SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN CONSENT SOLICITATION STATEMENT
SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary consent solicitation statement. [ ]Confidential, for use of the
Commission only (as permitted
[ ] Definitive consent solicitation statement. by Rule 14a-6(e)(2)).
[ ] Definitive additional materials.
[ ] Soliciting material under Rule14a-12.
PERFECTDATA CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] 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:
not applicable
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(2) Aggregate number of securities to which transaction applies:
not applicable
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Calculation of Registration Fee
Underlying Value of Proposed Maximum Aggregate Amount of Registration Fee (2)
Transaction (1) Value of Transaction (1)
$125,000 $125,000 $1,013.60
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(1) Such amount is based on the estimated sales price based on contract
with buyer.
(2) $127.60 per $1,000,000 of the underlying value of the
transaction.
[ ] Fee paid previously with preliminary materials.
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[X] 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: $790.18
(a) (b)
$80.90 $709.28
(2) Form, Schedule or Registration Statement No.:
Information Statement Registration Statement
On Form S-4,
File No. 333-109933
(3) Filing Party:
PerfectData Corporation PerfectData Corporation
(4) Date Filed:
August 18, 2003 October 24, 2003
PERFECTDATA CORPORTION
1445 East Los Angeles Avenue
Simi Valley, CA 93065
April , 2004
Dear PerfectData Shareholder:
The Board of Directors is seeking your consent, in lieu of holding a
meeting, to (1) consummating the sale to Spray Products Corporation of our
current business operations and (2) reincorporating our Company as a Delaware
corporation.
Spray, which is currently the major supplier to our Company of compressed
gas dusters, which product represents more than 85% of our Company's current
sales, has been acting, since November 1, 2003, as the manager for the
fulfillment of orders from the Company's customers. The purchase price is an
amount equal to the sum of the value of the then inventory, the amount of
collectible accounts receivable and $100,000, less the amount of trade payables
being assumed by Spray. Our reasons for seeking your approval and further
details relating to the sale are set forth in the annexed Consent Solicitation
Statement.
Although this sale, when closed, will leave us without any operations, we
believe that our Company will remain an attractive candidate for an acquisition
or merger. Despite our efforts to increase revenues and decrease expenses, these
operations have continued to result in a loss, thereby reducing our cash
position, which is our principal asset. As a public company, having terminated
the operations which only resulted in losses, with a strong cash position (i.e.,
in excess of $1,500,000) and with improved stock market conditions generally,
PerfectData Corporation can still consummate, in our opinion, a transaction with
a private company with on-going operations that will give a "new life" to our
Company. We are disappointed that the proposed transaction with SuperCom Ltd.,
an Israeli company, terminated, but, for the reasons described in the annexed
Consent Solicitation Statement, we believe such termination to be in the best
interests of our Company and you, our shareholders. We are now actively pursuing
the task of obtaining a suitable acquisition or merger partner.
Almost every potential acquisition or merger candidate to whom we have
spoken has requested that we reincorporate our Company so that it is governed by
the laws of Delaware and not those of California as it currently is. SuperCom
even made this a condition precedent to our closing a transaction with it. Our
reasons for seeking your approval of the reincorporation and a comparison of
California and Delaware law are set forth in the annexed Consent Solicitation
Statement.
We are using the consent procedure in lieu of calling a meeting because
it is less expensive than calling a meeting and will enable us, once we have
secured your approval, to close with Spray sooner, i.e., the day after we
receive consents from the holders of at least 31.9% of our Company's outstanding
shares. We already have received consents aggregating 19.1% of our Company's
outstanding shares from directors, officers and a trust for which the senior
partner of our counsel acts as Trustee to approval of consummating the sale to
Spray and the reincorporating our Company as a Delaware corporation.
Please execute the enclosed consent and return it promptly to our
Transfer Agent in the enclosed self-addressed prepaid envelope. This will enable
us to close with Spray and concentrate our efforts on seeking an acquisition or
merger candidate. If you have any questions, please do not hesitate to contact
us as provided in the annexed Consent Solicitation Statement.
Sincerely yours,
Harris A. Shapiro
Chairman and Chief Executive Officer
For the Board of Directors
PERFECTDATA CORPORATION
1445 East Los Angeles Avenue
Suite 208
Simi Valley, CA 93065
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is furnished in connection with the
solicitation by the Board of Directors of PerfectData Corporation, or the
"Company," of consents from the Company's shareholders in lieu of holding a
meeting, pursuant to Section 603 of the California General Corporation Law,
approving (1) the sale by the Company of its current business operations to
Spray Products Corporation, or "Spray," on the terms and conditions hereinafter
described in this Consent Solicitation Statement and (2) the reincorporation of
the Company as a Delaware corporation. Your attention is directed to the section
"Terms of Sale" under the caption "Proposed Sale Transaction" for information
relating to the terms and conditions of the proposed sale to Spray and to the
caption "Authorize the Reincorporation of the Company as a Delaware Corporation"
for information relating to the reincorporation proposal. This Consent
Solicitation Statement and the enclosed form of consent are first being mailed
on or about ____________, April __, 2004 to holders of record of the Company's
Common Stock, no par value per share, or the "Common Stock," as of the close of
business on Monday, April 5, 2004, or the "Record Date," which has been fixed,
as described in the second paragraph under the caption "Voting Securities," as
the record date for the determination of the shareholders to be solicited for
consents to this proposal.
SUMMARY TERM SHEET
For a more complete description of the terms of the proposed transaction
with Spray summarized below, your attention is directed to the section "Terms of
Sale" under the caption "Proposed Sale Transaction" in this consent solicitation
statement. You may also read the asset purchase agreement which is attached as
Appendix A, and an amendment which is attached as Appendix B, to this consent
solicitation statement. To facilitate your finding such more detailed
description, we have indicated in this summary a reference to the page in this
consent solicitation statement, as, for example, CCS p. 1, and to the page in
the agreement as, for example, APA p. 1.
o Seller: PerfectData Corporation
o Buyer: Spray Products Corporation
o Assets to be sold: All inventory, certain books and records, goodwill,
accounts receivables, equipment and intellectual
property of the seller.
[CSS p. 6; APA p. A-1 and A-2]
o Purchase price: The sum of the value of inventories, collectible
accounts receivables and $100,000, less the value of
the trade payables, all to be determined at the
closing.
[CSS p. 5; APA p. A-2 and A-3]
o Payment of purchase At the closing, 10% of the purchase price will be
price: payable to Wachtel & Masyr, LLP, counsel to the
seller, to be held in escrow. The balance
will be payable to the seller.
[CSS p. 6; APA p. A-3]
o Sell-back option: Between 75 and 90 days after the closing, the buyer
has the right to force the seller to buy back any
uncollected account receivable for the face value of
the account receivable. The buyer shall receive such
payments from the amount held in escrow if the seller
has not bought the account receivable back within 30
days of the demand by the buyer. Any balance in
escrow account shall be paid to the seller.
[CSS p. 6; APA p. A-3]
o Closing: The closing will occur on the day following the
seller receiving consents from shareholders holding a
majority of its outstanding shares of its common
stock (but not earlier than 10 days after this
consent solicitation statement is sent to
shareholders).
[CSS p. 6; APA p. A-7]
o Fulfillment Manager Since November 1, 2003, the buyer has acted as the
manager for the fulfillment of orders of the seller's
products. As compensation for its services the
seller has been paying the buyer 7.5% of the "net
sales" (as such term is defined) of the products
sold. The seller is responsible for all shipping and
freight charges.
[CSS p. 7; APA p. A-10]
o Termination: In the event either party terminates the agreement
because of the other party's violation, or, if the
other party is unable to close, the other party shall
pay the terminating party $100,000.
[CSS p. 6; APA p. A-9 and A-10]
VOTING SECURITIES
On the Record Date, 6,209,530 shares of the Common Stock were issued,
outstanding and entitled to consent. There is no other class of capital stock
currently issued and outstanding and, accordingly, no other class to be
solicited for consents to the sale and reincorporation proposals. Each
shareholder of record is entitled to cast, in person or by proxy, one vote for
each share of the Common Stock held by such shareholder as of the close of
business on the Record Date. This consent solicitation will become effective,
and the sale and reincorporation proposals approved, when the Company receives
consents from the holders of shares of the Common Stock representing more than a
majority of the outstanding shares of the Common Stock (i.e., consents with
respect to at least 3,104,766 shares, of which, as indicated in the succeeding
paragraph, consents as to 1,184,716 shares have already been received).
California law does not require that we specify a date by which consents must be
received; however, the Board has directed that solicitation of additional
consents cease if the required consents have not been received by ______,
___________, __, 2004 [30 days after this Statement is first mailed to
shareholders].
All of the directors and executive officers of the Company have already
given their consents to approval of the sale and reincorporation proposals with
respect to an aggregate of 756,843 shares of the Common Stock which they own.
Receipt of their consents on Monday, April 5, 2004, by the Secretary of the
Company made that date the Record Date pursuant to Section 701(b)(2) of the
California General Corporation Law. The Company has also received a consent from
William B. Wachtel, as Trustee of Digital Trust, with respect to 427,873 shares.
For information as to this shareholder, your attention is directed to Note (3)
to the table under the caption "Security Ownership of Certain Beneficial Owners
and Management" elsewhere in this Consent Solicitation Statement. The Company,
accordingly, has received consents from an aggregate of 1,184,716 shares, or
19.1% of the shares of the Common Stock outstanding as of the Record Date.
As the Company previously publicly announced, the holders of a majority
of the then outstanding shares of the Common Stock had agreed, pursuant to an
agreement dated as of July 15, 2003, or the "Shareholders' Agreement," to
authorize the Company to sell its inventory, intellectual property and business
operations. This agreement resulted from discussions held in June 2003 with two
major shareholders not affiliated with management, which discussions were
initiated by them, as to what actions the Company should take, regardless of
whether or not the then proposed merger transaction with SuperCom, Ltd., an
Israeli company, or "SuperCom," was consummated. The consensus of these
discussions was that it was in the best interest of the Company and its
shareholders to find a buyer and to sell the Company's current operations.
Because over eight months have elapsed since these discussions, which
contemplated prompt action being taken to consummate a sale, and because the
proposed SuperCom transaction (which had as a condition precedent to closing
sale of these operations) has now terminated, the Company has advised these
non-management shareholders that the Company released them from their commitment
to consent, when requested, which they had given in the Shareholders Agreement
and that, accordingly, these shareholders may now consent or not consent to the
sale proposal as to which the Board is seeking consents pursuant to this Consent
Solicitation Statement. While the Board believes that these major shareholders
may still consent, they are no longer obligated to do so by the Shareholders
Agreement. The Shareholders Agreement related only to the sale proposal and not
the reincorporation proposal as well.
Consents will be voted as indicated in this Consent Solicitation
Statement and the enclosed consent. Shares presented by properly executed
consents will be voted in accordance with any specifications made therein. You
may revoke a previously given consent by delivering a written notice of
revocation to the Company (Attention: Irene J. Marino, Secretary) at its
principal executive office at any time prior to the receipt by the Company of
consents sufficient to approve either or both of the two proposals as described
in the third preceding paragraph. The principal executive office of the Company
is located at the address in the heading to this Proxy Statement. The rules of
the New York State Exchange, Inc., the American Stock Exchange LLC and the
National Association of Securities Dealers, Inc. do not permit a member firm of
any such entity to consent to adoption of either proposal without specific
instructions to such effect from the beneficial owner of the shares of the
Common Stock whom the member firm represents of record. Accordingly, the Company
urges you, if you are a beneficial owner, to instruct the member firm which
holds of record your shares of the Common Stock to consent to both proposals as
to which the Board is seeking your consent. The Company also urges you, if you
are a beneficial owner whose shares of the Common Stock are held of record on
the Record Date by an entity other than a member firm, to urge such other entity
to consent with respect to both proposals.
If you desire to consent, please return the enclosed consent to U.S.
Stock Transfer Corporation, as the Transfer Agent for the Common Stock, in the
enclosed self-addressed prepaid envelope. If you do not have such an envelope,
you can mail your consent to U.S. Stock Transfer Corporation at 1745 Gardenia
Avenue, Suite 200, Glendale, CA 91204, Attention: Proxy Department.
If you do not consent, you shall have the right to receive payment for
your shares as a result of shareholders' approval of either or both of the
proposals. Your attention is directed to the caption "Dissenters' Rights"
elsewhere in this Consent Solicitation Statement.
Each of the persons who has served as a director or as an executive
officer of the Company since April 1, 2003 (i.e., the beginning of the last
fiscal year of the Company) has no substantial interest, direct or indirect, by
security holdings or otherwise, in either of the proposals as to which consent
is being solicited.
PROPOSED SALE TRANSACTION
Terms of Sale
On October 3, 2003, the Company entered into an Asset Purchase Agreement,
or the "APA," with Spray Products Corporation, or Spray, pursuant to which the
Company agreed to sell to Spray (or its designated affiliate) substantially all
of the operating assets of the Company for a price equal to the sum of the value
of the inventory, the amount of collectible accounts receivable and $100,000,
less the amount of trade payables of the Company which are being assumed by
Spray. You may find information relating to Spray's business in the section
"Spray Data" under this caption "Proposed Sale Transaction." A copy of the APA
is attached to this Consent Solicitation Statement as Appendix A and an
amendment dated February 26, 2004 to the APA is attached as Appendix B. We
recommend that you read both. Had the Company closed with Spray on December 31,
2003, the Company estimates that it would have received from Spray as the
purchase price $66,000 based on (1) $243,000, which is the sum of (a) $115,000
(collectible accounts receivable less customer credits), (b) $28,000 (inventory)
and (c) $100,000, less (2) $177,000 (trade payables). Because the closing,
assuming shareholder consent, will not occur until the 11th day after this
Consent Solicitation Statement is mailed at the earliest, all of the foregoing
amounts in calculating the purchase price except the $100,000 may fluctuate
depending on the customer orders, shipments and payments between December 31,
2003 and the closing date. Accordingly, the Company may receive a purchase price
from Spray that is more or less than the estimated $66,000 as of December 31,
2003. The Company is not transferring any of its cash or cash equivalents as
part of the transaction so that they will be an available asset in any
acquisition or merger discussion with a third party. The operating assets to be
transferred to Spray are the Company's inventories of finished goods, raw
materials and work in progress; books and records, including customer and
supplier lists and other data relating to the operating business; the trade name
"PerfectData Corporation" and all other names used in the business; the goodwill
relating to the business; accounts receivable as to which the parties agree; all
of the Company's machinery and equipment, office furniture, computer equipment
and supplies (except what the Company is using in its new office); and all of
the Company's intellectual property rights.
The Company, at the closing with Spray, will deposit ten percent of the
purchase price in escrow with its counsel, Wachtel & Masyr, LLP, pending
collection of accounts receivable sold to Spray. At any time after 75 days from
the closing, but not later than 90 days, Spray has the right to demand that the
Company buy back any account receivable which Spray did not collect at the face
amount of the account receivable. If the Company does not pay that amount within
30 days of Spray's demand, the escrow agent, upon demand by Spray, shall release
to Spray that amount from the amount held in escrow. At the end of the 90-day
period of escrow, the escrow agent will release any balance to the Company not
required to be used to pay Spray. Spray may not seek repurchase of any account
receivable generated during the period in which Spray is managing the
fulfillment of the Company's customer orders. For information as to such
management arrangement, see the section "Management Arrangement" under this
caption "Proposed Sale Transaction."
The Board deems the purchase price to be fair consideration for the
assets because the Company had negotiated over a period of months with several
potential purchasers (which were the likely candidates to purchase the business)
and Spray's offer was dollar-wise consistent with the others. In addition, Spray
was the major supplier to the Company of compressed gas dusters, which product
represented more than 85% of the Company's sales. Accordingly, the Board
believed that the sale to Spray would be least disruptive to its customers and
the easiest to implement. The Board also considered the reasons described below
in the section "Reasons for Transaction" under this caption "Proposed Sale
Transaction."
The closing of the sale of the assets to Spray, assuming the Company
receives consents from the holders of at least a majority of the outstanding
shares on the Record Date, shall occur on the day following the receipt of the
last such consent, but not earlier than ten calendar days after the mailing of
this Consent Solicitation Statement to shareholders as required by California
law. The APA provides for not earlier than the 21st day, but the parties have
orally agreed to the earlier date.
In the event either party terminates the APA because of the other party's
violation thereof, or if the other party is unable to close, the other party
shall pay a break-up fee of $100,000 to the terminating party.
A condition precedent under the APA to closing the transaction is that
the Company obtain the approval of its shareholders, which is the purpose of
this consent solicitation. Spray has agreed to take the purchased assets "as is"
and all warranties, express or implied, are excluded from the sale of assets.
The APA contains standard representations and warranties by each party,
covenants, including one to maintain the "status quo" until closing, and an
agreement by each party to indemnify the other if the indemnifying party's
representations and warranties are untrue or incorrect in any material respect
and if the indemnifying party fails to observe or perform covenants or
agreements, provided that the claims exceed $25,000.
Management Arrangement
Since November 1, 2003, Spray has, pursuant to the APA, been acting as
the manager for the fulfillment of orders from the Company's customers. As
compensation for Spray's services, Spray is receiving a fee of 7 1/2% of the Net
Sales (as such term is defined), payable monthly. In the APA "Net Sales" is
defined as the gross invoice price of each product sold to a customer of the
Company less all commissions payable in connection with such sale and any rebate
given to the customer in the ordinary course of the Company's business. The
Company is responsible for all shipping and freight charges.
Reasons for Transaction
The Company's Board of Directors, after consultation with certain major
shareholders, had elected in June 2003 to sell the operating business assets of
the Company because, despite efforts by the Company during the prior fiscal
years which had increased revenues and reduced its expenses, the Company was
continuing to operate at a loss, thereby diluting its cash position, which is
its major asset. For information as to the Company's results of operations
during its past five fiscal years, your attention is directed to "Selected
Financial Data" elsewhere in this Consent Solicitation Statement. You may also
find information as to the Company's results of operations during the nine
months ended December 31, 2003 in Appendix D to this Consent Solicitation
Statement.
In making its decision to sell the Company's business operations, the
Board noted that the Company had received offers to buy, and then operate, the
Company's operations, that there were threats from certain of the Company's
customers that they were considering turning to other suppliers, especially in
view of the announcement as to the Company's then proposed merger transaction
with SuperCom, and that the Company's lease would (and did) expire on June 30,
2003, thereby raising the question of whether a long-term renewal was feasible
under all the circumstances. The Board concluded that a sale or liquidation of
the operating assets was in the best interests of the Company and its
shareholders even if no transaction with SuperCom or another acquisition or
merger entity was effected. SuperCom had, in any event, made sale of these
operations a precondition to consummation of the Company's transaction with it.
As indicated in the following section "Risk if Transaction Is
Consummated" under this caption "Proposed Sale Transaction," the Company does
not intend to dissolve or liquidate the Company following the sale. Accordingly,
there will be no dividend or distribution paid to the shareholders as a result
of the sale to Spray. Unless and until the Company consummates an acquisition or
merger agreement as described in such section, the Company will have no
revenues. It will, however, still be paying the costs of remaining a public
company and seeking such merger or acquisition candidate, so that its results of
operations will still show a loss.
Risk if Transaction Is Consummated
If the Company receives the requisite consents and then consummates the
sale to Spray, the Company will have no operations and, accordingly, will
receive no revenues unless and until an acquisition is made as provided in the
succeeding paragraph. However, as a result of the management arrangement with
Spray described in the section "Management Arrangement" under this caption
"Proposed Sale Transaction," the Company has moved to smaller facilities and
substantially reduced its on-going overhead expenses. Effective October 15,
2003, the Company has been leasing office space in Simi Valley, California for a
six-month term at $950 per month. From June 1993 to June 20, 2003, the Company
leased a 24,500 square-foot building constructed in Simi Valley, California for
the specific needs of the Company and continued to use such space, on a
month-to-month basis, until October 31, 2003. The monthly rental, net of
sublease income, under the lease for such facility was $8,504. In addition, the
Company terminated four employees, so that it currently employs four persons and
will, subsequent to the sale to Spray, employ only three persons. However,
despite these reductions in expenses, with the Company continuing to incur
expenses to continue as a public company and to seek a suitable merger or
acquisition candidate, both as described in the succeeding paragraph, the
Company will continue to operate at a loss without revenues to offset these
expenses.
The Board does not intend to dissolve or liquidate the Company, but
instead, with the Company having cash or cash equivalents currently in excess of
$1,500,000, the Board intends to continue its search for a suitable merger or
acquisition candidate. The Company believes that, after the sale of assets, the
Company's working capital is adequate to fund its cash requirements for its
fiscal year ending March 31, 2005. The directors believe that the Company, with
no losing business operations, with its continuing as a public company and with
the cash position described in the preceding sentence, remains an attractive
merger or acquisition candidate, especially with the recent improvement in
general stock market conditions. During the past three fiscal years, the Company
had been seeking acquisitions which have not been related to its current
business. The Board was of the opinion that profitability on a continuous basis
would not be achieved absent an acquisition of a new business or businesses
and/or new products. However, the Board cannot determine when any such
acquisition will be consummated, if at all. During recent years, three potential
acquisitions (including SuperCom) were actively pursued; however, all terminated
for different reasons and the Company incurred expenses in connection therewith.
See the following section "Terminated Acquisitions" under this caption "Proposed
Sale Transaction."
Terminated Acquisitions
From October 2001 to February 2002, the Company was engaged in
negotiations pursuant to which the shareholders of GraphCo Technologies, Inc.,
or GraphCo, would acquire a majority interest in, and control of the Board of,
the Company. GraphCo is a technologies, software and systems development company
providing advanced security solutions for biometric identification, secure
access, surveillance and secure law enforcement incident management. The
negotiations were mutually terminated on February 19, 2002.
In August and September 2002, the Company was engaged in negotiations
with another privately-held company, with annual revenues approximating $100
million, pursuant to which the stockholders of that company would acquire a
majority interest in, and control of the Board of, the Company. Just as the
parties were prepared to execute a definitive merger agreement, the other
company received an offer from another very large public company and
negotiations were terminated during the weekend of September 20, 2002. The other
company was ultimately sold to another very large public company.
On July 2, 2003, the Company entered into an Agreement and Plan of Merger
and Reorganization, or the "Merger Agreement," and related agreements with
SuperCom, an Israeli corporation, culminating the negotiations which had begun
in April 2003. SuperCom is engaged in the research, development and marketing of
advanced technologies and products for government secured ID projects and smart
card production technology. Its common stock is currently traded on the Euronext
Brussels New Market. On October 24, 2003, the Company filed a Registration
Statement on Form S-4, File No. 333-109933 (the "Registration Statement"), in
order to make available a joint proxy statement for use by the Company and
SuperCom to solicit approvals of the transaction from their respective
shareholders and a prospectus for the Company to offer shares of the Common
Stock to the SuperCom shareholders if the proposed transaction were approved and
consummated. If the transaction had been consummated, the SuperCom shareholders
would have received approximately 78% of the outstanding shares, subject to
adjustment upward depending on the Company's Final Net Available Cash (as
defined) at the closing, and three of the five directors would have been
designees of SuperCom. When it became obvious to both parties that, in order for
the Registration Statement to become effective, SuperCom would, at a minimum, be
required to include audited financial statements for its fiscal year which ended
December 31, 2003, thereby further delaying closing of the transaction as to
which negotiations had begun in April 2003 and which the parties initially hoped
to close by October 2003, the Merger Agreement was terminated after discussions
as to alternatives. From the perspective of the Company's directors,
continuation of the transaction would have required the Company to incur
additional expenses, thereby further reducing its Net Available Cash and
resulting in further dilution to its shareholders absent SuperCom agreeing to
change the dilution formula, and with no certainty as to when there would be a
closing.
Spray Data
Spray is a manufacturer of chemical specialties, as, for example, paints,
varnishes, lacquers, enamels or allied products, and aerosol products. Spray or
its predecessor has provided products and services to automotive, industrial and
retail customers since 1922. Spray has two East Coast manufacturing plants and a
distribution center located in Fresno, California, and has 25 employees (up to
37 in its peak season). Spray's revenue in the last fiscal year was over
$15,000,000.
Regulatory Approvals
Except for compliance with the Securities Exchange Act of 1934, as
amended, or the "Exchange Act," with respect to this Consent Solicitation
Statement, no federal or state regulatory approvals or other compliances are
required or must be obtained in connection with the proposed sale.
Relationships
The proposed transaction with Spray was negotiated at arm's-length and
the Board is not aware of any relationships, familial or otherwise, between the
Company, its directors, its executive officers or any of its affiliates and
Spray.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS CONSENT IN FAVOR OF
THE PROPOSAL TO SELL THE OPERATING ASSETS OF THE COMPANY TO SPRAY ON THE TERMS
AND CONDITIONS DESCRIBED IN THIS CONSENT SOLICITATION STATEMENT BY EXECUTING THE
ENCLOSED FORM OF CONSENT, CHECKING THE "FOR" BOX AND RETURNING THE SAME TO THE
COMPANY'S TRANSFER AGENT. UNLESS A CONTRARY CHOICE IS SPECIFIED, A SIGNED
CONSENT FORWARDED TO THE COMPANY WITH NO BOX CHECKED WILL BE VOTED FOR THE SALE
PROPOSAL. A FAILURE TO RETURN THE CONSENT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE SALE.
(the balance of this page is intentionally left blank)
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which are
derived from and qualified in their entirety by the more detailed audited
financial statements included in the Company's Annual Reports for the years
ended March 31, 2003, 2002, 2001, 2000 and 1999. Certain information included
herein has been restated due to the correction of an error in accounting for
income taxes for the fiscal years 1997, 1998 and 1999. Selected Statements of
Operations Data
Fiscal Year Ended March 31,
2003 2002 2001 2000 1999
(as restated)
--------------- ---- ------------ --- -------------- -- ------------- ---- ----------------
(Dollars in thousands, except per share information)
Net Sales $ 2,005 $ 1,716 $ 2,163 $ 1,888 $1,689
Cost of Goods Sold $ 1,326 $ 1,255 $ 1,763 $ 1,420 $ 1,038
Selling, General and Administrative $ 1,358 $ 1,310 $ 1,815 $ 1,084 $ 1,180
=============== ============ ============== ============= ================
=============== ============ ============== ============= ================
Net Loss $ (642) $ (795) $ (1,259) $ (314) $ (402)
=============== ============ ============== ============= ================
Net loss
per share of common stock, $ (0.10) $ (0.13) $ (0.21) $ (0.10) $ (0.13)
=============== ============ ============== ============= ================
basic and diluted:
Selected Balance Sheet Data
As of March 31,
2003 2002 2001 2000 1999
--------------- ---- ------------ --- -------------- -- ------------- ---- ----------------
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Cash and Cash Equivalents $ 2,173 $ 2,758 $ 3,177 $ 4,087 $ 1,074
Working Capital $ 2,159 $ 2,762 $ 3,493 $ 4,642 $ 2,002
Total Assets 2,587 3,171 4,123 5,078 2,399
=============== ============ ============== ============= ================
Net Shareholders' Equity 2,165 2,807 3,569 4,719 2,118
=============== ============ ============== ============= ================
You may obtain a copy of the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 2003 which contains the full audited financial
statements for the fiscal years ended March 31, 2003 and 2002 and the
management's discussion and analysis related thereto by mail or telephone to
Irene J. Marino, the Company's Vice President, Finance, at the Company's address
or phone number listed in the section "Contact Information" under the caption
"Miscellaneous" elsewhere in this Consent Solicitation Statement. You may also
make requests for the financial statements relating to the earlier years shown
in the table in the same manner.
Your attention is also directed to Appendix D which contains the
Company's financial statements for the nine-month periods ended December 31,
2003 and 2002.
PRO FORMA BALANCE SHEET
The following balance sheet sets forth the effect of the sale of assets
to Spray assuming that the sale had closed on December 31, 2003. As discussed in
the first paragraph of the section "Term of Sale" under the caption "Proposed
Sale Transaction" elsewhere in this Consent Solicitation Statement, all but one
of the items in calculating the purchase price for the sale to Spray may
fluctuate depending on the customer orders, shipments and payments between
December 31, 2003 and the actual closing date for the Spray transaction.
Accordingly, although this pro forma balance sheet has been prepared on the
basis of assumptions which the directors of the Company believe are reasonable,
the actual effects of the sale may differ significantly from those reflected in
the Company's balance sheet following the actual closing. You should read the
notes to this pro forma balance sheet where these assumptions are set forth.
(the balance of this page is intentionally left blank)
PERFECTDATA CORPORATION
Balance Sheet as of December 31, 2003
(unaudited)
(Dollars in thousands)
As Reported Adjustments Pro Forma
Assets
Current assets:
Cash and cash equivalents $2,106 $ 66 (1) $2,172
Accounts receivable, net 145 (145)(2) -
Prepaid expenses and other current assets 70 (28)(3) 42
-------- ----- --------
Total current assets 2,321 (107) 2,214
Property, plant and equipment, at cost, net - - -
------------------ ------------------ -------
$2,321 $(107) $2,214
====== ====== ======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 418 $ (177)(4) $ 241
Accrued compensation 34 - 34
Other accrued expenses 123 (30)(5) 93
-------- ----- --------
--
Total current liabilities 575 (207) 368
-------- ----- --------
Shareholders' equity
Preferred Stock. Authorized 2,000,000
shares; none issued - - -
Common Stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 6,209,530 shares 11,258 - 11,258
Accumulated deficit (9,512) 100(6) (9,412)
- ------- ----- --- -------
Net shareholders' equity 1,746 100 1,846
----- --- -----
$2,321 $ (107) $2,214
====== ======== ======
------------------------
(1) This adjustment assumes that the Company netted $66,000 from the sale to
Spray. For information as to how this estimate was made, see the first
paragraph in the section "Terms of Sale" under the caption "Proposed Sale
Transaction" elsewhere in this Consent Solicitation Statement.
(2) This adjustment assumes that these accounts receivable were sold to Spray.
In actuality some may be collected by the Company.
(3) This adjustment assumes that Spray purchased inventory in this amount.
(4) This adjustment assumes that Spray assumed the liability for these trade
payables.
(5) This adjustment represents credits to be given to customers.
(6) This adjustment represents a fixed payment by Spray pursuant to the APA.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, certain
information with respect to (1) any person known to the Company who beneficially
owned more than 5% of the Common Stock, (2) each director of the Company (3) the
Chief Executive Officer of the Company and (4) all directors and executive
officers as a group. Each beneficial owner who is a natural person has advised
the Company that he or she has sole voting and investment power as to the shares
of the Common Stock, except that, until an option or a warrant is exercised,
there is no voting right and except as noted in Note (2) to the table.
Number of Shares Percentage
Name and Address of Common Stock of Common Stock
of Beneficial Owner Beneficially Owned Beneficially Owned(1)
Joseph Mazin 788,997 (2) 12.7
c/o Flamemaster Corporation
11120 Sherman Way
Sun Valley, CA 91252
StarBiz Corporation 537,997 (2) 8.7
11120 Sherman Way
Sun Valley, CA 91252
William B. Wachtel, 427,873 6.9
Trustee of Digital Trust (3)
c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Harris A. Shapiro (4) 306,166 (5) 4.9
c/o PerfectData Corporation
1445 East Los Angeles Avenue
Simi Valley, CA 93065
Bryan Maizlish (6) 15,922 (7) less than 1%
9705 Conestoga Way
Potomac, MD 20854
Timothy D. Morgan (6) 17,122 (7) less than 1%
11734 Gladstone Circle
Fountain Valley, CA 92708
Tracie Savage (6) 26,222 (8) less than 1%
6212 Banner Avenue
Los Angeles, CA 90038
Corey P. Schlossmann (6) 516,425 (7) 8.3
19654-A Roscoe Blvd.
Northridge, CA 91324
All directors and officers as 886,423 (9) 14.1
a group (6 in number)
(1) The percentages computed in the table are based upon 6,209,530 shares
of the Common Stock which were outstanding on the Record Date. Effect
is given, pursuant to Rule 13-d(1)(i) under the Exchange Act to shares
issuable upon the exercise of options or warrants currently exercisable
or exercisable within 60 days of the Record Date.
(2) The shares of the Common Stock reported in the table include (a)
537,997 shares owned by StarBiz Corporation, or "Star Biz," for which
Mr. Mazin has voting power as the President, Chairman and Chief
Executive Officer of Star Biz; (b) 36,000 shares owned by the
Flamemaster Corporation Employees' Profit Sharing Plan for which Mr.
Mazin is the fiduciary; and (c) 23,000 shares owned by Altius
Investment Corporation, or "Altius," for which Mr. Mazin has shared
voting power as Chairman of the Board of Altius. Certain of the shares
reported in the table are owned by Donna Mazin, his wife, or as to
which shares she shares dispositive and voting powers with Mr. Mazin.
(3) William B. Wachtel as the Trustee of the Digital Trust has, under the
trust agreement, sole voting and investment power with respect to the
shares reported in the table. Harris A. Shapiro, currently the Chairman
of the Board, the Chief Executive Officer and a director of the
Company, was the settler of the Digital Trust and made an irrevocable
grant to it of the assets which the Digital Trust used to effect the
purchase of the shares. The beneficiaries of the Digital Trust are Mr.
Shapiro's children and grandchildren who survive him, although the
Trustee, in his absolute discretion, may pay or apply yearly income or
the principal of the Trust to any beneficiary. Because he made an
irrevocable grant and has no voting or investment power with respect to
the shares, Mr. Shapiro is not the beneficial owner of the shares
reported in the table as being owned of record by the Digital Trust and
beneficially by the Trustee.
(4) Mr. Shapiro is the Chairman of the Board, the Chief Executive Officer
and a director of the Company.
(5) The shares of the Common Stock reported in the table reflect (a)
284,500 shares owned by Millennium Capital Corporation, or
"Millennium," for which Mr. Shapiro has voting power as its President;
(b) 3,333 shares issuable upon the exercise of an option expiring June
19, 2012 under the Company's 2000 Stock Option Plan (the "2000 Option
Plan"); (c) 8,333 shares issuable upon the exercise of an option
expiring September 25, 2012 under the 2000 Option Plan; and (d) 10,000
shares issuable upon the exercise by Millennium of a warrant expiring
March 30, 2005. The shares of the Common Stock reported in the table do
not include (x) 6,667 shares issuable upon the exercise of the option
described in (b) or (y) 16,667 shares issuable upon the exercise of the
option described in (c), neither of which was exercisable as to such
shares at the Record Date or within 60 days thereafter.
(6) A director of the Company.
(7) The shares of the Common Stock reported in the table include (a) 3,333
shares issuable upon the exercise of an option expiring June 19, 2012
under the 2000 Option Plan and (b) 8,333 shares issuable upon the
exercise of an option expiring September 25, 2012 under the 2000 Option
Plan. The shares of the Common Stock reported in the table do not
include (x) 6,667 shares issuable upon the exercise of the option
described in (a) or (y) 16,667 shares issuable upon the exercise of the
option described in (b), neither of which was exercisable as to such
shares at the Record Date or within 60 days thereafter.
(8) The shares of the Common Stock reported in the table include (a) 10,000
shares issuable upon the exercise of an option expiring July 20, 2005;
(b) 3,333 shares issuable upon the exercise of an option expiring June
19, 2012 under the 2000 Option Plan; and (c) 8,333 shares issuable upon
the exercise of an option expiring September 25, 2012 under the 2000
Option Plan. The shares of the Common Stock reported in the table do
not include (x) 6,667 shares issuable upon the exercise of the option
described in (b) or (y) 16,667 shares issuable upon the exercise of the
option described in (c), neither of which was exercisable as to such
shares at the Record Date or within 60 days thereafter.
(9) The shares of the Common Stock reported in the table include (a) those
shares indicated in the text to Notes 5, 7 and 8 and (b) 1,250 shares
issuable to an executive officer upon the exercise of an option
expiring October 30, 2011 under the 2000 Option Plan. The shares of the
Common Stock reported in the table do not include 1,250 shares issuable
upon the exercise of the option described in (b), none of which was
exercisable as to such shares at the Record Date or within 60 days
thereafter.
AUTHORIZE THE REINCORPORATION OF THE COMPANY
AS A DELAWARE CORPORATION.
General
The second proposal as to which the Board of Directors is seeking the
consent of the Company's shareholders is for them to approve the reincorporation
of the Company, which is currently a California corporation, under the laws of
the State of Delaware. This reincorporation, if authorized by consents, will be
effected by merging the Company with and into PerfectData (Delaware) Inc., or
PerfectData Delaware, a newly-formed Delaware corporation and a wholly-owned
subsidiary of the Company. A copy of the reincorporation merger agreement is
attached to this Consent Solicitation Statement as Appendix E. You are urged to
read the reincorporation merger agreement carefully and in its entirety before
making a decision on the reincorporation proposal.
PerfectData Delaware will have the same capitalization as the Company
except that its common stock will have a par value of $0.01 per share while the
Company's Common Stock has no par value. The Board of Directors does not believe
that this change in par value will have any significant effect on the Company's
shareholders. A similar change would be made to the par value of the "blank
check" preferred stock, as to which no shares are outstanding in the Company.
Reasons for Change
Almost every potential acquisition or merger candidate to which the
Company has spoken has expressed its preference that the Company be
reincorporated as a Delaware corporation for the reasons herein discussed.
SuperCom made this reincorporation a condition precedent to consummation of the
proposed transaction with it.
If a merger or acquisition proposal with a third party is consummated,
the principal executive offices of the Company in Simi Valley, California will
be closed, with the principal executive offices of the third party becoming the
principal executive offices of the Company. Accordingly, following such a
transaction, the Company's headquarters may no longer be located in the State of
California and a reason for the Company continuing to be subject to California
law will be eliminated.
Even if no transaction with a merger or acquisition candidate is
consummated, the sale by the Company to Spray of its current business operation
which had entirely been conducted from its headquarters in California makes it
less necessary to continue to have the headquarters located in that State.
After a careful review of the differences between California law to which
the Company is currently subject and Delaware law to which PerfectData Delaware
is currently subject, the Company's Board of Directors concluded that the
Company should be reincorporated in the State of Delaware. Some of the principal
differences which could materially affect the rights of a shareholder are
reviewed under the caption "Comparison of Rights of Holders of the Company's and
PerfectData Delaware's Common Stock" immediately following this caption in this
Consent Solicitation Statement. The Company's Board of Directors believes that
the General Corporation Law of the State of Delaware, or the DGCL, will furnish
the most flexibility to the Company's directors, while at the same time
protecting the rights of the Company's shareholders.
For many years the State of Delaware has followed a policy of encouraging
incorporation in that State and has adopted comprehensive, modern and flexible
corporate laws that are periodically updated and revised to meet changing
business needs. As a result, many corporations have been initially incorporated
in Delaware or have subsequently reincorporated in Delaware in a manner similar
to that proposed by the Company. Because of Delaware's prominence as a state of
incorporation for many corporations, the Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of case law has developed construing the DGCL, and establishing public policies
with respect to corporations incorporated in Delaware. As a result, Delaware
corporation law is comparatively well known and understood. It is anticipated
that, as in the past, Delaware corporation law will continue to be interpreted
and explained in a number of significant court decisions. You, our shareholders
should be aware, however, that Delaware law has been publicly criticized on the
grounds that it does not afford minority stockholders all the same substantive
rights and protections that are available under the laws of a number of other
states (including California) and that, as a result of the proposed
reincorporation, your rights as shareholders will change in a number of
important respects, as discussed in the next paragraph and under the caption
"Comparison of Rights of Holders of the Company's and PerfectData Delaware's
Common Stock" immediately following this caption in this Consent Solicitation
Statement. The Company's Board of Directors believes that the advantages of the
reincorporation to the Company and you, our shareholders, outweigh its possible
disadvantages.
The Board of Directors believes that the reincorporation will have the
following effects, among others, on your rights as a shareholder as you become a
stockholder of PerfectData Delaware:
o Your cumulative voting rights as shareholders with respect to
the election of directors will be eliminated, thereby limiting
the ability of minority shareholders to have representation on
the Board of Directors.
o Section 203 of the DGCL may make it more difficult for
interested stockholders to acquire PerfectData Delaware in the
future, while there is no comparable provision under
California law.
o California law furnishes certain protections for you, as a
shareholder, on mergers or other forms of reorganization which
Delaware laws does not. As an example, California law requires
approval with respect to a reorganization involving a
corporation issuing equity securities (common stock, preferred
stock or other securities convertible into, or exercisable
for, shares of common stock) in exchange for the capital stock
or assets of the acquired company, while Delaware law does not
require stockholder approval for such a transaction.
o You, as a stockholder of PerfectData Delaware, will not have
dissenters' or appraisal rights with respect to a sale of the
Company's assets not in the ordinary course of its business
(as, for example, the proposed Spray transaction) or with
respect to a reorganization, other than a statutory merger,
as, for example, the issuance or exchange of equity securities
(common stock, preferred stock or other securities convertible
into, or exercisable for, shares of the common stock) for the
capital stock or assets of the acquired company.
o You, individually or with a group of other shareholders, with
specified percentage ownership of shares, will lose the
absolute right to inspect the shareholders' list without
showing a purpose reasonably related to your interest as a
shareholder.
o Although the tests for paying dividends and repurchasing
shares differ between California law on the one hand and
Delaware law on the other hand, this issue will not be
meaningful to you, as a PerfectData Delaware stockholder,
because of the unlikelihood of cash dividends or repurchases
of shares in the foreseeable future.
o You, as a shareholder, may currently institute a derivative
action against the Company even if you are not a shareholder
at the time of the transaction in question.
o You may institute a derivative action against PerfectData
Delaware only if, at the time of the transaction in question,
you were a shareholder of the Company or a stockholder of
PerfectData Delaware, whichever is applicable.
o You and other shareholders will lose the right to dissolve the
Company if 50% of the holders of voting stock so demand even
if the Board of Directors does not act.
The principal differences between the rights of California shareholders and
Delaware stockholders are discussed in "Comparison of Rights of Holders of the
Company's and PerfectData Delaware's Common Stock." You are urged to read this
section of this Consent Solicitation Statement carefully and in its entirety
before making a decision on the reincorporation proposal.
Summary of Provisions of PerfectData Delaware's Charter Documents
In addition to the changes in shareholders' rights resulting in the
change from California law to Delaware law, PerfectData Delaware's Certificate
of Incorporation and Bylaws contain some important differences from the
Company's Articles of Incorporation and Bylaws. For a description of these
differences, please see "Description of the Company and PerfectData Delaware
Capital Stock" and "Comparison of Rights of Holders of the Company's and
PerfectData Delaware's Common Stock." A copy of PerfectData Delaware's
Certificate of Incorporation is attached to this Consent Solicitation Statement
as Appendix F, and a copy of PerfectData Delaware's Bylaws is attached to this
Consent Solicitation Statement as Appendix G. You are urged to read this
Certificate of Incorporation and Bylaws carefully and in their entirety before
making a decision on the reincorporation proposal.
Exchange of Stock Certificates
If the reincorporation is approved and implemented, you will not have to
exchange your certificates evidencing shares of the Common Stock for
certificates evidencing shares of the PerfectData Delaware common stock unless
and until you desire to sell or otherwise transfer the shares.
Recommendation
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS CONSENT IN FAVOR
OF THE PROPOSAL TO REINCORPORATE THE COMPANY IN THE STATE OF DELAWARE BY
EXECUTING THE ENCLOSED FORM OF CONSENT, CHECKING THE "FOR" BOX AND RETURNING THE
SAME TO THE COMPANY'S TRANSFER AGENT. UNLESS A CONTRARY CHOICE IS SPECIFIED, A
SIGNED CONSENT FORWARDED TO THE COMPANY WITH NO BOX CHECKED WILL BE VOTED FOR
APPROVAL OF THE REINCORPORATION PROPOSAL. A FAILURE TO RETURN THE CONSENT WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE REINCORPORATION.
COMPARISON OF RIGHTS OF HOLDERS OF THE COMPANY'S AND PERFECTDATA DELAWARE'S
COMMON STOCK
COMPARISON OF RIGHTS OF HOLDERS OF THE COMPANY'S
AND PERFECTDATA DELAWARE'S COMMON STOCK
Upon the consummation of the reincorporation merger, holders of shares
of the Common Stock will become holders of the PerfectData Delaware common
stock. As a result, the Company's shareholders, whose current rights as
shareholders are governed by California law, will become PerfectData Delaware
stockholders, and their rights as stockholders will be governed by Delaware law.
Similarly, the holders of options or warrants to acquire shares of the Common
Stock will become holders of equivalent options or warrants to acquire shares of
the PerfectData Delaware common stock.
The statutes and court decisions with respect to the rights of
shareholders under California law and of stockholders under Delaware law contain
certain differences. In addition, the Articles of Incorporation and Bylaws of
the Company differ in certain respects from the Certificate of Incorporation and
Bylaws of PerfectData Delaware, the Delaware corporation that will survive the
reincorporation.
The following is an explanation of what the Company, based on the advice
of its counsel, Wachtel & Masyr, LLP, deems to be the material differences among
the rights of a shareholder under California law and those of a stockholder
under Delaware law and as a shareholder under the Articles of Incorporation and
the Bylaws of the Company and as a stockholder under the Certificate of
Incorporation and Bylaws of PerfectData Delaware. The following discussion does
not purport to constitute a detailed comparison of the provisions of the
California General Corporation Law, or the CGCL, and the Delaware General
Corporate Law, or the DGCL. The shareholders of the Company should refer to
these statutes for a definitive explanation of each statute. In addition, the
discussion of the differences in rights governed by each respective
corporation's charter documents does not purport to be complete, and the
shareholders of the Company should refer to the respective charter documents of
each corporation. Copies of the Company's Articles of Incorporation and Bylaws
are available for inspection at the principal executive offices of the Company,
and copies will be sent to shareholders of the Company upon request. A request
may be made to the Company as described in the section "Contact Information"
under the caption "Miscellaneous" elsewhere in this Consent Solicitation
Statement. A copy of the Certificate of Incorporation and Bylaws of PerfectData
Delaware are attached as Appendices F and G, respectively, to this Consent
Solicitation Statement.
Authorized Capital Stock
The Company. The authorized capital stock of the Company currently
consists of 10,000,000 shares of Common Stock, no par value, and 2,000,000
shares of Preferred Stock, no par value.
PerfectData Delaware. The authorized capital stock of PerfectData
Delaware currently consists of 10,000,000 shares of common stock, $.01 par
value, and 2,000,000 shares of preferred stock, $.01 par value.
Size of the Board of Directors
The Company. Under the CGCL, although changes to the number of directors
must in general be approved by a majority of the outstanding voting shares, the
board of directors may fix the exact number of directors within a stated range
set forth in the articles of incorporation or bylaws, if that stated range has
been approved by the shareholders. The Company's Bylaws provide that the number
of directors shall not be less than three or more than five until changed by an
amendment of the Articles of Incorporation or by a bylaw adopted by the
Company's shareholders.
PerfectData Delaware. The DGCL permits the board of directors alone to
change the authorized number of directors or the range of the number of
directors by amendment to the corporation's bylaws, unless the directors are not
authorized to amend the bylaws or the number of directors is fixed in the
certificate of incorporation (in which case a change to the number of directors
may be made only by an amendment to the certificate of incorporation approved by
the stockholders). The PerfectData Delaware Certificate of Incorporation does
not prohibit the directors from amending the bylaws nor does it fix the number
of directors. Accordingly, the provision in the PerfectData Delaware Bylaws
provides that the range of the number of directors shall be between five and
eight and the number within that range shall be fixed from time to time by the
board of directors.
Removal of Directors
The Company. Under the CGCL, any director or the entire board of
directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, no individual director may
be removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting. The Company's Articles of Incorporation and Bylaws do not contain a
provision governing the removal of directors, so the aforementioned provision of
the CGCL governs the removal of directors.
PerfectData Delaware. Under the DGCL, a director of a corporation that
does not have a classified board of directors or cumulative voting may be
removed with or without cause with the approval of a majority of the outstanding
shares entitled to vote. In the case of a Delaware corporation having cumulative
voting, if less than the entire board is to be removed, a director may not be
removed without cause unless the shares voted against such removal would not be
sufficient to elect the director under such cumulative voting procedures. A
director of a corporation with a classified board of directors may be removed
only for cause, unless the certificate of incorporation provides otherwise. The
PerfectData Delaware Certificate of Incorporation does not provide for
cumulative voting or for a classified board of directors. Consequently, any
director of PerfectData Delaware may be removed from office at any time with or
without cause upon the affirmative vote of the holders of a majority of the then
outstanding shares of voting stock.
Filling Vacancies on the Board of Directors
The Company. Under the CGCL, any vacancy on the board of directors, other
than one created by removal of a director, may be filled by the board of
directors. If the number of directors is less than a quorum, a vacancy may be
filled by the unanimous written consent of the remaining directors in office, or
the affirmative vote of a majority of the remaining directors at a meeting or by
a sole remaining director. A vacancy created by removal of a director may be
filled by the board of directors only if so authorized by a corporation's
articles of incorporation or by a bylaw approved by the corporation's
shareholders. The Company's Bylaws, which were approved by its shareholders,
permit directors to fill vacancies created by the removal of a director.
PerfectData Delaware. Under the DGCL, vacancies and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum) unless otherwise provided in a corporation's
certificate of incorporation or bylaws. The PerfectData Delaware Certificate of
Incorporation does not so provide and its Bylaws provide that any vacancy
resulting from the removal or resignation of a director may be filled by a
majority of the directors then in office (even though less than a quorum) even
if such vacancy was created by removal of a director by the stockholders. The
stockholders may also fill such vacancy.
Cumulative Voting
The Company. Under the CGCL, if any shareholder gives notice at the
meeting of his or her intention to cumulate votes for the election of directors,
any other shareholder of the corporation is also entitled to cumulate his or her
votes at such election unless the corporation is a "listed corporation" (as
hereinafter defined) and has a provision in its articles of incorporation or
bylaws that eliminates cumulative voting. A "listed corporation" is a
corporation whose shares are either (i) listed on the New York or American Stock
Exchanges or (ii) designated for trading on the Nasdaq National Market System.
The Company's Bylaws permit cumulative voting and the Company is currently
eligible under the CGCL to eliminate such voting because it is not a "listed
corporation," but doing so would require shareholder approval to change the
provision in the Company's Bylaws.
PerfectData Delaware. Under the DGCL, cumulative voting in the election
of directors is not mandatory. The PerfectData Delaware Certificate of
Incorporation and Bylaws do not provide for cumulative voting. By approving the
reincorporation, the Company's shareholders will be eliminating the cumulative
voting rights which they currently have under the CGCL. This elimination of
cumulative voting will limit the ability of minority shareholders to obtain
representation on the PerfectData Delaware board of directors.
Classified Board of Directors
The Company. The CGCL prohibits a classified board of directors unless
the corporation is a "listed corporation" (as defined in the preceding section
"Cumulative Voting"). Because the Company is currently not a listed corporation,
it cannot currently have a classified board of directors.
PerfectData Delaware. The DGCL permits, but does not require, a
classified board of directors, with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. This method of electing directors makes changes in the composition
of the board of directors, and thus a change in control of a corporation, a
lengthier and more difficult process. The PerfectData Delaware Certificate of
Incorporation and Bylaws do not provide for a classified board.
Voting Power
The Company. The CGCL permits a corporation to create series of shares
that are entitled to cast more or less than one vote per share. The Company's
Articles of Incorporation states that each share of Company capital stock has
the right to one vote at all meetings of shareholders.
PerfectData Delaware. The DGCL, unless otherwise provided in a
corporation's certificate of incorporation or bylaws, allows for one vote per
share of capital stock at all meetings of stockholders. The PerfectData Delaware
Certificate of Incorporation states that each share of PerfectData Delaware
common stock has the right to one vote at all meetings of stockholders.
Power to Call Special Meeting of Shareholders
The Company. Under the CGCL, a special meeting of shareholders may be
called by the board of directors, the chairman of the board, the president, the
holders of shares entitled to cast not less than 10% of the votes at such
meeting, or such additional persons as are authorized by a corporation's
articles of incorporation or bylaws. The Company's Bylaws provide that the board
of directors, the Chairman of the Board, the President, or the holders of shares
entitled to cast not less than 10% of votes at such meeting may call a special
meeting.
PerfectData Delaware. Under the DGCL, a special meeting of stockholders
may be called by the board of directors or by any other person authorized to do
so in the corporation's certificate of incorporation or bylaws. The provision
governing special meeting of stockholders in the PerfectData Delaware Bylaws is
similar to the current provision in the Company's Bylaws.
Action of Shareholders Without a Meeting
The Company. Under the CGCL, unless otherwise provided in the articles of
incorporation, any action required to be taken or which may be taken at an
annual or special meeting may be taken without a meeting and without prior
notice if a written consent is signed by the holders of outstanding stock having
at least the minimum number of votes required to authorize the action. If
consent is sought from less than all shareholders entitled to vote, the
corporation must give notice to the non-consenting shareholders. The Company's
Articles of Incorporation are silent on this subject, so the provisions of the
CGCL as set forth herein govern. The Company Bylaws are consistent with the
statutory provision.
PerfectData Delaware. Under the DGCL, unless otherwise provided in a
corporation's certificate of incorporation, any action required to be taken at
an annual or special meeting of a corporation's stockholders may be taken
without a meeting if a resolution in writing has been signed or consented to by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting and
notice is thereafter given to the shareholders who did not consent. The
PerfectData Delaware Certificate of Incorporation does not prohibit stockholder
actions without a meeting.
Amendment to Articles of Incorporation and Certificate of Incorporation
The Company. The CGCL provides that, unless otherwise stated in a
corporation's articles of incorporation, an amendment to the articles of
incorporation requires the approval of the corporation's board of directors and
the affirmative vote of a majority of the outstanding shares entitled to vote on
those shares. Amendments to allow for stock splits, unless the corporation has
more than one class of shares outstanding, (including a proportionate increase
in the authorized number of shares) do not require shareholder approval. Unless
otherwise provided in the articles of incorporation, any provision in the
articles of incorporation which requires a greater vote than required by law
cannot be amended or repealed except by the greater vote. The Company's Articles
of Incorporation are silent on this subject, so the provisions of the CGCL as
set forth herein govern.
PerfectData Delaware. Under the DGCL, the certificate of incorporation of
a corporation may be amended by resolution of the board of directors and the
affirmative vote of the holders of a majority of the outstanding shares of
voting stock then entitled to vote. The DGCL also permits a corporation to make
provision in its certificate of incorporation requiring a greater proportion of
the voting power to approve a specified amendment. PerfectData Delaware's
Certificate of Incorporation does not contain a provision requiring a greater
proportion of voting power to amend its Certificate of Incorporation.
Amendment to Bylaws
The Company. The CGCL provides that, unless a corporation's board of
directors is prohibited by the articles of incorporation, the bylaws, or Section
212 of the CGCL (relating to the number of directors), a corporation's board of
directors or a majority of the outstanding shares entitled to vote may amend a
corporation's bylaws. The Company's Bylaws permit either the shareholders or the
Board to amend the Bylaws, except those provisions specifying or changing a
fixed number of directors or the maximum or minimum number or changing from a
fixed to a variable Board or vice versa. These provisions may only be amended by
the shareholders.
PerfectData Delaware. The DGCL provides that the power to adopt, amend or
repeal a corporation's bylaws shall be held by the stockholders entitled to
vote. A corporation may, in its certificate of incorporation, confer such powers
on the board of directors. Under the PerfectData Delaware Certificate of
Incorporation, the PerfectData Delaware Board of Directors is expressly
authorized to adopt, amend, alter or repeal the PerfectData Delaware Bylaws.
Statutory Anti-Takeover Protections
The Company. The CGCL contains certain limitations on "cash out mergers"
and requires a fairness opinion in situations in which an interested party is
involved in a business combination as, for example, a tender offer, a merger or
other form of reorganization as defined in the CGCL. For more information as to
these limitations, see the following section "Required Shareholder Votes in
Connection with a Business Combination."
PerfectData Delaware. The DGCL prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for three
years following the time that such person becomes an interested stockholder.
With certain exceptions an interested stockholder is a person who, or a group
which, owns 15% or more of the corporation's outstanding voting stock (including
any rights to acquire stock pursuant to an option, warrant, agreement,
arrangement or understanding, or upon the exercise of conversion or exchange
rights, and stock with respect to which the person has voting rights only), or
is an affiliate or associate of the corporation and was the owner of 15% or more
of such voting stock at any time within the previous three years.
For purposes of the DGCL, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder, sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to 10% or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or any receipt by
the interested stockholder (except proportionately as a stockholder), directly
or indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations under the DGCL
does not apply if: (i) prior to the time at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns at least 85% of the
corporation's voting stock upon consummation of the transaction which made him,
her or it an interested stockholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the time such person becomes an interested stockholder, the board approves
the business combination and it is also approved at a stockholder meeting by 66
2/3% of the voting stock not owned by the interested stockholder.
A Delaware corporation may elect not to be governed by this section of
the DGCL by a provision in its certificate of incorporation or Bylaws.
PerfectData Delaware does not intend to make such election; therefore, this
section of the DGCL will apply to PerfectData Delaware.
Required Shareholder Votes in Connection with a Business Combination
The Company. The CGCL requires that the holders of a majority of the
voting power of the outstanding shares of stock of both acquiring and target
corporations entitled to vote approve statutory mergers or other forms of
reorganization, which term includes the issuance of equity securities for the
stock or assets of the acquired corporation. The CGCL contains a exception to
its voting requirements for reorganizations where shareholders or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity. The CGCL also requires that a sale of all or substantially all of
the assets of a corporation be approved by a majority of the outstanding voting
shares of the corporation transferring such assets. With certain exceptions, the
CGCL also requires that mergers, reorganizations, certain sales of assets and
similar transactions be approved by a majority vote of each class of shares
outstanding. The CGCL also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of the CGCL may have the effect of making a "cash-out" merger by a
majority shareholder more difficult to accomplish.
The CGCL also provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally, a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares.
The CGCL also requires that the holders of all shares of the same class
be treated equally in a merger transaction unless all holders of that class of
shares consent to the disparate treatment.
The Company's Articles of Incorporation do not contain any provision
regarding the shareholder vote in connection with a business combination, so the
provisions of the CGCL described above would govern.
PerfectData Delaware. The DGCL requires that the holders of a majority of
the voting power of the outstanding shares of stock of both acquiring and target
corporations entitled to vote approve statutory mergers. The DGCL does not
require stockholder approval for the exchange of equity securities for the stock
or assets of the acquired company. The DGCL contains a exception to its voting
requirements for reorganizations where shareholders or the corporation itself,
or both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 90% of the voting power
of the surviving or acquiring corporation or its parent entity.
The DGCL requires that a sale of all or substantially all of the assets
of a corporation be approved by a majority of the outstanding voting shares of
the corporation transferring such assets.
The DGCL does not require a stockholder vote of the surviving corporation
in a merger (unless the corporation provides otherwise in its certificate of
incorporation) if (i) the agreement and plan of merger does not amend the
existing certificate of incorporation of such surviving corporation, (ii) each
share of the surviving corporation outstanding before the merger is an identical
outstanding or treasury share after the merger, and (iii) the number of shares
to be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the merger.
The PerfectData Delaware of Incorporation will not contain any provision
regarding the stockholder vote in connection with a business combination, so the
provisions of the DGCL described above shall govern.
Although the laws of California and Delaware may be similar as to whether
the holders of voting stock of the surviving corporation have to vote on a
merger, the CGCL gives certain protections to shareholders on mergers and
certain other transactions. To that extent, a shareholder of the Company may
lose certain rights as the result of the reincorporation, including the right to
vote on an acquisition where equity securities (common stock, preferred stock or
other securities convertible into, or exercisable for, shares of common stock)
of PerfectData Delaware are issued for the capital stock or assets of the
acquired company.
Related-Party Transactions
The Company. Under the CGCL, certain contracts or transactions in which
one or more of a corporation's directors has or have an interest are not void or
voidable solely because of such interest provided that certain conditions, such
as obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. Under the CGCL (i) either the shareholders or the
board of directors must approve any such contract or transaction after full
disclosure of the material facts and, in the case of board approval, the
contract or transaction must also be "just and reasonable" to the corporation,
or (ii) the contract or transaction must have been just and reasonable or fair,
as applicable, to the corporation at the time it was approved. In the latter
case, the CGCL explicitly places the burden of proof on the interested director.
Under the CGCL, if shareholder approval is sought, the interested director is
not entitled to vote his shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
PerfectData Delaware. Under the DGCL, certain contracts or transactions
in which one or more of a corporation's directors has an interest are not void
or voidable solely because of such interest provided that certain conditions,
such as obtaining the required approval and fulfilling the requirements of good
faith and full disclosure, are met. Under the DGCL, (i) either the shareholders
or the board of directors must approve any such contract or transaction after
full disclosure of the material facts and, in the case of board approval, the
contract or transaction must also be "fair" to the corporation, or (ii) the
contract or transaction must have been just and reasonable or fair, as
applicable, to the corporation at the time it was approved. Under the DGCL, if
board approval is sought, the contract or transaction must be approved by a
majority of the disinterested directors (even though less than a majority of a
quorum).
Therefore, certain transactions that the Company's board of directors
might not be able to approve because of the number of interested directors, or
the exclusion of interested director shares, could be approved by a majority of
the disinterested directors of PerfectData Delaware, although less than a
majority of a quorum, or by a majority of all voting shares, which might not
include a majority of the disinterested shares. The Company's board of directors
is not aware of any plans to propose any transaction involving directors of the
Company which could not be so approved under the CGCL, but could be so approved
under the DGCL.
Indemnification and Limitation of Liability
The Company. The CGCL permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (i) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its shareholders, unless a court determines that such
person is entitled to indemnity for expenses, and then such indemnification may
be made only to the extent that the court so determines, and (ii) no
indemnification may be made without court approval in respect of amounts paid or
expenses incurred in settling or otherwise disposing of a threatened or pending
action or in respect of amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Indemnification is permitted by the CGCL only for acts taken in good
faith and believed to be in the best interests of the corporation and its
shareholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel (if a quorum of independent directors is
not obtainable), a majority vote of a quorum of the shareholders (excluding
shares owned by the indemnified party), or the court handling the action. The
CGCL requires indemnification when the individual has successfully defended the
action on the merits.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that which is specifically authorized by
statute. The Company's Articles of Incorporation include such a provision. As a
result, the Company has followed the practice of executing indemnification
agreements with its directors and officers.
The CGCL also permits a corporation to adopt a provision in its articles
of incorporation eliminating the liability of a director to the corporation or
its shareholders for monetary damages for breach of the director's fiduciary
duty of care. The Company's Articles of Incorporation eliminate the liability of
directors to the Company to the fullest extent permissible under the CGCL, as
such law exists currently or as it may be amended in the future. The CGCL does
not permit the elimination of monetary liability where such liability is based
on: (i) acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law; (ii) acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders, or that
involve the absence of good faith on the part of the director; (iii) receipt of
an improper personal benefit; (iv) acts or omissions that show reckless
disregard for the director's duty to the corporation or its shareholders, where
the director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (v)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (vi) interested party transactions between the corporation and a
director in which a director has a material financial interest; or (vii)
liability for improper distributions, loans or guarantees.
PerfectData Delaware. The DGCL generally permits indemnification of
expenses (including attorneys' fees) incurred in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
majority vote of the disinterested directors (even though less than a quorum),
by independent legal counsel or by stockholders that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the corporation. Without court approval,
however, no indemnification may be made in respect of any derivative action in
which such person is adjudged liable for negligence or misconduct in the
performance of his or her duty to the corporation. The DGCL also requires
indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
A provision of the DGCL states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise. As a
result, the DGCL permits the indemnification agreements such as those presently
in effect between the Company and its officers and directors, and which such
agreements will be assumed by PerfectData Delaware upon completion of the
reincorporation.
The PerfectData Delaware Certificate of Incorporation eliminates the
liability of directors to the fullest extent permissible under the DGCL, as such
law exists currently or as it may be amended in the future. Under the DGCL, such
a provision may not eliminate or limit director monetary liability for: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (iii) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (iv) transactions in which the
director received an improper personal benefit. Such a limitation of liability
provision also may not limit a director's liability for violation of, or
otherwise relieve PerfectData Delaware or its directors from the necessity of
complying with, federal or state securities laws or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
Although there are the differences noted above among California and
Delaware statutory provisions with respect to indemnification, the Company's
Board of Directors, based on the advice of the Company's counsel, Wachtel &
Masyr, LLP, does not believe that they are so material as to dissuade a
shareholder of the Company from consenting to the reincorporation. PerfectData
Delaware will assume the obligations of the Company to the directors and
officers under their existing indemnification agreements.
Dividends and Repurchases of Shares
The Company. Under the CGCL, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of its
shares), unless either the corporation's retained earnings immediately prior to
the proposed distribution equal or exceed the amount of the proposed
distribution or, immediately after giving effect to such distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1 1/4
times its liabilities (not including deferred taxes, deferred income and other
deferred credits), and the corporation's current assets would be at least equal
to its current liabilities (or 1 1/4 times its current liabilities if the
average earnings before taxes on income and before interest expense for the
preceding two fiscal years were less than the average interest expense for such
years). Under the CGCL, there are exceptions to the foregoing rules for
repurchases of shares in connection with certain rescission actions or pursuant
to certain employee stock plans. The Company's Articles of Incorporation do not
have any provision relating to the payment of dividends or the repurchase of
shares, so the provision of the CGCL shall govern.
PerfectData Delaware. The DGCL permits a corporation to declare and pay
dividends out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year as long as the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. In addition, the DGCL
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. PerfectData Delaware's Certificate of Incorporation will not have
any provision relating to the payment of dividends or the repurchase of shares,
so the provision of the DGCL shall govern. Although the CGCL provisions relating
to payment of dividends and repurchase of shares may differ from those of
Delaware, the Company's Board of Directors does not believe that PerfectData
Delaware will likely be paying dividends or repurchasing shares under the DGCL
that it would be forbidden to pay or repurchase under the CGCL.
Shareholder Derivative Suits
The Company. The CGCL provides that a shareholder bringing a derivative
action on behalf of a corporation need not have been a shareholder at the time
of the transaction in question, provided that certain tests are met. The CGCL
also provides that the corporation or the defendant in a derivative action suit
may make a motion to the court for an order requiring the plaintiff shareholder
to furnish a security bond. The Company's Articles of Incorporation do not have
any provision relating to derivative actions, so the provisions of the CGCL
shall govern.
PerfectData Delaware. A derivative action may be brought in Delaware by a
stockholder of a corporation. The DGCL provides that the person must allege that
he was a stockholder at the time when the transaction took place. A stockholder
may not sue derivatively without first demanding that the corporation bring
suit, which demand has been refused, unless it is shown that such demand would
have been futile. The PerfectData Delaware of Incorporation will not contain any
provision relating to derivative actions, so the provisions of the DGCL shall
govern.
A shareholder of the Company, accordingly, will lose the right to
institute a derivative action against PerfectData Delaware with respect to a
transaction which occurred prior to his, her or it becoming a stockholder of the
PerfectData Delaware or its predecessor, i.e., the Company.
Dissenters' or Appraisal Rights
The Company. Under the CGCL, a shareholder of a corporation participating
in certain major corporation transactions may, under varying circumstances, be
entitled to dissenters' rights pursuant to which such shareholder may receive
cash in the amount of the fair market value of his, her or its shares in lieu of
the consideration he, she or it would otherwise receive in the transaction.
Shareholders of a California corporation whose shares are listed on a
national securities exchange or on the Nasdaq National Market System generally
do not have such dissenters' rights unless the holders of at least 5% of the
class of outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. Dissenters' rights are unavailable,
however, if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity. In
general, the CGCL affords dissenters' rights in sale of assets reorganizations.
The Company's shareholders have dissenters' rights as provided in the CGCL.
PerfectData Delaware. Under the DGCL, a shareholder of a corporation
participating in certain major corporation transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his, her
or its shares in lieu of the consideration he, she or it would otherwise receive
in the transaction. Under the DGCL, unless the certificate of incorporation
otherwise provides, such appraisal rights are not available (i) with respect to
the sale, lease or exchange of all or substantially all of the assets of a
corporation, (ii) with respect to a merger or consolidation by a corporation the
shares of which are either listed on a national securities exchange or are held
of record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares or any combination thereof, or
(iii) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the agreement and plan of merger does not amend the existing certificate
of incorporation, each share of the surviving corporation outstanding prior to
the merger is an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does not exceed 20% of the
shares of the surviving corporation outstanding immediately prior to the merger
and if certain other conditions are met. The PerfectData Delaware Certificate of
Incorporation is silent with respect to appraisal rights, so that the provisions
of the DGCL govern.
With respect to a statutory merger, the reincorporation would not
materially affect the dissenters' rights of the Company's shareholders. However,
in the case of a reorganization other than a statutory merger which the
stockholders will not have to approve in PerfectData Delaware (see the section
"Required Shareholder Votes in Connection with a Business Combination" under
this caption "Comparison of Rights of Holders of the Company's and PerfectData
Delaware's Common Stock"), or in the case of a sale of assets not in the
ordinary course of business, a shareholder of the Company will lose his, her or
its right to dissent that the shareholder would have had in the Company under
the CGCL. Thus, were the Company currently a Delaware corporation, its
shareholders would not have dissenters' rights with respect to the proposed sale
to Spray.
Dissolution
The Company. Under the CGCL, shareholders holding 50% or more of the
total voting power may authorize a corporation's dissolution, with or without
the approval of the corporation's board of directors, and this right may not be
modified by the articles of incorporation.
PerfectData Delaware. Under the DGCL, unless the board of directors
approves the proposal to dissolve, the dissolution must be approved by
stockholders holding 100% of the total voting power of the corporation. Only if
the dissolution of a Delaware corporation is initiated by the board of directors
may it be approved by a simple majority of the corporation's stockholders. In
the event of such a board-initiated dissolution, the DGCL allows a Delaware
corporation to include in its certificate of incorporation a supermajority
voting requirement in connection with dissolutions. The PerfectData Delaware
Certificate of Incorporation contains no such supermajority voting requirement,
and a majority of shares voting at a meeting at which a quorum is present would
be sufficient to approve a dissolution of PerfectData Delaware which had
previously been approved by its board of directors. Accordingly, except for the
loss of the right of the holders of 50% or more of the voting power in a
California corporation to vote for its dissolution where the board of directors
has not so authorized the dissolution, there will be no change for the Company's
shareholders as a result of the reincorporation.
In addition to the changes in shareholders' rights resulting in the
reincorporation, the proposed PerfectData Delaware Certificate of Incorporation
and Bylaws contain some important differences from the Company Articles of
Incorporation and Bylaws. For a description of these differences, please see
"Description of the Company and PerfectData Delaware Capital Stock.' A copy of
the PerfectData Delaware Certificate of Incorporation is attached to this
Consent Solicitation Statement as Appendix F, and a copy of the PerfectData
Delaware Bylaws is attached to this Consent Solicitation Statement as Appendix
G. You are urged to read the Certificate of Incorporation and Bylaws carefully
and in their entirety before making a decision on the reincorporation.
DESCRIPTION OF THE COMPANY AND
PERFECTDATA DELAWARE CAPITAL STOCK
The following summary of the current terms of the Company's capital stock
and the terms of PerfectData Delaware's capital stock to be in effect after the
completion of the reincorporation describes every term which the Company, based
on the advice of its counsel, Wachtel & Masyr, LLP, deems material to a
shareholder. For a complete description you should refer to the Company's
Articles of Incorporation and Bylaws and PerfectData Delaware's Certificate of
Incorporation and Bylaws. Copies of the Company's Articles of Incorporation and
Bylaws will be sent to holders of shares of the Common Stock upon request. A
request may be made to the Company as described in the section "Contact
Information" under the caption "Miscellaneous" elsewhere in the Consent
Solicitation Statement. Copies of PerfectData Delaware's Certificate of
Incorporation and Bylaws are attached to this Consent Solicitation Statement as
Appendix F and Appendix G, respectively. Except for the difference in the par
value, which the Company believes will not adversely affect shareholders, the
capital stock of the Company and PerfectData Delaware are similar.
The Company
Authorized Capital Stock. The Company's authorized capital stock consists
of 10,000,000 shares of Common Stock, no par value per share, and 2,000,000
shares of "blank check" Preferred Stock, no par value per share.
Common Stock. Subject to the rights of holders of Preferred Stock, if
any, holders of shares of the Common Stock are entitled to share equally on a
per share basis in such dividends as may be declared by the Board of Directors
out of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of the Common Stock. Upon the Company's
liquidation, dissolution or winding up, after payment of creditors and the
holders of any of its senior securities, including Preferred Stock, if any, the
Company's assets will be divided pro rata on a per share basis among the holders
of the shares of the Common Stock. The Common Stock is not subject to any
liability for further assessments. There are no conversions or redemption
privileges nor any sinking fund provisions with respect to the Common Stock and
the Common Stock is not subject to call. The holders of the Common Stock do not
have any pre-emptive or other subscription rights.
Holders of shares of the Common Stock are entitled to cast one vote for
each share held at all shareholders' meetings for all purposes. If at a
shareholder meeting, a shareholder elects to vote his or her shares cumulatively
for directors, other shareholders may also do so. All of the issued and
outstanding shares of common stock are fully paid, validly issued and
non-assessable.
Preferred Stock. The Company's certificate of incorporation authorizes
2,000,000 shares of "blank check" Preferred Stock. The Board of Directors has
the authority, without further action by the holders of the outstanding shares
of the Common Stock, to issue shares of Preferred Stock from time to time in one
or more classes or series, to fix the number of shares constituting any class or
series and the stated value thereof, if different from the par value, and to fix
the terms of any such series or class, including dividend rights, dividend
rates, conversion or exchange rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price and the
liquidation preference of such class or series.
PerfectData Delaware
Following the reincorporation transaction, PerfectData Delaware's
authorized capital stock will consist of 55,000,000 shares of common stock,
$0.01 par value per share, and 2,000,000 shares of "blank check" preferred
stock, par value $.01 per share.
Authorized Capital Stock. Subject to the rights of holders of preferred
stock, if any, holders of shares of the PerfectData Delaware common stock are
entitled to share equally on a per share basis in such dividends as may be
declared by the PerfectData Delaware board of directors out of funds legally
available therefor. There are presently no plans to pay dividends with respect
to the shares of PerfectData Delaware common stock. Until an acquisition or
merger candidate is selected and the transaction is consummated, the Board of
Directors can only speculate if a dividend would be paid by the combined
companies. Upon PerfectData Delaware's liquidation, dissolution or winding up,
after payment of creditors and the holders of any of its senior securities,
including preferred stock, if any, PerfectData Delaware's assets will be divided
pro rata on a per share basis among the holders of the shares of its common
stock. The PerfectData Delaware common stock is not subject to any liability for
further assessments. There are no conversion or redemption privileges nor any
sinking fund provisions with respect to the common stock and the common stock is
not subject to call. The holders of common stock do not have any pre-emptive or
other subscription rights.
Holders of shares of common stock are entitled to cast one vote for each
share held at all stockholders' meetings for all purposes, including the
election of directors. The common stock does not have cumulative voting rights.
All of the issued and outstanding shares of common stock are fully paid,
validly issued and non-assessable.
Preferred Stock. PerfectData Delaware's certificate of incorporation
authorizes 2,000,000 shares of "blank check" preferred stock. The PerfectData
Delaware board of directors has the authority, without further action by the
holders of the outstanding common stock, to issue shares of preferred stock from
time to time in one or more classes or series, to fix the number of shares
constituting any class or series and the stated value thereof, if different from
the par value, and to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series.
DISSENTERS' RIGHTS
A shareholder of the Company shall have a right to receive payment for
his, her or its shares of the Common Stock if (1) the shareholders approve, by
consents, either or both of the two proposals as to which consent is requested,
i.e., the proposed sale to Spray by the Company of its current business
operations and the proposed reincorporation, (2) the shareholder dissents in the
manner described under this caption and (3) the Company does not abandon the
sale and/or the reincorporation, whichever is or are applicable.
Under the California General Corporation Law, any holder of the Common
Stock has the right to dissent as to either proposal and to be paid the fair
market value for his, her or its shares of the Common Stock. The fair market
value will be determined as of the day before the first announcement of the
proposed sale transaction (a press release was issued on October 8, 2003). The
last reported sale price of the Common Stock on October 7, 2003 was $1.05 per
share; however, the quoted market price is not necessarily deemed to be the fair
market value for purposes of dissenters' rights. In making such determination,
the Company, the dissenting shareholders and, if applicable, a court are to
exclude any appreciation or depreciation to the fair market value of the shares
as a consequence of the proposed sale to Spray of its current business
operations or the then pending SuperCom transaction. An adjustment will be made
for any stock split, reverse stock split or share dividend thereafter affected.
No such transaction is currently contemplated.
If such shareholder is not able to reach an agreement with the Company as
to the fair market value of his, her or its shares of the Common Stock, such
shareholder has the right to have the fair market value of his, her or its
shares of the Common Stock judicially determined, and paid to the shareholder in
cash, together with interest in some instances, provided that the shareholder
fully complies with the provisions of Sections 1300 through 1312 of the
California General Corporation Law. A copy of these provisions is attached to
this Consent Solicitation Statement as Appendix C.
Making sure that a shareholder actually perfects his, her or its
dissenters' rights can be complicated. The procedural rules are specific and
must be followed precisely. Failure to comply with the procedure may cause a
termination or waiver of the dissenters' rights. The following information is
intended as a brief summary of the material provisions of the statutory
procedures a shareholder must follow in order to perfect his, her or its
dissenters' rights. Shareholders who or which desire to dissent are urged to
review Appendix C for the complete procedure. The Company will not give the
dissenting shareholder any notice other than as described in this Consent
Solicitation Statement and as required by the California General Corporation
Law.
If you are a shareholder and you wish to exercise your dissenters'
rights, you must satisfy the provisions of the California General Corporation
Law attached as Appendix C which require the following:
You must refrain from consenting to the proposed sale to Spray and/or the
proposed reincorporation. You may dissent as to either or as to both of the
proposals as to which your consent is being sought. You must not vote (by
consent) any of your shares of the Common Stock for approval of the proposal or
proposals as to which you wish to dissent. If you consent with respect to any of
your shares of the Common Stock in favor of that proposal or proposals, this
will terminate your right to dissent. Your signing and returning the consent
with a check of the Against or Abstain box or boxes, or your failure to return
the consent, are both equivalent to a vote against for the purpose of preserving
your dissenters' rights.
Written notice from the Company: Within ten days after the consents are
given to approve either or both of the proposals, the Company must give written
notice to you and each other shareholder who has fully complied with the
conditions of the California General Corporation Law stating its determination
as to the fair market value of the dissenting shares, forwarding copies of the
relevant dissenters' rights sections of the California General Corporation Law
and briefly describing the procedures which the dissenting shareholder must then
follow if the dissenting shareholder desires to exercise his, her or its
dissenters' rights. This constitutes an offer by the Company to pay that amount
in full satisfaction of the dissenters' rights.
You must file a written notice of intention to demand to be paid the fair
market value of your shares: You must deliver to the Company a written notice of
intention to demand to be paid the fair market value of your shares within 30
days from the date of the notice from the Company described in the preceding
subsection. Your failure to make such demand within the 30-day period results in
the loss of your dissenters' right to be paid.
In your written notice of demand you must state the number of shares held
of record as to which you request purchase by the Company. You may accept the
Company's offer as to its determination of the fair market value of your shares.
If you do, the Company will pay you within 30 days of your acceptance. If you do
not accept the Company's offer, you, as a dissenting shareholder, must state
what you claim to be the fair market value of the dissenting shares as of the
day preceding the first announcement of the proposed sale transaction. This
statement of fair market value constitutes an offer by you to sell the shares at
such price. Your written notice should also specify your name and mailing
address.
A written notice of intention to demand to be paid the fair market value
of your shares of the Common Stock is only effective if it is signed by, or for,
the shareholder of record who owns such shares at the time the demand is made.
The demand must be signed as the shareholder's name appears on the Common Stock
certificates(s). If you are the beneficial owner of the Common Stock, but not
the shareholder of record, you must have the shareholder of record sign a
written notice of intention to demand to be paid the fair market value of your
shares.
If you own the Common Stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
notice of intention to demand to be paid the fair market value of your shares in
that capacity.
If you own the Common Stock with more than one person, such as in a joint
tenancy or a tenancy in common, all the owners must sign, or have signed for
them by an authorized agent, the notice of intention to demand to be paid the
fair market value of your shares. An authorized agent, which could include one
or more of the joint owners, may sign the notice of intention to demand to be
paid the fair market value of your shares for a shareholder of record; however,
the agent must expressly disclose who the shareholder of record is and that the
agent is signing the demand as that shareholder's agent.
If you are a record owner, such as a broker-dealer, which holds the
Common Stock as a nominee for others, you may exercise a right to be paid the
fair market value of your shares with respect to the shares held for one or more
beneficial owners, while not exercising such right for other beneficial owners.
In such a case, you should specify in the written notice of intention to demand
the number of shares as to which you intend to demand appraisal. If you do not
expressly specify the number of shares, we will assume that your written notice
covers all the shares of the Common Stock that are registered in your name.
If you are a shareholder who intends to exercise dissenters' rights, you
should mail or otherwise deliver a written notice of intention to demand to be
paid the fair market value of your shares to:
PerfectData Corporation
1445 East Los Angeles Avenue
Suite 208
Simi Valley, California 93065
Attn: Irene J. Marino, Secretary
Surrender your stock certificate(s): Within 30 days after the notice by
the Company is mailed, you must deliver your stock certificate(s) to the Company
so that the Company may make a notation on the certificate(s) reflecting your
demand. If you fail to submit your stock certificates(s) to the Company within
this time frame, you will lose your right to be paid the fair market value of
your shares.
You must continuously hold your shares: You must continuously hold your
shares of the Common Stock from the date you file the notice of intention to
demand to be paid the fair market value of your shares through at least the date
you surrender your shares for endorsement after the notice by the Company as to
approval of the transaction is sent to you.
Payment period: As noted above, each of the Company and you have made
offers as to the fair market value of your dissenting shares. If you and the
Company are able to agree on an amount, the Company is obligated to pay you that
amount within 30 days after such determination, provided that you surrender,
against payment, your certificate(s) for shares of the Common Stock for
cancellation.
Commencement of Litigation: If you are not able to agree with the Company
as to the fair value of your shares, then, within six months after notice of the
approval of the sale to Spray was mailed to you, you may commence an action
against the Company in the Superior Court of California for a determination of
the fair market value of your shares.
You may, as an alternative, intervene in any pending action by another
dissenting shareholder. The Company may move to consolidate all actions by
dissenting shareholders.
Appraisal of shares: If the court determines that you are entitled to
dissenters' rights, the court will determine the value of your shares of the
Common Stock as of the day prior to the date of the first announcement of the
transactions. To determine the fair value of the shares, the court will consider
all relevant factors except for any appreciation or depreciation to the fair
market value of the shares due to the anticipation or accomplishment of the sale
to Spray of the Company's business or the then pending SuperCom transaction. The
court may appoint an appraiser or appraisers to make the determination as to
fair market value of your shares. After the court determines the fair value of
the shares, it will direct the Company to pay that value to you. The court can
also direct the Company to pay interest at the legal rate for judgments. In
order to receive payment for your shares, you must then surrender your stock
certificates to the Company.
The court could determine that the fair market value of our shares is
more than, the same as, or less than the quoted market price on the day
preceding the first announcement of the Spray transaction (i.e., $1.05) or on
the date of its decision. In other words, if you demand to be paid the fair
market value of your shares, you could receive less consideration than if you
elect to sell your shares in the over-the-counter market.
Costs and expenses of appraisal proceeding: The costs of the appraisal
proceeding (including the cost of any appraiser) may be assessed against the
Company and the shareholders participating in the appraisal proceeding in such
manner as the court deems equitable under the circumstances. You may request
that the court allocate the expenses of the appraisal action incurred by you pro
rata against the value of all the shares held by all of the Company's
shareholders entitled to dissenters' rights.
If the appraisal by the court exceeds the price offered by the Company by
125%, then the latter must pay the costs (including in the discretion of the
court attorneys' fees, fees of expert witnesses and interest at legal rate of
judgments for such dissenters' rights actions).
Loss of shareholder's rights: Until the fair market value of your
dissenters' shares is determined, you continue to have all rights and privileges
incident to such shares. You can, however, lose your dissenting shareholder
status if you do not file an action, or intervene in another dissenting
shareholder's action, within the statutory period or if you transfer your shares
before they are endorsed as dissenters' shares. Additionally, a dissenting
shareholder may not withdraw a demand for payment without the consent of the
Company.
MISCELLANEOUS
Solicitation
The solicitation of consents on the enclosed form of consents is made by
and on behalf of the Board of Directors of the Company and the cost of this
solicitation is being paid by the Company. In addition to the use of the mails,
consents may be solicited personally, or by telephone or telegraph, by the
officers or directors of the Company. The Company has not engaged, and has no
intention to engage, any third party not affiliated with the Company to solicit
consents.
Shareholder Proposals
The Company held its last Annual Meeting of Shareholders on December 6,
2002, delayed from the usual meeting date for the Company's fiscal year ended
March 31, 2002 because of the then pending acquisition transaction with GraphCo.
Normally the Board would have scheduled the meeting approximately 30 days after
the audited financial statements for the fiscal year ended March 31, 2002 were
made available for mailing to shareholders. The Board also delayed calling its
Annual Meeting of Shareholders for the fiscal year ended March 31, 2003 in order
to include approval of the SuperCom transaction in the proposals to be voted on
by the Company's shareholders. See the section "Terminated Transactions" under
the caption "Proposed Sale Transaction" elsewhere in this Consent Solicitation
Statement for information as to both such transactions. In order to keep
expenses at a minimum the Board currently intends to call the Annual Meeting of
Shareholders for the fiscal year ending March 31, 2004 ("fiscal 2004") in
September 2004 after the financial statements for fiscal 2004 are available for
distribution to shareholders. Shareholders' proposals for inclusion in the
Company's proxy statement for the Annual Meeting of Shareholders for fiscal 2004
must be received no later than a reasonable time before the Company prints and
mails its proxy material for such Annual Meeting. If a shareholder intends to
submit a proposal for consideration at such Annual Meeting by means other than
the inclusion of the proposal in the Company's proxy statement for such Annual
Meeting, the shareholder must notify the Company of such intention no later than
a reasonable time before the Company prints and mails its proxy material for
such Annual Meeting, or risk management exercising discretionary voting
authority with respect to the management proxies to defeat such proposal when
and if presented at such Annual Meeting. The Company currently anticipates
mailing the proxy material for such Annual Meeting on or before Friday, August
20, 2004. The Company shall advise its shareholders of any change in the
contemplated mailing date for its proxy material for the Annual Meeting of
Shareholders for fiscal 2004 by notice in its earliest possible Quarterly Report
on Form 10-QSB or by other appropriate notice.
Contact Information
The office of the Company is located at 1445 East Los Angeles Avenue,
Suite 208, Simi Valley, CA 93065. Its telephone number is (805) 581-4000.
Inquiries may be directed by mail or telephone to Harris A. Shapiro, Chairman of
the Board and Chief Executive Officer of the Company.
The office of Spray is located at 1323 Conshohocken Road, Plymouth
Meeting, PA 19462. Its telephone number is (610) 277-1010. Inquiries may be
directed by mail or telephone to Bart Bastian, President of Spray.
Financial Data
The Company's financial statements and related management's discussion
and analysis of financial condition and results of operations for the quarter
ended December 31, 2003 as reported in the Company's Quarterly Report on Form
10-QSB are annexed to this Consent Solicitation Statement as Appendix D.
By Order of the Board of Directors
/s/ Irene J. Marino
Irene J. Marino
Secretary
April __, 2003
Appendix A
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 3rd day of October, 2003 between PerfectData Corporation, a
California corporation (the "Seller"), and Spray Products Corporation, a
Pennsylvania corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business (the "Business") of
computer/office care and cleansing products; and
WHEREAS, the Seller desires to sell all of its inventory and other
assets related to the Business to the Purchaser, and the Purchaser desires to
acquire such assets.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and conditions
hereinafter set forth, the parties do hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase of Assets. Subject to the terms and conditions of this
Agreement, the Seller hereby agrees to sell, transfer, convey, assign and
deliver to the Purchaser, and the Purchaser hereby agrees to purchase, acquire
and accept from the Seller:
1.1.1 All inventories of the Seller, including finished goods, raw
materials and work in process existing on the Closing Date (as defined below)
(the "Inventory");
1.1.2 The following books and records of the Seller, including
customer lists and customer data, supplier lists and supplier data and other
operating data, files, credit information, records of sales and inventory data,
know how, computer software (including source codes and object codes), product
development documentation product development procedures, computer generated
product designs and artwork, catalogues, sales literature displays, and
advertising materials, artwork used in the Business, Non-Disclosure Agreements,
Confidentiality Agreements, telephone numbers, SKU numbers, the trade name
"PerfectData Corporation" and all other names utilized in connection with the
Business and all derivations thereof and other intangibles related to the
Business ( the "Intangibles"); provided, however, that the Seller or its
representative shall have the right, upon reasonable notice and during regular
business hours, for five (5) years after the Closing (as hereinafter defined),
to enter the premises of the Purchaser to review and copy any such books and
records for the purpose of the compilation of the financial records of the
Seller for use in the preparation of any required tax returns, in response to
any federal and/or state tax auditor, for use in the preparation of any report
to be filed pursuant to the Securities Exchange Act of 1934, as amended, or any
securities inquiry.
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1.1.3 The Seller's goodwill relating to the Business (the
"Goodwill");
1.1.4 Such accounts receivable of the Seller as to which the
Purchaser and the Seller may mutually agree upon (such purchased receivables
shall be referred to herein as the "Receivables");
1.1.5 all of the Seller's machinery and equipment, office furniture,
supplies, fixed assets, fixtures and equipment, warehouse equipment, tooling,
molds, and computer hardware except for such pieces of equipment as the Seller
reasonably determines is necessary for the establishment of a new office (the
"Equipment");
1.1.6 all intellectual property related to the Business, including,
but not limited to, software, patents, pending patent applications, patents in
development, copyrights, pending copyright applications, copyrights in
development and all derivative works thereof, trademarks, trade names, logos,
service marks, assumed or fictitious names, trade secrets, manufacturing
know-how, and any and all websites related in whole or in part to the Business
and the data and intellectual property related thereto (collectively, the
"Intellectual Property").
The Inventory, Intangibles, Goodwill, Receivables, Equipment and Intellectual
Property are collectively referred to herein as the "Purchased Assets".
1.2 Retained Assets. Except for the Purchased Assets, the Purchaser is
not purchasing any other assets of the Seller including, the Retained Assets.
The term "Retained Assets" shall mean the following assets of the Seller as of
the Closing Date which, although they relate to the Business, are not Purchased
Assets and are to be retained by the Seller: (a) the Seller's franchise to be a
corporation, Certificate of Incorporation, by-laws, minute books, company seals
and other company records having to do with the organization and capitalization
of the Seller; (b) all canceled checks, bank statements and tax returns of the
Seller relating to the Business; (c) any contract, agreement or lease of the
Seller which is not assumed by the Purchaser hereunder; (d) the Seller's
insurance policies including the cash value of life insurance policies; (e) the
Seller's cash and cash equivalents; (f) the Seller's accounts, notes and
receivables, other than the Receivables; (g) taxes and deposits; (h) all
accounting books and records of the Seller and (i) all other assets not
identified herein as the "Purchased Assets".
1.3 Purchase Price.
1.3.1 The total consideration for the Purchased Assets (the
"Purchase Price") shall be an amount equal to the difference of:
1.3.1.1 the Seller's landed cost for the Inventory (excluding
obsolete items) (the "Inventory Value"); plus
1.3.1.2 An amount equal to the collectible Receivables that,
as of the Closing Date, are no older than sixty-five
(65)days; plus
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1.3.1.3 The sum of One Hundred Thousand ($100,000.00) Dollars;
less:
1.3.1.4 The dollar amount of the Assumed Liabilities (as
hereinafter defined).
1.3.2 Allocation of Purchase Price. The Purchase Price shall
be allocated prior to the Closing in accordance with Section 1060 of the
Internal Revenue Code. The Purchaser and the Seller shall cooperate with each
other in the preparation and filing of I.R.S. Form 8594 in connection with the
Purchase Price allocation. Neither the Purchaser nor the Seller, nor any of
their respective affiliates, shall take any position (whether in financial
statements, audits, tax returns or otherwise) which is inconsistent with the
allocation of the consideration unless required to do so by applicable law or
regulation.
1.3.3 Within seven (7) days prior to the Closing, the Seller and the
Purchaser shall jointly conduct a physical count of the Inventory in order to
determine the Inventory Value.
1.3.4 The Purchase Price shall be payable at the Closing by the
Purchaser to the Seller as follows:
1.3.4.1 An amount equal to the Purchase Price less the
Holdback Amount (as hereinafter defined) shall be paid via bank or certified
check.
1.3.4.2 An amount equal to ten (10%) percent of the Purchase
Price (the "Holdback Amount") shall be delivered to Wachtel & Masyr, LLP (the
"Escrow Agent").
1.4 Post-Closing Adjustment. At any time after seventy-five (75) days
after the Closing, but no later than ninety (90) days after the Closing, the
Purchaser shall have the right to put (the "Put") any uncollected Receivables
(the "Assigned Receivable") to the Seller. In the event of a Put, the Seller
shall deliver to the Purchaser, within thirty (30) days after the date of such
Put, an amount equal to the face-dollar amount of such Assigned Receivable(s).
In the event that Seller does not timely deliver the value of the Assigned
Receivable to the Purchaser, the Purchaser shall send written notice to the
Escrow Agent and the Seller of such event, and the Escrow Agent shall be
instructed to deliver an amount equal to the face amount of the Assigned
Receivable to the Purchaser. The terms of the escrow herein are set forth in the
Escrow Agreement by and among the Purchaser, the Seller and the Escrow Agent,
the form of which is attached hereto as Exhibit A. Notwithstanding the
foregoing, the Purchaser shall have no right to Put any Receivable that is
generated during such period that the Purchaser is managing the Business,
pursuant to Section 5.6 herein.
1.5 Assumption of Liabilities and Obligations. The Purchaser shall
assume and be responsible for all trade payables of the Seller at the Closing
(the "Assumed Liabilities"). The parties agree that the Purchaser is not
assuming any liability or obligation of the Seller other than the Assumed
Liabilities.
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1.6 Preparation of the Purchased Assets. The parties acknowledge that
the Purchaser shall make all arrangements and shall be responsible for all costs
incurred in connection with the packaging and transport of the Purchased Assets
from the Seller to the Purchaser.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
2.1 Organization of the Seller. The Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, with all requisite power and authority to own, lease and operate
its properties and to carry on the Business as it is now being conducted. The
Seller is qualified or licensed as a foreign entity in each jurisdiction in
which it is required as a result of the conduct of the Business or location of
the property owned, leased or operated by it in connection with the Business
except where failure to be so qualified or licensed would not have a material
adverse effect on the value of the Purchased Assets, taken as a whole (a
"Material Adverse Effect").
2.2 Authorization of the Seller. The Seller has full power, capacity and
authority to execute this Agreement and all other agreements and documents
contemplated hereby. The execution and delivery of this Agreement and such other
agreements and documents by the Seller and the consummation by the Seller of the
transactions contemplated hereby have been duly authorized and no other action
on the part of the Seller is necessary to authorize the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Seller and constitutes the valid and binding obligation of the Seller,
enforceable in accordance with its terms, except that (i) enforcement may be
subject to (A) bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally, and (B) proper shareholder and
regulatory consent and (ii) the remedies of specific performance and injunctive
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceedings may be brought.
2.3 No Violations. The execution, delivery and performance of this
Agreement and the other agreements and documents contemplated hereby by the
Seller and the consummation of the transactions contemplated hereby will not (i)
violate any provision of the Certificate of Incorporation or by-laws of the
Seller, (ii) violate any statute, rule, regulation, order or decree of any
public body or authority by which the Seller or its properties or assets are
bound, or (iii) result in a violation or breach of, or constitute a default
under, or result in the creation of any lien, mortgage, pledge, security
interest, charge, claim, option or other encumbrance (collectively, the "Liens")
upon, or create any rights of termination, cancellation or acceleration in any
person with respect to any license, franchise or permit of the Seller, or any
other agreement, contract, indenture, mortgage or instrument to which the Seller
is a party or by which any of its properties or assets is bound except (in the
case of (ii) and (iii)) where any such violation, breach or default would not
have a Material Adverse Effect on the Seller.
2.4 Consents. Except for the consent of the shareholders of the Seller
pursuant to the California General Corporation Law and the approval of the
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Securities and Exchange Commission, no consent, approval or other authorization
of any governmental authority or third party, is required as a result of or in
connection with the execution and delivery of (i) this Agreement and the other
agreements and documents to be executed by the Seller in connection herewith or
(ii) the consummation by the Seller of the transactions contemplated hereby,
except for those that have been, or prior to the Closing will be, obtained. At
the Closing, the Seller shall be in complete compliance with all applicable
laws, rules, regulations, including health, environmental, building, zoning,
safety and labor.
2.5 Litigation and Related Matters. There are no actions, suits,
proceedings, investigations or grievances pending or, to the knowledge of the
Seller, threatened against the Seller, the Business or the Purchased Assets, at
law or in equity, before or by any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (i) that could reasonably be expected to
affect the transactions contemplated hereby or (ii) relating to the Business or
the Purchased Assets.
2.6 Title. At the Closing, the Seller will deliver the Purchased Assets
free and clear of all Liens.
2.7 Disclaimers. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, ALL
OF THE PURCHASED ASSETS (AS DEFINED) ARE BEING SOLD AND TRANSFERRED TO THE
PURCHASER "AS IS" AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR USE, ARE EXCLUDED FROM THE SALE AND TRANSFER
OF THE PURCHASED ASSETS. THE SELLER MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY NATURE WITH RESPECT TO THE PURCHASED ASSETS (EXCEPT AS EXPRESSLY SET FORTH
IN ARTICLE II) OR THE FINANCIAL CONDITION OF THE BUSINESS, INCLUDING BUT NOT
LIMITED TO THE LEVEL OF SALES, PROFITABILITY, INCOME OR FUTURE PROSPECTS. THE
PURCHASER ACKNOWLEDGES THAT ANY FINANCIAL OR OPERATING INFORMATION RELATING TO
THE SELLER'S OPERATION OF THE BUSINESS WAS PROVIDED SOLELY FOR INFORMATIONAL
PURPOSES AND THAT THE SELLER HAS NO RESPONSIBILITY TO THE PURCHASER WITH RESPECT
TO SUCH FINANCIAL OR OPERATING INFORMATION.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to the Seller as follows:
3.1 Corporate Existence. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, with all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
The Purchaser is qualified or licensed as a foreign corporation in each
jurisdiction in which it is required as a result of the character of its
business or location of the property owned, leased or operated by it in
connection with its business except where failure to be so qualified or licensed
would not have a material adverse effect on the Purchaser.
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3.2 Authorization of Purchaser. The Purchaser has full corporate power,
capacity and authority to execute this Agreement and all other agreements and
documents contemplated hereby. The execution and delivery of this Agreement and
such other agreements and documents by the Purchaser and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized and
no other corporate action on the part of the Purchaser is necessary to authorize
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the valid and binding obligation of
the Purchaser, enforceable in accordance with its terms, except that (i)
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally, and (ii) the remedies of
specific performance and injunctive relief arc subject to certain equitable
defenses and to the discretion of the court before which any proceedings may be
brought.
3.3 No Violations. The execution and delivery of this Agreement and the
other agreements and documents contemplated hereby by the Purchaser and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of the certificate of incorporation or bylaws of the Purchaser, (ii)
violate any statute, rule, regulation, order or decree of any public body or
authority by which the Purchaser or its properties or assets are bound, or (iii)
result in a violation or breach of, or constitute a default under or result in
the creation of any Lien upon, or create any rights of termination, cancellation
or acceleration in any person with respect to, any agreement, contract,
indenture, mortgage or instrument to which the Purchaser is a party or any of
its properties or assets is bound except (in the case of (ii) and (iii)) where
any such violation, breach or default would not have a material adverse effect
on the Purchaser.
3.4 Consents. No consent, approval or other authorization of any
governmental authority or third party is required as a result of or in
connection with the execution and delivery of (i) this Agreement and the other
agreements and documents to be executed by the Purchaser in connection herewith
or (ii) the consummation by the Purchaser of the transactions contemplated
hereby, except for those that have been, or prior to the Closing will be,
obtained.
ARTICLE 4
COVENANTS
4.1 Course of Conduct by the Seller. From the date hereof through the
Closing Date, except as may be first approved in writing by the Purchaser or as
otherwise permitted or contemplated by this Agreement, the Business shall be
conducted only in the ordinary course of business consistent with past practice,
and the Seller shall comply with the following covenants:
4.1.1 Disposition of Assets. The Seller shall not sell, transfer or
otherwise dispose of any part of the Purchased Assets, tangible or intangible,
except for inventory and supplies, disposed of or consumed in the ordinary
course of business.
4.1.2 Relations with Suppliers and Customers. The Seller will use
commercially reasonable efforts to preserve its relationships with material
suppliers, customers and others having material business dealings with it with
respect to the Business.
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4.1.3 Liens. The Seller will not mortgage, pledge, encumber, create
or allow any Liens not existing on the date hereof upon any of the Purchased
Assets.
4.2 Approvals and Consents. Each party shall use its reasonable efforts
(i) to cause all conditions to the obligations of the other party under this
Agreement over which it is able to exercise influence or control to be satisfied
prior to the Closing Date and (ii) to obtain promptly and to comply with all
requisite statutory, regulatory or court approvals, third party releases and
consents, and other requirements necessary for the valid and legal consummation
of the transactions contemplated hereby.
4.3 Investigations. The Seller shall provide the Purchaser and its
representatives and agents such access to the books and records of the Seller
and furnish to the Purchaser such financial and operating data and other
information with respect to the Purchased Assets as Purchaser may reasonably
request from time to time. If the transactions provided for herein are not
consummated, the provisions of the Confidentiality Agreement, dated as of May
30, 2003 between the Seller and the Purchaser shall be binding on the Purchaser
as if such Confidentiality Agreement was entered into as of the date hereof.
Notwithstanding the foregoing, the Purchaser acknowledges that it has conducted
its due diligence with respect to the Seller the Business and the Purchased
Assets and it may not terminate this Agreement based on further due diligence.
4.4 No Solicitation. Except with respect to the Purchaser and its
affiliates, after the date hereof, until the earlier of the Closing or the
termination of this Agreement, the Seller shall not (i) initiate or solicit,
directly or indirectly, any inquiries or the making of any proposal with respect
to a purchase of all or any significant portion of the Purchased Assets (other
than in the ordinary course of business) (an "Acquisition Transaction"), or (ii)
engage in any negotiations concerning, or provide to any other person any
information or data relating to the Seller for the purposes of or have any
discussions with any person relating to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage any effort or attempt by
any other person to seek or effect, an Acquisition Transaction.
4.5 Public Announcements. Without the prior written consent of the other
party hereto, neither party shall make any press release, public announcement or
other disclosure to third parties including customers (other than disclosures to
lenders and professional advisors who agree to keep such information
confidential) with respect to the transactions contemplated by this Agreement,
except as required by law, or pursuant to any securities laws or regulations.
4.6 Future Business. From the date hereof through the Closing, the
Purchaser will continue to sell inventory to the Seller in its ordinary course
and will continue to extend open credit to the Seller.
ARTICLE 5
CLOSING
5.1 Closing. Unless this Agreement is first terminated as provided in
Section 5.4, and subject to the satisfaction or waiver of all conditions to the
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consummation of the transactions contemplated hereby, the closing of the
transactions contemplated hereby (the "Closing") shall take place at the offices
of Wachtel & Masyr, LLP, 110 East 59th Street, New York, New York 10022 on the
twenty first (21) day following the date that notice of the sale contemplated
herein is sent to the shareholders of the Seller, pursuant to Section 603(b)(1)
of the California General Corporation Law; provided however, that the parties
may agree to extend the Closing for up to thirty (30) days.
5.2 Conditions to the Purchaser's Obligations. The obligation of the
Purchaser to effect the Closing shall be subject, at its option, to the
satisfaction or waiver of each of the following conditions at or prior to the
Closing:
5.2.1 Representations, Warranties and Compliance with Covenants.
Each representation and warranty of the Seller contained in this Agreement and
in any Schedule shall be true and correct when made, and shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representation and warranty had been made on and as of the
Closing Date. Each of the covenants and agreements herein on the part of the
Seller to be complied with or performed on or before the Closing Date shall have
been complied with and performed in all material respects. The Purchaser shall
have received a certificate, dated the Closing Date, of the Seller to the
foregoing effect.
5.2.2 Bill of Sale. The Seller shall have executed and delivered to
the Purchaser a Bill of Sale in form and substance attached hereto as Exhibit B.
5.2.3 Certificates. The Seller shall have delivered to the Purchaser
certificates of the appropriate governmental authorities, dated as of a date not
more than thirty (30) days prior to the Closing Date, attesting to the existence
and good standing of the Seller in the State of California.
5.2.4 Litigation. No investigation, suit, action, or other
proceeding shall be threatened or pending before any court or governmental
agency that seeks the restraint, prohibition, damages, or other relief in
connection with this Agreement or the consummation of the transactions
contemplated by this Agreement.
5.3 Conditions to Obligations of the Seller. The obligation of the
Seller to effect the Closing shall be subject, at its option, to the
satisfaction or waiver of each of the following conditions at or prior to the
Closing:
5.3.1 Accuracy of Representations and Warranties and Compliance with
Covenants. Each representation and warranty of the Purchaser contained in this
Agreement shall be true and correct when made, and shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representation and warranty had been made on and as of the Closing
Date. Each of the covenants and agreements herein on the part of the Purchaser
to be complied with or performed on or before the Closing Date shall have been
fully complied with and performed in all material respects. The Seller shall
have received a certificate, dated the Closing Date, of the Purchaser to the
foregoing effect.
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5.3.2 Certificates. The Purchaser shall have delivered to the Seller
a certificate of the appropriate governmental authorities, dated as of a date
not more than thirty (30) days prior to the Closing Date, attesting to the
existence and good standing of the Purchaser in the state of its incorporation.
5.3.3 Consents and Approvals. All material authorizations, consents,
approvals, waivers and releases necessary for the Seller to consummate the
transactions contemplated hereby shall have been obtained, including, without
limitation, the obtaining of shareholder and director approvals pursuant to the
California General Corporation Law and the Seller shall have complied with
Section 14(c) of the Securities Exchange Act of 1934, as amended.
5.3.4 Approval, Litigation. No investigation, suit, action, or other
proceeding shall be threatened or pending before any court or governmental
agency that seeks the restraint, prohibition, damages, or other relief in
connection with this Agreement or the consummation of the transactions
contemplated by this Agreement.
5.3.5 Purchase Price. The Purchaser shall have delivered the
Purchase Price to the Seller and the Escrow Agent.
5.3.6 Assumption of Liabilities. The Purchaser shall have delivered
an Assumption of Liabilities to the Seller, in substantially the form attached
hereto as Exhibit C.
5.4 Termination.
5.4.1 This Agreement may be terminated and abandoned at any time
prior to the Closing:
5.4.1.1 By the written mutual consent of the Purchaser and the
Seller;
5.4.1.2 By the Purchaser on the Closing Date if any of the
conditions set forth in Section 5.2 shall not have
been fulfilled or waiver on or prior to the Closing
Date; and
5.4.1.3 By the Seller on the Closing Date if any of the
conditions set forth in Section 5.3 shall not have
been fulfilled or waived on or prior to the Closing
Date.
5.5 Rights on Termination.
5.5.1 If this Agreement is terminated pursuant to Section 5.4
hereof, all further obligations of the parties under or pursuant to this
Agreement shall, subject to Section 7.12 herein, terminate without further
liability of either party to the other, except that (i) the Purchaser's
obligations contained in Section 4.3 of this Agreement, (ii) the representations
of the parties contained in Section 7.10 and (iii) the provisions of Section
7.11, shall all survive any such termination.
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5.5.2 In the event that either party hereto terminates this
Agreement for a reason other than as set forth in Section 5.4 herein, or refuses
to or is unable to close the transaction contemplated herein other than as is
permitted hereunder (such party being referred to herein as the "Non-Closing
Party"), and such inability to close is not the fault of the other party, the
Non-Closing Party shall pay a break-up fee to the other party in an amount equal
to One Hundred Thousand ($100,000) Dollars in cash.
5.6 Management.
5.6.1 If this Agreement is not terminated pursuant to Section 5.4
herein, the Purchaser shall, beginning November 1, 2003, act as the manager for
the fulfillment of orders from the Seller's customers. In connection therewith,
the Purchaser shall manufacture or otherwise obtain all finished goods required
by the Seller's customers and package such items for shipment to the Seller's
customers in accordance with each purchase order. In order to facilitate such
fulfillment obligations, the Seller shall, prior to October 31, 2003, deliver
all its finished goods and certain of its equipment and other fixed assets used
in connection with the operation of the Business, to a pre-designated warehouse
(the "Facility") of the Purchaser.
5.6.2 As compensation for the Purchaser's services under this
management arrangement, the Purchaser shall be entitled to a fee (the "Fee")
equal to seven and one-half (7.5%) percent of the "Net Sales" of all products
sold to the Seller's customers. For purposes of this Section 5.6, "Net Sales"
shall mean the gross invoice price of each product less all (i) commissions
payable in connection with the sale of such products and (ii) rebates given by
the Seller to its customers in the ordinary course of Seller's business. The Fee
shall be payable on a monthly basis within thirty (30) days after the end of the
following month in which payment was received by the Seller for such product.
5.6.3 In connection with the services to be provided under this
management arrangement by the Purchaser, (a) the Seller agrees to: (i) maintain
adequate facilities to process orders and invoices; and (ii) deliver to the
Purchaser in a timely manner all customer orders and (b) the Purchaser (i)
agrees to timely fulfill and ship all customer orders and (ii) shall be
responsible for all payments with respect to the transport of inventory from the
Facility to the customers.
5.6.4 Notwithstanding anything contained herein to the contrary, the
Seller has the right to reject any customer orders if the Seller, in its sole
discretion, deems the profit margins on such purchase orders to be inadequate.
5.6.5 The obligations of each of the parties under this Section 5.6
shall survive until the earlier of the Closing or the termination of this
Agreement.
5.6.6 Upon the termination of this Agreement, in addition to all
rights and remedies under this Agreement, the Purchaser shall be required to
fulfill all existing customer orders sent by the Seller and shall immediately
return all unsold inventory of the Seller to the Seller.
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ARTICLE 6
INDEMNIFICATION
6.1 Purchaser's Losses.
6.1.1 The Seller shall indemnify and hold harmless the Purchaser,
its directors, officers, employees, representatives, agents, and attorneys
("Purchaser Indemnified Parties") from, against and in respect of any and all
Purchaser's Losses (as defined below) suffered, sustained, incurred or required
to be paid by any of them by reason of (i) any representation or warranty made
by the Seller in or pursuant to this Agreement being untrue or incorrect in any
material respect; or (ii) any failure by the Seller to observe or perform its
covenants and agreements set forth in this Agreement or any other agreement or
document executed by the Seller in connection with the transactions contemplated
hereby; except in any instance to the extent the Purchaser's Losses results from
a Purchaser Indemnified Party's own negligence or willful misconduct.
6.1.2 "Purchaser's Losses" shall mean all damages, including,
without limitation, subject to Section 6.2.3 amounts paid in settlement with the
Seller's consent, which consent may not be unreasonably withheld, losses,
obligations, liabilities, liens, deficiencies, costs (including, without
limitation, reasonable attorneys' fees), taxes, penalties, fines, interest,
monetary sanctions and expenses, including, without limitation, reasonable
attorneys' fees and costs incurred to comply with injunctions and other court
and agency orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce a Purchaser
Indemnified Party's right to indemnification hereunder. The Seller shall not
have any obligation under Section 6.1 to indemnify the Purchaser Indemnified
Parties with respect to (i) Purchaser's Losses until the aggregate combined
total of all such Purchaser's Losses incurred by the Purchaser Indemnified
Parties exceeds $25,000, whereupon the Purchaser Indemnified Parties shall be
entitled to indemnification with respect to the full amount of Purchaser's
Losses determined without regard to such limitation, and (ii) aggregate
Purchaser's Losses in excess of the amount of the Purchase Price actually paid
to the Seller.
6.2 Seller's Losses.
6.2.1 The Purchaser shall indemnify and hold harmless the Seller and
its officers, directors, employees, representatives, agents, and attorneys
("Seller Indemnified Parties") from, against and in respect of any and all
Seller's Losses (as defined below) suffered, sustained, incurred or required to
be paid by any of them, by reason of (i) any representation or warranty made by
the Purchaser in or pursuant to this Agreement being untrue or incorrect in any
material respect, or (ii) any failure by the Purchaser to observe or perform its
covenants and agreements set forth in this Agreement or any other agreement or
document executed by it in connection with the transactions contemplated hereby
including a failure to pay an Assumed Liability, except in any instance to the
extent the Seller's Losses results from a Seller Indemnified Party's own
negligence or willful misconduct.
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6.2.2 "Seller's Losses" shall mean all damages, including, without
limitation, subject to Section 6.2.3 amounts paid in settlement with the
Purchaser's consent, which consent may not be unreasonably withheld, losses,
obligations, liabilities, liens, deficiencies, costs (including, without
limitation, reasonable attorneys' fees), taxes, penalties, fines, interest,
monetary sanctions and expenses, including, without limitation, reasonable
attorneys' fees and costs incurred to comply with injunctions and other court
and agency orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce a Seller
Indemnified Party's right to indemnification hereunder. The Purchaser shall not
have any obligation under Section 6.2 to indemnify the Seller Indemnified
Parties with respect to Seller's Losses until the aggregate combined total of
all such Seller's Losses incurred by the Seller Indemnified Parties exceeds
$25,000, whereupon the Seller Indemnified Parties shall be entitled to
indemnification with respect to the full amount of Seller's Losses determined
without regard to such limitation, provided, however, that this limitation shall
not apply to a failure to pay Purchase Price or a failure to pay an Assumed
Liability.
6.2.3 Claims Procedure. Whenever a Purchaser's Loss or Seller's Loss
subject to the indemnity provisions in this Article VI shall arise (a "Claim"),
the party entitled to indemnity (the "Indemnified Party") shall promptly notify
the party obligated to provide indemnity (the "Indemnifying Party") of such
Claim and, when known, the facts constituting the basis of such Claim, provided,
however, that in the event of a claim resulting from or in connection with any
Claim by a third party, the Indemnified Party shall use its diligent efforts to
give notice no later than ten (10) days prior to the time any response to the
asserted Claim is required. In the event of a Claim resulting from or in
connection with a Claim by a third party, the Indemnifying Party may, at its
sole cost and expense, assume the defense thereof. If an Indemnifying Party
assumes the defense of the Claim, the Indemnifying Party shall be entitled to
select counsel and take all steps necessary in the defense thereof and shall
have the right to effect a settlement of the Claim. The Indemnified Party shall
have the right, but not the obligation, to participate at its own expense in the
defense thereof by counsel of its own choice. In the event that the Indemnifying
Party fails to timely defend, contest or otherwise protect against any such
Claim, the Indemnified Party shall have the right to defend, contest or
otherwise protect against the same and may make any compromise or settlement
thereof and recover from the Indemnifying Party the entire cost thereof,
including, without limitation, reasonable attorneys' fees, disbursements and all
amounts paid as a result of such Claim or compromise or settlement thereof.
ARTICLE 7
MISCELLANEOUS
7.1 Further Assurances. If, at any time after the Closing, either party
shall reasonably consider or be advised that any further assignments,
conveyances, certificates, filings, instruments or documents or any other things
are necessary or desirable to vest, perfect or confirm in the Purchaser title to
the Purchased Assets or to consummate any of the transactions contemplated by
this Agreement, the other party shall, upon request, promptly execute and
deliver all such assignments, certificates, filings, instruments and documents
and do all things reasonably necessary and proper to vest, perfect or confirm
title in the Purchaser and to otherwise carry out the purposes of this
Agreement.
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7.2 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof, and no party shall be liable or bound
to the other in any manner by any representations or warranties not set forth
herein. This Agreement has been jointly prepared by the parties hereto and the
terms hereof shall not be construed in favor of or against any party on account
of its participation in such preparation.
7.3 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. The Purchaser has the right to
assign its rights under this Agreement provided, that in the event it assigns
such rights, Spray Products Corporation, a Pennsylvania corporation, hereby
unconditionally guarantees the performance of each and every obligation of its
successor as the Purchaser under this Agreement and the Escrow Agreement.
7.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
7.5 Headings. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
7.6 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof, and this Agreement may be modified or amended by a written
instrument executed by all parties hereto. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by all
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
7.7 Schedules and Exhibits. All exhibits and schedules annexed hereto
are expressly made a part of this Agreement as though fully set forth herein and
all references to this Agreement herein or in any such exhibits or schedules
shall refer to and include all such exhibits and schedules.
7.8 Notices. Any notice, request, instruction, document or other
communication to be given hereunder by any party hereto to any other party
hereto shall be in writing and validly given if (i) delivered personally, (ii)
sent by telecopy, (iii) delivered by overnight express, or (iv) sent by
registered or certified mail, postage prepaid, as follows:
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If to the Purchaser, to:
Spray Products Corporation
1323 Conshohocken Road
Plymouth Meeting, PA 19462
Attn: Burt Bastian
Facsimile: (610) 277-4390
with a copy to:
Eckell, Sparks, Levy, Auerbach, Monte, Rainer & Sloane, P.C.
P.O. Box 319
Media, PA 19063
Attn: Joseph L. Monte, Jr., Esq.
Facsimile: (610) 565-1596
If to the Seller:
PerfectData Corporation
110 West Easy Street
Simi Valley, California 93065
Attn: Harris A. Shapiro, Chairman
Facsimile: (805) 522-5788
with a copy to:
Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attn: Robert W. Berend, Esq.
Facsimile: (212) 371-0320
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally, or sent by telecopy or overnight express
in the manner provided herein shall be deemed to have been duly given to the
party to whom it is directed upon actual receipt by such party. Any notice which
is addressed and mailed in the manner herein provided shall be conclusively
presumed to have been given to the party to whom it is addressed at the close of
business, local time of the recipient, on the third day after the day it is so
placed in the mail.
7.9 Governing Law. This agreement shall be construed, enforced, and
governed by the internal laws of the State of California without regard to its
choice of law principles. Each of the parties hereto hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of any court of the State
of California (collectively, the "Courts") for purposes of any suit, action or
other proceeding arising out of this Agreement (and agrees not to commence any
action, suit or proceedings relating hereto except in such Courts). Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement, which is brought by or against it in the Courts and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such Court that any such action, suit or proceeding brought in any such Court
has been brought in an inconvenient forum.
7.10 Survival. The representations and warranties of the Purchaser and
Seller included or provided for herein, or in other instruments or agreements
delivered or to be delivered at or prior to the Closing in connection herewith,
shall survive for a period of one (1) year following the Closing Date. The
obligations of the Seller pursuant to Article 7 shall survive until the
expiration of the Covenant Period.
7.11 Brokers. The Purchaser, on the one hand, and the Seller, on the
other, each represent to the other that it has not used a broker or finder in
connection with the transactions contemplated by this Agreement and each shall
hold the other harmless from any such claim.
7.12 Expenses. The Purchaser, on the one hand, and the Seller, on the
other, shall each pay its own costs and expenses incurred by it, including, but
not limited, to the fees of their respective counsel in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement. Notwithstanding the foregoing, in the event that
the (a) the Purchaser breaches its obligations to purchase the Purchased Assets
other than pursuant to Section 5.4 herein, the Purchaser shall reimburse the
Seller for all out of pocket expenses incurred by the Seller (including
reasonable attorneys fees) in connection with this Agreement; or (b) the Seller
enters into a letter of intent or purchase agreement in violation of Section 4.4
herein, the Seller shall reimburse the Purchaser for all out of pocket expenses
incurred by the Purchaser (including reasonable attorneys fees) in connection
with this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as the
date first set forth above.
PURCHASER:
Spray Products Corporation
By: /s/ Bart Bastian
Name: Bart Bastian
Title: President
SELLER:
PerfectData Corporation
By: /s/ Harris A. Shaprio
Name: Harris A. Shapiro
Title: Chairman of the Board and Chief
Executive Officer
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Appendix B
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This First Amendment (the "Amendment"), dated as of the 26 day of
February, 2004, to the Asset Purchase Agreement ("the "Original Agreement"),
dated as of October 3, 2003, between PerfectData Corporation, a California
corporation, and Spray Products Corporation, a Pennsylvania corporation.
W I T N E S S E T H
WHEREAS, the parties hereto entered into the Original Agreement whereby
Seller agreed to sell, and Purchaser agreed to purchase, substantially all the
assets of Seller; and
WHEREAS, the parties desire to amend the Original Agreement as provided
for herein;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreement set forth herein, the parties agree as
follows:
1. The second sentence of Section 1.5 is hereby amended by the addition of the
following:
"and as provided in Section 4.7 hereof."
2. The following shall be inserted as Section 4.7:
"4.7 Insurance. Purchaser agrees to maintain product
liability insurance covering not only all products
manufactured or shipped by it post-closing, but also
including all products manufactured or shipped by the
Purchaser prior to the Closing Date, including those
during the management period pursuant to Section 5.6
hereof."
3. Section 5.6.3(a) is hereby amended to add the following:
"(iii) be responsible for all freight and shipping
charges incurred by the Buyer in connection with the
transport of inventory from the Facility to the
customers."
4. Section 5.6.3 (b)(ii) is hereby deleted in its entirety.
5. Except as specifically modified herein, the Original Agreement shall not
be modified and shall remain in full force and effect.
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6. All capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Original Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
PURCHASER:
Spray Products Corporation
By: /s/Bart Bastian
------------------------------
Name: Bart Bastian
Title: President
SELLER:
PerfectData Corporation
By: /s/Harris A. Shapiro
Name: Harris A. Shapiro
Title: Chairman of the Board and Chief
Executive Officer
B-2
Appendix C
CALIFORNIA GENERAL CORPORATION LAW SECTIONS 1300-1312
1300.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the National Market System of the NASDAQ Stock Market,
and the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304; provided,
however, that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
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1301.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision D-1 (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof. (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof,
(a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or
C-2
(b) if the shares are uncertificated securities, written notice of the
number of shares which the shareholder demands that the corporation purchase.
Upon subsequent transfers of the dissenting shares on the books of the
corporation, the new certificates, initial transaction statement, and other
written statements issued therefor shall bear a like statement, together with
the name of the original dissenting holder of the shares.
1303.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
1304.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated. (c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue, the court
shall first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or more
impartial appraisers to determine, the fair market value of the shares.
1305.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
C-3
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306.
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
1307.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
1308.
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
1309.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310.
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
1311.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
1312.
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-6
Appendix D
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERFECTDATA CORPORATION
Balance Sheet
(Unaudited)
(Dollars in thousands)
December 31,
2003
----------------------
Assets
Current assets:
Cash and cash equivalents $ 2,106
Accounts receivable, net 145
Prepaid expenses and other current assets 70
----------------------
Total current assets 2,321
Property, plant and equipment, at cost, net -
----------------------
$ 2,321
======================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 418
Accrued compensation 34
Other accrued expenses 123
---------------------
Total current liabilities 575
---------------------
Shareholders' equity:
Preferred Stock. Authorized 2,000,000
shares; none issued -
Common Stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 6,209,530 shares 11,258
Accumulated deficit (9,512)
--------------------
Net shareholders' equity 1,746
--------------------
$ 2,321
====================
See accompanying notes to financial statements.
D-1
PERFECTDATA CORPORATION
Statements of Operations
(Unaudited)
(amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
------------------------------------------------------------ --------------- -------------- --- ------------ -------------
------------------------------------------------------------ --------------- -------------- --- ------------ -------------
Net sales $ 636 $ 500 $ 2,069 $ 1,554
Cost of goods sold 420 326 1,352 1,013
--------------- -------------- ------------ -------------
--------------- -------------- ------------ -------------
Gross profit 216 174 717 541
Selling, general and administrative expenses 431 310 1,201 1,066
--------------- -------------- ------------ -------------
--------------- -------------- ------------ -------------
Loss from operations (215) (136) (484) (525)
Other income:
Other, net 4 9 13 31
--------------- -------------- ------------ -------------
--------------- -------------- ------------ -------------
Net loss (211) (127) (471) (494)
Net loss per common share - basic and diluted $ (.03) $ (.02) $ (.08) $ (.08)
=============== ============== ============ =============
=============== ============== ============ =============
6,209 6,159 6,187 6,159
=============== ============== ============ =============
See accompanying notes to financial statements.
D-2
PERFECTDATA CORPORATION
Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine-Month Period Ended
December 31,
----------------------------------
----------------- --- ------------
2003 2002
---- ----
Cash Flows from operating activities:
Net Loss $ (471) $ (494)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 6 15
Stock issued for services 52 -
(Increase) decrease in accounts receivable 13 (64)
(Increase) decrease in inventories 188 (14)
Increase in prepaid expenses and other assets (8) (2)
Increase in accounts payable 135 50
Increase in accrued expenses 18 7
----------------- ------------
----------------- ------------
Net cash used in operating activities (67) (502)
----------------- ------------
----------------- ------------
Decrease in cash and cash equivalents (67) (502)
Cash and cash equivalents at beginning of period 2,173 2,758
----------------- ------------
----------------- ------------
Cash and cash equivalents at end of period $ 2,106 $ 2,256
================= ============
================= ============
See accompanying notes to financial statements.
D-3
PERFECTDATA CORPORATION
Notes to Financial Statements
1. All adjustments included in the financial statements in this Report are of
a normal recurring nature and are necessary to present fairly the Company's
financial position as of December 31, 2003 and the results of its operations and
cash flows for the nine months ended December 31, 2003 and 2002. Results of
operations for the interim periods are not necessarily indicative of results of
operations for a full year due to external factors that are beyond the control
of the Company. This Report should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 2003 ("Annual
Report 2003").
As previously reported, on October 3, 2003, the Company entered into an
Asset Purchase Agreement (the "APA") with Spray Products Corporation ("Spray"),
pursuant to which the Company agreed to sell to Spray (or a Spray affiliate)
substantially all of the operating assets of the Company for a price equal to
the sum of the value of the inventory, collectible accounts receivable and
$100,000, less the amount of trade payables which are being assumed by Spray.
Since November 1, 2003, Spray has, pursuant to the APA, been acting as a
manager for the fulfillment of orders from the Company's customers. As
compensation for Spray's services, Spray is receiving a fee of 7 1/2% of net
sales. As a result of the management arrangement with Spray, the Company has
moved to smaller facilities and reduced its staff, thereby reducing its ongoing
overhead expenses. As an example, the Company expects to save approximately
$11,000 per month in rent and related facility costs.
The Board of Directors, after consultation with certain major shareholders,
had elected in June 2003, to sell the operating business assets of the Company
because, despite efforts by the Company during the prior fiscal years which had
increased sales and reduced expenses, the Company continues to operate at a
loss, thereby diluting the Company's cash, which is its major asset. The Board
concluded that a sale or liquidation of the operating assets was in the best
interests of the Company and its shareholders even if no acquisition or merger
(including the then pending transaction with SuperCom) was effected.
The Company will seek shareholders' approval, by consents in lieu of
holding a meeting, to permit the sale of its operating assets to Spray. At such
time as the Company has obtained formal approval of its shareholders to permit
the sale to Spray, the Company will have no operations and will thereafter
receive no revenues until an acquisition or merger is effected.
As previously reported, on July 2, 2003, the Company entered into the
Merger Agreement and related agreements with SuperCom, an Israeli corporation,
culminating the negotiations which had begun in April 2003. SuperCom is engaged
in the research, development and marketing of advanced technologies and products
for government secured ID projects and smart card production technology. On
January 20, 2004, the Company reported that the Merger Agreement had terminated.
The Board of Directors of the Company does not intend to liquidate the
Company, but instead, with the Company having cash or cash equivalents currently
in excess of $1,500,000, the Board intends to continue its search for a suitable
merger or acquisition candidate. Even though the Company will have no
operations, the company believes its listing is valuable and therefore makes it
a viable merger candidate. During the past three fiscal years, the Company had
been seeking acquisitions which have not been related to its current business.
The Board was of the opinion that profitability on a continuous basis would not
be achieved absent an acquisition of a new business or businesses and/or new
products. However, the Board can not determine when any such acquisition will be
consummated, if at all. During recent years, three potential acquisitions
(including SuperCom) were actively pursued; however, all terminated for
different reasons and the Company incurred expenses in connection therewith.
No adjustments have been made to the financial statements as a result of
these uncertainties.
2. Inventories
Pursuant to the APA, the Company transferred its inventory on hand at
October 31, 2003 to Spray. Pursuant to this agreement, Spray will pay the
Company for the inventory at the time of the close of the transaction. The
Company reclassified its inventory, with a net book value of $28,000, to other
current assets.
3. Property and Equipment
Property and equipment consist of (in thousands):
December 31, 2003
(unaudited)
Machinery and equipment $ 296
Furniture and fixtures 7
-------------
303
Less accumulated
depreciation (303)
--------------
$ -
=================
D-6
4. Income taxes
At December 31, 2003, the Company had net operating loss (NOL)
carryforwards of approximately $5,381,598 for federal income tax purposes
expiring in varying amounts through 2023. The NOL carryforwards, which are
available to offset future profits of the Company and are subject to limitations
should a "change in ownership" as defined in the Internal Revenue Code occur,
will begin to expire in 2009 if not utilized. Additionally, the Company has
general business tax credit carryforwards of $12,000 which will begin to expire
in 2006.
SFAS 109 requires that the tax benefit of such NOLs and other deferred tax
assets be recorded as an asset using current tax rates to the extent management
assesses the utilization of such NOLs and other assets to be more likely than
not. Management has determined that future taxable income of the Company will
likely not be sufficient to realize the recorded deferred tax asset of
$2,034,270. As such, the Company has recorded a valuation allowance of
$2,034,270.
5. Loss Per Common Share
Basic net loss per share is based on the weighted average number of shares
outstanding during each of the respective periods. Diluted net loss per share
includes the dilutive impact of all Common Stock equivalents such as options and
warrants to purchase the Company's Common Stock. During the respective periods,
the impact of the Common Stock equivalents, such as stock options, was
antidilutive; therefore, they have been excluded from the calculation of diluted
loss per share.
6. Shareholders' Equity
On July 31, 2003, the Company issued 50,000 shares of the Company's Common
Stock to the Chairman of the Audit Committee as compensation for his services
over the past three years. During the quarter ended June 30, 2003, the Company
had recorded compensation expense of $51,500 for the shares.
7. Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure. Due to the
reduction of the exercise price of fixed stock options through the cancellation
of stock option awards and the granting of replacement awards, per FIN No. 44,
Accounting for Certain Transactions involving Stock Compensation, the Company
has adopted variable accounting for the replacement awards, per FIN No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans.
D-6
The Company applies APB Option No. 25 in accounting for its employees and
director stock option plans. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123 and
SFAS No. 148, the Company's net loss would have been increased to the pro forma
amounts indicated below. The fair value of these options was estimated at the
date of grant using a Black-Scholes option-pricing model, assuming a risk-free
interest rate of 4.57% - 6.26%, a ten-year term, 50% volatility, and $0 expected
dividend rate.
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
--------------------------- ---------------------------
(000's, except per share amounts) (000's, except per share amounts)
Net loss, as reported $ (211) (127) (471) (494)
Deduct total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of tax (8) (1) (20) (3)
--------------------------- ---------------------------
Pro forma net loss $ (219) (128) (491) (497)
=========================== ===========================
Basic and diluted net loss per common share:
As reported $ (0.03) (0.02) (0.08) (0.08)
Pro forma (0.04) (0.02) (0.08) (0.08)
8. Subsequent Event
On January 20, 2004, the Company announced that the Agreement and Plan of
Merger and Reorganization dated as of July 2, 2003 (the "Merger Agreement") by
and between the Company and SuperCom Ltd. ("SuperCom") and related agreements
had terminated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Proposed Sale of Current Business Operations
As previously reported, on October 3, 2003, the Company entered into an
Asset Purchase Agreement (the "APA") with Spray Products Corporation ("Spray"),
pursuant to which the Company agreed to sell to Spray (or a Spray affiliate)
substantially all of the operating assets of the Company for a price equal to
the sum of the value of the inventory, collectible accounts receivable and
$100,000, less the amount of trade payables which are being assumed by Spray.
Since November 1, 2003, Spray has, pursuant to the APA, been acting as a
manager for the fulfillment of orders from the Company's customers. As
compensation for Spray's services, Spray is receiving a fee of 7 1/2% of net
sales. As a result of the management arrangement with Spray, the Company has
moved to smaller facilities and reduced its staff, thereby reducing its ongoing
overhead expenses. As an example, the Company expects to save approximately
$11,000 per month in rent and related facility costs. The Board of Directors,
after consultation with certain major shareholders, had elected in June 2003, to
sell the operating business assets of the Company because, despite efforts by
the Company during the prior fiscal years which had increased sales and reduced
expenses, the Company continues to operate at a loss, thereby diluting the
Company's cash, which is its major asset. The Board concluded that a sale or
liquidation of the operating assets was in the best interests of the Company and
its shareholders even if no acquisition or merger (including the then pending
transaction with SuperCom) was effected.
The Company will seek shareholders' approval, by consents in lieu of
holding a meeting, to permit the sale of its operating assets to Spray.
At such time as the Company has obtained formal approval of its
shareholders to permit the sale to Spray, the Company will have no operations
and will thereafter receive no revenues until an acquisition or merger is
effected.
Efforts to Seek Another Merger or Acquisition Candidates
As previously reported, on July 2, 2003, the Company entered into the
Merger Agreement and related agreements with SuperCom, an Israeli corporation,
culminating the negotiations which had begun in April 2003. SuperCom is engaged
in the research, development and marketing of advanced technologies and products
for government secured ID projects and smart card production technology. On
January 20, 2004, the Company reported that the Merger Agreement had terminated.
The Board of Directors of the Company does not intend to liquidate the
Company, but instead, with the Company having cash or cash equivalents currently
in excess of $1,500,000, the Board intends to continue its search for a suitable
merger or acquisition candidate. Even though the Company will have no
operations, the Company believes its listing is valuable and therefore makes it
a viable merger candidate. During the past three fiscal years, the Company had
been seeking acquisitions which have not been related to its current business.
The Board was of the opinion that profitability on a continuous basis would not
be achieved absent an acquisition of a new business or businesses and/or new
products. However, the Board can not determine when any such acquisition will be
consummated, if at all. During recent years, three potential acquisitions
(including SuperCom) were actively pursued; however, all terminated for
different reasons and the Company incurred expenses in connection therewith.
Critical Accounting Policies
Management believes that the following discussion addresses the Company's
most critical accounting policy, which is most important to the portrayal of the
Company's financial condition and results, and requires the most difficult,
subjective and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. Prior to
November 1, 2003, the date on which Spray assumed responsibility for fulfillment
of customer orders, management also included a discussion of its evaluation of
inventory as a critical accounting policy on an on-going basis.
Allowance for Doubtful Accounts:
The Company evaluates the collectibility of its accounts receivable and
provides an allowance for estimated losses that may result from customers'
inability to pay. The amount of the reserve is determined by analyzing known
uncollectible accounts, aged receivables and customers' credit-worthiness.
Amounts later determined and specifically identified to be uncollectible are
written off against the allowance.
Results of Operations
Net sales for the third fiscal quarter ended December 31, 2003 ("current
quarter") increased $136,000, or 27%, to $636,000 from net sales of $500,000 in
the year-earlier period. Net sales for the nine months ended December 31, 2003
("current nine-month period") increased $515,000, or 33%, to $2,069,000 from net
sales of $1,554,000 in the year-earlier period. The increased sales were a
result of an increase in sales volume with the Company's existing customers.
Spray's management of the operations, as described under the caption "Proposed
Sale of Current Business Operations" in this Item 2, had no effect on the
increased sales in the current quarter.
Cost of Goods Sold ("Costs") as a percentage of net sales for the current
quarter and current nine-month period was 66% and 65% respectively, as compared
to 65% in each of the respective year-earlier periods. The increase in Costs
primarily related to the interim management fee for Spray.
Selling, General and Administrative Expenses ("Expenses") for the current
quarter were $431,000 as compared to $310,000 in the year-earlier period.
Expenses for the current nine-month period were $1,201,000 as compared to
$1,066,000 in the year-earlier period. The increase in Expenses in the current
quarter directly relates to costs associated with the SuperCom transaction, as
well as severance pay and related taxes paid to employees whose employment was
terminated when the Company transferred its order fulfillment to Spray. Expenses
in both the current nine-month period and the year-earlier period have been
impacted by the efforts to seek a strategic acquisition. An aggregate of
$226,000 in Expenses relating to the SuperCom transaction were incurred in the
current nine-month period and an aggregate of $115,000 in Expenses relating to
an aborted transaction were incurred in the year-earlier period. In addition,
the Company recorded in the current nine-month period a compensation expense of
$51,500 related to the 50,000 shares of the Company's Common Stock issued to the
Chairman of the Audit Committee for his services as such.
Other Income for the current quarter was primarily dividend income of
$4,000 as compared to dividend income of $9,000 in the year-earlier period.
Other Income for the current nine-month period was primarily dividend income of
$15,000 as compared to dividend income of $33,000 in the year-earlier period.
The increased net loss in the current quarter directly related to the
increased Expenses, as described above. The decreased net loss in the current
nine-month period directly related to the increased sales.
D-9
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $67,000 from $2,173,000
at March 31, 2003 to $2,106,000 at December 31, 2003. The decrease in cash
during the current nine-month period resulted from cash used in operating
activities of $67,000, which was primarily the result of the net loss of
$471,000 partially offset by a decrease in inventories and accounts receivable
and an increase in accounts payable and accrued expenses.
As a result of the continuing negative cash flows from operations, the
Company is dependent on the proceeds from its March 2000 private placement in
order to meet its payable requirements. On March 31, 2000, certain investors
(including two of the current directors) purchased from the Company an aggregate
of 1,333,333 shares of the Common Stock at $2.25 per share or an aggregate
purchase price of $2,999,999.25. The net proceeds approximated $2,895,000.
Because all of such funds were not required for operations, the funds deemed
excess were invested in a working capital management account with Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). As reported in Note 2 to
the Financial Statements in the Annual Report, as of March 31, 2003, the Company
had approximately $2,173,000 of cash equivalents in two financial institutions,
which exposes the Company to a concentration of credit risk. The Company had, as
of that date, approximately $2,138,000 invested in highly liquid money market
instruments with Merrill Lynch, which are not federally insured. The remaining
$35,000 was deposited at a bank, which is federally insured up to $100,000. As
of December 31, 2003, the Company had $1,886,700 in its Merrill Lynch account,
which exposes the Company to the same concentration of credit risk as described
in the Annual Report.
The Company believes that, as a result of the cash described in the
preceding paragraph and assuming consummation of the proposed sale of business
operations to Spray, the Company's working capital is adequate to fund its
operations and its requirements for the balance of the fiscal year ending March
31, 2004 and for the fiscal year ending March 31, 2005 ("fiscal 2005"). In the
event, which in the opinion of management is deemed unlikely, that the sale to
Spray is not consummated, the Board believes that the Company would either
continue to operate the business for a short period while seeking another buyer
or, more likely, would liquidate its operations in an orderly fashion. In either
event, the Company believes it has adequate working capital to continue to
operate for fiscal 2005 while seeking a suitable merger and acquisition
candidate.
Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. The
adoption of SFAS No. 146 is not expected to have a material effect on the
Company's financial statements.
Forward-Looking and Cautionary Statements
With the exception of historical information, the matters discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements that involve risks and
uncertainties. The Company is hereby identifying information that is
forward-looking and, accordingly, involves risks and uncertainties, including,
without limitation, statements regarding the Company's future financial
condition and the success of the Company's efforts to seek a merger or
acquisition partner and the proposed sale to Spray. Other risks are discussed in
the Annual Report 2003. As a result, actual results may differ materially from
those described in the forward-looking statement. The Company cautions that the
foregoing list of important factors is not exclusive. The Company does not
undertake to update any forward-looking statement in this Report.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has a CEO and a CFO/CAO, constituting all of management, and,
during the reporting period, two employees to conduct operations. The CEO and
CFO/CAO performed an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as of December 31, 2003.
Because of its small size and limited number of personnel, the Company does not
currently have elaborate written procedures, nor does management believe that
such elaborate written procedures are currently necessary to ensure accurate
reporting in the Company's periodic reports. The then Audit Committee and
management will review this requirement should a transaction with a merger or
acquisition candidate be consummated, as to which consummation there can be no
assurance. In making their evaluation, the CEO and CFO/CAO consulted with the
Company's outside counsel. Based on that evaluation, the two officers concluded
that the Company's disclosure controls and procedures were adequate and
effective, as of December 31, 2003, to ensure that material information relating
to the Company would be made known to them by others within the Company,
particularly during the period in which this Report was being prepared. Their
evaluation was reported to the Audit Committee in connection with its review of
this Report prior to its filing.
Changes in Internal Controls
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls since the
date of their evaluation.
D-11
APPENDIX E
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of March , 2004 (hereinafter
referred to as this "Agreement") is made and entered into by and between
PerfectData Corporation, a California corporation (the "Parent"), and
PerfectData (Delaware) Inc., a Delaware corporation (the "Subsidiary").
RECITALS:
A. The Parent is a corporation organized and existing under the laws of
the State of California.
B. The Subsidiary is a corporation organized and existing under the
laws of the State of Delaware and is a wholly-owned subsidiary of the Parent.
C. The Parent and the Subsidiary and their respective Boards of
Directors deem it advisable and to the advantage, welfare, and best interests of
the corporations and their respective stockholders to merge the Parent with and
into the Subsidiary pursuant to the provisions of California General Corporation
Law (the "CGCL") and the Delaware General Corporation Law (the "DGCL") upon the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Parent shall be merged into the Subsidiary (the "Merger") upon the terms and
conditions hereinafter set forth.
ARTICLE I
PRINCIPAL TERMS OF THE MERGER
1.1. Merger. On the Effective Date (as defined in Section 4.1 hereof),
the Parent shall be merged into the Subsidiary, the separate existence of the
Parent shall cease and the Subsidiary (following the Merger referred to as the
"Surviving Corporation") shall operate under the name "PerfectData Corporation"
by virtue of, and shall be governed by, the laws of the State of Delaware. The
address of the registered office of the Surviving Corporation in the State of
Delaware will be 2711 Centerville Road, Suite 400, Wilmington, Delaware
19808-1297, County of New Castle. The name of its registered agent at such
address is the Corporation Service Company.
1.2. Certificate of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of the Subsidiary as in effect on the date hereof
without change unless and until amended in accordance with applicable law.
1.3. Bylaws of the Surviving Corporation. The Bylaws of the Surviving
Corporation shall be the Bylaws of the Subsidiary as in effect on the date
hereof without change unless and until amended or repealed in accordance with
applicable law.
1.4. Directors and Officers. At the Effective Date of the Merger, the
directors and officers set forth on Exhibit A attached hereto shall become the
directors and officers, respectively, of the Surviving Corporation, each of such
directors and officers to hold office, subject to the applicable provisions of
the Certificate of Incorporation and Bylaws of the Surviving Corporation and the
DGCL, until his or her successor is duly elected or appointed and qualified.
ARTICLE II
CONVERSION, CERTIFICATES AND PLANS
2.1. Conversion of Shares. At the Effective Date of the Merger, each of
the following transactions shall be deemed to occur simultaneously:
(a) Common Stock. Each share of the Parent's common stock, no par
value per share (the "Parent's Common Stock"), issued and
outstanding immediately prior to the Effective Date of the
Merger shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into and
become one validly issued, fully paid and nonassessable share
of the Surviving Corporation's common stock, $0.01 par value
per share (the "Surviving Corporation's Common Stock"), except
for those shares of the Parent's Common Stock with respect to
which the holders thereof duly exercise their dissenters'
rights under the CGCL.
(b) Options. Each option to acquire shares of the Parent's
Common Stock outstanding immediately prior to the Effective
Date of the Merger shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted
into and become an equivalent option to acquire, upon the same
terms and conditions, the number of shares of the Surviving
Corporation's Common Stock, which is equal to the number of
shares of the Parent's Common Stock that the optionee would
have received had the optionee exercised such option in full
immediately prior to the Effective Date of the Merger (whether
or not such option was then exercisable) and the exercise
price per share under each of said options shall be equal to
the exercise price per share thereunder immediately prior to
the Effective Date of the Merger, unless otherwise provided in
the instrument granting such option.
(c) Warrants. Each warrant to acquire shares of the Parent's
Common Stock outstanding immediately prior to the Effective
Date of the Merger shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted
into and become a warrant to acquire, upon the same terms and
conditions, the number of shares of the Surviving
Corporation's Common Stock which is equal to the number of
shares of the Parent's Common Stock that the warrant holder
would have received had the warrant holder exercised such
warrant in full immediately prior to the Effective Date of the
Merger (whether or not such warrant was then exercisable) and
the exercise price per share under each of said warrants shall
be equal to the exercise price per share thereunder
immediately prior to the Effective Date of the Merger, unless
otherwise provided in the instrument granting such warrant.
(d) Other Rights. Any other right, by contract or otherwise,
to acquire shares of the Parent's Common Stock outstanding
immediately prior to the Effective Date of the Merger shall,
by virtue of the Merger and without any action on the part of
the holder thereof, be converted into and become a right to
acquire, upon the same terms and conditions, the number of
shares of the Surviving Corporation's Common Stock which is
equal to the number of shares of the Parent's Common Stock
that the right holder would have received had the right holder
exercised such right in full immediately prior to the
Effective Date of the Merger (whether or not such right was
then exercisable) and the exercise price per share under each
of said rights shall be equal to the exercise price per share
thereunder immediately prior to the Effective Date of the
Merger, unless otherwise provided in the agreement granting
such right.
(e) Each share of the Subsidiary's Common Stock issued and
outstanding immediately prior to the Effective Date of the
Merger and held by the Parent shall be canceled without any
consideration being issued or paid therefor.
2.2. Stock Certificates. After the Effective Date of the Merger, each
certificate theretofore representing issued and outstanding shares of the
Parent's Common Stock will thereafter be deemed to represent the same number of
shares of the Surviving Corporation Common Stock. The holders of outstanding
certificates theretofore representing the Parent's Common Stock will not be
required to surrender such certificates to the Parent.
ARTICLE III
TRANSFER AND CONVEYANCE OF ASSETS AND ASSUMPTION OF LIABILITIES
3.1. Effects of the Merger. At the Effective Date of the Merger, the
Merger shall have the effects specified in the CGCL, the DGCL and this
Agreement. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Date of the Merger, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises, of a public as well
as a private nature, and shall be subject to all the restrictions, disabilities
and duties of each of the parties to this Agreement; the rights, privileges,
powers and franchises of the Parent and the Subsidiary, and all property, real,
personal and mixed, and all debts due to each of them on whatever account, shall
be vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter the
property of the Surviving Corporation, as they were of the respective
constituent entities, and the title to any real estate whether by deed or
otherwise vested in the Parent and the Subsidiary or either of them, shall not
revert to be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon any property of the parties hereto, shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
constituent entities shall thenceforth attach to the Surviving Corporation, and
may be enforced against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by it.
3.2. Additional Actions. If, at any time after the Effective Date of the
Merger, the Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, title to and possession of any property or right of the Parent
acquired or to be acquired by reason of, or as a result of, the Merger, or (b)
otherwise to carry out the purposes of this Agreement, the Parent and its proper
officers and directors shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such property or
rights in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement. The proper officers and directors of the Surviving Corporation
are fully authorized in the name of the Parent or otherwise to take any and all
such action.
ARTICLE IV
APPROVAL BY SHAREHOLDERS; AMENDMENT; EFFECTIVE DATE
4.1. Approval. This Agreement and the Merger contemplated hereby are
subject to approval by the requisite vote of shareholders in accordance with the
CGCL and the DGCL. As promptly as practicable after approval of this Agreement
by shareholders in accordance with applicable law, duly authorized officers of
the respective parties shall make and execute Articles of Merger and a
Certificate of Merger and shall cause such documents to be filed with the
Secretary of State of California and the Secretary of State of Delaware,
respectively, in accordance with the laws of the States of California and
Delaware. The effective date (the "Effective Date") of the Merger shall be the
date on which the Merger becomes effective under the laws of California or the
date on which the Merger becomes effective under the laws of Delaware, whichever
occurs later.
4.2. Amendments. The Board of Directors of the Parent may amend this
Agreement at any time prior to the Effective Date, provided that an amendment
made subsequent to the approval of the Merger by the shareholders of the Parent
shall not (a) alter or change the amount or kind of shares to be received in
exchange for or on conversion of all or any of the shares of the Parent's Common
Stock, (b) alter or change any term of the Certificate of Incorporation of the
Subsidiary, or (c) alter or change any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the holders of the
Parent's Common Stock.
ARTICLE V
MISCELLANEOUS
5.1. Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the filing of this Agreement with the Secretary
of State of California and the Secretary of State of Delaware, whether before or
after shareholder approval of this Agreement, by the consent of the Board of
Directors of the Parent and the Subsidiary.
5.2. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered to be an original instrument.
5.3. Descriptive Headings. The descriptive headings are for convenience
of reference only and shall not control or affect the meaning or construction of
any provision of this Agreement.
5.4. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware, except to the extent the laws of the State of
California shall apply to the Merger where mandated by the CGCL.
* * *
IN WITNESS WHEREOF, the undersigned officers of each of the parties to
this Agreement, pursuant to authority duly given by their respective boards of
directors, have caused this Agreement to be duly executed on the date set forth
above.
PERFECTDATA CORPORATION
By:________________________________
Name:
Title:
PERFECTDATA (DELAWARE) INC.
By:_________________________________
Name:
Title:
EXHIBIT A
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
Directors
Brian Maizlish
Timothy D. Morgan
Tracie Savage
Harris A. Shapiro
Corey P. Schlossman
Officers
Chairman of the Board Harris A. Shapiro
Vice President, Finance Irene J. Marino
Secretary Irene J. Marino
APPENDIX F
CERTIFICATE OF INCORPORATION
OF
PERFECTDATA (DELAWARE) INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "Corporation")
is: PerfectData (Delaware) Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware
19808-1297, County of New Castle. The name of its registered agent at such
address is the Corporation Service Company.
THIRD: The nature of the business to be conducted and the purposes of the
Corporation are:
To purchase or otherwise acquire, invest in, own, lease, mortgage,
pledge, sell, assign and transfer or otherwise dispose of, trade and deal in and
with real property and personal property of every kind, class and description
(including, without limitation, goods, wares and merchandise of every kind,
class and description), to manufacture goods, wares and merchandise of every
kind, class and description, both on its own account and for others;
To make and perform agreements and contracts of every kind and
description; and
To engage in any lawful act or activity or carry on any business for
which corporations may be organized under the Delaware General Corporation Law
or any successor statute.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 12,000,000 shares, consisting of
10,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock") and 2,000,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock").
A. Common Stock.
1. General. The voting, dividend and liquidation and
other rights of the holders of the Common Stock are
expressly made subject to and qualified by the rights
of the holders of any series of Preferred Stock.
2. Voting Rights. The holders of record of the Common
Stock are entitled to one vote per share on all
matters to be voted on by the Corporation's
stockholders.
3. Dividends. Dividends may be declared and paid on the
Common Stock from funds lawfully available therefor
if, as and when determined by the Board of Directors
in their sole discretion, subject to provisions of
law, any provision of this Certificate of
Incorporation, as amended from time to time, and
subject to the relative rights and preferences of any
shares of Preferred Stock authorized, issued and
outstanding hereunder.
4. Liquidation. Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or
involuntary, holders of record of the Common Stock
will be entitled to receive pro rata all assets of
the Corporation available for distribution to its
stockholders, subject, however, to the liquidation
rights of the holders of Preferred Stock authorized,
issued and outstanding hereunder.
B. Preferred Stock.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. In the event that at any time the Board of Directors
shall have established and designated one or more series of Preferred Stock
consisting of a number of shares less than all of the authorized number of
shares of Preferred Stock, the remaining authorized shares of Preferred Stock
shall be deemed to be shares of an undesignated series of Preferred Stock unless
and until designated by the Board of Directors as being part of a series
previously established or a new series then being established by the Board of
Directors. Notwithstanding the fixing of the number of shares constituting a
particular series, the Board of Directors may at any time thereafter authorize
an increase or decrease in the number of shares of any such series except as set
forth in the Preferred Stock Designation for such series. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status of authorized undesignated Preferred Stock
unless and until designated by the Board of Directors as being a part of a
series previously established or a new series then being established by the
Board of Directors.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
Name Mailing Address
Allan J. Weiss, Esq. Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition and not in limitation of
the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, conferred by the State of Delaware, it is
further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its board of directors (the "Board of
Directors"). The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Corporation's
By-Laws (the "By-laws"). The phrase "whole Board" and the phrase "total number
of directors" shall be deemed to have the same meaning, to wit, the total number
of directors which the Corporation would have if there were no vacancies. No
election of directors need be by written ballot.
B. After the original or other By-Laws of the Corporation have been
adopted, amended or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the Corporation may
be exercised by the Board of Directors of the Corporation.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-Laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
EIGHTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented from time to time, indemnify and advance expenses to,
(i) its directors and officers, and (ii) any person who at the request of the
Corporation is or was serving as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, from
and against any and all of the expenses, liabilities, or other matters referred
to in or covered by said section as amended or supplemented (or any successor),
provided, however, that except with respect to proceedings to enforce rights to
indemnification, the By-Laws of the Corporation may provide that the Corporation
shall indemnify any director, officer or such person in connection with a
proceeding (or part thereof) initiated by such director, officer or such person
only if such proceeding (or part thereof) was authorized by the board of
directors of the Corporation. The Corporation, by action of its Board of
Directors, may provide indemnification or advance expenses to employees and
agents of the Corporation or other persons only on such terms and conditions and
to the extent determined by the board of directors in its sole and absolute
discretion. The indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for the monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after approval by the stockholders of this
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director shall be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended. Any repeal or
modification of this Article Ninth shall be prospective and shall not affect the
rights under this Article Ninth in effect at the time of the alleged occurrence
of any act or omission to act giving rise to liability or indemnification.
TENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ELEVENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article.
I, the undersigned, being the sole incorporator, for the purpose of
forming a Corporation under the laws of the State of Delaware, do make, file and
record this Certificate of Incorporation, to certify that the facts herein
stated are true, and accordingly have hereto set my hand this day of March,
2004.
/s/ Allan J. Weiss
--------------------------
Allan J. Weiss, Esq.
Sole Incorporator
APPENDIX G
BYLAWS OF
PERFECTDATA (DELAWARE) INC.
ARTICLE I
OFFICES
1.1 Registered Office.
The address of PerfectData (Delaware) Inc.'s (the "Corporation")
registered office in the State of Delaware is 2711 Centerville Road, Suite 400,
Wilmington, Delaware 19808-1297, County of New Castle. The name of its
registered agent at such address is the Corporation Service Company.
1.2 Other Offices.
The Corporation may also have an office or offices at any other place
or places within or outside the State of Delaware.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
2.1 Annual Meetings.
The annual meeting of the stockholders for the election of directors,
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, date and hour as shall be fixed by the
Board of Directors (the "Board") and designated in the notice or waiver of
notice thereof, except that no annual meeting need be held if all actions,
including the election of directors, required by the General Corporation Law of
the State of Delaware (the "Delaware Statute") to be taken at a stockholders'
annual meeting are taken by written consent in lieu of meeting pursuant to
Section 2.10 of this Article II.
2.2 Special Meetings.
A special meeting of the stockholders for any purpose or purposes may
be called by the Board, the Chairman, the Chief Executive Officer or the record
holders of at least 10% of the shares entitled to cast votes at such meeting, to
be held at such place, date and hour as shall be designated in the notice or
waiver of notice thereof.
2.3 Notice of Meetings.
Except as otherwise required by statute, the Certificate of
Incorporation of the Corporation (the "Certificate") or these Bylaws, notice of
each annual or special meeting of the stockholders shall be given to each
stockholder of record entitled to vote at such meeting not less than 10 nor more
than 60 days before the day on which the meeting is to be held, by delivering
written notice thereof to him, her or it personally, or by mailing a copy of
such notice, postage prepaid, directly to him, her or it at his, her or its
address as it appears in the records of the Corporation, or by transmitting such
notice thereof to him, her or it at such address by telegraph, cable or other
telephonic transmission. Every such notice shall state the place, the date and
hour of the meeting, and, in case of a special meeting, the purpose or purposes
for which the meeting is called. Notice of any meeting of stockholders shall not
be required to be given to any stockholder who shall attend such meeting in
person or by proxy, or who shall, in person or by his, her or its attorney
thereunto authorized, waive such notice in writing, either before or after such
meeting. Except as otherwise provided in these Bylaws, neither the business to
be transacted at, nor the purpose of, any meeting of the stockholders need be
specified in any such notice or waiver of notice. Notice of any adjourned
meeting of stockholders shall not be required to be given, except when expressly
required by law.
2.4 Quorum.
At each meeting of the stockholders, except where otherwise provided by
the Certificate or these Bylaws, the holders of a majority of the issued and
outstanding shares of Common Stock of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. In the absence of a quorum, a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote, or, in the absence of all the stockholders entitled to vote,
any officer entitled to preside at, or act as secretary of, such meeting, shall
have the power to adjourn the meeting from time to time, until stockholders
holding the requisite amount of stock to constitute a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
2.5 Place of Meetings.
Annual meetings or special meetings of stockholders may be held at any
place within or without the State of Delaware as may be selected from time to
time by the Chief Executive Officer or the Board.
2.6 Organization.
Unless otherwise determined by the Board, at each meeting of the
stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:
(a) the Chairman, if any;
(b) the Chief Executive Officer;
(c) any director, officer or stockholder of the Corporation designated
by the Board to act as chairman of such meeting and to preside thereat if the
Chairman or the Chief Executive Officer shall be absent from such meeting; or
(d) a stockholder of record who shall be chosen chairman of such
meeting by a majority in voting interest of the stockholders present in person
or by proxy and entitled to vote thereat.
The Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 2.6 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
2.7 Order of Business.
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but such order of business may be
changed by a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat.
2.8 Voting.
Except as otherwise provided by law, the Certificate or these Bylaws,
at each meeting of the stockholders, every stockholder of the Corporation shall
be entitled to one vote in person or by proxy for each share of Common Stock of
the Corporation held by him, her or it and registered in his, her or its name on
the books of the Corporation on the date fixed pursuant to Section 6.7 of
Article VI as the record date for the determination of stockholders entitled to
vote at such meeting. Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. A person whose stock is pledged shall be
entitled to vote, unless, in the transfer by the pledgor on the books of the
Corporation, he, she or it has expressly empowered the pledgee to vote thereon,
in which case only the pledgee or his, her or its proxy may represent such stock
and vote thereon. If shares or other securities having voting power stand in the
record of two or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety or otherwise, or if
two or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary shall be given written notice to the contrary and
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect:
(a) if only one votes, his, her or its act binds all;
(b) if more than one votes, the act of the majority so voting binds
all; and
(c) if more than one votes, but the vote is evenly split on any
particular matter, such shares shall be voted in the manner provided by law. If
the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 2.8 shall
be a majority or even-split in interest. The Corporation shall not vote directly
or indirectly any share of its own capital stock. Any vote of stock may be given
by the stockholder entitled thereto in person or by his, her or its proxy
appointed by an instrument in writing, subscribed by such stockholder or by his,
her or its attorney thereunto authorized, delivered to the secretary of the
meeting; provided, however, that no proxy shall be voted after three years from
its date, unless said proxy provides for a longer period. At all meetings of the
stockholders, all matters (except where other provision is made by law, the
Certificate or these Bylaws) shall be decided by the vote of a majority in
interest of the stockholders present in person or by proxy at such meeting and
entitled to vote thereon, a quorum being present. Unless demanded by a
stockholder present in person or by proxy at any meeting and entitled to vote
thereon, the vote on any question need not be by ballot. Upon a demand by any
such stockholder for a vote by ballot upon any question, such vote by ballot
shall be taken. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his, her or its proxy, if there be such proxy, and
shall state the number of shares voted.
2.9 Inspection.
The chairman of the meeting may at any time appoint one or more
inspectors to serve at any meeting of the stockholders. Any inspector may be
removed, and a new inspector or inspectors appointed, by the Board at any time.
Such inspectors shall decide upon the qualifications of voters, accept and count
votes, declare the results of such vote, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for and against the question, respectively. The inspectors need not be
stockholders of the Corporation, and any director or officer of the Corporation
may be an inspector on any question other than a vote for or against his or her
election to any position with the Corporation or on any other matter in which he
or she may be directly interested. Before acting as herein provided, each
inspector shall subscribe an oath faithfully to execute the duties of an
inspector with strict impartiality and according to the best of his or her
ability.
2.10 List of Stockholders.
It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make, at
least 10 days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to any such meeting, during ordinary
business hours, for a period of at least 10 days prior to such meeting, either
at a place within the city where such meeting is to be held, which place shall
be specified in the notice of the meeting or, if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
1.11 Stockholders' Consent in Lieu of Meeting.
Any action required by the Delaware Statute to be taken at any annual
or special meeting of the stockholders of the Corporation, or any action which
may be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, by a consent in
writing, as permitted by the Delaware Statute.
2.12 Action by Means of Conference Telephone or Similar Communications
Equipment.
Any one or more of the stockholders may participate in a meeting of the
stockholders by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other,
and participation in a meeting by such means shall constitute presence in person
at such meeting.
ARTICLE III
BOARD OF DIRECTORS
3.1 General Powers.
The business, property and affairs of the Corporation shall be managed
by or under the direction of the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law or by
the Certificate directed or required to be exercised or done by the
stockholders.
3.2 Number and Term of Office.
The number of directors of the Corporation shall not be less than five
nor more than eight. The number of directors within the range set forth in the
preceding sentence shall be fixed from time to time by the Board. Directors need
not be stockholders. Each director shall hold office until his or her successor
is elected and qualified, or until his or her earlier death or resignation or
removal in the manner hereinafter provided.
3.3 Election of Directors.
At each meeting of the stockholders for the election of directors at
which a quorum is present, the persons receiving the greatest number of votes,
up to the number of directors to be elected, of the stockholders present in
person or by proxy and entitled to vote thereon shall be the directors;
provided, however, that for purposes of such vote no stockholder shall be
allowed to cumulate his or her votes. Unless an election by ballot shall be
demanded as provided in Section 2.8 of Article II, election of directors may be
conducted in any manner approved at such meeting.
3.4 Resignation, Removal and Vacancies.
Any director may resign at any time by giving written notice to the
Board, the Chairman, the Chief Executive Officer or the Secretary. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon receipt thereof; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Any director or the entire Board may be removed, with or without cause,
at any time, by vote of the holders of a majority of the shares then entitled to
vote at an election of directors or by written consent of the stockholders
pursuant to Section 2.11 of Article II.
Vacancies occurring on the Board for any reason may be filled by vote
of the stockholders or by the stockholders' written consent pursuant to Section
2.11 of Article II, or by vote of the Board or by the directors' written consent
pursuant to Section 3.6 of this Article III. If the number of directors then in
office is less than a quorum, such vacancies may be filled by a vote of a
majority of the directors then in office.
3.5 Meetings.
(a) Annual Meetings. As soon as practicable after each annual election
of directors, the Board shall meet for the purpose of organization and the
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 3.6 of this Article III.
(b) Other Meetings. Other meetings of the Board shall be held at such
times and at such places as the Board, the Chairman, the Chief Executive Officer
or any director shall from time to time determine.
(c) Notice of Meetings. Notice shall be given to each director of each
meeting, including the time, place and purpose of such meeting. Notice of each
such meeting shall be mailed to each director, addressed to him or her at his or
her residence or usual place of business, at least two days before the date on
which such meeting is to be held, or shall be sent to him or her at such place
by telegraph, cable, wireless or other form of recorded communication, or be
delivered personally or by telephone not later than the day before the day on
which such meeting is to be held, but notice need not be given to any director
who shall attend such meeting. A written waiver of notice, signed by the person
entitled thereto, whether before or after the time of the meeting stated
therein, shall be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place or
places within or outside the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total number of
directors then in office shall be present in person at any meeting of the Board
in order to constitute a quorum for the transaction of business at such meeting,
and the vote of a majority of those directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any resolution
or act of the Board, except as otherwise expressly required by law or these
Bylaws. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman, if any;
(ii) the Chief Executive Officer (if a director); or
(iii) any director designated by a majority of the directors
present.
The Secretary or, in the case of his or her absence, an Assistant Secretary, if
an Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
3.6 Directors' Consent in Lieu of Meeting.
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors then in office and such consent is filed with the minutes
of the proceedings of the Board.
3.7 Action by Means of Conference Telephone or Similar Communications
Equipment.
Any one or more members of the Board may participate in a meeting of
the Board by means of conference telephone or similar communications equipment
by which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
3.8 Committees.
The Board may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, such committee or committees to
have such name or names as may be determined from time to time by resolution
adopted by the Board, and each such committee to consist of one or more
directors of the Corporation, which to the extent provided in said resolution or
resolutions shall have and may exercise the powers of the Board in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it. A
majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the Board shall otherwise
provide. The Board shall have power to change the members of any such committee
at any time, to fill vacancies and to discharge any such committee, either with
or without cause, at any time.
ARTICLE IV
OFFICERS
4.1 Executive Officers.
The principal officers of the Corporation shall be a Chairman, a Chief
Executive Officer, a Secretary and a Treasurer, and may include such other
officers as the Board may appoint pursuant to Section 4.3 of this Article IV.
Any two or more offices may be held by the same person.
4.2 Authority and Duties.
All officers, as between themselves and the Corporation, shall have
such authority and perform such duties in the management of the Corporation as
may be provided in these Bylaws or, to the extent so provided, by the Board.
4.3 Other Officers.
The Corporation may have such other officers, agents and employees as
the Board may deem necessary, including, a President, one or more Assistant
Secretaries, one or more Assistant Treasurers and one or more Vice Presidents,
each of whom shall hold office for such period, have such authority and perform
such duties as the Board, the Chairman or the Chief Executive Officer may from
time to time determine. The Board may delegate to any principal officer the
power to appoint and define the authority and duties of, or remove, any such
officers, agents or employees.
4.4 Term of Office, Resignation and Removal.
All officers shall be elected or appointed by the Board and shall hold
office for such term as may be prescribed by the Board. Each officer shall hold
office until his or her successor has been elected or appointed and qualified or
until his or her earlier death or resignation or removal in the manner
hereinafter provided. The Board may require any officer to give security for the
faithful performance of his or her duties.
Any officer may resign at any time by giving written notice to the
Board, the Chairman, the Chief Executive Officer or the Secretary. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, at the time it is accepted by action of the Board. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.
All officers and agents elected or appointed by the Board shall be
subject to removal at any time by the Board or by the stockholders of the
Corporation with or without cause.
4.5 Vacancies.
If the office of Chairman, Chief Executive Officer, Secretary or
Treasurer becomes vacant for any reason, the Board shall fill such vacancy, and
if any other office becomes vacant, the Board may fill such vacancy. Any officer
so appointed or elected by the Board shall serve only until such time as the
unexpired term of his or her predecessor shall have expired, unless reelected or
reappointed by the Board.
4.6 The Chairman.
The Chairman shall give counsel and advice to the Board and the
officers of the Corporation on all subjects concerning the welfare of the
Corporation and the conduct of its business and shall perform such other duties
as the Board may from time to time determine. Unless otherwise determined by the
Board, he or she shall preside at meetings of the Board and of the Stockholders
at which he is present.
4.7 The Chief Executive Officer.
Unless otherwise determined by the Board, the Chief Executive Officer
shall be the chief executive officer of the Corporation. The Chief Executive
Officer shall have general and active management and control of the business and
affairs of the Corporation subject to the control of the Board and shall see
that all orders and resolutions of the Board are carried into effect. The Chief
Executive Officer shall from time to time make such reports of the affairs of
the Corporation as the Board of Directors may require and shall perform such
other duties as the Board may from time to time determine.
4.8 The Secretary.
The Secretary shall, to the extent practicable, attend all meetings of
the Board and all meetings of the stockholders and shall record all votes and
the minutes of all proceedings in a book to be kept for that purpose. He or she
may give, or cause to be given, notice of all meetings of the stockholders and
of the Board, and shall perform such other duties as may be prescribed by the
Board, the Chairman or the Chief Executive Officer, under whose supervision he
or she shall act. He or she shall keep in safe custody the seal of the
Corporation and affix the same to any duly authorized instrument requiring it
and, when so affixed, it shall be attested by his or her signature or by the
signature of the Treasurer or, if appointed, an Assistant Secretary or an
Assistant Treasurer. He or she shall keep in safe custody the certificate books
and stockholder records and such other books and records as the Board may
direct, and shall perform all other duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him or her by the
Board, the Chairman or the Chief Executive Officer.
4.9 The Treasurer.
The Treasurer shall have the care and custody of the corporate funds
and other valuable effects, including securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, shall
render to the Chairman, Chief Executive Officer and directors, at the regular
meetings of the Board or whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Corporation and
shall perform all other duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him or her by the Board,
the Chairman or the Chief Executive Officer.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1 Execution of Documents.
The Board shall designate, by either specific or general resolution, the
officers, employees and agents of the Corporation who shall have the power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation. Unless so
designated or expressly authorized by these Bylaws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any contract
or engagement, to pledge its credit or to render it liable pecuniarily for any
purpose or amount.
5.2 Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
5.3 Proxies with Respect to Stock or Other Securities of Other
Corporations.
The Board shall designate the officers of the Corporation who shall
have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent with respect to such
stock or securities. Such designated officers may instruct the person or persons
so appointed as to the manner of exercising such powers and rights, and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers and
rights.
ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
6.1 Certificates for Shares.
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number and class of shares owned by him, her or it in
the Corporation, which shall be in such form as shall be prescribed by the
Board. Certificates shall be numbered and issued in consecutive order and shall
be signed by, or in the name of, the Corporation by the Chairman, the Chief
Executive Officer or any Vice President, and by the Treasurer (or an Assistant
Treasurer, if appointed) or the Secretary (or an Assistant Secretary, if
appointed). In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate had not ceased to be such officer or officers of the Corporation.
6.2 Record.
A record in one or more counterparts shall be kept of the name of the
person, firm or corporation owning the shares represented by each certificate
for stock of the Corporation issued, the number of shares represented by each
such certificate, the date thereof and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in whose
name shares of stock stand on the stock record of the Corporation shall be
deemed the owner thereof for all purposes regarding the Corporation.
6.3 Transfer and Registration of Stock.
The transfer of stock and certificates which represent the stock of the
Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the
Delaware Code (the Uniform Commercial Code), as amended from time to time.
Registration of transfers of shares of the Corporation shall be made
only on the books of the Corporation upon request of the registered holder
thereof, or of his, her or its attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and upon
the surrender of the certificate or certificates for such shares properly
endorsed or accompanied by a stock power duly executed.
6.4 Addresses of Stockholders.
Each stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served or mailed to
him, her or it, and, if any stockholder shall fail to designate such address,
corporate notices may be served upon him, her or it by mail directed to him, her
or it at his, her or its post-office address, if any, as the same appears on the
share record books of the Corporation or at his, her or its last known
post-office address.
6.5 Lost, Destroyed and Mutilated Certificates.
The holder of any shares of the Corporation shall immediately notify
the Corporation of any loss, destruction or mutilation of the certificate
therefor, and the Board may, in its discretion, cause to be issued to him, her
or it a new certificate or certificates for such shares, upon the surrender of
the mutilated certificates or, in the case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction, and the Board
may, in its discretion, require the owner of the lost or destroyed certificate
or his, her or its legal representative to give the Corporation a bond in such
sum and with such surety or sureties as it may direct to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate.
6.6 Regulations.
The Board may make such rules and regulations as it may deem expedient,
not inconsistent with these Bylaws, concerning the issue, transfer and
registration of certificates for stock of the Corporation.
6.7 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall be not more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall be not more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the Delaware Statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board and prior action by the Board is
required by the Delaware Statute, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board adopts the resolution taking
such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
7.1 Indemnification.
(a) As provided in the Certificate, to the fullest extent permitted by
the Delaware Statute as the same exists or may hereafter be amended, a director
of the Corporation shall not be liable to the Corporation or its stockholders
for breach of fiduciary duty as a director.
(b) Without limitation of any right conferred by paragraph (a) of this
Section 7.1, each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity while serving as a director, officer or employee
or in any other capacity while serving as a director, officer or employee, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Statute, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), against all expense, liability and loss (including
attorneys' fees, judgments, fines, excise taxes or amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer or employee and shall inure to the benefit of the indemnitee's
heirs, testators, intestates, executors and administrators; provided, however,
that such person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation, and
with respect to a criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful; provided further, however, that no
indemnification shall be made in the case of an action, suit or proceeding by or
in the right of the Corporation in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such director, officer,
employee or agent is liable to the Corporation, unless a court having
jurisdiction shall determine that, despite such adjudication, such person is
fairly and reasonably entitled to indemnification; provided further, however,
that, except as provided in Section 7.1(c) of this Article VII with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) initiated
by such indemnitee was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article VII shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware Statute requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.
(c) If a claim under Section 7.1(b) of this Article VII is not paid in
full by the Corporation within 60 days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of any undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met the applicable standard of conduct set forth in
the Delaware Statute. Neither the failure of the Corporation (including the
Board, independent legal counsel, or the stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware Statute, nor an actual
determination by the Corporation (including the Board, independent legal counsel
or the stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the Corporation.
(d) The rights to indemnification and to the advancement of expenses
conferred in this Article VII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Certificate,
agreement, vote of stockholders or disinterested directors or otherwise.
7.2 Insurance.
The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corporation or any person who is or was serving at the request of
the Corporation as a director, officer, employer or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware Statute.
ARTICLE VIII
8.1 Seal.
The Board may provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of
incorporation of the Corporation and the words and figures "Corporate Seal -
Delaware."
8.2 Fiscal Year.
The fiscal year of the Corporation shall end March 31 unless otherwise
determined by the Board.
8.3 Amendment.
Any bylaw (including these Bylaws) may be adopted, amended or repealed
by the vote of the holders of a majority of the shares then entitled to vote or
by the stockholders' written consent pursuant to Section 2.11 of Article II, or
by the vote of the Board or by the directors' written consent pursuant to
Section 3.6 of Article III.
* * * *
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Table of Contents
Page
Letter on Behalf of Board of Directors............N/A
Summary Term Sheet.................................1
Voting Securities..................................2
Proposed Sale Transaction..........................4 PERFECTDATA CORPORATION
Selected Financial Data...........................10 Consent Solicitation
Pro Forma Balance Sheet...........................11 Statement
Security Ownership of Certain Beneficial dated March __, 2004
Holders and Management.........................13
Authorize the Reincorporation of the Company
As a Delaware Corporation.....................15
Comparison of Rights of Holders of
the Company's and PerfectData Delaware's
Common Stock...................................19
Description of the Company and
PerfectData Capital Stock.....................32
Dissenters' Rights................................34
Miscellaneous.....................................38
Appendix A - Copy of Asset Purchase
Agreement dated as of October 3, 2003......A-1
Appendix B - Copy of First Amendment dated
as of February 26, 2004 to the
Asset Purchase Agreement...................B-1
Appendix C - California Statutory
Provisions as to Dissenters' Rights........C-1
Appendix D - Quarterly Financial Statements
and Related Management's Discussion
and Analysis...............................D-1
Appendix E - Copy of Agreement and Plan
of Merger dated as of March , 2004.......E-1
Appendix F - Certificate of Incorporation
Of PerfectData (Delaware) Inc..............F-1
Appendix G - Bylaws of PerfectData
(Delaware) Inc.............................G-1
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PERFECTDATA CORPORATION
1445 East Los Angeles Avenue
Suite 208
Simi Valley, CA 93605
This Consent is Solicited on Behalf of the Board of Directors
The undersigned hereby consents, with respect to all of the shares of the Common
Stock of PerfectData Corporation (the "Company") held of record by the
undersigned on April 5, 2004, as follows:
1. With respect to the proposal to sell the Company's operating assets to Spray
Products Corporation:
[ ]FOR [ ]AGAINST [ ]ABSTAIN
2. With respect to the proposal to reincorporate the Company in the State of
Delaware:
[ ]FOR [ ]AGAINST [ ]ABSTAIN
This consent, when executed, will be voted in the manner directed by the
undersigned shareholder(s). If no direction is made, this consent will be voted
FOR proposals 1 and 2.
PLEASE MARK, SIGN, DATE, AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
Please sign exactly as your name appears to the left. When
shares are held by joint tenants, please both sign. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation,
please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in full
partnership name by a duly authorized person.
------------------------------------
Signature
------------------------------------
Signature, if held jointly
Date: _________________________, 2004