Dear Sirs:
On behalf of Mustang Software, Inc. (the "Company"), enclosed
herewith is the definitive copies of the Company's Proxy Statement
and form of Proxy in the form in which such material is being
furnished to shareholders of the Company.
In accordance with Rule 14a-6(d), please be advised that such
Material is being released (i.e. mailed) to shareholders beginning
on May 11, 1999.
Very truly yours,
Mustang Software, Inc.
by: /s/ Donald M. Leonard
Donald M. Leonard
Vice President Finance and
Chief Financial Officer
Enclosures
cc: The Nasdaq Stock Market (Attn: Reports Section)
(via Federal Express, w/3 copies of encls.)
<PAGE> 2
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or
section 240.14a-12
MUSTANG SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
-------------------
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 3
MUSTANG SOFTWARE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of MUSTANG SOFTWARE, INC. (the
"Company") will be held at the Rio Bravo Resort, located at 11200
Lake Ming Road, Bakersfield, California, 93306, on June 7, 1999 , at
10:00 a.m. Pacific Daylight Time, for the following purposes:
1. To elect a board of directors to serve for the ensuing
year;
2. To approve amendments to the Company's 1994 Incentive and
Nonstatutory Stock Option Plan (the "Stock Option Plan") to increase
the total number of shares of Common Stock that can be optioned and
sold under the Stock Option Plan to 1,100,000 shares. A copy of the
Stock Option Plan as so amended is attached as Exhibit A to the
Proxy Statement accompanying this Notice.
3. To consider and act upon a proposal to ratify the
appointment of Arthur Andersen LLP as the independent accountants of
the Company for the year ending December 31, 1999; and
4. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Only holders of Common Stock of record at the close of business
on April 23, 1999 will be entitled to vote at the meeting.
Your proxy is enclosed. You are cordially invited to attend
the meeting, but if you do not expect to attend, or if you plan to
attend, but want the proxy holders to vote your shares, please date
and sign your proxy and return it in the enclosed postage paid
envelope. The giving of this proxy will not affect your right to
vote in person if you find it convenient to attend.
Please return the proxy promptly to avoid the expense of additional
proxy solicitation.
Dated: May 11, 1999 For the board of directors
/s/ Michael S. Noling
Michael S. Noling,
Secretary
<PAGE> 4
PROXY STATEMENT
FOR ANNUAL MEETING TO BE HELD
June 7, 1999, at 10:00 a.m. Pacific Daylight Time
Your proxy is solicited on behalf of the board of directors of
Mustang Software, Inc. (the "Company" or "Mustang") for use at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held at
the Rio Bravo Resort, located at 11200 Lake Ming Road, Bakersfield,
California, 93306, on June 7, 1999, at 10:00 a.m. Pacific Daylight
Time. If a proxy in the accompanying form is duly executed and
returned, the shares represented by the proxy will be voted as
directed. If no direction is given, the shares will be voted for
the election of the five nominees for director named herein; for
approval of the amendments to the Company's 1994 Incentive and
Nonstatutory Stock Option Plan (the "Stock Option Plan") to increase
the total number of shares of Common Stock that can be optioned and
sold under the Stock Option Plan to 1,100,000 shares; for approval
of the amendment to the Company's Employee Stock Purchase Plan to
increase by 50,000 shares the number of shares of Common Stock that
may be sold under the Employee Stock Purchase Plan; and for
ratification of the appointment of Arthur Andersen LLP as the
independent accountants of the Company for the year ending December
31, 1999. Any proxy given may be revoked anytime prior to its
exercise by notifying the Secretary of the Company in writing of
such revocation, by giving another proxy bearing a later date, or by
attending and voting in person at the meeting.
The cost of this solicitation of proxies will be borne by the
Company. Solicitations will be made by mail. In addition, the
officers and regularly engaged employees of the Company may, in a
limited number of instances, solicit proxies personally or by
telephone. The Company will reimburse banks, brokerage firms, other
custodians, nominees and fiduciaries for reasonable expenses
incurred in sending proxy materials to beneficial owners of Common
Stock of the Company.
The Company's Annual Report to Shareholders, consisting of the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1998 (without exhibits) as filed with the Securities and
Exchange Commission, is being provided to each shareholder
concurrently with this Proxy Statement.
Holders of Common Stock of record at the close of business on
April 23, 1999 (the "Record Date") will be entitled to vote at the
meeting. There were 4,533,629 shares of Common Stock outstanding
at that date. Each share is entitled to one vote and a majority of
the shares of Common Stock outstanding is necessary to constitute a
quorum for the meeting. Shareholders have cumulative voting rights
in the election of directors. Under the cumulative voting method, a
shareholder may multiply the number of shares owned by the number of
directors to be elected and cast this total number of votes for any
one candidate or distribute the total number of votes in any
proportion among as many candidates as the shareholder desires. A
shareholder may not cumulate his or her votes for a candidate unless
such candidate's name has been placed in nomination prior to the
voting and unless a shareholder has given notice at the meeting
prior to the voting of his or her intention to cumulate his or her
votes. If any shareholder gives such notice, then all shareholders
may then cumulate their votes.
<PAGE> 5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the
next annual meeting of shareholders and thereafter until their
successors are elected. The Company's Bylaws currently provide for
a variable board of directors with a range of between five and nine
members, with the number currently set at six. No proxy will be
voted for more than six nominees for director.
Unless otherwise directed by shareholders, the proxy holders
will vote all shares represented by proxies held by them for the
election of the maximum number of the following nominees, all of
whom are now members of and constitute the Company's board of
directors. The Company is advised that all of the nominees have
indicated their availability and willingness to serve if elected.
If any nominee becomes unavailable or unable to serve as a director
of the Company prior to the voting, the proxy holders will refrain
from voting for the unavailable nominee or will vote for a
substitute nominee in the exercise of their best judgment.
Information Concerning Nominees
Information concerning the nominees based on data furnished by them
is set forth below:
<TABLE>
<CAPTION>
Director
Name Age Position with Company Since
<S> <C> <C> <C>
James A. Harrer 40 President and Chief 1988
Executive Officer
Stanley A. Hirschman 51 Chairman of the Board of 1995
Directors
Michael S. Noling 59 Secretary and Director 1995
Michael D. Greenbaum 57 Director 1999
Anthony Mazzarella 41 Director 1999
Phillip E. Pearce 70 Director 1999
</TABLE>
JAMES A. HARRER founded the Company's business in January 1986
and has served the Company in various positions and currently serves
as its President and Chief Executive Officer. He was the primary
visionary in developing Mustang's Internet Message Center,
FileCenter and ListCaster. In addition to his duties, he oversees
the Customer Advisory Board and Professional Services division of
the Company. Mr. Harrer has over 15 years of experience in product
development, user interface design and software sales and marketing.
STANLEY A. HIRSCHMAN became a director of the Company upon
completion of the Company's initial public offering in April 1995
<PAGE> 6
and became Chairman of the Board in April 1999. Mr. Hirschman is
currently President of Cpointe Associates, Inc., a management
consulting firm specializing in solutions for emerging companies
with technology based products. His clients have included ICG
Netcom (now Mindspring Enterprises), SBC Wireless, Northern Telecom
(Nortel) and Babbage's Etc. Previously, Mr. Hirschman was Vice
President-Store Operations, of Software Etc., Inc. from 1989 until
1996, responsible for 390 retail locations. Prior to that he held
senior management positions with T.J.Maxx, The Gap and Banana
Republic. He has served on various industry committees and the
advisory boards for the Salvation Army. Mr. Hirschman is an active
board member, utilizing his extensive management background helping
Mustang Software management focus on the re-positioning efforts into
the internet sector. He is a significant participant in the
Company's strategic planning efforts and serves on the Compensation
and Audit Committees.
MICHAEL S. NOLING, director of the Company since May 1995, is the
Chairman of the Audit Committee and became the Company's Secretary
in November 1996. In October 1998, Mr. Noling joined the Board and
was elected Board Chair of Motion Engineering, Inc., a privately
held Santa Barbara company. MEI is a leading supplier of PC-based
motion control software and circuit boards that control electric
motors in precision machinery. Noling also chairs the Motion
Engineering Compensation and Audit Committees. Since December 1996,
Mr. Noling has served on the board of directors of Transoft
Technologies Corporation, a privately held Santa Barbara company and
leading supplier of Fibre Channel Storage Area Network (SAN)
software and systems for the visual computing and enterprise
networking markets. Mr. Noling chairs the Audit Committee and is
Secretary of the company. Mr. Noling has served as Chair of the
Board of Centric Software, Inc., a privately held Los Gatos company
since December 1995. CSI designs and markets Virtual Product
Development Management software for driving product innovation. He
also chairs the Centric Compensation and Audit Committees. Mr.
Noling joined Wavefront Technologies as President and Chief
Executive Officer in September 1993 and was a member of the Board of
Directors . During the next two years Wavefront acquired a French
software company, TDI, and completed an IPO and subsequent secondary
stock offering, trading on the Nasdaq as WAVE. In June 1995,
Silicon Graphics completed the acquisition of Wavefront Technologies
and Alias Research to form a combined software company,
Alias/Wavefront. Mr. Noling served as a consultant to the new
company until December, 1996, when he retired. Previously, Mr.
Noling was Executive Vice President and Chief Financial Officer for
Applied Magnetics Corporation, a global high technology computer
component supplier listed on the New York Stock Exchange. Prior to
joining Applied Magnetics Corporation in March 1991, Mr. Noling was
a managing partner with Andersen Consulting, where he had extensive
experience in key operating and financial positions. Andersen
Consulting is one of the world's leading systems integration and
software firms, and is a business unit of Arthur Andersen & Co.,
<PAGE> 7
S.C. Mr. Noling served as a White House Fellow for one year in the
U.S. Office of Management and Budget (OMB). He received a BS in
Engineering and a MBA from the University of Wisconsin - Madison.
Mr. Noling holds a CPA certificate. Mike is a founding member and
past President of the Santa Barbara Region Economic Community
Project. The ECP is focused on increasing the economic vitality and
quality of life in Santa Barbara through retention and growth of
core high technology businesses. Mr. Noling is President of the
Santa Barbara Region Chamber of Commerce Board and a member of the
United Way Board.
MICHAEL D. GREENBAUM became a director of the Company in April
1999. Since April 1999 he has served as President and Chief
Executive Officer of Continuity Solutions, Inc., a San Jose,
California-based developer of customer interaction software for the
Internet. From September 1998 until March 1999 (when it was acquired
by Mindspring Enterprises), Mr Greenbaum served as Senior Vice
President and General Manager, Single User Markets of Netcom
Communications, Inc. an Internet service provider. From May 1997
until March 1998, he served as Vice President Marketing and Sales of
Applied Theory Communications, Inc., a New York-based Internet
consortium transitioning to an Internet service provider. From
February 1996 until January 1997, he served as Vice President
Worldwide Marketing of Borland International, a Scotts Valley,
California-based software developer. From October 1994 until
February 1996, he served as Vice President, Internet Business
Development of Bell Atlantic Corporation. From February 1984 until
October 1994, he served as General Manager, Business Communications
of Prodigy Services Company based in White Plans New York, where he
was responsible for the communications produce line. Mr. Greenbaum
received his BA degree from Western Reserve University and attended
the Graduate School of Business at New York University.
ANTHONY P. MAZZARELLA, a director of the Company since April 1999,
has served as an Executive Vice President, Chief Financial Officer
and a director of iMALL, Inc. since January 1998. Mr. Mazzarella was
formerly Managing Director of Geller & Friend Capital Partners,
Inc., a merchant banking firm. From 1991 to 1995, he was Executive
Vice President of Drake Capital Securities, Inc., a California-based
investment banking firm. From 1987 to 1991, Mr. Mazzarella served as
vice president of The Davis Companies, Marvin Davis' private holding
company, and was responsible for corporate finance and acquisition
activities. Mr. Mazzarella has also held management positions at
Twentieth Century Fox Film Corporation, United Airlines and
Deloitte & Touche, and worked as a flight-controls engineer with The
Boeing Company. Mr. Mazzarella holds a BA in Physics from Pomona
College and an MBA from the Harvard Business School.
PHILLIP E. PEARCE has been a director of the Company since April
1999. Mr. Pearce has been an independent business consultant with
Phil E. Pearce &Associates, Chairman and Director of Financial
Express Corporation since 1990 and since 1988 has been a principal
<PAGE> 8
of Pearce-Henry Capital Corp. Prior to 1988,Mr. Pearce was Senior
Vice President and a director of E .F. Hutton, Chairman of the Board
of Governors of the National Association of Securities Dealers, a
Governor of the New York Stock Exchange and a member of the Advisory
Council to the United States Securities and Exchange Commission on
the Institutional Study of the Stock Markets. Mr. Pearce also is a
director of RX Medical Services, Inc., a publicly held operator of
medical diagnostic facilities and clinical laboratories, Xybernaut
Corporation, a publicly held developer and marketer of mobile
computer systems and StarBase Corporation, a publicly held software
development company. Mr. Pearce is a graduate of the University of
South Carolina (B.A. 1953) and attended the Wharton School of
Investment Banking at the University of Pennsylvania.
Directors of the Company hold office until the next annual
meeting of shareholders and until their earlier resignation or
removal. No family relationships exist between any of the executive
officers or directors of the Company.
Compensation of Directors
The Company pays its outside directors $1,500 for each board
meeting attended and reimburses them for reasonable expenses
incurred in attending meetings. Non-employee directors are granted
stock options to purchase 15,000 shares when they join the board and
annually thereafter. Except for directors with less than a year of
service, such options vest quarterly over two years, are exercisable
for 10 years from the date of grant and the exercise price of such
options is to be equal to the fair market value of the Common Stock
on the date of the grant. The terms of stock options granted to new
directors is the same except that such options vest quarterly
beginning on the first anniversary of the respective date of joining
the board.
On January16, 1999, the Board granted to each of Messrs.
Hirschman and Noling 10-year options to purchase 15,000 shares of
Common Stock. The options vest quarterly over two years from their
respective anniversary dates of joining the board of directors and
the exercise price is $2.75 per share, the market price of the
Common Stock on the date of grant. Effective on April 6, 1999, the
date they joined the Board, the Board granted to each of Messrs.
Greenbaum, Mazzarella and Pearce 10-year options to purchase 15,000
shares of Common Stock. The options vest quarterly over two years
beginning on April 6, 2000 and the exercise price is $7.46875 per
share, the market price of the Common Stock on the date of grant.
Committees and Attendance at Board Meetings
Seven (including three telephonic) meetings of the board of
directors were held in 1998. Each incumbent director attended at
least 75% of the aggregate of all meetings held by (i) the board of
directors and (ii) those committees of the board of directors on
<PAGE> 9
which such director served.
From January 1, 1998 to June 7, 1998, the Audit Committee
consisted of all the Company's then independent directors: Michael
S. Noling, (Chairman), Stanley A. Hirschman, Richard Heming and
Bruce Fredrickson. Messrs. Heming and Fredrickson did not stand for
re-election to the Board in 1998 and beginning June 8 of that year,
the Audit Committee consisted of Messrs. Michael S. Noling
(Chairman) and Stanley A. Hirschman. This Committee's duties include
making recommendations to the board of directors concerning the
engagement of independent public accountants, evaluating and
approving the professional services provided by the Company's
independent public accountants and reviewing the adequacy of the
Company's internal accounting controls. The Audit Committee met four
times during 1998.
During 1998, the Compensation Committee consisted of one
employee director, James A. Harrer (Chairman), and one independent
director, Stan Hirschman. The duties of the Compensation Committee
include recommending to the board of directors all officer salaries,
stock option grants, management incentive programs and bonus
payments (but Mr. Harrer does not participate in compensation
decisions with respect to his employment arrangements with the
Company). The Compensation Committee met four times during 1998.
The board of directors presently has no Nominating Committee.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers and persons who own
more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission
("SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the
Company. Directors, executive officers and 10% or greater
shareholders are required by the SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
The Company believes, based solely on a review of the copies of
such reports furnished to the Company, that each report required of
the Company's executive officers, directors and 10% or greater
shareholders was duly and timely filed during the year ended
December 31, 1998, except for the Report on Form 3 of Christopher B.
Rechtsteiner which was filed late.
Executive Compensation
The following table sets forth all compensation paid by the
Company during 1996, 1997 and 1998 to its Chief Executive Officer
and its other executive officers whose annual salary and bonus were
in excess of $100,000 during 1998 (the "Named Executives"):
<PAGE> 10
<TABLE>
<CAPTION>
Annual Compensation Long term Compensation
Name and Principal Securities All Other
Positions Year Salary Bonus(1) Other(2) Underlying Compen-
Options(#)(3) sation(4)
<S> <C> <C> <C> <C> <C> <C>
James A. Harrer 1998 $158,100 $0 $0 100,000 $8,388
President and CEO 1997 $144,550 $0 $0 0 $9,416
1996 $151,050 $0 $0 0 $10,254
C. Scott Hunter 1998 $112,500 $0 $0 40,000 $1,612
Vice President of 1997 $108,450 $0 $0 66,500(5) $1,630
Engineering 1996 $106,200 $0 $0 7,500 $1,658
</TABLE>
__________
(1) Includes a cash contribution by the Company to a 401(k)
profit sharing plan paid in 1996, 1997 and 1998 on behalf of such
officer for 1995, 1996 and 1997, respectively.
(2) Consists of an automobile allowance paid by the Company.
(3) Consists of shares of Common Stock issuable upon exercise of
options granted under Mustang's 1994 Incentive and Nonstatutory
Stock Option Plan (the "Stock Option Plan"). Options vest over 36
months, commencing from the date of grant.
(4) Consists of life and health insurance premiums paid by the
Company.
(5) Consists of repriced options granted under Mustang's Stock
Option Plan that were issued in replacement of all earlier options
granted to Mr. Hunter under the Stock Option Plan. The Options vest
at their original vesting schedules, except that no options
(including vested options) were exercisable earlier than one year
from the date of the grant of the repriced options.
Effective February 8, 1996, the Company entered into employment
agreements with Messrs. Harrer, Hunter and Leonard. Each of the
agreements is for a one-year term and automatically renews for
succeeding one year terms unless either the Company or the employee
provides the other with a notice of non-renewal at least 30 days
prior to the expiration of the then current term. The agreements are
terminable by either party with or without cause upon the expiration
of 30 days' notice of termination. Upon a termination by the Company
without cause or by the Employee for good reason (which includes
because of a change of control of the Company), the employee is
entitled to compensation equal to nine months' salary and continued
health benefits for nine months. Upon a termination by the employee
without good reason or by the Company with cause, the employee is
entitled to compensation equal to four months' salary and continued
health benefits for four months.
<PAGE> 11
The following table provides certain information regarding
stock option grants made the Named Executives during 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted (#) 1997 ($/Sh) Date
<S> <C> <C> <C> <C>
James A. Harrer 100,000 37.9% $1.75 7/24/08
C. Scott Hunter 40,000 15.2% $1.75 7/24/08
</TABLE>
The following table provides certain information concerning
options exercised by the Named Executives during, and the Named
Executives' unexercised options at, December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options At In-the-Money Options At
December 31, 1998 December 31, 1998(1)
Name Shares Value
acquired on realized(2)
exercise (#) Exercisable Unexercisable Exercisable Unexercisable
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
James A.
Harrer 0 0 13,889 86,111 $ 13,889 $ 86,111
C. Scott
Hunter 10,433 $ 9,781 59,123 36,943 $ 82,559 $ 38,037
</TABLE>
__________
Based on the difference between $2.75 (the closing bid price of the
Common Stock on December 31, 1998 as reported on The Nasdaq SmallCap
Market) and the applicable exercise prices.
Based on the difference between the closing bid price of the Common
Stock on the date of exercises as reported on The Nasdaq SmallCap
Market) and the applicable exercise prices.
<PAGE> 12
Related Party Transactions
The Company leased its executive offices and sales, marketing
and production facilities from Messrs. James A. Harrer and Richard
Heming (formerly an officer, director and principal shareholder of
the Company) pursuant to a lease that commenced on December 1, 1993
and expired on November 30, 1998. The Company continues to occupy
the premise pursuant to the terms of that lease , but on a month to
month basis. The Company pays a monthly base rent of $13,458. The
Company believes that this lease was on terms no less favorable than
those that could have been obtained from an unaffiliated third party
are, and that the rent is comparable to that for similar facilities
in the area. Messrs. Harrer and Heming incurred debt in the
aggregate amount of $822,000, following two loans in the respective
original principal amounts of $450,000 and $372,000, to purchase
said facilities. Monthly payments of Messrs. Harrer and Heming
under these two loans equal approximately $4,500 and $2,900,
respectively. The Company has guaranteed all of this debt and has
subordinated its leasehold interest in the facilities to the
lenders. In addition, in the event of a default by Messrs. Harrer
and Heming under the loan agreement covering $372,000 of this debt,
the lender thereunder may exercise an assignment from Messrs. Harrer
and Heming of their interest as landlord in a contingent 20-year
lease, previously signed by the Company as tenant, for such
facilities. In that event, this contingent lease provides for a
monthly rent of $6,200, would supersede the current lease, and would
obligate the Company to pay such rent through November 2013.
<PAGE> 13
Shareholding Information as to Directors, Director Nominees and
Management
The following table sets forth as of the Record Date,
information regarding the beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5 percent of the outstanding shares of
Common Stock, (ii) each director and director nominee of the Company
beneficially owning Common Stock, (iii) each of the Named Executives
and (iv) the executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
Common Stock
Beneficially owned (1)
NAME OF BENEFICIAL OWNER OR Amount Percent
IDENTITY OF GROUP
<S> <C> <C>
James A. Harrer 670,228 14.7%
Cuttyhunk Fund Ltd. 420,373 (2) 9.0% (2)
Canal Ltd. 274,954 (2) 6.0% (2)
Stanley A. Hirschman 22,834 0.5%
Michael S. Noling 20,834 0.5%
C. Scott Hunter 20,091 0.4%
Michael D. Greenbaum 500 *
All executive officers and directors as a group
(9 persons) 795,436 17.0%
</TABLE>
_________
* Less than .1%
(1) Includes any shares purchasable upon exercise of options
exercisable within 60 days of the Record Date.
(2) Includes shares issuable upon conversion of the Company's
Series A Convertible Preferred Stock within 60 days of the Record
Date.
<PAGE> 14
PROPOSAL NO. 2
TO APPROVE AMENDMENTS TO THE COMPANY'S STOCK OPTION PLAN TO INCREASE
THE TOTAL NUMBER OF SHARES OF COMMON STOCK THAT CAN BE OPTIONED AND
SOLD UNDER THE STOCK OPTION PLAN TO 1,100,000 SHARES
The Stock Option Plan was originally adopted by the Company's
board of directors and shareholders on December 12, 1994. As
originally adopted, the number of shares that could be optioned and
sold under the Stock Option Plan was 144,000 shares of Common Stock.
On July 10, 1995, the Company's board of directors approved an
increase of 300,000 shares in the number of shares that could be
optioned and sold under the Stock Option Plan bringing to a total of
444,000 shares the number of shares of Common Stock that can be
optioned and sold under the Stock Option Plan. This increase was
approved by shareholders on May 13, 1996. On January 17, 1998, the
board of directors approved an increase in the number of shares that
could be optioned and sold under the Stock Option Plan to a total of
850,000 shares the number of shares of Common Stock that can be
optioned and sold under the Stock Option Plan This increase was
approved by shareholders of the Company on June 8, 1998. On April
17, 1999,the board of directors approved an increase in the number
of shares that could be optioned and sold under the Stock Option
Plan to a total of 1,100,000 shares the number of shares of Common
Stock that can be optioned and sold under the Stock Option Plan.
This increase in the Stock Option Plan is subject to the approval of
shareholders, which the Company is seeing at the Annual Meeting.
The board of directors believes that the selective use of stock
options is an effective means of attracting, motivating and
retaining employees and that the availability of the number of
shares covered by the Stock Option Plan, as amended, is essential to
the success of the Company. The board of directors recommends that
the shareholders approve the proposed amendments. The affirmative
vote of a majority of all shares of the Company present at the
meeting in person or by proxy is required to approve the amendments.
The summary of the provisions of the Stock Option Plan which
follows is not intended to be complete. A copy of the Stock Option
Plan, as amended by the Board, is annexed to this Proxy Statement as
Exhibit A.
Summary of the Provisions of the Stock Option Plan as Amended
The Company's Stock Option Plan provides for the granting of
(i) incentive stock options to key employees and (ii) nonstatutory
stock options to key employees and non-employee directors of the
Company and any person who performs consulting or advisory services
for the Company and who is, by the board of directors or the Stock
Option Committee, determined to be eligible to participate. For
information concerning the federal income tax distinctions of
<PAGE> 15
incentive and nonstatutory stock options, see "Federal Income Tax
Consequences of Incentive Stock Options and Nonstatutory Stock
Options," below.
The maximum number of shares of the Company's Common Stock that
may be issued pursuant to the exercise of options granted under the
Stock Option Plan, as amended, is 1,100,000 shares (subject to
adjustment in the event of stock dividends, splits, reverse splits,
recapitalizations, mergers or other similar changes in the Company's
capital structure). All options must be granted, if at all, not
later than December 11, 2004. The aggregate fair market value
(determined as of the date the option is granted) of the shares of
Common Stock to which incentive stock options granted under the
Stock Option Plan are exercisable for the first time by any employee
of the Company during any calendar year may not exceed $100,000.
This limitation shall not apply with respect to nonstatutory stock
options.
The Stock Option Plan is administered by the full board of
directors, which determines the terms of options granted, including
the exercise price, the number of shares subject to the option and
the terms and conditions of exercise. No option granted under the
Stock Option Plan is transferable by the optionee other than by will
or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such
optionee. Incentive stock options and nonstatutory stock options may
be and typically are granted for exercise for up to ten years from
the date granted.
Options granted under the Stock Option Plan are evidenced by
written agreements specifying the number of shares covered thereby
and the option price, the exercise period and all other terms,
restrictions and conditions of the option. The exercise price of all
stock options granted under the Stock Option Plan must be at least
equal to the fair market value of such shares on the date of grant.
With respect to any optionee who owns stock possessing more than 10%
of the voting rights of the Company's outstanding capital stock, the
exercise price of any stock option must be not less than 110% of the
fair market value on the date of grant.
Options must be exercised only by written notice from the
optionee (or his estate or other legal representative) to the
Company accompanied by payment of the option price in full. The
option price may be paid in cash, cash equivalents (certified or
cashier's check), or with shares of Common Stock of the Company.
As of the Record Date, options to purchase an aggregate of
583,634 shares of Common Stock, at a weighted average exercise price
of $2.16 per share, were outstanding under the Stock Option Plan. Of
these, options to purchase an aggregate of 209,400 shares of Common
Stock were granted in 1998. As of the Record Date, 25 employees
(including one director who was an employee) and five non-employee
<PAGE> 16
directors were eligible to participate in the Stock Option Plan. All
options granted under of the Stock Option Plan since its inception
on December 12, 1994 have been granted at exercise prices equal to
the fair market value at the date of grant. The fair market value
was determined by the board of directors internally prior to the
Company's initial public offering in April 1995 and since then by
reference to the closing price of the Company's Common Stock on The
Nasdaq Stock Market. As of the Record Date, options for a total of
60,316 shares of Common Stock had been exercised and 206,050 were
available for future grants (before giving effect to the amendment
to the Stock Option Plan increasing to 1,100,000 shares the number
of shares that may be optioned and sold under the Stock Option
Plan).
The following table sets forth information from inception of
the Stock Option Plan through the Record Date concerning the net
number of options under the Stock Option Plan that has been received
by (i) each of the Company's current executive officers (which
includes the only person receiving 5 percent or more of the options
granted), (ii) each nominee for election as director, (iii) all
current executive officers as a group, (iv) all current directors
who are not executive officers as a group, and (v) all employees who
are not executive officers:
<TABLE>
<CAPTION>
Name of No. of shares
Person Position with the Company covered by
or Group Options
<S> <C> <C>
James A. Harrer President, Chief Executive 100,000
Officer, and Director Nominee
C. Scott Hunter Vice President Engineering and 106,500
Chief Technical Officer,
Donald M. Leonard Vice President Finance, 65,000
Chief Financial Officer
Stanley A. Hirschman Chairman of the Board of Directors 45,000
and Director Nominee
Michael S. Noling Director and Director Nominee 45,000
Michael D. Greenbaum Director and Director Nominee 15,000
Anthony Mazzarella Director and Director Nominee 15,000
Phillip E. Pearce Director and Director Nominee 15,000
All current executive officers as a group 271,500
All current directors who are not executive officers 135,000
as a group
All employees who are not executive officers 232,450
as a group
</TABLE>
<PAGE> 17
Federal Income Tax Consequences of Incentive Stock Options and
Nonstatutory Stock Options
THE FOLLOWING DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES IS
BASED UPON EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS AS OF
THE DATE OF THIS PROXY STATEMENT. BECAUSE THE CURRENTLY APPLICABLE
RULES ARE COMPLEX AND THE TAX LAWS MAY CHANGE AND BECAUSE INCOME TAX
CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF
EACH PARTICIPANT, EACH PARTICIPANT SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR CONCERNING FEDERAL (AND ANY STATE AND LOCAL) INCOME TAX
CONSEQUENCES. THE FOLLOWING DISCUSSION DOES NOT PURPORT TO DESCRIBE
STATE OR LOCAL INCOME TAX CONSEQUENCES.
Options so designated under the Option Plan are intended to
qualify as "incentive stock options" ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code"). All
options that are not designated as ISOs are intended to be
"nonstatutory stock options" ("NSOs").
Incentive Stock Options. The optionee will recognize no income
upon the grant of an ISO and incur no tax on its exercise (unless
the optionee is subject to the alternative minimum tax). If the
optionee holds the stock acquired upon exercise of an ISO (the "ISO
Shares") for more than one year after the date the option was
exercised and for more than two years after the date the option was
granted, the optionee generally will realize long-term capital gain
or loss (rather than ordinary income or loss) upon disposition of
the ISO Shares. This gain or loss will be equal to the difference
between the amount realized upon such disposition and the amount
paid for the shares.
If the optionee disposes of ISO shares prior to the expiration
or either required holding period (a "disqualifying disposition"),
then gain realized upon such disposition, up to the difference
between the fair market value of the shares on the date of exercise
(or, if less, the amount realized on a sale of such shares) and the
option exercise price, will be treated as ordinary income. Any
additional gain will be long-term or short-term capital gain,
depending upon the amount of time the ISO Shares were held by the
optionee.
Nonstatutory Stock Options. An optionee will not recognize any
taxable income at the time an NSO is granted. However, upon
exercise of an NSO, the optionee will include in income as
compensation an amount equal to the difference between the fair
market value of the shares on the date of exercise (or, in the case
of exercise for stock subject to a substantial risk of forfeiture,
at the time such forfeiture restriction lapses) and the amount paid
for that stock upon exercise of the NSO. In the case of stock
subject to a substantial risk of forfeiture, if the optionee makes
an 83(b) election, the included amount will be based on the
<PAGE> 18
difference between the fair market value on the date of exercise and
the option exercise price. The included amount will be treated as
ordinary income by the optionee and will be subject to income tax
withholding by the Company (either by payment in cash by the
optionee or withholding out of the optionee's salary). Upon sale of
the shares by the optionee, any appreciation or depreciation in the
value of the shares will be treated as capital gain or loss (either
long or short term - depending upon the time the optionee holds the
shares after exercising the NSO.
Tax Treatment of the Company. The Company will be entitled to
a deduction in connection with the exercise of an NSO by a domestic
employee or director to the extent that the optionee recognizes
ordinary income and the Company withholds tax. The Company will be
entitled to a deduction in connection with the disposition of ISO
Shares only to the extent that the optionee recognizes ordinary
income on a disqualifying disposition of the ISO Shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
AMENDMENTS TO THE COMPANY'S STOCK OPTION PLAN.
<PAGE> 19
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The board of directors has reappointed Arthur Andersen LLP as
the Company's independent public accountants for the year ending
December 31, 1999. Arthur Andersen LLP has been the Company's
certified public accountant since 1995.
Although not required by California law, the Company seeks
shareholder ratification of the appointment of the Company's
auditors at each annual meeting. In the event the necessary vote is
not obtained, the matters will be returned to the board of directors
and Audit Committee for consideration of alternatives. Even if the
appointment is ratified, the Board in its discretion may direct the
appointment of a different independent accounting firm anytime
during the year if the Board determines that such a change would be
in the best interests of the Company and its shareholders.
Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting, with opportunity to make a statement
if they so desire and to be available to respond to appropriate
shareholder questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS.
<PAGE> 20
4. OTHER BUSINESS
Management knows of no other matters that may be presented to
the Annual Meeting. However, if any other matter properly comes
before the Annual Meeting, it is intended that proxies in the
accompanying form will be voted according to the judgment of the
persons named therein.
PROPOSALS BY SHAREHOLDERS
Shareholders are hereby notified that if they wish a proposal
to be included in the Company's Proxy Statement and form of proxy
relating to the year 2000 annual meeting of shareholders, they must
deliver a written copy of their proposal no later than January 11,
2000. Proposals must comply with the proxy rules relating to
shareholder proposals, in particular Rule 14a-8 under the Securities
Exchange Act of 1934 (the "Exchange Act"), in order to be included
in the Company's proxy materials. Shareholders who wish to submit a
proposal for consideration at the Company's year 2000 annual meeting
of shareholders, but who do not wish to submit the proposal for
inclusion in the Company's proxy statement pursuant to Rule 14a-8
under the Exchange Act, must deliver a written copy of their
proposal no later than March 27, 2000. In either case, proposals
should be delivered to Mustang Software, Inc., at 6200 Lake Ming
Road, Bakersfield, California 93306 to the attention of Mr. James A.
Harrer, President. To avoid controversy and establish timely receipt
by the Company, it is suggested that stockholders send their
proposals by certified mail return receipt requested.
May 11, 1999 By order of the board of directors
Michael S. Noling, Secretary
<PAGE> 21
EXHIBIT A
MUSTANG SOFTWARE, INC.
1994
INCENTIVE STOCK OPTION PLAN
AND
NONSTATUTORY STOCK OPTION PLAN
(As adopted December 12, 1994 and amended July 10, 1995,
January 17, 1998 and April 17, 1999)
1. NAME, EFFECTIVE DATE AND PURPOSE.
(a) This Plan document is intended to implement and
govern two separate stock option plans of MUSTANG SOFTWARE, INC., a
California corporation (the "Company"): the Incentive Stock Option
Plan ("Plan A") and the Nonstatutory Stock Option Plan ("Plan B").
Plan A provides for the granting of options that are intended to
qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422A(b) of the Internal Revenue Code,
as amended. Plan B provides for the granting of options that are
not intended to so qualify. Unless specified otherwise, all the
provisions of this Plan relate equally to both Plan A and Plan B and
are condensed for convenience into one Plan document.
(b) Plan A and Plan B are each established effective
as of December 12, 1994. The purpose of Plan A and Plan B
(sometimes together referred to as the "Plan" or this "Plan") is to
promote the growth and general prosperity of the Company and its
Affiliated Companies. This Plan will permit the Company to grant
options ("Options") to purchase shares of its common stock ("Common
Stock"). The granting of Options will help the Company attract and
retain the best available persons for positions of substantial
responsibility and will provide certain key employees with an
additional incentive to contribute to the success of the Company and
its Affiliated Companies. For purposes of this Plan, the term
"Affiliated Companies" shall mean any component member of a
controlled group of corporations, as defined under Internal Revenue
Code Section 1563, in which the Company is also a component member.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of
Directors of the Company (the "Board").
(b) The Board shall have sole authority, in its
absolute discretion, to determine which of the eligible persons of
the Company and its Affiliated Companies shall receive Options
<PAGE> 22
("Optionees"), and, subject to the express provisions and
restrictions of this Plan, shall have sole authority, in its
absolute discretion, to determine the time when Options shall be
granted, the terms and conditions of an Option other than those
terms and conditions fixed under this Plan, the number of shares
which may be issued upon exercise of an Option and the means of
payment for such shares, and shall have authority to do everything
necessary or appropriate to administer the Plan. All decisions,
determinations and interpretations of the Board shall be final and
binding on all Optionees.
(c) The Board shall have the authority to delegate
some or all of the powers granted to it pursuant to this Section 2
to a committee (the "Committee") appointed by the Board and
consisting of not less than two (2) members of the Board, one of
whom shall be the Chief Executive Officer of the Company. The Board
may from time to time remove members from, or add members to, the
Committee, and vacancies on the Committee shall be filled by the
Board. All decisions, determinations and interpretations of the
Committee shall be final and binding on all Optionees, unless
otherwise determined by the Board.
(d) Definitions:
(i) Restricted Shareholder: An individual
who, at the time an Option is granted under either Plan A or Plan B,
owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the employer corporation or of its
Parent Corporation or Subsidiary Corporation, with stock ownership
to be determined in light of the attribution rules set forth in
Section 425(d) of the Internal Revenue Code.
(ii) Parent Corporation: A corporation as
defined in Section 425(e) of the Internal Revenue Code.
(iii) Subsidiary Corporation: A corporation as
defined in Section 425(f) of the Internal Revenue Code.
(iv) Officer: The chief executive officer,
president, chief financial officer, chief accounting officer, any
vice president in charge of a principal business function (such as
sales, administration, or finance) and any other person who performs
similar policy-making functions for the Company.
3. ELIGIBILITY.
(a) Plan A: The Board (or the Committee, if so
authorized by the Board) may, in its discretion, grant one or more
Options under Plan A to any key management employee of the Company
or its Affiliated Companies, including any employee who is a
director of the Company or of any of its Affiliated Companies
<PAGE> 23
presently existing or hereinafter organized or acquired. Such
Options may be granted to one or more such employees without being
granted to other eligible employees, as the Board may deem fit.
(b) Plan B: The Board (or the Committee, if so
authorized by the Board), may, in its discretion, grant one or more
Options under Plan B to any key management employee, any employee or
non-employee director of the Company or its Affiliated Companies,
including any employee who is a Director of the Company or of any of
its Affiliated Companies presently existing or hereinafter organized
or acquired or any person who performs consulting or other services
for the Company or its Affiliated Companies and who is designated by
the Board as eligible to participate in Plan B. Such Options may be
granted to one or more such persons without being granted to other
eligible persons, as the Board may deem fit.
4. STOCK TO BE OPTIONED.
(a) The maximum aggregate number of shares which may
be optioned and sold under Plan A and Plan B is One Million One
Hundred Thousand (1,100,000) shares of authorized Common Stock of
the Company. The foregoing constitutes an absolute cumulative
limitation on the total number of shares that may be optioned under
both Plan A and B. Therefore, at any particular date the maximum
aggregate number of shares which may be optioned under Plan A is
equal to One Million One Hundred Thousand (1,100,000) minus the
number of shares previously optioned under both Plan A and Plan B
and the maximum aggregate number of shares which may be optioned
under Plan B is equal to One Million One Hundred Thousand
(1,100,000) minus the number of shares which have been previously
optioned under both Plan A and Plan B. All shares to be optioned and
sold under either Plan A or Plan B may be either authorized but
unissued shares or shares held in the treasury.
(b) Shares of Common Stock that: (i) are repurchased
by the Company after issuance hereunder pursuant to the exercise of
an Option, or (ii) are not purchased by the Optionee prior to the
expiration or termination of the applicable Option, shall again
become available to be covered by Options to be issued hereunder and
shall not, as of the effective date of such repurchase or
expiration, be counted as covered by an outstanding Option for
purposes of the above-described maximum number of shares which may
be optioned hereunder.
5. OPTION PRICE.
The Option Price for shares of Common Stock to be issued
under either Plan A or Plan B shall be 100% of the fair market value
of such shares on the date on which the Option covering such shares
is granted by the Board (or the Committee, if authorized by the
Board), except that if on the date on which such Option is granted
the Optionee is a Restricted Shareholder, then such Option Price for
<PAGE> 24
Options granted under Plan A shall be 110% of the fair market value
of the shares of Common Stock subject to the Option on the date such
Option is granted by the Board (or the Committee, if so authorized).
The fair market value of shares of Common Stock for all purposes of
this Plan is to be determined by the Board (or the Committee, if so
authorized by the Board) in its sole discretion, exercised in good
faith.
6. TERM OF PLAN.
Plan A and Plan B shall become effective on December 12,
1994; both Plan A and Plan B shall continue in effect until December
12, 2004 unless terminated earlier by action of the Board. No
Option may be granted hereunder after December 12, 2004.
7. EXERCISE OF OPTION.
Subject to the actions, conditions and/or limitations set
forth in this Plan document and/or any applicable Stock Option
Agreement entered into hereunder, Options granted under this Plan
shall be exercisable in accordance with the following rules:
(a) Subject to the specific provisions of this Section
7, Options shall become exercisable at such times and in such
installments (which may be cumulative) as the Board shall provide in
the terms of each individual Option; provided, however, each Option
granted under the Plan shall become exercisable in installments of
not less than 20% of the number of shares covered by such Option
each year from the Option Grant Date; and provided, further, that by
a resolution adopted after an Option is granted the Board may, on
such terms and conditions as it may determine to be appropriate and
subject to the specific provisions of this Section 7, accelerate the
time at which such Option or installment thereof may be exercised.
For purposes of this Plan, any accrued installment of an Option
granted hereunder shall be referred to as an "Accrued Installment."
(b) Subject to the specific restrictions contained in
this Section 7, an Option may be exercised when Accrued
Installmentss accrue, as provided in the terms under which such
Option was granted, for a period of up to ten (10) years from the
Option Grant Date with respect to Options granted under Plan A and
for a period of up to ten (10) years from the Option Grant Date with
respect to Options granted under Plan B. In no event shall any
Option be exercised on or after the expiration of said maximum
applicable period, regardless of the circumstances then existing
(including but not limited to the death or termination of employment
of the Optionee).
(c) The Board (or the Committee if so authorized by
the Board) shall fix the expiration date of the Option (the "Option
Expiration Date") at the time the Option grant is authorized.
<PAGE> 25
8. RULES APPLICABLE TO CERTAIN DISPOSITIONS.
(a) Notwithstanding the foregoing provisions of
Section 7, in the event the Company or the shareholders of the
Company enter into an agreement to dispose of all or substantially
all of the assets or capital stock of the Company by means of a
sale, merger, consolidation, reorganization, liquidation, or
otherwise, an Option shall become immediately exercisable with
respect to the full number of shares subject to that Option during
the period commencing as of the later of (x) date of execution of
such agreement or (y) six (6) months after the Option Grant Date,
and ending as of the earlier of:
(i) the Option Expiration Date; or
(ii) the date on which the disposition of
assets or capital stock contemplated by the agreement is
consummated. The exercise of any Option that was made exercisable
solely be reason of this Subsection 8(a) shall be conditioned upon
the consummation of the disposition of assets or stock under the
above referenced agreement. Upon the consummation of any such
disposition of assets or stock, this Plan and any unexercised
Options issued hereunder (or any unexercised portion thereof) shall
terminate and cease to be effective.
(b) Notwithstanding the foregoing, in the event that
any such agreement shall be terminated without consummating the
disposition of said stock or assets:
(i) any unexercised non-vested installments
that had become exercisable solely by reason of the provisions of
Subsection 8(a) shall again become non-vested and unexercisable as
of said termination of such agreement, and
(ii) the exercise of any option that had
become exercisable solely by reason of this Subsection 8(a) shall be
deemed ineffective and such installments shall again become
non-vested and unexercisable as of said termination of such
agreement.
(c) Notwithstanding the provisions set forth in
Subsection 8(a), the Board (or the Committee, if so authorized by
the Board) may, at its election and subject to the approval of the
corporation purchasing or acquiring the stock or assets of the
Company (the "surviving corporation"), arrange for the Optionee to
receive upon surrender of Optionee's Option a new option covering
shares of the surviving corporation in the same proportion, at an
equivalent option price and subject to the same terms and conditions
as the old Option. For purposes of the preceding sentence, the
excess of the aggregate fair market value of the shares subject to
such new option immediately after consummation of such disposition
of stock or assets over the aggregate option price of such shares of
<PAGE> 26
the surviving corporation shall not be no more than the excess of
the aggregate fair market value of all shares subject to the old
Option immediately before consummation of such disposition of stock
or assets over the aggregate Option Price of such shares of the
Company, and the new option shall not give the Optionee additional
benefits which such Optionee did not have under the old Option or
deprive the Optionee of benefits which the Optionee had under the
old Option. If such substitution of options is effectuated, the
Optionee's rights under the old Option shall thereupon terminate.
9. MERGERS AND ACQUISITIONS.
(a) If the Company at any time should succeed to the
business of another corporation through a merger or consolidation,
or through the acquisition of stock or assets of such corporation,
Options may be granted under the Plan to option holders of such
corporation or its subsidiaries, in substitution for options or
rights to purchase stock of such corporation held by them at the
time of succession. The Board (or the Committee, if so authorized
by the Board) shall have sole and absolute discretion to determine
the extent to which such substitute Options shall be granted (if at
all), the person or persons within the eligible group to receive
such substitute Options (who need not be all option holders of such
corporation), the number of Options to be received by each such
person, the Option Price of such Option, and the terms and
conditions of such substitute Options; provided, however, that the
terms and conditions of the substitute Options shall comply with the
provisions of Section 425 of the Code, such that the excess of the
aggregate fair market value of the shares subject to such substitute
Option immediately after the substitution or assumption over the
aggregate option price of such shares is not more that the excess of
the aggregate fair market value of all shares subject to the
substitute Option immediately before such substitution or assumption
over the aggregate option price of such shares, and the substitute
Option or the assumption of the old option does not give the holder
thereof additional benefits which he or she did not have under such
old option.
(b) Notwithstanding anything to the contrary herein,
no Option shall be granted, nor any action taken, permitted or
omitted, which could cause the Plan, or any Options granted
hereunder as to which Rule 16b-3 under the Securities Exchange Act
of 1934 may apply, not to comply with such Rule.
10. TERMINATION OF EMPLOYMENT.
(a) In the event that the Optionee's employment,
directorship or consulting or other arrangement with the Company (or
Affiliated Company) is terminated for any reason other than death or
disability, any unexercised Accrued installments of the Option
granted hereunder to such terminated Optionee shall expire and
become unexercisable as of the earlier of:
<PAGE> 27
(i) the applicable Option Expiration Date; or
(ii) a date 30 days after such termination
occurs, provided however, that the Board (or the Committee if
empowered to so act) may, in the exercise of its discretion, extend
said date up to and including a date three months following such
termination, with respect to Options granted under Plan A, or up to
and including a date two years following such termination with
respect to Options granted under Plan B.
(b) In the event that the Optionee's employment,
directorship or consulting or other arrangement with the Company is
terminated due to the death or disability of the Optionee, any
unexercised Accrued Installmentss of the Option granted hereunder to
such Optionee shall expire and become unexercisable as of the
earlier of:
(i) the applicable Option Expiration Date; or
(ii) the first anniversary of the date of
death of such Optionee (if applicable); or
(iii) the first anniversary of the date of the
termination of employment, directorship or consulting or other
arrangement by reason of disability (if applicable). Any such
Accrued Installmentss of a deceased Optionee may be exercised prior
to their expiration by (and only by) the person or persons to whom
the Optionee's Option right shall pass by will or by the laws of
descent and distribution, if applicable, subject, however, to all of
the terms and conditions of this Plan and the applicable Stock
Option Agreement governing the exercise of Options granted
hereunder.
(c) For purposes of this Section 10, an Optionee shall
be deemed employed by the Company (or affiliated Company) during any
period of leave of absence from active employment as authorized by
the Company (or Affiliated Company).
11. EXERCISE OF OPTIONS.
(a) An Option shall be deemed exercised when written
notice of such exercise has been given to the Company at its
principal business office by the person entitled to exercise the
Option and full payment in cash or cash equivalents (or with shares
of Common Stock pursuant to Section 14) for the shares with respect
to which the Option is exercised has been received by the Company.
The Board of Directors (or the Committee) may cause the Company to
give or arrange for financial assistance (including without
limitation direct loans, with or without interest, secured or
unsecured, or guarantees of third party loans) to an Optionee for
the purpose of providing funds for the purchase of shares pursuant
<PAGE> 28
to the exercise of Options, when in the judgment of the Board (or
the Committee) such assistance may reasonably be expected to be in
the best interests of the Company, and consistent with the Articles
of Incorporation and Bylaws of the Company and applicable laws, and
will permit the shares to be fully paid and nonassessable when
issued.
(b) An Option may be exercised in accordance
with this Section 11 as to all or any portion of the shares covered
by any Accrued Installment of the Option from time to time during
the applicable Option period, but shall not be exercisable with
respect to fractions of a share.
(c) As soon as practicable after any proper exercise
of an Option in accordance with the provisions of this Plan, the
Company shall, without charging transfer or issue tax to the
Optionee, deliver to the Optionee at the main office of the Company,
or such other place as shall be mutually acceptable, a certificate
or certificates representing the shares of Common Stock as to which
the Option has been exercised. The time of issuance and delivery of
the Common Stock may be postponed by the Company for such period as
may, be required for it with reasonable diligence to comply with any
applicable listing requirements of any national or regional
securities exchange and any law or regulation applicable to the
issuance and delivery of such shares.
12. AUTHORIZATION TO ISSUE OPTIONS AND SHAREHOLDER
APPROVAL.
Unless in the judgment of counsel to the Company such
permit is not necessary with respect to particular grants, Options
granted under the Plan shall be conditioned upon the Company
obtaining any required permit from the California Department of
Corporations and/or other appropriate governmental agencies, free of
any conditions not acceptable to the Board, authorizing the Company
to grant such Options, provided, however, such condition shall lapse
as of the effective date of issuance of such permit(s) in a form to
which the Company does not object within sixty (60) days.
13. LIMIT ON VALUE OF OPTIONED SHARES.
The aggregate fair market value (determined as of the
Option Grant Date) of the shares of Common Stock to which Options
granted under Plan A are exercisable for the first time by any
employee of the Company during any calendar year under all incentive
stock option plans of the Company and its Affiliated Companies shall
not exceed $100,000. The limitation imposed by this Section 13
shall not apply with respect to Options granted under Plan B.
14. PAYMENT OF EXERCISE PRICE WITH COMPANY STOCK.
The Board (or the Committee, if so authorized) may provide
<PAGE> 29
that, upon exercise of the Option, the Optionee may elect to pay for
all or some of the shares of Common Stock underlying the Option with
shares of Common Stock of the Company previously acquired and owned
at the time of exercise by the Optionee, subject to all restrictions
and limitations of applicable laws, rules and regulations, including
Section 425(c)(3) of the Internal Revenue Code, and provided that
the Optionee will make representations and warranties satisfactory
to the Company regarding his or her title to the shares used to
effect the purchase, including without limitation representations
and warranties that the Optionee has good and marketable title to
such shares free and clear of any and all liens, encumbrances,
charges, equities, claims, security interests, options or
restrictions and has full power to deliver such shares without
obtaining the consent or approval of any person or governmental
authority other than those which have already given consent or
approval in a form satisfactory to the Company. The equivalent
dollar value of the shares used to effect the purchase shall be the
fair market value of the shares on the date of the purchase as
determined by the Board (or the Committee, if so authorized) in its
sole discretion, exercised in good faith.
The terms and conditions of Options granted under the Plan
shall be evidenced by a Stock Option Agreement executed by the
Company and the person to whom the Option is granted. Each
agreement shall contain the following provisions:
(a) A provision fixing the number of shares which may
be issued upon exercise of the Option;
(b) A provision establishing the Option exercise price
per share;
(c) A provision establishing the times and the
installments in which Options may be exercised, provided, however,
such times and installments shall not be less than 20% of the number
of shares covered by such Option each year from the Option Grant Date;
(d) A provision incorporating therein this Plan by
reference;
(e) A provision clarifying which Options are intended
to be Incentive Stock Options under Plan A and which are intended to
be nonstatutory stock options under Plan B;
(f) A provision fixing the maximum duration of the
Option as not more than ten (10) years from the Option Grant Date
for Options granted under either Plan A or Plan B;
(g) Such representations and warranties by the
Optionee as may be required by Section 25 of this Plan or as may be
required by the Board (or the Committee) in its discretion;
<PAGE> 30
(h) Any other restriction (in addition to those
established under this Plan) as may be established by the Board (or
the Committee) with respect to the exercise of the Option, the
transfer of the Option, and/or the transfer of the shares purchased
by exercise of the Option, provided that such restrictions are not
in conflict with this Plan; and
(i) Such other terms and conditions not inconsistent
with this Plan as may be established by the Board (or the Committee).
15. TAXES, FEES AND EXPENSES.
The Company shall pay all original issue and transfer
taxes (but not income taxes, if any) with respect to the grant of
Options and/or the issue and transfer of shares pursuant to the
exercise of such Options, and all other fees and expenses
necessarily incurred by the Company in connection therewith, and
will from time to time use its best efforts to comply with all laws
and regulations which, in the opinion of counsel for the Company,
shall be applicable thereto.
16. WITHHOLDING OF TAXES.
The grant of Options hereunder and the issuance of Common
Stock pursuant to the exercise of such Options is conditioned upon
the Company's reservation of the right to withhold, in accordance
with any applicable law, from any compensation payable to the
Optionee any taxes required to be withheld by federal, state or
local law as a result of the grant or exercise of any such Option.
17. AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board may amend this Plan from time to time in
such respects as the Board may deem advisable, provided, however,
that no such amendment shall operate to (i) affect adversely an
Optionee's rights under this Plan with respect to any Option granted
hereunder prior to the adoption of such amendment, except as may be
necessary, in the judgment of counsel to the Company, to comply with
any applicable law, (ii) increase the maximum aggregate number of
shares which may be optioned and sold under the Plan (unless
shareholders approve such increase), (iii) change the manner of
determining the Option exercise price, (iv) change the classes of
persons eligible to receive Options under the Plan, or (v) extend
the maximum duration of the Option or the Plan.
(b) The Board may at any time terminate this Plan.
Any such termination of the Plan shall not, without the written
consent of the Optionee, alter the terms of Options already granted
and such Options shall remain in full force and effect as if this
Plan had not been terminated.
<PAGE> 31
18. OPTIONS NOT TRANSFERABLE.
Options granted under this Plan may not be sold, pledged,
hypothecated, assigned, encumbered, gifted or otherwise transferred
or alienated in any manner, either voluntarily or involuntarily by
operation of law, otherwise than by will or the laws of descent and
distribution, and may be exercised during the lifetime of an
Optionee only by such Optionee.
19. NO RESTRICTIONS ON TRANSFER OF STOCK.
Common Stock issued pursuant to the exercise of an Option
granted under this Plan (hereinafter "Optioned Stock"), or any
interest in such Optioned Stock, may be sold, assigned, gifted,
pledged, hypothecated, encumbered or otherwise transferred or
alienated in any manner by the holder(s) thereof, subject, however,
to any representations or warranties requested under Section 25 of
this Plan and also subject to compliance with any applicable
federal, state or other local law, regulation or rule governing the
sale or transfer of stock or securities.
20. RESERVATION OF SHARES OF COMMON STOCK.
The Company, during the term of this Plan, will at all
times reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
21. RESTRICTIONS ON ISSUANCE OF SHARES.
The Company, during the term of this Plan, will use its
best efforts to seek to obtain from the appropriate regulatory
agencies any requisite authorization in order to grant Options or
issue and sell such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of the Plan. The inability
of the Company to obtain from any such regulatory agency having
jurisdiction thereof the authorization deemed by the Company's
counsel to be necessary to the lawful grant of Options or the
issuance and sale of any shares of its stock hereunder or the
inability of the Company to confirm to its satisfaction that any
grant of Options or issuance and sale of any shares of such stock
will meet applicable legal requirements shall relieve the Company of
any liability in respect of the non-issuance or sale of such stock
as to which such authorization or confirmation has not been obtained.
22. NOTICES.
Any notice to be given to the Company pursuant to the
provisions of this Plan shall be addressed to the Company in care of
its Secretary at its principal office, and any notice to be given to
<PAGE> 32
a person to whom an Option is granted hereunder shall be addressed
to him or her at the address given beneath his or her signature on
his or her Stock Option Agreement, or at such other address as such
person or his or her transferee (upon the transfer of Optioned
Stock) may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, registered or certified,
and deposited, postage and registry or certification fee prepaid, in
a post office or branch post office regularly maintained by the
United States Postal Service. It shall be the obligation of each
Optionee and each transferee holding Optioned Stock to provide the
Secretary of the Company, by letter mailed as provided hereinabove,
with written notice of his or her correct mailing address.
23. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
If the outstanding shares of Common Stock of the Company
are increased, decreased, changed into or exchanged for a different
number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or
reverse stock split, then an appropriate and proportionate
adjustment shall be made in the number or kind of shares which may
be issued upon exercise of Options granted under the Plan; provided,
however that no such adjustment need be made if, upon the advice of
counsel, the Board determines that such adjustment may result in the
receipt of federally taxable income to holders of Options granted
hereunder or the holders of Common Stock or other classes of the
Company's securities.
24. REPRESENTATIONS AND WARRANTIES.
As a condition to the grant of any Option hereunder or the
exercise of any portion of an Option, the Company may require the
person to be granted or exercising such Option to make any
representation and/or warranty to the Company as may, in the
judgment of counsel to the Company, be required under any applicable
law or regulation, including, but not limited to, a representation
and warranty that the Option and/or shares issuable or issued upon
exercise of such Option are being acquired only for investment, for
such person's own account and without any present intention to sell
or distribute such Option or shares, as the case may be, if, in the
opinion of counsel for the Company, such representation is required
under the Securities Act of 1933, the California Corporate
Securities Law of 1968 or any other applicable law, regulation or
rule of any governmental agency.
25. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
This Plan is purely voluntary on the part of the Company,
and while the Company hopes to continue it indefinitely, the
continuance of the Plan shall not be deemed to constitute a contract
between the Company and any employee, or to be consideration for or
<PAGE> 33
a condition of the employment of any employee. Nothing contained in
the Plan shall be deemed to give any employee the right to be
retained in the employ of the Company or its Affiliated Companies,
or to interfere with the right of the Company or an Affiliated
Company to discharge or retire any employee thereof at any time. No
employee shall have any right to or interest in Options authorized
hereunder prior to the grant of such an Option to such employee, and
upon such grant he or she shall have only such rights and interests
as are expressly provided herein, subject, however, to all
applicable provisions of the Company's Articles of Incorporation, as
the same may be amended from time to time.
26. INFORMATION TO OPTION HOLDERS.
During the period any options granted to employees of the
Company remain outstanding, such employee-option holders shall be
entitled to receive, on an annual or other periodic basis, financial
and other information regarding the Company. The Board (or the
Committee, if so authorized) shall exercise its discretion with
regard to the nature and extent of the financial information so
provided, giving due regard to the size and circumstances of the
Company and, if the Company provides annual reports to its
shareholders, the Company's practice in connection with such annual
reports. Notwithstanding the above, if the issuance of options
under either Plan A or Plan B is limited to key employees whose
duties in connection with the Company assure their access to
equivalent information, this Section 26 shall not apply to such
employees and plan.
27. LEGENDS ON STOCK CERTIFICATES.
Each certificate representing Common Stock issued under
this Plan shall bear whatever legends are required by federal or
state law or by any governmental agency. In particular, unless an
appropriate registration statement is filed pursuant to the United
States Securities Act of 1933, as amended, with respect to the
shares of Common Stock issuable under this Plan, each certificate
representing such Common Stock shall be endorsed on its face with
the following legend or its equivalent:
"Neither the Option pursuant to which the shares
represented by this certificate are issued nor
said shares have been registered under the
Securities Act of 1933, as amended (the "Act").
Transfer or sale of such securities or any
interest therein is unlawful except after
registration, or pursuant to an exemption from the
registration requirements, as provided in the Act
and the regulations thereunder."
A copy of this Plan shall be delivered to the Secretary of
the Company and shall be shown by him or her to each eligible person
<PAGE> 34
making reasonable inquiry concerning it. A copy of this Plan also
shall be delivered to each Optionee at the time his or her Options
are granted.
28. VOTING RIGHTS OF THE OPTIONED STOCK
Upon exercise of the Options granted under this Plan, the
Optioned Stock issued pursuant to the exercise of such Options shall
have the same voting rights as all of the other shares of Common
Stock then outstanding.
29. SPECIFIC PERFORMANCE.
The Options granted under this Plan and the Optioned Stock
issued pursuant to the exercise of such Options cannot be readily
purchased or sold in the open market, and, for that reason among
others, the Company and its shareholders will be irreparably damaged
in the event that this Plan is not specifically enforced. In the
event of any controversy concerning the right or obligation to
purchase or sell any such Option or Optioned Stock, such right or
obligation shall be enforceable in a court of equity by a decree of
a specific performance. Such remedy shall, however, be cumulative
and not exclusive, and shall be in addition to any other remedy
which the parties may have.
30. INVALID PROVISION.
In the event that any provision of this Plan is found to
be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering
any other provisions contained herein invalid or unenforceable, and
all such other provisions shall be given full force and effect to
the same extent as though the invalid or unenforceable provision was
not contained herein.
31. APPLICABLE LAW.
This Plan shall be governed by and construed and enforced
in accordance with the laws of the State of California.
32. SUCCESSORS AND ASSIGNS.
This Plan shall be binding on and inure to the benefit of
the Company and the employees to whom an Option is granted
hereunder, and such employees' heirs, executors, administrators,
legatees, personal representatives, assignees and transferees.
IN WITNESS WHEREOF, pursuant to the due authorization and
adoption of this plan by the Board on December 12, 1994 and its
subsequent amendment by the Board on July 10, 1995, January 17, 1998
and April 17, 1999, the Company has caused this Plan to be duly
executed by its duly authorized officer.
<PAGE> 35
MUSTANG SOFTWARE, INC.
BY:
James A. Harrer
President and Chief Executive Officer
<PAGE> 36
EXHIBIT B
MUSTANG SOFTWARE, INC.
6200 Lake Ming Road
Bakersfield, California 93306
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James A. Harrer and Donald M.
Leonard, and each of them, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and vote
as designated below, all the shares of Common Stock of Mustang
Software, Inc. (the "Company") held of record by the undersigned on
April 23, 1999, at the Annual Meeting of Shareholders to be held on
June 7, 1999 or any adjournments thereof.
1. ELECTION OF DIRECTORS
__ FOR all nominees listed below (except as marked to
the contrary below)
__ WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any indivdual nominee, strike
a line through the nominee's name below.)
James A. Harrer
Stanley A. Hirschman
Michael S. Noling
MichaelD. Greenbaum
Anthony Mazzarella
Phillip E. Pearce
2. To approve amendments to the Company's 1994 Incentive and
Nonstatutory Stock Option Plan to increase the total number
of shares of Common Stock that can be optioned and sold under
the Stock Option Plan to 1,100,000 shares.
FOR / / AGAINST / / ABSTAIN / /
3. To ratify the appointment of Arthur Andersen LLP as independent
accountants for the year ending December 31, 1999.
FOR / / AGAINST / / ABSTAIN / /
4. In their discretion, the Proxies are each authorized to vote
upon such other business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made,
this Proxy will be voted FOR Proposals 1, 2, 3 and 4.
Dated: ______________________, 1999
___________________________________
(Signature)
___________________________________
(Signature if held jointly)
Please sign exactly as name
appears below. When shares are
held by joint tenants, both
should sign. When signing as an
attorney, as executor,
administrator, trustee or
guardian, please give full title
to such. If a corporation,
please sign in full corporate
name, by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
