SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[x] Preliminary proxy statement [ ] Confidential, for use of
[ ] Definitive proxy statement the Commission only
[ ] Definitive additional materials as permitted by Rule
[ ] Soliciting material pursuant to 14a-6(e)(20) )
Rule 14a-11(c) or 14a-12
PERFECTDATA CORPORATION
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
PERFECTDATA CORPORATION
- - -------------------------------------------------------------------------------
(Name of Person (s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6 (i) (4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statements number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
PERFECTDATA CORPORATION
110 West Easy Street
Simi Valley, California 93065
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 29, 2000
To the Shareholders of PERFECTDATA CORPORATION:
You are cordially invited to attend a Special Meeting of Shareholders of
PerfectData Corporation, a California corporation (the "Company"), which will be
held at the offices of Flamemaster Corporation at 11120 Sherman Way, Sun Valley,
CA 91352 at 10:00 a.m., Pacific Standard Time, on Wednesday, March 29, 2000, for
the following purposes:
1. To approve a Stock Purchase Agreement and the implementation of the
related series of transactions contemplated thereunder, all as more fully
described in the Proxy Statement annexed hereto, which transactions would, if
consummated, effect a change in the control of the Company.
2. To authorize the reincorporation of the Company under the laws of the
State of Delaware, but only if Proposal One is approved and then implemented.
Only shareholders of record at the close of business on Tuesday, February 29,
2000, are entitled to notice of, and to vote at, the Meeting.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. THE PROXY MAY BE REVOKED
IN WRITING PRIOR TO THE MEETING OR, IF YOU ATTEND THE MEETING, YOU MAY REVOKE
THE PROXY AND VOTE YOUR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph Mazin
President
Simi Valley, California
March 1, 2000
<PAGE>
PERFECTDATA CORPORATION
110 West Easy Street
Simi Valley, California 93065
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
March 29, 2000
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of PerfectData Corporation (the "Company") of proxies
to be voted at the Company's Special Meeting of Shareholders (the "Meeting") to
be held on Wednesday, March 29, 2000, or at any adjournment thereof. The
purposes for which the Meeting is to be held are set forth in the preceding
Notice of Special Meeting. This Proxy Statement and the enclosed form of proxy
are first being mailed on or about Friday, March 3, 2000, to holders of record
of the Company's Common Stock, no par value (the "Common Stock"), at the close
of business on Tuesday, February 29, 2000 (the "Record Date"), which has been
fixed as the record date for the determination of the shareholders entitled to
notice of, and to vote at, the Meeting.
VOTING SECURITIES
On the Record Date, ___________ shares of the Common Stock, which is the
only class of capital stock of the Company entitled to vote at the Meeting, were
issued, outstanding and entitled to vote. 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. Although the
shareholders may, subject to certain exceptions, have a cumulative voting right
with respect to the election of directors, they will not have such voting right
with respect to either Proposal in the Notice of Special Meeting, even through
Proposal One to approve a Stock Purchase Agreement and the implementation of the
related series of transactions contemplated thereunder has as one of such
transactions the selection of four new directors. For additional information as
to Proposal One, please see "Proposal One The Proposed Transactions" elsewhere
in this Proxy Statement. Voting at the Meeting on both Proposals will,
accordingly, be on a noncumulative basis. [When a shareholder has cumulative
voting rights with respect to the election of directors the shareholder is
entitled to cast that number of votes as is determined by multiplying the number
of shares held by the shareholder by the number of directors to be elected. The
shareholder may then cast all of his, her or its votes so determined for one
person or spread his, her or its votes among two or more persons as he, she or
it sees fit.]
A majority of the votes cast at this Meeting voting in the affirmative is
necessary to approve Proposal One and Proposal Two to authorize reincorporation
of the Company under the laws of the State of Delaware. For additional
information as to Proposal Two, please see "Proposal Two: Reincorporating in
Delaware" elsewhere in this Proxy Statement. Pursuant to the By-Laws of the
Company, no other item not listed in the Notice of Special Meeting may be voted
upon at the Meeting.
A majority of the shares of the Common Stock entitled to vote, represented
in person or by proxy, shall constitute a quorum at the Meeting. Abstentions and
broker non-votes are treated for the purpose of determining a quorum at the
Meeting and are not treated as a vote for or against the two Proposals set forth
in the Notice of Special Meeting.
Proxies duly executed and returned by shareholders and received by the
Company before a vote at the Meeting will be voted in favor of (1) Proposal One
to approve a Stock Purchase Agreement and the related series of transactions
contemplated thereunder and (2) Proposal Two to authorize the reincorporation of
the Company under the laws of the State of Delaware unless a contrary choice is
specified in the proxy. Where a specification is indicated as provided in the
proxy, the shares represented by the proxy will be voted in accordance with the
specification made.
The Company's transfer agent for the Common Stock will tabulate the votes
cast by proxy and received prior to the Meeting. Votes cast in person, or by
proxy given, at the Meeting will be tabulated by the Inspector of Election
appointed for the Meeting.
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Meeting and to vote in person. Any shareholder giving
a proxy has a right to revoke it at any time by (i) a later-dated proxy, (2) a
written relocation of proxy sent to, and received by, the Secretary of the
Company prior to a vote at the Meeting, or (3) attendence at the Meeting and
voting in person.
A shareholder shall have no right to receive payment for his, her or its
shares of the Common Stock as a result of the approval of either Proposal in the
Notice of Special Meeting.
The California Corporations Code does not require that the shareholders of
the Company vote on Proposal One in the Notice of Special Meeting. However,
because the Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "PERF" and Nasdaq Rule 4310(a)(25)(H)(i)(b) requires shareholder approval
of any issuance of shares of the Common Stock which will result in a "change of
control," the Board of Directors is seeking shareholder approval of Proposal
One. In addition, in view of the importance of this vote to the future direction
of the Company, the Board of Directors deems its desireable that the Company's
shareholders pass on the Proposal. If shareholder approval is not obtained for
Proposal One, the Stock Purchase Agreement will terminate and the stock purchase
and other contemplated transactions thereunder will not occur.
Joseph Mazin, Ronald M. Chodorow and Tracie Savage, the current directors
of the Company, have agreed to vote in favor of the two Proposals in the Notice
of Special Meeting an aggregate of 845,297 shares of the Common Stock or ____ %
of the shares eligible to vote. For information as to the shares which they
beneficially own, see "Security Ownership of Certain Beneficial Owners and
Management" elsewhere in this Proxy Statement. None of these three directors and
no person who is or was an executive officer of the Company since April 1, 1998
has any substantial interest, direct or indirect, by security holdings or
otherwise, in the two Proposals submitted to a vote at the Meeting other than
that Ms. Savage will continue as a director if Proposal One is approved and then
implemented.
<PAGE>
PROPOSAL ONE: THE PROPOSED TRANSACTIONS
Stock Purchase Agreement
The Company and Millennium Capital Corporation ("Millennium") and JDK
Associates, Inc. ("JDK") have executed a Stock Purchase Agreement dated as of
January 20, 2000 (the "Stock Purchase Agreement"). A copy of the Stock Purchase
Agreement (without exhibits and schedules) is annexed to this Proxy Statement as
Appendix A and is incorporated herein by this reference. Millennium, JDK and any
of their associates who becomes a buyer between the date of the Stock Purchase
Agreement and the date on which the Closing (as hereinafter defined) is held
("Millennium, JDK and all such associates, if any, being collectively referred
to herein as the "Buyers") will purchase from the Company an aggregate of
1,333,333 shares (the "Buyers' Shares") of the Common Stock, or ______ % of the
shares to be outstanding after the purchase, assuming no other stock
transactions between the Record Date and the date of the Closing, at $2.25 per
share or for an aggregate purchase price of $2,999,999.25. The Closing is
scheduled to be held three business days after all conditions provided in the
Stock Purchase Agreement are satisfied, of which the major condition precedent
is the obtaining of the shareholder approval as to which proxies are being
solicited by this Proxy Statement. The Stock Purchase Agreement contains the
customary representations and warranties given by a public company issuer and
purchasers of securities from such issuers, including those from the Buyers
necessary, in the opinion of the Company, to exempt the sale from the
registration requirement of Section 5 of the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to the exemption of Section 4(2) of the
Securities Act as a transaction not involving a public offering. In addition,
the Company has not given any commitment to the Buyers to register the Buyers'
Shares under the Securities Act for resale by them.
The Stock Purchase Agreement also provides that each of Joseph Mazin, the
Chairman, the President and the Chief Executive Officer of the Company, and
Ronald M. Chodorow will resign as a director at the Closing and that Tracie
Savage, as the remaining director of the Company, will thereafter vote to
increase the number of directors from three to five and to elect four nominees
of the Buyers to serve as directors to fill the vacancies caused by the
resignations and the increase in the number of directors. The four nominees of
the Buyers for such election as directors are Bryan Maizlish, Timothy D. Morgan,
Corey P. Schlossmann and Eugene J. Wolter, Jr. Information with respect to these
nominees is furnished in the section "The Proposed New Directors" under this
caption "Proposal One: The Proposal Transactions." These actions to be taken by
Ms. Savage, as a follow-up to the prior Board of Directors' authorization of
execution of the Stock Purchase Agreement and the implementation thereof, are
permitted by both the By-Laws of the Company and the California Corporations
Code even without shareholder approval. Article III, Section 2 of the By-Laws
provides for the number of directors to be not less than three nor more than
five and fixes the number at three directors, subject to change by either the
shareholders or the Board amending this provision. Ms. Savage's action would
amend Article III, Section 2 of the Company's By-Laws to substitute "five" for
"three." The Board has previously amended this provision on 11 occasions.
Mr. Mazin had agreed to continue to serve the Company as its President for
at least six months after the Closing and for an additional six months
thereafter as a consultant.
<PAGE>
Consulting Agreement
Millennium and JDK (collectively the "Consultants") executed a letter
agreement also dated January 20, 2000 (the "Consulting Agreement") with the
Company pursuant to which the Consultants will act as the financial advisors to
the Company in seeking and closing acquisitions and financings. The Consulting
Agreement will not become effective unless and until there is a Closing under
the Stock Purchase Agreement. The Consultants will receive, for their services
as financial advisors, a five-year warrant to purchase 1,800,000 shares of the
Common Stock at $2.75 per share. The Consultants have agreed that the Company
may allocate 30,000 of such shares to warrants to be granted to employees of the
Company at the Closing. In addition, with respect to their assistance in seeking
and then closing acquisitions and financings for the Company, the Consultants
will receive a cash fee equal to 5% of the Consideration (as defined) received
or paid by the Company with respect to the acquisition or the financing
offering.
The Proposed New Directors
The following table contains certain information with respect to the
persons whom the Buyers intend to nominate for election as directors at the
Closing under the Stock Purchase Agreement, none of whom currently holds any
position or office with the Company:
Name of Nominee Age at Record Date Current Principal Occupation
Bryan Maizlish 38 Executive Vice President of
Strategic Planning and Development
of Magnet Interactive Group, Inc.
Timothy D. Morgan 45 Consultant
Corey P. Schlossmann 44 Chief Executive Officer of
Nationwide Auction Systems
Eugene J. Wolter, Jr. 56 Chairman, President and Principal
Broker of National Discount Corp.
If elected, each will serve until the next Annual Meeting of Shareholders or
until his successor is duly elected and qualified.
There are no family relationships among the nominees for election as
directors and the current directors and executive officers of the Company.
Ms. Tracie Savage, the sole current director who will remain as a director
if the transactions contemplated by the Stock Purchase Agreement are
consummated, assuming shareholder approval is obtained at the Meeting for
Proposal One, was 38 at the Record Date and was originally elected as a director
of the Company in July 1995. She joined NBC TV Los Angeles, a television
subsidiary of the National Broadcasting Company, Inc. in March of 1994. Ms.
Savage is the co-anchor of NBC 4's "Today in LA: Weekend" and also serves as a
general assignment reporter for the "Channel 4 News." From 1991 to 1994, she was
a general assignment reporter for the independent Los Angeles station, KCAL. Ms.
Savage has been in broadcast journalism for more than ten years and has been the
recipient of numerous awards and honors in her field.
Bryan Maizlish has, since September 1998, been the Executive Vice President
of Strategic Planning and Business Development of Magnet Interactive Group, Inc.
("Magnet"), a private company furnishing engineering comprehensive interactive
services. Since June 1999, he has also served as the acting Chief Financial
Officer of Magnet. From September 1996 to September 1998, he was a consultant,
serving such clients as Discovery Communications and the Democratic National
Committee. From March 1996 to September 1996, he was Director of Strategic
Planning of Turner Broadcasting. From September 1994 to March 1996, he was
Director of Marketing and Distribution of Magnet. Prior thereto, he held various
managerial positions with companies in the media communications industry, such
as MCA, Inc., Gulf & Western Corporation and Eugene Roddenbury's Norway
Corporation.
Timothy D. Morgan has, since October 1997, been a consultant on matters of
business strategies, taxation and financial asset protection techniques. From
1980 through October 1997, he was a partner and principal of Abacus Tax and
Financial Services.
Corey P. Schlossman has been Chief Executive Officer since October 1999,
and Chief Financial Officer since January 1999, of Nationwide Auction Systems.
Since January 1996, he also serves as a partner and board member of Gordon,
Fishburn & Schlossman, a management consulting and accounting firm. Since
October 1999, he has also served as a director of Entrade, Inc., a New York
Stock Exchange holding company whose online subsidiaries (including Nationwide
Auction Systems) provide auction and asset disposition services to the utility
and manufacturing industries, among others.
Eugene J. Wolter, Jr. has been, since January 1993, the Chairman, President
and Principal Broker of National Discount Corp., a mortgage and real estate
investment company. Prior thereto, Mr. Wolter founded The Art Collection, Inc.
in 1992, a wholesale provider of art to the cruise industry which he manages
with his wife and daughter, and, in 1998 founded Auction Co. of America, a newly
formed Internet based auction company. He had previously a 20-year banking
career beginning with the Hartford National Bank and First Co. in Hartford,
Connecticut and culminating in 1992 as the President of Jefferson Bank of
Broward in Ft. Lauderdale, Florida, a wholly-owned subsidiary of Jefferson
Bancorp., a regional publicly held bank.
Reasons for Contemplated Transactions
After consummation of the transactions contemplated by the Stock Purchase
Agreement, the Company will continue in the business of making cleaning products
for home and office equipment, including the PerfectData EcoDuster line of
compressed air and gas dusters for electronics, premoistened wipes for monitors,
lenses and other sensitive equipment and cleaners for disk drives, printers and
fax machines. However, the Company has experienced declining financial results
from these products during the past three fiscal years. Net sales in the fiscal
year ended March 31, 1999 ("fiscal 1999") decreased to $1,689,000 from
$3,299,000 in the fiscal year ended March 31, 1998 ("fiscal 1998") and
$5,761,000 in the fiscal year ended March 31, 19997 ("fiscal 1997"). Net sales
in the six-month period ended September 30, 1999 increased to $996,000 as
compared to $875,000 in the year-earlier period. The net losses in fiscal 1999,
fiscal 1998 and 1997 were $402,000, $799,000 and $334,000, respectively. The net
loss during the six-month period ended September 30, 1999 was $206,000 as
compared with a net loss of $173,000 in the year-earlier period.
As a result of the Board's review of the Company's future prospects with
respect to these products, the directors concluded that the Company should seek
a strategic alliance or a buyer as the preferable method of effecting a
turnaround in the Company, in addition to implementing the previously reported
cost cutting measures. During April 1999, also as previously reported, the
Company signed an agreement with Hudson Group, Inc. ("Hudson") to assist the
Company in finding prospective acquisitions. Although this effort by Hudson was
not successful in achieving this objective and, accordingly, the agreement with
Hudson terminated effective on November 27, 1999, the Board believes that the
Company's negotiated arrangements with the Buyers and the Consultants will have
a better chance at enabling the Company to effect a turnaround. Emphasis will be
on adding existing businesses to what the Company already has, rather then
seeking a buyer for the Company. In addition, not only will the Buyers infuse
the Company with approximately $3,000,000 in additional capital, which can be
used for both working capital purposes for the existing business and to seek
acquisitions of new businesses, but also the Consultants will actively assist
the revised Board of Directors in seeking prospective acquisitions. The Board
intends to appoint at the Closing a special committee for such purpose. In
addition, the Board believes that the experience of the Consultants in raising
financing will also be of a benefit to the Company. There, of course, can be no
assurance that these efforts will result in any suitable acquisitions for the
Company or that acceptable additional financing, if required, will be obtained.
Recommendation
FOR THE REASONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR PROPOSAL ONE TO APPROVE THE STOCK PURCHASE AGREEMENT AND
THE RELATED SERIES OF TRANSACTIONS CONTEMPLATED THEREUNDER.
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 is exercised, there is no right to
vote or dispose of the underlying shares.
<PAGE>
<TABLE>
<S> <C> <C>
Name and Address of Beneficial Number of Shares of Common Stock Percentage of Common Stock
Owner Beneficially Owned Beneficially Owned (1)
- - ------------------------------ -------------------------------- ---------------------------
Joseph Mazin(2)
110 West Easy Street
Simi Valley, CA 93065 897,697(3) %
Flamemaster Corporation
11120 Sherman Way
Sun Valley, CA 91252 613,497 %
Leland P. Polak and Mark E. Polak
11494 Burbank Blvd. North Hollywood, CA
91601 316,000 %
William R. Woodward
Successor & Special Trustee
Richard M. Dnysdale Trust
116 26th Street
Santa Monica, CA 90402 213,349 %
Ronald M. Chodorow(4)
(address to come) 22,500 %
Tracie Savage(4)
(address to come) 10,100(5) %
All directors and officers as a group
(4 in number) 931,297(6) %
- - -------------------
</TABLE>
1. The percentages computed in the table are based upon ___________ shares
of the Common Stock which were outstanding on the Record Date. Effect is given,
pursuant to Rule 13d-3(l)(i) under the Securities Exchange Act of 1934, as
amended, to shares issuable upon the exercise of options currently exercisable
or exercisable within 60 days of the Record Date.
2. President, Chief Executive Officer, Chairman of the Board and a director
of the Company.
3. The shares of the Common Stock reported in the table include (a) 613,497
shares owned by Flamemaster Corporation ("Flamemaster") for which Mr. Mazin has
voting power as the President, Chairman and Chief Executive Officer of
Flamemaster; (b) 37,700 shares owned by the Flamemaster Employees' Profit
Sharing Plan for which Mr. Mazin is the fiduciary; (c) 30,500 shares owned by
Altuis Investment Corporation ("Altuis") for which Mr. Mazin has shared voting
power as Chairman of Board of Altius; (d) 5,000 shares issuable upon the
exercise of an option expiring June 28, 2003; and (e) 65,000 shares issuable
upon exercise of an option expiring November 24, 2003.
4. A director of the Company.
5. The shares of the Common Stock reported in the table include 10,000
shares issuable upon the exercise of an option expiring July 20, 2005.
6. The shares of the Common Stock reported in the table include (a) those
issuable upon the exercise of options reported in Notes (3) and (5), as well as
the other shares described in Note (3), and (b) 1,000 shares owned by an
executive officer of the Company.
PROPOSAL TWO: REINCORPORATING IN DELAWARE
Reasons for Adopting Delaware Corporate Law
The Board of Directors is also asking, as Proposal Two in the Notice of
Special Meeting, the shareholders to grant the directors the authority to
reincorporate the Company, which is currently incorporated under the laws of the
State of California, under the laws of the State of Delaware. This change, if
approved by the shareholders at the Meeting, would not be implemented unless
Proposal One to approve a Stock Purchase Agreement and implementation of the
series of related transactions thereunder is also approved by shareholders at
the Meeting and then the transactions are consummated.
Today the Company is headquartered in the State of California and its sole
operations are conducted from that office. As is indicated under "Proposal One:
The Proposed Transactions" elsewhere in this Proxy Statement, the Company
intends to seek acquisitions to supplement its current business, which may or
may not be in the same industry and will not necessarily be located in the State
of California. Certain of these operations may be larger in scope than those of
the Company currently and the officers of these acquired companies may play an
important role in the future management of the Company. At some point the
headquarters of the Company may have to be moved outside the State of California
to better accommodate these officers and their businesses.
The General Corporation Law of the State of Delaware (the "GCL") is
probably the best known corporate law in the United States because more
corporations have chosen to be governed thereunder rather than under any other
state law. This decision has been made by both large public companies and small
private ones, with their headquarters scattered throughout this country. One
commentator has characterized the GCL as evolving "to reflect the changing
circumstances of all of its constituencies, including the national business
community." Because the GCL has become the closest state law to being a
"national state law," the Board believes that the Company being a Delaware
corporation will be an asset when it seeks acquisitions and, at the same time,
the GCL will continue to be fair to its existing shareholders, both in terms of
the statutory provisions themselves and judicial interpretations. There can be,
of course, no assurance that this change will facilitate acquisitions or that
the corporate headquarters will ever move from the State of California.
Proposed Elimination of Cumulative Voting
Both Delaware and California law permit shareholders to have cumulative
voting rights with respect to the election of directors if authorized in the
Certificate of Incorporation or By-Laws. For a description of how cumulative
voting rights operate, please see "Voting Rights" elsewhere in this Proxy
Statement. Article II, Section 7(c) of the By-Laws currently permits such type
of voting in the Company.
The four persons nominated by the Buyers to be elected as directors of the
Company at the Closing (see the sections "Stock Purchase Agreement" and "The
Proposed New Directors" under the caption "Proposal One: The Proposed
Transactions") have indicated their intention, as part of the reincorporation,
to repeal Article II, Section 7(c) of the By-Laws, so that at future Annual
Meetings of Shareholders the shareholders will vote only on a noncumulative
basis, which is the practice in most public companies. Accordingly, by voting
for Proposal Two to reincorporate the Company in the State of Delaware, the
shareholders of the Company will in effect be voting to eliminate cumulative
voting because of the intended action of the director-nominees.
Except as described in the preceding paragraph, the director nominees have
no current intention to amend any substantive provision of the Certificate of
Incorporation or the By-Laws of the Company, other than to make such changes as
are deemed necessary to conform the text to Delaware and not California law.
They are not currently aware of any such change that would adversely affect the
rights of existing shareholders of the Company.
Comparison of Delaware and California Corporate Law
If the reincorporation is effected, a shareholder's rights will be governed
by Delaware law (i.e., the GCL) and not California law (i.e., the California
Corporations Code). The statutes and court decisions with respect to the rights
of stockholders under the GCL or thereof shareholders under the California
Corporations Code reflect certain differences. In addition, both statutes often
permit a corporation to provide in its Certificate of Incorporation or By-Laws
for a specific action to be taken and, accordingly, reference has to also be
made to these corporate documents, rather than only to the respective statutory
provision, if a shareholder is to understand what actions are permissible for a
corporation. Copies of the Company's Certificate of Incorporation and the
By-Laws, before reincorporation, can be examined at the office of the Company or
copies will be sent to a shareholder upon request. After the reincorporation is
effected, such copies will similarly be made available to shareholders.
The following is an explanation of the material differences between the
rights of a shareholder of the Company under California law as is currently the
case and under Delaware law following reincorporation. The following discussion
does not purport to constitute a detailed comparison of all of the provisions of
the GCL and the California Corporations Code, but does attempt to describe
material differences in areas which the Company believes may be of interest to a
shareholder. Shareholders are referred to these laws for a definitive treatment
of the subject; however, the Company will be pleased to respond to any specific
question which a shareholder may have.
(1) Special Meetings of Shareholders
Under the GCL in Delaware, a special meeting of stockholders may be called
by the Board of Directors or by such other persons as may be authorized in a
corporation's Certificate of Incorporation or By-Laws. Under the California
Corporations Code, a special meeting of shareholders may be called by the
Chairman of the Board, the Board of Directors, the President or the holders of
shares entitled to cast not less than 10% of the votes at the meeting or by such
other persons as may be authorized in a corporation's Certificate of
Incorporation or By-laws. Additionally, under California law, if, after the
filling by the remaining directors of any vacancy on the Board of Directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office, the holders of
5% of the outstanding shares having the right to vote for these directors may
call a special meeting of shareholders.
(2) Shareholder Action by Written Consent
Both Delaware and California law permits shareholder action by written
consent if such consent is signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
such action or take such action at a meeting at which all shareholders entitled
to vote thereon were present and notice is thereafter given to the shareholders
who did not consent.
(3) Inspection of Shareholders List
Delaware law requires a Delaware corporation to keep, and permits any
stockholder of record to inspect, under most circumstances, the stockholders'
list of a corporation. California law allows any shareholder or group of
shareholders holding at least 5% of the stock, or under certain circumstances 1%
of the stock, to inspect the shareholders' list of the corporation, upon at
least five days' written notice to the corporation.
(4) Filling Vacancies on the Board of Directors
Under Delaware law, unless otherwise provided in the Certificate of
Incorporation or By-Laws, vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the Certificate
of Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. California law provides that, unless otherwise provided in
the Articles of Incorporation or By-Laws, newly created directorships resulting
from an increase in the number of directors and vacancies occurring in the Board
of Directors for any reason except the removal of directors may be filled by
vote of the Board of Directors. If the number of the directors then in office is
less then a quorum, such newly created directorships and vacancies may be filled
by (a) the unanimous written consent of the directors then in office (b) a vote
of a majority of the directors then in office or (c) a sole remaining director.
(5) Dissenters' Rights
Under both Delaware and California law, a dissenting shareholder of a
corporation participating in certain transactions may, under varying
circumstances, receive cash in the amount of the fair value of his, her or its
shares, in lieu of the consideration the shareholder would otherwise receive in
any such transaction, if a vote of the shareholders for the transaction is
required. Delaware law requires such dissenters' rights of appraisal with
respect to a sale of assets, a reorganization, a merger or consolidation by a
corporation unless the shares of the participating Delaware corporation are
either listed on a national securities exchange or held by more than 2,000
stockholders, or if no vote of the stockholders of the surviving corporation is
required to approve the merger. California law requires such dissenters' rights
for a reorganization, merger or consolidation, but eliminates dissenters' rights
for shares traded on the New York Stock Exchange, the American Stock Exchange or
included on the OTC margin stock list published by the Federal Reserve Board.
(6) Anti-Takeover-Measures
Delaware law generally prohibits a corporation from entering into a
business combination with an interested stockholder for a period of three years
from the date the stockholder becomes an interested stockholder. An interested
stockholder is defined (subject to certain limitations) as an owner of 15% or
more of the voting securities of a corporation, or an affiliate or associate of
the corporation who owned 15% or more of the voting securities of the
corporation at any time during the three-year period prior to the date on which
the determination of interested stockholder is sought to be made. The
prohibition does not apply if (1) prior to the interested stockholder becoming
an interested stockholder the Board of Directors approved either the business
combination or transaction which resulted in the stockholder becoming an
interested stockholder, or (2) upon the consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the corporation's outstanding voting
securities, or (3) on or after such stockholder becoming an interested
stockholder, the business combination is approved by the Board of Directors and
authorized at a meeting of stockholders by at least 662/3% of the outstanding
voting securities of the corporation not owned by the interested stockholder.
However, the restrictions do not apply if (1) the corporation's original
Certificate of Incorporation or an amendment to its Certificate of Incorporation
or By-Laws, adopted by a majority of the shares entitled to vote, elects not to
be governed by the restrictive provisions, or (2) the corporation does not have
a class of securities listed on a national securities exchange, traded on the
Nasdaq Stock Market, or held by more than 2,000 stockholders, or (3) for certain
other reasons. Delaware law permits a corporation to adopt certain measures
designed to reduce a corporation's vulnerability to hostile takeover attempts.
Among these measures are establishment of a classified Board of Directors and
elimination of the right of stockholders to call special stockholders' meetings
unless authorized by the Certificate of Incorporation or By-Laws.
California does not have a comparable section.
(7) Indemnification of the Officers and Directors
Both Delaware and California law permit corporations to indemnify present
and former directors, officers and employees, within certain guidelines.
(8) Dissolution
Under both Delaware and California law, shareholders holding a majority of
shares entitled to vote thereon may authorize a corporation's dissolution.
Recommendation
FOR THE REASONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR PROPOSAL TWO TO REINCORPORATE THE COMPANY UNDER THE LAWS
OF THE STATE OF DELAWARE.
FINANCIAL STATEMENTS
The following (1) audited financial statements and related management's
discussion and analysis which appeared in the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1999 (the 'Annual Report") and (2)
unaudited financial statements and related management's discussion and analysis
which appeared in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 (the "Quarterly Report"), copies of which are annexed
to this Proxy Statement as Appendices B and C, respectively, are incorporated
herein by this reference.
Page in
Annual
Item in Annual Report Report
---------------------- -------
1. Report of Beckman Kirkland & Whitney.......................................21
2. Balance Sheets as of March 31, 1999 and 1998...............................22
3. Statements of Operations for the Years Ended March 31, 1999,
1998 and 1997..............................................................23
4. Statements of Shareholders' Equity for the Years Ended
March 31, 1999, 1998 and 1997..............................................24
5. Statements of Cash Flows for the Years Ended March 31, 1999,
998 and 1997...............................................................25
6. Notes to Financial Statements..............................................26
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................................9
Page in
Quarterly
Item in Quarterly Report Report
- - ------------------------ ------
1. Balance Sheets as of September 30, 1999 and
March 31, 1999..............................................................2
2. Statements of Earnings and Comprehensive Income for the
quarters ended September 30, 1999 and 1998 and the six
months ended September 30, 1999 and 1998....................................3
3. Statements of Shareholders' Equity for the six months
ended September 30, 1999....................................................4
4. Statements of Cash Flows for the six months ended
September 30, 1999 and......................................................5
5. Notes to Financial Statements...............................................6
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................9
SHAREHOLDERS PROPOSALS
A shareholder who wishes to present a proposal for action at the next
Annual Meeting of Shareholders in 2000 (which has not been scheduled as yet) by
inclusion of such proposal in the Company's proxy statement for such Meeting (1)
must send the proposal so as to be received by the Secretary of the Company no
later than May 1, 2000 and (2) must satisfy the applicable conditions
established by the Securities and Exchange Commission for shareholder proposals.
If a shareholder intends to submit a proposal for consideration at the Annual
Meeting in 2000 by means other than inclusion of the proposal in the Company's
proxy statement for such Meeting, the shareholder must notify the Company on or
before July 9, 2000 or risk management exercising discretionary voting authority
with respect to the management proxies to defeat such proposal when and if
presented at the Meeting.
MISCELLANEOUS
The solicitation of proxies on the enclosed form of proxy 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. The Company may pay persons holding
shares in their names or in the names of their nominees for the benefit of
others, such as broker-dealer firms, banks, depositaries and other fiduciaries,
for costs incurred in forwarding soliciting material to their principals.
Members of the management of the Company may solicit some shareholders in
person, or by telephone or telegraph, for which services they will not be
separately compensated.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph Mazin
President
Simi Valley, California
March 3, 2000
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR
COOPERATION WILL BE APPRECIATED.
The Proxy Statement herein may contain a forward-looking statement. These
statements are based on a number of assumptions and estimates which are
inherently subject to uncertainty and contingencies, many of which are beyond
the control of the Company and reflect future business decisions which are
subject to change.
<PAGE>
Appendix A
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") entered into on January 20,
2000 by and among the individuals and entities set forth on Exhibit A hereto
(collectively the "Buyers") and PerfectData Corp., a California corporation (the
"Company"). The Buyers and the Company are referred to collectively herein as
the "Parties".
The Buyers desire to purchase from the Company, and the Company desires to
sell to the Buyers, an aggregate of 1,333,333 shares of the Common Stock of the
Company on the terms and conditions set forth herein.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I
DEFINITIONS
I.1......Definitions. The following terms shall have the following meanings
for the purposes of this Agreement. -----------
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" means, with respect to any specified Person, (a) any other
Person which, directly or indirectly, controls, is under common control with, or
is controlled by, such specified Person, or (b) any director or executive
officer with respect to such Person.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Business Day" means any day excluding Saturday, Sunday and any day which
(a) is either a legal holiday under the laws of the State of New York or (b) is
a day on which banking institutions located in the State of New York are closed.
"Buyers Representatives" means Millennium Capital Corporation and JDK
Associates, Inc.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Share" means any share of the Common Stock, no par value, of the
Company.
"Confidential Information" means any information concerning the businesses
and affairs of the Company that is not already generally available to the
public.
"Consulting Agreement" means the letter agreement dated the date hereof by
and among the Company and Millenium Capital Corporation and JDK Associates, Inc.
substantially in the form of Exhibit B hereto.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit or other retirement, bonus, or incentive plan or
program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"Environmental, Health and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and similar
provisions having the force or effect of law, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyl's, noise or radiation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single employer
with Seller for purposes of Code Section 414.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Governmental Authority" means any domestic or foreign government or
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names and corporate names together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Legal Requirements" means, as to any Person, all federal, state, local or
foreign laws, statutes, rules, regulations, ordinances, permits, certificates,
requirements, regulations, orders, judgments, decrees, rulings and restrictions
of any Governmental Authority applicable to such Person or any of its properties
or assets.
"Material Adverse Change" means, with respect to the Company and its
Subsidiaries, a change, during the period specified, in the Company's or any of
its Subsidiary's business, condition (financial and otherwise), operations,
results of operations, assets (including levels of working capital and
components thereof), liabilities or prospects, either individually or in the
aggregate, which has had, or could reasonably be expected to have, a Material
Adverse Effect on the Company.
"Material Adverse Effect" means, with respect to any Person, a Material
Adverse Effect on the business, properties, condition (financial and otherwise),
operations, results of operations, assets (including levels of working capital
and components thereof), capitalization, management, litigation, liabilities, or
prospects of such Person.
"Material" means any circumstance or state of facts which results in, or
would reasonably be expected to result in, losses or the expenditure or
commitment of $25,000.
"Most Recent Balance Sheet" means, with respect to the Company, the balance
sheet included in Part I of the Company's Quarterly Report on Form 10-Q filed,
pursuant to Section 13 of the Exchange Act, for the Most Recent Fiscal Quarter
End.
"Most Recent Fiscal Quarter End" means, with respect to the Company, the
end of the last fiscal quarter as to which the Company has filed a Quarterly
Report on Form 10-Q pursuant to Section 13 of the Exchange Act.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Proceeding" means any action, suit, proceeding, charge, complaint,
inquiry, audit, investigation or request for information.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Share" means any share of the Common Stock, no par value, of the Company
to be sold to a Buyer pursuant to this Agreement.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Taxes" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE II
PURCHASE AND SALE OF STOCK
II.1 Purchase and Sale of the Shares. On and subject to the terms and
conditions of this Agreement, the Buyers agree to purchase from the Company, and
the Company agrees to sell to the Buyers, the number of Shares aggregating
1,333,333 Shares, as allocated among the Buyers in accordance with Exhibit A
hereto and incorporated herein by this reference, for the consideration of $2.25
per Share.
II.2 Purchase Price. As consideration for the tender of the Shares, the
Buyers shall pay to the Company at the Closing $2,999,999.25 in the aggregate
(the "Purchase Price") by wire transfer of immediately available funds. The
Purchase Price shall be allocated among the Buyers in accordance with Exhibit A
hereto.
II.3 Additional Buyers. Anything in this Agreement to the contrary
notwithstanding, any Person may, subsequent to the date hereof and on or prior
to the date which is two Business Days preceding the Closing, become a Buyer,
provided that (a) the Buyers Representatives consent to the addition of such
Person as a Buyer and (b) each such Person executes an agreement in the form of
Exhibit C hereto agreeing to being bound by all of the terms and conditions
hereof.
ARTICLE III
CLOSING
III.1 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Millard,
Pilchowski, Holwegerd & Child, counsel to the Company, located at 655 South Hope
Street, 12th floor, Los Angeles, California, commencing at 10:00 a.m. on the
third Business Day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyers Representatives and the
Company may mutually determine (the "Closing Date"); provided, however, that the
Closing Date shall be no later than June 30, 2000.
III.2 Deliveries at the Closing. At the Closing, (i) the Company will
deliver to the Buyers the various certificates, instruments, and documents
referred to in Section 8.1 hereof, (ii) the Buyers will deliver to the Company
the various certificates, instruments, and documents referred to in Section 8.2
hereof, (iii) the Company will deliver to each of the Buyers stock certificates
representing all of his or its Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) each of the Buyers will deliver to the
Company the consideration specified in Section 2.2 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
Each of the Buyers represents and warrants to the Sellers that the
statements contained in this Article IV are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article IV) with respect to himself or itself.
IV.1 Organization of Certain Buyers. If the Buyer is a corporation, the
Buyer is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation.
IV.2 Authorization of Transaction. Each of the Buyers has full power
and authority (including, if the Buyer is a corporation, full corporate power
and authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions. Except as set forth on Schedule 4.2 hereto, the Buyer need not give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of, any Governmental Authority in order to consummate the transactions
contemplated by this Agreement.
IV.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Legal Requirement to which the Buyer is subject or, if a Buyer
is a corporation, any provision of its charter or bylaws or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject.
IV.4 Brokers' Fees. The Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Company could become
liable or obligated.
IV.5 Investment. The Buyer is acquiring its Shares solely for the
purpose of investment for the Buyer's own account, not as a nominee or agent,
and not with a view to, or for offer or sale in connection with, any
distribution thereof in any transaction which would be in violation of the
securities laws or regulations of the United States of America or any state
thereof. The Buyer does not have any contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant participation to any
third Person with respect to any of the Shares. The Buyer understands that the
Shares have not been registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein of the Buyer and the other Buyers.
IV.6 Experience. The Buyer is experienced in evaluating companies such as
the Company, and has such knowledge and experience in financial and business
matters to enable such Buyer to evaluate the merits and risks of the Buyer's
prospective investment in the Company, and the Buyer has the ability to bear the
economic risks of such investment.
IV.7 Accredited Investor Status. The Buyer is an "accredited investor"
within the meaning of Section 501(a) of Regulation D promulgated under
the Securities Act.
IV.8 Restricted Securities. The Buyer understands that its Shares may
not be sold, transferred or otherwise disposed of without registration under the
Securities Act and any applicable state securities law or pursuant to of an
exemption therefrom and that, in the absence of an effective registration
statement covering such Shares or an available exemption from registration, his
or its Shares must be held indefinitely. In the absence of an effective
registration statement under the Securities Act or applicable state securities
law with respect to the Shares, such Buyer (i) shall notify the Company of any
proposed disposition by such Buyer of any of its Shares, (ii) shall furnish the
Company with a statement of the circumstances surrounding the proposed
disposition and, if reasonably requested by the Company, (iii) shall furnish the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require the registration of such Shares under the
Securities Act and any applicable state securities law. Such Buyer shall not
sell, transfer or otherwise dispose of any Shares except in a manner fully
consistent with its representations contained in this Section 4.8 and otherwise
in full compliance with the terms and conditions of this Agreement and the
provisions of applicable law and related regulations. Such Buyer understands
that the Company is under no obligation to register any of the Shares under the
Securities Act or any applicable state securities law.
IV.9 Disclosure of Information. Subject to completion of a due
diligence investigation with respect to the Company by Buyers Representatives
which they and the Company have agreed that they shall complete within one week
after receiving the last of the requested documents from the Company (such date
being referred to herein as the "Due Diligence Date"), the Buyer has received or
has had full access to all the information it considers necessary or appropriate
to make an informed investment decision with respect to the Shares to be
purchased by such Buyer pursuant to this Agreement. The Buyer further has had an
opportunity to ask questions and receive answers from the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to such Buyer or to which such Buyer had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Article V hereof.
IV.10 Information Concerning Buyer. Exhibit A hereto sets forth each
Buyer's jurisdiction of organization (if applicable), the location of said
Buyer's principal office and the jurisdiction in which such Buyer will accept
the Company's offer to sell to it its Shares and in which such Buyer will
purchase its Shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article V are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article V), except as set forth in the Schedules
attached hereto. Nothing in the Schedules shall be deemed adequate to disclose
an exception to a representation or warranty made herein unless the Schedule
identifies the exception with reasonable particularity. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). An item
disclosed in any Schedule shall be deemed disclosed for purposes of all
Schedules, provided that reasonably particular cross references have been
included.
V.1 Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a Material Adverse Effect on the Company. The
Company has full corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Schedule 5.1 hereto lists the directors and officers of the Company. The Company
has no Subsidiaries.
V.2 Capitalization. The entire authorized capital stock of the Company
consists of 10,000,000 Common Shares, of which 3,249,806 Common Shares are
issued and outstanding and no Common Shares are held in treasury, and 2,000,000
shares of Preferred Stock, none of which is issued and outstanding or held in
treasury. All of the issued and outstanding Common Shares have been duly
authorized, are validly issued, fully paid and nonassessable. Except as
indicated on Schedule 5.2 hereto, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any shares of
its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
V.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Legal Requirement to which the Company is subject or any
provision of the charter or bylaws of the Company or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where such violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice or Security Interest would not be material to the Company or adversely
affect the ability of the Parties to consummate the transactions contemplated by
this Agreement. Except as set forth in Schedule 5.3 hereto, the Company does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any Governmental Authority in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not be material to the Company or adversely affect the ability of
the Parties to consummate the transactions contemplated by this Agreement.
V.4 Brokers' Fees. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
V.5 Title to Assets. The Company has good and marketable title to, or
a valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
Most Recent Fiscal Quarter End, free and clear of all Security Interests, except
for properties and assets disposed of in the Ordinary Course of Business since
the date thereof.
V.6 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Quarter End, there has not been any Material Adverse Change in the
Company taken as a whole. Without limiting the generality of the foregoing,
except as set forth on Schedule 5.6 hereto or as contemplated by this Agreement,
since that date:
(a) the Company has not sold, leased, transferred, or assigned any material
assets, tangible or intangible, outside the Ordinary Course of Business;
(b) the Company has not entered into any material agreement, contract,
lease, or license outside the Ordinary Course of Business;
(c) no party (including the Company) has accelerated, terminated, made
material modifications to, or canceled any material agreement, contract, lease,
or license to which the Company is a party or by which any of them is bound;
(d) the Company has not imposed any Security Interest upon any of its
assets, tangible or intangible;
(e) the Company has not made any material capital expenditures outside the
Ordinary Course of Business;
(f) the Company has not made any material capital investment in, or any
material loan to, any other Person outside the Ordinary Course of Business;
(g) the Company has not created, incurred, assumed, or guaranteed any
indebtedness for borrowed money and capitalized lease obligations;
(h) the Company has not granted any license or sublicense of any material
rights under or with respect to any Intellectual Property;
(i) there has been no change made or authorized in the charter or bylaws of
the Company;
(j) the Company has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
(k) the Company has not declared, set aside, or paid any dividend or made
any distribution with respect to its capital stock (whether in cash or in kind)
or redeemed, purchased, or otherwise acquired any of its capital stock;
(l) the Company has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(m) the Company has not made any loan to, or entered into any other
transaction with, any of its directors, officers and employees outside the
Ordinary Course of Business;
(n) the Company has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any existing
such contract or agreement;
(o) the Company has not granted any increase in the base compensation of
any of its directors, officers and employees outside the Ordinary Course of
Business;
(p) the Company has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers and employees (or
taken any such action with respect to any other Employee Benefit Plan);
(q) the Company has not made any other material change in employment terms
for any of its directors, officers and employees outside the Ordinary Course of
Business; and
(r) the Company has not committed to effectuate any of the foregoing.
V.7 Undisclosed Liabilities. The Company has no material liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for Taxes), except for
(i) liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) liabilities which have arisen after the Most
Recent Fiscal Quarter End in the Ordinary Course of Business.
V.8 Legal Compliance. The Company has complied with all Legal
Requirements and no Proceeding has been filed or commenced against it alleging
any failure so to comply, except where the failure to comply would not have a
Material Adverse Effect on the Company.
V.9 Tax Matters.
(a) The Company has duly and timely filed all Tax Returns that it has been
required to file for all periods through and including the Closing Date. All
such Tax Returns were correct and complete in all material respects. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been timely
paid. The Company currently is not the beneficiary of any extension of time
within which to file any Tax Return.
(b) None of the Tax Returns that include the operations of the Company has
ever been audited or investigated by any Governmental Authority and, to the
Knowledge of the Company, no fact exists which would constitute grounds for the
assessment of any additional material Taxes by any Governmental Authority with
respect to the taxable years covered in such Tax Returns. To the Knowledge of
the Company, no issues have been raised in any examination by any Governmental
Authority with respect to the businesses and operations of the Company which, by
application of similar principles, reasonably could be expected to result in a
proposed adjustment to the liability for material Taxes for any other period not
so examined. To the Knowledge of the Company, the Company has not received, or
expects to receive, from any Governmental Authority any written notice of a
proposed adjustment, deficiency, underpayment of Taxes or any other such notice
which has not been satisfied by payment or been withdrawn, and no claims have
been asserted relating to such Taxes against the Company. No claim has ever been
made by a Governmental Authority in a jurisdiction where any Company does not
pay Taxes or file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(c) Schedule 5.9 hereto lists all federal, state, local, and foreign Tax
Returns filed with respect to the Company for taxable periods for which the
applicable statute of limitations has not expired, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to the Buyers Representatives
correct and complete copies of all federal Tax Returns, examination reports, and
statements of deficiencies assessed against, or agreed to by the Company for
taxable periods for which the applicable statute of limitations has not expired.
The Company has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
(d) The Company has withheld and paid all material Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(e) The Company has not made, is not obligated to make, and is not a party
to any agreement that under certain circumstances could obligate it to make any
"excess parachute payment" as defined in Code Section 280G (without regard to
subsection (b)(4) thereof). The Company has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). The Company is
not a party to any tax allocation or sharing agreement. The Company is not
subject to any joint venture, partnership or other arrangement or contract which
is treated as a partnership for federal income tax purposes. The Company (i) has
not been a member of an Affiliated Group filing a consolidated federal income
Tax Return and (ii) has no liability for the taxes of any Person (other than the
Company) under Code Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(f) The unpaid Taxes of the Company (i) did not, as of the Most Recent
Fiscal Quarter End, exceed by any material amount the reserve for Tax liability
(rather than any reserve for deferred taxes established to reflect timing
differences between book and tax income) set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (ii) will not exceed
by any material amount that reserve as adjusted for operations and transactions
through the Closing Date in accordance with the past custom and practice of the
Company in filing their Tax Returns.
V.10.....Real Estate
(a) The Company owns no real property.
(b) Schedule 5.10(b) hereto lists and describes briefly all real
property leased or subleased to any of the Company. The Company has delivered to
the Buyers Representatives correct and complete copies of the leases and
subleases listed in Schedule 5.10(b) (as amended to date). With respect to each
material lease and sublease listed in Schedule 5.10(b):
(i) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect in all material respects;
(ii) no party to the lease or sublease is in material breach or
default, and no event has occurred which, with notice or lapse of time,
would constitute a material breach or default or permit termination,
modification, or acceleration thereunder;
(iii)no party to the lease or sublease has repudiated any material
provision thereof;
(iv) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(v) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold; and
(vi) all facilities leased or subleased thereunder have received all
approvals of Governmental Authority (including material licenses and
permits) required in connection with the operation thereof, and have been
operated and maintained in accordance with applicable Legal Requirements in
all material respects.
V.11 Intellectual Property.
(a) The Company has not interfered with, infringed upon, misappropriated,
or violated any material Intellectual Property rights of third parties in any
material respect, and none of the Company and the directors and officers of the
Company has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of any of the
Company and the directors and officers of the Company, no third party has
interfered with, infringed upon, misappropriated, or violated any material
Intellectual Property rights of the Company in any material respect.
(b) Schedule 5.11(b) hereto identifies each patent or registration which
has been issued to the Company with respect to any of its Intellectual Property,
identifies each pending patent application or application for registration which
the Company has made with respect to any of its Intellectual Property, and
identifies each material license, agreement, or other permission which the
Company has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Company has delivered to the Buyers
Representatives correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date).
Schedule 5.11(b) also identifies each material trade name or unregistered
trademark used by the Company in connection with any of its businesses. With
respect to each item of Intellectual Property required to be identified in
Schedule 5.11(b):
(i) the Company possesses all right, title, and interest in and to the
item, free and clear of any Security Interest, license, or other
restriction;
(ii) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(iii)no Proceeding is pending or, to the Knowledge of any of the
Company and the directors and officers of the Company, is threatened which
challenges the legality, validity, enforceability, use, or ownership of the
item; and
(iv) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict
with respect to the item.
(c) Schedule 5.11(c) hereto identifies each material item of Intellectual
Property that any third party owns and that the Company uses pursuant to
license, sublicense, agreement, or permission. The Company has delivered to the
Buyers Representatives correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Schedule
5.11(c):
(i) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable and in full force and effect in
all material respects;
(ii) no party to the license, sublicense, agreement, or permission is
in material breach or default, and no event has occurred which with notice
or lapse of time would constitute a material breach or default or permit
termination, modification, or acceleration thereunder;
(iii) no party to the license, sublicense, agreement, or permission
has repudiated any material provision thereof; and
(iv) the Company has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission.
V.12 Tangible Assets. The buildings, machinery, equipment, and other
tangible assets that the Company owns and leases are free from material defects
(patent and latent), have been maintained in accordance with normal industry
practice and are in good operating condition and repair (subject to normal wear
and tear).
V.13 Inventory. The inventory of the Company consists of raw materials and
supplies, manufactured and processed parts, work in process, and finished goods,
all of which is merchantable and fit for the purpose for which it was procured
or manufactured, and none of which is slow-moving, obsolete, damaged, or
defective, subject only to the reserve for inventory writedown set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for operations and transactions through the Closing Date in accordance
with the past custom and practice of the Company.
V.14 Contracts. Schedule 5.14 hereto lists the following contracts and
other agreements to which the Company is a party: --------- -------------
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $10,000 per annum;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of
which will extend over a period of more than one year or involve
consideration in excess of $10,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(e) any material agreement concerning confidentiality or
noncompetition;
(f) any material agreement with any of the shareholders of the Company
and their Affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a full-time,
part-time, consulting;
(j) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course
of Business;
(k) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on the Company; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Company has delivered to the Buyers Representatives a correct and complete
copy of each written agreement listed in Schedule 5.14 (as amended to date) and
a written summary setting forth the material terms and conditions of each oral
agreement referred to in Schedule 5.14. With respect to each such agreement: (i)
the agreement is legal, valid, binding, enforceable and in full force and effect
in all material respects; (ii) no party is in material breach or default, and no
event has occurred which with notice or lapse of time would constitute a
material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (iii) no party has repudiated any
material provision of the agreement.
V.15 Notes and Accounts Receivable. All notes and accounts receivable of
the Company are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for
operations and transactions through the Closing Date in accordance with the past
custom and practice of the Company.
V.16 Powers of Attorney. To the Knowledge of any of the Company and the
directors and officers of the Company, there are no material outstanding powers
of attorney executed on behalf of the Company.
V.17 Insurance. Schedule 5.17 hereto sets forth the following information
with respect to each material insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) with respect to which the Company is a party, a named
insured, or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage is on a
claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or other
material loss-sharing arrangements.
With respect to each such insurance policy: (i) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects;
(ii) neither any of the Company nor any other party to the policy is in material
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a material breach or default, or permit termination,
modification, or acceleration, under the policy (including but not limited to
retroactive premium adjustments); and (iii) no party to the policy has
repudiated any material provision thereof. Schedule 5.17 describes any material
self-insurance arrangements affecting the Company.
V.18 Litigation. Schedule 5.18 hereto sets forth each instance in which the
Company (i) is subject to any outstanding Proceeding or (ii) is a party or, to
the Knowledge of the Company and the directors and officers of the Company, is
threatened to be made a party to any Proceeding, in, or before any Governmental
Authority or before any arbitrator.
V.19 Product Warranty. Substantially all of the products manufactured,
sold, leased and delivered by the Company have conformed in all material
respects with all applicable contractual commitments and all express and implied
warranties, and the Company has no material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for
operations and transactions through the Closing Date in accordance with the past
custom and practice of the Company. Schedule 5.19 hereto includes copies of the
standard terms and conditions of sale or lease for the Company (containing
applicable guaranty, warranty, and indemnity provisions).
V.20 Employees. To the Knowledge of any of the Company and the directors
and officers of the Company, no executive, key employee, or significant group of
employees plans to terminate employment with the Company during the next 12
months. The Company is not a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strike or material grievance,
claim of unfair labor practices, or other collective bargaining dispute within
the past three years. The Company has not committed any material unfair labor
practice. None of the Company and the directors and officers of the Company has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Company.
V.21 Employee Benefits.
(i) Schedule 5.21 hereto lists each Employee Benefit Plan that the
Company maintains or to which the Company contributes or has any obligation
to contribute.
(ii) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code and
other applicable laws.
(iii) All required reports and descriptions (including Form 5500
Annual Reports, summary annual reports, PBGC-l's, and summary plan
descriptions) have been timely filed and distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of COBRA have
been met in all material respects with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Pension Benefit
Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or before
the Closing Date have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(v) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Section 401(a), has received, within the last two years, a favorable
determination letter from the Internal Revenue Service that it is a
"qualified plan" and the Company is not aware of any facts or circumstances
that could result in the revocation of such determination letter.
(vi) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
liabilities thereunder determined in accordance with PBGC methods, factors
and assumptions applicable to an Employee Pension Benefit Plan terminating
on the date for determination.
(vii) The Company has delivered to the Buyers Representatives correct
and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that any of the
Company or any ERISA Affiliate maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to
the Knowledge of any of the Company and the directors and officers of
the Company, threatened.
(ii) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any liability for
material breach of fiduciary duty or any other material failure to act
or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No Proceeding with respect
to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is
pending or, to the Knowledge of any of the Company and the directors
and officers of the Company, threatened.
(iii) The Company has not incurred any material liability
(whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due) to the
PBGC (other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal liability as defined in ERISA Section
4201) or under the Code with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
(c) None of the Company and the other members of the Controlled
Group that includes the Company contributes to, ever has contributed
to, or ever has been required to contribute to any Multiemployer Plan
or has any material liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including any withdrawal liability (as defined
in ERISA Section 4201), under any Multiemployer Plan.
(d) The Company does not maintain, has never maintained and does
not contribute, has never contributed, and has never been required to
contribute, to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current
or future retired or terminated employees, their spouses, or their
dependents (other than in accordance with COBRA).
V.22 Guaranties........The Company is not a guarantor or is not otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
V.23 Environmental, Health and Safety Matters.
(a) Each of the Company and its respective predecessors and
Affiliates has complied and is in compliance, in each case in all
material respects, with all Environmental, Health and Safety
Requirements.
(b) Without limiting the generality of the foregoing, each of the
Company and its respective Affiliates has obtained, has complied with,
and is in compliance with, in each case in all material respects, all
material permits, licenses and other authorizations that are required
pursuant to Environmental, Health and Safety Requirements for the
occupation of its facilities and the operation of its business; a list
of all such material permits, licenses and other authorizations is set
forth on the attached "Environmental and Safety Permits Schedule."
(c) None of the Company, or its respective Affiliates, has
received any written or oral notice, report or other information
regarding any actual or alleged material violation of Environmental,
Health and Safety Requirements, or any material liabilities or
potential material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any material investigatory,
remedial or corrective obligations, relating to any of them or its
facilities arising under Environmental, Health and Safety
Requirements.
(d) Except as set forth on the attached "Environmental and Safety
Matters Schedule", none of the following exists at any property or
facility owned or operated by the Company: (i) underground storage
tanks, (ii) asbestos-containing material in any friable and damaged
form or condition, (iii) materials or equipment containing
polychlorinated biphenyl's, or (iv) landfills, surface impoundment's,
or disposal areas.
(e) None of the Company, or any of their respective predecessors
or Affiliates, has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or
owned or operated any property or facility (and no such property or
facility is contaminated by any such substance) in a manner that has
given or would give rise to material liabilities, including any
material liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or the
Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health and Safety Requirements.
(f) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any
material obligations for site investigation or cleanup, or
notification to or consent of government agencies or third parties,
pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental, Health and Safety
Requirements.
V.24 Certain Business Relationships with the Company. Except as set forth
in Schedule 5.24 hereto or set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1999, no Affiliate of the Company or officer
or director of the Company has been involved in any material business
arrangement or relationship with the Company within the past 12 months, and none
of the Affiliates of the Company or officers or directors of the Company owns
any material asset, tangible or intangible, which is used in the business of the
Company.
V.25 Shares. The Shares when issued, sold and delivered in accordance with
the terms of this Agreement will be duly authorized, validly issued, fully paid
and nonassessable, free of any liens, claims, charges, security interests,
pledges or encumbrances of any kind (other than any of the foregoing created by
any Buyer or as a result of applicable state and federal securities laws) and
will possess all of the rights, privileges and preferences provided therefor in
the Certificate of Incorporation of the Company. The Shares are not subject to
any preemptive rights or rights of first refusal.
V.26 No Registration Required. Based in part on the representations made by
the Buyers in Sections 4.5, 4.6, 4.7 and 4.8 hereof, the issuance of the Shares
to the Buyers will be exempt from the registration and prospectus delivery
requirements of the Securities Act and the registration and qualification
requirements of all applicable state securities laws.
V.27 Nasdaq Compliance. The Company has not received any notice from The
Nasdaq Stock Market Inc. ("Nasdaq") that the Company is not currently in
compliance with the Nasdaq criteria for continued reporting of the Common Shares
on The Nasdaq SmallCap Market. The Company covenants and agrees that it shall
use its best efforts to maintain the quotation of the Common Shares on The
Nasdaq SmallCap Market.
V.28 Periodic Reports. The Company, based solely on knowledge subsequently
obtained, is not aware of any material misstatements or omissions in any
periodic report previously filed by the Company pursuant to Section 13 of the
Securities Exchange Act or in any proxy material previously furnished to its
shareholders pursuant to Section 14 of the Securities Exchange Act.
V.29 Disclosure. The representations and warranties contained in this
Article V do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article V not misleading.
<PAGE>
ARTICLE VI
COVENANTS AND ADDITIONAL AGREEMENTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
VI.1 General. Each of the Parties will use its best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article VIII hereof).
VI.2 Notices and Consents. The Company will give any notices to third
parties, and will use its best efforts to obtain any third party consents that
the Buyers Representatives reasonably may request in connection with the matters
referred to in this Agreement above. Each of the Parties will give any notices
to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of any Governmental Authority in
connection with the matters referred to in Sections 4.2, 4.3, 5.3 and 6.3
hereof.
VI.3 Operation of Business. The Company will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Company will not
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 5.6 hereof which
could have a Material Adverse Effect on the Company.
VI.4 Preservation of Business The Company will keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees and will at all times maintain an aggregate
balance of at least One Million ($1,000,000) Dollars of cash, cash equivalents
and marketable securities.
VI.5 Full Access. The Company will permit the Buyers Representatives to
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of the Company, to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to the Company. The Buyers will treat and hold such information it
receives from the Company in the course of the reviews contemplated by this
Section 6.5, as Confidential Information and will not use any of the
Confidential Information except in connection with this Agreement, if this
Agreement is terminated for any reason whatsoever, will return to the Company,
all tangible embodiments (and all copies) of the Confidential Information which
are in its possession.
VI.6 Notice of Developments. The Company will give prompt written notice to
the Buyers Representatives of any material adverse development causing a breach
of any of the representations and warranties in Article V hereto or which could
otherwise have a Material Adverse Effect on the Company. Each Party will give
prompt written notice to the others of any material adverse development causing
a breach of any of his or its own representations and warranties in Articles IV
or V hereof. No disclosure by any Party pursuant to this Section 6.6, however,
shall be deemed to amend or supplement any Schedule hereto or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
VI.7 Exclusivity. The Company will not (and the Company will not cause or
permit any of its respective representatives, advisers or Affiliates to) (i)
solicit, initiate, or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of the Company (including
any acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Joseph Mazin will not vote any of his Common Shares or Common Shares
as to which he controls the voting rights to vote in favor of any such
acquisition.
VI.8 Supplements to Schedules. From time to time prior to the Closing Date,
the Company will promptly supplement or amend the Schedules hereto which they
have delivered pursuant to this Agreement with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in any such disclosure schedule
or which is necessary to correct any information in the Schedules hereto which
has been rendered inaccurate thereby. No disclosure by the Company pursuant to
this Section 6.8, however, shall be deemed to amend or supplement any Schedule
hereto or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant unless the transactions contemplated hereby are consummated
pursuant to this Agreement in which event any claims with respect to any such
misrepresentations or breaches shall be deemed waived by Buyers.
VI.9 Board of Directors. Upon the execution hereof, Ronald M. Chodorow and
Joseph Mazin shall deposit their resignations as members of the Company's Board
of Directors in escrow with Wachtel & Masyr, LLP, counsel to the Buyers. On the
Closing Date, said resignations shall be released from escrow and Tracie Savage
shall vote, as the remaining director, to increase the number of directors to
five and to fill the vacancies created on the Board with four designees of the
Buyers to be designated prior to the Closing. On the Closing Date, the Board
shall create a special committee responsible for seeking mergers and
acquisitions for the Company and shall elect to such committee an appointee of
current management, a designee of the Buyers and a person to be mutually
selected by the foregoing.
VI.10 Special Meeting of Stockholders.
(a) The Company shall promptly take all steps necessary to cause
a special meeting of its Shareholders (the "Special Meeting") to be
duly called, noticed, convened and held as soon as practicable after
the execution hereof for the purposes of voting to approve this
Agreement, the transactions contemplated hereby and all matters
related thereto, as well as the reincorporation of the Company under
the laws of the State of Delaware. In connection with the Special
Meeting, the Board of Directors of the Company shall unanimously
recommend to its shareholders that the shareholders vote in favor of
the approval of this Agreement, the transactions contemplated hereby
and all matters related thereto, and each of the directors shall use
his or her best efforts to secure the required approval of the
shareholders, including voting any of his or her shares in favor of
such approval.
(b) In connection with the Special Meeting, the Company will
prepare and cause to be mailed to its shareholders a notice of the
Special Meeting, a definitive proxy statement (the "Proxy Statement")
and a form of proxy as soon as practicable and, in any event, shall
cause such notice to be mailed no later than the time required by the
Exchange Act and any other Legal Requirements and the Company's
Articles of Incorporation and Bylaws. The Buyers shall provide the
Company with any information for inclusion in the Proxy Statement or
any amendments or supplements thereto which is required by any Legal
Requirements or which is reasonably requested by the Company. The
Company shall consult with the Buyers Representatives with respect to
the Proxy Statement and shall afford the Buyers Representative
reasonable opportunity to comment thereon. If, at any time prior to
the Special Meeting, any event should occur relating to the Company
which should be set forth in an amendment of, or a supplement to, the
Proxy Statement, the Company will promptly inform the Buyers
Representatives in writing. In each such case, the Company, with the
cooperation of the Buyers Representatives, will promptly prepare and
mail such amendment or supplement and the Company shall consult with
the Buyers Representatives with respect to such supplement or
amendment and shall afford the Buyer Representatives reasonable
opportunity to comment thereon prior to such mailing. The Company will
notify the Buyer Representatives at least 48 hours prior to the
mailing to its shareholders of the Proxy Statement, or any amendment
or supplement thereto.
(c)......Anything in this Article VI to the contrary
notwithstanding, the Company may use a consent solicitation, rather
than a proxy solicitation for a Special Meeting, if the Company and
the Buyers Representatives mutually agree that this procedure will
expedite the solicitation.
ARTICLE VII
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing.
VII.1 General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Article IX hereof).
VII.2 Litigation Support. Joseph Mazin agrees that, in the event and for so
long as the Company actively is contesting or defending against any Proceeding
in connection with any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving the Company, he will
cooperate with the Company, and provide such testimony as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
Company.
ARTICLE VIII
CONDITIONS TO CLOSING
VIII.1 Conditions to Obligation of the Buyers. The obligation of the Buyers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Article V
hereof shall be true and correct in all material respects at and as of
the Closing Date; ---------
(b) the Company shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) the Company shall have procured all of the material third
party consents specified in Section 6.2 hereof; -----------
(d) no Proceeding shall be pending wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, (iii) affect
adversely the right of the Buyers to own the Shares and to control the
Company, or (iv) have a Material Adverse Effect on the Company;
(e) the Company shall have delivered to the Buyers a certificate
to the effect that each of the conditions specified above in
subsections (a) through (d) of this Section 8.1 is satisfied in all
respects;
(f) the Parties shall have received all other material
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 6.2 hereof;
(g) the relevant parties shall have entered into the Consulting
Agreement and the same shall be in full force and effect;
(h) the Buyers shall have received from counsel to the Company an
opinion addressed to the Buyers and dated as of the Closing Date as to
such matters as counsel to the Buyers may reasonably request;
(i) the Buyers shall have received the resignations, effective as
of the Closing, of the directors as provided in Section 6.9 hereof and
those officers of the Company designated by the Buyers Representatives
at least two (2) Business Days prior to the Closing and the nominees
of the Buyers shall become directors of the Company;
(j) the Company shall have on the Closing Date an aggregate
balance of at least One Million ($1,000,000) Dollars in cash, cash
equivalents and marketable securities;
(k) the shareholders of the Company shall have approved this
Agreement and the consummation of the transactions contemplated hereby
in accordance with Company's Articles of Incorporation and Bylaws, the
Legal Requirements of the State of California, Nasdaq and the Exchange
Act and the regulations promulgated thereunder;
(l) the filing by the Company of all notices required by Nasdaq
regarding the issuance of the Shares by the Company; and
(m) all actions to be taken by the Company in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyers.
The Buyers Representatives may waive on behalf of the Buyers any condition
specified in this Section 8.1 if they execute a writing so stating at or prior
to the Closing.
VIII.2 Conditions to Obligation of the Company. The obligation of the
Company to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Article IV
above shall be true and correct in all material respects at and as of
the Closing Date;
(b) the Buyers shall have performed and complied with all of
their covenants hereunder in all material respects through the
Closing;
(c) no Proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (i) prevent consummation of any of the transactions contemplated
by this Agreement or (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(d) the Buyers shall have delivered to the Company a certificate
to the effect that each of the conditions specified above in
subsections (a) through (c) of this Section 8.2 is satisfied in all
respects;
(e) the Parties shall have received all other material
authorizations, consents, and approvals of governments and
governmental agencies referred to in Sections 4.2 and 5.3 hereof; and
(f) all actions to be taken by the Buyers in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company.
The Company may waive any condition specified in this Section 8.2 if it executes
a writing so stating at or prior to the Closing.
ARTICLE IX
SURVIVAL AND REMEDY; INDEMNIFICATION
IX.1 Survival of Representations and Warranties. All of the terms and
conditions of this Agreement, together with the warranties, representations,
agreements and covenants contained herein or in any instrument or document
delivered or to be delivered pursuant to this Agreement, shall survive the
execution of this Agreement and the Closing Date, notwithstanding any
investigation heretofore or hereafter made by or on behalf of any Party hereto;
provided, further, that, unless otherwise stated, the agreements and covenants
set forth in this Agreement shall survive and continue until all obligations set
forth therein shall have been performed and satisfied. Notwithstanding the
foregoing, (a) the representations and warranties contained in Article IV of
this Agreement shall survive the Closing and continue in full force and effect
indefinitely; (b) the representations and warranties of the Company contained in
Sections 5.9, 5.21 and 5.23 of this Agreement shall survive the Closing and
continue in full force and effect until 60 days following the expiration of any
applicable statutes of limitations; and (c) all other representations and
warranties, and the related agreement of the Company to indemnify the Buyers set
forth in this Article IX, shall survive and continue for, and all
indemnification claims with respect thereto shall be made prior to the end of,
the first anniversary of the Closing Date, except for representations,
warranties and related indemnities for which an indemnification claim shall be
pending as of the end of the applicable period referred to above, in which event
such indemnities shall survive with respect to such indemnification claim until
the final disposition thereof (the "Indemnification Period").
IX.2 Indemnification by the Company.
(a) In the event that, during the Indemnification Period, there is (i) a
breach (or an alleged breach) of any of the representations or warranties made
by, or any breach or failure to perform any covenant, agreement or obligation
of, the Company in this Agreement or any other document contemplated hereby, or
in any document relating hereto or thereto or contained in any Exhibit or
Schedule to this Agreement, (ii) any Adverse Consequences relating to the
operation on or prior to the Closing of the business of the Company (including
redemption, clean-up or similar obligations or costs under Environmental, Health
and Safety Requirements and relating to the business and activities or the
ownership, operation or lease by the Company of facilities in respect of any
periods prior to the Closing), or (iii) any demands, assessments, judgments,
costs and reasonable legal and other expenses or other Adverse Consequences
arising from, or in connection with, any Proceeding incident to any of the
foregoing and, if there is an applicable survival period pursuant to Section 9.1
hereof, then, in each case, provided that the Buyers Representatives make a
written claim for indemnification against the Company within such survival
period, the Company agrees (subject to the limitations set forth in this Section
9.2) to indemnify the Buyers and its Affiliates, directors, officers. employees,
shareholders, representatives and agents (collectively the "Buyers Indemnified
Parties") from and against the entirety of any Adverse Consequences the Buyers
Indemnified Parties may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyers Indemnified
Parties may suffer through and after the end of the applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by any
breach (or alleged breach) of the foregoing; provided, however, that (A) except
for breaches of the representations and warranties contained in Sections 5.9,
5.21 and 5.23 hereof, the Company shall not have any obligation to indemnify the
Buyers Indemnified Parties from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by any breach (or
alleged breach) by the Company until the Buyers Indemnified Parties have
suffered Adverse Consequences by reason of all such breaches (or alleged
breaches) in excess of a $5,000 aggregate threshold (at which point the Company
will be obligated to indemnify the Buyers Indemnified Parties from and against
all such Adverse Consequences) and (B) there will be a $2,999,999 aggregate
ceiling on the obligation to indemnify the Buyers Indemnified Parties from and
against Adverse Consequences resulting from, arising out of, or relating to, the
items identified in this Article IX.
(b) Subject to the provisions of subsection (a) of this Section 9.2
(excluding any applicable threshold and ceiling provisions), the Company agrees
to indemnify the Buyers from and against the entirety of any Adverse
Consequences the Buyers may suffer resulting from, arising out of, relating to,
in the nature of, or caused by any liability of the Company (x) for any Taxes of
the Company and any entities owned by or affiliated with the Company with
respect to any Tax year or portion thereof ending on or before the Closing Date
(or for any Tax period beginning before and ending after the Closing Date to the
extent allocable to the portion of such period beginning before and ending on
the Closing Date), to the extent such Taxes are not reflected in the reserve for
Tax liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the Most
Recent Balance Sheet and (y) for the unpaid Taxes of any Person (other than the
Company) under Code Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law) as a transferee or successor by contract or
otherwise.
IX.3 Indemnification by the Buyers. In the event that, during the
Indemnification Period, there is (i) a breach, or an alleged breach, of any of
the representations or warranties made by, or any breach or failure to perform
any covenant, agreement, or obligation of, the Buyers in this Agreement, or any
other document contemplated hereby or in any document relating hereto or thereto
or contained in any Exhibit or Schedule to this Agreement, or (ii) any demands,
assessments, judgments, costs, and reasonable legal and other expenses or other
Adverse Consequences arising from, or in connection with, any Proceeding
incident to any of the foregoing, and, if there is an applicable survival period
pursuant to Section 9.1 hereof, then, in each case, provided that the Company
makes a written claim for indemnification against the Buyers within such
survival period, the Buyers agree (subject to the limitations set forth in this
Section 9.3) to indemnify, defend and hold harmless the Company and its
directors, officers, employees, shareholders, representatives and agents
(collectively the "Company's Indemnified Parties") from and against the entirety
of any Adverse Consequences the Company's Indemnified Parties may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences the Company's Indemnified Parties may suffer through and after the
end of the applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by any breach, or alleged breach of the
foregoing.
IX.4 Third-Party Claims.
(a) If any Indemnified Party shall notify the Indemnitor with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the Indemnitor under this Article IX, then the
Indemnified Party shall promptly notify the Indemnitor thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying the Indemnitor shall relieve the Indemnitor from any obligation
hereunder unless (and then solely to the extent) the Indemnitor thereby is
prejudiced.
(b) The Indemnitor will have the right to defend the Indemnified Parties
against the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnified Parties so long as (A) the Indemnitor notifies the
Indemnified Parties in writing within 15 days after the Indemnified Parties has
given notice of the Third Party Claim that the Indemnitor will indemnify the
Indemnified Parties from and against the entirety of any Adverse Consequences
the Indemnified Parties may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim, (B) the Indemnitor
provides the Indemnified Parties with evidence reasonably acceptable to the
Indemnified Parties that the Indemnitor will have the financial resources to
defend against the Third Party Claim and fulfill his, her or its indemnification
obligations hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) the settlement of, or
an adverse judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Parties, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
the Indemnified Parties, and (E) the Indemnitor conducts the defense of the
Third Party Claim actively and diligently.
(c) So long as the Indemnitor is conducting the defense of the Third Party
Claim in accordance with subsection (b) of this Section 9.3, (A) the Indemnified
Parties may retain separate co-counsel at his, her or its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Parties will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnitor (not to be withheld unreasonably), and (C) the
Indemnitor will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Parties (not to be withheld unreasonably).
(d) In the event any of the conditions in subsection (b) of this Section
9.3 is or becomes unsatisfied in the reasonable judgment of the Indemnified
Parties, (A) the Indemnified Parties may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim in any manner they reasonably may deem appropriate (and the
Indemnified Parties need not consult with, or obtain any consent from, the
Indemnitor in connection therewith), (B) the Indemnitor will reimburse the
Indemnified Parties promptly and periodically for the reasonable costs of
defending against the Third Party Claim (including attorneys' fees and
expenses), and (C) the Indemnitor will remain responsible for any Adverse
Consequences the Indemnified Parties may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Article IX.
IX.5 Other Indemnification Provisions. The liability of the Indemnitor
under this Article IX shall be in addition to, and not exclusive of any other
liability that the Indemnitor may have at law or equity based on the
Indemnitor's fraudulent acts or omissions. None of the provisions of this
Agreement shall be deemed a waiver of any defenses which may be available in
respect of actions or claims for fraud, including but not limited to, defenses
of statutes of limitations or limitations of damages.
ARTICLE X
TERMINATION
X.1 Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(a) the Buyers Representatives and the Company may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(b) the Buyers Representatives may terminate this Agreement by giving
written notice to the Company at any time prior to the Closing (i) in the event
the Company has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyers Representatives
have notified the Company of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach; (ii) if the Closing
shall not have occurred on or before June 30, 2000 by reason of the failure of
any condition precedent under Section 8.1 hereof (unless the failure results
primarily from any of the Buyers themselves breaching any representation,
warranty, or covenant contained in this Agreement); or (iii) at any time on or
before the Due Diligence Date by reason of the Buyers Representatives being
unsatisfied in their sole and absolute discretion with their due diligence.
(c) the Company may terminate this Agreement by giving written notice to
the Buyers at any time prior to the Closing (i) in the event the Buyers have
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, the Company has notified the Buyers of the
breach, and the breach has continued without cure for a period of 30 days after
the notice of breach or (ii) if the Closing shall not have occurred on or before
June 30, 2000 by reason of the failure of any condition precedent under Section
8.2 hereof (unless the failure results primarily from the Company breaching any
representation, warranty, or covenant contained in this Agreement).
X.2 Effect of Termination If any Party terminates this Agreement pursuant
to Section 10.1 hereof, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 6.5 hereof shall survive
termination. ARTICLE XI MISCELLANEOUS
XI.1 Nature of Certain Obligations. The covenants of each of the Buyers in
Section 2.1 hereof concerning the purchase of its Shares from the Company, the
representations and warranties of each of the Buyers in Article IV hereof and
the indemnification obligations of the Buyers in Article IX hereof concerning
the transaction are several obligations. This means that the particular Buyer
making the representation, warranty, or covenant will be solely responsible to
the extent provided in Article IX hereof for any Adverse Consequences the Buyers
may suffer as a result of any breach thereof and that only the particular Buyer
whose act or omission gave rise to the right to indemnification shall indemnify
the Company Indemnification Parties pursuant to Article IX hereof.
XI.2 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the Buyers Representatives
and the Company; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
XI.3 No Third-Party Beneficiaries. Subject to the provisions of Section
11.5 hereof, this Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and permitted
assigns.
XI.4 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
XI.5 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the Buyers Representatives and the Company; provided, however, that any Buyer
may (i) assign any or all of its rights and interests hereunder to one or more
of its Affiliates, and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases the Buyer nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
XI.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
XI.7 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
XI.8 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
Business Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Buyers: Copy to:
Millenium Capital Corporation Wachtel & Masyr, LLP
245 East 63rd Street 110 East 59th Street
New York, New York 10021 New York, New York 10022
Attention: Scott J. Lesser, Esq.
If to the Company: Copy to:
PerfectData Corporation Millard, Pilchowski, Holweger & Child
110 West Easy Street 655 South Hope Street
Simi Valley, California 93065 Los Angeles, California 90017
Attention: Joseph Mazin, President Attention: Russell W. Shatz, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
XI.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
XI.10 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER AGREEMENT CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE COMPANY OR
BUYERS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE STATE COURTS OR THE
UNITED STATES DISTRICT COURTS IN LOS ANGELES, CALIFORNIA.
XI.11 Waiver of Jury Trial. THE COMPANY AND THE BUYERS HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS EACH MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT CONTEMPLATED HEREBY, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF THE PARTIES. THE COMPANY AND THE BUYERS ACKNOWLEDGE AND AGREE THAT
THEY HAVE RECEIVED FULL AND FAIR CONSIDERATION FOR THIS PROVISION AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE INVESTOR FOR ENTERING INTO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
XI.12 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyers Representatives and the Company. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
XI.13 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
XI.14 Expenses. The Company will bear all of the Parties' reasonable costs
and expenses (including legal fees and expenses of one counsel to the Buyers)
incurred in connection with this Agreement and the transactions contemplated
hereby in the event of the Closing of the transactions contemplated hereby. In
the event that this Agreement and the transactions contemplated thereby do not
close, then the Parties will bear all of their own costs and expenses incurred
in connection with this Agreement.
XI.15 Construction. The term "this Agreement" means this agreement together
with all Schedules and Exhibits hereto, as the same may from time to time be
amended, modified, supplemented or restated in accordance with the terms hereof.
The use in this Agreement of the term "including" means "including, without
limitation." The words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole, including the schedules and
exhibits, as the same may from time to time be amended, modified, supplemented
or restated, and not to any particular section, subsection, paragraph,
subparagraph or clause contained in this Agreement. All references to sections,
schedules and exhibits mean the sections of this Agreement and the schedules and
exhibits attached to this Agreement, except where otherwise stated. The title of
and the section and paragraph headings in this Agreement are for convenience of
reference only and shall not govern or affect the interpretation of any of the
terms or provisions of this Agreement. The use herein of the masculine, feminine
or neuter forms shall also denote the other forms, as in each case the context
may require or permit. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the Parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Unless expressly provided
otherwise, the measure of a period of one month or year for purposes of this
Agreement shall be that date of the following month or year corresponding to the
starting date, provided that if no corresponding date exists, the measure shall
be that date of the following month or year corresponding to the next day
following the starting date. For example, one month following February 18 is
March 18, and one month following March 31 is May 1. The Parties have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
PERFECTDATA CORPORATION
By:___________________________
Title:_________________________
BUYERS
MILLENIUM CAPITAL CORPORATION
By:____________________________
Title:________________________
JDK ASSOCIATES, INC.
By:____________________________
Title:_________________________
_______________________________
Joseph Mazin, only with respect
to Sections 6.7, 6.9 and 7.2
_______________________________
Tracie Savage, only with respect
to Section 6.9
_______________________________
Ronald M. Chodorow, only with
respect to Section 6.9
<PAGE>
================================================================================
Table of Contents
================================================================================
Page
Notice of Special Meeting of Shareholders
Proxy Statement:..................................N/A
Voting Securities...................................1
Proposal One: The Proposed Transactions.............3
Stock Purchase Agreement.........................3 PERFECT DATA
Consulting Agreement.............................4 CORPORATION
The Proposed New Directors.......................4
Business History..................................
Recommendation....................................
Security Ownership of Certain Beneficial
Owners and Management.............................
Proposal Two: Reincorporation
in Delaware.......................................
Reasons for Adopting Delaware
Corporate Law.....................................
Proposed Elimination of Notice of Special
Cumulative Voting................................. Meeting of Shareholders
and Proxy Statement
Comparison of Delaware and
California Corporate Law..........................
Recommendation....................................
Financial Statements.................................
Shareholders Proposals................................
Miscellaneous.........................................
Appendix A - Stock Purchase Agreement
Appendix B - Audited Financial Statements
Appendix C - Quarterly Unaudited Financial Statements
February __, 2000
==============================================================================
<PAGE>
PERFECTDATA CORPORATION
110 West Easy Street
Simi Valley, California 93065
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Joseph Mazin and Tracie Savage as Proxies,
each with the power to appoint his or her substitute, and hereby authorizes them
to represent and to vote, as designated below, all of the shares of the Common
Stock of PerfectData Corporation (the "Company") held of record by the
undersigned on February 25, 2000 at the Special Meeting of Shareholders to be
held on March 29, 2000 or at any adjournment thereof.
1. Proposal to Approve a Stock Purchase Agreement and the Implementation of
the Related Series of Transactions Contemplated Thereunder.
[] FOR [] AGAINST [] ABSTAIN
2. Proposal to Authorize Recapitalization of the Company in Delaware.
[] FOR [] AGAINST [] ABSTAIN
<PAGE>
This proxy, when executed, will be voted in the manner directed by the
undersigned shareholder(s). If no direction is made, this proxy will be voted
FOR Proposals 1 and 2.
PLEASE MARK, SIGN, DATE, AND RETURN THIS CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
I (we) shall attend the Special Meeting in person _____ Yes _____ No
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: _________________________, 2000
