UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 7, 2005
PERFECTDATA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-12817 95-3087593
(Commission File Number) (I.R.S. Employer Identification No.)
1445 East Los Angeles Avenue, Simi Valley, CA 93065
(Address of Principal Executive Offices) (Zip Code)
(805) 581-4006
(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-d(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
INFORMATION TO BE INCLUDED IN REPORT
Section 1 - Registrant's Business and Operations
Item 1.01. Entry Into a Material Definitive Agreement.
On March 7, 2005, PerfectData Corporation (the "Company") executed an
Agreement and Plan of Merger dated as of March 7, 2005 (the "Merger Agreement")
by and among the Company, its recently incorporated (in Delaware) wholly-owned
subsidiary PerfectData Acquisition Corporation ("Merger Sub") and Sona Mobile,
Inc. ("Sona"). A copy of the Merger Agreement (without exhibits and schedules)
is filed as Exhibit 10.1 to this Report and is incorporated herein by this
reference. The Company is not aware of any material relationship between the
Company and its affiliates and Sona or any of its affiliates other than the
Merger Agreement.
As previously reported, Sona, which was incorporated in 2003 and which is
headquartered in Toronto, Canada, develops and markets data applications for
mobile devices in the wireless data market place that enable its customers to:
(1) receive streamed data real-time on a continuous basis; (2) execute secure
transactions in real-time; (3) exchange data with corporate systems in
real-time; and (4) integrate customers' in-house information with publicly
available information of news services such as Telerate.
As previously reported, effective June 1, 2004, Spray Products Corporation
("Spray") had assumed full responsibility for managing the customers of the
Company, so that all revenues therefrom were going to Spray and, after obtaining
shareholder consent, on November 29, 2004, the related assets of the Company's
operating business were sold to Spray. Also, as previously reported, the Board
of Directors of the Company had announced its intention not to liquidate the
Company, but to continue its search for a merger partner so as to add business
operations to the Company.
As previously reported, the Merger Agreement contemplates that, at the
Effective Time (as defined) Sona would be merged into Merger Sub (the "Merger")
and the holders of the Sona Common Stock, no par value, and the Sona Series A
Preferred Stock, no par value, would exchange such shares for shares of a
to-be-designated Series A Convertible Preferred Stock, $.01 par value (the
"PerfectData Series A Preferred Stock"), of the Company which, when converted
into shares of the Company's Common Stock, $.01 par value (the "Common Stock"),
the former securityholders of Sona would own, or have the right to acquire
(including by exercise of option, warrant or other right), such number of shares
of the Common Stock as would constitute approximately 80% of the shares of the
Common Stock on a fully diluted basis as of the Closing Date (as defined). Such
percentages of the Common Stock post-Merger could increase (and the
corresponding percentage ownership of the pre-Merger stockholders of PerfectData
decrease) if the Tangible Net Worth (as defined) of PerfectData is reduced below
$1,100,000. A copy of the proposed Certificate of Designations, Preferences and
Rights of the Series A Preferred Stock (the "Certificate of Designations") is
filed as Exhibit 3(i)(2) to this Report and is incorporated herein by this
reference. The Company's Certificate of Incorporation authorizes the Company to
issue up to 2,000,000 shares of the Company's Preferred Stock, $.01 par value
(the "Preferred Stock"), and the Board of Directors has the authority, without
further action by the holders of the outstanding shares of the Common Stock, to
issue shares of the Preferred Stock from time
to time in one or more classes or series, to fix the number of shares
constituting any class or series and the stated value thereof, if different from
the par value, and to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. A copy
of the Company's Certificate of Incorporation is filed (by incorporation by
reference) as Exhibit 3(i)(1) to this Report and is incorporated herein by this
reference.
If the Merger is consummated, the Merger Agreement contemplates that the
former shareholders of Sona can earn additional shares of the Common Stock equal
to 5% of the shares of the Common Stock on a fully diluted basis as of the
Closing Date (the "Additional Shares") if PerfectData and Merger Sub on a
consolidated basis have (1) revenues of at least $3,000,000 and a gross profit
margin of at least 50% for the fiscal year ending December 31, 2005 ("fiscal
2005") or (2) Aggregate Revenues (as defined) of at least $12,000,000 and
Aggregate Gross Profit Margin (as defined) of at least 50% for fiscal 2005 and
the fiscal year ending December 31, 2006.
As set forth in the Certificate of Incorporation, the holders of the Series
A Preferred Stock would have, among others, the following rights in addition to
conversion rights:
1. Dividends - quarterly non-cumulative dividends at the rate of 6% per
annum when and if declared by the Company's Board of Directors out of funds
legally available therefore;
2. Liquidation preference per share - equal to the dividend of (a)
$3,250,000 less the product of (i) the stated value of any shares of the Series
A Preferred Stock previously converted and the number of shares of the Series A
Preferred Stock so converted divided by (b) the number of shares of the Series A
Preferred Stock then outstanding;
3. Rank - senior to the Common Stock and any other class or series of the
capital stock of the Company unless the holders of 50% or more of the then
outstanding shares of the Series A Preferred Stock consent otherwise;
4. Voting rights - (a) the holders vote, as a single class with the holders
of the Common Stock, on all matters submitted to a vote of, or the consent of,
the holders of the Common Stock, each holder of the Series A Preferred Stock to
have that number of votes equal to the largest number of whole shares of the
Common Stock as to which such shares of the Series A Preferred Stock are then
convertible, and (b) the holders vote as a separate class on any matter which
could have an adverse effect on their shares or as to which their consent is
necessary; and
5. Mandatorily convertible - mandatorily convertible into shares of the
Common Stock upon the earlier to occur of (a) the authorization of the Company's
stockholders to an amendment to the Company's Certificate of Incorporation
increasing the authorized shares of the Common Stock to such number as, at a
minimum, would permit (i) the conversion of all the shares of the Series A
Preferred Stock and (ii) the issuance of the Additional Shares or (b) the fifth
anniversary of the Closing Date.
The Merger Agreement also provides that, if the Merger is consummated, all
but one of the five current directors of the Company and both of its executive
officers will resign and
Sona will designate their replacements. The Company will file a information
statement (the "Information Statement") pursuant to Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14(f)
promulgated thereunder with respect to the Sona designees and mail a copy of the
Information Statement to its stockholders at least ten days prior to the
anticipated Closing Date.
If either PerfectData or Sona terminates the Merger Agreement because of
(1) the material breach by the other party of any of its representations,
warranties, covenants, agreements or obligations, (2) the other party not
fulfilling its conditions precedent to closing or (3) the other party accepting
a Superior Proposal (as defined) from an unsolicited third party, the
terminating party may collect from the other party $250,000 as liquidated
damages and not as a penalty and be reimbursed for its out-of-pocket expenses.
In addition, Sona has delivered to PerfectData a draft of its financial
statements for its fiscal years ended December 31, 2003 ("fiscal 2003") and 2004
("fiscal 2004"). One of the conditions precedent in the Merger Agreement to
PerfectData closing is the delivery by Sona of audited financial statements for
fiscal 2003 and fiscal 2004. If such audited financial statements materially
differ from the draft financial statements, then PerfectData may terminate the
Merger Agreement and be paid the liquidated damages and be reimbursed for its
out-of-pocket expenses as aforesaid. The Merger Agreement also provides that, if
the Tangible Net Worth of PerfectData is less than $750,000 on the Closing Date,
either Sona or PerfectData may terminate the Merger Agreement, provided that
PerfectData pays Sona the liquidated damages and reimburses Sona for its
out-of-pocket expenses as aforesaid. PerfectData has the option, prior to the
Closing Date, to sell shares of the Common Stock in order to increase its
Tangible Net Worth.
The parties currently anticipate that the Closing Date will be scheduled
right after the delivery of the Sona audited financial statements mentioned in
the preceding paragraph and compliance is made with Section 14(f) of the
Exchange Act as described in the second preceding paragraph, assuming that
compliance is made with the other conditions precedent set forth in Articles V
and VI of the Merger Agreement (including, without limitation, obtaining the
approval by the Sona shareholders of the Merger Agreement and the Merger), or
such compliance is waived (except as to such Sona shareholder approval).
On March 10, 2005, the Company and Sona issued a press release with respect
to the execution of the Merger Agreement. A copy of the press release is filed
as Exhibit 10.2 to this Report and is incorporated herein by this reference.
Section 5 - Corporate Governance and Management
Item 5.03. Amendments to Articles of Incorporation or Bylaws:
Change in Fiscal Year.
(a) Not applicable.
(b) The Merger Agreement provides that, if the Merger is consummated, then
at the Effective Time (i.e., when the Merger becomes effective through the
filing of a certificate of merger in the State of Delaware), the Company will
change its fiscal year from March 31 to December 31 to match that of Sona. This
change will be reflected either in the Company's Current Report on Form 8-K in
which the audited financial statements of Sona are filed or in the Company's
Quarterly Report on Form 10-QSB for the quarter ending March 31, 2005 if the
Effective Time is on or before March 31, 2005. There is no transitional period
to be reported.
Section 9- Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Number Description of Exhibit
3(i)(1) Certificate of Incorporation of the Company.(1)
3(i)(2) Proposed Certificate of Designations, Preferences and Rights of
Series A Preferred Stock.(2)
10.1 Agreement and Plan of Merger dated as of March 7, 2005 by and
among the Company, Merger Sub and Sona.(2)
10.2 Press Release dated March 10, 2005. (2)
________________________
(1) Filed by incorporation by reference to the Company's definitive
Consent Solicitation Statement dated October 26, 2004 as filed on
November 1, 2004.
(2) Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PERFECTDATA CORPORATION
(Registrant)
Date: March 10, 2005 By: /s/ Irene J. Marino
Irene J. Marino
Vice President, Finance
E-3
E-1
Number Exhibits Filed with Report Page
3(i)(2) Proposed Certificate of Designations, Preferences E-2
and Rights of Series A Preferred Stock
10.1 Agreement and Plan of Merger dated as of March 7, E-14
2005 by and among the Company, Merger Sub and Sona.
10.2 Press Release dated March 10, 2005 E-26
Exhibit E
to Merger Agreement
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
PERFECTDATA CORPORATION
(Pursuant to Section 151 of the Delaware
General Corporation Law)
PerfectData Corporation, a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that, on February
28, 2005, the Board of Directors of the Corporation (the "Board of Directors" or
the "Board") pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law, and in accordance with the
provisions of its Certificate of Incorporation and Bylaws, each as amended and
restated through the date hereof, has authorized, and hereby authorizes, a
series of the Corporation's previously authorized Preferred Stock, $.01 par
value per share (the "Preferred Stock"), and hereby states the designation and
number of shares, and fixes the relative, participating, optional or other
special rights, preferences, privileges, powers and qualifications, limitations
or restrictions thereof as follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of _______ shares of Preferred
Stock, is the Series A Convertible Preferred Stock (the "Series A Preferred
Stock").
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designations, the following terms shall have
the following meanings:
A. "Affiliate" has the meaning ascribed to such term in Rule 405 promulgated
under the Securities Act of 1933, as amended.
B. "Business Day" means any day other than Saturday, Sunday or any day on
which national banks are authorized to be closed in the City of New York,
New York.
C. "Common Stock" shall mean the Corporation's Common Stock, $.01 par value
per share.
D. 'Conversion Date' means, for (i) any Optional Conversion (as defined in
Article IV, Section A hereof), the date specified in the notice of
conversion in the form attached hereto (the "Notice of Conversion'), so
long as a copy of the Notice of Conversion is faxed (or delivered by other
means resulting in notice) to the Corporation before 5:00 p.m., New York
City time, on the Conversion Date indicated in the Notice of Conversion;
provided, however, that, if the Notice of Conversion is not so faxed or
otherwise delivered before such time, then the Conversion Date shall be the
date the holder faxes or otherwise delivers the Notice of Conversion to the
Corporation and, if the Notice of Conversion is faxed or otherwise
delivered after 5:00 p.m., New York City time, on the Conversion Date
indicated in the Notice of Conversion, the Conversion Date shall be the
next Business Day, and (ii) for any Mandatory Conversion Event (as defined
in Article IV, Section C hereof) that date specified in the notice
delivered to the holders of the Series A Preferred Stock being converted
pursuant to Article IV.C in the event that such Mandatory Conversion Event
occurs.
E. "Conversion Price" means initially $____________ per share and shall be
subject to adjustment as provided in Article VIII hereof.
F. "Corporate Change" has the meaning ascribed to such term in Article VIII,
Section B hereof.
G. "Delivery Period" has the meaning ascribed to such term in Article IV,
Section B(i) hereof.
H. "DGCL" has the meaning ascribed to such term in Article IX, Section A
hereof.
I. "Distribution" has the meaning ascribed to such term in Article VIII,
Section C hereof.
J. "Dividend Date" has the meaning ascribed to such term in Article III,
Section A hereof.
K. "Issuance Date" means, with respect to each share of the Series A Preferred
Stock, the Closing Date (as defined) under the Merger Agreement dated as of
March 7, 2005 by and among the Corporation, its wholly-owned subsidiary
PerfectData Acquisition Corporation and Sona Mobile (the "Merger
Agreement") pursuant to which such share of the Series A Preferred Stock
will be issued.
L. "Junior Securities" has the meaning ascribed to such term in Article VI
hereof.
M. "Liquidation Event" has the meaning ascribed to such term in Article VII,
Section A hereof.
N. "Liquidation Preference" has the meaning ascribed to such term in Article
VII, Section B hereof.
O. "Majority Holders" means the holders of more than fifty (50%) percent of
the then outstanding shares of the Series A Preferred Stock.
P. "Mandatory Conversion Event" has the meaning ascribed to such term in
Article IV, Section C of this Certificate of Designations.
Q. "Market Price" means, for any security (including, without limitation, the
Common Stock) as of any date, the Closing Price of such security on the
principal Trading Market on which such security is included for trading;
provided, that, if there is no trading in the security on a particular
Trading Day on the relevant principal Trading Market, the Market Price for
that day shall be the Market Price on the last preceding Trading Day on
which there was trading in the security on the principal Trading Marking.
"Closing Price" means on any particular date (i) the last reported closing
price per share of the security on such date on the Trading Market (as
reported by Bloomberg L.P. or any similar organization or agency succeeding
to its functions of reporting prices ("Bloomberg") at 4:15 p.m. (New York
time) as the last reported closing price for regular session trading on
such day) or (ii) if there is no such price on such date, then the closing
price on the Trading Market on the date nearest preceding such date (as
reported by Bloomberg at 4:15 p.m. (New York time) as the closing price for
regular session trading on such day), or (iii) if the security is not then
listed or quoted on the Trading Market and if prices for the security are
then reported in the "pink sheets" published by the Pink Sheets LLC (or a
similar organization or agency succeeding to its functions of reporting
prices ("Pink Sheets")), the most recent price per share of the security as
reported, or (iv) if the shares of the security are not then publicly
traded, the fair market value of a share of the security as determined in
good faith by the Board of Directors of the Company. "Trading Day" means
(i) a day on which the security is traded on a Trading Market, or (ii) if
the security is not quoted on a Trading Market, a day on which the security
is quoted in the over-the-counter market as reported by the Pink Sheets;
provided, that in the event that the security is not listed or quoted as
set forth in (i), and (ii) hereof, then Trading Day shall mean a Business
Day. "Trading Market" means the following markets or exchanges on which the
security is listed or quoted for trading on the date in question: the OTC
Bulletin Board, the American Stock Exchange, the New York Stock Exchange,
the Nasdaq National Market or the Nasdaq SmallCap Market.
R. "Optional Conversion" has the meaning ascribed to that term in Article IV,
Section A of this Certificate of Designation.
S. "Pari Passu Securities' has the meaning ascribed to such term in Article VI
hereof.
T. "Preferred Stock Certificates" has the meaning ascribed to such term in
Article IV, Section B hereof.
U. "Reserved Amount" has the meaning ascribed to such term in Article V
hereof.
V. "Stated Value" means $_____ per share of the Series A Preferred Stock.
III. PAYMENT OF DIVIDENDS
A. Payment. If and when declared by the Board of Directors of the Corporation,
in its sole discretion, a cash dividend shall be payable on a non-cumulative
basis out of funds legally available therefor, at the rate of six percent (6%)
per annum, as to each outstanding share of the Series A Preferred Stock on every
successive September 30, December 31, March 31 and June 30 (a "Dividend Date"),
unless any such Dividend Date is a non-Business Day, in which event the dividend
shall be payable on the next Business Day. Dividends for any period that is less
than three (3) calendar months shall be pro-rated based on a 365-day-year. The
Corporation shall not declare or pay any dividend for any quarterly period
unless the Corporation has sufficient funds legally available for such purchase.
B. Record Date. When and if the Board of Directors declares a quarterly
dividend, the dividend shall be payable to the holders of record of the Series A
Preferred Stock on the 15th day of the month (if a Business Day; if not, on the
next Business Day) immediately preceding the respective Dividend Date or on such
other record date as shall be fixed by the Board of Directors, provided that
such record date shall not be more than 60 or less than ten days prior to the
dividend payment date.
IV. CONVERSION
A. Optional Conversions. Each holder of shares of the Series A Preferred Stock
may, at any time and from time to time, convert (an "Optional Conversion") each
of his, her or its shares of the Series A Preferred Stock into a number of fully
paid and nonassessable shares of the Common Stock determined in accordance with
the following formula:
Stated Value
Conversion Price
In addition, the holder shall receive with his, her or its shares of the Common
Stock accrued, but unpaid,dividends, if any, on the holder's shares of the
Series A Preferred Stock through the Conversion Date.
B. Mechanics of Conversion. In order to effect an Optional Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation (Attention: its Secretary) and (y) surrender or
cause to be surrendered the original certificates representing the shares of the
Series A Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter to the Corporation or its agency for such purpose,
including the Transfer Agent for the Common Stock, as the Corporation may
designate to the holders of the Series A Preferred Stock. Upon receipt by the
Corporation or its agency of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall promptly send, via facsimile, a confirmation to
such holder stating that the Notice of Conversion has been received, the date
upon which the Corporation expects to deliver the shares of the Common Stock
issuable upon such conversion and the name and telephone number of a contact
person at the Corporation regarding the conversion. The Corporation shall not be
obligated to issue shares of the Common Stock upon a
conversion unless either the Preferred Stock Certificates are delivered to the
Corporation as provided above, or the holder notifies the Corporation that such
Preferred Stock Certificates have been lost, stolen or destroyed and delivers
the documentation to the Corporation required by Article XI.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of the
Preferred Stock Certificates accompanied by a Notice of Conversion, the
Corporation (itself, or through its Transfer Agent for the Common Stock) shall,
no later than the later of (a) the third (3rd) Business Day following the
Conversion Date and (b) the Business Day following the date of such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
indemnity pursuant to Article XI.B) (the "Delivery Period"), issue and deliver
(i.e., deposit with a nationally recognized overnight courier service postage
prepaid) to the holder or its nominee (x) that number of shares of the Common
Stock issuable upon conversion of such shares of the Series A Preferred Stock
being converted and (y) a certificate representing the number of shares of the
Series A Preferred Stock not being converted, if any. Notwithstanding the
foregoing, in no event shall the Company be required to effect a conversion of
shares of the Series A Preferred Stock into less than 1,000 shares of the Common
Stock, unless such conversion would result in the conversion of all shares of
the Series A Preferred Stock then held by such holder.
(ii) Taxes. The Corporation shall pay any and all taxes that may be imposed
upon it with respect to the issuance and delivery of the shares of the Common
Stock upon the conversion of shares of the Series A Preferred Stock, provided
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
shares of the Common Stock in a name other than the holder of the Series A
Preferred Stock.
(iii) No Fractional Shares. No fractional share of the Common Stock shall
be issued upon conversion of shares of the Series A Preferred Stock. If, as a
result of a holder converting all of the holder's shares of the Series A
Preferred Stock, a fractional share would otherwise result, such fractional
share shall instead be rounded up or down to the nearest whole share. If, as a
result of a holder converting only part of the holder's shares of the Series A
Preferred Stock, a fractional share would otherwise result, such fractional
share shall be disregarded and the holder shall receive the lower number of full
shares; provided, however, that such fractional share shall be taken into
consideration when the holder converts the holder's remaining shares of the
Series A Preferred Stock.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of the
Common Stock as are not disputed in accordance with subsection (i) above. If
such dispute involves the calculation of the Conversion Price, and such dispute
is not promptly resolved by discussion between the relevant holder and the
Corporation, the Corporation shall submit the disputed calculations to an
independent accounting firm (which firm may be the independent registered public
accounting firm for the Corporation) via facsimile within three (3) Business
Days of receipt of the Notice of Conversion. The accounting firm shall promptly
audit the calculations and notify the Corporation and the holder of the results
no later than three (3) Business Days from the date it receives the disputed
calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of the Common Stock in accordance with subsection
(i) above. The fees of the accounting firm shall be borne (i) by the Corporation
if the holder's calculation of the Conversion Price is closer to the accounting
firm's calculation of the Conversion Price and (ii) by the holder if the reverse
is true.
C. Mandatory Conversion. A Mandatory Conversion Event shall occur either (i) on
the date on which the stockholders of the Corporation, in accordance with
Section 5.11 of the Merger Agreement, authorize an increase in the number of
authorized shares of the Common Stock in an amount sufficient at least to permit
(a) the conversion of all shares of the Series A Preferred Stock and (b) the
issuance of the Additional Shares (as such term is defined in Section 2.6 of the
Merger Agreement) or (ii) on the fifth (5th) anniversary of the Issuance Date.
(i) Notice to Holders. In the event that the Mandatory Conversion Event has
occurred, the Corporation shall, not later than five (5) Business Days after the
occurrence thereof, mail a notice to each of the then holders of the Series A
Preferred Stock describing the Mandatory Conversion Event and requesting that
the holder surrender the certificate or certificates evidencing the shares at
its then principal office or at its agency designated for such purpose (which
may be the Transfer Agent for the Common Stock).
(ii) Delivery of Common Stock. As promptly after surrender of the
certificate or certificates evidencing shares of the Series A Preferred Stock,
the Corporation shall issue and deliver to a holder or, on his, her or its
written order, a permitted transferee a certificate or certificates for the
number of full shares of the Common Stock issuable upon an Optional Conversion
and an adjustment, as provided in Article IV, Section B(iii) hereof in respect
of any fractional interest otherwise issuable upon such conversion.
(iii) Dividends. Notwithstanding anything to the contrary in this Article
IV, Section C, the Corporation shall pay in cash accrued but unpaid dividends,
if any, said payment to be made simultaneously with the delivery of shares of
the Common Stock as provided in subsection (ii) of this Article IV, Section C.
(iv) Effect of Mandatory Conversion Event. Effective upon the occurrence of
a Mandatory Conversion Event, all rights of a holder of the Series A Preferred
Stock as a holder of the Series A Preferred Stock shall cease and terminate
except the right to receive shares of the Common Stock as provided in subsection
(ii) of this Article IV, Section C and to receive accrued, but unpaid,
dividends, as provided in subsection (iii) of this Article IV, Section C and
thereafter the holder shall be deemed to be a holder of the Common Stock for the
number of shares as to which the holder's shares of the Series A Preferred Stock
are convertible pursuant to this Article IV.
V. RESERVATION OF SHARES OF COMMON STOCK
As promptly as practicable following the Issuance Date the Corporation shall use
its best efforts to obtain stockholder approval of an increase in its authorized
but unissued shares of Common Stock in accordance with Section 5.11 of the
Merger Agreement and, upon such approval, shall
reserve 110% of the number of shares of its authorized but unissued shares of
Common Stock for issuance upon conversion of the Series A Preferred Stock.
Thereafter, the number of authorized but unissued shares of Common Stock so
reserved (the "Reserved Amount") shall at all times be sufficient to provide for
the conversion of all of the Series A Preferred Stock outstanding at the then
current Conversion Price thereof.
VI. RANK
All shares of the Series A Preferred Stock shall rank (i) prior to (a) the
Common Stock and (b) any class or series of capital stock of the Corporation
hereafter created (unless, with the consent of the Majority Holders, such class
or series of capital stock specifically, by its terms, ranks senior to, or pari
passu with, the Series A Preferred Stock) (collectively with the Common Stock,
"Junior Securities"); (ii) pari passu with any other class or series of capital
stock of the Corporation hereafter created (with the written consent of the
Majority Holders) specifically ranking, by its terms, on parity with the Series
A Preferred Stock (the "Pari Passu Securities"); and (iii) junior to any class
or series of capital stock of the Corporation hereafter created (with the
written consent of the Majority Holders obtained in accordance with Article X
hereof) specifically ranking, by its terms, senior to the Series A Preferred
Stock (collectively, the "Senior Securities"), in each case as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
VII. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S. Federal
bankruptcy laws or any other applicable bankruptcy, insolvency or similar law,
or consent to the entry of an order for relief in an involuntary case under any
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 90 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up (a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than the preferences and privileges
thereof, if any) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of the Series A Preferred Stock shall have
received the Liquidation Preference with respect to each share. If, upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock and holders of
the Pari Passu Securities, if any, shall be insufficient to permit the payment
to such holders of the preferential amounts payable thereon, then the entire
assets and funds of the Corporation legally available for distribution to the
Series A Preferred Stock and the Pari Passu Securities, if any, shall be
distributed ratably among such shares in proportion to the ratio
that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares. A Corporate Change
shall not be deemed a Liquidation Event provided that compliance is made with
Article VIII, Section B hereof. The proposed transaction between the Corporation
and Sona Mobile, Inc., a Washington corporation, shall not be deemed a
Liquidation Event or a Corporate Change.
B. The "Liquidation Preference" with respect to a share of the Series A
Preferred Stock means an amount equal to the dividend of (i) $3,250,000 less the
product of (a) the Stated Value of any shares of the Series A Preferred Stock
previously converted and (b) the number of shares of the Series A Preferred
Stock so converted divided by (ii) the number of shares of the Series A
Preferred Stock then outstanding.
VIII. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the Issuance
Date, the number of outstanding shares of the Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced and the number of
shares of the Common Stock issuable upon conversion shall be proportionately
increased, or if the number of outstanding shares of the Common Stock is
decreased by a reverse stock split, combination or reclassification of shares,
or other similar event, the Conversion Price shall be proportionately increased
and the number of shares of the Common Stock issuable upon conversion shall be
proportionately decreased. In such event, the Corporation shall notify the
Corporation's Transfer Agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of the Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Corporate Change"), then the holders of the Series A
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of the Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to, or in exchange for the number of shares of the
Common Stock which would have been issuable upon conversion had such Corporate
Change not taken place, and, in any such case, appropriate provisions (in form
and substance reasonably satisfactory to the Majority Holders) shall be made
with respect to the rights and interests of the holders of the Series A
Preferred Stock to the end that the economic value of the shares of the Series A
Preferred Stock is in no way diminished by such Corporate Change and that the
provisions hereof, including, without limitation, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is not the Corporation, an immediate adjustment shall be made to the Conversion
Price so that
the Conversion Price immediately after the Corporate Change reflects the same
relative value as compared to the value of the surviving entity's common stock
that existed between the Conversion Price and the value of the Corporation's
Common Stock immediately prior to such Corporate Change. The Corporation shall
not effect any Corporate Change unless the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument (in form and
substance reasonable satisfactory to the Majority Holders) the obligations of
this Certificate of Designations. The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of the Common
Stock authorized and available for issuance upon conversion of the shares of the
Series A Preferred Stock outstanding as of the date of such transaction, and
shall similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.
C. Adjustment Due to Distribution. If, at any time after the Issuance Date, the
Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of the Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's stockholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a
"Distribution"), then the holders of the Series A Preferred Stock shall be
entitled, upon any conversion of shares of the Series A Preferred Stock after
the date of record for determining stockholders entitled to such Distribution,
to receive the amount of such assets which would have been payable to the holder
with respect to the shares of the Common Stock issuable upon such conversion had
such holder been the holder of such shares of the Common Stock on the record
date for the determination of stockholders entitled to such Distribution. If the
Distribution involves rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with its terms prior to the conversion of the Series A Preferred
Stock, then the terms of such securities shall provide that such exercise or
convertibility right shall remain in effect until 30 days after the date the
holder of the Series A Preferred Stock receives such securities pursuant to the
conversion hereof.
D. Other Action Affecting Conversion Price. If the Corporation takes any action
affecting the Common Stock after the date hereof that would be covered by
Article VIII, Sections A through C, but for the manner in which such action is
taken or structured, which would in any way diminish the value of the Series A
Preferred Stock, then the Conversion Price shall be adjusted in such manner as
the Board of Directors of the Corporation shall in good faith determine to be
equitable under the circumstances.
IX. VOTING RIGHTS
A. General. Except as otherwise expressly provided elsewhere in this Certificate
of Designations or as otherwise required by the Delaware General Corporation Law
(the "DGCL"), (i) each holder of the Series A Preferred Stock shall be entitled
to vote on all matters submitted to a vote of the stockholders of the
Corporation and shall be entitled to that number of votes equal to the largest
number of whole shares of the Common Stock into which such holder's shares of
Series A Preferred Stock could be converted pursuant to the provisions of
Article IV hereof at the record date for the determination of stockholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of
stockholders is solicited, and (ii) except as otherwise provided herein, the
holders of shares of the Series A Preferred Stock and the Common Stock shall
vote together (or tender written consents in lieu of a vote) as a single class
on all matters submitted for a vote or consent to the stockholders of the
Corporation.
B. Notification. The Corporation shall provide each holder of Series A Preferred
Stock with prior notification of any meeting of the stockholders (and copies of
proxy materials and other information sent to holders of the Common Stock) and a
brief statement regarding the business to be transacted at the meeting to the
extent known at such time, at least 20 days prior to the date of the meeting or
other formal action of shareholders (or 20 days prior to the consummation of the
transaction or event if a transaction or fundamental corporate event is to be
voted upon, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction). Mailing of the proxy or consent
solicitation material to the holders of the Series A Preferred Stock
simultaneously with the mailing of such material to the holders of the Common
Stock shall be deemed in complete satisfaction of the Corporation's notification
obligation hereunder.
C. Class Voting. To the extent that under the DGCL the vote of the holders of
the Series A Preferred Stock, voting separately as a class or series, as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the Majority Holders (except as otherwise may be
required under the DGCL) shall constitute the approval of such action by the
class.
X. PROTECTION PROVISIONS
So long as any shares of the Series A Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the Majority Holders:
(i) alter or change the rights, preferences or privileges of the Series A
Preferred Stock, whether through merger, sale, consolidation or otherwise;
(ii) alter or change the rights, preferences or privileges of any capital
stock of the Corporation so as to affect adversely the Series A Preferred Stock,
whether through merger, sale, consolidation or otherwise;
(iii) create any Senior Securities;
(iv) create any Pari Passu Securities;
(v) increase or decrease the authorized number of shares of the Series A
Preferred Stock;
(vi) issue any shares of Senior Securities or Pari Passu Securities;
(vii) redeem or repurchase, or declare or pay any cash dividend,
distribution or interest on, any Junior Securities or other outstanding
securities of the Company, except pursuant
to this Certificate of Designations or for repurchases pursuant to an equity
incentive plan approved by the Corporation's Board of Directors in good faith;
(viii) permit any subsidiary now or hereinafter existing to issue any
securities, other than to the Corporation; or
(ix) amend the Corporation's Certificate of Incorporation or Bylaws.
Furthermore, notwithstanding the foregoing, no change pursuant to this Article X
shall be effective to the extent that, by its terms, it applies to less than all
of the holders of shares of Series A Preferred Stock then outstanding.
XI. MISCELLANEOUS
A. Cancellation of the Series A Preferred Stock. If any shares of the Series A
Preferred Stock are converted pursuant to Article IV hereof, the shares so
converted shall be canceled, shall return to the status of authorized, but
unissued shares of the Preferred Stock of no designated series, and shall not be
issuable by the Corporation as shares of the Series A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series A Preferred Stock or in the event of a Mandatory Conversion
Event.
C. Status as Stockholder. Upon submission of a Notice of Conversion by a holder
of the Series A Preferred Stock, (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would exceed such
holder's allocated portion of the Reserved Amount) shall be deemed converted
into shares of the Common Stock and (ii) the holder's rights as a holder of such
converted shares of the Series A Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of the Common
Stock and to any remedies provided herein or otherwise available at law or in
equity to such holder because of a failure by the Corporation to comply with the
terms of this Certificate of Designations. Notwithstanding the foregoing, if a
holder has not received certificates for all shares of the Common Stock prior to
the sixth (6th) Business Day after the expiration of the Delivery Period with
respect to a conversion of the Series A Preferred Stock for any reason, then
(unless the holder otherwise elects to retain its status as a holder of the
Common Stock by so notifying the Corporation within five (5) Business Days after
the expiration of such six (6)-Business-Day period after expiration of the
Delivery Period) the holder shall regain the rights of a holder of the Series A
Preferred Stock with respect to such unconverted shares
of the Series A Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies for the Corporation's failure
to convert shares of the Series A Preferred Stock.
D. Transfer. Subject to applicable law and the legend, if any, on the
certificate(s) to be transferred, the Series A Preferred Stock may be
transferred at any time and from time to time by the holder thereof.
E. Remedies Cumulative. The remedies provided in this Certificate of
Designations shall be cumulative and in addition to all other remedies available
under this Certificate of Designations, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designations. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of the Series A Preferred Stock and that
the remedy at law for any such breach may be inadequate. The Corporation
therefore agrees, in the event of any such breach or threatened breach, that the
holders of the Series A Preferred Stock shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation this _____ day of ___________, 2005.
PERFECTDATA CORPORATION
By: /s/ Harris A. Shapiro
Name: Harris Shapiro
Title: Chairman of the Board & Chief Executive Officer
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series A Preferred Stock (the "Conversion"), represented by stock certificate
No(s). ___________(the "Preferred Stock Certificates"), into shares of common
stock (the "Common Stock") of PerfectData Corporation according to the
conditions of the Certificate of Designations, Preferences and Rights of the
Series A Convertible Preferred Stock, as of the date written below. If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the holder for any conversion, except for transfer taxes, if
any. Each Preferred Stock Certificate is attached hereto (or evidence of loss,
theft or destruction thereof).
The undersigned acknowledges and agrees that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock have been or will be made only pursuant to an effective
registration of the transfer of the Common Stock under the Securities Act of
1933, as amended (the "Act"), or pursuant to an exemption from registration
under the Act.
Date of Conversion:
Applicable Conversion Price:
Signature:
Name:
Address:
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 7, 2005
BY AND AMONG
PERFECTDATA CORPORATION
PERFECTDATA ACQUISITION CORPORATION
AND
SONA MOBILE, INC.
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...............................................................................1
1.1 The Merger....................................................................................1
1.2 The Closing; Effective Time...................................................................2
ARTICLE II CONVERSION OF SHARES.....................................................................3
2.1 Conversion of Shares..........................................................................3
2.2 Exchange of Certificates......................................................................6
2.3 Stock Transfer................................................................................8
2.4 Lost, Stolen or Destroyed Certificates........................................................8
2.5 Tax Consequences..............................................................................9
2.6 Additional Shares of PerfectData Common Stock.................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PERFECTDATA and MERGER SUB............................10
3.1 Organization.................................................................................10
3.2 Subsidiaries.................................................................................10
3.3 Good Standing................................................................................10
3.4 Validity.....................................................................................10
3.5 No Conflict..................................................................................11
3.6 Capitalization...............................................................................11
3.7 Obligations with Respect to Capital Stock....................................................12
3.8 Financial Statements.........................................................................12
3.9 No Undisclosed Liabilities...................................................................12
3.10 Absence of Certain Changes or Events Since December 31, 2004.................................12
3.11 SEC Filings..................................................................................14
3.12 Contracts and Commitments....................................................................14
3.13 Title to Property............................................................................15
3.14 Environmental................................................................................15
3.15 Bank and Other Accounts......................................................................16
3.16 Guarantees...................................................................................16
3.17 Insurance....................................................................................16
3.18 Tax Matters..................................................................................17
3.19 Employee Benefits............................................................................18
3.20 Certain Advances.............................................................................20
3.21 Licenses and Permits.........................................................................20
3.22 Proprietary Rights...........................................................................20
3.23 Labor and Employment Matters.................................................................21
3.24 Compliance with Law..........................................................................21
3.25 Litigation...................................................................................21
3.26 Board Recommendation.........................................................................22
3.27 Underlying Documents.........................................................................22
3.28 Brokers or Finders...........................................................................22
3.29 Foreign Corrupt Practices Act................................................................22
3.30 Disclosure of Material Facts.................................................................22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SONA..................................................23
4.1 Organization.................................................................................23
4.2 Subsidiaries.................................................................................23
4.3 Good Standing................................................................................23
4.4 Validity.....................................................................................23
4.5 No Conflict..................................................................................24
4.6 Capitalization...............................................................................24
4.7 Obligations with Respect to Capital Stock....................................................24
4.8 Financial Statements.........................................................................24
4.9 No Undisclosed Liabilities...................................................................25
4.10 Absence of Certain Changes Events Since December 31, 2004....................................25
4.11 Contracts and Commitments....................................................................26
4.12 Title to Property............................................................................27
4.13 Environmental................................................................................27
4.14 Bank Accounts................................................................................28
4.15 Guarantees...................................................................................28
4.16 Insurance....................................................................................28
4.17 Tax Matters..................................................................................28
4.18 Employee Benefits............................................................................30
4.19 Certain Advances.............................................................................31
4.20 Licenses and Permits.........................................................................31
4.21 Proprietary Rights...........................................................................32
4.22 Labor and Employment.........................................................................32
4.23 Compliance with Law..........................................................................32
4.24 Litigation...................................................................................32
4.25 Board Recommendation.........................................................................33
4.26 Underlying Documents.........................................................................33
4.27 Brokers or Finders...........................................................................33
4.28 Foreign Corrupt Practices Act................................................................33
4.29 Disclosure of Material Facts.................................................................34
ARTICLE V COVENANTS...............................................................................34
5.1 Conduct of Business Prior to Closing.........................................................34
5.2 Stockholder Approval.........................................................................37
5.3 Updating of the Disclosure Schedules.........................................................38
5.4 Access to Information........................................................................38
5.5 Fulfillment of Conditions and Covenants......................................................39
5.6 Public Announcements.........................................................................39
5.7 Consents.....................................................................................39
5.8 Certain Notifications........................................................................39
5.9 No Solicitation..............................................................................39
5.10 SEC Filings..................................................................................41
5.11 PerfectData Stockholders' Meeting............................................................42
5.12 PerfectData Directors........................................................................42
5.13 Sona Salary Payments.........................................................................42
ARTICLE VI CONDITIONS To OBLIGATIONS OF SONA.......................................................43
6.1 Performance..................................................................................43
6.2 Representations and Warranties...............................................................43
6.3 Material Adverse Change......................................................................43
6.4 Stockholder Approval.........................................................................43
6.5 Legal Opinion................................................................................43
6.6 Other Consents...............................................................................43
6.7 Resignations.................................................................................43
6.8 Compliance with Financial Conditions.........................................................44
6.9 PerfectData Employees........................................................................44
6.10 Stock Purchase Agreement.....................................................................44
6.11 Consulting Agreement.........................................................................44
6.12 Shapiro Employment Agreement.................................................................44
6.13 Schlossman Claims............................................................................44
6.14 Perfect Data 1999 Authoriation...............................................................45
6.15 Stock Trading................................................................................45
6.16 No Litigation................................................................................45
6.17 Closing Certificates.........................................................................45
ARTICLE VII CONDITIONS TO OBLIGATION OF PERFECTDATA AND MERGER SUB..................................45
7.1 Performance..................................................................................45
7.2 Representations and Warranties...............................................................45
7.3 Legal Opinion................................................................................45
7.4 Shareholder Approval.........................................................................45
7.5 Other Consents...............................................................................46
7.6 Sona Financial Statements....................................................................46
7.7 No Litigation................................................................................46
7.8 Compliance with Financial Condition..........................................................46
7.9 Closing Certificates.........................................................................46
ARTICLE VIII termination AND REMEDIES................................................................47
8.1 Termination..................................................................................47
8.2 Effect of Termination........................................................................47
8.3 Termination Reimbursement Payment - PerfectData..............................................48
8.4 Termination Reimbursement Payment - Sona.....................................................48
8.5 Sona's Remedy................................................................................48
8.6 PerfectData's Remedy.........................................................................48
ARTICLE ix OTHER PROVISIONS........................................................................49
9.1 Notices......................................................................................49
9.2 Entire Agreement.............................................................................50
9.3 Amendment or Modification Agreement; Waiver..................................................50
9.4 Confidentiality; Non-Disclosure..............................................................50
9.5 Investigations...............................................................................51
9.6 Survival of Representations and Warranties...................................................51
9.7 Fees and Expenses............................................................................51
9.8 Cooperation; Further Actions and Assurances..................................................51
9.9 Governing Law................................................................................51
9.10 Assignment; Third Party Beneficiaries........................................................51
9.11 Counterparts.................................................................................51
9.12 Interpretation...............................................................................51
9.13 Knowledge....................................................................................51
9.14 Rules of Construction........................................................................51
9.15 Definition of Business Day...................................................................52
Exhibits to Agreement and Plan of Merger
Exhibit Description
A Directors and Officers of PerfectData and Merger Sub Post Closing
B Merger Sub's Certificate of Incorporation
C Merger Sub's Bylaws
D PerfectData's Certificate of Incorporation
E PerfectData's Certificate of Designations Relating to PerfectData Series A Preferred Stock
F PerfectData's Bylaws
G PerfectData's Legal Counsel Opinion
H Sona's Legal Counsel Opinion
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of March
7, 2005 and is by and among PerfectData Corporation, a Delaware corporation
("PerfectData"), PerfectData Acquisition Corporation, a Delaware corporation and
wholly- owned subsidiary of PerfectData ("Merger Sub"), and Sona Mobile, Inc., a
Washington corporation ("Sona").
RECITALS
WHEREAS, the respective Boards of Directors of PerfectData, Merger Sub and
Sona have approved this Agreement and have approved and declared advisable the
merger transaction pursuant to which Sona will be merged with and into Merger
Sub on the terms and conditions contained herein (the "Merger") and in
accordance with applicable law and have determined that the Merger is fair to,
and in the best interest of, their respective stockholders;
WHEREAS, pursuant to the Merger, among other things, the outstanding shares
of the common stock, no par value, of Sona (the "Sona Common Stock") and the
Series A Redeemable Convertible Preferred Stock, no par value, of Sona (the
"Sona Series A Preferred Stock") shall be converted into the right to receive
shares of the Series A Voting Convertible Preferred Stock, $.01 par value, of
PerfectData (the "PerfectData Series A Preferred Stock") at the rate set forth
herein;
WHEREAS, PerfectData, as the sole stockholder of Merger Sub, has agreed to
approve and adopt this Agreement and approve the Merger on behalf of Merger Sub;
WHEREAS, for United States federal income tax purposes, the parties intend
that the Merger qualify as a reorganization within the meaning of Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, each of the parties hereto desires to make certain
representations, warranties, covenants and agreements in connection with the
Merger and to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties to this Agreement agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2(b) hereof) and
in accordance with the applicable terms of state law, (a) Sona will be merged
with and into Merger Sub, whereupon the separate existence of Sona shall cease
and Merger Sub shall be the surviving corporation in the Merger (the "Surviving
Corporation").
Section 1.2. The Closing; Effective Time.
(a) The closing of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of
PerfectData's counsel, Wachtel & Masyr, LLP, in New York, New York, on such date
as may be mutually agreed upon in writing by PerfectData and Sona. The date on
which the Closing actually occurs shall be the "Closing Date."
(b) At the Closing, the parties shall cause appropriate certificates
of merger with respect to the Merger to be executed and filed with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
Washington, each in accordance with applicable state law. In connection
therewith, the Surviving Corporation shall change its name to "Sona Mobile,
Inc." and, after PerfectData stockholder approval therefor, PerfectData shall
change its name to "Sona Mobile Holdings, Inc." or such other name as may be
recommended by the Board of Directors of PerfectData. The Merger shall become
effective immediately following the time when the certificate of merger for the
Merger has been duly filed with, and accepted by, the Secretary of State of
Delaware, or such later time as may be specified in such certificate of merger
(the "Effective Time").
(c) At the Closing, four of the five directors and each of the
executive officers of PerfectData and each of the directors and officers of
Merger Sub shall resign (except for such officers as Sona may reasonably request
to continue in service to facilitate the Closing and the transition of new
management) and the directors and executive officers of the Surviving
Corporation shall be those persons identified on Exhibit A hereto and the
directors and executive officers of PerfectData shall be those persons
designated by Sona (except for the PerfectData director remaining in office) and
identified in Exhibit A.
(d) At the Effective Time, the Certificate of Incorporation of the
Surviving Corporation (the "Surviving Corporation Charter") shall be in the form
attached hereto as Exhibit B, and shall continue in force and effect until
amended in accordance with its terms and applicable law.
(e) At the Effective Time, the Bylaws of the Surviving Corporation
(the "Surviving Corporation Bylaws") shall be in the form attached hereto as
Exhibit C, and shall continue in force and effect until amended in accordance
with its terms, the terms of the Surviving Corporation Charter and applicable
law.
(f) At the Effective Time, the Certificate of Incorporation of
PerfectData (the "PerfectData Charter") shall be in the form attached hereto as
Exhibit D, as amended by the Certificate of Designations to be filed by
PerfectData on or prior to the Closing Date designating shares of the
PerfectData Preferred Stock, $.01 par value (the "PerfectData Preferred Stock"),
as the PerfectData Series A Preferred Stock in the form of Exhibit E hereto (the
"Certificate of Designations"), and shall continue in force and effect until
further amended in accordance with its terms and applicable law.
(g) At the Effective Time, the Bylaws of PerfectData (the "PerfectData
Bylaws") shall be in the form attached hereto as Exhibit F, and shall continue
in full force until amended in accordance with their terms, the terms of the
PerfectData Charter and applicable law.
(h) The 2000 Stock Option Plan of PerfectData (the "PerfectData Option
Plan") shall continue in effect.
(i) At the Effective Time, the fiscal year of each of PerfectData and
Merger Sub shall change from March 31 to December 31.
ARTICLE II
CONVERSION OF SHARES
Section 2.1. Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any outstanding
shares of capital stock or other securities of Merger Sub, PerfectData or Sona:
(a) Each share of the common stock, $.001 par value, of Merger Sub
(the "Merger Sub Common Stock") issued and outstanding at the Effective Time
shall continue to be outstanding, with the same rights and privileges, and such
shares shall constitute the only outstanding shares of capital stock of the
Surviving Corporation.
(b) Each share of the Sona Common Stock, and each share of the Sona
Series A Preferred Stock, issued and outstanding at the Effective Time shall
cease to be outstanding and shall be converted into that number of fully paid
and nonassessable shares of the PerfectData Series A Preferred Stock so as to
give effect to the intent of the parties expressed in Sections 2.1(f) and 2.1(g)
hereof. As of the Effective Time, each holder of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
the Sona Common Stock or the Sona Series A Preferred Stock shall cease to have
any rights with respect thereto, except the right to receive a certificate or
certificates representing the number of whole shares of the PerfectData Series A
Preferred Stock into which such shares have been converted. Each authorized
share of the Sona Preferred Stock, no par value (the "Sona Preferred Stock"),
that has not been designated as a share of the Sona Series A Preferred Stock
shall cease to be authorized.
(c) Each previously granted or issued option, warrant or other right
to acquire shares of the Sona Common Stock, if any, other than the Sona Series A
Preferred Stock, shall cease to be outstanding and shall be converted into an
option (a "PerfectData Option") to acquire that number of fully paid and
nonassessable shares of the PerfectData Common Stock so as to give effect to the
intent of the parties expressed in Sections 2.1(f) and (g) hereof. As of the
Effective Time, each holder claiming an option, warrant or other right to
acquire shares of Sona Common Stock, other than the Sona Series A Preferred
Stock, shall cease to have any rights with respect thereto, except the right to
receive a PerfectData Option representing the number of whole shares of the
PerfectData Common Stock which such option represents in accordance with the
preceding sentence.
(d) Each share of the common stock, $.01 par value, of PerfectData
(the "PerfectData Common Stock") issued and outstanding at the Effective Time
shall continue to be outstanding, with the same rights and privileges.
(e) Each option or warrant to purchase shares of the PerfectData
Common Stock issued and outstanding at the Effective Time shall continue to be
outstanding, with the same rights and privileges, and shall continue to be
exercisable in accordance with its terms until its expiration date.
(f) Following the issuance of the shares of the PerfectData Preferred
Stock to the holders of the Sona Common Stock and the Sona Series A Preferred
Stock, it is the intent of the parties that:
(i) The shares of PerfectData to be held by the pre-Merger
holders of the PerfectData Common Stock shall be equal to
approximately 20% of the shares of the PerfectData Common Stock
(subject to the adjustment provisions of Section 2.1(g) hereof),
which 20% shall take into account (A) all shares of the
PerfectData Common Stock issued and outstanding on the Closing
Date and any shares of the PerfectData Common Stock to be issued
pursuant to commitments outstanding on the Closing Date, (B) all
warrants to purchase shares of the PerfectData Common Stock
outstanding on the Closing Date, (C) all options to purchase
shares of the PerfectData Common Stock outstanding on the Closing
Date and all commitments, if any, to grant options existing on
the Closing Date, but excluding (1) those shares reserved under
the PerfectData Option Plan as to which no options have been
granted and no commitment for a grant given and (2) the remaining
76,000 shares of the PerfectData Common Stock currently reserved
under the April 1, 1999 authorization of the PerfectData Board of
Directors to sell, at $.05 per share, options or warrants
exercisable at $1.56 per share (the "PerfectData 1999
Authorization") and for which no options or warrants have been
granted and no commitment for a grant given and (D) any other
right, if any, to acquire shares of the PerfectData Common Stock
existing on the Closing Date, including, without limitation,
securities convertible into shares of the Perfect Data Common
Stock.
(ii) The shares of the PerfectData Series A Preferred Stock to be
issued to the holders of the Sona Common Stock and the Sona
Series A Preferred Stock, when converted into shares of the
PerfectData Common Stock, shall be equal to approximately 80% of
the shares of the PerfectData Common Stock (subject to the
adjustment provisions of Section 2.1(g)), which 80% shall take
into account (A) all shares of the Sona Common Stock issued and
outstanding on the Closing Date, including, without limitation,
any restricted
shares even if subject to forfeiture, and any shares of the Sona
Common Stock to be issued pursuant to commitments outstanding on
the Closing Date, (B) all shares of the Sona Series A Preferred
Stock issued and outstanding on the Closing Date, (C) all
warrants, if any, to purchase shares of the Sona Common Stock
outstanding on the Closing Date, (D) all options, if any, to
purchase shares of the Sona Common Stock and all commitments, if
any, to grant options existing on the Closing Date and (E) any
other right to acquire shares of the Sona Common Stock existing
on the Closing Date, including, without limitation, securities
convertible into shares of the Sona Common Stock and securities
to be issued at the Closing to Colebrooke Capital, Inc.
("Colebrooke") in payment of its finder's fee pursuant to Section
4.27 hereof.
(g) At the Closing, PerfectData shall have a minimum of $1,100,000 in
"Tangible Net Worth" (as defined in subsection (ii) below). In the event that
PerfectData's Tangible Net Worth is less than $1,100,000, the aggregate number
of shares of the PerfectData Series A Preferred Stock issuable pursuant to
Section 2.1(b) shall be adjusted as follows:
(i) If the Tangible Net Worth is less than $1,100,000, the number
of shares issuable to the Sona shareholders shall be adjusted so
that the percentage of shares of the PerfectData Common Stock to
be held by the pre-Merger holders of the PerfectData Common Stock
shall be reduced by an amount equal to (A) the product of (1) the
amount of the reduction in Tangible Net Worth below $1,100,000
and (2) 20 divided by (B) $2,000,000. The amount computed
pursuant to the preceding sentence shall be rounded up or down to
the nearest tenth of a percent. Notwithstanding anything in this
Section 2.1(g) to the contrary, if the Tangible Net Worth is less
than $750,000, either PerfectData or Sona may terminate this
Agreement by notice to the other in the manner set forth in
Section 9.1 hereof, provided that PerfectData pays Sona the
termination reimbursement fee set forth in Section 8.3 hereof.
(ii) For purposes of this Section 2.1, "Tangible Net Worth" shall
mean, as of the Closing Date, PerfectData's cash and cash
equivalents and other tangible assets minus total liabilities.
Total liabilities shall include not only those liabilities
reflected in a balance sheet, but also any commitments and
contingencies that are not reflected in a balance sheet in
accordance with United States generally accepted accounting
principles ("GAAP"). If the Closing Date is on or after April 15,
2005, PerfectData may increase the Tangible Net Worth by the
costs, not to exceed $75,000 of PerfectData preparing and filing
its Annual Report on Form 10-KSB for its fiscal year ending March
31, 2005. PerfectData shall prepare a balance sheet as of a date
not more than ten days prior to the anticipated Closing Date (the
"Closing
Balance Sheet"). The Closing Balance Sheet shall be reviewed by
PerfectData's independent registered public accounting firm,
Singer Lewak Greenbaum & Goldstein LLP, in the same manner as
such firm reviews the quarterly reports of PerfectData, and a
copy thereof indicating such review shall be delivered to Sona
not later than two Business Days (as such term is defined in
Section 9.15 hereof) prior to the anticipated Closing Date. The
Closing Balance Sheet shall be prepared in a manner consistent
with, and in a format comparable to, the balance sheets included
in the PerfectData Financial Statements (as defined in Section
3.8 hereof), except that total liabilities shall include any
commitments and contingencies as set forth above in this Section
2.1(g)(ii). At the Closing, PerfectData's Chief Financial Officer
shall certify the Tangible Net Worth as of the Closing Date as
determined in accordance with this Section 2.1(g)(ii).
Notwithstanding anything in the Agreement to the contrary,
PerfectData may, at any time prior to the Closing Date, raise
additional equity capital through the sale of shares of the
PerfectData Common Stock to increase the Tangible Net Worth;
provided, however, that, without the prior written consent of
Sona, which consent may not be unreasonably withheld, PerfectData
may not sell shares to any single person or group of persons in a
single transaction if such person or group of persons would, as a
result, own 5% or more of the issued and outstanding shares of
the PerfectData Common Stock on a fully diluted basis (including
giving effect to conversion of the shares of the PerfectData
Series A Preferred Stock) after the Merger unless such person or
group of persons owned 5% or more of the issued and outstanding
PerfectData Common Stock before the Merger. In connection with
any such sale, PerfectData may grant "piggyback" registration
rights under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to up to 150,000 shares of the
PerfectData Common Stock.
(h) No fraction of a share of the PerfectData Series A Preferred Stock
shall be issued in connection with the Merger. In the event a holder of the Sona
Common Stock or the Sona Series A Preferred Stock would otherwise be entitled to
a fraction of a share of the PerfectData Series A Preferred Stock, such
fractional share shall be rounded up or down to the nearest whole share.
Similarly, PerfectData Options shall be adjusted so they are not exercisable for
fractional shares of the PerfectData Common Stock.
Section 2.2. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, PerfectData shall
deposit, or shall cause to be deposited, with U.S. Stock Transfer Corporation
(the "Exchange Agent"), for the benefit of the holders of the Sona Common Stock
and the Sona Series A Preferred Stock, for exchange in accordance with this
Article II, through the Exchange Agent, certificates evidencing shares of the
PerfectData Series A Preferred Stock in such amount that the Exchange Agent
possesses such number of shares of the PerfectData Series A Preferred Stock as
are required to provide all of the consideration required to be exchanged by
PerfectData pursuant to the provisions of this Article II (such certificates for
shares of the PerfectData Series A Preferred Stock, together with any dividends
or distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver shares of the PerfectData Series A Preferred Stock out of
the Exchange Fund in accordance with Section 2.1 hereof. Except as contemplated
by Section 2.2(f) hereof, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, PerfectData will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding shares of the Sona Common Stock or the Sona
Series A Preferred Stock (the "Certificates"): (i) a letter of transmittal
(which is reasonably agreed to by PerfectData and Sona and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to and receipt by the
Exchange Agent and shall be in such form and have such other provisions as
PerfectData or the Exchange Agent may reasonably specify); and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates evidencing shares of the PerfectData Series A Preferred Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates evidencing
that number of whole shares of the PerfectData Series A Preferred Stock which
such holder has the right to receive in respect of the shares of the Sona Common
Stock or the Sona Series A Preferred Stock formerly evidenced by such
Certificate in accordance with Section 2.1 hereof, and (B) any dividends or
other distributions to which such holder is entitled pursuant to Section 2.2(c)
hereof (the shares of the PerfectData Series A Preferred Stock, dividends and
distributions described in clauses (A) and (B) being collectively referred to
herein as the "Merger Consideration"), and the Certificates so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of shares of the
Sona Common Stock or the Sona Series A Preferred Stock which is not registered
in the transfer records of Sona, a certificate evidencing the proper number of
shares of the PerfectData Series A Preferred Stock may be issued in accordance
with this Article II to a transferee if the Certificate evidencing such shares
of the Sona Common Stock or the Sona Series A Preferred Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid and that the transfer is permitted under the Securities Act and any
applicable state securities laws. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to evidence only the right to receive upon such surrender the Merger
Consideration.
(c) Distributions With Respect To Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
the PerfectData Series A Preferred Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of the PerfectData Series A Preferred Stock evidenced thereby, and
no other part of the Merger Consideration shall be paid to any such holder,
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder
of the certificates evidencing shares of the PerfectData Series A Preferred
Stock issued in exchange therefor, without interest, (i) promptly, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such shares of the PerfectData Series A
Preferred Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such shares of the PerfectData Series A Preferred Stock. No
interest shall be paid on the Merger Consideration.
(d) No Further Rights in Sona Shares. All shares of the PerfectData
Series A Preferred Stock (and other Merger Consideration) issued upon conversion
of the shares of the Sona Common Stock and the Sona Series A Preferred Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of the Sona Common Stock
and the Sona Series A Preferred Stock.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of shares of the Sona Common Stock
and the PerfectData Series A Preferred Stock for six months after the Effective
Time shall be delivered to PerfectData, upon demand, and, subject to Section
2.2(f) hereof, any holders of shares of the Sona Common Stock and the Sona
Series A Preferred Stock who have not theretofore complied with this Article II
shall thereafter look only to PerfectData for the Merger Consideration to which
they are entitled.
(f) No Liability. Neither PerfectData nor Sona shall be liable to any
holder of shares of the Sona Common Stock and the Sona Series A Preferred Stock
for any such shares of the PerfectData Series A Preferred Stock (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(g) Withholding Rights. PerfectData shall be entitled to deduct and
withhold, or cause the Exchange Agent to deduct and withhold, from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of the Sona Common Stock and the Sona Series A Preferred Stock the
minimum amounts (if any) that PerfectData is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
PerfectData, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of the Sona Common
Stock or the Sona Series A Preferred Stock in respect of which such deduction
and withholding was made by PerfectData.
Section 2.3. Stock Transfer. At the Effective Time, the stock transfer
books of Sona shall be closed and no transfer of shares of the Sona Common Stock
or the Sona Series A Preferred Stock shall be made thereafter.
Section 2.4. Lost, Stolen or Destroyed Certificates. In the event that any
Sona share certificates shall have been lost, stolen or destroyed, PerfectData
shall issue in respect of such lost, stolen or destroyed Sona share
certificates, upon the making of a satisfactory affidavit of that fact by the
holder thereof and upon the execution by such holder of an agreement to
indemnify PerfectData, in such form as PerfectData may reasonably request,
against any claim
that may be made against it with respect to such certificates, certificates
representing the shares of the PerfectData Series A Preferred Stock as may be
required to be issued pursuant to this Article II.
Section 2.5. Tax Consequences. For United States federal income tax
purposes, it is intended by the parties hereto that the Merger qualify as a
reorganization within the meaning of Section 368(a)(2)(D) of the Code. The
execution and delivery of this Agreement by each party shall be considered the
adoption of a plan of reorganization by such party for purposes of Section
368(a)(2)(D) of the Code.
Section 2.6 Additional Shares of PerfectData Common Stock.
(a) At the Closing, PerfectData shall direct U.S. Stock Transfer
Corporation, as the Transfer Agent for the PerfectData Common Stock (the
"Transfer Agent"), (i) to reserve that number of shares of the PerfectData
Common Stock (the "Additional Shares") as would constitute 5% of the issued and
outstanding shares of the PerfectData Common Stock on a fully diluted basis
computed in accordance with Section 2.1(f) hereof and (ii) to maintain a list of
the names and addresses of the shareholders of Sona who received shares of the
PerfectData Series A Preferred Stock as of the Closing Date and the number of
shares received by each.
(b) If, upon the receipt of the consolidated financial statements for
the fiscal year ending December 31, 2005 ("Fiscal 2005") as audited by the then
independent registered public accounting firm (the "IRPAF") for PerfectData, the
then President of PerfectData (the "President") concludes, after his review
thereof, that PerfectData has revenues of less than $3,000,000 and/or a gross
profit margin lower than 50%, he shall take no action for Fiscal 2005 with
respect to requesting issuance of the Additional Shares. If, on the other hand,
he concludes that PerfectData has (i) revenues of at least $3,000,000 and (ii) a
gross profit margin of at least 50% as reported in the statement of operations
for Fiscal 2005 (the "2005 Statement of Operations") included in such audited
financial statements, he shall direct the Transfer Agent to issue the Additional
Shares to the same persons and in the same proportions as the shareholders of
Sona received shares of the PerfectData Series A Preferred Stock as of the
Closing Date.
(c) In the event that PerfectData did not meet the requirements set
forth in Section 2.6(b) hereof for issuance of the Additional Shares, but, in
the opinion of the President, after he has reviewed the consolidated financial
statements for the fiscal year ending December 31, 2006 ("Fiscal 2006") audited
by the then IRPAF for PerfectData, PerfectData has (i) Aggregate Revenues (as
herein defined) of at least $12,000,000 and (ii) an Aggregate Gross Profit
Margin (as herein defined) of at least 50% based on the 2005 Statement of
Operations and PerfectData's statement of operations for the year ending
December 31, 2006 (the "2006 Statement of Operations") included in its audited
financial statements for Fiscal 2006, then, he shall direct the Transfer Agent
to deliver the Additional Shares to the same persons and in the same proportions
as the shareholders of Sona received shares of the PerfectData Series A
Preferred Stock as of the Closing Date. For the purpose of this Section 2.6(c),
"Aggregate Revenues" shall mean the
sum of the revenues as reported in the 2005 Statement of Operations and the 2006
Statement of Operations and "Aggregate Gross Profit Margin" shall mean the gross
profit margin computed on the basis of the revenues and cost of goods sold
reported in the 2006 Statement of Operations and the 2005 Statement of
Operations being aggregated.
(d) No fraction of a share of the PerfectData Common Stock shall be
issued to a former Sona shareholder as a result of the proration provided in
subsections (b) or (c) of this Section 2.6. In the event a holder would
otherwise be entitled to a fraction of a share, such fractional share shall be
rounded up or down to the nearest whole share.
ARTICLE II I
REPRESENTATIONS AND WARRANTIES OF PERFECTDATA AND MERGER SUB
PerfectData and Merger Sub represent and warrant to Sona, as of the date
hereof and hereafter through and including the Closing Date, as follows, in each
case subject to the exceptions set forth in the disclosure statement delivered
by PerfectData to Sona prior to the execution of this Agreement (the
"PerfectData Disclosure Statement"). The PerfectData Disclosure Statement is
arranged in Schedules corresponding to the numbered and lettered sections and
subsections of this Article III, and the disclosure in any Schedule of the
PerfectData Disclosure Statement shall qualify only the corresponding Section of
this Article III.
Section 3.1. Organization. Each of PerfectData and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, lease and operate its properties and assets in the manner in which such
properties and assets are now owned, leased and operated. Neither PerfectData
nor Merger Sub is currently engaged in an operating business. Prior to the date
hereof, each of PerfectData and Merger Sub has delivered to Sona true and
complete copies of its certificate of incorporation (the "PerfectData Charter"
and the "Merger Sub Charter," respectively) and its bylaws (the "PerfectData
Bylaws" and the "Merger Sub Bylaws," respectively), as currently in effect.
Section 3.2. Subsidiaries. PerfectData does not own any equity interest,
directly or indirectly, in any corporation, partnership, limited liability
company, joint venture, firm or other entity other than Merger Sub and except
for the investments disclosed in Schedule 3.2 of the PerfectData Disclosure
Statement.
Section 3.3. Good Standing. Each of PerfectData and Merger Sub is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its owned or leased properties or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a PerfectData Material Adverse Effect
(as defined in Section 3.10(b) hereof).
Section 3.4. Validity. Each of PerfectData and Merger Sub has full power
and authority to execute and deliver this Agreement and all of the other
agreements and documents referred to herein, executed in connection herewith or
contemplated hereby to which PerfectData or Merger Sub is or will be a party and
to perform its obligations hereunder and to consummate the transactions
contemplated hereby (assuming that, subsequent to the Effective Time, the
stockholders of PerfectData approve (a) an increase in the authorized shares of
the PerfectData
Common Stock in an amount at least sufficient to permit (i) conversion of the
PerfectData Series A Preferred Stock and (ii) the Additional Shares that may be
issued pursuant to Section 2.6 hereof and (b) to change the name of PerfectData
to "Sona Mobile Holdings, Inc." or such other name as the Board of Directors of
PerfectData may recommend). This Agreement constitutes the valid and binding
obligation of each of PerfectData and Merger Sub enforceable in accordance with
its terms, subject to bankruptcy, insolvency or other laws affecting creditors'
rights generally and general principles of equity affecting remedies. The
execution and delivery of this Agreement by PerfectData and Merger Sub and the
consummation of the transactions contemplated hereby have been duly authorized
by the board of directors of each of PerfectData and Merger Sub and, other than
the stockholder approval described in this Section 3.4, such execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby do not and will not require the consent, approval or authorization of any
person, public authority, self-regulatory authority or other entity.
Section 3.5. No Conflict. The execution and delivery of this Agreement by
PerfectData and Merger Sub and the performance of their obligations hereunder
(a) are not in violation or breach of, and will not conflict with or constitute
a default under any of the terms of the PerfectData or Merger Sub Charters or
PerfectData or Merger Sub Bylaws or any note, debt instrument, security
agreement, deed of trust or mortgage or any other contract, agreement or
commitment binding upon PerfectData or Merger Sub or any of their assets or
properties, (b) will not result in the creation or imposition of any lien,
security interest, encumbrance, equity or restriction in favor of any third
party upon any of the assets or properties of PerfectData or Merger Sub and (c)
will not conflict with or violate any applicable law, regulation, judgment,
order or decree of any government, governmental instrumentality, self-regulatory
authority or court having jurisdiction over PerfectData or Merger Sub or any of
their assets or properties.
Section 3.6. Capitalization.
(a) PerfectData's authorized capital stock consists of (i) 10,000,000
shares of the PerfectData Common Stock, of which 6,359,530 shares are currently
issued and outstanding, (ii) 2,000,000 shares of the "blank check" PerfectData
Preferred Stock, no shares of which are currently issued and outstanding, and
(iii) options, warrants and other rights to acquire shares of the PerfectData
Common Stock as to which an aggregate of 2,106,000 shares of the PerfectData
Common Stock are reserved and options and warrants are currently issued and
outstanding to purchase, in the aggregate, up to 348,500 shares of the
PerfectData Common Stock, as set forth in detail in Schedule 3.6 of the
PerfectData Disclosure Statement.
(b) The authorized capital stock of Merger Sub consists of 100 shares
of the Merger Sub Common Stock, of which 100 shares are currently issued and
outstanding and owned (beneficially and of record) by PerfectData. Except as
contemplated in this Agreement, Merger Sub does not hold, nor has it held, any
assets or incurred any liabilities nor has carried on any business activities
other than in connection with the Merger and the related transactions
contemplated in this Agreement.
(c) All of the issued and outstanding shares of the PerfectData Common
Stock and the Merger Sub Common Stock have been duly authorized, validly issued
and fully paid, are nonassessable and are free of any preemptive or similar
rights.
(d) All of the shares of the PerfectData Series A Preferred Stock to
be issued in consideration of the Merger, and all of the shares of the
PerfectData Common Stock to be issued upon the conversion of the shares of the
PerfectData Series A Preferred Stock in accordance with the terms thereof, have
been duly authorized and, upon their respective issuances, will be validly
issued and fully paid, nonassessable and free of any preemptive or similar
rights.
Section 3.7. Obligations with Respect to Capital Stock. Except for the
options and warrants set forth in Schedule 3.7 of the PerfectData Disclosure
Statement, neither PerfectData nor Merger Sub has any commitment or obligation
to issue, deliver or sell, under any offer, subscription, stock option
agreement, stock bonus agreement, stock purchase plan, incentive compensation
plan, warrant, call, conversion right or otherwise, any shares of PerfectData or
Merger Sub capital stock or other securities, except as contemplated under this
Agreement. There are no stockholder agreements, voting agreements, voting trusts
or other similar arrangements which may have the effect of restricting or
limiting the transfer, voting or other rights associated with the capital stock
of PerfectData or Merger Sub.
Section 3.8. Financial Statements. Each of the financial statements
(including, in each case, any related notes thereto) (the "PerfectData Financial
Statements") contained in the PerfectData SEC Reports (as defined in Section
3.11 hereof) filed by PerfectData with the Securities and Exchange Commission
(the "SEC") (a) was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q or Form 10-QSB under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (b) fairly presented the
financial position of PerfectData as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
consistent with the books and records of the PerfectData, except that the
unaudited financial statements were or are subject to normal and recurring
year-end adjustments which were not, or are not expected to be, material in
amount.
Section 3.9. No Undisclosed Liabilities. Neither PerfectData nor Merger Sub
has any liabilities (absolute, accrued, contingent or otherwise) other than
liabilities or obligations (a) included in the PerfectData Financial Statements,
(b) incurred since December 31, 2004 in the ordinary course of business
consistent with past practice, which, individually or in the aggregate, would
not reasonably be expected to have a PerfectData Material Adverse Effect (as
defined in Section 3.10(b) hereof), (c) under this Agreement, or (d) as
disclosed in Schedule 3.9 of the PerfectData Disclosure Statement, which,
individually or in the aggregate, would not reasonably be expected to have a
PerfectData Material Adverse Effect.
Section 3.10. Absence of Certain Changes or Events Since December 31, 2004.
Since December 31, 2004, except for the transactions contemplated by this
Agreement or as set forth in Schedule 3.10 of the PerfectData Disclosure
Statement or in a PerfectData SEC Report (as defined in Section 3.11 hereof):
(a) Neither PerfectData nor Merger Sub has sustained any damage,
destruction or loss (including, without limitation, by reason of revocation of
license or right to do
business, total or partial termination, suspension, default or modification of
contracts, governmental or self-regulatory restriction, regulation,
investigation or inquiry).
(b) No PerfectData Material Adverse Effect (as defined herein) has
occurred. For purposes of this Agreement, "PerfectData Material Adverse Effect"
shall mean any change or effect that is, or could reasonably be expected to be,
materially adverse to the assets and liabilities (taken together as a whole),
capitalization or condition (financial or otherwise) of PerfectData and Merger
Sub, taken as a whole, other than any change or effect (i) relating to the
economy in general or (ii) arising out of any actions taken or announced by
PerfectData or Merger Sub at the request or direction of Sona, or any inaction
or failure to act by PerfectData or Merger Sub at the request or direction of
Sona.
(c) Neither PerfectData nor Merger Sub has issued, or authorized for
issuance, any equity, debt or other security of PerfectData or Merger Sub, and
neither PerfectData nor Merger Sub has granted, or entered into, any commitment
or obligation to issue or sell any such equity, debt or other security of
PerfectData or Merger Sub whether pursuant to any offer, underwriting or
placement agent agreement, stock option agreement, stock bonus agreement, stock
purchase plan, incentive compensation plan, warrant, call, conversion right or
otherwise.
(d) Neither PerfectData nor Merger Sub has incurred additional debt
for borrowed money, or incurred any other obligation or liability (fixed,
contingent or otherwise) except in the ordinary and usual course of its business
and consistent with past practices.
(e) Neither PerfectData nor Merger Sub has authorized, declared, paid
or effected any dividend, payment or other distribution on or with respect to
any share of PerfectData or Merger Sub capital stock.
(f) Neither PerfectData nor Merger Sub has purchased, redeemed or
otherwise acquired or committed itself to acquire, directly or indirectly, any
share or shares of capital stock of PerfectData or Merger Sub.
(g) Neither PerfectData nor Merger Sub has mortgaged, pledged or
otherwise encumbered or subjected to lien any PerfectData or Merger Sub assets
or properties, tangible or intangible, except for liens for current taxes which
are not yet due and payable and other liens arising out of the ordinary and
usual course of business.
(h) Neither PerfectData nor Merger Sub has entered into any material
transaction or contract, nor has either PerfectData or Merger Sub waived any
right of substantial value or canceled any material debts or claims or
voluntarily suffered any extraordinary losses.
(i) Neither PerfectData or Merger Sub has effected any amendment or
supplement to, or extension of, any employee profit-sharing, stock option, stock
purchase, pension, bonus, incentive, retirement, medical reimbursement, life
insurance, deferred compensation or any other employee benefit plan or
arrangement, nor has either of PerfectData or Merger Sub implemented or paid any
material salary increases, bonuses or similar payments.
(j) PerfectData has not made any change in accounting methods or
principles used for financial reporting purposes, except as required by a change
in GAAP or pursuant to
changes in or additions to FASB or SEC pronouncements and concurred with by its
independent public accountants.
(k) Neither PerfectData nor Merger Sub has any agreement, arrangement
or understanding with respect to any of the foregoing.
Section 3.11 SEC Filings. PerfectData has filed with the SEC all forms,
reports, registration statements and documents required to be filed by it with
the SEC under the Securities Act and the Exchange Act after March 31, 2000
(collectively, all such forms, reports, registration statements and documents
filed since such date are referred to in this Agreement as the "PerfectData SEC
Reports"). All of the PerfectData SEC Reports were timely filed and complied as
to form, when filed (or, if amended or superseded by filing prior to the date of
this Agreement, then on the date of such amended or superseding filing), in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), as
the case may be. The PerfectData SEC Reports (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not, at
the time they were filed (or, if amended or superseded by filing prior to the
date of this Agreement, then on the date of such amended or superseding filing),
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. To the
knowledge of PerfectData, except as disclosed in the PerfectData SEC Reports,
each of PerfectData's officers and directors has complied with all filing
requirements under Section 16(a) of the Exchange Act.
Section 3.12. Contracts and Commitments.
(a) For purposes of this Agreement, each of the following shall be
deemed to constitute a "PerfectData Material Contract": (i) any contract that is
required by the rules and regulations of the SEC to be filed as an exhibit to
the PerfectData SEC Reports; (ii) any contract, arrangement or understanding
relating to the employment of any employee, and any contract, arrangement or
understanding pursuant to which PerfectData is or may become obligated to make
any severance, termination, bonus or relocation payment or any other payment
(other than payments in respect of salary) in excess of $2,500 to any current or
former employee, consultant or director; (iii) any contract relating to the
acquisition, transfer, development, sharing or license of any material
proprietary asset of PerfectData; (iv) any contract, arrangement or
understanding which provides for indemnification of any officer, director or
employee; (v) any contract creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities; (vi)
any contract that involves the payment or expenditure of $2,500 or more that may
not be terminated by PerfectData (without penalty) within 30 days after the
delivery of a termination notice by PerfectData, (vii) any contract
contemplating or involving (A) the payment or delivery of cash or other
consideration in an amount or having a value in excess of $2,500 in the
aggregate, or (B) the performance of services having a value in excess of $2,500
in the aggregate; or (viii) any other contract, if a breach of such contract
could reasonably be expected to have a PerfectData Material Adverse Effect.
(b) Each PerfectData Material Contract is valid and in full force and
effect, and is enforceable in accordance with its terms (subject, in each
instance, to bankruptcy, insolvency, or other laws affecting creditors' rights
generally and general principles of equity affecting remedies), PerfectData has
not materially violated or breached, or committed any default under, any
PerfectData Material Contract, and, to PerfectData's knowledge, no other person
has materially violated or breached, or committed any default under, any
PerfectData Material Contract.
(c) No event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time) could reasonably be expected to
(i) result in a material violation or material breach of any provision of any
PerfectData Material Contract; (ii) give any person the right to declare a
default or exercise any remedy under any PerfectData Material Contract; (iii)
give any person the right to receive or require a material rebate, chargeback,
or penalty under any PerfectData Material Contract; (iv) give any person the
right to accelerate the maturity or performance of any PerfectData Material
Contract; or (v) give any person the right to cancel, terminate or modify any
PerfectData Material Contract.
(d) Schedule 3.12 of the PerfectData Disclosure Statement provides a
list of all PerfectData Material Contracts (including all amendments thereto)
not otherwise included in the PerfectData SEC Reports. PerfectData has provided
or made available to Sona a copy of each PerfectData Material Contract
(including all amendments thereto) listed in Schedule 3.12, other than
PerfectData Material Contracts filed as exhibits to the PerfectData SEC Reports
and all copies of all amendments to the PerfectData Material Contracts filed as
exhibits to the PerfectData SEC Reports, to the extent such amendments have not
been filed with the SEC.
(e) Merger Sub is not a party to any contract or agreement other than
this Agreement.
Section 3.13. Title to Property. Each of PerfectData and Merger Sub has
good and valid title to all of its properties, interests in properties and
assets, real and personal, reflected in the PerfectData Financial Statements or
acquired after December 31, 2004, and has valid leasehold interests in all
leased properties and assets, in each case free and clear of all mortgages,
liens, security interests, pledges, charges or encumbrances of any kind or
character, except (a) liens for current taxes not yet due and payable and (b)
such imperfections of title, encumbrances, liens, security interests and
easements as would not reasonably be expected to have a PerfectData Material
Adverse Effect.
Section 3.14. Environmental.
(a) Except as disclosed in Schedule 3.14(a) of the PerfectData
Disclosure Statement, no Hazardous Materials (as defined in subsection (e) of
this Section 3.14) have been used, stored or otherwise handled in any manner by
PerfectData or Merger Sub on, under, in, from or affecting any of the real
property leased by PerfectData or Merger Sub during the past five years (the
"PerfectData Property"), other than in compliance with Environmental Laws (as
defined below). To PerfectData's knowledge, no prior or current owner or
occupant of the PerfectData Property has used Hazardous Materials on, under, in,
from or affecting the PerfectData Property.
(b) No Hazardous Materials have at any time been released into, stored
or deposited by PerfectData or Merger Sub within or on the PerfectData Property,
by PerfectData or Merger Sub into any water systems on or below the surface of
the PerfectData Property, or by PerfectData or Merger Sub directly or indirectly
onto any property or water system adjoining, adjacent to or abutting the
PerfectData Property, or have been used by PerfectData or Merger Sub in the
construction of any improvements located on or about the PerfectData Property.
(c) Except as disclosed in Schedule 3.14(c) of the PerfectData
Disclosure Statement, neither PerfectData or Merger Sub has received any notice
of any violations (nor is it aware of any existing violations) of any applicable
laws governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Materials on, under,
in, from or affecting the PerfectData Property and there are not any legal
actions or proceedings commenced or, to PerfectData's knowledge, threatened by
any person with respect to any such violations.
(d) Except as disclosed in Schedule 3.14(d) of the PerfectData
Disclosure Statement, the PerfectData Property is currently being, and has in
the past been, operated by PerfectData and Merger Sub in accordance with, and in
compliance with, all applicable Environmental Laws.
(e) For purposes of this Agreement (i) "Hazardous Materials" means any
hazardous materials, hazardous wastes, hazardous constituents, hazardous or
toxic substances or petroleum products (including gasoline, crude oil or any
fraction thereof), defined or regulated as such in or under any Environmental
Law, including, without limitation, asbestos, polychlorinated biphenyls and urea
formaldehyde insulation and (ii) "Environmental Laws" are any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any governmental authority or other
requirements of law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health or the
environment.
Section 3.15. Bank and Other Accounts. Schedule 3.15 of the PerfectData
Disclosure Statement constitutes a full and complete list of all the bank and
money market accounts, including escrow accounts, of PerfectData and Merger Sub
together with the names of persons authorized to draw thereon and the balances
therein as of January 31, 2005. All cash in such accounts is not subject to any
restriction or limitation as to withdrawal (other than a requirement for two
signatories where the amount is $2,500 or more). All of such accounts are
reconciled on a timely basis, are fully funded and are free from material
errors.
Section 3.16. Guarantees. None of the obligations or liabilities of
PerfectData or Merger Sub is guaranteed by any person, firm, association or
corporation. Neither PerfectData nor Merger Sub is the guarantor of any
obligation or liability of any third party.
Section 3.17. Insurance. Schedule 3.17 of the PerfectData Disclosure
Statement constitutes a full and complete list of all policies of insurance to
which PerfectData or Merger Sub is a party or is a beneficiary or named insured.
PerfectData has in full force and effect, with all premiums due thereon paid,
the policies of insurance set forth therein.
No notice of cancellation or termination has been received with respect to any
insurance policy described in this Section 3.17. Since March 31, 2000, no claims
in excess of $25,000 have been asserted by PerfectData or Merger Sub under any
of the insurance policies of PerfectData or Merger Sub or relating to its or
their properties, assets or operations as to which any payment was made
thereunder.
Section 3.18. Tax Matters.
(a) PerfectData, and any consolidated, combined, unitary or aggregate
group for Tax (as defined herein) purposes of which PerfectData is or has been a
member, have timely (taking into account extensions of time to file) filed all
Tax Returns required to be filed by them, and all such Tax Returns (as defined
herein) were true, correct and complete. PerfectData and each such group have
paid all Taxes shown thereon or otherwise due. PerfectData has provided adequate
accruals (without taking into account any reserve for deferred taxes) in its
latest financial statements included in the PerfectData Financial Statements for
any Taxes that have not been paid, whether or not shown as being due on any Tax
Returns. Other than Taxes incurred in the ordinary course of business,
PerfectData has no liability for unpaid taxes accruing after the date of the
PerfectData Financial Statements.
(b) No personal or real property of PerfectData is subject to any
liens for Taxes, other than liens for Taxes not yet due and payable.
(c) No audit of any Tax Return of PerfectData is being conducted, or,
to the knowledge of PerfectData, threatened, by a Tax Authority.
(d) No extension of the statute of limitations on the assessment of
any Taxes has been granted by PerfectData and is currently in effect.
(e) No agreement, contract or arrangement to which PerfectData is a
party may result in the payment of any amount that would not be deductible by
reason of Section 280G or Section 404 of the Code.
(f) Since March 31, 2000, there has been no change in ownership of
PerfectData that has caused the utilization of any losses to be limited pursuant
to Section 382 of the Code, and any loss carryovers reflected on the latest
financial statements included in the PerfectData Financial Statements are
properly computed and reflected.
(g) PerfectData has not been, and will not be, required by reason of
the Merger to include any material adjustment in taxable income for any tax
period (or portion thereof) pursuant to Section 481 or Section 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(h) PerfectData is not and never has been a party to any tax sharing
or tax allocation agreement nor does PerfectData have any liability or potential
liability to another party under any such agreement.
(i) PerfectData has not ever been a member of a consolidated, combined
or unitary group of which PerfectData was not the ultimate parent corporation.
(j) PerfectData has not ever been a "United States real property
holding corporation" within the meaning of Section 897 of the Code.
(k) No taxing authority has raised any issue with respect to Taxes
which, by application of similar principles, could result in the issuance of a
Notice of Deficiency or similar notice of intention to assess Taxes by any Tax
Authority.
(l) Merger Sub has been formed for the sole purpose of entering into
this Agreement and consummating the transaction contemplated hereby. Merger Sub
has never conducted any business, and has taken no action except in connection
with the transactions contemplated by this Agreement.
(m) PerfectData has not taken or agreed to take any action that could
reasonably be expected to prevent the Merger from constituting a reorganization
under Section 368(a)(2)(D) of the Code. PerfectData is not aware of any
agreement, plan or other circumstance that could reasonably be expected to
prevent the Merger from so qualifying.
(n) For purposes of this Section 3.18 and Section 4.17 hereof "Tax"
shall mean (i) any and all taxes, fees, levies, duties, tariffs, imposts and
other charges of any kind (whether or not imposed on PerfectData for purposes of
Section 3.18 or on Sona for purposes of Section 4.17), imposed by any
governmental entity or taxing authority, including, without limitation, taxes or
other charges on, measured by, or with respect to, income, franchise, windfall
or other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation or
net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration and
documentation fees; and custom's duties, tariffs and similar charges; (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, combined, consolidated or unitary
group for any Taxable period; (iii) any liability for the payment of any amounts
of the type described in (i) as a result of being a person required by law to
withhold or collect taxes imposed on another person; (iv) any liability for the
payment of amounts of the type described in (i), (ii) or (iii) as a result of
being a transferee of, or a successor in interest to, any person or as a result
of an express or implied obligation to indemnify any person; and (v) any and all
interest, penalties, additions to tax and additional amounts imposed in
connection with or with respect to any amounts described in (i), (ii), (iii) or
(iv); and "Tax Return" shall mean any return, report, statement, form or other
documentation (including any additional or supporting material and any
amendments or supplements) filed or maintained, or required to be filed or
maintained, with respect to, or in connection with, the calculation,
determination, assessment or collection of any Taxes.
Section 3.19. Employee Benefits.
(a) Schedule 3.19(a) of the PerfectData Disclosure Statement sets
forth (i) each "employee pension benefit plan" (within the meaning of Section
3(2) of the Employment Retirement Income Security Act of 1974, as amended
("ERISA")) of which PerfectData or
Merger Sub is or has been the plan sponsor (within the meaning of Section
3(16)(A) of ERISA) and which provides or provided benefits to employees of
PerfectData or Merger Sub together with the related trust agreement providing
the funding medium for pension benefits thereunder (the "Pension Plans"); (ii)
each "employee welfare benefit plan" (within the meaning of Section 3(1) of
ERISA) of which PerfectData or Merger Sub is or has been the plan sponsor and
which provides or provided benefits to employees of PerfectData or Merger Sub,
together with the related trust agreement or insurance contract providing the
funding medium for benefits thereunder and any related contracts thereunder (the
"Welfare Plans"); (iii) the summary plan description for each Pension Plan and
Welfare Plan; (iv) the most recent financial statement, if any, including audit
reports thereon, Annual Report Form 5500 and actuarial report for each such
Pension Plan and Welfare Plan; (v) any investment management agreement which
delegates authority for investment of the assets of any such Pension Plan or
Welfare Plan; and (vi) the most recent qualification letter from the IRS for
each Pension Plan and for any Welfare Plan funded through any tax-exempt trust
qualified under Section 501(a) or (c) of the Code through which any Welfare Plan
is funded.
(b) With respect to any Pension Plan or Welfare Plan (the "Plans"):
(i) the financial statements relating to the Plans furnished to
Sona have been prepared in accordance with GAAP consistently
applied throughout the periods involved and are in accordance
with the books and records of such Plans, which books and records
are correct and complete in all respects;
(ii) neither PerfectData nor Merger Sub maintains or contributes
to any Plan other than those listed on Schedule 3.19(a);
(iii) all such Plans comply in all respects with the applicable
requirements of ERISA, all such Pension Plans comply with the
qualification requirements under Section 401(a) of the Code and
the requirements for tax-exempt status under Section 501(a) or
(c) of the Code, and each Plan has been operated in accordance
with its terms;
(iv) except for severance and accrued vacation payments as set
forth in Schedule 3.19(b) of the PerfectData Disclosure
Statement, neither PerfectData nor Merger Sub provides or has any
obligation to provide (or contribute toward the cost of)
post-retirement welfare benefits with respect to their current or
former employees or the current or former employees of any other
entity, including, but not limited to, post-retirement medical,
dental, life insurance, severance or any other similar benefit,
whether provided on an insured or self-insured basis;
(v) no change in the assets or liabilities of any such Plan has
occurred after the date of the financial statement relating
thereto (other than
any change resulting from the accrual of benefits, payment of
benefits or receipt of contributions);
(vi) all required contributions to the Plans have been timely
made; and
(vii) all reporting and disclosure obligations to any
governmental agency or entity and to any Plan participant or
beneficiary have been satisfied.
(c) Neither PerfectData nor Merger Sub is or has been a contributing
employer to any multiemployer pension plan (within the meaning of Section 3(37)
of ERISA); neither PerfectData nor Merger Sub is under any obligation to make
contributions to any multiemployer pension plan; and neither PerfectData nor
Merger Sub has any actual or potential liability under Section 4201 of ERISA for
any complete or partial withdrawal from any multiemployer pension plan relating
to its employees or officers.
(d) Except for the Plans or the programs and arrangements, contractual
or otherwise, listed or referred to in this Agreement or in Schedule 3.19(d) of
the PerfectData Disclosure Schedule (i) neither PerfectData nor Merger Sub
maintains or contributes to any plans, programs or arrangements providing for
(A) payment of deferred compensation or retirement benefits; (B) the accrual or
payment of bonuses or special or incentive compensation of any kind; (C) any
severance or termination payments; (D) loans, loan guarantees or other
extensions of credit to its directors, officers or employees; (E) life, health,
disability or other welfare benefits; (F) moving or other relocation expense
benefits or reimbursements; (ii) neither PerfectData nor Merger Sub maintains
any other stock bonus, stock option, stock purchase or similar plans or
practices, whether formal or informal; and (iii) neither PerfectData nor Merger
Sub is a party to any written or other legally binding agreement otherwise
relating to the employment of any person.
Section 3.20. Certain Advances. There are no receivables of PerfectData or
Merger Sub owing by its directors, officers, employees, consultants or
stockholders of PerfectData or Merger Sub, or owing by any affiliate of any
director or officer. There are no payables of PerfectData or Merger Sub due to
its directors, officers, employees, consultants, or stockholders of PerfectData
or Merger Sub, or to any affiliate of any director or officer, except as
described in Schedule 3.20 of the PerfectData Disclosure Statement.
Section 3.21. Licenses and Permits. Each of PerfectData and Merger Sub had
obtained, and was in compliance with, all necessary licenses, permits, consents,
approvals, orders, certificates, authorizations, declarations and filings
required by all federal, state, local and other governmental, self-regulatory or
regulatory bodies and all courts and other tribunals for the conduct of the
business and operations of PerfectData and Merger Sub as conducted in the past.
Section 3.22. Proprietary Rights. Except as disclosed in Schedule 3.22 of
the PerfectData Disclosure Statement, neither PerfectData nor Merger Sub owns,
possesses or uses any trademarks, trade names, service marks, copyrights and
patents, or applications therefor, or other intellectual property (the
"Proprietary Rights"). The operations of PerfectData and Merger
Sub have not in the past conflicted with or infringed, any Proprietary Rights
owned, possessed or used by any third party.
Section 3.23. Labor and Employment Matters. Neither PerfectData nor Merger
Sub is a party to any union contract or other collective bargaining agreement,
nor to the knowledge of PerfectData are there any activities or proceedings of
any labor union to organize any of its employees. Each of PerfectData and Merger
Sub is in material compliance with all applicable (a) laws, regulations and
agreements respecting employment and employment practices, (b) terms and
conditions of employment, and (c) occupational health and safety requirements.
There are no controversies pending or, to the knowledge of PerfectData
threatened, between PerfectData or Merger Sub and any of their employees, which
controversies would reasonably be expected to have, individually or in the
aggregate, a PerfectData Material Adverse Effect. There are no labor
controversies pending or threatened against PerfectData or Merger Sub.
Section 3.24. Compliance with Law.
(a) The business of PerfectData at all times has been conducted in all
material respects in accordance with all applicable laws, rules, regulations,
orders and other requirements of governmental and self-regulatory authorities,
including, without limitation, ERISA, all Environmental Laws, all laws,
regulations and orders relating to antitrust or trade regulation, employment
practices and procedures, the health and safety of employees and consumer
credit. Except as disclosed in Schedule 3.24 of the PerfectData Disclosure
Statement, neither PerfectData nor Merger Sub has received any notice of alleged
violations of any laws, rules, regulations, orders or other requirements of
governmental or self-regulatory authorities.
(b) Commencing with PerfectData's private placement which closed on
March 31, 2000, all issuances of shares of the PerfectData Common Stock or other
securities exercisable into shares of the PerfectData Common Stock have been
issued pursuant to an applicable exemption under the Securities Act, any
applicable state "blue sky" or securities law and the rules and regulations
promulgated thereunder. The shares of the PerfectData Common Stock to be issued
upon the exercise of options granted or to be granted pursuant to the
PerfectData Option Plan have been registered under the Securities Act in
PerfectData's Registration Statement on Form S-8, File No. 333-51774.
Section 3.25. Litigation. Other than as set forth in Schedule 3.25 of the
PerfectData Disclosure Statement (a) there is no claim, dispute, action,
proceeding, suit or appeal or investigation or inquiry, at law or in equity,
involving PerfectData or Merger Sub or any of its or their officers and
directors (in their capacities as such) before any court, agency, authority,
self-regulatory authority, arbitration panel or other tribunal and, to the
knowledge of PerfectData, none has been threatened or is in prospect against
PerfectData or Merger Sub, (b) to the knowledge of PerfectData, there are no
facts which, if known to stockholders, customers, governmental authorities,
self-regulatory authorities, regulators, bondholders or other investors or other
persons, would form the basis of any such claim, dispute, action, proceeding,
suit, appeal, investigation or inquiry, and (c) neither PerfectData nor Merger
Sub is subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal.
Section 3.26. Board Recommendation. The board of directors of PerfectData
has (a) approved and adopted this Agreement, (b) approved the Merger, and (c)
determined that this Agreement and the Merger are advisable, fair to and in the
best interests of PerfectData and its stockholders. The board of directors of
Merger Sub has approved and adopted this Agreement and declared it advisable and
approved the Merger. The board of directors of PerfectData, acting on behalf of
PerfectData as the sole stockholder of Merger Sub, has approved and adopted this
Agreement and approved the Merger.
Section 3.27. Underlying Documents. All underlying documents listed or
described in the PerfectData Disclosure Statement have been furnished or made
available to Sona or its representatives, except as expressly noted in the
PerfectData Disclosure Statement or because they were filed in a PerfectData SEC
Report. All such documents furnished to Sona or its representatives are true and
complete copies, and there are no amendments or modifications to such documents,
except as expressly noted in the PerfectData Disclosure Statement. The minute
books of PerfectData contain full, complete and accurate records of all meetings
and other corporate actions taken by the directors and stockholders of
PerfectData.
Section 3.28. Brokers or Finders. Neither PerfectData nor Merger Sub has
incurred, nor will either of PerfectData or Merger Sub incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement, the Merger, or the
other transactions contemplated hereby.
Section 3.29. Foreign Corrupt Practices Act. Neither PerfectData nor Merger
Sub and none of PerfectData's or Merger Sub's officers or directors, or, to
PerfectData's knowledge, any employees, agents, distributors or representatives
acting on behalf of PerfectData or Merger Sub, has paid, given or received, or
has offered or promised to pay, give or receive, any bribe or other unlawful
payment of money or other thing of value, any unlawful discount, or any other
unlawful inducement, to or from any person or government entity in the United
States or elsewhere in connection with or in furtherance of the business of
PerfectData or Merger Sub (including, without limitation, any unlawful offer,
payment or promise to pay money or other thing of value (i) to any foreign
official, political party (or official thereof) or candidate for political
office for the purposes of influencing any act, decision or omission in order to
assist PerfectData or Merger Sub in obtaining business for or with, or directing
business to, any person, or (ii) to any person, while knowing that all or a
portion of such money or other thing of value will be offered, given or promised
unlawfully to any such official or party for such purposes). The business of
PerfectData, as conducted prior to November 30, 2004 when the sale to Spray
Products Corporation was consummated, was not in any manner dependent upon the
making or receipt of such payments, discounts or other inducements. Neither
PerfectData nor Merger Sub has otherwise taken any action that could cause
PerfectData or Merger Sub to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, the regulations thereunder, or any applicable law or
regulation of similar effect.
Section 3.30. Disclosure of Material Facts. PerfectData and Merger Sub have
disclosed to Sona all material facts relating to the condition (financial or
otherwise), business, net worth, assets, properties or operations of PerfectData
and Merger Sub. The representations and warranties contained in this Article III
and in the PerfectData Disclosure Statement, and any other documents or
information furnished to Sona by or on behalf of PerfectData and Merger
Sub do not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SONA
Sona represents and warrants to PerfectData and Merger Sub, as of the date
hereof and hereafter through and including the Closing Date, as follows, in each
case subject to the exceptions set forth in the disclosure statement delivered
by Sona to PerfectData prior to the execution of this Agreement (the "Sona
Disclosure Statement"). The Sona Disclosure Statement is arranged in Schedules
corresponding to the numbered and lettered sections and subsections of this
Article IV, and the disclosure in any Schedule of the Sona Disclosure Statement
shall qualify only the corresponding Section of this Article IV.
Section 4.1. Organization. Sona is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington and has
all requisite corporate power and authority to own, lease and operate its
properties and assets in the manner in which such properties and assets are now
owned, leased and operated and to carry on the business in which it is now
engaged. Prior to the date hereof, Sona has delivered to PerfectData true and
complete copies of its certificate of incorporation (the "Sona Charter") and its
bylaws (the "Sona Bylaws"), as currently in effect.
Section 4.2. Subsidiaries. Sona does not, and as of the Closing Date will
not, own any equity interest, directly or indirectly, in any corporation,
partnership, limited liability company, joint venture, firm or other entity
other than its wholly-owned subsidiary Sona Innovations, Inc., incorporated
under the laws of the Province of Ontario (herein referred to as the "Sona
Subsidiary"), and the wholly-owned inactive subsidiary listed in Schedule 4.2 of
the Sona Disclosure Statement. The Sona Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it was incorporated and has all requisite corporate power
and authority to own lease and operate its properties and assets in the manner
in which such properties and assets are now owned, leased and operated and to
carry on the business in which it is now engaged.
Section 4.3. Good Standing. Each of Sona and the Sona Subsidiary is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its owned or leased properties or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a Sona Material Adverse Effect (as
defined in Section 4.10(b) hereof).
Section 4.4. Validity. Sona has full power and authority to execute and
deliver this Agreement and all of the other agreements and documents referred to
herein, executed in connection herewith or contemplated hereby to which Sona is
or will be a party and to perform its obligations hereunder and to consummate
the transactions contemplated hereby (assuming the adoption of this Agreement
and approval of the Merger by the requisite approval of Sona's shareholders).
This Agreement constitutes the valid and binding obligation of Sona, enforceable
in accordance with its terms, subject to bankruptcy, insolvency or other laws
affecting creditors' rights generally and general principles of equity affecting
remedies. The execution and delivery of this Agreement by Sona and the
consummation of the transactions contemplated hereby have been duly authorized
by the board of directors of Sona and, other than the approval of this Agreement
and the Merger by the shareholders of Sona, such execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not require the consent, approval or authorization of any person,
public authority, self-regulatory authority or other entity.
Section 4.5. No Conflict. The execution and delivery of this Agreement by
Sona and the performance of its obligations hereunder (a) are not in violation
or breach of, and will not conflict with or constitute a default under, any of
the terms of the Sona Charter or the Sona Bylaws, or any note, debt instrument,
security agreement, deed of trust or mortgage or any other contract, agreement
or commitment binding upon Sona or the Sona Subsidiary or any of their assets or
properties, (b) will not result in the creation or imposition of any lien,
security interest, encumbrance, equity or restriction in favor of any third
party upon any of the assets or properties of Sona or the Sona Subsidiary, and
(c) will not conflict with or violate any applicable law, regulation, judgment,
order or decree of any government, governmental instrumentality, self-regulatory
authority or court having jurisdiction over Sona or the Sona Subsidiary or any
of their assets or properties.
Section 4.6. Capitalization. Sona's authorized capital stock consists of
(a) 10,000,000 shares of the Sona Common Stock, of which 2,989,546 are currently
issued and outstanding, and 10,000,000 shares of the Sona Preferred Stock, of
which 3,000,000 shares have been designated as the Sona Series A Preferred Stock
and 2,327,779 shares of the Sona Series A Preferred Stock are currently issued
and outstanding. All of the issued and outstanding shares of the Sona Common
Stock and the Sona Series A Preferred Stock have been duly authorized, validly
issued and fully paid, are nonassessable and are free of any preemptive or
similar rights.
Section 4.7. Obligations with Respect to Capital Stock. Sona has no
commitment or obligation to issue, deliver or sell, under any offer,
subscription, stock option agreement, stock bonus agreement, stock purchase
plan, incentive compensation plan, warrant, call, conversion right or otherwise,
any shares of its capital stock or other securities, except as contemplated
under this Agreement or as disclosed in Schedule 4.7 of the Sona Disclosure
Statement. There are no shareholder agreements, voting agreements, voting trusts
or other similar arrangements which may have the effect of restricting or
limiting the transfer, voting or other rights associated with the capital stock
of Sona.
Section 4.8. Financial Statements. There have been delivered to PerfectData
true and correct copies of a draft of Sona's audited consolidated balance sheets
as of December 31, 2004 and December 31, 2003, and the related audited
statements of operations, shareholders' equity and cash flows, including all
notes and schedules thereto, for the fiscal years ended December 31, 2004 and
December 31, 2003 (the "Preliminary Sona Financial Statements"). Each of the
Preliminary Sona Financial Statements (a) was prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved and (b) fairly
presented the consolidated financial position of Sona as at the respective dates
thereof and the consolidated results of its
operations and cash flows for the periods indicated, consistent with the books
and records of the Sona.
Section 4.9. No Undisclosed Liabilities. Sona and the Sona Subsidiary have
no liabilities (absolute, accrued, contingent or otherwise) other than
liabilities or obligations (a) included in the Preliminary Sona Financial
Statements, (b) incurred since December 31, 2004 in the ordinary course of
business consistent with past practice, which, individually or in the aggregate,
would not reasonably be expected to have a Sona Material Adverse Effect (as
defined in Section 4.10(b) hereof), (c) under this Agreement or (d) as disclosed
in Schedule 4.9 of the Sona Disclosure Statement, which individually or in the
aggregate, would not reasonably be expected to have a Sona Material Adverse
Effect.
Section 4.10. Absence of Certain Changes or Events Since December 31, 2004.
Since December 31, 2004 except as disclosed in Schedule 4.10 of the Sona
Disclosure Statement and except for the transactions contemplated by this
Agreement:
(a) Neither Sona nor the Sona Subsidiary has sustained any damage,
destruction or loss (including, without limitation, by reason of revocation of
license or right to do business, total or partial termination, suspension,
default or modification of contracts, governmental or self-regulatory
restriction, regulation, investigation or inquiry).
(b) No Sona Material Adverse Effect (as defined herein) has occurred.
For purposes of this Agreement, "Sona Material Adverse Effect" shall mean any
change or effect that is, or could reasonably be expected to be, materially
adverse to the business, operations, assets and liabilities (taken together as a
whole), capitalization, results of operations or condition (financial or
otherwise) of Sona and the Sona Subsidiary (taken together as a whole), other
than any change or effect (i) relating to the economy in general, (ii) relating
to the industry in which Sona and the Sona Subsidiary operates in general and
not specifically relating to Sona or the Sona Subsidiary or (iii) arising out of
any actions taken or announced by Sona at the request or direction of
PerfectData, or any inaction or failure to act by Sona at the request or
direction of PerfectData.
(c) Except as provided in this Agreement, Sona has not, and the Sona
Subsidiary has not, issued, or authorized for issuance, any equity, debt or
other security of Sona or the Sona Subsidiary, and neither Sona nor the Sona
Subsidiary has granted, or entered into, any commitment or obligation to issue
or sell any such equity, debt or other security of Sona or the Sona Subsidiary,
whether pursuant to any offer, underwriting or placement agent agreement, stock
option agreement, stock bonus agreement, stock purchase plan, incentive
compensation plan, warrant, call, conversion right or otherwise.
(d) Sona has not, and the Sona Subsidiary has not, incurred additional
debt for borrowed money, or incurred any other obligation or liability (fixed,
contingent or otherwise) except in the ordinary and usual course of its business
and consistent with past practices.
(e) Sona has not, and the Sona Subsidiary has not, authorized,
declared, paid or effected any dividend, payment or other distribution on or
with respect to any share of its
capital stock, except for any dividend, payment or other distribution from the
Sona Subsidiary to Sona.
(f) Sona has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any share or shares of
capital stock of Sona.
(g) Sona has not, and the Sona Subsidiary has not, mortgaged, pledged
or otherwise encumbered or subjected to lien any of its assets or properties,
tangible or intangible, except for liens for current taxes which are not yet due
and payable and other liens arising out of the ordinary and usual course of
business.
(h) Sona has not, and the Sona Subsidiary has not, entered into any
material transaction or contract, nor has Sona or the Sona Subsidiary waived any
right of substantial value or canceled any material debts or claims or
voluntarily suffered any extraordinary losses.
(i) Sona has not, and the Sona Subsidiary has not, effected any
amendment or supplement to, or extension of, any employee profit-sharing, stock
option, stock purchase, pension, bonus, incentive, retirement, medical
reimbursement, life insurance, deferred compensation or any other employee
benefit plan or arrangement, nor has Sona or the Sona Subsidiary implemented or
paid any material salary increases, bonuses or similar payments.
(j) Sona has not made any change in accounting methods or principles
used for financial reporting purposes, except as required by a change in GAAP or
pursuant to changes in or additions to FASB or SEC pronouncements and concurred
with by its independent public accountants.
(k) Neither Sona nor the Sona Subsidiary has any agreement,
arrangement or understanding with respect to any of the foregoing.
Section 4.11. Contracts and Commitments.
(a) For purposes of this Agreement, each of the following, whether
Sona or the Sona Subsidiary is party thereto, shall be deemed to constitute a
"Sona Material Contract": (i) any contract, arrangement or understanding the
loss or cancellation of which could result in a Sona Material Adverse Effect;
(ii) any contract, arrangement or understanding relating to the employment of
any employee, and any contract, arrangement or understanding pursuant to which
contract, arrangement or understanding Sona or the Sona Subsidiary is or may
become obligated to make any severance, termination, bonus or relocation payment
or any other payment (other than payments in respect of salary) in excess of
$10,000, to any current or former employee, consultant or director; (iii) any
contract relating to the acquisition, transfer, development, sharing or license
of any material proprietary asset; (iv) any contract, arrangement or
understanding which provides for indemnification of any officer, director or
employee; (v) any contract creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities; (vi)
any contract that involves the payment or expenditure of $25,000 or more that
may not be terminated by contract, arrangement or understanding (without
penalty) within 30 days after the delivery of a termination notice by contract,
arrangement or understanding; (vii) any contract contemplating or involving (A)
the payment or delivery of cash or other consideration in an amount or having a
value in excess of $50,000 in the aggregate, or (B) the
performance of services having a value in excess of $50,000 in the aggregate; or
(viii) any other contract, if a breach of such contract could reasonably be
expected to have a Sona Material Adverse Effect.
(b) Each Sona Material Contract is valid and in full force and effect,
and is enforceable in accordance with its terms (subject, in each instance, to
bankruptcy, insolvency, or other laws affecting creditors' rights generally and
general principles of equity affecting remedies). Neither Sona nor the Sona
Subsidiary has materially violated or breached, or committed any default under,
any Sona Material Contract, and, to Sona's knowledge, no other person has
materially violated or breached, or committed any default under, any Sona
Material Contract.
(c) To Sona's knowledge, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) could
reasonably be expected to (i) result in a material violation or material breach
of any provision of any Sona Material Contract; (ii) give any person the right
to declare a default or exercise any remedy under any Sona Material Contract;
(iii) give any person the right to receive or require a material rebate,
chargeback, penalty or change in delivery schedule under any Sona Material
Contract; (iv) give any person the right to accelerate the maturity or
performance of any Sona Material Contract; or (v) give any person the right to
cancel, terminate or modify any Sona Material Contract.
(d) Schedule 4.11 of the Sona Disclosure Statement provides a list of
all Sona Material Contracts (including all amendments thereto). Sona has
provided or made available to PerfectData a copy of each Sona Material Contract
(including all amendments thereto) listed in Schedule 4.11.
Section 4.12. Title to Property. Each of Sona and the Sona Subsidiary has
good and valid title to all of its properties, interests in properties and
assets, real and personal, reflected in the Preliminary Sona Financial
Statements or acquired after December 31, 2004, and has valid leasehold
interests in all leased properties and assets, in each case free and clear of
all mortgages, liens, security interests, pledges, charges or encumbrances of
any kind or character, except (a) liens for current taxes not yet due and
payable, (b) such imperfections of title, encumbrances, liens, security
interests and easements as would not reasonably be expected to have a Sona
Material Adverse Effect, and (c) mortgages, security interests and other liens,
if any, securing debt reflected in the Preliminary Sona Financial Statements.
Section 4.13. Environmental.
(a) No Hazardous Materials have been used, stored or otherwise handled
in any manner by Sona or the Sona Subsidiary on, under, in, from or affecting
any of the real property leased by Sona or the Sona Subsidiary during the past
five years (the "Sona Property"), other than in compliance with Environmental
Laws. To Sona's knowledge, no prior or current owner or occupant of the Sona
Property has used Hazardous Materials on, under, in, from or affecting the Sona
Property.
(b) No Hazardous Materials have at any time been released into, stored
or deposited by Sona or the Sona
Subsidiary within or on the Sona Property, by Sona or the Sona Subsidiary into
any water systems on or below the surface of the Sona Property, or by Sona or
the Sona Subsidiary directly or indirectly onto any property or water system
adjoining, adjacent to or abutting the Sona Property, or have been used by Sona
or the Sona Subsidiary in the construction of any improvements located on or
about the Sona Property.
(c) Neither Sona nor the Sona Subsidiary has received any notice of
any violations (nor is any of them aware of any existing violations) of any
applicable laws governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous Materials
on, under, in, from or affecting the Sona Property and there are not any legal
actions or proceedings commenced or, to Sona's knowledge, threatened by any
person with respect to any such violations.
(d) The Sona Property is currently being, and has in the past been,
operated by Sona or the Sona Subsidiary in accordance with, and in compliance
with, all applicable Environmental Laws.
Section 4.14 Bank Accounts. Schedule 4.14 of the Sona Disclosure Statement
constitutes a full and complete list of all of the bank accounts of Sona and the
Sona Subsidiary together with the names of persons authorized to draw thereon.
All cash in such accounts is held in demand deposits and is not subject to any
restriction or limitation as to withdrawal. All of such accounts are reconciled
on a timely basis, are fully funded and are free from material errors.
Section 4.15 Guarantees. None of the obligations or liabilities of Sona or
the Sona Subsidiary is guaranteed by any person, firm, association or
corporation. Schedule 4.15 of the Sona Disclosure Statement contains a correct
and complete list of all guarantees by Sona and the Sona Subsidiary.
Section 4.16. Insurance. Schedule 4.16 of the Sona Disclosure Statement
constitutes a full and complete list of all policies of insurance to which Sona
or the Sona Subsidiary is a party or is a beneficiary or named insured. Sona or
the Sona Subsidiary has in full force and effect, with all premiums due thereon
paid, the policies of insurance set forth therein. No notice of cancellation or
termination has been received with respect to any insurance policy described in
this Section 4.16. Since January 1, 2002, no claims in excess of $25,000 have
been asserted by Sona or the Sona Subsidiary under any of the insurance policies
of Sona or the Sona Subsidiary or relating to either of its properties, assets
or operations.
Section 4.17. Tax Matters.
(a) Sona, and any consolidated, combined, unitary or aggregate group for
Tax purposes of which Sona is or has been a member, have timely (taking into
account extensions of time to file) filed all Tax Returns required to be filed
by them, and all such Tax Returns were true, correct and complete. Sona and each
such group have paid all Taxes shown thereon or otherwise due. Sona has provided
adequate accruals (without taking into account any reserve for deferred taxes)
in its latest financial statements included in the Preliminary Sona Financial
Statements for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns. Other than Taxes incurred in the ordinary course of
business, neither Sona nor the Sona
Subsidiary has any liability for unpaid taxes accruing after the date of the
Preliminary Sona Financial Statements.
(b) No personal or real property of Sona or the Sona Subsidiary is
subject to any liens for Taxes, other than liens for Taxes not yet due and
payable.
(c) No audit of any Tax Return of Sona or the Sona Subsidiary is being
conducted, or, to the knowledge of Sona, threatened, by a Tax Authority.
(d) No extension of the statute of limitations on the assessment of
any Taxes has been granted by Sona or the Sona Subsidiary and is currently in
effect.
(e) No agreement, contract or arrangement to which Sona or the Sona
Subsidiary is a party may result in the payment of any amount that would not be
deductible by reason of Section 280G or Section 404 of the Code.
(f) There has been no change in ownership of Sona that has caused the
utilization of any losses to be limited pursuant to Section 382 of the Code, and
any loss carry overs reflected on the latest financial statements included in
the Sona Financial Statements are properly computed and reflected.
(g) Sona has not been, and will not be, and the Sona Subsidiary has
not been, and will not be, required by reason of the Merger to include any
material adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable provision
under state or foreign tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(h) Neither Sona nor the Sona Subsidiary is, and neither has ever
been, a party to any tax sharing or tax allocation agreement nor does Sona have
any liability or potential liability to another party under any such agreement.
(i) Neither Sona nor the Sona Subsidiary has ever been a member of a
consolidated, combined or unitary group of which Sona, or, prior to Sona's
incorporation, the Sona Subsidiary, was not the ultimate parent corporation.
(j) Neither Sona nor the Sona Subsidiary has ever been a "United
States real property holding corporation" within the meaning of Section 897 of
the Code.
(k) No taxing authority has raised any issue with respect to Taxes
which, by application of similar principles, could result in the issuance of a
Notice of Deficiency or similar notice of intention to assess Taxes by any Tax
Authority.
(l) Sona has not taken or agreed to take any action that could
reasonably be expected to prevent the Merger from constituting a reorganization
under Section 363(a)(2)(D) of the Code. Sona is not aware of any agreement, plan
or other circumstance that could reasonably be expected to prevent the Merger
from so qualifying.
Section 4.18. Employee Benefits.
(a) Schedule 4.18 of the Sona Disclosure Statement sets forth (i) each
"employee pension benefit plan" (within the meaning of Section 3(2) of the ERISA
of which Sona or the Sona Subsidiary is the plan sponsor (within the meaning of
Section 3(16)(A) of ERISA) and which provides benefits to employees of Sona
and/or the Sona Subsidiary, together with the related trust agreement providing
the funding medium for pension benefits thereunder (the "Sona Pension Plans");
(ii) each "employee welfare benefit plan" (within the meaning of Section 3(1) of
ERISA) of which Sona or the Sona Subsidiary is the plan sponsor and which
provides benefits to employees of Sona and/or the Sona Subsidiary, together with
the related trust agreement or insurance contract providing the funding medium
for benefits thereunder and any related contracts thereunder (the "Sona Welfare
Plans"); (iii) the summary plan description for each Sona Pension Plan and Sona
Welfare Plan; (iv) the most recent financial statement, if any, including audit
reports thereon, Annual Report Form 5500 and actuarial report for each such Sona
Pension Plan and Sona Welfare Plan; (v) any investment management agreement
which delegates authority for investment of the assets of any such Sona Pension
Plan or Sona Welfare Plan; and (vi) the most recent qualification letter from
the IRS for each Sona Pension Plan and for any Sona Welfare Plan funded through
any tax-exempt trust qualified under Section 501(a) or (c) of the Code through
which any Sona Welfare Plan is funded.
(b) With respect to any Sona Pension Plan or Sona Welfare Plan (the
"Sona Plans"):
(i) the financial statements relating to the Sona Plans furnished
to PerfectData have been prepared in accordance with GAAP
consistently applied throughout the periods involved and are in
accordance with the books and records of such Sona Plans, which
books and records are correct and complete in all respects;
(ii) each of Sona and the Sona Subsidiary does not maintain or
contribute to any Plan other than those listed on Schedule 4.18;
(iii) all such Sona Plans comply in all respects with the
applicable requirements of ERISA, all such Sona Pension Plans
comply with the qualification requirements under Section 401(a)
of the Code and the requirements for tax-exempt status under
Section 501(a) or (c) of the Code, and each Sona Plan has been
operated in accordance with its terms;
(iv) neither Sona nor the Sona Subsidiary provides or has any
obligation to provide (or contribute toward the cost of)
post-retirement welfare benefits with respect to their current or
former employees or the current or former employees of any other
entity, including, but not limited to, post-retirement medical,
dental, life insurance, severance or any other similar benefit,
whether provided on an insured or self-insured basis;
(v) no material change in the assets or liabilities of any such
Sona Plan has occurred after the date of the financial statement
relating thereto (other than any change resulting from the
accrual of benefits, payment of benefits or receipt of
contributions);
(vi) all required contributions to the Sona Plans have been
timely made; and
(vii) all reporting and disclosure obligations to any
governmental agency or entity and to any Sona Plan participant or
beneficiary have been satisfied.
(c) Neither Sona nor the Sona Subsidiary is, or has been, a
contributing employer to any multiemployer pension plan (within the meaning of
Section 3(37) of ERISA); neither Sona nor the Sona Subsidiary is under any
obligation to make contributions to any multiemployer pension plan; and neither
Sona nor the Sona Subsidiary has any actual or potential liability under Section
4201 of ERISA for any complete or partial withdrawal from any multiemployer
pension plan relating to employees or officers of Sona or the Sona Subsidiary.
(d) Except for the Sona Plans or the programs and arrangements,
contractual or otherwise, listed or referred to in this Agreement or in Schedule
4.18 of the Sona Disclosure Schedule (i) neither Sona nor the Sona Subsidiary
maintains or contributes to any plans, programs or arrangements providing for
(A) payment of deferred compensation or retirement benefits; (B) the accrual or
payment of bonuses or special or incentive compensation of any kind; (C) any
severance or termination payments; (D) loans, loan guarantees or other
extensions of credit to directors, officers or employees of Sona or the Sona
Subsidiary (other than as disclosed in the Preliminary Sona Financial
Statements); (E) life, health, disability or other welfare benefits; (F) moving
or other relocation expense benefits or reimbursements; (ii) neither Sona nor
the Sona Subsidiary maintains any other stock bonus, stock option, stock
purchase or similar plans or practices, whether formal or informal; and (iii)
neither Sona nor the Sona Subsidiary is a party to any written or other legally
binding agreement otherwise relating to the employment of any person.
Section 4.19. Certain Advances. There are no receivables of Sona or the
Sona Subsidiary owing by directors, officers, employees, consultants or
shareholders of Sona or the Sona Subsidiary, or owing by any affiliate of any
director or officer of Sona, other than advances in the ordinary and usual
course of business to officers, employees or consultants for reimbursable
business and personal expenses. There are no payables of Sona or the Sona
Subsidiary due to the directors, officers, employees, consultants or
stockholders of Sona or the Sona Subsidiary, or to any affiliate of any director
or officer, except as disclosed in the Preliminary Sona Financial Statements or
in Schedule 4.19 of the Sona Disclosure Statement.
Section 4.20. Licenses and Permits. Each of Sona and the Sona Subsidiary
has obtained, and is in compliance with, all necessary licenses, permits,
consents, approvals, orders, certificates, authorizations, declarations and
filings required by all federal, state, local and other governmental,
self-regulatory or regulatory bodies and all courts and other tribunals for the
conduct of the business and operations of Sona and the Sona Subsidiary as now
conducted or as conducted in the past, except where the failure to obtain or
comply would not have a Sona Material Adverse Effect.
Section 4.21. Proprietary Rights. Schedule 4.21 of the Sona Disclosure
Statement contains a full and complete list of all material Proprietary Rights
owned, possessed or used by Sona or the Sona Subsidiary. The operations of Sona
and the Sona Subsidiary do not now conflict with or infringe, and have not in
the past conflicted with or infringed, any Proprietary Rights owned, possessed
or used by any third party, except where such conflict or infringement would not
have a Sona Material Adverse Effect. There are no third parties whose operations
conflict with or infringe, nor has anyone asserted that such operations conflict
with or infringe, any Proprietary Rights owned, possessed or used by Sona or the
Sona Subsidiary, except where the conflict or infringement would not have a Sona
Material Adverse Effect.
Section 4.22. Labor and Employment. Neither Sona nor the Sona Subsidiary is
a party to any union contract or other collective bargaining agreement, nor to
the knowledge of Sona are there any activities or proceedings of any labor union
to organize any of the employees of Sona or the Sona Subsidiary. Each of Sona
and the Sona Subsidiary is in material compliance with all applicable (a) laws,
regulations and agreements respecting employment and employment practices, (b)
terms and conditions of employment, and (c) occupational health and safety
requirements. There are no controversies pending or, to the knowledge of Sona
threatened, between Sona or the Sona Subsidiary, on the one hand, and any of its
employees, on the other hand, which controversies would reasonably be expected
to have, individually or in the aggregate, a Sona Material Adverse Effect. There
are no labor controversies pending or threatened against Sona or the Sona
Subsidiary.
Section 4.23. Compliance with Law.
(a) The business of each of Sona and the Sona Subsidiary has been
conducted in all material respects in accordance with all applicable laws,
rules, regulations, orders and other requirements of governmental and
self-regulatory authorities, including, without limitation, ERISA, all
Environmental Laws, all laws, regulations and orders relating to antitrust or
trade regulation, employment practices and procedures, the health and safety of
employees and consumer credit, except where the failure to so conduct its
business would not have a Sona Material Adverse Effect. Neither Sona nor the
Sona Subsidiary has received any notice of alleged violations of any laws,
rules, regulations, orders or other requirements of governmental or
self-regulatory authorities.
(b) The issued and outstanding shares of the Sona Common Stock and the
Sona Series A Preferred Stock and any securities convertible or exercisable into
shares of the Sona Common Stock were issued pursuant to an applicable exemption
under the Securities Act, any applicable state or foreign "blue sky" or
securities law and the rules and regulations promulgated thereunder.
Section 4.24. Litigation. There is no claim, dispute, action, proceeding,
suit or appeal or investigation or inquiry, at law or in equity, involving Sona,
the Sona Subsidiary, or any of its respective officers and directors (in their
capacities as such) before any court, agency, authority,
self-regulatory authority, arbitration panel or other tribunal, which, if
decided adversely to Sona and/or the Sona Subsidiary, would have a Sona Material
Adverse Effect, and, to the knowledge of Sona, none has been threatened or is in
prospect against Sona or the Sona Subsidiary. To the knowledge of Sona, there
are no facts which, if known to shareholders, customers, governmental
authorities, self-regulatory authorities, regulators, bondholders or other
investors or other persons, would form the basis of any such claim, dispute,
action, proceeding, suit, appeal, investigation or inquiry, and neither Sona nor
the Sona Subsidiary is subject to any order, writ, injunction or decree of any
court, agency, authority, arbitration panel or other tribunal.
Section 4.25. Board Recommendation. The board of directors of Sona has (a)
approved and adopted this Agreement, (b) approved the Merger, and (c) determined
that this Agreement and the Merger are advisable, fair to and in the best
interests of Sona and its shareholders.
Section 4.26. Underlying Documents. All underlying documents listed or
described in the Sona Disclosure Statement have been furnished or made available
to PerfectData or its representatives, except as expressly noted in the Sona
Disclosure Statement. All such documents furnished to PerfectData or its
representatives are true and complete copies, and there are no amendments or
modifications to such documents, except as expressly noted in the Sona
Disclosure Statement. The minute books of Sona contain full, complete and
accurate records of all meetings and other corporate actions taken by the
directors and shareholders of Sona.
Section 4.27. Brokers or Finders. Sona has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
the transactions contemplated hereby other than to Colebrooke, which obligation
to Colebrooke shall be paid by Sona to Colebrooke in connection with the
Closing.
Section 4.28. Foreign Corrupt Practices Act. Neither Sona nor the Sona
Subsidiary and none of Sona's or the Sona Subsidiary's officers or directors,
or, to Sona's knowledge, any employees, agents, distributors or representatives
acting on behalf of Sona or the Sona Subsidiary, has paid, given or received, or
has offered or promised to pay, give or receive, any bribe or other unlawful
payment of money or other thing of value, any unlawful discount, or any other
unlawful inducement, to or from any person or government entity in the United
States or elsewhere in connection with or in furtherance of the business of Sona
or the Sona Subsidiary (including, without limitation, any unlawful offer,
payment or promise to pay money or other thing of value (i) to any foreign
official, political party (or official thereof) or candidate for political
office for the purposes of influencing any act, decision or omission in order to
assist Sona or the Sona Subsidiary in obtaining business for or with, or
directing business to, any person, or (ii) to any person, while knowing that all
or a portion of such money or other thing of value will be offered, given or
promised unlawfully to any such official or party for such purposes). The
business of Sona and the Sona Subsidiary is and was not in any manner dependent
upon the making or receipt of such payments, discounts or other inducements.
Neither Sona nor any Sona Subsidiary has otherwise taken any action that could
cause Sona or any Sona Subsidiary to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, the regulations thereunder, or any applicable
law or regulation of similar effect.
Section 4.29. Disclosure of Material Facts. Sona has disclosed to
PerfectData all material facts relating to the condition (financial or
otherwise), business, net worth, assets, properties or operations of Sona and
the Sona Subsidiary. The representations and warranties contained in this
Article IV and in the Sona Disclosure Statement, and any other documents or
information furnished to PerfectData by or on behalf of Sona do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS
Section 5.1. Conduct of Business Prior to Closing.
(a) Except as expressly provided in this Agreement, in Schedule 5.1(a)
of the PerfectData Disclosure Statement or as expressly consented to in writing
by Sona (which consent shall not be unreasonably withheld, delayed or
conditioned), during the period from the date of this Agreement to the earlier
of the termination of this Agreement or the Closing Date, PerfectData and Merger
Sub will not take any action which would adversely affect their ability to
consummate the Merger or the other transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, and except as set forth in the
PerfectData Disclosure Statement or as otherwise expressly provided in this
Agreement, prior to the earlier of the termination of this Agreement or the
Closing Date, PerfectData shall not, without the prior written consent of Sona
(which consent shall not be unreasonably withheld, delayed or conditioned),
directly or indirectly, do (or commit to do), and shall not, directly or
indirectly, permit Merger Sub to do (or commit to do), any of the following:
(i) split, combine or reclassify any shares of its capital stock;
(ii) authorize, recommend, solicit, propose or announce an
intention to authorize, recommend, solicit or propose, or enter
into any agreement with any other person with respect to any plan
of liquidation or dissolution, any acquisition of assets or
securities, any disposition of assets or securities, any change
in capitalization, or any partnership, association, joint
venture, joint development, or other business alliance;
(iii) fail to renew any insurance policy naming it as a
beneficiary or a loss payee, or take any steps or fail to take
any steps that would permit any insurance policy naming it as a
beneficiary or a loss payee to be canceled, terminated or
materially altered, except in the ordinary course of business and
consistent with past practice and following written notice to
Sona;
(iv) maintain its books and records in a manner other than in the
ordinary course of business and consistent with past practice;
(v) enter into any hedging, option, derivative or other similar
transaction or any foreign exchange position or contract for the
exchange of currency other than in the ordinary course of
business and consistent with past practice;
(vi) institute any change in its accounting methods, principles
or practices or revalue any assets, except as consistent with
past practice or as required by a change in GAAP or pursuant to
changes in or additions to FASB or SEC pronouncements and
concurred with by its independent registered public accounting
firm;
(vii) with respect of any taxes, make or change any election,
change any accounting method, enter into any closing agreement,
settle any claim or assessment, or consent to any extension or
waiver of the limitation period applicable to any material claim
or assessment except as required by applicable law;
(viii) issue any capital stock or other options, warrants or
other rights to purchase or acquire capital stock, other than the
exercise of options, warrants or other purchase rights pursuant
to existing plans or arrangements outstanding on the date hereof;
(ix) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock or
repurchase, redeem or otherwise reacquire any shares of capital
stock or other securities;
(x) amend or permit the adoption of any amendments to the
PerfectData or Merger Sub Charters or PerfectData or Merger Sub
Bylaws or effect or become a party to any recapitalization,
reclassification of shares, stock split, reverse stock split or
similar transaction;
(xi) form any subsidiary or acquire any equity interest or other
interest in any other person or entity (other than the formation
of such subsidiaries as are necessary to effect the Merger);
(xii) acquire, lease or license any right or other asset from any
other person or sell or otherwise dispose of, or lease or
license, any right or other asset to any other person or change
the location of any of its assets or waive or relinquish or
modify any material right;
(xiii) lend money or incur or guarantee any indebtedness;
(xiv) commence or settle any legal proceeding; or
(xv) take, or agree to take, any of the actions described in
subsections (i) through (xiv) or this Section 5.1(a).
(b) Except as expressly provided in this Agreement, in Schedule 5.1(b)
of the Sona Disclosure Statement or as expressly consented to in writing by
PerfectData (which consent shall not be unreasonably withheld, delayed or
conditioned), during the period from the date of this Agreement to the earlier
of the termination of this Agreement or the Closing Date, Sona will, and shall
cause the Sona Subsidiary to, (X) conduct its operations according to its
ordinary and usual course of business consistent with past practice, (Y) use
commercially reasonable efforts to preserve intact its business organization, to
keep available the services of its officers and employees in each business
function and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it, and
(Z) not take any action which would adversely affect Sona's ability to
consummate the Merger or the other transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, and except as set forth in the
Sona Disclosure Statement or as otherwise expressly provided in this Agreement,
prior to the earlier of the termination of this Agreement or the Closing Date,
Sona shall not, without the prior written consent of PerfectData (which consent
shall not be unreasonably withheld, delayed or conditioned), directly or
indirectly, do (or commit to do), and shall not, directly or indirectly, permit
the Sona Subsidiairy to do (or commit to do), any of the following:
(i) split, combine or reclassify any shares of its capital stock;
(ii) authorize, recommend, solicit, propose or announce an
intention to authorize, recommend, solicit or propose, or enter
into any agreement with any other person with respect to any plan
of liquidation or dissolution, any acquisition of a material
amount of assets or securities, any disposition of a material
amount of assets or securities, any material change in
capitalization, or any material partnership, association, joint
venture, joint development, technology transfer, or other
material business alliance;
(iii) fail to renew any insurance policy naming it as a
beneficiary or a loss payee, or take any steps or fail to take
any steps that would permit any insurance policy naming it as a
beneficiary or a loss payee to be canceled, terminated or
materially altered, except in the ordinary course of business and
consistent with past practice and following written notice to
PerfectData;
(iv) maintain its books and records in a manner other than in the
ordinary course of business and consistent with past practice;
(v) enter into any hedging, option, derivative or other similar
transaction or any foreign exchange position or contract for the
exchange of currency other than in the ordinary course of
business and consistent with past practice;
(vi) institute any change in its accounting methods, principles
or practices other than as required by GAAP, or the rules and
regulations promulgated by the SEC and with the concurrence
of its independent public accountants, or revalue any assets,
including without limitation, writing down the value of inventory
or writing off notes or accounts receivables;
(vii) with respect of any taxes, make or change any material
election, change any accounting method, enter into any closing
agreement, settle any material claim or assessment, or consent to
any extension or waiver of the limitation period applicable to
any material claim or assessment except as required by applicable
law;
(viii) suspend, terminate or otherwise discontinue any planned or
ongoing research and development activities, programs or other
such activities which would be reasonably expected to have a Sona
Material Adverse Effect;
(ix) issue any capital stock or other options, warrants or other
rights to purchase or acquire capital stock, other than the
exercise of options or other purchase rights pursuant to existing
plans or arrangements;
(x) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock or
repurchase, redeem or otherwise reacquire any shares of capital
stock or other securities, other than any dividend to be
distributed by a Sona Subsidiary to Sona prior to the Closing
Date;
(xi) amend or permit the adoption of any amendments to the Sona
Charter or the Sona Bylaws or effect or become a party to any
recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(xii) form any subsidiary or acquire any equity interest or other
interest in any other person or entity;
(xiii) commence or settle any legal proceeding; or
(xiv) take, or agree to take, any of the actions described in
subsections (i) through (xiii) or this Section 5.1(b).
(c) From and after the date of this Agreement, each party hereto shall
use all reasonable efforts to cause the Merger to qualify, and shall not take
any actions or cause any actions to be taken which could reasonably be expected
to prevent the Merger from qualifying, as a "reorganization" under Section
368(a)(2)(D) of the Code.
Section 5.2. Stockholder Approval. PerfectData, as the sole stockholder of
Merger Sub shall approve and adopt this Agreement and approve the Merger on
behalf of Merger Sub. Sona shall take all action necessary in connection with
applicable law to convene a meeting of the shareholders of Sona (or act by
written consent) as promptly as practicable after the date hereof to consider
and vote upon this Agreement and the transactions contemplated hereby. Sona
shall,
through its Board of Directors, recommend that its shareholders vote in favor of
the adoption of this Agreement and approve the Merger and the transactions
contemplated hereby.
Section 5.3. Updating of the Disclosure Schedules.
(a) From the date hereof until the Closing Date, PerfectData shall
keep up to date the PerfectData Disclosure Statement and shall promptly notify
Sona of any changes or additions or events which may, after the lapse of time,
cause any change or addition in the PerfectData Disclosure Statement, other than
changes to the PerfectData Disclosure Statement due to the consummation of the
transactions contemplated hereby. This covenant and any notices by PerfectData
hereunder shall not be deemed in any way to constitute a waiver by Sona of the
condition herein which provides in part that the representations and warranties
of PerfectData set forth herein shall be true and correct on the date hereof and
on the Closing Date.
(b) From the date hereof until the Closing Date, Sona shall keep up to
date the Sona Disclosure Statement and shall promptly notify PerfectData of any
changes or additions or events which may, after the lapse of time, cause any
change or addition in the Sona Disclosure Statement, other than changes to the
Sona Disclosure Schedule due to the consummation of the transactions
contemplated hereby. This covenant and any notices by Sona hereunder shall not
be deemed in any way to constitute a waiver by PerfectData of the condition
herein which provides in part that the representations and warranties of Sona
set forth herein shall be true and correct on the date hereof and on the Closing
Date.
Section 5.4. Access to Information.
(a) PerfectData will afford to the officers, attorneys, accountants
and other representatives of Sona full access during reasonable business hours
to all of the assets, properties, books and records of PerfectData in order to
afford Sona such full opportunity of review, examination and investigation as
Sona shall desire with respect to the affairs of PerfectData and Merger Sub, and
PerfectData shall furnish or cause to be furnished to Sona such financial and
operating data and other information as to the condition (financial or
otherwise), business, net worth, assets, properties or past operations of
PerfectData and Merger Sub as Sona may reasonably request. No such review,
examination or investigation by Sona shall affect or in any way diminish the
representations, warranties or covenants of PerfectData or Merger Sub hereunder.
(b) Sona will afford to the officers, attorneys, accountants and other
representatives of PerfectData full access during reasonable business hours to
all of the assets, properties, books and records of Sona and the Sona Subsidiary
in order to afford PerfectData such full opportunity of review, examination and
investigation as PerfectData shall desire with respect to the affairs of Sona
and the Sona Subsidiary, and Sona shall furnish or cause to be furnished to
PerfectData such financial and operating data and other information as to the
condition (financial or otherwise), business, net worth, assets, properties or
operations of Sona and the Sona Subsidiary as PerfectData may reasonably
request. No such review, examination or investigation by PerfectData shall
affect or in any way diminish the representations, warranties or covenants of
Sona hereunder.
Section 5.5. Fulfillment of Conditions and Covenants. No party will take
any course of action inconsistent with satisfaction of the requirements or
conditions applicable to it set forth in this Agreement. Each party shall
promptly do all such acts and take all such measures as may be appropriate to
enable it to perform as early as possible the obligations herein provided to be
performed by it.
Section 5.6. Public Announcements. Except as provided in Section 5.9
hereof, no party will issue or authorize to be issued any press release or
similar announcement concerning this Agreement or any of the transactions
contemplated hereby without the prior approval of the other party, which
approval shall not be unreasonably withheld and shall be given, following an
opportunity to review, to the extent practicable, and revise the scope and
content of such disclosures, in order to allow compliance with the disclosure
requirements of applicable securities laws and the rules and regulations
thereunder.
Section 5.7. Consents. Each party shall use its best efforts to obtain and
to cooperate with each other party in the effort to obtain, as soon as
reasonably practicable, all permits, authorizations, consents, waivers and
approvals from third parties or governmental authorities necessary to consummate
this Agreement and the transactions contemplated hereby. Each party shall pay
its own expenses in connection with fulfilling its obligations under this
Section 5.7.
Section 5.8. Certain Notifications. Each party shall promptly notify the
others in writing of the occurrence of any event known to such party which will
or could reasonably be expected to result in the failure to satisfy any of the
conditions to the obligations of such other parties specified in this Agreement.
Section 5.9. No Solicitation.
(a) Unless and until this Agreement shall have been terminated
pursuant to and in compliance with Section 8.1 hereof, neither PerfectData nor
Sona shall (whether directly or indirectly through its respective advisors,
agents or other intermediaries), nor shall PerfectData or Sona authorize or
permit any of its respective officers, directors, agents, employees,
representatives or advisors to (i) solicit, initiate, encourage (including by
way of furnishing information) or take any action to facilitate the submission
of any inquiries, proposals or offers (whether or not in writing) from any
person (other than PerfectData or Sona, as the case may be, and its respective
affiliates) relating to (A) any acquisition or purchase of any of the assets of
PerfectData or Sona, as the case may be, other than in the ordinary course of
business or of any class of equity securities of PerfectData or Sona, as the
case may be, (B) any tender offer (including a self tender offer) or exchange
offer, (C) any merger, consolidation, business combination, sale of
substantially all of its assets, recapitalization, liquidation, dissolution or
similar transaction involving PerfectData or Sona, as the case may be, or (D)
any other transaction the consummation of which would, or would reasonably be
expected to, impede, interfere with, prevent or materially delay the Merger or
which would or would reasonably be expected to materially dilute the benefits to
the other party hereto of the transactions contemplated by this Agreement
(collectively, "Acquisition Proposals"), or agree to, recommend or endorse any
Acquisition Proposal, (ii) enter into or execute any agreement with respect to
any of the foregoing or (iii) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person any
information with respect to its business,
properties or assets in connection with the foregoing, or otherwise cooperate in
any way with, or participate in or assist, facilitate, or encourage, any effort
or attempt by any other person (other than PerfectData or Sona, as the case may
be, and its respective affiliates) to do or seek any of the foregoing.
Notwithstanding anything in this Section 5.9 to the contrary, PerfectData may
sell shares to increase its Tangible Net Worth as provided in Section 2.1(g)(ii)
hereof and Sona may sell shares of the Sona Common Stock or securities
convertible into shares of the Sona Common Stock in a bridge financing, provided
any such securities are reflected in the determination of shares to be issued
pursuant to Section 2.1(f) hereof.
(b) Nothing contained in this Agreement shall prohibit PerfectData or
Sona (i) from complying with Rule 14e-2 and Rule 14d-9 under the Exchange Act
with respect to a bona fide tender offer or exchange offer, (ii) from making any
disclosure of an Acquisition Proposal to its respective stockholders or
otherwise if its respective Board of Directors concludes in good faith, within
five Business Days after consultation with its outside legal counsel, that such
disclosure is necessary under applicable law or the failure to make such
disclosure would be inconsistent with its fiduciary duties to its respective
stockholders under applicable law or (iii) from participating in negotiations or
discussions with or furnishing information to any person in connection with an
Acquisition Proposal not solicited after the date hereof in breach of Section
5.9(a) above and which is submitted in writing by such person to the Board of
Directors of PerfectData or Sona, as the case may be, after the date of this
Agreement; provided, however, that, prior to participating in any such
discussions or negotiations or furnishing any information, within five Business
Days after its receipt of the Acquisition Proposal, the Board of Directors of
PerfectData or Sona, as the case may be, shall have concluded in good faith,
after consultation with its outside legal counsel and financial advisors, that
such Acquisition Proposal is reasonably likely to lead to a Superior Proposal
(as hereinafter defined in subsection (d) of this Section 5.9) and, after
consultation with its outside legal counsel, that failure to participate in such
negotiations or discussions or furnishing such information would be inconsistent
with its fiduciary duties to the stockholders of PerfectData or Sona, as the
case may be, under applicable law. PerfectData or Sona, as the case may be,
shall promptly notify the other party hereto (but in no event later than three
Business Days thereafter) if any Acquisition Proposal or inquiries regarding a
potential Acquisition Proposal are received by, any information with respect to
an Acquisition Proposal or a potential Acquisition Proposal is requested from,
or any discussions or negotiations with respect to an Acquisition Proposal or a
potential Acquisition Proposal are sought to be initiated or continued with, it
or any of its representatives indicating, in connection with such notice, the
name of the person or entity involved and a copy of any such Acquisition
Proposal, with the intent of enabling such other party to make a matching offer
so that the transactions contemplated hereby may be effected. PerfectData or
Sona, as the case may be, shall thereafter keep the other party hereto informed,
on a current basis, of the status and terms of any such inquiries or Acquisition
Proposals and the status of any such negotiations or discussions. PerfectData or
Sona, as the case may be, shall promptly furnish the other party hereto with
copies of any written information (and advise it orally of any non-written
information) provided to or by any person relating to an Acquisition Proposal to
the extent such information has not previously been provided to such other party
hereto.
(c) Prior to the Effective Time, in the event the Board of Directors
of PerfectData or Sona, as the case may be, by majority vote of all its members,
determines in good faith that it has received a Superior Proposal and determines
in good faith that not taking the
following actions would be inconsistent with its fiduciary duties to PerfectData
or Sona, as the case may be, under applicable law, PerfectData or Sona, as the
case may be, and its respective Board of Directors may (i) withdraw, modify or
change the Board of Directors' approval or recommendation of this Agreement or
the Merger, (ii) approve or recommend such Superior Proposal to its
stockholders, (iii) terminate this Agreement and pay the Termination
Reimbursement Fee (as provided in Section 8.3 or Section 8.4 hereof) and (iv)
publicly announce the Board of Directors' intention to do any or all of the
foregoing.
(d) "Superior Proposal" means a proposal with respect to any of the
transactions described in clause (A), (B), (C) or (D) of the definition of
Acquisition Proposal which the Board of Directors shall have concluded in good
faith (i) is reasonably likely to be completed, taking into account all legal,
financial, regulatory and other aspects of the Acquisition Proposal and the
person making the proposal, (ii) if consummated, would result in a transaction
more favorable to the stockholders of PerfectData or Sona, as the case may be,
from a financial point of view than the transactions contemplated by this
Agreement (taking into account any and all modifications proposed by PerfectData
or Sona, as the case may be) and (iii) is fully financed (or, based on a good
faith determination of the Board of Directors, is readily financiable); provided
that the Board of Directors has received an opinion from its outside legal
counsel that, based on the foregoing conclusions, failure to accept the
Acquisition Proposal would be inconsistent with the directors' fiduciary duties
to the stockholders of PerfectData or Sona, as the case may be.
Section 5.10. SEC Filings.
(a) PerfectData shall timely file with the SEC each report or other
statement required to be filed under the Exchange Act, in each case subsequent
to the date hereof and prior to the Effective Time and shall inform Sona of each
such filing. As of their respective dates, PerfectData represents and warrants
that such reports, or other statements, including any financial statements
included therein, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading and will comply in all material respects with all applicable
requirements of the federal securities laws (including, without limitation, the
Securities Act, the Exchange Act and the Sarbanes-Oxley Act, except that
PerfectData makes no representation and warranty as to any information that was
specifically provided by Sona for inclusion in such reports or statements. Each
of the consolidated financial statements contained in such reports or statements
(i) shall be prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes thereto
or, in the case of unaudited interim financial statements, as may be permitted
by the SEC on Form 10-Q or Form 10-QSB), (ii) shall comply as to form in all
material respects with applicable accounting requirements and with published
rules and regulations of the SEC with respect thereto, and (iii) shall fairly
present the consolidated financial position of PerfectData in all material
respects as of the respective dates thereof.
(b) PerfectData shall file with the SEC such reports, including,
without limitation, a Current Report on Form 8-K complying with Item 5.03
thereof, and otherwise take such actions as the SEC rules and regulations may
require, as shall be necessary to change its
fiscal year and that of Merger Sub, effective with the Effective Time, from
March 31 to December 31.
(c) Sona shall furnish to PerfectData, on a timely basis, such
information, including financial statements, as shall be necessary for
PerfectData to comply with its reporting requirements under the federal
securities laws (including, without limitation the Securities Act, the Exchange
Act and the Sarbanes-Oxley Act) and the rules and regulations promulgated
thereunder, which requirements include, without limitation, PerfectData's
requirements (i) to file, and distribute to its stockholders a copy of, a
statement pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder relating to the persons to be designated by Sona for
election as directors of PerfectData and (ii) to file a Current Report on Form
8-K, whenever required to report with respect to the transactions contemplated
by this Agreement, pursuant to Section 13 of the Exchange Act. Sona represents
and warrants to PerfectData that such information, including any financial
statements included therein, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they were
made, not misleading.
Section 5.11. PerfectData Stockholders' Meeting. The parties hereto agree
that, as soon as practicable after the Effective Time, but not later than 90
days thereafter, the then Board of Directors of PerfectData shall either (a)
call the Annual Meeting of Stockholders or (b) seek the consent of the holders
of at least a majority of the outstanding shares of capital stock entitled to
vote at a stockholders meeting to approve an amendment to the PerfectData
Charter increasing the number of authorized shares of the PerfectData Common
Stock to such number of shares that, as a minimum, would permit (x) full
conversion of the PerfectData Series A Preferred Stock and (y) the issuance of
all of the Additional Shares. In calling such meeting or seeking such consent,
the Board shall comply with Section 14 of the Exchange Act and the Delaware
General Corporation Law and the rules and regulations promulgated thereunder.
Section 5.12. PerfectData Directors.
(a) The parties hereto agree that the PerfectData director remaining
in office at the Closing Date shall be nominated for reelection as a director of
the Company at least at the first Annual Meeting of Stockholders of PerfectData
held after the Closing Date and the then directors shall use their best efforts
to solicit proxies for his or her election at such meeting.
(b) The parties agree that at least three of the directors
post-closing of PerfectData shall, not later than three months after the Closing
Date, meet the eligibility requirements imposed by The Nasdaq Stock Market, Inc.
("Nasdaq") for service on an audit committee of a Nasdaq-listed company.
Section 5.13. Sona Salary Payments. The parties hereto agree that,
following the Closing Date, PerfectData shall limit its payments of back salary
and other compensation in arrears to officers, employees and consultants of Sona
and the Sona Subsidiary to no more than $100,000 unless and until PerfectData
consummates a financing for at least $500,000 in gross proceeds post-Closing
Date or Sona has consummated a bridge financing in at least that amount prior to
the Closing Date.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SONA
The obligations of Sona to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment of each of the following
conditions, except as Sona may waive any one or more such conditions (other than
Section 6.4 hereof) in writing.
Section 6.1. Performance. Each of PerfectData and Merger Sub shall have
performed and complied in all material respects with all agreements, obligations
and covenants required by this Agreement to be performed or satisfied by
PerfectData and Merger Sub on or prior to the Closing Date, including, without
limitation, PerfectData's obligation to file the Certificate of Designations and
to have timely filed all SEC Reports required to have been filed under the
Exchange Act.
Section 6.2. Representations and Warranties. The representations and
warranties of PerfectData and Merger Sub set forth herein shall be true and
correct in all material respects on the date hereof and on the Closing Date, as
if made again at and as of such time, subject to any transactions which are
contemplated or permitted by this Agreement, except for any inaccuracies which,
taken as a whole, would not reasonably result in a PerfectData Material Adverse
Effect.
Section 6.3. Material Adverse Change. From the date of this Agreement to
the Closing Date, there shall have occurred no PerfectData Material Adverse
Effect or any other change in the condition (financial or otherwise), net worth,
assets or properties, of PerfectData and Merger Sub, taken as a whole, or any
occurrence, circumstance or combination thereof, including litigation pending or
threatened, which might reasonably result in any PerfectData Material Adverse
Effect after the Effective Time.
Section 6.4. Stockholder Approval. The requisite stockholder approvals have
been obtained from the stockholders of Sona and PerfectData, as the sole
stockholder of Merger Sub, has approved the Merger on behalf of Merger Sub.
Section 6.5. Legal Opinion. Counsel to PerfectData shall, immediately prior
to the Closing Date, have delivered to Sona its legal opinion, dated the Closing
Date and addressed to Sona, in substantially the form of Exhibit G hereto.
Section 6.6. Other Consents. On or prior to the Closing Date, PerfectData
and Merger Sub shall have obtained all permits, authorizations, consents and
approvals whether or not referred to, directly or indirectly, in this Agreement
in form and substance satisfactory to Sona and Sona shall have received evidence
satisfactory to it of the receipt of such permits, authorizations, consents and
approvals.
Section 6.7. Resignations. PerfectData and Merger Sub shall have delivered
to Sona resignations, effective on the Closing Date, of four of the five
directors and all of the officers of PerfectData and each of the directors and
officers of Merger Sub, except for such officers as Sona may reasonably request
to continue in service to facilitate the Closing and transition of new
management.
Section 6.8. Compliance with Financial Conditions. At the Closing Date, the
Tangible Net Worth of PerfectData shall not be less than $750,000 as determined
pursuant to Section 2.1(g) hereof and PerfectData shall have delivered a
certificate from its Chief Financial Officer (a) as to the Tangible Net Worth as
of the Closing Date, (b) listing all of the bank and money market accounts of
PerfectData (including the name and address of the financial institution where
such accounts are located), account numbers and the balances therein as of the
Closing Day and (c) listing all of the other PerfectData assets and their
location.
Section 6.9. PerfectData Employees. Each employee of PerfectData as of the
date of this Agreement and/or as of the Closing Date shall have delivered a
waiver and release of any obligations of PerfectData to him or her, subject to
payment to him or her of any salary, severance and accrued vacation pay through
the date of his or her termination as an employee of PerfectData in amounts as
disclosed in Schedule 6.9 of the PerfectData Disclosure Statement, all of which
amounts shall have been included in the determination of Tangible Net Worth in
Section 2.1(g)(ii) hereof.
Section 6.10. Stock Purchase Agreement. PerfectData shall have delivered a
waiver and release executed by each of Millennium Capital Corporation
("Millennium"), Corey P. Schlossmann and William B. Wachtel as the Trustee of
Digital Trust of any obligations of PerfectData to him or it as a Buyer pursuant
to the Stock Purchase Agreement entered into on January 20, 2000 by and among
PerfectData and the individuals and entities set forth on Exhibit A thereto as
the Buyers.
Section 6.11. Consulting Agreement. PerfectData shall have executed and
delivered an Amendment terminating the Consulting Agreement dated January 20,
2000 (the "Consulting Agreement") by and among PerfectData, Millennium and JDK
Associates, Inc. ("JDK") and terminating any obligation of PerfectData under the
Consulting Agreement to Millennium and JDK except as to the warrant of each to
purchase 10,000 shares of the PerfectData Common Stock and "piggyback"
registration rights granted to JDK or its designee with respect to 150,000
shares of the PerfectData Common Stock that will be issued for the release.
Section 6.12. Shapiro Employment Agreement. PerfectData shall have
delivered an agreement terminating the Employment Agreement dated as of
September 1, 2000, as amended (the "Employment Agreement"), by and between
PerfectData and Harris A. Shapiro, Chairman of the Board, the Chief Executive
Officer and a director of PerfectData and releasing PerfectData of any further
obligations under the Employment Agreement to Mr. Shapiro except as to amounts,
if any, as disclosed in Schedule 6.12 of the PerfectData Disclosure Statement,
which amount, if any, shall have been included in the determination of Tangible
Net Worth in Section 2.1(g)(ii) hereof.
Section 6.13. Schlossmann Claims. Corey P. Schlossmann, a director of
PerfectData, has delivered a waiver and release of any obligations of
PerfectData to him other than those relating to his stock options under the
PerfectData Option Plan or any director's fee earned prior to, but not paid as
of, the Closing Date, and such director's fee(s) shall have been disclosed in
Schedule 6.13 of the PerfectData Disclosure Statement and have been included in
the determination of Tangible Net Worth in Section 2.1(g)(ii) hereof.
Section 6.14 PerfectData 1999 Authorization. PerfectData's Board of
Directors shall have terminated the PerfectData 1999 Authorization prior to the
Closing Date.
Section 6.15. Stock Trading. The PerfectData Common Stock shall have
continued to be traded on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc.
Section 6.16. No Litigation. Immediately prior to the Effective Time, there
shall (a) have been no order, decree or ruling issued or any other action taken
by any court of competent jurisdiction or other governmental or self-regulatory
authority, which has become final and nonappealable, restraining, enjoining or
otherwise prohibiting the transactions contemplated under this Agreement or (b)
be no litigation or proceeding pending against PerfectData or Merger Sub, or
Sona, which, if decided adversely to such party would materially and adversely
affect the transactions contemplated by this Agreement. Immediately prior to the
Effective Time, there shall be no governmental or self-regulatory investigation
or inquiry pending or threatened which might lead to or result in any litigation
or proceeding of the nature referred to in the foregoing sentence.
Section 6.17. Closing Certificates. PerfectData and Merger Sub shall have
furnished to Sona such certificates (executed by its principal executive
officer, its chief financial officer and its secretary to the best of his or her
personal knowledge and information) to evidence its compliance with the
conditions set forth in this Article VI as may be reasonably requested by Sona.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PERFECTDATA AND MERGER SUB
The obligations of PerfectData and Merger Sub to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
of each of the following conditions, except as PerfectData may waive any one or
more such conditions in writing.
Section 7.1. Performance. Sona shall have performed and complied in all
material respects with all agreements, obligations and covenants required by
this Agreement to be performed or satisfied by it on or prior to the Closing
Date.
Section 7.2. Representations and Warranties. The representations and
warranties of Sona set forth in herein shall be true and correct in all material
respects on the date hereof and on the Closing Date, as if made again at and as
of such time, subject to any transactions which are contemplated or permitted by
this Agreement, except for any inaccuracies which, taken as a whole, would not
reasonably result in a Sona Material Adverse Effect.
Section 7.3. Legal Opinion. Counsel to Sona shall, immediately prior to the
Closing Date, have delivered to PerfectData an opinion, dated the Closing Date
and addressed to PerfectData, in substantially the form of Exhibit H hereto.
Section 7.4. Shareholder Approval. The requisite shareholder approvals have
been obtained from the shareholders of Sona.
Section 7.5. Other Consents. On or prior to the Closing Date, Sona shall
have obtained all permits, authorizations, consents and approvals whether or not
referred to, directly or indirectly, in this Agreement in form and substance
satisfactory to PerfectData and PerfectData shall have received evidence
satisfactory to it of the receipt of such permits, authorizations, consents and
approvals.
Section 7.6. Sona Financial Statements. Sona shall, not later than ten
Business Days prior to the anticipated Closing Date, deliver to PerfectData true
and correct copies of Sona's audited consolidated balance sheets as of December
31, 2004 and December 31, 2003, and the related audited statements of
operations, shareholders' equity and cash flow, including all notes and
schedules thereto, for the fiscal years ended December 31, 2004 and December 31,
2003, together with the reports on all such audited balance sheets and
statements by Horwath Orenstein LLP, Sona's independent registered public
accounting firm (the "Final Sona Financial Statements"). Sona shall have
represented and warranted to PerfectData that each of the Final Sona Financial
Statements (a) was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved and (b) fairly presented the consolidated
financial position of Sona as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
consistent with the books and records of Sona. Singer Lewak Greenbaum &
Goldstein LLP, PerfectData's independent registered public accounting firm,
shall have advised PerfectData that the Final Sona Financial Statements are
acceptable for filing in a Current Report on Form 8-K.
Section 7.7. No Litigation. Immediately prior to the Effective Time, there
shall (a) have been no order, decree or ruling issued or any other action taken
by any court of competent jurisdiction or other governmental or self-regulatory
authority, which has become final and nonappealable, restraining, enjoining or
otherwise prohibiting the transactions contemplated under this Agreement or (b)
be no litigation or proceeding pending against PerfectData or Merger Sub or
Sona, which, if decided adversely to such party would materially and adversely
affect the transactions contemplated by this Agreement. Immediately prior to the
Effective Time, there shall be no governmental or self-regulatory investigation
or inquiry pending or threatened which might lead to or result in any litigation
or proceeding of the nature referred to in the foregoing sentence.
Section 7.8. Compliance with Financial Conditions. All the Closing Date,
the Tangible Net Worth of PerfectData shall not be less than $750,000 as
determined pursuant to Section 2.1(g) hereof.
Section 7.9. Closing Certificates. Sona shall have furnished to PerfectData
and Merger Sub such certificates (executed by its principal executive officer,
its chief financial officer and its secretary to the best of his or her personal
knowledge and information) to evidence its compliance with the conditions set
forth in this Article VII as may be reasonably requested by PerfectData.
ARTICLE VIII
TERMINATION AND REMEDIES
Section 8.1. Termination. This Agreement may be terminated as follows:
(a) By mutual written consent of Sona and PerfectData.
(b) By either Sona or PerfectData if a court of competent jurisdiction
or other governmental entity shall have issued an order, decree or ruling or
taken any other action, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, which order, decree,
ruling or other action is final and non-appealable.
(c) By either Sona or PerfectData as provided in Section 2.1(g)(i)
hereof.
(d) By Sona (i) at any time if there was a material breach in any
representation, warranty, covenant, agreement or obligation of PerfectData or
Merger Sub contained in this Agreement and is incapable of being cured by
PerfectData or is not actually cured within 15 days of written notice delivered
by Sona; (ii) at any time if PerfectData fails to comply in any material respect
with any provision of Article V binding upon it; or (iii) if Sona provides
written notice of termination as contemplated by Section 5.9 hereof.
(e) By Sona, upon written notice given to PerfectData if all of the
conditions precedent set forth in this Agreement to be performed by PerfectData
or Merger Sub have not been so performed and are not capable of being performed
by April 15, 2005 (the "Deadline Date") unless the failure of such occurrence
shall be due to the failure of Sona.
(f) By PerfectData (i) at any time if there was a material breach in
any representation, warranty, covenant, agreement or obligation of Sona
contained in this Agreement and is incapable of being cured by Sona or is not
actually cured within 15 days of written notice delivered by PerfectData; (ii)
at any time if Sona fails to comply in any material respect with any provision
of Article V binding upon it; (iii) if the Final Sona Financial Statements
delivered pursuant to Section 7.6 hereof are, in the reasonable opinion of
PerfectData, materially inconsistent with the Preliminary Sona Financial
Statements delivered pursuant to Section 4.8 hereof; or (iv) if PerfectData
provides written notice of termination as contemplated by Section 5.9.
(g) By PerfectData, upon written notice given to Sona if all of the
conditions precedent set forth in this Agreement to be performed by Sona have
not been so performed and are not capable of being performed by the Deadline
Date unless the failure of such occurrence shall be due to the failure of
PerfectData.
Section 8.2. Effect of Termination. Any termination of this Agreement under
Section 8.1 hereof shall be effective immediately upon delivery of a valid
written notice from the terminating party to the other party, or, in the case of
subsection (a) thereof, by delivery of the consent. Termination of this
Agreement pursuant to Section 8 (other than a termination pursuant to Section
8.1(a) hereof) shall not in any way terminate, limit or restrict the rights and
remedies of any party against any other party that has violated, breached or
failed to satisfy any of the representations, warranties, covenants, agreements,
conditions or other provisions of this
Agreement prior to termination hereof. No termination of this Agreement shall
affect (i) the confidentiality obligations of the parties contained in Section
9.4 hereof, (ii) the fee payment and expense reimbursement obligations under
Section 5.9 hereof, (iii) the reimbursement obligations under Sections 8.3 and
8.4 hereof, or (iv) the remedies under Section 8.5 and 8.6 hereof, all of which
obligations shall survive termination of this Agreement.
Section 8.3. Termination Reimbursement Payment - PerfectData. In the event
that this Agreement is terminated by Sona pursuant to Section 8.1(c), Section
8.1(d), or Section 8.1(e) hereof, PerfectData shall (a) pay to Sona, as
liquidated damages and not as a penalty, the sum of $250,000 and (b) reimburse
Sona for all of Sona's out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement (including, without limitation, the
fees and expenses of Sona's legal counsel and accountants and the expenses of
Sona's financial advisors). Such payments shall be made in cash, by wire
transfer to an account designated by Sona, within five Business Days of
PerfectData's receipt of appropriate documentation of Sona's fees and expenses.
Section 8.4. Termination Reimbursement Payment - Sona. In the event that
this Agreement is terminated by PerfectData pursuant to Section 8.1(f) hereof or
Section 8.1(g) hereof, upon such termination Sona shall (a) pay to PerfectData,
as liquidated damages and not as a penalty, the sum of $250,000 and (b)
reimburse PerfectData for all of PerfectData's out-of-pocket expenses incurred
in connection with the transactions contemplated by this Agreement (including,
without limitation, the fees and expenses of PerfectData's legal counsel and
accountants and the expenses of PerfectData's financial advisors). Such payment
shall be made in cash, by wire transfer to an account designated by PerfectData,
within five Business Days of Sona's receipt of appropriate documentation of
PerfectData's fees and expenses.
Section 8.5. Sona's Remedy. In the event that, subsequent to the Effective
Time and prior to the issuance of the Additional Shares to the former Sona
shareholders pursuant to Section 2.6(b) hereof, either John Bush or Shawn
Kreloff, currently officers, directors and shareholders of Sona and, subsequent
to the Merger, officers, directors and stockholders of PerfectData, shall
ascertain that PerfectData has materially breached one or more of its
representations or warranties in this Agreement, which breach or breaches has or
have resulted in losses, costs, damages or expenses to PerfectData aggregating
at least $50,000 or $25,000 in the case of any adjustment to the Tangible Net
Worth, then either John Bush or Shawn Kreloff may request that the Additional
Shares be issued to the former Sona shareholders immediately, even if the terms
and conditions of Section 2.6(b) hereof for such issuance have not been complied
with, and the Transfer Agent, upon receipt of appropriate instructions to such
effect, shall issue the Additional Shares to the former shareholders of Sona.
Section 8.6. PerfectData's Remedy. In the event that, subsequent to the
Effective Time and prior to the issuance of the Additional Shares to the former
Sona shareholders pursuant to Section 2.6(b) hereof, Harris A. Shapiro
("Shapiro"), currently an officer, director and stockholder of PerfectData and,
subsequent to the Merger, only a security-holder of PerfectData, shall ascertain
that Sona had materially breached one or more of its representations or
warranties in this Agreement, which breach or breaches has resulted in losses,
costs, damages or expenses to PerfectData aggregating at least $50,000, then he
may request that the reserve for the Additional Shares be cancelled, even if the
terms and conditions of Section 2.6(c) hereof for such
cancellation have not been complied with, and the Transfer Agent, upon receipt
of appropriate instructions to such effect, shall cancel the reserve for the
Additional Shares. In the event that Shapiro is unable or declines to act as
provided in this Section 8.6, Corey P. Schlossman, currently a director of
PerfectData and, after the Merger, only a security-holder of PerfectData, shall
act in lieu of Shapiro.
ARTICLE IX
OTHER PROVISIONS
Section 9.1. Notices. Any notice or other communication required or which
may be given hereunder shall be in writing and either delivered personally to
the addressee, by facsimile to the addressee or mailed, certified or registered
mail, postage prepaid, or by reputable overnight courier service and shall be
deemed given when so delivered personally, sent by facsimile, or if mailed, two
Business Days after the date of mailing, or if sent by reputable overnight
courier service, one Business Day after being sent as follows (or to such other
person or address as a party may subsequently furnish to the other in writing):
if to Sona:
Sona Mobile, Inc.
Victoria Tower
44 Victoria Street
Suite 801
Toronto Ontario M5C 1Y2
Canada
Attention: Mr. John Bush
Fax: (416) 866-2970
with a copy to:
Morse, Zelnick, Rose & Lander LLP
405 Park Avenue South
Suite 1401
New York, New York 10022
Attention: Joel J. Goldschmidt, Esq.
Fax: (212) 838-9190
if to PerfectData or Merger Sub:
PerfectData Corporation
1445 East Los Angeles Avenue
Suite 208
Simi Valley, CA 93065
Attention: Mr. Harris A. Shapiro
Fax: (805) 581-4574
with a copy to:
Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attention: Robert W. Berend, Esq.
Fax: (212) 909-9445
Any party may change its address by notice sent in accordance with this Section
9.1.
Section 9.2. Entire Agreement. This Agreement (including the Disclosure
Statements and Exhibits) contains the entire agreement among the parties with
respect to the transactions contemplated hereby and supersedes all prior
agreements, written or oral, with respect thereto, including, without
limitation, the letter of intent dated January 11, 2005 between Sona and
PerfectData. The Disclosure Statements and the Exhibits are a part of this
Agreement as if set forth in full herein.
Section 9.3. Amendment or Modification Agreement; Waiver. This Agreement
may be amended, modified, superseded, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance, provided
that no such amendment or modification shall materially change any terms or
conditions of this Agreement if such alteration or change would materially and
adversely affect the holders of the Sona Common Stock, the Sona Series A
Preferred Stock or the PerfectData Common Stock. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
Section 9.4. Confidentiality; Non-Disclosure. All information which is not
public knowledge disclosed heretofore or hereafter by any party to any other
party (including its attorneys, accountants or other representatives) in
connection with this Agreement (including the existence of this Agreement and
the terms thereof) shall be kept confidential by such other party, and shall not
be used by such other party otherwise than for use as herein contemplated,
except to the extent (a) it is or hereafter becomes public knowledge or becomes
lawfully obtainable from other sources, including from a third party who is
under no obligation of confidentiality to the party disclosing such information
or to whom information was released without restriction, or (b) such other party
is compelled to disclose such information by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, or (c) such
duty as to confidentiality and non-use is waived by the non-disclosing party.
The obligations set forth in this Section 9.4 shall survive any termination of
this Agreement. Notwithstanding the foregoing, the parties to this Agreement
(and each employee, representative or other agent of the parties) may disclose
to any and all persons, without limitation of any kind, the tax treatment and
tax structure provided for therein, provided, however, that no party (nor any
employee, representative, or other agent thereof) shall disclose any information
to the extent that such disclosure could result in a violation of any federal or
state securities law.
Section 9.5. Investigations. The respective representations and warranties
of the parties contained herein or in any certificates or other documents
delivered prior to or at the Closing shall not be deemed waived or otherwise
affected by the investigation made by a party hereto.
Section 9.6. Survival of Representations and Warranties. The
representations and warranties of the parties contained in this Agreement shall
survive the Closing and shall terminate and be of no further force or effect as
of the first anniversary of the Closing Date.
Section 9.7. Fees and Expenses. Except as otherwise expressly provided
herein, each party shall bear its respective legal, accounting and other costs
and expenses of any nature, relating to or in connection with the consummation
of the transactions contemplated by this Agreement, incurred by each of them,
whether or not the Merger is consummated or this Agreement is terminated.
Section 9.8 Cooperation; Further Actions and Assurances. At any time and
from time to time, each party agrees, without further consideration, to take
such actions and to execute and deliver such documents as may be reasonably
necessary to effectuate the purposes of this Agreement.
Section 9.9. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without reference to any principles of conflicts or laws; provided that any
matter involving the internal corporate affairs of Sona shall be governed by the
laws of the State of Washington.
Section 9.10. Assignment; Third Party Beneficiaries. Neither this Agreement
nor any right, interest or obligation hereunder shall be assigned by any party
hereto without the prior written consent of the other parties. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement is not intended to
confer any rights upon any person other than the parties to this Agreement.
Section 9.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 9.12. Interpretation. The Article and Section headings in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. The word "including" shall be
deemed to mean "including without limitation" and the word "or" shall be
inclusive.
Section 9.13. Knowledge. For purposes of this Agreement, "knowledge" as of
any date that a representation or warranty is given by a party shall mean the
actual or constructive knowledge of the management of such party, at the level
of vice president or above, and "knows" shall have a correlative meaning.
Section 9.14. Rules of Construction. Each party to this Agreement has been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore,
waives any rule of construction that would construe ambiguities against the
party drafting the Agreement.
Section 9.15. Definition of Business Day. When used in this Agreement,
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which national banks are authorized to close in the City of Los Angeles,
California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PerfectData CORPORATION
By:
Name: Harris A. Shapiro
Title: Chairman of the Board and Chief Executive Officer
PERFECTDATA ACQUISITION CORPORATION
By:
Name: Harris A. Shapiro
Title: Chairman of the Board and Chief Executive Officer
SONA MOBILE, INC.
By:
Name: John Bush
Title: President and Chief Executive Officer
NEWS RELEASE : FOR IMMEDIATE RELEASE March 10, 2005
For further information:
PERFECTDATA CORPORATION SONA MOBILE, INC.
Harris A. Shapiro John Bush
Chairman of the Board President and CEO
(805) 581-4006 (416) 866-4100
PERFECTDATA CORPORATION AND SONA MOBILE, INC.
ENTER INTO DEFINITIVE MERGER AGREEMENT
SIMI VALLEY, California, March 10, 2005 - - PerfectData Corporation (the
"Company") (OTC Bulletin Board: PERF.OB) and Sona Mobile, Inc. announced today
that they entered into a definitive Agreement and Plan of Merger.
Sona Mobile, Inc. (http://www.sonamobile.com), founded in 2003, through its
wholly-owned subsidiary, Sona Innovations, Inc., provides mobile business
solutions through a comprehensive suite of wireless solutions that allow
enterprises to mobilize business applications rapidly and cost effectively. Sona
Mobile, Inc. has offices and subsidiaries in the United States, Canada and the
United Kingdom.
Sona Mobile has established a reputation as a leader in mobile technologies,
helping enterprises deliver robust, reliable, and secure wireless access to
critical, time-sensitive information.
A key differentiator that distinguishes Sona Mobile from its competitors is the
Sona Wireless Platform (SWP). Created exclusively for wireless application
development, the SWP is a wireless development platform that makes it easier and
less costly to develop applications that deliver new or existing
mission-critical data to a broad spectrum of mobile devices.
Beginning with its flagship product, MobileMarketsTM, which is marketed around
the world as Telerate Mobile, Win MobileMarketsTM and EFO Mobile are used by
some of the world's largest financial institutions.
Under the terms of the Merger Agreement, the shareholders of Sona Mobile, Inc.
initially will own 80% of the merged entity and could own an additional 5%
pursuant to a formula which is set forth in the Merger Agreement. Closing is
subject to certain conditions precedent, so there can be no assurance as to when
and if the contemplated transaction will be consummated. However, management of
both companies are seeking to close the transaction in late March or early
April.
"After a long search for a merger candidate which would increase stockholder
value for the PerfectData stockholders, we are very pleased to execute this
Merger Agreement with Sona Mobile and look forward to a fruitful relationship,"
Harris A. Shapiro, PerfectData's Chairman and Chief Executive Officer, stated.
"We look forward to completing our merger with PerfectData," said John Bush,
President and CEO of Sona Mobile, Inc. "We are excited at being a public
company, which we believe will allow us to execute on our growth strategy."
* * *
The release herein may contain or identify 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.