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
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary consent solicitation statement. [ ] Confidential, for use of the
Commission only (as permitted
[X] Definitive consent solicitation statement. by Rule 14a-6(e)(2)).
[ ] Definitive additional materials.
[ ] Soliciting material under Rule 14a-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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction completed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PERFECTDATA CORPORATION
1445 EAST LOS ANGELES AVENUE
SUITE 208
SIMI VALLEY, CA 93065
October 26, 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
business operations and (2) reincorporating our Company as a Delaware
corporation.
Spray, which has been in recent years the major supplier to our Company of
compressed gas dusters, which product represented more than 85% of our Company's
sales during the fiscal year which ended March 31, 2004, had been acting, since
November 1, 2003, as the manager for the fulfillment of orders from the
Company's customers and, effective June 1, 2004, assumed full responsibility for
these customers. The purchase price will be an amount equal to the sum of the
value of the then inventory, the amount of collectible accounts receivable and
$80,000, 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 the results of this transaction with Spray leaves us without any
operations, we believe that our Company will remain an attractive candidate for
an acquisition or merger. Despite our efforts prior to our arrangements with
Spray to increase revenues and decrease expenses, these operations had 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 were 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 34.95% of our Company's
outstanding shares, but not sooner than ten days after we mail this letter to
you. We already have received, or are in the process of receiving, consents
aggregating 15.05% 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,
-s- Harris A. Shapiro
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 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 Friday, October 29, 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 Thursday, October 21, 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, a first amendment which is attached as Appendix B, and a second
amendment which is attached as Exhibit C, 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, CSS p. 1, to the page in the original agreement as,
for example, APA p. 1 and to the page in the second amendment, as, for example,
Second Amendment to APA, p. 1.
- Seller: PerfectData Corporation
- Buyer: Spray Products Corporation
- Assets to be sold: All inventory, certain books and records, goodwill,
accounts receivables, equipment and intellectual property
of the seller. [CSS p. 4; APA p. A-1 and A-2; Second
Amendment to APA, p. 1]
- Purchase price: The sum of the value of inventories, collectible accounts
receivables and $80,000, less the value of the trade
payables, all to be determined at the closing. [CSS p. 4;
APA p. A-2 and A-3]
- Closing: The closing will occur on the earlier of (1) the day
following the day on which the seller receives consents
from shareholders holding a majority of its outstanding
shares of its common stock (but not earlier than 20 days
after this consent solicitation statement is first sent
to shareholders) or (2) the third business day after the
seller exercises its put of the assets to the buyer on
September 30, 2004, which put has not as yet been
exercised. [CSS p. 6; APA p. A-7; Second Amendment to
APA, p. 2]
- Pre-Closing Arrangement Since November 1, 2003, the buyer had been acting as the
manager for the fulfillment of orders of the seller's
products. As compensation for its services the seller had
been paying the buyer 7.5% of the "net sales" (as such
term is defined) of the products sold. The seller had
been responsible for all shipping and freight charges.
Effective June 1, 2004, the buyer assumed full
responsibility for all customers and, accordingly, is
entitled to the full economic benefit of any sale to a
customer of the seller in lieu of the foregoing fee. [CSS
p. 5; APA p. A-10; Second Amendment to APA, p. 2]
- 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. 5; 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 934,716 shares have already been received or have been
committed). California law does not require that the Company specify a date by
which consents must be received; however, the Board has directed that
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solicitation of additional consents cease if the required consents have not been
received by Friday, December 10, 2004.
All of the directors and executive officers of the Company have already
given, or are in the process of giving, their consents to approval of the sale
and reincorporation proposals with respect to an aggregate of 506,843 shares of
the Common Stock which they own. Receipt of consents on October 21, 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, or will receive,
consents from the holders of an aggregate of 934,716 shares, or 15.05% 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 had 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) had terminated, the Company 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
to 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.
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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 full 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, a First
Amendment dated as of February 26, 2004 to the APA is attached as Appendix B and
a Second Amendment dated as of August 12, 2004 to the APA is attached as
Appendix C. We recommend that you read all. 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.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray had agreed in principle, and subsequently finalized
the agreement in writing by the Second Amendment dated as of August 12, 2004, to
the following revisions to the APA: (1) effective June 1, 2004, Spray assumed
full responsibility for all of the Company's customers in order to prevent
possible losses of customer business, resulting in Spray receiving thereafter
the full economic benefits of any sales to customers of the Company; (2) the
aforementioned payment of $100,000 was reduced to $80,000; and (3) the Company
may put the assets to Spray for the purchase price on the earlier of (a)
September 30, 2004 or (b) the Company receiving shareholder consent to the sale
to Spray. Section 1001(a) of the California General Corporation Law permits a
corporation to obtain shareholders' approval after the sale is consummated.
Had the Company closed with Spray on June 30, 2004, based on the revision
described in the preceding paragraph, the Company estimates that it would have
to pay Spray $86,000 based on (1) $210,000 which is the sum of (a) $102,000
(collectible accounts receivable of $134,000 less customer credits of $32,000),
$28,000 (inventory) and (c) $80,000 less (2) $296,000 (trade payables). Because
the major customer prepaid the Company $184,000 in June, rather than making such
payment in July, such prepayment being an unusual event, the foregoing is not in
the Company's opinion, a true example of the purchase price. Had the prepayment
not been made, the Company estimates that it would have received $98,000 as the
purchase price based on (1) $394,000 which is the sum of (a) $286,000
(collectable accounts receivable of $318,000 less customer credits of $32,000),
$28,000 (inventory) and (c) $80,000 less (2) $296,000 (trade payables). In
addition, because the closing, assuming shareholder consent will not occur until
the 21st day after this Consent Solicitation Statement is mailed at the
earliest, all of the foregoing amounts in calculating the purchase price except
the $80,000 may fluctuate depending on the customer orders, shipments and
payments between
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June 30, 2004 and the closing date. Accordingly, the Company may receive a
purchase price from Spray that is more or less than the estimated $98,000 as of
June 30, 2004.
When the PerfectData Board authorized in September 2003 the execution of
the APA, the Board deemed the purchase price from Spray to be fair consideration
for the assets because the Company had negotiated over a period of months with
several potential purchasers (which were considered the likely candidates to
purchase the business). Each of the potential purchaser candidates indicated
that the only assets for which it would pay a specified amount were the
Company's inventories of finished goods, raw materials and work in progress and
outstanding accounts receivable, each to be valued as of the closing date, and
that the prospective purchaser would assume the Company's obligation to pay
accounts payable relating to operating the business which were outstanding as of
the closing date. None of the prospective purchasers was willing to pay any
additional specified amount for the other assets to be transferred as described
in the second preceding paragraph of this section. Accordingly, the negotiations
centered on the amount each candidate would be willing to pay the Company in
excess of the sum of the value of the inventory and accounts receivable less the
assumed accounts payable. The amounts offered to the Company ranged from a low
of $50,000 to a high of $125,000 and the offers came from two major customers of
the Company, a competitor which was attempting to lure away one of the major
customers of the Company and Spray, its major supplier. The Board, when
authorizing the APA, noted that Spray's then offer of $100,000 was dollar-wise
consistent with the other offers. 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. In
addition, Spray assisted in persuading one major customer not to turn to another
supplier, thereby continuing revenues for the Company, and also offered to hire
the Company's Director of Business Development (and subsequently did on November
1, 2003 when it assumed management of the fulfillment of customer orders). The
Board also considered the threat of two major customers to switch suppliers and
the other reasons described below in the section "Reasons for Transaction" under
this caption "Proposed Sale Transaction."
Even with the reduction in the determination of the purchase price by
$20,000, the Board still believes the purchase price from Spray to be fair
consideration for the assets, especially in view of the threat by the Company's
largest customer described in the third preceding paragraph in this section
"Terms of Sale" under this caption "Proposed Sale Transaction" to cease doing
business with the Company.
Unless the Company exercises its put as described above in the fourth
preceding paragraph, 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 20 calendar days after
the mailing of this Consent Solicitation Statement to shareholders. While
California law and the Second Amendment would permit a closing ten calendar days
later, federal regulations require 20 calendar days to elapse from mailing.
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 was, prior
to the Second Amendment to the APA, that the Company obtain the approval of its
shareholders, which is the purpose of this consent solicitation. If, on the
other hand, as permitted by the Second Amendment to the APA and the California
statute, the put by the Company to Spray is exercised as of September 30, 2004,
a closing is held and shareholders' approval is not thereafter obtained, the
parties would be required to rescind the transaction. However, in view of
management's discussions with major shareholders in June 2003, as reported under
the caption "Voting Securities," management does not believe that recission is
likely to be required. In any event, the Company has not exercised the put as of
the date of this Consent Solicitation Statement. 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 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.
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MANAGEMENT ARRANGEMENT
Since November 1, 2003, Spray had, 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 had been receiving a fee of 7 1/2% of
the Net Sales (as such term is defined), payable monthly. In the APA "Net Sales"
was 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 had been responsible for all shipping and freight charges. Spray had,
effective April 1, 2004, increased its charges to the Company for its products.
As indicated in the second paragraph of the section "Terms of Sale" under this
caption "Proposed Sale Transaction," Spray has assumed, effective June 1, 2004,
full responsibility for all customers and accordingly, is entitled to the full
economic benefit of any sale to a customer of the Company in lieu of the
foregoing fee.
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. You may find information as to the Company's results of
operations during the fiscal year ended March 31, 2003 in Appendix E to this
Consent Solicitation Statement. You may make requests for the financial
statements relating to earlier years 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 "Miscellaneous" under the caption "Contact Information."
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
major 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
As a result of the new arrangement with Spray effective June 1, 2004, the
Company has 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 initial management arrangement with Spray effective November
1, 2003 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
initially for six-month term, and subsequently for an additional 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
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addition, the Company terminated four employees, so that it currently employs
four persons and will, subsequent to consummation of 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 if general stock market conditions
improve. During the past four 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
7
shareholders absent SuperCom agreeing to change the dilution formula, and with
no certainty as to when there would be a closing. The Company's directors also
were concerned about certain developments in SuperCom. SuperCom's subsequently
reported results of operations confirmed to the directors that these concerns
were valid and, accordingly, the desirability to the Company of the agreement
having been terminated.
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.
PRO FORMA FINANCIAL STATEMENTS
BALANCE SHEET
The balance sheet on the succeeding page sets forth the effect of the sale
of assets to Spray assuming that the sale had closed on March 31, 2002. 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
June 30, 2004 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.
STATEMENTS OF OPERATIONS
The Company has also prepared pro forma statements of operations for the
fiscal years ended March 31, 2004 and 2003 and for the quarters ended June 30,
2004 and 2003 setting forth the effect of the sale of assets
8
to Spray assuming the sale had closed on March 31, 2002, i.e., prior to the
commencement of these fiscal years and these quarters.
The selling, general and administrative expenses, as adjusted, in each
period of the Statements of Operations reflect the reduced rental charges for
the small facility which the Company has been able to utilize since Spray
assumed management of the fulfillment of customers' orders on November 1, 2003.
For additional information as to this reduction, see the first paragraph in the
section "Risk If Transaction Is Consummated" under the caption "Proposed Sale
Transaction" elsewhere in this Consent Solicitation Statement. These adjusted
selling, general and administrative expenses also reflect the reduction in
personnel from eight to four, offset in part by the one-time severance expenses
for the former employees aggregating $49,000. These adjusted selling, general
and administrative expenses also reflect the expenses incurred related to
seeking a suitable acquisition or merger partner, as reflected in the notes to
the Statements of Operations. The Company cannot anticipate when and for what
length of time these expenses will be incurred in the future as the Company
continues its search for a suitable merger or acquisition candidate.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
9
PERFECTDATA CORPORATION
BALANCE SHEET
AS OF JUNE 30, 2004
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,875 $ (86)(1) $ 1,789
Accounts receivable, net................................. 134 (134)(2) --
Prepaid expenses and other current assets................ 90 (28)(3) 62
------- ----- -------
Total current assets.................................. 2,099 (248) 1,851
Property, plant and equipment, at cost, net................ -- -- --
------- ----- -------
$ 2,099 $(248) $ 1,851
======= ===== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 452 $(296)(4) $ 156
Accrued compensation..................................... 26 -- 26
Other accrued expenses................................... 115 (32)(5) 83
------- ----- -------
Total current liabilities............................. 593 (328) 265
------- ----- -------
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...................................... (9,752) 80(6) (9,672)
------- ----- -------
Net shareholders' equity.............................. 1,506 80 1,586
------- ----- -------
$ 2,099 $(248) $ 1,851
======= ===== =======
---------------
(1) This adjustment assumes that the Company owed $86,000 to Spray. For
information as to how this estimate was made, see the third 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 pursuant to
contractual commitments, generally in the form of rebates for a customer
meeting designated volumes of purchases from the Company and occasionally as
advertising allowances.
(6) This adjustment represents a fixed payment by Spray pursuant to the APA.
10
PERFECTDATA CORPORATION
STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2004
AS PROFORMA FINAL
REPORTED ADJUSTMENTS PROFORMA
-------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE INFORMATION)
Net Sales................................................... $2,680 $(2,680)(A) $ --
Cost of goods sold.......................................... 1,777 (1,777)(A) --
------ ------- ------
Gross profit................................................ 903 (903) --
Selling, general, and administrative expenses............... 1,477 (544)(A) 933(B)
------ ------- ------
Loss from operations........................................ (574) 359 (933)
Other income:
Other net................................................. 17 -- 17
------ ------- ------
Net loss............................................... $ (557) $ 359 $ (916)
====== ======= ======
Basic and diluted........................................... $(0.09) $ 0.06 $(0.15)
Weighted average shares outstanding:
Basic and diluted......................................... 6,193 6,193 6,193
---------------
Notes:
(A) Removal of components of discontinued operations
(B) Includes an aggregate of $226,000 in Expenses relating to a terminated
merger transaction
11
PERFECTDATA CORPORATION
STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2003
AS PROFORMA FINAL
REPORTED ADJUSTMENTS PROFORMA
-------- ----------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE INFORMATION)
Net Sales................................................... $2,005 $(2,005)(A) $ --
Cost of goods sold.......................................... 1,326 (1,326)(A) --
------ ------- ------
Gross profit................................................ 679 (679) --
Selling, general, and administrative expenses............... 1,358 (690)(A) 668(B)
------ ------- ------
Loss from operations........................................ (679) (11) (668)
Other income:
Other net................................................. 37 -- 37
------ ------- ------
Net loss............................................... $ (642) $ (11) $ (631)
====== ======= ======
Basic and diluted........................................... $(0.10) $ -- $(0.10)
Weighted average shares outstanding:
Basic and diluted......................................... 6,159 6,159 6,159
---------------
Notes:
(A) Removal of components of discontinued operations
(B) Includes an aggregate of $115,000 in Expenses relating to an aborted merger
transaction
12
PERFECTDATA CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004
AS PROFORMA FINAL
REPORTED ADJUSTMENTS PROFORMA
-------- ----------- --------
(UNAUDITED)
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE INFORMATION
Net Sales................................................... $ 326 $ (326)(A) $ --
Cost of goods sold.......................................... 264 (264)(A) --
------ ------- ------
Gross profit................................................ 62 (62) --
Selling, general, and administrative expenses............... 219 (57)(A) 162
------ ------- ------
Loss from operations........................................ (157) 5 (162)
Other income:
Other net................................................. 3 -- 3
------ ------- ------
Net income (loss)...................................... $ (154) $ 5 $ (159)
====== ======= ======
Net loss per common share:
Basic and diluted......................................... $(0.02) $ -- $(0.02)
Weighted average shares outstanding:
Basic and diluted......................................... 6,209 6,209 6,209
---------------
Notes:
(A) Removal of components of discontinued operations
13
PERFECTDATA CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003
AS PROFORMA FINAL
REPORTED ADJUSTMENTS PROFORMA
-------- ----------- --------
(UNAUDITED)
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE INFORMATION)
Net Sales................................................... $ 725 $ (725)(A) $ --
Cost of goods sold.......................................... 470 (470)(A) --
------ ------- ------
Gross profit................................................ 255 (255) --
Selling, general, and administrative expenses............... 354 (132)(A) 222
------ ------- ------
Loss from operations........................................ (99) 123 (222)
Other income:
Other net................................................. 5 -- 5
------ ------- ------
Net income (loss)...................................... $ (94) $ 123 $ (217)
====== ======= ======
Net loss per common share:
Basic and diluted......................................... $(0.02) $ 0.02 $(0.04)
Weighted average shares outstanding:
Basic and diluted......................................... 6,159 6,159 6,159
---------------
Notes:
(A) Removal of components of discontinued operations
14
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 OF
OF COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
------------------------------------ ------------------ ---------------------
Joseph Mazin.................................... 788,997(2) 12.71
c/o Flamemaster Corporation
11120 Sherman Way
Sun Valley, CA 91252
StarBiz Corporation............................. 537,997(2) 8.66
11120 Sherman Way
Sun Valley, CA 91252
William B. Wachtel, Trustee of Digital 427,873 6.89
Trust(3)......................................
c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Harris A. Shapiro(4)............................ 317,832(5) 5.09
c/o PerfectData Corporation
1445 East Los Angeles Avenue
Simi Valley, CA 93065
Bryan Maizlish(6)............................... 27,588(7) less than 1%
9705 Conestoga Way
Potomac, MD 20854
Timothy D. Morgan(6)............................ 28,788(7) less than 1%
11734 Gladstone Circle
Fountain Valley, CA 92708
Tracie Savage(6)................................ 37,888(8) less than 1%
6212 Banner Avenue
Los Angeles, CA 90038
Corey P. Schlossmann(6).........................
19654-A Roscoe Blvd 228,091(7) 3.66
Northridge, CA 91324
All directors and officers as a group (6 in 645,378(9) 10.17
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
15
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) 6,666 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) 16,666 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) 3,334 shares issuable upon the
exercise of the option described in (b); (y) 8,334 shares issuable upon the
exercise of the option described in (c); and (z) 25,000 shares issuable upon
the exercise of an option expiring June 9, 2014 under the 2000 Option Plan,
none of which options was exercisable as to such shares on 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) 6,666
shares issuable upon the exercise of an option expiring June 19, 2012 under
the 2000 Option Plan and (b) 16,666 shares issuable upon the exercise of an
option expiring September 25, 2012 under the Option Plan. The shares of the
Common Stock reported in the table do not include (x) 3,334 shares issuable
upon the exercise of the option described in (a); (y) 8,334 shares issuable
upon the exercise of the option described in (b); and (z) 25,000 shares
issuable upon the exercise of an option expiring June 9, 2014 under the 2000
Option Plan, none of which options was exercisable as to such shares on 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 under
the Company's 1985 Stock Option Plan; (b) 6,666 shares issuable upon the
exercise of an option expiring June 19, 2012 under the 2000 Option Plan; and
(c) 16,666 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) 3,334 shares issuable upon the exercise of
the option described in (b); (y) 8,334 shares issuable upon the exercise of
the option described in (c); and (z) 25,000 shares issuable upon the
exercise of an option expiring June 9, 2014 under the 2000 Option Plan, none
of which options was exercisable as to such shares on 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) 1,875 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 (x) 625 shares issuable upon the
exercise of the option described in (b) and (y) 10,000 shares issuable to
the same executive officer upon the exercise of an option expiring June 9,
2014 under the 2000 Option Plan, neither of which options was exercisable as
to such shares on the Record Date or within 60 days thereafter.
16
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 G. 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 transfer by the Company to Spray of its business operations
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 corporate law will continue to be interpreted and
explained in a number of
17
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:
- 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.
- 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.
- 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 shareholders' 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
18
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 H, and a copy of
PerfectData Delaware's Bylaws is attached to this Consent Solicitation Statement
as Appendix I. 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
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
19
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 H and I, 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,
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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.
21
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 of the 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
22
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
23
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.
24
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.
25
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
26
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 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.
27
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 H, and a copy of the PerfectData
Delaware Bylaws is attached to this Consent Solicitation Statement as Appendix
I. You are urged to read the Certificate of Incorporation and Bylaws carefully
and in their entirety before making a decision on the reincorporation.
28
DESCRIPTION OF THE COMPANY'S AND
PERFECTDATA DELAWARE'S 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 H and Appendix I, 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 10,000,000 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
29
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 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 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 D.
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 D 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.
30
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 D 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.
31
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).
32
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
December 2004. 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, November
19, 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.
33
FINANCIAL DATA
The Company's audited financial statements and the related management's
discussion and analysis of financial condition and results of operations for the
fiscal years ended March 31, 2004 and 2003 are annexed to this Consent
Solicitation Statement as Appendix E and its unaudited financial statements and
the related management's discussion and analysis of financial condition and
results of operations for the quarters ended June 30, 2004 and 2003 are annexed
to the Consent Solicitation as Appendix F.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ IRENE J. MARINO
--------------------------------------
Irene J. Marino
Secretary
October 26, 2004
34
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.
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
A-1
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
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
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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.
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
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.
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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.
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
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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.
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)
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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
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.
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,
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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.
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
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(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.
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.
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,
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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.
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.
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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:
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
A-10
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.
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. SHAPIRO
------------------------------------
Name: Harris A. Shapiro
Title: Chairman of the Board and
Chief
Executive Officer
A-11
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.
6. All capitalized terms not specifically defined herein shall have
the meaning ascribed to them in the Original Agreement.
B-1
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
SECOND AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This Second Amendment (the "Amendment"), dated as of the 12th day of
August, 2004, to the Asset Purchase Agreement ("the "Original Agreement"), dated
as of October 3, 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 parties hereto entered into the Original Agreement whereby the
Seller agreed to sell, and the Purchaser agreed to purchase, all of the assets
of the Seller other than the Retained Assets;
WHEREAS, the parties hereto entered into the First Amendment (the "First
Amendment"), dated as of February 26, 2004; and
WHEREAS, the parties desire to amend further 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. All capitalized terms not specifically defined herein shall have
the meaning ascribed to them in the Original Agreement.
2. Section 1.3.1.3 is hereby amended to read as follows:
"1.3.1.3 The sum of Eighty Thousand ($80,000) Dollars; less:".
3. Section 1.3.4.2 is hereby deleted and Sections 1.3.4 and 1.3.4.1
are hereby amended to read as follows:
"1.3.4 The Purchaser shall pay to the Seller at the Closing an amount
equal to the Purchase Price via bank or certified check or by a wire
transfer to a bank account designated in advance by the Seller to the
Purchaser at least two Business Days (as hereinafter defined) prior
to the Closing."
4. Section 1.4 is hereby deleted in its entirely.
5. Section 5.1 is hereby amended to read as follows:
"5.1 Closing and the Put.
5.1.1 Unless this Agreement is first terminated as provided in
Section 5.4, and subject to the satisfaction or waiver of all
conditions to the 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 eleventh (11th)
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.
5.1.2 Notwithstanding anything in this Agreement to the
contrary, the Seller may put (the "Put") to the Purchaser the
Purchased Assets for the Purchase Price on the earlier of (a)
September 30, 2004 or (b) the date on which the Seller has secured
the requisite consents of its shareholders to the sale pursuant to
the California General Corporation Law. The Put shall be exercised by
the Seller giving written notice to the Purchaser (as provided in
C-1
Section 7.8 hereof) and the Closing shall be held at the place
provided in Section 5.1.1 hereof on the third Business Day following
notice as to the exercise of the Put or on such other day as the
parties shall agree. As used in this Agreement, the term "Business
Day" shall mean any day other than a Saturday, a Sunday or a day on
which national banks are authorized to close in the City and State of
New York."
6. The heading of Section 5.6 shall be changed to read "Management
Through May 31, 2004."
7. A new Section 5.6.7 shall be added to read as follows:
"5.6.7 Effective June 1, 2004, this Section 5.6 shall cease,
terminate and have no further effect except for any payments due to the
Purchaser pursuant to Section 5.6.2."
8. A new Section 5.7 shall be added to read as follows:
"5.7 Management Effective June 1, 2004.
5.7.1 Effective June 1, 2004, the Purchaser shall assume full
responsibility for all of the Seller's customers.
5.7.2 Effective June 1, 2004, as compensation for the
Purchaser's services under this management arrangement, the Purchaser
shall be entitled to the full economic benefit of any sale to a
customer of the Company.
9. The Purchaser acknowledges advice from the Seller that, in addition
to seeking shareholders' consent to the sale herein, the Seller is also
seeking shareholders' consent to its reincorporation in the State of
Delaware and that, assuming such shareholders' consent is obtained, the
reincorporation shall be implemented by the merger of the Seller with and
into a wholly-owned subsidiary to be named PerfectData (Delaware) Inc. (the
"Successor Corporation"), the name of which subsidiary will be changed to
PerfectData Corporation. The Purchaser agrees that, if such reincorporation
occurs prior to the Closing, the Successor Corporation shall succeed to all
of the rights and obligations of the Seller hereunder and may, at its
option, deliver a certificate from the State of Delaware, not the State of
California, in order to comply with Section 5.2.3 of the Original
Agreement.
10. Except as specifically modified herein and as modified by the
First Amendment, the Original Agreement shall not be modified and shall
remain in full force and effect.
C-2
IN WITNESS WHEREOF, the parties have executed this Second 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
C-3
APPENDIX D
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.
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
D-1
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
(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
D-2
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.
(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.
D-3
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.
D-4
(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.
D-5
APPENDIX E
PERFECTDATA CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
(WITH INDEPENDENT REGISTERED ACCOUNTING FIRMS' REPORTS THEREON)
AND
RELATED MANAGEMENT'S DISCUSSION AND ANALYSIS
E-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
PerfectData Corporation
Simi Valley, California
We have audited the accompanying balance sheet as of March 31, 2004, and
the related statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PerfectData Corporation as
of March 31, 2004, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
As discussed in Note 3, the Company previously reflected the Company's
operations related to the sale of assets as discontinued operations. Management
has reassessed the facts and circumstances of the transaction and has revised
the financial statements of the Company's operations as continuing operations,
since the transaction did not met the criteria under generally accepted
accounting principles for classification as discontinued operations. The change
in presentation had no effect on revenue for the years ended March 31, 2004 and
2003.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 14, 2004, except for
the third and fifth
paragraphs of Note 3,
as to which the date
is August 12, 2004
E-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
PerfectData Corporation:
We have audited the accompanying statements of operations, shareholders'
equity, and cash flows of PerfectData Corporation (the Company) for the year
ended March 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
PerfectData Corporation for the year ended March 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in note 3 to the financial statements, the Company has
restated its statements of operations and cash flows for the year ended March
31, 2003.
/s/ KPMG LLP
Los Angeles, California
May 9, 2003, except for note 3
to the financial statements, which
is as of August 12, 2004
E-3
PERFECTDATA CORPORATION
BALANCE SHEET
MARCH 31, 2004
(AMOUNTS IN
THOUSANDS,
EXCEPT SHARE
AMOUNTS)
ASSETS
(RESTATED)
Current assets:
Cash and cash equivalents................................. $ 1,903
Prepaid expenses and other current assets................. 192
Current assets of discontinued operations, net of
allowance of $3........................................ 58
-------
Total current assets................................... 2,153
Property and equipment, at cost, net........................ --
-------
Total assets................................................ $ 2,153
=======
LIABILITIES
(RESTATED)
Current liabilities:
Accounts payable.......................................... $ 325
Accrued compensation...................................... 35
Other accrued expenses.................................... 113
Total current liabilities.............................. 493
-------
Commitments and contingencies (note 8)
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....................... 11,258
Accumulated deficit....................................... (9,598)
-------
Total shareholders' equity............................. 1,660
-------
Total liabilities and shareholders' equity.................. $ 2,153
=======
See accompanying notes to financial statements.
E-4
PERFECTDATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2004 AND 2003
2004 2003
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE
INFORMATION)
(RESTATED) (RESTATED)
Net sales................................................... $2,680 $2,005
Cost of goods sold.......................................... 1,777 1,326
Gross profit.............................................. 903 679
Selling, general, and administrative expenses............... 1,477 1,358
------ ------
Loss from operations................................... (574) (679)
------ ------
Other income:
Interest, net............................................. -- --
Other, net................................................ 17 37
------ ------
Net Loss............................................... $ (557) $ (642)
====== ======
Net loss per common share:
Basic and diluted......................................... $(0.09) $(0.10)
====== ======
Weighted average shares outstanding:
Basic and diluted......................................... 6,193 6,159
See accompanying notes to financial statements.
E-5
PERFECTDATA CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(NOTES 6 AND 7)
YEARS ENDED MARCH 31, 2004 AND 2003
COMMON STOCK TOTAL
---------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------ ------- ----------- -------------
(AMOUNTS IN THOUSANDS)
Balance at March 31, 2002.......................... 6,159 $11,206 $(8,399) $2,807
Net loss......................................... -- -- (642) (642)
----- ------- ------- ------
Balance at March 31, 2003.......................... 6,159 11,206 (9,041) 2,165
Stock Compensation............................... 50 52 -- 52
Net loss......................................... -- -- (557) (557)
----- ------- ------- ------
Balance at March 31, 2004.......................... 6,209 $11,258 $(9,598) $1,660
===== ======= ======= ======
See accompanying notes to financial statements.
E-6
PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2004 AND 2003
2004 2003
---------- ----------
(AMOUNTS IN THOUSANDS)
(RESTATED) (RESTATED)
Cash flows from continuing operating activities:
Net loss.................................................. $ (557) $ (642)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 6 20
Stock issued for services.............................. 52 --
(Increase) decrease in accounts receivable............. (34) 20
(Increase) decrease in inventories..................... 160 (34)
(Increase) decrease in prepaid expenses and other
assets................................................ 32 (7)
Increase in accounts payable........................... 42 76
Increase (decrease) in accrued expenses................ 29 (18)
------ ------
Net cash used in continuing operating activities..... (270) (585)
------ ------
Net decrease in cash and cash equivalents............ (270) (585)
Cash and cash equivalents at beginning of year.............. 2,173 2,758
------ ------
Cash and cash equivalents at end of year.................... $1,903 $2,173
====== ======
See accompanying notes to financial statements.
E-7
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
PerfectData Corporation (the Company) sells computer and office equipment
care and maintenance products.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid money market instruments with an
original maturity of three months or less to be cash equivalents. At March 31,
2004, the Company had cash and cash equivalents of $1,903,000.
(C) INVENTORIES
Prior to the APA entered into with Spray, inventories were stated at the
lower of cost or market and consisted of finished goods. Cost was determined
using the first-in, first-out method.
The Company transferred all inventory on hand to Spray on October 31, 2003
pursuant to the APA.
(D) FINANCIAL INSTRUMENTS
The carrying amounts related to cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value due to their relatively
short maturity.
(E) PLANT AND EQUIPMENT
Plant and equipment are stated at cost.
Depreciation on plant and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized straight line over the shorter of the lease term or estimated useful
life of the asset. The estimated useful lives are as follows:
Machinery and equipment..................................... 3 to 5 years
Furniture and fixtures...................................... 3 to 5 years
Leasehold improvements...................................... Life of lease
(F) REVENUE RECOGNITION
The Company recognizes revenue when products are shipped and the customer
takes ownership and assumes risk of loss, collection of the relevant receivable
is probable, pervasive evidence of an arrangement exists, and the sales price is
fixed or determinable.
(G) LOSS PER COMMON SHARE
Basic and diluted loss per common share is based on the weighted average
number of shares outstanding during each of the respective periods. Diluted
earnings per share includes the dilutive impact of stock options, warrants, or
other equity instruments. During the years presented herein, because net losses
were incurred, the impact from such common stock equivalents was antidilutive;
accordingly, the common stock equivalents were excluded from the calculation.
E-8
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following were excluded from the calculation:
MARCH 31, MARCH 31,
OPTIONS 2004 2003
------- --------- ---------
1985 Plan................................................... 10,000 11,500
2000 Plan................................................... 183,500 185,000
1999 Options................................................ -- 5,000
Warrants.................................................... 20,000 20,000
(H) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The realizability of deferred tax assets is assessed throughout
the year and a valuation allowance is established accordingly.
(I) USE OF ESTIMATES
The preparation of the financial statements requires management of the
Company to make a number of estimates and assumptions relating to the reported
amount of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Significant items subject to such
estimates and assumptions include the allowance for doubtful accounts, inventory
valuation (prior to November 1, 2003), deferred income tax asset valuation
allowances, and the estimated future operating cash flows from the Company's
long-lived assets. Considerable management judgment is necessary to estimate
future operating cash flows as future cash flows are impacted by competitive and
other factors that are generally out of management's control. Accordingly,
actual results could vary significantly from management's estimates.
(J) STOCK-BASED COMPENSATION
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, and Interpretation of APB Opinion No. 25, issued in March 2000, to
account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic-value-based method of accounting described above
and has adopted only the disclosure requirements of SFAS No. 123.
The Company is adopting 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.
E-9
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion 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.
2004 2003
-------- --------
(000'S, EXCEPT PER
SHARE AMOUNTS)
Net income, as reported..................................... $ (557) $ (642)
Deduct total stock-based employee compensation expense
determined under fair-value-based method for all awards,
net of tax................................................ (27) (4)
------ ------
Pro forma net income...................................... $ (584) $ (646)
====== ======
Basic and diluted net loss per common share:
As reported............................................... $(0.09) $(0.10)
====== ======
Pro forma................................................. $(0.09) $(0.10)
====== ======
(K) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
SFAS No. 144 Accounting for the Impairment or Disposal of Long-Live Assets
provides a single accounting model for long-lived assets to be disposed of. SFAS
No. 144 also changes the criteria for classifying an asset as held for sale and
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing losses on such
operations. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of
SFAS No. 144 did not affect the Company's financial statements.
In accordance with SFAS No. 144, long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.
(L) RECENTLY ISSUED ACCOUNTING STANDARDS
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.
E-10
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPOSED SALE OF BUSINESS OPERATIONS
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 had, 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 was receiving a fee of 7 1/2% of net
sales. As indicated in the next paragraph, as a result of Spray assuming,
effective as of June 1, 2004, full responsibility for all customers, Spray is
entitled to the full economic benefit of any sale to a customer of the Company
in lieu of the foregoing fee.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray have agreed in principle to the following revisions
to the APA: (1) effective June 1, 2004, Spray assumed full responsibility for
all of the Company's customers in order to prevent possible losses of customer
business; (2) the aforementioned payment of $100,000 will be reduced to $80,000;
and (3) the Company may put the assets to Spray for the purchase price on the
earlier of (a) September 30, 2004 or (b) the Company receiving shareholder
consent to the sale of Spray.
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 continued 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
was effected.
The Company will seek shareholders' approval of the sale of its operating
assets to Spray by consents in lieu of holding a meeting.
As a result of the transaction, as modified, with Spray, the Company has no
operations and will thereafter receive no revenues until an acquisition or
merger is effected.
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 has no operations, the
Company believes its status as a publicly-traded company 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 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.
E-11
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RESTATEMENT
The Company previously reflected the operations related to the sale of
certain assets as discontinued operations. Management has reassessed the facts
and circumstances of the transaction and has revised the financial statements to
include the operations related to these assets in continuing operations, since
the transaction did not meet the criteria under generally accepted accounting
principles for classification as discontinued operations. The effect of the
restatement on net sales, cost of sales, gross profit, net loss, basic and
diluted loss per common share, current assets, total assets, current
liabilities, total liabilities and total liabilities, shareholders' equity and
cash flows from operations as of and for the year ended March 31, 2004 is as
follows:
AS ORIGINALLY RESTATEMENT
REPORTED ADJUSTMENTS AS RESTATED
------------- ----------- -----------
Net Sales........................................ $ -- $2,680,000 $2,680,000
Cost of Sales.................................... -- 1,777,000 1,777,000
Gross Profit..................................... -- 903,000 903,000
Loss from Continuing Operations.................. (916,000) 359,000 (557,000)
Income from Discontinued Operations.............. 359,000 (359,000) --
Net Loss......................................... (557,000) -- (557,000)
Loss Per Common Share:
Loss from Continuing Operations................ (0.15) 0.06 (0.09)
Income from Discontinued Operations............ 0.06 (0.06) --
---------- ----------
(0.09) (0.09)
Accounts Receivable.............................. $ -- $ 192,000 $ 192,000
Prepaid Expenses and Other Current Assets........ 30,000 28,000 58,000
Current Assets of Discontinued Operations........ 220,000 (220,000) --
Total Assets..................................... 2,153,000 -- 2,153,000
Accounts Payable................................. 126,000 199,000 325,000
Other Accrued Expenses........................... 77,000 56,000 133,000
Current Liabilities of Discontinued Operations... 255,000 (255,000) --
Total Current Liabilities........................ 493,000 -- 493,000
Total Liabilities and Shareholders' Equity....... $2,153,000 $ -- $2,153,000
Net loss......................................... $ (916,000) $ 359,000 $ (557,000)
Accounts Receivable.............................. -- (34,000) (34,000)
Inventories...................................... -- 160,000 160,000
Accounts Payable................................. 54,000 (12,000) 42,000
Cash Used in Continuing Operating Activities..... (743,000) 743,000 --
Cash Provided by Discontinued Operations......... 473,000 (473,000) --
Cash Used in Operating Activities................ $ (270,000) $ -- $ (270,000)
E-12
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the restatement on net sales, cost of sales, gross profit,
net loss, basic and diluted loss per common share and cash flows from operations
for the year ended March 31, 2003 is as follows:
AS ORIGINALLY RESTATEMENT
REPORTED ADJUSTMENTS AS RESTATED
------------- ----------- -----------
Net Sales........................................ $ -- $2,005,000 $2,005,000
Cost of Sales.................................... -- 1,326,000 1,326,000
Gross Profit..................................... -- (679,000) (679,000)
Loss from Continuing Operations.................. (631,000) (11,000) (642,000)
Loss from Discontinued Operations................ (11,000) 11,000 --
Net Loss......................................... (642,000) -- (642,000)
Loss Per Common Share:
Loss from Continuing Operations................ (0.10) -- (0.10)
Income from Discontinued Operations............ -- -- --
--------- ----------
(0.10) (0.10)
Net loss......................................... $(631,000) $ (11,000) $ (642,000)
Accounts Receivable.............................. -- 20,000 20,000
Inventories...................................... -- (34,000) (34,000)
Accounts Payable................................. (106,000) 182,000 76,000
Cash Used in Continuing Operating Activities..... (742,000) 742,000 --
Cash Provided by Discontinued Operations......... 157,000 (157,000) --
Cash Used in Operating Activities................ $(585,000) $ -- $ (585,000)
(4) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents, and
accounts receivable.
As of March 31, 2004, the Company had approximately $1,903,000 of cash
equivalents in two financial institutions, which exposes the Company to
concentration of credit risk. The Company had approximately $1,896,000 invested
in highly liquid money market instruments, which are not federally insured. The
remaining $7,000 was deposited at a bank, which is federally insured up to
$100,000.
The Company sells its principal products to a number of customers in the
retail industry. During the years ended March 31, 2004 and 2003, two customers
accounted for more than 10% of net sales. These customers each accounted for 71%
and 47%, and 13% and 23% in 2004 and 2003, respectively. As of March 31, 2004
and 2003, approximately 78% and 38% of recorded accounts receivable were from
two wholesale/discount merchants. For the years ended March 31, 2004 and 2003,
sales made to these customers amounted to $1,911,000 and $337,000 and $942,000
and $457,000, respectively. To reduce credit risk, the Company performs ongoing
credit evaluations of its customers' financial conditions but does not generally
require collateral. New customers requiring large credit accounts are required
to provide letters of credit.
(5) 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 assets
of discontinued operations.
E-13
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2004 consist of:
Machinery and equipment..................................... $ 296
Furniture and fixtures...................................... 7
-----
303
Less accumulated depreciation and amortization.............. (303)
-----
$ --
=====
(7) INCOME TAXES
A reconciliation of the federal statutory income tax rate to the effective
income tax rate on loss from continuing operations is as follows:
MARCH 31,
-----------
2004 2003
---- ----
Federal statutory rate...................................... 34% 34%
Increase (reductions) in taxes due to:
State income taxes (net of federal benefit)............... 3 6
Change in valuation allowance............................. (18) 46
Dividends-received deduction.............................. 1 (3)
California net operating loss limitation.................. -- (3)
Expiration of federal net operating loss.................. (16) (74)
Expiration of state net operating loss.................... (4) --
Expiration of general business credit..................... -- (3)
Other..................................................... -- (3)
--- ---
--% --%
=== ===
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax assets at March 31, 2004 are summarized as follows
(in thousands):
Deferred tax assets (liabilities):
Net operating losses...................................... $1,978
Inventories............................................... 13
Accrued expenses.......................................... 43
Business tax credit carryforwards......................... 12
Other..................................................... 16
------
2,062
Less valuation allowance.................................. 2,062
------
$ --
======
At March 31, 2004, the Company had net operating loss (NOL) carryforwards
of approximately $5,453,000 and $2,205,000 for federal income tax purposes and
California income tax purposes, respectively, 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 approximately $12,000 which will begin to expire in
2006.
E-14
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Realization of the future tax benefits of the NOL carryforwards and other
deferred tax assets is dependent on the Company's ability to generate future
taxable income within the periods in which they benefit. In assessing the
likelihood of utilization of existing deferred tax assets, management considered
the historical results of continuing operations over the last three years and
the current economic environment in which the Company operates. Management has
determined that future taxable income of the Company will more likely than not
be insufficient to realize the recorded net deferred tax assets of $2,062,000
and has recorded a valuation allowance of $2,062,000. During the year ended
March 31, 2004, the Company increased the valuation allowance in deferred tax
assets by $118,000.
(8) SHAREHOLDERS' EQUITY
On January 20, 2000, the Company entered into certain agreements with
Millennium Capital Corporation (MCC) and JDK Associates Inc. (JDK). Pursuant to
the agreements, the Company sold 1,333,333 shares of its common stock to MCC,
JDK and certain other buyers and issued a warrant to purchase 1,800,000 shares
of the Company's common stock at $2.75 per share, for aggregate consideration of
$3,000,000. In addition, under the agreements, MCC and JDK will provide
financial advisory assistance to the Company in searching for and closing future
acquisitions and financings for which they will receive an advisory fee of 5% of
the estimated purchase price for a future acquisition which they introduced to
the Company or for additional capital raised in support of future acquisitions.
The term of this consulting agreement is five years.
Because of the significance of these agreements, the Company was required
to obtain, and they did obtain on March 31, 2000, shareholder approval.
Immediately thereafter, the warrant holders exercised warrants to purchase
1,780,000 shares of common stock, resulting in the issuance on March 31, 2000 of
1,515,406 shares of common stock. Accordingly, on March 31, 2000, 2,848,739
shares were issued for an aggregate consideration of $3,000,000.
For financial reporting purposes, the Company has accounted for these
transactions as an increase in common stock for $3,000,000, recorded net of the
applicable costs. The future 5% consulting fees will be accounted for if and
when occurred.
The remaining warrants to purchase 20,000 shares of common stock at $2.75
per share are outstanding at March 31, 2004.
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. The Company has recorded compensation expense of
$51,500 for the shares.
The articles of incorporation authorize a class of preferred stock issuable
in classes and series with such designations, voting rights, redemption
provisions, dividend rates, liquidation and conversion rights, and other
preferences and limitations as may be determined by the board of directors. No
preferred stock was outstanding at March 31, 2004.
(9) STOCK OPTION AND BONUS PLANS
1985 STOCK OPTION PLAN
During November 1985, the Company adopted the 1985 Stock Option Plan (the
"1985 Plan")to grant incentive and nonqualified stock options to officers,
directors and key employees of the Company for the purchase of up to 500,000
shares of the Company's common stock. Under the 1985 Plan, options were granted
at prices equal to or greater than fair market value at date of grant. The
shares, subject to various limitations, are exercisable over terms not to exceed
ten years. No options were granted during the three years ended March 31, 2004.
Options to purchase a total of 377,750 shares were exercised through March 31,
2004, with an option to purchase 10,000 shares left outstanding. The 1985 Plan
has expired; therefore, no additional options can be issued under its terms.
E-15
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On March 31, 2003, an employee of the Company was terminated who was
previously granted an option to purchase 1,500 shares of common stock at $2.0625
per share. As the terminated employee had 90 days to exercise, the option was
outstanding as of March 31, 2003. The option subsequently expired unexercised.
Activity under the 1985 Plan is summarized as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
Options outstanding at March 31, 2002....................... 11,500 $1.3017
Options canceled............................................ -- --
Options outstanding at March 31, 2003....................... 11,500 1.3017
Options canceled............................................ (1,500) 2.0625
------
Option outstanding at March 31, 2004........................ 10,000 $1.1877
======
The weighted average remaining contractual life of the outstanding options
was approximately 1.3 years at March 31, 2004.
1999 OPTIONS
On April 28, 1999, the board of directors authorized the granting of
options or warrants to purchase up to an aggregate of 100,000 shares of common
stock to directors, employees, or consultants. The options or warrants were to
be sold to the grantee at $0.05 per share, to have an exercise price of $1.56
per share, and to have a three-year term from the respective date of grant.
Options to purchase a total of 24,000 shares were exercised through March 31,
2004. Activity for these options and warrants is summarized as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
Options outstanding at March 31, 2002....................... 13,000 $1.56
Canceled.................................................... (8,000) 1.56
Options outstanding at March 31, 2003....................... 5,000 1.56
Canceled.................................................... (5,000) 1.56
Options outstanding at March 31, 2004....................... -- $ --
======
2000 STOCK OPTION PLAN
On May 22, 2000, the Company's board of directors adopted the Stock Option
Plan of 2000 of PerfectData Corporation (the "2000 Plan") which provides for the
granting of options to directors, officers, employees, and consultants of the
Company. The Company's board of directors reserved 1,000,000 shares of common
stock under the 2000 Plan. On September 7, 2000, the Company's board of
directors amended the 2000 Plan to reserve an additional 1,000,000 shares of
common stock. On October 19, 2000, the shareholders of the Company approved the
2000 Plan and ratified options previously granted.
Options granted under the 2000 Plan shall be at a price no less than the
fair market value of the common stock on the date of grant or in the case of
nonqualified stock options at a price equal to or greater than 85% of the fair
market value on the date of grant. Options granted under the 2000 Plan are
exercisable at various times as determined by the board of directors or its
designee.
E-16
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On October 31, 2001, the Company granted options to purchase an aggregate
of 10,000 shares of common stock at $3.43 per share to various employees. The
option price was equal to the fair market value at the time of grant. All of the
options described were to become exercisable in four substantially equal
installments, commencing with the first anniversary of the respective date of
grant.
On June 15, 2002, the Company granted an option to purchase 10,000 shares
of common stock at $1.60 per share to each of the five directors. The option
price was equal to 120% of the fair market value at the time of grant. All of
the options described were to become exercisable in three substantially equal
installments, commencing with the first anniversary of the respective date of
grant.
On September 17, 2002, the board of directors canceled the options granted
on March 31, 2000 to each director pursuant to the 2000 Plan to purchase 25,000
shares of common stock at $18.50 per share and those granted on September 7,
2000 to purchase 25,000 shares of the common stock at $4.63 per share. None of
the options to purchase an aggregate of 250,000 shares were exercised.
On September 26, 2002, the Company granted an option to purchase 25,000
shares of common stock at $1.00 per share to each of the five directors. The
fair market value of the stock on the date shareholder approval was obtained was
below the exercise price. All of the options described were to become
exercisable in three substantially equal installments, commencing with the first
anniversary of the respective date of grant. In accordance with FIN 44, the
Company has adopted variable accounting for these replacement awards. No
compensation expense has been recognized in the financial results as the fair
market value has not exceeded the exercise price.
On March 31, 2003, an employee of the Company was terminated who was
previously granted an option to purchase 1,500 shares of common stock at $3.43
per share. As the terminated employee had 60 days to exercise, the option was
outstanding as of March 31, 2003. The option subsequently expired unexercised.
Activity under the 2000 Plan is summarized as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
Options outstanding at March 31, 2002....................... 260,000 $11.25
Options granted............................................. 175,000 1.17
Options canceled............................................ (250,000) 10.97
--------
Options outstanding at March 31, 2003....................... 185,000 1.29
Options canceled............................................ (1,500) 3.43
--------
Options outstanding at March 31, 2004....................... 183,500 $ 1.28
========
As of March 31, 2004, options to purchase 62,584 shares of common stock are
exercisable at a weighted average exercise price of $1.325. As of March 31,
2004, 1,816,500 shares were available for future grants.
The following table summarizes in more detail information regarding the
Company's stock options outstanding under the 2000 Plan at March 31, 2004:
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISABLE REMAINING
PRICE OPTIONS CONTRACTUAL LIFE OPTIONS CONTRACTUAL LIFE
-------- ----------- ---------------- ----------- ----------------
$1.00........................... 125,000 7.6 41,667 7.6
$1.60........................... 50,000 8.3 16,667 8.3
$3.43........................... 8,500 8.5 4,250 8.5
------- --- ------ ---
Total........................... 183,500 8.4 62,584 8.4
======= === ====== ===
E-17
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS
The Company leases office space under a six-month lease that expires
October 15, 2004. The Company had previously leased a facility under an
operating lease which expired June 20, 2003. The Company continued to occupy the
facility, along with a subtenant to whom the Company sublet warehouse space, on
a month-to-month basis until October 31, 2003.
Rental expense, net of sublease income, was $50,000 and $100,000 for the
years ended March 31, 2004 and 2003, respectively.
E-18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROPOSED SALE OF 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 had, 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 was receiving a fee of 7 1/2% of net
sales. As a result of the management arrangement with Spray, the Company has
moved to a smaller facility and reduced its staff, thereby reducing its ongoing
overhead expenses. As indicated in the next paragraph, as a result of Spray
assuming, effective as of June 1, 2004, full responsibility for all customers,
Spray is entitled to the full economic benefits of any sale to a customer of the
Company in lieu of the foregoing fee.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray had agreed in principle, and subsequently
formalized the agreements in writing by a Second Amendment dated as of August
12, 2004, to the following revisions to the APA: (1) effective June 1, 2004,
Spray assumed full responsibility for all of the Company's customers in order to
prevent possible losses of customer business; (2) the aforementioned payment of
$100,000 will be reduced to $80,000; and (3) the Company may put the assets to
Spray for the purchase price on the earlier of (a) September 30, 2004 or (b) the
Company receiving shareholder consent to the sale of Spray
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 continued 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 of the sale of its operating
assets to Spray by consents in lieu of holding a meeting. A condition precedent
under the APA to closing the transaction was, prior to the Second Amendment to
the APA, that the Company obtain the approval of its shareholders, which is the
purpose of this consent solicitation. If, on the other hand, as permitted by the
Second Amendment to the APA and the California statute, the put by the Company
to Spray is exercised as of September 30, 2004, a closing is held and
shareholders' approval is not thereafter obtained, the parties would be required
to rescind the transaction. However, in view of management's discussions with
major shareholders in June 2003, as reported in the section "Terms of Sale"
under the caption "Proposed Sale Transaction," management does not believe that
rescission is likely to be required.
As a result of the transaction, as modified, with Spray, the Company has no
operations and will thereafter receive no revenues until an acquisition or
merger is effected, as to which and when there can be no assurance.
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 and related
agreements had terminated.
E-19
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 has no operations, the
Company believes its status as a publicly-traded company is valuable and
therefore makes it a viable merger candidate. During the past four 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.
REVENUE RECOGNITION:
The Company recognizes revenue when products are shipped and the customer
takes ownership and assumes risk of loss, collection of the relevant receivable
is probable, pervasive evidence of an arrangement exists, and the sales price is
fixed or determinable.
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 in fiscal 2004 increased $675,000, or 34%, to $2,680,000 from net
sales of $2,005,000 in fiscal 2003. The increased sales in fiscal 2004 were a
result of an increase in sales volume with the Company's existing customers.
Spray's management of the fulfillment of orders from the Company's customers, as
described under the caption "Proposed Sale of Business Operations" had no effect
on the increased sales in fiscal 2004.
Cost of Goods Sold ("Costs") as a percentage of net sales was 66% for
fiscal 2004 and 2003, respectively. Even though the Company incurred additional
costs in fiscal 2004 related to the interim management fee for Spray, these
costs were offset by the reduction in overhead expenses when the Company reduced
its staff, as well as the savings in freight expense when orders were shipped
directly from Spray to the Company's customers.
Selling, General and Administrative Expenses ("Expenses") for fiscal 2004
and 2003 were $1,477,000 and $1,358,000, respectively. The increase in Expenses
in fiscal 2004 directly related 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. These costs were partially offset by a reduction in facility expenses
when the Company transferred its order fulfillment to Spray and moved to a
smaller facility. An aggregate of $226,000 in Expenses relating to the SuperCom
transaction were incurred in fiscal 2004 and an aggregate of $115,000 in
Expenses relating to an aborted transaction were incurred in fiscal 2003. See
the section "Terminated Acquisitions" under the caption "Proposed Sale
Transaction" elsewhere in this Consent Solicitation Statement. In addition, the
Company recorded compensation expense of $51,500 in
E-20
fiscal 2004 related to the 50,000 shares of the Company's Common Stock issued to
the then Chairman of the Audit Committee for his services as such.
Other Income from continuing operations for fiscal 2004 and 2003 was
primarily dividend income of $17,000 and $37,000, respectively.
The decreased net loss in fiscal 2004 directly related to the increased
sales partially offset by the increase in Expenses, as described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $270,000 in fiscal 2004.
The decrease resulted from cash used in operating activities of $270,000. The
cash used in operating activities was primarily the result of the net loss of
$557,000, partially offset by a decrease in inventories, as well as an increase
in accounts payable and accrued expenses.
The Company had a current ratio of better than 4 to1 at fiscal year end and
no long-term debt.
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. 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 3 to the
Financial Statements in this Report, as of March 31, 2004, the Company had
approximately $1,903,000 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 $1,896,000 invested in highly liquid money market
instruments with Merrill Lynch, which are not federally insured. The remaining
$7,000 was deposited at a bank, which is federally insured up to $100,000.
The Company believes that, as a result of the cash described in the
preceding paragraph, the Company's working capital is adequate to fund its
operations and its requirements for the fiscal year ending March 31, 2005 while
seeking a suitable merger and acquisition candidate.
At March 31, 2004, the Company had net operating loss and general business
tax credit carry forwards for income tax purposes of approximately $5,453,000
and $12,000, respectively, available to reduce future potential Federal income
taxes.
E-21
APPENDIX F
PERFECTDATA CORPORATION
FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(UNAUDITED)
AND
RELATED MANAGEMENT'S DISCUSSION AND ANALYSIS
F-1
PERFECTDATA CORPORATION
BALANCE SHEET
JUNE 30,
2004
------------
(UNAUDITED)
(AMOUNTS
IN THOUSANDS
EXCEPT SHARE
AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,875
Accounts receivable, net of allowance of $3............... 134
Prepaid expenses and other current assets................. 90
-------
Total current assets................................... 2,099
Property, plant and equipment, at cost, net................. --
-------
$ 2,099
=======
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 452
Accrued compensation...................................... 26
Other accrued expenses.................................... 115
-------
Total current liabilities.............................. 593
-------
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....................................... (9,752)
-------
Total shareholders' equity............................. 1,506
-------
Total liabilities and shareholders' equity.................. $ 2,099
=======
See accompanying notes to financial statements.
F-2
PERFECTDATA CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS
ENDED JUNE 30,
-----------------
2004 2003
------- -------
(UNAUDITED)
(AMOUNTS IN
THOUSANDS, EXCEPT
PER SHARE
INFORMATION)
Net Sales................................................... $ 326 $ 725
Cost of goods sold.......................................... 264 470
------ ------
Gross profit........................................... 62 255
Selling, general, and administrative expenses............... 219 354
------ ------
Loss from operations................................... (157) (99)
------ ------
Other income:
Interest, net............................................. -- --
Other, net................................................ 3 5
------ ------
Net loss............................................... $ (154) $ (94)
====== ======
Net loss per common share:
Basic and diluted......................................... $(0.02) $(0.02)
====== ======
Weighted average shares outstanding:
Basic and diluted......................................... 6,209 6,159
See accompanying notes to financial statements.
F-3
PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS
PERIOD ENDED,
JUNE 30,
---------------
2004 2003
------ ------
(UNAUDITED)
(AMOUNTS IN
THOUSANDS)
Cash flows from operating activities:
Net loss.................................................. $ (154) $ (94)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... -- 5
Decrease in accounts receivable........................ 58 40
Decrease in inventory.................................. -- 80
Increase in prepaid expenses and other assets.......... (32) (14)
Increase (decrease) in accounts payable................ 127 (98)
Increase (decrease) in accrued expenses................ (27) (27)
------ ------
Net cash used in operating activities................ (28) (60)
Net decrease in cash and cash equivalents............ (28) (60)
------ ------
1,903 2,173
Cash and cash equivalents at end of period.................. $1,875 $2,113
====== ======
See accompanying notes to financial statements.
F-4
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 June 30, 2004 and the results of its operations and
cash flows for the three months ended June 30, 2004 and 2003. 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, 2004 ("Annual
Report 2004").
2. PROPOSED SALE OF BUSINESS OPERATIONS
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 had, 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 was receiving a fee of 7 1/2% of net
sales. As indicated in the next paragraph, as a result of Spray assuming,
effective as of June 1, 2004, full responsibility for all customers, Spray is
entitled to the full economic benefit of any sale to a customer of the Company
in lieu of the foregoing fee.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray had agreed in principle, and subsequently finalized
the agreement in writing by the Second Amendment dated as of August 12, 2004, to
the following revisions to the APA: (1) effective June 1, 2004, Spray assumed
full responsibility for all of the Company's customers in order to prevent
possible losses of customer business, resulting in Spray receiving, thereafter,
the full economic benefits of any sales to customers of the Company; (2) the
aforementioned payment of $100,000 was reduced to $80,000; and (3) the Company
may put the assets to Spray for the purchase price on the earlier of (a)
September 30, 2004 or (b) the Company receiving shareholder consent to the sale
of Spray.
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 continued 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
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. As a result of
the new arrangement with Spray effective June 1, 2004, the Company has no
operations and will receive no revenues until an acquisition or merger is
effected.
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 has no operations, the
Company believes its status as a publicly-traded company is valuable and
therefore makes it a viable merger candidate. During the past four 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 were actively pursued; however, all terminated for
different reasons and the Company incurred expenses in connection therewith.
F-5
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
No adjustments have been made to the financial statements as a result of
these uncertainties.
3. RESTATEMENT
The Company previously reflected the operations related to the sale of
certain assets as discontinued operations. Management has reassessed the facts
and circumstances of the transactions and has revised the disclosure to include
the operations related to these assets in continuing operations, which is in
conformity with generally accepted accounting principles. The restatement has no
effect on net sales, cost of goods sold, gross profit, net loss, basic and
diluted loss per common share, current assets, property and equipment, total
assets, current liabilities, total liabilities and total liabilities and
shareholders' equity as of and for the three months ended June 30, 2004.
The Company previously recognized revenue from sales to its customers on a
gross basis as a principal. Management has reassessed the facts and
circumstances for revenue recognized since June 1, 2004 and has revised the
disclosure to reflect the revenue as recognized on a net basis as an agent,
which is in conformity with generally accepted accounting principles. The
restatement reduced net sales and cost of goods sold by $306,000, but the
restatement had no affect on gross profit, net loss, basic and diluted loss per
common share, current assets, property and equipment, total assets, current
liabilities, total liabilities and total liabilities and shareholders' equity as
of and for the three months ended June 30, 2004.
4. 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.
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2004 consist of (in thousands):
Machinery and equipment..................................... $ 296
Furniture and fixtures...................................... 7
-----
303
Less accumulated depreciation and amortization.............. (303)
-----
$ --
=====
6. 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.
7. STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure. SFAS No. 148 amends SFAS No. 123
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair-value for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require
F-6
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
prominent disclosure in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results.
In accordance with provisions of SFAS No. 123, the Company applies
Accounting Principles Board ("APB") Opinion No. 25 and related interpretations
in accounting for its stock options plans and accordingly, does not recognize
compensation costs for grants to employees and directors whose exercise prices
equals the market price of the stock on the date of grant.
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 Transaction 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. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, 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
3.26% - 6.26%, three to ten-year terms, 52% volatility, and $0 expected dividend
rate.
THREE MONTHS
ENDED JUNE 30,
-----------------
2004 2003
------- -------
(000'S EXCEPT PER
SHARE AMOUNTS)
Net loss, as reported....................................... $ (154) $ (94)
Deduct total stock-based employee compensation expense
determined under fair-value-based method for all awards,
net of tax................................................ (5) (4)
------ ------
Pro forma net loss........................................ $ (159) $ (98)
====== ======
Basic and diluted net loss per common share:
As reported............................................... $(0.02) $(0.02)
Pro forma................................................. (0.03) (0.02)
F-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PROPOSED SALE OF 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 had, 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 was receiving a fee of 7 1/2% of net
sales. As indicated in the next paragraph, as a result of Spray assuming,
effective as of June 1, 2004, full responsibility for all customers, Spray is
entitled to the full economic benefit of any sale to a customer of the Company
in lieu of the foregoing fee. As a result of the management arrangement with
Spray, the Company has moved to a smaller facility and reduced its staff,
thereby reducing its ongoing overhead expenses.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray have agreed in principle and subsequently finalized
the agreement in writing by the Second Amendment dated as of August 12, 2004, to
the following revisions to the APA: (1) effective June 1, 2004, Spray assumed
full responsibility for all of the Company's customers in order to prevent
possible losses of customer business, resulting in Spray receiving, thereafter,
the full economic benefits of any sales to customers of the Company; (2) the
aforementioned payment of $100,000 was reduced to $80,000; and (3) the Company
may put the assets to Spray for the purchase price on the earlier of (a)
September 30, 2004 or (b) the Company receiving shareholder consent to the sale
of Spray. As a result of these revisions, effective June 1, 2004 the Company
began recognizing revenue from sales to customers on a net basis as an agent in
accordance with EITF 99-19, "Reporting Revenue Gross as a Principal versus Net
as an Agent," because it no longer meets the criteria necessary to recognize
revenue as a principal.
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 continued 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
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.
As a result of the transaction, as amended, with Spray, effective June 1,
2004, the Company has no operations and will receive no revenues until an
acquisition or merger is effected, as to which and when there can be no
assurance.
EFFORTS TO SEEK ANOTHER MERGER OR ACQUISITION CANDIDATES
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 has no operations, the
Company believes its status as a publicly-traded company 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
F-8
potential acquisitions 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 policies, which are those most important to the
portrayal of the Company's financial condition and results, and require 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.
REVENUE RECOGNITION:
Until June 1, 2004 the Company recognized revenue on a gross basis when
products were shipped and the customers took ownership and assumed risk of loss,
collection of relevant receivables was probable, pervasive evidence of an
arrangement existed and the sales price was fixed or determinable. As a result
of the revisions to the APA with Spray, the Company no longer meets the criteria
necessary to recognize revenue as a principal and instead recognizes revenue net
as an agent.
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 first fiscal quarter ended June 30, 2004 ("current
quarter") were $326,000 as compared to $725,000 in the year-earlier period. The
Company attributes the decrease in sales of $399,000, or 55%, to two facts.
First, the year-earlier period included an unusually high sales volume with its
largest customer. Second, Spray's management of the fulfillment of orders from
the Company's customers had no effect on the decreased sales in the months of
April and May 2004. However, when Spray assumed full responsibility for all the
Company's customers effective June 1, 2004, the Company did not report the
$306,000 in sales in the month of June 2004 for which Spray, effective June 1,
2004, realized the full economic benefit pursuant to the APA Second Amendment.
Cost of Goods Sold ("Costs") as a percentage of net sales for the current
quarter and year-earlier period was 81% and 65%, respectively. The increase in
Costs was directly related to a price increase from Spray in the months of April
and May 2004. There were no Costs for the month of June 2004 because, as
discussed in the preceding paragraph, the Company did not report any sales.
Selling, General and Administrative Expenses ("Expenses") for the current
quarter were $219,000 as compared to $354,000 in the year-earlier period. As
previously discussed, the Company transferred its order fulfillment to Spray on
November 1, 2003 and moved to a smaller facility. The decrease in Expenses from
the year-earlier period directly related to a reduction in facility expenses as
well as a reduction in payroll and related costs. In addition, the Company
recorded compensation expense of $51,500 in the year-earlier period related to
the 50,000 shares of the Company's Common Stock issued to the then Chairman of
the Audit Committee for his services as such.
Other Income for the current quarter was primarily dividend income of
$3,000 as compared to $5,000 in the year-earlier period.
The increased net loss in the current quarter directly related to the
decrease in sales and increase in Costs, partially offset by the decrease in
Expenses, as described above.
F-9
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $28,000 from $1,903,000
at March 31, 2004 to $1,875,000 at June 30, 2004. The decrease resulted from
cash used in operating activities of $28,000. The cash used in operating
activities was primarily the result of the net loss of $154,000, partially
offset by an increase in accounts payable.
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. The net proceeds approximated to $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 of June 30, 2004, the
Company had approximately $1,875,000 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 $1,660,000 invested in highly liquid
money market instruments with Merrill Lynch, which are not federally insured.
The remaining $215,000 was deposited at a bank, which is federally insured up to
$100,000.
The Company believes that, as a result of the cash described in the
preceding paragraph, the Company's working capital is adequate to fund its
operations and its requirements for the fiscal year ending March 31, 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 2004. 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 June 30, 2004. 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. In making their evaluation, the CEO
and CFO/CAO consulted with the Company's outside counsel. Based on that
F-10
evaluation, the two officers concluded that the Company's disclosure controls
and procedures were adequate and effective, as of June 30, 2004, 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 was no significant change during the quarter ended June 30, 2004 in
the Company's internal controls over financial reporting identified in
connection with the officers' evaluation reported above that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
F-11
APPENDIX G
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of November , 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 shareholders 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.
G-1
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.
G-2
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.
G-3
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:
G-4
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
G-5
APPENDIX H
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.
H-1
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 Bylaws (the "Bylaws"). 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 Bylaws 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 Bylaws 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 Bylaws 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,
H-2
that except with respect to proceedings to enforce rights to indemnification,
the Bylaws 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 Bylaw, 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.
H-3
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 26th day of October, 2004.
/s/ ALLAN J. WEISS
--------------------------------------
Allan J. Weiss, Esq.
Sole Incorporator
H-4
APPENDIX I
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.
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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
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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.
2.11 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.
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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.
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(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.
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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.
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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.
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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.
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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.
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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
I-10
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.
* * * *
I-11
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TABLE OF CONTENTS
PAGE
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Letter on Behalf of Board of
Directors.......................... N/A
Summary Term Sheet................... 2
Voting Securities.................... 2
Proposed Sale Transaction............ 4
Pro Forma Financial Statements....... 8
Security Ownership of Certain
Beneficial Holders and
Management......................... 15
Authorize the Reincorporation of the
Company as a Delaware
Corporation........................ 17
Comparison of Rights of Holders of
the Company's and PerfectData
Delaware's Common Stock............ 19
Description of the Company's and
PerfectData Delaware's Capital
Stock.............................. 29
Dissenters' Rights................... 30
Miscellaneous........................ 33
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 -- Copy of Second
Amendment dated as of August 12,
2004 to the Asset Purchase
Agreement.......................... C-1
Appendix D -- California Statutory
Provisions as to Dissenters'
Rights............................. D-1
Appendix E -- Financial Statements
March 31, 2004 and 2003 and Related
Management's Discussion and
Analysis........................... E-1
Appendix F -- Financial Statements
June 30, 2004 and 2003 and Related
Management's Discussion and
Analysis........................... F-1
Appendix G -- Copy of Agreement and
Plan of Merger dated as of
September , 2004................. G-1
Appendix H -- Certificate of
Incorporation Of PerfectData
(Delaware) Inc. ................... H-1
Appendix I -- Bylaws of PerfectData
(Delaware) Inc. ................... I-1
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PERFECTDATA CORPORATION
CONSENT SOLICITATION STATEMENT
DATED OCTOBER 26, 2004
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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 October 21, 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
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SIGNATURE, IF HELD JOINTLY
Date:
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2004