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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 15, 1999
LIFEF/X, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Nevada 0-25171 84-1385529
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
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331 Dudley Road
Newton, Massachusetts 02459
(Address of principal executive offices)
Registrant's telephone number, including area code: (617)551-5860
FIN SPORTS U.S.A., INC.
5525 South 900 East, Suite 110
Salt Lake City, Utah 84117
(Former name or former address, if changed since last report)
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Item 1. CHANGES IN CONTROL OF REGISTRANT
Pursuant to that certain Agreement and Plan of Merger dated as of
December 14, 1999 (the "Merger Agreement") between Lifef/x, Inc. (formerly known
as Fin Sports U.S.A., Inc.) (the "Company") and PTM Acquisition Corp. ("Sub"), a
newly formed wholly owned subsidiary of the Company, on the one hand; and
Pacific Title/Mirage, Inc. ("PTM"), on the other hand, the Company acquired all
of the outstanding capital stock of PTM on December 14, 1999 (the "Closing"), in
consideration of the issuance to the PTM stockholders of an aggregate of
11,294,084 shares of the Company's common stock and warrants for 27,790,917
shares of the Company's common stock. The transaction was effected through the
merger of Sub with and into PTM, with PTM being the surviving corporation (the
"Merger"). As a result of the Merger, PTM became a wholly-owned subsidiary of
the Company. In connection with the Merger, the corporate name of the Company
was changed to Lifef/x, Inc. and the corporate name of PTM was changed to
Lifef/x Networks, Inc.
Concurrent with the Closing, the Company completed the first closing of
a private placement (the "Private Placement") of 2,983,000 of the Company's
units, each unit consisting of one share of the Company's common stock and a
warrant to purchase .01 share of the Company's common stock at an exercise price
of $7.50 per share. At the Closing, the Company also issued (a) warrants to
purchase 100,000 shares of the Company's common stock to MG Securities Group,
Inc., the placement agent in the Private Placement and (b) 39,167 units to
attorneys for legal services rendered in connection with the Private Placement.
The Private Placement is for up to $18 million of units. The Company may
continue to accept subscriptions for the units until the maximum offering is
met. All shares of common stock as part of the units and the shares of common
stock underlying the warrants as part of the units are subject to the Lock-
Up/Leak-Out restrictions discussed elsewhere in this report.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information and after giving
effect to the issuance of securities at the Closing with respect to the
beneficial ownership of the outstanding shares of the Company's common stock by
the Company's directors, executive officers and each person known to the Company
who owns in excess of 5% of the outstanding shares of common stock and the
directors and executive officers of the Company as a group.
As used in this section, the term beneficial ownership with respect to
a security is defined by Rule 13d-3 under the Securities and Exchange Act of
1934, as amended, as consisting of sole or shared voting power (including the
power to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose of or direct the disposition of) with respect to
the security through any contract, arrangement, understanding, relationship or
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otherwise, subject to community property laws where applicable. Each person has
sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. The
address of those individuals for which an address is not otherwise indicated is:
331 Dudley Road, Newton, Massachusetts 02459.
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Beneficial Ownership
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Number of Percentage
Shares of Total(1)
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Directors and Officers
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Michael Rosenblatt..................................... 7,059,274(2) 43.53%
Lucille S. Salhany..................................... 390,492(3) 2.38%
Richard Guttendorf..................................... 70,000(4) *%
Ian Hunter............................................. -- --
Robert Verratti........................................ 524,997(5) 3.25%
All Directors and Executive
Officers (5 persons)................................... 8,044,763 47.73%
5% or More Beneficial Ownership
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Safeguard Scientifics (Delaware), Inc.
435 Devon Park Drive
Wayne, PA 19087 4,455,773(6) 27.87%
Duane S. Jenson Fin Partnership
5525 South 900 East, Suite 110
Salt Lake City, Utah 84117 1,302,383 8.15%
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* Less than 1%.
(1) Calculations based upon 15,983,750 shares outstanding on December 14, 1999.
(2) Consists of 6,824,979 shares owned by Mirage Technologies L.P. and 234,295
shares issuable upon currently exercisable options. Mr. Rosenblatt is the
President and controlling equity owner of Mirage Technologies, Inc., the
corporate general partner of Mirage Technologies L.P.
(3) Consists of 390,492 shares issuable upon currently exercisable options.
(4) Consists of 70,000 shares issuable upon currently exercisable options.
(5) Includes 174,999 shares issuable upon currently exercisable options.
(6) Includes 3,333 shares issuable upon currently exercisable warrants.
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Item 2. ACQUSITION OR DISPOSITION OF ASSETS
As described in Item 1 above, pursuant to the Merger Agreement, at the
Closing, the Company acquired from the PTM stockholders all the issued and
outstanding capital stock of PTM. In consideration therefore, the Company issued
to the PTM stockholders an aggregate of 11,294,084 shares of the Company's
common stock and warrants for 27,790,917 shares of the Company's common stock.
The consideration for the acquisition of PTM was negotiated on an arm's length
basis between the Company and the PTM stockholders.
Effective upon the Merger, the Company became a co-obligor with PTM with
respect to certain debt of PTM owed to Safeguard Scientifics (Delaware), Inc., a
principal shareholder of PTM, together with its affiliates ("Safeguard")
totaling $13,325,000 at September 30, 1999. Following the Merger, such debt will
be converted into the right to receive penny warrants for 3,997,500 shares of
common stock at the rate of $2.50 per share for 50% of the debt and $5.00 per
share for the remaining 50% of the debt. The warrants have a term of 10 years
and are exercisable one year after the Merger, at an exercise price of $0.01 per
share subject to certain early exercise events specified in the warrants.
In connection with the Merger, the warrants for 11,725,000 PTM shares
(the "PTM Warrants") held by Safeguard prior to the Merger were carried forward
on a share for share basis as warrants for common stock. Fifty percent (50%) of
the PTM Warrants held by Safeguard were carried forward as warrants to purchase
5,862,500 shares of common stock at an exercise price of $2.50 per share and the
remaining 50% of the PTM Warrants were carried forward as warrants to purchase
5,862,500 shares of common stock at an exercise price of $5.00 per share. In
addition, Safeguard received warrants to purchase 5,862,500 shares of common
stock at an exercise price of $6.00 per share. The total number of shares of
common stock issuable upon exercise of the warrants held by Safeguard after the
Merger (including the debt conversion) will be 27,790,917 shares of common
stock. All of these warrants have a term of 10 years and are exercisable one
year after the Merger subject to certain early exercise events specified in the
warrants.
Effective upon the Merger, the PTM 1997 Equity Compensation Plan (the
"PTM Plan") was terminated and the Company adopted a new long term incentive
plan with terms substantially similar to that of the PTM Plan. Following the
adoption of the new plan, the Company assumed the obligations of outstanding
options granted to certain PTM employees under the PTM Plan. These outstanding
option obligations included an option grant to Lucille Salhany (the Chief
Executive Officer, Co-President and a director of the Company) for 1,952,458
shares of common stock (after adjusting for the conversion from PTM shares to
common stock). This option grant was made by PTM at $1,641 per share and is
subject to a vesting schedule. If and to the extent this $1,641 per share
exercise price is less than the fair market value of the PTM common stock on the
date of grant, the Company will have to recognize non-cash compensation expense.
In addition, in connection with the Merger, the Company granted stock options to
various employees of the Company, subject to vesting schedules.
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The Company plans to spin off all of its non-Lifef/x assets and
liabilities (collectively, the "Spin Off Assets and Liabilities") to an entity
("Newco") owned by the pre-Merger PTM stockholders. The Spin Off Assets and
Liabilities consist primarily of the assets and liabilities relating to PTM's
Optical Division, Scanning and Recording Division and now defunct Digital
Division, certain leased and owned real property, outstanding debt to Silicon
Valley Bank and certain debt owed by PTM to Safeguard for loans made by
Safeguard to PTM during the period between October 1, 1999 and the consummation
of the spin off transaction (the "Post September 30 Debt"). The value of the
Spin Off Assets and Liabilities is not currently known, however the value of the
Spin Off Assets may exceed the value of the Spin Off Liabilities.
All the Spin Off Assets and Liabilities are expected to be transferred
to Newco following the Merger once the requisite third party consents have been
obtained. Until such time as the spin off transaction has been completed in its
entirety, the Company will hold the Spin Off Assets and Liabilities (or any
portion thereof that has not been transferred to Newco) and the proceeds thereof
in trust for the benefit of Newco, and neither the Company nor its stockholders
will be entitled to any beneficial interest in the Spin Off Assets and
Liabilities. Newco may direct the Company to dispose of any of the Spin Off
Assets and Liabilities on its behalf provided such disposition will not have any
material adverse effect on the Company.
In connection with the spin off transaction, the Company is required to
obtain consents from a number of third parties, including its lender, Silicon
Valley Bank, which holds a lien covering all of its assets, including the
Lifef/x technology. As part of the spin off transaction, the Company plans to
transfer this loan to Newco and to seek the release of Silicon Valley Bank's
lien on the Lifef/x assets. If the Company is unable to obtain a complete
release from Silicon Valley Bank, Safeguard has agreed to indemnify PTM from and
against any and all losses and liabilities relating to or arising from the
Silicon Valley Bank loan. In addition, in connection with the spin off
transaction, Newco and Safeguard will provide certain indemnities for the Spin
Off Assets and Liabilities as follows: Newco will indemnify the Company for any
losses or liabilities relating to or arising from the Spin Off Assets and
Liabilities, including certain equipment leases totaling approximately $4
million and a lease for facilities in Hollywood, California with current monthly
rental payments of $60,000. Until the spin off transaction is complete,
Safeguard will indemnify the Company for any and all amounts due and payable in
the ordinary course to the real estate and equipment lessors arising under the
real estate lease and approximately $2 million in equipment leases that are not
yet transferred to Newco. However, this indemnity will not extend to claims,
losses and liabilities arising outside the ordinary course of conduct under
these leases. In consideration for the Safeguard indemnification, subject to any
senior liens, Safeguard will be granted a security interest in the Spin Off
Assets and Liabilities and will be entitled to any excess operating proceeds or
sale proceeds from the Spin Off Assets and Liabilities to secure repayment of
the Post September 30 Debt and Newco's reimbursement of indemnification amounts
paid by Safeguard to the Company.
In addition to the Safeguard indemnity described above, Safeguard will
indemnify the Company for shortfalls in the day to day operating expenses of the
Optical and Scanning and Recording Divisions under contracts and other
arrangements entered into in the ordinary course of business of such Divisions,
but not for claims, losses or liabilities outside the ordinary course of the day
to day operations of these Divisions or any other unusual claims or liabilities,
including, without limitation, any disputes, litigation or other proceedings
whether arising under contracts or other arrangements entered into in the
ordinary course or otherwise, claims by
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present or former employees and claims relating to any sale or transfer (whether
or not consummated) of any or all of the Spin Off Assets and Liabilities.
Neither Newco nor Safeguard will indemnify PTM for any losses or
liabilities relating to any Spin Off Assets and Liabilities to the extent they
are actually used in the Lifef/x business.
Business
In accordance with "plain English" guidelines provided by the Securities
and Exchange Commission ("SEC"), the Business description of the Company has
been written in the first person.
We were formed in 1987. Prior to September 1993, we manufactured and
marketed tennis racquets and sports equipment under the tradename "FIN" in the
United States. Since September 1993, we have had no active business operations
and have been engaged in reviewing possible acquisition candidates. We acquired
all of the capital stock of PTM through the Merger whereby a wholly-owned
subsidiary of ours was merged with and into PTM, with PTM as the surviving
corporation. Following the Merger, our corporate name was changed to
Lifef/x, Inc. and the corporate name of PTM was changed to Lifef/x Networks,
Inc. PTM holds an exclusive, worldwide, perpetual license from Auckland
Uniservices Limited ("Uniservices") to use certain continuum modeling
technology, in commercial applications, excluding professional medical,
engineering and scientific applications. In addition, PTM has one registered
patent and two patents pending with the United States Patent Office relating to
computer graphics and motion capture technologies. These combined technologies
are known as "Lifef/x." The Lifef/x technology is capable of creating photo
realistic 3D computer animation of biological entities, including humans
animated in real time. Because of the Uniservices license relationship, PTM does
not own all of the Lifef/x technology.
Our Combined Companies
Our goal is to become the leading provider of branded photo realistic 3D
computer animation products and services that enhance digital communication
across a multitude of media platforms. Our primary focus is to commercialize
the Lifef/x technology for Internet applications. We believe that there are
numerous applications for the Lifef/x technology for the World Wide Web,
including but not limited to electronic commerce, e-mail, chatrooms, distance
learning, bill presentment, electronic direct mail and PC gaming. The Lifef/x
technology enables the creation of interactive virtual humans as hosts,
salespeople, teachers, entertainers, game characters, personal avatars,
corporate representatives and advertising personalities on the Internet at
bandwidths of 28.8Kbps or more. In addition to the Internet, we also intend to
explore other applications for the Lifef/x technology on terms that minimize the
expense to the Company, including, without limitation, applications in the
theatrical and motion picture industry.
Growth of the Internet
The Internet has grown rapidly in recent years, driven by the
development of the World Wide Web and graphically intuitive Web browsers, the
proliferation of multimedia PCs, increasingly robust network architectures and
the emergence of compelling Web-based content
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and commercial applications. Both consumers and businesses are increasingly
relying on the Internet to access and share information. According to Internet
industry analyst International Data Corporation ("IDC"), at the end of 1998 an
estimated 97 million people were using the Internet to communicate with friends
and family, participate in discussion forums and obtain information about goods
and services. IDC projects that this user base will grow to 319 million by 2002.
As an interactive, searchable, user-controlled medium, the Web provides
for a highly engaging experience and allows users to access an almost unlimited
variety and supply of content at their convenience. The Web also enables content
providers and advertisers to establish personalized experiences for, and
communications with, consumers.
We believe that the growth in the Internet market represents a
significant opportunity for a company providing products and services that
enhance a Web user's experience.
Lifef/x Technology
The Lifef/x technology was originally developed for accurate modeling of
soft biological tissues which undergo large nonlinear deformations. The first
virtual face was subsequently developed for tele-robotic surgery, a professional
medical application, and is biologically correct. The Lifef/x technology was
developed in collaboration by a team of experts that include: Dr. Peter Hunter
of the University of Auckland, whose field of expertise is in soft tissue
biomechanics; Drs. Ian Hunter and Serge Lafontaine, who are experts in tele-
micro-surgical robotics; and Drs. Mark Sagar and Paul Charette, who are experts
in integrating robotic and tissue biomechanics into computer graphics
applications.
The Lifef/x technology is based on continuum modeling techniques, which
are mathematical tools developed to represent material properties of solids
(tissues) down to the microscopic level or the cellular level in the case of
biological tissues. Large complex structures are broken down into smaller
components with geometrical shapes described by nodes and surfaces. A human face
is modeled using 500 nodes and rendered using 20,000 polygons. Movement or
animation of a human face model is achieved by applying a set of constitutive
mathematical equations that replicate properties associated with biological
muscle movement. The mathematical equations can replicate such properties as
anisotropic skin elasticity, electrical impedance, thermal capacity,
conductivity and optical properties. By beginning with the exact representation
of biological tissues and computing the interaction between structures, such as
force generated by muscles, skin elasticity and bone geometry, photo realistic
3D animation can be achieved.
To date, we have primarily focused on applying the Lifef/x technology to
the most demanding application, motion pictures. A computer model is created by
first acquiring the 3D geometry of a performer's face using a laser-scanning
device such as the Cyberscan developed by CyberOptics Corporation. The second
step in the process consists of a still photo session to acquire textures. The
actual performance is acquired in real time by our proprietary motion capture
system driven by the Lifef/x technology, which is followed by our proprietary
video data digitization and tracking analysis. The result of this analysis is a
series of node coordinates that track material features as they move in time.
This results in acquiring even the subtlest change in face geometry as the
performer goes through his motions and expressions. As a final check and
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quality control an artist verifies and retouches required details, particularly,
tongue and eye movements. To date, all prototypes of the Lifef/x technology
that we have produced are for the motion picture industry. These are full 3D
models created from captured live performances, capable of being viewed from any
angle. Our initial Internet consumer applications will be models capable of
being viewed from only one angle and will be driven by text or speech input, not
live performances. Therefore, the initial Internet application may be of
significantly lower spatial resolution but of higher temporal resolution than
the prototypes produced to date.
Our objective for future development is to adapt the existing Lifef/x
technology to the Internet and to be the network for and a leading provider of
branded products and services that enable the delivery of cost-effective, real
time content production of photo realistic 3D models for a broad range of market
applications with primary emphasis on internet-related B2B and B2C
opportunities. Our objective is to create a paradigm shift to a "network" for
interpersonal and intercorporate interactive communication in which Lifef/x will
be the embedded standard. To this end a number of new products are under
development and are described below under "Our Products under Development."
Our Business Plan for Lifef/x on the Internet
Our initial strategy is to achieve the rapid and widespread distribution
of our system that personalizes the interactive communications between Internet-
related B2B and B2C activities. Lifef/x has the opportunity to change the
Internet from catalogue to dialogue and become the "Sales force of the
Internet." E-mail is the most widely adopted Internet application, ranging from
a personal messaging tool to a strategic business tool. According to Electronic
Mail and Messaging Systems, there were approximately 325 million e-mail accounts
in operation at the end of 1998. E-mail has surpassed the telephone as the
primary business communication tool according to the American Marketing
Association. Online messaging is fast approaching e-mail as a universal means of
online communications. E-mail and online messaging have increased in volume and
functionality, and this trend is expected to continue. The Lifef/x technology
provides a significant value-add as it will allow individuals to send e-mails
and online messagings embedded with animation commands. These commands will
direct photo realistic 3D models already downloaded on the recipient's computer
that evoke the computer to read the e-mail or message to the recipient using our
proprietary software.
As the Web continues to evolve, many businesses and content providers
will seek interactive audio, video and other multi-media content as a means to
enrich and differentiate their Web sites. We believe that a substantial
opportunity exists to provide software solutions, services and content
aggregation and delivery services that deliver content through photo realistic
3D models that are compelling, interactive and can be animated in real time over
bandwidths as low as 28.8Kbps. We envision that Web sites can utilize photo
realistic 3D human models as guides, corporate spokespersons, teachers,
entertainers, game characters, personal avatars, advertising personalities and
individual sales help, and that the available applications can be extended to
include not only the traditional opportunities for email, instant messaging and
chatrooms, but also for training, product support, human resources, supply chain
software, ISP's, ASP's, distance learning, bill presentment, and PC gaming,
among others.
Now that the novelty of online shopping is over for many, e-tailers
realize that they must make substantial improvements in their customer's
shopping experience to prevent the loss of customers to other novel sites. In
their effort to turn shoppers into buyers and customers into repeat customers,
web businesses seek ways to improve customer support and the overall shopping
experience.
. According to a BizRate.com industry study during the first quarter of
1999, online shoppers rated 'customer support' among the weak links of e-
commerce sites.
. Research firm Jupiter Communication report that consumers spent an
average of $375 in 1997 and $700 in 1998 on line, but that 37% in 1997 and $700
in 1998 on line, but that 37% of buyers said that they would spend more if they
had access to real-time advice.
. One in five Amazon.com employees work in customer support.
. 75% of Mindspring employees work in the customer support area.
The value-add provided by LifeF/x is the development of a standard
platform for a network that facilitates the ultimate in differentiated,
personalized communications, regardless of the application.
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Our Strategy
Our objective is to be a leading provider of branded software products
and services that enable the delivery of cost-effective, real time content
production of photo realistic 3D models as hosts, salespeople, teachers,
entertainers, game characters, personal avatars, corporate representative and
advertising personalities over the Internet at bandwidths of 28.8Kbps or greater
utilizing the Lifef/x technology. To achieve this objective, our strategy
includes the following key elements:
Create our Brand Name. We intend to create our brand recognition
through a variety of marketing and promotional techniques, including the
creation of our Web site. Also, by offering our Lifef/x Internet software to
individual users free of charge we will promote the widespread adoption of our
Lifef/x software architecture and speed the acceptance of photo realistic 3D
animation and co-marketing and co-branding agreements with strategic partners.
We also intend to promote our brand by conducting ongoing public relations
campaigns and developing affiliations and affinity programs. We believe that
building the brand awareness of our Lifef/x Internet software is critical to
attracting and expanding our customer base.
Enter into Strategic Partnerships. We intend to develop and utilize
strategic partnerships to gain access to large numbers of potential users,
cooperatively market products and services, cross-sell additional services and
gain entry into new markets such as computer and online gaming, distance
learning, e-commerce, e-mail and online messaging.
Establish First-to-Market Advantages. We believe that our Lifef/x
Internet software will be the first to offer photo realistic, interactive 3D
animation capabilities that will have significant first-to-market advantages as
an animation software in the Internet communication and entertainment media
market. We intend to use this first-to-market advantage to rapidly establish our
brand and grow our customer and user base. We also believe that our potential
market position is enhanced by the significant barrier to entry resulting from
the more than 30 years of mathematical and biological development effort of our
licensor, Uniservices.
Focus on Differentiating Our Brand. We believe that our Lifef/x Internet
software can achieve rapid distribution to users and market penetration because
our product enhances e-mail and online messaging, two of the most widely adopted
Internet applications and will require very low bandwidth for transmission, thus
making the products readily available to a very broad universe of users. Users
will be offered a photo realistic 3D model of themselves ("Standin"), the
Lifef/x Genesis Player on which animation of the Standin can be played and
Lifef/x Director animation software for free. They will then be able to create
their own content (e-mail, online messaging) in real time. In addition to users,
we plan to attract customers by targeting Web development companies, advertising
agencies, corporate divisions and educational institutions in the Web site
development area. Estimates are that there are 100,000 such entities with over
five million licensed software products.
Our Products under Development
We have not commercialized any of our products offerings. All of our
products are currently in the research and development or planning phases.
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Lifef/x Standins. Our lead consumer-based product is the Lifef/x
Standins. Lifef/x Standins are photo realistic 3D computer models, which can be
animated in real time by text or speech files. The simplest form of consumer
level Standins can be created from 2D digital images, which the consumer can
send to us electronically via our planned Web site, or traditional analog photo
images, sent to us via the postal service. The completed digital Standins will
be delivered to users via the Web. Along with the first Standin delivered to
each user, they will also receive two packages of enabling software: our Lifef/x
Genesis Player, the software on which animation of the Standin can be played,
and our Lifef/x Director software that is used to add emotional content to the
animation. We envision that the Standins can be used with e-mail, Web pages,
chatrooms, PC games, corporate intranets and extranets and many other
applications. We plan to make the Lifef/x Standins compatible for different
products including PC games, operating systems as screen saver and e-mail,
chatrooms, online help, etc. All products will share the same technology
architecture and Standins will be interchangeable, serving as the foundation for
an expandable and interconnected software platform.
Professional Standins. More sophisticated and articulated Standins
("Professional Standins") can be created and then animated by actual human
performances that can be captured utilizing our patent pending proprietary
motion capture system that is driven by the Lifef/x technology. The captured
performance of the Professional Standin can then be reproduced on the Lifef/x
Genesis Player from downloaded Lifef/x media files. Alternatively, the user can
get animation commands streamed in real time over the Web at bandwidths of
28.8Kbps or more after the Professional Standin is downloaded to the player. At
speeds of 28.8Kbps, our player will be capable of reproducing photo realistic
images at an animation rate either of 15 frames per second ("fps") with high
quality sound or 30fps with voice-quality sound.
Lifef/x Genesis Player V1.0. The Lifef/x Genesis Player will be a highly
flexible, programmable player that can be used either for streaming animation
commands of captured Lifef/x Standin performances over the Internet or for
online, real time interactive content generation. It will be developed as a
flexible programming component that can be used and programmed inside a Web
browser, to read e-mail or perform a number of system interactions. When
programmed using either the Jscript of VBscript languages inside Web sites,
Standins will be capable of complex autonomous interactions with the user.
Standins will be capable of being active or inactive, visible or not visible and
will provide autonomous behavior while waiting for user interactions or Web data
to be downloaded.
Lifef/x Director. Our Lifef/x Director software will allow the
additional animation and control of Standins for uses such as sending e-mails
with embedded animation commands. Using the software, the user will be able to
add four basic emotions (happy, sad, angry, surprised) and simple motions.
Lifef/x Creator Software. Our Lifef/x Creator software will be offered
to sophisticated Web users as an advanced tool to control Standins for
integration in Web pages, e-mail or to create Lifef/x media files. This program
will be a simplified version of the Lifef/x Pro-Creator (discussed below) and
this software will be developed simultaneously with and have the same components
as the Lifef/x Pro-Creator, except for certain customizations. The Lifef/x
Creator will be expandable by adding our Lifef/x e-Motor Packs which are
packages of emotional cues.
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The Lifef/x Creator Software will have a graphical interface which will
include windows where the Standins will appear, pop-up windows to specify
emotions, speech rate, head rotations and movements, a time line with graphical
representation of where emotions start and stop, and a graphical editor to
delete, move or cut and paste part of the performance. The initial stages of
development will focus on the main features of the graphical interface.
Lifef/x Pro-Creator Software. The Lifef/x Pro-Creator software will
allow the professional Web designer to fully animate and control Lifef/x
Standins using a flexible and powerful graphical user interface. This digital
studio will allow the designer to control the position, lighting, expressions,
emotions, movement of the Standins and how they interact. The animated Lifef/x
Standin performance captured can be included in Web pages, e-mails or other
applications using the Lifef/x technology. This fully graphical interface will
also have windows where the Standins will appear, pop-up windows and sliders to
specify emotions, speech rate, head rotations and movements, a time line with
graphical representation of where emotions start and stop, and a graphical
editor which allows the designer to delete, move or cut and paste part of the
performance.
Lifef/x Software Developer Kit ("SDK"). We plan to develop the Lifef/x
SDK as a component for software developers to include in their applications. It
will integrate Lifef/x Standins in applications, such as PC games and other
software, as computer hosts to lead users through new programs and equipment, or
for e-mail, long distance learning, screen savers, etc.
Marketing and Distribution
Marketing. On the Web user level, we plan to market directly to the user
via our planned Web site, as well as event marketing and large group
relationships. For example, we may arrange to have a photo booth at college
campuses on registration day to offer the free service of taking digital photos
of the potential users and e-mailing back his or her Standin, Lifef/x Genesis
Player and Lifef/x Director software. We may also provide this promotion at
large sporting events or any other events with large attendance. Additionally,
we may also promote to large affinity groups, such as fan clubs, boy scouts,
fraternities, little leagues, political parties, as well as corporations and
their employees. We believe that these promotions will enable us to gain rapid
distribution and market penetration.
Once we are able to gain widespread adoption of our Lifef/x technology,
we will be able to sell our professional products (Lifef/x Creator and Lifef/x
Pro-Creator) to domain holders who want to utilize Standins on their Web sites.
There will be a built in audience for our technology. Additionally, we believe
that once the domain holders become "content generators" they in turn will
create a demand for our technology on the user level. Each user will get the
first Standin for free. Each additional Standin will be priced initially at
$19.95. We believe that users will desire to have additional Standins of
themselves or other characters for use in different communication mediums.
We also plan to co-brand and co-market our products with partners with
whom we plan to develop strategic relationships.
Distribution. In addition to our planned marketing activities, our
Lifef/x Genesis Player will be available free of charge through our planned Web
site. Users will need to register and
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send in an analog or digital photo and we will send a fully functioning Standin
with the Lifef/x Genesis Player and Lifef/x Director software via e-mail
delivery. Users will be able to animate their Standins to speak by using the
Lifef/x Director software. The player will also be available for stand alone
download to reproduce captured performances on Web sites. We also envision that
our strategic partners, if any, may offer our products through their branded
sites or embodied in their applications, like PC games.
Future Enhancements
In conjunction with our licensor, Uniservices, we plan to develop a full
model of the human body including higher neuro-muscular activation of muscle
groups that are responsible for expressions or motion. Currently, most of the
model for the face and head is completed except for the implementation of the
higher level commands to speed and simplify the animation process. These higher
commands will be added in the future. Having developed a generic human face
that is now used as a basis for the Lifef/x Standins, we will also direct future
development to adding a generic neck, arms, legs and torso.
Our Strategic Partners
Our objective is to achieve significant market penetration through
relationships with strategic partners in each of the following categories:
. Web portals, content sites and Internet service providers;
. Web design software vendors;
. Web development companies; and
. Game companies.
We believe we will benefit from these relationships by achieving positive
brand association and a cost-effective means of customer acquisition. We believe
our strategic partners can utilize their relationships with us to provide more
value-added services to their customers.
Research and Development
Lifef/x Genesis Player and Standin
Phase 1: Conversion of Full Head for Internet Applications. Our current
model of the human face is a very high-resolution model developed for movie
applications. The first objective in adapting the Lifef/x technology to the
Internet consists of reducing the size of the Lifef/x Standin which is
unnecessarily large for Web applications, has too many details for PCs and is
too slow for real time animation. The Internet Lifef/x Standin of a human face
will consist of approximately 1000 polygons, that is 20 times less than the
high-resolution face. In order to develop the Internet head model, all of the
elements (the face, eyes, tongue, teeth) need to be converted to a lower
resolution model.
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Phase 2: Animation of the Lifef/x Internet Standin. Standin accuracy will
be evaluated by acquiring data from a real performance and subsequently re-
create it using the Standin. This will display the Lifef/x Standin speaking and
going through a variety of expressions. It will also display the speed of the
animation algorithm in rendering our Lifef/x Standins on consumer level PCs.
Phase 3: Text to Speech ("TTS") Lifef/x Player. For most applications,
the Lifef/x players will be used to read text embedded as commands in Web sites
or for personal communication (e-mail, etc.). To this end, a text to speech
engine must be integrated into the Lifef/x player, to generate the sound and
also animate the facial movements that normally produce the sound ("visemes") in
a synchronized manner ("lip-synch"). Successful visemes and lip-synch tests
will mark the release of the Lifef/x Player to users for Beta testing.
Phase 4: Direct Voice Animation of Lifef/x Standins. Current TTS
technology is still severely restricted in terms of quality of voice, range of
voices, intonations and emotions that can be reproduced. Use of our standins
with true recorded speech will be much more realistic than standins using TTS.
To this end, we must integrate in our Lifef/x Genesis Player a set of algorithms
that will allow us to map in real time a recorded voice to 3D visemes for
accurate lip synchronization.
Phase 5: Streaming Lifef/x Player. One of the planned markets for the
Lifef/x technology will be to include Standins in Web sites that reproduce
captured performances that are streamed and played in real time across the
Internet. This involves integrating streaming technology in the Lifef/x player.
In this phase, the Lifef/x player will be tested for its capability to transmit
voice and video appropriately over a 28.8Kbps bandwidth connection.
Lifef/x Consumer Standins: Service Development
As part of our marketing effort, we plan to send Standins, Lifef/x Director
software and the Lifef/x Genesis Player via e-mail to users who have provided us
with either digital or analog 2D images.
Phase 1: Feature identification software. In order to be able to
efficiently process the projected high volume of user requests, the procedure
for converting a photograph to a 3D Lifef/x Standin must be highly automated.
In the first step of the "production process," typical photographs will be
scanned. We will need to develop the software to recognize facial features,
such as the face outline, hairline, jaw, ears, eye location and contours,
eyebrows, lips, nose etc.
Phase 2: Graphical Interface. The feature identification software
component will need to be refined over a long period of time, thus some
corrections will need to be done manually. To facilitate these corrections, a
graphical interface that displays the scanned head overlaid with the computed
outline of face features is required. This graphical interface will then take
inputs from the mouse to allow adjustments to the various features.
Phase 3. Optimization program. After the location of the facial features
has been identified, our generic Lifef/x Standin needs to be fitted to the
consumer face. Through a process of facial database matching, optimization and
morphing the appropriate 3D geometry will be
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created for the submitted photograph. We will need to develop a graphical
interface to display the Standin in three dimensions and to allow corrections in
three dimensions of the user's face.
Phase 4: Production Facility. Before the release of the Lifef/x player, a
production facility will be setup to process the commercial volume of user
requests. This facility will consist of a number of production "pods," each pod
including a computer, scanner and operator console to enter the user information
and verify the quality of the Standin. This station will also allow corrections,
as needed, to be made to the Standin.
Phase 5: Web service development. Our objective is to automate the full
process so users can send requests over the Internet with their photographs. Our
planned Web site will have an entry giving instructions on how to send digital
images.
Lifef/x Director Software
This Lifef/x Director software allows the user to enter emotional cues into
a text and to control how the text is spoken with a choice of four basic
emotions. The resulting output is text with embedded commands to the player.
Phase 1: Development of the graphical interface. The user application will
bring a text window on the screen along with a few sample commands at the top.
The text window will allow the user to enter and edit text and include four
basic emotions that his Standin will display while reading the portion of the
text marked with the corresponding emotion.
Phase 2: Player integration. The Lifef/x Director software will also
allow the user to select different Standins to read the text and to review the
result by bringing up the player to speak the text entered in the window.
Phase 3: Integration to outside applications. After the text is
completed, the program will allow the user to send the composed message either
directly by e-mail or, alternatively, save the captured performance to a Lifef/x
media file for later playback.
Lifef/x Creator Software
The Lifef/x Creator will be offered to the sophisticated Web users as an
advanced tool to control Standins for their integration in Web sites or to
create Lifef/x media files. This program is a simplified version of the Pro-
Creator. It will also be expandable by adding our Lifef/x e-Motor Packs which
are packages of emotional cues.
Phase 1: Development of the graphical interface. This fully graphical
interface will have windows wherein the Standins will appear; pop-up windows to
specify emotions, speech rate, head rotations and movements; a time line with
graphical representation of where emotions start and stop; and a graphical
editor to delete, move or cut and paste part of the performance. The first part
of the development will focus on providing, the main features of the graphical
interface.
Phase 2: Generation of scripts for Web pages and Lifef/x media files. The
programming code will be integrated into the Lifef/x Creator to produce a script
that can then be included in a Web site or other document that supports Web
browser commands.
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Phase 3: Lifef/x Creator Emotional Packages. Additional emotional
packages and expression packages will be shipped with the Lifef/x Creator or
offered as options. This software will be developed in our facility and tested
to allow for additional packages to the Lifef/x Creator.
Lifef/x Pro-Creator
This full-featured enhanced version of the Lifef/x Creator software will
provide the Web professional the most advanced interface capable of specifying a
nearly infinite variety of emotional cues into text and have full control over
Standins' performances while delivering text. It will allow users to include
Standins in Web sites or create Lifef/x media files.
Lifef/x Planned Future offerings
Once we are able to commercially release our Lifef/x Genesis Player,
Lifef/x Director software and Lifef/x Creator and Pro-Creator software, we plan
to enhance our product offerings to include:
. chatrooms that enable users to share their Standins with other users and
see Standins talk to each other;
. recording real voice for later playback as audio streams, for the
highest level of realism of the Standins; and
. incorporating Standins in PC gaming products.
Our Competition
As multi-media and graphics evolve into a central and necessary component
of the Internet experience, more companies are entering the market and expending
greater resources to develop software and services. The principal competitive
products in the photo realistic 3D animation market include the Microsoft V-Chat
2.0, Microsoft Agent, Compaq's Faceworks, Haptek, Famous Tech, Blaxxun, Worlds
Ultimate 3D Chat, Animatek International, Sven Technologies, Oz Interactive,
Simberon Avatars, NetSage, Boston Dynamics, Extempo, Virtual Human, Virtual
Personalities, Virtual Celebrities, Radical Mail and Avatarme. In addition,
there may be photo realistic 3D computer animation products and services being
developed by competitors that we may not be aware of.
Many of our current and potential competitors have substantially greater
financial, technical, marketing, distribution and other resources, greater name
recognition and market presence, longer operating histories and lower cost
structure than we do. As a result, they may be able to adapt more quickly to
new or emerging technologies and changes in customer requirements. Our ability
to compete successfully in the rapidly evolving Internet communication and
entertainment media market will depend upon certain factors, many of which are
beyond our control. There can be no assurance that we will be able to compete
successfully. However, we believe that our technology and product offerings can
be differentiated from our competitors in several areas, including the richness
of detail resulting
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from the extensive medical database and proprietary mathematical algorithms and
low bandwidth transmission.
Our Technology
A significant portion of the Lifef/x technology is embedded in a system
licensed from our licensor, Uniservices. This finite element system is an
interactive computer program for continuum mechanics, image analysis, signal
processing, and system identification. The system is a mathematical modeling
environment that allows the application of finite element analysis, boundary
element and collocation techniques to a variety of complex bioengineering
problems. It consists of a number of modules including a graphical front end
with advanced 3D display and modeling capabilities, and a computational backend
that may be run remotely on powerful workstations or supercomputers. The system
represents a development of over 100 man-years of effort at Uniservices.
This research and development has resulted in our proprietary techniques
for generating accurate reproduction of expressions and tissue wrinkling. The
system provides a basis for developing advanced models of flexible materials
such as tissue, which undergo large nonlinear deformations and where the
material properties may be anisotropic.
The Lifef/x technology is also unique because of the richness of the data
incorporated in the models. The bulk of the data is generated from a real time
3D motion capture system. This motion capture system consists of a hardware
system comprising a stereoscopic high-resolution digital camera system and
special motion tracking filters that follow the material displacement of each
point on the face and in time. This system is used to track over 500 points on
the face and serves as the data set for the finite element system. Future
research will include a more accurate experimental characterization of tissue
properties.
Our Intellectual Property
We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect intellectual property
rights in our products, services, know-how and information. Much our
intellectual property is protected by non-disclosure, confidentiality and non-
competition agreements with our employees which, if breached, may be very
expensive to enforce. We do not own all of the Lifef/x technology. We have an
exclusive, worldwide, perpetual license from Uniservices to use their continuum
modeling technology in commercial applications, excluding professional medical,
engineering and scientific applications. The license requires quarterly license
fees and development payments to be made to the licensor. We have filed three
patent applications in the United States and other countries specifically
covering image capturing and creation. One of our patent applications has been
registered and our remaining two patent applications are pending. We plan to
apply for other patents in the future. The source code for the Lifef/x
technology is not patented by Uniservices.
Our Employees
We currently has a team of six employees in research and development in Los
Angeles, California. Our executive officers are based in Boston, Massachusetts.
We intend to expand significantly in 2000 and will actively seek, among others,
full time software developers, a Vice-President of Marketing, accounting
personnel and administrative staff to be based in Boston,
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Massachusetts. See "Risk Factors -- We Will Rely on a Relatively New Management
Team and Need Additional Personnel to Grow Our Business."
Our Management
The following table sets forth the names and positions with the Company as
of December 15, 1999 of all of the executive officers, directors and key
employees of the Company after giving effect to the Merger. Also set forth below
is information as to the principal occupation and background for each named
person in the table.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael Rosenblatt 48 Co-President, Chairman and Director
Lucille S. Salhany 53 Chief Executive Officer, Co- President and
Director
Richard Guttendorf 57 Secretary, Chief Financial Officer and Director
Ian Hunter 46 Director
Robert Verratti 56 Director
Paul Charette 36 Lifef/x Networks, Inc.: Vice President, Co-
Director of Research and Development
Mark Sagar 33 Lifef/x Networks, Inc.: Vice President, Co-
Director of Research and Development
Serge Lafontaine 50 Lifef/x Networks, Inc.: Chief Technology
Officer
</TABLE>
Michael Rosenblatt. Mr. Rosenblatt became Co-President and Chairman of the
Company at the Closing. Mr. Rosenblatt has served as Vice Chairman of PTM since
October, 1998, as Co-President of PTM from 1997 to October, 1998 and as a
director of PTM since 1997. He is a founding partner of Mirage Technologies,
Inc. Mirage Technologies, Inc. is the general partner of Mirage Technologies
L.P. ("Mirage"), which together with Safeguard and Robert Verratti formed PTM in
October 1997. In 1974 Mr. Rosenblatt also founded the Atlantic Entertainment
Group which became one of the largest privately held motion picture production
and distribution companies in the United States. Atlantic Entertainment Group,
Inc. was sold by Mr. Rosenblatt in 1989. Mr. Rosenblatt also serves as Co-
Chairman of the Board of Organic Systems, Burlington, Massachusetts and is on
the board of EMC, Inc. of Wayne, Pennsylvania. He is also a member of the
Executive Branch of the Motion Picture Academy of Arts and Science.
Lucille S. Salhany. Lucille Salhany became Chief Executive Officer, Co-
President and a director of the Company at the Closing. Ms. Salhany is
currently President, JH Media, Ltd. an
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advisory company with offices in Boston and LA. Ms. Salhany is past president
and CEO of UPN and currently serves on the UPN operating committee. Under her
guidance UPN firmly established itself as the fifth largest broadcast network in
television history. Previously Ms. Salhany was Chairman of the FOX Broadcasting
company, Chairman of Twentieth Television and a member of the FOX, Inc. Board of
Directors. Ms. Salhany guided the networks expansion from four to seven nights
of programming and was instrumental in Fox's acquisition of the NFL. Prior to
that Ms. Salhany was President, Paramount Domestic Television. Ms. Salhany holds
a seat on the Operating Committee of the United Paramount Network and on the
Board of Directors of Compaq (a Fortune 100 company), Avid Technologies , B.R.A.
Corporation of Boston, Coty, Inc. and Emerson College.
Richard Guttendorf. Mr. Guttendorf became Secretary, Chief Financial
Officer and a director of the Company at the Closing. Mr. Guttendorf has served
as Chairman and Chief Executive Officer of PTM since October, 1998 and as a
director of PTM since its inception in 1997. Mr. Guttendorf is also Vice
President and Director of Research for Safeguard. Mr. Guttendorf was previously
Chief Executive Officer of Laser Communications, Inc., a leading manufacturer of
short haul, laser optic wireless communications equipment. Prior to LCI, he was
Chief Financial Officer of InterDigital Communications Corporation, a
manufacturer and licensor of digital wireless telephone equipment and was Chief
Financial Officer of Atlantic Financial, an $8 billion financial institution.
Mr. Guttendorf is a Certified Public Accountant and has a Bachelor of Science
degree in accounting from St. Francis College and a Master of Science degree in
finance and accounting from Pennsylvania State University.
Ian Hunter. Dr. Hunter became a director of the Company at the Closing and
served as a director of PTM from 1997 to the Closing. Prior to the Closing, Dr.
Hunter was the Director of Research and Development at PTM. Dr. Hunter is the
Hatsopolous Professor of Mechanical Engineering and Bio-Engineering at the
Massachusetts Institute of Technology. Dr. Hunter is also the General Motors
Fellow.
Robert Verratti. Mr. Verratti became a director of the Company at the
Closing. Mr. Verratti served as a director of PTM from 1997 to the Closing and
as Chief Executive Officer and Chairman of the Board of PTM from 1997 to
October, 1998. Mr. Verratti has been the President of Charlestown Investments,
Ltd., a company specializing in investments in companies in turn around or
undervalued situations since 1980. Mr. Verratti is also a venture partner and
consultant to the Chairman of Safeguard and TL Ventures. Mr. Verratti serves on
the board of directors of CRWF Inc., Axcess Financial Inc., Net Effects, Inc.
and Netsvision, Inc. Mr. Verratti graduated from the U.S. Naval Academy in 1966
with a Bachelor of Science degree in nuclear engineering.
Paul Charette. Dr. Charette is Vice President and Co-Director of Research
and Development of Lifef/x Networks, Inc. and has held such position since 1997.
Dr. Charette received his Bachelor of Science degree with honors from McGill
University in Electrical Engineering in 1986. He then worked for three years as
a software design engineer at Matrox Electronic Systems LTD, a leading Canadian
graphics, image processing and hardware manufacturer. In 1989, he joined MPB
Technologies LTD as a research scientist for the laser and optics division. Then
in 1994, he obtained his doctorate degree from McGill for his work on medical
studies of biological membranes using laser speckle interferometry. Dr. Charette
has experience in the areas of laser and optics, image processing, applied
mathematics, and bioengineering mechanics. Currently, Dr. Charette holds a Post-
Doctoral fellowship in the Biomechanics Group at the University of Auckland in
New Zealand.
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Mark Sagar. Dr. Sagar has held the position of Vice President and Co-
Director of Research and Development of Lifef/x Networks, Inc. and has held such
position since 1997. In 1992 Dr. Sagar became a member of the Bio-engineering
group at the University of Auckland where he developed an anatomically accurate
computer model of the human eye. Dr. Sagar completed his Ph.D in 1996 and was
appointed as a Post-doctoral fellow at Dr. Ian Hunter's laboratory at the
Massachusetts Institute of Technology. Dr. Sagar pursued and completed a
Bachelor of Science degree in Physics and Mathematics at the University of
Auckland in 1987; winning senior prizes in both subjects.
Serge Lafontaine. Dr. Lafontaine became the Chief Technology Officer of the
Company at the Closing. Dr. Lafontaine is presently a post-doctoral research
associate in mechanical engineering at the Massachusetts Institute of
Technology. Before completing his Ph.D. he worked as systems engineer in
software development and systems administration. He subsequently co-developed a
number of instruments and devices including a cardiac mapping system with 3D
digital mapping of the heart electrical activity, a retinal tele-micro-surgical
system and virtual operating environment, and various real time data acquisition
and control systems.
Properties
We currently leases premises at 1149 N. Gower Street, Hollywood,
California, housing the Lifef/x operations, the Scanning and Recording Division
and the now defunct Digital Division. We own premises at 6350 Santa Monica
Boulevard, Hollywood, California, housing the Optical Division. Both of these
real property interests are included in the Spin Off Assets and Liabilities.
Following the Merger, we intend to relocate the Lifef/x operations from the
Gower facility.
We plan to have approximately 5,000 square feet of research and development
space in the greater Los Angeles area and approximately 7,000 square feet of
administrative and research and development space in the greater Boston area.
Legal Proceedings
A former employee has asserted certain claims arising from such employee's
prior employment with PTM, including, without limitation, harassment claims. At
this time, we are unable to determine the possible outcome of these asserted
claims. However, we believe these claims are without merit and intend to
vigorously defend any action asserted for the claims.
Except for these claims, we are not involved in any claims or legal
proceedings, nor have we been involved in any such proceedings that have had or
may have a significant effect on our financial position.
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our company. The risks and uncertainties described below
are not the only ones facing our company and there may be additional risks that
we do not presently know of or that we currently deem immaterial. All of these
risks may impair our business operations. This document also contains forward-
looking statements that involve risks and uncertainties and actual results may
differ materially from the results we discuss in the forward-looking statements.
If any of the following risks actually occur, our business, financial condition
or results of operations could be materially adversely affected. In such case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
In accordance with "plain English" guidelines provided by the SEC, the risk
factors have been written in the first person.
Our business would be seriously impaired if our rights in the Lifef/x technology
are compromised in any way.
We have one registered patent and two patents pending with the United
States Patent Office relating to computer graphics and motion capture
technologies, but we do not own all of the Lifef/x technology. We license a
significant portion of the Lifef/x technology from Uniservices. The source code
for the Lifef/x technology is not patented by Uniservices. Therefore, we rely on
non-disclosure, confidentiality and non-competition agreements with our
employees to protect many of our rights in the Lifef/x technology. If these
agreements are breached by our employees, it may be necessary for us incur
significant expenses to enforce our contractual rights and protect our rights in
the Lifef/x technology. Our business plan and strategy are to commercialize the
Lifef/x technology. Termination of our relationship with Uniservices for any
reason, termination of our exclusive rights to the Lifef/x technology for
failure to make development fee payments or unauthorized disclosure of the
Lifef/x technology to third parties would result in serious harm to our
business, financial position and results of operations.
We have a history of losses and expect to incur losses in the future, and we may
never achieve profitability.
As of September 30, 1999, we had no sales from the Internet application of
our Lifef/x technology and PTM had an accumulated deficit of $3.9 million for
all of its operating divisions. Such deficit includes amounts attributable to
PTM's film production and other activities not directly attributable to Lifef/x.
Our lack of revenues for Lifef/x can be attributed primarily to the fact that
Internet application of our Lifef/x technology is in the research and
development or planning phase and has not been commercially released. In the
course of our pre-commercial development activities, we have not achieved
profitability and expect to continue to incur net losses for at least the next
several quarters. Due to the need to establish our brand and service, we expect
to incur increasing sales and marketing, product development and administrative
expenses. As a result, we will need to generate significant revenues to achieve
and maintain profitability.
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Our technology has not been fully developed for its proposed application.
To date, we have primarily focused on applying the Lifef/x technology to
motion pictures. Our business plan and strategy are to commercialize the
Lifef/x technology for Internet applications. We have not commercialized any of
our Internet-based product offerings and all such products are currently in the
research and development or planning phases. If we are unable to develop our
products for their proposed applications, our business will suffer and our
financial condition and results of operations will be seriously affected.
The photo realistic 3D animation market is new and uncertain and our business
may not develop.
The market for photo realistic 3D computer animation products and services
over the Internet has not developed, and its development is subject to
substantial uncertainty. We cannot assure you that this market will develop.
We depend on the commercial acceptance of our Lifef/x technology. We have very
limited experience conducting marketing campaigns, and we may fail to generate
significant interest. On the other hand, if we experience extensive interest in
our photo realistic 3D computer animation products and services, we may fail to
meet the expectations of customers due to the strains this demand will place on
our Web site, network infrastructure and our systems. If potential users choose
the Internet to produce animation content, we cannot be certain that these users
will adopt our technology.
If we do not achieve brand recognition necessary to succeed in the Internet
market, our business will suffer.
We must quickly build our Lifef/x brand to gain market acceptance for our
photo realistic 3D computer animation products and services. We believe it is
imperative to our long term success that we obtain significant market share for
our products and services before other competitors enter the Internet
communication and entertainment media market. We must make substantial
expenditures on product development, strategic relationships and marketing
initiatives in an effort to establish our brand awareness. We cannot be certain
that we will have sufficient resources to build our brand and realize
commercial acceptance of our products and services. If we fail to gain market
acceptance for our photo realistic 3D computer animation products and services,
our business will suffer dramatically.
If we do not expand our product and services offerings, our business may not
grow.
We may pursue the strategic partnerships with new or complementary
businesses in an effort to enter into new business areas, diversify our sources
of revenue and expand our photo realistic 3D computer animation product and
services offerings. At present, we have no commitments or agreements for any
strategic partner. To the extent we pursue strategic partnerships with new or
complementary businesses, we may not be able to expand our Internet focused
products or service offerings and related operations in a cost-effective or
timely manner. We may experience increased costs, delays and diversions of
management's attention when commencing any new businesses or services.
Furthermore, any new business or service we launch that is not favorably
received by users could damage our reputation and brand name in the Internet
communication and entertainment media market. We also cannot be certain that we
will generate satisfactory revenues from any expanded services or products to
offset related costs.
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Any expansion of our operations may require additional expenses, and these
efforts may strain our management, financial and operational resources.
If we cannot effectively manage our growth, our ability to provide services will
suffer.
Our reputation and our ability to attract, retain and serve our customers
depend upon the reliable performance of our Web site, network infrastructure and
systems. We have a limited basis upon which to evaluate the capability of our
systems to handle controlled or full commercial availability of our photo
realistic 3D computer animation products and services. We anticipate that we
will expand our operations significantly in the near future, and further
expansion will be required to address the anticipated growth in our user base
and market opportunities. To manage the expected growth of operations and
personnel, we will need to improve existing and implement new systems,
procedures and controls. In addition, we will need to expand, train and manage
an increasing employee base. We will also need to expand our finance,
administrative and operations staff. We may not be able to effectively manage
this growth. Our planned expansion in the near future will place and we expect
our future expansion to continue to place a significant strain on our
managerial, operational and financial resources. Our planned personnel,
systems, procedures and controls may be inadequate to support our future
operations. If we are unable to manage growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations will be seriously affected.
If we are unable to compete successfully, our revenues and operating results
will suffer.
The market for photo realistic 3D computer animation products and services
over the Internet is new and we expect it to be competitive. The principal
competitive products in the photo realistic 3D computer animation market include
the Microsoft V-Chat 2.0, Microsoft Agent, Compaq's Faceworks, Haptek, Famous
Tech, Blaxxun, Worlds Ultimate 3D Chat, Animatek International, Sven
Technologies, Oz Ineractive, Simberon Avatars, NetSage, Boston Dynamics,
Extempo, Virtual Human, Virtual Personalities, Virtual Celebrities, Radical Mail
and Avatarme. In addition, there may be photo realistic 3D computer animation
products and services being developed by competitors that we may not be aware
of.
If the photo realistic animation market becomes a viable market, we may not
be able to establish or maintain a competitive position against current or
potential competitors as they enter the market. Many of our current and
potential competitors have substantially greater financial, technical,
marketing, distribution and other resources, greater name recognition and market
presence, longer operating histories and lower cost structure than us. As a
result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. Our ability to compete successfully in
the rapidly evolving Internet communication and entertainment media market will
depend upon certain factors, many of which are beyond our control. There can be
no assurance that we will be able to compete successfully.
If the market for photo realistic 3D computer animation develops, we could
face competitive pressures from new technologies or the expansion of existing
technologies. We may also face competition from a number of indirect
competitors that specialize in electronic commerce and other companies with
substantial customer bases in the computer and other
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technical fields. Additionally, companies that control access to transactions
through a network or Web browsers could also promote our competitors or charge
us a substantial fee for inclusion. Our competitors may also be acquired by,
receive investments from or enter into other commercial relationships with
larger, better-established and better-financed companies as use of the Internet
and other online services increases. We may be unable to compete successfully
against current and potential competitors, and the competitive pressures we face
could seriously harm our business.
Our growth and operating results could be impaired if we are unable to meet our
future capital requirements.
We believe that our current cash balances will allow us to fund our
operations for at least the next 14 months. However, we will require
substantial working capital to fund our business and we will need to raise
additional capital. We plan to seek additional funding in the form of equity or
debt, or a combination thereof, in 12 months to meet the cash requirements of
our business. We cannot be certain that additional funds will be available on
satisfactory terms when needed, if at all. Our future capital needs depend on
many factors, including:
. the timing of our development efforts;
. market acceptance of our Lifef/x technology;
. the level of promotion and advertising required to launch our services;
and
. changes in technology.
The various elements of our business and growth strategies, including our
plans to support fully the commercial release of our photo realistic 3D computer
animation products and services, our introduction of new products and services
and our investments in infrastructure will require additional capital. If we
are unable to raise additional necessary capital in the future, we may be
required to curtail our operations significantly or obtain funding through the
relinquishment of significant technology or markets. Also, raising additional
equity capital would have a dilutive effect on existing stockholders.
We are dependent on our key personnel and also need additional personnel to grow
our business.
We depend to a large extent on the abilities of our key technical
personnel. We also intend to hire key management personnel, including a Vice-
President of Marketing and a Chief Operating Officer. There can be no assurance
that we will successfully assimilate newly hired employees or that we can
successfully locate, hire, assimilate and retain qualified key management
personnel. The loss of any key employee or our inability to attract or retain
other qualified employees could have a material adverse effect on our results of
operations and financial condition.
Our future success depends on our ability to attract, retain and motivate
highly skilled technical, marketing, accounting and administrative personnel.
We plan to hire additional personnel in all areas of our business. Competition
for qualified personnel is intense, particularly in the Internet and high
technology industries. As a result, we may be unable to successfully attract,
assimilate or retain qualified personnel. Further, we may be unable to retain
the employees we currently employ or attract additional technical personnel.
The failure to retain
22
<PAGE>
and attract the necessary personnel could seriously harm our business, financial
condition and results of operations.
System and online security failures could harm our business and operating
results.
The operation of our planned Web site for download of and sale of our
planned Lifef/x product offerings depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our systems and
operations will be vulnerable to damage or interruption from a number of
sources, including fire, flood, power loss, telecommunications failure, physical
facility break-ins, earthquakes and similar events. Our servers will also be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. Any substantial interruptions in the future could result in the
loss of data and could completely impair our ability to generate revenues from
our service.
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Anyone
who is able to circumvent our security measures could misappropriate
confidential information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach.
If we do not respond effectively to technological change, our products and
service could become obsolete and our business will suffer.
The development of our photo realistic 3D computer animation products and
services and other technology entails significant technical and business risks.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our Lifef/x product offerings.
The Internet and the electronic commerce industry are characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new product and services introductions embodying new
technologies; and
. the emergence of new industry standards and practices.
The evolving nature of the Internet could render our existing technology
and systems obsolete. Our success will depend, in part, on our ability to:
. license or acquire leading technologies useful in our business;
. develop new services and technology that address the increasingly
sophisticated and varied needs of our users; and
. respond to technological advances and emerging industry and regulatory
standards and practices in a cost-effective and timely manner.
Future advances in technology may not be beneficial to, or compatible with,
our business. Furthermore, we may not successfully use new technologies
effectively or adapt our technology and systems to user requirements or emerging
industry standards on a timely basis. Our ability to remain technologically
competitive may require substantial expenditures and lead time If we
23
<PAGE>
are unable to adapt in a timely manner to changing market conditions or user
requirements, our business, financial condition and results of operations could
be seriously harmed.
If the internal and third-party equipment and software that we use are not Year
2000 compliant, our operating results, brand and reputation could be impaired
and we could lose users.
Many existing computer systems and software products are coded to accept
only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. If not corrected, there could be system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with these "Year 2000"
requirements.
We use and depend on third-party equipment and software that may not be
Year 2000 compliant. If Year 2000 issues prevent our users from accessing the
Internet or our service, our business and operations will suffer. Any failure
of our third-party equipment or software to operate properly could result in
system and online security failures and require us to incur unanticipated
expenses, resulting in serious harm to our business, operating results and
financial condition.
We have conducted a preliminary review of our internal computer systems to
identify the systems that could be affected by the Year 2000 issue. Based on
this preliminary review, we believe that our internal software systems are Year
2000 compliant. However, we continually evaluate our systems and intend to
develop a contingency plan to address any Year 2000 issues we discover.
We face risks related to the Internet industry
The success of our business will depend on the continued growth of the Internet
and the acceptance by consumers of the Internet as a medium for advertising,
commerce and communications.
Our success depends in part on widespread acceptance and use of the
Internet as a medium for advertising, commerce and communications. This
practice is at an early stage of development, and long-term market acceptance is
uncertain. We cannot predict the extent to which users will be willing to shift
their habits from traditional media to online media. To be successful, our
users must accept and utilize electronic commerce to satisfy their product
needs. Our future revenues and profits, if any, substantially depend upon the
acceptance and use of the Internet and other online services as an effective
medium of commerce by our target users.
The Internet may not become a viable long-term commercial marketplace due
to potentially inadequate development of the necessary network infrastructure or
delayed development of enabling technologies and performance improvements. The
commercial acceptance and use of the Internet may not continue to develop at
historical rates. Our business, financial condition and results of operations
would be seriously harmed if:
24
<PAGE>
. use of the Internet and other online services does not continue to
increase or increases more slowly than expected;
. the infrastructure for the Internet and other online services does not
effectively support future expansion of electronic commerce;
. concerns over security and privacy inhibit the growth of the Internet;
or
. the Internet and other online services do not become a viable commercial
marketplace.
Our operating results could be impaired if we become subject to burdensome
government regulation and legal uncertainties.
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally. However, due to the increasing popularity and use of the Internet,
it is possible that a number of laws and regulations may be adopted with respect
to the Internet, relating to:
. user privacy;
. pricing;
. content;
. copyrights;
. distribution; and
. characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
expansion of the Internet. A decline in the growth of the Internet could
decrease demand for our products and services and increase our cost of doing
business. Moreover, the applicability of existing laws to the Internet is
uncertain with regard to many issues, including property ownership, export of
specialized technology, sales tax, libel and personal privacy. Our business,
financial condition and results of operations could be seriously harmed by any
new legislation or regulation. The application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could also harm our business.
We plan to offer our Lifef/x product offerings over the Internet in
multiple states and foreign countries. These jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each state or
foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties. Other states and foreign countries may also attempt to regulate our
business or prosecute us for violations of their laws. Further, we might
unintentionally violate the laws of foreign jurisdictions and those laws may be
modified and new laws may be enacted in the future.
There are risks associated with the proposed spin off of PTM's non-Lifef/x
assets and liabilities.
The spin off of the Company's non-Lifef/x assets and liabilities is subject
to a number of contingencies, including consents from a number of third parties.
As a result, there can be no assurance that all or any portion of the spin off
transaction will be completed.
25
<PAGE>
Market for Registrant's Common Equity and Related Shareholder Matters
The Company's common stock has been approved for trading on the OTC
Electronic Bulletin Board under the symbol "FNSP." In connection with the change
of the Company's corporate name to Lifef/x, Inc., the Company's symbol will be
changed to "LEFX", effective December 16, 1999. The following table sets forth,
on a per share basis, and for the periods indicated, the high and low sales
prices of the common stock as reported on the OTC Electronic Bulletin Board. No
dividends have been declared or paid on the common stock, nor does the Company
intend to declare or pay any dividends on the common stock in the near future.
All sales prices are set forth taking into effect all stock splits, exclusive of
commissions or discounts of any nature.
<TABLE>
<CAPTION>
Price Range
-----------
High Low
<S> <C> <C>
August 23, 1999 to December 14, 1999 (1) (1)
</TABLE>
(1) The common stock was approved for trading on the OTC Electronic Bulletin
Board on August 23, 1999 and has not commenced trading as of December 14,
1999.
As of December 14, 1999 there were 15,983,750 shares the Company's common
stock outstanding and approximately 224 shareholders of record.
The Company has never declared or paid cash or stock dividends on its
capital stock since its incorporation and anticipates that, for the foreseeable
future, any earning will be retained for use in the Company's business.
Recent Sales of Unregistered Securities
On December 14, 1999, the Company issued 2,983,000 units at $3.00 per unit
to 36 investors in the first closing of a private placement for an aggregate
purchase price of $8,949,000 pursuant to Rule 506 of Regulation D (the "Private
Placement"). Each unit consisted of one share of common stock and a warrant to
purchase 0.01 share of common stock at an exercise price of $7.50 per share. The
placement agent on this transaction received a fee of equal to 4% of the gross
offering proceeds from investors (other than proceeds from Safeguard and any
investors introduced by Safeguard) and warrants to purchase 100,000 shares of
common stock at an exercise price of $7.50 per share. The Private Placement is
for up to $18 million of units. The Company may continue to accept subscriptions
for the units until the maximum offering is met.
On December 14, 1999, the Company issued 39,167 units to attorneys for
legal services rendered in connection with the Private Placement.
Description of Securities
Common Stock
The authorized capital stock of the Company includes 100,000,000 shares of,
$.001 par value per share, common stock. All shares have equal voting rights.
Voting rights are not cumulative, and, therefore, the holders of more than 50%
of the common stock could, if they chose to do so, elect all of the Directors.
26
<PAGE>
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after the payment of liabilities will be distributed pro rata to
the holders of the common stock. The holders of the common stock do not have
preemptive rights to subscribe for any securities of the Company and have no
right to require the Company to redeem or purchase their shares.
Holders of common stock are entitled to share equally in dividends when, as
and if declared by the Board of Directors of the Company, out of funds legally
available therefor. The Company has not paid any cash dividends on the common
stock, and it is unlikely that any such dividends will be declared in the
foreseeable future.
Warrants
The Company issued 3,022,167 Units and warrants to the placement agent of
the Private Placement to purchase 100,000 shares of common stock on December 14,
1999. Each warrant as part of the Units issued and the placement agent warrants
entitled the holder to purchase, at a price of $7.50 per share, subject to
adjustment, .01 share of common stock for a period of 18 months from the date of
issuance. The warrants will expire, become void and be of no further force or
effect at the end of the exercise period.
The exercise price of the warrants is subject to adjustment in certain
circumstances, including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the common stock. In the event
of liquidation, dissolution or winding up of the Company, holders of the
warrants, unless exercised, will not be entitled to participate in the assets of
the Company. Holders of the warrants will have no voting, preemptive,
liquidation or other rights of a stockholder, and no dividends will be declared
on the warrants.
Safeguard Warrants
Pursuant to the Merger, warrants for 17,587,500 shares of common stock will
be carried forward and/or issued to Safeguard for its existing PTM Warrants. The
warrants entitle Safeguard to purchase 5,862,500 shares of common stock at an
exercise price of $2.50 per share, 5,862,500 shares of common stock at an
exercise price of $5.00 per share, and 5,862,500 shares of common stock at an
exercise price of $6.00 per share. In addition, warrants for 10,218,417 shares
of common stock at an exercise price of $0.01 per share will be issued to
Safeguard in connection with (i) the Merger, and (ii) the conversion of the PTM
debt owed to it. The warrants have a term of 10 years and are exercisable one
year after the Merger, subject to certain early exercise events specified in the
warrants. The exercise prices of the warrants are subject to adjustment in
certain circumstances, including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the common stock.
Registration Rights
The Company has agreed to file a registration statement (the "Common Shares
Registration Statement") under the Securities Act covering all of the common
stock issued as part of the Units and the common stock underlying the warrants
issued as part of the Units (collectively, the "Common Shares"). The Company
will use its best efforts to cause the Common Shares Registration Statement to
become effective within 150 days after the date of the Closing. The Company
will pay all registration expenses incurred in connection with the registration
of the securities. In addition, the Company will comply with all necessary
state
27
<PAGE>
securities laws so as to permit the sale by the investors of the securities. If
the Common Shares Registration Statement has not been declared effective within
150 days after the date of the Closing, the Company will pay liquidated damages
to the investors in the Private Placement equal to 1% of the purchase price for
the Units for each full 30 day period until the Common Shares Registration
Statement has been declared effective (and prorated for any portion of such 30
days prior to effectiveness).
The 11,294,084 shares of common stock to be issued to the pre-Merger PTM
stockholders pursuant to the Merger and the 100,000 shares of common
stock underlying the Warrants issued to the placement agent in connection with
the Private Placement will be included in the Common Shares Registration
Statement. In addition, Safeguard has the right to have the Company prepare and
file with the SEC, registration statements on unlimited occasions if the Company
is eligible to file its registration statement on Form S-3, or, in the event the
Company is not eligible to file its registration statement on Form S-3, on two
occasions, so as to permit a public offering of any of the 27,790,917 shares of
common stock issuable to Safeguard upon the exercise of warrants issued in
connection with (i) the Merger (ii) conversion of certain debt of PTM
and (iii) the carry forward of PTM Warrants. If at any time the Company files a
registration statement to cover any of the 27,790,917 shares of common stock
issuable upon exercise of the warrants held by Safeguard, the Company will
afford the other pre-Merger PTM stockholders and the investors in the Private
Placement the opportunity to include their shares of Common Shares, in such
registration statement(s), subject to customary cut-backs in the case of
underwritten offerings.
Lock-Up/Leak Out
With respect to the investors acquiring shares in the Company's Private
Placement of up to $18 million units for a period of 18 months from the date of
the Merger, no more than 10% of any holder's shares of Common Shares may be sold
in any consecutive three month period. If less than 10% of a holder's Common
Shares are sold for any three month period, the difference between 10% of such
holder's Common Shares and the amount actually sold may be sold during any
prospective three month periods. The same restrictions will also apply to all
the other shares of common stock being covered by the Common Shares Registration
Statement.
Duane Jenson, Briar Creek Investment LLC and Leonard Burningham (the "FSI
Shareholders"), holders of 1,614,683 shares of common stock, have agreed to lock
up these shares of common stock (the "Group Shares") for a period of 18 months
from the date of the Merger. From the date of the Merger to the effective date
of the Common Shares Registration Statement, the FSI Shareholders as a group may
only sell the Group Shares in blocks of 5000 or less per transaction and at a
----
price greater than or equal to $7.50 per share and only at the "ask" price (but
not the "bid" price) for the common stock. The maximum amount the FSI
Shareholders as a group may sell during this period is 15% of the Group Shares
or 242,184 shares of common stock in any consecutive three month period. If less
than 15% of the Group Shares are sold during any three month period, the
difference between 15% of the Group Shares and the amount actually sold may be
sold during any subsequent three month periods. After the effective date of the
Common Shares Registration Statement, the same restrictions described above on
the Common Shares acquired by the Private Placement investors will apply to the
Group Shares.
The Company may waive any of the above restrictions if such waiver is
beneficial to the Company or will facilitate an orderly trading market for the
common stock.
28
<PAGE>
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
Effective December 14, 1999, the Company dismissed Mantyla McReynolds, Salt
Lake City, Utah, as its independent accountants, and engaged KPMG Peat Marwick
LLP as the Company's new independent accountants. The dismissal of Mantyla and
the retention of KPMG was approved by the Company's Board of Directors.
Prior to the engagement of KPMG, neither the Company nor anyone on its
behalf consulted with such firm regarding the application of accounting
principles to a specified transaction, either completed or uncompleted, or type
of audit opinion that might by rendered on the Company's financial statements.
Mantyla audited the Company's financial statements for the years ended
December 31, 1997 and 1998. Mantyla's report for such period did not contain an
adverse opinion or a disclaimer of opinion, nor was the report qualified or
modified as to uncertainty, audit scope or accounting principles except as to
the Company's ability to continue as a going concern.
During the period from January 1, 1999 to December 14, 1999 and the years
ended December 31, 1997 and 1998, there were no disagreements with Mantyla on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope procedure, which disagreements, if not resolved to
the satisfaction of Mantyla, would have caused such firm to make reference to
the subject matter of the disagreements in connection with its reports on the
Company's financial statements. In addition, there were no such events as
described under Item 304 of Regulation S-B during the fiscal years ended
December 31, 1997 and 1998 and the subsequent interim periods through December
14, 1999.
Mantyla has furnished to the Company with a letter addressed to the SEC
stating there were no disagreements between the Company, whether resolved or not
resolved, on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure. A copy of Mantyla's
letter is attached as an exhibit to this report.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATIO AND RESULTS
a. Financial Statements of Business Acquired
Audited Financial Statements for PTM as required.*
* It is impractical as the present time to provide such documents. Such
documents will be filed as soon as practicable.
c. Exhibits:
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger dated as of December 14, 1999.
16.1 Letter of Mantyla McReynolds, a Professional Corporation
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the undersigned
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
LIFEF/X, INC.
By: /s/ Richard Guttendorf
_______________________________
Richard Guttendorf,
Chief Financial Officer
Date: December 15, 1999
_______________________
30
<PAGE>
AGREEMENT AND PLAN OF MERGER
by and among
FIN SPORTS U.S.A., INC.,
PTM ACQUISITION CORP.
and
PACIFIC TITLE/MIRAGE, INC.
Dated December 14, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER.................................................. 1
ARTICLE II REPRESENTATIONS AND WARRANTIES.............................. 4
ARTICLE III COVENANTS................................................... 12
ARTICLE IV CERTAIN COVENANTS........................................... 13
ARTICLE V CONDITIONS.................................................. 15
ARTICLE VI INDEMNIFICATION............................................. 17
ARTICLE VII CLOSING DATE................................................ 18
ARTICLE VIII POST CLOSING MATTERS........................................ 19
ARTICLE IX MISCELLANEOUS............................................... 19
EXHIBIT A CERTIFICATE OF INCORPORATION
EXHIBIT B BY-LAWS
SCHEDULES
i
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 14, 1999 by and among
Pacific Title/Mirage, Inc., a Delaware corporation ("PTM"), Fin Sports U.S.A.,
Inc., a Nevada corporation ("Parent") and PTM Acquisition Corp., a Delaware
corporation ("Sub").
W I T N E S S E T H :
WHEREAS, the respective Board of Directors of PTM, FSI and Sub (sometimes
referred to collectively as the "Constituent Corporations" or individually as a
"Constituent Corporation"), deem it advisable that Sub merge with and into PTM
pursuant to this Agreement and a Certificate of Merger be executed by PTM
("Certificate of Merger"), whereby the holder of shares of capital stock of Sub
outstanding at the Effective Time (as hereinafter defined) will have the right
to receive shares of PTM common stock, $0.01 par value per share (the "PTM
Shares"), and the holders of shares of capital stock of PTM outstanding at the
Effective Time will have the right to receive shares of FSI common stock, $0.001
par value per share (the "FSI Shares"), in the manner and in such amount as is
set forth in Article I hereof and upon the terms and conditions otherwise set
forth in this Agreement (the "Merger"); and
WHEREAS, to effectuate the foregoing, the parties desire to adopt a plan of
reorganization in accordance with the provisions of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties do hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
ARTICLE I
THE MERGER
----------
1.1 Execution of Certificate of Merger and Certificate of Merger. Subject
------------------------------------------------------------
to the provisions of this Agreement, the Certificate of Merger with respect to
the Merger shall be executed and acknowledged by PTM and thereafter delivered
for filing to the Secretary of State of Delaware on the Closing Date (as
hereinafter defined) of the Merger. The Merger shall become effective upon the
filing of the Certificate of Merger with the Secretary of State of Delaware or
such later time as may be set forth in the Certificate of Merger (the date and
time when the Merger becomes effective shall be called the "Effective Time"). At
the Effective Time, the separate existence of Sub shall cease and it shall be
merged with and into PTM. PTM as it exists from and after the Effective Time, is
sometimes hereinafter referred to as the Surviving Corporation.
1.2 Consummation of the Merger. As soon as practicable after the approval
--------------------------
of the Merger by the shareholders of PTM and the satisfaction of the other
conditions hereinafter set forth, FSI, Sub and PTM will cause the Merger to be
consummated in accordance with applicable law.
<PAGE>
1.3 Conversion of Shares. At the Effective Time, each outstanding share
--------------------
of Sub Capital Stock (the "Sub Shares") (currently 1,000 shares) immediately
prior to the Effective Time shall be canceled and shall be converted into PTM
Shares (at the ratio of one Sub Share for each PTM Share) by virtue of the
Merger and without any action on the part of the holder thereof. At the
Effective Time, the PTM Shares and the PTM Series A Junior Convertible Preferred
Stock of PTM (the "Series A Shares") outstanding immediately prior to the
Effective Time shall be canceled and shall be converted into FSI Shares (at the
ratio of 1.0937432 FSI Shares for each PTM Share and each Series A Share) by
virtue of the Merger and without any action on the part of the holder thereof.
Also at the Effective Time, the PTM Series B Senior Convertible Preferred Stock
of PTM (the "Series B Shares") outstanding immediately prior to the Effective
Time shall be canceled and shall be converted into FSI Shares and penny warrants
for FSI Shares (at the ratio of 0.2856811467 FSI Share and .80806210937 penny
warrant share for each Series B Share) by virtue of the Merger and without any
action on the part of the holder thereof. As a result of the Merger, the holder
of Sub Shares immediately prior to the Effective Time will hold 1,000 PTM Shares
in the aggregate, and the holders of PTM capital stock immediately prior to the
Effective Time will hold 11,294,084 FSI Shares in the aggregate.
1.4 Stock Split; Authorized Shares. Prior to the Effective Time, FSI
------------------------------
shall cause the number of its outstanding shares to be increased from 1,083,324
shares to 1,666,666 shares through a forward split at the ratio of 1.5384741
shares for each FSI Share then outstanding. Prior to the Effective Time, FSI
shall cause its authorized shares to be increased from 50,000,000 shares to
100,000,000 shares.
1.5 Additional Financing. Prior to the Effective Time, FSI shall have
--------------------
received irrevocable subscriptions for the purchase of up to $18,000,000
(6,000,000 Units) at a price of $3.00 per Unit, each Unit consisting of one
share of Common Stock and a warrant for the right to purchase .01 share of
Common Stock at an exercise price of $7.50 per share. Prior to the Effective
Time, a minimum of $8,000,000 shall have been deposited into escrow pursuant to
the terms of the Escrow Agreement, among FSI, MG Securities Group, Inc. and Bank
One, as Escrow Agent.
1.6 Exchange of Certificates. After the Effective Time, each holder of a
------------------------
certificate theretofore evidencing outstanding PTM capital stock (other than
shares held by dissenting shareholders and shares that are automatically
canceled as hereinafter provided), upon surrender of the same to FSI's transfer
agent (the "Transfer Agent") or such other agent or agents as shall be appointed
by FSI, shall be entitled to receive in exchange therefor a certificate or
certificates evidencing the number of full shares of FSI for which the PTM
capital stock theretofore represented by the certificate or certificates so
surrendered shall have been exchanged. Until so surrendered, each outstanding
certificate which, prior to the Effective Time, represented PTM capital stock
(other than shares previously held by dissenting shareholders) will be deemed
for all corporate purposes to evidence ownership of the number of full FSI
Shares for which the PTM capital stock represented thereby were exchanged;
provided, however, that until such outstanding certificates formerly evidencing
PTM capital stock are so surrendered, no dividend payable to holders of record
of FSI Shares as of any date subsequent to the Effective Time shall be paid to
the holder of such outstanding certificates in respect thereof, and all such
amounts shall be held in trust by FSI pending the surrender of such
certificates. After the Effective Time, there shall be no further registry of
transfers on the records of PTM of PTM capital stock
2
<PAGE>
outstanding prior to the Effective Time and, if a certificate evidencing such
PTM capital stock is presented to FSI, it shall be canceled and exchanged for a
certificate evidencing shares of FSI Shares as herein provided. After the
Effective Time, the holder of the certificate theretofore evidencing outstanding
Sub Shares, upon surrender of the same to PTM or such other agent or agents as
shall be appointed by PTM, shall be entitled to receive in exchange therefor a
certificate or certificates evidencing the number of full shares of PTM Shares
for which the Sub Shares theretofore represented by the certificate or
certificates so surrendered shall have been exchanged. Until so surrendered,
each outstanding certificate which, prior to the Effective Time, represented Sub
Shares will be deemed for all corporate purposes to evidence ownership of the
number of full PTM Shares for which the Sub Shares represented thereby were
exchanged; provided, however, that until such outstanding certificates formerly
evidencing Sub Shares are so surrendered, no dividend payable to holders of
record of PTM Shares as of any date subsequent to the Effective Time shall be
paid to the holder of such outstanding certificates in respect thereof, and all
such amounts shall be held in trust by PTM pending the surrender of such
certificates.
1.7 No Fractional Shares. No fractional FSI Shares will be issued, but in
--------------------
lieu thereof any fractional FSI Shares shall be rounded to the nearest whole
share.
1.8 Change of Name. Simultaneously with the Merger, and at the Effective
--------------
Time, in accordance with the terms of the Certificate of Merger, the Surviving
Corporation's name shall be changed to Lifef/x Networks, Inc., and FSI shall
file a Certificate of Amendment to its Articles of Incorporation changing its
name to "Lifef/x, Inc."
1.9 Certificate of Incorporation: By-laws; Directors. The Certificate of
------------------------------------------------
Incorporation and By-laws of PTM shall be amended and restated effective as of
the Effective Time in the form attached hereto as Exhibits A and B,
respectively. At the Effective Time, the directors of FSI and PTM shall be as
set forth in Section 8.1 and shall serve for a full year term or until their
successors are duly elected and qualified.
1.10 Option Plan. Effective upon the Merger, FSI shall adopt a stock
-----------
option plan and assume certain of PTM's outstanding stock option obligations and
issue replacement options with appropriate adjustments, if any, as to numbers of
shares and exercise prices affected thereby.
1.11 Co-Obligor. FSI hereby agrees that, effective upon the Merger, FSI
----------
shall become a co-obligor with PTM with respect to all indebtedness of PTM to
Safeguard Scientifics (Delaware), Inc. and its affiliates (collectively,
"Safeguard") arising on or prior to September 30, 1999 and outstanding as of the
Effective Time (the "Safeguard Debt"). FSI hereby assumes all obligations of PTM
with respect to such indebtedness and agrees to be jointly and severally liable
therefor with PTM. FSI shall execute such further instruments, agreements and
documents as Safeguard may request in order to effectuate the purposes of this
Section.
1.12 Debt Conversion. Promptly following the Merger, the Safeguard Debt
---------------
shall be converted into warrants for 3,997,500 FSI Shares, at an exercise price
of $0.01 per share. Such warrants shall be issued to Safeguard upon surrender of
the promissory notes evidencing the Safeguard Debt (or affidavits of lost notes,
as appropriate).
3
<PAGE>
1.13 Warrant Carry Forward. Effective upon the Merger, the warrants for
---------------------
11,725,000 PTM Shares held by Safeguard prior to the Merger shall be converted
into warrants for FSI Shares on a share for share basis (1:1). One half of such
warrants shall have an exercise price of $2.50 per share and the other half
shall have an exercise price of $5.00 per share. In addition, at the Closing,
FSI shall grant to Safeguard warrants to purchase 5,862,500 FSI Shares at an
exercise price of $6.00 per share.
1.14 Warrant Terms. All of the warrants issued to Safeguard pursuant to
-------------
Sections 1.12 and 1.13 shall have a term of ten years and shall become
exerciseable one year after the Merger, subject to certain early exercise
provisions set forth in the warrants. FSI shall at all times reserve a
sufficient number of FSI Shares to accommodate the exercise of such warrants.
At the closing, FSI shall grant to Safeguard registration rights for the shares
underlying such warrants on the terms described in its Private Placement
Memorandum, dated October 29, 1999, as amended and supplemented (the "PPM").
1.15 Indemnification Agreement. At the Closing, FSI, PTM and Safeguard
-------------------------
shall execute and deliver a form of indemnification agreement mutually
satisfactory to the parties relating to Safeguard's indemnification of PTM and
FSI with respect to certain liabilities.
1.16 Spin Off. The parties acknowledge and agree that as soon as all
--------
relevant third party consents and approvals have been obtained, PTM shall
transfer substantially all of the assets and liabilities of its Optical and
Scanning and Recording Divisions to a newly formed entity ("Newco") to be owned
by one or more of PTM's pre-Merger stockholders in exchange for an assumption of
the related liabilities. The parties hereby acknowledge that such transfer may
not occur until after the Effective Time. If and to the extent Newco is formed
prior to the Effective Time, Newco, FSI and PTM shall execute and deliver a form
of indemnification agreement mutually satisfactory to the parties relating to
Newco's indemnification of PTM and FSI with respect to PTM's Optical and
Scanning and Recording Divisions and its now defunct Digital Division.
1.17 Legal Opinion. At the Closing, counsel to FSI shall provide to PTM
-------------
and its stockholders a legal opinion in form and substance satisfactory to PTM
and containing among other things, an opinion that no approval of the FSI
shareholders is required for the Merger or any related transactions (except as
may be described in its Information Statement (the "Information Statement")
filed on November 17, 1999 with the Securities and Exchange Commission
("Commission")).
1.18 Lock Up-Leak Out Agreement. At the Effective Time, FSI shall deliver
--------------------------
to the other parties thereto a lock up-leak out agreement restricting the sale
of FSI Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of FSI and Sub. FSI and Sub represent
---------------------------------------------
and warrant to PTM, as follows:
(a) Power and Authority. Each of FSI and Sub has the corporate power
-------------------
and authority to enter into this Agreement and to carry out its obligations
hereunder. The execution
4
<PAGE>
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Boards of Directors of FSI
and Sub, and Sub's sole shareholder and no other corporate proceedings or
approvals on the part of FSI, Sub and their respective shareholders are
necessary to authorize this Agreement and the transactions contemplated hereby.
(b) FSI Financial Statements. FSI has heretofore delivered to PTM
------------------------
its audited Balance Sheet and Income Statements for the fiscal year ended
December 31, 1998 (the "1998 Statements") and its Balance Sheet as at September
30, 1999 (the "September Balance Sheet"). As of the respective dates of the 1998
Statements and the September Balance Sheet (collectively, the "Financial
Statements"), the Financial Statements did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Sub has no assets or liabilities other than
those arising under this Agreement.
(c) No Material Adverse Effect. Except as set forth in Schedule
--------------------------
2.1(c) or in the Financial Statements since September 30, 1999, there has not
been any material adverse change in the business, operations, properties,
assets, condition, financial or otherwise, or prospects of FSI or Sub.
(d) Due Organization; Power; Qualification: Subsidiaries and
--------------------------------------------------------
Affiliates, Etc.
- ---------------
(i) Each of FSI and Sub is a corporation duly organized, validly
existing, and in good standing under the laws of the states of their
respective states of incorporation and has the corporate power to own its
property and to carry on its business as now conducted. The nature of the
business now conducted by FSI and Sub, the character of the property owned
by it, or any other state of facts does not require FSI or Sub to be
qualified to do business as a foreign corporation in any jurisdiction.
Neither FSI nor Sub conducts any active trade or business.
(ii) Except as set forth in Schedule 2.1(d), neither FSI nor Sub
has any subsidiaries or affiliates (as that term is used in the regulations
promulgated under the Securities Act of 1933), as amended (the "Securities
Act").
(e) Capitalization.
--------------
(i) The total authorized capital stock of FSI consists of
50,000,000 shares of common stock ($0.001 par value) as of the date hereof
and shall consist of 100,000,000 shares of common stock ($.001 par value)
as of the Closing Date. As of the date hereof, the aggregate of 1,083,324
FSI Shares and as of the date of the Closing and prior to the Effective
Time 1,666,666 FSI Shares represent all of the issued and outstanding stock
of FSI. The total authorized capital stock of Sub consists of 1,000 shares
of common stock ($0.01 par value). The aggregate of 1000 Sub Shares
represents all of the issued and outstanding stock of Sub. All of the
outstanding FSI Shares and Sub Shares have been duly authorized and validly
issued and are fully paid and non-assessable. All of the issued and
outstanding Sub Shares are held by FSI.
5
<PAGE>
(ii) Except as set forth on Schedule 2.1(e)(ii) or as
contemplated in the PPM or in Article I hereof, there are no present and on
the Closing Date there will be no outstanding subscriptions, options,
warrants, contracts, calls, puts, agreements, demands or other commitments
or rights of any type to purchase or acquire any securities of FSI or Sub,
nor are there outstanding securities of FSI or Sub which are convertible
into or exchangeable for any shares of capital stock of FSI or Sub, and
each of FSI and Sub has no obligation of any kind to issue any additional
securities.
(f) Financial Information: No Material Adverse Change.
-------------------------------------------------
(i) FSI has furnished to PTM the Financial Statements. The
Financial Statements have been prepared in accordance with generally
accepted accounting principles, and fairly present in all material
respects, the financial condition of FSI as at the respective dates
thereof, and the results of operation of FSI for the periods then ended.
(ii) Since September 30, 1999, there has been no material
adverse change in the business or financial condition or the operations of
FSI except as set forth on Schedule 2.1(f).
(iii) At September 30, 1999, there were no material liabilities,
absolute or contingent of FSI that were not shown or reserved against on
the balance sheets included in the Financial Statements, except obligations
under the contracts shown on or as otherwise disclosed in Schedule 2.1(f).
(iv) Since September 30, 1999, FSI has not sold or otherwise
disposed of or encumbered any of the properties or assets reflected on the
Financial Statements, or other assets owned or leased by it, except in the
ordinary course of business, or as otherwise disclosed on Schedule 2.1(f).
(g) Tax Matters.
-----------
(i) Except as to taxes contested in good faith, each of FSI and
Sub has filed or caused to be filed with the appropriate Federal, state,
county, local and foreign governmental agencies or instrumentalities all
tax returns and tax reports required to be filed, and all taxes,
assessments, fees and other governmental charges have been fully paid when
due (subject to any extensions filed).
(ii) There is not pending nor, to the best knowledge of each of
FSI and Sub, is there any threatened Federal, state or local tax audit of
FSI or Sub. There is no agreement with any Federal, state or local taxing
authority by FSI or Sub that may affect the subsequent tax liabilities of
PTM.
(iii) Without limiting the foregoing: (a) the Financial
Statements include adequate provisions for all taxes, assessments, fees,
penalties and governmental charges which have been or in the future may be
assessed against FSI or Sub with respect to the period then ended and all
periods prior thereto; and (b) neither FSI nor Sub is, on the date hereof,
liable for taxes, assessments, fees or governmental charges.
6
<PAGE>
(h) No Conflict or Default. Neither the execution and delivery of
----------------------
this Agreement, nor compliance with the terms and provisions hereof, including
without limitation the consummation of the transactions contemplated hereby,
will violate any statute, regulation or ordinance of any governmental authority,
or conflict with or result in the breach of any term, condition or provision of
the Articles of Incorporation, Certificate of Incorporation or By-laws of FSI or
Sub, nor of any agreement, deed, contract, mortgage, indenture, writ, order,
decree, legal obligation or instrument to which FSI or Sub is a party or by
which either of them or any of their assets or properties are or may be bound;
or constitute a default (or an event which, with the lapse of time or the giving
of notice, or both, would constitute a default) thereunder, nor result in the
creation or imposition or any lien, charge or encumbrance, or restriction of any
nature whatsoever with respect to any properties or assets of FSI or Sub, nor
give to others any interest or rights, including rights of termination,
acceleration or cancellation in or with respect to any of the properties,
assets, contracts or business of FSI or Sub.
(i) Party to Agreements. Except as set forth on Schedule 2.1(i),
-------------------
neither FSI nor Sub is a party to any contract or other arrangement except those
made in the ordinary course of business or which are terminable on the giving of
sixty (60) days' (or less) notice of FSI's or Sub's intent to terminate such
contract. Except as set forth on Schedule 2.1(i), neither FSI nor Sub is in
default in any material respect under any contract or agreement to which it is a
party or by which it or any of its assets is or may be bound.
(j) Litigation. There are no actions, suits, investigations, or
----------
proceedings pending, nor, to the knowledge of each of FSI or Sub, threatened
against FSI or Sub, the performance of the terms and conditions hereof, or the
consummation of the transactions contemplated hereby, in any court or by or
before any governmental body or agency, including without limitation any claim,
proceeding or litigation for the purpose of challenging, enjoining or preventing
the execution, delivery or consummation of this Agreement. Neither FSI nor Sub
is subject to any order, judgment, decree, stipulation or consent or any
agreement with any governmental body or agency which affects its business or
operations.
(k) Securities Filings. The common stock of FSI is listed on the
------------------
NASD OTC Electronic Bulletin Board. FSI has heretofore provided to PTM true and
correct copies of its annual report on Form 10-SB dated December 14, 1998 and
its quarterly reports on Form 10Q-SB dated April 19, 1999, July 30, 1999, and
November 12, 1999. All such reports are true, correct and accurate as of the
dates of filing and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as disclosed on Schedule 2.1(k), no material adverse
change in the business, financial condition or operations of FSI or Sub has
occurred since the date of such reports. Each of FSI and Sub will have on the
Closing Date made all filings required to be made by FSI and Sub with the
Commission and any state securities authorities.
(l) Governmental Approval. Each of FSI and Sub has all permits,
---------------------
licenses, orders and approvals of all Federal, state, local or foreign
governmental or regulatory bodies required for FSI and Sub to conduct its
business as presently conducted. All such permits, licenses, orders and
approvals are in full force and effect and no suspension or cancellation of any
of them is threatened, and none of such permits, licenses, orders or approvals
will be
7
<PAGE>
affected by the consummation of the transactions contemplated by this Agreement.
No approval or authorization of or filing with any governmental authority on the
part of FSI or Sub is required as a condition to the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby other
than the filing of documents contemplated by this Agreement including without
limitation the Certificate of Merger and the Information Statement.
(m) Salaries. There is set forth on Schedule 2.1(m) annexed hereto
--------
and made a part hereof, a true and complete list, as of the date of this
Agreement, of all of the persons who are employed by FSI and Sub, together with
their compensation (including bonuses) for the calendar year ended December 31,
1998, and the rate of compensation (including bonus arrangements) currently
being paid to each such employee.
(n) Accrued Compensation. FSI and Sub do not have any outstanding
--------------------
liability for payment of wages, vacation pay (whether accrued or otherwise),
salaries, bonuses, pensions or contributions under any labor or employment
contract, whether oral or written, or by reason of any past practices with
respect to such employees based upon or accruing with respect to services of
present or former employees of FSI or Sub, except as disclosed in Schedule
2.1(n).
(o) Employee Benefit Plans. FSI and Sub do not have any pension
----------------------
plan, profit sharing plan or employee's savings plan, and neither is otherwise
subject to any applicable provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA") except as set forth on Schedule 2.1(o).
(p) Material Contracts, etc. Schedule 2.1(p) contains an accurate
-----------------------
list of all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which FSI and/or Sub is a party or by which either
or their respective properties are bound (including without limitation contracts
with customers, joint venture or partnership agreements, contracts with any
labor organizations, employment agreements, consulting agreements, loan
agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements) that (i) may give
rise to obligations or liabilities exceeding $10,000, (ii) generate revenues or
income exceeding $10,000, or (iii) to which FSI or Sub and any affiliate of FSI
or Sub is a party or any officer, director or shareholder of FSI or Sub is a
party (collectively, the "Material Contracts") as of December 31, 1998 and as of
September 30, 1999.
(q) Title and Authority. To the actual knowledge of FSI and Sub, the
-------------------
shareholders as listed in Schedule 2.1(q) are together the holders of
record and sole beneficial owners of all of the outstanding shares of FSI
Shares and Sub Shares.
(r) Financial Information: Contingent Liabilities.
---------------------------------------------
(i) At September 30, 1999, there were no material liabilities,
absolute or contingent of FSI or Sub that were not shown or reserved
against on the balance sheets included in the Financial Statements, except
obligations under the contracts shown on Schedule 2.1(r).
(ii) Since September 30, 1999, neither FSI nor Sub has sold or
otherwise disposed of or encumbered any of the properties or assets
reflected on the
8
<PAGE>
Financial Statements, or otherwise owned or leased by it, except in the
ordinary course or business, or as otherwise disclosed on Schedule 2.1(r).
2.2 Representations and Warranties of PTM: Except as the context
-------------------------------------
otherwise requires, the following representations and warranties are made solely
with respect to PTM's Lifef/x division. PTM represents and warrants to FSI and
Sub as follows:
(a) PTM has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by the Board of Directors of PTM, and, except for the
approval of PTM's shareholders, no other corporate proceedings on the part of
PTM are necessary to authorize this Agreement and the transactions contemplated
hereby.
(b) PTM has heretofore delivered to Sub (i) minutes of Directors' and
shareholders' meetings and written consents for the period January 1, 1998
through July 29, 1999, and (ii) its Pro Forma Financial Statements for September
30, 1999 giving effect to the Merger (the "PTM Financial Statements").
(c) Except as set forth on Schedule 2.2(c), or in the PTM Financial
Statements since September 30, 1999 there has not been any material adverse
change in the business, operations, properties, assets, condition, financial or
otherwise of PTM.
(d) Due Organization; Power; Qualification; Subsidiaries and
--------------------------------------------------------
Affiliates: Etc.
- ---------------
(i) PTM is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has the
corporate power to own its property and to carry on its business as now
conducted. The nature of the business now conducted by PTM, the character
of the property owned by it, or any other state of facts does not require
PTM to be qualified to do business as a foreign corporation in any
jurisdiction other than the State of California.
(ii) Except as set forth in Schedule 2.2(d), PTM has no
subsidiaries (as that term is used in the regulations promulgated under the
Securities Act).
(e) Capitalization.
--------------
(i) The total authorized capital stock of PTM consists of
25,000,000 shares of common stock, $.01 par value per share, of which
320,100 shares are issued and outstanding as of the date hereof and
20,000,000 shares of Preferred Stock, $.01 par value, of which 8,000,000
shares of Series A Shares and 7,680,000 shares of Series B Shares are
issued and outstanding. All the outstanding PTM capital stock has been duly
authorized and validly issued, and are fully paid and non-assessable.
(ii) There are no present and on the Closing Date there will be
no outstanding options, warrants, convertible securities or rights which
may require PTM to issue additional shares of its capital stock other than
as listed on Schedule 2.2(e).
9
<PAGE>
(f) Financial Information: No Material Adverse Change.
-------------------------------------------------
(i) At September 30, 1999, there were no material liabilities,
absolute or contingent of PTM that were not shown or reserved against on
the balance sheets included in the PTM Financial Statements, except
obligations under the contracts shown on or as otherwise disclosed in
Schedule 2.2(f).
(ii) Since September 30, 1999, PTM has not sold or otherwise
disposed of or encumbered any of the properties or assets reflected on the
PTM Financial Statements, or other assets owned or leased by it, except in
the ordinary course of business or as contemplated by Section 1.16 or as
otherwise disclosed on Schedule 2.2(f).
(g) Tax Matters.
-----------
(i) Except as to taxes contested in good faith, PTM has filed
or caused to be filed with the appropriate Federal, state, county, local
and foreign governmental agencies or instrumentalities all tax returns and
tax reports required to be filed, and all taxes, assessments, fees and
other governmental charges have been fully paid when due (subject to any
extensions filed).
(ii) There is not pending nor, to the best knowledge of PTM, is
there any threatened Federal, state or local tax audit of PTM. There is no
agreement with any Federal, state or local taxing authority that may affect
the subsequent tax liabilities of PTM.
(iii) Without limiting the foregoing: (a) the PTM Financial
Statements include adequate provisions for all taxes, assessments, fees,
penalties and governmental charges which have been or in the future may be
assessed against PTM with respect to the period then ended and all periods
prior thereto; and (b) PTM is not, on the date hereof, liable for taxes,
assessments, fees or governmental charges.
(h) No Conflict of Default. Except as set forth on Schedule 2.2(h),
----------------------
neither the execution and delivery of this Agreement, nor compliance with the
terms and provisions hereof, including without limitation the consummation of
the transactions contemplated hereby, will violate any statute, regulation or
ordinance of any governmental authority, or conflict with or result in the
breach of any term, condition or provision of the Certificate of Incorporation
or By-laws of PTM, nor of any agreement, deed, contract, mortgage, indenture,
writ, order, decree, legal obligation or instrument to which PTM is a party or
by which it or any of its respective assets or properties are or may be bound;
or constitute a default (or an event which, with the lapse of time or the giving
of notice, or both, would constitute a default) thereunder, nor result in the
creation of imposition of any lien, charge or encumbrance, or restriction of any
nature whatsoever with respect to any properties or assets of PTM, nor give to
others any interest of rights, including rights of termination, acceleration or
cancellation in or with respect to any of the properties, assets, contracts or
business of PTM.
(i) Party to Agreements. Except as set forth on Schedule 2.2(i), PTM
-------------------
is not a party to any contract or other arrangement except those made in the
ordinary course of business or which are terminable on the giving of sixty (60)
days' (or less) notice of PTM's intent to
10
<PAGE>
terminate such contract. Except as set forth on Schedule 2.2(i), PTM is not in
default in any material respect under any contract or agreement to which it is a
party or by which it or any of its assets is or may be bound.
(j) Litigation. Except as set forth on Schedule 2.2(j), there are no
----------
actions, suits, investigations, or proceedings pending, nor, to the knowledge of
PTM, threatened, against PTM, the performance of the terms and conditions
hereof, or the consummation of the transactions contemplated hereby, in any
court or by or before any governmental body or agency, including without
limitation any claim, proceeding or litigation for the purpose of challenging,
enjoining or preventing the execution, delivery or consummation of this
Agreement. PTM is not subject to any order, judgment, decree, stipulation or
consent or any agreement with any governmental body or agency which affects its
business or operations.
(k) Governmental Approval. PTM has all permits, licenses, orders and
---------------------
approvals of all Federal, state, local or foreign governmental or regulatory
bodies required for PTM to conduct its business as presently conducted. All such
permits, licenses, orders and approvals are in full force and effect and no
suspension or cancellation of any of them is threatened, and none of such
permits, licenses, orders of approvals will be affected by the consummation of
the transactions contemplated by this Agreement. No approval or authorization of
or filing with any governmental authority on the part of PTM is required as a
condition to the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby other than the filing of documents
contemplated by this Agreement including without limitation the Certificate of
Merger and the Information Statement.
(l) Salaries. There is set forth on Schedule 2.2(l) annexed hereto
--------
and made a part hereof, a true and complete list, as of the date of this
Agreement, of all the persons who are both currently employed by PTM and will be
employed by the Surviving Corporation following the Merger, together with their
compensation (including bonuses) for the calendar year ended December 31, 1998
and the rate of compensation (including bonus arrangements) currently being paid
to each such employee.
(m) Accrued Compensation. PTM does not have any outstanding
--------------------
liability for payment of wages, vacation pay (whether accrued or otherwise),
salaries, bonuses, pensions or contributions under any labor or employment
contract, whether oral or written or by reason of any past practices with
respect to such employees based upon or accruing with respect to services of
present or former employees of PTM, except as disclosed in Schedule 2.2(m) or in
the PTM Financial Statements.
(n) Employee Benefit Plans. PTM does not have any pension plan,
----------------------
profit sharing plan or employees' savings plan, and PTM is not otherwise subject
to any applicable provisions of ERISA except as set forth on Schedule 2.2(n).
(o) Material Contracts, etc. Schedule 2.2(o) contains an accurate
-----------------------
list of all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which PTM is a party or by which it or its
properties are bound (including without limitation contracts with customers,
joint venture or partnership agreements, contracts with any labor organizations,
employment agreements, consulting agreements, loan agreements, indemnity or
11
<PAGE>
guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements) (other than those being transferred by PTM in
connection with the spin off contemplated by Section 1.16 hereof) that (i) may
give rise to obligations or liabilities exceeding $10,000, (ii) generate
revenues or income exceeding $10,000, or (iii) to which PTM and any affiliate of
PTM is a party or any officer, director or shareholder of PTM is a party
(collectively, the "Material Contracts").
(p) Title and Authority. To the actual knowledge of PTM, the
-------------------
shareholders as listed in Schedule 2.2(p) are together the holders of record and
sole beneficial owners of all of the outstanding shares of PTM capital stock.
ARTICLE III
COVENANTS
---------
3.1 PTM. PTM agrees that prior to the Closing Date:
---
(a) Except as otherwise contemplated hereby or set forth on Schedule
3.1, no dividend shall be declared or paid by other distribution (whether in
cash, stock, property or any combination thereof) or payment declared or made in
respect to PTM capital stock, nor shall PTM purchase, acquire or redeem or
split, combine or reclassify any shares of its capital stock unless prior to the
record date for such dividend or the effective date of such split, combination
or reclassification, it tenders to FSI its agreement to amend this Agreement so
as to effect an appropriate adjustment in the number of shares deliverable upon
the Effective Time.
(b) Except for such option grants to existing or prospective
employees and consultants as may be contemplated by the PTM Financial Statements
or the PPM (including the capitalization charts set forth therein), no change
shall be made in the number of shares of authorized or issued PTM capital stock;
nor shall any option, warrant, call, right, commitment or agreement of any
character be granted or made by PTM relating to its authorized or issued PTM
capital stock; nor shall PTM issue, grant or sell any securities or obligations
convertible into or exchangeable for shares of PTM capital stock.
(c) PTM will not take, agree to take, or knowingly permit to be taken
any action or do or knowingly permit to be done anything in the conduct of the
business of PTM or otherwise, which would be contrary to or in breach of any of
the terms or provisions of this Agreement, or which would cause any of PTM's
representations and warranties contained herein to be or become untrue in any
material respect at the Closing Date.
(d) Except as set forth on Schedule 2.2(c) or as contemplated by the
PPM or Article I hereof, PTM will not (i) incur any indebtedness for borrowed
money; (ii) assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other individual, firm or corporation, or (iii) make any loans, advances or
capital contributions to or investments in, any other individual, firm or
corporation.
(e) Except as contemplated in the PTM Financial Statements or the
PPM, PTM will not make, alter or change any employment or other contract with
any of its Lifef/x division management personnel or make, adapt, alter, revise,
or amend any pension, bonus,
12
<PAGE>
profit-sharing or other employee benefit plan, or grant any salary increase or
bonus to any person in its Lifef/x division without prior written consent of FSI
or Sub, except for normal year-end or anniversary salary adjustments for
employees, excluding officers.
3.2 FSI and Sub. Each of FSI and Sub agree that prior to the Closing Date:
-----------
(a) Except as set forth in Section 1.4 hereof, no dividend shall be
declared or paid or other distribution (whether in cash, stock, property or any
combination thereof) or payment declared or made in respect of FSI Shares or Sub
Shares, nor shall FSI or Sub purchase, acquire or redeem or split, combine or
reclassify any shares of its capital stock unless prior to the record date for
such dividend or the effective date of such split, combination or
reclassification, it tenders to PTM its agreement to amend this Agreement so as
to effect an appropriate adjustment in the number of shares deliverable upon the
Effective Time.
(b) Except as contemplated by the PPM or set forth in Sections 1.4
and 1.5 hereof, no change shall be made in the number of shares of authorized or
issued FSI Shares or Sub Shares; nor shall any option, warrant, call, right,
commitment or agreement of any character be granted or made by FSI or Sub
relating to its authorized or issued FSI Shares or Sub Shares; nor shall FSI or
Sub issue, grant or sell any securities or obligations convertible into or
exchangeable for shares of FSI Shares or Sub Shares.
(c) Neither FSI nor Sub will take, agree to take, or knowingly permit
to be taken any action, or do or knowingly permit to be done anything in the
conduct of the business of FSI or Sub or otherwise, which would be contrary to
or in breach of any of the terms or provisions of this Agreement, or which would
cause any of FSI's or Sub's representations and warranties contained herein to
be or become untrue in any material respect at the Closing Date including
without limitation amending FSI's or Sub's charter documents and By-laws, except
as otherwise provided hereby.
(d) Except as contemplated by Article I, neither FSI nor Sub will (i)
incur any indebtedness for borrowed money; (ii) assume, guarantee, endorse, or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other individual, firm or corporation; or
(iii) make any loans, advances or capital contributions to or investments in,
any other individual, firm or corporation.
(e) Neither FSI nor Sub will not make, alter or change any employment
or other contract with any of its management personnel or make, adopt, alter,
revise, or amend any pension, bonus, profit-sharing or other employee benefit
plan, or grant any salary increase or bonus to any person without the prior
written consent of PTM, except for normal year end or anniversary salary
adjustments for employees, excluding officers.
ARTICLE IV
CERTAIN COVENANTS
-----------------
4.1 Shareholders' Meeting. PTM will take all actions necessary in
---------------------
accordance with applicable law and its Certificate of Incorporation and By-laws
to convene a meeting or obtain the written consent of its stockholders as
promptly as practicable to consider and vote upon the approval of the Merger.
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4.2 Conduct of Business Pending the Merger. Prior to the effective date
--------------------------------------
of the Merger, unless FSI, Sub and PTM shall otherwise agree in writing, each
company shall not (i) operate its business otherwise than in the ordinary
course, or (ii) authorize, recommend or propose any merger, consolidation,
acquisition of assets, disposition of assets, material change in its
capitalization or any comparable event, not in the ordinary course of business
(in each case, other than the transactions contemplated hereby or in the PPM and
transactions as to which written notice has been given to the other company
prior to the date hereof).
4.3 Information Provided by FSI and Sub. The information to be provided
-----------------------------------
by FSI and Sub for use in the Information Statement to be used in connection
with the Merger, shall, at the time such information is provided and at the
Effective Time, be true and correct in all material respects and shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein to make the statements made, in the light of the
circumstances under which they were made, not misleading.
4.4 Information Provided by PTM. The information to be provided by PTM
---------------------------
for use in the Information Statement to be used in connection with the Merger,
shall, at the time such information is provided to FSI and at the Effective
Time, be true and correct in all material respects and shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein to make the statements made, in the light of the circumstances
under which they were made, not misleading.
4.5 Information Statement. In connection with the preparation of the
---------------------
Information Statement and/or any other filings, PTM, FSI and Sub will cooperate
with each other and will furnish the information relating to PTM, FSI and Sub,
as the case may be, required by the Securities Act and/or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to be set forth in such
Information Statement and/or any other filings.
4.6 Disclosure. Each party acknowledges that it has, and will have,
----------
possession of important confidential information ("Confidential Information")
regarding the other parties. Each party hereto agrees that it shall not use any
confidential information except in furtherance of the transactions contemplated
hereby and shall not divulge, communicate, furnish or make accessible any
Confidential Information to any person, firm, partnership, corporation or other
entity. No party hereto shall make any public statement from the date of this
Agreement forward, including without limitation any press release, with respect
to this Agreement and the transactions contemplated hereby, without the prior
written consent of the other parties (which consent may not be unreasonably
withheld), except as may be required by law, in which case the parties shall
consult with each other as to the nature and scope of the required disclosure
and any protective measures which should be taken to preserve the
confidentiality of the disclosed information. If any party becomes legally
compelled to disclose information relating to this Agreement, such party shall
provide the other parties with notice of such requirement to allow such party to
seek a protective order or other remedy. If such protective order or other
remedy is not obtained, or if compliance hereof is waived, each party agrees to
disclose only that portion of information which is legally required to be
disclosed and to permit the other parties at their expense to take all
reasonable steps to preserve the confidentiality of the transactions hereunder.
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4.7 Recommendation of Approval. The Board of Directors of FSI, Sub and
--------------------------
PTM shall continue to recommend to their respective shareholders approval of
this Agreement and the Merger except as the fiduciary obligations and other
duties of each such Board of Directors may otherwise require.
4.8 Access. Prior to the closing, PTM shall afford to the officers,
------
attorneys, accountants, and other authorized representatives of FSI and Sub free
and full access to the premises, books and records of PTM in order that FSI and
Sub may make such investigation as it may desire of the affairs of PTM, provided
such access is not unreasonably disruptive to PTM's business or the sale of its
two divisions. Prior to the closing, FSI and Sub shall afford to the officers,
attorneys, accountants, and other authorized representatives of PTM free and
full access to the premises, books and records of FSI and Sub so that either of
them may make such investigations as it may desire of the affairs of FSI and
Sub, provided such access is not unreasonably disruptive to FSI and Sub.
4.9 No Solicitation. None of PTM, FSI and Sub will (nor will any of them
---------------
permit any agent or affiliate to) solicit, initiate or encourage any Acquisition
Proposal (as hereinafter defined) or furnish any information to, or cooperate
with, any person, corporation, firm or other entity with respect to an
Acquisition Proposal. As used herein "Acquisition Proposal" means a proposal for
a merger or other business combination involving such entity or for the
acquisition of a substantial equity interest in, or a substantial portion of the
assets of such entity other than the Merger, the spin off of PTM's assets
relating to PTM's optical and scanning and records divisions as contemplated by
Article I hereof and any disposition of the residual assets and liabilities of
PTM's now-defunct digital division.
ARTICLE V
CONDITIONS
----------
5.1 Conditions to the Obligations of FSI and Sub. The obligations of FSI
--------------------------------------------
and Sub to consummate the Merger contemplated by this Agreement are subject to
the satisfaction, at or before the consummation of the Merger, of each of the
following conditions:
(a) No action shall have been taken, and no statute, rule, regulation
or order shall have been promulgated, enacted, entered, enforced or deemed
applicable to the Merger by any Federal, state or foreign government or
governmental authority or by any court, domestic or foreign, including entry of
a preliminary or permanent injunction, which would (i) make the Merger illegal,
(ii) require the divestiture by FSI or Sub or any other subsidiary of FSI or Sub
of the shares of any company or of a material portion of the business of FSI or
Sub and their respective subsidiaries taken as a whole, (iii) impose material
limits on the ability of FSI or Sub to effectively control the business of FSI
or Sub and their respective subsidiaries, (iv) otherwise materially adversely
affect FSI or Sub and their respective subsidiaries taken as a whole, or (v) if
the Merger is consummated, subject any officer, director, or employee of FSI or
Sub to criminal penalties or to civil liabilities not adequately covered by
insurance or enforceable indemnification maintained by FSI or Sub;
(b) No action or proceeding before any court or governmental
authority, domestic or foreign, by any government or governmental authority or
by any other person,
15
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domestic or foreign, shall be threatened, instituted or pending which would
reasonably be expected to result in any way of the consequences referred to
in clauses (i) through (v) of paragraph (a) above;
(c) PTM shall have complied in all material respects with its
agreements and covenants herein, and all representations and warranties of PTM
herein shall be true and correct in all material respects at the time of
consummation of the Merger as if made at that time, except to the extent they
expressly relate to an earlier date, and FSI and Sub shall each have received a
certificate to that effect to the best of the knowledge of PTM, signed by the
Chief Executive Officer of PTM;
(d) The holders of no more than ten percent (10%) of the issued and
outstanding PTM capital stock with respect to which the Merger is proposed shall
have exercised their right to dissent as dissenting stockholders.
5.2 Conditions to the Obligations of PTM. The obligations of PTM to
------------------------------------
consummate the Merger are subject to the satisfaction, at or before the
consummation of the Merger, of each of the following conditions:
(a) The stockholders of PTM shall have duly approved the Merger in
accordance with applicable law;
(b) No action shall have been taken, and no statute, rule, regulation
or order shall have been promulgated, enacted, entered, enforced or deemed
applicable to the Merger by any Federal, state or foreign government or
governmental authority or by any court, domestic or foreign, including the
entry of a preliminary or permanent injunction, which would (i) make the
Merger illegal, (ii) require the divestiture by PTM or any other subsidiary
of PTM of the shares of any company or of a material portion of the
business of PTM and its subsidiaries taken as a whole, (iii) impose
material limits on the ability of PTM to effectively control the business
of PTM and its subsidiaries, (iv) otherwise materially adversely affect PTM
and its subsidiaries taken as a whole or (v) if the Merger is consummated,
subject any officer, director or employee of PTM to criminal penalties or
to civil liabilities not adequately covered by insurance or enforceable
indemnification maintained by PTM;
(c) No action or proceeding before any court or governmental
authority, domestic or foreign, by any government or governmental authority or
by any other person, domestic or foreign, shall be threatened, instituted or
pending which would reasonably be expected to result in any of the consequences
referred to in clauses (i) through (v) of paragraph (b) above;
(d) FSI and Sub shall each have complied in all material respects
with their respective agreements and covenants herein, and all representations
and warranties of FSI and Sub herein shall be true and correct in all material
respects at the time of consummation of the Merger as if made at that time,
except to the extent they expressly relate to an earlier date, and PTM shall
have received a certificate to that effect to the best of the knowledge of each
of FSI and Sub, signed by the Presidents of each of FSI and Sub;
16
<PAGE>
(e) All necessary third party and governmental consents and approvals
required for the Merger shall have been obtained; and
(f) FSI shall have changed its name to Lifef/x, Inc., shall have
caused the number of its outstanding FSI Shares to be increased from 1,083,324
shares to 1,666,666 shares through a forward stock split and shall have caused
the number of its authorized shares to be increased from 50,000,000 shares to
100,000,000 shares.
5.3 Conditions to Each Party's Obligations. The obligation of each party
--------------------------------------
to consummate the Merger contemplated by this Agreement is subject to the
satisfaction, at or before the consummation of the Merger, of each of the
following conditions:
(a) The Information Statement shall be filed under the Exchange Act
and shall not be subject to a stop order or any threatened stop order;
(b) FSI shall have received subscriptions for financing in form and
substance satisfactory to FSI and PTM.
ARTICLE VI
INDEMNIFICATION
---------------
6.1 By FSI and Sub. FSI and Sub, jointly and severally, hereby agree, to
--------------
indemnify and hold PTM, its officers, directors, employees and agents and each
person, if any, who controls PTM within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act harmless from and against the
following:
(a) Any and all liabilities, losses, claims, costs, expenses, damages
and judgments (including, without limitation, any legal or other expenses
incurred in connection with investigating or defending any matter, including any
action, that could give rise to such liabilities, losses, claims, costs,
expenses, damages and judgments) (collectively, the "Losses") resulting from any
breach of any representation or warranty, or non-performance of any covenant or
agreement on the part of FSI or Sub contained in this Agreement or in any
statement or certificate furnished or to be furnished by FSI or Sub pursuant
hereto or in connection with the transactions contemplated hereby; and
(b) Any and all Losses they suffer resulting from any untrue
statement or alleged untrue statement of a material fact concerning FSI or Sub
contained in the Information Statement and the PPM or resulting from any
omission or alleged omission to state therein a material fact concerning FSI or
Sub required to be stated therein or necessary to make the statements therein
concerning FSI or Sub not misleading.
6.2 By PTM. PTM, hereby agrees to indemnify and hold FSI and Sub, their
------
respective officers, directors, employees and agents and each person, if any,
who controls FSI or Sub within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act harmless from and against the following:
(a) Any and all Losses resulting from any breach of any
representation or warranty, or non-performance of any covenant or agreement on
the part of PTM contained in this
17
<PAGE>
Agreement or in any statement or certificate furnished or to be furnished by PTM
pursuant hereto or in connection with the transactions contemplated hereby; and
(b) Any and all Losses they suffer resulting from any untrue
statement or alleged untrue statement of a material fact concerning PTM
furnished in writing to FSI or Sub by PTM expressly for use in the Information
Statement and the PPM or resulting from any omission or alleged omission to
state in any such writing a material fact concerning PTM required to be stated
therein or necessary to make the statements therein concerning PTM not
misleading.
6.3 Defense. In case any action shall be commenced involving any person
-------
in respect of which indemnity may be sought pursuant to Section 6.1 or 6.2 (the
"Indemnified Party"), the Indemnified Party shall promptly notify the person
against whom such indemnity may be sought (the "Indemnifying Party") in writing
and the Indemnifying Party shall assume the defense of such action. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Indemnifying Party or (ii) the Indemnifying Party shall have failed to
timely assume the defense of such action. No Indemnified Party shall, without
the prior written consent of the Indemnifying Party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action.
6.4 Exclusive Remedy. The remedies provided for in this Section 6 are the
----------------
exclusive remedies of the parties with respect to the breach of any
representation, warranty, covenant or agreement set forth herein.
ARTICLE VII
CLOSING DATE
------------
7.1 The closing for the consummation of the Merger contemplated by this
Agreement shall unless another date or place is agreed to in writing by the
parties hereto, take place at the offices of Robson Ferber Frost Chan & Essner,
LLP, on the date which is no later than the fifth business day after the last to
occur of the following dates:
(a) The date the stockholders of PTM shall have given the approval
referred to in, Section 4.1, hereof; or
(b) The date on which all the other conditions set forth in Article V
hereof shall have been satisfied, except to the extent any such conditions shall
have been waived by FSI, Sub or PTM; or
(c) The Termination Date pursuant to the PPM unless the Termination
Date is extended; or
(d) February 28, 2000.
18
<PAGE>
ARTICLE VIII
POST CLOSING MATTERS
--------------------
8.1 Directors and Officers. At the closing, FSI will cause all of its
----------------------
officers and directors to resign from office and to cause to be elected to the
Board of Directors of FSI and the Surviving Corporation those persons designated
by PTM, to wit:
FSI directors: Michael Rosenblatt, Richard Guttendorf, Lucille Salhany, Ian
Hunter and Robert Verratti;
Surviving Corporation directors: Michael Rosenblatt, Richard Guttendorf and
Lucille Salhany.
8.2 Registration Statement. FSI shall file a registration statement as
----------------------
soon as practicable after the Closing but in no event later than 150 days after
the date hereof to ensure that the FSI Shares issued hereunder to the holders
thereof (the "Holders"), are registered for resale under the Securities Act.
FSI shall, until such time as such FSI Shares may be sold under Rule 144
under the Act without volume limitation:
(a) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for the Requisite
Period as defined in the registration rights agreements to be executed by FSI in
connection with the financing described in Section 1.5.
(b) execute such further documents and instruments and take such
further actions as may be necessary, proper or advisable in order to facilitate
the public offering of such FSI Shares under the aforesaid registration
statement.
FSI shall pay the expenses for the registration statement(s) filed pursuant
to this Section 8.2, except for underwriting discounts and commissions, which
shall be borne by the Holders.
8.3 Downstream of Offering Proceeds. Within one business day following
-------------------------------
the closing of the financing described in Section 1.5, FSI shall contribute to
PTM the proceeds of such financing, less any deductions for transaction fees,
including, without limitation, legal fees.
8.4 SHI Warrant. If and to the extent Savage Holdings, Inc. ("SHI")
-----------
exercises its warrant granted by PTM, at an exercise price of $500,000, FSI
shall issue to SHI 166,667 Units in full satisfaction of PTM's obligations
thereunder.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Termination. With respect to each company, this Agreement may be
-----------
terminated and the Merger may be abandoned (i) by the mutual consent of FSI and
PTM at any time; (ii) by either PTM or FSI if the Merger has not been
consummated prior to February 28, 2000. In the
19
<PAGE>
event of such termination and abandonment, none of FSI, Sub nor PTM (or any of
their directors or officers) shall have any liability or further obligation to
any other party to this Agreement, except that nothing herein will relieve any
party from liability for any willful breach of this Agreement.
9.2 Expenses. Whether or not the Merger is consummated, all out-of-pocket
--------
costs and expenses incurred in connection with the Merger and this Agreement
will be paid by the party incurring such expenses, except that PTM shall bear
all auditing costs relating to the books and records of PTM, all legal costs and
fees for preparing registration statements to be filed with the Federal and/or
state securities agencies, proxy statements, proxy solicitation costs, proxy
mailing costs, due diligence fees and costs, costs and fees of any registration
statements and legal fees and costs in preparation of merger and related
documents (including legal fees and costs to Robson, Ferber, Frost, Chan &
Essner as counsel to PTM's consultants, not to exceed $35,000).
9.3 Brokers. No broker or finder is entitled to any brokerage or finder's
-------
fee or other commission or fee from any company or based upon arrangements made
by or on behalf of any company with respect to the transactions contemplated by
this Agreement, except as disclosed on Schedule 9.3 annexed hereto.
9.4 Arbitration. Any controversy arising out of, connected to, or
-----------
relating to any transactions herein contemplated, or this Agreement, or the
breach thereof, including, but not limited to any claims of violations of
Federal and/or state securities laws, banking statues, consumer protection
statutes, Federal and/or state anti-racketeering (e.g. RICO) claims as well as
any common law claims and any state law claims of fraud, negligence, negligent
misrepresentations, and/or conversion and any disputes as to the arbitrability
of any such claim shall be settled by arbitration in Los Angeles County, State
of California; and in accordance with the commercial rules of the American
Arbitration Association. Any judgment on the arbitrator's award may be entered
in any court having jurisdiction thereof. In the event of such a dispute, FSI
and Sub, on the one hand, and PTM, on the other hand, shall each select an
arbitrator, both of whom shall select a third arbitrator which shall constitute
the three person arbitration board. The decision of a majority of the board of
arbitrators, who shall render their decision within thirty (30) days of
appointment of the final arbitrator, shall be binding upon the parties.
9.5 Other Actions. Each of the parties hereto agrees to execute and
-------------
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
9.6 Entire Agreement; Waiver and Amendment. This Agreement, the exhibits
--------------------------------------
and schedules hereto and the PPM contain the entire agreement by and among FSI,
Sub and PTM with respect to the Merger and the other transactions contemplated
hereby. Any and all prior discussions, negotiations, commitments and
understandings relating to the subject matter of this Agreement are superseded
by this Agreement. This Agreement may not be modified, amended or terminated
except by a written agreement specifically referring to this Agreement signed by
all of the parties hereto. No waiver of any breach or default hereunder shall be
considered valid unless in writing signed by the party giving such waiver, and
no such waiver shall be deemed a waiver of any subsequent breach or default of
the same or similar nature.
20
<PAGE>
9.7 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware without regard to its
principles of conflicts of laws.
9.8 Descriptive Headings. The descriptive headings are for convenience of
--------------------
referenced only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.9 Notices. All notes or other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if delivered personally or
sent by registered or certified mail postage prepaid, addressed as follows:
If to FSI or Sub, to: Fin Sports U.S.A., Inc.
5525 South 900 East, Suite 110
Salt Lake City, UT 84117
with a copy to:
Leonard W. Burningham, Esq.
Hermes Building, Suite 205
455 East Fifth South
Salt Lake City, UT 84111-3323
If to PTM, to: Pacific Title/Mirage, Inc.
1149 North Gower Street
Hollywood CA 90038
with a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017-2475
Attn: Michele E. Beuerlein, Esq.
and in all cases with a copy to:
Robson Ferber Frost Chan & Essner, LLP
530 Fifth Avenue
New York, New York 10036
Attn: David I. Ferber, Esq.
9.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one agreement.
21
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
FIN SPORTS U.S.A., INC.
By: /s/ Wayne Bassham
-----------------------------------------
Wayne Bassham , President
---------------------
PTM ACQUISITION CORP.
By: /s/ Wayne Bassham
-----------------------------------------
Wayne Bassham , President
---------------------
PACIFIC TITLE/MIRAGE, INC.
By: /s/ Richard Guttendorf
-----------------------------------------
Richard Guttendorf, CEO
[AGREEMENT AND PLAN OF MERGER]
22
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EXHIBITS AND SCHEDULES OMITTED
<PAGE>
[LETTERHEAD OF MANTYLA MCREYNOLDS]
EXHIBIT 16.1
December 7, 1999
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have been advised by FIN SPORTS U.S.A., Inc. ("Company") that upon a merger
between Pacific Title/Mirage, Inc., a Delaware Corporation, and/or PTM
Acquisition Corp., a Delaware Corporation, and a wholly-owned subsidiary of the
Company, that our appointment as principal auditors for such entity (ies) will
be terminated. During the term of our appointment as principal auditors, there
were no disagreements between the Company, whether resolved or not resolved, on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. We have been principal auditors for
FIN SPORTS U.S.A, Inc. for the years ended December 31, 1997 and 1998 and under
the dates of January 29, 1999 and September 9, 1998, we reported on the
financial statements of the Company.
Very truly yours,
/s/ Mantyla Mcreynolds
MANTYLA MCREYNOLDS
