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) November 22, 1999
--------------------------------
DIGITAL D.J. HOLDINGS, INC.
formerly known as
BREAKTHROUGH ELECTRONICS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Nevada 33-14982-LA 77-0530472
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1658 E. Capitol Expressway, San Jose, California 95121
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (408) 246-9855
--------------------
Breakthrough Electronics, Inc., 2612 East Kentucky Avenue,
----------------------------------------------------------
Salt Lake City, Utah 84117
--------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
Item 1. Changes in Control of Company.
- ------- -----------------------------
A change in control of the Company has occurred as of the date of
this report. Digital D.J. Holdings, Inc., formerly known as Breakthrough
Electronics, Inc. (the "Company") has recently completed a merger, pursuant to
that certain Agreement and Plan of Merger, dated November 22, 1999, a copy of
which is attached hereto and incorporated herein by this reference (the "Merger
Agreement") and through which control of the Company was transferred from its
existing shareholders to the shareholders of Digital D.J., Inc. For the purposes
of this Form 8-K report, the essential terms of the merger are outlined as
follows:
1. On November 22, 1999, the Company, through its wholly owned
subsidiary, Digital DJ Subsidiary, Inc., merged with Digital DJ, Inc., in a
reverse triangular merger. The Company issued to the shareholders of Digital DJ,
Inc., one share of common stock for each outstanding share of Digital DJ, Inc.,
on a fully converted basis. In exchange for the merger between Digital D.J.,
Inc., and Digital D.J. Merger Subsidiary, Inc., the Company issued 15,160,910
shares of common stock to Digital D.J., Inc., constituting approximately 96% of
the Company's issued and outstanding shares. The Digital D.J., Inc. shareholders
thereby became the controlling shareholders of the Company. No other
consideration was involved in the acquisition. Control of the Company changed
from Lawrence Sapperstein, a former Director and President, Lawrence Grobstein,
former Director and Vice President and Anthony Adimey, former Director and
Secretary-Treasurer. The new controlling shareholders acquired control from the
Board of Directors and offices listed above. The new controlling shareholders
are listed below.
Percentage of Shares
--------------------
Controlling Person Beneficially Owned
------------------ ------------------
Tsutomu Takahisa (Director) 26.62%
Yoshiki Ohmori (Director) 3.14%
Koyo Hasagawa (Director) 3.14%
Investment Enterprise Partnership YED 9.60%
Nichimen American/Nichimen Corporation 9.51%
2. Concurrently with the merger, the Company changed its name of
record with the Nevada Secretary of State to Digital DJ Holdings, Inc.
3. On January 11, 2000, the Company changed its Nasdaq trading
symbol to DJAY and its Cusip number to 25383V105.
4. The new Board of Directors, as nominated by the Shareholders of
the Company, was elected to become the new Board of Directors of the Company.
The biographical information of each of the following listed directors is more
fully and completely set-out in the Proxy Statement sent to all shareholders of
the Company and a copy of which has been incorporated by this reference as an
exhibit:
2
<PAGE>
A. Tsutomu Takahisa
B. Yasuhiko Ohmori
C. Koyo Hasegawa
5. The Merger Agreement also provided that all debts and
obligations of the Company were paid and discharged as of the closing date of
the reorganization.
6. The place of business of the Company will be changed to the
principal business address in San Jose, California, of its sole operating
subsidiary, Digital D.J., Inc.
Item 2. Acquisition or Disposition of Assets.
- ------- ------------------------------------
(a) As outlined in Item 1, the Company (now known as Digital DJ
Holdings, Inc.) merged its subsidiary, Digital DJ Subsidiary, Inc., in a reverse
triangular merger resulting in all of the outstanding shares of Digital DJ,
Inc., being acquired by the Company for the Company's common stock, on a
one-for-one basis, in a transaction in which 15,160,910 shares of the Company's
common stock were issued to the shareholders of Digital D.J., Inc.
(b) The assets of Digital DJ, Inc., are more fully set-out in
the Financial Statements appended hereto.
Item 3. Changes in Company's Certifying Accountant.
- ------- ------------------------------------------
The historical independent auditors and accountants for the
Company were the Las Vegas, Nevada firm of Paul M. Healy, CPA.
(a) After completion of the merger and the change of control, the
Company's Board of Directors selected the accounting firm of Singer, Lewak,
Greenbaum & Goldstein to replace the firm of Paul M. Healy, CPA, as Company's
accountants.
The former accountants did not resign or decline to stand for
reelection, but were dismissed as part of the change of control to allow the
appointment of Singer, Lewak, the accountants for Digital D.J., Inc., prior to
the merger.
The Company's former principal accountants, Paul M. Healy, CPA's
audited financial reports stated a qualification that the Company might not
continue as a going concern. Such statement was unrelated to their replacement.
The decision to change accountants was recommended and approved by
the Board of Directors.
3
<PAGE>
Company is not aware of any disagreements with Company's former
accountant during the past two most recent fiscal years on any matter of
accounting principals or practices, financial statement disclosure or auditing
scope or procedure.
The Company has provided the former accountant with a copy of the
disclosures the Company is making in this Form 8-K report in response to the
disclosures required by Regulation S-K, Item 304(a). The former accountant has
been provided an opportunity to furnish the Company with a letter addressed to
the Commission stating its agreement and absence of any disagreement with the
statements made by the Registration in response to this Item.
Item 4. Other Events.
- ------- ------------
The Company believes that the outline of the significant items and
events incident to the merger as set-out and outlined in Item 1 constitute all
other significant events to be reported. Consequently, the matters discussed in
Item 1 are incorporated by this reference, together and attached accounting. The
Company knows of no other significant events, other than those outlined in Item
1.
Item 5. Resignation of Company's Directors.
- ------ ----------------------------------
As part of and as a condition to the closing of the merger on
November 22, 1999, the prior Board of Directors, who also constitute the
principal officers of the Company, resigned. These officers were Lawrence
Sapperstein, President/Director, Lawrence Grobstein, Vice President/Director;
and Anthony Adimey, Secretary- Treasurer/Director.
As part of the Merger and pursuant to the Resolution of the
Shareholders of Company, as attached hereto, certain nominees of Digital D.J.
were appointed and elected as directors and subsequently appointed officers of
the Company as more particularly set- out in the following table:
Name Position
---- --------
Tsutomu Takahisa Director, President, Secretary, Treasurer
and CFO
Yasuhiko Ohmori Director
Koyo Hasegawa Director
Various biographical information concerning each of the foregoing
directors and officers, as well as their sharehold interest, are more fully
set-out in the proxy statement submitted to the shareholders of the Company in
4
<PAGE>
the concurrently filed Notice to Shareholders attached and which is incorporated
by this reference. No compensation for these officers has currently been set.
Item 6. Financial Statements and Exhibits.
- ------ ---------------------------------
The Company's financial statements, pro forma financial
information and exhibits thereto are filed herewith.
(a) Exhibits.
(2) 2.1 Agreement and Plan of Merger.
2.2 Agreement of Merger.
(3) 3.1 Amended Articles of Incorporation of Breakthrough
Electronics, Inc.
(5) 5.1 Opinion of Counsel of James Lewis.
(17) 17.1 Resignation and Termination Agreement of Lawrence
Sapperstein.
17.2 Resignation and Termination Agreement for Lawrence
Grobstein.
17.3 Resignation and Termination Agreement for Anthony
Adimey.
(21) 21.1 List of Subsidiaries of the Company.
(22) 22.1 Proxy Statement
(99) 99.1 Press Release
5
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
June 30, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Table of Contents
Page
Independent Auditors'Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders'
(Deficit) Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
<PAGE>
Independent Auditors' Report
The Board of Directors
Digital DJ Inc:
We have audited the accompanying consolidated balance sheets of Digital DJ Inc.
and subsidiary (the Company), a development stage company, as of June 30, 1999
and 1998, and the related consolidated statements of operations, shareholders'
(deficit) equity, and cash flows for the years then ended and for the period
from December 6, 1991 (inception) to June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The cumulative consolidated statements of
operations, shareholders' (deficit) equity, and cash flows for the period from
December 6, 1991 (inception) to June 30, 1999, include amounts for the period
from December 6, 1991 (inception) to June 30, 1995, which were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for the period from December 6, 1991 (inception)
to June 30, 1995, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Digital DJ Inc. and subsidiary, a
development stage company, as of June 30, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended and for the
period from December 6, 1991 (inception) to June 30, 1999, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is in the development stage, has
experienced recurring losses since inception, and requires additional financing
or restructuring of its liabilities to complete its development stage
activities, which raise substantial doubt about its ability to continue as a
going concern. Management believes it will be able to obtain such financing from
new investors, and restructure its liabilities. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/KPMG LLP
-----------
KPMG LLP
December 9, 1999
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 1,029,379 4,859
Restricted cash -- 250,000
Accounts receivable 904 350,749
Other current assets 3,607 29,580
---------------- ----------------
1,033,890 635,188
Property and equipment, net 51,207 114,350
Other assets 28,920 29,421
---------------- ----------------
$ 1,114,017 778,959
================ ================
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 174,336 2,779,175
Notes payable -- 30,000
Deferred revenue 1,557,500 635,000
Accrued expenses and other current
liabilities 343,729 448,035
---------------- ----------------
Total current liabilities 2,075,565 3,892,210
Long-term notes payable 2,412,705 807,705
Other liabilities 19,894 --
---------------- ----------------
Total liabilities 4,508,164 4,699,915
Minority interest 1,142 --
Commitments
Shareholders' deficit:
Preferred stock, no par value
(liquidation preference aggregating
$9,549,251 in 1999 and 1998);
6,000,000 shares authorized; 3,408,476
shares issued and outstanding in
1999 and 1998 9,549,251 9,549,251
Common stock and warrants, no par
value; 20,000,000 shares
authorized; 6,030,700 and 6,030,500
shares issued and outstanding in
1999 and 1998 985,402 985,242
Deficit accumulated during the
development stage (13,929,942) (14,455,449
---------------- ----------------
Total shareholders' deficit (3,395,289) (3,920,956
---------------- ----------------
deficit $ 1,114,017 778,959
================ ================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from
December 6,
1991
Years ended June 30, (inception) to
----------------------------------------
1999 1998 June 30, 1999
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Revenues $ 444,449 368,019 1,122,921
Rental income 99,094 118,956 218,050
------------- ------------- --------------
Total revenues 543,543 486,975 1,340,971
------------- ------------- --------------
Costs and expenses:
Cost of revenues 24,261 1,140,100 1,207,851
Cost of rental income 80,398 119,144 199,542
Loss on inventory write down -- 2,271,203 2,271,203
Loss on sales or write down
of property and equipment 12,188 588,108 600,296
Research and development 371,859 1,346,615 3,761,324
Selling, general, and
administrative 803,867 2,723,207 8,483,384
------------- ------------- --------------
Total costs and expenses 1,292,573 8,188,377 16,523,600
------------- ------------- --------------
Loss from operations (749,030) (7,701,402) (15,182,629
------------- ------------- --------------
Other expenses:
Interest, net (86,379) (32,750) (104,081
Other (6,804) (27,741) (3,662
------------- ------------- --------------
Total other expenses (93,183) (60,491) (107,743
------------- ------------- --------------
Loss before income taxes
and extraordinary item (842,213) (7,761,893) (15,290,372
Income taxes 3,000 1,490 10,290
------------- ------------- --------------
Loss before extraordinary
item (845,213) (7,763,383) (15,300,662
Extraordinary item - gain on
restructuring of accounts payable,
net of income tax expense of
$10,000 1,370,720 -- 1,370,720
------------- ------------- --------------
Net income (loss) $ 525,507 (7,763,383) (13,929,942
============= ============= ==============
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Shareholders' (Deficit) Equity
<TABLE>
<CAPTION>
Preferred stock Common stock and warrants
------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Issuance of common stock at $5.00 per share -- $ -- 60,000 $ 300,000
Net loss for the period from December 6, 1991 (inception)
to June 30, 1992 -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1992 -- -- 60,000 300,000
Stock split, June 3, 1993 -- -- 4,140,000 --
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1993 -- -- 4,200,000 300,000
Issuance of common stock and warrants at $0.60 per share -- -- 166,667 100,000
Issuance of common stock and warrants at $0.70 per share -- -- 500,003 350,002
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1994 -- -- 4,866,670 750,002
Issuance of Series A preferred stock at $1.40 per share 431,564 604,190 -- --
Series A preferred stock exchanged forgiveness of note
payable and accrued interest 50,534 70,747 -- --
Common stock exchanged forforgiveness of notes payable
and accrued interest -- -- 148,810 148,810
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1995 482,098 674,937 5,015,480 898,812
Issuance of Series B preferred stock at $2.50 per share 827,255 2,068,137 -- --
Series B preferred stock exchanged for forgiveness of
note payable and accrued inter 40,756 101,890 -- --
Issuance of Series C preferred stock at $3.00 per share 759,710 2,279,130 -- --
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1996 2,109,819 5,124,094 5,015,480 898,812
Issuance of Series C preferred stock at $3.00 per share 240,290 720,870 -- --
Issuance of Series D preferred stock at $3.50 per share 554,473 1,940,656 -- --
Issuance of common stock under stock option plans -- -- 515,010 50,717
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1997 2,904,582 7,785,620 5,530,490 949,529
Issuance of Series D preferred stock at $3.50 per share 503,894 1,763,631 -- --
Issuance of common stock under stock option plans -- -- 500,010 35,713
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1998 3,408,476 9,549,251 6,030,500 985,242
Issuance of common stock under stock option plans -- -- 200 160
Net income -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1999 3,408,476 $ 9,549,251 6,030,700 $ 985,402
========== =========== ============ ===========
</TABLE>
4
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Shareholders' (Deficit) Equity
continued
<TABLE>
<CAPTION>
Deficit
accumulated Total
during shareholders'
development (deficit)
stage equity
---------------- --------------
<S> <C> <C>
Issuance of common stock at $5.00 per share -- 300,000
Net loss for the period from December 6, 1991 (inceptio
to June 30, 1992 (76,889) (76,889)
------------- -----------
Balances, June 30, 1992 (76,889) 223,111
Stock split, June 3, 1993 -- --
Net loss (227,520) (227,520)
------------- -----------
Balances, June 30, 1993 (304,409) (4,409)
Issuance of common stock and warrants at $0.60 per shar -- 100,000
Issuance of common stock and warrants at $0.70 per shar -- 350,002
Net loss (452,734) (452,734)
------------- -----------
Balances, June 30, 1994 (757,143) (7,141)
Issuance of Series A preferred stock at $1.40 per share -- 604,190
Series A preferred stock exchanged forgiveness of note
payable and accrued interest -- 70,747
Common stock exchanged forforgiveness of notes payable
and accrued interest -- 148,810
Net loss (682,748) (682,748)
------------- -----------
Balances, June 30, 1995 (1,439,891) 133,858
Issuance of Series B preferred stock at $2.50 per share -- 2,068,137
Series B preferred stock exchanged for forgiveness of
note payable and accrued inter -- 101,890
Issuance of Series C preferred stock at $3.00 per share -- 2,279,130
Net loss (1,871,340) (1,871,340)
------------- -----------
Balances, June 30, 1996 (3,311,231) 2,711,675
Issuance of Series C preferred stock at $3.00 per share -- 720,870
Issuance of Series D preferred stock at $3.50 per share -- 1,940,656
Issuance of common stock under stock option plans -- 50,717
Net loss (3,380,835) (3,380,835)
------------- -----------
Balances, June 30, 1997 (6,692,066) 2,043,083
Issuance of Series D preferred stock at $3.50 per share -- 1,763,631
Issuance of common stock under stock option plans -- 35,713
Net loss (7,763,383) (7,763,383)
------------- -----------
Balances, June 30, 1998 (14,455,449) (3,920,956)
Issuance of common stock under stock option plans -- 160
Net income 525,507 525,507
------------- -----------
Balances, June 30, 1999 (13,929,942) (3,395,289)
============= ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
December 6,
1991
Yers ended June 30, (inception) to
----------------------------------
1999 1998 June 30, 1999
---------------- ---------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 525,507 (7,763,383) (13,929,942)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on restructuring of accounts payable (1,380,720) -- (1,380,720)
Depreciation 47,405 316,321 661,376
Loss on sales or write down of property
and equipment 12,188 588,108 600,296
Loss on inventory write down -- 2,271,203 2,271,203
Accrued interest on loans converted to
common and preferred stock -- -- 19,447
Changes in operating assets and liabilities:
Accounts receivable 349,845 (350,749) (904)
Inventory -- (1,966,327) (1,966,327)
Restricted cash 250,000 -- --
Other current assets 25,973 28,867 (3,607)
Patent -- 71,492 --
Other assets 501 24,476 (28,920)
Accounts payable (222,977) 2,755,927 2,556,198
Accrued expenses and other current
liabilities (104,306) 7,195 343,729
Deferred revenue 922,500 635,000 1,557,500
Other liabilities 19,894 -- 19,894
----------- ------------ -----------
-- --
Net cash provided by (used in)
operating activities 445,810 (3,381,870) (9,280,777)
----------- ------------ -----------
Cash flows from investing activities:
Acquisition of equipment and furniture (11,410) (188,072) (1,871,056)
Proceeds from sale of equipment and furniture 14,960 238,341 253,301
----------- ------------ -----------
Net cash provided by (used in)
investing activities 3,550 50,269 (1,617,755)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 160 35,713 836,592
Proceeds from issuance of preferred stock -- 1,763,631 9,376,614
Proceeds from investor loans 605,000 837,705 1,777,705
Repayment of investor loans (30,000) -- (63,000)
----------- ------------ -----------
Net cash provided by
financing activities 575,160 2,637,049 11,927,911
----------- ------------ -----------
Net increase (decrease) in cash 1,024,520 (694,552) 1,029,379
Cash at beginning of period 4,859 699,411 --
----------- ------------ -----------
Cash at end of period $ 1,029,379 4,859 1,029,379
=========== ============ ===========
Supplemental disclosures of noncash investing and financing activities:
Conversion of loans payable and accrued
interest to
common and preferred stock:
Loans payable $ -- -- 302,000
Accrued interest -- -- 19,447
----------- ------------ -----------
$ -- -- 321,447
=========== ============ ===========
Conversion of accounts payable to notes
payable $ 1,000,000 -- 1,000,000
=========== ============ ===========
inventory $ -- 304,876 304,876
=========== ============ ===========
accounts payable $ 1,142 -- 1,142
=========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(1) The Company
Digital DJ Inc. (the Company) was incorporated in December 1991. The
Company's primary business activity is the development and marketing of a
digital data system that provides a variety of information services to
radio listeners using FM subcarrier technology. On April 1, 1999, the
Company established a wholly owned subsidiary, FM Intelligent
Transportation Systems, Inc. (FMITS), which provides a traffic
information service in the mobile market, with an initial investment of
$5,000 for 5,000,000 shares of common stock. On June 1, 1999, the Company
transferred 1,142,376 shares of the common stock of FMITS (approximate
23% interest) to Nichimen America, Inc. (Nichimen) in consideration for
the cancellation of accounts payable to Nichimen in the amount of
$951,980.
As of June 30, 1999, the Company is in the development stage and is
primarily engaged in research and development activities. Accordingly,
the accompanying consolidated statements of operations should not be
regarded as typical for normal periods of operation. The Company's
development stage status, recurring net losses and capital deficit raise
substantial doubt about its ability to continue as a going concern.
Additional financing or restructuring of its liabilities will be required
in order for the Company to complete its development stage activities.
Management believes that it will be able to obtain such financing from
new investors, and restructure its liabilities.
(2) Summary of Significant Accounting Policies
(a) Restricted Cash
Restricted cash consists of funds on deposit with a bank
supporting a letter of credit for the Company's facility
operating lease.
(b) Revenue Recognition
Effective July 1, 1998, the Company began recognizing revenue in
accordance with Statement of Position (SOP) 97-2, Software
Revenue Recognition.
SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements (i.e., software
products, upgrades/ enhancements, post-contract customer support,
installation and training) to be allocated to each element based
on the relative fair values of the elements. The fair value of an
element must be based on evidence, which is specific to the
vendor. The revenue allocated to software products (including
specified upgrades/enhancements) generally is recognized upon
shipment of the products. The revenue allocated to post-contract
customer support generally is recognized ratably over the term of
the support and revenue allocated to services is recognized as
such services are performed. If a vendor does not have evidence
of the fair value for all elements in a multiple-element
arrangement, all revenue from the arrangement is deferred until
such evidence exists or until all elements are delivered. The
adoption of SOP 97-2 did not have a material impact on the
Company's results of operations.
7
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(c) Capitalized Software
Development costs incurred in the research and development of new
software products are expensed as incurred until technological
feasibility in the form of a working model has been established.
To date, the Company has not completed its software development
to the point of technological feasibility, and accordingly, no
costs have been capitalized.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation of
property and equipment is provided using the straight-line method
over the estimated useful lives of the respective assets,
generally three to seven years.
(e) Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(f) Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
these estimates.
(g) Employee Stock Option Plans
The Company accounts for its stock-based compensation plans in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On July 1,
1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. Under SFAS No. 123, the
Company must disclose certain pro forma information related to
employee stock option grants as if the fair value-based method
defined in SFAS No. 123 had been applied.
8
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to
sell.
(i) Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable and payable,
and accrued liabilities approximate fair value due to the short
maturity of these instruments. The recorded amount of long-term
notes payable approximates fair value as the actual interest
rates approximate current competitive rates.
(3) Property and Equipment
Property and equipment as of June 30, 1999 and 1998, consisted of the
following:
1999 1998
---- ----
Furniture and fixtures $ 1,571 $ 17, 444
Computer equipment and software 170,365 188,381
--------- ---------
171,936 205,825
Less accumulated depreciation 120,729 91,475
--------- --------
$ 51,207 $ 114,350
========= ==========
(4) Income Taxes
Income taxes of $3,000 and $1,490 for the years ended June 30, 1999 and
1998, respectively, consisted of state income taxes. As of June 30, 1999
and 1998, total deferred tax assets, net of liabilities, were
approximately $5,431,000 and $5,484,000, respectively, resulting
primarily from net operating losses, inventory reserve, and deferred
revenue. Deferred tax assets are fully offset by a valuation allowance,
since the Company's management believes that it is more likely than not
that the deferred tax assets will not be realized based on the level of
projected future taxable income. The net change in the total valuation
allowance for the years ended June 30, 1999 and 1998, was a decrease of
$53,000 and an increase of $3,241,000, respectively.
The differences between the "expected" income taxes of the statutory rate
of 34% and the actual income taxes in 1999 and 1998, are primarily due to
changes in valuation allowance and nondeductible expenses.
9
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
As of June 30, 1999, the Company has net operating loss carryforwards for
federal and California income tax purposes of approximately $9,476,000
and $3,303,000, respectively. The federal net operating loss
carryforwards expire in the years 2011 through 2013. The California net
operating loss carryforwards expire in the years 2002 through 2003.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift
in ownership of the Company which constitutes an "ownership change," as
defined by the Internal Revenue Code.
(5) Notes Payable
The Company entered into agreements to borrow $837,705 from 10
individuals and 2 companies (of which $133,104 is from related parties)
during the period from December 1997 through June 1998. These loans
generally bear interest at 10%. Of the total amount borrowed, $807,705
was in the form of convertible notes, which were due to mature on March
31, 1999. In April 1999, the maturity date was extended to July 31, 2000.
The entire principal amount of these notes, at the option of holders, can
be converted into shares of common stock of the Company, at the price of
$1.12 per share. The remaining note payable of $30,000 was fully paid in
April 1999.
The Company obtained additional financing through issuance of convertible
notes of $605,000 from 16 individuals in May and June 1999. In addition,
included in accounts payable as of June 30, 1998, were amounts due to
Nichimen America Inc. (Nichimen) of $1,951,980, of which the amount of
$1,000,000 was converted into a convertible note, effective June 1, 1999.
These notes bear interest at 10% and mature on July 31, 2000. The entire
principal amount of these notes, as the option of holders, can be
converted into shares of common stock of the Company, at the price of
$1.12 per share.
(6) Preferred Stock
The rights, preferences, and privileges of the Series A, B, C, and D
convertible preferred stock are as follows:
o Each share of Series A, B, C, and D preferred stock may be
converted into common stock at the option of the holder. The
conversion rate is initially one-for-one, subject to adjustment
for certain antidilution provisions. Automatic conversion for
Series A, B, C, and D will occur upon the closing of an initial
public offering of common stock in which the per share price is at
least $8.00 and gross proceeds to the Company are at least
$10,000,000.
o Holders of preferred stock are entitled to noncumulative annual
dividends, when and if declared by the Company's Board of
Directors, of $0.14, $0.25, $0.30, and $0.35 per share for Series
A, B, C, and D preferred stock, respectively.
o Holders of Series A, B, C, and D preferred stock have the right to
one vote for each share of common stock into which such shares
could be converted in every election of directors of the Company
and on other matters as provided in the Articles of Incorporation
and required by law.
o Holders of Series A, B, C, and D preferred stock have a
liquidation preference of $1.40, $2.50, $3.00, and $3.50 per
share, respectively, plus all declared but unpaid dividends.
10
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(7) Stock Option and Equity Incentive Plans
Under nonqualified Stock Option Agreements, the directors of the Company
and certain shareholders are granted options to purchase shares of the
Company's common stock at fair market value as determined by the
Company's Board of Directors. Options vest over four years.
Under the terms of the equity incentive plan, employees, officers,
directors, consultants, and advisers may be granted options to purchase
shares of the Company's common stock. Such options are granted at fair
market value as determined by the Company's Board of Directors. Options
vest over , varying periods, generally four years. Under the plan,
1,500,000 shares have been reserved for issuance.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the
Company's stock option plan been determined consistent with SFAS No. 123,
the Company's reported net income (loss) of approximately $526,000 and
$(7,763,000) for the years ended June 30, 1999 and 1998, respectively,
would have been decreased (increased) to approximately $464,000 and
$(7,820,000), respectively.
Such pro forma information reflects only options granted since June 30,
1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma
information presented above because compensation cost is reflected over
the options vesting period of four years and compensation cost for
options granted prior to July 1, 1995 is not considered.
The fair value of each option has been estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions: no dividends; an expected life of 3.5 years; and risk free
interest rates of 5.44% and 5.80% for the years ended June 30, 1999 and
1998, respectively.
A summary of the status of the Company's options is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Wieghted- Weighted-
average average
Options exercise price Options exercise price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 1,296,592 $ 1.159 1,781,391 $ 0.800
Granted 238,376 1.400 402,308 1.470
Exercised (200) 0.800 (500,010) 0.071
Forfeited (254,851) 1.095 (387,097) 1.235
--------- ----- --------- -----
Outstanding at end of year 1,279,917 1.217 1,296,592 1.159
========= ===== ========= =====
Options exercisable
at end of year 899,707 1.135 845,748 1.043
========= ===== ========= =====
Weighted-average
fair value of options
granted during the year 0.236
</TABLE>
11
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
Options outstanding Options exercissable
as of June 30, 1999 as of June 30, 1999
------------------- -------------------
Weighted- Weighted- Weighted-
Range of remaining average average
exercise contractual exercise exercise
prices Number life(years) price Number price
- ------ ------ ----------- ----- ------ -----
$ 0.80 300,000 5.00 $ 0.80 300,000 $ 0.800
1.00-1.30 485,540 6.86 1.23 397,583 1.227
1.40-1.54 494,377 9.01 1.45 202,124 1.452
--------- --------- --------- --------- ---------
0.80-1.54 1,279,917 7.25 1.21 899,707 1.135
========= ========= ========= ========= =========
(8) Warrants
The Company issued 666,670 shares of common stock to investors during
fiscal 1994. In accordance with the common stock and warrant purchase
agreement, each investor received a warrant to purchase an additional
50,000 or 100,000 shares of common stock depending on the amount
invested. The total number of warrants granted as of June 30, 1994, was
450,000 at an exercise price of $0.70 per share. On December 30, 1997,
the term of the warrants, which originally expired in December 1997 and
March 1998, was extended to December 31, 1998, and on September 29, 1998
further extended to July 31, 2000. The fair value of the extended
warrants was estimated at approximately $353,000 and $384,000 as of the
December 30, 1997 and September 29, 1998 grant dates, respectively. The
extensions of the term of the warrants were determined to be capital
transactions similar to the issuance of a divided-in-kind; however, there
is no accounting impact on the Company's financial statements since the
Company does not have retained earnings. The fair value of the extended
warrants was estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions: at December 30, 1997 -
expected dividend yield of 0%, risk-free interest rate of 5.5%$,
contractual life of one year, and a volatility of 70%; at September 29,
1998 - contractual dividend yield of 0%, risk-free interest rate of 4.6%,
contractual life of 1.8 years, and a volatility of 70%.
The Company granted 165,000 warrants to 12 individuals and 2 companies in
connection with $165,000 in loans it received from July through December
1993. In fiscal 1995, the Company repaid $33,000 of these loans and
converted the remaining $132,000 of principal and $16,810 of accrued
interest into 148,810 shares of common stock. Each investor has a right
to purchase the Company's common stock at an exercise price of $1.00 per
share. On September 29, 1998, the term of the warrants which originally
expired in September through December 1998 was extended to July 31, 2000.
The extension of the term of the warrant was determined to be a capital
transaction similar to the issuance of a dividend-in-kind; however, there
is no accounting impact on the Company's financial statements since the
Company does not have retained earnings. The fair value of the extended
warrants was estimated at approximately $115,000 as of the September 29,
1998 grant date, using the Black-Scholes option pricing model with the
following weighted-average assumptions; expected dividend yield of 0%,
risk-free interest rate of 4.4%, contractual life of 1.8 years, and a
volatility of 70%.
12
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(9) Inventory and Property and Equipment Write Down
Management of the Company decided to close substantially all of its
operations in the United States and focus its marketing efforts in
Europe. As a result, the Company commenced a series of actions to
liquidate its property, equipment, and inventory in the United States. In
May 1998, the Company sold property and equipment with a net carrying
value of approximately $576,000 for cash proceeds of $238,000. The
Company also wrote down property and equipment with a carrying value of
approximately $250,000 that was no longer in use as a result of closing
its U.S. operations and which had no reasonably determinable disposal
value. The Company also wrote down approximately $2,271,000 of inventory,
consisting primarily of receivers produced for the U.S. market, because
the cost to refit the receiver inventory for sale in the European market
was uneconomical.
(10) Extraordinary Item
On April 1, 1999, the Company established a wholly owned subsidiary, FM
Intelligent Transportation Systems, Inc. (FMITS), with an initial
investment of $5,000 for 5,000,000 shares of common stock. On June 1,
1999, 1,142,376 shares of common stock of FMITS (approximate 23%
interest) were transferred to Nichimen America, Inc. (Nichimen) in
consideration for the cancellation of the accounts payable to Nichimen in
the amount of $951,980. The difference between the amount payable to
Nichimen and the carrying amount of 1,142,376 shares of common stock of
FMITS ($1,142) was recognized as an extraordinary gain resulting from the
restructuring of the accounts payable.
In addition, the Company and certain other creditors arrived at
settlements whereby $429,882 of the Company's accounts payable were
forgiven in fiscal 1999. This forgiveness of accounts payable has also
been included as a component of the $1,380,720 extraordinary gain
recognized in the accompanying consolidated statement of operations.
(11) Credit Concentrations
In fiscal 1999, revenue from one customer accounted for approximately 61%
of the Company's revenue.
In fiscal 1998, revenue from one customer accounted for approximately 62%
of the Company's revenue. As of June 30, 1998, one customer accounted for
approximately 91% of the Company's accounts receivable.
(12) Consulting Agreement with Mackenzie Shea, Inc. (MSI)
The Company entered into a business consulting agreement with Mackenzie
Shea, Inc. (MSI) on June 9, 1999, whereby MSI assists the Company in the
recruitment of officers and directors for the Company, advises the
Company in its negotiation with individuals, firms or entities who may
have an interest in providing investment capital in the form of bridge
financing, private placement financing, media financing, or in a form of
business combination with the Company. In consideration for the services
to be rendered by MSI, the Company issued 800,000 shares of the Company's
common stock (engagement stock) to a mutually agreed escrow agent. The
engagement stock will be released to MSI on an installment basis as
specified services are rendered by MSI. None of the services specified in
the business consulting agreement were provided as of June 30, 1999, and
all engagement stock was maintained by the escrow agent at that date. The
800,000 shares of engagement stock transferred to the escrow agent were
not included in shares issued or outstanding in the accompanying
consolidated balance sheet.
13
<PAGE>
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(13) Subsequent Events
The Company issued convertible notes to borrow $208,090 from eight
individuals and one corporation in October and November 1999. These notes
generally bear interest at 10% and mature on October 31, 2000. The entire
principal amount of these notes, at the option of the holders, can be
converted into shares of common stock of the Company, at the price of $
1.00 per share.
Effective October 31, 1999, each outstanding share of preferred stock was
converted into one share of common stock, subject to adjustment for
certain antidilution provisions, upon the approval of the majority
holders of the outstanding shares of preferred stock.
On November 22, 1999, the Company entered into an Agreement and Plan of
Merger (Merger) with Breakthrough Electronics, Inc. (BRELE), an inactive
corporation whose shares are quoted on the NASDAQ electronic bulletin
board, and Digital DJ Subsidiary Inc. (Merger Sub), a newly formed,
wholly-owned subsidiary of Breakthrough Electronics, Inc., whereby Merger
Sub will be merged with and into the Company, which will be the surviving
entity. The name of the surviving company will be Digital DJ Inc. The
Merger will become effective at the time of the completion of a filing
with the California Secretary of State. As of December 9, 1999, the
Merger is not yet effective.
Upon execution of the Merger, BRELE will issue common stock to the
Company's common shareholders in exchange for all of the issued and
outstanding shares of the Company's common stock.
As a result of the transactions, Digital DJ Inc., the surviving company,
will become a wholly-owned subsidiary of BRELE. The transaction is
intended to qualify as a tax-free reorganization under Section 368(a) of
the Code.
14
<PAGE>
<TABLE>
Digital DJ, Inc. & Subsidiaries
Pro Forma Financial Statements - Balance Sheet
June 30, 1999
<CAPTION>
Breakthrough Consolidated
Assets Technologies Digital DJ ADJUSTMENTS TOTAL
============= ============ =========== =============
<S> <C> <C> <C>
Current Assets
Cash $ 5,861 $ 1,029,379 $ 1,035,240
Restricted Cash $ 0
Accounts Receivable $ 904 $ 904
Other Current Assets $ 3,607 $ 3,607
---------- ------------ ------------ ------------
Total Current Assets $ 5,861 $ 1,033,890 $ 0 $ 1,039,751
Fixed Assets $ 171,936 $ 171,936
Less: Accum Depr $ 120,729 $ 120,729
---------- ------------ ------------ ------------
Fixed Assets, Net $ 0 $ 51,207 $ 0 $ 51,207
Other Assets $ 28,920 $ 28,920
---------- ------------ ------------ -----------
Total Assets $ 5,861 $ 1,114,017 $ 0 $ 1,119,878
========== ============ ============ -===========
Liabilities & Equity
Current Liabilities
Accounts Payable $ 1,500 $ 174,336 $ 175,836
Notes Payable $ 0
Deferred Income $ 1,557,500 $ 1,557,500
Accrued Taxes $ 7,580 $ 7,580
Accrued Liabilities $ 343,729 $ 343,729
---------- ------------ ------------ ------------
Total Current Liabilities $ 9,080 $ 2,075,565 $ 0 $ 2,084,645
Long-Tem Liabilities
Notes Payable - Long Term $ 2,412,705 $ 2,412,705
Other Liabilities $ 19,894 $ 19,894
---------- ------------ ------------ ------------
Total Liabilities $ 9,080 $ 4,508,164 $ 0 $ 4,517,244
Minority Interest $ 1,142 $ 1,142
Equity
Preferred Stock $ 9,549,251 $ (9,549,251) 1 $ 0
Common Stock $ 711 $ 985,402 $ (975,963) 1 $ 10,150
Paid in Capital $ 807,120 $ 9,714,164 1 $ 10,521,284
Retained Earnings $ (803,985) $(14,455,449) $ 803,985 2 $(14,455,449)
Net Income (Loss) $ (7,065) $ 525,507 $ 7,065 2 $ 525,507
---------- ---------- ------------ ------------
Total Equity $ (3,219) $ (3,395,289) $ 0 $ (3,398,508)
---------- ---------- ------------ ------------
Total Liabilities & Equity $ 5,861 $ 1,114,017 $ 0 $ 1,119,878
=========== ============== ============ ============
</TABLE>
June 30, 1999 balances
1 Adjustment reflects conversion of 3,408,476 shares of preferred of DDJ into
shell common on 1-to-1 basis and conversion of 6,030,700 shares of DDJ
common into shell common on 1-to-1 basis. Par value of shell is $0.001.
710,536 shell common issued prior to the reverse merger.
2 Adjustment reflects reclass of Retained Earnings of the shell into Paid in
Capital of the operating company.
15
<PAGE>
Digital DJ, Inc. And Subsidiaries
Pro Forma Financial Statements - Statement of Operations
June 30, 1999
<TABLE>
<CAPTION>
Breakthrough Consolidated
Technologies Digital DJ ADJUSTMENTS TOTAL
=============================================================================
<S> <C> <C> <C> <C>
REVENUES $ 543,543 $ 543,543
COST OF SALES $ 24,261 $ 24,261
------------- ------------- ------------- --------------
GROSS PROFIT $ 0 $ 519,282 $ 0 $ 519,282
OPERATING EXPENSES:
Cost of rental income $ 80,398 $ 80,398
Loss on property write down $ 12,188 $ 12,188
Research and Development $ 371,859 $ 371,859
Selling, General & Admin $ 7,065 $ 803,867 $ 810,932
------------- ------------- ------------- --------------
TOTAL OPERATING EXPENSES $ 7,065 $1,268,312 $ 0 $ 1,182,791
------------- ------------- ------------- --------------
INCOME (LOSS) FROM OPERATIONS $(7,065) $ (749,030) $ 0 $ (663,509)
------------- ------------- ------------- --------------
OTHER INCOME (EXPENSE):
MINORITY INTEREST $ 0
OTHER INCOME (EXPENSE) $ (6,804) $ (6,804)
INTEREST EXPENSE $ (86,379) $ (86,379)
INTEREST INCOME $ 0
TOTAL OTHER INCOME (EXPENSE) $ 0 $ (93,183) $ 0 $ (93,183)
------------- ------------- ------------- --------------
INCOME (LOSS) BEFORE TAXES $(7,065) $ (842,213) $ 0 $ (756,692)
------------- ------------- ------------- --------------
INCOME TAX PROVISION $ 3,000 $ 3,000
------------- ------------- ------------- --------------
NET INCOME (LOSS) $(7,065) $ (845,213) $ 0 $ (759,692)
EXTRAORDINARY ITEM - GAIN $1,370,720 $ 1,370,720
------------- ------------- ------------- --------------
NET INCOME (LOSS) $(7,065) $ 525,507 $ 0 $ 611,028
============= ============= ============= ==============
</TABLE>
16
<PAGE>
Digital DJ
Unaudited Interim Financial Statements - Balance Sheet
Three Months Ended 9/30/99
9/30/1999
----------------
ASSETS
Cash 709,380
Restricted Cash 0
Accounts Receivable 674
Other Current Assets 1,519
----------------
Current Assets 711,573
Fixed Assets 174,633
Less: Accum Depr 120,729
----------------
Fixed Assets, Net 53,904
Restricted Cash 0
Other Assets 28,920
----------------
Total Assets 794,397
================
17
<PAGE>
Digital DJ
Unaudited Interim Financial Stateemnts - Balance Sheet
Three Months Ended 9/30/99
9/30/1999
----------------
LIABILITIES & SHAREHOLDERS' DEFICIT
Accounts Payable 154,691
Notes Payable 2,412,705
Deferred Revenue 465,000
Accrued Expenses and
Other Current Liabilities 336,393
----------------
Current Liabilities 3,368,789
Deferred Revenue 1,092,500
Oher Liabilities 19,894
----------------
Total Liabilities 4,481,183
----------------
Minority Interest 1,142
Preferred Stock 9,549,251
Common Stock 986,802
Retained Earnings (13,929,942)
Net Income (Loss) (294,039)
----------------
Shareholders' Deficit (3,687,928)
----------------
Total Liabilities &
Shareholders' Deficit 794,397
================
18
<PAGE>
Digital DJ
Unaudited Interim Financial Statements - Statements of Operations
Three Months Ended 9/30/99 and 9/30/98
9/30/1999 9/30/1998
--------------- --------------
Revenues
Revenues 3,671 25,784
Rental income 91,125
--------------- --------------
Total revenues 3,671 116,909
Costs and Expenses
Cost of revenues 0 8,750
Cost of rental income 0 0
Research and development 77,220 0
Selling, general and adminisrative 224,337 146,239
--------------- --------------
Total costs and expenses 301,557 154,989
--------------- --------------
Loss from Operations (297,886) (38,080)
OTHER INCOME & (EXPENSE)
Interest Income 3,847 24
Interest Expense 0 0
--------------- --------------
Total Other 3,847 24
--------------- --------------
Income Before Tax Provision (294,039) (38,056)
Provision for Income Taxes 0 0
--------------- --------------
Net Income (Loss) (294,039) (38,056)
=============== ==============
19
<PAGE>
<TABLE>
Digital DJ, Inc. & Subsidiaries
Pro Forma Financial Statements - Balance Sheet
September 30, 1999
<CAPTION>
Breakthrough Consolidated
Assets Technologies Digital DJ ADJUSTMENTS TOTAL
===========================================================================
Current Assets
<S> <C> <C> <C> <C>
Cash $ 4,459 $ 709,380 $ 713,839
Restricted Cash $ 0
Accounts Receivable $ 674 $ 674
Other Current Assets $ 1,519 $ 1,519
------------ ------------ ----------- -----------
Total Current Assets $ 4,459 $ 711,573 $ 0 $ 716,032
Fixed Assets $ 174,633 $ 174,633
Less: Accum Depr $ 120,729 1 20,729
------------ ------------ ----------- -----------
Fixed Assets, Net $ 0 $ 53,904 $ 0 $ 53,904
Other Assets $ 28,920 $ 28,920
------------ ------------ ----------- -----------
Total Assets $ 4,459 $ 794,397 $ 0 $ 798,856
============ ============ =========== ============
Liabilities & Equity
Current Liabilities
Accounts Payable $ 1,500 $ 154,691 $ 156,191
Notes Payable $ 2,412,705 $ 2,412,705
Deferred Income $ 465,000 $ 465,000
Accrued Taxes $ 7,580 $ 7,580
Accrued Liabilities $ 336,393 $ 336,393
------------ ------------ ----------- -----------
Total Current Liabilities $ 9,080 $ 3,368,789 $ 0 $ 3,377,869
Long-Tem Liabilities
Deferred Income $ 1,092,500 $ 1,092,500
Notes Payable - Long Term $ 0
Other Liabilities $ 19,894 $ 19,894
------------ ------------ ----------- -----------
Total Liabilities $ 9,080 $ 4,481,183 $ 0 $ 4,490,263
Minority Interest $ 1,142 $ 1,142
Equity
Preferred Stock $ 9,549,251 $(9,549,251) 1 $ 0
Common Stock $ 711 $ 986,802 $ (977,363) 1 $ 10,150
Paid in Capital $ 807,120 $ 9,714,162 1 $ 10,521,282
Retained Earnings $ (811,050) $(13,929,942) $ 811,050 2 $(13,929,942
Net Income (Loss) $ (1,402) $ (294,039) $ 1,402 2 $ (294,039
------------ ------------ ----------- -----------
Total Equity $ (4,621) $ (3,687,928) $ 0 $ (3,692,549)
------------ ------------ ----------- -----------
Total Liabilities & Equity $ 4,459 $ 794,397 $ 0 $ 798,856
============ ============ =========== ============
</TABLE>
Spetember 30, 1999 balances
1 Adjustment reflects conversion of 3,408,476 shares of preferred of DDJ into
shell common on 1-to-1 basis and conversion of 6,031,200 shares of DDJ
common into shell common on 1-to-1 basis. Par value of shell is $0.001.
710,536 shell common issued prior to the reverse merger.
2 Adjustment reflects reclass of Retained Earnings of the shell into Paid in
Capital of the operating company.
20
<PAGE>
<TABLE>
Digital DJ, Inc. And Subsidiaries
Pro Forma Financial Statements - Statement of Operations
September 30, 1999
<CAPTION>
Breakthrough Consolidated
Technologies Digital DJ ADJUSTMENTS TOTAL
===================================================================
<S> <C> <C> <C> <C>
REVENUES $ 3,671 $ 3,671
COST OF SALES $ 0 $ 0
------------- ------------ ------------ -----------
GROSS PROFIT $ 0 $ 3,671 $ 0 $ 3,671
OPERATING EXPENSES:
Cost of rental income $ 0 $ 0
Loss on property write down $ 0
Research and Development $ 77,220 $ 77,220
Selling, General & Admin $ 1,402 $ 224,337 $ 225,739
TOTAL OPERATING EXPENSES $ 1,402 $ 301,557 $ 0 $ 302,959
------------- ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS $ (1,402) $ (297,886) $ 0 $ (299,288)
------------- ------------ ------------ -----------
OTHER INCOME (EXPENSE):
MINORITY INTEREST $0
OTHER INCOME (EXPENSE) $0
INTEREST EXPENSE $0
INTEREST INCOME $ 3,847 $ 3,847
------------- ------------ ------------ -----------
TOTAL OTHER INCOME (EXPENSE) $ 0 $ 3,847 $ 0 $ 3,847
------------- ------------ ------------ -----------
INCOME (LOSS) BEFORE TAXES $ (1,402) $ (294,039) $ 0 $ (295,441)
INCOME TAX PROVISION $ 0 $ 0
------------- ------------ ------------ -----------
NET INCOME (LOSS) $ (1,402) $ (294,039) $ 0 $ (295,441)
EXTRAORDINARY ITEM - GAIN $ 0
------------- ------------ ------------ -----------
NET INCOME (LOSS) $ (1,402) $ (294,039) $ 0 $ (295,441)
============= ============ ============ ===========
</TABLE>
21
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
(a) Exhibits
(2) 2.1 Agreement and Plan of Merger
2.2 Agreement of Merger
(3) 3.1 Amended Articles of Incorporation of Breakthrough Electronics,
Inc
(5) 5.1 Opinion of Counsel of James Lewis
(17) 17.1 Resignation and Termination for Lawrence Sapperstein
17.2 Resignation and Termination for Lawrence Grobstein
17.3 Resignation and Termination for Anthony Adimey
(21) 21.1 List of Subsidiaries of the Company
(99) 99.1 Press Release
22
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned President duly authorized.
DIGITAL DJ HOLDINGS, INC.
(Formerly known as Breakthrough Electronics, Inc.)
By:/s/Tsutoma Takahisa Date: November 22, 1999
-------------------
Tsutomu Takahisa
President
23
EXHIBIT 2.1
-----------
AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
October __, 1999, among Breakthrough Electronics, Inc., a Nevada corporation
(the "Parent"), DDJ Merger Sub, a Nevada corporation and a wholly owned
subsidiary of the Parent (the "Merger Sub") and Digital DJ, Inc., a California
corporation (the "Company"), with reference to the following.
RECITALS
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A. The Parent is an inactive corporation whose shares are quoted on the
Nasdaq Electronic Bulletin Board under the symbol "BRELE."
B. The Company is a privately held corporation in the business of
providing electronically formatted entertainment.
C. The Merger Sub is a wholly owned subsidiary of the Parent, formed for
the purpose of merging with the Company.
D. The Board of Directors of the Parent and the Company each have
determined that a business combination between the Parent and the Company is
fair to and in the best interest of their respective companies and stockholders
and, accordingly, have agreed to effect the merger upon the terms and subject to
the conditions set forth in this Agreement.
E. In connection with the merger provided for herein, shares of the
Parent's common stock will be issued in exchange for all of the issued and
outstanding shares of the Company's Stock.
F. This merger is intended for tax purposes to qualify as a non-taxable
reorganization under Section 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "Code").
G. The parties desire that the Merger Sub, upon the terms and subject to
the conditions of this Agreement and in accordance with the California General
Corporation Law and the Nevada Corporation Act (the "Corporate Law"), merge with
and into the Company (the "Merger"), and pursuant thereto the Company's Stock
shall be converted into the right to receive shares of the Parent, as set forth
herein.
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AGREEMENT
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NOW, THEREFORE, in consideration of the foregoing premises and of the
provisions, representations, warranties, covenants and agreements contained
herein and other good and valuable consideration, the parties agree as follows.
ARTICLE I
THE MERGER
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1.1 The Merger. Subject to the provisions of this Agreement, in accordance
with the Corporate Law, at the Effective Time (as defined in Section 1.3 below),
the Merger Sub shall be merged with and into the Company in a transaction
intended to qualify as a tax-free reorganization under Section 368(a) of the
Code. Immediately following the Merger, the separate corporate existence of the
Merger Sub shall cease and the Company, under the name "Digital DJ, Inc.," as
the surviving corporation (the "Surviving Corporation"), shall continue to exist
under and be governed by the Corporate Law as a direct, wholly-owned subsidiary
of the Parent.
1.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at 355 Bryant Street,
Suite 111, San Francisco, Califonria 94107, at 2:00 p.m., on (i) the second
business day following the satisfaction of the conditions set forth in Article X
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or, where permitted, waiver of those
conditions) or (ii) or at such other time, date, or place as the Parent and the
Company may agree. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
1.3 Effective Time. As soon as practicable after the satisfaction or waiver
of all of the conditions to the Merger, the parties shall cause the Merger to be
consummated by causing an Agreement of Merger (the "Filed Agreement")
substantially in the form of Exhibit 1.3 attached hereto, together with
officers' certificates in the forms included with such Exhibit, to be executed
and filed in accordance with the relevant provisions of the Corporate Law. The
Merger shall become effective at the time of the filing with the California
Secretary of State of the Filed Agreement relating thereto or at such later time
as is specified in the Filed Agreement (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effect set forth in
Section 1107 of the Corporate Law. Without limiting the generality of the
foregoing, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation in
the same manner as if the Surviving Corporation had itself incurred them. All
rights of creditors and all liens upon the property of the Company and Merger
Sub shall thereafter be preserved unimpaired.
1.5 Articles of Incorporation and Bylaws of the Surviving Corporation. The
Articles of Incorporation and Bylaws of the Company, respectively, as in effect
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immediately prior to the Effective Time, shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation, until thereafter amended in accordance
with the provisions thereof and applicable law.
1.6 Merger Proxy. The Parent shall as soon as reasonably practicable
prepare and file where appropriate or required, a proxy for approval for
distribution to the Parent's shareholders to approve the Merger, the amendment
of the Parent's certificate of incorporation to increase the authorized number
of shares and the terms of this Agreement. The Company shall assist the Parent
in the preparation of the proxy materials and have the right to review and
reasonably approve the proxy prior to its distribution to the Parent's
shareholders. ..................................................................
ARTICLE II
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
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2.1 Directors. The Surviving Corporation and the Parent shall take such
action as is necessary to elect as directors of both the Surviving Corporation
and the Parent immediately following the Effective Time: the individuals
identified in Schedule 2.1 (the "Directors"). The Directors shall serve, until
their successors are duly appointed or elected in accordance with applicable
law. The Parent shall take all actions necessary to nominate the Directors for
election.
2.2 Parent Officers. The Surviving Corporation and the Parent shall take
such actions as are necessary to elect as the officers of the Parent effective
immediately following the Effective Time:
Name..........................................................
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Office
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Tsutomu "Tom" Takahisa................................................
President, Secretary and Chief Financial Officer
2.3 Termination of Existing Agreements.
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(a) Repudiation. Prior to the Closing, Lawrence W. Sapperstein, and
each other executive officer and director of the Parent shall repudiate his
existing employment agreement with the Parent or the Subsidiary and all rights
thereunder and cancel the existing agreements and release the Parent from all
obligations thereunder. Each of the officers and directors of the Parent shall
have resigned as of the Closing Date. Each officer, director and employee
identified in Schedule 2.5(a) shall execute as of the Closing Date, a release in
the form attached hereto as Exhibit "2.5" (the "Release").
ARTICLE III
EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE
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COMPANY
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3.1 Merger Sub Stock. At the Effective Time, each share of common stock of
the Merger Sub outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the Parent or the
Company, be converted into and exchanged for one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
3.2 The Company Securities.
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(a) At the Effective Time, the shares of each class of the preferred
stock (as converted to common) and the common stock of the Company (the "Company
Stock") issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive the number of shares of the Parent's
Common Stock (the "Share Exchange Ratio") calculated such that (i) all
outstanding shares of Company Stock on a Fully Diluted Basis (as defined below)
immediately prior to Effective Time. For purposes hereof, "Fully Diluted Basis"
shall mean all outstanding shares and all shares issuable pursuant to
Convertible Securities (as defined below) to the extent in the money as of the
Closing Date. For purposes hereof, "Convertible Securities" means options,
warrants, convertible securities or other rights to acquire common stock. The
Share Exchange Ratio shall be calculated by the Parent and the Company prior to
the Effective Time and such calculation shall be attached hereto as Schedule
3.2(a).
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of the Company Stock shall
cease to be outstanding and shall be canceled and retired, and each holder of
shares of the Company Stock shall thereafter cease to have any rights with
respect to such shares of the Company Stock, except the right to receive,
without interest, the Parent Stock.
(c) All options to purchase Company Stock outstanding at the Effective
Time under any Company stock option plan or agreement or any other type of
option, warrant or right to purchase shares of the Company (the "Company Stock
Options") shall, at the Effective Time, automatically and without further action
on the part of any holder thereof, be converted into options or similar right to
purchase Parent Stock (individually, a "Parent Stock Option" and collectively,
the "Parent Stock Options"). Each option granted by the Parent hereunder shall
be exercisable upon the same terms and conditions as under the applicable
Company Stock Option in compliance with the requirements of Section 424(a) of
the Code and the applicable agreement issued thereunder, except that (i) each
such Company Stock Option shall be exercisable for that whole number of shares
of Parent Stock (to the nearest whole share) determined by multiplying the
number of shares of the Company Stock subject to such Company Stock Option by
the Share Exchange Ratio immediately prior to the Effective Time times as set
forth on Schedule 3.2(c) (the "Option Exchange Ratio"), (ii) the total option
price of the shares of Parent Stock issuable upon exercise of a Parent Stock
Option shall be an amount equal to the total option price of the shares of
Company Stock subject to such Company Stock Option in effect immediately prior
to the Effective Time, (iii) the exercise price per share shall be calculated by
dividing the aggregate option value of the shares of Company Stock subject to
such Company Stock Options in effect immediately prior to the Effective Time by
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the number of shares of Parent Stock underlying such Parent Stock Options, (iv)
all Parent Stock Options shall be exercisable otherwise in accordance with their
terms. No payment shall be made for fractional interests.
(d) As soon as practicable after the Effective Time, the Parent shall
deliver to the holders of all Company Stock Options, a notice stating that the
agreements evidencing the grants of such Company Stock Options shall continue in
effect as Parent Stock Options on the same terms and conditions (subject to the
terms of the relevant Company Stock Option plan and the adjustments to
outstanding Shares and exercise price).
(e) The Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Stock for delivery upon
exercise of Parent Stock Options.
3.3 Exchange of Certificates Representing the Company Stock. Within 5 days
of the Effective Time, the Parent will deliver to the Company the certificates
representing shares of the Parent Stock (together with any unpaid dividends or
distributions with respect thereto relating to record dates for such dividends
or distributions after the Effective Time) to be issued and paid in exchange for
outstanding shares of Company Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to the Parent as of the date of this
Agreement as follows:
4.1 Existence; Good Standing; Corporate Authority; Compliance with Law.
(a) Each of the Company and its subsidiary is a corporation duly
incorporated, validly existing, and in good standing (including tax good
standing) under the laws of the State of California and are not qualified to do
business in any other jurisdiction.
(b) Each of the Company and its subsidiary has all requisite corporate
power and authority to own, operate, and lease its properties and carry on its
business as presently conducted and as proposed to be conducted.
(c) Each of the Company and its subsidiary is not in violation of any
law, ordinance, governmental rule or regulation to which it or any of its
properties or assets is subject, except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, nor
is the Company or its subsidiary in violation of any order, judgment, or decree
of any court, governmental authority, or arbitration board or tribunal. A
"Company Material Adverse Effect" means a material adverse change in the
business, properties, financial condition, results of operations, or prospects
of the Company, taken as a whole.
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(d) The copies of the Articles of Incorporation of the Company and its
subsidiary and Bylaws of each entity, which have been delivered to the Parent,
include any and all amendments made thereto at any time prior to the date of
this Agreement and are true, correct, and complete.
(e) The Company's and its subsidiary's corporate minute books are
accurate as to their content and include therein the Articles of Incorporation
and Bylaws with any amendments thereto. The meetings of the directors or
stockholders referred to in the corporate minute books were duly called and
held. The signatures appearing on all documents contained in the corporate
minute books are the true signatures of the persons purporting to have executed
the same and no minutes of meetings or written consents of the directors or
stockholders of the Company or the subsidiaries are omitted from such minute
books that would contain any resolutions or other actions that would be
inconsistent with any of the representations and warranties contained in Article
IV hereof or prevent or limit any of the transactions contemplated by this
Agreement. Schedule 4.1 sets forth a true and complete list of the names of all
directors of the Company and the names and offices held of all officers of the
Company and each subsidiary as the date hereof.
4.2 Authorization, Validity and Effect of Agreements. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. The consummation
by the Company of the transactions contemplated hereby has been duly authorized
by all requisite corporate action of the Company. This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by the Parent and the Merger Sub, constitutes, and all
agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except to the extent that enforceability may be limited
by applicable bankruptcy, insolvency, moratorium, or other similar laws relating
to creditors' rights and general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law),
including, without limitation, possible unavailability of specific performance,
other injunctive relief or other equitable remedies and an implied covenant of
good faith and fair dealing.
4.3 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Common Stock, of which
_________ shares are issued and outstanding. The Company has authorized
6,000,000 shares of Preferred S Class Stock, no par value, of which ________
shares are issued and outstanding. Schedule 4.3 sets forth the number of shares
of Company Stock issuable upon exercise of outstanding Company Stock Options.
All of the outstanding shares of capital stock of the Company's subsidiary have
been validly issued and are fully paid and nonassessable and, are owned by the
Company free and clear of all liens, charges, claims or encumbrances. Schedule
4.3 sets forth the name of each record holder of shares of Company Stock, the
number of shares of Company Stock so held, and the number of whole shares of
Parent Stock to be issued in exchange for such shares of Company Stock in
connection with the Merger. Except as set forth in Schedule 4.3, the Company has
no outstanding bonds, debentures, notes, or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
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securities having the right to vote) with the stockholders of the Company on any
matter. All issued and outstanding shares of Company Stock are duly authorized,
validly issued, fully paid, nonassessable, free of preemptive or rescission
rights, and were issued in compliance with all applicable federal and state
securities laws. Schedule 4.3 sets forth the name of each person who holds or
has rights to receive Company Stock Options, the number of shares of Company
Stock issuable in respect of such Company Stock Options, the exercise prices and
terms of such Company Stock Options. As used in this Agreement, the "knowledge"
of a person shall mean the actual knowledge of an officer or senior manager of
such person after reasonable investigation.
4.4 No Violation. Neither the execution or delivery by the Company of
this Agreement and all agreements or documents contemplated therein nor the
consummation by the Company of the transactions contemplated therein, will: (i)
conflict with or result in a breach of any provisions of the Articles of
Incorporation or Bylaws of the Company; (ii) except as set forth in Schedule
4.4, violate, conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other obligations pursuant to, result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties of the Company under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, loan agreement, deed of trust, or any
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Company is a party, or by which the
Company or any of its properties is bound or affected; (iii) violate any law,
statute, rule, regulation, judgment, or decree applicable to the Company; or
(iv) other than the filings provided for in Article I, filings required under
the Act, or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), require any consent,
approval, or authorization of, or declaration, filing, or registration with, any
governmental or regulatory authority.
4.5 Financial Statements. The unaudited balance sheet and statement of
operations as of and for the year ended June 30, 1998, attached to Schedule 4.5,
are prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods involved except as
otherwise set forth therein and present fairly the financial condition of the
Company as of such date and the results of operations of the Company for the
year then ended. The unaudited balance sheet of the Company as of September 30,
1999 and the related statement of operations for the three months ended on such
date, which are attached to Schedule 4.5, were prepared in accordance with GAAP
consistently applied except as otherwise set forth therein and of such date and
the results of operations of the Company for the three months then ended, except
that such interim financial statements are subject to normal year-end
adjustments that are not and are not expected to be, individually or in the
aggregate, material in amount and do not include certain notes which may be
required by GAAP. The balance sheet of the Company as of June 30, 1998, is
referred to in this Agreement as the "Company Balance Sheet."
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4.6 Litigation. To the knowledge of the Company, there are no claims,
actions, suits, investigations, or proceedings (public or private) pending
against or affecting the Company or any of its properties or assets, at law or
in equity, before or by any federal, state, municipal, or other governmental or
non-governmental department, commission, board, bureau, agency, court, or other
instrumentality, or arbitrator or by any private person or entity. To the
knowledge of the Company, there are no claims, actions, suits, investigations,
or proceedings (public or private) threatened against or affecting the Company
or any of its properties or assets, at law or in equity, before or by any
federal, state, municipal, or other governmental or non-governmental department,
commission, board, bureau, agency, court, or other instrumentality, or
arbitrator or by any private person or entity, except for any of the foregoing
which would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
4.7 Subsidiary. FM Intelligent Transportation System Inc., a Delaware
corporation, is a wholly owned subsidiary of the Company and is the Company's
only subsidiary. The Company owns all right, title and interest in and to each
issued and outstanding shares of FM Intelligent Transportation System Inc.
4.8 Authorization. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company the transactions
contemplated hereby require no consents of any party and no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than (a) the filing of the Certificate of Merger in accordance with the
Corporate Law, (b) compliance with any applicable requirements of the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or Blue Sky
laws, and (c) any other filings, approvals or authorizations, which, if not
obtained, would not, individually or in the aggregate, have a material adverse
effect on the Company or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
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The Parent and the Merger Sub represent and warrant to the Company and its
shareholders as of the date of this Agreement as follows.
5.1 Existence; Good Standing; Corporate Authority;Compliance with Law.
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(a) Each of the Parent and the Merger Sub is a corporation duly
incorporated, validly existing, and in good standing (including tax good
standing) under the laws of its jurisdiction of incorporation. Each of the
Parent and the Merger Sub is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of the jurisdictions
listed in Schedule 5.1, which list contains all jurisdictions in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, in each case except as would
not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect (as defined below in Section 5.9).
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(b) Each of the Parent and the Merger Sub has all requisite corporate
power and authority to own, operate, and lease its properties and carry on its
business as presently conducted and as proposed to be conducted.
(c) Each of the Parent and the Merger Sub is not in violation of any
law, ordinance, governmental rule or regulation to which it or any of its
properties or assets is subject, except as would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect, nor
is the Parent in violation of any order, judgment, or decree of any court,
governmental authority, or arbitration board or tribunal.
(d) The copies of the Parent's Articles of Incorporation and the
Certificate of Incorporation of the Merger Sub and the Subsidiary and Bylaws of
each entity, which have been delivered to the Company and the Principal
Shareholders, include any and all amendments made thereto at any time prior to
the date of this Agreement and are true, correct, and complete.
(e) The Parent's and the Subsidiaries' corporate minute books are
accurate as to their content and include therein the Articles of Incorporation
and Bylaws with any amendments thereto. The meetings of the directors or
stockholders referred to in the corporate minute books were duly called and
held. The signatures appearing on all documents contained in the corporate
minute books are the true signatures of the persons purporting to have executed
the same and no minutes of meetings or written consents of the directors or
stockholders of the Parent or the Merger Sub are omitted from such minute books
that would contain any resolutions or other actions that would be inconsistent
with any of the representations and warranties contained in Article V hereof or
prevent or limit any of the transactions contemplated by this Agreement.
Schedule 5.1 sets forth a true and complete list of the names of all directors
of the Parent and the names and offices held of all officers of the Parent and
each subsidiary as the date hereof.
5.2 Authorization, Validity and Effect of Agreements.
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(a) Each of the Parent and Merger Sub has the requisite corporate power
and authority to execute and deliver this Agreement and all agreements and
documents contemplated hereby and thereby. Subject only to the approval of this
Agreement and the transactions contemplated hereby by the stockholders of the
Parent, the consummation by the Parent and the Merger Sub of the transactions
contemplated hereby has been duly authorized by all requisite corporate action
of the Parent and the Merger Sub. This Agreement has been duly executed and
delivered by the Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of the
Parent and the Merger Sub enforceable in accordance with their respective terms.
(b) The affirmative vote of the holders of a majority of the shares of
the Parent Stock present in person or by proxy at a duly convened and held
meeting of the stockholders of the Parent is necessary to approve the issuance
by the Parent of the shares of the Parent Stock pursuant to the terms hereof.
Such vote is the only vote required to approve the Merger.
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5.3 Capitalization. The authorized capital stock of the Parent consists of
50,000,000 shares of Common Stock, $.001 par value, and no shares of preferred
stock, $.001 par value. Schedule 5.3 sets forth the number of shares of the
Parent Stock issued and outstanding, and the number of shares of the Parent
Stock issuable upon exercise of outstanding Parent Stock Options, each as of the
Closing Date. There are no shares of preferred stock issued or outstanding and
no commitment exists to issue any preferred stock. Schedule 5.3 correctly sets
forth the name of each person who holds of record shares of the Parent Stock and
the number of shares of Company Stock so held, as of the date of this Agreement.
No additional shares of capital stock of the Parent will be issued, except
pursuant to the exercise of options outstanding under and vested or vesting in
accordance with the terms of the Parent Stock Option plans or warrants set forth
on Schedule 5.3 hereof. The Parent has no outstanding bonds, debentures, notes,
or other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Parent on any matter. All issued and outstanding shares
of the Parent Stock are duly authorized, validly issued, fully paid,
nonassessable, free of preemptive or rescission rights, and were issued in
compliance with all applicable federal and state securities laws. Schedule 5.3
correctly sets forth the name of each person who holds or has rights to receive
Parent Stock Options, the number of shares of Parent Stock issuable in respect
of such Parent Stock Options, the exercise prices and terms of such Parent Stock
Options, and whether or not such Parent Stock Options are intended to qualify as
incentive stock options or non-statutory stock options. Except for the Parent
Stock Options listed on Schedule 5.3, there are not, at the date of this
Agreement, any authorized, issued, or outstanding options, warrants, calls,
subscriptions, convertible securities, conversion privileges, preemptive rights,
or other rights, agreements, or commitments (whether or not presently
exercisable) that obligate the Parent to issue, transfer, or sell any shares of
capital stock or other securities convertible into or evidencing the right to
purchase or otherwise acquire any capital stock of the Parent. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar plans, contracts, or rights with respect to the Parent
that are effective as of the date hereof or that have been executed or agreed to
as of the date hereof with an effective date after the date hereof. There are no
stockholders' agreements, voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Parent to
which the Parent is a party that are presently effective or have been executed
or agreed to as of the date hereof or, to the best knowledge of the Parent, to
which any officer or director of the Parent or any stockholder owned or
controlled by such officer or director is or will be a party, except in
accordance with the terms hereof. There are no restrictions upon the sale,
voting, or transfer of any shares of Parent Stock pursuant to the Parent's
Articles of Incorporation, Bylaws, or other governing instruments (other than
restrictions typically applicable to unregistered stock under the Securities
Act). After the Effective Time, the Surviving Corporation will have no
obligation to issue, transfer, or sell any shares of capital stock of the Parent
or the Surviving Corporation pursuant to any stock or incentive plan. As used in
this Agreement, the "knowledge" of a person shall mean the actual knowledge of
an officer or senior manager of such person after reasonable investigation.
5.4 Other Interests. Except as set forth in Schedule 5.4, neither the
Parent nor the Merger Sub own, directly or indirectly, any interest or
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investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust, or entity other than investments in short term
investment securities.
5.5 No Violation. Neither the execution and delivery by the Parent and the
Merger Sub of this Agreement and all agreements and documents contemplated
hereby, nor the consummation by the Parent and the Merger Sub of the
transactions contemplated hereby or thereby in accordance with the terms hereof,
will: (i) conflict with or result in a breach of any provisions of the Articles
of Incorporation, as amended, or Bylaws of the Parent or the Articles of
Incorporation or Bylaws of the Merger Sub; (ii) violate any law, statute, rule,
regulation, judgment, or decree applicable to the Parent or the Merger Sub;
(iii) except as set forth in Schedule 5.5 violate, conflict with, result in a
breach of any provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination or cancellation of, accelerate the
performance required by, result in the triggering of any payment or other
obligations pursuant to, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties of the Parent or the Merger Sub
under, or result in being declared void, voidable, or without further binding
effect, any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, loan agreement, deed of trust, or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment, or obligation to
which the Parent or the Merger Sub is a party, or by which the Parent or the
Merger Sub or any of its properties is bound or affected; (iv) violate any law,
statute, rule, regulation, judgment, or decree applicable to the Parent or the
Merger Sub; or (v) other than the Regulatory Filings, require any consent,
approval, or authorization of, or declaration, filing, or registration with, any
governmental or regulatory authority.
5.6 SEC Documents. Since ____________, 199_, the Parent has filed all
forms, reports, and other documents (including all exhibits, schedules and
annexes thereto) required to be filed by the Parent with the SEC and Nasdaq
("Parent Report"). Except to the extent that information contained in any Parent
Report has been revised or superseded by a later Parent Report filed and
publicly available prior to the date of this Agreement, as of their respective
dates, the Parent Reports (a) were (and any Parent Report filed after the date
hereof will be) in all material respects in accordance with the requirements of
the Act or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (b) as of their respective filing dates did not (and
any Parent Report filed after the date hereof 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 made therein, in the light of
the circumstances under which they were made, not misleading. The financial
statements of the Parent included in such reports (or incorporated therein by
reference) were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto and
subject to normal year-end adjustments) and fairly present in all material
respects the financial position of the Parent and its consolidated subsidiaries
as of the dates thereof and the periods then ended.
5.7 Financial Statements. The audited consolidated balance sheet and
consolidated statement of operations as of and for the twelve months ended
December 31, 1998, accompanied by the audit report of
____________________________, independent certified public accountants, which
are
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attached hereto as Exhibit "5.7", were prepared in accordance with GAAP,
consistently applied throughout the periods involved except as otherwise set
forth therein and present fairly the financial condition of the Parent as of
such date and the results of operations of the Parent for the year then ended.
The unaudited consolidated balance sheet of the Parent as of September 30, 1999,
and the related consolidated statement of operations for the nine months ended
on such date, which are attached hereto as Exhibit "5.7", were prepared in
accordance with GAAP consistently applied except as otherwise set forth therein
and of such date and the results of operations of the Parent for the nine months
then ended, except that such interim financial statements are subject to normal
year-end adjustments that are not and are not expected to be, individually or in
the aggregate, material in amount and do not include certain notes which may be
required by GAAP. The balance sheet of the Parent as of September 30, 1999, is
referred to in this Agreement as the "Parent Balance Sheet."
5.8 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Parent Balance Sheet or set forth in
Schedule 5.8 at the date of the Parent Balance Sheet, the Parent did not have
any obligation or liability of any kind whatsoever (whether accrued, absolute,
contingent, unliquidated, civil, criminal, or otherwise and whether due or to
become due), whether or not any such liability or obligation would have been
required to be disclosed on a balance sheet prepared in accordance with GAAP,
that, individually or in the aggregate, could have a Parent Material Adverse
Effect. The Parent Balance Sheet has accurate accruals of all employee benefit
costs, including, but not limited to, payroll, commissions, bonuses, retirement
benefits and vacation accruals.
5.9 Absence of Certain Changes or Events.
------------------------------------
(a) Since September 30, 1999, no event or events have occurred, which
individually or in the aggregate have had a Parent Material Adverse Effect, as
hereafter defined, and there exists no condition or contingency that could
reasonably be expected to result in a Parent Material Adverse Effect. A "Parent
Material Adverse Effect" means a material adverse change in the business,
properties, financial condition, results of operations, or prospects of the
Parent, taken as a whole.
(b) Since the date of the Parent Balance Sheet and except as set forth
in Schedule 5.9(b), the Parent has not:
(i)
................................................................................
declared, set aside, paid, or made any dividend or other distribution on or in
respect of any shares of its capital stock or directly or indirectly redeemed,
retired, purchased, or otherwise acquired any such shares or any option,
warrant, conversion privilege, preemptive right, or other right or agreement to
acquire the same or any other securities convertible into or evidencing the
right to purchase or otherwise acquire the same;
(ii) .........................................................
any amendments to its Articles of Incorporation or Bylaws:
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(iii).....................................................made
any change in the number of shares of its capital stock authorized, issued, or
outstanding or authorized, issued, granted, or made any option, warrant,
conversion privilege, preemptive right, or other right or agreement to acquire
the same or any other securities convertible into or evidencing the right to
acquire the same;
(iv) .........................................................
incurred any indebtedness or borrowed money other than as set forth in Schedule
5.9(b)(iv); which borrowings shall not exceed $5,000 in the aggregate;
(v) .........................................................
incurred any obligation or liability (contingent or otherwise);
(vi) .........................................................
discharged or satisfied any lien or encumbrance or paid any obligations or
liability (fixed or contingent) other than current liabilities paid to unrelated
parties, wages paid to officers and employees and director's fees paid to
directors, each in the ordinary course of business;
(vii).........................................................
mortgaged, pledged, or subjected to any lien, charge, or other encumbrance any
of its respective properties or assets (tangible or intangible) except liens for
current property taxes not yet due and payable;
(viii) .......................................................
assigned, leased, transferred or otherwise disposed of, or agreed to sell,
assign, lease, transfer or otherwise dispose of, any of its tangible assets
other than sales of inventory in the ordinary course of business;
(ix) .........................................................
entered into any transaction, contract, or commitment;
(x) ......................................................made
any capital expenditures or any commitment therefor in excess of $1,000 in the
aggregate except as consented to by the Company;
(xi) .........................................................
adopted or made any change in any executive compensation plan, bonus plan,
incentive compensation plan, deferred compensation agreement, or other employee
benefit plan or arrangement;
(xii) ........................................................
entered into any employment or consulting agreement or arrangement, or granted
or paid any bonus, or made or granted any general wage or salary increase or any
specific increase in the wages or salary of any employee;
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(xiii)........................................................
suffered any casualty loss or damage, whether or not such loss or damage shall
have been covered by insurance;
(xiv) ........................................................
canceled or compromised any debt or claim except for adjustments made in the
ordinary course of business that, in the aggregate, are not material, or waived
or released any rights that are material;
(xv) .........................................................
terminated, amended, or modified any agreement or instrument described in
Schedule 5.10;
(xvi).........................................................
entered into any transaction with any stockholder, officer, director, or key
employee of the Parent or any affiliate of any such person other than the
payment of wages and salaries and other benefits under employee benefit plans in
existence prior to December 31, 1998;
(xvii) ...................................................made
any loans or advances to, guaranties for the benefit of, or investments in, any
person;
(xviii) ..................................................made
cash charitable contributions;
(xix) ........................................................
merged or consolidated with, or acquired all or substantially all of the assets,
capital stock, or business of any other person;
(xx) .........................................................
introduced any material change with respect to its method of accounting or
accounting practice by Parent; or
(xxi) ........................................................
agreed or committed to do any of the things described in this Section 5.10.
5.10 No Contracts, Etc. The Parent is not a party to or liable
under any of the following:
(a) any lease of real property;
(b) any lease of personal property;
(c) any contract for any intellectual property rights, if any;
(d) any employment and consulting agreements covering any employee
of, or consultant to, the Parent or the Merger Sub;
14
<PAGE>
(e) any deferred compensation agreements, employee stock option plans,
group life, hospitalization or disability insurance, severance policies and
other plans and arrangements providing benefits for employees of the Parent or
the Merger Sub;
(f) any bank accounts and safe deposit boxes of the Parent or the
Merger Sub;
(g) any loan agreements, credit agreements, indentures, and other
documents or instruments relating to the borrowing of money by the Parent or the
Merger Sub and all promissory notes and other evidences of indebtedness of the
Parent or the Merger Sub, including without limitation, all such documents and
instruments relating to or evidencing any stockholder loans to the Parent or the
Merger Sub; and
(h) any guaranties of obligations of the Parent or Merger Sub under all
loan agreements, leases, and other documents and instruments to which the Parent
or the Merger Sub is a party or by which it is bound, by any officer or director
of the Parent or the Merger Sub or any affiliate of any of the foregoing.
5.11 Authorization. The execution, delivery and performance by Parent of
this Agreement and the consummation by Parent and Merger Sub of the transactions
contemplated hereby require no consents of any party and no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than (a) the filing of the Certificate of Merger in accordance with the
Corporate Law, (b) compliance with any applicable requirements of the Act, the
Exchange Act, or Blue Sky laws, and (c) any other filings, approvals or
authorizations, which, if not obtained, would not, individually or in the
aggregate, have a material adverse effect on Parent or materially impair the
ability of the Parent or Merger Sub to consummate the transactions contemplated
by this Agreement.
5.12 Litigation. There are no claims, actions, suits, investigations, or
proceedings (public or private) pending against or affecting the Parent, or the
Merger Sub or any of their properties or assets, at law or in equity, before or
by any federal, state, municipal, or other governmental or non-governmental
department, commission, board, bureau, agency, court, or other instrumentality,
or arbitrator or by any private person or entity. To the knowledge of the
Parent, there are no claims, actions, suits, investigations, or proceedings
(public or private) threatened against or affecting the Parent, or the Merger
Sub or any of their properties or assets, at law or in equity, before or by any
federal, state, municipal, or other governmental or non-governmental department,
commission, board, bureau, agency, court, or other instrumentality, or
arbitrator or by any private person or entity. There are no existing orders,
judgments, settlements, injunctions, or decrees of any court or governmental
agency that apply to the Parent or the Merger Sub or any of their assets,
properties, business, or operations. No product liability, warranty, or similar
claims have been made against the Parent or the Merger Sub. Neither the Parent
nor the Merger Sub have entered into any settlement agreements relating to the
compromise or dismissal of any litigation involving the Parent or the Merger Sub
or any of their properties or assets.
15
<PAGE>
5.13 Taxes. All Taxes (as hereinafter defined) required to be filed by the
Parent and the Merger Sub have been timely filed and are true, correct, and
complete in all material respects, and all Taxes payable pursuant thereto have
been timely paid or appropriate extensions have been filed for such periods. No
deficiency or adjustment in respect of any Taxes that was assessed against the
Parent or the Merger Sub remains unpaid and no such claim or assessment is
pending or, to the knowledge of the Parent, threatened. The Parent and the
Merger Sub have made all withholding of Taxes required to be made under all
applicable federal, state, and local tax regulations and such withholdings have
either been paid on a timely basis to the respective governmental agencies or
set side in accounts for such purpose or accrued, reserved against and entered
upon the books of the Parent or the Merger Sub. There are no outstanding
agreements or waivers extending the statutory period of limitations applicable
to any tax return or tax liability of the Parent or the Merger Sub, and there is
no proposed liability for any Taxes for which there is not an adequate reserve
reflected on the Parent Balance Sheet. The Parent has not filed any consent with
the Internal Revenue Service described in Section 341(f) of the Code.
5.14 Proprietary Rights.
------------------
(a) Except as set forth on Schedule 5.14(a):
(i)
..............................................................................To
the Parent's knowledge, neither the Parent nor the Merger Sub has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Proprietary Rights of third parties, (ii) neither the Parent nor the Merger Sub
(and its employees with responsibility for Proprietary Rights matters) has
received any written charge, complaint, claims, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including any
claim that the Parent or the Merger Sub must license or refrain from using any
Proprietary Rights of any third party), (iii) to the Parent's knowledge, there
is no basis for any as-yet unasserted charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Parent must license or refrain from
using any Proprietary Rights of any third party), or (iv) to the Parent's
knowledge, no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Proprietary Rights of the Parent or the
Merger Sub.
5.15 ERISA. Neither the Parent nor the Merger Sub nor any ERISA Affiliate
of the Parent or the Subsidiaries maintains or contributes to or is obligated to
contribute to, and has ever maintained or contributed to or been obligated to
contribute to, (i) any Multiemployer Plan, (ii) any a Multiple Employer Plan or
(iii) any other incentive or retirement plan, including but not limited to a
pension plan.
5.16 Fees. Except as set forth in Schedule 5.16, there are no claims for
legal, accounting, financial advisory, or investment bankers' fees, brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Parent or the Merger Sub.
16
<PAGE>
5.17 Books and Records. Except as set forth in Schedule 5.17, the financial
books, records, and work papers of the Parent and the Merger Sub are complete
and correct in all material respects, have been maintained in accordance with
good business practice and accurately reflect the bases for the consolidated
financial condition and results of operations of the Parent or the Merger Sub
set forth in the financial statements referred to in Section 5.7 hereof.
5.18 Disclosure. To the Parent's knowledge, no representation or warranty
by the Parent in this Agreement and no statement contained in any document,
certificate, or other writing prepared by the Parent or its representatives and
furnished by the Parent to the Company pursuant to the provisions hereof,
affirmatively misstates a material fact or omits a material fact necessary for
such document, certificate, or writing to be, in good faith, accurately and
completely responsive in all material respects to the purpose identified by the
Parent to the Company for which such information was furnished by the Parent to
the Company.
5.19 Purchase Accounting Treatment. The Parent intends that the
Merger be accounted for under the "purchase" method of accounting.
ARTICLE VI
INTERIM OPERATING COVENANTS OF THE PARENT AND SUBSIDIARIES
----------------------------------------------------------
6.1 Operations. Between the date of this Agreement and the
Effective Time, each of the Parent and the Merger Sub will:
(a) file on a timely basis all notices, reports or other filings
required to be filed with or reported to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or any
instrumentality of any of the foregoing wherever located with respect to the
continuing operations of the Parent and the Merger Sub, including, without
limitation, the SEC and Nasdaq Bulletin Board;
(b) maintain material compliance with all Governmental Permits and all
laws, rules, regulations and consent orders;
(c) file on a timely basis all complete and correct applications or
other documents necessary to maintain, renew or extend any site assessment,
permit, license, variance or any other approval required by any governmental
authority necessary and/or required for the continuing operation of the Parent's
and the Merger Sub's business operations, whether or not such approval would
expire before or after the Effective Time; and
(d) advise the Company promptly in writing of any material change in
any document or Schedule, including without limitation any Schedule, Exhibit or
other information delivered pursuant to this Agreement.
17
<PAGE>
6.2 Meeting of Stockholders. The Parent will take all action necessary
in accordance with applicable law and their respective charter documents to
convene a meeting of their stockholders before the Effective Date, to consider
and vote upon the approval of this Agreement and the transactions contemplated
hereby.
6.3 No Change. Between the date of this Agreement and the Effective
Time, the Parent, the Merger Sub will not, without the prior written consent of
the Company or except as described in this Agreement:
(a) make any change in their Articles of Incorporation or Bylaws;
(b) authorize, issue, transfer, distribute, or register any of their
securities;
(c) declare or pay any dividend or make any distribution in respect of
their capital stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its capital stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures;
(e) change or promise to change the compensation payable or to become
payable to any director, officer, employee or agent, or make or promise to make
any bonus payment to any such person;
(f) create, assume or otherwise permit the imposition of any mortgage,
pledge or other lien (except for current property taxes) or encumbrance upon or
grant any option or right of first refusal with respect to any assets or
properties whether now owned or hereafter acquired;
(g) sell, assign, lease or otherwise transfer or dispose of any
property or equipment other than in the ordinary course of business;
(h) merge or consolidate or agree to merge or consolidate with or into
any firm, corporation or other entity;
(i) waive any material rights or claims;
(j) amend or terminate any material agreement or any site assessment,
permit, license or other right;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) take any action or suffer or permit any event to occur that would
cause any representation or warranty in this Agreement to become untrue as of
the Effective Time.
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<PAGE>
6.4 Access; Confidential Information. Between the date of this
Agreement and the Effective Time, the Parent and the Merger Sub will afford to
the officers and authorized representatives of the Company, including, without
limitation, its counsel, independent auditors and investment bankers, access to
the facilities, plants, corporate properties and other properties, books and
records of the Parent and the Merger Sub and will furnish the Company with such
additional financial and operating data and other information as to the business
and properties of the Parent and the Merger Sub as the Company may from time to
time reasonably request. The Parent and the Merger Sub will cooperate with the
Company, its representatives and counsel in the preparation of any documents or
other material which may be required by any governmental agency. Except as
necessary to comply with the terms of this Agreement, the rules and regulations
of the Nasdaq Electronic Bulletin Board and the SEC, the Company will cause all
information obtained from the Parent and the Merger Sub in connection with the
negotiation and performance of this Agreement to be treated as confidential
(except such information which is in the public domain or which the Company may
be required to disclose to any governmental agency, or pursuant to any court or
regulatory agency order) and will not use, and will not knowingly permit others
to use, any such confidential information in a manner detrimental to the Parent
or the Merger Sub. The Parent and the Merger Sub covenant and agree not to
disclose to any third persons other than their accountants, brokers, bankers,
investment advisers or legal counsel any of the specific terms or provisions of
this Agreement (including financial terms) prior to or after the date hereof
without the prior written consent of the Company.
6.5 Obtain Consents. Promptly after the execution of this Agreement,
the Parent and the Merger Sub shall make all filings and take all steps
reasonably necessary to obtain all approvals and consents required to be
obtained by the Parent and the Merger Sub to consummate the transactions
contemplated by this Agreement.
6.6 Exclusivity. The Parent and the Merger Sub agree that they will
not (and will use their best efforts to cause the Parent's and the Merger Sub's
directors, officers, agents, representatives, and affiliates, and any other
person acting on their behalf not to) enter into any contract or agreement that
has as a purpose a business combination or merger, an issuance or sale of debt
or equity of the Parent or the Merger Sub (including the capital stock), a sale
of a substantial portion of the assets of the Parent or the Merger Sub, or a
transaction comparable to or similar to the Merger (any of the foregoing, a
"Competing Transaction"). The Parent and the Merger Sub will promptly notify the
Company if they receive any offer, inquiry or proposal with respect to a
Competing Transaction and the details thereof, and keep the Company informed
with respect to each such offer, inquiry or proposal. The Parent and the Merger
Sub will provide the Company with copies of all such offers, inquiries or
proposals which are in writing.
ARTICLE VII
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
7.1 Filings; Other Action. Subject to the terms and conditions herein
provided, the ompany, its subsidiary, the Parent and the Merger Sub shall cause
19
<PAGE>
any appropriate other party to: (a) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits, or
authorizations are required to be obtained prior to the Effective Time from
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits, or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper, or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
7.2 Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions set forth
herein or the waiver thereof, directly or by or through its officers or
directors, perform such further acts and execute such documents whether before
or after the Effective Time as may be reasonably required to effect the Merger.
In addition, subject to the limitations set forth in this Agreement, and unless
specifically prohibited by applicable law, each party will use its best efforts
to cause all of the conditions to Closing set forth in this Agreement that are
within its control to be satisfied prior to the Closing Date and will not take
any action inconsistent with its obligations under this Agreement or which could
hinder or delay the consummation of the transactions contemplated by this
Agreement or that would cause any representation, warranty, or covenant made by
it in this Agreement or in any certificate, list, exhibit, or other instrument
furnished or to be furnished pursuant hereto, or in connection with the
transaction contemplated hereby, to be untrue in any material respect as of the
Effective Time.
7.3 Expenses. If the Merger is not consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
7.4 Tax Matters. The Parent, the Merger Sub and the Company will treat
and cause the Surviving Corporation to treat the Merger as a reorganization
qualifying under Section 368(a)(2)(E) of the Code and will file and cause the
Surviving Corporation to file all returns and reports (including without
limitation those required under Treasury Regulation Section 1.368-3) as required
and in a manner consistent with such treatment; (ii) no shareholder is required
to recognize income gain or loss with respect the Merger; and (iii) they will
take no action that will prevent or be inconsistent with treating the Merger as
a reorganization qualifying under Section 368(a)(2)(E) of the Code.
7.5 Brokers and Finders Fees. Each party shall pay and be responsible
for any broker's, finder's or financial advisory fee incurred by such party in
connection with the transactions contemplated by this Agreement.
7.6 Notices of Certain Events.....................................Each
party shall promptly notify the other party hereto of:
20
<PAGE>
(a) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving or
otherwise affecting such party that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to this Agreement.
7.7 Completion of Due Diligence. Each party acknowledges that this
Agreement is being executed prior to the completion of necessary due diligence
and prior to the preparation and review of the appropriate Schedules and
Exhibits. Each party shall grant the other and each of their officers,
attorneys, accountants and advisors, complete and unfiltered access to all
information, documentation and personnel of the other. Each party shall conduct
such diligence within 30 days of the date of this Agreement unless such party
notifies the other parties in to the Agreement that they require further time
and information to complete their investigations to their satisfaction,
including information contained or in Schedules or Exhibits to this Agreement.
7.8 Preparation of Schedules and Exhibits. Each party to this
Agreement shall prepare and attach all necessary Schedules and Exhibits after
the execution of this Agreement, but no later than the Closing Date, which
information shall be true and correct as of the Closing Date, unless otherwise
specified therein.
ARTICLE VIII
CONDITIONS TO CLOSING
---------------------
8.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved in the manner required by applicable law by the holders of the
issued and outstanding shares of capital stock of the Company and of the Parent.
(b) No party to this Agreement shall be subject to any order or
injunction of a court of competent jurisdiction that prohibits the consummation
of the transactions contemplated by this Agreement. In the event any such order
or injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted or order reversed.
21
<PAGE>
(c) No action, suit, proceeding, or investigation to suspend the
offering of the Parent Stock in connection with the Merger shall have been
initiated and be continuing, and all necessary approvals under state securities
laws relating to the issuance or trading of the Parent Stock to be issued in
connection with the Merger shall have been received.
(d) All consents, authorizations, orders, and approvals of (or filings
or registrations with) any governmental commission, board, or other regulatory
body required in connection with the execution, delivery, and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Time.
(e) No action, suit, or proceeding shall be pending or threatened by or
before any court or governmental body in which an unfavorable judgment, order,
or decree would prevent any of the transactions contemplated hereby or cause any
such transaction to be declared unlawful or rescinded or that could reasonably
be expected to cause a Company Material Adverse Effect or a Parent Material
Adverse Effect.
(f) All documents and instruments to be delivered by the parties in
connection with the transactions contemplated hereby shall be in form and
substance reasonably satisfactory to the parties and their respective counsel,
and the parties shall have received such other documents and instruments as they
may reasonably request in connection therewith.
(g) Each party to this Agreement shall have completed to its
satisfaction, due diligence investigation on the other, its shareholders, its
business and operations, financial condition, outstanding liabilities, business
prospects and other material information.
(h) Each party to this Agreement shall have provided the information
necessary to complete the Schedules and Exhibits to this Agreement and the
Schedules and Exhibits must be completed and the information contained therein
must be satisfactory to each party to this Agreement, in each such party's sole
discretion.
(i) This Agreement shall be modified and amended to reflect changes,
provisions, terms and conditions agreed upon by the parties hereto prior to the
Closing.
(j) None of these transactions contemplated hereby shall have been
enjoined by the court or by any federal or state governmental branch, agency,
commission or regulatory authority and not suit or other proceeding challenging
the transactions contemplated hereby shall have been threatened or instituted
and no investigative or other demand shall have been made by any federal or
state governmental branch, agency, commission or regulatory authority.
(k) The Parent shall continue to be listed and shall not have received
any notice of impending delisting or suspension from the Nasdaq Electronic
Bulletin Board.
(l) The Merger Sub shall have been formed in accordance with this
Agreement.
22
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8.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The Parent and the Merger Sub shall have performed or be in
compliance in all respects with agreements contained in this Agreement required
to be performed on or prior to the Closing Date. The representations and
warranties of the Parent and the Merger Sub contained in this Agreement and in
any document delivered in connection herewith shall be true and correct as of
the Closing Date, and the Company shall have received a certificate of the
President of the Parent, dated the Closing Date, certifying to such effect.
(b) There shall have been delivered to the Company certificates, dated
within five days of the Closing Date, of the Secretary of State of the State of
Nevada and the State of California, with respect to the incorporation,
subsistence, and good legal standing of the Parent and the Merger Sub,
respectively.
(c) All consents and approvals of any third parties required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been obtained
and delivered to the Company including a Release from each executive officer.
(d) There shall have been delivered to the Company certificates, dated
as of the Closing Date, of the President and Secretary, respectively, of the
Parent and the Merger Sub as set forth as Exhibit 9.2(d), (i) to the effect that
the Articles of Incorporation of the Parent and Articles of Incorporation of
Merger Sub have not been amended since the date of this Agreement, (ii)
attaching a true and complete copy of the Bylaws of the Parent and the Merger
Sub as in effect on the Closing Date, (iii) attaching a true and complete copy
of the resolutions of the Board of Directors of the Parent and the Merger Sub
approving the execution and delivery of this Agreement and authorizing the
consummation of the transactions contemplated hereby; and (iv) to the effect
that each of the provisions of Section 9.2(a) are true and correct as of the
Closing Date.
(e) There shall have been delivered to the Company certificates, dated
as of the Closing Date, with respect to the incumbency and signatures of all
officers of the Parent and the Merger Sub signing this Agreement and any other
certificate, agreement, or instrument delivered on behalf of the Parent and the
Merger Sub in connection with this Agreement.
(f) The Parent shall have delivered to the Company an opinion of its
counsel in the form attached hereto as Exhibit "9.2".
(g) Since the Closing Date, there shall not have been any material
adverse change in the condition (financial or otherwise), business, properties
or assets of the Parent or the Subsidiaries.
23
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ARTICLE IX
TERMINATION
-----------
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by the
mutual consent of the Parent and the Company.
9.2 Termination by Either Party. This Agreement may be terminated by
either party under any of the following conditions:
(a) the Closing has not occurred by December 1, 1999; provided that the
right to terminate this Agreement pursuant to this clause shall not be available
to any party whose breach of any provision of this Agreement results in the
failure of the Merger to be consummated by such time;
(b) there shall be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment, injunction, order or
decree enjoining any party from consummating the Merger is entered and such
judgment, injunction, order or decree shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause shall have used its best efforts to remove such
injunction, order or decree.
9.3 Effect of Termination and Abandonment. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article IX,
all obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to this Section 9.2 and Section 6.12 and except for the
provisions of Sections 10.2, 10.3, 10.5, 10.6, 10.7, 10.11, 10.12, and 10.13 and
pursuant to any confidentiality agreement signed by the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, or (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
GENERAL PROVISIONS
------------------
10.1 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by same day or
overnight courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
24
<PAGE>
If to the Parent or the Merger Sub:.............................................
Breakthrough Electronics, Inc.
..............................................................
600 Crandall Building
..............................................................
10 West 100 South
..............................................................
Salt Lake City, UT 84101
..............................................................
Attn:
..............................................................
Facsimile: ...........................................................
..............................................................
Telephone:.............................................................
With a copy to :................................................................
James C. Lewis, Esq.
..............................................................
Lewis Law Offices
..............................................................
600 Crandall Building
..............................................................
10 West 100 South
..............................................................
Salt Lake City, UT 84101
..............................................................
Telephone:........................................................(801)
530-0447
..............................................................
Facsimile:........................................................(801)
364-8279
If to the Company:..............................................................
Digital DJ, Inc.
..............................................................
1658 East Capitol Expwy.
..............................................................
San Jose, CA 95121
..............................................................
Attn: Tom Takahisa, President
..............................................................
Facsimile:........................................................(408)
246-9855
25
<PAGE>
Telephone:........................................................(408)
246-5264
With copies to:.................................................................
Boyd & Chang, LLP
..............................................................
19900 MacArthur Boulevard
..............................................................
Suite 660
..............................................................
Irvine, California 92612
..............................................................
Attn: Patrick R. Boyd
..............................................................
Facsimile: .......................................................(949)
851-0159
Telephone: .......................................................(949)
851-9800
or such other address or fax number as any party may specify by written notice
so given, and such notice shall be deemed to have been delivered as of the date
so telecommunicated, personally delivered, or delivered by courier or 5 days
after mailing thereof if received prior to 5:00 p.m. in the place of receipt and
such day is a business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the
next succeeding business day in the place of receipt.
10.2 Assignment, Binding Effect. Neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or certain stockholders of the Company and other named beneficiaries of
covenants or agreements in the Agreement, or their respective heirs, successors,
executors, administrators, and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
10.3 Entire Agreement. This Agreement, the Exhibits, the Parent Disclosure
Schedule, the confidentiality agreements between the parties hereto and any
schedules or agreements delivered in connection with this Agreement constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No information previously provided, addition to or modification
of any provision of this Agreement shall be binding upon any party hereto unless
made in writing and signed by all parties hereto.
26
<PAGE>
10.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of the Company, the Parent and Merger Sub, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
10.5 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation's right, title or interest, in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to carry out the
intent of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either of the constituent corporations of the Merger, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation or otherwise carry out the
intent of this Agreement.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to its rules
of conflict of laws.
10.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
Executed counterparts transmitted by fax shall be effective as originals.
10.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
27
<PAGE>
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceeding is instituted to remedy, prevent or obtain relief from a breach
of this Agreement, in relation to a breach of this Agreement or pertaining to a
declaration of rights under this Agreement, the prevailing party will recover
all such party's attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions therefrom. As used
in this Agreement, attorneys' fees will be deemed to be the full and actual cost
of any legal services actually performed in connection with the matters
involved, including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
10.12 Survival. All representations and warranties of any party contained
in this Agreement shall survive the execution and delivery of this Agreement and
the Closing until 18 months after the Closing.
10.13 Incorporation of Exhibits. The Schedules and all Exhibits and
schedules attached hereto and referred to herein are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
10.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction unless the same is
material to the terms of this Agreement, in the judgment of either party to this
Agreement, in which case the parties shall negotiate in good faith to revise the
same so as to be valid or enforceable. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
10.15 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
28
<PAGE>
10.16 Consent. Whenever the consent or approval of a party is required by
the terms of this Agreement, unless otherwise provided, the same shall not be
unreasonably withheld or delayed.
"PARENT"
BREAKTHROUGH ELECTRONICS, INC.
A Nevada corporation
By:/s/Lawrence W. Sapperstein
--------------------------
Lawrence W. Sapperstein, President
By:
--------------------------
Its:
--------------------------
"MERGER SUB"
DDJ MERGER SUB, a Nevada corporation
By:
--------------------------
Its:
--------------------------
By:
--------------------------
Its:
--------------------------
"THE COMPANY"
DIGITAL DJ, INC.,
a California corporation
By:/s/Tom Takahisa
---------------
Tom Takahisa, President and Secretary
29
EXHIBIT 2.2
-----------
AGREEMENT OF MERGER
-------------------
THIS AGREEMENT OF MERGER (this "Agreement of Merger") dated as of
November 22, 1999, is entered into by and among Breakthrough Electronics, Inc.,
a Nevada corporation ("BEI"), Digital DJ Subsidiary, Inc., a Nevada corporation
("Merger Sub"), and Digital DJ, Inc., a California corporation ("DDJ").
1. DDJ is a California corporation organized on December 5, 1991 and
has approximately 16,000,000 shares of Common Stock (the "DDJ Common Stock")
outstanding.
2. Merger Sub is a Nevada corporation organized on October 13, 1999 and
has one share of Common Stock (the "Merger Sub Common Stock") outstanding.
3. Merger Sub is a wholly-owned subsidiary of BEI.
4. Merger Sub shall be merged with and into DDJ and DDJ shall be the
surviving corporation (the "Merger").
5. The Merger shall become effective on the later of November 22, 1999
or at the time of the filing of this Agreement of Merger with the Secretary of
State of the State of California (the "Effective Time").
6. The Merger shall have the effect set forth in Section 1107 of the
California General Corporation Law (the "California Law"). Without limiting the
generality of the foregoing, at the Effective Time, the separate existence of
Merger Sub shall cease and DDJ shall succeed, without other transfer, to all
rights and property of Merger Sub and shall be subject to all the debts and
liabilities of Merger Sub in the same manner as if DDJ had itself incurred them.
All rights of creditors and all liens upon the property of Merger Sub and DDJ
shall thereafter be preserved unimpaired, provided that such liens upon property
of Merger Sub shall be limited to the property affected thereby immediately
prior to the time the Merger is effective.
7. The Articles of Incorporation of DDJ are not amended by the Merger.
8. Each share of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted at the Effective Time into and become one
share of common stock of DDJ.
9. Subject to Section 13, each share of DDJ Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted at the
Effective Time into one share of BEI Common Stock (the "BEI Stock").
10.Promptly after the Effective Time, each DDJ shareholder who has
surrendered a certificate for DDJ Common Stock (a "DDJ Certificate") to BEI,
1
<PAGE>
together with such documents as BEI shall reasonably request, shall be entitled
to receive in exchange therefor certificates representing that number of shares
(rounded down to the nearest whole number) of BEI Stock which such Shareholder
has the right to receive pursuant to Section 9 (together with any cash in lieu
of fractional shares of BEI Stock pursuant to Section 13). Accordingly,
certificates for shares of BEI Stock shall be immediately delivered to the
Shareholders of DDJ. Each DDJ Certificate so surrendered shall forthwith be
cancelled. Until surrendered as contemplated by this Section 10, each DDJ
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender (i) the certificates representing
shares of BEI as contemplated by this Section 10, (ii) a cash payment in lieu of
any fractional shares of BEI Stock as contemplated by Section 13, and (iii) any
dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to BEI Stock as contemplated by Section
11.
11. Dividends and other distributions declared or made after the
Effective Time with respect to BEI Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered DDJ Certificate with
respect to the BEI Stock represented thereby.
12. All shares of BEI Stock issued upon the surrender for exchange of
shares of BEI Common Stock in accordance with the terms hereof (including any
cash paid pursuant to Section 11 or 13) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of DDJ Common Stock,
and, at and after the Effective Time, there shall be no further registration of
transfers on the stock transfer books of DDJ of the shares of DDJ Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, DDJ Certificates are presented to DDJ for any reason, they shall
be cancelled and exchanged as herein provided.
13. No certificates or scrip representing fractional shares of BEI
shall be issued upon the surrender for exchange of DDJ Certificates pursuant to
Section 10 and no dividend, stock split or other change in the capital structure
of BEI shall relate to any fractional security, and such fractional interests
shall not entitle the owner thereof to vote or to any rights as a security
holder of BEI. Each DDJ Shareholder shall be entitled to an amount of cash equal
to $.001 multiplied by the fractional share interest of BEI Stock to which such
Shareholder is entitled.
14. None of the DDJ Shareholders has exercised appraisal rights with
respect to the DDJ Common Stock in accordance with Sections 1300, et seq., of
the California Law.
15. BEI, Merger Sub, DDJ and the holders of DDJ Common Stock are
parties to an Agreement and Plan of Merger dated November 22, 1999 (the "Plan of
Merger"). The Merger of Agreement and the Plan of Merger are intended to be
construed together in order to effectuate their purposes.
16. This Agreement of Merger and the Plan of Merger are intended as a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended.
[Signatures appear on the following page]
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf by the undersigned, thereunto duly authorized.
BREAKTHROUGH ELECTRONICS,
INC.
By:
Its:
DIGITAL DJ, INC.
By:
Its:
DIGITAL DJ SUBSIDIARY, INC.
By:
Its:
3
EXHIBIT 3.1
-----------
AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION
OF
DIGITAL DJ, INC.
Tsutomu Takahisa certifies that:
1. I am the President and Secretary of DIGITAL DJ, INC., a
California corporation.
2. Article VI of the Restated Articles of Incorporation of the
corporation is hereby amended to add the following provision:
"8. Conversion of Preferred Stock by Majority Vote. Each outstanding share of
Preferred Stock shall automatically be converted into one share of Common Stock
upon the approval of the holders of at least a majority of the outstanding
shares of Preferred Stock, voting together."
3. The foregoing Amendment to Restated Articles of Incorporation
has been duly approved by the Board of Directors of the corporation.
4. The foregoing Amendment to Restated Articles of Incorporation
has been duly approved by the required vote of shareholders required in Section
902 of the California Corporations Code. The corporation has two classes of
stock and the number of outstanding shares is 6,830,700 shares of Common Stock
and 3,569,506 of Preferred Stock consisting of: 482,098 shares of Series A
Preferred Stock; 868,011 shares of Series B Preferred Stock; 1,000,000 shares of
Series C Preferred Stock; and 1,219,397 shares of Series D Preferred Stock. The
number of shares voting in favor of the Amendment to Restated Articles of
Incorporation set forth herein equaled or exceeded the vote required. The
percentage vote required was more than 50% of the outstanding shares of Common
Stock and more than 50% of the shares of Series A Preferred Stock, Series B
Preferred Stock Series C Preferred Stock and Series D Preferred Stock.
The undersigned declares under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of my knowledge.
Dated: November 12, 1999 /s/Tsutomu Takahisa
------------------------------------
Tsutomu Takahisa, President and Secretary
4
EXHIBIT 5.1
-----------
[TO BE PREPARED ON JIM LEWIS LETTERHEAD]
November 18, 1999
Digital DJ, Inc.
1658 East Capitol Expwy.
San Jose, CA 95121
Re: Digital D.J., Inc.
------------------
Gentlemen:
I have acted as counsel to Breakthrough Electronics, Inc., a Nevada
corporation ("BEI"), and Digital DJ Subsidiary, Inc., a Nevada corporation, in
connection with the Agreement and Plan of Merger (the "Agreement") dated as of
November 22, 1999 (the "Closing Date") among Digital DJ, Inc., Breakthrough
Electronics, Inc., and Digital DJ Subsidiary, Inc., and the Resignation and
Termination Agreement, and the Officer, Director, Principal Shareholder
Certificate and the Certificate of Agreement of Merger, each dated November 22,
1999 (collectively, the "Closing Documents").
In rendering the opinions set forth herein, I have examined and relied
on originals or copies, certified or otherwise identified to our satisfaction,
of the following documents:
3. The Agreement;
(b) The Closing Documents;
(c) The Articles of Incorporation of BEI;
(d) The Articles of Incorporation of DDJ Sub;
(e) The Certificate of Qualification of Foreign Corporation of the
State of Utah;
(f) The Bylaws of BEI (the "BEI Bylaws"); and
1
<PAGE>
(g) Such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
Based upon the foregoing, and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, I am of the opinion
that:
1. BEI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has all necessary power and
authority to execute and deliver the Agreement and to perform its obligations
thereunder. BEI is duly authorized to do business as a foreign corporation in,
and is in good standing in, the State of Utah. BEI is authorized to issue
50,000,000 shares of common stock, $.01 par value, of which 710,536 are issued
and outstanding. There are no other outstanding shares or rights to acquire
shares of BEI's equity securities.
2. DDJ Sub is a corporation duly organized validly existing and in good
standing under the laws of the State of Nevada and has all necessary power and
authority to execute and deliver the Agreement and to perform its obligations
thereunder.
3. The execution and delivery by BEI and the principal shareholders of
the Agreement and the Closing Documents and their performance of the obligations
thereunder have been duly and validly authorized by all necessary action on the
part of BEI, DDJ Sub and each principal shareholder. The Agreement and the
Closing Documents (including, the schedules and each exhibit) have been duly
executed and delivered where applicable by BEI, DDJ Sub and the principal
shareholders and constitute a valid and binding obligation of each enforceable
against each of them in accordance with their respective terms, except as
enforcement relating to or affecting the enforcement of creditors rights
generally and the availability of the equitable remedies that may be subject to
general principles of equity including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, the possible
unavailability of specific performance or injunctive relief and the discretion
of the court before which any proceeding, whether in equity or at law, may be
brought.
4. Neither the execution and delivery of the Agreement or the Closing
Documents nor the consummation by BEI, DDJ Sub and each principal shareholder of
any of the transactions therein contemplated, or the fulfillment of, or
compliance with, the terms and provisions thereof, will conflict with or result
in a violation of any of the Articles of Incorporation or Bylaws of BEI or DDJ
Sub or any contract or agreement to which any of these are subject.
5. BEI is current on and has fully and completely made all necessary
filings with the United States Securities and Exchange Commission and Nasdaq
Electronic Bulletin Board for the quarter ended June 30, 1999, through the
quarter ended September 30, 1999, to remain in good standing as a 15d reporting
company and to continue to be quoted on the Nasdaq Electronic Bulletin Board.
With respect to the aforementioned documents, we have assumed the
genuineness of all signatures, the authenticity of all items submitted to us as
originals, the conformity with originals of all items submitted to us as copies
and the due authority of all persons executing the same.
2
<PAGE>
This opinion is being delivered solely for the benefit of Digital DJ
and its shareholders in connection with the transaction contemplated by the
introductory paragraph to this opinion. Except as may be required by applicable
laws and governmental regulations, it may not be quoted, filed with any
governmental authority or other regulatory agency or otherwise circulated or
utilized for any other purpose without our prior written consent.
Very truly yours,
James C. Lewis
3
EXHIBIT 17.1
------------
RESIGNATION AND TERMINATION AGREEMENT
- -------------------------------------
THIS RESIGNATION AND TERMINATION AGREEMENT (this "Agreement") is
entered into as of November 22, 1999 among Lawrence W. Sapperstein ("Resigning
Person"), Digital DJ, Inc., a California corporation ("DDJ") and Breakthrough
Electronics, Inc., a Nevada corporation ("BEI"), with reference to the
following.
RECITALS
--------
A. Resigning Person is an officer, director or key employee or
independent contractor for BEI .
B. BEI is entering into an Agreement and Plan of Merger with
Digital DJ, Inc. ("DDJ"), which will result in a change of control of BEI and
the appointment of new directors and officers of BEI.
C. As a condition of completing the merger, DDJ has required that
the officers, directors employees and contractors of BEI resign from their
positions and certify that they have no claims against BEI and that they release
BEI from any unknown claims.
D. DDJ has also required as part of the Agreement and Plan and
Merger that such persons repudiate and agree to the termination of their former
and existing employees agreements concerning their relationship with BEI and the
officers, directors and contractors desire to repudiate such contracts.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing premises, the
provisions set forth below and other good and valuable consideration, the
parties agree as follows.
1. Termination. In consideration of DDJ agreeing to merge with
BEI, Resigning Person hereby repudiates the terms of his agreement with or by
BEI, whether written, oral or created by past conduct and releases and
discharges BEI for, from and against any other obligation with BEI to pay
salary, expenses, fees or consideration of any type or for BEI to repay any
loans or reimburse any costs, to the Resigning Person.
2. Resignation. The Resigning Person hereby resigns as an
officer, director and from any and all other positions Resigning Person has or
may have with BEI, whether pursuant to written or oral agreement or otherwise,
as of the Effective Date, as defined below.
3. Effective Date. The Effective Date of this resignation and the
termination described below, shall be the Closing Date of the merger as that
term is defined in the Agreement and Plan of Merger between BEI and DDJ.
1
<PAGE>
4. Release. The Resigning Person hereby releases, discharges, forgives,
acquits and covenants not to sue or bring a claim against BEI or DDJ, which may
have arisen during any period prior to and includes the Effective Date, or
against any of their officers, directors, shareholders, consultants,
accountants, attorneys, heirs and assigns, including BEI for any right, claim,
action, cause of action, or obligation or any kind or nature related to
Resigning Person's employment with BEI.
5. 1542 Release. In addition to the foregoing release, it is further
agreed and understood that all rights under Section 1542 of the California Civil
Code, and any similar laws of any state or territory of the United States are
hereby expressly waived. Said Section reads as follows: "A general release does
not extend to claims which the creditor does not know or expect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected the settlement with the debtor."
6. No Prior Assignment. The Resigning Person represents and warrants
to BEI and DDJ that he has not previously assigned any of the rights or causes
of action released in this Agreement.
7. Change, Modification, Waiver. No change or modification of the
Agreement shall be valid unless it is in writing and signed by each of the
parties. No waiver of any provisions of the Agreement shall be valid unless it
is in writing and signed by the party against whom the waiver is sought to be
enforced. The failure of a party to insist upon strict performance of any
provision of the Agreement in any one or more instances shall not be construed
as a waiver or relinquishment of any right to insist upon strict compliance with
such provision in the future. No waiver of any other provision of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver.
8. Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to confer upon any person other than the parties hereto
and their respective heirs, representatives, indemnifier, insured, successors,
and permitted assigns, any rights or remedies under or by reason of this
Agreement, nor is anything in the Agreement intended to relieve or discharge the
liability of any other party hereto.
9. Disputes. This Agreement will be interpreted in accordance with
California law, including all matters of construction, validity, performance and
enforcement, without giving effect to any principles of conflict of laws. The
parties irrevocably consent to the jurisdiction of the courts in San Francisco
County, California. Any dispute or proceeding concerning this Agreement will be
resolved in San Francisco County, California.
10. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceeding is instituted to remedy, prevent or obtain relief from a breach
of this Agreement, in relation to a breach of this Agreement or pertaining to a
declaration of rights under this Agreement, the prevailing party will recover
all such party's attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions therefrom. As used
in this Agreement, attorneys' fees will be deemed to be the full and actual cost
2
<PAGE>
of any legal services actually performed in connection with the matters
involved, including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
11. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity will not affect the
validity of the remainder of this Agreement and, wherever possible, intent will
be given to the invalid or unenforceable provision.
12. Interpretation. The language in all parts of this Agreement will be
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the sections of this
Agreement are for convenience only and will not affect the construction or
interpretation of any of the provisions herein.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered will be an original, and
all of which when executed will constitute one and the same instrument.
14. Further Actions. The parties will sign such additional
documents and take such urther action as may be reasonably required to
consummate or otherwise fulfill the intent of this Agreement.
15. Assignment. This Agreement will inure to the benefit of and be
binding upon the predecessors, successors, heirs, permitted assigns,
representatives, agents, servants, directors and shareholders of the parties.
16. Beneficiary. The parties acknowledge that DDJ is an intended
third party beneficiary of this Agreement.
17. Miscellaneous. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day", "month" or "year" will be deemed to be a reference
to a calendar day, month or year, as the case may be. Unless expressly set forth
otherwise herein, all cross-references herein will refer to provisions within
this Agreement, and will not be deemed to be references to the overall
transaction or to any other agreement or document.
IN WITNESS WHEREOF, the parties agree to be bound by the terms of this
Agreement, and set their hand hereto in duplicate original as the date first
above written.
3
<PAGE>
"RESIGNING PERSON"
LAWRENCE W. SAPPERSTEIN, an individual
BREAKTHROUGH ELECTRONICS, INC.
By:/s/Lawrence W. Sapperstein
--------------------------
Lawrence W. Sapperstein, President
DIGITAL DJ, INC.
By:/s/Tsutomu Takahisa
-------------------
Tsutomu Takahisa, President
4
EXHIBIT 17.2
------------
RESIGNATION AND TERMINATION AGREEMENT
-------------------------------------
THIS RESIGNATION AND TERMINATION AGREEMENT (this "Agreement") is
entered into as of November 22, 1999 among Lawrence Grobstein ("Resigning
Person"), Digital DJ, Inc., a California corporation ("DDJ") and Breakthrough
Electronics, Inc., a Nevada corporation ("BEI"), with reference to the
following.
RECITALS
--------
A. Resigning Person is an officer, director or key employee or
independent contractor for BEI .
B. BEI is entering into an Agreement and Plan of Merger with
Digital DJ, Inc. ("DDJ"), which will result in a change of control of BEI and
the appointment of new directors and officers of BEI.
C. As a condition of completing the merger, DDJ has required that the
officers, directors employees and contractors of BEI resign from their positions
and certify that they have no claims against BEI and that they release BEI from
any unknown claims.
D. DDJ has also required as part of the Agreement and Plan and Merger
that such persons repudiate and agree to the termination of their former and
existing employees agreements concerning their relationship with BEI and the
officers, directors and contractors desire to repudiate such contracts.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing premises, the
provisions set forth below and other good and valuable consideration, the
parties agree as follows.
1. Termination. In consideration of DDJ agreeing to merge with BEI,
Resigning Person hereby repudiates the terms of his agreement with or by BEI,
whether written, oral or created by past conduct and releases and discharges BEI
for, from and against any other obligation with BEI to pay salary, expenses,
fees or consideration of any type or for BEI to repay any loans or reimburse any
costs, to the Resigning Person.
2. Resignation. The Resigning Person hereby resigns as an
officer, director and from any and all other positions Resigning Person has or
may have with BEI, whether pursuant to written or oral agreement or otherwise,
as of the Effective Date, as defined below.
3. Effective Date. The Effective Date of this resignation and the
termination described below, shall be the Closing Date of the merger as that
term is defined in the Agreement and Plan of Merger between BEI and DDJ.
5
<PAGE>
4. Release. The Resigning Person hereby releases, discharges, forgives,
acquits and covenants not to sue or bring a claim against BEI or DDJ, which may
have arisen during any period prior to and includes the Effective Date, or
against any of their officers, directors, shareholders, consultants,
accountants, attorneys, heirs and assigns, including BEI for any right, claim,
action, cause of action, or obligation or any kind or nature related to
Resigning Person's employment with BEI.
5. 1542 Release. In addition to the foregoing release, it is further
agreed and understood that all rights under Section 1542 of the California Civil
Code, and any similar laws of any state or territory of the United States are
hereby expressly waived. Said Section reads as follows: "A general release does
not extend to claims which the creditor does not know or expect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected the settlement with the debtor."
6. No Prior Assignment. The Resigning Person represents and
warrants to BEI and DDJ that he has not previously assigned any of the rights or
causes of action released in this Agreement.
7. Change, Modification, Waiver. No change or modification of the
Agreement shall be valid unless it is in writing and signed by each of the
parties. No waiver of any provisions of the Agreement shall be valid unless it
is in writing and signed by the party against whom the waiver is sought to be
enforced. The failure of a party to insist upon strict performance of any
provision of the Agreement in any one or more instances shall not be construed
as a waiver or relinquishment of any right to insist upon strict compliance with
such provision in the future. No waiver of any other provision of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver.
8. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer upon any person other than the parties hereto and
their respective heirs, representatives, indemnifier, insured, successors, and
permitted assigns, any rights or remedies under or by reason of this Agreement,
nor is anything in the Agreement intended to relieve or discharge the liability
of any other party hereto.
9. Disputes. This Agreement will be interpreted in accordance with
California law, including all matters of construction, validity, performance and
enforcement, without giving effect to any principles of conflict of laws. The
parties irrevocably consent to the jurisdiction of the courts in San Francisco
County, California. Any dispute or proceeding concerning this Agreement will be
resolved in San Francisco County, California.
10. Attorneys' Fees. If any arbitration, litigation, action, suit
or other proceeding is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitions
therefrom. As used in this Agreement, attorneys' fees will be deemed to be the
6
<PAGE>
full and actual cost of any legal services actually performed in connection with
the matters involved, including those related to any appeal or the enforcement
of any judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
11. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity will not affect the
validity of the remainder of this Agreement and, wherever possible, intent will
be given to the invalid or unenforceable provision.
12. Interpretation. The language in all parts of this Agreement will be
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the sections of this
Agreement are for convenience only and will not affect the construction or
interpretation of any of the provisions herein.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered will be an original, and
all of which when executed will constitute one and the same instrument.
14. Further Actions. The parties will sign such additional
documents and take such further action as may be reasonably required to
consummate or otherwise fulfill the intent of this Agreement.
15. Assignment. This Agreement will inure to the benefit of and be
binding upon the predecessors, successors, heirs, permitted assigns,
representatives, agents, servants, directors and shareholders of the parties.
16. Beneficiary. The parties acknowledge that DDJ is an intended
third party beneficiary of this Agreement.
17. Miscellaneous. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day", "month" or "year" will be deemed to be a reference
to a calendar day, month or year, as the case may be. Unless expressly set forth
otherwise herein, all cross-references herein will refer to provisions within
this Agreement, and will not be deemed to be references to the overall
transaction or to any other agreement or document.
IN WITNESS WHEREOF, the parties agree to be bound by the terms of this
Agreement, and set their hand hereto in duplicate original as the date first
above written.
7
<PAGE>
"RESIGNING PERSON"
LAWRENCE GROBSTEIN, an individual
BREAKTHROUGH ELECTRONICS, INC.
By:/s/Lawrence W. Spperstein
-------------------------
Lawrence W. Sapperstein, President
DIGITAL DJ, INC.
By:/s/Tsutomu Takahisa
-------------------
Tsutomu Takahisa, President
8
EXHIBIT 17.3
------------
RESIGNATION AND TERMINATION AGREEMENT
-------------------------------------
THIS RESIGNATION AND TERMINATION AGREEMENT (this "Agreement") is
entered into as of November 22, 1999 among Anthony Adimey ("Resigning Person"),
Digital DJ, Inc., a California corporation ("DDJ") and Breakthrough Electronics,
Inc., a Nevada corporation ("BEI"), with reference to the following.
RECITALS
--------
A. Resigning Person is an officer, director or key employee or
independent contractor for BEI .
B. BEI is entering into an Agreement and Plan of Merger with
Digital DJ, Inc. ("DDJ"), which will result in a change of control of BEI and
the appointment of new directors and officers of BEI.
C. As a condition of completing the merger, DDJ has required that the
officers, directors employees and contractors of BEI resign from their positions
and certify that they have no claims against BEI and that they release BEI from
any unknown claims.
D. DDJ has also required as part of the Agreement and Plan and Merger
that such persons repudiate and agree to the termination of their former and
existing employees agreements concerning their relationship with BEI and the
officers, directors and contractors desire to repudiate such contracts.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing premises, the
provisions set forth below and other good and valuable consideration, the
parties agree as follows.
18. Termination. In consideration of DDJ agreeing to merge with BEI,
Resigning Person hereby repudiates the terms of his agreement with or by BEI,
whether written, oral or created by past conduct and releases and discharges BEI
for, from and against any other obligation with BEI to pay salary, expenses,
fees or consideration of any type or for BEI to repay any loans or reimburse any
costs, to the Resigning Person.
19. Resignation. The Resigning Person hereby resigns as an
officer, director and from any and all other positions Resigning Person has or
may have with BEI, whether pursuant to written or oral agreement or otherwise,
as of the Effective Date, as defined below.
20. Effective Date. The Effective Date of this resignation and the
termination described below, shall be the Closing Date of the merger as that
term is defined in the Agreement and Plan of Merger between BEI and DDJ.
9
<PAGE>
21. Release. The Resigning Person hereby releases, discharges,
forgives, acquits and covenants not to sue or bring a claim against BEI or DDJ,
which may have arisen during any period prior to and includes the Effective
Date, or against any of their officers, directors, shareholders, consultants,
accountants, attorneys, heirs and assigns, including BEI for any right, claim,
action, cause of action, or obligation or any kind or nature related to
Resigning Person's employment with BEI.
22. 1542 Release. In addition to the foregoing release, it is further
agreed and understood that all rights under Section 1542 of the California Civil
Code, and any similar laws of any state or territory of the United States are
hereby expressly waived. Said Section reads as follows: "A general release does
not extend to claims which the creditor does not know or expect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected the settlement with the debtor."
23. No Prior Assignment. The Resigning Person represents and warrants
to BEI and DDJ that he has not previously assigned any of the rights or causes
of action released in this Agreement.
24. Change, Modification, Waiver. No change or modification of the
Agreement shall be valid unless it is in writing and signed by each of the
parties. No waiver of any provisions of the Agreement shall be valid unless it
is in writing and signed by the party against whom the waiver is sought to be
enforced. The failure of a party to insist upon strict performance of any
provision of the Agreement in any one or more instances shall not be construed
as a waiver or relinquishment of any right to insist upon strict compliance with
such provision in the future. No waiver of any other provision of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver.
25. Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to confer upon any person other than the parties hereto
and their respective heirs, representatives, indemnifier, insured, successors,
and permitted assigns, any rights or remedies under or by reason of this
Agreement, nor is anything in the Agreement intended to relieve or discharge the
liability of any other party hereto.
26. Disputes. This Agreement will be interpreted in accordance with
California law, including all matters of construction, validity, performance and
enforcement, without giving effect to any principles of conflict of laws. The
parties irrevocably consent to the jurisdiction of the courts in San Francisco
County, California. Any dispute or proceeding concerning this Agreement will be
resolved in San Francisco County, California.
27. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceeding is instituted to remedy, prevent or obtain relief from a breach
of this Agreement, in relation to a breach of this Agreement or pertaining to a
declaration of rights under this Agreement, the prevailing party will recover
all such party's attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions therefrom. As used
in this Agreement, attorneys' fees will be deemed to be the full and actual cost
10
<PAGE>
of any legal services actually performed in connection with the matters
involved, including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
28. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity will not affect the
validity of the remainder of this Agreement and, wherever possible, intent will
be given to the invalid or unenforceable provision.
29. Interpretation.The language in all parts of this Agreement will be
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the sections of this
Agreement are for convenience only and will not affect the construction or
interpretation of any of the provisions herein.
30. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered will be an original, and
all of which when executed will constitute one and the same instrument.
31. Further Actions. The parties will sign such additional documents
and take such further action as may be reasonably required to consummate or
otherwise fulfill the intent of this Agreement.
32. Assignment. This Agreement will inure to the benefit of and be
binding upon the predecessors, successors, heirs, permitted assigns,
representatives, agents, servants, directors and shareholders of the parties.
33. Beneficiary. The parties acknowledge that DDJ is an intended third
party beneficiary of this Agreement.
34. Miscellaneous. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day", "month" or "year" will be deemed to be a reference
to a calendar day, month or year, as the case may be. Unless expressly set forth
otherwise herein, all cross-references herein will refer to provisions within
this Agreement, and will not be deemed to be references to the overall
transaction or to any other agreement or document.
IN WITNESS WHEREOF, the parties agree to be bound by the terms of this
Agreement, and set their hand hereto in duplicate original as the date first
above written.
11
<PAGE>
"RESIGNING PERSON"
ANTHONY ADIMEY, an individual
BREAKTHROUGH ELECTRONICS, INC.
By:/s/Lawrence W. Spperstein
-------------------------
Lawrence W. Sapperstein, President
DIGITAL DJ, INC.
By:/s/Tsutomu Takahisa
-------------------
Tsutomu Takahisa, President
12
EXHIBIT 21.1
------------
LIST OF SUBSIDIARIES
- --------------------
1. Digital DJ, Inc., a California corporation
1
EXHIBIT 22.1
------------
BREAKTHROUGH ELECTRONICS, INC.
3170 West Sahara, Suite D-21
Las Vegas, Nevada 89102
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 22, 1999
TO THE SHAREHOLDERS OF BREAKTHROUGH ELECTRONICS:
A special meeting of the shareholders (the "Special Meeting") of
BREAKTHROUGH ELECTRONICS, INC. (the "Company"), will be held at 657 Third
Street, San Francisco, California 94107, on November 22, 1999, at 11:00 a.m.,
Pacific Standard Time, to consider and vote on the following proposals:
(1) To authorize and approve the Agreement and Plan of Merger dated as
of November 10, 1999 (the "Agreement"), by and between the Company, a
wholly-owned subsidiary of the Company, and Digital DJ, Inc. ("DDJ"), a
California corporation, and the transactions contemplated thereby. Under the
terms of the Agreement, a wholly-owned subsidiary of the Company will be merged
into DDJ; DDJ will become a wholly-owned subsidiary of the Company in a tax-free
reorganization; the Company will issue approximately 15,956,000 shares of common
stock, par value $0.001 per share, to the DDJ shareholders; and outstanding
warrants and options of DDJ will be converted into warrants and options to
purchase up to a total of approximately 1,102,500 shares of common stock of the
Company;
(2) To adopt and approve a proposed amendment to the Articles of
Incorporation of the Company which changes the name of the Company to "Digital
DJ, Inc.," or some derivation thereof as the Board of Directors may determine;
(3) To elect Yasuhiko Ohmori, Tsutomu Takahisa, and Koyo Hasegawa,
designees of DDJ, as Directors of the Company, to serve until the next annual
meeting or until their successors are duly elected and qualified; and
(4) To transact such other business as may properly come before the
special meeting.
The above proposals numbered (1) through (3) must be approved in order
for any to be approved. If any of such proposals is not approved, the remaining
proposals will be rendered null and void, and no action will be taken with
respect thereto.
ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON OCTOBER 20,
1999 (THE "RECORD DATE"), ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL
MEETING. THE ATTENDANCE AT AND/OR VOTE OF EACH SHAREHOLDER AT THE SPECIAL
MEETING IS IMPORTANT.
BY ORDER OF THE BOARD OF
DIRECTORS
Salt Lake City, Utah By /s/ Lawrence Sapperstein
-------------------------
DATED: November 10, 1999 Lawrence Sapperstein, President
- --------------------------------------------------------------------------------
PLEASE FILL IN, SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO THE COMPANY'S
TRANSFER AGENT, WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING. A
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
1
BREAKTHROUGH ELECTRONICS, INC.
3170 West Sahara, Suite D-21
Las Vegas, Nevada 89102
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
This Proxy Statement is furnished to shareholders of BREAKTHROUGH
ELECTRONICS, INC., a Nevada corporation (the "Company"), in connection with its
special meeting of shareholders (the "Special Meeting") to be held on November
22, 1999, at 657 Third Street, San Francisco, California 94107, at 11:00 a.m.,
Pacific Standard Time, and at any adjournment(s) thereof. This Proxy Statement
and the notice of Special Meeting are first being mailed to shareholders on or
about November 10, 1999.
A PROXY FOR USE AT THE SPECIAL MEETING IS ENCLOSED. ANY SHAREHOLDER WHO
EXECUTES AND DELIVERS A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE ITS
EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT REVOKING IT
OR A DULY EXECUTED PROXY BEARING A LATER DATE. IN ADDITION, A SHAREHOLDER MAY
REVOKE A PROXY PREVIOUSLY EXECUTED BY HIM BY ATTENDING THE SPECIAL MEETING AND
ELECTING TO VOTE IN PERSON.
Proxies are being solicited by management. The cost of this
solicitation will be borne by the Company. Solicitation will be primarily by
mail, but may be made by telephone, telegraph, or personal contact by certain
officers and employees of the Company who will not receive any compensation
therefor.
Only holders of record of the 710,000 shares of common stock of the
Company outstanding as of October 20, 1999 (the "Record Date"), are entitled to
vote at the Special Meeting. Each holder of common stock has the right to one
vote for each share of the Company's common stock owned. Cumulative voting for
the election of directors or for any other purpose is not provided for. Stock
representing one-half of the voting power of the 710,000 shares of the Company's
common stock outstanding on the Record Date, must be represented at the Special
Meeting to constitute a quorum for conducting business.
At the Special Meeting, the shareholders will consider and vote on the
following proposals:
(1) To authorize and approve the Agreement and Plan of Merger dated as
of November 10, 1999 (the "Agreement"), by and between the Company, a
wholly-owned subsidiary of the Company, and Digital DJ, Inc. ("DDJ"), a
California corporation, and the transactions contemplated thereby. Under the
terms of the Agreement, a wholly-owned subsidiary of the Company will be merged
into DDJ, DDJ will become a wholly-owned subsidiary of the Company in a tax-free
1
<PAGE>
reorganization; the Company will issue a total of approximately 15,956,000
shares of common stock, par value $0.001 per share, to the DDJ shareholders, and
outstanding warrants and options of DDJ will be converted into warrants and
options to purchase up to an additional 1,102,500 shares of common stock of the
Company;
(2) To adopt and approve a proposed amendment to the Articles of
Incorporation of the Company which changes the name of the Company to "Digital
DJ, Inc.," or some derivation thereof as the Board of Directors may determine;
(3) To elect Yasuhiko Ohmori, Tsutomu Takahisa, and Koyo Hasegawa,
designees of DDJ, as Directors of the Company, to serve until the next annual
meeting or until their successors are duly elected and qualified; and
(4) To transact such other business as may properly come before
the special meeting.
The above proposals numbered (1) through (3) must all be approved for
any to be approved. If any such proposal is not approved, the remaining
proposals will be rendered null and void, and no action will be taken with
respect thereto.
In connection with the proposed reorganization, each shareholder who
properly dissents from the reorganization and complies with the applicable
provisions of the Nevada Revised Statutes, will be entitled to receive the fair
cash value of his or her shares of the Company (See "PROPOSED REORGANIZATION:
Dissenter's Rights").
Officers, directors and certain other shareholders who hold in excess
of a majority of the issued and outstanding shares of common stock of the
Company, have indicated their intention to vote in favor of the proposals. As a
result, no additional shares voting in favor of the proposals will be needed for
all of the proposals to be approved.
- --------------------------------------------------------------------------------
SELECTED AND SUMMARY INFORMATION ABOUT THE COMPANY
- --------------------------------------------------------------------------------
GENERAL HISTORY
Breakthrough Electronics, Inc. (the "Company"), a Nevada corporation,
has been inactive for several years. Over the past two years, the Company has
been undertaking efforts to reactivate its business, update its corporate
filings, and to seek a business opportunity for acquisition or involvement by
the Company. These efforts ultimately resulted in the Agreement and Plan of
Merger, and proposed reorganization with Digital DJ, Inc., described below.
The Company was organized as a Nevada corporation on July 31, 1986,
under the name "Golden Queens Mining Co.," to engage in mining exploration on
2
<PAGE>
certain placer mining claims in Esmeralda County, Nevada. In June, 1987, the
Company changed its name to "Breakthrough Electronics, Inc." in connection with
a change in the Company's business direction after acquiring from its then
President, the rights to an electronic device known as the "Phoneguard," a
technology capable of screening telephone calls. In November, 1987, the Company
completed a public offering of a total of Units, consisting of shares of common
stock and stock purchase warrants, resulting in net proceeds of $446,500. After
the Company received an additional amount of approximately $6,100 from the
exercise of warrants, all remaining unexercised warrants expired. The Company
focused its efforts over the next few years on developing and marketing this
product and other electronic products. The Company was ultimately forced to
terminate these efforts due to operating losses and lack of funding.
For the past several years, the Company has been inactive, except for
certain efforts to reactivate the Company's business. Over the past several
years, the Company has generated no revenue and has no material assets or
liabilities.
During 1998, the Company appointed new management, consisting of
Lawrence Sapperstein, Lawrence Grobstein and Anthony Adimey; raised a small
amount of capital to cover its operating expenses, in exchange for the issuance
of restricted common stock; obtained consents from a majority of stockholders
authorizing a reverse split of the Company's common stock, on a 1 for 100 basis,
which split became effective in February 1999; and prepared updated financial
statements covering the past several quarters, for the preparation and filing of
periodic reports with the U.S. Securities & Exchange Commission.
After reviewing a number of possible business opportunities, in
September of 1999, the Company commenced discussions with representatives of
Digital DJ, Inc. ("DDJ"). DDJ has developed a design for a mobile radio-type
device which will automatically provide visual information generated by FM radio
stations to listeners (See detailed business discussion under "PROPOSED
REORGANIZATION.")
SUMMARY OF PROPOSED REORGANIZATION
As a result of recent negotiations with DDJ, the Company and its
wholly-owned subsidiary, Digital DJ Subsidiary, Inc., a Nevada corporation (the
"Subsidiary"), have entered into an Agreement and Plan of Merger with DDJ dated
November 8, 1999 (the "Agreement"), providing for the acquisition of DDJ by the
Company in exchange for the issuance of a controlling interest in the Company's
common stock to the DDJ shareholders. Pursuant to the terms of the Agreement,
the Subsidiary will be merged with and into DDJ with DDJ being the surviving
entity. In connection with the reorganization, the Company will acquire one
hundred percent of the stock of DDJ in exchange for the issuance of shares to
the DDJ shareholders, on a one-for-one basis, or a total of approximately
15,956,000 shares of the Company's common stock, and an additional 1,102,500
shares issuable under outstanding warrants and options of DDJ, will be converted
into similar warrants and options to purchase the same number of shares of the
Company. As a result, if the reorganization is completed, DDJ will become a
3
<PAGE>
wholly- owned subsidiary of the Company, and the DDJ shareholders will own
approximately 15,956,000 shares, or approximately 95.7% of the Company's total
of approximately 16,666,536 shares of common stock issued and outstanding
following the closing of the reorganization (which will increase to
approximately 96% if all outstanding warrants and options are exercised).
The Agreement also provides that the shareholders will consider and
vote on proposals to: (a) adopt an Amendment to the Articles of Incorporation
which will change the Company's name to "Digital DJ, Inc.," or some derivation
thereof; and, (b) elect the nominees of DDJ as Directors of the Company. (See
"PROPOSED REORGANIZATION," "PROPOSED AMENDMENT OF THE ARTICLES OF INCORPORATION"
and "PROPOSAL TO ELECT DIRECTORS.")
MANAGEMENT
The names of the Company's current executive Officers and Directors and
the positions held by each of them are set forth below:
Name Position with the Company
---- -------------------------
Lawrence Sapperstein President and Chairman
Lawrence Grobstein Secretary and Director
Anthony Adimey Treasurer and Director
The Company's Officers and Directors have served in such positions
since 1998. Such persons will not stand for reelection at the Special Meeting.
In connection with the proposed reorganization with DDJ, Yasuhiko
Ohmori, Tsutomu Takahisa, and Koyo Hasegawa, designees of DDJ, have been
nominated for election as Directors of the Company. Certain biographical
information with respect to each of such persons is set forth herein under the
caption "PROPOSAL TO ELECT BOARD OF DIRECTORS". If such persons are elected as
Directors, it is anticipated that Tsutomu "Tom" Takahisa will be elected as
President, Secretary and Chief Financial Officer of the Company following the
reorganization. It is also anticipated that other officers of the Company will
be elected in a meeting of the newly elected board members shortly following the
completion of the reorganization.
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth as of the Record Date the number of
shares of the Company's common stock, par value $0.001, held of record or
4
<PAGE>
beneficially by each person who held of record, or was known by the Company to
own beneficially, more than 5% of the Company's common stock, and the name and
shareholdings of each executive officer and Director, and all Officers and
Directors as a group, and the percentage to be held by each nominee to the Board
of Directors and by all nominees as a group: (See "PROPOSED REORGANIZATION"):
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name and Address of 5% Number After Exchange (2)(3)
Shareholders, and Name of of Shares Percent of Number of Percent
Officers, Directors and Nominees Owned(1) Class(1) Shares Owned Of Class
- -------------------------------- -------- -------- ------------------- ---------
Principal Shareholders:
- ----------------------
Lawrence Grobstein 200,000 28.15 200,000 1.20
Kirby Cochran 80,000 22.26 80,000 .48
Roger P. Lund 51,199 7.21 51,199 .31
James C. Lewis 40,000 6.00 40,000 .24
Officers and Directors:
- ----------------------
Lawrence Sapperstein 5,000 .70 5,000 .03
Lawrence Grobstein ----------------------------See Above-----------------------------------
Anthony Adimey 6,000 .84 6,000 .04
All Officers and Directors
- --------------------------
as a Group (3 persons): 211,000 29.69 211,000 1.26
- -----------------------
Nominees for Election:
- ---------------------
Yasuhiko Ohmori 0 0 500,010(1)(2) 3.00
Tsutomu Takahisa 0 0 4,235,792(1)(3) 25.41
Koyo Hasegawa 0 0 10,144(1)(4) .06
All Nominees for Election
as a Group (3 persons): 0 0 4,745,946(1)(2)(3)(4) 28.47
- ------------------------
</TABLE>
(1) These figures do not give effect to the possible exercise of
outstanding warrants and options of DDJ, which will be converted into like
warrants and options of the Company in connection with the reorganization. (See
"PROPOSED REORGANIZATION: Terms of the Reorganization.")
(2) Consists of shares owned by Ohmac, a company of which Mr. Ohmori is a
principal.
(3) Does not include a total of 937,495 shares held by various relatives of
Mr. Takahisa. These figures also do not give effect to the possible exercise of
warrants to purchase a total of 84,000 shares of DDJ common stock, held by
6
<PAGE>
relatives of Mr. Takahisa, which will be converted into like warrants of the
Company in connection with the reorganization. (See "PROPOSED REORGANIZATION:
Terms of the Reorganization.")
(4) Does not include or give effect to the possible exercise of options held by
Mr. Hasegawa, entitling him to purchase a total of 487,500 of DDJ common stock,
at an exercise price of $1.40, of which 300,000 shares are vested, and the
remaining 187,500 shares will be vested and/or are exercisable over the next
sixty (60) days. In connection with the reorganization, these options will be
converted into options to purchase shares of common stock of the Company on the
same terms. Also, this does not include or give effect to the possible exercise
of warrants held by Mr. Hasegawa, entitling him to purchase a total of 9,000
shares of DDJ common stock at an exercise price of $1.00 per share, which will
be converted into a similar warrant of the Company in connection with the
reorganization. (See "PROPOSED REORGANIZATION: Terms of the Reorganization.")
- --------------------------------------------------------------------------------
MARKET FOR THE COMPANY'S COMMON STOCK
- --------------------------------------------------------------------------------
There is currently only a very limited trading market in the Company's
common stock. The Company's shares of common stock are eligible for quotation on
the OTC Bulletin Board under the symbol "BKEL."
As of the date of this Proxy Statement, there are approximately 380
holders of record of the Company's common stock, as reported by the Company's
transfer agent.
Since inception, the Company has declared no dividends on its common
stock, and no dividends are contemplated in the foreseeable future.
Interwest Transfer Company, Inc., 1981 East Murray-Holladay Boulevard,
Holladay, Utah 84117, is the Company's registrar and transfer agent.
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the
issuance of a total of 50,000,000 shares of common stock, par value $0.001, of
which a total of 710,536 shares of common stock are issued and outstanding.
The shares of common stock have no pre-emptive or other subscription
rights, have no conversion rights, and are not subject to redemption. The
holders of shares of common stock are entitled to one vote for each share held.
The common stock has non-cumulative voting rights.
7
<PAGE>
The Company does not presently have any warrants or options
outstanding. If the reorganization with DDJ is completed, the Company will
convert all DDJ warrants and options to like warrants and options of the
Company. (See "PROPOSED REORGANIZATION.")
- --------------------------------------------------------------------------------
PROPOSED REORGANIZATION
- --------------------------------------------------------------------------------
INTRODUCTION
The Company and its wholly-owned subsidiary have entered into a
Agreement and Plan of Merger (the "Agreement") with Digital DJ, Inc. ("DDJ"), a
California corporation, providing for the acquisition of DDJ in a tax-free
reorganization (the "reorganization"), in exchange for the issuance of a
controlling interest in the Company to the DDJ shareholders. As described under
"Business of DDJ" below, DDJ is in the process of developing hardware and
software technology to allow for access, via a radio-like device located in
motor vehicles, to visually digitalize data which FM radio stations transmit. If
the reorganization described below is consummated, DDJ designees will become the
new management of the Company, and the business of DDJ will become the new
business of the Company.
TERMS OF THE REORGANIZATION
Under the terms of the Agreement, the Company will merge its
wholly-owned subsidiary into DDJ, with DDJ being the surviving entity. In
connection with such merger, the outstanding shares of common stock of DDJ will
be converted, on a one-for-one basis, into a total of approximately 15,956,000
restricted shares of common stock of the Company at closing. In addition, a
total of 1,102,500 shares of common stock reserved for issuance under
outstanding warrants and options of DDJ, will be converted into warrants and
options of the Company, on the same terms, entitling the holders to purchase the
same number of shares of the Company. As a result, if the reorganization is
completed, DDJ will be a wholly-owned subsidiary of the Company, and the DDJ
shareholders will hold approximately 95.7% of a total of approximately
16,666,536 shares of common stock of the Company which will be issued and
outstanding immediately following the closing of the reorganization, and
approximately 96% of the then issued and outstanding shares of the Company if
all outstanding warrants and options are exercised.
The Agreement also provides that the Company's shareholders will vote
on proposals to (a) approve an amendment to the Company's Articles of
Incorporation, which changes the name of the Company to "Digital DJ, Inc." or
some derivation thereof as the board of directors may determine; and (b) elect
Yasuhiko Ohmori, Tsutomu Takahisa, and Koyo Hasegawa, designees of DDJ, as the
board of directors of the Company. (See "PROPOSAL TO ELECT BOARD OF DIRECTORS"
and "PROPOSED AMENDMENT OF THE ARTICLES OF INCORPORATION," below).
8
<PAGE>
The consummation of the transactions contemplated by the Agreement is
subject to the accuracy of the representations made by the parties, the approval
of the transaction by the shareholders of both DDJ and the Company, and certain
other conditions.
Warrants and Options
--------------------
As indicated above, DDJ has granted to approximately nineteen (19) of
its shareholders, warrants to purchase an aggregate of 615,000 shares of DDJ
common stock. The warrants are all exercisable at any time before July 31, 2000,
at an exercise price of $0.70 per share, with respect to 450,000 shares
exercisable under outstanding warrants, and $1.00 per share with respect to the
remaining 165,000 shares exercisable under outstanding warrants. As described
above, in connection with the reorganization, the outstanding DDJ warrants will
be converted into warrants to purchase shares of common stock of the Company, at
the same exercise price(s) and on the same terms.
Koyo Hasegawa, a nominee for election to the board of directors, has
been granted options to purchase a total of 487,500 shares of common stock of
DDJ at a price of $1.40 per share. A total of 300,000 shares under the option
have vested; the remaining 187,500 shares vest in January, 2000. In connection
with the reorganization, these options will be converted to an option to
purchase the same number of shares of the Company's common stock.
BUSINESS OF DDJ
General
-------
DDJ was organized as a California corporation in May, 1997, to design
and develop information technologies for application in the "mobile
environment." DDJ is the developer of a technology which is designed to provide
up to the minute information from FM radio stations.
The Internet has become the major player over the last three years in
the new era of "The Information Super Highway." At the same time, personal agent
software employing "on- demand" push technology has become a dominant player in
the wired world for those who want to get personal and customized information
from the Internet. Now the need for the information exists and is expanding in
the mobile environment. DDJ will be seeking to satisfy the need for rapidly
growing personalized information services, specializing in Mobile Information
Services, Internet Music Downloading, and ITS (Intelligent Transportation
System), by providing the necessary software and hardware platforms which can
receive up-to-the-minute information from FM radio.
Wireless is the solution for today's rapidly changing environment.
However, when listening to the radio in a mobile environment, listeners often
have a problem getting the exact information on the radio. For example, a
listener is unable to obtain address and telephone numbers of the sponsors of
9
<PAGE>
radio ads, or up-to-the-minute stock, traffic or sports information. Most of the
song titles and artists' names are impossible to know since the radio disc
jockey does not give the desired information to the listener in a timely
fashion.
Especially in the automobile, people are in constant need of
up-to-the-minute traffic information wherever they go. Certain transitions from
"on-line" to "off-line" are happening with the growth of alphanumeric pages,
cellular services and personal digital assistants (PDAs). DDJ proposes to
address the needs of the drivers via its FM DataCasting System. DDJ believes
that its receiver and information services can provide the solutions for the FM
radio industry and its customers. As designed, when using a DDJ receiver unit,
people can see the information from the radio on the screen which will always
show them a variety of information such as the song and artist, event and movie
schedules, stock market news, and real-time traffic information. Once the
automatic information filtering system is fully developed, this information will
be broadcast 24 hours a day and 7 days a week without any human involvement.
DDJ believes that it (or its licensees) will be able to integrate all
updated information from major information providers and store it in its
Information Center Database to be delivered upon each radio station's request.
Information such as news, weather, traffic, sports, events, etc., will be
available through the DDJ (or its licensees) Information Center.
In this environment, DDJ has developed an operating system that is
believed to be both user friendly and very low cost to start the FM subcarrier
information services. Each radio station will be able to choose categories of
information from the DDJ (or its licensees) Information Center, based on their
program format, and simply set the program time for datacasting each category of
information. Updated information will then be delivered from DDJ according to
the program log. The selected categories of information are then sent from the
DDJ (or its Licensees) Information Center to the DDJ Information Work Bench
(DIWB) at the station and broadcast to the listeners automatically.
These high-speed data receivers are AM/FM stereo radios that receive FM
subcarrier data information broadcast from FM radio stations.
The Market
----------
Target Market. DDJ can target gigantic industry and consumer markets,
such as (a) Radio Broadcasting Industry, (b) ITS-Car Navigation System, (c)
Audio Visual (Radio) Equipment, and (d) Personal Computer and PDA.
Radio Broadcasting Industry. In European countries, major broadcasters
successfully implement RDS (Radio Data System), which is the old FM subcarrier
technology with 1.2 Kbps. DDJ's system is an upper compatible system of RDS,
which makes it is easy for FM stations to set up the DDJ system. DDJ believes
that approximately 95% of the car audio systems sold in Europe have the RDS
decoder. Approximately 20 million car audio systems with RDS were sold in Europe
in 1997. To start from this market is the first step to set up the DDJ FM
DataCasting Infrastructure.
10
<PAGE>
Background of European Radio Industry with RDS (Radio Data System). DDJ
management believes that many FM broadcasting companies and FM stations will
want to introduce the DDJ system as an additional compatible system of RDS,
which already covers major European countries; however, numerous on-line and
advertising companies are also seeking to provide enhancements and additional
services to stations.
Issue of FM Broadcasting Companies. Each country has FM broadcasting
companies that have great access to radio stations and have nation-wide networks
of FM stations. Currently, some FM broadcasting companies face de-regulation for
their country policy. Many FM broadcasting companies would like to start new
services to FM stations since they want to retain their control power over FM
stations. They face losing their power to FM stations.
Strategy for the FM Radio Industry. DDJ plans to license the entire
DRIS (DDJ Radio Information System) for FM Stations to implement High Speed Data
Broadcasting Services. DDJ Management believes that FM stations will then be
able to provide attractive contents to listeners and will generate additional
advertising revenue in today's lucrative, but competitive, market, as measured
by higher ratings and audience shares.
Positioning of DDJ: Solution Provider for Stations During Multi-Media
Era. Although radio-advertising revenue has been growing the last few years, the
emergence of new media sources such as on-line services, pagers, PDAs and TV
shopping networks have made radio vulnerable to decreases in audience and
advertising revenues.
DDJ will attempt to position itself as the "Solution Provider" for FM
radio stations to solve this problem. To be the "Solution Provider," DDJ plans
to be the "Advanced System Integrator" and a "Value Added information Provider."
As a system integrator, DDJ plans to set up the total system, including hardware
and software, for each station to implement DDJ FM Data Cast Services. At the
same time, DDJ and/or its Licensees plans to function as an information provider
by offering the DDJ database, which will include a variety of updated
information such as music and event information, sports news, traffic
information, advertising information and more. In this way, the radio stations
will not need to spend time or money to generate or acquire all the information.
A radio station simply has to access the DDJ database to subscribe to format
specific information through the DDJ system network.
Initial research conducted by DDJ shows that radio stations perceive
that DDJ's "FM DataCast System" could add significant value for advertisers when
receiver penetration exceeds 15-20% in that market. Some radio stations estimate
that they could increase their current advertising rates substantially with the
added value and increased audience. Although FM subcarrier services exist, DDJ
believes that it is the only company offering the radio industry an opportunity
to generate additional income through value-added advertising and increased
audience listening. In addition, DDJ believes it will be in the unique position
of helping the radio industry compete against new media trends and technologies.
11
<PAGE>
DDJ understands that the radio industry is very cost conscious. No
radio station wants to pay for the expensive equipment and incremental
operational costs to start new services. DDJ believes it has addressed this
issue in a way that no other mobile information service using the FM frequencies
has. As designed, the DDJ system is easy to operate and offers significantly low
start-up costs for this type of attractive information services. DDJ would be
the "Value Added Solution Provider" to the radio stations that want to generate
new revenue streams with the subcarriers while enhancing their relationship with
their core listeners.
Regulation
----------
All aspects of DDJ's system, which relies on radio airwaves, will be
subject to FCC regulation in the United States and/or similar international
regulations where they exist in markets overseas. Typically this is heavy
regulation, but it will be handled by FM stations and other users of DDJ's
systems and equipment.
Competition
-----------
In the broadcasting area, Digital Audio Broadcasting (DAB) could be a
prospective competitor. DDJ believes that the technology employed by the full
digital broadcasting system of DAB, is excellent. However, broadcasting
companies are required to make a huge investment to shift their equipment from
analog to full digital. Moreover, receivers for DAB in Europe cost approximately
$1,500 per unit. DDJ believes that, in Europe, customers would not pay to listen
to CD quality radio since they are satisfied with the conventional, and free, FM
stereo sound. On the other hand, in European communities, broadcasters are
planning to continue the conventional FM broadcasting services for the next 15
to 20 years. Therefore, DDJ believes it will be able to enjoy long-term business
opportunities. When DAB enters the market, DDJ, together with major
manufacturing companies, will introduce the DDJ and DAB compatible (dual mode)
receiver unit so that customers can enjoy both DDJ and DAB at the same time. In
this way, DDJ believes it will be able to take full advantage of then existing
marketing power in order to enjoy a smooth transition of its DDJ business base
toward DAB.
NO LEGAL OPINIONS OR TAX RULING
The proposed reorganization with DDJ is intended to qualify as a
tax-free reorganization under section 368(a)(2)(E) of the Internal Revenue Code
of 1986, as amended. If the reorganization qualifies as a tax-free
reorganization, no gain or loss will be recognized for income tax purposes by
either the Company or DDJ as a result of the reorganization. However, neither
the Company nor DDJ has requested a tax ruling from the Internal Revenue Service
or an opinion of legal counsel with respect to the reorganization. Accordingly,
no assurance can be given that the reorganization will qualify as a tax-free
reorganization.
The shares of the Company's common stock to be issued to the
shareholders of DDJ will not be registered under the Securities Act of 1933 (the
"Securities Act"), as amended, in reliance on the exemptions from such
12
<PAGE>
registration requirements provided by sections 3(b) and 4(2) thereof for certain
small offerings and for transactions not involving a public offering. In order
to claim the availability of such exemptions, the DDJ shareholders may need to
make certain representations to the Company with respect to their acquisition of
the Company's shares, such shares will be restricted securities within the
meaning of the Securities Act, and the certificates evidencing such shares will
bear appropriate legends restricting their subsequent resale in the absence of
registration under the Securities Act or the availability of an exemption
therefrom. Neither the Company nor DDJ has received an opinion of counsel with
regard to the availability of such exemption, and no assurance can be given that
the Securities and Exchange Commission and/or the securities administrators of
certain states would concur that the exemptions are available.
FINANCIAL INFORMATION OF DDJ
DDJ is a development stage company, and has incurred substantial
expenses in the start- up stage in developing its business. At September 30,
1998, DDJ had total assets, on an unaudited basis of approximately $779,000;
total liabilities of approximately $4,700,000 (unaudited); and a shareholders'
deficit of approximately $3,921,000. During the year ended September 30, 1998,
DDJ had a net loss of approximately $7,763,000 (unaudited). More detailed
unaudited financial statements and other financial information will be available
for inspection at the Special Meeting.
DISSENTER'S RIGHTS
Any shareholder of the Company who properly dissents from approval of
the Agreement may elect to be paid the fair value of such shares, plus interest
(exclusive of any element of value arising from the expectation or
accomplishment of the reorganization), as described below, provided that the
dissenting shareholder complies with the requirements of Section 92A.300 through
92A.500, of the Nevada Revised Statutes (the "Dissenter's Statute"). Any holder
of the Company's common stock seeking to exercise such right must follow the
procedure specified in NRS Section 92A.300 through 92A.500, and the following
description of that procedure is qualified in its entirety by express reference
to the full text of this statute which is attached as Exhibit "A" to this Proxy
Statement.
A holder of shares of the Company's common stock electing to exercise
his right to receive the fair value of such shares under the Dissenter's
Statute, must (a) deliver to the Company before the Special Meeting, a written
demand for payment for his or her shares if the proposed reorganization is
effectuated; and (b) not vote his shares in favor of the reorganization. A
failure to vote will satisfy this condition, but voting in person or by proxy in
favor of the Agreement will nullify such holder's right for payment even if such
holder has filed a written demand for payment.
Within 10 days after the approval of the Agreement, the Company must
provide written notice of the effectiveness of the reorganization to all holders
of record of common stock who have filed with the Company a written demand for
13
<PAGE>
payment. Such notice must (a) state where the demand for payment must be sent;
and where any other certificates, if any, for shares must be deposited; (b)
supply a form for demanding payment that includes the date of the first
announcement to the news media or to the stockholders of the proposed
reorganization and requires the person asserting dissenter's rights to certify
whether or not he acquired beneficial ownership of the shares before that date;
(c) set a date by which the Company must receive a demand for payment from the
dissenting shareholder, which may not be less than thirty (30), nor more than
sixty (60) days after the notice is delivered; and (d) be accompanied by a copy
of NRS 92A.300 to 92A.500, inclusive. A stockholder to whom such notice is sent
must (a) demand payment for his or her shares; (b) certify whether he or she
acquired ownership of the shares before the date required to be set forth in the
dissenter's notice for this certification; and (c) deposit his or her
certificates, if any, in accordance with the terms of the notice. The
stockholder who demands payment and deposits his certificates, if any, before
the proposed corporate action is taken retains all other rights of a stockholder
until those rights are canceled or modified by the taking of the proposed
corporate action. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, will not be entitled to payment for his shares.
Within 30 days after receipt of a demand for payment, the Company shall
pay each dissenter who complied with the demand described above, the amount the
Company estimates to be the fair value of this shares, plus accrued interest.
The obligation of the Company under this subsection may be enforced by the
district court of the county where the Company's registered office is located,
or at the election of any dissenter residing or having its registered office in
this state, of the county where the dissenter resides or has its registered
office. The payment must be accompanied by (a) the Company's balance sheet as of
the end of a fiscal year ending not more the 16 months before the date of
payment, a statement of income for that year, a statement of changes in the
stockholders' equity for that year and the latest available interim financial
statements, if any; (b) a statement of the Company's estimate of the fair value
of the shares; (c) an explanation of how the interest was calculated; (d) a
statement of the dissenter's rights to demand payment; and (e) a copy of NRS
92A.300 to 92A.500, inclusive.
If a demand for payment remains unsettled, the Company shall commence a
proceeding within 60 days after receiving the demand and petition the Court to
determine the fair value of the shares accrued interest. If the Company does not
commence the proceeding with the 60 day period, it shall pay each dissenter who
demand remains unsettled the amount demanded. The Company shall commence the
proceeding in the district court of the county where its registered office is
located. If the Company is a foreign entity without a resident agent in the
state, it shall commence the proceeding in the county where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign entity was located. The Company shall make all dissenters, whether
or not residents of Nevada, whose demands remain unsettled, parties to the
proceeding as in an action against their shares. All parties must be served with
a copy of the Petition. Nonresidents may be served be registered or certified
mail or by publications as provided by law. The jurisdiction of the court in
which the proceeding is commenced under subsection 2 is plenary and exclusive.
14
<PAGE>
The court may appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or any amendment thereto. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings. Each dissenter who is made a party to the proceeding is entitled to
a judgment: (a) for the amount, if any, by which the court finds the fair value
of his shares, plus interest, exceeds the amount paid by the Company; or (b) for
the fair value, plus accrued interest, of his after-acquired shares for which
the Company elected to withhold payment pursuant to NRS 92A.470. The court in a
proceeding to determine fair value shall also determine all of the costs of the
proceeding, including the reasonable compensation and expenses of any appraisers
appointed by the court. The court shall assess the costs against the Company,
except that the court may assess costs against all or some for the dissenters,
in amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment.
REASONS FOR THE REORGANIZATION AND SPECIAL FACTORS
Management of the Company believes that the proposed reorganization is
warranted based on the potential of its product(s), and the strong management
team of DDJ. Management is impressed with the business plan and prospectus of
DDJ, and believes that the management team that has been assembled has the
necessary qualifications and capabilities to successfully develop and market
DDJ's products. However, DDJ is in the development stage, and the reorganization
must be recognized as a speculative transaction. The success of the Company
cannot be assured, and will depend entirely on the ability of management of DDJ
to successfully complete the development and marketing of DDJ's products and
services.
The Company's limited funds and its lack of full-time management have
made it impracticable to conduct a complete and exhaustive investigation and
evaluation of DDJ, and the preliminary decision to undertake a reorganization
with DDJ has been made without any feasibility studies, independent analyses,
market surveys, or fairness opinions which may have been otherwise desirable if
the Company had more funds available to it. Accordingly, shareholders are urged
to make their own independent evaluations of the proposed reorganization prior
to voting on the proposals to be considered at the Special Meeting.
VOTE REQUIRED
Members of the board of directors and certain shareholders, who hold in
the aggregate in excess of 50% of the issued and outstanding shares of common
stock of the Company, have indicated their intention to vote in favor of the
Agreement and the transactions contemplated thereby. Accordingly, the vote of
these persons is sufficient to ensure the approval of the Agreement and the
transactions contemplated thereby.
The affirmative vote of a majority of the issued and outstanding shares
of common stock is required to approve the proposed reorganization with DDJ. The
Board of Directors recommends a vote "FOR" the proposal.
15
<PAGE>
- --------------------------------------------------------------------------------
PROPOSED AMENDMENT OF THE ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
GENERAL
The shareholders of the Company are being asked to consider and approve
a proposed amendment to the Articles of Incorporation of the Company, to change
the name of the Company to "Digital DJ, Inc.," or some derivation thereof as may
be determined by the Board of Directors.
As discussed under "PROPOSED REORGANIZATION," subject to the approval
of the matters described in this Proxy Statement, it is the Company's intention
to change its business direction to the business of DDJ. It is presently
contemplated that these business operations will be conducted under the name
"Digital DJ, Inc.," or a name similar thereto. Management is of the opinion that
the proposed new name of the Company is more readily identifiable with the
Company's proposed business operations following the completion of the
reorganization with DDJ.
VOTE REQUIRED
Members of the board of directors and certain shareholders, who hold in
the aggregate in excess of 50% of the issued and outstanding shares of common
stock of the Company, have indicated their intention to vote in favor of the
amendment to the Articles of Incorporation. Accordingly, the vote of these
persons is sufficient to ensure the approval of this proposal.
The affirmative vote of a majority of the outstanding shares of the
Company is required to approve the above proposal. Management recommends that
the shareholders vote "FOR" the proposal.
- --------------------------------------------------------------------------------
PROPOSAL TO ELECT DIRECTORS
- --------------------------------------------------------------------------------
In connection with the Agreement with DDJ, the Directors of the Company
have nominated Yasuhiko Ohmori, Tsutomu Takahisa, and Koyo Hasegawa, designees
of DDJ, for election as Directors of the Company, to serve for a term of one
year or until their successors are duly elected and qualified.
16
<PAGE>
Certain biographical information regarding each of these individuals is
set forth below.
YASUHIKO OHMORI
- ---------------
Mr. Ohmori is the Chairman and CEO of Ohmori Management Advisory Office
Corporation in Tokyo. Mr. Ohmori's experience includes positions as Chairman and
CEO at Softbank Corporation, Japan's largest computer software distribution
company; Executive Vice President at Secom Company, the unsurpassed provider of
computerized commercial and residential security network systems in Japan; and
General Manager of the Corporate Finance Department at Nomura Securities Company
the largest investment banking firm in Japan. Mr. Ohmori also holds positions as
a Director of MITI (Ministry of International Trad and Industry) Industrial
Structure Council and the Japan Microcomputer Club.
TSUTOMU TAKAHISA
- ----------------
As the founder who developed the concept of Digital DJ, Mr. Takahisa is
the driving force behind the corporation and the vital link between the
manufacturers in Japan and the United States. He obtained a Masters of Business
Administration from the J.L. Kellogg Graduate School of Management, Northwestern
University. Mr. Takahisa's work experience includes a position as Assistant to
the Senior General Manager at Canon's New Enterprises Division, where he managed
the research and development, design strategies and marketing of their Optical
Memory Card Systems.
KOYO HASEGAWA
- -------------
Mr. Hasegawa joined the company as an executive responsible for the
research and development of Digital DJ's core technology and coordination with
worldwide manufacturers. As the manager for major new technology research and
development functions at Canon Central Research Center and Hitachi Magnet
Material Research Laboratory. Mr. Hasegawa holds a Masters Degree in Electrical
Engineering from Nippon University.
VOTE REQUIRED
Members of the board of directors and certain shareholders, who hold in
the aggregate in excess of 50% of the issued and outstanding shares of common
stock of the Company, have indicated their intention to vote in favor of the
election of the nominees. Accordingly, the vote of these persons is sufficient
to ensure the approval of this proposal.
The affirmative vote of a majority of the outstanding shares of the
Company is required to elect the Directors nominated above. Management
recommends a vote "FOR" the election of the nominees.
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
In February, 1999, the Company sold a total of 200,000 post-split
restricted shares of common stock to Lawrence Grobstein, Secretary/Treasurer and
a director, for the sum of $10,000. This stock was sold to provide the Company
with necessary operating capital to perform administrative tasks and continue
business.
17
<PAGE>
In February, 1999, the Company issued a total of 5,000 shares each to
Lawrence Sapperstein, President and director, and Anthony Adimey, a director,
for services rendered on behalf of the Company.
In December, 1997, the Company authorized the issuance of a total of
171,199 shares of post-split restricted common stock to Kirby Cochran, Roger
Lund and James C. Lewis, legal counsel, for services rendered in connection with
efforts to reactivate the Company and cash having a total value of $17,120, as
follows: Kirby Cochran - 80,000 shares; Roger Lund - 51,199 shares; and James C.
Lewis - 40,000 shares.
None of the transactions described above can be considered to be the
result of arms' length negotiations. All of the share figures described above
give effect to a 1-for-100 reverse split authorized by the Company's
shareholders in August, 1998.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Additional information regarding the matters to be acted on by the
shareholders, including copies of the Agreement with DDJ, and the proposed
Amendment to the Articles of Incorporation, will be available at the Special
Meeting. Additional information regarding the matters to be voted on by the
shareholders may be available at the Special Meeting. Consequently, shareholders
are urged to attend the Special Meeting in person.
In addition to the above information, attached to this Proxy Statement
are the unaudited financial statements of the Company for the nine months ended
September 30, 1999. The Company's audited financial statements for the year
ended December 31, 1998, and other financial information, will be available at
the Special Meeting.
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OTHER MATTERS
- --------------------------------------------------------------------------------
Management of the Company knows of no other matters that are likely to
be brought before the Special Meeting. If any other matters are brought before
the Special Meeting, such matters will be properly addressed and resolved, and
the proxies will vote on such matters in accordance with their best judgement.
DATED: November 10, 1999
BREAKTHROUGH ELECTRONICS, INC.
By Order of the Board of Directors
By /s/ Lawrence Sapperstein
---------------------------
Lawrence Sapperstein, President
18
EXHIBIT 99.1
------------
PRESS RELEASE
-------------
DJ NEWS RELEASE
Digital DJ and Breakthrough Electronics Announce Consummation of Merger and
Formation of New Entity - Digital DJ Holdings, Inc.
San Francisco--(BUSINESS WIRE) February XX, 2000--Digital DJ Inc, a leading
Santa Clara based FM Subcarrier Data Broadcasting System Company announced the
consummation of merger between Digital DJ and Breakthrough Electronics Inc. to a
new company, DIGITAL DJ Holdings, Inc. (Symbol: DJAY) (www.digitaldj.com).
"We are excited about the opportunities that the now consummated merger brings
to DIGITAL DJ Holdings (DDJ) as we continue to focus on becoming a leading
Wireless & Internet technology holding company, including FM Subcarrier Data
Broadcasting System, " said Thomas Takahisa, DDJ's Chief Executive Officer.
DDJ's vision is to become a leading Information Technology & Services Provider
Company, including FM Subcarrier Data Broadcasting Platform for FM Radio
Stations to broadcast their Web Site Information, such as the names of the songs
and artists, event information, news, financial information, traffic news, movie
schedules, and many other types of information onto any mobile devise with DDJ
functions in it. DDJ targets to put its data reception & display capability onto
portable radio, boombox, MP3, PDA, Laptop, Car Radio and Car Navigation unit,
and Smart Cellular Phone, etc., which will help FM Radio Stations to super-serve
their listeners in this "mobile information service era".
Digital DJ, founded in 1991, has been an early pioneer in the field of FM Data
Broadcasting System. DDJ developed its proprietary system called DRIS (DDJ Radio
Information System) and licensed its technology to major European Companies such
as TDF (France Broadcasting Corporation, A Group of France Telecom), NOZEMA
(Netherlands Broadcasting & Transmission Corporation), and Deutsche Telekom.
DDJ also plans to start business discussions with major US radio groups for
possible business relationships, including technology licensing, alliance and
joint venture, etc.
After the acquisition of BEI, the new company, DIGITAL DJ Holdings' strategic
plan is to be a technology holding company which will specialize in information
technology services via FM Subcarrier, Internet and Cellular Phone. For this
purpose, the new DDJ will aggressively search for opportunities to acquire other
technology companies both in the US and Japan.
DDJ's shareholders include SONY Corporation (NYSE: SNE), SANYO Semiconductor
Corp.(a group company of Sanyo Electric Co., Ltd. - NASDAQ:SANYY), Sharp
Corporation, OKI Electric Industry, Nichimen, Nichimen America, Shibasoku, and
leading venture capital firms in Japan.
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<PAGE>
For additional information regarding the merger, please refer to the Form 8-K
filed with the Securities and Exchange Commission.
The statements set forth above with respect to the acquisition, the benefits
thereof and the potential growth of the combined company are forward looking
statements within the meaning of that term in the Private Securities Litigation
Reform Act of 1995. As such, they are inherently uncertain and should not be
unduly relied upon. As to potential future growth, uncertainties include the
ability to successfully integrate the companies businesses, technologies and
management, the availability of sufficient capital to expand the businesses,
customer acceptance on new products, competition and other uncertainties
associated with integrating businesses after acquisitions and growth.
Contact:
DIGITAL DJ HOLDINGS, Inc.
Teresa Rodoriguez
408-946-8500
408-946-8600 (fax)
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