SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN CONSENT SOLICITATION STATEMENT
SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __________)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary consent solicitation statement. [ ]Confidential, for use of the
Commission only (as permitted
[ ] Definitive consent solicitation statement. by Rule 14a-6(e)(2)).
[ ] Definitive additional materials.
[ ] Soliciting material under Rule14a-12.
PERFECTDATA CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6 (i) (4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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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
computed pursuant to Exchange Act Rule 0-11:1 (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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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
PERFECTDATA CORPORTION
1445 East Los Angeles Avenue
Simi Valley, CA 93065
February , 2004
Dear PerfectData Shareholder:
The Board of Directors is seeking your consent, in lieu of holding a
meeting, to the sale to Spray Products Corporation of our current business
operations. Spray, which is currently the major supplier to our Company of
compressed gas dusters, which product represents more than 85% of our Company's
current sales, has been acting, since November 1, 2003, as the manager for the
fulfillment of orders from the Company's customers. The purchase price is an
amount equal to the sum of the value of the then inventory, the amount of
collectible accounts receivable and $100,000, less the amount of trade payables
being assumed by Spray. Our reasons for seeking your approval and further
details relating to the sale are set forth in the annexed Consent Solicitation
Statement.
Although this sale, when closed, will leave us without any operations, we
believe that our Company will remain an attractive candidate for an acquisition
or merger. Despite our efforts to increase revenues and decrease expenses, these
operations, prior to Spray's management arrangement, continued to result in a
loss, thereby reducing our cash position, which is our principal asset. As a
public company, with no more operational losses, with a strong cash position
(i.e., in excess of $1,500,000) and with improved stock market conditions
generally, PerfectData Corporation can still consummate, in our opinion, a
transaction with a private company with on-going operations that will give a
"new life" to our Company. We are disappointed that the negotiations 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 using the consent procedure in lieu of calling a meeting because
it is less expensive than calling a meeting and will enable us, once we have
secured your approval, to close with Spray sooner, i.e., the day after we
receive consents from the holders of at least 31.9% of our Company's outstanding
shares. We already have received consents aggregating 19.1% of our Company's
outstanding shares from directors, officers and a trust for which the senior
partner of our counsel acts as Trustee.
PerfectData Shareholder
February , 2004
Page 2 of 2
Please execute the enclosed consent and return it promptly to our
Transfer Agent in the enclosed self-addressed prepaid envelope. This will enable
us to close with Spray and concentrate our efforts on seeking an acquisition or
merger candidate. If you have any questions, please do not hesitate to contact
us as provided in the annexed Consent Solicitation Statement.
Sincerely yours,
Harris A. Shapiro
Chairman and Chief Executive Officer
For the Board of Directors
PERFECTDATA CORPORATION
1445 East Los Angeles Avenue
Suite 208
Simi Valley, CA 93065
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is furnished in connection with the
solicitation by the Board of Directors of PerfectData Corporation, or the
"Company," of consents from the Company's shareholders in lieu of holding a
meeting, pursuant to Section 603 of the California General Corporation Law,
approving the sale by the Company of its current business operations to Spray
Products Corporation, or "Spray," on the terms and conditions hereinafter
described in this Consent Solicitation Statement. Your attention is directed to
the section "Terms of Sale" under the caption "Proposed Sale Transaction." This
Consent Solicitation Statement and the enclosed form of consent are first being
mailed on or about ________, ___________, 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 ____________, February __, 2004, or the "Record Date,"
which has been fixed, as described in the succeeding paragraph, as the record
date for the determination of the shareholders to be solicited for consents to
this proposal.
All of the directors and executive officers of the Company have already
given their consents to approval of the sale proposal with respect to an
aggregate of 756,843 shares of the Common Stock. Receipt of their consents on
___________, February __, 2004 by the Secretary of the Company made that date
the Record Date pursuant to Section 701(b)(2) of the California General
Corporation Law. The Company has also received a consent from William B.
Wachtel, as Trustee of Digital Trust, with respect to 427,873 shares. For
information as to this shareholder, your attention is directed to Note (3) to
the table under the caption "Security Ownership of Certain Beneficial Owners and
Management" elsewhere in this Consent Solicitation Statement. The Company,
accordingly, has received consents from an aggregate of 1,184,716 shares, or
19.1% of the outstanding shares of the Common Stock as of the Record Date.
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 proposal. 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 proposal 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 above, consents as to 1,184,716 shares have already been
received). California law does not require that we specify a date by which
consents must be received; however, the Board has directed that solicitation of
additional consents cease if the required consents have not been received by
______, ___________, __, 2004 [30 days after this Statement is first mailed to
shareholders].
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 the proposal to sell the operating assets of the
Company to Spray as described in the 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 the sale
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 the sale proposal 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 the sale proposal.
If you desire to consent, please return the enclosed consent to U.S.
Stock Transfer Corporation, as the Transfer Agent for the Common Stock, in the
enclosed self-addressed prepaid envelope. If you do not have such an envelope,
you can mail your consent to U.S. Stock Transfer Corporation at 1745 Gardenia
Avenue, Suite 200, Glendale, CA 91204, Attention: Proxy Department.
If you do not consent, you shall have the right to receive payment for
your shares as a result of shareholders' approval of the sale proposal. Your
attention is directed to the caption "Dissenters' Rights" elsewhere in this
Consent Solicitation Statement.
Each of the persons who has served as a director or as an executive
officer of the Company since April 1, 2003 (i.e., the beginning of the last
fiscal year of the Company) has no substantial interest, direct or indirect, by
security holdings or otherwise, in the sale proposal 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. A copy of the APA is annexed to this Consent Solicitation Statement as
Appendix A, an amendment dated January __, 2004 to the APA is annexed as
Appendix B and both are incorporated herein by this reference. Ten percent of
the purchase price will be held in escrow pending the collection of certain
receivables by Spray. The Company is not transferring any of its cash or cash
equivalents as part of the transaction. The Board deems the purchase price to be
fair consideration for the assets because the Company had negotiated over a
period of months with several potential purchasers. Spray is currently the major
supplier to the Company of compressed gas dusters, which product represents more
than 85% of the Company's current sales.
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 such
consents, but not earlier than ten calendar days after the mailing of this
Consent Solicitation Statement to shareholders.
In the event either party terminates the APA in violation thereof, or is
unable to close, that party shall pay a break-up fee of $100,000 to the other
party.
Since November 1, 2003, Spray has, pursuant to the APA, been acting as
the manager for the fulfillment of orders from the Company's customers. As
compensation for Spray's services, Spray is receiving a fee of 7 1/2% of the Net
Sales (as such term is defined), payable monthly.
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. In making its decision to sell the Company's business
operations, the Board noted that the Company had received offers to buy, and
then operate, the Company's operations, that there were threats from certain of
the Company's customers that they were considering turning to other suppliers,
especially in view of the announcement as to the Company's then proposed merger
transaction with SuperCom Ltd. ("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.
Risk if Transaction Is Consummated
If the Company receives the requisite consents and then consummates the
sale to Spray, the Company will have no operations and, accordingly, will
receive no revenues (other than from collecting certain accounts receivable and
interest on its investments of cash) unless and until an acquisition is made as
provided in the succeeding paragraph. However, as a result of the management
arrangement with Spray described in the section "Terms of Sale" under this
caption "Proposed Sale Transaction," the Company has moved to smaller facilities
and substantially reduced its on-going overhead expenses. Effective October 15,
2003, the Company has been leasing office space in Simi Valley, California for a
six-month term at $950 per month. From June 1993 to June 20, 2003, the Company
leased a 24,500 square foot building constructed in Simi Valley, California for
the specific needs of the Company and continued to use such space, on a
month-to-month basis, until October 31, 2003. The monthly rental, net of
sublease income, under the lease for such facility was $8,504.
The Board 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. The directors believe that the Company, with no losing operations,
with its continuing as a public company and with the cash position described in
the preceding sentence, remains an attractive merger or acquisition candidate,
especially with the recent improvement in general stock market conditions.
During the past three fiscal years, the Company had been seeking acquisitions
which have not been related to its current business. The Board was of the
opinion that profitability on a continuous basis would not be achieved absent an
acquisition of a new business or businesses and/or new products. However, the
Board 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. See the following section "Terminated
Acquisitions."
Terminated Acquisitions
From October 2001 to February 2002, the Company was engaged in
negotiations pursuant to which the shareholders of GraphCo Technologies, Inc.,
or GraphCo, would acquire a majority interest in, and control of the Board of,
the Company. GraphCo is a technologies, software and systems development company
providing advanced security solutions for biometric identification, secure
access, surveillance and secure law enforcement incident management. The
negotiations were mutually terminated on February 19, 2002.
In August and September 2002, the Company was engaged in negotiations
with another privately-held company, with annual revenues approximating $100
million, pursuant to which the stockholders of that company would acquire a
majority interest in, and control of the Board of, the Company. Just as the
parties were prepared to execute a definitive merger agreement, the other
company received an offer from another very large public company and
negotiations were terminated during the weekend of September 20, 2002. The other
company was ultimately sold to another very large public company.
On July 2, 2003, the Company entered into an Agreement and Plan of Merger
and Reorganization, or the "Merger Agreement," and related agreements with
SuperCom, an Israeli corporation, culminating the negotiations which had begun
in April 2003. SuperCom is engaged in the research, development and marketing of
advanced technologies and products for government secured ID projects and smart
card production technology. Its common stock is currently traded on the Euronext
Brussels New Market. On October 24, 2003, the Company filed a Registration
Statement on Form S-4, File No. 333-109933 (the "Registration Statement"), in
order to make available a joint proxy statement for use by the Company and
SuperCom to solicit approvals of the transaction from their respective
shareholders and a prospectus for the Company to offer shares of the Common
Stock to the SuperCom shareholders if the proposed transaction were approved and
consummated. If the transaction had been consummated, the SuperCom shareholders
would have received approximately 78% of the outstanding shares, subject to
adjustment upward depending on the Company's Final Net Available Cash (as
defined) at the closing, and three of the five directors would have been
designees of SuperCom. When it became obvious to both parties that, in order for
the Registration Statement to become effective, SuperCom would, at a minimum, be
required to include audited financial statements for its fiscal year which ended
December 31, 2003, thereby further delaying closing of the transaction as to
which negotiations had begun in April 2003 and which the parties initially hoped
to close by October 2003, the Merger Agreement was terminated after discussions
as to alternatives. From the perspective of the Company's directors,
continuation of the transaction would have required the Company to incur
additional expenses, thereby further reducing its Net Available Cash and
resulting in further dilution to its shareholders absent SuperCom agreeing to
change the dilution formula, and with no certainty as to when there would be a
closing.
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, CONSENTS
SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE SALE PROPOSAL.
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
Name and Address of Common Stock Common Stock
of Beneficial Owner Beneficially Owned Beneficially Owned(1)
-------------------- ------------------ ---------------------
Joseph Mazin 788,997 (2) 12.7
c/o Flamemaster Corporation
11120 Sherman Way
Sun Valley, CA 91252
StarBiz Corporation 537,997 (2) 8.7
11120 Sherman Way
Sun Valley, CA 91252
William B. Wachtel, 427,873 6.9
Trustee of Digital Trust (3)
c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Harris A. Shapiro (4) 306,166 (5) 4.9
c/o PerfectData Corporation
1445 East Los Angeles Avenue
Simi Valley, CA 93065
Bryan Maizlish (6) 15,922 (7) Nil
9705 Conestoga Way
Potomac, MD 20854
Timothy D. Morgan (6) 17,122 (7) Nil
11734 Gladstone Circle
Fountain Valley, CA 92708
Tracie Savage (6) 26,222 (8) Nil
6212 Banner Avenue
Los Angeles, CA 90038
Corey P. Schlossmann (6) 516,425 (7) 8.3
19654-A Roscoe Blvd.
Northridge, CA 91324
All directors and officers as a group 886,423 (9) 14.1
(6 in number)
(1) The percentages computed in the table are based upon 6,209,530 shares
of the Common Stock which were outstanding on the Record Date. Effect
is given, pursuant to Rule 13-d(1)(i) under the Exchange Act to shares
issuable upon the exercise of options or warrants currently exercisable
or exercisable within 60 days of the Record Date.
(2) The shares of the Common Stock reported in the table include (a)
537,997 shares owned by StarBiz Corporation ("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
("Altius") for which Mr. Mazin has shared voting power as Chairman of
the Board of Altius. Certain of the shares reported in the table are
owned by Donna Mazin, his wife, or as to which shares she shares
dispositive and voting powers with Mr. Mazin.
(3) William B. Wachtel as the Trustee of the Digital Trust has, under the
trust agreement, sole voting and investment power with respect to the
shares reported in the table. Harris A. Shapiro, currently the Chairman
of the Board, the Chief Executive Officer and a director of the
Company, was the settler of the Digital Trust and made an irrevocable
grant to it of the assets which the Digital Trust used to effect the
purchase of the shares. The beneficiaries of the Digital Trust are Mr.
Shapiro's children and grandchildren who survive him, although the
Trustee, in his absolute discretion, may pay or apply yearly income or
the principal of the Trust to any beneficiary. Because he made an
irrevocable grant and has no voting or investment power with respect to
the shares, Mr. Shapiro is not the beneficial owner of the shares
reported in the table as being owned of record by the Digital Trust and
beneficially by the Trustee.
(4) Mr. Shapiro is the Chairman of the Board, the Chief Executive Officer
and a director of the Company.
(5) The shares of the Common Stock reported in the table reflect (a)
284,500 shares owned by Millennium Capital Corporation ("Millennium")
for which Mr. Shapiro has voting power as its President; (b) 3,333
shares issuable upon the exercise of an option expiring June 19, 2012
under the Company's 2000 Stock Option Plan (the "2000 Option Plan");
(c) 8,333 shares issuable upon the exercise of an option expiring
September 25, 2012 under the 2000 Option Plan; and (d) 10,000 shares
issuable upon the exercise by Millennium of a warrant expiring March
30, 2005. The shares of the Common Stock reported in the table do not
include (x) 6,667 shares issuable upon the exercise of the option
described in (b) or (y) 16,667 shares issuable upon the exercise of the
option described in (c), neither of which was exercisable as to such
shares at the Record Date or within 60 days thereafter.
(6) A director of the Company.
(7) The shares of the Common Stock reported in the table include (a) 3,333
shares issuable upon the exercise of an option expiring June 19, 2012
under the 2000 Option Plan and (b) 8,333 shares issuable upon the
exercise of an option expiring September 25, 2012 under the 2000 Option
Plan. The shares of the Common Stock reported in the table do not
include (x) 6,667 shares issuable upon the exercise of the option
described in (a) or (y) 16,667 shares issuable upon the exercise of the
option described in (b), neither of which was exercisable as to such
shares at the Record Date or within 60 days thereafter.
(8) The shares of the Common Stock reported in the table include (a) 10,000
shares issuable upon the exercise of an option expiring July 20, 2005;
(b) 3,333 shares issuable upon the exercise of an option expiring June
19, 2012 under the 2000 Option Plan; and (c) 8,333 shares issuable upon
the exercise of an option expiring September 25, 2012 under the 2000
Option Plan. The shares of the Common Stock reported in the table do
not include (x) 6,667 shares issuable upon the exercise of the option
described in (b) or (y) 16,667 shares issuable upon the exercise of the
option described in (c), neither of which was exercisable as to such
shares at the Record Date or within 60 days thereafter.
(9) The shares of the Common Stock reported in the table include (a) those
shares indicated in the text to Notes 5, 7 and 8 and (b) 1,250 shares
issuable to an executive officer upon the exercise of an option
expiring October 30, 2011 under the 2000 Option Plan. The shares of the
Common Stock reported in the table do not include 1,250 shares issuable
upon the exercise of the option described in (b), none of which was
exercisable as to such shares at the Record Date or within 60 days
thereafter.
DISSENTERS' RIGHTS
A shareholder of the Company shall have a right to receive payment for
his, her or its shares of the Common Stock as a result of the shareholders'
approval, by consents, of the proposed sale to Spray by the Company of its
current business operations and the subsequent implementation thereof.
Under the California General Corporation Law, any holder of the Common
Stock has the right to dissent from the transaction 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 transaction (a press release was issued on October 8, 2003). The last
reported sale price of the Common Stock on October 7, 2003 was $1.05 per share;
however, the quoted market price is not necessarily deemed to be the fair market
value for purposes of dissenters' rights. In making such determination, the
Company, the dissenting shareholders and, if applicable, a court are to exclude
any appreciation or depreciation to the fair market value of the shares as a
consequence of the proposed sale to Spray of its current business operations or
the then pending SuperCom transaction. An adjustment will be made for any stock
split, reverse stock split or share dividend thereafter affected. No such
transaction is currently contemplated.
If such shareholder is not able to reach an agreement with the Company as
to the fair market value of his, her or its shares of the Common Stock, such
shareholder has the right to have the fair market value of his, her or its
shares of the Common Stock judicially determined, and paid to the shareholder in
cash, together with interest in some instances, provided that the shareholder
fully complies with the provisions of Sections 1300 through 1312 of the
California General Corporation Law. A copy of these provisions is attached to
this Consent Solicitation Statement as Appendix C.
Making sure that a shareholder actually perfects his, her or its
dissenters' rights can be complicated. The procedural rules are specific and
must be followed precisely. Failure to comply with the procedure may cause a
termination or waiver of the dissenters' rights. The following information is
intended as a brief summary of the material provisions of the statutory
procedures a shareholder must follow in order to perfect his, her or its
dissenters' rights. Shareholders who or which desire to dissent are urged to
review Appendix C for the complete procedure. The Company will not give the
dissenting shareholder any notice other than as described in this Consent
Solicitation Statement and as required by the California General Corporation
Law.
If you are a shareholder and you wish to exercise your dissenters'
rights, you must satisfy the provisions of the California General Corporation
Law attached as Appendix C which require the following:
You must refrain from consenting to the proposed sale to Spray. You must
not vote (by consent) any of your shares of the Common Stock for approval of the
sale. If you consent with respect to any of your shares of the Common Stock in
favor of the sale, this will terminate your right to dissent. Your signing and
returning the consent with a check of the Against or Abstain box, 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 the proposed sale to Spray, 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 transaction. This statement
of fair market value constitutes an offer by you to sell the shares at such
price. Your written notice should also specify your name and mailing address.
A written notice of intention to demand to be paid the fair market value
of your shares of the Common Stock is only effective if it is signed by, or for,
the shareholder of record who owns such shares at the time the demand is made.
The demand must be signed as the shareholder's name appears on the Common Stock
certificates(s). If you are the beneficial owner of the Common Stock, but not
the shareholder of record, you must have the shareholder of record sign a
written notice of intention to demand to be paid the fair market value of your
shares.
If you own the Common Stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
notice of intention to demand to be paid the fair market value of your shares in
that capacity.
If you own the Common Stock with more than one person, such as in a joint
tenancy or a tenancy in common, all the owners must sign, or have signed for
them by an authorized agent, the notice of intention to demand to be paid the
fair market value of your shares. An authorized agent, which could include one
or more of the joint owners, may sign the notice of intention to demand to be
paid the fair market value of your shares for a shareholder of record; however,
the agent must expressly disclose who the shareholder of record is and that the
agent is signing the demand as that shareholder's agent.
If you are a record owner, such as a broker-dealer, which holds the
Common Stock as a nominee for others, you may exercise a right to be paid the
fair market value of your shares with respect to the shares held for one or more
beneficial owners, while not exercising such right for other beneficial owners.
In such a case, you should specify in the written notice of intention to demand
the number of shares as to which you intend to demand appraisal. If you do not
expressly specify the number of shares, we will assume that your written notice
covers all the shares of the Common Stock that are registered in your name.
If you are a shareholder who intends to exercise dissenters' rights, you
should mail or otherwise deliver a written notice of intention to demand to be
paid the fair market value of your shares to:
PerfectData Corporation
1445 East Los Angeles Avenue
Suite 208
Simi Valley, California 93065
Attn: Irene J. Marino, Secretary
Surrender your stock certificate(s): Within 30 days after the notice by
the Company is mailed, you must deliver your stock certificate(s) to the Company
so that the Company may make a notation on the certificate(s) reflecting your
demand. If you fail to submit your stock certificates(s) to the Company within
this time frame, you will lose your right to be paid the fair market value of
your shares.
You must continuously hold your shares: You must continuously hold your
shares of the Common Stock from the date you file the notice of intention to
demand to be paid the fair market value of your shares through at least the date
you surrender your shares for endorsement after the notice by the Company as to
approval of the transaction is sent to you.
Payment period: As noted above, each of the Company and you have made
offers as to the fair market value of your dissenting shares. If you and the
Company are able to agree on an amount, the Company is obligated to pay you that
amount within 30 days after such determination, provided that you surrender,
against payment, your certificate(s) for shares of the Common Stock for
cancellation.
Commencement of Litigation: If you are not able to agree with the Company
as to the fair value of your shares, then, within six months after notice of the
approval of the sale to Spray was mailed to you, you may commence an action
against the Company in the Superior Court of California for a determination of
the fair market value of your shares.
You may, as an alternative, intervene in any pending action by another
dissenting shareholder. The Company may move to consolidate all actions by
dissenting shareholders.
Appraisal of shares: If the court determines that you are entitled to
dissenters' rights, the court will determine the value of your shares of the
Common Stock as of the day prior to the date of the first announcement of the
transactions. To determine the fair value of the shares, the court will consider
all relevant factors except for any appreciation or depreciation to the fair
market value of the shares due to the anticipation or accomplishment of the sale
to Spray of the Company's business or the then pending SuperCom transaction. The
court may appoint an appraiser or appraisers to make the determination as to
fair market value of your shares. After the court determines the fair value of
the shares, it will direct the Company to pay that value to you. The court can
also direct the Company to pay interest at the legal rate for judgments. In
order to receive payment for your shares, you must then surrender your stock
certificates to the Company.
The court could determine that the fair market value of our shares is
more than, the same as, or less than the quoted market price on the day
preceding the first announcement of the Spray transaction (i.e., $1.05) or on
the date of its decision. In other words, if you demand to be paid the fair
market value of your shares, you could receive less consideration than if you
elect to sell your shares in the over-the-counter market.
Costs and expenses of appraisal proceeding: The costs of the appraisal
proceeding (including the cost of any appraiser) may be assessed against the
Company and the shareholders participating in the appraisal proceeding in such
manner as the court deems equitable under the circumstances. You may request
that the court allocate the expenses of the appraisal action incurred by you pro
rata against the value of all the shares held by all of the Company's
shareholders entitled to dissenters' rights.
If the appraisal by the court exceeds the price offered by the Company by
125%, then the latter must pay the costs (including in the discretion of the
court attorneys' fees, fees of expert witnesses and interest at legal rate of
judgments for such dissenters' rights actions).
Loss of shareholder's rights: Until the fair market value of your
dissenters' shares is determined, you continue to have all rights and privileges
incident to such shares. You can, however, lose your dissenting shareholder
status if you do not file an action, or intervene in another dissenting
shareholder's action, within the statutory period or if you transfer your shares
before they are endorsed as dissenters' shares. Additionally, a dissenting
shareholder may not withdraw a demand for payment without the consent of the
Company.
MISCELLANEOUS
Solicitation
The solicitation of consents on the enclosed form of consents is made by
and on behalf of the Board of Directors of the Company and the cost of this
solicitation is being paid by the Company. In addition to the use of the mails,
consents may be solicited personally, or by telephone or telegraph, by the
officers or directors of the Company.
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. The Board
delayed calling its Annual Meeting of Shareholders for the fiscal year ended
March 31, 2003 in order to include approval of the SuperCom transaction in the
proposals to be voted on by the Company's shareholders. See the section
"Terminated Transactions" under the caption "Proposed Sale Transaction"
elsewhere in this Consent Solicitation Statement for information as to both such
transactions. In order to keep expenses at a minimum the Board currently intends
to call the Annual Meeting of Shareholders for the fiscal year ending March 31,
2004 ("fiscal 2004") in September 2004 after the financial statements for fiscal
2004 are available for distribution to shareholders. Shareholders' proposals for
inclusion in the Company's proxy statement for the Annual Meeting of
Shareholders for fiscal 2004 must be received no later than a reasonable time
before the Company prints and mails its proxy material for such Annual Meeting.
If a shareholder intends to submit a proposal for consideration at such Annual
Meeting by means other than the inclusion of the proposal in the Company's proxy
statement for such Annual Meeting, the shareholder must notify the Company of
such intention no later than a reasonable time before the Company prints and
mails its proxy material for such Annual Meeting, or risk management exercising
discretionary voting authority with respect to the management proxies to defeat
such proposal when and if presented at such Annual Meeting. The Company
currently anticipates mailing the proxy material for such Annual Meeting on or
before Friday, August 20, 2004. The Company shall advise its shareholders of any
change in the contemplated mailing date for its proxy material for the Annual
Meeting of Shareholders for fiscal 2004 by notice in its earliest possible
Quarterly Report on Form 10-QSB or by other appropriate notice.
Contact Information
The office of the Company is located at 1445 East Los Angeles Avenue,
Suite 208, Simi Valley, CA 93065. Its telephone number is (805) 581-4000.
Inquiries may be directed by mail or telephone to Harris A. Shapiro, Chairman of
the Board and Chief Executive Officer of the Company.
Financial Data
The Company's financial statements and related management's discussion
and analysis of financial condition and results of analysis for the quarter
ended September 30, 2003 [December 31, 2003 if available] as reported in the
Company's Quarterly Report on Form 10-QSB are annexed to this Consent
Solicitation Statement as Appendix D.
By Order of the Board of Directors
/s/ Irene J. Marino
Irene J. Marino
Secretary
February __, 2003
Appendix A
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 3rd day of October, 2003 between PerfectData Corporation, a
California corporation (the "Seller"), and Spray Products Corporation, a
Pennsylvania corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business (the "Business") of
computer/office care and cleansing products; and
WHEREAS, the Seller desires to sell all of its inventory and other
assets related to the Business to the Purchaser, and the Purchaser desires to
acquire such assets.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and conditions
hereinafter set forth, the parties do hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase of Assets. Subject to the terms and conditions of this
Agreement, the Seller hereby agrees to sell, transfer, convey, assign and
deliver to the Purchaser, and the Purchaser hereby agrees to purchase, acquire
and accept from the Seller:
1.1.1 All inventories of the Seller, including finished goods, raw
materials and work in process existing on the Closing Date (as defined below)
(the "Inventory");
1.1.2 The following books and records of the Seller, including
customer lists and customer data, supplier lists and supplier data and other
operating data, files, credit information, records of sales and inventory data,
know how, computer software (including source codes and object codes), product
development documentation product development procedures, computer generated
product designs and artwork, catalogues, sales literature displays, and
advertising materials, artwork used in the Business, Non-Disclosure Agreements,
Confidentiality Agreements, telephone numbers, SKU numbers, the trade name
"PerfectData Corporation" and all other names utilized in connection with the
Business and all derivations thereof and other intangibles related to the
Business ( the "Intangibles"); provided, however, that the Seller or its
representative shall have the right, upon reasonable notice and during regular
business hours, for five (5) years after the Closing (as hereinafter defined),
to enter the premises of the Purchaser to review and copy any such books and
records for the purpose of the compilation of the financial records of the
Seller for use in the preparation of any required tax returns, in response to
any federal and/or state tax auditor, for use in the preparation of any report
to be filed pursuant to the Securities Exchange Act of 1934, as amended, or any
securities inquiry.
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1.1.3 The Seller's goodwill relating to the Business (the
"Goodwill");
1.1.4 Such accounts receivable of the Seller as to which the
Purchaser and the Seller may mutually agree upon (such purchased receivables
shall be referred to herein as the "Receivables");
1.1.5 all of the Seller's machinery and equipment, office furniture,
supplies, fixed assets, fixtures and equipment, warehouse equipment, tooling,
molds, and computer hardware except for such pieces of equipment as the Seller
reasonably determines is necessary for the establishment of a new office (the
"Equipment");
1.1.6 all intellectual property related to the Business, including,
but not limited to, software, patents, pending patent applications, patents in
development, copyrights, pending copyright applications, copyrights in
development and all derivative works thereof, trademarks, trade names, logos,
service marks, assumed or fictitious names, trade secrets, manufacturing
know-how, and any and all websites related in whole or in part to the Business
and the data and intellectual property related thereto (collectively, the
"Intellectual Property").
The Inventory, Intangibles, Goodwill, Receivables, Equipment and Intellectual
Property are collectively referred to herein as the "Purchased Assets".
1.2 Retained Assets. Except for the Purchased Assets, the Purchaser is
not purchasing any other assets of the Seller including, the Retained Assets.
The term "Retained Assets" shall mean the following assets of the Seller as of
the Closing Date which, although they relate to the Business, are not Purchased
Assets and are to be retained by the Seller: (a) the Seller's franchise to be a
corporation, Certificate of Incorporation, by-laws, minute books, company seals
and other company records having to do with the organization and capitalization
of the Seller; (b) all canceled checks, bank statements and tax returns of the
Seller relating to the Business; (c) any contract, agreement or lease of the
Seller which is not assumed by the Purchaser hereunder; (d) the Seller's
insurance policies including the cash value of life insurance policies; (e) the
Seller's cash and cash equivalents; (f) the Seller's accounts, notes and
receivables, other than the Receivables; (g) taxes and deposits; (h) all
accounting books and records of the Seller and (i) all other assets not
identified herein as the "Purchased Assets".
1.3 Purchase Price.
1.3.1 The total consideration for the Purchased Assets (the
"Purchase Price") shall be an amount equal to the difference of:
1.3.1.1 the Seller's landed cost for the Inventory (excluding
obsolete items) (the "Inventory Value"); plus
1.3.1.2 An amount equal to the collectible Receivables that,
as of the Closing Date, are no older than sixty-five
(65)days; plus
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1.3.1.3 The sum of One Hundred Thousand ($100,000.00) Dollars;
less:
1.3.1.4 The dollar amount of the Assumed Liabilities (as
hereinafter defined).
1.3.2 Allocation of Purchase Price. The Purchase Price shall
be allocated prior to the Closing in accordance with Section 1060 of the
Internal Revenue Code. The Purchaser and the Seller shall cooperate with each
other in the preparation and filing of I.R.S. Form 8594 in connection with the
Purchase Price allocation. Neither the Purchaser nor the Seller, nor any of
their respective affiliates, shall take any position (whether in financial
statements, audits, tax returns or otherwise) which is inconsistent with the
allocation of the consideration unless required to do so by applicable law or
regulation.
1.3.3 Within seven (7) days prior to the Closing, the Seller and the
Purchaser shall jointly conduct a physical count of the Inventory in order to
determine the Inventory Value.
1.3.4 The Purchase Price shall be payable at the Closing by the
Purchaser to the Seller as follows:
1.3.4.1 An amount equal to the Purchase Price less the
Holdback Amount (as hereinafter defined) shall be paid via bank or certified
check.
1.3.4.2 An amount equal to ten (10%) percent of the Purchase
Price (the "Holdback Amount") shall be delivered to Wachtel & Masyr, LLP (the
"Escrow Agent").
1.4 Post-Closing Adjustment. At any time after seventy-five (75) days
after the Closing, but no later than ninety (90) days after the Closing, the
Purchaser shall have the right to put (the "Put") any uncollected Receivables
(the "Assigned Receivable") to the Seller. In the event of a Put, the Seller
shall deliver to the Purchaser, within thirty (30) days after the date of such
Put, an amount equal to the face-dollar amount of such Assigned Receivable(s).
In the event that Seller does not timely deliver the value of the Assigned
Receivable to the Purchaser, the Purchaser shall send written notice to the
Escrow Agent and the Seller of such event, and the Escrow Agent shall be
instructed to deliver an amount equal to the face amount of the Assigned
Receivable to the Purchaser. The terms of the escrow herein are set forth in the
Escrow Agreement by and among the Purchaser, the Seller and the Escrow Agent,
the form of which is attached hereto as Exhibit A. Notwithstanding the
foregoing, the Purchaser shall have no right to Put any Receivable that is
generated during such period that the Purchaser is managing the Business,
pursuant to Section 5.6 herein.
1.5 Assumption of Liabilities and Obligations. The Purchaser shall
assume and be responsible for all trade payables of the Seller at the Closing
(the "Assumed Liabilities"). The parties agree that the Purchaser is not
assuming any liability or obligation of the Seller other than the Assumed
Liabilities.
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1.6 Preparation of the Purchased Assets. The parties acknowledge that
the Purchaser shall make all arrangements and shall be responsible for all costs
incurred in connection with the packaging and transport of the Purchased Assets
from the Seller to the Purchaser.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
2.1 Organization of the Seller. The Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, with all requisite power and authority to own, lease and operate
its properties and to carry on the Business as it is now being conducted. The
Seller is qualified or licensed as a foreign entity in each jurisdiction in
which it is required as a result of the conduct of the Business or location of
the property owned, leased or operated by it in connection with the Business
except where failure to be so qualified or licensed would not have a material
adverse effect on the value of the Purchased Assets, taken as a whole (a
"Material Adverse Effect").
2.2 Authorization of the Seller. The Seller has full power, capacity and
authority to execute this Agreement and all other agreements and documents
contemplated hereby. The execution and delivery of this Agreement and such other
agreements and documents by the Seller and the consummation by the Seller of the
transactions contemplated hereby have been duly authorized and no other action
on the part of the Seller is necessary to authorize the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Seller and constitutes the valid and binding obligation of the Seller,
enforceable in accordance with its terms, except that (i) enforcement may be
subject to (A) bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally, and (B) proper shareholder and
regulatory consent and (ii) the remedies of specific performance and injunctive
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceedings may be brought.
2.3 No Violations. The execution, delivery and performance of this
Agreement and the other agreements and documents contemplated hereby by the
Seller and the consummation of the transactions contemplated hereby will not (i)
violate any provision of the Certificate of Incorporation or by-laws of the
Seller, (ii) violate any statute, rule, regulation, order or decree of any
public body or authority by which the Seller or its properties or assets are
bound, or (iii) result in a violation or breach of, or constitute a default
under, or result in the creation of any lien, mortgage, pledge, security
interest, charge, claim, option or other encumbrance (collectively, the "Liens")
upon, or create any rights of termination, cancellation or acceleration in any
person with respect to any license, franchise or permit of the Seller, or any
other agreement, contract, indenture, mortgage or instrument to which the Seller
is a party or by which any of its properties or assets is bound except (in the
case of (ii) and (iii)) where any such violation, breach or default would not
have a Material Adverse Effect on the Seller.
2.4 Consents. Except for the consent of the shareholders of the Seller
pursuant to the California General Corporation Law and the approval of the
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Securities and Exchange Commission, no consent, approval or other authorization
of any governmental authority or third party, is required as a result of or in
connection with the execution and delivery of (i) this Agreement and the other
agreements and documents to be executed by the Seller in connection herewith or
(ii) the consummation by the Seller of the transactions contemplated hereby,
except for those that have been, or prior to the Closing will be, obtained. At
the Closing, the Seller shall be in complete compliance with all applicable
laws, rules, regulations, including health, environmental, building, zoning,
safety and labor.
2.5 Litigation and Related Matters. There are no actions, suits,
proceedings, investigations or grievances pending or, to the knowledge of the
Seller, threatened against the Seller, the Business or the Purchased Assets, at
law or in equity, before or by any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (i) that could reasonably be expected to
affect the transactions contemplated hereby or (ii) relating to the Business or
the Purchased Assets.
2.6 Title. At the Closing, the Seller will deliver the Purchased Assets
free and clear of all Liens.
2.7 Disclaimers. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, ALL
OF THE PURCHASED ASSETS (AS DEFINED) ARE BEING SOLD AND TRANSFERRED TO THE
PURCHASER "AS IS" AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR USE, ARE EXCLUDED FROM THE SALE AND TRANSFER
OF THE PURCHASED ASSETS. THE SELLER MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY NATURE WITH RESPECT TO THE PURCHASED ASSETS (EXCEPT AS EXPRESSLY SET FORTH
IN ARTICLE II) OR THE FINANCIAL CONDITION OF THE BUSINESS, INCLUDING BUT NOT
LIMITED TO THE LEVEL OF SALES, PROFITABILITY, INCOME OR FUTURE PROSPECTS. THE
PURCHASER ACKNOWLEDGES THAT ANY FINANCIAL OR OPERATING INFORMATION RELATING TO
THE SELLER'S OPERATION OF THE BUSINESS WAS PROVIDED SOLELY FOR INFORMATIONAL
PURPOSES AND THAT THE SELLER HAS NO RESPONSIBILITY TO THE PURCHASER WITH RESPECT
TO SUCH FINANCIAL OR OPERATING INFORMATION.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to the Seller as follows:
3.1 Corporate Existence. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, with all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
The Purchaser is qualified or licensed as a foreign corporation in each
jurisdiction in which it is required as a result of the character of its
business or location of the property owned, leased or operated by it in
connection with its business except where failure to be so qualified or licensed
would not have a material adverse effect on the Purchaser.
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3.2 Authorization of Purchaser. The Purchaser has full corporate power,
capacity and authority to execute this Agreement and all other agreements and
documents contemplated hereby. The execution and delivery of this Agreement and
such other agreements and documents by the Purchaser and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized and
no other corporate action on the part of the Purchaser is necessary to authorize
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the valid and binding obligation of
the Purchaser, enforceable in accordance with its terms, except that (i)
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally, and (ii) the remedies of
specific performance and injunctive relief arc subject to certain equitable
defenses and to the discretion of the court before which any proceedings may be
brought.
3.3 No Violations. The execution and delivery of this Agreement and the
other agreements and documents contemplated hereby by the Purchaser and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of the certificate of incorporation or bylaws of the Purchaser, (ii)
violate any statute, rule, regulation, order or decree of any public body or
authority by which the Purchaser or its properties or assets are bound, or (iii)
result in a violation or breach of, or constitute a default under or result in
the creation of any Lien upon, or create any rights of termination, cancellation
or acceleration in any person with respect to, any agreement, contract,
indenture, mortgage or instrument to which the Purchaser is a party or any of
its properties or assets is bound except (in the case of (ii) and (iii)) where
any such violation, breach or default would not have a material adverse effect
on the Purchaser.
3.4 Consents. No consent, approval or other authorization of any
governmental authority or third party is required as a result of or in
connection with the execution and delivery of (i) this Agreement and the other
agreements and documents to be executed by the Purchaser in connection herewith
or (ii) the consummation by the Purchaser of the transactions contemplated
hereby, except for those that have been, or prior to the Closing will be,
obtained.
ARTICLE 4
COVENANTS
4.1 Course of Conduct by the Seller. From the date hereof through the
Closing Date, except as may be first approved in writing by the Purchaser or as
otherwise permitted or contemplated by this Agreement, the Business shall be
conducted only in the ordinary course of business consistent with past practice,
and the Seller shall comply with the following covenants:
4.1.1 Disposition of Assets. The Seller shall not sell, transfer or
otherwise dispose of any part of the Purchased Assets, tangible or intangible,
except for inventory and supplies, disposed of or consumed in the ordinary
course of business.
4.1.2 Relations with Suppliers and Customers. The Seller will use
commercially reasonable efforts to preserve its relationships with material
suppliers, customers and others having material business dealings with it with
respect to the Business.
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4.1.3 Liens. The Seller will not mortgage, pledge, encumber, create
or allow any Liens not existing on the date hereof upon any of the Purchased
Assets.
4.2 Approvals and Consents. Each party shall use its reasonable efforts
(i) to cause all conditions to the obligations of the other party under this
Agreement over which it is able to exercise influence or control to be satisfied
prior to the Closing Date and (ii) to obtain promptly and to comply with all
requisite statutory, regulatory or court approvals, third party releases and
consents, and other requirements necessary for the valid and legal consummation
of the transactions contemplated hereby.
4.3 Investigations. The Seller shall provide the Purchaser and its
representatives and agents such access to the books and records of the Seller
and furnish to the Purchaser such financial and operating data and other
information with respect to the Purchased Assets as Purchaser may reasonably
request from time to time. If the transactions provided for herein are not
consummated, the provisions of the Confidentiality Agreement, dated as of May
30, 2003 between the Seller and the Purchaser shall be binding on the Purchaser
as if such Confidentiality Agreement was entered into as of the date hereof.
Notwithstanding the foregoing, the Purchaser acknowledges that it has conducted
its due diligence with respect to the Seller the Business and the Purchased
Assets and it may not terminate this Agreement based on further due diligence.
4.4 No Solicitation. Except with respect to the Purchaser and its
affiliates, after the date hereof, until the earlier of the Closing or the
termination of this Agreement, the Seller shall not (i) initiate or solicit,
directly or indirectly, any inquiries or the making of any proposal with respect
to a purchase of all or any significant portion of the Purchased Assets (other
than in the ordinary course of business) (an "Acquisition Transaction"), or (ii)
engage in any negotiations concerning, or provide to any other person any
information or data relating to the Seller for the purposes of or have any
discussions with any person relating to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage any effort or attempt by
any other person to seek or effect, an Acquisition Transaction.
4.5 Public Announcements. Without the prior written consent of the other
party hereto, neither party shall make any press release, public announcement or
other disclosure to third parties including customers (other than disclosures to
lenders and professional advisors who agree to keep such information
confidential) with respect to the transactions contemplated by this Agreement,
except as required by law, or pursuant to any securities laws or regulations.
4.6 Future Business. From the date hereof through the Closing, the
Purchaser will continue to sell inventory to the Seller in its ordinary course
and will continue to extend open credit to the Seller.
ARTICLE 5
CLOSING
5.1 Closing. Unless this Agreement is first terminated as provided in
Section 5.4, and subject to the satisfaction or waiver of all conditions to the
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consummation of the transactions contemplated hereby, the closing of the
transactions contemplated hereby (the "Closing") shall take place at the offices
of Wachtel & Masyr, LLP, 110 East 59th Street, New York, New York 10022 on the
twenty first (21) day following the date that notice of the sale contemplated
herein is sent to the shareholders of the Seller, pursuant to Section 603(b)(1)
of the California General Corporation Law; provided however, that the parties
may agree to extend the Closing for up to thirty (30) days.
5.2 Conditions to the Purchaser's Obligations. The obligation of the
Purchaser to effect the Closing shall be subject, at its option, to the
satisfaction or waiver of each of the following conditions at or prior to the
Closing:
5.2.1 Representations, Warranties and Compliance with Covenants.
Each representation and warranty of the Seller contained in this Agreement and
in any Schedule shall be true and correct when made, and shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representation and warranty had been made on and as of the
Closing Date. Each of the covenants and agreements herein on the part of the
Seller to be complied with or performed on or before the Closing Date shall have
been complied with and performed in all material respects. The Purchaser shall
have received a certificate, dated the Closing Date, of the Seller to the
foregoing effect.
5.2.2 Bill of Sale. The Seller shall have executed and delivered to
the Purchaser a Bill of Sale in form and substance attached hereto as Exhibit B.
5.2.3 Certificates. The Seller shall have delivered to the Purchaser
certificates of the appropriate governmental authorities, dated as of a date not
more than thirty (30) days prior to the Closing Date, attesting to the existence
and good standing of the Seller in the State of California.
5.2.4 Litigation. No investigation, suit, action, or other
proceeding shall be threatened or pending before any court or governmental
agency that seeks the restraint, prohibition, damages, or other relief in
connection with this Agreement or the consummation of the transactions
contemplated by this Agreement.
5.3 Conditions to Obligations of the Seller. The obligation of the
Seller to effect the Closing shall be subject, at its option, to the
satisfaction or waiver of each of the following conditions at or prior to the
Closing:
5.3.1 Accuracy of Representations and Warranties and Compliance with
Covenants. Each representation and warranty of the Purchaser contained in this
Agreement shall be true and correct when made, and shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representation and warranty had been made on and as of the Closing
Date. Each of the covenants and agreements herein on the part of the Purchaser
to be complied with or performed on or before the Closing Date shall have been
fully complied with and performed in all material respects. The Seller shall
have received a certificate, dated the Closing Date, of the Purchaser to the
foregoing effect.
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5.3.2 Certificates. The Purchaser shall have delivered to the Seller
a certificate of the appropriate governmental authorities, dated as of a date
not more than thirty (30) days prior to the Closing Date, attesting to the
existence and good standing of the Purchaser in the state of its incorporation.
5.3.3 Consents and Approvals. All material authorizations, consents,
approvals, waivers and releases necessary for the Seller to consummate the
transactions contemplated hereby shall have been obtained, including, without
limitation, the obtaining of shareholder and director approvals pursuant to the
California General Corporation Law and the Seller shall have complied with
Section 14(c) of the Securities Exchange Act of 1934, as amended.
5.3.4 Approval, Litigation. No investigation, suit, action, or other
proceeding shall be threatened or pending before any court or governmental
agency that seeks the restraint, prohibition, damages, or other relief in
connection with this Agreement or the consummation of the transactions
contemplated by this Agreement.
5.3.5 Purchase Price. The Purchaser shall have delivered the
Purchase Price to the Seller and the Escrow Agent.
5.3.6 Assumption of Liabilities. The Purchaser shall have delivered
an Assumption of Liabilities to the Seller, in substantially the form attached
hereto as Exhibit C.
5.4 Termination.
5.4.1 This Agreement may be terminated and abandoned at any time
prior to the Closing:
5.4.1.1 By the written mutual consent of the Purchaser and the
Seller;
5.4.1.2 By the Purchaser on the Closing Date if any of the
conditions set forth in Section 5.2 shall not have
been fulfilled or waiver on or prior to the Closing
Date; and
5.4.1.3 By the Seller on the Closing Date if any of the
conditions set forth in Section 5.3 shall not have
been fulfilled or waived on or prior to the Closing
Date.
5.5 Rights on Termination.
5.5.1 If this Agreement is terminated pursuant to Section 5.4
hereof, all further obligations of the parties under or pursuant to this
Agreement shall, subject to Section 7.12 herein, terminate without further
liability of either party to the other, except that (i) the Purchaser's
obligations contained in Section 4.3 of this Agreement, (ii) the representations
of the parties contained in Section 7.10 and (iii) the provisions of Section
7.11, shall all survive any such termination.
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5.5.2 In the event that either party hereto terminates this
Agreement for a reason other than as set forth in Section 5.4 herein, or refuses
to or is unable to close the transaction contemplated herein other than as is
permitted hereunder (such party being referred to herein as the "Non-Closing
Party"), and such inability to close is not the fault of the other party, the
Non-Closing Party shall pay a break-up fee to the other party in an amount equal
to One Hundred Thousand ($100,000) Dollars in cash.
5.6 Management.
5.6.1 If this Agreement is not terminated pursuant to Section 5.4
herein, the Purchaser shall, beginning November 1, 2003, act as the manager for
the fulfillment of orders from the Seller's customers. In connection therewith,
the Purchaser shall manufacture or otherwise obtain all finished goods required
by the Seller's customers and package such items for shipment to the Seller's
customers in accordance with each purchase order. In order to facilitate such
fulfillment obligations, the Seller shall, prior to October 31, 2003, deliver
all its finished goods and certain of its equipment and other fixed assets used
in connection with the operation of the Business, to a pre-designated warehouse
(the "Facility") of the Purchaser.
5.6.2 As compensation for the Purchaser's services under this
management arrangement, the Purchaser shall be entitled to a fee (the "Fee")
equal to seven and one-half (7.5%) percent of the "Net Sales" of all products
sold to the Seller's customers. For purposes of this Section 5.6, "Net Sales"
shall mean the gross invoice price of each product less all (i) commissions
payable in connection with the sale of such products and (ii) rebates given by
the Seller to its customers in the ordinary course of Seller's business. The Fee
shall be payable on a monthly basis within thirty (30) days after the end of the
following month in which payment was received by the Seller for such product.
5.6.3 In connection with the services to be provided under this
management arrangement by the Purchaser, (a) the Seller agrees to: (i) maintain
adequate facilities to process orders and invoices; and (ii) deliver to the
Purchaser in a timely manner all customer orders and (b) the Purchaser (i)
agrees to timely fulfill and ship all customer orders and (ii) shall be
responsible for all payments with respect to the transport of inventory from the
Facility to the customers.
5.6.4 Notwithstanding anything contained herein to the contrary, the
Seller has the right to reject any customer orders if the Seller, in its sole
discretion, deems the profit margins on such purchase orders to be inadequate.
5.6.5 The obligations of each of the parties under this Section 5.6
shall survive until the earlier of the Closing or the termination of this
Agreement.
5.6.6 Upon the termination of this Agreement, in addition to all
rights and remedies under this Agreement, the Purchaser shall be required to
fulfill all existing customer orders sent by the Seller and shall immediately
return all unsold inventory of the Seller to the Seller.
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ARTICLE 6
INDEMNIFICATION
6.1 Purchaser's Losses.
6.1.1 The Seller shall indemnify and hold harmless the Purchaser,
its directors, officers, employees, representatives, agents, and attorneys
("Purchaser Indemnified Parties") from, against and in respect of any and all
Purchaser's Losses (as defined below) suffered, sustained, incurred or required
to be paid by any of them by reason of (i) any representation or warranty made
by the Seller in or pursuant to this Agreement being untrue or incorrect in any
material respect; or (ii) any failure by the Seller to observe or perform its
covenants and agreements set forth in this Agreement or any other agreement or
document executed by the Seller in connection with the transactions contemplated
hereby; except in any instance to the extent the Purchaser's Losses results from
a Purchaser Indemnified Party's own negligence or willful misconduct.
6.1.2 "Purchaser's Losses" shall mean all damages, including,
without limitation, subject to Section 6.2.3 amounts paid in settlement with the
Seller's consent, which consent may not be unreasonably withheld, losses,
obligations, liabilities, liens, deficiencies, costs (including, without
limitation, reasonable attorneys' fees), taxes, penalties, fines, interest,
monetary sanctions and expenses, including, without limitation, reasonable
attorneys' fees and costs incurred to comply with injunctions and other court
and agency orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce a Purchaser
Indemnified Party's right to indemnification hereunder. The Seller shall not
have any obligation under Section 6.1 to indemnify the Purchaser Indemnified
Parties with respect to (i) Purchaser's Losses until the aggregate combined
total of all such Purchaser's Losses incurred by the Purchaser Indemnified
Parties exceeds $25,000, whereupon the Purchaser Indemnified Parties shall be
entitled to indemnification with respect to the full amount of Purchaser's
Losses determined without regard to such limitation, and (ii) aggregate
Purchaser's Losses in excess of the amount of the Purchase Price actually paid
to the Seller.
6.2 Seller's Losses.
6.2.1 The Purchaser shall indemnify and hold harmless the Seller and
its officers, directors, employees, representatives, agents, and attorneys
("Seller Indemnified Parties") from, against and in respect of any and all
Seller's Losses (as defined below) suffered, sustained, incurred or required to
be paid by any of them, by reason of (i) any representation or warranty made by
the Purchaser in or pursuant to this Agreement being untrue or incorrect in any
material respect, or (ii) any failure by the Purchaser to observe or perform its
covenants and agreements set forth in this Agreement or any other agreement or
document executed by it in connection with the transactions contemplated hereby
including a failure to pay an Assumed Liability, except in any instance to the
extent the Seller's Losses results from a Seller Indemnified Party's own
negligence or willful misconduct.
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6.2.2 "Seller's Losses" shall mean all damages, including, without
limitation, subject to Section 6.2.3 amounts paid in settlement with the
Purchaser's consent, which consent may not be unreasonably withheld, losses,
obligations, liabilities, liens, deficiencies, costs (including, without
limitation, reasonable attorneys' fees), taxes, penalties, fines, interest,
monetary sanctions and expenses, including, without limitation, reasonable
attorneys' fees and costs incurred to comply with injunctions and other court
and agency orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce a Seller
Indemnified Party's right to indemnification hereunder. The Purchaser shall not
have any obligation under Section 6.2 to indemnify the Seller Indemnified
Parties with respect to Seller's Losses until the aggregate combined total of
all such Seller's Losses incurred by the Seller Indemnified Parties exceeds
$25,000, whereupon the Seller Indemnified Parties shall be entitled to
indemnification with respect to the full amount of Seller's Losses determined
without regard to such limitation, provided, however, that this limitation shall
not apply to a failure to pay Purchase Price or a failure to pay an Assumed
Liability.
6.2.3 Claims Procedure. Whenever a Purchaser's Loss or Seller's Loss
subject to the indemnity provisions in this Article VI shall arise (a "Claim"),
the party entitled to indemnity (the "Indemnified Party") shall promptly notify
the party obligated to provide indemnity (the "Indemnifying Party") of such
Claim and, when known, the facts constituting the basis of such Claim, provided,
however, that in the event of a claim resulting from or in connection with any
Claim by a third party, the Indemnified Party shall use its diligent efforts to
give notice no later than ten (10) days prior to the time any response to the
asserted Claim is required. In the event of a Claim resulting from or in
connection with a Claim by a third party, the Indemnifying Party may, at its
sole cost and expense, assume the defense thereof. If an Indemnifying Party
assumes the defense of the Claim, the Indemnifying Party shall be entitled to
select counsel and take all steps necessary in the defense thereof and shall
have the right to effect a settlement of the Claim. The Indemnified Party shall
have the right, but not the obligation, to participate at its own expense in the
defense thereof by counsel of its own choice. In the event that the Indemnifying
Party fails to timely defend, contest or otherwise protect against any such
Claim, the Indemnified Party shall have the right to defend, contest or
otherwise protect against the same and may make any compromise or settlement
thereof and recover from the Indemnifying Party the entire cost thereof,
including, without limitation, reasonable attorneys' fees, disbursements and all
amounts paid as a result of such Claim or compromise or settlement thereof.
ARTICLE 7
MISCELLANEOUS
7.1 Further Assurances. If, at any time after the Closing, either party
shall reasonably consider or be advised that any further assignments,
conveyances, certificates, filings, instruments or documents or any other things
are necessary or desirable to vest, perfect or confirm in the Purchaser title to
the Purchased Assets or to consummate any of the transactions contemplated by
this Agreement, the other party shall, upon request, promptly execute and
deliver all such assignments, certificates, filings, instruments and documents
and do all things reasonably necessary and proper to vest, perfect or confirm
title in the Purchaser and to otherwise carry out the purposes of this
Agreement.
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7.2 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof, and no party shall be liable or bound
to the other in any manner by any representations or warranties not set forth
herein. This Agreement has been jointly prepared by the parties hereto and the
terms hereof shall not be construed in favor of or against any party on account
of its participation in such preparation.
7.3 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. The Purchaser has the right to
assign its rights under this Agreement provided, that in the event it assigns
such rights, Spray Products Corporation, a Pennsylvania corporation, hereby
unconditionally guarantees the performance of each and every obligation of its
successor as the Purchaser under this Agreement and the Escrow Agreement.
7.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
7.5 Headings. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
7.6 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof, and this Agreement may be modified or amended by a written
instrument executed by all parties hereto. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by all
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
7.7 Schedules and Exhibits. All exhibits and schedules annexed hereto
are expressly made a part of this Agreement as though fully set forth herein and
all references to this Agreement herein or in any such exhibits or schedules
shall refer to and include all such exhibits and schedules.
7.8 Notices. Any notice, request, instruction, document or other
communication to be given hereunder by any party hereto to any other party
hereto shall be in writing and validly given if (i) delivered personally, (ii)
sent by telecopy, (iii) delivered by overnight express, or (iv) sent by
registered or certified mail, postage prepaid, as follows:
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If to the Purchaser, to:
Spray Products Corporation
1323 Conshohocken Road
Plymouth Meeting, PA 19462
Attn: Burt Bastian
Facsimile: (610) 277-4390
with a copy to:
Eckell, Sparks, Levy, Auerbach, Monte, Rainer & Sloane, P.C.
P.O. Box 319
Media, PA 19063
Attn: Joseph L. Monte, Jr., Esq.
Facsimile: (610) 565-1596
If to the Seller:
PerfectData Corporation
110 West Easy Street
Simi Valley, California 93065
Attn: Harris A. Shapiro, Chairman
Facsimile: (805) 522-5788
with a copy to:
Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attn: Robert W. Berend, Esq.
Facsimile: (212) 371-0320
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally, or sent by telecopy or overnight express
in the manner provided herein shall be deemed to have been duly given to the
party to whom it is directed upon actual receipt by such party. Any notice which
is addressed and mailed in the manner herein provided shall be conclusively
presumed to have been given to the party to whom it is addressed at the close of
business, local time of the recipient, on the third day after the day it is so
placed in the mail.
7.9 Governing Law. This agreement shall be construed, enforced, and
governed by the internal laws of the State of California without regard to its
choice of law principles. Each of the parties hereto hereby irrevocably and
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unconditionally submits to the exclusive jurisdiction of any court of the State
of California (collectively, the "Courts") for purposes of any suit, action or
other proceeding arising out of this Agreement (and agrees not to commence any
action, suit or proceedings relating hereto except in such Courts). Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement, which is brought by or against it in the Courts and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such Court that any such action, suit or proceeding brought in any such Court
has been brought in an inconvenient forum.
7.10 Survival. The representations and warranties of the Purchaser and
Seller included or provided for herein, or in other instruments or agreements
delivered or to be delivered at or prior to the Closing in connection herewith,
shall survive for a period of one (1) year following the Closing Date. The
obligations of the Seller pursuant to Article 7 shall survive until the
expiration of the Covenant Period.
7.11 Brokers. The Purchaser, on the one hand, and the Seller, on the
other, each represent to the other that it has not used a broker or finder in
connection with the transactions contemplated by this Agreement and each shall
hold the other harmless from any such claim.
7.12 Expenses. The Purchaser, on the one hand, and the Seller, on the
other, shall each pay its own costs and expenses incurred by it, including, but
not limited, to the fees of their respective counsel in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement. Notwithstanding the foregoing, in the event that
the (a) the Purchaser breaches its obligations to purchase the Purchased Assets
other than pursuant to Section 5.4 herein, the Purchaser shall reimburse the
Seller for all out of pocket expenses incurred by the Seller (including
reasonable attorneys fees) in connection with this Agreement; or (b) the Seller
enters into a letter of intent or purchase agreement in violation of Section 4.4
herein, the Seller shall reimburse the Purchaser for all out of pocket expenses
incurred by the Purchaser (including reasonable attorneys fees) in connection
with this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as the
date first set forth above.
PURCHASER:
Spray Products Corporation
By: /s/ Bart Bastian
Name: Bart Bastian
Title: President
SELLER:
PerfectData Corporation
By: /s/ Harris A. Shaprio
Name: Harris A. Shapiro
Title: Chairman of the Board and Chief
Executive Officer
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Appendix B
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This First Amendment (the "Amendment") dated as of the ____ day of
January, 2004, to the Asset Purchase Agreement ("the "Original Agreement"),
dated as of October 3, 2003, between PerfectData corporation, a Delaware
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;
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 its own
shipments post-closing, but also including "tail"
insurance for claims arising from shipments prior to
the Closing Date, including those during the
management period pursuant to Section 5.6 hereof."
3. Section 5.6.3(a) is hereby amended to add the following:
"(iii) be responsible for all freight and shipping
charges incurred by the Buyer in connection with the
transport of inventory from the Facility to the
customers."
4. Section 5.6.3 (b)(ii) is hereby deleted in its entirety.
5. Except as specifically modified herein, the Original Agreement shall not
be modified and shall remain in full force and effect.
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6. All capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Original Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
PURCHASER:
Spray Products Corporation
By: _____________
Name: Bart Bastian
Title: President
SELLER:
PerfectData Corporation
By: _________________
Name: Harris A. Shapiro
Title: Chairman of the Board and Chief
Executive Officer
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Appendix C
CALIFORNIA GENERAL CORPORATION LAW SECTIONS 1300-1312 1300.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the National Market System of the NASDAQ Stock Market,
and the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304; provided,
however, that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. 1301.
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(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision D-1 (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof. (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof,
(a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or
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(b) if the shares are uncertificated securities, written notice of the
number of shares which the shareholder demands that the corporation purchase.
Upon subsequent transfers of the dissenting shares on the books of the
corporation, the new certificates, initial transaction statement, and other
written statements issued therefor shall bear a like statement, together with
the name of the original dissenting holder of the shares.
1303.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
1304.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated. (c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue, the court
shall first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or more
impartial appraisers to determine, the fair market value of the shares.
1305.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it. (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.
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(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.
C-4
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.
C-5
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
Appendix D
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERFECTDATA CORPORATION
Balance Sheet
(Unaudited)
(Dollars in thousands)
September 30,
2003
---------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,053
Accounts receivable, net 309
Inventories 91
Prepaid expenses and other current assets 69
---------------------------
Total current assets 2,522
Property, plant and equipment, at cost, net -
---------------------------
$ 2,522
===========================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 453
Accrued compensation 38
Other accrued expenses 74
---------------------------
Total current liabilities 565
---------------------------
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 (9,301)
---------------------------
Net shareholders' equity 1,957
---------------------------
$ 2,522
===========================
See accompanying notes to financial statements.
D-1
PERFECTDATA CORPORATION
Statements of Operations
(Unaudited)
(amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
September 30, September 30,
2003 2002 2003 2002
----------------------------------------------- --------------- -------------- --- ------------ -------------
----------------------------------------------- --------------- -------------- --- ------------ -------------
Net sales $ 708 $ 490 $ 1,433 $ 1,054
Cost of goods sold 462 322 932 687
--------------- -------------- ------------ -------------
--------------- -------------- ------------ -------------
Gross profit 246 168 501 367
Selling, general and administrative expenses 416 425 770 756
--------------- -------------- ------------ -------------
--------------- -------------- ------------ -------------
Loss from operations (170) (257) (269) (389)
Other income:
Other, net 4 10 9 22
--------------- -------------- ------------ -------------
--------------- -------------- ------------ -------------
Net loss (166) (247) (260) (367)
Net loss per common share - basic and diluted $ (.03) $ (.04) $ (.04) $ (.06)
=============== ============== ============ =============
=============== ============== ============ =============
6,193 6,159 6,176 6,159
=============== ============== ============ =============
See accompanying notes to financial statements.
D-2
PERFECTDATA CORPORATION
Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six-Month Period Ended
September 30,
----------------------------------
----------------- --- ------------
2003 2002
----
Cash Flows from operating activities:
Net Loss $ (260) $ (397)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6 10
Stock issued for services 52 -
Increase in accounts receivable (151) (39)
Decrease in inventories 97 16
Increase in prepaid expenses and other assets (7) (11)
Increase in accounts payable 170 224
Increase (decrease) in accrued expenses (27) 1
----------------- ------------
----------------- ------------
Net cash used in operating activities (120) (166)
----------------- ------------
----------------- ------------
Decrease in cash and cash equivalents (120) (166)
Cash and cash equivalents at beginning of period 2,173 2,758
----------------- ------------
----------------- ------------
Cash and cash equivalents at end of period $ 2,053 $ 2,592
================= ============
================= ============
See accompanying notes to financial statements.
D-3
PERFECTDATA CORPORATION
Notes to Financial Statements
1. All adjustments included in the financial statements in this Report
are of a normal recurring nature and are necessary to present fairly the
Company's financial position as of September 30, 2003 and the results of its
operations and cash flows for the six months ended September 30, 2003 and 2002.
Results of operations for the interim periods are not necessarily indicative of
results of operations for a full year due to external factors that are beyond
the control of the Company. This Report should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2003
("Annual Report 2003").
As previously reported on July 2, 2003, the Company entered into an
Agreement and Plan of Merger and Reorganization with SuperCom Ltd., an Israeli
corporation ("SuperCom"), setting forth the terms and conditions of a proposed
merger transaction between SuperCom and the Company. If such transaction is
consummated, the shareholders of SuperCom would own more than 70% of the
outstanding shares of the Common Stock of the combined companies and have the
right to elect more than a majority of the directors. SuperCom is a developer of
smart cards and ID solutions. The closing of the merger agreement is subject to
various conditions, including the approval of the Company's shareholders.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are summarized as
follows (in thousands):
September 30, 2003
(unaudited)
Raw materials $ 5
Work in process 1
Finished products 85
---------------
$ 91
===============
3. Property and Equipment
Property and equipment consist of (in thousands):
September 30, 2003
(unaudited)
Machinery and equipment $ 309
Furniture and fixtures 84
Leasehold improvements 155
------------
548
Less accumulated
depreciation and amortization (548)
------------
$ -
================
D-4
4. Income taxes
At September 30, 2003, the Company had net operating loss (NOL)
carryforwards of approximately $5,196,033 for federal income tax purposes
expiring in varying amounts through 2020. 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 2003 if not utilized. The Company anticipates that the
issuance of additional shares of the Company's Common Stock to the shareholders
of SuperCom, when and if the previously reported proposed merger transaction
with SuperCom is consummated (currently expected to be in late December at the
earliest, but more probably in early 2004), will result in a significant
limitation on the use by the Company (or any successor thereto) of the net
operating loss carry forwards of the combined companies. Additionally, the
Company has general business tax credit carryforwards of $12,000 which will
begin to expire in 2006.
SFAS 109 requires that the tax benefit of such NOLs and other deferred
tax assets be recorded as an asset using current tax rates to the extent
management assesses the utilization of such NOLs and other assets to be more
likely than not. Management has determined that future taxable income of the
Company will likely not be sufficient to realize the recorded deferred tax asset
of $1,964,306. As such, the Company has recorded a valuation allowance of
$1,964,306.
5. Loss Per Common Share
Basic net loss per share is based on the weighted average number of
shares outstanding during each of the respective periods. Diluted net loss per
share includes the dilutive impact of all Common Stock equivalents such as
options and warrants to purchase the Company's Common Stock. During the
respective periods, the impact of the Common Stock equivalents, such as stock
options, was antidilutive; therefore, they have been excluded from the
calculation of diluted loss per share.
6. Shareholders' Equity
On July 31, 2003, the Company issued 50,000 shares of the Company's
Common Stock to the Chairman of the Audit Committee as compensation for his
services over the past three years. During the quarter ended June 30, 2003, the
Company had recorded compensation expense of $51,500 for the shares.
7. Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure. Due to the
reduction of the exercise price of fixed stock options through the cancellation
of stock option awards and the granting of replacement awards, per FIN No. 44,
Accounting for Certain Transactions involving Stock Compensation, the Company
has adopted variable accounting for the replacement awards, per FIN No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans.
D-5
The Company applies APB Option No. 25 in accounting for its employees
and director stock option plans. Had the company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123 and SFAS No. 148, the Company's net loss would have been increased to the
pro forma amounts indicated below. The fair value of these options was estimated
at the date of grant using a Black-Scholes option-pricing model, assuming a
risk-free interest rate of 4.57% - 6.26%, a ten-year term, 50% volatility, and
$0 expected dividend rate.
Three Months Ended Six Months Ended
September 30, September 30,
2003 2002 2003 2002
--------------------------- ------------------------------
Net loss, as reported $ (166) (247) (260) (367)
Deduct total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of tax (8) (12) (12) (42)
--------------------------- ---------------------------
Pro forma net loss $ (174) (259) (272) (409)
=========================== ===========================
Basic and diluted net loss per common share:
As reported $ (0.03) (0.04) (0.04) (0.06)
Pro forma (0.03) (0.04) (0.04) (0.07)
8. Subsequent Event
On October 8, 2003, the Company announced that it had entered into an
agreement with Spray Products Corporation ("Spray") to sell Spray the operating
assets of the Company. These assets will include inventory, customer list,
equipment, certain accounts receivable and trade payables. The transaction is
subject to the Company formalizing shareholder approval. Beginning November 1,
2003, Spray has acted as a manager for fulfillment of orders for the Company's
customers.
D-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Critical Accounting Policies
Management believes that the following discussion addresses the
Company's most critical accounting policies, which are those that are 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.
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.
Valuation of Inventory:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Market value is dependent
primarily on consumer demand and competitor product offerings. The Company
reviews inventories and records adjustments for any decline in its value below
cost. Adjustments are primarily determined by identifying excess and slow-moving
products based upon prior sales, estimating values for such items, and providing
for any losses in value based upon those estimates.
See "Results of Operations" for information relating to the Company's
agreement to sell its operating business and the potential buyer's assumption of
managing orders effective as of November 1, 2003. As a result, the valuation of
inventory will no longer be a critical accounting policy so long as such
arrangement is in effect or after the sale is consummated.
Results of Operations
Net sales for the second fiscal quarter ended September 30, 2003
("current quarter") increased $218,000, or 44%, to $708,000 from net sales of
$490,000 in the year-earlier period. Net sales for the six months ended
September 30, 2003 ("current six-month period") increased $379,000, or 36%, to
$1,433,000 from net sales of $1,054,000 in the year-earlier period. The
increased sales were a result of an increase in sales volume with the Company's
existing customers.
Cost of Goods Sold as a percentage of net sales for the current quarter
and current six-month period was 65%, respectively, consistent with the
year-earlier periods.
D-7
Selling, General and Administrative Expenses ("Expenses") for the
current quarter were $416,000 as compared to $425,000 in the year-earlier
period. Expenses for the current six-month period were $770,000 as compared to
$756,000 in the year-earlier period. Expenses in both the current six-month
period and the year-earlier period have been impacted by the efforts to seek a
strategic acquisition. An aggregate of $119,000 in Expenses relating to the
SuperCom transaction were incurred in the current six-month period and an
aggregate of $115,000 in Expenses relating to an aborted transaction in the
year-earlier period. In addition, the Company recorded in the current six-month
period a compensation expense of $51,500 related to the 50,000 shares of this
Company's Common Stock issued to the Chairman of the Audit Committee for his
services as such. The Company also incurred legal and other expenses in the
current six-month period of $26,000 relating to the execution of the agreement
with Spray (see the third succeeding paragraph), negotiations with other
potential purchasers and securing major shareholders' approval of the
prospective sale. As previously reported, the Board of Directors of the Company
believes that consummation of the SuperCom and Spray transactions is in the best
interests of both the Company and its shareholders for a number of reasons,
including, without limitation, to stem the continuing operational losses from
the existing business, despite management efforts to reduce expenses, and to
deal with threats that the Company's two major customers, which accounted for
approximately 83% of the Company's sales in the current six-month period, could
choose other vendors. In addition, as previously reported, SuperCom has made
divesture of the Company's current business a condition precedent to its closing
the transaction.
Other Income for the current quarter was dividend income of $4,000 as
compared to dividend income of $10,000 in the year-earlier period. Other Income
for the current six-month period was dividend income of $9,000 as compared to
dividend income of $22,000 in the year-earlier period.
The decreased net loss in the current quarter and current six-month
period directly related to the increased sales.
Subsequent to the current quarter, the Company announced on October 8,
2003, that it had entered into an agreement with Spray Products Corporation
("Spray") to sell Spray the operating assets of the Company. A copy of the Asset
Purchase Agreement was filed as Exhibit A to the Company's Current Report on
Form 8-K filed on October 8, 2003. The purchase price will be the value of the
inventory, plus collectible receivables, plus the sum of $100,000, less the
assumed liabilities. The transaction is subject to the Company formalizing
shareholder approval. Beginning November 1, 2003, Spray has acted as manager for
fulfillment of orders for the Company's customers. Transferring fulfillment of
orders to Spray has enabled the Company to relocate to a smaller facility and to
reduce the number of employees. The Company has completed its move into the
smaller facility and is leasing office space for a six-month term.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $120,000 from
$2,173,000 at March 31, 2003 to $2,053,000 at September 30, 2003. The decrease
in cash during the current six-month period resulted from cash used in operating
activities of $120,000, which was primarily the result of the net loss of
$260,000 as well as an increase in accounts receivable, partially offset by a
decrease in inventories and an increase in accounts payable.
D-8
As a result of the continuing negative cash flows from operations, the
Company is dependent on the invested proceeds from its March 2000 private
placement in order to meet its payable requirements.
The Company believes that, as a result of the cash described in the
preceding paragraph, its working capital is adequate to fund the Company's
operations and its requirements for the fiscal year ending March 31, 2004.
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. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, 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 proposed merger
transaction with SuperCom and sale to Spray. Other risks are discussed in the
Annual Report 2003. As a result, actual results may differ materially from those
described in the forward-looking statement. The Company cautions that the
foregoing list of important factors is not exclusive. The Company does not
undertake to update any forward-looking statement in this Report.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has a CEO and a CFO/CAO, constituting all of management,
and, during the reporting period, six 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 September
30, 2003. Because of its small size and limited number of personnel, the Company
does not currently have elaborate written procedures, nor does management
believe that such elaborate written procedures are currently necessary to ensure
D-9
accurate reporting in the Company's periodic reports. The Audit Committee and
management will review this requirement should the Spray transaction be
terminated, as to which there can be no assurance. The then Audit Committee and
management will, of course, review this requirement as a result of the Company
consummating the SuperCom transaction, as to which consummation there can be no
assurance. In making their evaluation, the CEO and CFO/CAO consulted with the
Company's outside counsel. Based on that evaluation, the two officers concluded
that the Company's disclosure controls and procedures were adequate and
effective, as of September 30, 2003, to ensure that material information
relating to the Company would be made known to them by others within the
Company, particularly during the period in which this Report was being prepared.
Their evaluation was reported to the Audit Committee in connection with their
review of this Report prior to its filing.
Changes in Internal Controls
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
since the date of their evaluation.
D-10
================================================================================
Table of Contents
Page
Letter on Behalf of Board of Directors...........N/A
Voting Securities..................................1
Proposed Sale Transaction..........................2 PERFECTDATA CORPORATION
Security Ownership of Certain Beneficial
Holders and Management..........................6
Dissenters' Rights.................................8 Consent Solicitation
Miscellaneous.....................................12 Statement
Appendix A - Copy of Asset Purchase.................
Agreement dated as of October 3, 2003......A-1 dated February __, 2004
Appendix B - Copy of First Amendment dated .........
as of January __, 2004 to the
Asset Purchase Agreement...................B-1
Appendix C - California Statutory ..................
Provisions as to Dissenters' Rights........C-1
Appendix D - Quarterly Financial Statements
and Related Management's Discussion
and Analysis...............................D-1
================================================================================
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 February __, 2004, as follows:
With respect to the proposal to sell the Company's operating assets to Spray
Products Corporation:
[ ] 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 the proposal.
PLEASE MARK, SIGN, DATE, AND RETURN THIS CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
Please sign exactly as your name
appears to the left. When shares
are held by joint tenants, please
both sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in full
partnership name by a duly
authorized person.
-----------------------------------
Signature
------------------------------------
Signature, if held jointly
Date: _____________________, 2004